5) Strengthen our Environmental, Social and Governance
(“ESG”) efforts. By their very nature, banks have
traditionally been strong in the governance component
of ESG. If the past two years have taught us anything,
however, it has taught us that we all have work to do on
the Environment and Social components of ESG. While
we do not have all the answers, our shareholders and
associates can rest assured that we will work hard to do
our part to bring about positive social and environmental
change for our Company and the communities we serve.
As we look ahead, we will execute on our 2022 Inclusion
& Diversity Commitments around such topics as supplier
diversity, talent attraction and retention, workplace
inclusivity, education, and more. In addition, we have
entered into new external partnerships with universities,
suppliers and non-profits to increase our investments in
minority-owned businesses and to recruit and develop
associates who will bring more diverse perspectives to
our business challenges.
6) Build on and improve our digital strategy. Moving ahead,
we need to adapt and utilize technology to become
more efficient, while also helping our clients adopt digital
technologies and banking services. During the last quarter
of 2021, we created a new position within our Information
Technology team to lead the organization in developing and
executing a digital strategy, which will improve customer
satisfaction and associate productivity.
7) Plan for the future work environment. We learned a lot
the past two years about the advantages and challenges of
a flexible work environment. As a result of those learnings,
we are committed to a work environment that supports
work from the office, work from home and a hybrid work
environment. Providing a flexible work environment has
improved associate recruiting and retention and has
enhanced work/life balance for our associates.
IN CONCLUSION
It was once said to me, “what got you here, won’t get you there.” My response to that was, “while that may be true, you better
not forget what got you here, or you may get somewhere you don’t want to be.” More than ever, there is constant change
going on everywhere we look. You can be confident, though, that we are dedicated to adapting to this change and innovating
with the times, but we will never forget what got us here. Through it all, our vision will remain the same:
To be the most financially sound and trusted institution where people love to work,
clients love to do business, and with whom community organizations love to partner.
We pledge to you that we will always do our best to provide you a solid return on your investment as a shareholder, while we
make you proud of the work we do in our communities. Thank you for being a part of the Republic family.
2021 LETTER TO SHAREHOLDERS
DEAR FELLOW SHAREHOLDERS,
Here we are once again at the conclusion of another year. And like 2020 before it,
2021 represented a year in which the world continued to navigate challenges not seen
in multiple generations. We all hoped that the world would return to some sense of
normalcy when we began the widespread distribution of the COVID vaccines during
early 2021. Unfortunately, that did not happen, and we now realize we may never
return to the ‘old normal,’ and will ideally move into a better ‘new normal.’ People and
businesses around the world continue to deal with supply-chain shortages. In addition,
businesses continue to deal with the Great Resignation, an unprecedented reduction
in the American workforce that has caused staffing challenges for every industry in
the United States. And if those challenges were not enough for everyone, with each
passing month of 2021, inflation grew, reaching levels not seen since the early 1980s.
Steve Trager
Executive Chair – Republic Bancorp, Inc.
Despite these many challenges, we continued to Thrive Together at Republic(1) and have much to celebrate for 2021. We
completed another successful year financially as we continued to support our communities, our clients, and our associates, and
added to our Executive Leadership team. In addition, our stock price increased 41% from December 31, 2020 to December
31, 2021. While we have always been a company that focuses on the long-term value of our stock and not the week-to-week
fluctuations that might occur in the market, it is certainly rewarding to see our hard work and successes pay off with such a
strong return to our shareholders over the course of the past year.
The following expands upon some of our more notable accomplishments
in 2021 and gives a glimpse at the future of our Company.
All the Best,
FINANCIAL PERFORMANCE
Executive Chair – Republic Bancorp, Inc.
Footnotes:
1. As used in this letter, the terms
“Republic,” the “Company,” “we,”
“our,” and “us” refer to Republic
Inc., and, where the
Bancorp,
context
Republic
requires,
Bancorp, Inc. and its subsidiaries.
The term the “Republic Bank” or
the “Bank” refers to the Company’s
subsidiary bank: Republic Bank &
Trust Company.
2. NON-GAAP RECONCILIATION
(dollars in thousands, except per share data)
Net income:
Net income - GAAP
Less: one time and operating benefits attributed to sold branches
Adjusted net income - Non-GAAP
Diluted earnings per share of Class A Common Stock ("Diluted EPS"):
Diluted EPS of Class A Common Stock - GAAP
Less: one time and operating benefits attributed to sold branches
Adjusted Diluted EPS - Non-GAAP
Return on average assets ("ROA"):
ROA - GAAP
Less: one time and operating benefits attributed to sold branches
Adjusted ROA - Non-GAAP
Return on average equity ("ROE"):
ROE - GAAP
Less: one time and operating benefits attributed to sold branches
Adjusted ROE - Non-GAAP
Years Ended Dec. 31,
2019
2020
2021
$
$
$
$
91,699
10,385
81,314
4.39
0.50
3.89
1.64
%
0.15
1.49
%
12.49
%
1.26
11.23
%
$
$
$
$
83,246
—
83,246
3.99
—
3.99
$
$
$
$
86,789
—
86,789
4.24
—
4.24
1.38
%
—
1.38
%
10.37
%
—
10.37
%
1.38
%
—
1.38
%
10.27
%
—
10.27
%
002CSNB973
• As previously mentioned, we had another solid year of shareholder returns, increasing our net income in 2021 by 4% over
2020. In addition to the strong net income performance, our Diluted Earnings per Class A Common Stock increased by 6%
over 2020.
TOTAL COMPANY – ADJUSTED NET INCOME* ($)
TOTAL COMPANY – ADJUSTED DILUTED EPS* ($)
$88.0
$87.0
$86.0
$85.0
$84.0
$83.0
$82.0
S
N
O
I
L
L
I
M
$81.0
$80.0
$79.0
$78.0
$86.8
4%
$83.2
$81.3
2%
$4.24
6%
$3.99
$3.89
3%
$4.30
$4.20
$4.10
$4.00
$3.90
$3.80
$3.70
2019
2020
2021
*Adjusted Net Income is a non-GAAP measure - see Footnote 2
2019
2020
2021
*Adjusted Net Income is a non-GAAP measure - see Footnote 2
• Our Core Bank finished 2021 with pristine credit quality
metrics that place us among the very best banks in the country.
Included among these favorable metrics were delinquent
loans to total loans of 0.17% as of December 31, 2021 and net
charge-offs to average loans of 0.01% for the year.
• Our Warehouse Lending segment, which we started from
the ground-up in 2011, generated record earnings during
2021, contributing $16.4 million of net income to the
Company’s overall bottom line.
• Our Mortgage Banking segment produced the second-
best year of Mortgage Banking revenue in our Company’s
history, second only to the unprecedented year of 2020.
• With a renewed focus on efficiency and expense
management, we were able to reduce our noninterest
expense by 2% from 2020.
• With
the unprecedented deposit growth that we
experienced over the past two years, we continued to
position our balance sheet for the looming rising rate
environment brought about by higher inflation. As part of
this positioning, we paid off our $40 million variable-rate
trust-preferred debt during the second half of the year,
while still ending 2021 with $757 million of cash on our
balance sheet.
• Further demonstrating our on-going confidence in the
future of our stock, we expanded our stock buyback
program significantly during 2021, repurchasing over
979,000 of our outstanding Class A Common shares at
an average price of $48.52 per share.
OUR ASSOCIATES AND OUR COMMUNITIES
• We once again provided solid support for our clients
and communities by originating $210 million of COVID
relief loans in early 2021, on top of the $528 million we
originated during 2020. We could not be prouder of the
way we stepped up for our clients, helping them obtain
these much-needed loans to combat the pain caused by
the pandemic.
• We have a mantra at Republic, “what we make in the
communities we serve, stays in the communities we serve.”
We are very proud to report that Republic Bank and the
Republic Bank Foundation, together, contributed over $2.1
million to various philanthropic organizations during 2021,
proving once again, that we live by our mantra.
• We continued to deepen our impact through Inclusion
& Diversity-focused efforts with our associates, in our
communities, and through our client relationships – from
dozens of significant educational/volunteer events across
S
N
O
I
L
L
I
B
$4.5
$4.0
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$-
CORE DEPOSIT BALANCES AND MIX ($)
$4.1
$3.9
$3.0
$0.7
$0.4
$0.3
TRANSACTIONAL DEPOSITS*
TIME AND BROKERED DEPOSITS
DEC. 31, 2019
DEC. 31, 2020
DEC. 31, 2021
*Transactional deposits exclude time and brokered deposits.
• We continued to take advantage of the market opportunities,
recording $17.5 million of Paycheck Protection Program
(“PPP”) fee income within our net interest income, on
top of the $8.6 million of similar PPP fees we recorded in
2020.
• While loan growth within our Traditional Bank was below
our high expectations for the first nine months of 2021,
we are excited about the way we ended the year and the
momentum it gives us as we enter 2022. Overall, non-
PPP loan growth at the Traditional Bank was $123 million
for 2021, with $96 million of that growth occurring in the
fourth quarter. This solid growth momentum during the
fourth quarter gives us great optimism for the opportunities
that might lie ahead for us in 2022.
our markets, to our community Juneteenth celebration
at the Republic Bank Foundation YMCA in Louisville,
to various financial donations within our disadvantaged
communities, and more. We leveraged, and continue to
leverage, greater analytics capabilities to identify and
address internal demographic and cultural gaps. In addition,
we conducted quarterly
listening sessions between
executive management and our six Business Resources
Groups (“BRGs”) to surface and respond to needs, and we
introduced the MasterCard True Name debit card for our
non-binary and trans clients – the first community bank
in the country to do so, gaining us national exposure and
bringing in new business to the bank.
• In late 2020, we created a $3 million Community Loan
Fund to support small businesses and promote business
development and job creation in communities impacted
by inequity and inadequate access to capital. During
December 2021, we surpassed the $1 million mark in total
loans made to 26 borrowers. Each loan closed and funded
represents a WIN for the business and the community
where the business is located.
• Despite the various challenges and continued lockdowns
brought on by the pandemic, our associates remained
committed to generously giving their time to our
communities. As a company we logged over 5,500
community service hours during 2021.
• Two of our Board members, Ernest W. Marshall, Jr. and
George Nichols, III, were included in SAVOY magazine’s
2021 Most Influential Black Corporate Directors list.
Both Ernest and George bring a wealth of knowledge and
leadership to our Company, and we are certainly fortunate
to have them as a part of our team.
• For the 5th year in a row, Republic Bank was honored
to be listed on the Kentucky Chamber of Commerce’s
EXECUTIVE LEADERSHIP
“2021 Best Places to Work.” When everything is said and
done, culture remains the most important component to
the long-term success of any organization, and we remain
committed to a culture of caring at Republic.
• We continued to transition to a flexible work environment
during 2021, which has benefitted our associate recruiting
and retention efforts. Over the coming years, we plan
to continue to enhance our flexible work environment
to attract future associates, while providing efficiency
opportunities for the Company.
• We continued to promote technology and innovation
through the further expansion of our Interactive Teller
Machine (“ITM”) fleet. Not only do these ITMs increase
the hours we are able to serve our clients at our banking
centers, but the associates who support these clients also
have the flexibility to perform these duties while working
remotely.
We added to and solidified our executive leadership during 2021; building upon one of our Company’s strengths. Notable
changes to the team during 2021 were as follows:
• In July, after an extensive national search, we brought
aboard Jeff Starke, our new Chief Information Officer
(“CIO”). Jeff comes to Republic with a treasure trove of
knowledge and experience, managing many innovation
leading multiple system conversions for
teams and
numerous mergers and acquisitions over his 22-year
career.
• We elevated Logan Pichel to President & Chief Executive
Officer (“CEO”) of the Bank in October. While Logan
will take over the day-to-day responsibilities of leading the
Bank, I stepped into the role of Executive Chair for the
Bank and maintained the title of Executive Chair & CEO
of our holding company. I look forward to working closely
with Logan and the entire executive leadership team as we
execute our vision for the Bank.
THE FUTURE
While our past performance is important, perhaps more important is our future. As we look forward to 2022, we have already
begun to execute on our long-term plans for success. At a high level, our strategies for 2022 are quite simple. They include:
1) Increase Revenue Generating Opportunities. We must
continue to identify and build out new business lines, while
being opportunistic during marketplace disruption.
2) Seek operational efficiency. We did a solid job of controlling
our overhead expenses during 2021, as we successfully
reduced our full-time equivalent associate head count by
49 associates from December 31, 2020 to December 31,
2021. We must continue to get more efficient, however,
if we want to attain many of our long-term goals. Moving
ahead, we have a significant focus on automating manual
processes and increasing our speed of service.
3) Improve customer satisfaction. We continue to identify
areas to help clients thrive, such as implementing changes
that allow us to deliver commercial loans to our business
clients more quickly. In addition, we continue to build a
culture of customer service throughout the organization
by focusing associates on our Customer Service Pillars:
navigate the bank for our clients, help our clients build
connections, be accountable, and commit to same-day
resolution.
4) Enhance our
talent development and associate
satisfaction. We continue to survey our associates
annually to make sure we are offering an environment in
which we all can thrive together, while also ensuring that
we are meeting career development and work-life-balance
needs. In addition, we have expanded our leadership
training across the Company over the past year, including
those leaders at the senior-most levels.
• Our Core Bank finished 2021 with pristine credit quality
metrics that place us among the very best banks in the country.
Included among these favorable metrics were delinquent
loans to total loans of 0.17% as of December 31, 2021 and net
charge-offs to average loans of 0.01% for the year.
• Our Warehouse Lending segment, which we started from
the ground-up in 2011, generated record earnings during
2021, contributing $16.4 million of net income to the
Company’s overall bottom line.
• Our Mortgage Banking segment produced the second-
best year of Mortgage Banking revenue in our Company’s
history, second only to the unprecedented year of 2020.
• With a renewed focus on efficiency and expense
management, we were able to reduce our noninterest
expense by 2% from 2020.
• With
the unprecedented deposit growth that we
experienced over the past two years, we continued to
position our balance sheet for the looming rising rate
environment brought about by higher inflation. As part of
this positioning, we paid off our $40 million variable-rate
trust-preferred debt during the second half of the year,
while still ending 2021 with $757 million of cash on our
balance sheet.
• Further demonstrating our on-going confidence in the
future of our stock, we expanded our stock buyback
program significantly during 2021, repurchasing over
979,000 of our outstanding Class A Common shares at
an average price of $48.52 per share.
OUR ASSOCIATES AND OUR COMMUNITIES
• We once again provided solid support for our clients
and communities by originating $210 million of COVID
relief loans in early 2021, on top of the $528 million we
originated during 2020. We could not be prouder of the
way we stepped up for our clients, helping them obtain
these much-needed loans to combat the pain caused by
the pandemic.
• We have a mantra at Republic, “what we make in the
communities we serve, stays in the communities we serve.”
We are very proud to report that Republic Bank and the
Republic Bank Foundation, together, contributed over $2.1
million to various philanthropic organizations during 2021,
proving once again, that we live by our mantra.
• We continued to deepen our impact through Inclusion
& Diversity-focused efforts with our associates, in our
communities, and through our client relationships – from
dozens of significant educational/volunteer events across
S
N
O
I
L
L
I
B
$4.5
$4.0
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$-
CORE DEPOSIT BALANCES AND MIX ($)
$4.1
$3.9
$3.0
$0.7
$0.4
$0.3
TRANSACTIONAL DEPOSITS*
TIME AND BROKERED DEPOSITS
DEC. 31, 2019
DEC. 31, 2020
DEC. 31, 2021
*Transactional deposits exclude time and brokered deposits.
• We continued to take advantage of the market opportunities,
recording $17.5 million of Paycheck Protection Program
(“PPP”) fee income within our net interest income, on
top of the $8.6 million of similar PPP fees we recorded in
2020.
• While loan growth within our Traditional Bank was below
our high expectations for the first nine months of 2021,
we are excited about the way we ended the year and the
momentum it gives us as we enter 2022. Overall, non-
PPP loan growth at the Traditional Bank was $123 million
for 2021, with $96 million of that growth occurring in the
fourth quarter. This solid growth momentum during the
fourth quarter gives us great optimism for the opportunities
that might lie ahead for us in 2022.
our markets, to our community Juneteenth celebration
at the Republic Bank Foundation YMCA in Louisville,
to various financial donations within our disadvantaged
communities, and more. We leveraged, and continue to
leverage, greater analytics capabilities to identify and
address internal demographic and cultural gaps. In addition,
we conducted quarterly
listening sessions between
executive management and our six Business Resources
Groups (“BRGs”) to surface and respond to needs, and we
introduced the MasterCard True Name debit card for our
non-binary and trans clients – the first community bank
in the country to do so, gaining us national exposure and
bringing in new business to the bank.
• In late 2020, we created a $3 million Community Loan
Fund to support small businesses and promote business
development and job creation in communities impacted
by inequity and inadequate access to capital. During
December 2021, we surpassed the $1 million mark in total
loans made to 26 borrowers. Each loan closed and funded
represents a WIN for the business and the community
where the business is located.
• Despite the various challenges and continued lockdowns
brought on by the pandemic, our associates remained
committed to generously giving their time to our
communities. As a company we logged over 5,500
community service hours during 2021.
• Two of our Board members, Ernest W. Marshall, Jr. and
George Nichols, III, were included in SAVOY magazine’s
2021 Most Influential Black Corporate Directors list.
Both Ernest and George bring a wealth of knowledge and
leadership to our Company, and we are certainly fortunate
to have them as a part of our team.
• For the 5th year in a row, Republic Bank was honored
to be listed on the Kentucky Chamber of Commerce’s
EXECUTIVE LEADERSHIP
“2021 Best Places to Work.” When everything is said and
done, culture remains the most important component to
the long-term success of any organization, and we remain
committed to a culture of caring at Republic.
• We continued to transition to a flexible work environment
during 2021, which has benefitted our associate recruiting
and retention efforts. Over the coming years, we plan
to continue to enhance our flexible work environment
to attract future associates, while providing efficiency
opportunities for the Company.
• We continued to promote technology and innovation
through the further expansion of our Interactive Teller
Machine (“ITM”) fleet. Not only do these ITMs increase
the hours we are able to serve our clients at our banking
centers, but the associates who support these clients also
have the flexibility to perform these duties while working
remotely.
We added to and solidified our executive leadership during 2021; building upon one of our Company’s strengths. Notable
changes to the team during 2021 were as follows:
• In July, after an extensive national search, we brought
aboard Jeff Starke, our new Chief Information Officer
(“CIO”). Jeff comes to Republic with a treasure trove of
knowledge and experience, managing many innovation
leading multiple system conversions for
teams and
numerous mergers and acquisitions over his 22-year
career.
• We elevated Logan Pichel to President & Chief Executive
Officer (“CEO”) of the Bank in October. While Logan
will take over the day-to-day responsibilities of leading the
Bank, I stepped into the role of Executive Chair for the
Bank and maintained the title of Executive Chair & CEO
of our holding company. I look forward to working closely
with Logan and the entire executive leadership team as we
execute our vision for the Bank.
THE FUTURE
While our past performance is important, perhaps more important is our future. As we look forward to 2022, we have already
begun to execute on our long-term plans for success. At a high level, our strategies for 2022 are quite simple. They include:
1) Increase Revenue Generating Opportunities. We must
continue to identify and build out new business lines, while
being opportunistic during marketplace disruption.
2) Seek operational efficiency. We did a solid job of controlling
our overhead expenses during 2021, as we successfully
reduced our full-time equivalent associate head count by
49 associates from December 31, 2020 to December 31,
2021. We must continue to get more efficient, however,
if we want to attain many of our long-term goals. Moving
ahead, we have a significant focus on automating manual
processes and increasing our speed of service.
3) Improve customer satisfaction. We continue to identify
areas to help clients thrive, such as implementing changes
that allow us to deliver commercial loans to our business
clients more quickly. In addition, we continue to build a
culture of customer service throughout the organization
by focusing associates on our Customer Service Pillars:
navigate the bank for our clients, help our clients build
connections, be accountable, and commit to same-day
resolution.
4) Enhance our
talent development and associate
satisfaction. We continue to survey our associates
annually to make sure we are offering an environment in
which we all can thrive together, while also ensuring that
we are meeting career development and work-life-balance
needs. In addition, we have expanded our leadership
training across the Company over the past year, including
those leaders at the senior-most levels.
5) Strengthen our Environmental, Social and Governance
(“ESG”) efforts. By their very nature, banks have
traditionally been strong in the governance component
of ESG. If the past two years have taught us anything,
however, it has taught us that we all have work to do on
the Environment and Social components of ESG. While
we do not have all the answers, our shareholders and
associates can rest assured that we will work hard to do
our part to bring about positive social and environmental
change for our Company and the communities we serve.
As we look ahead, we will execute on our 2022 Inclusion
& Diversity Commitments around such topics as supplier
diversity, talent attraction and retention, workplace
inclusivity, education, and more. In addition, we have
entered into new external partnerships with universities,
suppliers and non-profits to increase our investments in
minority-owned businesses and to recruit and develop
associates who will bring more diverse perspectives to
our business challenges.
6) Build on and improve our digital strategy. Moving ahead,
we need to adapt and utilize technology to become
more efficient, while also helping our clients adopt digital
technologies and banking services. During the last quarter
of 2021, we created a new position within our Information
Technology team to lead the organization in developing and
executing a digital strategy, which will improve customer
satisfaction and associate productivity.
7) Plan for the future work environment. We learned a lot
the past two years about the advantages and challenges of
a flexible work environment. As a result of those learnings,
we are committed to a work environment that supports
work from the office, work from home and a hybrid work
environment. Providing a flexible work environment has
improved associate recruiting and retention and has
enhanced work/life balance for our associates.
IN CONCLUSION
It was once said to me, “what got you here, won’t get you there.” My response to that was, “while that may be true, you better
not forget what got you here, or you may get somewhere you don’t want to be.” More than ever, there is constant change
going on everywhere we look. You can be confident, though, that we are dedicated to adapting to this change and innovating
with the times, but we will never forget what got us here. Through it all, our vision will remain the same:
To be the most financially sound and trusted institution where people love to work,
clients love to do business, and with whom community organizations love to partner.
We pledge to you that we will always do our best to provide you a solid return on your investment as a shareholder, while we
make you proud of the work we do in our communities. Thank you for being a part of the Republic family.
2021 LETTER TO SHAREHOLDERS
DEAR FELLOW SHAREHOLDERS,
Here we are once again at the conclusion of another year. And like 2020 before it,
2021 represented a year in which the world continued to navigate challenges not seen
in multiple generations. We all hoped that the world would return to some sense of
normalcy when we began the widespread distribution of the COVID vaccines during
early 2021. Unfortunately, that did not happen, and we now realize we may never
return to the ‘old normal,’ and will ideally move into a better ‘new normal.’ People and
businesses around the world continue to deal with supply-chain shortages. In addition,
businesses continue to deal with the Great Resignation, an unprecedented reduction
in the American workforce that has caused staffing challenges for every industry in
the United States. And if those challenges were not enough for everyone, with each
passing month of 2021, inflation grew, reaching levels not seen since the early 1980s.
Steve Trager
Executive Chair – Republic Bancorp, Inc.
Despite these many challenges, we continued to Thrive Together at Republic(1) and have much to celebrate for 2021. We
completed another successful year financially as we continued to support our communities, our clients, and our associates, and
added to our Executive Leadership team. In addition, our stock price increased 41% from December 31, 2020 to December
31, 2021. While we have always been a company that focuses on the long-term value of our stock and not the week-to-week
fluctuations that might occur in the market, it is certainly rewarding to see our hard work and successes pay off with such a
strong return to our shareholders over the course of the past year.
The following expands upon some of our more notable accomplishments
in 2021 and gives a glimpse at the future of our Company.
All the Best,
FINANCIAL PERFORMANCE
Executive Chair – Republic Bancorp, Inc.
Footnotes:
1. As used in this letter, the terms
“Republic,” the “Company,” “we,”
“our,” and “us” refer to Republic
Inc., and, where the
Bancorp,
context
Republic
requires,
Bancorp, Inc. and its subsidiaries.
The term the “Republic Bank” or
the “Bank” refers to the Company’s
subsidiary bank: Republic Bank &
Trust Company.
2. NON-GAAP RECONCILIATION
(dollars in thousands, except per share data)
Net income:
Net income - GAAP
Less: one time and operating benefits attributed to sold branches
Adjusted net income - Non-GAAP
Diluted earnings per share of Class A Common Stock ("Diluted EPS"):
Diluted EPS of Class A Common Stock - GAAP
Less: one time and operating benefits attributed to sold branches
Adjusted Diluted EPS - Non-GAAP
Return on average assets ("ROA"):
ROA - GAAP
Less: one time and operating benefits attributed to sold branches
Adjusted ROA - Non-GAAP
Return on average equity ("ROE"):
ROE - GAAP
Less: one time and operating benefits attributed to sold branches
Adjusted ROE - Non-GAAP
Years Ended Dec. 31,
2019
2020
2021
$
$
$
$
91,699
10,385
81,314
4.39
0.50
3.89
1.64
%
0.15
1.49
%
12.49
%
1.26
11.23
%
$
$
$
$
83,246
—
83,246
3.99
—
3.99
$
$
$
$
86,789
—
86,789
4.24
—
4.24
1.38
%
—
1.38
%
10.37
%
—
10.37
%
1.38
%
—
1.38
%
10.27
%
—
10.27
%
002CSNB973
• As previously mentioned, we had another solid year of shareholder returns, increasing our net income in 2021 by 4% over
2020. In addition to the strong net income performance, our Diluted Earnings per Class A Common Stock increased by 6%
over 2020.
TOTAL COMPANY – ADJUSTED NET INCOME* ($)
TOTAL COMPANY – ADJUSTED DILUTED EPS* ($)
$88.0
$87.0
$86.0
$85.0
$84.0
$83.0
$82.0
S
N
O
I
L
L
I
M
$81.0
$80.0
$79.0
$78.0
$86.8
4%
$83.2
$81.3
2%
$4.24
6%
$3.99
$3.89
3%
$4.30
$4.20
$4.10
$4.00
$3.90
$3.80
$3.70
2019
2020
2021
*Adjusted Net Income is a non-GAAP measure - see Footnote 2
2019
2020
2021
*Adjusted Net Income is a non-GAAP measure - see Footnote 2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
Commission File Number: 0-24649
REPUBLIC BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky
(State or other jurisdiction of
incorporation or organization)
61-0862051
(I.R.S. Employer Identification No.)
601 West Market Street, Louisville, Kentucky
(Address of principal executive offices)
40202
(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
Class A Common
Trading Symbol
RBCAA
Name of each exchange on which registered
The Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. ☐ Yes No
Indicate by check mark whether the registrant (1) has filedg 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
g
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 ☐
Emerging growth company ☐
Accelerated filer
Non-accelerated filer ☐
Smaller reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes No
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last
sold as of June 30, 2021 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $437,098,629 (for purposes of this
calculation, the market value of the Class B Common Stock was based on the market value of the Class A Common Stock into which it is convertible).
The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of January 31, 2022 was 17,824,472 and 2,164,903.
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held April 21, 2022 are incorporated by reference into Part III of this
Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
5
24
36
37
39
39
40
42
42
88
88
178
178
178
178
179
180
181
181
181
182
182
183
190
TABLE OF CONTENTS
Business.
PART I
Item 1.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2.
Item 3.
Item 4.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8.
Item 9.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Financial Statements and Supplementary Data.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accounting Fees and Services.
PART IV
Item 15.
Item 16. Form 10-K Summary.
Exhibits, Financial Statement Schedules.
Index to Exhibits
Signatures
2
GLOSSARY OF TERMS
The terms identified in alphabetical order below are used throughout this Form 10-K. You may find it helpful to refer to this page as
you read this report.
Term
Definition
Term
Definition
Term
Definition
ACH
Automated Clearing House
Economic Aid Act Economic Aid to Hard-Hit Small Businesses,
NM
Not Meaningful
ACL
ACLC
ACLL
ACLS
Allowance for Credit Losses
Allowance for Credit Losses on Off-
Balance Sheet Credit Exposures
EFTA
EITC
Nonprofits, and Venues Act
Electronic Fund Transfers Act
Earned Income Tax Credit
Allowance for Credit Losses on Loans
Allowance for Credit Losses on
ESPP
EVP
Employee Stock Purchase Plan
Executive Vice President
Securities
AFS
Allowance
AML
AOCI
Available for Sale
Allowance for Credit Losses
Anti-Money Laundering
Accumulated Other Comprehensive
FASB
FCA
FCRA
FDIA
Financial Accounting Standards Board
Financial Conduct Authority
Fair Credit Reporting Act
Federal Deposit Insurance Act
Income
OCI
OFAC
OREO
Patriot Act
PCD
PCI
PD
PPP
Other Comprehensive Income
Office of Foreign Assets Control
Other Real Estate Owned
U.S. Patriot Act
Purchased Credit Deteriorated
Purchased Credit Impaired
Probability of Default
Paycheck Protection Program
ARM
ASC
ASU
ATM
Adjustable Rate Mortgage
FDICIA
Federal Deposit Insurance Corporation
Prime
The Wall Street Journal Prime Interest Rate
Accounting Standards Codification
Accounting Standards Update
Automated Teller Machine
FFTR
FHA
FHC
Improvement Act
Federal Funds Target Rate
Federal Housing Administration
Financial Holding Company
Provision
PSU
Purchase Agreement
Provision for Expected Credit Loss Expense
Performance Stock Unit
May 13, 2021 Asset Purchase Agreement for
the sale of substantially all of the Bank's TRS
assets and operations to Green Dot
ATR
Basic EPS
Ability to Repay
Basic earnings per Class A Common
FHLB
FHLMC
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation or
R&D
RB&T / the Bank
Research and Development
Republic Bank & Trust Company
Share
BHC
BHCA
Bank Holding Company
Bank Holding Company Act
BOLI
BPO
BSA
C&D
C&I
CARD Act
Bank Owned Life Insurance
Brokered Price Opinion
Bank Secrecy Act
Construction and Development
Commercial and Industrial
Credit Card Accountability
Responsibility and Disclosure Act of
2009
FICO
FNMA
FOMC
FRA
FRB
FTE
FTP
GAAP
Freddie Mac
Fair Isaac Corporation
Federal National Mortgage Association or
Fannie Mae
Federal Open Market Committee
Federal Reserve Act
Federal Reserve Bank
Full Time Equivalent
Funds Transfer Pricing
Generally Accepted Accounting Principles in
the United States
RBCT
RCS
Republic Bancorp Capital Trust
Republic Credit Solutions
Republic / the Company Republic Bancorp, Inc.
RESPA
ROA
ROE
RPG
RPS
Real Estate Settlement Procedures Act
Return on Average Assets
Return on Average Equity
Republic Processing Group
Republic Payment Solutions
CARES Act
Coronavirus Aid, Relief, and Economic
GLBA
Gramm-Leach-Bliley Act
CCAD
Commercial Credit Administration
Green Dot
Green Dot Corporation
Security Act
RT
S&P
Refund Transfer
Standard and Poor's
Department
Core Deposit Intangible
Chief Executive Officer
HEAL
HELOC
Home Equity Amortizing Loan
Home Equity Line of Credit
SAC
Sale Transaction
Special Asset Committee
Sale contemplated in the May 13, 2021
CDI
CEO
CFO
CFPB
CFTC
CMO
CMT
Chief Financial Officer
Consumer Financial Protection Bureau
Commodity Futures Trading Commission IRS
ITM
Collateralized Mortgage Obligation
KDFI
Constant Maturity Treasury Index
HMDA
HTM
Home Mortgage Disclosure Act
Held to Maturity
Internal Revenue Service
Interactive Teller Machine
Kentucky Department of Financial Institutions
Core Bank
The Traditional Banking, Warehouse
Lending, and Mortgage Banking
reportable segments
LGD
Loss Given Default
COVID-19
CRA
Coronavirus Disease of 2019
Community Reinvestment Act
LIBOR
LOC I
CRE
Commercial Real Estate
LOC II
DIF
Diluted EPS
Deposit Insurance Fund
Diluted earnings per Class A Common
Limestone
LPO
Share
London Interbank Offered Rate
RCS product introduced in 2014 for which the
Bank participates out a 90% interest and holds
a 10% interest
RCS product introduced in 2021 for which the
Bank participates out a 95% interest and holds
a 5% interest
Limestone Bank
Loan Production Office
Dodd-Frank Act The Dodd-Frank Wall Street Reform and
LTV
Loan to Value
DTA
DTL
EA
EBITDA
Consumer Protection Act
Deferred Tax Assets
Deferred Tax Liabilities
Easy Advance
Earnings Before Interest, Taxes,
Depreciation and Amortization
MBS
MSRs
NA
Mortgage Backed Securities
Mortgage Servicing Rights
Not Applicable
NASDAQ
NASDAQ Global Select Market®
3
SBA
SEC
SERP
SOFR
SSUAR
SVP
TBA
TDR
Purchase Agreement between the Bank and
Green Dot
Small Business Administration
Securities and Exchange Commission
Supplemental Executive Retirement Plan
Secured Overnight Financing Rate
Securities Sold Under Agreements to
Repurchase
Senior Vice President
To be Announced
Troubled Debt Restructuring
The Captive
Republic Insurance Services, Inc.
TILA
TPS
TRS
TRUP
USDA
VA
Warehouse
Truth in Lending Act
Trust Preferred Securities
Tax Refund Solutions
TPS Investment
U.S. Department of Agriculture
U.S. Department of Veterans Affairs
Warehouse Lending
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains statements relating to future results of Republic Bancorp, Inc. that are considered
“forward-looking” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The forward-looking statements are principally, but not exclusively, contained in Part I Item 1
“Business,” Part I Item 1A “Risk Factors” and Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”
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.
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; 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;
litigation liabilities, including related costs, expenses, settlements and judgments, or the outcome of matters before regulatory
agencies, whether pending or commencing in the future;
natural disasters impacting the Company’s operations;
changes in political and economic conditions;
the discontinuation of LIBOR;
the magnitude and frequency of changes to the FFTR implemented by the FOMC of the FRB;
long-term and short-term interest rate fluctuations and the overall steepness of the U.S. Treasury yield curve, as well as their
impact on the Company’s net interest income and Mortgage Banking operations;
competitive product and pricing pressures in each of the Company’s five reportable segments;
equity and fixed income market fluctuations;
client bankruptcies and loan defaults;
inflation;
recession;
future acquisitions;
integrations of acquired businesses;
changes in technology;
changes in applicable laws and regulations or the interpretation and enforcement thereof;
4
changes in fiscal, monetary, regulatory, and tax policies;
changes in accounting standards;
•
•
• monetary fluctuations;
•
•
•
•
changes to the Company’s overall internal control environment;
success in gaining regulatory approvals when required;
the Company’s ability to qualify for future R&D federal tax credits;
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.”
•
PART I
Item 1. Business.
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, an unconsolidated trust subsidiary of Republic, was formed and issued $40 million in TPS.
The sole asset of RBCT represented the proceeds of the offering loaned to Republic in exchange for a subordinated note with similar
terms to the TPS. On September 30, 2021, as permitted under the terms of RBCT’s governing documents, Republic repaid the
subordinated note and redeemed the TPS at par without penalty.
As of December 31, 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.
5
The principal business of Republic is directing, planning, and coordinating the business activities of the Bank. The financial condition
and results of operations of Republic are primarily dependent upon the results of operations of the Bank. As of December 31, 2021,
Republic had total assets of $6.1 billion, total deposits of $4.8 billion, and total stockholders’ equity of $834 million. Based on total
assets as of December 31, 2021, Republic ranked as the second largest Kentucky-based financial holding company. The executive
offices of Republic are located at 601 West Market Street, Louisville, Kentucky 40202, telephone number (502) 584-3600. The
Company’s website address is www.republicbank.com.
Website Access to Reports
The Company makes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments
to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, available free of charge
through its website, www.republicbank.com, as soon as reasonably practicable after the Company electronically files such material
with, or furnishes it to, the SEC. The information provided on the Company’s website is not part of this report, and is therefore not
incorporated by reference, unless that information is otherwise specifically referenced elsewhere in this report. The SEC maintains an
internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC.
General Business Overview
As of December 31, 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
As of December 31, 2021 and through the date of this filing, generally all Traditional Banking products and services were offered
through the Company’s traditional RB&T brand.
Lending Activities
The Bank’s principal lending activities consist of the following:
Retail Mortgage Lending — Through its retail banking centers and its online Consumer Direct channel, the Bank originates
single-family, residential real estate loans and HELOCs. In addition, the Bank originates HEALs through its retail banking
centers. Such loans are generally collateralized by owner-occupied, residential real estate properties. For those loans originated
through the Bank’s retail banking centers, the collateral is predominately located in the Bank’s market footprint, while loans
originated through its Consumer Direct channel are generally secured by owner occupied-collateral located outside of the Bank’s
market footprint.
The Bank offers single-family, first-lien residential real estate ARMs with interest rate adjustments tied to various market indices
with specified minimum and maximum adjustments. The Bank generally charges a higher interest rate for its ARMs if the
property is not owner occupied. The interest rates on the majority of ARMs are adjusted after their fixed rate periods on an annual
basis, with most having annual and lifetime limitations on upward rate adjustments to the loan. These loans typically feature
amortization periods of up to 30 years and have fixed interest-rate periods generally ranging from five to ten years, with demand
dependent upon market conditions. In general, ARMs containing longer fixed-rate periods have historically been more attractive
to the Bank’s clients in a relatively low-rate environment, while ARMs with shorter fixed-rate periods have historically been more
attractive to the Bank’s clients in a relatively high-rate environment. While there is no requirement for clients to refinance their
loans at the end of the fixed-rate period, clients have historically done so the majority of the time, as most clients are interest-rate-
risk averse on their first mortgage loans.
Depending on the term and amount of the ARM, loans collateralized by single family, owner-occupied first lien residential real
estate may be originated with an LTV up to 90% and a combined LTV up to 100%. The Bank also offers a 100% LTV product
for home-purchase transactions within its primary markets. The Bank does not require the borrower to obtain private mortgage
insurance for ARM loans. Except for its HEAL product under $150,000, the Bank requires mortgagee’s title insurance on single
6
family, first lien residential real estate loans to protect the Bank against defects in its liens on the properties that collateralize the
loans. The Bank normally requires title, fire, and extended casualty insurance to be obtained by the borrower and, when required
by applicable regulations, flood insurance. The Bank maintains an errors and omissions insurance policy to protect the Bank
against loss in the event a borrower fails to maintain proper fire and other hazard insurance policies.
Single-family, first-lien residential real estate loans with fixed-rate periods of 15, 20, and 30 years are primarily sold into the
secondary market. MSRs attached to the sold portfolio are either sold along with the loan or retained. Loans sold into the
secondary market, along with their corresponding MSRs, are included as a component of the Company’s Mortgage Banking
segment, as discussed elsewhere in this filing. The Bank, as it has in the past, may retain such longer-term, fixed-rate loans from
time to time in the future to help combat net interest margin compression. Any such loans retained on the Company’s balance
sheet would be reported as a component of the Traditional Banking segment.
The Bank does, on occasion, purchase single-family, first-lien residential real estate loans made to low-to-moderate income
borrowers and/or secured by property located in low-to-moderate income areas in order to meet its obligations under the CRA. In
connection with loan purchases, the Bank receives various representations and warranties from the sellers regarding the quality
and characteristics of the loans.
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.
Credit opportunities are generally driven by the following: companies expanding their businesses; companies acquiring new
businesses; and/or companies refinancing existing debt from other institutions. The Bank has a focus on C&I lending, and owner-
occupied and nonowner-occupied CRE lending. The targeted C&I credit size for client relationships is typically between $1
million and $10 million, with higher targets between $10 million and $20 million for large Corporate Banking borrowers of
higher credit quality.
C&I loans typically include those secured by general business assets, which consist of equipment, accounts receivable, inventory,
and other business assets owned by the borrower/guarantor. Credit facilities include annually renewable lines of credit and term
loans with maturities typically from three to five years and may also involve financial covenant requirements. These requirements
are monitored by the Bank’s CCAD. Underwriting for C&I loans is based on the borrower’s capacity to repay these loans from
operating cash flows, typically measured by EBITDA, with capital strength, collateral, and management experience also
important underwriting considerations.
Corporate Banking focuses on larger C&I and CRE opportunities. For CRE loans, Corporate Banking focuses on stabilized CRE
with low leverage and strong cash flows. Borrowers are generally single-asset entities and loan sizes typically range from $5
million to $30 million. Primary underwriting considerations are project cash flow (current and historical), quality of leases,
financial capacity of sponsors, and collateral value of property financed. The majority of interest rates offered are based on a
floating rate index like term-SOFR and U.S. Treasuries. Fixed-rate terms of up to 10 years are available to borrowers by utilizing
standard Bank products or interest rate swaps. In many cases, limited guarantees, or in certain instances, non-recourse (of owners)
loans will be issued, with such cases based upon the equity/capital position, project cash flows, and stabilization of the borrowing
entity.
Commercial Banking focuses on medium sized C&I and CRE opportunities. Borrowers are generally single-asset entities and
loan sizes typically range from $1 million to $5 million. As with Corporate Banking, the primary underwriting considerations are
project cash flow (current and historical), quality of leases, financial capacity of sponsors, and collateral value of property
financed. Interest rates offered are based on both fixed and variable interest-rate formulas.
The Bank’s CRE and multi-family loans are typically secured by improved property such as office buildings, medical facilities,
retail centers, warehouses, apartment buildings, condominiums, schools, religious institutions, and other types of commercial use
property.
7
The Business Banking and Business Development groups, reporting under Retail Banking, focus on locally based small-to-
medium sized businesses in the Bank’s market footprint with primary annual revenues up to $10 million, and borrowings between
$200,000 and $1 million. The needs of these clients range from expansion or acquisition financing, equipment financing, owner-
occupied real estate financing, and smaller operating lines of credit.
The Bank is an SBA Preferred Lending Partner, which allows the Bank to underwrite and approve its own SBA loans in an
expedited manner. An experienced veteran lender oversees the Bank’s SBA Department. The Bank makes loans to borrowers
generally up to $3 million under the SBA “7A Program,” as well as utilize the “504 Program” for owner-occupied CRE
opportunities. The Bank’s goal is to expand its SBA platform over time and support the opportunities that arise within its
markets. The Bank’s lenders utilize all appropriate programs of the SBA to reduce credit risk exposure. Throughout 2020 and
2021, the Bank provided pandemic-related assistance to over 5,500 borrowers through $738 million in SBA PPP loans.
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.
Single-family, residential-construction loans are made in the Bank’s market area to established homebuilders with solid financial
records. The majority of these loans are made for “contract” homes, which the builder has already pre-sold to a homebuyer. The
duration of these loans is generally less than 12 months and repaid at the end of the construction period from the sale of the
constructed property. Some loans are made on “speculative” homes, which the builder does not have pre-sold to a homebuyer but
expects to execute a contract to sell during the construction period. These speculative homes are considered necessary to have in
inventory for homebuilders, as not all homebuyers want to wait during the construction period to purchase and move into a newly
built home.
Commercial-construction loans are made in the Bank’s market to established commercial builders with solid financial records.
Typically, these loans are made for investment properties and have tenants pre-committed for some or all of the space. Some
projects may begin as speculative, with the builder contracting to lease or sell the property during the construction period.
Generally, commercial-construction loans are made for the duration of the construction period and slightly beyond and will either
convert to permanent financing with the Bank or with another lender at or before maturity.
Construction-to-permanent loans are another type of construction-related financing offered by the Bank. These loans are made to
borrowers who are going to build a property and retain it for ownership after construction completion. The construction phase is
handled just like all other construction loans, and the permanent phase offers similar terms to a permanent CRE loan while
allowing the borrower a one-time closing process at loan origination. These loans are offered on both owner-occupied and
nonowner-occupied CRE.
8
Consumer Lending — Traditional Banking consumer loans made by the Bank include home improvement and home equity
loans, other secured and unsecured personal loans, and credit cards. Except for home equity loans, which are actively marketed in
conjunction with single family, first lien residential real estate loans, other Traditional Banking consumer loan products (not
including products offered through RPG), while available, are not and have not been actively promoted in the Bank’s markets.
Aircraft Lending — 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. Loans range between $55,000 and
$3,000,000 in size and have terms up to 20 years. 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.
See additional discussion regarding Lending Activities under the sections titled:
• Part I Item 1A “Risk Factors”
• Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
• Part II Item 8 “Financial Statements and Supplementary Data,” Footnote 4 “Loans and Allowance for Credit Losses”
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 Department — The Bank provides various deposit products designed for commercial business clients
located throughout its market footprint. Lockbox processing, remote deposit capture, business on-line banking, account
reconciliation, and ACH processing are additional services offered to commercial businesses through the Bank’s Treasury
Management department. Treasury Management officers work closely with commercial and retail officers to support their client’s
cash management needs.
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 discussion regarding the Traditional Banking segment under Footnote 25 “Segment Information” of Part II Item 8
“Financial Statements and Supplementary Data.”
9
(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 discussion regarding the Warehouse Lending segment under Footnote 25 “Segment Information” of Part II Item 8
“Financial Statements and Supplementary Data.”
(III) Mortgage Banking segment
Mortgage Banking activities primarily include 15-, 20- and 30-year fixed-term single-family, first-lien residential real estate loans that
are originated and sold into the secondary market, primarily to the FHLMC and the FNMA. The Bank typically retains servicing on
loans sold into the secondary market. Administration of loans with servicing retained by the Bank includes collecting principal and
interest payments, escrowing funds for property taxes and property insurance, and remitting payments to secondary market investors.
The Bank receives fees for performing these standard servicing functions.
As part of the sale of loans with servicing retained, the Bank records MSRs. MSRs represent an estimate of the present value of future
cash servicing income, net of estimated costs, which the Bank expects to receive on loans sold with servicing retained by the Bank.
MSRs are capitalized as separate assets. This transaction is posted to net gain on sale of loans, a component of “Mortgage Banking
income” in the income statement. Management considers all relevant factors, in addition to pricing considerations from other
servicers, to estimate the fair value of the MSRs to be recorded when the loans are initially sold with servicing retained by the Bank.
The carrying value of MSRs is initially amortized in proportion to and over the estimated period of net servicing income and
subsequently adjusted quarterly based on the weighted average remaining life of the underlying loans. The MSR amortization is
recorded as a reduction to net servicing income, a component of Mortgage Banking income.
With the assistance of an independent third party, the MSRs asset is reviewed at least quarterly for impairment based on the fair value
of the MSRs using groupings of the underlying loans based on predominant risk characteristics. Any impairment of a grouping is
reported as a valuation allowance. A primary factor influencing the fair value is the estimated life of the underlying loans serviced.
The estimated life of the loans serviced is significantly influenced by market interest rates. During a period of declining interest rates,
the fair value of the MSRs is expected to decline due to increased anticipated prepayment speeds within the portfolio. Alternatively,
during a period of rising interest rates, the fair value of MSRs would be expected to increase as prepayment speeds on the underlying
loans would be expected to decline.
See additional discussion regarding the Mortgage Banking segment under Footnote 25 “Segment Information” of Part II Item 8
“Financial Statements and Supplementary Data.”
10
(IV) Tax Refund Solutions segment
Through the TRS segment, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of
federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the U.S., as well
as tax-preparation software providers (collectively, the “Tax Providers”). 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 no credit risk or borrowing cost associated with these products because they are only delivered to the
taxpayer upon receipt of the tax refund directly from the governmental paying authority. Fees earned by the Company on RTs, net of
revenue share, are reported as noninterest income under the line item “Net refund transfer fees.”
The EA tax credit product is a loan that allows a taxpayer to borrow funds as an advance of a portion of their tax refund. The EA
product had the following features during 2021 and 2020:
• Offered only during the first two months of each year;
• The taxpayer was given the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum
advance amount of $6,250;
• No requirement that the taxpayer pays for another bank product, such as an RT;
• Multiple funds disbursement methods, including direct deposit, prepaid card, or check, based on the taxpayer-customer’s
election;
• Repayment of the EA to the Bank is deducted from the taxpayer’s tax refund proceeds; and
•
If an insufficient refund to repay the EA occurs:
there is no recourse to the taxpayer,
o
o no negative credit reporting on the taxpayer, and
o no collection efforts against the taxpayer.
The Company reports fees paid for the EA product as interest income on loans. During 2021, EAs were repaid, on average, within 32
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 in 2021 if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the
applicable taxing authority. The number of days for delinquency eligibility is based on management’s annual analysis of tax return
processing times. Provisions on EAs are estimated when advances are made. Unpaid EAs are charged-off by June 30th 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.
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
negative impact on the performance of the EA product offering and therefore on the Company’s financial condition and results of
operations.
See additional discussion regarding the EA product under the sections titled:
• Part I Item 1A “Risk Factors”
• Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
• Part II Item 8 “Financial Statements and Supplementary Data,” Footnote 4 “Loans and Allowance for Credit Losses”
11
See Footnote 1 “Summary of Significant Accounting Policies” of Part II Item 8 “Financial Statements and Supplementary Data” for
discussion regarding the cancelled sale of the TRS business and associated litigation.
Republic Payment Solutions division
RPS is currently managed and operated within the TRS segment. The RPS division offers general-purpose reloadable prepaid cards,
payroll debit cards, and limited-purpose demand deposit accounts with linked debit cards as an issuing bank through third-party
service providers. 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. The RPS
division will not be considered a separate reportable segment until such time, if any, that it meets quantitative reporting thresholds.
The Company reports fees related to RPS programs under Program fees. Additionally, the Company’s portion of interchange revenue
generated by prepaid card transactions is reported as noninterest income under “Interchange fee income.”
See additional discussion regarding the TRS segment under the sections titled:
• Part I Item 1A “Risk Factors”
• Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
• Part II Item 8 “Financial Statements and Supplementary Data,” Footnote 25 “Segment Information”
(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.
o RCS’s LOC I represented the substantial majority of RCS activity during 2021. 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.
The Bank sells participation interests in this product. These participation interests are a 90% interest in advances
made to borrowers under the borrower’s line-of-credit account, and the participation interests are generally sold
three business days following the Bank’s funding of the associated advances. Although the Bank retains a 10%
participation interest in each advance, it maintains 100% ownership of the underlying LOC I account with each
borrower. Loan balances held for sale through this program are carried at the lower of cost or fair value.
o
In January 2021, RCS began originating balances through its LOC II. One of RCS’s existing third-party service
providers, subject to the Bank’s oversight and supervision, provides the Bank with marketing services and loan
servicing for the LOC II product. The Bank is the lender for this product and is marketed as such. Furthermore, the
Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of
this product.
12
The Bank sells participation interests in this product. These participation interests are a 95% interest in advances
made to borrowers under the borrower’s line-of-credit account, and the participation interests are generally sold
three business days following the Bank’s funding of the associated advances. Although the Bank retains a 5%
participation interest in each advance, it maintains 100% ownership of the underlying LOC II account with each
borrower. Loan balances held for sale through this program are carried at the lower of cost or fair value.
• RCS installment loan product – In December 2019, through RCS, the Bank began offering installment loans with terms
ranging from 12 to 60 months to borrowers in multiple states. The same third-party service provider for RCS’s LOC II is the
third-party provider for the installment loans. This third-party provider is subject to the Bank’s oversight and supervision and
provides the Bank with marketing services and loan servicing for these RCS installment loans. The Bank is the lender for
these RCS installment loans and is marketed as such. Furthermore, the Bank controls the loan terms and underwriting
guidelines, and the Bank exercises consumer compliance oversight of this RCS installment loan product. Currently, all loan
balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with
the intention to sell these loans to a third-party, who is an affiliate of the Bank’s third-party service provider, generally within
sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are
carried at fair value under a fair-value option, with the portfolio marked to market monthly.
• RCS healthcare receivables products – The Bank originates healthcare-receivables products across the U.S. through two
different third-party service providers. In one program, the Bank retains 100% of the receivables originated. In the other
program, the Bank retains 100% of the receivables originated in some instances, and in other instances, sells 100% of the
receivables within one month of origination. Loan balances held for sale through this program are carried at the lower of cost
or fair value.
The Company reports interest income and loan origination fees earned on RCS loans under “Loans, including fees,” while any gains
or losses on sale and mark-to-market adjustments of RCS loans are reported as noninterest income under “Program fees.”
See additional discussion regarding the RCS segment under the sections titled:
• Part I Item 1A “Risk Factors”
• Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
• Part II Item 8 “Financial Statements and Supplementary Data,” Footnote 25 “Segment Information”
Employees and Human Capital Resources
As of December 31, 2021, Republic had 1,045 FTE employees. Altogether, Republic had 1,035 full-time and 19 part-time employees.
None of the Company’s employees are subject to a collective bargaining agreement, and Republic has never experienced a work
stoppage. The Company believes that it has had and continues to have good employee relations.
Employee retention helps the Company operate efficiently and effectively. Management promotes its core values through prioritizing
concern for employees’ well-being, supporting employees’ career goals, offering competitive wages, offering flexible schedules, and
providing valuable fringe benefits. In addition, Bank employees may become stockholders of the Company through participation in its
Employee Stock Purchase Plan and its 401(k) retirement plan, which offers a Company stock investment option.
The Company actively encourages and supports the growth and development of its employees. Management generally seeks to fill
positions by promotion and transfer from within the organization, whenever practical. Career development is advanced through
ongoing mentoring and development programs, as well as internally developed training programs, customized corporate training
engagements and educational reimbursement programs. Reimbursement is available to employees enrolled in pre-approved degree or
certification programs at accredited institutions that teach skills or knowledge relevant to the financial services industry and in
compliance with the Internal Revenue Code.
The safety, health, and wellness of Republic’s employees is considered a top priority. The COVID-19 pandemic presented a unique
challenge with regard to maintaining employee safety while continuing successful operations. Through teamwork and the adaptability
of its employees, the Company was able to transition, over a short period of time, the substantial majority of its non-customer-facing
employees to effectively working from remote locations and ensure a safely-distanced working environment for employees
13
performing customer-facing activities at banking and operational centers. All employees have been asked not to come to work when
they experience signs or symptoms of a possible COVID-19 illness and have been provided additional paid time off to cover
compensation during such absences. On an ongoing basis, the Company promotes the health and wellness of its employees by
encouraging work-life balance, offering flexible work schedules, and striving to keep the employee portion of health care premiums
competitive with local competition. Additionally, Republic strives to clearly and frequently communicate expectations that all
employee conduct must adhere to the highest ethical standards encompassed by its corporate values, including through town hall
meetings and senior leadership messages.
Information about our Executive Officers
See Part III, Item 10. “Directors, Executive Officers and Corporate Governance.” for information about the Company’s executive
officers.
Competition
Traditional Banking
The Traditional Bank encounters intense competition in its market footprint in originating loans, attracting deposits, and selling other
banking related financial services. The deregulation of the banking industry, the ability to create financial services holding companies
to engage in a wide range of financial services other than banking and the widespread enactment of state laws that permit multi-bank
holding companies, as well as the availability of nationwide interstate banking, has created a highly competitive environment for
financial institutions. In one or more aspects of the Bank’s business, the Bank competes with local and regional retail and commercial
banks, other savings banks, credit unions, finance companies, mortgage companies, fintech companies, and other financial
intermediaries operating in Kentucky, Indiana, Florida, Tennessee, Ohio, and in other states where the Bank offers its products. The
Bank also competes with insurance companies, consumer finance companies, investment banking firms, and mutual fund managers.
Some of the Company’s competitors are not subject to the same degree of regulatory review and restrictions that apply to the
Company and the Bank. Many of the Bank’s primary competitors, some of which are affiliated with large bank holding companies or
other larger financial based institutions, have substantially greater resources, larger established client bases, higher lending limits,
more extensive banking center networks, numerous ATMs or ITMs, and greater advertising and marketing budgets. They may also
offer services that the Bank does not currently provide. These competitors attempt to gain market share through their financial product
mix, pricing strategies, and banking center locations. Legislative developments related to interstate branching and banking in general,
by providing large banking institutions easier access to a broader marketplace, can act to create more pressure on smaller financial
institutions to consolidate. It is anticipated that competition from both bank and non-bank entities will continue to remain strong in the
foreseeable future.
The primary factors in competing for bank products are convenient locations, ATMs, ITMs, flexible hours, deposit interest rates,
services, internet banking, mobile banking, range of lending services offered, and lending fees. Additionally, the COVID-19 pandemic
has created additional competitive demands, such as providing remote-only service. The Bank believes that an emphasis on highly
personalized service tailored to individual client needs, together with the local character of the Bank’s business and its “community
bank” management philosophy will continue to enhance the Bank’s ability to compete successfully in its market footprint.
Warehouse Lending
The Bank faces strong competition from financial institutions across the United States for mortgage banking clients in need of
warehouse lines of credit. Competitors may have substantially greater resources, larger established client bases, higher lending limits,
as well as underwriting standards and on-going oversight requirements that could be viewed more favorably by some clients. A few or
all of these factors can lead to a competitive disadvantage to the Company when attempting to retain or grow its Warehouse client
base.
Mortgage Banking
The Bank encounters intense competition from mortgage bankers, mortgage brokers, and financial institutions for the origination and
funding of mortgage loans. Many competitors have branch offices in the same areas where the Bank’s loan officers operate. The Bank
also competes with mortgage companies whose focus is often on telemarketing and consumer-direct lending.
14
Tax Refund Solutions
The TRS segment encounters direct competition for RT and EA market share from a limited number of banks in the industry. The
Bank promotes these products to Tax Providers using various revenue-share and pricing incentives, as well as product features and
overall service levels.
Republic Payment Solutions (a division of TRS)
The prepaid card industry is subject to intense and increasing competition. The Bank competes with a number of companies that
market different types of prepaid card products, such as general-purpose-reloadable, gift, incentive, and corporate disbursement cards.
There is also competition from large retailers who are seeking to integrate more financial services into their product offerings.
Increased competition is also expected from alternative financial services providers who are often well-positioned to service the
“underbanked” and who may wish to develop their own prepaid card programs.
Republic Credit Solutions
The small-dollar consumer loan industry is highly competitive. Competitors for the Company’s small-dollar loan programs include,
but are not limited to, billers who accept late payments for a fee, overdraft privilege programs of other banks and credit unions, as well
as payday lenders and fintech companies.
New entrants to the small-dollar consumer loan market must successfully implement underwriting and fraud prevention processes,
overcome consumer brand loyalty, and have sufficient capital to withstand early losses associated with unseasoned loan portfolios. In
addition, there are substantial regulatory and compliance costs, including the need for expertise to customize products associated with
licenses to lend in various states across the United States.
Supervision and Regulation
The Company and the Bank are separate and distinct entities and are subject to extensive federal and state banking laws and
regulations, which establish a comprehensive framework of activities in which the Company and the Bank may engage. These laws
and regulations are primarily intended to provide protection to clients and depositors, not stockholders. The Company, as a public
reporting company, is also subject to various securities laws and regulations.
As an umbrella supervisor under the GLBA's system of functional regulation, the FRB requires that FHCs operate in a safe and sound
manner so that their financial condition does not threaten the viability of affiliated depository institutions. The FRB conducts periodic
examinations to review the Company’s safety and soundness, and compliance with various legal and safety and soundness
requirements.
The Bank is a Kentucky-chartered commercial banking and trust corporation and as such, it is subject to supervision and regulation by
the FDIC and the KDFI. The Bank also operates physical locations in Florida, Indiana, Ohio, and Tennessee, and originates and
purchases loans on a national basis. All deposits, subject to regulatory prescribed limitations, held by the Bank are insured by the
FDIC. The Bank is subject to restrictions, requirements, potential enforcement actions and examinations by the FDIC and KDFI. The
FRB’s regulation of the Company with monetary policies and operational rules directly impact the Bank. The Bank is a member of the
FHLB System.
