Republic Bancorp(RBCAA) - 2023 Q2 - Quarterly Report

Form 10-Q Filing Information Details Republic Bancorp, Inc.'s Nasdaq listing, Class A and B Common Stock outstanding as of July 31, 2023 - Republic Bancorp, Inc. is a Kentucky-incorporated registrant, with its Class A Common Stock (RBCAA) registered on The Nasdaq Stock Market[2][3] - Class A Common Stock Outstanding (July 31, 2023) | 17,386,257 shares - Class B Common Stock Outstanding (July 31, 2023) | 2,156,662 shares Table of Contents Provides an organized listing of all sections and subsections within the Form 10-Q report Glossary of Terms Defines key financial and operational terms used throughout the report for clarity and understanding PART I — FINANCIAL INFORMATION Presents the company's unaudited consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, income statements, comprehensive income, stockholders' equity, and cash flows, along with detailed footnotes explaining accounting policies, acquisitions, investment securities, loans, deposits, and other financial instruments Consolidated Balance Sheets Presents the company's financial position, including assets, liabilities, and equity, as of June 30, 2023, and December 31, 2022 | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $6,369,779 | $5,835,543 | $534,236 | 9.15% | | Total Liabilities | $5,482,808 | $4,978,930 | $503,878 | 10.12% | | Total Stockholders' Equity | $886,971 | $856,613 | $30,358 | 3.54% | Consolidated Statements of Income Details the company's revenues, expenses, and net income for the three and six months ended June 30, 2023, and 2022 Three Months Ended June 30 | Metric (in thousands) | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | $79,054 | $52,902 | $26,152 | 49.43% | | Total Interest Expense | $14,525 | $1,088 | $13,437 | 1235.02% | | Net Interest Income | $64,529 | $51,814 | $12,715 | 24.54% | | Provision for expected credit loss expense | $6,139 | $3,705 | $2,434 | 65.69% | | Total Noninterest Income | $19,651 | $30,569 | $(10,918) | (35.72)% | | Total Noninterest Expense | $51,533 | $47,656 | $3,877 | 8.14% | | Net Income | $21,052 | $24,347 | $(3,295) | (13.53)% | | Basic EPS Class A Common Stock | $1.07 | $1.23 | $(0.16) | (13.01)% | | Diluted EPS Class A Common Stock | $1.07 | $1.22 | $(0.15) | (12.30)% | Six Months Ended June 30 | Metric (in thousands) | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | $179,410 | $117,012 | $62,398 | 53.33% | | Total Interest Expense | $22,239 | $2,031 | $20,208 | 995.08% | | Net Interest Income | $157,171 | $114,981 | $42,190 | 36.69% | | Provision for expected credit loss expense | $32,905 | $12,931 | $19,974 | 154.47% | | Total Noninterest Income | $42,332 | $61,578 | $(19,246) | (31.26)% | | Total Noninterest Expense | $103,976 | $96,237 | $7,739 | 8.04% | | Net Income | $49,144 | $52,697 | $(3,553) | (6.74)% | | Basic EPS Class A Common Stock | $2.50 | $2.65 | $(0.15) | (5.66)% | | Diluted EPS Class A Common Stock | $2.50 | $2.64 | $(0.14) | (5.30)% | Consolidated Statements of Comprehensive Income Reports net income and other comprehensive income components for the three and six months ended June 30, 2023, and 2022 Three Months Ended June 30 | Metric (in thousands) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net income | $21,052 | $24,347 | $(3,295) | | Total other comprehensive income (loss), net of tax | $(3,294) | $(7,611) | $4,317 | | Comprehensive income | $17,758 | $16,736 | $1,022 | Six Months Ended June 30 | Metric (in thousands) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net income | $49,144 | $52,697 | $(3,553) | | Total other comprehensive income (loss), net of tax | $611 | $(23,528) | $24,139 | | Comprehensive income | $49,755 | $29,169 | $20,586 | Consolidated Statements of Stockholders' Equity Outlines changes in stockholders' equity, including retained earnings and other comprehensive income, for the periods presented | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Stockholders' Equity | $886,971 | $856,613 | | Class A Common Stock Shares Outstanding | 17,449 | 17,585 | | Class B Common Stock Shares Outstanding | 2,157 | 2,160 | | Retained Earnings | $771,260 | $742,250 | | Accumulated Other Comprehensive Income (Loss) | $(31,368) | $(31,979) | - For the six months ended June 30, 2023, the company declared dividends of $0.748 per Class A share and $0.680 per Class B share, totaling $13.118 million and $1.467 million, respectively. The company repurchased 156 thousand Class A Common Stock shares for $6.714 million[18] Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023, and 2022 Six Months Ended