As a member of the FHLB system, the Bank must also comply with applicable regulations of the Federal Housing Finance Agency.
Regulation by each of these agencies is intended primarily for the protection of the Bank’s depositors and the DIF and not for the
benefit of the Company’s stockholders. The Bank’s activities are also regulated under federal and state consumer protection laws
applicable to the Bank’s lending, deposit, and other activities. An adverse ruling or finding against the Company or the Bank under
these laws could have a material adverse effect on results of operations.
The Company and the Bank are also subject to the regulations of the CFPB, which was established under the Dodd-Frank Act. The
CFPB has consolidated rules and orders with respect to consumer financial products and services and has substantial power to define
the rights of consumers and responsibilities of lending institutions, such as the Bank. The CFPB does not, however, examine or
15
supervise the Bank for compliance with such regulations; rather, based on the Bank’s size (less than $10 billion in assets),
enforcement authority remains with the FDIC although the Bank may be required to submit reports or other materials to the CFPB
upon its request. Notwithstanding jurisdictional limitations set forth in the Dodd-Frank Act, the CFPB and federal banking regulators
may endeavor to work jointly in investigating and resolving cases as they arise.
Regulators have extensive discretion in connection with their supervisory and enforcement authority and examination policies,
including, but not limited to, policies that can materially impact the classification of assets and the establishment of adequate loan loss
reserves. Any change in regulatory requirements and policies, whether by the FRB, the FDIC, the KDFI, the CFPB or state or federal
legislation, could have a material adverse impact on Company operations.
Regulators also have broad enforcement powers over banks and their holding companies, including, but not limited to: the power to
mandate or restrict particular actions, activities, or divestitures; impose monetary fines and other penalties for violations of laws and
regulations; issue cease and desist or removal orders; seek injunctions; publicly disclose such actions; and prohibit unsafe or unsound
practices. This authority includes both informal and formal actions to effect corrective actions and/or sanctions. In addition, the Bank
is subject to regulation and potential enforcement actions by other state and federal agencies.
Certain regulatory requirements applicable to the Company and the Bank are referred to below or elsewhere in this filing. The
description of statutory provisions and regulations applicable to banks and their holding companies set forth in this filing does not
purport to be a complete description of such statutes and regulations. Their effect on the Company and the Bank is qualified in its
entirety by reference to the actual laws and regulations.
The Dodd-Frank Act
The Dodd-Frank Act, among other things, implemented changes that affected the oversight and supervision of financial institutions,
provided for a new resolution procedure for large financial companies, created the CFPB, introduced more stringent regulatory capital
requirements and significant changes in the regulation of over-the-counter derivatives, reformed the regulation of credit rating
agencies, increased controls and transparency in corporate governance and executive compensation practices, incorporated the
Volcker Rule, required registration of advisers to certain private funds, and influenced significant changes in the securitization market.
The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “EGRRCPA”) and its implementing regulations
pulled back some of the more stringent requirements of the Dodd-Frank Act for community banks with total consolidated assets of
less than $10 billion, such as the Bank. Due to exemptions in the Dodd-Frank Act, the EGRRCPA, and each Act’s implementing
regulations, the Company and Bank are not subject to several provisions of the Dodd-Frank Act including but not limited to 1) the
Durbin Amendment that would otherwise limit the interchange fees the Bank could charge on debit card transactions, 2) the Volcker
Rule that would affect the Company’s ability to invest in or engage in certain trading activities, and 3) stricter regulatory capital
requirements.
Incentive and Executive Compensation — In 2010, the FRB and other regulators jointly published final guidance for structuring
incentive compensation arrangements at financial organizations. The guidance does not set forth any formulas or pay caps but contains
certain principles that companies are required to follow with respect to employees and groups of employees that may expose the
company to material amounts of risk. The three primary principles are (i) balanced risk-taking incentives, (ii) compatibility with
effective controls and risk management, and (iii) strong corporate governance. The FRB monitors compliance with this guidance as
part of its safety and soundness oversight.
I.
The Company
Source of Strength Doctrine — The Dodd-Frank Act codifies the Federal Reserve Board’s existing “source of strength” policy that
holding companies act as a source of strength to their insured institution subsidiaries by providing capital, liquidity, and other support
in times of distress. FRB policies and regulations also prohibit bank holding companies from engaging in unsafe and unsound banking
practices. The FDIC and the KDFI have similar restrictions with respect to the Bank. Under the Dodd-Frank Act and in line with prior
FRB policy, a BHC is expected to act as a source of financial strength to its banking subsidiaries and to commit resources for their
support. This support may restrict the Company’s ability to pay dividends, and may be required at times when, absent this FRB policy,
a holding company may not be inclined to provide it. A BHC may also be required to guarantee the capital restoration plan of an
undercapitalized banking subsidiary and any applicable cross-guarantee provisions that may apply to the Company. In addition, any
capital loans by the Company to its bank subsidiary are subordinate in right of payment to deposits and to certain other indebtedness
16
of the bank subsidiary. In the event of a BHC’s bankruptcy, any commitment by the BHC to a federal bank regulatory agency to
maintain the capital of subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Acquisitions and Strategic Planning — The Company is required to obtain the prior approval of the FRB under the BHCA before it
may, among other things, acquire all or substantially all of the assets of any bank, or ownership or control of any voting shares of any
bank, if after such acquisition it would own or control, directly or indirectly, more than 5% of any class of the voting shares of such
bank. In addition, the Bank must obtain regulatory approval before entering into certain transactions, such as adding new banking
offices and mergers with, or acquisitions of, other financial institutions. This may affect the Company’s or the Bank’s acquisition or
timely acquisition of interests in other banks, other merger and acquisition activity and banking office expansion.
The BHCA and the Change in Bank Control Act also generally require the approval of the Federal Reserve before any person or
company can acquire control of a bank or BHC. Acquisition of control occurs if immediately after a transaction, the acquiring person
or company owns, controls, or holds voting securities of the institution with the power to vote 25% or more of any class. Control is
refutably presumed to exist if, immediately after a transaction, the acquiring person or company owns, controls, or holds voting
securities of the institution with the power to vote 10% or more of any class, and (i) the institution has registered securities under
Section 12 of the Securities Exchange Act of 1934; or (ii) no other person will own, control, or hold the power to vote a greater
percentage of that class of voting securities immediately after the transaction.
Financial Activities — As an FHC, the Company is permitted to engage directly or indirectly in a broader range of activities than
those permitted for a BHC under the BHCA. Permitted activities for an FHC include securities underwriting and dealing, insurance
underwriting and brokerage, merchant banking and other activities that are declared by the FRB, in cooperation with the Treasury
Department, to be “financial in nature or incidental thereto” or are declared by the FRB unilaterally to be “complementary” to
financial activities. Permitted activities also include those determined to be “closely related to banking” activities by the FRB under
the BHCA and permissible for any BHC. An FHC is allowed to conduct permissible new financial activities or acquire permissible
non-bank financial companies with after-the-fact notice to the FRB. A BHC may elect to become an FHC if it and each of its banking
subsidiaries is well capitalized, is well managed and has at least a “Satisfactory” rating under the CRA. To maintain FHC status, the
Company and the Bank must continue to meet the well capitalized and well managed requirements. The failure to meet such
requirements could result in material restrictions on the activities of the Company and may also adversely affect the Company’s ability
to enter into certain transactions (including mergers and acquisitions) or obtain necessary approvals in connection therewith, as well as
loss of FHC status. If restrictions are imposed on the activities of an FHC, such information may not necessarily be available to the
public.
II.
The Bank
The Kentucky and federal banking statutes prescribe the permissible activities in which a Kentucky chartered bank may engage and
where those activities may be conducted. Kentucky’s statutes contain a super parity provision that permits a well-rated Kentucky bank
to engage in any banking activity in which a national bank in Kentucky, a state bank, state thrift, or state savings association operating
in any other state, a federal savings bank, or a federal thrift meeting the qualified thrift lender test engages, provided it first obtains a
legal opinion from counsel specifying the statutory or regulatory provisions that permit the activity.
Safety and Soundness — The federal banking regulatory agencies have prescribed, by regulation, guidelines for all insured depository
institutions relating to: (i) internal controls, information systems, and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii) earnings; and (viii) compensation, fees, and
benefits. The guidelines set forth safety and soundness standards that the federal banking regulatory agencies use to identify and
address problems at FDIC member institutions before capital becomes impaired. If the FDIC determines that the Bank fails to meet
any standard prescribed by the guidelines, the FDIC may require the Bank to submit to it an acceptable plan to achieve compliance
with the standard. FDIC regulations establish deadlines for the submission and review of such safety and soundness compliance plans
in response to any such determination. We are not aware of any conditions relating to these safety and soundness standards that would
require us to submit a plan of compliance to the FDIC.
Branching — Kentucky law generally permits a Kentucky chartered bank to establish a branch office in any county in Kentucky. A
Kentucky bank may also, subject to regulatory approval and certain restrictions, establish a branch office outside of Kentucky. Well-
capitalized Kentucky state chartered banks that have been in operation at least three years and that satisfy certain criteria relating to,
among other things, their composite and management exam ratings, may establish a branch in Kentucky without the approval of the
17
Commissioner of the KDFI, upon notice to the KDFI and any other state bank with its main office located in the county where the new
branch will be located. Branching by banks not meeting these criteria requires the approval of the Commissioner of the KDFI, who
must ascertain and determine that the public convenience and advantage will be served and promoted and that there is a reasonable
probability of the successful operation of the branch. In any case, the proposed branch must also be approved by the FDIC, which
considers a number of factors, including financial condition, capital adequacy, earnings prospects, character of management, needs of
the community, and consistency with corporate powers. As a result of several legislative acts including the Dodd-Frank Act, the Bank,
along with any other national or state-chartered bank generally may branch across state lines. Such unlimited branching authority has
the potential to increase competition within the markets in which the Company and the Bank operate.
Affiliate Transaction Restrictions — Transactions between the Bank and its affiliates, and in some cases the Bank’s correspondent
banks, are subject to FDIC regulations, the FRB’s Regulations O and W, and Sections 23A, 23B, 22(g), and 22(h) of the Federal
Reserve Act (“FRA”). In general, these transactions must be on terms and conditions that are consistent with safe and sound banking
practices and substantially the same, or at least as favorable to the bank or its subsidiary, as those for comparable transactions with
non-affiliated parties. In addition, certain types of these transactions referred to as “covered transactions” are subject to quantitative
limits based on a percentage of the Bank’s capital, thereby restricting the total dollar amount of transactions the Bank may engage in
with each individual affiliate and with all affiliates in the aggregate. Limitations are also imposed on loans and extensions of credit by
a bank to its executive officers, directors, and principal stockholders and each of their related interests. The Dodd-Frank Act expanded
the scope of these regulations, including by applying them to the credit exposure arising under derivative transactions, repurchase and
reverse repurchase agreements, and securities borrowing and lending transactions.
The FRB promulgated Regulation W to implement Sections 23A and 23B of the FRA. This regulation contains many of the foregoing
restrictions and addresses derivative transactions, overdraft facilities, and other transactions between a bank and its non-bank
affiliates.
Restrictions on Distribution of Subsidiary Bank Dividends and Assets — Bank regulators may declare a dividend payment to be
unsafe and unsound even if the Bank continues to meet its capital requirements after the dividend. Dividends paid by the Bank provide
substantially all of the Company’s operating funds. Regulatory requirements limit the amount of dividends that may be paid by the
Bank. Under federal regulations, the Bank cannot pay a dividend if, after paying the dividend, the Bank would be undercapitalized.
Under Kentucky and federal banking regulations, the dividends the Bank can pay during any calendar year are generally limited to its
profits for that year, plus its retained net profits for the two preceding years, less any required transfers to surplus or to fund the
retirement of preferred stock or debt, absent approval of the respective state or federal banking regulators. FDIC regulations also
require all insured depository institutions to remain in a safe and sound condition, as defined in regulations, as a condition of having
FDIC deposit insurance.
FDIC Deposit Insurance Assessments — All Bank deposits are insured to the maximum extent permitted by the DIF. These bank
deposits are backed by the full faith and credit of the U.S. Government. As insurer, the FDIC is authorized to conduct examinations of,
and to require reporting by, insured institutions. It also may prohibit any insured institution from engaging in any activity determined
by regulation or order to pose a serious threat to the DIF.
The FDIC assesses all banks quarterly. A bank’s assessment base and assessment rates are determined quarterly and are risk-based.
For small banks (such as the Bank) post-Dodd-Frank and certain rule changes effective in 2016, individual assessment rates are
individually assigned based on the FDIC’s financial ratios method that estimates the probability of the bank’s failure over three years
using financial data and a weighted average of the bank’s CAMELS component ratings, subject to adjustment. CAMELS composite
ratings are used to set minimum and maximum assessment rates. The assessment base, post-Dodd-Frank, is the average consolidated
total assets minus average tangible equity. Management cannot predict what insurance assessment rates will be in the future.
The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines that the
institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or
has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It may also suspend
deposit insurance temporarily if the institution has no tangible capital. If insurance is terminated, the accounts at the institution at the
time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as
determined by the FDIC. Management is aware of no existing circumstances that would result in termination of the Bank’s FDIC
deposit insurance.
18
Anti-Money Laundering, Patriot Act; OFAC Sanctions — The Company and the Bank are subject to federal laws that are designed to
counter money laundering and terrorist financing, and transactions with persons, companies, or foreign governments sanctioned by the
United States. These laws include the Bank Secrecy Act, the Money Laundering Control Act, the Anti-Money Laundering Act of
2020, and the USA Patriot Act, as administered by the United States Treasury Department’s Financial Crimes Enforcement
Network. These laws obligate depository institutions and broker-dealers to verify their customers’ identity, conduct customer due
diligence, report on suspicious activity, file reports of transactions in currency, and conduct enhanced due diligence on certain
accounts. The United States Treasury Department’s Office of Foreign Assets Control prohibits persons from engaging in transactions
with certain designated restricted countries and persons. Depository institutions and broker-dealers are required by their federal
regulators to maintain robust policies and procedures in order to ensure compliance with these anti-money laundering obligations.
Failure to comply with these laws or maintain an adequate compliance program can lead to significant monetary penalties and
reputational damage. Federal regulators evaluate the effectiveness of an applicant in combating money laundering when determining
whether to approve a proposed bank merger, acquisition, restructuring, or other expansionary activity.
Consumer Laws and Regulations — The Bank is subject to a number of federal and state consumer protection laws, including, but not
limited to, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the
Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Military Lending Act, the Real Estate Settlement
Procedures Act, the Servicemembers Civil Relief Act, the Telephone Consumer Protection Act, and these laws’ respective state-law
counterparts, among many others. As discussed in more detail below, the Bank also complies with fair lending and privacy laws.
Banks as well as nonbanks are subject to any rule, regulation or guideline created by the CFPB. The CFPB is an independent
“watchdog” within the Federal Reserve System that regulates any person who offers or provides personal, family or household
financial products or services. Congress established the CFPB to create one agency in charge of protecting consumers by overseeing
the application and implementation of “Federal consumer financial laws,” which includes (i) rules, orders, and guidelines of the
CFPB, (ii) all consumer financial protection functions, powers, and duties transferred from other federal agencies, such as the Federal
Reserve, the OCC, the FDIC, the Federal Trade Commission, and the Department of Housing and Urban Development, and (iii) a long
list of consumer financial protection laws enumerated in the Dodd-Frank Act, including those listed above.
The CFPB is authorized to prescribe rules applicable to any covered person or service provider identifying and prohibiting acts or
practices that are unfair, deceptive, or abusive in connection with any transaction with a consumer for a consumer financial product or
service, or the offering of a consumer financial product or service. The CFPB has engaged in rulemaking and taken enforcement
actions that directly impact the business operations of financial institutions offering consumer financial products or services including
the Bank and its divisions. Depository institutions with $10 billion or less in assets, such as the Bank, will continue to be examined for
compliance with the consumer protection laws and regulations by their primary bank regulators (the FDIC for the Bank), rather than
the CFPB. The FDIC also regulates what it considers unfair and deceptive practices under Section 5 of the Federal Trade Commission
Act.
Such laws and regulations and the other consumer protection laws and regulations to which the Bank has been subject have
historically mandated certain disclosure requirements and regulated the manner in which financial institutions must deal with
customers when taking deposits from, making loans to, or engaging in other types of transactions with, such customers. The continued
effect of the CFPB on the development and promulgation of consumer protection rules and guidelines and the enforcement of federal
“consumer financial laws” on the Bank, if any, cannot be determined with certainty at this time.
Community Reinvestment Act and the Fair Lending Laws — Banks have a responsibility under the CRA and related regulations of the
FDIC to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In addition, the Equal
Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of
characteristics specified in those statutes. An institution’s failure to comply with the provisions of the CRA could, at a minimum,
result in regulatory restrictions on its activities and the denial of applications. In addition, an institution’s failure to comply with the
Equal Credit Opportunity Act and the Fair Housing Act could result in the FDIC, other federal regulatory agencies, or the Department
of Justice, taking enforcement actions against the institution. Failure by the Bank to fully comply with these laws could result in
material penalties being assessed against the Bank. The Bank received a “Satisfactory” CRA Performance Evaluation in January 2020,
its most recent evaluation. A copy of the public section of this CRA Performance Evaluation is available to the public upon request.
19
Privacy and Data Security — The FRB, FDIC, and other bank regulatory agencies have adopted guidelines for safeguarding
confidential, personal customer information. These guidelines require each financial institution, under the supervision and ongoing
oversight of its board of directors or an appropriate committee thereof, to create, implement and maintain a comprehensive written
information security program designed to ensure the security and confidentiality of customer information, protect against any
anticipated threats or hazards to the security or integrity of such information and protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience to any customer. If the Bank fails to properly safeguard customer
information or is the subject of a successful cyber-attack, it could result in material fines and/or liabilities that would materially affect
the Company’s results of operations.
In addition, various U.S. regulators, including the Federal Reserve and the SEC, have increased their focus on cyber-security through
guidance, examinations, and regulations. The Company has adopted a customer information security program that has been approved
by the Company’s Board of Directors.
The GLBA requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal
information about consumers to non-affiliated third parties. In general, the statute requires explanations to consumers on policies and
procedures regarding the disclosure of such nonpublic personal information, and, except as otherwise required by law, prohibits
disclosing such information except as provided in the banking subsidiary’s policies and procedures. In addition to the GLBA, the
Company and the Bank are also subject to state privacy laws.
In November 2021, the FRB, FDIC, and Office of the Comptroller of the Currency issued a joint final rule establishing computer-
security incident notification requirements for banking organizations and their bank service providers. Effective April 2022, with full
compliance no later than May 2022, banking organizations will be required to notify its primary federal regulator as soon as possible
and no later than 36 hours after the banking organization determines that a computer-security incident that rises to the level of a
notification incident has occurred. The rule defines computer-security incident as an occurrence that results in actual harm to the
confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits. A
notification incident is defined as a computer-security incident that has materially disrupted or degraded, or is reasonably likely to
materially disrupt or degrade, a banking organization’s: (i) ability to carry out banking operations, activities, or processes, or deliver
banking products and services to a material portion of its customer base, in the ordinary course of business; (ii) business line(s),
including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or
franchise value; or (iii) operations, including associated services, functions and support, as applicable, the failure or discontinuance of
which would pose a threat to the financial stability of the United States. For example, a notification incident may include a major
computer-system failure; a cyber-related interruption, such as a distributed denial of service or ransomware attack; or another type of
significant operational interruption.
The rule also requires a bank service provider to notify at least one bank-designated point of contact at each affected banking
organization customer as soon as possible when the bank service provider determines that it has experienced a computer-security
incident that has materially disrupted or degraded, or is reasonably likely to disrupt or degrade, covered services provided to the
banking organization for four or more hours. If the banking organization has not previously provided a designated point of contact, the
notification must be made to the banking organization’s chief executive officer and chief information officer or to two individuals of
comparable responsibilities.
Prohibitions Against Tying Arrangements — The Bank is subject to prohibitions on certain tying arrangements. A depository
institution is prohibited, subject to certain exceptions, from extending credit to or offering any other service, or fixing or varying the
consideration for such extension of credit or service, on the condition that the client obtain some additional product or service from the
institution or its affiliates or not obtain services of a competitor of the institution.
Depositor Preference — The FDIA provides that, in the event of the “liquidation or other resolution” of an insured depository
institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain
claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the
institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in
payment ahead of unsecured, non-deposit creditors (including depositors whose deposits are payable only outside of the U.S.), and the
parent BHC, with respect to any extensions of credit they have made to such insured depository institution.
Federal Home Loan Bank System — The FHLB offers credit to its members, which include savings banks, commercial banks,
insurance companies, credit unions, and other entities. The FHLB system is currently divided into eleven federally chartered regional
20
FHLBs that are regulated by the Federal Housing Finance Agency. The Bank is a member and owns capital stock in the FHLB
Cincinnati. The amount of capital stock the Bank must own to maintain its membership depends on its balance of outstanding
advances. It is required to acquire and hold shares in an amount at least equal to 1% of the aggregate principal amount of its unpaid
single-family, residential real estate loans and similar obligations at the beginning of each year, or 1/20th of its outstanding advances
from the FHLB, whichever is greater. Advances are secured by pledges of loans, mortgage backed securities, and capital stock of the
FHLB. FHLBs also purchase mortgages in the secondary market through their Mortgage Purchase Program,. The Bank has never sold
loans to the Mortgage Purchase Program.
In the event of a default on an advance, the Federal Home Loan Bank Act establishes priority of the FHLB’s claim over various other
claims. If an FHLB falls below its minimum capital requirements, the FHLB may seek to require its members to purchase additional
capital stock of the FHLB. If problems within the FHLB system were to occur, it could adversely affect the pricing or availability of
advances, the amount and timing of dividends on capital stock issued by FHLB Cincinnati to its members, or the ability of members to
have their FHLB capital stock redeemed on a timely basis. Congress continues to consider various proposals that could establish a
new regulatory structure for the FHLB system, as well as for other government-sponsored entities. The Bank cannot predict at this
time, which, if any, of these proposals may be adopted or what effect they would have on the Bank’s business.
Federal Reserve System — Under regulations of the FRB, the Bank is required to maintain noninterest-earning reserves against its
transaction accounts (primarily NOW and regular checking accounts). The Bank is in compliance with the foregoing reserve
requirements. Required reserves must be maintained in the form of vault cash, a depository account at the FRB, or a pass-through
account as defined by the FRB. The balances maintained to meet the reserve requirements imposed by the FRB may be used to satisfy
liquidity requirements imposed by the FDIC. The Bank is also authorized to borrow from the FRB discount window.
Loans to One Borrower — Under current limits, loans and extensions of credit outstanding at one time to a single borrower and not
fully secured generally may not exceed 15% of the institution’s unimpaired capital and unimpaired surplus. Loans and extensions of
credit fully secured by certain readily marketable collateral may represent an additional 10% of unimpaired capital and unimpaired
surplus.
Loans to Insiders — The Bank’s authority to extend credit to its directors, executive officers, and principal shareholders, as well as to
entities controlled by such persons, is governed by the requirements of Sections 22(g) and 22(h) of the FRA and Regulation O of the
Federal Reserve Board. Among other things, these provisions require that extensions of credit to insiders: (a) be made on terms that
are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for
comparable transactions with non-insiders and that do not involve more than the normal risk of repayment or present other features
that are unfavorable to the Bank; and (b) not exceed certain limitations on the amount of credit extended to such persons, individually
and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital. In addition, extensions of credit to insiders
in excess of certain limits must be approved by the Bank’s Board of Directors.
Capital Adequacy Requirements
Capital Guidelines — 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, including prompt corrective action as described below, 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 Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items, as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators regarding
components, risk weightings, and other factors.
Banking regulators have categorized the Bank as well-capitalized. For purposes of determining if prompt corrective action is called
for, 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.
21
As of December 31, 2021 and 2020, the Company’s capital ratios* were as follows:
December 31, (dollars in thousands)
Total capital to risk-weighted assets
Republic Bancorp, Inc.
Republic Bank & Trust Company
Common equity tier 1 capital to risk-weighted assets
Republic Bancorp, Inc.
Republic Bank & Trust Company
Tier 1 (core) capital to risk-weighted assets
Republic Bancorp, Inc.
Republic Bank & Trust Company
Tier 1 leverage capital to average assets
Republic Bancorp, Inc.
Republic Bank & Trust Company
2021
2020
Amount
Ratio
Amount
Ratio
$
$
$
$
878,488
861,815
17.47 % $
17.14
896,053
796,114
18.52 %
16.46
823,504
806,831
16.37 % $
16.05
803,682
743,743
16.61 %
15.38
823,504
806,831
16.37 % $
16.05
843,682
743,743
17.43 %
15.38
823,504
806,831
13.35 % $
13.10
843,682
743,743
13.70 %
12.11
* The Company and the Bank elected to defer the impact of CECL on regulatory capital. The deferral period is five years, with the
total estimated CECL impact 100% deferred for the first two years, then phased in over the next three years. If not for this election,
the Company’s regulatory capital ratios would have been approximately 15 basis points lower than those presented in the table above
as of December 31, 2021 and 2020.
Corrective Measures for Capital Deficiencies — The banking regulators are required to take “prompt corrective action” with respect
to capital deficient institutions. Agency regulations define, for each capital category, the levels at which institutions are well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. A bank is
undercapitalized if it fails to meet any one of the ratios required to be adequately capitalized.
Undercapitalized, significantly undercapitalized, and critically undercapitalized institutions are required to submit a capital restoration
plan, which must be guaranteed by the holding company of the institution. In addition, agency regulations contain broad restrictions
on certain activities of undercapitalized institutions including asset growth, acquisitions, branch establishment, and expansion into new
lines of business. With certain exceptions, an insured depository institution is prohibited from making capital distributions, including
dividends, and is prohibited from paying management fees to control persons if the institution would be undercapitalized after any
such distribution or payment. A bank’s capital classification will also affect its ability to accept brokered deposits. Under banking
regulations, a bank may not lawfully accept, roll over, or renew brokered deposits unless it is either well capitalized or it is adequately
capitalized and receives a waiver from its applicable regulator.
If a banking institution’s capital decreases below acceptable levels, bank regulatory enforcement powers become more enhanced. A
significantly undercapitalized institution is subject to mandated capital raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions. Banking regulators have limited discretion in dealing with
a critically undercapitalized institution and are normally required to appoint a receiver or conservator. Banks with risk-based capital
and leverage ratios below the required minimums may also be subject to certain administrative actions, including the termination of
deposit insurance upon notice and hearing, or a temporary suspension of insurance without a hearing if the institution has no tangible
capital.
In addition, a BHC may face significant consequences if its bank subsidiary fails to maintain the required capital and management
ratings, including entering into an agreement with the FRB that imposes limitations on its operations and may even require
divestitures. Until such deficiencies are corrected, the FRB may impose any limitations or conditions on the conduct or activities of
the FHC and its affiliates that the FRB determines are appropriate, and the FHC may not commence any additional activity or acquire
control of any company under Section 4(k) of the BHCA without prior FRB approval. Unless the period for compliance is extended by
22
the FRB, if an FHC fails to correct deficiencies in maintaining its qualification for FHC status within 180 days of notice to the FRB,
the FRB may order divestiture of any depository institution controlled by the company. A company may comply with a divestiture
order by ceasing to engage in any financial or other activity that would not be permissible for a BHC that has not elected to be treated
as an FHC. The Company is currently classified as an FHC.
Under FDICIA, each federal banking agency has prescribed, by regulation, non-capital safety and soundness standards for institutions
under its authority. These standards cover internal controls, information systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, fees and benefits, such other operational and managerial standards as
the agency determines to be appropriate, and standards for asset quality, earnings, and stock valuation. An institution that fails to meet
these standards must develop a plan acceptable to the agency, specifying the steps that the institution will take to meet the standards.
Failure to submit or implement such a plan may subject the institution to regulatory sanctions.
Other Regulation and Legislative Initiatives
Any change in the laws and regulations affecting the Bank’s operations is not predictable and could affect the Bank’s operations and
profitability. The U.S. Congress and state legislative bodies also continually consider proposals for altering the structure, regulation,
and competitive relationships of financial institutions. It cannot be predicted whether, or in what form, any of these potential proposals
or regulatory initiatives will be adopted, the impact the proposals will have on the financial institutions industry or the extent to which
the business or financial condition and operations of the Company and its subsidiaries may be affected.
Statistical Disclosures
The statistical disclosures required by Part I Item 1 “Business” are located under Part II Item 7 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
23
Item 1A. Risk Factors.
FACTORS THAT MAY AFFECT FUTURE RESULTS
An investment in Republic’s common stock is subject to risks inherent in its business. Before making an investment decision, you
should carefully consider the risks and uncertainties described below together with all the other information included in this filing. In
addition to the risks and uncertainties described below, other risks and uncertainties not currently known to the Company or that the
Company currently deems to be immaterial also may materially and adversely affect its business, financial condition, and results of
operations in the future. The value or market price of the Company’s common stock could decline due to any of these identified or
other risks, and an investor could lose all or part of their investment.
There are factors, many beyond the Company’s control, which may significantly change the results or expectations of the Company.
Some of these factors are described below, however, many are described in the other sections of this Annual Report on Form 10-K.
COVID-19 AND THE PUBLIC RESPONSE
The COVID-19 pandemic and the public’s response to this pandemic present unique risks to the Company’s operations and the
markets it serves. The Company’s operations and the markets it serves have been and will continue to be significantly impacted by the
COVID-19 pandemic and the public’s response to this pandemic. The following are relevant to the Company and its operations:
• Adverse Economic Conditions – COVID-19 has significantly disrupted social and economic activity in many areas of the
U.S., including areas where the Bank operates. The full impact of these disruptions is currently unknown. Additionally, these
disruptions may lead to the impairment of the Company’s intangible assets, including its goodwill and MSRs.
• Loan and Credit Losses – COVID-19 has restricted certain businesses, and the Bank’s credit delinquencies and losses may
rise steeply due to these restrictions. Specifically, concentrations of credit in certain markets and in certain industries have
been, currently are, or may be more susceptible to delinquency and loss.
o
Industry Concentrations – The Bank lends to clients in industries that have had their business models upended by the
pandemic; e.g., the hospitality and leisure industry. Further economic damage to these clients may leave them
unable to repay their debt with the Bank.
o Commercial Real Estate Concentration – The Company maintains a significant level of loans secured by CRE.
COVID-19 has driven a remote work environment for many employers and accelerated the trend toward on-line
shopping for consumers in the U.S. versus more traditional brick-and-mortar, in-store shopping. As a result, many
businesses have publicly stated that they will be downsizing their CRE facilities. This downsizing could have a
material negative impact on demand for certain CRE, which in turn could drive down CRE market values. The Bank
could incur higher loan losses on its CRE secured loans if CRE market values decline.
o Borrower Accommodations – In immediate response to the pandemic, and in some instances, governmental
requirements, the Bank temporarily suspended residential property foreclosure sales, evictions, and involuntary
automobile repossessions. The Bank also temporarily granted fee waivers, payment deferrals, and other expanded
assistance for credit card, automobile, mortgage, small business, and personal loan clients. The Bank has resumed
some collection activity as permitted by federal and state law, agency guidance, and other requirements. Future
governmental actions may extend borrower protections such as eviction moratoriums and borrower-relief programs.
• Reliance on Forecasted Information – The Company’s model for estimating credit losses relies on forecasted economic
projections. Such projections could be materially inaccurate, with different projections leading to a material adverse impact
on the Company’s financial position and results of operations.
• Capital and Liquidity – A prolonged period of economic stress leading to increased borrower defaults and corresponding
servicing obligations could substantially weaken the Company’s capital and liquidity. As a result, the Company could lose
access to capital markets and could suspend paying dividends.
24
• Cybersecurity – The Company and its third-party service providers have been and may continue to be subject to a heightened
risk of cyber-attacks due to the number of employees working remotely.
• Reliance on Third Parties – The Company’s third-party service providers may be unable to meet their service level
commitments to the Company.
•
Interconnectedness of Financial Institutions – The Company depends on other financial institutions. Negative events or
publicity for other financial institutions may flow to the Bank due the interconnectedness of the financial industry.
• Governmental Restrictions on Operations – Certain loan collection efforts, such as loan foreclosures and evictions, have been
and may continue to be prohibited by legal or regulatory bodies.
• Ability of Key Personnel to Perform Their Duties – Key Company personnel may be personally and directly impacted by
COVID-19 and may be unable to perform their duties.
• Consumer Behavior – Consumers may behave differently in the aftermath of the pandemic, placing less value on face-to-face
interaction. The Bank is a community bank that places high value on personal connection.
•
Increased Litigation Risk – The Bank may experience an increase in litigation stemming from the COVID-19 pandemic.
• Company Reputation – The Company and the Bank’s reputation could be negatively impacted by the public’s perception of
how the Company and Bank have operated during the pandemic.
REPUBLIC PROCESSING GROUP
The Company’s lines of business and products not typically associated with traditional banking expose earnings to additional risks and
uncertainties. The RPG operations are comprised of two reportable segments: TRS and RCS.
RPG’s products represent a significant business risk and management believes the Company could be subject to legislative,
regulatory, and public pressure to exit or otherwise modify these product lines, which may have a material adverse effect on the
Company’s operations.
Various states and consumer groups have, from time to time, questioned the fairness of the products offered by RPG. In addition, the
2020 election cycle led to a shift in political power within the executive and legislative branches of the federal government in January
2021. Initiatives of the current President and the current Congress, along with actions of the states, governmental agencies, and
consumer groups, could result in regulatory, governmental, or legislative action or litigation, which could have a material adverse
effect on the Company’s operations. If the Company can no longer offer or must substantially alter its RPG products, it will have a
material adverse effect on its profits.
TAX REFUND SOLUTIONS
The TRS segment represents a significant operational risk, and if the Bank were unable to properly service this business, it could
materially impact earnings. To process its business, the Bank must implement and test new systems, as well as train new employees.
The Bank relies heavily on communications and information systems to operate the TRS segment. Any failure, sustained interruption,
or breach in security, including the cyber security, of these systems could result in failures or disruptions in client relationship
management and other systems. Significant operational problems could also cause a material portion of the Bank’s tax-preparer base
to switch to a competitor to process their bank product transactions, significantly reducing the Bank’s revenue without a
corresponding decrease in expenses.
EAs represent a significant credit risk, and if RB&T is unable to collect a significant portion of its EAs, it would materially, negatively
impact earnings. There is credit risk associated with an EA because the funds are disbursed to the taxpayer customer prior to RB&T
receiving the taxpayer customer’s refund as claimed on the return. Because there is no recourse to the taxpayer customer if the EA is
25
not paid off by the taxpayer customer’s tax refund, RB&T must collect all its payments related to EAs through the refund process.
Losses will generally occur on EAs when RB&T does not receive payment due to several reasons, such as IRS revenue protection
strategies, including audits of returns, errors in the tax return, tax return fraud and tax debts not previously disclosed to RB&T during
its underwriting process. While RB&T’s underwriting during the EA approval process takes these factors into consideration based on
prior years’ payment patterns, if the IRS significantly alters its revenue protection strategies, if refund payment patterns for a given tax
season meaningfully change, if the federal government fails to timely deliver refunds, or if RB&T is incorrect in its underwriting
assumptions, RB&T could experience higher loan loss provisions above those projected. The provision for loan losses is a significant
determining factor of the RPG operations’ overall net earnings.
The Bank’s EA and RT products represent a significant compliance and regulatory risk, and if RB&T fails to comply with all statutory
and regulatory requirements, it could have a material negative impact on earnings. Federal and state laws and regulations govern
numerous matters relating to the offering of consumer loan products, such as the EA, and consumer deposit products such as the RT.
Failure to comply with disclosure requirements or with laws relating to the permissibility of interest rates and fees charged could have
a material negative impact on earnings. In addition, failure to comply with applicable laws and regulations could also expose RB&T to
civil money penalties and litigation risk, including shareholder actions.
The Bank’s EA and RT products represent a significant third-party management risk, and if RB&T’s third-party service providers fail
to comply with all the statutory and regulatory requirements for these products or if RB&T fails to properly monitor its third-party
service providers offering these products, it could have a material negative impact on earnings. TRS and its third-party service
providers operate in a highly regulated environment and deliver products and services that are subject to strict legal and regulatory
requirements. Failure by RB&T’s third-party service providers or failure of RB&T to properly monitor the compliance of its third-
party service providers with laws and regulations could result in fines and penalties that materially and adversely affect RB&T’s
earnings. Such penalties could also include the discontinuance of any or all third-party program manager products and services.
Due diligence measures implemented by the federal and state governments, which delay the timing of individual tax refund payments
or possibly deny those individual payments outright, could present an increased credit risk to the Company. To protect against
fraudulent tax returns, the federal government and many state governments have enacted laws and procedures that provide for
additional due diligence by the applicable governmental authority prior to issuing an income tax refund. This additional due diligence
has generally driven longer periods between the filing of a tax return and the receipt of the corresponding refund. The federal
government, specifically as a result of the Protecting Americans from Tax Hikes Act of 2015, mandates that taxpayers filing tax
returns with certain characteristics will not receive their corresponding refunds before February 15 each year. These funding delays
negatively impact the Company’s ability to make mid-season modifications to its EA underwriting model based on then-current year
tax refund funding patterns, because the substantial majority of all EAs are traditionally issued prior to February 15. In addition, these
enhanced due diligence measures implemented by the federal and state governments could prevent the taxpayer’s refund from being
issued altogether. These governmental changes by themselves, or in combination with management’s changes to EA product
parameters, could have a material negative impact on the performance of the EA product and therefore on the Company’s financial
condition and results of operations if the loss rate on the EA product increases materially.
Changes to the EA’s product parameters by management could have a material negative impact on the performance of the EA. In
response to changes in the legal, regulatory, and competitive environment, management annually reviews and revises the EA’s product
parameters. Further changes in EA product parameters do not ensure positive results and could have an overall material negative
impact on the performance of the EA and therefore on the Company’s financial condition and results of operations.
A significant decline in the amount of EITC consumers receive could lead to a significant decline in usage of TRS’s EA and RT tax
products. Historically, a substantial number of clients utilizing TRS’s EA and RT products are consumers that are eligible for the
EITC when filing their income tax returns. Economic restrictions driven by the COVID-19 pandemic have substantially increased
unemployment across the U.S. and many taxpayers did not have tax withheld from their unemployment benefits. These conditions
may lead to a decrease in the amount of total EITC they receive. A decrease in the EITC amount could decrease demand for TRS’s
RT and EA products. A decrease in the demand for the RT and EA products could have a material negative impact on the Company’s
financial condition and results of operations.
Advance Child Tax Credit payments may have a significant, negative impact on demand for TRS’s EA product. In mid-2021, eligible
individuals began receiving periodic advance Child Tax Credit payments from the IRS. These periodic advance payments may lead to
lower demand for TRS’s EA product offerings because the majority of TRS’s client base includes households eligible for the Child
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Tax Credit. A significant decline in demand for TRS’s products would have a material negative impact on the Company’s financial
condition and results of operations.
Economic impact (stimulus) payments by governmental agencies may have a significant, negative impact on demand for TRS’s EA
product. During the COVID-19 pandemic, governmental agencies have provided, and may continue to provide, economic support to
certain consumers through stimulus payments and other benefits. Additionally, some federal stimulus payments were provided in
January 2021 coinciding with the start of TRS’s 2021 EA product offering. Management believes that these stimulus payments, along
with a higher national consumer savings rate since the onset of the pandemic, caused lower demand for TRS’s EA product offerings in
2021 because the majority of TRS’s client base included beneficiaries of such stimulus payments. Further government stimulus
programs could cause an additional decline in demand for TRS’s products in 2022 and beyond, which would have a material negative
impact on the Company’s financial condition and results of operations.
EA and RT products are substantially offered through retail tax preparation locations. Usage of retail tax preparation services may be
negatively impacted by COVID-19 related health concerns and/or state or local governmental lockdowns. TRS’s EA and RT product
offerings are substantially facilitated through third-party brick-and-mortar service providers. Usage of these brick-and-mortar service
providers may be negatively impacted by COVID-19 related health concerns and state or local governmental lockdowns driving a
decrease in TRS related EA and RT volume. A significant decrease in demand for TRS’s EA and RT products would have a material
negative impact on the Company’s financial condition and results of operations.
REPUBLIC CREDIT SOLUTIONS
RCS revenues and earnings are highly concentrated in its line-of-credit products. While the Company expanded its RCS product
offerings in 2021, for the year ended December 31, 2021, RCS’s revenues and earnings were concentrated in its line-of-credit
products. The discontinuation of these line-of-credit products, or a substantial change in the terms under which these products are
offered, would have a material adverse effect on the Company’s financial condition and results of operations.
Consumer loans originated through the RCS segment represent a higher credit risk. Loss rates for some RCS products have
consistently been significantly higher than Traditional Bank loss rates for unsecured consumer loans. A material increase in RCS loan
charge-offs could have a material adverse effect on the Bank’s financial condition and results of operations and, if such increase in
RCS loan charge-offs persisted for an extended period of time, could lead to the discontinuation of the underlying products.
Consumer installment loans originated for sale through the RCS segment represent a higher risk of loss on sale. RCS originates its
installment loan product for sale and sells this product at a loss if the originated loan defaults on its first payment to RCS, which is
generally 16 days following the loan’s origination date. A material increase in first payment defaults for RCS installment loans would
result in a material increase in these loans being sold at a loss. Such an increase could have a material adverse impact on the program,
and if such losses persisted for an extended period of time, it could lead to the discontinuation of the underlying product.
RCS loans represent a significant compliance and regulatory risk, and if the Company fails to comply with all statutory and
regulatory requirements it could have a material negative impact on the Company’s earnings. Federal and state laws and regulations
govern numerous matters relating to the offering of RCS loans. Changes in the federal or state legislative or regulatory framework
governing and failure to comply with laws relating to the permissibility of interest rates and fees charged could have a material
negative impact on the Company’s earnings.
The Bank’s RCS products represent a significant third-party management risk, and if RB&T’s third-party service providers fail to
comply with all the statutory and regulatory requirements for these products or if RB&T fails to properly monitor its third-party
service providers offering these products, it could have a material negative impact on earnings. RCS and its third-party service
providers operate in a highly regulated environment and deliver products and services that are subject to strict legal and regulatory
requirements. Failure by RB&T’s third-party service providers or failure of RB&T to properly monitor the compliance of its
third- party service providers with laws and regulations could result in fines and penalties that materially and adversely affect RB&T’s
earnings.
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WAREHOUSE LENDING
The Warehouse Lending business is subject to numerous risks that may result in losses. Risks associated with warehouse loans
include, without limitation, (i) credit risks relating to the mortgage bankers that borrow from the Bank, including but not limited to
bankruptcy, (ii) the risk of intentional misrepresentation or fraud by any of such mortgage bankers and their third-party service
providers, (iii) changes in the market value of mortgage loans originated by the mortgage banker during the time in warehouse, the
sale of which is the expected source of repayment of the borrowings under a warehouse line of credit, or (iv) unsalable or impaired
mortgage loans so originated, which could lead to decreased collateral value and the failure of a purchaser of the mortgage loan to
purchase the loan from the mortgage banker. Failure to mitigate these risks could have a material adverse impact on the Bank’s
financial statements and results of operations.
Outstanding Warehouse lines of credit and their corresponding earnings could decline due to several factors, such as intense industry
competition, declining mortgage demand, and a rising interest rate environment. With the rise of inflation during the latter half of
2021, the FOMC has signaled a more aggressive and hawkish approach to its monetary policies over the next few years. Included in
its expected actions is raising the FFTR multiple times, ending its quantitative easing program of buying certain types of bonds in the
open market, and implementing a quantitative tightening program by reducing the size of its balance sheet and selling certain types of
bonds in the market.
The FOMC’s signaling of these actions caused market interest rates for U.S. Treasury bonds and mortgages to begin to rise rapidly
during the last quarter of 2021 and the first few weeks of 2022. With the rise in mortgage rates, mortgage refinance activity began to
slow dramatically late in the fourth quarter of 2021, and as a result, Warehouse usage began to decline significantly. Further monetary
tightening by the FOMC in 2022 will likely further decrease mortgage demand and Warehouse line usage. In addition, a decrease in
usage across the Warehouse industry could also cause competitive pricing pressure on the Bank to lower its pricing to its Warehouse
clients in order to maintain higher volumes.
The Bank will likely experience decreased earnings on its Warehouse lines of credit during 2022 due to expected rising market interest
rates and strong industry competition and pricing pressures. Such decreased earnings could materially impact the Company’s results of
operations.
The Company may lose Warehouse clients due to mergers and acquisitions in the industry. The Bank’s Warehouse clients are
primarily mortgage companies across the United States. Mergers and acquisitions affecting such clients may lead to an end to the
client relationship with the Bank. The loss of a significant number of clients may materially impact the Company’s results of
operations.
TRADITIONAL BANK LENDING AND THE ALLOWANCE FOR CREDIT LOSSES ON LOANS
The ACLL could be insufficient to cover the Bank’s actual loan losses. The Bank makes various assumptions and judgments about the
collectability of its loan portfolio, including the creditworthiness of its borrowers and the value of the real estate and other assets
serving as collateral for the repayment of many of its loans. In determining the amount of the ACLL, among other things, the Bank
reviews its loss and delinquency experience, economic conditions, etc. If its assumptions are incorrect, the ACLL may not be
sufficient to cover losses inherent in its loan portfolio, resulting in additions to its ACLL. In addition, regulatory agencies periodically
review the ACLL and may require the Bank to increase its Provision or recognize further loan charge-offs. A material increase in the
ACLL or loan charge-offs would have a material adverse effect on the Bank’s financial condition and results of operations.
Deterioration in the quality of the Traditional Banking loan portfolio may result in additional charge-offs, which would adversely
impact the Bank’s operating results. When borrowers default on their loan obligations, it may result in lost principal and interest
income and increased operating expenses associated with the increased allocation of management time and resources associated with
the collection efforts. In certain situations where collection efforts are unsuccessful or acceptable “work-out” arrangements cannot be
reached or performed, the Bank may charge-off loans, either in part or in whole. Additional charge-offs will adversely affect the
Bank’s operating results and financial condition.
Mortgage Banking revenue will likely decline due to declining mortgage demand resulting from a rising interest rate environment,
which will also lead to more intense industry competition for a shrinking mortgage market. Mortgage Banking is a significant
operating segment of the Company. With the rise of inflation during the latter half of 2021, the FOMC has signaled a more aggressive
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and hawkish approach to its monetary policies over the next few years. Included in its expected actions is raising the FFTR multiple
times, ending its quantitative easing program of buying certain types of bonds in the open market, and implementing a quantitative
tightening program by reducing the size of its balance sheet and selling certain types of bonds in the market.
The FOMC’s signaling of these actions caused market interest rates for treasury bonds and mortgages to begin to rise rapidly during
the last quarter of 2021 and the first few weeks of 2022. With the rise in mortgage rates, mortgage refinance activity began to slow
dramatically late in the fourth quarter of 2021, and as a result, mortgage origination volume began to decline significantly. Further
monetary tightening by the FOMC in 2022 will likely further decrease mortgage demand. In addition, a decrease in mortgage demand
across the mortgage industry could also cause competitive pricing pressure on the Bank to lower its mortgage pricing to maintain its
volumes for a shrinking market, further causing its cash gains-as-a-percentage-of-loans-sold to decline.
The Bank will likely experience decreased Mortgage Banking revenue during 2022 due to expected rising market interest rates and
strong industry competition and pricing pressures. Such decreased earnings could materially impact the Company’s results of
operations.
Loans originated through the Bank’s Consumer Direct channel will subject the Bank to credit and regulatory risks that the Bank does
not have through its historical origination channels. The dollar volume of loans originated through the Bank’s Consumer Direct
channel is expected to be increasingly out-of-market. Loans originated out of the Bank’s market footprint inherently carry additional
credit and regulatory risk, as the Bank will experience an increase in the complexity of the customer authentication requirements for
such loans. Failure to appropriately identify the end-borrower for such loans could lead to fraud losses. Failure to appropriately
identify the end-borrower could also result in regulatory sanctions resulting from failure to comply with various customer
identification regulations. Failure to appropriately manage these additional risks could lead to additional regulatory and compliance
risks and burdens and reduced profitability and/or operating losses through this origination channel.
The Bank is highly dependent upon programs administered by Freddie Mac and Fannie Mae. Changes in existing U.S. government-
sponsored mortgage programs or servicing eligibility standards could materially and adversely affect its business, financial position,
results of operations, and cash flows. The Bank’s ability to generate revenues through mortgage loan sales to institutional investors
depends significantly on programs administered by Freddie Mac and Fannie Mae. These entities play powerful roles in the residential
mortgage industry, and the Bank has significant business relationships with them. The Bank’s status as an approved seller/servicer for
both is subject to compliance with their selling and servicing guides.
Any discontinuation of, or significant reduction or material change in, the operation of Freddie Mac or Fannie Mae or any significant
adverse change in the level of activity in the secondary mortgage market or the underwriting criteria of Freddie Mac or Fannie Mae
would likely prevent the Bank from originating and selling most, if not all, of its mortgage loan originations.
The Bank’s financial condition and earnings could be negatively impacted to the extent the Bank relies on borrower information that
is false, misleading, or inaccurate. The Bank relies on the accuracy and completeness of information provided by vendors, clients, and
other parties in deciding whether to extend credit and/or enter transactions with other parties. If the Bank relies on incomplete and/or
inaccurate information, the Bank may incur additional charge-offs that adversely affect its operating results and financial condition.
The Bank’s use of appraisals as part of the decision process to make a loan on or secured by real property does not ensure the value
of the real property collateral. As part of the decision process to make a loan secured by real property, the Bank generally requires an
independent third-party appraisal of the real property. An appraisal, however, is only an estimate of the value of the property at the
time the appraisal is made. An error in fact or judgment could adversely affect the reliability of the appraisal. In addition, events
occurring after the initial appraisal may cause the value of the real estate to decrease. As a result of any of these factors, the value of
collateral securing a loan may be less than supposed, and if a default occurs, the Bank may not recover the outstanding balance of the
loan. Additional charge-offs will adversely affect the Bank’s operating results and financial condition.
The Bank is exposed to risk of environmental liabilities with respect to properties to which it takes title. In the course of its business,
the Bank may own or foreclose and take title to real estate and could be subject to environmental liabilities with respect to these
properties. The Bank may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation
and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or
clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation
activities could be substantial. In addition, if the Bank is the owner or former owner of a contaminated site, the Bank may be subject to
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common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the
property. These costs and claims could adversely affect the Bank.
Prepayment of loans may negatively impact the Bank’s business. The Bank’s clients may prepay the principal amount of their
outstanding loans at any time. The speeds at which such prepayments occur, as well as the size of such prepayments, are within the
Bank clients’ discretion. If clients prepay the principal amount of their loans, and the Bank is unable to lend those funds to other
clients or invest the funds at the same or higher interest rates, the Bank’s interest income will be reduced. A significant reduction in
interest income would have a negative impact on the Bank’s results of operations and financial condition.
ASSET/LIABILITY MANAGEMENT AND LIQUIDITY
Mortgage Banking activities could be adversely impacted by increasing or stagnant long-term interest rates. The Company is unable
to predict changes in market interest rates. Changes in interest rates can impact the gain on sale of loans, loan origination fees, and
loan servicing fees, which account for a significant portion of Mortgage Banking income. A decline in market interest rates generally
results in higher demand for mortgage products, while an increase in rates generally results in reduced demand. Generally, if demand
increases, Mortgage Banking income will be positively impacted by more gains on sale; however, the valuation of existing mortgage
servicing rights will decrease and may result in a significant impairment. A decline in demand for Mortgage Banking products
resulting from rising interest rates could also adversely impact other programs/products such as home equity lending, title insurance
commissions, and service charges on deposit accounts.
Fluctuations in interest rates could reduce profitability. The Bank’s asset/liability management strategy may not be able to prevent
changes in interest rates from having a material adverse effect on results of operations and financial condition. The Bank’s primary
source of income is from the difference between interest earned on loans and investments and the interest paid on deposits and
borrowings. The Bank expects to periodically experience “gaps” in the interest rate sensitivities of its assets and liabilities, meaning
that either interest-bearing liabilities will be more sensitive to changes in market interest rates than interest-earning assets, or vice
versa. In either event, if market interest rates should move contrary to the Bank’s position, earnings may be negatively affected.
A flattening or inversion of the interest rate yield curve may reduce profitability. Changes in the slope of the “yield curve,” or the
spread between short-term and long-term interest rates, could reduce the Bank’s net interest margin. Normally, the yield curve is
upward sloping, meaning short-term rates are lower than long-term rates. Because the Bank’s interest-bearing liabilities tend to be
shorter in duration than its interest-earning assets, when the yield curve flattens or even inverts, the Bank’s net interest margin could
decrease as its cost of funds rises higher and at a faster pace than the yield on its interest-earning assets. A rise in the Bank’s cost of
interest-bearing liabilities without a corresponding increase in the yield on its interest-earning assets, would have an adverse effect on
the Bank’s net interest margin and overall results of operations.
The Bank may be compelled to offer market-leading interest rates to maintain sufficient funding and liquidity levels. The Bank has
traditionally relied on client deposits, brokered deposits, and advances from the FHLB to fund operations. Such traditional sources
may be unavailable, limited, or insufficient in the future. If the Bank were to lose a significant funding source, such as a few major
depositors, or if any of its lines of credit were cancelled or curtailed, such as its borrowing line at the FHLB, or if the Bank cannot
obtain brokered deposits, the Bank may be compelled to offer market-leading interest rates to meet its funding and liquidity needs.
Obtaining funds at market-leading interest rates may have an adverse impact on the Company’s net interest income and overall results
of operations.
The planned discontinuance of LIBOR presents risks to the Company because the Bank uses LIBOR as a reference rate for a material
portion of its financial instruments. In July 2017, 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. In compliance with regulatory
guidance, the Bank discontinued referencing LIBOR for new financial instruments during 2021 and chose SOFR to be its primary
alternative reference rate for most transaction types upon the discontinuance or unavailability of LIBOR.
Risks associated with the Bank’s transition from LIBOR to SOFR or other alternative reference rates include the following:
• SOFR is viewed as a near risk free rate because it is derived from rates on overnight U.S. Treasury repurchase transactions.
These transactions are essentially overnight loans secured by U.S. Treasury securities, thus practically risk free. Changing to
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SOFR or a similar rate could result in a value transfer between contracting parties to instruments originally based on LIBOR.
Historically, in periods of economic or financial industry stress, near risk free rates that are analogous to SOFR have been
relatively stable. In contrast, LIBOR, which is designed to reflect the credit risk of banks, has widened relative to near risk
free rates, reflecting increased uncertainty regarding the credit-worthiness of banks. Accordingly, assuming that SOFR will
behave like its historical equivalents, an instrument that transitions from LIBOR to SOFR may not yield identical economic
outcomes for each contracting party to an instrument had the instrument continued to reference LIBOR. Similarly, SOFR,
because it is near risk free, tends to be a lower rate than LIBOR. To address these differences between LIBOR and SOFR,
certain industry recommended LIBOR fallback provisions include a concept of an adjustment spread that is applied when a
LIBOR-based contract transitions to SOFR and that is calculated based on a five-year median look-back of the historical spot
difference between the applicable LIBOR tenor and the applicable SOFR tenor. However, because any such adjustment
spread will be based on a historical median, it is likely that the adjustment spread may not reflect the spot difference between
LIBOR and SOFR at certain points in time and there may be a value transfer between the contracting parties over the life of
the instrument because the all-in rate applied to a contract, even taking into account the spread adjustment, might have
behaved differently over the life of the instrument in the absence of LIBOR cessation.
Any value transfer could be financially adverse to the Bank or to its counterparties. Repercussions from a change in reference
rate would likely include changes to the yield on, and value of, loans or securities held by the Bank, and amounts received
and paid on derivative instruments the Bank has contracted. Any theoretical benefit to the Bank could result in counterparty
dissatisfaction, which, in turn could lead to litigation, potentially as class actions, or other adverse consequences, including
dissatisfied clients or counterparties, resulting in loss of business. As a result, over the life of a transaction that transitions
from LIBOR to a new reference rate, the Bank’s obligations to its counterparties or vice versa and the yield the Bank
contractually receives or pays may change from that which would have resulted from a continuation of LIBOR.
• As of December 31, 2021, approximately $445 million of Bank loans were indexed to LIBOR and scheduled to mature after
June 30, 2023. Contractual fallback/transition language within these LIBOR-based contracts may be deemed ambiguous or
inadequate and may result in litigation, and in some cases may involve concession on the Bank’s part that has the effect of
reducing the value of the instrument to the Bank.
Additionally, the Bank’s LIBOR-based interest rate derivative contracts executed prior to January 25, 2021 may not include
adequate “fallback” language to use alternative indexes and margins when LIBOR ceases. In response, the industry trade
group for derivatives, ISDA, published a protocol pursuant to which industry participants can agree with any other industry
participant that adheres to the protocol to include ISDA’s new LIBOR fallback provisions into legacy derivatives contracts.
Although the Bank has adhered to the ISDA protocol, it is possible that many “end users” of swaps, i.e., Bank loan clients
who have hedged their interest rate payment obligations, may not adhere. In addition, there are differences between the new
ISDA fallback provisions and the fallback provisions that have been proposed for loans, which differences could result in a
mismatch between the reference rate or other economics in Bank borrowers’ legacy derivative contracts and their loans for
which such derivative contracts are intended as a hedge. For these end-user counterparties, one-on-one negotiation with each
counterparty will be necessary in order to amend legacy swaps to adequately address LIBOR cessation. If the Bank is unable
to agree to appropriate LIBOR cessation provisions with these swap counterparties, there will be uncertainty as to how to
value and effect the Bank’s rights and obligations under its legacy swap contracts. Although legislative solutions to address
LIBOR cessation in derivative contracts have been proposed, there is no assurance such solutions will be implemented, and
the Bank may seek to negotiate with impacted counterparties or, if not possible, effect reference rate transition through other
means. Addressing transition under these circumstances may be challenging or ineffective, could result in litigation, and in
some cases may involve concession on the Bank’s part that has the effect of reducing the value of the instrument to the Bank.
• Transitioning from LIBOR to alternative indexes may result in operational errors during the transition such that the
replacement index is not applied in a timely manner or is incorrectly applied. This is particularly true given the volume of
contracts that will require transition, the variety of potential approaches to transition, and the possible short duration of the
transition period.
It is also possible that LIBOR quotes will become unavailable prior to the currently anticipated cessation date. In that case,
the risks associated with the transition to an alternative reference rate will be accelerated and magnified. These risks may also
be increased due to the shorter time for preparing for the transition.
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The Bank’s failure to successfully implement the transition from LIBOR to alternative indexes could result in reduced
interest income on its loans that reprice with LIBOR, and/or increased regulatory scrutiny and actions by regulators,
including fines and other supervisory sanctions.
DEPOSITS AND RELATED ITEMS
Clients could pursue alternatives to bank deposits, causing the Bank to lose a relatively inexpensive source of funding. Checking and
savings account balances and other forms of client deposits could decrease if clients perceive alternative investments, such as the stock
market, as providing superior expected returns. If clients move money out of bank deposits in favor of alternative investments, the
Bank could lose a relatively inexpensive source of funds, increasing its funding costs and negatively impacting its overall results of
operations.