June 30 | Activity (in thousands) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $64,893 | $94,577 | $(29,684) | | Net cash used in investing activities | $(386,026) | $(28,960) | $(357,066) | | Net cash (used in) provided by financing activities | $249,411 | $(27,445) | $276,856 | | Net change in cash and cash equivalents | $(71,722) | $38,172 | $(109,894) | | Cash and cash equivalents at end of period | $241,967 | $795,143 | $(553,176) | Notes to Consolidated Financial Statements Provides detailed explanations and disclosures supporting the unaudited consolidated financial statements 1. Basis of Presentation and Summary of Significant Accounting Policies Republic Bancorp operates as a financial holding company with five segments, adopting recent ASUs, and plans to dissolve its insurance subsidiary - Republic Bancorp, Inc. is a financial holding company with five reportable segments: Traditional Banking, Warehouse, Mortgage Banking (Core Bank), and Tax Refund Solutions (TRS), Republic Credit Solutions (RCS) (RPG)[22][24] - The Company's Board of Directors voted in May 2023 to dissolve its insurance subsidiary, Republic Insurance Services, Inc. (Captive), with dissolution expected in the second half of 2023[22] Recently Adopted Accounting Standards Updates (ASUs) | ASU No. | Topic | Nature of Update | Date Adopted | Financial Statement Impact | | :--- | :--- | :--- | :--- | :--- | | 2022-02 | Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures | Eliminates TDR recognition/measurement guidance; enhances disclosures for modifications to borrowers experiencing financial difficulty | January 1, 2023 | Immaterial | | 2022-06 | Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 | Extends period for reference rate reform relief guidance | January 1, 2023 | Immaterial (Company ceased new/renewing LIBOR-indexed loans Jan 1, 2022) | 2. Acquisition of CBank Republic Bancorp acquired CBank for $51 million in cash to expand its Cincinnati presence, resulting in $24 million goodwill - The Company acquired CBank and its wholly owned bank subsidiary Commercial Industrial Finance (CIF) on March 15, 2023, for approximately $51 million in cash[58] - The primary reason for the acquisition was to expand the Company's footprint in the Cincinnati, Ohio metropolitan statistical area[58] CBank Acquisition Summary (March 15, 2023, in thousands) | Item | As Recorded by Republic | | :--- | :--- | | Total Assets Acquired | $253,317 | | Total Liabilities Assumed | $226,533 | | Net Assets Acquired | $26,784 | | Cash Consideration Paid | $(51,000) | | Goodwill | $24,216 | 3. Investment Securities The company's investment portfolio includes AFS and HTM debt securities, with AFS having $43.19 million in unrealized losses as of June 30, 2023 Available-for-Sale Debt Securities (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Amortized Cost | $645,968 | $663,003 | | Fair Value | $604,150 | $620,365 | | Gross Unrealized Gains | $1,373 | $1,437 | | Gross Unrealized Losses | $(43,191) | $(44,075) | Held-to-Maturity Debt Securities (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Amortized Cost | $101,976 | $87,396 | | Fair Value | $101,190 | $87,357 | | Gross Unrecognized Gains | $75 | $160 | | Gross Unrecognized Losses | $(861) | $(199) | Pledged Debt Securities (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Amortized Cost | $97,400 | $236,047 | | Fair Value | $92,450 | $217,562 | 4. Loans Held for Sale Consumer loans held for sale increased to $5.76 million at fair value and $15.79 million at lower of cost or fair value as of June 30, 2023 Consumer Loans Held for Sale, at Fair Value (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Balance, end of period | $5,757 | $4,706 | | Metric (Six Months Ended June 30) | 2023 | 2022 | | :--- | :--- | :--- | | Origination of consumer loans held for sale | $52,944 | $195,436 | | Proceeds from the sale of consumer loans held for sale | $(53,449) | $(201,083) | | Net gain on sale of consumer loans held for sale | $1,556 | $3,359 | Consumer Loans Held for Sale, at Lower of Cost or Fair Value (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Balance, end of period | $15,787 | $13,169 | | Metric (Six Months Ended June 30) | 2023 | 2022 | | :--- | :--- | :--- | | Origination of consumer loans held for sale | $416,682 | $332,560 | | Proceeds from the sale of consumer loans held for sale | $(418,051) | $(324,626) | | Net gain on sale of consumer loans held for sale | $3,987 | $2,906 | 5. Loans and Allowance for Credit Losses Total loans grew to $5.05 billion, ACLL increased to $72.20 million, and nonperforming