The loss of large deposit relationships could increase the Bank’s funding costs. The Bank has several large deposit relationships that
do not require collateral; therefore, cash from these accounts can generally be utilized to fund the loan portfolio. If any of these
balances are moved from the Bank, the Bank would likely utilize overnight borrowing lines on a short-term basis to replace the
balances. The overall cost of gathering brokered deposits and/or FHLB advances, however, could be substantially higher than the
Traditional Bank deposits they replace, increasing the Bank’s funding costs and reducing the Bank’s overall results of operations.
The Bank’s “Overdraft Honor” program represents a significant business risk, and if the Bank terminated the program, it would
materially impact the earnings of the Bank. There can be no assurance that Congress, the Bank’s regulators, or others, will not
impose additional limitations on this program or prohibit the Bank from offering the program. The Bank’s “Overdraft Honor”
program permits eligible clients to overdraft their checking accounts up to a predetermined dollar amount for the Bank’s customary
overdraft fee(s). Limitations or adverse modifications to this program, either voluntary or involuntary, would significantly reduce net
income.
COMPANY COMMON STOCK
The Company’s common stock generally has a low average daily trading volume, which limits a stockholder’s ability to quickly
accumulate or quickly sell large numbers of shares of Republic’s stock without causing wide price fluctuations. Republic’s stock price
can fluctuate widely in response to a variety of factors, as detailed in the next risk factor. A low average daily stock trading volume
can lead to significant price swings even when a relatively small number of shares are being traded.
The market price for the Company’s common stock may be volatile. The market price of the Company’s common stock could fluctuate
substantially in the future in response to several factors, including those discussed below. The market price of the Company’s common
stock has fluctuated significantly in the past and is likely to continue to fluctuate significantly. Some of the factors that may cause the
price of the Company’s common stock to fluctuate include:
• Variations in the Company’s and its competitors’ operating results;
• Actual or anticipated quarterly or annual fluctuations in operating results, cash flows, and financial condition;
• Changes in earnings estimates or publication of research reports and recommendations by financial analysts or actions taken
by rating agencies with respect to the Bank or other financial institutions;
• Announcements by the Company or its competitors of mergers, acquisitions, and strategic partnerships;
• Additions or departure of key personnel;
• The announced exiting of or significant reductions in material lines of business within the Company;
• Changes or proposed changes in banking laws or regulations or enforcement of these laws and regulations;
• Events affecting other companies that the market deems comparable to the Company;
• Developments relating to regulatory examinations;
• Speculation in the press or investment community generally or relating to the Company’s reputation or the financial services
industry;
• Future issuances or re-sales of equity or equity-related securities, or the perception that they may occur;
• General conditions in the financial markets and real estate markets in particular, developments related to market conditions
for the financial services industry;
• Domestic and international economic factors unrelated to the Company’s performance;
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• Developments related to litigation or threatened litigation;
• The presence or absence of short selling of the Company’s common stock; and,
• Future sales of the Company’s common stock or debt securities.
In addition, the stock market, in general, has historically experienced extreme price and volume fluctuations. This is due, in part, to
investors’ shifting perceptions of the effect of changes and potential changes in the economy on various industry sectors. This
volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their
performance or prospects. These broad market fluctuations may adversely affect the market price of the Company’s common stock,
notwithstanding its actual or anticipated operating results, cash flows, and financial condition. The Company expects that the market
price of its common stock will continue to fluctuate due to many factors, including prevailing interest rates, other economic
conditions, operating performance, and investor perceptions of the outlook for the Company specifically and the banking industry in
general. There can be no assurance about the level of the market price of the Company’s common stock in the future or that you will
be able to resell your shares at times or at prices you find attractive.
The Company’s insiders hold voting rights that give them significant control over matters requiring stockholder approval. The
Company’s Executive Chair/CEO and Vice Chair hold substantial voting authority over the Company’s Class A Common Stock and
Class B Common Stock. Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is
entitled to ten votes. This group generally votes together on matters presented to stockholders for approval. These actions may include,
for example, the election of directors, the adoption of amendments to corporate documents, the approval of mergers and acquisitions,
sales of assets, and the continuation of the Company as a registered company with obligations to file periodic reports and other filings
with the SEC. Consequently, other stockholders’ ability to influence Company actions through their vote may be limited and the non-
insider stockholders may not have sufficient voting power to approve a change in control even if a significant premium is being
offered for their shares. Majority stockholders may not vote their shares in accordance with minority stockholder interests.
An investment in the Company’s Common Stock is not an insured deposit. The Company’s common stock is not a bank deposit and,
therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment
in the Company’s common stock is inherently risky for the reasons described in this section and elsewhere in this report and is subject
to the same market forces that affect the price of common stock in any company. As a result, if you acquire the Company’s common
stock, you could lose some or all of your investment.
GOVERNMENT REGULATION / ECONOMIC FACTORS
The Company is significantly impacted by the regulatory, fiscal, and monetary policies of federal and state governments that could
negatively impact the Company’s liquidity position and earnings. These policies can materially affect the value of the Company’s
financial instruments and can also adversely affect the Company’s clients and their ability to repay their outstanding loans. In
addition, failure to comply with laws, regulations or policies, or adverse examination findings, could result in significant penalties,
negatively impact operations, or result in other sanctions against the Company. The Board of Governors of the Federal Reserve
System regulates the supply of money and credit in the U.S. Its policies determine, in large part, the Company’s cost of funds for
lending and investing and the return the Company earns on these loans and investments, all of which impact net interest margin.
The Company and the Bank are heavily regulated at both the federal and state levels and are subject to various routine and non-routine
examinations by federal and state regulators. This regulatory oversight is primarily intended to protect depositors, the Deposit
Insurance Fund, and the banking system, not the stockholders of the Company. Changes in policies, regulations and statutes, or the
interpretation thereof, could significantly impact the product offerings of Republic causing the Company to terminate or modify its
product offerings in a manner that could materially adversely affect the earnings of the Company.
Federal and state laws and regulations govern numerous matters including changes in the ownership or control of banks and bank
holding companies, maintenance of adequate capital and the financial condition of a financial institution, permissible types, amounts
and terms of extensions of credit and investments, permissible non-banking activities, the level of reserves against deposits and
restrictions on dividend payments. Various federal and state regulatory agencies possess cease and desist powers, and other authority
to prevent or remedy unsafe or unsound practices or violations of law by banks subject to their regulations. The FRB possesses similar
powers with respect to bank holding companies. These, and other restrictions, can limit in varying degrees, the way Republic conducts
its business.
33
Government responses to economic conditions, including but not limited to those caused by the COVID-19 pandemic, may adversely
affect the Company’s operations, financial condition, and earnings. Enacted financial reform legislation has changed and will
continue to change the bank regulatory framework. Ongoing uncertainty and adverse developments in the financial services industry
and the domestic and international credit markets, and the effect of new legislation and regulatory actions in response to these
conditions, may adversely affect Company operations by restricting business activities, including the Company’s ability to originate or
sell loans, modify loan terms, or foreclose on property securing loans. These measures are likely to increase the Company’s costs of
doing business and may have a significant adverse effect on the Company’s lending activities, financial performance, and operating
flexibility. In addition, these risks could affect the performance and value of the Company’s loan and investment securities portfolios,
which also would negatively affect financial performance.
The Company may be subject to examinations by taxing authorities that could adversely affect results of operations. In the normal
course of business, the Company may be subject to examinations from federal and state taxing authorities regarding the amount of
taxes due in connection with investments it has made and the businesses in which the Company is engaged. Federal and state taxing
authorities have continued to be aggressive in challenging tax positions taken by financial institutions. The challenges made by taxing
authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax
jurisdictions. If any such challenges are made and are not resolved in the Company’s favor, they could have an adverse effect on the
Company’s financial condition and results of operations.
The Company may be adversely affected by the soundness of other financial institutions. Financial services institutions are interrelated
because of trading, clearing, counterparty, or other relationships. The Company has exposure to many different industries and
counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks,
brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose the Company to credit risk in
the event of a default by a counterparty or client. In addition, the Company’s credit risk may be exacerbated when the collateral held
by the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative
exposure due to the Company. Any such losses could have a material adverse effect on the Company’s financial condition and results
of operations.
MANAGEMENT, INFORMATION SYSTEMS, ACQUISITIONS, ETC.
The Company is dependent upon the services of key qualified personnel. The Company is dependent upon the ability and experience
of a number of its key management personnel who have substantial experience with Company operations, the financial services
industry, and the markets in which the Company offers services. It is possible that the loss of the services of one or more of its key
personnel would have an adverse effect on operations.
The Company’s operations could be impacted if its third-party service providers experience difficulty. The Company depends on
several relationships with third-party service providers, including core systems processing and web hosting. These providers are well-
established vendors that provide these services to a significant number of financial institutions. If these third-party service providers
experience difficulty or terminate their services and the Company is unable to replace them with other providers, its operations could
be interrupted, which would adversely impact its business.
The Company’s operations, including third-party and client interactions, are increasingly done via electronic means, and this has
increased the risks related to cyber security. The Company is exposed to the risk of cyber-attacks in the normal course of business. In
general, cyber incidents can result from deliberate attacks or unintentional events. Management has observed an increased level of
attention in the industry focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for
purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may
also be carried out in a manner that does not require gaining unauthorized access, such as by causing denial-of-service attacks on
websites. Cyber-attacks may be carried out directly against the Company, or against the Company’s clients or vendors by third parties
or insiders using techniques that range from highly sophisticated efforts to electronically circumvent network security or overwhelm
websites to more traditional intelligence gathering and social engineering aimed at obtaining information necessary to gain access.
While the Company has not incurred any material losses related to cyber-attacks, the Bank may incur substantial costs and suffer other
negative consequences if the Bank, the Bank’s clients, or one of the Bank’s third-party service providers fall victim to successful
cyber-attacks. Such negative consequences could include: remediation costs for stolen assets or information; system repairs; consumer
protection costs; increased cyber security protection costs that may include organizational changes; deploying additional personnel
and protection technologies, training employees, and engaging third-party experts and consultants; lost revenues resulting from
34
unauthorized use of proprietary information or the failure to retain or attract clients following an attack; litigation and payment of
damages; and reputational damage adversely affecting client or investor confidence.
The Company’s information systems may experience an interruption that could adversely impact the Company’s business, financial
condition, and results of operations. The Company relies heavily on communications and information systems to conduct its business.
Any failure or interruption of these systems could result in failures or disruptions in client relationship management, general ledger,
deposit, loan and other systems. While the Company has policies and procedures designed to prevent or limit the impact of the failure
or interruption of information systems, there can be no assurance that any such failures or interruptions will not occur or, if they do
occur, that they will be adequately addressed. The occurrences of any failures or interruptions of the Company’s information systems
could damage the Company’s reputation, result in a loss of client business, subject the Company to additional regulatory scrutiny, or
expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the
Company’s financial condition and results of operations.
New lines of business or new products and services may subject the Company to additional risks. From time to time, the Company
may develop and grow new lines of business or offer new products and services within existing lines of business. There are substantial
risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing
and marketing new lines of business and/or new products and services, the Company may invest significant time and resources. Initial
timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and
price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives
and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service.
Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of the
Company’s system of internal controls. Failure to successfully manage these risks in the development and implementation of new
lines of business or new products or services could have a material adverse effect on the Company’s business, results of operations,
and financial condition. All service offerings, including current offerings and those that may be provided in the future, may become
riskier due to changes in economic, competitive, and market conditions beyond the Company’s control.
Negative public opinion could damage the Company’s reputation and adversely affect earnings. Reputational risk is the risk to
Company operations from negative public opinion. Negative public opinion can result from the actual or perceived way the Company
conducts its business activities, including product offerings, sales practices, practices used in origination and servicing operations, the
management of actual or potential conflicts of interest and ethical issues, and the Company’s protection of confidential client
information. Negative public opinion can adversely affect the Company’s ability to keep and attract clients and can expose the
Company to litigation.
The Company’s ability to successfully complete acquisitions will affect its ability to grow and compete effectively in its market
footprint. The Company has announced plans to pursue a policy of growth through acquisitions to supplement internal growth. The
Company’s efforts to acquire other financial institutions and financial service companies or branches may not be successful.
Numerous potential acquirers exist for many acquisition candidates, creating intense competition, which affects the purchase price for
which the institution can be acquired. In many cases, the Company’s competitors have significantly greater resources than the
Company has, and greater flexibility to structure the consideration for the transaction. The Company may also not be the successful
bidder in acquisition opportunities that it pursues due to the willingness or ability of other potential acquirers to propose a higher
purchase price or more attractive terms and conditions than the Company is willing or able to propose. The Company intends to
continue to pursue acquisition opportunities in its market footprint. The risks presented by the acquisition of other financial
institutions could adversely affect the Bank’s financial condition and results of operations.
Successful Company acquisitions present many risks that could adversely affect the Company’s financial condition and results of
operations. An institution that the Company acquires may have unknown asset quality issues or unknown or contingent liabilities that
the Company did not discover or fully recognize in the due diligence process, thereby resulting in unanticipated losses. The
acquisition of other institutions also typically requires the integration of different corporate cultures, loan and deposit products, pricing
strategies, data processing systems and other technologies, accounting, internal audit and financial reporting systems, operating
systems and internal controls, marketing programs and personnel of the acquired institution, to make the transaction economically
advantageous. The integration process is complicated and time consuming and could divert the Company’s attention from other
business concerns and may be disruptive to its clients and the clients of the acquired institution. The Company’s failure to successfully
integrate an acquired institution could result in the loss of key clients and employees and prevent the Company from achieving
expected synergies and cost savings. Acquisitions and failed acquisitions also result in professional fees and may result in creating
35
goodwill that could become impaired, thereby requiring the Company to recognize further charges. The Company may finance
acquisitions with borrowed funds, thereby increasing the Company’s leverage and reducing liquidity, or with potentially dilutive
issuances of equity securities.
REPUBLIC INSURANCE SERVICES, INC.
Transactions between the Company and its insurance subsidiary, the Captive, may be subject to certain IRS responsibilities and
penalties. The Company’s Captive is a Nevada-based, wholly-owned insurance subsidiary of the Company that provides property and
casualty insurance coverage to the Company and the Bank as well as a group of other third-party insurance captives for which
insurance may not be available or economically feasible. The Treasury Department of the United States and the IRS by way of Notice
2016-66 have stated that transactions believed similar in nature to transactions between the Company and the Captive may be deemed
“transactions of interest” because such transactions may have potential for tax avoidance or evasion. If the IRS ultimately concludes
such transactions do create tax avoidance or evasion issues, the Company could be subject to the payment of penalties and interest.
BANK OWNED LIFE INSURANCE
The Bank holds a significant amount of BOLI, which creates credit risk relative to the insurers and liquidity risk relative to the
product. As of December 31, 2021, the Bank held BOLI on certain employees. The eventual repayment of the cash surrender value is
subject to the ability of the various insurance companies to pay death benefits or to return the cash surrender value to the Bank if
needed for liquidity purposes. The Bank continually monitors the financial strength of the various insurance companies that carry
these policies. However, any one of these companies could experience a decline in financial strength, which could impair its ability to
pay benefits or return the Bank’s cash surrender value. If the Bank needs to liquidate these policies for liquidity purposes, it would be
subject to taxation on the increase in cash surrender value and penalties for early termination, both of which would adversely impact
earnings.
ACCOUNTING POLICIES/ESTIMATES
The Company’s accounting policies and estimates are critical components of the Company’s presentation of its financial statements.
Management must exercise judgment in selecting and adopting various accounting policies and in applying estimates. Actual
outcomes may be materially different from amounts previously estimated. Management has identified certain accounting policies and
estimates as being critical to the presentation of the Company’s financial statements. These policies are described in Part II Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the section titled “Critical
Accounting Policies and Estimates.” The Company’s management must exercise judgment in selecting and applying many accounting
policies and methods to comply with generally accepted accounting principles and reflect management’s judgment of the most
appropriate manner to report the Company’s financial condition and results. In some cases, management may select an accounting
policy that might be reasonable under the circumstances yet might result in the Company’s reporting different results than would have
been reported under a different alternative. Materially different amounts could be reported under different conditions or using different
assumptions or estimates.
The Bank may experience goodwill impairment, which could reduce its earnings. The Bank performed its annual goodwill impairment
test during the fourth quarter of 2021 as of September 30, 2021. The evaluation of the fair value of goodwill requires management
judgment. If management’s judgment was incorrect and goodwill impairment was later deemed to exist, the Bank would be required
to write down its goodwill resulting in a charge to earnings, which could materially, adversely affect its results of operations.
Item 1B. Unresolved Staff Comments.
None
36
Item 2. Properties.
The Company’s executive offices, principal support and operational functions are located at 601 West Market Street in Louisville,
Kentucky. As of December 31, 2021, Republic had 28 banking centers located in Kentucky, seven banking centers in Florida, three
banking centers in Indiana, two banking centers in Tennessee, and two banking centers in Ohio.
The location of Republic’s facilities, their respective approximate square footage, and their form of occupancy are as follows:
Approximate
Square
Footage
Owned (O)/
Leased (L)
5,000 L (1)
57,000 L (1)
42,000 L (1)
42,000 L (1)
5,000 O/L (2)
5,000 O/L (2)
3,000 O/L (2)
6,000 O/L (2)
4,000 O/L (2)
4,000 O/L (2)
4,000 O/L (2)
4,000 O/L (2)
4,000 O/L (2)
3,000 O
3,000 L
1,000 L
4,000 L
3,000 L
5,000 O/L (2)
4,000 O/L (2)
6,000 O
3,000 O
4,000 L
4,000 L
3,000 L
4,000 L
Bank Offices
Kentucky Banking Centers:
Louisville Metropolitan Area
2801 Bardstown Road, Louisville
601 West Market Street, Louisville
661 South Hurstbourne Parkway, Louisville
9600 Brownsboro Road, Louisville
5250 Dixie Highway, Louisville
10100 Brookridge Village Boulevard, Louisville
9101 U.S. Highway 42, Prospect
11330 Main Street, Middletown
3902 Taylorsville Road, Louisville
3811 Ruckriegel Parkway, Louisville
5125 New Cut Road, Louisville
4808 Outer Loop, Louisville
438 Highway 44 East, Shepherdsville
1420 Poplar Level Road, Louisville
4921 Brownsboro Road, Louisville
3950 Kresge Way, Suite 108, Louisville
3726 Lexington Road, Louisville
1720 West Broadway, Suite 103, Louisville
Lexington
3098 Helmsdale Place
3608 Walden Drive
2401 Harrodsburg Road
641 East Euclid Avenue
333 West Vine Street
Northern Kentucky
535 Madison Avenue, Covington
25 Town Center Blvd., Suite 104, Crestview Hills
8513 U.S. Highway 42, Florence
(continued)
37
Bank Offices
(continued)
Georgetown, 430 Connector Road
Shelbyville, 1614 Midland Trail
Florida Banking Centers:
12933 Walsingham Road, Largo
10577 State Road 54, New Port Richey
6300 4th Street N, St. Petersburg
6600 Central Avenue, St. Petersburg
7800 Seminole Blvd., Seminole
6906 E. Fowler Avenue, Temple Terrace
1300 North West Shore Blvd. Suite 150, Tampa
Southern Indiana Banking Centers:
4571 Duffy Road, Floyds Knobs
3141 Highway 62, Jeffersonville
3001 Charlestown Crossing Way, New Albany
Tennessee Banking Centers:
113 Seaboard Lane, Franklin
2034 Richard Jones Road, Nashville
Ohio Banking Center:
4030 Smith Road, Norwood
9110 West Chester Towne Center Dr., West Chester
Support and Operations:
200 South Seventh Street, Louisville, KY
Approximate
Square
Footage
Owned (O)/
Leased (L)
5,000 O/L (2)
6,000 L (2)
4,000 O
3,000 L
10,000 O
9,000 O
3,000 O
2,000 L
3,000 L
4,000 O/L(2)
4,000 O
2,000 L
2,000 L
3,000 L
5,000 L
3,000 L
80,000 L(1)
(1) Locations are leased from partnerships in which the Company’s Executive Chair and Chief Executive Officer, Steven E. Trager, its Vice Chair and President, A.
Scott Trager, or family members of Steven E. Trager and A. Scott Trager, have a financial interest. See additional discussion included under Part III Item 13
“Certain Relationships and Related Transactions, and Director Independence.” For additional discussion regarding Republic’s lease obligations, see Part II Item
8 “Financial Statements and Supplementary Data” Footnote 6 “Right-of-Use Assets and Operating Leases Liabilities.”
(2) The banking centers at these locations are owned by Republic; however, the banking center is located on land that is leased through long-term agreements with
third parties.
38
Item 3. Legal Proceedings.
See Footnote 1 “Summary of Significant Accounting Policies” of Part II Item 8 “Financial Statements and Supplementary Data” for
discussion regarding the cancelled sale of the TRS business and associated litigation.
In the ordinary course of operations, Republic and the Bank are defendants in various legal proceedings. There is no proceeding,
pending, or threatened litigation in which Republic and the Bank are a defendant, to the knowledge of management, in which an
adverse decision could result in a material adverse change in the business or consolidated financial position of Republic or the Bank.
Item 4. Mine Safety Disclosures.
Not applicable.
39
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market and Dividend Information
Republic’s Class A Common Stock is traded on the NASDAQ under the symbol “RBCAA.” There is no established public trading
market for the Company’s Class B Common Stock, however, the Company’s Class B Common Stock is fully convertible into the
Company’s publicly-traded Class A Common Stock on a one-for-one basis.
The Company intends to continue its historical practice of paying quarterly cash dividends; however, there is no assurance by the
Board of Directors that such dividends will continue to be paid in the future. The payment of dividends in the future is dependent upon
future income, financial position, capital requirements, the discretion and judgment of the Board of Directors, and numerous other
considerations.
For additional discussion regarding regulatory restrictions on dividends, see Part II Item 8 “Financial Statements and Supplementary
Data” Footnote 14 “Stockholders’ Equity and Regulatory Capital Matters.”
Republic has made available to its employees participating in its 401(k) Plan the opportunity, at the employee’s sole discretion, to
invest funds held in their accounts under the plan in shares of Class A Common Stock of Republic. Shares are purchased by the
independent trustee administering the plan from time to time in the open market in the form of broker’s transactions. As of December
31, 2021, the trustee held 250,293 shares of Class A Common Stock and 1,215 shares of Class B Common Stock on behalf of the plan.
Details of Republic’s Class A Common Stock purchases during the fourth quarter of 2021 are included in the following table:
Period
October 1 - October 31
November 1 - November 30
December 1 - December 31
Total
Total Number of Additional
Shares Purchased
as Part of Publicly
Announced Plans
Shares
Authorized
Under Plans
or Programs
or Programs
Average Price
Paid Per Share
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans
or Programs
Total Number of
Shares Purchased
— $
164,400
66,520
230,920 $
—
55.06
53.69
54.67
—
164,400
66,520
230,920
—
250,000
—
250,000
251,248
336,848
270,328
270,328
During 2021, the Company repurchased 979,672 shares. In addition, in connection with employee stock awards, there were 44,720
shares withheld upon exercise of stock options to satisfy the withholding taxes and exercise price. During 2011, the Company’s Board
of Directors amended its existing share repurchase program by approving the repurchase of 300,000 additional shares from time to
time, as market conditions are deemed attractive to the Company. 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. On
November 17, 2021, the Board of Directors of Republic Bancorp, Inc. increased the Company’s existing authorization to purchase
shares of its Class A Common Stock by an additional 250,000 shares. The repurchase program will remain effective until the total
number of shares authorized is repurchased or until Republic’s Board of Directors terminates the program. As of December 31, 2021,
the Company had 270,328 shares which could be repurchased under its current share repurchase programs.
During 2021, there were approximately 34,000 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 provision option of the Class B
Common Stock. The exemption from registration of the newly issued Class A Common Stock relied upon was 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.
40
STOCK PERFORMANCE GRAPH
The following stock performance graph does not constitute soliciting material and should not be deemed filed or incorporated by
reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent
the Company specifically incorporates the performance graph by reference therein.
The following stock performance graph sets forth the cumulative total shareholder return (assuming reinvestment of dividends) on
Republic’s Class A Common Stock as compared to the NASDAQ Bank Stocks Index and the S&P 500 Index. The graph covers the
period beginning December 31, 2016 and ending December 31, 2021. The calculation of cumulative total return assumes an initial
investment of $100 in Republic’s Class A Common Stock, the NASDAQ Bank Index and the S&P 500 Index on December 31, 2016.
The stock price performance shown on the graph below is not necessarily indicative of future stock price performance.
December 31, December 31, December 31, December 31, December 31, December 31,
2016
2017
2018
2019
2020
2021
Republic Class A
Common Stock (RBCAA)
S&P 500 Index
SNL Bank NASDAQ Index
$
$
100.00
100.00
100.00
98.45
121.83
118.59
$
$
102.56
116.49
97.58
126.88 $
153.17
132.84
101.28
181.35
119.14
$
146.38
233.41
164.80
Total Return Performance
Republic Bancorp, Inc.
S&P 500 Index
KBW NASDAQ Bank Index
250
200
150
100
l
e
u
a
V
x
e
d
n
I
50
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
41
Item 6. [Reserved]
Item 7. 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, an unconsolidated trust subsidiary of Republic, 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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Republic should be read in conjunction
with Part II Item 8 “Financial Statements and Supplementary Data.”
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; 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;
litigation liabilities, including related costs, expenses, settlements and judgments, or the outcome of matters before regulatory
agencies, whether pending or commencing in the future;
natural disasters impacting the Company’s operations;
changes in political and economic conditions;
42
•
•
•
the discontinuation of LIBOR;
the magnitude and frequency of changes to the FFTR implemented by the FOMC of the FRB;
long-term and short-term interest rate fluctuations and the overall steepness of the U.S. Treasury yield curve, as well as their
impact on the Company’s net interest income and Mortgage Banking operations;
competitive product and pricing pressures in each of the Company’s five reportable segments;
equity and fixed income market fluctuations;
client bankruptcies and loan defaults;
inflation;
recession;
future acquisitions;
integrations of acquired businesses;
changes in technology;
changes in applicable laws and regulations or the interpretation and enforcement thereof;
changes in fiscal, monetary, regulatory, and tax policies;
changes in accounting standards;
changes to the Company’s overall internal control environment;
success in gaining regulatory approvals when required;
the Company’s ability to qualify for future R&D federal tax credits;
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.”
•
•
•
•
•
•
•
•
•
•
•
•
• monetary fluctuations;
•
•
•
•
Accounting Standards Updates
For disclosure regarding the impact to the Company’s financial statements of ASUs, see Footnote 1 “Summary of Significant
Accounting Policies” of Part II Item 8 “Financial Statements and Supplementary Data.”
43
Selected Financial Data
The following table sets forth Republic Bancorp Inc.’s selected financial data from 2019 through 2021. This information should be
read in conjunction with Part II Item 8 “Financial Statements and Supplementary Data.” Certain amounts presented in prior periods
have been reclassified to conform to the current period presentation.
(in thousands)
Balance Sheet Data:
Cash and cash equivalents
Investment securities
Loans held for sale
Gross loans
Allowance for credit losses
Right-of-use assets
Goodwill
Bank owned life insurance
Total assets
Noninterest-bearing deposits
Interest-bearing deposits
Total deposits
Securities sold under agreements to repurchase and other short-term borrowings
Operating lease liabilities
Federal Home Loan Bank advances
Subordinated note
Total liabilities
Total stockholders’ equity
Average Balance Sheet Data:
Federal funds sold and other interest-earning deposits
Investment securities, including FHLB stock
Gross loans, including loans held for sale
Allowance for credit losses
Total assets
Noninterest-bearing deposits
Interest-bearing deposits
Total interest-bearing liabilities
Total stockholders’ equity
Income Statement Data - Total Company:
Total interest income
Total interest expense
Net interest income
Provision for expected credit loss expense
Total noninterest income
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
Income Statement Data - Core Bank (1):
Total interest income
Total interest expense
Net interest income
Provision for expected credit loss expense
Total noninterest income
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
(continued)
As of and for the Years Ended December 31,
2020
2021
2019
$
$
$
$
756,971
542,045
52,077
4,496,562
(64,577)
38,825
16,300
99,161
6,093,632
1,990,781
2,849,637
4,840,418
290,967
39,672
25,000
—
5,259,400
834,232
806,811
555,599
4,519,277
(66,481)
6,301,905
2,129,452
2,923,497
3,215,138
844,871
226,260
5,666
220,594
14,808
86,859
182,304
110,341
23,552
86,789
188,489
4,941
183,548
(319)
51,734
161,942
73,659
14,603
59,056
$
$
$
$
485,587
580,270
51,643
4,813,103
(61,067)
43,345
16,300
68,018
6,168,325
1,890,416
2,842,765
4,733,181
211,026
44,340
235,000
41,240
5,345,002
823,323
283,151
584,300
4,796,841
(60,008)
6,011,865
1,672,442
2,913,486
3,415,231
802,726
252,258
19,943
232,315
31,278
87,053
185,457
102,633
19,387
83,246
203,717
17,017
186,700
16,870
59,378
164,208
65,000
10,852
54,148
385,303
537,074
31,468
4,433,151
(43,351)
35,206
16,300
66,433
5,620,319
1,033,379
2,752,629
3,786,008
167,617
36,530
750,000
41,240
4,856,075
764,244
260,131
564,631
4,470,347
(50,624)
5,577,643
1,120,608
2,755,946
3,629,682
734,281
280,883
44,757
236,126
25,758
75,008
172,183
113,193
21,494
91,699
223,914
39,340
184,574
3,066
48,219
153,051
76,676
13,223
63,453
$
$
$
$
44
Selected Financial Data (continued)
(in thousands, except per share data, FTEs and # of banking centers)
As of and for the Years Ended December 31,
2020
2021
2019
Per Share Data:
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
Period-end shares outstanding:
Class A Common Stock
Class B Common Stock
Basic earnings per share:
Class A Common Stock
Class B Common Stock
Diluted earnings per share:
Class A Common Stock
Class B Common Stock
Cash dividends declared per share:
Class A Common Stock
Class B Common Stock
Market value per share at December 31,
Book value per share at December 31, (2)
Tangible book value per share at December 31, (2)
Performance Ratios:
Return on average assets
Return on average equity
Efficiency ratio (3)
Yield on average interest-earning assets
Cost of average interest-bearing liabilities
Cost of average deposits (4)
Net interest spread
Net interest margin - Total Company
Net interest margin - Core Bank
Capital Ratios - Total Company:
Average stockholders’ equity to average total assets
Total risk-based capital
Common equity tier 1 capital
Tier 1 risk-based capital
Tier 1 leverage capital
Dividend payout ratio
Dividend yield
Other Information:
Period-end FTEs (5) - Total Company
Period-end FTEs - Core Bank
Number of banking centers
(continued)
20,675
20,757
17,816
2,165
4.25
3.87
4.24
3.85
1.232
1.120
50.84
41.75
40.48
$
$
$
$
1.38 %
10.27
59
3.85
0.18
0.10
3.67
3.75
3.20
13.41 %
17.47
16.37
16.37
13.35
29
2.42
1,045
958
42
21,039
21,069
18,697
2,199
4.00
3.64
3.99
3.63
1.144
1.040
36.07
39.40
38.27
$
$
$
$
1.38 %
10.37
58
4.45
0.58
0.33
3.87
4.10
3.39
13.35 %
18.52
16.61
17.43
13.70
29
3.17
1,094
997
42
21,023
21,135
18,737
2,206
4.41
4.01
4.39
3.99
1.056
0.960
46.80
36.49
35.41
1.64 %
12.49
57
5.30
1.23
0.75
4.07
4.46
3.61
13.16 %
17.01
15.29
16.11
13.93
24
2.26
1,080
997
41
$
$
$
$
45
Selected Financial Data (continued)
(dollars in thousands)
Credit Quality Data and Ratios:
Credit Quality Asset Balances:
Nonperforming Assets - Total Company:
Loans on nonaccrual status
Loans past due 90-days-or-more and still on accrual
Total nonperforming loans
Other real estate owned
Total nonperforming assets
Nonperforming Assets - Core Bank (1):
Loans on nonaccrual status
Loans past due 90-days-or-more and still on accrual
Total nonperforming loans
Other real estate owned
Total nonperforming assets
Delinquent loans:
Delinquent loans - Core Bank
Delinquent loans - RPG (6)
Total delinquent loans - Total Company
Credit Quality Ratios - Total Company:
ACLL to total loans
Nonaccrual loans to total loans
ACLL to nonaccrual loans
Nonperforming loans to total loans
Nonperforming assets to total loans (including OREO)
Nonperforming assets to total assets
ACLL to nonperforming loans
Delinquent loans to total loans (7)
Net loan charge-offs to average loans
Credit Quality Ratios - Core Bank:
ACLL to total loans
Nonaccrual loans to total loans
ACLL to nonaccrual loans
Nonperforming loans to total loans
Nonperforming assets to total loans (including OREO)
Nonperforming assets to total assets
ACLL to nonperforming loans
Delinquent loans to total loans
Net charge-offs to average loans
As of and for the Years Ended December 31,
2020
2021
2019
$
$
$
$
$
$
20,504
48
20,552
1,792
22,344
20,504
1
20,505
1,792
22,297
7,430
6,035
13,465
$
$
$
$
$
$
1.44 %
0.46
315
0.46
0.50
0.37
314
0.30
0.25
1.18 %
0.47
251
0.47
0.51
0.40
251
0.17
0.01
23,548
47
23,595
2,499
26,094
23,548
5
23,553
2,499
26,052
9,713
10,234
19,947
$
$
$
$
$
$
1.27 %
0.49
259
0.49
0.54
0.42
259
0.41
0.42
1.11 %
0.50
221
0.50
0.56
0.45
221
0.21
0.03
23,332
157
23,489
113
23,602
23,332
—
23,332
113
23,445
13,042
7,762
20,804
0.98 %
0.53
186
0.53
0.53
0.42
185
0.47
0.61
0.70 %
0.54
129
0.54
0.54
0.43
129
0.30
0.11
(1) “Core Bank” or “Core Banking” operations consist of the Traditional Banking, Warehouse Lending, and Mortgage Banking segments.
See Footnote 25 “Segment Information” under Part II Item 8 “Financial Statements and Supplemental Data” for additional information regarding the segments
that constitute the Company’s Core Banking operations.
46
Selected Financial Data (continued)
(2) The following table provides a reconciliation of total stockholders’ equity in accordance with GAAP to tangible stockholders’ equity in accordance with
applicable regulatory requirements, a non-GAAP measure. The Company provides the tangible book value per share, another non-GAAP measure, in addition to
those defined by banking regulators, because of its widespread use by investors as a means to evaluate capital adequacy.
Years Ended December 31, (dollars in thousands)
Total stockholders' equity - GAAP (a)
Less: Goodwill
Less: Mortgage servicing rights
Less: Core deposit intangible
Tangible stockholders' equity - Non-GAAP (c)
Total assets - GAAP (b)
Less: Goodwill
Less: Mortgage servicing rights
Less: Core deposit intangible
Tangible assets - Non-GAAP (d)
$
$
$
$
2021
834,232
16,300
9,196
—
808,736
6,093,632
16,300
9,196
—
6,068,136
2020
823,323
16,300
7,095
189
799,739
6,168,325
16,300
7,095
189
6,144,741
$
$
$
$
$
$
$
$
2019
764,244
16,300
5,888
469
741,587
5,620,319
16,300
5,888
469
5,597,662
Total stockholders' equity to total assets - GAAP (a/b)
Tangible stockholders' equity to tangible assets - Non-GAAP (c/d)
13.69 %
13.33 %
13.35 %
13.02 %
13.60 %
13.25 %
Number of shares outstanding (e)
19,981
20,896
20,943
Book value per share - GAAP (a/e)
Tangible book value per share - Non-GAAP (c/e)
$
41.75
40.48
$
39.40
38.27
$
36.49
35.41
(3) The efficiency ratio, a non-GAAP measure with no GAAP comparable, equals total noninterest expense divided by the sum of net interest income and noninterest
income. The ratio excludes net gains (losses) on sales, calls, and impairment of investment securities, if applicable, and the Company’s net gain from its
November 2019 branch divestiture.
Years Ended December 31, (dollars in thousands)
Net interest income - GAAP
Noninterest income - GAAP
Less: Net gain on branch divestiture
Less: Net gain (loss) on securities
Total adjusted income - Non-GAAP (a)
Noninterest expense - GAAP (b)
$
$
2021
220,594
86,859
—
(69)
307,522
$
182,304
$
$
$
2020
232,315
87,053
—
49
319,319
185,457
$
$
$
2019
236,126
75,008
7,829
78
303,227
172,183
Efficiency Ratio - Non-GAAP (b/a)
59 %
58 %
57 %
(4) The cost of average deposits ratio equals total interest expense on deposits divided by total average interest-bearing deposits plus total average noninterest-
bearing deposits.
(5) FTEs – Full-time-equivalent employees.
(6) RPG operations consist of the TRS and RCS segments.
(7) The delinquent loans to total loans ratio equals loans 30-days-or-more past due divided by total loans. Depending on loan class, loan delinquency is determined
by the number of days or the number of payments past due.
Critical Accounting 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
47
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.
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 the following:
ACLL and Provision — As of December 31, 2021, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s
loan portfolio, which includes overdrawn deposit accounts. Management evaluates the adequacy of the ACLL monthly, and presents
and discusses the ACLL with the Audit Committee and the Board of Directors quarterly.
Effective January 1, 2020, the Company adopted ASC 326 Financial Instruments – Credit Losses, which replaced the pre-January 1,
2020 “probable-incurred” method for calculating the Company’s ACL with the CECL method. CECL is applicable to financial assets
measured at amortized cost, including loan and lease receivables and held-to-maturity debt securities. CECL also applies to certain
off-balance sheet credit exposures.
When measuring an ACL, CECL primarily differs from the probable-incurred method by: a) incorporating a lower “expected”
threshold for loss recognition versus a higher “probable” threshold; b) requiring life-of-loan considerations; and c) requiring
reasonable and supportable forecasts. The Company’s CECL method is a “static-pool” method that analyzes historical closed pools of
loans over their expected lives to attain a loss rate, which is then adjusted for current conditions and reasonable, supportable forecasts
prior to being applied to the current balance of the analyzed pools. Due to its reasonably strong correlation to the Company's historical
net loan losses, the Company has chosen to use the U.S. national unemployment rate as its primary forecasting tool. For its CRE loan
pool, the Company employed a one-year forecast of CRE vacancy rates through March 31, 2021 but discontinued use of this forecast
during the second quarter of 2021 in favor of a one-year forecast of general CRE values. This change in forecast method had no
material impact on the Company’s ACLL.
Management’s evaluation of the appropriateness of the ACLL is often the most critical accounting estimate for a financial institution,
as the ACLL requires significant reliance on the use of estimates and significant judgment as to the reliance on historical loss rates,
consideration of quantitative and qualitative economic factors, and the reliance on a reasonable and supportable forecast.
Adjustments to the historical loss rate for current conditions include differences in underwriting standards, portfolio mix or term,
delinquency level, as well as for changes in environmental conditions, such as changes in property values or other relevant factors.
One-year forecast adjustments to the historical loss rate are based on the U.S. national unemployment rate and CRE values.
Subsequent to the one-year forecasts, loss rates are assumed to immediately revert back to long-term historical averages.
The impact of utilizing the CECL approach to calculate the ACLL is significantly influenced by the composition, characteristics and
quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to
these and other relevant factors may result in greater volatility to the ACLL, and therefore, greater volatility to the Company’s
reported earnings.
See additional detail regarding the Company’s adoption of ASC 326 and the CECL method under Footnote 4 “Loans and Allowance
for Credit Losses” of Part II Item 8 “Financial Statements and Supplementary Data.”
48
Management’s Evaluation of the ACLL
Management evaluates the ACLL for its Core Banking operations separately from its non-traditional RPG operations. Core Banking
operations consist of the Company’s Traditional Banking, Warehouse, and Mortgage Banking segments. RPG operations consist of
the Company’s TRS and RCS segments.
Prior to January 1, 2020, under the probable-incurred standard, management conducted two annual calculations to evaluate the
reasonableness of its Core Bank ACLL:
•
•
an absorption rate, which considered annual net loan losses for the year just ended as a percent of the beginning-of-the-year
ACLL; and
an exhaustion rate, which calculated how many years of charge-offs the beginning-of-year ACLL could withstand based on
gross charge-offs for the year just ended.
Management considered these historic absorption and exhaustion formulas less meaningful as of December 31, 2021 and 2020
because of its January 1, 2020 CECL adoption and because Core Bank loan losses were substantially restrained during 2021 and 2020
by pandemic-related financial relief provided to borrowers.
Management evaluated the reasonableness of its Core Bank ACLL as of December 31, 2021 and 2020 by evaluating modified
absorption and exhaustion rates that account for CECL life-of-loan considerations and the economic hardship and uncertainty brought
about by the COVID-19 pandemic. The modified absorption rate considered total Core Bank net loan losses from 2008 to 2013 as a
percent of the end-of-year Core Bank ACLL. The modified exhaustion rate considered how many years of gross Core Bank loan
charge-offs the end-of-year Core Bank ACLL could withstand based on average annual net Core Bank loan losses from 2008 to 2013.
The years 2008 to 2013 represent a six-year period during which the U.S. unemployment rate rose above 8% and the Core Bank
incurred a historically high period of loan losses relative to an average year of loan losses for the Core Bank. Management believes
Core Bank losses from 2008 to 2013 are more representative of current economic conditions than more recent years just prior to the
onset of the COVID-19 pandemic.
As of December 31, 2021, the weighted average term of the Core Bank loan portfolio was approximately five years, with this term
adjusted to approximately six years after exclusion of the Bank’s short-term/government-guaranteed PPP portfolio and the Bank’s
short-term Warehouse portfolio. The Core Bank’s modified absorption rate was 85% and its modified exhaustion rate was
approximately 6.0 years as of December 31, 2021. Management considers these rates reasonable under current economic conditions.
The table below reflects the Core Bank’s modified and standard exhaustion and absorption rates for each of the last three years:
Years Ended December 31,
Core Bank:
2021
2020
2019
Modified Exhaustion Rate (end-of-year ACLL / median annual charge-offs from 2008 to 2013)
6.01 Yrs. 6.07 Yrs. 3.50 Yrs.
Standard Exhaustion Rate (beginning-of-year ACLL / charge-offs for year)
35.69 Yrs. 13.27 Yrs. 5.52 Yrs.
Modified Absorption Rate (total net charge-offs from 2008 to 2013 / end-of-year ACLL)
85 %
84 %
146 %
Standard Absorption Rate (net charge-offs for the year / beginning-of-year ACLL)
1 %
4 %
15 %
Based on management’s evaluation, a Core Bank ACLL of $52 million, or 1.18% of total Core Bank loans, was an adequate estimate
of expected losses within the loan portfolio as of December 31, 2021 and resulted in Core Banking Provision for its loans of a net
credit of $319,000 during 2021. This compares to an ACLL of $52 million as of December 31, 2020 and a loan Provision of $16.9
million for 2020. If the mix and amount of future charge-off percentages differ significantly from those assumptions used by
management in making its determination, an adjustment to the Core Bank ACLL and the resulting effect on the income statement
could be material.
49
The RPG ACLL as of December 31, 2021 primarily related to loans originated and held for investment through the RCS segment.
RCS generally originates small-dollar, consumer credit products. In some instances, the Bank originates these products, sells 90%-
95% of the balances within three days of loan origination, and retains a 5%-10% interest. RCS loans typically earn a higher yield but
also have higher credit risk compared to loans originated through Core Banking operations, with a significant portion of RCS clients
considered subprime or near-prime borrowers.
As of December 31, 2021, management only evaluated the ACLL on its active RCS products that had incurred meaningful losses
since their inception, which were its line-of-credit products. Due to the general short-term nature of these products, management
utilized its traditional absorption and exhaustion calculations using 2021 net charge-offs with the beginning-of-the-year ACLL. The
absorption and exhaustion rates were 32% and 2.8 years, respectively, both of which were considered reasonable.
RPG maintained an ACLL for all the loan products held at amortized cost and offered through its RCS segment as of December 31,
2021, including its line-of-credit products and its healthcare-receivables products. As of December 31, 2021, the ACLL to total loans
estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables portfolios to as high as 48.96% for its line-
of-credit portfolios. A lower reserve percentage was provided for RCS’s healthcare receivables as of December 31, 2021, as such
receivables have recourse back to the Company’s third-party service providers in the transactions. Based on management’s
calculation, an ACLL of $13.0 million, or 9.1%, of total RPG loans was an adequate estimate of expected losses within the RPG
portfolio as of December 31, 2021.
RPG’s TRS segment offered its EA tax-credit product during the first two months of 2021, 2020, and 2019. An ACLL for losses on
EAs is estimated during the limited, short-term period the product is offered. EAs were repaid, on average, within 32 days of
origination during 2021. Provisions for EA losses are estimated when advances are made during the first quarter of each year and
adjusted to actual net charge-offs as of June 30th of each year. No ACLL for EAs existed as of December 31, 2021 and 2020, as all
EAs originated during the first two months of each year had either been paid off or charged-off by June 30th of each year.
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 funding patterns. Because much of the loan volume occurs each year before that year’s
tax refund funding 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 funding patterns change materially between years.
In response to changes in the legal, regulatory, and competitive environment, management annually reviews and revises the EA’s
product parameters. Further changes in EA product parameters do not ensure positive results and could have an overall material
negative impact on the performance of the EA and therefore on the Company’s financial condition and results of operations.
See additional discussion regarding the EA product under the sections titled:
• Part I Item 1A “Risk Factors”
• Part II Item 8 “Financial Statements and Supplementary Data,” Footnote 4 “Loans and Allowance for Credit Losses”
RPG recorded a net charge of $15.1 million, $14.4 million, and $22.7 million to the Provision during 2021, 2020, and 2019, with the
Provision for each year primarily due to net losses on EAs and growth in short-term, consumer loans originated through the RCS
segment. If the number of future charge-offs on EAs and RCS loans differ significantly from assumptions used by management in
making its determination, an adjustment to the RPG ACLL and the resulting effect on the income statement could be material.
Cancelled TRS Sale Transaction
See Footnote 1 “Summary of Significant Accounting Policies” of Part II Item 8 “Financial Statements and Supplementary Data” for
discussion regarding the cancelled sale of the TRS business and associated litigation.
In connection with the litigation the Bank filed in Delaware Chancery court, the Bank concluded that the Sale Transaction would not
be consummated, and on January 7, 2022, the Bank served Green Dot with a formal notice of termination of the Purchase Agreement
pursuant to Section 7.1(c) of the Purchase Agreement. In response to the formal notice of termination, Green Dot paid the
Termination Fee of $5 million to the Bank during the first quarter of 2022 pursuant to Section 7.2(b) of the Purchase Agreement. As
50
provided by Section 7.2(a) of the Purchase Agreement, the Bank maintains that the Bank’s notice of termination of the Purchase
Agreement and corresponding payment of the Termination Fee does not release Green Dot from any liability, in addition to the
Termination Fee, related to the Sale Transaction occurring before the Bank’s notice of termination. The Bank believes that Green
Dot’s actions have adversely affected the TRS operations, and the Bank is currently determining the extent of its damages. The Bank
will continue to seek the additional monetary damages and equitable relief arising from Green Dot’s actions in the litigation before the
Court.
OVERVIEW
Total Company net income was $86.8 million and Diluted EPS was $4.24 for 2021, compared to net income of $83.2 million and
Diluted EPS of $3.99 for 2020. Table 1 below presents Republic’s financial performance for the years ended December 31, 2021,
2020, and 2019:
Table 1 — Summary
Years Ended December 31, (dollars in thousands, except per share data)
2021
2020
2019
Percent Increase/(Decrease)
2020/2019
2021/2020
Income before income tax expense
Net income
Diluted EPS of Class A Common Stock
ROA
ROE
$ 110,341
86,789
4.24
1.38 %
$ 102,633
83,246
3.99
1.38 %
$ 113,193
91,699
4.39
1.64 %
10.27
10.37
12.49
8 %
4
6
—
(1)
(9)%
(9)
(9)
(16)
(17)
Additional discussion follows in this section of the filing under “Results of Operations.”
General highlights by reportable segment for the year ended December 31, 2021 consisted of the following:
Traditional Banking segment
• Traditional Banking net income increased $15.7 million or 78%.
• Driven primarily by net interest margin compression, which was partially offset by higher PPP loan fee revenue, net interest
income decreased $2.1 million, or 1%, to $157.2 million during 2021. The Traditional Banking net interest margin decreased
24 basis points from 2020 to 2021 to 3.18%.
• Provision decreased $16.3 million to a credit of $38,000 for 2021 compared to a charge of $16.3 million for 2020.
• Noninterest income increased $4.1 million, or 15% during 2021.
• Noninterest expense decreased $3.7 million, or 2% during 2021.
• Gross Traditional Bank loans decreased by $214 million, or 6% from December 31, 2020 to December 31, 2021, driven
primarily by a $336 million decrease in PPP loans.
• Traditional Bank period-end deposits grew $58 million, or 1%, from December 31, 2020 to December 31, 2021.
• Total nonperforming Traditional Bank loans to total Traditional Bank loans was 0.59% as of December 31, 2021 compared to
0.63% as of December 31, 2020.
• Delinquent Traditional Bank loans to total Traditional Bank loans was 0.21% as of December 31, 2021 compared to 0.26% as
of December 31, 2020.
51
Warehouse Lending segment
• Warehouse net income increased $124,000, or 1%, over 2020 to $16.4 million during 2021.
• Warehouse net interest income decreased $739,000, from 2020 while its net interest margin increased to 3.37%, an 18 basis
point rise from 2020 to 2021.
• The Warehouse Provision was a net credit of $281,000 for 2021 compared to net charge of $613,000 for 2020.
• Average committed Warehouse lines increased to $1.4 billion during 2021 from $1.2 billion during 2020.
• Average line usage was 53% during 2021 and 66% during 2020.
Mortgage Banking segment
• Within the Mortgage Banking segment, mortgage banking income decreased $11.9 million, or 37%, from 2020 to 2021.
• Overall, Republic’s sales of secondary market loans totaled $718 million during 2021 compared to $788 million during the
same period in 2020, with the Company’s net cash gain recognized as a percent of total loans sold decreasing to 3.22% in
2021 from 3.64% in 2020.
Tax Refund Solutions segment
• TRS net income increased $902,000, or 8%, from 2020 to 2021.
• TRS net interest income decreased $7.1 million, or 31%, from 2020 to 2021.
• Total EA originations were $250 million for 2021 compared to $388 million for 2020.
• The TRS Provision was $6.7 million for 2021, compared to $13.2 million for 2020.
• Noninterest income was $23.8 million for 2021 compared to $22.8 million for 2020.
• Net RT revenue decreased $49,000, or less than 1%, from 2020 to 2021.
• Noninterest expense was $16.3 million for 2021 compared to $17.5 million for 2020.
Republic Credit Solutions segment
• RCS net income decreased $2.3 million, or 13%, from 2020 to 2021.
• RCS net interest income decreased $1.4 million, or 6%, from 2020 to 2021.
• The RCS Provision was $8.4 million for 2021 compared to $1.2 million for 2020.
• Noninterest income was $11.4 million for 2021 compared to $4.9 million for 2020.
• Noninterest expense increased $283,000, or 8%, during 2021.
• Total nonperforming RCS loans to total RCS loans was 0.05% as of December 31, 2021 compared to 0.04% as of
December 31, 2020.
• Delinquent RCS loans to total RCS loans was 6.48% as of December 31, 2021 compared to 9.23% as of December 31, 2020.
52
RESULTS OF OPERATIONS
This section provides a comparative discussion of Republic’s Results of Operations for the two-year period ended December 31, 2021,
unless otherwise specified. Refer to Results of Operations on pages 52-61 of the Company’s Annual Report on Form 10-K for the
year ended December 31, 2020 (the “2020 Form 10-K”) for a discussion of the 2020 versus 2019 results.
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.
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 with the onset of the COVID-19 pandemic during 2020, as the FOMC reduced the FFTR to
approximately 25 basis points during 2020. With the rise of inflation during the latter half of 2021, the FOMC has signaled a more
aggressive and hawkish approach to its monetary policies over the next few years. Included in its expected actions is raising the FFTR
multiple times, ending its quantitative easing program of buying certain types of bonds in the open market, and implementing a
quantitative tightening program by reducing the size of its balance sheet and selling certain types of bonds in the market.
The FOMC’s signaling of these actions caused long-term market interest rates for bonds and loans to begin to rise rapidly during the
last quarter of 2021 and the first few weeks of 2022. Further monetary tightening by the Federal Reserve in the future will likely
cause both short-term and long-term market interest rates to increase during 2022 and beyond. Increases in market interest rates are
expected to impact the various business segments of the Company differently and will be discussed in further detail in the sections
below.
For additional information on the potential future effect of changes in short-term interest rates on Republic’s net interest income, see
the table titled “Bank Interest Rate Sensitivity as of December 31, 2021 and 2020” under “Financial Condition.”
Total Company net interest income decreased $11.7 million, or 5%, during 2021 compared to the same period in 2020. Total
Company net interest margin decreased to 3.75% during 2021 compared to 4.10% in 2020.
The most significant components affecting the total Company’s net interest income and net interest margin by reportable segment
follow:
Traditional Banking segment
The Traditional Banking segment’s net interest income decreased $2.1 million, or 1%, during 2021 compared to 2020. The Traditional
Banking net interest margin decreased to 3.18% for 2021 compared to 3.42% for 2020.
The following factors primarily impacted the Traditional Bank’s net interest income and net interest margin during 2021:
• Traditional Bank net interest income, excluding PPP fees and interest, decreased $10.0 million, or 7%, from 2020, as the
Traditional Bank’s net interest margin, excluding PPP loans and related fees and interest, declined from 3.41% for 2020 to
2.92% for 2021. The decline in the net interest margin was substantially driven by a 77-basis point decline in the Traditional
Bank’s yield on its average non-PPP interest-earning assets from 2020 to 2021, as the majority of the Traditional Bank’s
growth in interest-earning assets during the previous 12 months was in lower-yielding cash or cash equivalents instead of
loans.
• Partially offsetting the Traditional Bank’s net interest margin compression, the Traditional Bank recognized $20.0 million of
fees and interest on its PPP portfolio during 2021 compared to $12.2 million of similar income during 2020. The $7.8 million
53
increase in PPP fees and interest was driven significantly by the forgiveness, payoff, and paydown of $553 million of PPP
loans during 2021 compared to similar forgiveness, payoff, and paydowns of $127 million in 2020.
As of December 31, 2021, net PPP loans of $56 million remained on the Traditional Bank’s balance sheet, including $15 million in
loan balances originated during 2020, $42 million in loan balances originated during 2021, and $1 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.
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.
Table 2 — Traditional Bank Net Interest Income and Net Interest Margin Excluding PPP (Non-GAAP)
(dollars in thousands)
2021
2020
$ Change % Change
Years Ended Dec. 31,
Years Ended Dec. 31,
2020
2021
$ Change % Change
Net Interest Income
Interest-Earning Assets
Net Interest Margin
Years Ended Dec. 31,
2020
2021
% Change
Traditional Banking - GAAP
Less: Impact of PPP fees and interest
Traditional Banking ex PPP fees and interest - non-GAAP $ 137,220 $ 147,203 $
$ 157,249 $ 159,381 $
12,178
20,029
(2,132)
7,851
(9,983)
(1)% $ 4,945,316
246,451
64
$ 4,698,865
(7)
$ 4,654,315 $ 291,001
(95,253)
$ 4,312,611 $ 386,254
341,704
6 %
(28)
9
3.18 %
0.26
2.92
3.42 %
0.01
3.41
(0.24)%
0.25
(0.49)
As previously disclosed, both short-term and long-term market interest rates are expected to increase during 2022 and beyond as a
result of expected monetary tightening by the FOMC. Additional increases in short-term interest rates and overall market rates are
generally believed by management to be favorable to the Traditional 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 Traditional Bank’s net interest income and net interest margin in the near term.
Increases in market interest rates, however, could have a negative impact on net interest income and net interest margin if the
Traditional 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 Traditional Bank’s net interest income and net interest margin. Variables which
may impact the Traditional Bank’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 Traditional Bank’s financial products and the Traditional Bank’s overall future
liquidity needs.
Warehouse Lending segment
Net interest income decreased $739,000, or 3%, for 2021 compared to 2020. Average outstanding Warehouse balances decreased from
$813 million during 2020 to $748 million during 2021, as falling mortgage rates during 2020 drove a surge in consumer refinance
volume for Warehouse clients. Overall, committed Warehouse lines-of-credit grew from $1.2 billion in 2020 to $1.4 billion in 2021,
while usage rates on those lines were 66% and 53%, respectively, during the same periods. In addition, the Warehouse net interest
margin increased to 3.37% for 2021 compared to 3.19% for 2020, as many of the Bank’s Warehouse clients reached contractual
interest rate floors on their lines-of-credit during the second quarter of 2021, preventing further declines in the segment’s loan yields,
while the segment’s cost of funds continued to decline.
Market interest rates for treasury bonds and mortgages began to rise rapidly, however, during the last quarter of 2021 and the first few
weeks of 2022. With the rise in mortgage rates, mortgage refinance activity began to slow dramatically late in the fourth quarter of
2021, and as a result, Warehouse usage began to decline, as well. This decline in usage, combined with competitive pricing pressures,
caused the Warehouse net interest income and net interest margin to decline meaningfully during the fourth quarter of 2021.
Additional monetary tightening by the FOMC in 2022 will likely further decrease mortgage demand and Warehouse line usage and
increase competitive pressures to the Warehouse segment. These factors are expected to cause a further decline in net interest income
54
and the net interest margin for the Warehouse segment during 2022. The exact amount of the decline in net interest income and net
interest margin is unable to be predicted at this time.
Tax Refund Solutions segment
TRS’s net interest income decreased $7.1 million from 2020 to 2021. TRS’s EA product earned $13.2 million in interest income
during 2021, a $6.4 million decrease from 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 2021.
See additional discussion regarding the EA product under the sections titled:
• Part I Item 1A “Risk Factors”
• Part II Item 8 “Financial Statements and Supplementary Data,” Footnote 4 “Loans and Allowance for Credit Losses”
Overall product demand for the TRS segment is not assumed to be interest rate sensitive and therefore management does not believe a
rising interest rate environment will impact demand for its Easy Advances. A rising interest rate environment, however, likely will
impact the Company’s internal FTP benefit and FTP cost allocated to each of its business segments, which could impact the overall
profitability of a business segment. The impact of rising interest rates to TRS could be positive or negative depending on the exact
change in the internal FTP benefit and FTP cost assigned, as well as, the overall volume and mix of loans and deposits for the
segment.
Republic Credit Solutions segment
RCS’s net interest income decreased $1.4 million, or 6%, from 2020 to 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 $16.2 million during
2021 compared to $18.5 million during the same period in 2020 and accounted for 75% and 78% of all RCS interest income on loans
during the periods. The decrease in loan fees was the direct result of a decline in balances for RCS’s LOC I product following a
reduction of marketing for this product during the second and third quarters of 2020. While the marketing for this product was
reinstated during the fourth quarter of 2020, management believes the ongoing impact of government stimulus payments continued to
reduce demand for this product during the first six months of 2021. Demand for the product began returning closer to historical norms
during the latter half of 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 and any related stimulus programs implemented by the federal government.
Overall product demand for the RCS segment is not assumed to be interest rate sensitive and therefore management does not believe a
rising interest rate environment will impact demand for its various consumer loan products. A rising interest rate environment,
however, likely will impact the Company’s internal FTP cost allocated to this segment. As a result, the impact of rising interest rates
to RCS during 2022 will be negative to the segment’s financial results, although the exact amount of the negative impact will depend
on the internal FTP cost assigned, as well as, the overall volume and mix of loans it generates.
55
Table 3 — Total Company Average Balance Sheets and Interest Rates
(dollars in thousands)
ASSETS
Interest-earning assets:
Federal funds sold and other interest-earning deposits
Investment securities, including FHLB stock (1)
TRS Easy Advance loans (2)
RCS LOC products (2)
Other RPG loans (3) (7)
Outstanding Warehouse lines of credit (4) (7)
Paycheck Protection Program loans (5) (7)
All other Core Bank loans (6) (7)
2021
Years Ended December 31,
2020
2019
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
$
806,811
555,599
26,283
20,662
107,129
747,840
246,451
3,370,912
$
1,108
7,706
13,202
17,199
5,991
27,169
20,029
133,856
0.14 % $
1.39
50.23
83.24
5.59
3.63
8.13
3.97
283,151
584,300
38,843
20,217
105,569
812,862
341,704
3,477,646
$
911
10,303
19,671
18,522
6,101
31,199
12,178
153,373
0.32 % $
1.76
50.64
91.62
5.78
3.84
3.56
4.41
260,131
564,631
33,931
28,110
92,721
653,865
—
3,661,720
$
5,781
15,038
19,114
25,591
7,478
30,815
—
177,066
2.22 %
2.66
56.33
91.04
8.07
4.71
—
4.84
Total interest-earning assets
5,881,687
226,260
3.85
5,664,292
252,258
4.45
5,295,109
280,883
5.30
Allowance for credit losses
(66,481)
(60,008)
(50,624)
Noninterest-earning assets:
Noninterest-earning cash and cash equivalents
Premises and equipment, net
Bank owned life insurance
Other assets (1)
Total assets
167,556
38,428
91,329
189,386
$ 6,301,905
LIABILITIES AND STOCKHOLDERS’ EQUITY
125,904
42,991
67,264
171,422
$ 6,011,865
99,580
45,276
65,682
122,620
$ 5,577,643
Interest-bearing liabilities:
Transaction accounts
Money market accounts
Time deposits
Reciprocal money market and time deposits
Brokered deposits
$
$ 1,580,570
784,777
300,784
226,503
30,863
361
385
3,625
644
24
$
0.02 % $ 1,291,980
739,524
0.05
400,704
1.21
274,725
0.28
206,553
0.08
1,201
1,930
7,868
1,776
2,314
$
0.09 % $ 1,141,084
772,854
0.26
409,301
1.96
207,126
0.65
225,581
1.12
5,626
7,477
8,254
2,739
5,039
0.49 %
0.97
2.02
1.32
2.23
Total interest-bearing deposits
2,923,497
5,039
SSUARs
Federal Reserve PPP Liquidity Facility
Federal Home Loan Bank advances
Subordinated note
231,430
—
29,479
30,732
63
—
57
507
Total interest-bearing liabilities
3,215,138
5,666
0.17
0.03
—
0.19
1.65
0.18
2,913,486
15,089
0.52
2,755,946
29,135
204,797
43,932
211,776
41,240
177
153
3,524
1,000
0.09
0.35
1.66
2.42
236,883
—
595,613
41,240
1,211
—
12,791
1,620
3,415,231
19,943
0.58
3,629,682
44,757
1.06
0.51
—
2.15
3.93
1.23
Noninterest-bearing liabilities and Stockholders’
equity:
Noninterest-bearing deposits
Other liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
2,129,452
112,444
844,871
$ 6,301,905
1,672,442
121,466
802,726
$ 6,011,865
1,120,608
93,072
734,281
$ 5,577,643
Net interest income
Net interest spread
Net interest margin
$ 220,594
$ 232,315
$ 236,126
3.67 %
3.75 %
3.87 %
4.10 %
4.07 %
4.46 %
(1) For the purpose of this calculation, the fair market value adjustment on debt securities is included as a component of other assets.
(2) Interest income for Easy Advances and RCS line-of-credit products is composed entirely of loan fees.
(3) Interest income includes loan fees of $2.6 million, $1.4 million, and $1.4 million for 2021, 2020, and 2019.
(4) Interest income includes loan fees of $3.1 million, $3.4 million, and $2.9 million for 2021, 2020, and 2019.
(5) Interest income includes loan fees of $17.5 and $8.6 million for 2021 and 2020.
(6) Interest income includes loan fees of $4.1 million, $3.4 million, and $5.4 million for 2021, 2020, and 2019.
(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.
56
Table 4 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 4 — Total Company Volume/Rate Variance Analysis
(in thousands)
Interest income:
Year Ended December 31, 2021
Compared to
Year Ended December 31, 2020
Year Ended December 31, 2020
Compared to
Year Ended December 31, 2019
Total Net
Change
Increase / (Decrease) Due to
Volume
Rate
Total Net
Change
Increase / (Decrease) Due to
Volume
Rate
$
Federal funds sold and other interest-earning deposits
Investment securities, including FHLB stock
TRS Easy Advance loans*
RCS LOC products
Other RPG loans
Outstanding Warehouse lines of credit
Paycheck Protection Program loans
All other Core Bank loans
Net change in interest income
Interest expense:
Transaction accounts
Money market accounts
Time deposits
Reciprocal money market and time deposits
Brokered deposits
SSUARs
Federal Reserve PPP Liquidity Facility
Federal Home Loan Bank advances
Subordinated note
Net change in interest expense
197
(2,597)
(6,469)
(1,323)
(110)
(4,030)
7,851
(19,517)
(25,998)
(840)
(1,545)
(4,243)
(1,132)
(2,290)
(114)
(153)
(3,467)
(493)
(14,277)
$
$
947
(486)
(7,242)
401
89
(2,416)
(4,172)
(4,597)
(17,476)
$
(750)
(2,111)
773
(1,724)
(199)
(1,614)
12,023
(14,920)
(8,522)
222
111
(1,665)
(270)
(1,093)
20
(153)
(1,710)
(219)
(4,757)
(1,062)
(1,656)
(2,578)
(862)
(1,197)
(134)
—
(1,757)
(274)
(9,520)
$
(4,870)
(4,735)
557
(7,069)
(1,377)
384
12,178
(23,693)
(28,625)
(4,425)
(5,547)
(386)
(963)
(2,725)
(1,034)
153
(9,267)
(620)
(24,814)
$
471
507
(59)
(7,231)
939
6,704
12,178
(8,616)
4,893
659
(309)
(172)
716
(394)
(144)
153
(6,868)
—
(6,359)
(5,341)
(5,242)
616
162
(2,316)
(6,320)
—
(15,077)
(33,518)
(5,084)
(5,238)
(214)
(1,679)
(2,331)
(890)
—
(2,399)
(620)
(18,455)
Net change in net interest income
$
(11,721)
$
(12,719)
$
998
$
(3,811)
$
11,252
$
(15,063)
*Since interest income for Easy Advances is composed entirely of loan fees and EAs are only offered during the first two months of
each year, volume and rate measurements for this product are based on total EAs originated instead of average EA balances during
the period. EA originations totaled $250 million, $388 million, and $389 million for the years ended December 31, 2021, 2020, and
2019. The unannualized EA yield as a function of total EA originations was 5.28%, 5.07%, and 4.91% for the years ended December
31, 2021, 2020, and 2019.
57
Provision
The Company recorded a Provision of $14.8 million during 2021 compared to $31.3 million in 2020. The most significant components
comprising the Company’s Provision by reportable segment follow:
Traditional Banking segment
The Traditional Banking Provision during 2021 was a net credit of $38,000 compared to a net charge of $16.3 million for 2020. An
analysis of the Provision for 2021 compared to the same period in 2020 follows:
• For 2021, there was a minimal net credit to the Traditional Bank Provision, generally based on an improving economic
outlook in conjunction with limited net charge-offs incurred by the Traditional Bank, with significant life-of-loan loss
reserves recorded during 2020 following the onset of the pandemic. The net credit recorded during 2021 primarily included
ACLL releases for the residential real estate, HELOC, and consumer portfolios offset by additional reserves through
December 31, 2021 for certain Special Mention loans with continued signs of pandemic-related hardships.
• During 2020, the Traditional Bank recorded $19.6 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 2020 was a
reduction in Provision of $4.4 million consistent with a $274 million decrease in non-PPP Traditional Bank loan portfolio
spot balances from December 31, 2019 to December 31, 2020.
As a percentage of total Traditional Bank loans, the Traditional Bank ACLL was 1.41% as of December 31, 2021 compared to 1.34%
as of December 31, 2020. Traditional Bank ACLL to total non-PPP Traditional Bank loans, a non-GAAP measure, was 1.43% as of
December 31, 2021 compared to 1.50% as of December 31, 2020. The Company believes, based on information presently available,
that it has adequately provided for Traditional Bank loan losses as of December 31, 2021.
Due to the near risk-free nature of the Bank’s PPP portfolio, management believes Traditional Bank ACLL to total non-PPP
Traditional Bank loans is a more appropriate measure to analyze the Traditional Bank’s ACLL adequacy. The following table
reconciles Traditional Bank ACLL to total Traditional Bank loans to Traditional Bank ACLL to total non-PPP Traditional Bank loans,
a non-GAAP measure.
Table 5 — Traditional Bank ACLL to Non-PPP Traditional Bank Loans (Non-GAAP)
(dollars in thousands)
Gross Loans Allowance
Allowance
to Loans
Gross Loans Allowance
Allowance
to Loans
Years Ended December 31,
2021
2020
Traditional Bank - GAAP
Less: Paycheck Protection Program
Traditional Bank, Less PPP - non-GAAP $ 3,445,945 $
$ 3,501,959 $
56,014
49,407
—
49,407
1.41 %$ 3,715,649 $
392,319
1.43 $ 3,323,330 $
49,699
—
49,699
1.34 %
1.50
See the sections titled “Allowance for Credit Losses” and “Asset Quality” in this section of the filing under “Financial Condition” for
additional discussion regarding the Provision and the Bank’s delinquent, nonperforming, impaired, and TDR loans.
Warehouse Lending segment
The Warehouse Provision was a net credit of $281,000 for 2021 compared to a net charge of $613,000 for 2020. Provision expense for
both 2021 and 2020 reflected the changes in general reserves for fluctuations in outstanding balances during the periods. Outstanding
Warehouse balances decreased $112 million during 2021 and increased $246 million during 2020.
As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was 0.25% as of December 31, 2021 and 2020. The
Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses as of
December 31, 2021.
58
Tax Refund Solutions segment
TRS recorded a net charge to the Provision of $6.7 million during 2021 compared to a net charge of $13.2 million in 2020.
TRS’s Provision for EA loan losses was $6.7 million, or 2.69% of its $250 million in EAs originated during 2021, compared to a
Provision of $13.0 million, or 3.36% of its $388 million in EAs originated during 2020. The lower Provision during 2021 resulted
from a $138 million decrease in EAs originated and better repayment rates on EA loans from the U.S. Treasury over those attained
during 2020. 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 2021. Management also
believes the better repayment rates in 2021 as compared to 2020 were a result of the negative impact of the COVID-19 pandemic to
the 2020 payments’ process. As of December 31, 2021 and 2020, all unpaid EAs originated during each year had been charged-off.
See additional detail regarding the EA product under Footnote 4 “Loans and Allowance for Credit Losses” of Part II Item 8
“Financial Statements and Supplemental Data.”
Republic Credit Solutions segment
RCS recorded a Provision of $8.4 million during 2021, an increase of $7.2 million compared to 2020. The increase in the Provision
was driven by an increase in outstanding balances for RCS’s lines of credit during 2021 compared to a decrease in similar balances
during 2020. The Company reduced marketing for its LOC I product during the second and third quarters of 2020 and reinstated such
marketing during the fourth quarter of 2020. While management believes the ongoing impact of government stimulus payments
continued to reduce demand for this product during the first six months of 2021, demand for the product began returning closer to
historical norms during the latter half of 2021.
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 13.91% and 7.94% as of December 31, 2021 and 2020. The Company believes,
based on information presently available, that it has adequately provided for RCS loan losses as of December 31, 2021.
The following table presents RCS Provision by product:
Table 6 — RCS Provision by Product
Years Ended December 31, (in thousands)
Product:
Line of credit
Hospital receivables
Total
2021
2020
2019
Percent Increase/(Decrease)
2021/2020
2020/2019
$
$
8,509
(65)
8,444
$
$
1,178 $
41
1,219 $
11,388
55
11,443
622 %
(259)
593
(90)%
(25)
(89)
59
Noninterest Income
Table 7 — Analysis of Noninterest Income
Years Ended December 31, (dollars in thousands)
2021
2020
2019
2021/2020
2020/2019
Percent Increase/(Decrease)
Service charges on deposit accounts
Net refund transfer fees
Mortgage banking income
Interchange fee income
Program fees
Increase in cash surrender value of bank owned life insurance
Death benefits in excess of cash surrender value of life insurance
Net (losses) gains on other real estate owned
Net gain on branch divestiture
Other
Total noninterest income
NM - Not meaningful
$
$
12,553
20,248
19,994
13,062
14,521
2,242
979
(160)
—
3,420
86,859
$
$
11,615
20,297
31,847
11,188
7,095
1,585
—
(40)
—
3,466
87,053
$
$
14,197
21,158
9,499
11,859
4,712
1,550
—
540
7,829
3,664
75,008
8 %
—
(37)
17
105
41
NM
(300)
NM
(1)
—
(18)%
(4)
235
(6)
51
2
NM
(107)
(100)
(5)
16
Total Company noninterest income decreased $194,000 for 2021 compared to 2020. The following were the most significant
components comprising the total Company’s noninterest income by reportable segment:
Traditional Banking segment
Traditional Banking noninterest income increased $4.1 million, or 15%, for 2021 compared to 2020. Service Charges on Deposit
Accounts increased $935,000 from 2020 to 2021, while Interchange Fee Income increased $1.8 million comparing the same years.
Service Charges on Deposit Accounts were below normal levels during 2020, as a pandemic-driven rise in the consumer savings rate
drove a reduction in the Bank’s overdraft-related fees. Both Interchange Fee Income and Service Charges on Deposits began to trend
upward during the first quarter of 2021, following the removal of pandemic-related restrictions.
The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its
customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included
in service charges on deposits for 2021 and 2020 were $5.6 million and $5.5 million. The total daily overdraft charges, net of refunds,
included in interest income in 2021 and 2020 were $1.1 million and $809,000. The Bank suspended its daily overdraft charges during
the first eight months of 2020 to help mitigate 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 for 2021 decreased $11.9 million, or 37%, compared to 2020. For
2021, the Core Bank sold $718 million in secondary market loans and achieved an average gain-as-a-percent-of-loans-sold during the
year of 3.22%, with comparable originations of $788 million and comparable gains of 3.64% during 2020. Favorable market
conditions drove historically high gain percentages for the Core Bank and the mortgage industry, in general, during the last nine
months of 2020 and into January 2021. These favorable conditions began to normalize during February 2021 causing the Core Bank’s
gain-as-a-percent-of-loans-sold to trend toward more normal historical levels at or near 2.50%.
With the rise of inflation during the latter half of 2021, the FOMC has signaled a more aggressive and hawkish approach to its
monetary policies over the next few years. Included in its expected actions is raising the FFTR multiple times, ending its quantitative
easing program of buying certain types of bonds in the open market, and implementing a quantitative tightening program by reducing
the size of its balance sheet and selling certain types of bonds in the market. The FOMC’s signaling of these actions caused market
interest rates for treasury bonds and mortgages to begin to rise rapidly during the last quarter of 2021 and the first few weeks of 2022.
With the rise in mortgage rates, mortgage refinance activity began to slow dramatically late in the fourth quarter of 2021, and as a
result, mortgage origination volume began to decline significantly. Further monetary tightening by the FOMC in 2022 will likely
further decrease mortgage demand. In addition, a decrease in mortgage demand across the mortgage industry could also cause
competitive pricing pressure on the Bank to lower its mortgage pricing in order to maintain higher volumes, causing its cash-gains-as-
60
a-percentage-of-loans-sold to decline. The Bank will likely experience decreased Mortgage Banking revenue during 2022 due to
expected rising market interest rates and strong industry competition and pricing pressures.
Tax Refund Solutions segment
Within the TRS segment, noninterest income increased $1.0 million, or 4%, during 2021 compared to 2020. This increase primarily
reflected a $978,000 increase in prepaid card program fees. Prepaid card program fees benefited from government stimulus payments
during 2021 and a full year’s benefit of the Company’s May 1, 2020 assumption of approximately $250 million in prepaid card
balances.
Republic Credit Solutions segment
Within the RCS segment, noninterest income increased $6.4 million, with program fees representing the entirety of RCS’s noninterest
income. Pandemic-driven restrictions negatively impacted RCS program fees during 2020, with those program fees beginning to
normalize during 2021 following the removal of the pandemic-driven restrictions.
The following table presents RCS program fees by product:
Table 8 — RCS Program Fees by Product
Years Ended December 31, (in thousands)
Product:
Line of credit
Hospital receivables
Installment loans*
Total
2021
2020
2019
Percent Increase/(Decrease)
2020/2019
2021/2020
$
$
5,333
268
5,749
11,350
$
$
3,119
102
1,681
4,902
$
$
4,392
232
(349)
4,275
71 %
163
242
132
(29)%
(56)
(582)
15
*The Company has elected the fair value option for this product, with mark-to-market adjustments recorded as a component of program fees.
Noninterest Expense
Table 9 — Analysis of Noninterest Expense
Years Ended December 31, (dollars in thousands)
2021
2020
2019
Percent Increase/(Decrease)
2020/2019
2021/2020
Salaries and employee benefits
Technology, equipment, and communication
Occupancy
Marketing and development
FDIC insurance expense
State and local bank franchise tax expense
Interchange related expense
Other real estate owned and other repossession expense
Legal and professional fees
FHLB advances early termination penalties
Other
Total noninterest expense
$ 110,088
28,900
13,193
4,325
1,591
1,329
4,960
(30)
4,924
—
13,024
$ 182,304
$ 106,166
29,128
13,438
4,031
1,010
5,369
4,303
46
4,244
2,108
15,614
$ 185,457
$
99,181
25,048
12,926
5,023
743
5,293
4,870
326
3,357
—
15,416
$ 172,183
4 %
(1)
(2)
7
58
(75)
15
(165)
16
NM
(17)
(2)
7 %
16
4
(20)
36
1
(12)
(86)
26
NM
1
8
Total Company noninterest expense decreased $3.2 million, or 2%, during 2021 compared to 2020. The most significant components
comprising the change in noninterest expense by reportable segment follow:
61
Traditional Banking segment
For 2021, compared to 2020, Traditional Banking noninterest expense decreased $3.7 million, or 2%. The following were the most
significant categories affecting the change in noninterest expense:
• Bank Franchise Tax expense decreased $2.4 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.
• The Traditional Bank incurred $2.1 million in early termination penalties upon payoff of $60 million of FHLB term
advances during the fourth quarter of 2020.
• Other expenses decreased $2.0 million. Within this decrease, Provision for credit losses on off-balance sheet credit
exposures decreased $470,000, 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, and ATM promotions, with most of these decreases
generally driven by the impact of the ongoing COVID-19 pandemic.
• Partially offsetting the decreases above, Salaries and benefits expense increased approximately $1.8 million, or 2%, primarily
driven by annual merit increases and increases in contract labor, equity compensation, payroll taxes, and health benefits.
•
Interchange-related expense increased $688,000, or 16%, as transaction volume began rising to more normalized levels
during the first quarter of 2021 following the removal of pandemic-related restrictions.
Tax Refund Solutions segment
TRS noninterest expense decreased $1.2 million, or 7%, during 2021 compared to 2020. The decline resulted primarily from a $1.5
million decrease in allocated bank franchise tax expense.
See additional detail regarding the Bank’s lawsuit against Green Dot under Footnote 1 “Summary of Significant Accounting
Policies” of Part II Item 8 “Financial Statements and Supplemental Data.”
Income Tax Expense
The Company’s effective tax rate was approximately 21% in 2021 and 19% in 2020.
The following items provided $2.4 million in federal income tax benefits during 2021 and drove the Total Company’s federal effective
tax rate for that period lower than the federal corporate tax rate of 21%. However, the overall Total Company’s combined federal and
state effective tax rate was 21.34%, which was higher than previous years due to the Kentucky corporate income tax filing
requirement beginning in 2021.
• The Company recognized $2.0 million in income tax benefits for low-income-housing investments and R&D credits during
2021. The low-income-housing investments were attributable to the Company’s Traditional Banking segment, while the
R&D credits were allocated among the Traditional Banking, TRS, and RCS segments.
• The Company recognized $226,000 in income tax benefits associated with equity compensation during 2021. Substantially
all of this benefit was attributed to the Company’s Traditional Banking segment.
• The Company recognized $206,000 in income tax benefits for non-recurring death benefit revenue related to the Company’s
bank owned life insurance policies.
62
The following items provided $3.1 million in federal income tax benefits during 2020 and drove the Total Company’s effective tax
rate for that period lower than the federal corporate tax rate of 21%:
• Prior to January 1, 2021, as a financial institution doing business in Kentucky, the Bank was subject to a capital-based
Kentucky bank franchise tax and exempt from Kentucky corporate income tax. In March 2019, Kentucky enacted HB354 and
transitioned the Bank from the bank franchise tax to a corporate income tax beginning January 1, 2021. In 2020, the
Company recorded an additional deferred tax asset, net of the federal benefit, of $1 million due to the enactment of HB354,
with the majority of this benefit attributed to the Company’s Traditional Banking segment.
• The Company recognized $2.1 million in income tax benefits for low-income-housing investments and R&D credits during
2020. The low-income-housing investments were attributable to the Company’s Traditional Banking segment, while the
R&D credits were allocated among the Traditional Banking, TRS, and RCS segments.
See additional detail regarding the Company’s Income Tax Expense under Footnote 19 “Income Taxes” of Part II Item 8 “Financial
Statements and Supplemental Data.”
FINANCIAL CONDITION
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 $757 million in cash and cash equivalents as of December 31, 2021 compared to $486 million as of
December 31, 2020. For cash held at the FRB, the Bank earns a yield on amounts more than required reserves. This yield increased
from 0.10% at January 1, 2021 to 0.15% as of December 31, 2021. For cash held within the Bank’s banking center and ATM
networks, the Bank does not earn interest.
The growth in cash balances was driven by continued growth in deposit balances along with a continued general decline in loans,
particularly within the PPP loan category. Given the near-term risk of inflation and rising market interest rates, combined with the
requirement that the term of the investments would have to be extended in order to pick up a meaningful increase in the overall yield,
management chose to not redeploy significant excess cash into the investment portfolio through October 31, 2021. During the fourth
quarter of 2021, however, management began evaluating potential changes to its existing strategy to redeploy excess cash as a result
of a recent steepening of the yield curve. Management believes the Company will likely start deploying some of its excess cash into
longer-term, higher yielding securities, as compared to the overnight nature of its cash earning 0.15% at the Federal Reserve during
2021. The overall amount and timing of investments that could be purchased, as well as the term of the investments that could be
purchased, will depend on many factors including, but not limited to, the Company’s overall current and projected liquidity positions,
its customers’ demand for its loans and deposit products, the interest rate environment at the time, as well as the anticipated interest
rate environment in the near and long term.
The Company’s Captive maintains cash reserves to cover insurable claims. Captive cash reserves totaled approximately $4 million and
$3 million as of December 31, 2021 and 2020.
63
Investment Securities
Table 10 — Investment Securities Portfolio
December 31, (in thousands)
2021
2020
2019
Available-for-sale debt securities (fair value):
U.S. Treasury securities and U.S. Government agencies
Private label mortgage-backed security
Mortgage-backed securities - residential
Collateralized mortgage obligations
Corporate bonds
Trust preferred security
Total available-for-sale debt securities
Held-to-maturity debt securities (carrying value):
U.S. Treasury securities and U.S. Government agencies
Mortgage backed securities - residential
Collateralized mortgage obligations
Corporate bonds
Obligations of state and political subdivisions
Total held-to-maturity debt securities
Equity securities with a readily determinable fair value (fair value):
Freddie Mac preferred stock
Community Reinvestment Act mutual fund
Total equity securities with a readily determinable fair value
$
237,459
2,731
210,749
30,294
10,046
3,847
495,126
—
46
9,080
34,928
245
44,299
170
2,450
2,620
$
$
246,909
2,957
211,202
48,952
10,043
3,800
523,863
—
99
13,061
39,808
356
53,324
560
2,523
3,083
134,640
3,495
255,847
63,371
10,002
4,000
471,355
—
104
16,970
44,995
462
62,531
714
2,474
3,188
Total investment securities
$
542,045
$
580,270
$
537,074
AFS debt securities primarily consists of U.S. Treasury securities and U.S. Government agency obligations, including agency MBS
and agency CMOs. The agency MBSs primarily consist of hybrid mortgage investment securities, as well as other adjustable rate
mortgage investment securities, underwritten and guaranteed by the GNMA, the FHLMC and the FNMA. Agency CMOs held in the
investment portfolio are substantially all floating rate securities that adjust monthly. The Bank uses a portion of the investment
securities portfolio as collateral to Bank clients for SSUARs. The remaining eligible securities that are not pledged to secure client
SSUARs may be pledged to the FHLB as collateral for the Bank’s borrowing line.
During 2021, the Bank purchased $212 million in investment debt securities, allocated among $81 million in MBSs, $40 in U.S.
Treasuries, and $91 million in U.S. government agencies. The mortgage-backed securities that were purchased had an expected
weighted-average yield of approximately 1.30% and a weighted average maturity at purchase of 14.4 years. The U.S. Treasuries had
an expected weighted-average yield of approximately 0.43% and a weighted average life at purchase of 2.3 years. The U.S.
Government agencies purchased had an expected weighted average yield of approximately 1.16% and a weighted average life of 6.4
years.
From 2013 to 2019, the Bank purchased various floating-rate corporate bonds. These bonds were rated “investment grade” by
accredited rating agencies as of their respective purchase dates. The total fair value of the Bank’s corporate bonds represented 8% and
10% of the Bank’s investment portfolio as of December 31, 2021 and 2020. During 2019, one of these bonds was downgraded to
BBB+ (S&P/Fitch), driving a significant decrease in the bond’s market value. As of December 31, 2021, this bond had recovered its
lost value and reflected an unrealized gain of $46,000.
64
Strategies for the investment securities portfolio are influenced by economic and market conditions, loan demand, deposit mix, and
liquidity needs. For the past several years, the Bank has continued to utilize a general strategy within the investment portfolio of
purchasing securities with shorter-term durations or maintain a large amount cash at the Federal Reserve. The Bank has used this
general strategy for liquidity purposes and as an interest rate risk management tool in what has been a long period of historically low
interest rates. As discussed in the previous section, however, this strategy could likely change in 2022 with an opportunity to earn
higher yields on investments with maturities longer than overnight cash. As previously noted, however, the overall amount and timing
of investments that could be purchased, as well as the term of the investments that could be purchased, will depend on many factors
including, but not limited to, the Company’s overall current and projected liquidity positions, its customers’ demand for its loans and
deposit products, the interest rate environment at the time, as well as the anticipated interest rate environment in the near and long
term.
Table 11 — Available-for-Sale Debt Securities
December 31, 2021 (dollars in thousands)
U.S. Treasury securities and U.S. Government agencies:
Due in one year or less
Due from one year to five years
Due from five years to 10 years
Total U.S. Treasury securities and U.S. Government agencies
Corporate bonds:
Due from one year to five years
Total Corporate bonds
Trust preferred security, due beyond ten years
Private label mortgage backed security
Total mortgage backed securities - residential
Total collateralized mortgage obligations
Total available-for-sale debt securities
Table 12 — Held-to-Maturity Debt Securities
December 31, 2021 (dollars in thousands)
Corporate bonds:
Due from one year to five years
Total corporate bonds
Obligations of state and political subdivisions:
Due from one year or less
Due from one year to five years
Total obligations of state and political subdivisions
Total mortgage backed securities - residential
Total collateralized mortgage obligations
Total held-to-maturity debt securities
Amortized
Cost
Fair
Value
Weighted
Average
Yield
Weighted
Average
Maturity in
Years
$
$
30,058
189,822
20,000
239,880
10,000
10,000
3,684
1,418
207,697
29,947
492,626
$
$
30,307
187,570
19,582
237,459
10,046
10,046
3,847
2,731
210,749
30,294
495,126
1.53 %
0.85
1.00
0.95
1.12
1.12
5.48
7.96
1.87
1.37
1.42
0.64
3.46
5.16
3.25
1.29
1.29
15.43
11.63
12.60
16.35
8.06
Carrying
Value
Fair
Value
Weighted
Average
Yield
Weighted
Average
Maturity in
Years
$
34,975
34,975
$
35,232
35,232
1.26 %
1.26
120
125
245
46
9,080
44,346
$
121
127
248
46
9,238
44,764
$
1.80
1.90
1.85
2.34
0.88
1.18
1.99
1.99
0.58
1.58
1.09
8.44
12.74
4.19
See Footnote 2 “Investment Securities” of Part II Item 8 “Financial Statements and Supplementary Data” for further information
regarding the Bank’s investment securities.
65
Loan Portfolio
Table 13 — Loan Portfolio Composition
December 31, (in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit*
Total Core Banking
Republic Processing Group*:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
Total loans**
Allowance for credit losses
Total loans, net
2021
2020
2019
$
$
820,731
306,323
1,456,009
129,337
340,363
56,014
8,637
142,894
210,578
14,510
683
14,448
1,432
3,501,959
850,550
4,352,509
—
50,987
93,066
144,053
$
879,800
264,780
1,349,085
98,674
325,596
392,319
10,130
101,375
240,640
14,196
587
30,300
8,167
3,715,649
962,796
4,678,445
—
23,765
110,893
134,658
949,568
258,803
1,303,000
159,702
465,674
—
14,040
70,443
293,186
17,836
1,522
52,923
9,234
3,595,931
717,458
4,313,389
—
14,365
105,397
119,762
4,496,562
(64,577)
4,813,103
(61,067)
4,433,151
(43,351)
$
4,431,985
$
4,752,036
$
4,389,800
* Identifies loans to borrowers located primarily outside of the Bank’s market footprint.
** Total loans are presented inclusive of premiums, discounts and net loan origination fees and costs.
Gross loans decreased by $317 million, or 7%, during 2021 to $4.5 billion as of December 31, 2021. The most significant components
comprising the change in loans by reportable segment follow:
Traditional Banking segment
Period-end balances for Traditional Banking loans decreased $214 million, or 6%, during 2021. The following primarily drove the
change in loan balances:
• The Traditional Bank’s PPP portfolio decreased $336 million during 2021. To facilitate pandemic relief for the communities
it serves, the Traditional Bank originated 3,700 PPP loans totaling $528 million during 2020 and another 1,900 PPP loans
totaling $210 million in early 2021. As of December 31, 2021, net PPP loans of $56 million remained on the Traditional
Bank’s balance sheet, including $15 million in loan balances originated during 2020, $42 million in loan balances originated
during 2021, and $1 million of yet-to-be-earned PPP lender fees reported as a credit offset to these originated balances.
66
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 $59 million and $30 million during 2021.
These decreases largely reflected 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 $106 million and the Aircraft category increased $42 million, as
lending activity began normalizing following the removal of pandemic-driven restrictions during 2021.
Warehouse Lending segment
Outstanding Warehouse period end balances decreased $112 million during 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.
As discussed earlier in this document, management believes it is likely Warehouse usage and balances will likely decline in 2022 with
an expected rise in market interest rates.
Republic Credit Solutions segment
Outstanding RCS loans decreased $18 million during 2021 primarily reflecting a $26 million decrease in hospital receivables partially
offset by a $9 million increase in outstanding balances for RCS’s line-of-credit products. The increase in balances for RCS’s line-of-
credit product was the direct result of incremental increases in marketing for its LOC I product since the third quarter of 2020.
Marketing for this product had been limited during the first half of 2020 due to pandemic-related concerns.
67
The table below illustrates the Bank’s fixed and variable rate loan maturities:
Table 14 — Selected Loan Distribution
December 31, 2021 (in thousands)
Total
One Year
Or Less
Over One
Through
Five Years
Over Five
Through
15 Years
Over
15 Years
Fixed rate loan maturities:
Residential real estate
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Warehouse lines of credit
Home equity
Consumer
Total fixed rate loans
Variable rate loan maturities:
Residential real estate
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Warehouse lines of credit
Home equity
Consumer
Total variable rate loans
Total:
Residential real estate
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Warehouse lines of credit
Home equity
Consumer
Total loans
$
$
$
$
$
$
623,689
629,600
48,609
217,665
56,014
6,099
142,894
—
1,678
42,649
1,768,897
503,365
826,409
80,728
173,685
—
2,538
—
850,550
208,900
81,490
2,727,665
1,127,054
1,456,009
129,337
391,350
56,014
8,637
142,894
850,550
210,578
124,139
4,496,562
$
$
$
$
$
$
17,475
25,015
11,988
39,175
14,636
1,284
—
—
795
28,105
138,473
1,190
55,157
12,048
50,876
—
865
—
850,550
9,298
14,510
994,494
18,665
80,172
24,036
90,051
14,636
2,149
—
850,550
10,093
42,615
1,132,967
$
$
$
$
$
$
17,439
82,110
22,064
99,868
41,378
—
—
—
829
14,134
277,822
22,645
150,281
7,405
78,385
—
—
—
—
60,433
—
319,149
40,084
232,391
29,469
178,253
41,378
—
—
—
61,262
14,134
596,971
$
$
$
$
$
$
294,434
521,981
14,557
56,316
—
4,815
52,829
—
54
340
945,326
166,292
593,759
60,615
24,424
—
1,673
—
—
139,169
66,947
1,052,879
460,726
1,115,740
75,172
80,740
—
6,488
52,829
—
139,223
67,287
1,998,205
$
$
$
$
$
$
294,341
494
—
22,306
—
—
90,065
—
—
70
407,276
313,238
27,212
660
20,000
—
—
—
—
—
33
361,143
607,579
27,706
660
42,306
—
—
90,065
—
—
103
768,419
Loans at maturity interval to overall total loans
100 %
25 %
13 %
44 %
17 %
Allowance for Credit Losses
As of December 31, 2021, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which
includes overdrawn deposit accounts. The Bank also maintained an ACLS and an ACLC for expected losses in its securities portfolio
and its off-balance sheet credit exposures, respectively. Management evaluates the adequacy of the ACLL monthly, and the adequacy
of the ACLS and ACLC quarterly. All ACLs are presented and discussed with the Audit Committee and the Board of Directors
quarterly.
The Company’s ACLL increased $4 million from $61 million as of December 31, 2020 to $65 million as of December 31, 2021. As a
percent of total loans, the total Company’s ACLL increased to 1.44% as of December 31, 2021 compared to 1.27% as of December
31, 2020. An analysis of the ACL by reportable segment follows:
68
Traditional Banking segment
• The Traditional Banking ACLL decreased approximately $292,000 from December 31, 2020 to $49 million as of
December 31, 2021 driven primarily by net charge-offs during 2021.
• The Traditional Bank decreased its ACLS $131,000 during 2021 to $47,000 as of December 31, 2021 based on improved PD
and LGD expectations on its corporate bond portfolios.
• The Traditional Bank increased its ACLC $63,000 during 2021 to $1.1 million as of December 31, 2021 based on an increase
in available credit lines.
Warehouse Lending segment
The Warehouse ACLL decreased to approximately $2.1 million, and the Warehouse ACLL to total Warehouse loans remained at
0.25% when comparing December 31, 2021 to December 31, 2020. As of December 31, 2021, the Warehouse ACLL was entirely
qualitative in nature with no adjustments to the qualitative reserve percentage required for 2021.
Republic Credit Solutions segment
The RCS ACLL increased $4 million during 2021 from $9 million as of December 31, 2020 to $13 million as of December 31, 2021,
with this increase driven by growth in balances on RCS’s line-of-credit products.
RCS maintained an ACLL for two distinct credit products offered as of December 31, 2021, including its line-of-credit products and
its healthcare-receivables products. As of December 31, 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.
For additional discussion regarding Republic’s methodology for determining the adequacy of the ACLL, see the section titled
“Critical Accounting Policies and Estimates” in this section of the filing.
See additional detail regarding Republic Credit Solution’s loan products under Item 1 “Business.”
69
Table 15 — Summary of Loan and Lease Loss Experience
Years Ended December 31, (dollars in thousands)
2021
2020
2019
ACLL at beginning of period
Adoption of ASC 326
Charge-offs:
Traditional Banking:
Residential real estate
Commercial real estate
Commercial & industrial
Home equity
Consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
Total charge-offs
Recoveries:
Traditional Banking:
Residential real estate
Commercial real estate
Commercial & industrial
Home equity
Consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
Total recoveries
Net loan recoveries (charge-offs)
Provision - Core Banking
Provision - RPG
Total Provision
ACLL at end of period
Credit Quality Ratios - Total Company:
ACLL to total loans
ACLL to nonperforming loans
Net loan charge-offs (recoveries) to average loans
Credit Quality Ratios - Core Banking:
ACLL to total loans
ACLL to nonperforming loans
Net loan charge-offs (recoveries) to average loans
$
61,067
$
43,351
$
44,675
—
6,734
—
—
(428)
(86)
(51)
(895)
(1,460)
—
(1,460)
(10,256)
(51)
(4,707)
(15,014)
(16,474)
396
82
76
46
475
1,075
—
1,075
3,533
29
408
3,970
5,045
(169)
(795)
(310)
(14)
(1,481)
(2,769)
—
(2,769)
(19,575)
(234)
(6,163)
(25,972)
(28,741)
182
472
122
115
508
1,399
—
1,399
6,542
2
629
7,173
8,572
(683)
(1,407)
(1,505)
(64)
(2,054)
(5,713)
—
(5,713)
(13,425)
(692)
(12,566)
(26,683)
(32,396)
414
4
9
72
628
1,127
—
1,127
2,782
213
1,192
4,187
5,314
(11,429)
(188)
15,127
14,939
64,577
$
(20,169)
(27,082)
16,743
14,408
31,151
61,067
$
3,066
22,692
25,758
43,351
$
1.44 %
314
0.25
1.18 %
251
0.01
1.27 %
259
0.42
1.11 %
221
0.03
0.98 %
185
0.61
0.70 %
129
0.11
70
Table 16 — Net Loan Charge-offs (Recoveries) to Average Loans by Loan Category
Years ended December 31, (in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances*
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
Total
Net Loan Charge-Offs (Recoveries) to Average Loans
2020
2021
2019
(0.04)%
—
0.03
—
—
—
—
—
—
0.65
51.69
(0.10)
0.27
0.01
—
0.01
26.58
0.19
3.93
7.42
0.25
— %
—
0.02
—
0.05
—
—
—
(0.04)
1.46
93.94
0.08
0.58
0.04
—
0.03
33.55
2.32
5.32
12.20
0.42
0.02 %
0.02
0.11
—
0.02
—
—
—
—
1.83
94.31
0.12
(0.98)
0.13
—
0.11
31.37
5.77
11.99
16.18
0.61
* Easy Advances are originated during the first two months of each year, with all EAs charged-off by June 30th of each year. Due to their relatively short life, EA net
charge-offs are typically analyzed by the Company as a percentage of total EA originations, not as a percentage of average outstanding balances. See additional
detail regarding the EA product under Footnote 4 “Loans and Allowance for Credit Losses” of Part II Item 8 “Financial Statements and Supplemental Data.”
From 2020 to 2021, the Company’s net charge-offs to average total Company loans decreased 17 basis points to 0.25%, with net
charge-offs decreasing $8.7 million, or 43%, and average total Company loans decreasing $278 million, or 6%. The decrease in net
charge-offs was primarily driven by a $7.8 million decrease in net charge-offs within the Company’s RPG operations, which has
historically conducted higher-risk lending activities that the Company’s Core Banking operations.
From 2020 to 2021, RPG experienced a $6.3 million decrease in EA net charge-offs at TRS and a $1.2 million decrease in RCS net
charge-offs. The decrease in EA net charge-offs partially resulted from a $138 million reduction in EAs originated from 2020 to 2021
and partially from an improvement in the EA repayment rate from the US Treasury during 2021 as compared to 2020. A decrease in
RCS net charge-offs resulted primarily from a lower charge-off rate on RCS’s LOC I product during 2021 compared to 2020.
Management believes the reduction in net charge-offs within the RCS LOC I product was attributable to the large amount of cash
available to consumers from government stimulus payments over the past 18 months.
During 2021, the Company’s Core Bank net charge-offs to average Core Bank loans remained near zero.
71
The following table sets forth management’s allocation of the ACLL by loan class. The ACLL allocation is based on management’s
assessment of economic conditions, historical loss experience, and various other qualitative factors. Additionally, management began
including life-of-loan and forecast considerations into its ACLL allocation upon adoption of the CECL method on January 1, 2020.
Since these factors and management’s assumptions are subject to change, the allocation is not necessarily indicative of future loan
portfolio performance or future ACLL allocation.
Table 17 — Management’s Allocation of the Allowance for Credit Losses on Loans
December 31, (in thousands)
ACLL
Loans*
Loan Class ACLL
2021
Percent of Percent of
ACLL to
Loans to
Total
Total
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
Total
$ 8,647
2,700
23,769
4,128
3,487
—
91
357
4,111
934
683
186
314
49,407
2,126
51,533
—
96
12,948
13,044
$ 64,577
Total Traditional Banking - GAAP
Less: Paycheck Protection Program
$ 49,407
—
Total Traditional Banking - Non-
GAAP
$ 49,407
19 %
7
32
3
8
1
—
3
5
—
—
—
—
78
19
97
—
1
2
3
100
78
1
77
1.05 % $ 9,715
2,466
0.88
23,606
1.63
3,274
3.19
2,797
1.02
—
—
106
1.05
253
0.25
4,990
1.95
6.44
100.00
1.29
21.93
1.41
0.25
1.18
929
587
399
577
49,699
2,407
52,106
—
0.19
13.91
9.06
1.44
—
158
8,803
8,961
$ 61,067
1.41
—
$ 49,699
—
1.43
$ 49,699
2020
Percent of
Loans to
Total
Loans*
19 %
6
28
2
7
8
—
2
5
—
—
1
—
78
20
98
—
—
2
2
100
78
8
70
Percent of
ACLL to
Total
Loan Class* ACLL
2019
Percent of
Loans to
Total
Loans*
1.10 % $ 4,729
1,737
0.93
10,486
1.75
2,152
3.32
2,882
0.86
—
—
147
1.05
0.25
176
2,721
2.07
6.54
100.00
1.32
7.07
1.34
0.25
1.11
—
0.66
7.94
6.65
1.27
1.34
—
1,020
1,169
612
374
28,205
1,794
29,999
—
234
13,118
13,352
$ 43,351
$ 28,205
—
1.50
$ 28,205
22 %
6
29
4
11
—
—
1
7
—
—
1
1
82
16
98
—
—
2
2
100
82
—
82
Percent of
ACLL to
Total
Loan Class*
0.50 %
0.67
0.80
1.35
0.62
—
1.05
0.25
0.93
5.72
76.81
1.16
4.05
0.78
0.25
0.70
—
1.63
12.45
11.15
0.98
0.78
—
0.78
*See Table 13 in this section of the filing for loan portfolio balances. Values of less than 50 basis points are rounded down to zero.
Management believes, based on information presently available, that it has adequately provided for loan and lease losses as of
December 31, 2021.
For additional discussion regarding Republic’s methodology for determining the adequacy of the ACLL, see the section titled
“Critical Accounting Policies and Estimates” in this section of the filing.
72
Asset Quality
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 December 31, 2021, $2 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.
Classified and Special Mention Loans
The Bank applies credit quality indicators, or ratings, to individual loans based on internal Bank policies. Such internal policies are
informed by regulatory standards. Loans rated “Loss,” “Doubtful,” “Substandard,” and PCD-Substandard are considered “Classified.”
Loans rated “Special Mention” or PCD-Special Mention are considered Special Mention. The Bank’s Classified and Special Mention
loans increased approximately $17 million during 2021, driven primarily by commercial-purpose loans within the hospitality and
leisure industry downgraded to Special Mention during 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 II Item 8 “Financial Statements and Supplementary Data” for
additional discussion regarding Classified and Special Mention loans.
Table 18 — Classified and Special Mention Loans
December 31, (in thousands)
Loss
Doubtful
Substandard
PCD* - Substandard
Total Classified Loans
Special Mention
PCD* - Special Mention
Total Special Mention Loans
2021
2020
2019
$
— $
—
21,714
1,692
23,406
— $
—
30,193
1,887
32,080
114,496
795
115,291
89,206
895
90,101
—
—
33,297
1,289
34,586
21,754
797
22,551
Total Classified and Special Mention Loans
$
138,697
$
122,181
$
57,137
* The Bank’s PCI loans as of December 31, 2019 were reclassified to PCD loans on January 1, 2020 in connection with the
Company’s adoption of ASC 326.
73
Nonperforming Loans
Nonperforming loans include loans on nonaccrual status and loans past due 90-days-or-more and still accruing. The nonperforming
loan category included TDRs totaling approximately $6 million and $7 million as of December 31, 2021 and 2020.
Nonperforming loans to total loans decreased to 0.46% as of December 31, 2021 from 0.49% as of December 31, 2020, as the total
balance of nonperforming loans decreased by $3 million, or 13%, while total loans decreased $317 million, or 7%, during 2021. As
presented in Tables 22 and 23 below, the decrease in nonperforming loans during 2021, including the nonaccrual loan component, was
primarily driven by the refinancing of $5 million of these loans to another financial institution.
The ACLL to total nonperforming loans increased to 315% as of December 31, 2021 from 259% as of December 31, 2020, as the total
ACLL increased $4 million, or 6%, and the balance of nonperforming loans decreased by $3 million, or 13%. The driver of the
increase in ACLL was primarily growth in higher risk loans originated through the RCS segment, while the driver of the decrease in
nonperforming loans was primarily the refinancing out of the Bank of a meaningful portion of these loans during 2021.
Table 19 — Nonperforming Loans and Nonperforming Assets Summary
December 31, (in thousands)
2021
2020
2019
Loans on nonaccrual status*
Loans past due 90-days-or-more and still on accrual**
Total nonperforming loans
Other real estate owned
Total nonperforming assets
$
$
20,504
48
20,552
1,792
22,344
$
$
23,548
47
23,595
2,499
26,094
$
$
23,332
157
23,489
113
23,602
Credit Quality Ratios - Total Company:
ACLL to total loans
Nonaccrual loans to total loans
ACLL to nonaccrual loans
Nonperforming loans to total loans
Nonperforming assets to total loans (including OREO)
Nonperforming assets to total assets
Credit Quality Ratios - Core Bank:
ACLL to total loans
Nonaccrual loans to total loans
ACLL to nonaccrual loans
Nonperforming loans to total loans
Nonperforming assets to total loans (including OREO)
Nonperforming assets to total assets
1.44 %
0.46
315
0.46
0.50
0.37
1.18 %
0.47
251
0.47
0.51
0.40
1.27 %
0.49
259
0.49
0.54
0.42
1.11 %
0.50
221
0.50
0.56
0.45
0.98 %
0.53
186
0.53
0.53
0.42
0.70 %
0.54
129
0.54
0.54
0.43
* Loans on nonaccrual status include collateral-dependent loans. See Footnote 4 “Loans and Allowance for Credit Losses” of Part II Item 8 “Financial Statements
and Supplementary Data” for the components within the nonaccrual loans to total loans and ACLL to nonaccrual loans ratios, as well as additional discussion
regarding nonaccrual loans and collateral-dependent loans.
** Loans past due 90-days-or-more and still accruing consist of smaller-balance consumer loans.
74
Table 20 — Nonperforming Loan Composition
December 31, (in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
2021
2020
2019
Percent of
Total
Loan Class
Balance
Percent of
Total
Loan Class
Balance
Percent of
Total
Loan Class
Balance
$ 12,039
95
6,557
1.47 %
0.03
0.45
— —
13
0.00
— —
— —
— —
0.81
$ 14,328
81
6,762
1.63 %
0.03
0.50
— —
55
0.02
— —
— —
— —
0.89
1,700
2,141
$ 12,220
623
6,865
143
1,424
—
—
—
1,865
1.29 %
0.24
0.53
0.09
0.30
—
—
—
0.64
—
—
179
13
23,332
—
23,332
—
—
0.34
0.14
0.65
—
0.54
5
0.04
— —
0.56
0.13
0.63
— —
0.50
170
11
23,553
23,553
— —
0.15
1
0.67
97
0.21
3
0.59
20,505
— —
0.47
20,505
— —
— —
0.05
47
0.03
47
— —
— —
0.04
42
0.03
42
—
53
104
157
—
0.37
0.10
0.13
Total nonperforming loans
$ 20,552
0.46
$ 23,595
0.49
$ 23,489
0.53
75
Table 21 — Stratification of Nonperforming Loans
December 31, 2021
(dollars in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
Total
Number of Nonperforming Loans and Recorded Investment
No.
Balance
<= $100
Balance
> $100 &
<= $500
No.
No.
Balance
> $500
No.
Total
Balance
$
146
3
—
—
1
—
—
—
25
—
NM
13
4
192
—
192
—
—
NM
NM
5,042
95
—
—
13
—
—
—
695
—
1
97
3
5,946
—
5,946
—
—
47
47
$
27
—
4
—
—
—
—
—
5
—
—
—
—
36
—
36
—
—
—
—
4,857
—
872
—
—
—
—
—
1,005
—
—
—
—
6,734
—
6,734
—
—
—
—
$
2
—
3
—
—
—
—
—
—
—
—
—
—
5
—
5
—
—
—
—
2,140
—
5,685
—
—
—
—
—
—
—
—
—
—
7,825
—
7,825
—
—
—
—
$
175
3
7
—
1
—
—
—
30
—
NM
13
4
233
—
233
—
—
NM
NM
12,039
95
6,557
—
13
—
—
—
1,700
—
1
97
3
20,505
—
20,505
—
—
47
47
192
$
5,993
36
$
6,734
5
$
7,825
233
$
20,552
NM – Not meaningful. Loans from Republic Processing Group are generally small dollar homogenous consumer loans.
December 31, 2020
(dollars in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
Total
Number of Nonperforming Loans and Recorded Investment
No.
Balance
<= $100
Balance
> $100 &
<= $500
No.
No.
Balance
> $500
No.
Total
Balance
$
146
3
2
—
2
—
—
—
26
NM
—
14
7
200
—
200
—
—
NM
NM
5,110
81
45
—
55
—
—
—
867
5
—
170
11
6,344
—
6,344
—
—
42
42
200
$
6,386
27
—
3
—
—
—
—
—
6
—
—
—
—
36
—
36
—
—
—
—
36
$
4,966
—
925
—
—
—
—
—
1,274
—
—
—
—
7,165
—
7,165
—
—
—
—
5
—
3
—
—
—
—
—
—
—
—
—
—
8
—
8
—
—
—
—
$
4,252
—
5,792
—
—
—
—
—
—
—
—
—
—
10,044
—
10,044
—
—
—
—
$
178
3
8
—
2
—
—
—
32
NM
—
14
7
244
—
244
—
—
NM
NM
14,328
81
6,762
—
55
—
—
—
2,141
5
—
170
11
23,553
—
23,553
—
—
42
42
$
7,165
8
$
10,044
244
$
23,595
NM – Not meaningful. Loans from Republic Processing Group are generally small dollar homogenous consumer loans.
76
Interest income that would have been recorded if nonaccrual loans were on a current basis in accordance with their original terms was
$1.3 million, $1.3 million and $1.5 million in 2021, 2020, and 2019.
Based on the Bank’s review as of December 31, 2021, management believes that its reserves are adequate to absorb expected losses
on all nonperforming credits.
Table 22 — Rollforward of Nonperforming Loan
Years Ended December 31, (in thousands)
2021
2020
2019
Nonperforming loans at the beginning of the period
Loans added to nonperforming status during the period that remained
nonperforming at the end of the period
Loans removed from nonperforming status during the period that were
nonperforming at the beginning of the period (see table below)
Principal balance paydowns of loans nonperforming at both period ends
Net change in principal balance of other loans nonperforming at both period
ends*
$
23,595
$
23,489
$
16,138
3,627
8,993
(5,221)
(1,450)
1
(7,959)
(817)
(111)
13,806
(4,242)
(2,225)
12
Nonperforming loans at the end of the period
$
20,552
$
23,595
$
23,489
*Includes relatively small consumer portfolios, e.g., RCS loans.
Table 23 — Detail of Loans Removed from Nonperforming Status
Years Ended December 31, (in thousands)
2021
2020
2019
Loans charged off
Loans transferred to OREO
Loans refinanced at other institutions
Loans returned to accrual status
$
$
(57)
—
(4,884)
(280)
$
(1,142)
(2,254)
(4,420)
(143)
(339)
(1,174)
(2,610)
(119)
Total loans removed from nonperforming status during the period that
were nonperforming at the beginning of the period
$
(5,221)
$
(7,959)
$
(4,242)
Delinquent Loans
Delinquent loans to total loans decreased to 0.30% as of December 31, 2021, from 0.41% as of December 31, 2020, primarily due to a
$6 million, or 32%, decrease in delinquent loans and a $317 million, or 7%, decrease in total loans during 2021.
Core Bank delinquent loans to total Core Bank loans decreased to 0.17% as of December 31, 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 December
31, 2021 and December 31, 2020 were on nonaccrual status. As previously mentioned, the ultimate impact of loans accommodated
due to COVID-19 on the Company’s delinquent loans is currently uncertain.
77
Table 24 — Delinquent Loan Composition*
December 31, (dollars in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
2021
Percent of
Total
Loan Class
2020
Percent of
Total
Loan Class
Balance
2019
Percent of
Total
Loan Class
Balance
Balance
$ 1,599
—
5,292
—
21
—
—
—
314
0.19 % $ 3,260
—
5,457
—
12
—
—
—
702
—
0.36
—
0.01
—
—
—
0.15
0.37 % $ 4,434
539
3,300
—
1,355
—
—
—
2,918
—
0.40
—
0.00
—
—
—
0.29
0.47 %
0.21
0.25
—
0.28
—
—
—
1.00
30
164
9
1
7,430
—
7,430
0.21
24.01
0.06
0.07
0.21
—
0.17
73
147
56
6
9,713
—
9,713
0.51
25.04
0.18
0.07
0.26
—
0.21
155
283
49
9
13,042
—
13,042
0.87
18.59
0.09
0.01
0.36
—
0.30
—
—
6,035
6,035
—
—
6.48
4.19
—
—
10,234
10,234
—
—
9.23
7.60
—
119
7,643
7,762
—
0.83
7.25
6.48
Total delinquent loans
$ 13,465
0.30
$ 19,947
0.41
$ 20,804
0.47
*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.
78
Table 25 — Rollforward of Delinquent Loans
Years Ended December 31, (in thousands)
2021
2020
2019
Delinquent loans at the beginning of the period
Loans added to delinquency status during the period and remained in
delinquency status at the end of the period
Loans removed from delinquency status during the period that were in
delinquency status at the beginning of the period (see table below)
Principal balance paydowns of loans delinquent at both period ends
Net change in principal balance of other loans delinquent at both period ends*
Delinquent loans at the end of period
$
*Includes relatively small consumer portfolios, e.g., RCS loans.
Table 26 — Detail of Loans Removed from Delinquent Status
$
19,947
$
20,804
$
15,962
1,459
6,681
(3,559)
(158)
(4,224)
13,465
$
(8,617)
(146)
1,225
19,947
$
9,947
(6,747)
(120)
1,762
20,804
Years Ended December 31, (in thousands)
Loans charged off
Easy Advances paid off or charged off
Loans transferred to OREO
Loans refinanced at other institutions
Loans paid current
2021
2020
2019
$
(58)
$
(115)
$
(453)
—
(2,016)
(1,485)
(2,254)
(4,052)
(2,196)
(1,370)
(1,988)
(2,936)
Total loans removed from delinquency status during the period that were
in delinquency status at the beginning of the period
$
(3,559)
$
(8,617)
$
(6,747)
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 27 — Collateral Dependent Loan Composition
December 31, (in thousands)
Cashflow-dependent TDRs
Collateral-dependent TDRs
Total TDRs
Collateral-dependent loans (which are not TDRs)
Total recorded investment in TDRs and collateral-dependent loans
2021
2020
2019
$
$
5,960
9,426
15,386
14,645
30,031
$
$
10,938
9,840
20,778
20,806
41,584
$
$
14,348
16,433
30,781
19,569
50,350
See Footnote 4 “Loans and Allowance for Credit Losses” of Part II Item 8 “Financial Statements and Supplementary Data” for additional discussion regarding
collateral-dependent loans and TDRs.
79
Other Real Estate Owned
Table 28 — Rollforward of Other Real Estate Owned Activity
Years Ended December 31, (in thousands)
2021
2020
2019
OREO at beginning of period
Transfer from loans to OREO
Proceeds from sale*
Net gain on sale
Writedowns
OREO at end of period
$
$
2,499
64
(611)
51
(211)
1,792
$
$
113
2,750
(324)
65
(105)
2,499
$
$
160
1,527
(2,114)
540
—
113
*Inclusive of non-cash proceeds where the Bank financed the sale of the property.
The fair value of OREO represents the estimated value that management expects to receive when the property is sold, net of related
costs to sell. These estimates are based on the most recently available real estate appraisals, with certain adjustments made based on
the type of property, age of appraisal, current status of the property and other relevant factors to estimate the current value of the
property.
Bank Owned Life Insurance
BOLI offers tax advantaged noninterest income to help the Bank offset employee benefits expenses. The Company carried $99 million
and $68 million of BOLI on its consolidated balance sheet as of December 31, 2021 and 2020.
Table 29 — Rollforward of Bank Owned Life Insurance
Years ended December 31, (in thousands)
2021
2020
2019
BOLI at beginning of period
BOLI acquired
Death benefits paid
Increase in cash surrender value
BOLI at end of period
$
$
68,018
30,000
(1,099)
2,242
99,161
$
$
66,433
—
—
1,585
68,018
$
$
64,883
—
—
1,550
66,433
80
Deposits
Table 30 — Deposit Composition
December 31, (in thousands)
2021
2020
2019
Core Bank:
Demand
Money market accounts
Savings
Individual retirement accounts (1)
Time deposits, $250 and over (1)
Other certificates of deposit (1)
Reciprocal money market and time deposits (1)
Brokered deposits (1)
Total Core Bank interest-bearing deposits
Total Core Bank noninterest-bearing deposits
Total Core Bank deposits
Republic Processing Group:
Money market accounts
Total RPG interest-bearing deposits
Brokered prepaid card deposits
Other noninterest-bearing deposits
Total RPG noninterest-bearing deposits
Total RPG deposits
Total deposits
(1)
Includes time deposits.
$
$
1,381,522
789,876
311,624
43,724
81,050
154,174
77,950
—
2,839,920
1,579,173
4,419,093
9,717
9,717
320,907
90,701
411,608
421,325
$
1,217,263
712,824
236,335
47,889
83,448
199,214
314,109
25,010
2,836,092
1,503,662
4,339,754
6,673
6,673
257,856
128,898
386,754
393,427
922,972
793,950
175,588
51,548
104,412
248,161
189,774
200,072
2,686,477
981,164
3,667,641
66,152
66,152
9,128
43,087
52,215
118,367
$
4,840,418
$
4,733,181
$
3,786,008
Total Company deposits increased $107 million, or 2%, from December 31, 2020 to $4.8 billion as of December 31, 2021.
Total Core Bank deposits increased $79 million, or 2%, 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 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 $210 million of PPP loans during 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
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 the interest it paid to certain clients for their reciprocal money market accounts due to the high fees paid by the Bank
for the product’s participation in a third-party money market network. This third-party money market network allows clients
to fully insure their deposits through FDIC insurance by spreading their funds across multiple banks.
Total RPG deposits increased $28 million, or 7%, during 2021, with the following primarily driving growth:
• RPG prepaid card balances within its RPS division, which are noninterest bearing, increased $63 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.
81
• Other noninterest-bearing deposits at RPG decreased $38 million, driven primarily by an outflow of commercial settlement
deposits associated with the RCS segment’s line-of-credit products.
Table 31 — Average Deposits
Years ended December 31, (dollars in thousands)
Transaction accounts
Money market accounts
Time deposits
Reciprocal money market accounts
Reciprocal time deposits
Brokered money market accounts
Brokered time deposits
Total average interest-bearing deposits
Total average noninterest-bearing deposits
Total average deposits
2021
2020
2019
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
$
$
1,580,570
784,777
300,784
185,922
40,581
30,863
—
2,923,497
2,129,452
5,052,949
0.02 % $
0.05
1.21
0.18
0.75
0.08
—
0.17
—
0.10
$
1,291,980
739,524
400,704
202,112
72,613
104,460
102,093
2,913,486
1,672,442
4,585,928
0.09 % $
0.26
1.96
0.28
1.66
0.50
1.75
0.52
—
0.33
$
1,141,084
772,854
409,301
147,821
59,305
81,923
143,658
2,755,946
1,120,608
3,876,554
0.49 %
0.97
2.02
1.04
2.03
2.04
2.34
1.06
—
0.75
Table 32 — Maturity Schedule of Time Deposits in Excess of the FDIC Limit and Estimated Time Deposits that are Otherwise
Uninsured as of December 31, 2021
Maturity (dollars in thousands)
Three months or less
Over three months through six months
Over six months through 12 months
Over 12 months
Total
$
$
Individual Instruments
that Meet or Exceed the
FDIC Insurance Limit
Estimated
Otherwise Uninsured
Time Deposits
Total
5,175
17,964
15,701
42,210
81,050
$
$
5,170 $
4,145
5,383
8,634
23,332 $
10,345
22,109
21,084
50,844
104,382
The Bank held total estimated uninsured deposits of $1.97 billion as of December 31, 2021.
Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings
SSUARs are collateralized by securities and are treated as financings; accordingly, the securities involved with the agreements are
recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. All
securities underlying the agreements are under the Bank’s control.
SSUARs increased $80 million, or 38%, during 2021 to $291 million as of December 31, 2021. As mentioned above, Bank clients
shifted approximately $140 million in balances from interest-bearing reciprocal money market accounts to SSUARs after the Bank
lowered the interest rate it paid on certain reciprocal money market accounts. The increase resulting from this shift was partially
offset by a $94 million decrease in SSUARs during 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.
Table 33 — Securities Sold Under Agreements to Repurchase
As of and for the Years Ended December 31, (dollars in thousands)
2021
2020
2019
Outstanding balance at end of period
Weighted average interest rate at period end
Average outstanding balance during the period
Average interest rate during the period
Maximum outstanding at any month end
$
$
$
290,967
$
211,026
0.04 %
0.04 %
231,430
$
204,797
0.03 %
0.09 %
432,047
$
295,698
$
$
$
167,617
0.32 %
236,883
0.51 %
276,927
82
Federal Home Loan Bank Advances
FHLB advances declined by $210 million from December 31, 2020 to December 31, 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 December 31, 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 December 31, 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.
Table 34 — Federal Home Loan Bank Advances
As of and for the Years Ended December 31, (dollars in thousands)
2021
2020
2019
Outstanding balance at end of period
Weighted average interest rate at period end
Average outstanding balance during the period
Average interest rate during the period
Maximum outstanding at any month end
Interest Rate Swaps
Interest Rate Swaps Used as Cash Flow Hedges
$
$
$
29,479
25,000
$
0.14 %
$
0.19 %
$
25,000
235,000
0.23 %
211,776
1.66 %
590,000
$
$
$
750,000
1.73 %
595,613
2.15 %
1,170,000
The Bank entered into two interest rate swap agreements during 2013 as part of its interest rate risk management strategy. The Bank
designated the 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 1-month LIBOR. The
counterparty for both swaps met the Bank’s credit standards, and the Bank believes that the credit risk inherent in the swap contracts
was not significant. Both swaps terminated in December 2020.
Non-hedge Interest Rate Swaps
During 2015, the Bank began entering 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 8 “Interest Rate Swaps” of Part II Item 8 “Financial Statements and Supplementary Data” for further information
regarding the Bank’s interest rate swaps.
83
Liquidity
The Bank maintains sufficient liquidity to fund routine loan demand and routine deposit withdrawal activity. Liquidity is managed by
maintaining sufficient liquid assets, primarily in the form of cash, cash equivalents, and unincumbered investment securities. Funding
and cash flows can also be realized through deposit product promotions, the sale of AFS debt securities, principal paydowns on loans
and mortgage-backed securities, and proceeds realized from loans held for sale.
Table 35 — Liquid Assets and Borrowing Capacity
The Company’s liquid assets and borrowing capacity included the following:
December 31, (in thousands)
Cash and cash equivalents
Unincumbered debt securities
Total liquid assets
Borrowing capacity with the FHLB
Borrowing capacity through unsecured credit lines
Total borrowing capacity
2021
2020
2019
$
$
756,971
219,775
976,746
900,424
125,000
1,025,424
$
485,587
273,652
759,239
682,992
125,000
807,992
385,303
304,186
689,489
265,551
125,000
390,551
Total liquid assets and borrowing capacity
$
2,002,170
$
1,567,231
$
1,080,040
The Bank had a loan to deposit ratio (excluding brokered deposits) of 99% as of December 31, 2021 and 108% as of December 31,
2020. Republic’s banking centers and its website, www.republicbank.com, provide access to retail deposit markets. These retail
deposit products, if offered at attractive rates, have historically been a source of additional funding when needed. If the Bank were to
lose a significant funding source, such as a few major depositors, or if any of its lines of credit were cancelled, or if the Bank cannot
obtain brokered deposits, the Bank would be compelled to offer market leading deposit interest rates to meet its funding and liquidity
needs.
As of December 31, 2021, the Bank had approximately $1.5 billion in deposits from 241 large non-sweep deposit relationships,
including reciprocal deposits, where the individual relationship exceeded $2 million. The 20 largest non-sweep deposit relationships
represented approximately $528 million, or 11%, of the Company’s total deposit balances as of as of December 31, 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.
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 December 31, 2021 and December 31, 2020, these pledged investment securities had a fair value
of $320 million and $304 million.
84
Capital
Table 36 — Capital
Information pertaining to the Company’s capital balances and ratios follows:
As of and for the Years Ended December 31, (dollars in thousands, except per share data)
2021
2020
2019
Stockholders’ equity
Book value per share at December 31,
Tangible book value per share at December 31,*
Dividends declared per share - Class A Common Stock
Dividends declared per share - Class B Common Stock
Average stockholders’ equity to average total assets
Total risk-based capital
Common equity tier 1 capital
Tier 1 risk-based capital
Tier 1 leverage capital
Dividend payout ratio
Dividend yield
$
$
834,232
41.75
40.48
1.232
1.120
13.41 %
17.47
16.37
16.37
13.35
29
2.42
$
823,323
39.40
38.27
1.144
1.040
13.35 %
18.52
16.61
17.43
13.70
29
3.17
764,244
36.49
35.41
1.056
0.960
13.16 %
17.01
15.29
16.11
13.93
24
2.26
*For additional detail, see Footnote 2 of “Selected Financial Data” in this section of the filing.
Total stockholders’ equity increased from $823 million as of December 31, 2020 to $834 million as of December 31, 2021. The
increase in stockholders’ equity was primarily attributable to net income earned during 2021 reduced by cash dividends declared and
common stock repurchases.
See Part II, Item 5. “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 the
Bank. 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 January 1, 2022, the
Bank could, without prior approval, declare dividends of approximately $118 million. Any payment of dividends in the future will
depend, in large part, on the Company’s earnings, capital requirements, financial condition, and other factors considered relevant by
the Company’s Board of Directors.
Regulatory Capital Requirements — The Company and the Bank are subject to capital regulations in accordance with Basel III, as
administered by banking regulators. Regulatory agencies measure capital adequacy within a framework that makes capital
requirements, in part, dependent on the individual risk profiles of financial institutions. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on Republic’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Parent Company and the Bank must meet specific capital guidelines that involve quantitative measures of the
Company’s assets, liabilities and certain off-balance sheet items, as calculated under regulatory accounting practices. The capital
amounts and classification are also subject to qualitative judgments by the regulators regarding components, risk weightings and other
factors.
Banking regulators have categorized the Bank as well-capitalized. For prompt corrective action, the regulations in accordance with
Basel III define “well capitalized” as a 10.0% Total Risk-Based Capital ratio, a 6.5% Common Equity Tier 1 Risk-Based Capital ratio,
an 8.0% Tier 1 Risk-Based Capital ratio, and a 5.0% Tier 1 Leverage ratio. Additionally, in order to avoid limitations on capital
distributions, including dividend payments and certain discretionary bonus payments to executive officers, the Company and Bank
85
must hold a capital conservation buffer of 2.5% composed of Common Equity Tier 1 Risk-Based Capital above their minimum risk-
based capital requirements.
Republic continues to exceed the regulatory requirements for Total Risk Based Capital, Common Equity Tier I Risk Based Capital,
Tier I Risk Based Capital and Tier I Leverage Capital. Republic and the Bank intend to maintain a capital position that meets or
exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the Capital Conservation Buffer.
Formal measurements of the capital ratios for Republic and the Bank are performed by the Company at each quarter end.
In 2005, Republic Bancorp Capital Trust, an unconsolidated trust subsidiary of Republic, was formed and issued $40 million in TPS.
The sole asset of RBCT represented the proceeds of the offering loaned to Republic in exchange for a subordinated note with similar
terms to the TPS. On September 30, 2021, as permitted under the terms of RBCT’s governing documents, Republic repaid the
subordinated note and redeemed the TPS at par without penalty. Republic’s capital ratios remained well above “well capitalized”
levels following this redemption.
Contractual Obligations and Commitments
The Company or the Bank has required future payments under various contractual obligations and other commitments.
See the following footnotes within Part II Item 8 “Financial Statements and Supplementary Data” for additional detail regarding
contractual obligations and other commitments of the Company or Bank:
• Footnote 6 “Right-of-Use Assets and Operating Lease Liabilities”
• Footnote 9 “Deposits”
• Footnote 10 “Securities Sold Under Agreements to Repurchase”
• Footnote 13 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”
• Footnote 18 “Benefit Plans”
In addition, the Bank maintains contractual obligations for its technological needs, including its enterprise risk management
application, customer relationship management application, internet banking platform, and its core accounting application. The total
contractual commitment for these applications is approximately $13 million through May 2025.
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
86
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 December 31, 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 plus secondary
market loan fees over the period beginning January 1, 2022 and ending December 31, 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, while including secondary market loan fees, excludes Traditional Bank loan fees.
Table 37 — Bank Interest Rate Sensitivity as of December 31, 2021 and 2020
-100
Basis Points
+100
Basis Points
Change in Rates
+200
Basis Points
+300
Basis Points
+400
Basis Points
% Change from base net interest income as of December 31, 2021
% Change from base net interest income as of December 31, 2020
1.3 %
0.4 %
(0.6)%
(4.5)%
0.7 %
(7.0)%
4.7 %
(5.7)%
9.3 %
(4.2)%
The Bank’s dynamic simulation model run for December 2021 projected an increase in the Bank’s net interest income plus secondary
market loan fees in the “Down-100,” “Up-200,” “Up-300,” and “Up-400” rate scenarios and a decrease in the “Up-100” scenario. 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 improvement in the Up-rate scenarios was primarily due to the following:
• Growth in interest-earning cash balances from December 2020 to December 2021; and
• A smaller projected falloff in secondary market fees for the December 2021 simulation than previously projected for the
December 2020 simulation.
LIBOR Exposure
In July 2017, 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. As instructed by bank regulators, the Bank discontinued new loan
originations referencing LIBOR by December 31, 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 December 31, 2021, the Company had approximately $1.4 billion of assets that reference LIBOR, with short-term Warehouse
balances representing $851 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 December 31, 2021, the notional
amount of the Company’s LIBOR-referenced interest rate derivative contracts was approximately $250 million. Each of the LIBOR-
referenced amounts discussed above will vary in future periods as current contracts expire with potential replacement contracts using
87
either LIBOR or an alternative reference rate. In compliance with regulatory guidance, the Bank discontinued referencing LIBOR for
new financial instruments during 2021 and chose SOFR to be its primary alternative reference rate for most transaction types upon the
discontinuance or unavailability of LIBOR.
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 (Discussion of 2021 vs. 2020).”
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See the section titled “Asset/Liability Management and Market Risk” included under Part II Item 7 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Item 8. Financial Statements and Supplementary Data.
The following are included in this section:
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm (PCAOB ID 173)
Consolidated balance sheets — December 31, 2021 and 2020
Consolidated statements of income and comprehensive income — years ended December 31, 2021, 2020, and 2019
Consolidated statements of stockholders’ equity — years ended December 31, 2021, 2020, and 2019
Consolidated statements of cash flows — years ended December 31, 2021, 2020, and 2019
Footnotes to consolidated financial statements
89
90
93
94
96
97
98
88
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Management of Republic Bancorp, Inc. (the “Company”) is responsible for the preparation, integrity, and fair presentation of the
Company’s annual consolidated financial statements. All information has been prepared in accordance with U.S. generally accepted
accounting principles and, as such, includes certain amounts that are based on Management’s best estimates and judgments.
Management is responsible for establishing and maintaining adequate internal control over financial reporting presented in conformity
with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on the financial statements.
Two of the objectives of internal control are to provide reasonable assurance to Management and the Board of Directors that
transactions are properly authorized and recorded in the Company’s financial records, and that the preparation of the Company’s
financial statements and other financial reporting is done in accordance with U.S. generally accepted accounting principles. There are
inherent limitations in the effectiveness of internal control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even effective internal control can provide only reasonable assurance with respect to reliability of
financial statements. Furthermore, internal control can vary with changes in circumstances.
Management has made its own assessment of the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2021, in relation to the criteria described in the report, Internal Control — Integrated Framework (2013), issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Based on its assessment, Management believes that as of December 31, 2021, the Company’s internal control was effective in
achieving the objectives stated above. Crowe LLP has provided its report on the audited 2021 and 2020 consolidated financial
statements and on the effectiveness of the Company’s internal control in their report dated March 1, 2022.
Steven E. Trager
Executive Chair and Chief Executive Officer
Kevin Sipes
Chief Financial Officer and Chief Accounting Officer
March 1, 2022
89
Crowe LLP
Independent Member Crowe Global
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and the Board of Directors
of Republic Bancorp, Inc.
Louisville, Kentucky
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Republic Bancorp, Inc. (the "Company") as of December 31, 2021
and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the
years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").
We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company
as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021,
based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
Change in Accounting Principle
As discussed in Note 4 to the consolidated financial statements, the Company has changed its method of accounting for credit losses
effective January 1, 2020 due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No.
326, Financial Instruments – Credit Losses (ASC 326).
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud,
and whether effective internal control over financial reporting was maintained in all material respects.
90
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on
the accounts or disclosures to which it relates.
Allowance for Credit Losses on Loans – Adjustments to the Historical Loss Rate
As described in Note 1 and Note 4, the allowance for credit losses on loans (“ACLL”) under ASC 326 requires the measurement of
expected lifetime credit losses for financial assets measured at amortized cost at the reporting date. The measurement is based on
historical loss rates, qualitative factors, and reasonable and supportable forecasts. The allowance for credit losses was $64.6 million as
of December 31, 2021.
Management employs a process and methodology to estimate the ACLL that evaluates both quantitative and qualitative metrics. The
methodology for evaluating quantitative loss rates consists of two basic components. The first component involves pooling loans into
portfolio segments for loans that share similar risk characteristics. These loans are referred to as pooled loans and the methodology to
estimate the ACLL is discussed below. The second component involves individually analyzed loans that do not share similar risk
characteristics with loans that are pooled into portfolio segments.
For pooled loans, the Company utilizes a “static-pool” method to estimate credit losses over the expected life of the loan. The “static-
pool” methodology analyzes historical closed pools of similar loans over their expected lives to attain a historical loss rate. Adjustments
are made to the historical loss rate for current conditions including underwriting standards, portfolio mix or term, delinquency level as
well as for changes in environmental conditions, such as changes in property value or other relevant factors. One-year forecast
adjustments to the historical loss rate are based on the U.S. national unemployment rate and commercial real estate values. Subsequent
to the one-year forecast, loss rates are assumed to immediately revert back to long-term historical averages.
91
We identified management’s application of the allowance for credit losses on loans, specifically the adjustments to the historical loss
rate, as a critical audit matter due to the degree of judgment applied to these adjustments. This critical audit matter requires the
performance of audit procedures to evaluate the application of ASC 326 for loans and involved especially subjective auditor judgment
and required significant audit effort, including the need to involve more experienced audit personnel. Management’s analysis of the
adjustments to the historical loss rates during the reasonable and supportable forecast period within the allowance for credit losses on
loans requires a high degree of subjectivity and judgment and requires the Company to make significant estimates of the risks present
for each portfolio segment. Changes in these assumptions could have a material effect on the Company’s financial results.
The primary procedures we performed to address this critical audit matter included:
Testing the design and operating effectiveness of controls over the evaluation of the ACLL, including controls addressing:
• Relevance and reliability of the underlying data inputs, judgments, and calculations used to determine the forecasts
and adjustments to historical loss rates.
• Management’s review of the reasonableness of forecasts and the adjustments to historical loss rates.
Substantively testing management’s process, including evaluating their judgments and assumptions, to assess the estimate of
the ACLL including:
• Evaluating the reasonableness of management’s significant assumptions, judgments, and conclusions related to the
reasonable and supportable forecasts and adjustments to historical loss rates. Our evaluation considered the weight
of evidence from internal and external sources and loan portfolio performance.
• Testing the relevance and reliability of data inputs and mathematical accuracy of the forecasts and adjustments to
historical loss rates within the ACLL calculation.
We have served as the Company’s auditor since 1996.
Louisville, Kentucky
March 1, 2022
92
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, (in thousands, except share data)
ASSETS
2021
2020
Cash and cash equivalents
Available-for-sale debt securities, at fair value (amortized cost of $492,626 in 2021 and $512,518 in 2020,
allowance for credit losses of $0 in 2021 and $0 in 2020)
$
756,971
$
485,587
495,126
523,863
Held-to-maturity debt securities (fair value of $44,764 in 2021 and $54,190 in 2020, allowance for credit losses of
$47 in 2021 and $178 in 2020)
Equity securities with readily determinable fair value
Mortgage loans held for sale, at fair value
Consumer loans held for sale, at fair value
Consumer loans held for sale, at the lower of cost or fair value
Loans (loans carried at fair value of $170 in 2021 and $497 in 2020)
Allowance for credit losses
Loans, net
Federal Home Loan Bank stock, at cost
Premises and equipment, net
Right-of-use assets
Goodwill
Other real estate owned
Bank owned life insurance
Other assets and accrued interest receivable
TOTAL ASSETS
LIABILITIES
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Securities sold under agreements to repurchase and other short-term borrowings
Operating lease liabilities
Federal Home Loan Bank advances
Subordinated note
Other liabilities and accrued interest payable
Total liabilities
Commitments and contingent liabilities (Footnote 13)
STOCKHOLDERS’ EQUITY
Preferred stock, no par value
Class A Common Stock, no par value, 30,000,000 shares authorized, 17,816,083 shares (2021) and 18,696,607
shares (2020) issued and outstanding; Class B Common Stock, no par value, 5,000,000 shares authorized,
2,164,903 shares (2021) and 2,199,455 shares (2020) issued and outstanding
Additional paid in capital
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
44,299
2,620
29,393
19,747
2,937
4,496,562
(64,577)
4,431,985
10,311
36,073
38,825
16,300
1,792
99,161
108,092
53,324
3,083
46,867
3,298
1,478
4,813,103
(61,067)
4,752,036
17,397
39,512
43,345
16,300
2,499
68,018
111,718
$
6,093,632
$
6,168,325
$
1,990,781
2,849,637
4,840,418
$
1,890,416
2,842,765
4,733,181
290,967
39,672
25,000
—
63,343
211,026
44,340
235,000
41,240
80,215
5,259,400
5,345,002
—
—
4,702
139,956
687,700
1,874
834,232
—
—
4,899
143,637
666,278
8,509
823,323
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
6,093,632
$
6,168,325
See accompanying footnotes to consolidated financial statements.
93
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, (in thousands, except per share data)
INTEREST INCOME:
Loans, including fees
Taxable investment securities
Federal Home Loan Bank stock and other
Total interest income
INTEREST EXPENSE:
Deposits
Securities sold under agreements to repurchase and other short-term borrowings
Federal Reserve Payment Protection Plan Liquidity Facility
Federal Home Loan Bank advances
Subordinated note
Total interest expense
NET INTEREST INCOME
Provision for expected credit loss expense for on-balance sheet exposures (loans and investment securities)
NET INTEREST INCOME AFTER PROVISION
NONINTEREST INCOME:
Service charges on deposit accounts
Net refund transfer fees
Mortgage banking income
Interchange fee income
Program fees
Increase in cash surrender value of bank owned life insurance
Death benefits in excess of cash surrender value of life insurance
Net (losses) gains on other real estate owned
Net gain on branch divestiture
Other
Total noninterest income
NONINTEREST EXPENSE:
Salaries and employee benefits
Technology, equipment, and communication
Occupancy
Marketing and development
FDIC insurance expense
State and local bank franchise tax expense
Interchange related expense
Other real estate owned and other repossession expense
Legal and professional fees
FHLB advances early termination penalties
Other
Total noninterest expense
INCOME BEFORE INCOME TAX EXPENSE
INCOME TAX EXPENSE
NET INCOME
BASIC EARNINGS PER SHARE:
Class A Common Stock
Class B Common Stock
DILUTED EARNINGS PER SHARE:
Class A Common Stock
Class B Common Stock
See accompanying footnotes to consolidated financial statements.
94
2021
2020
2019
$
217,446 $
7,450
1,364
226,260
$
241,044
9,798
1,416
252,258
5,039
63
—
57
507
5,666
15,089
177
153
3,524
1,000
19,943
220,594
232,315
14,808
205,786
31,278
201,037
12,553
20,248
19,994
13,062
14,521
2,242
979
(160)
—
3,420
86,859
110,088
28,900
13,193
4,325
1,591
1,329
4,960
(30)
4,924
—
13,024
182,304
110,341
23,552
86,789 $
4.25 $
3.87
4.24 $
3.85
$
$
$
11,615
20,297
31,847
11,188
7,095
1,585
—
(40)
—
3,466
87,053
106,166
29,128
13,438
4,031
1,010
5,369
4,303
46
4,244
2,108
15,614
185,457
102,633
19,387
83,246
4.00
3.64
3.99
3.63
$
$
$
260,064
13,546
7,273
280,883
29,135
1,211
—
12,791
1,620
44,757
236,126
25,758
210,368
14,197
21,158
9,499
11,859
4,712
1,550
—
540
7,829
3,664
75,008
99,181
25,048
12,926
5,023
743
5,293
4,870
326
3,357
—
15,416
172,183
113,193
21,494
91,699
4.41
4.01
4.39
3.99
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, (in thousands)
Net income
OTHER COMPREHENSIVE INCOME (LOSS)
2021
2020
2019
$
86,789 $
83,246
$
91,699
Change in fair value of derivatives used for cash flow hedges
Reclassification amount for net derivative losses realized in income
Unrealized gains and (losses) on AFS debt securities
Unrealized gain (loss) of AFS debt security for which a portion of OTTI has been recognized in
earnings
Total other comprehensive income (loss) before income tax
Tax effect
Total other comprehensive income (loss), net of tax
—
—
(8,908)
63
(8,845)
2,210
(6,635)
(177)
281
7,147
(35)
7,216
(1,805)
5,411
(199)
(20)
5,689
(79)
5,391
(1,296)
4,095
COMPREHENSIVE INCOME
$
80,154 $
88,657
$
95,794
See accompanying footnotes to consolidated financial statements.
95
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED December 31, 2021, 2020, and 2019
(in thousands, except per share data)
Common Stock
Class A
Shares
Outstanding
Class B
Shares
Outstanding
Additional
Paid In
Capital
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Balance, January 1, 2019
18,675
2,213
$
4,900
$
141,018
$
545,013 $
(997)
$
689,934
Adjustment for adoption of ASU 2016-02
Net income
Net change in accumulated other comprehensive income (loss)
Dividends declared on Common Stock:
Class A Shares ($1.056 per share)
Class B Shares ($0.96 per share)
Stock options exercised, net of shares withheld
Conversion of Class B to Class A Common Shares
Repurchase of Class A Common Stock
Net change in notes receivable on Class A Common Stock
Deferred compensation - Class A Common Stock:
Directors
Designated key employees
Employee stock purchase plan - Class A Common Stock
Stock-based awards - Class A Common Stock:
Performance stock units, net of shares tendered back
Restricted stock, net of shares tendered back
Stock options
—
—
—
—
—
44
7
(32)
—
6
—
11
23
3
—
—
—
—
—
—
—
(7)
—
—
—
—
—
—
—
—
—
—
—
—
—
11
—
(6)
—
—
—
2
—
—
—
—
—
—
—
—
(202)
—
(637)
(222)
213
371
492
(57)
728
364
126
91,699
—
(19,771)
(2,121)
—
—
(775)
—
—
—
—
—
—
—
—
—
4,095
—
—
—
—
—
—
—
—
—
—
—
—
126
91,699
4,095
(19,771)
(2,121)
(191)
—
(1,418)
(222)
213
371
494
(57)
728
364
Balance, December 31, 2019
18,737
2,206
$
4,907
$
142,068
$
614,171 $
3,098
$
764,244
Adjustment for adoption of ASU 2016-13
Net income
Net change in accumulated other comprehensive income (loss)
Dividends declared on Common Stock:
Class A Shares ($1.144 per share)
Class B Shares ($1.04 per share)
Stock options exercised, net of shares withheld
Conversion of Class B to Class A Common Shares
Repurchase of Class A Common Stock
Net change in notes receivable on Class A Common Stock
Deferred compensation - Class A Common Stock:
Directors
Designated key employees
Employee stock purchase plan - Class A Common Stock
Stock-based awards - Class A Common Stock:
Performance stock units, net of shares tendered back
Restricted stock, net of shares tendered back
Stock options
—
—
—
—
—
25
7
(115)
—
4
—
20
18
1
—
—
—
—
—
—
—
(7)
—
—
—
—
—
—
—
—
—
—
—
—
—
13
—
(26)
—
—
—
4
—
1
—
—
—
—
—
—
197
—
(782)
(35)
352
566
623
(200)
385
463
(4,291)
83,246
—
(21,433)
(2,288)
—
—
(3,127)
—
—
—
—
—
—
—
—
—
5,411
—
—
—
—
—
—
—
—
—
—
—
—
(4,291)
83,246
5,411
(21,433)
(2,288)
210
—
(3,935)
(35)
352
566
627
(200)
386
463
Balance, December 31, 2020
18,697
2,199
$
4,899
$
143,637
$
666,278 $
8,509
$
823,323
Net income
Net change in accumulated other comprehensive income (loss)
Dividends declared on Common Stock:
Class A Shares ($1.232 per share)
Class B Shares ($1.12 per share)
Stock options exercised, net of shares withheld
Conversion of Class B to Class A Common Shares
Repurchase of Class A Common Stock
Net change in notes receivable on Class A Common Stock
Deferred compensation - Class A Common Stock:
Directors
Designated key employees
Employee stock purchase plan - Class A Common Stock
Stock-based awards - Class A Common Stock:
Performance stock units, net of shares tendered back
Restricted stock, net of shares tendered back
Stock options
—
—
—
—
28
34
(980)
—
4
—
15
—
18
—
—
—
—
—
—
(34)
—
—
—
—
—
—
—
—
—
—
—
—
13
—
(216)
—
—
—
4
—
2
—
—
—
—
—
(155)
—
(6,831)
151
417
607
691
129
736
574
86,789
—
(22,451)
(2,435)
—
—
(40,481)
—
—
—
—
—
—
—
—
(6,635)
—
—
—
—
—
—
—
—
—
—
—
—
86,789
(6,635)
(22,451)
(2,435)
(142)
—
(47,528)
151
417
607
695
129
738
574
Balance, December 31, 2021
17,816
2,165 $
4,702 $
139,956 $
687,700 $
1,874 $
834,232
See accompanying footnotes to consolidated financial statements.
96
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, (in thousands)
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization on investment securities and low-income housing investments
Net accretion on loans and amortization of core deposit intangible and operating lease components
Unrealized losses on equity securities with readily determinable fair value
Depreciation of premises and equipment
Amortization of mortgage servicing rights
(Recovery) impairment of mortgage servicing rights
Provision for on-balance sheet exposures
Provision for off-balance sheet exposures
Net gain on sale of mortgage loans held for sale
Origination of mortgage loans held for sale
Proceeds from sale of mortgage loans held for sale
Net gain on sale of consumer loans held for sale
Origination of consumer loans held for sale
Proceeds from sale of consumer loans held for sale
Net gain realized on sale of other real estate owned
Writedowns of other real estate owned
Impairment of premises held for sale
Deferred compensation expense - Class A Common Stock
Stock-based awards and ESPP expense - Class A Common Stock
Net gain on branch divestiture
Net gain on sale of bank premises and equipment
Increase in cash surrender value of bank owned life insurance
Death benefits in excess of cash surrender value of life insurance
FHLB advances early termination penalties
Net change in other assets and liabilities:
Accrued interest receivable
Accrued interest payable
Other assets
Other liabilities
Net cash provided by operating activities
INVESTING ACTIVITIES:
Net cash provided from branch divestiture
Purchases of available-for-sale debt securities
Proceeds from calls, maturities and paydowns of available-for-sale debt securities
Proceeds from calls, maturities and paydowns of held-to-maturity debt securities
Net change in outstanding warehouse lines of credit
Net change in other loans
Proceeds from redemption of Federal Home Loan Bank stock
Purchase of Federal Home Loan Bank stock
Proceeds from sales of other real estate owned
Proceeds from sale of bank premises and equipment
Purchase of bank owned life insurance, net of death benefits received
Investments in low-income housing tax partnerships
Net purchases of premises and equipment
Net cash provided by (used in) investing activities
FINANCING ACTIVITIES:
Net change in deposits
Net change in securities sold under agreements to repurchase and other short-term borrowings
Payments of Federal Home Loan Bank advances
Proceeds from Federal Home Loan Bank advances
FHLB advances early termination penalties
Payoff of subordinated note, net of common security interest
Repurchase of Class A Common Stock
Net proceeds from Class A Common Stock purchased through employee stock purchase plan
Net proceeds from option exercises and equity awards vested - Class A Common Stock
Cash dividends paid
Net cash (used in) provided by financing activities
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
Cash paid during the period for:
Interest
Income taxes
SUPPLEMENTAL NONCASH DISCLOSURES:
Mortgage servicing rights capitalized
Transfers from loans to real estate acquired in settlement of loans
Loans provided for sales of other real estate owned
Transfers from loans held for investment to held for sale
Unfunded commitments in low-income-housing investments
Right-of-use assets recorded
Allowance for credit losses recorded upon adoption of ASC 326
See accompanying footnotes to consolidated financial statements.
97
2021
2020
2019
$
86,789
$
83,246
$
91,699
4,414
(13,973)
463
8,986
3,453
(500)
14,808
63
(19,659)
(680,714)
717,847
(11,298)
(882,180)
875,570
(51)
211
—
1,024
1,545
—
(399)
(2,242)
(979)
—
3,048
(183)
(940)
(5,672)
99,431
—
(211,545)
230,457
9,139
112,246
207,115
7,086
—
611
637
(28,901)
(14,507)
(5,785)
306,553
107,237
79,941
(235,000)
25,000
—
(40,000)
(47,528)
591
(142)
(24,699)
(134,600)
271,384
485,587
756,971
5,849
20,069
5,054
64
—
—
10,000
1,354
—
$
$
$
3,204
(13,084)
105
9,725
3,756
500
31,278
533
(33,179)
(782,939)
788,475
(4,980)
(518,873)
531,321
(65)
105
—
918
953
—
(353)
(1,585)
—
2,108
(14)
(2,460)
(19,391)
(3,872)
75,432
—
(298,878)
251,930
9,009
(245,338)
(142,811)
22,434
(9,000)
324
894
—
(6,998)
(3,582)
(422,016)
947,173
43,409
(1,105,000)
590,000
(2,108)
—
(3,935)
533
—
(23,204)
446,868
100,284
385,303
485,587
22,403
24,926
5,463
2,750
—
—
10,000
14,144
7,241
$
$
$
$
$
$
761
(3,655)
(382)
9,230
1,823
—
25,758
—
(8,816)
(356,097)
354,660
(5,102)
(710,640)
716,336
(540)
—
256
584
1,035
(7,829)
(339)
(1,550)
—
—
1,031
1,718
9,242
(13,997)
105,186
6,071
(445,681)
455,823
2,667
(248,763)
(188,708)
3,513
(2,277)
2,063
909
—
(7,941)
(12,883)
(435,207)
461,715
(15,373)
(820,000)
760,000
—
—
(1,418)
494
(191)
(21,377)
363,850
33,829
351,474
385,303
43,039
17,383
2,792
1,527
51
131,881
18,800
41,726
—
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation — The consolidated financial statements include the accounts of Republic
Bancorp, Inc. (the “Parent Company”) and its wholly-owned subsidiaries, Republic Bank & Trust Company and Republic Insurance
Services, Inc. As used in this filing, the terms “Republic,” the “Company,” “we,” “our,” and “us” refer to Republic Bancorp, Inc., and,
where the context requires, Republic Bancorp, Inc. and its subsidiaries. The term “Bank” refers to the Company’s subsidiary bank:
Republic Bank & Trust Company. The term “Captive” refers to the Company’s insurance subsidiary: Republic Insurance Services,
Inc. All significant intercompany balances and transactions are eliminated in consolidation.
Republic is a financial holding company headquartered in Louisville, Kentucky. The Bank is a Kentucky-based, state-chartered non-
member financial institution that provides both traditional and non-traditional banking products through five reportable segments
using a multitude of delivery channels. While the Bank operates primarily in its market footprint, its non-brick-and-mortar delivery
channels allow it to reach clients across the U.S. The Captive is a Nevada-based, wholly-owned insurance subsidiary of the Company.
The Captive provides property and casualty insurance coverage to the Company and the Bank, as well as a group of third-party
insurance captives for which insurance may not be available or economically feasible.
In 2005, Republic Bancorp Capital Trust, an unconsolidated trust subsidiary of Republic, was formed and issued $40 million in TPS.
The sole asset of RBCT represented the proceeds of the offering loaned to Republic in exchange for a subordinated note with similar
terms to the TPS. On September 30, 2021, as permitted under the terms of RBCT’s governing documents, Republic repaid the
subordinated note and redeemed the TPS at par without penalty.
As of December 31, 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.
The Company’s financial condition as of December 31, 2021 and 2020 and results of operations for the years ended December 31,
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 13 “Off Balance Sheet Risks, Commitments, and Contingent Liabilities”
98
Core Bank
Traditional Banking segment — The Traditional Banking segment provides traditional banking products primarily to customers in
the Company’s market footprint. As of December 31, 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.
99
Mortgage Banking segment — Mortgage Banking activities primarily include 15-, 20- and 30-year fixed-term single-family, first-
lien residential real estate loans that are originated and sold into the secondary market, primarily to the FHLMC and the FNMA. The
Bank typically retains servicing on loans sold into the secondary market for loans generated in states within its footprint and generally
sells servicing for loans generated in states outside of its footprint. Administration of loans with servicing retained by the Bank
includes collecting principal and interest payments, escrowing funds for property taxes and property insurance, and remitting
payments to secondary market investors. The Bank receives fees for performing these standard servicing functions.
Republic Processing Group
Tax Refund Solutions segment — Through the TRS segment, the Bank is one of a limited number of financial institutions that
facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers
located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). 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 upcoming year’s tax season.
RTs are fee-based products whereby a tax refund is issued to the taxpayer after the Bank has received the refund from the federal or
state government. There is no credit risk or borrowing cost associated with these products because they are only delivered to the
taxpayer upon receipt of the tax refund directly from the governmental paying authority. Fees earned by the Company on RTs, net of
revenue share, are reported as noninterest income under the line item “Net refund transfer fees.”
The EA tax credit product is a loan that allows a taxpayer to borrow funds as an advance of a portion of their tax refund. The EA
product had the following features during 2021 and 2020:
• Offered only during the first two months of each year;
• The taxpayer was given the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum
advance amount of $6,250;
• No requirement that the taxpayer pays for another bank product, such as an RT;
• Multiple funds disbursement methods, including direct deposit, prepaid card, or check, based on the taxpayer-customer’s
election;
• Repayment of the EA to the Bank is deducted from the taxpayer’s tax refund proceeds; and
•
If an insufficient refund to repay the EA occurs:
there is no recourse to the taxpayer,
o
o no negative credit reporting on the taxpayer, and
o no collection efforts against the taxpayer.
The Company reports fees paid for the EA product as interest income on loans. During 2021, EAs were repaid, on average, within 32
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 in 2021 if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the
applicable taxing authority. The number of days for delinquency eligibility is based on management’s annual analysis of tax return
processing times. Provisions on EAs are estimated when advances are made. Unpaid EAs are charged-off by June 30th 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.
100
Cancelled TRS Sale Transaction
On May 13, 2021, the Bank entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Green Dot providing for the
sale to Green Dot of substantially all of the assets and operations of the Bank’s Tax Refund Solutions business (the “Sale
Transaction”).
On August 4, 2021, the Company disclosed that Green Dot had delayed the closing of the Sale Transaction, following a request to
Green Dot from its primary regulator for information relating to the Sale Transaction and Green Dot’s subsequent decision to seek
from its primary regulator the approval of or non-objection to, as applicable, the Sale Transaction before its consummation.
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 (the “Court”), C.A. No. 2021-0854-SG, alleging breach of contract. In
so doing, the Bank sought, 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.
On December 2, 2021, the Court denied the Bank’s expedited motion for summary judgment seeking the remedy of specific
performance from Green Dot related to the Sale Transaction. As the basis for its ruling denying specific performance as a remedy in
this case, the Court held that the risk of regulatory action, including criminal and civil penalties, against Green Dot, its officers,
directors, employees, and agents in the event of specific performance outweighed the harm to the Bank resulting from Green Dot’s
alleged breach of contract.
As a result of this ruling, the Bank concluded that the Sale Transaction would not be consummated, and on January 7, 2022, the Bank
served Green Dot with a formal notice of termination of the Purchase Agreement. In response to the formal notice of termination,
Green Dot paid the Termination Fee of $5 million to the Bank during the first quarter of 2022. The Bank maintains that the Bank’s
notice of termination of the Purchase Agreement and corresponding payment of the $5 million Termination Fee does not release
Green Dot from any liability, in addition to the Termination Fee, related to the Sale Transaction occurring before the Bank’s notice of
termination.
Republic Payment Solutions — RPS is currently managed and operated within the TRS segment. The RPS division offers general-
purpose reloadable prepaid cards as an issuing bank through third-party service providers. For the projected near-term, as the prepaid
card program matures, the operating results of the RPS division are expected to be immaterial to the Company’s overall results of
operations and will be reported as part of the TRS segment. The RPS division will not be considered a separate reportable segment
until such time, if any, that it meets quantitative reporting thresholds.
The Company reports fees related to RPS programs under Program fees. Additionally, the Company’s portion of interchange revenue
generated by prepaid card transactions is reported as noninterest income under “Interchange fee income.”
Republic Credit Solutions segment — Through the RCS segment, the Bank offers consumer credit products. In general, the credit
products are unsecured, small dollar consumer loans that are dependent on various factors. RCS loans typically earn a higher yield but
also have higher credit risk compared to loans originated through the Traditional Banking segment, with a significant portion of RCS
clients considered subprime or near-prime borrowers. The Bank uses third-party service providers for certain services such as
marketing and loan servicing of RCS loans. Additional information regarding consumer loan products offered through RCS follows:
• RCS line-of-credit products – Using separate third-party service providers, the Bank originates two line-of-credit products to
generally subprime borrowers in multiple states. The first of these two products (the “LOC I”) has been originated by the
Bank since 2014. The second (the “LOC II”) was introduced in January 2021.
o RCS’s LOC I represented the substantial majority of RCS activity during 2021. 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.
101
The Bank sells participation interests in this product. These participation interests are a 90% interest in advances
made to borrowers under the borrower’s line-of-credit account, and the participation interests are generally sold
three business days following the Bank’s funding of the associated advances. Although the Bank retains a 10%
participation interest in each advance, it maintains 100% ownership of the underlying LOC I account with each
borrower. Loan balances held for sale through this program are carried at the lower of cost or fair value.
o
In January 2021, RCS began originating balances through its LOC II. One of RCS’s existing third-party service
providers, subject to the Bank’s oversight and supervision, provides the Bank with marketing services and loan
servicing for the LOC II product. The Bank is the lender for this product and is marketed as such. Furthermore, the
Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of
this product.
The Bank sells participation interests in this product. These participation interests are a 95% interest in advances
made to borrowers under the borrower’s line-of-credit account, and the participation interests are generally sold
three business days following the Bank’s funding of the associated advances. Although the Bank retains a 5%
participation interest in each advance, it maintains 100% ownership of the underlying LOC II account with each
borrower. Loan balances held for sale through this program are carried at the lower of cost or fair value.
• RCS installment loan product – In December 2019, through RCS, the Bank began offering installment loans with terms
ranging from 12 to 60 months to borrowers in multiple states. The same third-party service provider for RCS’s LOC II is the
third-party provider for the installment loans. This third-party provider is subject to the Bank’s oversight and supervision and
provides the Bank with marketing services and loan servicing for these RCS installment loans. The Bank is the lender for
these RCS installment loans and is marketed as such. Furthermore, the Bank controls the loan terms and underwriting
guidelines, and the Bank exercises consumer compliance oversight of this RCS installment loan product. Currently, all loan
balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with
the intention to sell these loans to a third-party, who is an affiliate of the Bank’s third-party service provider, generally within
sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are
carried at fair value under a fair-value option, with the portfolio marked to market monthly.
• RCS healthcare receivables products – The Bank originates healthcare-receivables products across the U.S. through two
different third-party service providers. In one program, the Bank retains 100% of the receivables originated. In the other
program, the Bank retains 100% of the receivables originated in some instances, and in other instances, sells 100% of the
receivables within one month of origination. Loan balances held for sale through this program are carried at the lower of cost
or fair value.
The Company reports interest income and loan origination fees earned on RCS loans under “Loans, including fees,” while any gains
or losses on sale and mark-to-market adjustments of RCS loans are reported as noninterest income under “Program fees.”
Use of Estimates — To prepare financial statements in conformity with GAAP management makes estimates and assumptions based
on available information. These estimates affect the amounts reported in the financial statements and the disclosures provided. Actual
amounts could differ from these estimates. The resulting change in estimates could be material to the financial statements.
Concentration of Credit Risk — With limited exception, the Company’s Traditional Banking business activity is with clients located
in Kentucky, Indiana, Florida, and Tennessee. The Company’s Traditional Banking exposure to credit risk is significantly affected by
changes in the economy in these specific areas.
The Bank’s warehouse lines of credit are secured by single family, first lien residential real estate loans originated by the Bank’s
mortgage clients across the United States. As of December 31, 2021, 36% of collateral securing warehouse lines was located in
California.
Earnings Concentration — For 2021, 2020, and 2019, approximately 24%, 23% and 25% of total Company net revenues (net
interest income plus noninterest income) were derived from the RPG operations. Within RPG, the TRS segment accounted for 13%,
14% and 14%, while the RCS segment accounting for 11%, 9% and 11% of total Company net revenues.
102
For 2021, 2020, and 2019, approximately 8%, 8% and 5% of total Company net revenues (net interest income plus noninterest
income) were derived from the Company’s Warehouse segment.
Cash Flows — Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90
days and federal funds sold. Net cash flows are reported for client loan and deposit transactions, interest-bearing deposits in other
financial institutions, repurchase agreements and income taxes.
Interest-Bearing Deposits in Other Financial Institutions — Interest-bearing deposits in other financial institutions mature within
one year and are carried at cost.
Debt Securities — Debt securities are classified as AFS when they might be sold before maturity. AFS debt securities are carried at
fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Debt securities are classified
as HTM and carried at amortized cost less any applicable ACLS when management has the positive intent and ability to hold them to
maturity.
Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are
generally amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where
prepayments are anticipated. Premiums on callable securities are amortized to the earliest call date. Gains and losses on sales are
recorded on the trade date and determined using the specific identification method.
A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent.
Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.
Equity Securities — Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities
without a readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from
observable price changes in orderly transactions for the identical or a similar investment.
Allowance for Credit Losses on Available-for-Sale Securities — For the Company’s AFS corporate bond, the Company uses third-
party PD and LGD data to estimate an ACLS, which is limited by the amount that the bond’s fair value is less than its amortized cost
basis.
For all other AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or will be
required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is
met, the security’s amortized cost basis is written down to fair value through income. For other AFS debt securities that do not meet
the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In
making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of
the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment
indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the
amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a
credit loss exists and an ACLS is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost
basis. Any impairment that has not been recorded through an ACLS is recognized in other comprehensive income.
Changes in ACLS are recorded as a charge or credit to the Provision. Losses are charged against the ACLS when management
believes the lack of collectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to
sell is met.
Accrued interest on AFS debt securities totaled $1 million and $1 million as of December 31, 2021 and 2020 and is excluded from the
ACLS. Accrued interest on AFS debt securities is presented as a component of other assets on the Company’s balance sheet.
Allowance for Credit Losses on Held-to-Maturity Securities — The Company measures expected credit losses on HTM debt
securities on a collective basis by major security type. Accrued interest receivable on HTM debt securities totaled $89,000 and
$110,000 as of December 31, 2021 and 2020 and is excluded from the ACLS. Accrued interest on HTM debt securities is presented
as a component of other assets on the Company’s balance sheet.
103
The estimate of ACLS on HTM debt securities considers historical credit loss information that is adjusted for current conditions and
reasonable and supportable forecasts.
The Company classifies its HTM portfolio into the following major security types: MBS, corporate bonds, and municipal bonds. MBS
securities include CMOs. Nearly all of the MBS portfolio is issued by U.S. government entities or government sponsored entities.
These securities are highly rated by major rating agencies and have a long history of no credit losses. The MBS portfolio also carries
ratings no lower than investment grade. The Company uses PD and LGD estimates provided by a third-party to estimate an ACLS for
its corporate and municipal bond portfolios. These PD and LGD estimates are updated at least quarterly by the Company, with these
estimates incorporating the most recent market expectations and forecasted information.
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 Banking Activities — Mortgage loans originated and intended for sale in the secondary market are carried at fair value, as
determined by outstanding commitments from investors. Net gains on mortgage loans held for sale are recorded as a component of
Mortgage Banking income and represent the difference between the selling price and the carrying value of the loans sold.
Substantially all of the gains or losses on the sale of loans are reported in earnings when the interest rates on loans are locked.
Commitments to fund mortgage loans (“interest rate lock commitments”) to be sold into the secondary market and non-exchange
traded mandatory forward sales contracts (“forward contracts”) for the future delivery of these mortgage loans or the purchase of TBA
securities are accounted for as free-standing derivatives. Fair values of these mortgage derivatives are estimated based on changes in
mortgage interest rates from the date the Bank enters into the derivative. Generally, the Bank enters into forward contracts for the
future delivery of mortgage loans or the purchase of TBA securities when interest rate lock commitments are entered into, in order to
hedge the change in interest rates resulting from its commitments to fund the loans. Changes in the fair values of these mortgage
derivatives are included in net gains on sales of loans, which is a component of Mortgage Banking income on the income statement.
Mortgage loans held for sale are generally sold with the MSRs retained. When mortgage loans are sold with servicing retained,
servicing rights are initially recorded at fair value with the income statement effect recorded as a component of Mortgage Banking
income. Fair value is based on market prices for comparable mortgage servicing contracts, when available or alternatively, is based on
a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are
subsequently measured using the amortization method, which requires servicing rights to be amortized into Mortgage Banking income
in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Amortization of MSRs are
initially set at seven years and subsequently adjusted on a quarterly basis based on the weighted average remaining life of the
underlying loans.
MSRs are evaluated for impairment quarterly based upon the fair value of the MSRs as compared to carrying amount. Impairment is
determined by stratifying MSRs into groupings based on predominant risk characteristics, such as interest rate, loan type, loan terms
and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is
less than the carrying amount. If the Bank later determines that all or a portion of the impairment no longer exists for a particular
grouping, a reduction of the valuation allowance is recorded as an increase to income. Changes in valuation allowances are reported
within Mortgage Banking income on the income statement. The fair value of the MSR portfolios is subject to significant fluctuations
as a result of changes in estimated and actual prepayment speeds and default rates.
A primary factor influencing the fair value is the estimated life of the underlying serviced loans. The estimated life of the serviced
loans is significantly influenced by market interest rates. During a period of declining interest rates, the fair value of the MSRs
generally will decline due to higher expected prepayments within the portfolio. Alternatively, during a period of rising interest rates
the fair value of MSRs generally will increase, as prepayments on the underlying loans would be expected to decline.
See Footnote 16 “Mortgage Banking Activities” in this section of the filing for management’s determination of MSR impairment.
104
Loan servicing income is reported on the income statement as a component of Mortgage Banking income. Loan servicing income is
recorded as loan payments are collected and includes servicing fees from investors and certain charges collected from borrowers. The
fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan and are recorded as income when
earned. Loan servicing income totaled $3.3 million, $2.9 million and $2.5 million for the years ended December 31, 2021, 2020, and
2019. Late fees and ancillary fees related to loan servicing are considered nominal.
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.
Consumer Loans Held for Sale, at Lower of Cost or Fair Value — RCS originates for sale 90% to 95% of the balances from its line-
of-credit products and a portion of its healthcare receivables product. Ordinary gains or losses on the sale of these RCS products are
reported as a component of “Program fees.”
Loans — The Bank’s financing receivables consist primarily of loans and lease financing receivables (together referred to as “loans”).
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at
amortized cost net of the ACLL. Amortized cost is the principal balance outstanding, net of premiums and discounts, and deferred
loan fees and costs. Accrued interest on loans, which is excluded from the ACLL, totaled $8 million and $11 million as of December
31, 2021 and 2020 and was reported as a component of other assets on the Company’s balance sheet.
Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred
and recognized in interest income using the level-yield method. Premiums on loans held for investment are amortized into interest
income on the level-yield method over the expected life of the loan.
Lease financing receivables, which are generally direct financing leases, are reported at their principal balance outstanding, including
any lease residual amount, net of any unearned income, deferred loan fees and costs, and applicable ACLL. Leasing income is
recognized on a basis that achieves a constant periodic rate of return on the outstanding lease financing balances over the lease terms.
Interest income on mortgage and commercial loans is typically discontinued at the time the loan is 80 days delinquent unless the loan
is well secured and in process of collection. Past due status is based on the contractual terms of the loan, which may define past due
status by the number of days or the number of payments past due. In most cases, loans are placed on nonaccrual or charged-off at an
earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 80 days still on accrual
include smaller balance, homogeneous loans that are evaluated collectively or individually for loss.
Interest accrued but not received for all classes of loans placed on nonaccrual is reversed against interest income. Interest received on
such loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to
accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably
assured, typically a minimum of six consecutive months of performance. Consumer and credit card loans are not placed on nonaccrual
status but are reviewed periodically and charged-off when the loan is deemed uncollectible, generally no more than 120 days.
Purchased Credit Deteriorated Loans — The Company has purchased loans, some of which have experienced more than
insignificant credit deterioration since origination. The Company will generally classify a loan acquired in a business acquisition as
PCD if it meets any of the following criteria:
• Non-accretable discount assigned by the Bank
• Classified by either the acquired bank or the Bank as Special Mention or Substandard
• Nonaccrual status when purchased
• Past due 30 days or more when purchased
• Loans that have been at least one time over 30 days past due
• Past maturity date when purchased
• Select loans that are cross collateralized with any loans identified above
105
PCD loans are recorded at the amount paid. An ACLL is determined using the same methodology as other loans held for investment.
The initial ACLL determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and ACLL
becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a
noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the ACLL are
recorded through the Provision.
Allowance for Credit Losses on Loans — The ACLL is a valuation account that is deducted from the loans’ amortized cost basis to
present the net amount expected to be collected on the loans. Loans are charged-off against the ACLL when management believes the
lack of collectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-
off and expected to be charged-off.
The ACLL is measured on a collective or pooled basis when similar risk characteristics exist. The first table of Footnote 4 illustrates
the Company’s loan portfolio by ACLL risk pool. This pooling method is primarily based on the pool’s collateral type or the pool’s
purpose and generally follows the Bank’s loan segmentation for regulatory reporting. For each of its loan pools, the Company uses a
“static-pool” method, which analyzes historical closed pools of similar loans over their expected lives to attain a loss rate. This loss
rate is then adjusted for current conditions and reasonable and supportable forecasts prior to being applied to the current balance of the
analyzed pools. Adjustments to the historical loss rate for current conditions include differences in underwriting standards, portfolio
mix, delinquency level, or term, as well as for changes in environmental conditions, such as changes in property values or other
relevant factors. A one-year forecast adjustment to the historical loss rate is based on a forecast of the U.S. national unemployment
rate, which has shown a relatively strong historical correlation to the Bank’s loan losses. 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 related to the Company’s CRE
loan pool had no material impact on the Company’s ACLL. Subsequent to one-year forecasts, loss rates are assumed to immediately
revert back to long-term historical averages.
Loans that do not share risk characteristics are evaluated on an individual basis, with the Company choosing to individually evaluate
all TDRs. Loans evaluated individually are not included in the pooled evaluation but are instead evaluated under a discounted cash
flow or collateral-dependent method. A collateral dependent method is used when foreclosure is probable, with expected credit losses
based on the fair value of the collateral at the reporting date, adjusted for selling costs if appropriate.
Determining Expected Loan Lives: Expected credit losses are estimated over the contractual loan term, adjusted for expected
prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the
following applies: management has a reasonable expectation at the reporting date that a TDR will be executed with an individual
borrower, or the extension or renewal options are included in the original or modified contract at the reporting date and are not
unconditionally cancellable by the Company.
See Footnote 4 “Loans and Allowance for Credit Losses” in this section of the filing for additional discussion regarding the
Company’s ACLL.
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. The Company measures the ACLL for TDRs
individually using either a discounted cash-flow method or the collateral method, if the TDR is collateral dependent. TDRs whose
ACLL is measured using a discounted cash flow method use the original pre-modification interest rate on the loan for discounting.
Generally, performing loans that have received a COVID-19 accommodation are not classified as TDRs.
• For additional discussion regarding loans accommodated due to COVID-19, see Footnote 4 “Loans and Allowance for
Credit Losses” in this section of the filing.
Transfers of Financial Assets — Transfers of financial assets are accounted for as sales when control over the assets has been
relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the
transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets and the Company does not maintain effective control over the transferred assets through an agreement to repurchase
them before their maturity.
106
Other Real Estate Owned — Assets acquired through loan foreclosures are initially recorded at fair value less costs to sell when
acquired, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage
loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to
satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. These assets are subsequently
accounted for at lower of cost or fair value less estimated costs to sell. The Bank’s selling costs for OREO typically range from
10- 13% of each property’s fair value, depending on property class. Fair value is commonly based on recent real estate appraisals or
broker price opinions. Operating costs after acquisition are expensed.
Appraisals for both collateral-dependent loans and OREO are performed by certified general appraisers (for commercial properties) or
certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the
Bank. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income
approach. Once the appraisal is received, a member of the Bank’s CCAD reviews the assumptions and approaches utilized in the
appraisal, as well as the overall resulting fair value in comparison with independent data sources, such as recent market data or
industry-wide statistics. On at least an annual basis, the Bank performs a back test of collateral appraisals by comparing actual selling
prices on recent collateral sales to the most recent appraisal of such collateral. Back tests are performed for each collateral class, e.g.
residential real estate or commercial real estate, and may lead to additional adjustments to the value of unliquidated collateral of
similar class.
Premises and Equipment, Net — Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives of the related assets on the straight-line method. Estimated lives typically
range from 25 to 39 years for buildings and improvements, three to ten years for furniture, fixtures and equipment and three to five
years for leasehold improvements.
Right of Use Assets and Operating Lease Liabilities — For its long-term operating leases, the Company records on its balance sheet
operating lease liabilities equal to the present value of the 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.
Regarding lease terms, the Company’s assumes the remaining lease term includes the fixed noncancelable term, plus all periods for
which failure to renew the lease imposes a penalty on the Company, plus all periods for which the Company is reasonably certain to
exercise a lease renewal option, plus all periods for which the Company is reasonably certain not to exercise a lease termination
option. In determining whether it is reasonably certain to exercise a lease renewal or termination option, the Company considers its
overall strategic plan and all economic and environmental circumstances connected to the leased property.
To discount its operating lease payments and guarantees, the Company employs the interest rate curve published by the FHLB of
Cincinnati for the FHLB’s collateralized term borrowings; matching expected lease term to borrowing term.
The Company does not place short-term leases on its balance sheet. Short-term leases have a lease term of 12 months or less and do
not include a purchase option that the Company is reasonably certain to exercise.
Federal Home Loan Bank Stock — The Bank is a member of the FHLB system. Members are required to own a certain amount of
stock based on the level of borrowings and other factors and may invest in additional amounts. FHLB stock is carried at cost,
classified as a restricted security and annually evaluated for impairment. Because this stock is viewed as a long-term investment,
impairment is based on ultimate recovery of par value. Both cash and stock dividends are recorded as interest income.
Bank Owned Life Insurance — The Bank maintains BOLI policies on certain employees. BOLI is recorded at the amount that can
be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other
amounts due that are probable at settlement. The Bank recognizes tax-free income from the periodic increases in cash surrender value
of these policies and from death benefits in noninterest income. Credit ratings for the Bank’s BOLI carriers are reviewed at least
annually.
Goodwill and Other Intangible Assets — Goodwill resulting from business acquisitions represents the excess of the fair value of the
consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets
107
assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase combination and determined to have an
indefinite useful life are not amortized but tested annually or more frequently if events and circumstances exist that indicate that a
goodwill impairment test should be performed.
The Company has selected September 30th as the date to perform its annual goodwill impairment test. Intangible assets with definite
useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with
an indefinite life on the Bank’s balance sheet.
All goodwill is attributable to the Company’s Traditional Banking segment and is not expected to be deductible for tax purposes.
Based on its assessment, the Company believes its goodwill of $16 million as of December 31, 2021 and 2020 was not impaired and is
properly recorded in the consolidated financial.
Off Balance Sheet Financial Instruments — Financial instruments include off-balance sheet credit instruments, such as
commitments to fund loans and standby letters of credit. The face amount for these items represents the exposure to loss, before
considering client collateral or ability to repay. Such financial instruments are recorded upon funding. Instruments such as standby
letters of credit are considered financial guarantees and are recorded at fair value.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures — The Company estimates expected credit losses over the
contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is
unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an
estimate of expected credit losses on commitments expected to be funded over its estimated life. The likelihood that funding will
occur is based on the historical usage rate of such commitments.
For a listing of off-balance sheet credit exposures the Company generally considers for an ACLC, see Footnote 13 “Off Balance Sheet
Risks, Commitments And Contingent Liabilities” in this section of the filing.
The ACLC is recorded as a component of other liabilities on the Company’s balance sheet. Any provision for the ACLC is recorded
on the Company’s income statement as a component of other noninterest expense.
Derivatives —Derivatives are reported at fair value in other assets or other liabilities. The Company’s derivatives include interest rate
swap agreements. For asset/liability management purposes, the Bank uses interest rate swap agreements to hedge the exposure or to
modify the interest rate characteristic of certain immediately repricing liabilities.
The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a
hedging relationship. For a derivative designated as a cash flow hedge, the effective portion of the derivative’s unrealized gain or loss
is recorded as a component of other comprehensive income (loss). For derivatives not designated as hedges, the gain or loss is
recognized in current period earnings.
Net cash settlements on interest rate swaps are recorded in interest expense and cash flows related to the swaps are classified in the
cash flow statement the same as the interest expense and cash flows from the liabilities being hedged. The Bank formally documents
the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking
hedge transactions at the inception of the hedging relationship. This documentation includes linking cash flow hedges to specific
assets and liabilities on the balance sheet. The Bank also formally assesses, both at the hedge’s inception and on an ongoing basis,
whether a swap is highly effective in offsetting changes in cash flows of the hedged items. The Bank discontinues hedge accounting
when it determines that the derivative is no longer effective in offsetting changes in cash flows of the hedged item, the derivative is
settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income. When
a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that
were accumulated in other comprehensive income are amortized into earnings over the same periods that the hedged transactions will
affect earnings.
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 with dealer counterparties in order to minimize the Bank’s
108
interest rate risk. These swaps are derivatives but are not designated as hedging instruments; 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 does not have credit risk.
Stock Based Compensation — For stock options and restricted stock awards issued to employees, compensation cost is recognized
based on the fair value of these awards at the date of grant. The Company utilizes a Black-Scholes model to estimate the fair value of
stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.
Compensation expense is recognized over the required service period, generally defined as the vesting period. For awards with graded
vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Forfeitures of
stock-based awards are accounted for when incurred in lieu of using forfeiture estimates.
Income Taxes — Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax
assets and liabilities. DTAs and DTLs are the expected future tax amounts for the temporary differences between carrying amounts
and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces DTAs to the
amount expected to be realized.
A tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax
examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is
greater than 50% likely of being realized on examination. For tax positions not meeting the “more-likely-than-not” test, no tax benefit
is recorded.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
Retirement Plans — 401(k) plan expense is recorded as a component of salaries and employee benefits and represents the amount of
Company matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years
of service.
Earnings Per Common Share — Basic earnings per share is based on net income (in the case of Class B Common Stock, less the
dividend preference on Class A Common Stock), divided by the weighted average number of shares outstanding during the period.
Diluted earnings per share include the dilutive effect of additional potential Class A common shares issuable under stock options. All
outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating
securities for this calculation. Earnings and dividends per share are restated for all stock dividends through the date of issuance of the
financial statements.
Comprehensive Income — Comprehensive income consists of net income and OCI. OCI includes, net of tax, unrealized gains and
losses on available-for-sale debt securities and unrealized gains and losses on cash flow hedges, which are also recognized as separate
components of equity.
Loss Contingencies — Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded
as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. Management does
not believe there are any outstanding matters that would have a material effect on the financial statements.
Restrictions on Cash and Cash Equivalents — Republic has historically been required by the FRB to maintain average reserve
balances. Effective March 15, 2020, the FRB reduced the Bank’s reserve requirement ratio to zero percent, therefore, cash and due
from banks on the consolidated balance sheet included no required reserve balances as of December 31, 2021 and 2020.
The Company’s Captive maintains cash reserves to cover insurable claims. Reserves totaled $4 million and $3 million as of December
31, 2021 and 2020.
109
Equity — Stock dividends in excess of 20% are reported by transferring the par value of the stock issued from retained earnings to
common stock. Stock dividends for 20% or less are reported by transferring the fair value, as of the ex-dividend date, of the stock
issued from retained earnings to common stock and additional paid in capital. Fractional share amounts are paid in cash with a
reduction in retained earnings.
Dividend Restrictions — Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank
to Republic or by Republic to shareholders.
Fair Value of Financial Instruments — Fair values of financial instruments are estimated using relevant market information and
other assumptions, as more fully disclosed in Footnote 15 “Fair Value” in this section of the filing. Fair value estimates involve
uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the
absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
Revenue from Contracts with Customers - The Company’s services that fall within the scope of ASC 606, Revenue from Contracts
with Customers, are presented within noninterest income and are recognized as revenue as the Company satisfies its obligation to its
client. The Company expenses as-incurred incremental costs of obtaining a contract when the amortization period of those costs would
be less than one year.
Segment Information — Reportable segments represent parts of the Company evaluated by management with separate financial
information. Republic’s internal information is primarily reported and evaluated in five reportable segments – Traditional Banking,
Warehouse, Mortgage Banking, TRS and RCS.
Reclassifications — Certain amounts presented in prior periods have been reclassified to conform to the current period presentation.
These reclassifications had no impact on previously reported prior periods’ net income or shareholders’ equity.
110
Recently Adopted Accounting Standards
The following ASUs were adopted by the Company during the year ended December 31, 2021 and through the date of this filing:
ASU. No.
2020-06
Topic
Nature of Update
Date Adopted Method of Adoption Financial Statement Impact
January 1, 2022 Prospectively
Immaterial
This ASU simplifies accounting for convertible instruments by removing major separation
models required under current U.S. GAAP. Consequently, more convertible debt instruments
will be reported as a single liability instrument and more convertible preferred stock as a
single equity instrument with no separate accounting for embedded conversion features. The
ASU removes certain settlement conditions that are required for equity contracts to qualify
for the derivative scope exception, which will permit more equity contracts to qualify for it.
The ASU also simplifies the diluted earnings per share calculation in certain areas.
Debt—Debt with
Conversion and
Other Options
(Subtopic 470-20)
and Derivatives and
Hedging—
Contracts in Entity’s
Own Equity
(Subtopic 815-40):
Accounting for
Convertible
Instruments and
Contracts in an
Entity’s Own Equity
2020-08
Codification
This ASU clarifies that an entity should re-evaluate whether a callable debt security is within
January 1, 2021 Prospectively
Immaterial
the scope of ASC paragraph 310-20-35-33 for each reporting period.
Improvements to
Subtopic 310-20,
Receivables—
Nonrefundable Fees
and Other Costs
2020-10
Codification
This ASU affects a wide variety of Topics in the Codification.
January 1, 2021 Prospectively
Immaterial
Improvements
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.
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.
2021-04
Earnings Per Share
January 7, 2021 Prospectively
Immaterial
January 1, 2022 Prospectively
Immaterial
This ASU provides guidance for a modification or an exchange of a freestanding equity-
classified written call option that is not within the scope of another Topic. It specifically
addresses: (1) How an entity should treat a modification of the terms or conditions or an
exchange of a freestanding equity-classified written call option that remains equity classified
after modification or exchange; (2) How an entity should measure the effect of a
modification or an exchange of a freestanding equity-classified written call option that
remains equity classified after modification or exchange; and (3) How an entity should
recognize the effect of a modification or an exchange of a freestanding equity-classified
written call option that remains equity classified after modification or exchange.
(Topic 260), Debt—
Modifications and
Extinguishments
(Subtopic 470-50),
Compensation—
Stock Compensation
(Topic 718), and
Derivatives and
Hedging—Contracts
in Entity’s Own
Equity (Subtopic
815-40): Issuer’s
Accounting for
Certain
Modifications or
Exchanges of
Freestanding Equity-
Classified Written
Call Options
2021-06
Presentation of
This ASU amends the SEC sections of the Codification related to SEC Final Rule Releases
August 9, 2021 Prospectively
Immaterial
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.
Financial Statements
(Topic 205),
Financial Services—
Depository and
Lending (Topic
942), and Financial
Services—
Investment
Companies (Topic
946)
111
Accounting Standards Updates
There were no issued-but-not-yet-effective ASUs considered relevant and material to the Company’s financial statements since the
Company’s most recently filed Form 10-Q or Form 10-K and through the date of this filing. Generally, if an issued-but-not-yet-
effective ASU with an expected immaterial impact to the Company has been disclosed in prior Company filings, that ASU will not be
subsequently redisclosed.
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:
December 31, 2021 (in thousands)
U.S. Treasury securities and U.S. Government agencies
Private label mortgage-backed security
Mortgage-backed securities - residential
Collateralized mortgage obligations
Corporate bonds
Trust preferred security
Total available-for-sale debt securities
December 31, 2020 (in thousands)
U.S. Treasury securities and U.S. Government agencies
Private label mortgage-backed security
Mortgage-backed securities - residential
Collateralized mortgage obligations
Corporate bonds
Trust preferred security
Total available-for-sale debt securities
Held-to-Maturity Debt Securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for
Credit Losses
$
$
$
$
239,880
1,418
207,697
29,947
10,000
3,684
492,626
Amortized
Cost
245,204
1,707
203,786
48,190
10,000
3,631
512,518
$
$
$
$
473
1,313
3,525
377
46
163
5,897
Gross
Unrealized
Gains
1,730
1,250
7,419
772
43
169
11,383
$
$
$
$
(2,894)
—
(473)
(30)
—
—
(3,397)
$
$
—
—
—
—
—
—
—
$
$
Fair
Value
237,459
2,731
210,749
30,294
10,046
3,847
495,126
Gross
Unrealized
Losses
Allowance
for
Credit Losses
Fair
Value
(25)
—
(3)
(10)
—
—
(38)
$
$
— $
—
—
—
—
—
— $
246,909
2,957
211,202
48,952
10,043
3,800
523,863
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:
December 31, 2021 (in thousands)
Mortgage-backed securities - residential
Collateralized mortgage obligations
Corporate bonds
Obligations of state and political subdivisions
Total held-to-maturity debt securities
Gross
Gross
Amortized
Cost
Unrecognized Unrecognized
Gains
Losses
Fair
Value
Allowance
for
Credit Losses
$
$
46
9,080
34,975
245
44,346
$
$
—
158
263
3
424
$
$
—
—
(6)
—
(6)
$
$
46
9,238
35,232
248
44,764
$
$
—
—
(47)
—
(47)
112
December 31, 2020 (in thousands)
Mortgage-backed securities - residential
Collateralized mortgage obligations
Corporate bonds
Obligations of state and political subdivisions
Total held-to-maturity debt securities
Sales of Available-for-Sale Debt Securities
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
Allowance
for
Credit Losses
$
$
99
13,061
39,986
356
53,502
$
$
5
176
499
8
688
$
$
—
—
—
—
—
$
$
104
13,237
40,485
364
54,190
$
$
—
—
(178)
—
(178)
During 2021, 2020, and 2019 there were no material sales of AFS debt securities.
Debt Securities by Contractual Maturity
The following table presents the amortized cost and fair value of debt securities by contractual maturity as of December 31, 2021.
Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without
call or early termination penalties. Securities not due at a single maturity date are detailed separately.
December 31, 2021 (in thousands)
Due in one year or less
Due from one year to five years
Due from five years to ten years
Due beyond ten years
Private label mortgage-backed security
Mortgage-backed securities - residential
Collateralized mortgage obligations
Total debt securities
Unrealized-Loss Analysis on Debt Securities
Available-for-Sale
Debt Securities
Held-to-Maturity
Debt Securities
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
$
30,058
199,822
20,000
3,684
1,418
207,697
29,947
492,626
$
$
30,307
197,616
19,582
3,847
2,731
210,749
30,294
495,126
$
$
120
35,100
—
—
—
46
9,080
44,346
$
$
121
35,359
—
—
—
46
9,238
44,764
The following tables summarize AFS debt securities in an unrealized loss position for which an ACLS had not been recorded as of
December 31, 2021 and 2020, aggregated by investment category and length of time in a continuous unrealized loss position:
December 31, 2021 (in thousands)
Available-for-sale debt securities:
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Treasury securities and U.S. Government agencies
Mortgage-backed securities - residential
Collateralized mortgage obligations
Total available-for-sale debt securities
$
$
177,138 $
84,937
4,495
266,570 $
(2,622) $
(473)
(30)
(3,125) $
9,728 $
—
—
9,728 $
(272) $
—
—
(272) $
186,866 $
84,937
4,495
276,298 $
(2,894)
(473)
(30)
(3,397)
December 31, 2020 (in thousands)
Available-for-sale debt securities:
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. Treasury securities and U.S. Government agencies
Mortgage-backed securities - residential
Collateralized mortgage obligations
Total available-for-sale debt securities
$
$
59,971
1,068
2,788
63,827
$
$
(25)
(3)
(10)
(38)
$
$
— $
—
—
— $
— $
—
—
— $
59,971
1,068
2,788
63,827
$
$
(25)
(3)
(10)
(38)
As of December 31, 2021, the Bank’s portfolio consisted of 173 securities, 29 of which were in an unrealized loss position.
113
As of December 31, 2020, the Bank’s portfolio consisted of 173 securities, 19 of which were in an unrealized loss position.
As of December 31, 2021 and 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 December 31, 2021, with the exception of the $2.7 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 December 31, 2021 and 2020, there were gross unrealized losses of $503,000 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.
Trust Preferred Security
During 2015, the Parent Company purchased a $3 million floating rate trust preferred security at a price of 68% of its $5 million par
value. The coupon on this security is based on the 3-month LIBOR rate plus 159 basis points. The Company performed an initial
analysis prior to acquisition and performs ongoing analysis of the credit risk of the underlying borrower in relation to its TRUP.
Private Label Mortgage-Backed Security
The Bank owns one private label mortgage-backed security with a total carrying value of $2.7 million as of December 31, 2021. This
security is mostly backed by “Alternative A” first lien mortgage loans, but also has an insurance “wrap” or guarantee as an added
layer of protection to the security holder. This asset is illiquid, and as such, the Bank determined it to be a Level 3 security in
accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model
(“present value model”) approach, in determining the fair value of the security. This approach is beneficial for positions that are not
traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-
transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s
best estimate is used. Management’s best estimate consists of both internal and external support for this investment.
See additional discussion regarding the Bank’s private label mortgage-backed security in this section of the filing under Footnote 15
“Fair Value.”
The following table presents a rollforward of the Bank’s private label mortgage-backed security credit losses recognized in earnings:
Years Ended December 31, (in thousands)
2021
2020
2019
Balance, beginning of period
Recovery of losses previously recorded
Balance, end of period
$
$
1,462
—
1,462
$
$
1,462 $
—
1,462 $
1,613
(151)
1,462
Further deterioration in economic conditions could cause the Bank to record an additional impairment charge related to credit losses of
up to $1.4 million, which is the current gross amortized cost of the Bank’s remaining private label mortgage-backed security.
114
Rollforward of the Allowance for Credit Losses on Debt Securities
The tables below present a rollforward for 2021 and 2020 of the ACLS on AFS and HTM debt securities:
ACLS Rollforward
Years Ended December 31,
(in thousands)
Available-for-Sale Securities:
Corporate Bonds
Held-to-Maturity Securities:
Corporate Bonds
Beginning
Balance Provision
Ending Beginning ASC 326
Recoveries Balance Balance Adoption Provision
Ending
Recoveries Balance
2020
Charge-
offs
2021
Charge-
offs
$
— $
— $
— $
— $
— $ — $ — $
— $
— $
— $ —
178
(131)
—
—
47
—
51
127
—
—
178
Total
$
178 $
(131) $
— $
— $
47 $ — $
51 $
127 $
— $
— $
178
The Company decreased the ACLS on its HTM corporate bonds during 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.
There were no HTM debt securities on nonaccrual or past due over 89 days as of December 31, 2021 and 2020. All of the Company’s
HTM corporate bonds were rated investment grade as of December 31, 2021 and 2020.
There were no HTM debt securities considered collateral dependent as of December 31, 2021 and 2020.
Pledged Debt Securities
Debt securities pledged to secure public deposits, securities sold under agreements to repurchase, and securities held for other
purposes, as required or permitted by law are as follows:
December 31, (in thousands)
Carrying amount
Fair value
Equity Securities
2021
2020
$
319,650
319,808
$
303,535
303,611
The following tables present the carrying value, gross unrealized gains and losses, and fair value of equity securities with readily
determinable fair values:
December 31, 2021 (in thousands)
Freddie Mac preferred stock
Community Reinvestment Act mutual fund
Total equity securities with readily determinable fair values
December 31, 2020 (in thousands)
Freddie Mac preferred stock
Community Reinvestment Act mutual fund
Total equity securities with readily determinable fair values
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
—
2,500
2,500
$
$
170
—
170
$
$
—
(50)
(50)
$
$
170
2,450
2,620
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
— $
2,500
2,500
$
560
23
583
$
$
— $
—
— $
560
2,523
3,083
$
$
$
$
115
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:
(in thousands)
Gains (Losses) Recognized on Equity Securities
Year Ended December 31, 2021
Total
Realized Unrealized
Year Ended December 31, 2020
Realized Unrealized
Total
Freddie Mac preferred stock
Community Reinvestment Act mutual fund
Total equity securities with readily determinable fair value
$
$
— $
—
— $
(390) $
(73)
(463) $
(390) $
(73)
(463) $
— $
—
— $
(154)
49
(105)
$
$
(154)
49
(105)
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 16 “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:
Years Ended December 31, (in thousands)
2021
2020
2019
Balance, beginning of period
Origination of consumer loans held for sale
Proceeds from the sale of consumer loans held for sale
Net gain on sale of consumer loans held for sale
Balance, end of period
$
$
3,298 $
271,430
(260,730)
5,749
19,747 $
598
58,833
(57,814)
1,681
3,298
$
$
—
598
—
—
598
Consumer Loans Held for Sale, at Lower of Cost or Fair Value
RCS originates for sale 90% of the balances from its line-of-credit product and a portion of its healthcare receivables product.
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:
Years Ended December 31, (in thousands)
2021
2020
2019
Balance, beginning of period
Origination of consumer loans held for sale
Proceeds from the sale of consumer loans held for sale
Net gain on sale of consumer loans held for sale
Balance, end of period
$
$
1,478 $
610,750
(614,840)
5,549
2,937 $
11,646
460,040
(473,507)
3,299
1,478
$
$
12,838
709,768
(716,062)
5,102
11,646
116
4.
LOANS AND ALLOWANCE FOR CREDIT LOSSES
The composition of the loan portfolio follows:
December 31, (in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit*
Total Core Banking
Republic Processing Group*:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
Total loans**
Allowance for credit losses
Total loans, net
$
2021
2020
$
820,731
306,323
1,456,009
129,337
340,363
56,014
8,637
142,894
210,578
14,510
683
14,448
1,432
3,501,959
850,550
4,352,509
—
50,987
93,066
144,053
4,496,562
(64,577)
879,800
264,780
1,349,085
98,674
325,596
392,319
10,130
101,375
240,640
14,196
587
30,300
8,167
3,715,649
962,796
4,678,445
—
23,765
110,893
134,658
4,813,103
(61,067)
$
4,431,985
$
4,752,036
*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 as of December 31, 2021 and 2020:
December 31, (in thousands)
2021
2020
Contractually receivable
Unearned income
Unamortized premiums
Unaccreted discounts
PPP net unamortized deferred origination fees and costs
Other net unamortized deferred origination fees and costs
Carrying value of loans
Paycheck Protection Program
$
$
4,498,671 $
(542)
116
(641)
(1,203)
161
4,496,562 $
4,821,062
(708)
216
(988)
(8,564)
2,085
4,813,103
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 December 31, 2021, net PPP loans of $56 million
remained on the Core Bank’s balance sheet, including $15 million in loan balances originated during 2020, $42 million in loan
117
balances originated during 2021, and $1 million of yet-to-be-earned PPP lender fees reported as a credit offset to these originated
balances.
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 December 31, 2021, the Bank had no outstanding borrowings from the FRB under the PPPLF.
Credit Quality Indicators
Bank procedures for assessing and maintaining credit gradings differs slightly depending on whether a new or renewed loan is being
underwritten, or whether an existing loan is being re-evaluated for potential credit quality concerns. The latter usually occurs upon
receipt of updated financial information, or other pertinent data, which would potentially cause a change in the loan grade. Specific
Bank procedures follow:
• For new and renewed C&I, CRE and C&D loans, the Bank’s CCAD assigns the credit quality grade to the loan.
• Commercial loan officers are responsible for monitoring their respective loan portfolios and reporting any adverse material
changes to senior management. When circumstances warrant a review and possible change in the credit quality grade, loan
officers are required to notify the Bank’s CCAD.
• A senior officer meets at least monthly with commercial loan officers to discuss the status of past due loans and possible
classified loans. These meetings are designed to give loan officers an opportunity to identify existing loans that should be
downgraded.
• Monthly, members of senior management along with managers of Commercial Lending, CCAD, Accounting, Special Assets
and Retail Collections attend a Special Asset Committee meeting. The SAC reviews C&I and CRE loans graded Special
Mention or worse or loans potentially subject to downgrade into these classifications and discusses the relative trends and
current status of these assets. In addition, the SAC reviews all classified and potentially classified residential real estate and
home equity loans. SAC also reviews the actions taken by management regarding credit-quality grades, foreclosure
mitigation, loan extensions, deferrals or forbearance, troubled debt restructurings, and collateral repossessions. Based on the
information reviewed in this meeting, the SAC approves all specific loan loss allocations to be recognized by the Bank within
the ACLL analysis.
• During 2021 and 2020, members of senior management performed periodic reviews, no less than monthly, of loans whose
borrowers were negatively impacted by the COVID-19 pandemic. These reviews included borrowers in industries
particularly harmed by pandemic-driven restrictions, such as the hospitality industry.
• All new and renewed warehouse lines of credit are approved by the Executive Loan Committee. The CCAD assigns the
initial credit quality grade to warehouse facilities. Monthly, members of senior management review warehouse lending
activity including data associated with the underlying collateral to the warehouse facilities, i.e., the mortgage loans associated
with the balances drawn. Key performance indicators monitored include average days outstanding for each draw, average
FICO credit report score for the underlying collateral, average LTV for the underlying collateral and other factors deemed
relevant.
On at least an annual basis, the Bank’s internal loan review department analyzes all individual loans with outstanding balances greater
than $1 million that are internally classified as “Special Mention,” “Substandard,” “Doubtful” or “Loss.” In addition, on an annual
basis, the Bank analyzes a sample of “Pass” rated loans.
The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such
as current financial information, historical payment experience, public information, and current economic trends. The Bank also
118
considers the fair value of the underlying collateral and the strength and willingness of the guarantor(s). The Bank analyzes loans
individually, and based on this analysis, establishes a credit risk rating. The Bank uses the following definitions for risk ratings:
Risk Grade 1 — Excellent (Pass): Loans fully secured by liquid collateral, such as certificates of deposit, reputable bank
letters of credit, or other cash equivalents; loans fully secured by publicly traded marketable securities where there is no
impediment to liquidation; or loans to any publicly held company with a current long-term debt rating of A or better.
Risk Grade 2 — Good (Pass): Loans to businesses that have strong financial statements containing an unqualified opinion
from a Certified Public Accounting firm and at least three consecutive years of profits; loans supported by unaudited
financial statements containing strong balance sheets, five consecutive years of profits, a five-year satisfactory relationship
with the Bank, and key balance sheet and income statement trends that are either stable or positive; loans that are guaranteed
or otherwise backed by the full faith and credit of the U.S. government or an agency thereof, such as the Small Business
Administration; or loans to publicly held companies with current long-term debt ratings of Baa or better.
Risk Grade 3 — Satisfactory (Pass): Loans supported by financial statements (audited or unaudited) that indicate average
or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; loans with some
weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but
which may be susceptible to deterioration if adverse factors are encountered.
Risk Grade 4 — Satisfactory/Monitored (Pass): Loans in this category are considered to be acceptable credit quality but
contain greater credit risk than Satisfactory loans due to weak balance sheets, marginal earnings or cash flow, or other
uncertainties. These loans warrant a higher-than-average level of monitoring to ensure that weaknesses do not advance. The
level of risk in a Satisfactory/Monitored loan is within acceptable underwriting guidelines so long as the loan is given the
proper level of management supervision. All revolving lines of credit will be placed in this category if a borrowing base is to
be implemented as a condition of approval for the loan. Lastly, a start-up business venture will receive this rating due to the
lack of any historical financial data.
Risk Grade 5 — Special Mention: Loans that possess some credit deficiency or potential weakness that deserves close
attention. Such loans pose an unwarranted financial risk that, if not corrected, could weaken the loan by adversely impacting
the future repayment ability of the borrower. The key distinctions of a Special Mention classification are that (1) it is
indicative of an unwarranted level of risk and (2) credit weaknesses are considered potential and are not defined impairments
to the primary source of repayment.
Purchased with Credit Deterioration Loans — Group 1: To the extent that a PCD, formerly PCI, loan’s performance does
not reflect an increased risk of loss of contractual principal beyond the ACLL established as part of its initial day-one
evaluation, such loan would be classified in the PCD-1 category, whose credit risk is considered by management equivalent
to a non-PCD “Special Mention” loan within the Bank’s credit rating matrix.
Purchased with Credit Deterioration Loans — Substandard: If during the Bank’s periodic evaluations of its PCD,
formerly PCI, loan portfolio, management deems a PCD-1 loan to have an increased risk of loss of contractual principal
beyond the ACLL established as part of its initial day-one evaluation, such loan would be classified PCD-Sub within the
Bank’s credit risk matrix. Management deems the risk of default and overall credit risk of a PCD-Sub loan to be greater than
a PCD-1 loan and more analogous to a non-PCD “Substandard” loan within the Bank’s credit rating matrix.
Risk Grade 6 — Substandard: One or more of the following characteristics may be exhibited in loans classified as
Substandard:
• Loans that possess a defined credit weakness. The likelihood that a loan will be paid from the primary source of
repayment is uncertain. Financial deterioration is under way and very close attention is warranted to ensure that the loan
is collected without loss.
• Loans are inadequately protected by the current net worth and paying capacity of the obligor.
• The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as
collateral liquidation or guarantees.
• Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.
119
• Unusual courses of action are needed to maintain a high probability of repayment.
• The borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest
payments.
• The Bank is forced into a subordinated or unsecured position due to flaws in documentation.
• The Bank is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.
• There is significant deterioration in market conditions to which the borrower is highly vulnerable.
Risk Grade 7 — Doubtful: One or more of the following characteristics may be present in loans classified as Doubtful:
• Loans have all of the weaknesses of those classified as Substandard. However, based on existing conditions, these
weaknesses make full collection of principal highly improbable.
• The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of
repayment.
• The possibility of loss is high but because of certain important pending factors, which may strengthen the loan, loss
classification is deferred until the exact status of repayment is known.
Risk Grade 8 — Loss: Loans are considered uncollectible and of such little value that continuing to carry them as assets is
not feasible. Loans will be classified “Loss” when it is neither practical nor desirable to defer writing off or reserving all or a
portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.
For all real estate and consumer loans, including small-dollar RPG loans, which do not meet the scope above, the Bank uses a grading
system based on delinquency and nonaccrual status. Loans that are 80 days or more past due or on nonaccrual are graded Substandard.
Occasionally, a real estate loan below scope may be graded as “Special Mention” or “Substandard” if the loan is cross-collateralized
with a classified C&I or CRE loan.
Amid the COVID-19 pandemic the Bank has granted loan deferral and forbearance relief to many retail mortgage loans. As loans
under such relief will generally not reflect slow pay, retail mortgage clients requesting loan deferral and forbearance relief beyond six
consecutive months may be scrutinized and adversely classified. Mortgage loans adversely classified following prolonged deferral or
forbearance relief will be monitored for at least six consecutive months before qualifying to exit adverse classification.
Purchased loans are accounted for as any other Bank-originated loan, potentially becoming nonaccrual, as well as being risk rated
under the Bank’s standard practices and procedures. In addition, these loans are considered in the determination of the ACLL once
day-one fair values are final.
Management separately monitors PCD, formerly PCI, loans and no less than quarterly reviews them against the factors and
assumptions used in determining day-one fair values. In addition to its quarterly evaluation, a PCD loan is typically reviewed when it
is modified or extended, or when information becomes available to the Bank that provides additional insight regarding the loan’s
performance, the status of the borrower, or the quality or value of the underlying collateral.
If a troubled debt restructuring is performed on a PCD loan, the loan is transferred out of the PCD population. The loan may require an
additional Provision if its restructured cash flows are less than management’s initial day-one expectations. PCD loans for which the
Bank simply chooses to extend the maturity date are generally not considered TDRs and remain in the PCD population.
120
The following tables include loans by segment, risk category, and, for non-revolving loans, origination year. 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.
(in thousands)
As of December 31, 2021
2021
Residential real estate owner occupied:
Term Loans Amortized Cost Basis by Origination Year
2019
2020
2018
Revolving Loans Revolving Loans
Amortized
Cost Basis
Converted
to Term
Prior
Total
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
$
$
218,981 $
301
45
—
219,327 $
213,010 $
—
870
—
213,880 $
Residential real estate nonowner occupied:
107,041 $
—
—
—
107,041 $
65,947 $
—
—
—
65,947 $
89,186 $
—
679
—
89,865 $
44,376 $
—
—
—
44,376 $
50,301 $
33
1,189
—
51,523 $
226,852 $
8,209
11,075
—
246,136 $
29,292 $
—
—
—
29,292 $
55,872 $
132
95
—
56,099 $
487,669 $
20,059
—
—
507,728 $
260,182 $
2,399
111
—
262,692 $
156,748 $
29,639
266
—
186,653 $
94,212 $
11,207
2,453
—
107,872 $
286,223 $
18,778
3,905
—
308,906 $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
3,568 $
—
—
—
3,568 $
798,330
8,543
13,858
—
820,731
306,096
132
95
—
306,323
82,158 $
—
—
—
82,158 $
1,367,192
82,082
6,735
—
1,456,009
— $
—
—
—
— $
2,541 $
—
—
—
2,541 $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
125,143
4,194
—
—
129,337
320,110
20,061
192
—
340,363
56,014
—
—
—
56,014
8,637
—
—
—
8,637
142,894
—
—
—
142,894
208,429
279
1,870
—
210,578
2,599 $
3,670
—
—
6,269 $
1,155 $
—
—
—
1,155 $
265 $
—
—
—
265 $
59,186 $
785
179
—
60,150 $
18,110 $
34
—
—
18,144 $
44,972 $
1,956
—
—
46,928 $
— $
—
—
—
— $
1,255 $
—
—
—
1,255 $
1,655 $
—
—
—
1,655 $
— $
—
—
—
— $
1,264 $
—
—
—
1,264 $
9,119 $
—
—
—
9,119 $
— $
—
—
—
— $
— $
—
—
—
— $
208,429 $
279
1,870
—
210,578 $
89,078 $
—
—
—
89,078 $
150,820 $
15,365
—
—
166,185 $
40,607 $
—
—
—
40,607 $
2,638 $
—
—
—
2,638 $
65,886 $
—
—
—
65,886 $
— $
—
—
—
— $
32,046 $
524
—
—
32,570 $
44,481 $
1,921
13
—
46,415 $
15,407 $
—
—
—
15,407 $
— $
—
—
—
— $
839 $
—
—
—
839 $
2,641 $
—
—
—
2,641 $
43,301 $
—
—
—
43,301 $
22,933 $
—
—
—
22,933 $
— $
—
—
—
— $
— $
—
—
—
— $
121
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Commercial real estate:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Construction and land development:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Commercial and industrial:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Paycheck Protection Program:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Lease financing receivables:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Aircraft:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Home equity:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(in thousands)
As of December 31, 2021
2021
Term Loans Amortized Cost Basis by Origination Year (Continued)
2019
2020
2018
Revolving Loans Revolving Loans
Amortized
Cost Basis
Converted
to Term
Prior
Total
Consumer:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Warehouse:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
TRS:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
RCS:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Grand Total:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Grand Total
$
$
$
$
$
$
$
$
$
$
978 $
—
—
—
978 $
— $
—
—
—
— $
— $
—
—
—
— $
417 $
—
—
—
417 $
— $
—
—
—
— $
— $
—
—
—
— $
4,694 $
—
22
—
4,716 $
4,326 $
—
61
—
4,387 $
5,768 $
—
194
—
5,962 $
14,613 $
—
—
—
14,613 $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
869 $
—
—
—
869 $
— $
—
—
—
— $
— $
—
—
—
— $
3,699 $
—
—
—
3,699 $
850,550 $
—
—
—
850,550 $
50,987 $
—
—
—
50,987 $
77,544 $
—
379
—
77,923 $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
30,796
—
277
—
31,073
850,550
—
—
—
850,550
50,987
—
—
—
50,987
92,687
—
379
—
93,066
5,524 $
—
—
—
5,524 $
3,409 $
—
—
—
3,409 $
1,642 $
—
—
—
1,642 $
1,169,222 $
35,725
45
—
1,204,992 $
679,039 $
4,844
994
—
684,877 $
384,005 $
34,094
1,146
—
419,245 $
208,648 $
11,274
3,703
—
223,625 $
626,561 $
29,075
15,269
—
670,905 $
1,202,123 $
279
2,249
—
1,204,651 $
88,267 $
—
—
—
88,267 $
4,357,865
115,291
23,406
—
4,496,562
(in thousands)
As of December 31, 2020
2020
Residential real estate owner occupied:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
$
$
268,313 $
—
394
—
268,707 $
Residential real estate nonowner occupied:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Commercial real estate:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Construction and land development:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Commercial and industrial:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
$
$
$
$
$
$
$
$
73,291 $
—
—
—
73,291 $
315,550 $
3,397
2,596
—
321,543 $
53,972 $
—
—
—
53,972 $
105,985 $
18,195
383
—
124,563 $
Term Loans Amortized Cost Basis by Origination Year
2018
2017
2019
Revolving Loans Revolving Loans
Amortized
Cost Basis
Converted
to Term
Prior
Total
67,430
1,610
614
—
69,654
45,759
—
—
—
45,759
171,207
11,355
987
—
183,549
701
—
—
—
701
32,303
—
—
—
32,303
$
$
$
$
$
$
$
$
$
$
301,366
8,730
13,411
—
323,507
38,316
—
81
—
38,397
315,336
9,659
3,899
—
328,894
1,964
—
—
—
1,964
46,697
2,215
—
—
48,912
$
$
$
$
$
$
$
$
$
$
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
621
—
—
—
621
55,949
—
2,803
—
58,752
$
$
$
$
— $
—
—
—
— $
1,040
—
—
—
1,040
$
$
851,881
10,746
17,173
—
879,800
264,699
—
81
—
264,780
1,282,835
55,616
10,634
—
1,349,085
96,233
2,397
44
—
98,674
303,991
21,210
395
—
325,596
132,018
364
1,423
—
133,805
63,102
—
—
—
63,102
258,251
30,969
349
—
289,569
31,756
2,397
44
—
34,197
84,575
800
12
—
85,387
$
$
$
$
$
$
$
$
$
$
82,754
42
1,331
—
84,127
43,610
—
—
—
43,610
166,542
236
—
—
166,778
7,840
—
—
—
7,840
33,391
—
—
—
33,391
$
$
$
$
$
$
$
$
$
$
122
(in thousands)
As of December 31, 2020
Paycheck Protection Program:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Lease financing receivables:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Aircraft:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Home equity:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Consumer:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Warehouse:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
TRS:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
RCS:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Total
Grand Total:
Risk Rating
Pass or not rated
Special Mention
Substandard
Doubtful
Grand Total
2020
Term Loans Amortized Cost Basis by Origination Year (Continued)
2018
2017
2019
Revolving Loans Revolving Loans
Amortized
Cost Basis
Converted
to Term
Prior
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
392,319 $
—
—
—
392,319 $
1,117 $
—
—
—
1,117 $
55,823 $
—
—
—
55,823 $
— $
—
—
—
— $
425 $
—
—
—
425 $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
3,663
—
—
—
3,663
30,529
—
—
—
30,529
$
$
$
$
— $
—
—
—
— $
13,636
—
32
—
13,668
$
$
— $
—
—
—
— $
— $
—
—
—
— $
27,683 $
—
—
—
27,683 $
5,704
—
—
—
5,704
1,294,478 $
21,592
3,373
—
1,319,443 $
623,234
34,530
1,860
—
659,624
$
$
$
$
— $
—
—
—
— $
1,814
—
—
—
1,814
13,804
—
—
—
13,804
$
$
$
$
— $
—
—
—
— $
8,563
—
49
—
8,612
$
$
— $
—
—
—
— $
— $
—
—
—
— $
2,485
—
—
—
2,485
360,803
278
1,380
—
362,461
$
$
$
$
— $
—
—
—
— $
2,847
—
—
—
2,847
1,219
—
—
—
1,219
$
$
$
$
— $
—
—
—
— $
7,125
—
229
—
7,354
$
$
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
689
—
—
—
689
$
$
— $
—
—
—
— $
— $
—
—
—
— $
8,648
5
212
—
8,865
$
$
— $
—
—
—
— $
— $
—
—
—
— $
1,232
—
—
—
1,232
329,823
12,965
1,830
—
344,618
$
$
$
$
19,095
—
—
—
19,095
732,111
20,609
17,603
—
770,323
$
$
$
$
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
237,633 $
127
2,880
—
240,640 $
14,321 $
—
5
—
14,326 $
962,796 $
—
—
—
962,796 $
23,765 $
—
—
—
23,765 $
54,348 $
—
346
—
54,694 $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
392,319
—
—
—
392,319
10,130
—
—
—
10,130
101,375
—
—
—
101,375
237,633
127
2,880
—
240,640
52,718
5
527
—
53,250
962,796
—
—
—
962,796
23,765
—
—
—
23,765
110,547
—
346
—
110,893
1,292,863 $
127
3,231
—
1,296,221 $
57,610
—
2,803
—
60,413
$
$
4,690,922
90,101
32,080
—
4,813,103
Subprime Lending
Both the Traditional Banking segment and the RCS segment of the Company have certain classes of loans that are considered to be
“subprime” strictly due to the credit score of the borrower at the time of origination.
123
Traditional Bank loans considered subprime totaled approximately $48 million and $52 million as of December 31, 2021 and 2020.
Approximately $28 million and $27 million of the outstanding Traditional Bank subprime loan portfolio as of December 31, 2021 and
2020 were originated for CRA purposes. Management does not consider these loans to possess significantly higher credit risk due to
other underwriting qualifications.
The RCS segment originates two short-term line-of-credit products, with the second product introduced in January 2021. The Bank
sells 90% to 95% of the balances maintained through these products within three days of loan origination and retains a 5% to 10%
interest. These products are unsecured and made to borrowers with subprime or near prime credit scores. The aggregate outstanding
balance held-for-investment for these products totaled $26 million and $18 million as of December 31, 2021 and 2020.
Allowance for Credit Losses
The following tables present the activity in the ACLL by portfolio class for the years ended December 31, 2021, 2020, and 2019:
ACLL Rollforward
Years Ended December 31,
Beginning
Balance Provision
2021
Charge-
offs
Ending
Recoveries Balance
Beginning ASC 326
Balance Adoption Provision
offs
Recoveries
Ending
Balance
2020
Charge-
(in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
2,466
23,606
3,274
2,797
—
106
253
4,990
929
587
399
577
49,699
2,407
52,106
—
158
8,803
8,961
$ 9,715 $ (1,461) $
393 $ 8,647 $ 4,729 $ 4,199 $
231
509
854
700
—
(15)
104
(874)
107
425
(233)
(254)
93
(281)
(188)
— $
—
(428)
—
(86)
—
—
—
(51)
3
82
—
76
—
—
—
46
1,737
2,700
23,769 10,486
2,152
4,128
2,882
3,487
—
—
147
91
176
357
2,721
4,111
785 $
570
148
273 13,170
(325)
1,421
—
(41)
77
516
1,447
(1,318)
—
—
—
1,652
(169) $
—
(795)
—
(310)
—
—
—
(14)
171 $ 9,715
2,466
11
23,606
472
—
3,274
122
2,797
—
—
—
106
—
253
115
4,990
(163)
(641)
(19)
(72)
(1,460)
—
(1,460)
61
312
39
63
1,075
—
1,075
934
683
186
314
49,407
2,126
51,533
1,020
1,169
612
374
28,205
1,794
29,999
33
—
(7)
307
6,734
—
6,734
111
79
(176)
(57)
16,130
613
16,743
(295)
(886)
(60)
(240)
(2,769)
—
(2,769)
60
225
30
193
1,399
—
1,399
929
587
399
577
49,699
2,407
52,106
(40)
6,723 (10,256)
(51)
(4,707)
(15,014)
8,444
15,127
3,533
29
408
3,970
—
96
12,948
13,044
—
234
13,118
13,352
— 13,033
156
—
— 1,219
— 14,408
(19,575)
(234)
(6,163)
(25,972)
6,542
2
629
7,173
—
158
8,803
8,961
Total
$ 61,067 $ 14,939 $ (16,474) $ 5,045 $ 64,577 $ 43,351 $ 6,734 $ 31,151 $ (28,741) $ 8,572
$ 61,067
124
(in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
Total
Beginning
Balance
Provision
for Credit Loss
ACLL Rollforward
Year Ended December 31, 2019
Charge-
offs
Recoveries
$
6,035 $
1,662
10,030
2,555
2,873
158
91
3,477
(1,087) $
125
1,859
(403)
1,505
(11)
85
(764)
1,140
1,102
724
500
30,347
1,172
31,519
—
107
13,049
13,156
226
1,155
(42)
(204)
2,444
622
3,066
10,643
606
11,443
22,692
$
(610)
(73)
(1,407)
—
(1,505)
—
—
(64)
(402)
(1,310)
(79)
(263)
(5,713)
—
(5,713)
(13,425)
(692)
(12,566)
(26,683)
391 $
23
4
—
9
—
—
72
56
222
9
341
1,127
—
1,127
2,782
213
1,192
4,187
Ending
Balance
4,729
1,737
10,486
2,152
2,882
147
176
2,721
1,020
1,169
612
374
28,205
1,794
29,999
—
234
13,118
13,352
$
44,675
$
25,758
$
(32,396)
$
5,314
$
43,351
The cumulative loss rate used as the basis for the estimate of the Company’s ACLL as of December 31, 2021 was primarily based on a
static pool analysis of each of the Company’s loan pools using the Company’s loss experience from 2013 through 2020, supplemented
by qualitative factor adjustments for current and forecasted conditions. The Company employs one-year forecasts of unemployment
and CRE values within its ACLL model, with reversion to long-term averages following the forecasted period. The cumulative loss
rate within the Company’s ACLL also includes estimated losses based on an individual evaluation of loans which are either collateral
dependent or which do not share risk characteristics with pooled loans, e.g., TDRs.
For its CRE loan pool, the Company employed a one-year forecast of CRE vacancy rates through March 31, 2021 but discontinued
use of this forecast during the second quarter of 2021 in favor of a one-year forecast of general CRE values. This change in forecast
method had no material impact on the Company’s ACLL.
125
Nonperforming Loans and Nonperforming Assets
Detail of nonperforming loans and nonperforming assets and select credit quality ratios follows:
December 31, (in thousands)
Loans on nonaccrual status*
Loans past due 90-days-or-more and still on accrual**
Total nonperforming loans
Other real estate owned
Total nonperforming assets
Credit Quality Ratios - Total Company:
Nonperforming loans to total loans
Nonperforming assets to total loans (including OREO)
Nonperforming assets to total assets
Credit Quality Ratios - Core Bank:
Nonperforming loans to total loans
Nonperforming assets to total loans (including OREO)
Nonperforming assets to total assets
2021
2020
$
$
20,504
48
20,552
1,792
22,344
$
$
23,548
47
23,595
2,499
26,094
0.46 %
0.50
0.37
0.49 %
0.54
0.42
0.47 %
0.51
0.40
0.50 %
0.56
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.
126
The following table presents the recorded investment in nonaccrual loans and loans past due 90-days-or-more and still on accrual by
class of loans:
December 31, (in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
Nonaccrual
2021
2020
Past Due 90-Days-or-More
and Still Accruing Interest*
2020
2021
$
12,039
95
6,557
—
13
—
$
$
14,328
81
6,762
—
55
—
—
—
1,700
2,141
—
—
97
3
20,504
—
20,504
—
—
—
—
—
—
170
11
23,548
—
23,548
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
1
—
—
1
—
1
—
—
47
47
Total
$
20,504
$
23,548
$
48
$
* Loans past due 90-days-or-more and still accruing consist of smaller balance consumer loans.
—
—
—
—
—
—
—
5
—
—
—
5
—
5
—
—
42
42
47
(in thousands)
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer
Total
Nonaccrual
Loans with
ACLL
As of December 31, 2021
Nonaccrual
Loans without
ACLL
Total
Nonaccrual
Loans
Year Ended
December 31, 2021
Interest Income
Recognized
on Nonaccrual Loans*
$
$
1,944
31
4,105
—
—
—
—
—
—
17
6,097
$
$
10,095
64
2,452
—
13
—
—
—
1,700
83
14,407
$
$
12,039
95
6,557
—
13
—
—
—
1,700
100
20,504
$
$
874
6
154
—
3
—
—
—
152
10
1,199
* Includes interest income for loans on nonaccrual loans as of the beginning of the period that were paid off during the period.
127
(in thousands)
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer
As of December 31, 2020
Nonaccrual
Loans with
ACLL
Nonaccrual
Loans without
ACLL
Total
Nonaccrual
Loans
Year Ended
December 31, 2020
Interest Income
Recognized
on Nonaccrual Loans*
$
$
1,995
8
576
—
—
—
—
—
91
69
2,739
$
$
12,333
73
6,186
—
55
—
—
—
2,050
112
20,809
$
$
14,328 $
81
6,762
—
55
—
—
—
2,141
181
23,548 $
824
11
857
—
17
—
—
—
94
13
1,816
* Includes interest income for loans on nonaccrual as of the beginning of the period that were paid off during the period.
Nonaccrual loans and loans past due 90-days-or-more and still on accrual include both smaller balance, primarily retail, homogeneous
loans. Nonaccrual loans are typically returned to accrual status when all the principal and interest amounts contractually due are
brought current and held current for six consecutive months and future contractual payments are reasonably assured. TDRs on
nonaccrual status are reviewed for return to accrual status on an individual basis, with additional consideration given to performance
under the modified terms.
128
Delinquent Loans
The following tables present the aging of the recorded investment in loans by class of loans:
December 31, 2021
(dollars in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
30 - 59
Days
Delinquent
60 - 89
Days
Delinquent
90 or More
Days
Delinquent*
Total
Delinquent**
Total
Current
Total
$
$
606
—
—
—
8
—
—
—
38
19
160
—
1
832
—
832
—
—
5,010
5,010
$
383
—
—
—
—
—
—
—
35
11
3
—
—
432
—
432
—
—
978
978
$
610
—
5,292
—
13
—
—
—
241
—
1
9
—
6,166
—
6,166
—
—
47
47
1,599
—
5,292
—
21
—
—
—
314
30
164
9
1
7,430
—
7,430
—
—
6,035
6,035
$
819,132 $
306,323
1,450,717
129,337
340,342
56,014
8,637
142,894
210,264
820,731
306,323
1,456,009
129,337
340,363
56,014
8,637
142,894
210,578
14,480
519
14,439
1,431
3,494,529
850,550
4,345,079
14,510
683
14,448
1,432
3,501,959
850,550
4,352,509
—
50,987
87,031
138,018
—
50,987
93,066
144,053
Total
Delinquency ratio***
$ 5,842
$ 1,410
$ 6,213
$ 13,465
$ 4,483,097 $ 4,496,562
0.13 %
0.03 %
0.14 %
0.30 %
*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.
129
December 31, 2020
(dollars in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer:
Credit cards
Overdrafts
Automobile loans
Other consumer
Total Traditional Banking
Warehouse lines of credit
Total Core Banking
Republic Processing Group:
Tax Refund Solutions:
Easy Advances
Other TRS loans
Republic Credit Solutions
Total Republic Processing Group
Total
Delinquency ratio***
30 - 59
Days
Delinquent
60 - 89
Days
Delinquent
90 or More
Days
Delinquent*
Total
Delinquent**
Total
Current
Total
$
$
1,038
—
—
—
—
—
—
—
93
33
140
42
6
1,352
—
1,352
—
—
6,572
6,572
$
668
—
348
—
—
—
—
—
14
35
5
—
—
1,070
—
1,070
—
—
3,620
3,620
1,554
—
5,109
—
12
—
—
—
595
5
2
14
—
7,291
—
7,291
—
—
42
42
$
3,260
—
5,457
—
12
—
—
—
702
73
147
56
6
9,713
—
9,713
$
$
876,540
264,780
1,343,628
98,674
325,584
392,319
10,130
101,375
239,938
14,123
440
30,244
8,161
3,705,936
962,796
4,668,732
879,800
264,780
1,349,085
98,674
325,596
392,319
10,130
101,375
240,640
14,196
587
30,300
8,167
3,715,649
962,796
4,678,445
—
—
10,234
10,234
—
23,765
100,659
124,424
—
23,765
110,893
134,658
$
$
7,924
0.16 %
$
4,690
0.10 %
$
7,333
0.15 %
19,947
$
4,793,156
$
4,813,103
0.41 %
*All loans past due 90 days-or-more, excluding small-dollar 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 divided by total loans.
Collateral-Dependent Loans
The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2021 and
2020:
(in thousands)
Traditional Banking:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Paycheck Protection Program
Lease financing receivables
Aircraft
Home equity
Consumer
Total Traditional Banking
December 31, 2021
December 31, 2020
Secured
by Real
Estate
Secured
by Personal
Property
Secured
by Real
Estate
Secured
by Personal
Property
14,798
95
6,736
—
—
—
—
—
1,976
—
23,605
$
$
— $
—
—
—
192
—
—
—
—
274
466 $
17,212
81
10,205
—
—
—
—
—
2,899
—
30,397
$
$
—
—
—
—
12
—
—
—
—
237
249
$
$
130
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.
Impaired Loans
The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2019. The difference
between the “Unpaid Principal Balance” and “Recorded Investment” columns represents life-to-date partial write downs/charge-offs
taken on individual impaired credits.
As of
December 31, 2019
Year Ended
December 31, 2019
Unpaid
Principal
Balance
Recorded
Investment
Allocated
ACLL
Average
Recorded
Investment
Interest
Income
Recognized
Cash Basis
Interest
Income
Recognized
14,768
1,515
15,028
198
3,308
—
—
3,107
206
12,954
—
3,228
—
197
—
—
263
701
55,473
$
$
13,893
1,448
12,547
198
1,792
—
—
3,023
160
12,911
—
3,228
—
197
—
—
263
690
50,350
$
$
— $
—
—
—
—
—
—
—
—
1,392
—
432
—
22
—
—
174
492
2,512
$
12,655 $
1,425
7,514
65
913
—
—
2,140
76
13,824
108
3,624
30
2,054
—
—
417
555
45,400 $
191
57
298
2
35
—
—
75
4
502
—
151
—
3
—
—
8
16
1,342
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
(in thousands)
Impaired loans with no allocated ACLL:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Lease financing receivables
Aircraft
Home equity
Consumer
Impaired loans with allocated ACLL:
Residential real estate:
Owner occupied
Nonowner occupied
Commercial real estate
Construction & land development
Commercial & industrial
Lease financing receivables
Aircraft
Home equity
Consumer
Total impaired loans
$
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 December 31, 2021
and 2020, $6 million and $7 million of TDRs were on nonaccrual status.
131
Detail of TDRs differentiated by loan type and accrual status follows:
Troubled Debt
Restructurings on
Nonaccrual Status
Number of Recorded
December 31, 2021 (dollars in thousands)
Residential real estate
Commercial real estate
Commercial & industrial
Consumer
Total troubled debt restructurings
December 31, 2020 (dollars in thousands)
Residential real estate
Commercial real estate
Construction & land development
Commercial & industrial
Consumer
Total troubled debt restructurings
Troubled Debt
Restructurings on
Accrual Status
Total
Troubled Debt
Restructurings
Number of Recorded
Investment
Loans
Number of
Loans
Recorded
Investment
89 $
2
1
2,269
2,361 $
7,856
1,239
1
479
9,575
152 $
4
3
2,270
2,429 $
11,035
3,814
46
491
15,386
Loans
Investment
3,179
2,575
45
12
5,811
63 $
2
2
1
68 $
Troubled Debt
Restructurings on
Nonaccrual Status
Troubled Debt
Restructurings on
Accrual Status
Total
Troubled Debt
Restructurings
$
Loans
Number of Recorded
Investment
4,189
2,509
—
—
14
6,712
61
2
—
—
1
64
$
Number of
Loans
Recorded
Investment
Number of
Loans
Recorded
Investment
123
5
1
1
2,194
2,324
$
$
11,041
2,395
44
1
585
14,066
184
7
1
1
2,195
2,388
$
$
15,230
4,904
44
1
599
20,778
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 December 31, 2021 and 2020 follows:
December 31, 2021 (dollars in thousands)
Loans
Investment
Loans
Residential real estate loans (including home equity
Troubled Debt
Restructurings
Performing to
Modified Terms
Troubled Debt
Restructurings
Not Performing to
Modified Terms
Number of Recorded
Number of Recorded
Total
Troubled Debt
Restructurings
Investment
Number of Recorded
Investment
Loans
loans):
Rate reduction
Principal deferral
Legal modification
Total residential TDRs
Commercial related and construction/land
development loans:
Rate reduction
Principal deferral
Total commercial TDRs
Consumer loans:
Principal deferral
Legal modification
Total consumer TDRs
82 $
7
48
137
7,461
729
2,100
10,290
4 $
—
11
15
303
—
442
745
86 $
7
59
152
7,764
729
2,542
11,035
1
5
6
919
477
1,396
2,266
4
2,270
470
21
491
—
1
1
—
—
—
—
2,464
2,464
1
6
7
—
—
—
2,266
4
2,270
919
2,941
3,860
470
21
491
Total troubled debt restructurings
2,413 $
12,177
16 $
3,209
2,429 $
15,386
132
December 31, 2020 (dollars in thousands)
Residential real estate loans (including home equity loans):
Interest only payments
Rate reduction
Principal deferral
Legal modification
Total residential TDRs
Commercial related and construction/land development loans:
Interest only payments
Rate reduction
Principal deferral
Total commercial TDRs
Consumer loans:
Principal deferral
Legal modification
Total consumer TDRs
Troubled Debt
Restructurings
Performing to
Modified Terms
Troubled Debt
Restructurings
Not Performing to
Modified Terms
Total
Troubled Debt
Restructurings
Number of Recorded
Investment
Loans
Number of Recorded
Investment
Loans
Number of Recorded
Investment
Loans
$
1
101
9
58
169
1
2
4
7
2,193
2
2,195
826
9,526
858
3,068
14,278
488
1,046
906
2,440
578
21
599
— $
6
2
7
15
—
1
1
2
—
—
—
—
370
166
416
952
—
45
2,464
2,509
$
1
107
11
65
184
1
3
5
9
—
—
—
2,193
2
2,195
826
9,896
1,024
3,484
15,230
488
1,091
3,370
4,949
578
21
599
Total troubled debt restructurings
2,371
$
17,317
17
$
3,461
2,388
$
20,778
As of December 31, 2021 and 2020, 79% and 83% of the Bank’s TDR balances were performing according to their modified terms.
The Bank had provided $2 million and $1 million of specific reserve allocations to clients whose loan terms have been modified in
TDRs as of December 31, 2021 and 2020. The Bank had no commitments to lend any additional material amounts to its existing TDR
relationships as of December 31, 2021 and 2020.
A summary of the categories of TDR loan modifications and respective performance as of December 31, 2021, 2020, and 2019 that
were modified during the years ended December 31, 2021, 2020, and 2019 follows:
December 31, 2021 (dollars in thousands)
Loans
Investment
Loans
Investment
Troubled Debt
Restructurings
Performing to
Modified Terms
Troubled Debt
Restructurings
Not Performing to
Modified Terms
Number of Recorded
Number of Recorded
Total
Troubled Debt
Restructurings
Number of Recorded
Investment
Loans
Residential real estate loans (including home equity loans):
Principal deferral
Legal modification
Total residential TDRs
Commercial related and construction/land development loans:
Principal deferral
Total commercial TDRs
Consumer loans:
Principal deferral
Legal modification
Total consumer TDRs
1 $
9
10
2
2
621
2
623
159
309
468
45
45
92
4
96
— $
5
5
—
—
—
—
—
—
272
272
—
—
—
—
—
1 $
14
15
2
2
621
2
623
159
581
740
45
45
92
4
96
Total troubled debt restructurings
635 $
609
5 $
272
640 $
881
133
December 31, 2020 (dollars in thousands)
Residential real estate loans (including home equity loans):
Rate reduction
Legal modification
Total residential TDRs
Commercial related and construction/land development loans:
Principal deferral
Total commercial TDRs
Consumer loans:
Principal deferral
Legal modification
Total consumer TDRs
Troubled Debt
Restructurings
Performing to
Modified Terms
Troubled Debt
Restructurings
Not Performing to
Modified Terms
Total
Troubled Debt
Restructurings
Number of Recorded
Investment
Loans
Number of Recorded
Investment
Loans
Number of Recorded
Investment
Loans
$
2
15
17
2
2
486
1
487
53
701
754
133
133
71
14
85
$
1
3
4
—
—
—
—
—
3
131
134
—
—
—
—
—
$
3
18
21
2
2
486
1
487
56
832
888
133
133
71
14
85
Total troubled debt restructurings
506
$
972
4
$
134
510
$
1,106
The tables above are inclusive of loans that were TDRs at the end of previous years and were re-modified, e.g., a maturity date extension during the current year.
December 31, 2019 (dollars in thousands)
Residential real estate loans (including home equity loans):
Rate reduction
Principal deferral
Legal modification
Total residential TDRs
Commercial related and construction/land development loans:
Rate reduction
Principal deferral
Legal modification
Total commercial TDRs
Consumer loans:
Principal deferral
Legal modification
Total consumer TDRs
Troubled Debt
Restructurings
Performing to
Modified Terms
Troubled Debt
Restructurings
Not Performing to
Modified Terms
Total
Troubled Debt
Restructurings
Number of Recorded
Investment
Loans
Number of Recorded
Investment
Loans
Number of Recorded
Investment
Loans
$
1
—
26
27
2
4
—
6
1,279
1
1,280
365
—
1,958
2,323
1,423
3,199
—
4,622
201
9
210
— $
—
5
5
—
—
2
2
—
—
—
—
—
417
417
—
—
1,027
1,027
$
1
—
31
32
2
4
2
8
—
—
—
1,279
1
1,280
365
—
2,375
2,740
1,423
3,199
1,027
5,649
201
9
210
Total troubled debt restructurings
1,313
$
7,155
7
$
1,444
1,320
$
8,599
The table above is inclusive of loans that were TDRs at the end of previous years and were re-modified, e.g., a maturity date extension during the current year.
As of December 31, 2021, 2020, and 2019, 69%, 88% and 83% of the Bank’s TDR balances that occurred during the years ended
December 31, 2021, 2020, and 2019 were performing according to their modified terms. The Bank provided approximately $45,000,
$48,000 and $220,000 in specific reserve allocations to clients whose loan terms were modified in TDRs during 2021, 2020, and 2019.
There was no significant change between the pre and post modification loan balances as of December 31, 2021, 2020, and 2019.
134
The following tables present loans by class modified as troubled debt restructurings within the previous 12 months of December 31,
2021, 2020, and 2019 and for which there was a payment default during 2021, 2020, and 2019:
(dollars in thousands)
Residential real estate:
Owner occupied
Commercial real estate
Commercial & industrial
Home equity
Consumer
Total
COVID-19 Loan Accommodations
2021
Years Ended December 31,
2020
2019
Number of Recorded
Investment
Loans
Number of
Loans
Recorded
Investment
Number of
Loans
Recorded
Investment
5 $
—
—
1
—
6 $
314
—
—
14
—
328
$
5
—
—
2
—
7
$
218
—
—
32
—
250
$
4
1
2
—
1,279
1,286
$
248
541
1,027
—
201
2,017
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 December 31, 2021, $2 million, or less than 1% of the Company’s Traditional Bank portfolio remained under a COVID-19
hardship accommodation.
Foreclosures
The following table presents the carrying amount of foreclosed properties held as of December 31, 2021 and 2020 as a result of the
Bank obtaining physical possession of such properties:
December 31, (in thousands)
Residential real estate
Commercial real estate
Total other real estate owned
2021
2020
$
$
— $
1,792
496
2,003
1,792 $
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 as of December
31, 2021 and 2020:
December 31, (in thousands)
2021
2020
Recorded investment in consumer residential real estate mortgage loans in the process
of foreclosure
$
508 $
981
Easy Advances
The Company’s TRS segment offered its EA product during the first two months of 2021, 2020, and 2019. 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 30th, and each quarter
thereafter, any credits to the Provision for EAs matches the recovery of previously charged-off accounts.
135
Information regarding EAs follows:
(dollars in thousands)
Easy Advances originated
Net charge to the Provision for Easy Advances
Provision to total Easy Advances originated
Easy Advances net charge-offs
Easy Advances net charge-offs to total Easy Advances
$
$
originated
5.
PREMISES AND EQUIPMENT
2021
250,045
6,723
2.69 %
6,723
2.69 %
$
$
Years Ended
December 31,
2020
387,762
13,033
$
3.36 %
$
13,033
2019
388,970
10,643
2.74 %
10,643
3.36 %
2.74 %
A summary of the cost and accumulated depreciation of premises and equipment follows:
December 31, (in thousands)
2021
2020
Land
Buildings and improvements
Furniture, fixtures and equipment
Leasehold improvements
Construction in progress
Total premises and equipment
Less: Accumulated depreciation and amortization
Premises and equipment, net
$
$
3,818 $
32,629
51,429
22,430
—
110,306
74,233
36,073 $
4,303
33,225
51,467
21,921
—
110,916
71,404
39,512
Depreciation expense related to premises and equipment follows:
Years Ended December 31, (in thousands)
2021
2020
2019
Depreciation expense
$
8,986
$
9,725
$
9,230
6.
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 December 31, 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 December 31, 2021,
payments on 24 of the Company’s operating leases were considered variable because such payments were adjustable based on
periodic changes in the Consumer Price Index.
The Company executed no new operating leases during 2021. The Company renewed a related-party lease on one of its Louisville,
Kentucky banking centers during the fourth quarter of 2020 that commenced in January 2021 with a right-of-use asset value of
$392,000. During the second quarter of 2021, the Company extended one third-party lease for an additional five years, with the
extended term beginning during the third quarter of 2021 and valued at approximately $263,000. During the fourth quarter of 2021,
the Company recorded two amendments to one related-party lease to add leased space, with these amendments valued at
approximately $1.1 million.
136
The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within
the category “Occupancy and equipment, net” for years ended December 31, 2021, 2020, and 2019:
Years Ended December 31, (in thousands)
Operating lease expense:
Related Party:
Variable lease expense
Fixed lease expense
Third Party:
Variable lease expense
Fixed lease expense
Short-term lease expense
Total operating lease expense
Other information concerning operating leases:
Cash paid for amounts included in the measurement of operating lease liabilities
Short-term lease payments not included in the measurement of lease liabilities
2021
2020
2019
$
$
$
4,921 $
137
4,885
91
787
1,372
—
7,217 $
786
1,617
—
7,379
7,286 $
—
7,254
—
$
$
$
4,690
37
883
1,505
62
7,177
7,175
62
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 December 31, 2021 and 2020:
December 31, (dollars in thousands)
2021
2020
Weighted average remaining term in years
Weighted average discount rate
7.57
3.05 %
8.37
3.10 %
The following table presents a maturity schedule of the Company’s operating lease liabilities based on undiscounted cash flows, and a
reconciliation of those undiscounted cash flows to the operating lease liabilities recognized on the Company’s balance sheet as of
December 31, 2021:
Year (in thousands)
Related Party
Third Party
Total
$
2,513
2,090
1,558
1,021
883
1,908
9,973
(1,233)
8,740 $
$
7,280
6,857
6,191
5,477
4,387
14,604
44,796
(5,124)
39,672
$
4,767
4,767
4,633
4,456
3,504
12,696
34,823
(3,891)
30,932 $
$
2022
2023
2024
2025
2026
Thereafter
Total undiscounted cash flows
Discount applied to cash flows
Total discounted cash flows reported as operating lease liabilities
$
$
$
137
7.
GOODWILL AND CORE DEPOSIT INTANGIBLE ASSETS
A progression of the balance for goodwill follows:
Years Ended December 31, (in thousands)
2021
2020
2019
Beginning of period
Acquired goodwill
Impairment
End of period
$
$
16,300
—
—
16,300
$
$
16,300
—
—
16,300
$
$
16,300
—
—
16,300
The goodwill balance relates entirely to the Company’s Traditional Banking segment and Core Banking operations.
The Company adopted ASU 2017-04 on January 1, 2020, which simplified goodwill impairment testing by eliminating Step 2 from
the goodwill impairment test. The ASU also eliminated the requirements for any reporting unit with a zero or negative carrying
amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.
Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. As of December 31, 2021 and 2020, the
Company’s Core Banking reporting unit had positive equity and the Company elected to perform a qualitative assessment to
determine if it was more-likely-than-not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The
qualitative assessment indicated that it was not more-likely-than-not that the carrying value of the reporting unit exceeded its fair
value.
8.
INTEREST RATE SWAPS
Interest Rate Swaps Used as Cash Flow Hedges
The Bank entered into two interest rate swap agreements (“swaps”) during 2013 as part of its interest rate risk management strategy.
The Bank designated these swaps as cash flow hedges intended to reduce the variability in cash flows attributable to either FHLB
advances tied to the 3-month LIBOR or the overall changes in cash flows on certain money market deposit accounts tied to the 1-
month LIBOR. Both swaps matured in December 2020. The impact of these swap transactions on the consolidated statements of
income and OCI during the years ended December 31, 2021, 2020, and 2019 is considered immaterial.
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 counter party 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 has no credit risk.
138
A summary of the Bank’s interest rate swaps related to clients as of December 31, 2021 and 2020 is included in the following table:
December 31, (in thousands)
Bank Position
Notional
Amount
Notional
Fair Value Amount
Fair Value
2021
2020
Interest rate swaps with Bank clients - Assets
Interest rate swaps with Bank clients - Liabilities
Interest rate swaps with Bank clients - Total
Pay variable/receive fixed
Pay variable/receive fixed
Pay variable/receive fixed
$ 107,502 $
16,423
$ 123,925 $
5,786 $ 138,277
(298)
—
5,488 $ 138,277
$ 12,545
—
$ 12,545
Offsetting interest rate swaps with institutional swap
dealer
Total
Pay fixed/receive variable 123,925
$ 247,850 $
(5,488)
138,277
— $ 276,554
(12,545)
—
$
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 $6.8 million and $13.3 million as of December 31, 2021 and 2020.
9.
DEPOSITS
The composition of the deposit portfolio follows:
December 31, (in thousands)
2021
2020
Core Bank:
Demand
Money market accounts
Savings
Individual retirement accounts (1)
Time deposits, $250 and over (1)
Other certificates of deposit (1)
Reciprocal money market and time deposits (1)
Brokered deposits (1)
Total Core Bank interest-bearing deposits
Total Core Bank noninterest-bearing deposits
Total Core Bank deposits
Republic Processing Group:
Money market accounts
Total RPG interest-bearing deposits
Brokered prepaid card deposits
Other noninterest-bearing deposits
Total RPG noninterest-bearing deposits
Total RPG deposits
Total deposits
(1)
Includes time deposits.
$
1,381,522 $
789,876
311,624
43,724
81,050
154,174
77,950
—
2,839,920
1,579,173
4,419,093
9,717
9,717
320,907
90,701
411,608
421,325
1,217,263
712,824
236,335
47,889
83,448
199,214
314,109
25,010
2,836,092
1,503,662
4,339,754
6,673
6,673
257,856
128,898
386,754
393,427
$
4,840,418 $
4,733,181
139
As of December 31, 2021, the scheduled maturities and weighted average rate of all time deposits, including brokered and reciprocal
certificates of deposit, were as follows:
Years (dollars in thousands)
2022
2023
2024
2025
2026
Thereafter
Total
Principal
Weighted
Average
Rate
$
$
199,167
70,017
18,845
4,004
4,163
18
296,214
0.53 %
2.42
1.40
0.51
0.30
0.44
1.03
10.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase consist of short-term excess funds from correspondent banks, repurchase agreements
and overnight liabilities to deposit clients arising from the Bank’s treasury management program. While comparable to deposits in
their transactional nature, these overnight liabilities to clients are in the form of repurchase agreements. Repurchase agreements
collateralized by securities are treated as financings; accordingly, the securities involved with the agreements are recorded as assets
and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. Should the fair value of
currently pledged securities fall below the associated repurchase agreements, the Bank would be required to pledge additional
securities. To mitigate the risk of under collateralization, the Bank typically pledges at least two percent more in securities than the
associated repurchase agreements. All such securities are under the Bank’s control.
As of December 31, 2021 and 2020, all securities sold under agreements to repurchase had overnight maturities. Additional
information regarding securities sold under agreements to repurchase follows:
December 31, (dollars in thousands)
2021
2020
Outstanding balance at end of period
Weighted average interest rate at end of period
$
290,967
$
211,026
0.04 %
0.04 %
Fair value of securities pledged:
U.S. Treasury securities and U.S. Government agencies
Mortgage backed securities - residential
Collateralized mortgage obligations
Total securities pledged
$
$
108,813
167,561
33,441
309,815
$
$
60,059
140,554
29,656
230,269
Additional information regarding securities sold under agreements to repurchase for the years ended December 31, 2021, 2020, and
2019 follows:
Years Ended December 31, (in thousands)
2021
2020
2019
Average outstanding balance during the period
Average interest rate during the period
Maximum outstanding at any month end during the period
$
$
231,430
$
204,797
0.03 %
0.09 %
432,047
$
295,698
$
$
236,883
0.51 %
276,927
140
11.
FEDERAL HOME LOAN BANK ADVANCES
As of December 31, 2021 and 2020, FHLB advances were as follows:
December 31, (in thousands)
Overnight advances
Fixed interest rate advances
Total FHLB advances
2021
2020
$
$
25,000 $
—
25,000 $
225,000
10,000
235,000
The Company incurred $2.1 million early termination penalties on the payoff of $60 million in FHLB advances during 2020, with no
similar penalty incurred in 2021 or 2019.
FHLB advances are collateralized by a blanket pledge of eligible real estate loans. As of December 31, 2021 and 2020, Republic had
available borrowing capacity of $900 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 December 31, 2021 and 2020.
Aggregate future principal payments on FHLB advances based on contractual maturity and the weighted average cost of such
advances are detailed below:
Year (dollars in thousands)
2022
2023
2024
2025
2026
Total
Weighted
Average
Rate
Principal
$
$
25,000
—
—
—
—
25,000
0.14 %
—
—
—
—
0.14 %
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:
December 31, (dollars in thousands)
2021
2020
Outstanding balance at end of period
Weighted average interest rate at end of period
$
25,000
$
225,000
0.14 %
0.16 %
Years Ended December 31, (dollars in thousands)
2021
2020
2019
Average outstanding balance during the period
Average interest rate during the period
Maximum outstanding at any month end during the period
$
$
28,767
0.15 %
25,000
$
$
25,546 $
0.81 %
250,000 $
270,992
2.43 %
785,000
The following table illustrates real estate loans pledged to collateralize advances and letters of credit with the FHLB:
December 31, (in thousands)
2021
2020
First lien, single family residential real estate
Home equity lines of credit
$
1,041,461
186,396
$
1,048,236
208,944
141
12.
SUBORDINATED NOTE
In 2005, Republic Bancorp Capital Trust, an unconsolidated trust subsidiary of Republic, was formed and issued $40 million in TPS.
The sole asset of RBCT represented the proceeds of the offering loaned to Republic in exchange for a subordinated note with similar
terms to the TPS. On September 30, 2021, as permitted under the terms of RBCT’s governing documents, Republic repaid the
subordinated note and redeemed the TPS at par without penalty.
13.
OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES
COVID-19 Pandemic
COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020. Since March 2020, to slow the spread of
COVID-19, jurisdictions within the U.S. have imposed economic and social restrictions on the population in general and non-essential
businesses in particular. These restrictions in combination with the public’s response to them effectively suspended or curtailed
economic activity for many industries across the U.S., with industries in the Company’s market footprint impacted.
While vaccines for the virus began rolling out during 2021, the future potential financial impact of the COVID-19 pandemic is still
unknown at this time. This pandemic and the public’s response to it could cause the Company to experience a material adverse impact
on its business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or
a combination of valuation impairments on the Company’s intangible assets, investments, loans, MSRs, deferred tax assets, or
counterparty risk derivatives.
Commitments to Extend Credit
The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. These financial
instruments primarily include commitments to extend credit and standby letters of credit. The contract or notional amounts of these
instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all
instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be
required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as
personal property and real estate of individual clients or guarantors.
The Company also extends binding commitments to clients and prospective clients. Such commitments assure a borrower of financing
for a specified period of time at a specified rate. The risk to the Company under such loan commitments is limited by the terms of the
contracts. For example, the Company may not be obligated to advance funds if the client’s financial condition deteriorates or if the
client fails to meet specific covenants.
An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(s) may
demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market
interest rates may rise above the rate committed to the Company’s client. Since a portion of these loan commitments normally expire
unused, the total amount of outstanding commitments at any point in time may not require future funding.
The following table presents the Company’s commitments, exclusive of Mortgage Banking loan commitments for each year ended:
December 31, (in thousands)
2021
2020
Unused warehouse lines of credit
Unused home equity lines of credit
Unused loan commitments - other
Standby letters of credit
FHLB letter of credit
Total commitments
$
565,950 $
348,681
828,229
11,305
643
$ 1,754,808 $
456,004
353,322
775,128
10,949
643
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
142
extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because
funding for these obligations could be required immediately. The Company does not deem this risk to be material.
The following tables present a rollforward of the ACLC for years ended December 31, 2021 and 2020:
Beginning
Balance Provision
Ending Beginning ASC 326
Recoveries Balance Balance Adoption Provision
Charge-
offs
Ending
Recoveries Balance
2021
Charge-
offs
ACLC Rollforward
Years Ended December 31,
2020
(in thousands)
Loan Commitments
Unused warehouse lines of credit
Unused home equity lines of credit
Unused loan commitments - other
$
79 $
173
737
$
75
74
(86)
— $
—
—
— $ 154 $
—
—
247
651
— $
—
—
55 $
89
312
24 $
84
425
— $
—
—
— $
—
—
79
173
737
Total
$
989 $
63 $
— $
— $ 1,052 $
— $
456 $
533 $
— $
— $
989
The Company decreased its ACLC during 2021 based on a decrease in the expected loss rate for its unused commitments.
14.
STOCKHOLDERS’ EQUITY AND REGULATORY CAPITAL MATTERS
Common Stock — The Company’s 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 the
Bank. 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 January 1, 2022, the
Bank could, without prior approval, declare dividends of approximately $118 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 Parent Company and the Bank are subject to various regulatory capital requirements
administered by banking regulators. 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 about components, risk weightings, and other factors.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial
condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital
distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of December 31, 2021 and
2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that notification that management believes have changed the institution’s
category.
143
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.
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Actual
Minimum Requirement
for Capital Adequacy
Purposes
Minimum Requirement
to be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
As of December 31, 2021
Total capital to risk-weighted assets
Republic Bancorp, Inc.
Republic Bank & Trust Company
$ 878,488
861,815
17.47 % $ 402,327
402,184
17.14
8.00 %
8.00
NA
$ 502,730
NA
10.00 %
Common equity tier 1 capital to risk-weighted assets
Republic Bancorp, Inc.
Republic Bank & Trust Company
823,504
806,831
16.37
16.05
226,309
226,228
4.50
4.50
NA
326,774
NA
6.50
Tier 1 (core) capital to risk-weighted assets
Republic Bancorp, Inc.
Republic Bank & Trust Company
Tier 1 leverage capital to average assets
Republic Bancorp, Inc.
Republic Bank & Trust Company
(dollars in thousands)
As of December 31, 2020
Total capital to risk-weighted assets
Republic Bancorp, Inc.
Republic Bank & Trust Company
823,504
806,831
16.37
16.05
301,745
301,638
6.00
6.00
NA
402,184
NA
8.00
823,504
806,831
13.35
13.10
246,424
246,334
4.00
4.00
NA
307,917
NA
5.00
Actual
Amount
Ratio
Minimum Requirement
for Capital Adequacy
Purposes
Amount
Ratio
Minimum Requirement
to be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
$ 896,053
796,114
18.52 % $ 387,163
386,842
16.46
8.00 %
8.00
NA
$ 483,553
NA
10.00 %
Common equity tier 1 capital to risk-weighted assets
Republic Bancorp, Inc.
Republic Bank & Trust Company
803,682
743,743
16.61
15.38
217,779
217,599
4.50
4.50
NA
314,309
Tier 1 (core) capital to risk-weighted assets
Republic Bancorp, Inc.
Republic Bank & Trust Company
Tier 1 leverage capital to average assets
Republic Bancorp, Inc.
Republic Bank & Trust Company
843,682
743,743
17.43
15.38
290,372
290,132
6.00
6.00
NA
386,842
843,682
743,743
13.70
12.11
246,385
245,723
4.00
4.00
NA
307,154
NA
6.50
NA
8.00
NA
5.00
144
15.
FAIR VALUE
Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of
the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market
participants would use in pricing an asset or liability.
The Bank used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
Available-for-sale debt securities: Except for the Bank’s U.S. Treasury securities, its private label mortgage-backed security, and its
TRUP investment, the fair value of AFS debt securities is typically determined by matrix pricing, which is a mathematical technique
used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather
by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
The Bank’s U.S. Treasury securities are based on quoted market prices (Level 1 inputs) and considered highly liquid.
The Bank’s private label mortgage-backed security remains illiquid, and as such, the Bank classifies this security as a Level 3 security
in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation
model (present value model) approach in determining the fair value of this security.
See in this section of the filing under Footnote 2 “Investment Securities” for additional discussion regarding the Bank’s private label
mortgage-backed security.
The Company acquired its TRUP investment in 2015 and considered the most recent bid price for the same instrument to approximate
market value as of December 31, 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 CRA
mutual fund investment and fall within Level 1 of the fair value hierarchy.
The fair value of the Company’s Freddie Mac preferred stock is determined by matrix pricing, as described above (Level 2 inputs).
Mortgage loans held for sale, at fair value: The fair value of mortgage loans held for sale is determined using quoted secondary
market prices. Mortgage loans held for sale are classified as Level 2 in the fair value hierarchy.
Consumer loans held for sale, at fair value: 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.
145
Mortgage Banking derivatives: Mortgage Banking derivatives used in the ordinary course of business primarily consist of
mandatory forward sales contracts (“forward contracts”) and interest rate lock loan commitments. The fair value of the Bank’s
derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. The
pricing is derived from market observable inputs that can generally be verified and do not typically involve significant judgment by
the Bank. Forward contracts and rate lock loan commitments are classified as Level 2 in the fair value hierarchy.
Interest rate swap agreements: Interest rate swaps are recorded at fair value on a recurring basis. The Company values its interest
rate swaps using a third-party valuation service and classifies such valuations as Level 2. Valuations of these interest rate swaps are
also received from the relevant dealer counterparty and validated against the Company’s calculations. The Company has considered
counterparty credit risk in the valuation of its interest rate swap assets and has considered its own credit risk in the valuation of its
interest rate swap liabilities.
Collateral-dependent loans: Collateral-dependent loans generally reflect partial charge-downs to their respective fair value, which is
commonly based on recent real estate appraisals or BPOs. These appraisals or BPOs may utilize a single valuation approach or a
combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the process by
the independent experts to adjust for differences between the comparable sales and income data available. Such adjustments are
usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral
may be valued using an appraisal, net book value per the borrower’s financial statements or aging reports, adjusted or discounted
based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s
expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Collateral-dependent loans
are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Other real estate owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell
when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated
costs to sell. Fair value is commonly based on recent real estate appraisals or BPOs. These appraisals or BPOs may utilize a single
approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the
process by the independent experts to adjust for differences between the comparable sales and income data available. Such
adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.
Appraisals for collateral-dependent loans, impaired premises and other real estate owned are performed by certified general appraisers
(for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been
reviewed and verified by the Bank. Once the appraisal is received, a member of the Bank’s CCAD reviews the assumptions and
approaches utilized in the appraisal, as well as the overall resulting fair value in comparison with independent data sources, such as
recent market data or industry-wide statistics. On at least an annual basis, the Bank performs a back test of collateral appraisals by
comparing actual selling prices on recent collateral sales to the most recent appraisal of such collateral. Back tests are performed for
each collateral class, e.g., residential real estate or commercial real estate, and may lead to additional adjustments to the value of
unliquidated collateral of similar class.
Mortgage servicing rights: At least quarterly, MSRs are evaluated for impairment based upon the fair value of the MSRs as
compared to carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded, and the
respective individual tranche is carried at fair value. If the carrying amount of an individual tranche does not exceed fair value,
impairment is reversed if previously recognized and the carrying value of the individual tranche is based on the amortization method.
The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and can
generally be validated against available market data (Level 2).
146
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:
(in thousands)
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies
Private label mortgage-backed security
Mortgage-backed securities - residential
Collateralized mortgage obligations
Corporate bonds
Trust preferred security
Total available-for-sale debt securities
Equity securities with readily determinable fair value:
Freddie Mac preferred stock
Community Reinvestment Act mutual fund
Total equity securities with readily determinable fair
value
Mortgage loans held for sale
Consumer loans held for sale
Consumer loans held for investment
Rate lock loan commitments
Mandatory forward contracts
Interest rate swap agreements
Financial liabilities:
Interest rate swap agreements
Fair Value Measurements at
December 31, 2021 Using:
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair
Value
237,459
2,731
210,749
30,294
10,046
3,847
495,126
170
2,450
167,347
—
210,749
30,294
10,046
—
418,436
170
—
$
$
$
—
2,731
—
—
—
3,847
6,578
—
—
$
$
$
170
$
—
$
2,620
$
29,393
—
—
1,404
66
5,786
$
—
19,747
170
—
—
—
29,393
19,747
170
1,404
66
5,786
$
$
$
$
$
$
$
$
$
$
70,112
—
—
—
—
—
70,112
—
2,450
2,450
—
—
—
—
—
—
$
—
$
5,786
$
—
$
5,786
147
(in thousands)
Financial assets:
Available-for-sale debt securities:
U.S. Treasury securities and U.S. Government agencies
Private label mortgage-backed security
Mortgage-backed securities - residential
Collateralized mortgage obligations
Corporate bonds
Trust preferred security
Total available-for-sale debt securities
Equity securities with readily determinable fair value:
Freddie Mac preferred stock
Community Reinvestment Act mutual fund
Total equity securities with readily determinable fair value
Mortgage loans held for sale
Consumer loans held for sale
Consumer loans held for investment
Rate lock loan commitments
Interest rate swap agreements
Financial liabilities:
Mandatory forward contracts
Interest rate swap agreements
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Fair Value Measurements at
December 31, 2020 Using:
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
$
$
$
$
66,634
—
—
—
—
—
66,634
—
2,523
2,523
—
—
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
$
180,275
—
211,202
48,952
10,043
—
450,472
560
—
560
46,867
—
—
4,540
12,545
—
2,957
—
—
—
3,800
6,757
—
—
—
—
3,298
497
—
—
976
12,545
$
—
—
$
$
$
$
$
$
Total
Fair
Value
246,909
2,957
211,202
48,952
10,043
3,800
523,863
560
2,523
3,083
46,867
3,298
497
4,540
12,545
976
12,545
All transfers between levels are generally recognized at the end of each quarter. There were no transfers into or out of Level 1, 2 or 3
assets during the years ended December 31, 2021 and 2020.
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) for the periods ended December 31, 2021, 2020, and 2019:
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):
Years Ended December 31, (in thousands)
2021
2020
2019
Balance, beginning of period
Total gains or losses included in earnings:
Net change in unrealized gain
Recovery of actual losses previously recorded
Principal paydowns
Balance, end of period
$
2,957
$
3,495 $
3,712
63
—
(289)
2,731
$
(35)
—
(503)
2,957 $
(79)
151
(289)
3,495
$
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.
148
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.
The following tables present quantitative information about recurring Level 3 fair value measurements as of December 31, 2021 and
2020:
December 31, 2021 (dollars in thousands)
Fair
Value
Valuation
Technique
Unobservable Inputs
Range
Private label mortgage-backed security
$ 2,731 Discounted cash flow (1) Constant prepayment rate 4.5% - 5.7%
(2) Probability of default
1.8% - 9.3%
(3) Loss severity
50% - 75%
December 31, 2020 (dollars in thousands)
Fair
Value
Valuation
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 Company invested in its TRUP in November 2015. 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) for the years ending December 31, 2021,
2020, and 2019:
Years Ended December 31, (in thousands)
2021
2020
2019
Balance, beginning of period
Total gains or losses included in earnings:
Discount accretion
Net change in unrealized gain
Balance, end of period
$
3,800
$
4,000
53
(6)
3,847
$
56
(256)
3,800
$
$
$
4,075
42
(117)
4,000
The fair value of the Company’s TRUP investment is based on the most recent bid price for this instrument, as provided by a third-
party broker.
Mortgage Loans Held for Sale
The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes
that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the
loan and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more nor on nonaccrual
as of December 31, 2021 and 2020.
149
As of December 31, 2021 and 2020, the aggregate fair value, contractual balance (including accrued interest), and unrealized gain was
as follows:
December 31, (in thousands)
2021
2020
Aggregate fair value
Contractual balance
Unrealized gain
$
29,393 $
28,668
725
46,867
44,781
2,086
The total amount of gains and losses from changes in fair value of mortgage loans held for sale included in earnings for 2021, 2020,
and 2019 are presented in the following table:
Years Ended December 31, (in thousands)
2021
2020
2019
Interest income
Change in fair value
Total included in earnings
Consumer Loans Held for Sale
$
$
1,081
(1,361)
(280)
$
$
1,362 $
1,552
2,914 $
697
239
936
RCS carries loans originated through its installment loan program at fair value. Interest income is recorded based on the contractual
terms of the loan and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more or on
nonaccrual as of December 31, 2021 and 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:
December 31, 2021 (dollars in thousands)
Fair
Value
Valuation
Technique
Unobservable Inputs
Rate
Consumer loans held for sale
$ 19,747 Contract Terms
(1) Net Premium
(2) Discounted Sales
1.4%
5.00%
December 31, 2020 (dollars in thousands)
Fair
Value
Valuation
Technique
Unobservable Inputs
Rate
Consumer loans held for sale
$
3,298
Contract Terms
(1) Net Premium
(2) Discounted Sales
1.4%
5.00%
The aggregate fair value, contractual balance, and unrealized gain on consumer loans held for sale, at fair value, were as follows:
December 31, (in thousands)
Aggregate fair value
Contractual balance
Unrealized gain
2021
2020
$
19,747 $
19,633
114
3,298
3,284
14
150
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:
Years Ended December 31, (in thousands)
2021
2020
2019
Interest income
Change in fair value
Total included in earnings
$
$
7,708
100
7,808
$
$
1,808
9
1,817
$
$
13
5
18
Assets measured at fair value on a non-recurring basis are summarized below:
(in thousands)
Collateral-dependent loans:
Residential real estate:
Owner occupied
Commercial real estate
Home equity
Total collateral-dependent loans*
Other real estate owned:
Commercial real estate
Total other real estate owned
(in thousands)
Collateral-dependent loans:
Residential real estate:
Owner occupied
Commercial real estate
Home equity
Total collateral-dependent loans*
Other real estate owned:
Residential real estate
Total other real estate owned
Mortgage servicing rights
$
$
$
$
$
$
$
$
$
Fair Value Measurements at
December 31, 2021 Using:
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair
Value
—
—
—
—
—
—
$
$
$
$
—
—
—
—
—
—
$
$
$
$
1,626
2,841
378
4,845
1,792
1,792
Fair Value Measurements at
December 31, 2020 Using:
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
— $
—
—
— $
— $
— $
—
—
—
—
—
—
— $
3,233
$
$
$
$
$
3,860
4,107
395
8,362
2,003
2,003
— $
3,233
$
$
$
$
$
$
$
$
1,626
2,841
378
4,845
1,792
1,792
Total
Fair
Value
3,860
4,107
395
8,362
2,003
2,003
* The difference between the carrying value and the fair value of collateral dependent or impaired loans measured at fair value is reconciled in a subsequent table of
this Footnote.
151
The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair
value on a non-recurring basis as of December 31, 2021 and 2020:
December 31, 2021 (dollars in thousands)
Fair
Value
Valuation
Technique
Unobservable
Inputs
Range
(Weighted
Average)
Collateral-dependent loans - residential real estate owner
$
1,626 Sales comparison approach Adjustments determined for
0% - 51% (10%)
occupied
differences between comparable sales
Collateral-dependent loans - commercial real estate
Collateral-dependent loans - home equity
Other real estate owned - commercial real estate
December 31, 2020 (dollars in thousands)
Collateral-dependent loans - residential real estate owner
occupied
Collateral-dependent loans - commercial real estate
Collateral-dependent loans - home equity
Other real estate owned - commercial real estate
Collateral Dependent/Impaired Loans
$
$
$
$
$
$
$
2,841 Sales comparison approach Adjustments determined for
12% - 13% (12%)
differences between comparable sales
378 Sales comparison approach Adjustments determined for
2%-4% (3%)
differences between comparable sales
1,792 Sales comparison approach Adjustments determined for
33% (33%)
differences between comparable sales
Fair
Value
Valuation
Technique
Unobservable
Inputs
Range
(Weighted
Average)
3,860 Sales comparison approach
Adjustments determined for differences
0% - 51% (8%)
between comparable sales
4,107 Sales comparison approach
Adjustments determined for differences
7% - 31% (26%)
between comparable sales
395 Sales comparison approach
Adjustments determined for differences
2%-6% (5%)
between comparable sales
2,003 Sales comparison approach
Adjustments determined for differences
26% (26%)
between comparable sales
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/impaired loans are as follows:
December 31, (in thousands)
2021
2020
Carrying amount of loans measured at fair value
Estimated selling costs considered in carrying amount
Valuation allowance
Total fair value
$
$
4,928 $
842
(925)
4,845 $
7,110
1,252
—
8,362
Years Ended December 31, (in thousands)
2021
2020
2019
Provision on collateral-dependent loans
$
960
$
559 $
3,039
152
Other Real Estate Owned
Other real estate owned, which is carried at the lower of cost or fair value, is periodically assessed for impairment based on fair value
at the reporting date. Fair value is determined from external appraisals or BPOs using judgments and estimates of external
professionals. Many of these inputs are not observable and, accordingly, these measurements are classified as Level 3.
Details of other real estate owned carrying value and write downs follow:
December 31, (in thousands)
2021
2020
2019
Other real estate owned carried at fair value
Other real estate owned carried at cost
Total carrying value of other real estate owned
Other real estate owned write-downs during the years ended
$
$
$
1,792
$
—
$
$
1,792
211
2,003
496
2,499
105
$
$
$
—
113
113
—
The carrying amounts and estimated exit price fair values of financial instruments, as of December 31, 2021 and 2020 follow:
(in thousands)
Carrying
Value
Level 1
Level 2
Level 3
Fair Value Measurements at
December 31, 2021:
Assets:
Cash and cash equivalents
Available-for-sale debt securities
Held-to-maturity debt securities
Equity securities with readily determinable fair
values
Mortgage loans held for sale, at fair value
Consumer loans held for sale, at fair value
Consumer loans held for sale, at the lower of cost or
$
756,971 $ 756,971 $
495,126
44,299
70,112
—
2,620
29,393
19,747
2,450
—
—
fair value
Loans, net
Federal Home Loan Bank stock
Accrued interest receivable
Mortgage servicing rights
Rate lock loan commitments
Mandatory forward contracts
Interest rate swap agreements
2,937
4,431,985
10,311
9,877
9,196
1,404
66
5,786
—
—
—
—
—
—
—
—
418,436
44,764
170
29,393
—
—
—
—
9,877
11,540
1,404
66
5,786
Total
Fair
Value
756,971
495,126
44,764
2,620
29,393
19,747
— $
— $
6,578
—
—
—
19,747
2,937
4,445,244
—
—
—
—
—
—
2,937
4,445,244
NA
9,877
11,540
1,404
66
5,786
Liabilities:
Noninterest-bearing deposits
Transaction deposits
Time deposits
Securities sold under agreements to repurchase and
$ 1,990,781
2,553,423
296,214
other short-term borrowings
Federal Home Loan Bank advances
Accrued interest payable
Interest rate swap agreements
NA - Not applicable
290,967
25,000
159
5,786
153
— $ 1,990,781
2,553,423
—
298,236
—
—
—
—
—
290,967
25,000
159
5,786
— $ 1,990,781
2,553,423
—
298,236
—
—
—
—
—
290,967
25,000
159
5,786
Fair Value Measurements at
December 31, 2020:
(in thousands)
Carrying
Value
Level 1
Level 2
Level 3
Assets:
Cash and cash equivalents
Available-for-sale debt securities
Held-to-maturity debt securities
Equity securities with readily determinable fair values
Mortgage loans held for sale, at fair value
Consumer loans held for sale, at fair value
Consumer loans held for sale, at the lower of cost or fair
$
$
485,587
523,863
53,324
3,083
46,867
3,298
485,587
66,634
—
2,523
—
—
value
Loans, net
Federal Home Loan Bank stock
Accrued interest receivable
Mortgage servicing rights
Rate lock loan commitments
Interest rate swap agreements
1,478
4,752,036
17,397
12,925
7,095
4,540
12,545
—
—
—
—
—
—
—
$
— $
— $
450,472
54,190
560
46,867
—
6,757
—
—
—
3,298
—
—
—
12,925
8,318
4,540
12,545
1,478
4,749,831
—
—
—
—
—
Total
Fair
Value
485,587
523,863
54,190
3,083
46,867
3,298
1,478
4,749,831
NA
12,925
8,318
4,540
12,545
Liabilities:
Noninterest-bearing deposits
Transaction deposits
Time deposits
Securities sold under agreements to repurchase and other
short-term borrowings
Federal Home Loan Bank advances
Subordinated note
Accrued interest payable
Mandatory forward contracts
Interest rate swap agreements
NA - Not applicable
$ 1,890,416
2,444,361
398,404
— $ 1,890,416
2,444,361
—
404,773
—
— $ 1,890,416
2,444,361
—
404,773
—
211,026
235,000
41,240
342
976
12,545
—
—
—
—
—
—
211,026
235,009
31,071
342
976
12,545
—
—
—
—
—
—
211,026
235,009
31,071
342
976
12,545
154
16.
MORTGAGE BANKING ACTIVITIES
Mortgage Banking activities primarily include residential mortgage originations and servicing.
Activity for mortgage loans held for sale was as follows:
Years Ended December 31, (in thousands)
2021
2020
2019
Balance, beginning of period
Origination of mortgage loans held for sale
Proceeds from the sale of mortgage loans held for sale
Net gain on sale of mortgage loans held for sale
Balance, end of period
$
$
46,867
680,714
(717,847)
19,659
29,393
$
$
19,224 $
782,939
(788,475)
33,179
46,867 $
8,971
356,097
(354,660)
8,816
19,224
Mortgage loans serviced for others are not reported as assets. The following table provides information for loans serviced by the Bank
for the FHLMC and FNMA as of December 31, 2021 and 2020:
December 31, (in thousands)
2021
2020
FHLMC
FNMA
Total
$
$
1,004,199
378,942
1,383,141
$
$
949,249
327,955
1,277,204
Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to
investors and processing foreclosures. Custodial escrow account balances maintained in connection with serviced loans were
approximately $14 million and $20 million as of December 31, 2021 and 2020.
The following table presents the components of Mortgage Banking income:
Years Ended December 31, (in thousands)
2021
2020
2019
Net gain realized on sale of mortgage loans held for sale
Net change in fair value recognized on loans held for sale
Net change in fair value recognized on rate lock loan commitments
Net change in fair value recognized on forward contracts
Net gain recognized
Loan servicing income
Amortization of mortgage servicing rights
Change in mortgage servicing rights valuation allowance
Net servicing income recognized
Total Mortgage Banking income
Activity for capitalized mortgage servicing rights was as follows:
Years Ended December 31, (in thousands)
Balance, beginning of period
Additions
Amortized to expense
Change in valuation allowance
Balance, end of period
$
$
$
$
23,114
(1,361)
(3,136)
1,042
19,659
3,288
(3,453)
500
335
19,994
2021
7,095
5,054
(3,453)
500
9,196
$
$
$
$
28,721 $
1,552
3,751
(845)
33,179
2,924
(3,756)
(500)
(1,332)
31,847 $
8,013
239
433
131
8,816
2,506
(1,823)
—
683
9,499
2020
2019
5,888 $
5,463
(3,756)
(500)
7,095 $
4,919
2,792
(1,823)
—
5,888
155
Activity in the valuation allowance for capitalized mortgage servicing rights follows:
Years Ended December 31, (in thousands)
2021
2020
2019
Beginning valuation allowance
Charge during the period
Ending valuation allowance
$
$
500 $
(500)
— $
— $
500
500
$
—
—
—
Other information relating to mortgage servicing rights follows:
December 31, (in thousands)
2021
2020
Fair value of mortgage servicing rights portfolio
Monthly weighted average prepayment rate of unpaid principal balance*
Discount rate
Weighted average foreclosure rate
Weighted average life in years
$
11,540
$
208 %
10.15 %
0.19 %
5.93
8,318
308 %
10.08 %
0.44 %
4.85
* Rates are applied to individual tranches with similar characteristics.
Estimated future amortization expense of the MSR portfolio (net of any applicable impairment charge) follows; however, actual
amortization expense will be impacted by loan payoffs and changes in estimated lives that occur during each respective year:
Year
2022
2023
2024
2025
2026
2027
Thereafter
Total
(in thousands)
1,493
1,489
1,473
1,357
1,141
866
1,377
9,196
$
$
Mortgage Banking derivatives used in the ordinary course of business primarily consist of mandatory forward sales contracts and
interest rate lock loan commitments. Mandatory forward contracts represent future commitments to deliver loans at a specified price
and date or to purchase TBA securities and are used to manage interest rate risk on loan commitments and mortgage loans held for
sale. Interest rate lock loan commitments represent commitments to fund loans at a specific rate. These derivatives involve underlying
items, such as interest rates, and are designed to transfer risk. Substantially all of these instruments expire within 90 days from the date
of issuance. Notional amounts are amounts on which calculations and payments are based, but which do not represent credit exposure,
as credit exposure is limited to the amounts required to be received or paid.
Mandatory forward contracts also contain an element of risk in that the counterparties may be unable to meet the terms of such
agreements. In the event the counterparties fail to deliver commitments or are unable to fulfill their obligations, the Bank could
potentially incur significant additional costs by replacing the positions at then current market rates. The Bank manages its risk of
exposure by limiting counterparties to those banks and institutions deemed appropriate by management and the Board of Directors.
The Bank does not expect any counterparty to default on their obligations and therefore, the Bank does not expect to incur any cost
related to counterparty default.
156
The Bank is exposed to interest rate risk on loans held for sale and rate lock loan commitments. As market interest rates fluctuate, the
fair value of mortgage loans held for sale and rate lock commitments will decline or increase. To offset this interest rate risk the Bank
enters into derivatives, such as mandatory forward contracts to sell loans or purchase TBA securities. The fair value of these
mandatory forward contracts will fluctuate as market interest rates fluctuate, and the change in the value of these instruments is
expected to largely, though not entirely, offset the change in fair value of loans held for sale and rate lock commitments. The objective
of this activity is to minimize the exposure to losses on rate loan lock commitments and loans held for sale due to market interest rate
fluctuations. The net effect of derivatives on earnings will depend on risk management activities and a variety of other factors,
including: market interest rate volatility; the amount of rate lock commitments that close; the ability to fill the forward contracts before
expiration; and the time period required to close and sell loans.
The following table includes the notional amounts and fair values of mortgage loans held for sale and mortgage banking derivatives as
of the period ends presented:
December 31, (in thousands)
Included in Mortgage loans held for sale:
Mortgage loans held for sale, at fair value
Included in other assets:
Rate lock loan commitments
Mandatory forward contracts
Included in other liabilities:
Mandatory forward contracts
2021
Notional
Amount
Fair Value
2020
Notional
Amount
Fair Value
$
28,668 $
29,393 $
44,781
$
46,867
$
56,736 $
70,812
1,404 $
66
105,395
—
$
4,540
—
$
— $
— $
136,236
$
976
17.
STOCK PLANS AND STOCK BASED COMPENSATION
In January 2015, the Company’s Board of Directors adopted the Republic Bancorp, Inc. 2015 Stock Incentive Plan (the “2015 Plan”),
which replaced the 2005 Stock Incentive Plan. The number of authorized shares under the 2015 Plan is fixed at 3,000,000, with such
number subject to adjustment in the event of certain events, such as stock dividends, stock splits, or the like. There is a minimum
three-year vesting period for awards granted to employees under the 2015 Plan that vest based solely on the completion of a specified
period of service, with options generally exercisable five to six years after the issue date. Stock options generally must be exercised
within one year from the date the options become exercisable and have an exercise price that is at least equal to the fair market value
of the Company’s stock on their grant date.
All shares issued under the 2015 Plan were from authorized and reserved unissued shares. The Company has a sufficient number of
authorized and reserved unissued shares to satisfy all anticipated option exercises. There are no Class B stock options outstanding or
available for exercise under the Company’s plans.
Stock Options
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes based stock option valuation
model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate.
Expected volatilities are based on historical volatility of Republic’s stock and other factors. Expected dividends are based on dividend
trends and the market price of Republic’s stock price at grant. Republic uses historical data to estimate option exercises and employee
terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S.
Treasury yield curve at the time of grant.
All share-based payments to employees, including grants of employee stock options, are recognized as compensation expense over the
service period (generally the vesting period) in the consolidated financial statements based on their fair values.
157
The fair value of stock options granted was determined using the following weighted average assumptions as of grant date:
Years Ended December 31,
2021
2020
2019
Risk-free interest rate
Expected dividend yield
Expected stock price volatility
Expected life of options (in years)
Estimated fair value per share
0.20 %
3.18 %
31.71 %
4
6.26
0.44 %
3.53 %
23.71 %
5
4.06
$
1.85 %
2.25 %
20.11 %
5
7.12
$
$
The following table summarizes stock option activity from January 1, 2020 through December 31, 2021:
Outstanding, January 1, 2020
Granted
Exercised
Forfeited or expired
Outstanding, December 31, 2020
Outstanding, January 1, 2021
Granted
Exercised
Forfeited or expired
Outstanding, December 31, 2021
Options
Class A
Shares
311,450
285,995
(64,850)
(26,650)
505,945
Weighted
Average
Exercise
Price
$ 36.43
32.37
24.44
35.95
$ 35.70
505,945 $ 35.70
36.36
53,757
24.60
(72,350)
(26,850)
35.37
460,502 $ 37.54
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
3.48
$ 1,925,343
3.08
$ 6,126,647
Unvested
Exercisable (vested) at December 31, 2021
457,002 $ 37.57
3,500 $ 33.54
3.08
0.49
$ 6,066,094
60,553
$
Information related to the stock options during each year follows:
Years Ended December 31,
2021
2020
2019
Intrinsic value of options exercised
Cash received from options exercised, net of shares redeemed
$
1,335
(142)
$
$
634
210
2,249
(191)
Loan balances of non-executive officer employees that were originated solely to fund stock option exercises were as follows:
December 31, (in thousands)
Outstanding loans
Restricted Stock Awards
2021
2020
$
239 $
390
Restricted stock awards generally vest within six years after issue, with accelerated vesting due to “change in control” or “death or
disability of a participant” as defined and outlined in the 2015 Plan.
158
The following table summarizes restricted stock activity from January 1, 2020 through December 31, 2021:
Outstanding, January 1, 2020
Granted
Forfeited
Earned and issued
Outstanding, December 31, 2020
Outstanding, January 1, 2021
Granted
Forfeited
Earned and issued
Outstanding, December 31, 2021
Restricted
Stock Awards
Class A Shares
41,110
1,218
—
(2,828)
39,500
39,500
26,473
(2,000)
(7,914)
56,059
Weighted-Average
Grant Date Fair Value
$
$
$
$
37.37
34.02
—
30.77
38.56
38.56
41.43
38.30
44.28
39.12
Unvested
56,059
$
39.12
The fair value of the restricted stock awards is based on the closing stock price on the date of grant with the associated expense
amortized to compensation expense over the vesting period, generally five to six years.
Performance Stock Units
The Company first granted PSUs under the 2015 Plan in January 2016. Half of the shares underlying these PSUs were earned and
issued in the first quarter of 2019. The remaining half of the shares underlying these PSUs were earned and issued during the first
quarter of 2020.
On, January 27, 2021, the Company granted PSUs to certain executive officers. These granted PSUs were subsequently forfeited, as
their performance criteria were not met.
The following table summarizes PSU activity from January 1, 2020 through December 31, 2021:
Outstanding, January 1, 2020
Granted
Forfeited
Earned and issued
Outstanding, December 31, 2020
Outstanding, January 1, 2021
Granted
Forfeited
Earned and issued
Outstanding, December 31, 2021
Performance
Stock Units
Class A Shares
23,000
$
—
—
(23,000)
— $
— $
10,667
(10,667)
—
— $
Weighted-Average
Grant Date Fair Value
23.08
—
—
23.08
—
—
36.29
36.29
—
—
159
Expense Related to Stock Incentive Plans
The Company recorded expense related to stock incentive plans for the years ended December 31, 2021, 2020, and 2019 as follows:
Years Ended December 31, (in thousands)
2021
2020
2019
Stock option expense
Restricted stock award expense
Performance stock unit expense
Total expense
$
$
$
574
738
129
1,441 $
$
463
396
—
859 $
364
728
(57)
1,035
Unrecognized expenses related to unvested awards under stock incentive plans are estimated as follows:
Year (in thousands)
2022
2023
2024
2025
2026
2027 and beyond
Total
Deferred Compensation
Stock
Options
Restricted
Stock Awards
Total
$
$
590
472
96
18
2
—
1,178
$
$
462 $
484
378
84
28
11
1,447 $
1,053
957
475
103
30
11
2,629
On April 19, 2018, the shareholders of Republic approved an amendment and restatement of the Non-Employee Director and Key
Employee Deferred Compensation Plan (the “Plan”). Prior to the Plan’s 2018 amendment and restatement, only directors participated
in the plan, with the 2018 amendment and restatement initiating key-employee participation. The Plan provides non-employee
directors and designated key employees the ability to defer compensation and have those deferred amounts paid later in the form of
Company Class A Common shares based on the shares that could have been acquired as the deferrals were made. The Company
maintains a bookkeeping account for each director or key-employee participant, and at the end of each fiscal quarter, deferred
compensation is converted to “stock units” equal to the amount of compensation deferred during the quarter divided by the quarter-
end fair market value of the Company’s Class A Common stock. Stock units for each participant’s account are also credited with an
amount equal to the cash dividends that would have been paid on the number of stock units in the account if the stock units were
deemed to be outstanding shares of stock. Any dividends credited are converted into additional stock units at the end of the fiscal
quarter in which the dividends were paid.
160
DIRECTORS
Members of the Board of Directors may defer board and committee fees from two to five years, with each director participant
retaining a nonforfeitable interest in his or her deferred compensation account.
The following table presents information on director deferred compensation under the Plan for the periods presented:
Outstanding, January 1, 2020
Deferred fees and dividend equivalents converted to stock units
Stock units converted to Class A Common Shares
Outstanding, December 31, 2020
Outstanding, January 1, 2021
Deferred fees and dividend equivalents converted to stock units
Stock units converted to Class A Common Shares
Outstanding, December 31, 2021
Vested
Director deferred compensation has been expensed as follows:
Outstanding
Stock
Units
Weighted-Average
Market Price
at Date of Deferral
67,363 $
13,930
(4,967)
76,326 $
76,326 $
14,371
(3,897)
86,800 $
27.65
32.20
44.58
27.38
27.38
46.28
39.09
29.98
86,800 $
29.98
Years Ended December 31, (in thousands)
2021
2020
2019
Director deferred compensation expense
$
417
$
352 $
213
KEY EMPLOYEES
Designated key employees may defer a portion of their base salaries on a pre-tax basis under the Plan, with the Company matching
employee deferrals up to a prescribed limit. With limited exception, the Company match amount remains unvested until December
31st of the year that is five years from the beginning of the year that the Company match is made.
161
The following table presents information on key-employee deferred compensation under the Plan for the periods presented:
Outstanding, January 1, 2020
Deferred base salaries and dividend equivalents converted to stock units
Matching stock units credited
Matching stock units forfeited
Stock units converted to Class A Common Shares
Outstanding, December 31, 2020
Outstanding, January 1, 2021
Deferred base salaries and dividend equivalents converted to stock units
Matching stock units credited
Matching stock units forfeited
Stock units converted to Class A Common Shares
Outstanding, December 31, 2021
Vested
Unvested
Outstanding
Stock
Units
23,378
12,754
12,754
—
—
48,886
48,886
9,186
9,138
(1,892)
—
65,318
48,120
17,198
Weighted-Average
Market Price
at Date of Deferral
41.75
$
32.17
32.17
—
—
37.37
$
$
$
$
$
37.37
47.69
47.69
47.92
—
39.96
39.96
39.96
The following presents key-employee deferred compensation expense for the period presented:
Years Ended December 31, (in thousands)
2021
2020
2019
Key-employee - base salary
Key-employee - employer match
Total
Employee Stock Purchase Plan
$
$
429
178
607
$
$
408 $
158
566 $
319
49
368
On April 19, 2018, the shareholders of Republic approved the ESPP. Under the ESPP, participating employees may purchase shares of
the Company Class A Common Stock through payroll withholdings at a purchase price that cannot be less than 85% of the lower of
the fair market value of the Company’s Class A Common Stock on the first trading day of each offering period or on the last trading
day of each offering period. Participating employees were able purchase the Company’s Class A Common Stock through the ESPP at:
•
•
90% of its fair market value on the last day of the three-month offering periods ended March 31, 2019, June 30, 2019,
September 30, 2019, and December 31, 2019; and
85% of fair market value on the last day of the three-month offering periods ended March 31, 2020, June 30, 2020,
September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021.
The following presents expense under the ESPP for the period presented:
Years Ended December 31, (in thousands)
2021
2020
2019
ESPP expense
$
104
$
94 $
49
162
18.
BENEFIT PLANS
401(k) Plan
Republic maintains a 401(k) plan for eligible employees. All eligible employees are automatically enrolled at 6% of their eligible
compensation within 30 days of their date of hire unless the eligible employee elects to enroll sooner. Participants in the plan have the
option to contribute from 1% to 75% of their annual eligible compensation, up to the maximum allowed by the IRS. The Company
matches 100% of participant contributions up to 1% and an additional 75% for participant contributions between 2% and 5% of each
participant’s annual eligible compensation. Participants are fully vested after two years of employment.
Republic may also contribute discretionary matching contributions in addition to the matching contributions if the Company achieves
certain operating goals. Normal and discretionary contributions for each of the periods ended were as follows:
Years Ended December 31, (in thousands)
2021
2020
2019
Employer matching contributions
Discretionary employer bonus matching contributions
$
3,373
—
$
3,205 $
117
3,185
207
Supplemental Executive Retirement Plan
In association with its May 17, 2016 Cornerstone acquisition, the Company inherited a SERP. The SERP requires the Company to pay
monthly benefits following retirement of the SERP’s four participants. The Company accrues the present value of such benefits
monthly. The SERP liability was approximately $2 million and $2 million as of December 31, 2021 and 2020. Expense under the
SERP was $232,000, $34,000, and $97,000 for the years ended December 31, 2021, 2020, and 2019.
19.
INCOME TAXES
Allocation of federal and state income tax between current and deferred portion is as follows:
Years Ended December 31, (in thousands)
2021
2020
2019
Current expense:
Federal
State
Deferred expense:
Federal
State
Total
$
$
19,122
4,116
(246)
560
23,552
$
$
25,762
2,450
$
18,906
1,751
(7,249)
(1,576)
19,387
$
1,880
(1,043)
21,494
163
Effective tax rates differ from federal statutory rate applied to income before income taxes due to the following:
Years Ended December 31,
Federal corporate tax rate
Effect of:
State taxes, net of federal benefit
General business tax credits
Nontaxable income
Reversal of valuation allowance/establishment of net operating loss
DTA
Tax benefit of vesting employee benefits
Deferred tax asset due to KY HB354
Other, net
Effective tax rate
Year-end DTAs and DTLs were due to the following:
2021
2020
2019
21.00 %
21.00 %
21.00 %
3.35
(1.80)
(1.09)
—
(0.20)
—
0.08
21.34
1.43
(2.01)
(0.75)
(0.04)
(0.15)
(0.97)
0.38
18.89
1.43
(1.14)
(0.85)
(0.74)
(0.42)
(0.20)
(0.09)
18.99
December 31, (in thousands)
Deferred tax assets:
Allowance for credit losses
Operating lease liabilities
Accrued expenses
Net operating loss carryforward(1)
Acquisition fair value adjustments
Other-than-temporary impairment
Paycheck Protection Program Fees
Other
Total deferred tax assets
Deferred tax liabilities:
Right of use assets - operating leases
Depreciation and amortization
Federal Home Loan Bank dividends
Deferred loan costs
Lease Financing Receivables
Mortgage servicing rights
Unrealized investment securities gains
Bargain purchase gain
Total deferred tax liabilities
Less: Valuation allowance
Net deferred tax asset
$
2021
2020
16,071
9,884
5,721
1,550
124
402
337
2,079
36,168
(9,673)
(3,682)
(709)
(2,275)
(2,094)
(2,291)
(625)
—
(21,349)
$
14,999
10,911
5,062
2,577
181
448
2,159
1,655
37,992
(10,667)
(3,612)
(1,161)
(2,235)
(2,154)
(1,746)
(2,836)
(659)
(25,070)
—
14,819
$
—
12,922
$
(1) The Company has federal and state net operating loss carryforwards (acquired in its 2016 Cornerstone acquisition) of $6.6
million (federal) and $3.9 million (state). These carryforwards begin to expire in 2030 for both federal and state purposes. The
use of these federal and state carryforwards is each limited under IRC Section 382 to $722,000 annually for federal and $634,000
annually for state. Finally, the Company has state AMT credit carryforwards of $15,000 with no expiration date and a state tax
credit carryforward of $142,000 that is expected to be fully utilized in 2022.
164
Unrecognized Tax Benefits
The following table shows a reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Years Ended December 31, (in thousands)
2021
2020
2019
Balance, beginning of period
Additions based on tax related to the current period
Additions for tax positions of prior periods
Reductions for tax positions of prior periods
Reductions due to the statute of limitations
Settlements
Balance, end of period
$
$
1,941
433
253
—
(436)
—
2,191
$
$
1,707 $
455
24
(72)
(82)
(91)
1,941 $
1,327
364
55
—
(39)
—
1,707
Of the 2021 total, $1.8 million represented the amount of unrecognized tax benefits that, if recognized, would favorably affect the
effective income tax rate in future periods.
It is the Company’s policy to recognize interest and penalties as a component of income tax expense related to its unrecognized tax
benefits. Amounts related to interest and penalties recorded in the income statements for the years ended December 31, 2021, 2020,
and 2019 and accrued on the balance sheets as of December 31, 2021, 2020, and 2019 are presented below:
Years Ended December 31, (in thousands)
2021
2020
2019
Interest and penalties recorded in the income statement as a component of
income tax expense
Interest and penalties accrued on balance sheet
$
$
267
777
57 $
510
173
514
The Company files income tax returns in the U.S. federal jurisdiction. The Company is no longer subject to U.S. federal income tax
examinations by taxing authorities for all years prior to and including 2017.
Low Income Housing Tax Credits
The Company is a limited partner in several low-income housing partnerships whose purpose is to invest in qualified affordable
housing. The Company expects to recover its remaining investments in these partnerships through the use of tax credits that are
generated by the investments.
The following table summarizes information related to the Company’s qualified low-income housing investments and commitments:
December 31, (in thousands)
2021
2020
Investment
Low income housing tax credit investments -
Accounting Method
Investment
Unfunded
Commitment
Investment
Unfunded
Commitment
Gross
Life-to-date amortization
Proportional amortization $
33,417 $
(6,181)
23,383 $
NA
18,909 $
(2,701)
27,891
NA
Low income housing tax credit investments -
Net
$
27,236 $
23,383 $
16,208 $
27,891
165
20.
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. See Footnote 14, “Stockholders’ Equity and Regulatory Capital Matters” of this section of the filing.
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:
Years Ended December 31, (in thousands, except per share data)
2021
2020
2019
Net income
Dividends declared on Common Stock:
Class A Shares
Class B Shares
Undistributed net income for basic earnings per share
Weighted average potential dividends on Class A shares upon exercise of dilutive options
Undistributed net income for diluted earnings per share
Weighted average shares outstanding:
Class A Shares
Class B Shares
Effect of dilutive securities on Class A Shares outstanding
Weighted average shares outstanding including dilutive securities
Basic earnings per share:
Class A Common Stock:
Per share dividends distributed
Undistributed earnings per share*
Total basic earnings per share - Class A Common Stock
Class B Common Stock:
Per share dividends distributed
Undistributed earnings per share*
Total basic earnings per share - Class B Common Stock
Diluted earnings per share:
Class A Common Stock:
Per share dividends distributed
Undistributed earnings per share*
Total diluted earnings per share - Class A Common Stock
Class B Common Stock:
Per share dividends distributed
Undistributed earnings per share*
Total diluted earnings per share - Class B Common Stock
$
86,789
$
83,246
$
91,699
(22,451)
(2,435)
61,903
(100)
61,803
18,497
2,178
82
20,757
1.23
3.02
4.25
1.12
2.75
3.87
1.23
3.01
4.24
1.12
2.73
3.85
$
$
$
$
$
$
$
$
$
(21,433)
(2,288)
59,525
(35)
59,490
18,838
2,201
30
21,069
1.14
2.86
4.00
1.04
2.60
3.64
1.14
2.85
3.99
1.04
2.59
3.63
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(19,771)
(2,121)
69,807
(118)
69,689
18,813
2,210
112
21,135
1.06
3.35
4.41
0.96
3.05
4.01
1.06
3.33
4.39
0.96
3.03
3.99
*To arrive at undistributed earnings per share, undistributed net income is first pro rated between Class A and Class B Common Shares, with Class A Common Shares
receiving a 10% premium. The resulting pro-rated, undistributed net income for each class is then divided by the weighted average shares for each class.
Stock options excluded from the detailed earnings per share calculation because their impact was antidilutive are as follows:
Years Ended December 31,
2021
2020
2019
Antidilutive stock options
Average antidilutive stock options
144,000
142,625
338,995
282,489
154,750
151,260
166
21.
TRANSACTIONS WITH RELATED PARTIES AND THEIR AFFILIATES
Republic leases office facilities under operating leases from limited liability companies in which Republic’s Executive Chair/Chief
Executive Officer and Vice Chair are partners. Rent expense and obligations under these leases are presented in Footnote 6 in this
section of the filing.
Loans made to executive officers and directors of Republic and their related interests during 2021 were as follows:
Beginning balance
Effect of changes in composition of related parties
New loans
Repayments
Ending balance
(in thousands)
$
$
15,720
(3,338)
5,306
(10,240)
7,448
Deposits from executive officers, directors, and their affiliates totaled $123 million and $124 million as of December 31, 2021 and
2020.
By an agreement dated December 14, 1989, as amended August 8, 1994, the Company entered into a split-dollar insurance agreement
with a trust established by the Company’s deceased former Chair, Bernard M. Trager. Pursuant to the agreement, from 1989 through
2002 the Company paid $690,000 in total annual premiums on the insurance policies held in the trust. The policies are joint-life
policies payable upon the death of Mrs. Jean Trager, as the survivor of her husband Bernard M. Trager. The cash surrender value of
the policies was approximately $2 million and $2 million as of December 31, 2021 and 2020.
Pursuant to the terms of the trust, the beneficiaries of the trust will each receive the proceeds of the policies after the repayment of any
unreimbursed portion of the $690,000 annual premiums paid by the Company. The unreimbursed portion constitutes indebtedness
from the trust to the Company and is secured by a collateral assignment of the policies. As of December 31, 2021 and 2020, the
unreimbursed portion was $340,000 and $440,000, and the net death benefit under the policies was approximately $5 million. Upon
the termination of the agreement, whether by the death of Mrs. Trager or earlier cancellation, the Company is entitled to be repaid by
the trust the amount of indebtedness outstanding at that time.
22.
OTHER COMPREHENSIVE INCOME
OCI components and related tax effects were as follows:
Years Ended December 31, (in thousands)
2021
2020
2019
Available-for-Sale Debt Securities:
Unrealized gains and (losses) on AFS debt securities
Unrealized gain (loss) of AFS debt security for which a portion of OTTI has been recognized
$
(8,908)
$
7,147
$
in earnings
Net unrealized (losses) gains
Tax effect
Net of tax
Cash Flow Hedges:
Change in fair value of derivatives used for cash flow hedges
Reclassification amount for net derivative losses realized in income
Net gains (losses)
Tax effect
Net of tax
63
(8,845)
2,210
(6,635)
—
—
—
—
—
(35)
7,112
(1,778)
5,334
(177)
281
104
(27)
77
5,689
(79)
5,610
(1,348)
4,262
(199)
(20)
(219)
52
(167)
Total other comprehensive (loss) income components, net of tax
$
(6,635)
$
5,411
$
4,095
167
Amounts reclassified out of each component of accumulated OCI for the years ended December 31, 2021, 2020, and 2019:
Years Ended December 31, (in thousands)
Cash Flow Hedges:
Interest rate swap on money market deposits
Interest rate swap on FHLB advance
Total derivative losses on cash flow hedges
Tax effect
Net of tax
Affected Line Items
in the Consolidated
Statements of Income
Interest expense on deposits
Interest expense on FHLB advances
Total interest expense
Income tax expense
Net income
The following is a summary of the accumulated OCI balances, net of tax:
Amounts Reclassified From
Accumulated Other
Comprehensive Income (Loss)
2020
2021
2019
—
—
—
—
—
(138)
(143)
(281)
70
(211)
10
10
20
(5)
15
(in thousands)
December 31, 2020
2021
Change
December 31, 2021
Unrealized gain (loss) on AFS debt securities
Unrealized gain on AFS debt security for which a portion of OTTI has been
$
recognized in earnings
Total unrealized gain (loss)
(in thousands)
Unrealized gain on AFS debt securities
Unrealized gain (loss) on AFS debt security for which a portion of OTTI has
been recognized in earnings
Unrealized (loss) gain on cash flow hedges
Total unrealized gain
$
$
$
7,571 $
938
8,509 $
(6,681) $
46
(6,635) $
890
984
1,874
December 31, 2019
2020
Change
December 31, 2020
2,211
$
964
(77)
3,098
$
5,360 $
(26)
77
5,411 $
7,571
938
—
8,509
23.
PARENT COMPANY CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
December 31, (in thousands)
2021
2020
Assets:
Cash and cash equivalents
Security available for sale
Investment in bank subsidiary
Investment in non-bank subsidiaries
Other assets
Total assets
Liabilities and Stockholders’ Equity:
Subordinated note
Other liabilities
Stockholders’ equity
$
16,881 $
3,847
817,270
2,409
3,966
100,524
3,800
761,929
3,518
3,203
$
844,373 $
872,974
$
— $
10,141
834,232
41,240
8,411
823,323
Total liabilities and stockholders’ equity
$
844,373 $
872,974
168
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31, (in thousands)
2021
2020
2019
Income and expenses:
Dividends from subsidiary
Interest income
Other income
Less: Interest expense
Less: Other expenses
Income before income tax benefit
Income tax benefit
Income before equity in undistributed net income of subsidiaries
Equity in undistributed net income of subsidiaries
Net income
Comprehensive income
STATEMENTS OF CASH FLOWS
$
$
$
28,300
143
53
507
760
27,229
245
27,474
59,315
86,789
80,154
$
$
$
25,980
182
57
1,000
691
24,528
344
24,872
58,374
83,246
88,657
$
$
$
24,249
250
54
1,620
511
22,422
1,213
23,635
68,064
91,699
95,794
Years Ended December 31, (in thousands)
2021
2020
2019
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
86,789
$
83,246
$
91,699
Accretion of investment security
Equity in undistributed net income of subsidiaries
Director deferred compensation - Parent Company
Change in other assets
Change in other liabilities
Net cash provided by operating activities
Investing activities:
Investment in subsidiary bank
Net cash used in investing activities
Financing activities:
Common Stock repurchases
Net proceeds from Class A Common Stock purchased through employee stock purchase
plan
Net proceeds from Common Stock options exercised
Payoff of subordinated note, net of common security interest
Cash dividends paid
Net cash used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
(53)
(59,315)
347
(736)
1,694
28,726
(56)
(58,374)
181
1,609
54
26,660
(591)
(591)
(533)
(533)
(47,528)
591
(142)
(40,000)
(24,699)
(111,778)
(83,643)
100,524
(3,935)
533
—
—
(23,204)
(26,606)
(479)
101,003
(42)
(68,064)
139
(25)
842
24,549
(494)
(494)
(1,418)
494
(191)
—
(21,377)
(22,492)
1,563
99,440
Cash and cash equivalents at end of period
$
16,881
$
100,524
$
101,003
169
24. REVENUE FROM CONTRACTS WITH CUSTOMERS
The following tables present the Company’s net revenue by reportable segment for the years ended December 31, 2021, 2020, and
2019:
(dollars in thousands)
Core Banking
Republic Processing Group
Year Ended December 31, 2021
Traditional Warehouse Mortgage
Lending
Banking
Banking
Total
Core
Banking
Tax
Refund
Solutions
Republic
Credit
Solutions
Total
RPG
Total
Company
Net interest income (1)
$ 157,249
$
25,218
$ 1,081
$ 183,548
$ 15,837
$ 21,209
$ 37,046
$ 220,594
Noninterest income:
Service charges on deposit accounts
Net refund transfer fees
Mortgage banking income (1)
Interchange fee income
Program fees (1)
Increase in cash surrender value of
BOLI (1)
Death benefits in excess of cash
surrender value of life insurance (1)
Net gains (losses) on OREO
Other
Total noninterest income
12,506
—
—
12,777
—
2,242
979
(160)
3,148
31,492
57
—
—
—
—
—
—
—
—
57
—
—
19,994
—
—
12,563
—
19,994
12,777
—
(10)
20,248
—
285
3,171
—
—
—
—
11,350
(10)
20,248
—
285
14,521
12,553
20,248
19,994
13,062
14,521
—
2,242
—
—
—
2,242
—
—
191
20,185
979
(160)
3,339
51,734
—
—
81
23,775
—
—
—
11,350
—
—
81
35,125
979
(160)
3,420
86,859
Total net revenue
$ 188,741
$
25,275
$ 21,266
$ 235,282
$ 39,612
$ 32,559
$ 72,171
$ 307,453
Net-revenue concentration (2)
61 %
8 %
7 %
76 %
13 %
11 %
24 %
100 %
(1) This revenue is not subject to ASC 606.
(2) Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company
net revenue.
(dollars in thousands)
Core Banking
Republic Processing Group
Years Ended December 31, 2020
Traditional Warehouse Mortgage
Banking
Lending
Banking
Total
Core
Banking
Tax
Refund
Solutions
Republic
Credit
Solutions
Total
RPG
Total
Company
Net interest income (1)
$ 159,381
$ 25,957
$ 1,362
$ 186,700
$ 22,972
$ 22,643
$ 45,615
$ 232,315
Noninterest income:
Service charges on deposit accounts
Net refund transfer fees
Mortgage banking income (1)
Interchange fee income
Program fees (1)
Increase in cash surrender value of BOLI (1)
Net gains (losses) on OREO
Other
Total noninterest income
11,571
—
—
10,978
—
1,585
(40)
3,310
27,404
63
—
—
—
—
—
—
(39)
24
—
—
31,847
—
—
—
—
103
31,950
11,634
—
31,847
10,978
—
1,585
(40)
3,374
59,378
(19)
20,297
—
210
2,193
—
—
92
22,773
—
—
—
—
4,902
—
—
—
4,902
(19)
20,297
—
210
7,095
—
—
92
27,675
11,615
20,297
31,847
11,188
7,095
1,585
(40)
3,466
87,053
Total net revenue
$ 186,785
$ 25,981
$ 33,312
$ 246,078
$ 45,745
$ 27,545
$ 73,290
$ 319,368
Net-revenue concentration (2)
59 %
8 %
10 %
77 %
14 %
9 %
23 %
100 %
(1) This revenue is not subject to ASC 606.
(2) Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company
net revenue.
170
(dollars in thousands)
Core Banking
Republic Processing Group
Year Ended December 31, 2019
Traditional Warehouse Mortgage
Banking
Banking
Lending
Total
Core
Banking
Tax
Refund
Solutions
Republic
Credit
Solutions
Total
RPG
Total
Company
Net interest income (1)
$ 168,076
$ 15,801
$
697
$ 184,574
$
21,626
$
29,926
$
51,552
$ 236,126
Noninterest income:
Service charges on deposit accounts
Net refund transfer fees
Mortgage banking income (1)
Interchange fee income
Program fees (1)
Increase in cash surrender value of BOLI (1)
Net gains (losses) on OREO
Gain on branch divestiture(1)
Other
Total noninterest income
14,153
—
—
11,600
—
1,550
540
7,829
2,881
38,553
44
—
—
—
—
—
—
—
(90)
(46)
—
—
9,499
—
—
—
—
—
213
9,712
14,197
—
9,499
11,600
—
1,550
540
7,829
3,004
48,219
—
21,158
—
259
437
—
—
—
1
21,855
—
—
—
—
4,275
—
—
—
659
4,934
—
21,158
—
259
4,712
—
—
—
660
26,789
14,197
21,158
9,499
11,859
4,712
1,550
540
7,829
3,664
75,008
Total net revenue
$ 206,629
$ 15,755
$
10,409
$ 232,793
$
43,481
$
34,860
$
78,341
$ 311,134
Net-revenue concentration (2)
67 %
5 %
3 %
75 %
14 %
11 %
25 %
100 %
(1) This revenue is not subject to ASC 606.
(2) Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company
net revenue.
The following represents information for significant revenue streams subject to ASC 606:
Service charges on deposit accounts – The Company earns revenue for account-based and event-driven services on its retail and
commercial deposit accounts. Contracts for these services are generally in the form of deposit agreements, which disclose fees for
deposit services. Revenue for event-driven services is recognized in close proximity or simultaneously with service performance.
Revenue for certain account-based services may be recognized at a point in time or over the period the service is rendered, typically
no longer than a month. Examples of account-based and event-driven service charges on deposits include per item fees, paper-
statement fees, check-cashing fees, and analysis fees.
Net refund transfer fees – An RT is a fee-based product offered by the Bank through third-party tax preparers located throughout the
United States, as well as tax-preparation software providers (collectively, the “Tax Providers”), with the Bank acting as an
independent contractor of the Tax Providers. An RT allows a taxpayer to pay any applicable tax preparation and filing related fees
directly from his federal or state government tax refund, with the remainder of the tax refund disbursed directly to the taxpayer. RT
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 deposit to the taxpayer’s personal bank account, or loaded to a prepaid
card.
The Company executes contracts with individual Tax Providers to offer RTs to their taxpayer customers. RT revenue is recognized by
the Bank immediately after the taxpayer’s refund is disbursed in accordance with the RT contract with the taxpayer customer. The fee
paid by the taxpayer for the RT is shared between the Bank and the Tax Providers based on contracts executed between the parties.
The Company presents RT revenue net of any amounts shared with the Tax Providers. The Bank’s share of RT revenue is generally
based on the obligations undertaken by the Tax Provider for each individual RT program, with more obligations generally
corresponding to higher RT revenue share. The significant majority of net RT revenue is recognized and obligations under RT
contracts fulfilled by the Bank during the first half of each year. Incremental expenses associated with the fulfilment of RT contracts
are generally expensed during the first half of the year.
Interchange fee income – As an “issuing bank” for card transactions, the Company earns interchange fee income on transactions
executed by its cardholders with various third-party merchants. Through third-party intermediaries, merchants compensate the
171
Company for each transaction for the ability to efficiently settle the transaction and for the Company’s willingness to accept certain
risks inherent in the transaction. There is no written contract between the merchant and the Company, but a contract is implied
between the two parties by customary business practices. Interchange fee income is recognized almost simultaneously by the
Company upon the completion of a related card transaction.
The Company compensates its cardholders by way of cash or other “rewards” for generating card transactions. These rewards are
disclosed in cardholder agreements between the Company and its cardholders. Reward costs are accrued over time based on card
transactions generated by the cardholder. Interchange fee income is presented net of reward costs within noninterest income.
Net gains/(losses) on other real estate – The Company routinely sells OREO it has acquired through loan foreclosure. Net
gains/(losses) on OREO reflect both 1) the gain or loss recognized upon an executed deed and 2) mark-to-market write-downs the
Company takes on its OREO inventory.
The Company generally recognizes gains or losses on OREO at the time of an executed deed, although gains may be recognized over
a financing period if the Company finances the sale. For financed OREO sales, the Company assesses whether the buyer is committed
to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are
met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.
In determining the gain or loss on sale, the Company adjusts the transaction price and related gain/(loss) on sale if a significant
financing component is present.
Mark-to-market write-downs taken by the Company during the property’s holding period are generally at least 10% per year but may
be higher based on updated real estate appraisals or BPOs. Incremental expenditures to bring OREO to salable condition are generally
expensed as-incurred.
172
25.
SEGMENT INFORMATION
Reportable segments are determined by the type of products and services offered and the level of information provided to the chief
operating decision maker, who uses such information to review performance of various components of the business (such as banking
centers and business units), which are then aggregated if operating performance, products/services, and clients are similar.
As of December 31, 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.
The nature of segment operations and the primary drivers of net revenues by reportable segment are provided below:
Reportable Segment:
Nature of Operations:
Primary Drivers of Net Revenue:
Core Banking:
Traditional Banking
Provides traditional banking products to clients in its market footprint primarily via its
network of banking centers and to clients outside of its market footprint primarily via
its digital delivery channels.
Loans, investments, and deposits
Warehouse Lending
Provides short-term, revolving credit facilities to mortgage bankers across the United
States.
Mortgage warehouse lines of credit
Mortgage Banking
Primarily originates, sells and services long-term, single-family, first-lien residential
real estate loans primarily to clients in the Bank's market footprint.
Loan sales and servicing
Republic Processing Group:
Tax Refund Solutions
TRS offers tax-related credit products and facilitates the receipt and payment of
federal and state tax refunds through Refund Transfer products. The RPS division of
TRS offers general-purpose reloadable cards. TRS and RPS products are primarily
provided to clients outside of the Bank’s market footprint.
Loans, refund transfers, and prepaid
cards.
Republic Credit Solutions
Offers consumer credit products. RCS products are primarily provided to clients
outside of the Bank’s market footprint, with a substantial portion of RCS clients
considered subprime or near-prime borrowers.
Unsecured, consumer loans
The accounting policies used for Republic’s reportable segments are the same as those described in the summary of significant
accounting policies. Segment performance is evaluated using operating income. Goodwill is allocated to the Traditional Banking
segment. Income taxes are generally allocated based on income before income tax expense unless specific segment allocations can be
reasonably made. Transactions among reportable segments are made at carrying value.
173
Segment information for the years ended December 31, 2021, 2020, and 2019 is as follows:
Core Banking
Republic Processing Group
Year Ended December 31, 2021
(dollars in thousands)
Traditional Warehouse Mortgage
Banking
Lending
Banking
Total
Core
Banking
Tax
Refund
Solutions
Republic
Credit
Solutions
Total
RPG
Total
Company
Net interest income
$ 157,249
$
25,218
$ 1,081
$ 183,548
$ 15,837
$ 21,209
$ 37,046
$ 220,594
Provision for expected credit
loss expense
Net refund transfer fees
Mortgage banking income
Program fees
Other noninterest income
Total noninterest income
(38)
(281)
—
(319)
6,683
8,444
15,127
—
—
—
31,492
31,492
—
—
—
57
57
—
19,994
—
191
20,185
—
19,994
—
31,740
51,734
20,248
—
3,171
356
23,775
—
—
11,350
—
11,350
20,248
—
14,521
356
35,125
14,808
20,248
19,994
14,521
32,096
86,859
Total noninterest expense
145,376
4,210
12,356
161,942
16,344
4,018
20,362
182,304
Income before income tax
expense
Income tax expense
43,403
7,681
21,346
4,962
8,910
1,960
73,659
14,603
16,585
3,964
20,097
4,985
36,682
8,949
110,341
23,552
Net income
$
35,722
$
16,384
$ 6,950
$
59,056
$ 12,621
$ 15,112
$ 27,733
$
86,789
Period-end assets
$ 4,717,836
$ 850,703
$ 43,929
$ 5,612,468
$ 371,647
$ 109,517
$ 481,164
$ 6,093,632
Net interest margin
3.18 %
3.37 %
NM
3.20 %
NM
NM
NM
3.75 %
Net-revenue concentration*
61 %
8 %
7 %
76 %
13 %
11 %
24 %
100 %
Year Ended December 31, 2020
(dollars in thousands)
Traditional Warehouse Mortgage
Lending
Banking
Banking
Total
Core
Banking
Core Banking
Tax
Refund
Solutions
Republic Processing Group
Republic
Credit
Solutions
Total
RPG
Total
Company
Net interest income
$ 159,381
$ 25,957
$ 1,362
$
186,700
$ 22,972
$ 22,643
$ 45,615
$ 232,315
Provision for expected credit loss
expense
16,257
613
—
Net refund transfer fees
Mortgage banking income
Program fees
Other noninterest income
Total noninterest income
—
—
—
27,404
27,404
—
—
—
24
24
—
31,847
—
103
31,950
16,870
—
31,847
—
27,531
59,378
13,189
1,219
14,408
20,297
—
2,193
283
22,773
—
—
4,902
—
4,902
20,297
—
7,095
283
27,675
31,278
20,297
31,847
7,095
27,814
87,053
Total noninterest expense
149,061
4,387
10,760
164,208
17,514
3,735
21,249
185,457
Income before income tax
expense
Income tax expense
21,467
1,395
20,981
4,721
22,552
4,736
65,000
10,852
15,042
3,323
22,591
5,212
37,633
8,535
102,633
19,387
Net income
$
20,072
$ 16,260
$ 17,816
$
54,148
$ 11,719
$ 17,379
$ 29,098
$
83,246
Period-end assets
$ 4,750,460
$ 962,692
$ 62,400
$ 5,775,552
$ 285,612
$ 107,161
$ 392,773
$ 6,168,325
Net interest margin
3.42 %
3.19 %
NM
3.39 %
NM
NM
NM
Net-revenue concentration*
59 %
8 %
10 %
77 %
14 %
9 %
23 %
4.10 %
100 %
174
(dollars in thousands)
Traditional Warehouse Mortgage
Banking
Banking
Lending
Core Banking
Year Ended December 31, 2019
Total
Core
Banking
Republic Processing Group
Tax
Refund
Solutions
Republic
Credit
Solutions
Total
RPG
Total
Company
Net interest income
$ 168,076
$ 15,801
$
697
$
184,574
$ 21,626
$
29,926
$ 51,552
$ 236,126
Provision for expected credit loss
expense
2,444
622
—
Net refund transfer fees
Mortgage banking income
Program fees
Gain on branch divestiture
Other noninterest income
Total noninterest income
—
—
—
7,829
30,724
38,553
—
—
—
—
(46)
(46)
—
9,499
—
—
213
9,712
3,066
—
9,499
—
7,829
30,891
48,219
Total noninterest expense
143,671
3,268
6,112
153,051
11,249
11,443
22,692
—
—
4,275
—
659
4,934
21,158
—
4,712
—
919
26,789
21,158
—
437
—
260
21,855
16,539
25,758
21,158
9,499
4,712
7,829
31,810
75,008
2,593
19,132
172,183
Income before income tax
expense
Income tax expense
Net income
60,514
9,651
50,863
11,865
2,670
9,195
$
4,297
902
3,395
$
$
76,676
13,223
63,453
$
15,693
3,454
$ 12,239
20,824
4,817
16,007
$
36,517
8,271
$ 28,246
113,193
21,494
91,699
$
Period-end assets
$ 4,684,116
$ 717,994
$ 26,469
$ 5,428,579
$ 86,849
$ 104,891
$ 191,740
$ 5,620,319
Net interest margin
3.76 %
2.42 %
NM
3.61 %
NM
NM
NM
Net-revenue concentration*
67 %
5 %
3 %
75 %
14 %
11 %
25 %
4.46 %
100 %
*Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net
revenue.
NM - Not Meaningful
26.
2019 BRANCH DIVESTITURE
In July 2019, the Bank entered into a definitive agreement to sell its four banking centers located in the Kentucky cities of Owensboro,
Elizabethtown, and Frankfort to Limestone Bank, a subsidiary of Limestone Bancorp, Inc. The agreement provided that Limestone
acquire loans with balances of approximately $128 million as of November 15, 2019 and assume deposits with balances of
approximately $132 million as of the Closing Date, associated with the four banking centers.
In addition to the sale of loans and assumption of deposits, Limestone also acquired substantially all of the fixed assets of these
locations, which had a book value of $1.3 million as of the Closing Date. Based on the Closing Date deposits, the all-in blended
premium for the transaction was 6.1% of the total deposits transferred. The final calculated premium was based on the trailing 10-day
average amount of the deposits as of the Closing Date, as well as the branch location for the deposits.
The Company operated its divested branches for 10.5 months during 2019.
175
27.
SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 2021 and 2020.
(dollars in thousands, except per share data)
Interest income
Interest expense
Net interest income
Provision for loan and lease losses (2)
Net interest income after provision
Noninterest income (3)
Noninterest expense (4)
Income before income taxes
Income tax expense (5)
Net income
Basic earnings per share:
Class A Common Stock (6)
Class B Common Stock (6)
Diluted earnings per share:
Class A Common Stock (6)
Class B Common Stock (6)
Dividends declared per common share:
Class A Common Stock (6)
Class B Common Stock (6)
(dollars in thousands, except per share data)
Interest income
Interest expense
Net interest income
Provision for loan and lease losses(2)
Net interest income after provision
Noninterest income
Noninterest expense (4)
Income before income taxes
Income tax expense (5)
Net income
Basic earnings per share:
Class A Common Stock (6)
Class B Common Stock (6)
Diluted earnings per share:
Class A Common Stock (6)
Class B Common Stock (6)
Dividends declared per common share:
Class A Common Stock (6)
Class B Common Stock (6)
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter (1)
2021
51,379
1,038
50,341
2,577
47,764
16,630
44,585
19,809
3,004
16,805
0.84
0.77
0.84
0.76
0.308
0.280
Fourth
Quarter
57,970
2,850
55,120
484
54,636
17,136
48,140
23,632
3,276
20,356
0.98
0.89
0.98
0.89
0.286
0.260
$
$
$
$
$
$
$
$
$
$
53,772
1,340
52,432
1,292
51,140
19,339
44,252
26,227
6,218
20,009
0.99
0.90
0.99
0.90
0.308
0.280
$
$
$
$
$
51,552
1,511
50,041
(4,323)
54,364
21,853
45,656
30,561
6,639
23,922
1.16
1.05
1.16
1.05
0.308
0.280
2020
Third
Quarter
Second
Quarter
56,038
3,786
52,252
1,500
50,752
20,597
45,523
25,826
5,437
20,389
0.98
0.89
0.98
0.89
0.286
0.260
$
$
$
$
$
57,091
4,886
52,205
6,534
45,671
18,751
44,825
19,597
3,793
15,804
0.77
0.69
0.76
0.69
0.286
0.260
$
$
$
$
$
$
$
$
$
$
69,557
1,777
67,780
15,262
52,518
29,037
47,811
33,744
7,691
26,053
1.26
1.14
1.25
1.14
0.308
0.280
First
Quarter(1)
81,159
8,421
72,738
22,760
49,978
30,569
46,969
33,578
6,881
26,697
1.29
1.17
1.28
1.16
0.286
0.260
$
$
$
$
$
$
$
$
$
$
(1) The first and second quarters of 2021 and the first quarter of 2020 were significantly impacted by the TRS segment of RPG.
(2) Provision expense:
The relatively higher levels of Provision expense during the first quarters of 2021 and 2020 were driven by the TRS segment’s EA product. Provision expense for EAs
during the first quarters of 2021 and 2020 was $16.0 million and $15.2 million.
Provision expense during 2020 was negatively impacted by economic conditions created by the COVID-19 pandemic.
(3) Noninterest income:
The Company’s Mortgage Banking income is subject to volatility based on movements in mortgage interest rates and demand for mortgage products.
The fourth quarter of 2021 included $979,000 of death benefits in excess of cash surrender value of life insurance.
176
(4) Noninterest expense:
The Company traditionally adjusts its non-commissions based incentive compensation expense during the fourth quarter of each year based on certain performance
metrics. Such incentive compensation expense for the previous eight quarters was: $1.2 million for the fourth quarter of 2021; $2.3 million for the third quarter of
2021; $2.3 million for the second quarter of 2021; $2.3 million for the first quarter of 2021; $2.0 million for the fourth quarter of 2020; $2.4 million for the third
quarter of 2020; $2.1 million for the second quarter of 2020; and $1.8 million for the first quarter of 2020.
The fourth quarter of 2020 included $2.1 million of non-recurring FHLB advance early termination penalties.
(5) See Footnote 19 in this section of the filing for more information on the Company’s income taxes for 2021 and 2020.
(6) Quarterly amounts may not sum to annual total due to rounding.
177
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. 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 the Company’s Executive Chair/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 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 fourth quarter of the
Company’s fiscal year ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, internal
control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting
Firm on Internal Control Over Financial Reporting and on the Financial Statements, thereon are set forth under Part II Item 8
“Financial Statements and Supplementary Data.”
Item 9B. Other Information.
None
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None
178
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item appears under the headings “PROPOSAL ONE: ELECTION OF DIRECTORS,”
“DELINQUENT SECTION 16(a) REPORTS” and “THE BOARD OF DIRECTORS AND ITS COMMITTEES” of the Proxy Statement
of Republic for the 2022 Annual Meeting of Shareholders (“Proxy Statement”) to be held April 21, 2022, all of which is incorporated
herein by reference.
Set forth below is certain information with respect to the Company’s executive officers:
Name
Age
Position with the Company
Steven E. Trager
A. Scott Trager
Kevin Sipes
Logan Pichel
Andrew Trager-Kusman
Christy Ames
John Rippy
William R. Nelson
Pedro Bryant
Steven E. DeWeese
Juan Montano
Anthony T. Powell
Jeff Starke
Margaret Wendler
61 Executive Chair and CEO of the Company; Executive Chair of RB&T
69 Vice Chair and President of the Company; Director of the Company and RB&T
50 EVP, CFO, and Chief Accounting Officer of the Company and RB&T
57 Director of the Company; President and CEO of RB&T
35 Director of the Company and RB&T; SVP of RB&T
49 Secretary of the Company; EVP of RB&T
61 Assistant Secretary of the Company; EVP of RB&T
58 President of RB&T's Republic Processing Group
60 EVP of RB&T
53 EVP of RB&T
52 EVP of RB&T
54 EVP of RB&T
44 EVP of RB&T
67 EVP of RB&T
Executive officers of the Company are elected by the Board of Directors and serve at the pleasure of the Board of Directors. Steven E.
Trager and A. Scott Trager are cousins.
Steven E. Trager has served as Chair (now Executive Chair) and CEO of Republic since 2012. He was named Executive Chair of the
Bank in September 2021, prior to which he served as Chair and CEO of the Bank since 1998. From 1994 to 1997 he served as Vice
Chair of the Company. From 1994 to 1998 he served as Secretary, and from 1998 to 2012 he served as President and CEO of
Republic.
A. Scott Trager has served as Vice Chair of Republic and the Bank since April 2017. He has also served as Director and President of
Republic since 2012. He served as President of the Bank from 1984 to 2017 and Vice Chair of Republic from 1994 to 2012.
Kevin Sipes joined the Company in 1995 and has served as EVP and Treasurer of Republic and the Company since 2002 and CFO of
Republic and the Company since 2000. He began serving as Chief Accounting Officer of the Company in 2000.
Andrew Trager-Kusman has served as the Bank’s Chief Strategy Officer since October 2021. He previously served as Managing
Director of Corporate Strategies for the Bank since 2016. He was named a Director of Republic in April 2019 and a Senior Vice
President of the Bank in January 2020.
Logan Pichel was appointed CEO of the Bank effective October 1, 2021 and was elected to the boards of the Company and the Bank
in September 2021. He joined the Company in June 2020 as the Bank’s President and has over 25 years in the banking industry. Prior
to joining Republic, he served from 2005 to 2020 at Regions Bank, most recently as their Executive Vice President, Head of Corporate
Development and Financial Planning & Analysis and Mergers and Acquisitions.
Christy Ames joined Republic Bank & Trust Company on January 2, 2018 as the Bank’s Senior Vice President, General Counsel. She
also serves as the Secretary for the Bank and the Company. Ms. Ames has represented financial institutions for over twenty years,
most recently serving as a member at Stites & Harbison, PLLC and Chair of the firm’s Financial Institution Litigation Sub Group and
179
as General Counsel for First Residential Mortgage Network, Inc. d/b/a SurePoint Lending.. In January 2022, Ms. Ames was named
an EVP of the Bank.
John Rippy joined the Company in 2005 as SVP and Risk Management Officer. In 2009, he was named SVP and Chief Legal and
Compliance Officer. In 2013, he was named SVP and Chief Risk Management Officer. In 2018, he was named EVP and Chief Risk
Officer. He also serves as assistant Secretary of the Company.
William R. Nelson has served as President of Republic Processing Group since 2007. He previously served as Director of Relationship
Management of HSBC, Taxpayer Financial Services, in 2004 and was promoted to Group Director — Independent Program in 2006
through 2007. He previously served as Director of Sales, Marketing and Customer Service with the Bank from 1999 through 2004.
Pedro Bryant, who has almost 40 years in the banking industry, joined the Company in July 2020 as an EVP of the Bank and the
Bank’s Managing Director of Community Lending. Prior to joining Republic, he served from 2002 to 2020 as President and CEO of
Metro Bank, a Louisville-based community development bank.
Steven E. DeWeese joined the Company in 1990 and has held various positions within the Company since then. In 2000, he was
promoted to SVP. In 2003, he was promoted to Managing Director of Business Development. In 2006, he was promoted to Managing
Director of Retail Banking, and in January 2010 he was promoted to EVP of the Company. In 2019, he was named the Company’s
Managing Director of Private and Business Banking.
Juan Montano has served as the Bank’s EVP and Chief Mortgage Banking Officer since 2018. He previously served as SVP and
Managing Director of Mortgage Lending from 2015 to 2018. He joined the Company in 2009 as SVP and Managing Director of
Finance.
Anthony T. Powell joined the Company in 1999 as VP. In 2001, he was promoted to SVP and Senior Commercial Lending Officer. In
2005, he was promoted to SVP and Managing Director of Business Lending. In 2015, he assumed responsibility for the Retail
Banking division of the Company and was named SVP and Chief Credit and Retail Officer. In January 2017, he was named EVP and
Chief Lending Officer.
Jeff Starke joined Republic Bank & Trust Company on July 19, 2021 as the Bank’s Executive Vice President, Chief Information
Officer. He has held various technological and operational roles in the financial services vertical for over 20 years. Prior to joining
Republic, he served from 2010 to 2021 at Bank OZK, most recently as Chief Technology Officer and Chair of the Information
Systems Steering Committee.
Margaret S Wendler joined the Company in 1996. She has served the Company in human resources since 2005. Most recently, in 2019
she was named Chief Human Resources Officer. In 2021, she was also named an EVP of the Bank.
Item 11. Executive Compensation.
The compensation-related information required by this Item appears under the headings “COMPENSATION DISCUSSION AND
ANALYSIS,,” COMPENSATION COMMITTEE REPORT,” “DIRECTOR COMPENSATION” and “CERTAIN INFORMATION AS TO
MANAGEMENT” of the Proxy Statement, all of which is incorporated herein by reference.
180
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity Compensation Plan Information
The following table sets forth information regarding Republic’s Common Stock that may be issued upon exercise of options, warrants
and rights under all equity compensation plans as of December 31, 2021. Republic’s security holders approved each of the equity
compensation plans listed in the table below. There were no equity compensation plans not approved by security holders as of
December 31, 2021.
Plan Category
(a) (1)
(b)
(c)
Number of Securities Remaining
Available for Future Issuance
Number of Securities to be Issued
Upon Exercise of Outstanding
Options, Warrants and Rights
Weighted-Average Exercise Price Under Equity Compensation Plans
(Excluding Securities Reflected in
of Outstanding Options, Warrants
Column (a))
and Rights
2015 Stock Incentive Plan
2018 Employee Stock Purchase Plan (3)
460,502 (2) $
— $
37.54
—
2,045,658
199,861
(1) Column (a) above includes options issued for Class A Common Stock only. Options for Class B Common Stock have been authorized but are not issued.
(2)
Includes 152,118 shares of Class A Common Stock subject to issuance in accordance with the Republic Bancorp, Inc. Non-Employee Director and Key Employee
Deferred Compensation Plan for service previously rendered. Republic’s security holders previously approved this plan. These shares are to be issued from
shares available for issuance under the 2015 Stock Incentive Plan; the weighted-average exercise price in Column (b) does not take these awards into account.
For further information, see Footnote 17 “Stock Plans and Stock Based Compensation” of Part II Item 8 “Financial Statements and Supplementary Data.”
(3) The 2018 Employee Stock Purchase Plan is a qualified Employee Stock Purchase Plan under Section 423 of the Code, pursuant to which up to 250,000 shares of
Class A Common Stock were authorized for issuance. Under the ESPP, employees may purchase shares at a purchase price that cannot be less than 85% of the
lower of the fair market value of the Company’s Class A Common Stock on the first trading day of each offering period or on the last trading day of each offering
period. No offering period may exceed 27 months in length. As of the close of business on December 31, 2021, there were no shares of Class A Common Stock
subject to purchase during open offering periods.
Additional information required by this Item appears under the heading “SHARE OWNERSHIP” of the Proxy Statement, which is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information required by this Item is under the headings “PROPOSAL ONE: ELECTION OF DIRECTORS” and “CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS” of the Proxy Statement, all of which is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
Information required by this Item appears under the heading “PROPOSAL TWO: RATIFICATION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM” of the Proxy Statement which is incorporated herein by reference.
181
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements:
The following are included under Item 8 “Financial Statements and Supplementary Data:”
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated balance sheets — December 31, 2021 and 2020
Consolidated statements of income and comprehensive income — years ended December 31, 2021, 2020, and 2019
Consolidated statements of stockholders’ equity — years ended December 31, 2021, 2020, and 2019
Consolidated statements of cash flows — years ended December 31, 2021, 2020, and 2019
Notes to consolidated financial statements
(a)(2) Financial Statements Schedules:
Financial statement schedules are omitted because the information is not applicable.
(a)(3) Exhibits:
The Exhibit Index of this report is incorporated herein by reference. The management contracts and compensatory plans or
arrangements required to be filed as exhibits to this Form 10-K pursuant to Item 15(b) are noted in the Exhibit Index.
Item 16. Form 10-K Summary.
Not applicable.
182
INDEX TO EXHIBITS
No.
Description
3(i)
Articles of Incorporation of Registrant, as amended (Incorporated by reference to Exhibit 3(i) to the Registrant’s Form 8-K
filed October 13, 2016 (Commission File Number: 0-24649))
3(ii)
Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed April 26, 2021
(Commission File Number: 0-24649))
4.1
Provisions of Articles of Incorporation of Registrant defining rights of security holders (see Articles of Incorporation, as
amended, of Registrant incorporated as Exhibit 3(i) herein)
4.2
Agreement Pursuant to Item 601 (b)(4)(iii) of Regulation S-K (Incorporated by reference to Exhibit 4.2 of the Registrant’s
Form 10-K for the year ended December 31, 1997 (Commission File Number: 33-77324))
4.3
Description of Securities (Incorporated by reference to Exhibit 4.3 of Registrant’s Form 10-K for the year ended
December 31, 2019 (Commission File Number: 0-24649))
10.01* Agreement of Employment dated April 24, 2020, between Republic Bank & Trust Company and Logan Pichel
(Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed May 5, 2020 (Commission File Number: 0-
24649))
10.02* Termination of Employment Agreement dated September 15, 2021 between Republic Bank & Trust Company and Logan
M. Pichel (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed September 15, 2021 (Commission File
Number: 0-24649))
10.03* Change in Control Severance Agreement dated January 27, 2021 between Republic Bank & Trust Company and William
Nelson (Incorporated by reference to Exhibit 10.4 of Registrant’s Form 8-K filed February 1, 2021 (Commission File
Number: 0-24649))
10.04* Form of Executive Officer Change in Control Agreement between Republic Bank & Trust Company and designated
Executive Officers (Incorporated by reference to Exhibit 10.5 of Registrant’s Form 8-K filed February 1, 2021
(Commission File Number: 0-24649))
10.05
Split Dollar Insurance Policy with Citizens Fidelity Bank and Trust Company as the Trustee of the Bernard Trager
Irrevocable Trust, dated December 14, 1989, as amended August 8, 1994 (Incorporated by reference to Exhibit 10.70 to
Registrant’s Form 10-K for the year ended December 31, 2012 (Commission File Number: 33-77324))
10.06
10.07
Right of First Offer Agreement by and among Republic Bancorp, Inc., Teebank Family Limited Partnership, Bernard M.
Trager and Jean S. Trager. (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed September 19, 2007
(Commission File Number: 0-24649))
Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 1, 1982, relating to 2801 Bardstown
Road, Louisville (Incorporated by reference to Exhibit 10.11 of Registrant’s Form 10-Q for the quarter ended March 31,
1998 (Commission File Number: 0-24649))
10.08
Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 1, 2008, relating to 2801 Bardstown
Road, Louisville (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed June 9, 2008 (Commission File
Number: 0-24649))
10.09
First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 1, 2008, relating
to 2801 Bardstown Road, Louisville (Incorporated by reference to Exhibit 10.23 of Registrant’s Form 10-K filed March 9,
2018 (Commission File Number: 0-24649))
183
No.
Description
10.10
Lease between Republic Bank & Trust Company and Teeco Properties, dated April 1, 1995, relating to property at 601
West Market Street (Incorporated by reference to exhibit 10.10 of Registrant’s Form 10-Q for the quarter ended March 31,
1998 (Commission File Number: 0-24649))
10.11
Lease between Republic Bank & Trust Company and Teeco Properties, dated October 1, 1996, relating to property at 601
West Market Street (Incorporated by reference to exhibit 10.10 of Registrant’s Form S-1 (Commission File Number: 333-
56583))
10.12
Lease extension between Republic Bank & Trust Company and Teeco Properties, dated September 25, 2001, relating to
property at 601 West Market Street (Incorporated by reference to exhibit 10.25 of Registrant’s Form 10-Q for the quarter
ended September 30, 2001 (Commission File Number: 0-24649))
10.13
First Amendment to Lease between Republic Bank & Trust Company and Teeco Properties, dated May 1, 2002, relating to
property at 601 West Market Street (Incorporated by reference to exhibit 10.1 of Registrant’s Form 10-Q for the quarter
ended March 31, 2002 (Commission File Number: 0-24649))
10.14
Lease between Republic Bank & Trust Company and Teeco Properties, dated October 1, 2005, relating to property at 601
West Market Street, Louisville, KY (Floor 4), amending and modifying previously filed exhibit 10.1 of Registrant’s
Form 10-Q for the quarter ended March 31, 2002 (Incorporated by reference to exhibit 10.1 of Registrant’s Form 10-Q for
the quarter ended September 30, 2005 (Commission File Number: 0-24649))
10.15
Lease between Republic Bank & Trust Company and Teeco Properties, as of October 1, 2006, relating to property at 601
West Market Street, Louisville, KY. (Incorporated by reference to exhibit 10.1 of Registrant’s Form 8-K filed
September 25, 2006 (Commission File Number: 0-24649))
10.16
First Amendment to Lease between Republic Bank & Trust Company and Teeco Properties, as of July 8, 2008, relating to
property at 601 West Market Street (Floors 1,2,3,5 and 6), Louisville, KY. (Incorporated by reference to exhibit 10.1 of
Registrant’s Form 10-Q for the quarter ended June 30, 2008 (Commission File Number: 0-24649))
10.17
First Amendment to Lease between Republic Bank & Trust Company and Teeco Properties, as of July 8, 2008, relating to
property at 601 West Market Street (Floor 4), Louisville, KY. (Incorporated by reference to exhibit 10.2 of Registrant’s
Form 10-Q for the quarter ended June 30, 2008 (Commission File Number: 0-24649))
10.18
Assignment of Lease relating to property at 601 West Market Street (Floors 1,2,3,5 and 6), Louisville, KY. (Incorporated
by reference to exhibit 10.31 of Registrant’s Form 10-K for the year ended December 31, 2016 (Commission File Number:
0-24649))
10.19
Assignment of Lease relating to property at 601 West Market Street (Floor 4), Louisville, KY. (Incorporated by reference
to exhibit 10.32 of Registrant’s Form 10-K for the year ended December 31, 2016 (Commission File Number: 0-24649))
10.20
Master Office Lease between Republic Bank & Trust Company and Makbe LLC, dated August 1, 2020, relating to property
at 601 West Market Street (Incorporated by reference to exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended June
30, 2020 (Commission File Number: 0-24649))
10.21
Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 3, 1993, as amended, relating to
661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.12 of Registrant’s Form 10-Q for the
quarter ended March 31, 1998 (Commission File Number: 0-24649))
10.22
Fifth Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 1, 1999, as
amended, relating to 661 South Hurstbourne Parkway (Incorporated by reference to Exhibit 10.17 of Registrant’s Form 10-
Q for the quarter ended June 30, 1999 (Commission File Number: 0-24649))
184
No.
Description
10.23
Sixth Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 1, 2000, as
amended, relating to 661 South Hurstbourne Parkway (Incorporated by reference to Exhibit 10.21 of Registrant’s Form 10-
K for the year ended December 31, 1999 (Commission File Number: 0-24649))
10.24
Seventh Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated July 1, 2003, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.1 of Registrant’s
Form 10-Q for the quarter ended June 30, 2003 (Commission File Number: 0-24649))
10.25
First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 2, 1993, relating
to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.16 of Registrant’s Form 10-K for
the year ended December 31, 2003 (Commission File Number: 0-24649))
10.26
Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated September 1, 1995, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.18 of
Registrant’s Form 10-K for the year ended December 31, 2003 (Commission File Number: 0-24649))
10.27
Second Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 16, 1996, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.19 of
Registrant’s Form 10-K for the year ended December 31, 2003 (Commission File Number: 0-24649))
10.28
Third Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated January 21, 1998, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.20 of
Registrant’s Form 10-K for the year ended December 31, 2003 (Commission File Number: 0-24649))
10.29
Fourth Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated September 11, 1998,
as amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.21 of
Registrant’s Form 10-K for the year ended December 31, 2003 (Commission File Number: 0-24649))
10.30
Eighth Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated February 1, 2004, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.1 of Registrant’s
Form 10-Q for the quarter ended March 31, 2004 (Commission File Number: 0-24649))
10.31
Lease between Republic Bank & Trust Company and Jaytee Properties, dated September 1, 2005, relating to 661 South
Hurstbourne Parkway, Louisville, KY, amending and modifying previously filed exhibit 10.12 of Registrant’s Form 10-Q
for the quarter ended March 31, 1998 (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 10-Q for the quarter
ended September 30, 2005 (Commission File Number: 0-24649))
10.32
Lease between Republic Bank & Trust Company and Jaytee Properties, dated July 1, 2008, relating to 661 South
Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed June 9, 2008
(Commission File Number: 0-24649))
10.33
First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 14, 2015, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.1 of Registrant’s
Form 10Q for the quarter ended September 30, 2015 (Commission File Number: 0-24649))
10.34
Second Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated January 31, 2018, as
amended, relating to 661 South Hurstbourne Parkway, Louisville (Incorporated by reference to Exhibit 10.47 of
Registrant’s Form 10-K filed March 9, 2018 (Commission File Number: 0-24649))
10.35
Lease between Republic Bank & Trust Company and Jaytee Properties, dated November 17, 1997, relating to 9600
Brownsboro Road (Incorporated by reference to Exhibit 10.13 of Registrant’s Form 10-Q for the quarter ended March 31,
1998 (Commission File Number: 0-24649))
185
No.
Description
10.36
Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 1, 1999, relating to 9600 Brownsboro
Road (Incorporated by reference to Exhibit 10.18 of Registrant’s Form 10-Q for the quarter ended June 30, 1999
(Commission File Number: 0-24649))
10.37
Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated October 30, 1999, as
amended, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.20 of Registrant’s Form 10-K for the
year ended December 31, 1999 (Commission File Number: 0-24649))
10.38
Third Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated May 1, 2003, as
amended, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 10-Q for the
quarter ended June 30, 2003 (Commission File Number: 0-24649))
10.39
Lease between Republic Bank & Trust Company and Jaytee Properties, dated November 1, 2005, relating to 9600
Brownsboro Road (Incorporated by reference to Exhibit 10.33 of Registrant’s Form 10-K for the year ended December 31,
2005 (Commission File Number: 0-24649))
10.40
Assignment and Assumption of Lease by Republic Bank & Trust Company with the consent of Jaytee Properties, dated
May 1, 2006, relating to 9600 Brownsboro Road, Louisville, KY. (Incorporated by reference to Exhibit 10.2 of Registrant’s
Form 10-Q for the quarter ended June 30, 2006 (Commission File Number: 0-24649))
10.41
First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated January 17, 2008, as
amended, relating to 9600 Brownsboro Road, Louisville, KY (Incorporated by reference to Exhibit 10.40 of Registrant’s
Form 10-K for the year ended December 31, 2007 (Commission File Number: 0-24649))
10.42
Fourth Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated January 15, 2014, as
amended, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.47 of Registrant’s Form 10-K for the
year ended December 31, 2013 (Commission File Number: 0-24649))
10.43
Fifth Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated March 15, 2017, as
amended, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the
quarter ended March 31, 2017 (Commission File Number: 0-24649))
10.44
Sixth Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties, dated August 1, 1999, as
amended, relating to 9600 Brownsboro Road (Incorporated by reference to Exhibit 10.35 of Registrant’s Form 10-K for the
year ended December 31, 2019 (Commission File Number: 0-24649))
10.45
Seventh Amendment to Office Lease dated as of September 1, 2021 to the Office Lease dated August 1, 1999, as amended,
by and between Jaytee-Springhurst, LLC and Republic Bank & Trust Company (Incorporated by reference to Exhibit 10.1
of Registrant’s Form 10-Q for the quarter ended September 30, 2021 (Commission Number: 0-24649))
10.46
Eighth Amendment to Office Lease dated as of November 17, 2021 to the Office Lease dated August 1, 1999, as amended,
by and between Jaytee-Springhurst, LLC and Republic Bank & Trust Company
10.47
Ground lease between Republic Bank & Trust Company and Jaytee Properties, relating to 9600 Brownsboro Road, dated
January 17, 2008, relating to 9600 Brownsboro Road, Louisville, KY (Incorporated by reference to Exhibit 10.41 of
Registrant’s Form 10-K for the year ended December 31, 2007 (Commission File Number: 0-24649))
10.48
Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated June 27, 2008, relating to 200
South Seventh Street, Louisville, KY. (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed July 1,
2008 (Commission File Number: 0-24649))
186
No.
Description
10.49
Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated March 1, 2011, relating to 200
South Seventh Street, Louisville, KY (Incorporated by reference to Exhibit 10.66 of the Registrant’s Form 10-K for the
year ended December 31, 2010 (Commission File Number: 0-24649))
10.50
Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated May 1, 2013, relating to 200
South Seventh Street, Louisville, KY (Incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q for the
quarter ended June 30, 2013 (Commission File Number: 0-24649))
10.51
First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated January 15,
2014, as amended, relating to 200 South Seventh Street, Louisville, KY (Incorporated by reference to Exhibit 10.54 of
Registrant’s Form 10-K for the year ended December 31, 2013 (Commission File Number: 0-24649))
10.52
First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated March 18,
2015, as amended, relating to 200 South Seventh Street, Louisville, KY. (Incorporated by reference to Exhibit 10.1 of
Registrant’s Form 10-Q for the quarter ended March 31, 2015 (Commission File Number: 0-24649))
10.53
Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated September 30, 2015, relating to
200 South Seventh Street, Louisville, KY. (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 10-Q for the
quarter ended September 30, 2015 (Commission File Number: 0-24649))
10.54
Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated March 15 2017 relating to 200
South Seventh Street, Louisville, KY. (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 10-Q for the quarter
ended March 31, 2017 (Commission File Number: 0-24649))
10.55
First Amendment to Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated September
20 2017, as amended, relating to 200 South Seventh Street, Louisville, KY. (Incorporated by reference to Exhibit 10.1 of
Registrant’s Form 10-Q for the quarter ended September 30, 2017 (Commission File Number: 0-24649))
10.56
Master Office Lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC, dated October 1 2020,
relating to 200 South Seventh Street, Louisville, KY. (Incorporated by reference to Exhibit 10.56 of Registrant’s Form 10-
K for the year ended December 31, 2020 (Commission File Number: 0-24649))
10.57* 2015 Stock Incentive Plan (Incorporated by reference to Annex A of Registrant’s 2015 Proxy Statement (Commission File
Number: 0-24649))
10.58* Option Award Agreement for 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of Registrant’s
Form 10-Q for the quarter ended June 30, 2015 (Commission File Number: 0-24649))
10.59* Restricted Stock Award Agreement for 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 of
Registrant’s Form 10-Q for the quarter ended June 30, 2015 (Commission File Number: 0-24649))
10.60* Performance Stock Unit Award Agreement for 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of
Registrant’s Form 8-K filed January 27, 2016 (Commission File Number: 0-24649))
10.61* Form of Restricted Stock Award Agreement (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed
February 1, 2021 (Commission File Number: 0-24649))
10.62* Form of Performance Stock Unit Award (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed February
1, 2021 (Commission File Number: 0-24649))
10.63* Form of Option Award Agreement (Incorporated by reference to Exhibit 10.3 of Registrant’s Form 8-K filed February 1,
2021 (Commission File Number: 0-24649))
187
No.
Description
10.64* Form of Agreement for TRS Transaction Bonus Program (Incorporated by reference to Exhibit 10.1 of Registrant’s Form
8-K filed May 19, 2021 (Commission File Number: 0-24649))
10.65* Republic Bancorp, Inc. 401(k)/Profit Sharing Plan and Trust (Incorporated by reference to Form S-8 filed December 28,
2005 (Commission File Number: 0-24649))
10.66* Republic Bancorp, Inc. 401(k) Retirement Plan, as Amended and Restated, effective April 1, 2011 (Incorporated by
reference to Exhibit 23.2 to Form 11-K for the year ended December 31, 2011 (Commission File Number: 0-24649))
10.67* Republic Bancorp, Inc. 401(k) Retirement Plan, as Amended and Restated, effective January 1, 2015 (Incorporated by
reference to Exhibit 23.2 of Form 11-K for the year ended December 31, 2014 (Commission File Number: 0-24649))
10.68* Republic Bancorp, Inc. 401(k) Retirement Plan, as Amended and Restated, effective May 1, 2021 (Incorporated by
reference to Exhibit 10.1 of Form 10-Q for the quarter ended June 30, 2021 (Commission File Number: 0-24649))
10.69* Republic Bancorp, Inc. and subsidiaries Non-Employee Director and Key Employee Deferred Compensation and the
Republic Bank & Trust Company Non-Employee Director and Key Employee Deferred Compensation Plan (as adopted
November 18, 2004) (Incorporated by reference to Form S-8 filed November 30, 2004 (Commission File
Number: 333- 120857))
10.70* Republic Bancorp, Inc. and Subsidiaries Non-Employee Director and Key Employee Deferred Compensation Plan Post-
Effective Amendment No. 1 (Incorporated by reference to Form S-8 filed April 13, 2005 (Commission File Number: 333-
120857))
10.71* Republic Bancorp, Inc. and subsidiaries Non-Employee Director and Key Employee Deferred Compensation, as amended
and restated as of March 16, 2005 (Incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed March 18,
2005 (Commission File Number: 333-120857))
10.72* Republic Bancorp, Inc. and subsidiaries Non-Employee Director and Key Employee Deferred Compensation as amended
and restated as of March 19, 2008 (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the quarter
ended March 31, 2008 (Commission File Number: 0-24649))
10.73* Republic Bancorp, Inc. and subsidiaries Non-Employee Director and Key Employee Deferred Compensation, as adopted
November 18 2004 and then amended and restated as on March 16, 2005, March 19, 2008, and again on January 24, 2018
(Incorporated by reference to Annex A of Registrant’s 2018 Proxy Statement (Commission File Number: 0-24649))
10.74* Amendment 2019-1 to the Republic Bancorp, Inc. and Subsidiaries Non-Employee Director and Key Employee Deferred
Compensation Plan (Incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended March 31,
2020 (Commission File Number: 0-24649))
10.75* Republic Bancorp, Inc. Employee Stock Purchase Plan (Incorporated by reference to Annex B of Registrant’s 2018 Proxy
Statement (Commission File Number: 0-24649))
10.76* Consulting Agreement dated as of July 16, 2019, between David P. Feaster and Republic Bank & Trust Company
(Incorporated by reference to Exhibit 10.70 of Registrant’s Form 10-K for the year ended December 31, 2019 (Commission
File Number: 0-24649))
10.77
Junior Subordinated Indenture, Amended and Restated Trust Agreement, and Guarantee Agreement (Incorporated by
reference to Exhibit 4.1 of Registrant’s Form 8-K filed August 19, 2005 (Commission File Number: 0-24649))
188
No.
Description
10.78* Cash Bonus Plan for Acquisitions, effective November 7, 2012 (Incorporated by reference to Exhibit 10.3 of Registrant’s
Form 10-Q for the quarter ended September 30, 2012 (Commission File Number: 0-24649))
10.79** Amended and Restated Joint Marketing Agreement, dated July 1, 2015, by and between Republic Bank & Trust Company
and Elevate@Work, LLC (Incorporated by reference to Exhibit 10.87 of Registrant’s Form 10-K for the year ended
December 31, 2018 (Commission File Number: 0-24649))
10.80** Written Consent to the Amended and Restated Joint Marketing Agreement, dated September 1, 2016, by and between
Republic Bank & Trust Company and Elevate@Work, LLC (Incorporated by reference to Exhibit 10.88 of Registrant’s
Form 10-K for the year ended December 31, 2018 (Commission File Number: 0-24649))
10.81** Amended and Restated License and Support Agreement, dated July 1, 2015, by and between Republic Bank & Trust
Company and Elevate Decision Sciences, LLC (Incorporated by reference to Exhibit 10.89 of Registrant’s Form 10-K for
the year ended December 31, 2018 (Commission File Number: 0-24649))
10.82** Participation Agreement, dated July 1, 2015, by and between Elastic SPV, Ltd. and Republic Bank & Trust Company
(Incorporated by reference to Exhibit 10.90 of Registrant’s Form 10-K for the year ended December 31, 2018 (Commission
File Number: 0-24649))
10.83
Asset Purchase Agreement dated as of May 13, 2021, between Republic Bank & Trust Company and Green Dot
Corporation (Incorporated by reference to Exhibit 2.1 of Registrant’s Form 8-K filed May 19, 2021 (Commission File
Number: 0-24649)) (Termination of this agreement has been disclosed in Registrant’s Form 8-K filed January 10, 2022)
21
23
Subsidiaries of Republic Bancorp, Inc.
Consent of Independent Registered Public Accounting Firm
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 2003
101
The following financial statements from the Company’s annual report on Form 10-K were formatted in iXBRL (Inline
eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2021 and 2020,
(ii) Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2021, 2020, and
2019, (iii) Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2021, 2020, and 2019,
(iv) Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019 and (v) Notes to
Consolidated Financial Statements.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document).
Denotes management contracts and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K
*
pursuant to Item 15(b).
**
including the redacted portions, has been filed separately with the Securities and Exchange Commission.
Confidential treatment has been requested for the redacted portions of this agreement. A complete copy of the agreement,
***
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.
189
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
REPUBLIC BANCORP, INC.
March 1, 2022
By: Steven E. Trager
Executive Chair and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated.
/s/ Steven E. Trager
Steven E. Trager
/s/ A. Scott Trager
A. Scott Trager
/s/ Kevin Sipes
Kevin Sipes
/s/ Andrew Trager-Kusman
Andrew Trager-Kusman
/s/ Ronald F. Barnes
Ronald F. Barnes
/s/ Laura M. Douglas
Laura M. Douglas
/s/ David P. Feaster
David P. Feaster
/s/ Craig A. Greenberg
Craig Greenberg
/s/ Heather V. Howell
Heather V. Howell
/s/ Ernest W. Marshall, Jr.
Ernest W. Marshall, Jr.
/s/ W. Patrick Mulloy, II
W. Patrick Mulloy, II
/s/ George Nichols III
George Nichols III
Executive Chair, Chief Executive Officer
March 1, 2022
and Director
Vice Chair, President and Director
March 1, 2022
March 1, 2022
March 1, 2022
March 1, 2022
March 1, 2022
March 1, 2022
March 1, 2022
March 1, 2022
March 1, 2022
March 1, 2022
March 1, 2022
Chief Financial Officer and
Chief Accounting Officer
Director
Director
Director
Director
Director
Director
Director
Director
Director
190
SIGNATURES (continued)
/s/ W. Kenneth Oyler, III
W. Kenneth Oyler, III
/s/ Logan M. Pichel
Logan M. Pichel
/s/ Michael T. Rust
Michael T. Rust
/s/ Susan Stout Tamme
Susan Stout Tamme
/s/ Mark A. Vogt
Mark A. Vogt
Director
Director
Director
Director
Director
March 1, 2022
March 1, 2022
March 1, 2022
March 1, 2022
March 1, 2022
191