loans slightly rose to $17.50 million as of June 30, 2023 Loan Portfolio Composition (in thousands) | Segment | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Traditional Banking | $4,394,668 | $3,855,142 | $539,526 | 14.00% | | Warehouse lines of credit | $539,560 | $403,560 | $136,000 | 33.70% | | Republic Processing Group | $118,914 | $257,100 | $(138,186) | (53.75)% | | Total Loans | $5,053,142 | $4,515,802 | $537,340 | 11.90% | | Allowance for Credit Losses | $(72,202) | $(70,413) | $(1,789) | 2.54% | | Total Loans, net | $4,980,940 | $4,445,389 | $535,551 | 12.05% | Allowance for Credit Losses on Loans (ACLL) Roll-forward (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Beginning Balance | $70,413 | $64,577 | | CBank Adjustment | $216 | — | | Provision | $32,905 | $12,898 | | Charge-offs | $(32,638) | $(17,250) | | Recoveries | $1,306 | $4,224 | | Ending Balance | $72,202 | $64,449 | Nonperforming Loans and Assets (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Loans on nonaccrual status | $16,957 | $15,562 | | Loans past due 90-days-or-more and still on accrual | $547 | $756 | | Total Nonperforming Loans | $17,504 | $16,318 | | Other real estate owned | $1,478 | $1,581 | | Total Nonperforming Assets | $18,982 | $17,899 | | Nonperforming loans to total loans | 0.35% | 0.36% | | Nonperforming assets to total assets | 0.30% | 0.31% | Delinquent Loans (30-days-or-more past due, in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Delinquent Loans | $15,918 | $15,260 | | Delinquency ratio (Total loans 30-days-or-more past due / Total loans) | 0.32% | 0.34% | Refund Advances (RAs) Performance (Six Months Ended June 30, in thousands) | Metric | 2023 Tax Season | 2022 Tax Season | | :--- | :--- | :--- | | RAs originated during the tax season | $834,552 | $311,207 | | RA net charge-offs recognized | $25,823 | $8,879 | | Provision expense recorded | $25,798 | $8,315 | | RA net losses recognized as % of originations | 3.09% | 2.85% | 6. Deposits Total deposits increased to $4.73 billion, driven by the CBank acquisition and growth in interest-bearing deposits, despite a decline in noninterest-bearing deposits Deposit Composition (in thousands) | Segment/Type | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Core Bank Total Deposits | $4,269,758 | $4,089,721 | $180,037 | 4.40% | | Core Bank Noninterest-bearing | $1,405,543 | $1,464,493 | $(58,950) | (4.03)% | | Core Bank Interest-bearing | $2,864,215 | $2,625,228 | $238,987 | 9.10% | | RPG Total Deposits | $459,523 | $448,124 | $11,399 | 2.54% | | Total Deposits | $4,729,281 | $4,537,845 | $191,436 | 4.22% | - The CBank acquisition contributed $191 million to Core Bank deposit growth[153] - Core Bank legacy deposits decreased by $11 million, with noninterest-bearing deposits declining by $110 million and interest-bearing deposits increasing by $99 million[153] - The increase in Core Bank interest-bearing deposits was primarily in CDARs and ICS product types, which grew by $184 million in the first six months of 2023 due to significantly increased offering rates (above 4%)[153][155] 7. Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings SSUARs and other short-term borrowings decreased by $125 million to $92.09 million due to customer relationships and unchanged pricing strategy | Metric | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Outstanding balance at end of period | $92,093 | $216,956 | $(124,863) | (57.55)% | | Weighted average interest rate at end of period | 0.43% | 0.41% | 0.02% | 4.88% | | Fair value of securities pledged | $92,450 | $254,296 | $(161,846) | (63.60)% | - The decrease in SSUARs is primarily due to large customer relationships and the Bank's unchanged pricing strategy for SSUARs, which has not been adjusted to match higher market rates[155] 8. Right-of-Use Assets and Operating Lease Liabilities The company's operating lease liabilities and right-of-use assets reflect 45 contracts, with total lease expense increasing to $4.00 million for the six months ended June 30, 2023 Total Operating Lease Expense (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Total operating lease expense | $4,001 | $3,737 | $264 | Operating Lease Metrics | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Weighted average remaining term in years | 7.96 | 8.44 | | Weighted average discount rate | 2.13% | 2.10% | Operating Lease Liabilities Maturity Schedule (June 30, 2023, in thousands) | Year | Total Undiscounted Cash Flows | | :--- | :--- | | 2023 | $3,245 | | 2024 | $6,173 | | 2025 | $5,412 | | 2026 | $5,131 | | 2027 | $4,840 | | Thereafter | $15,381 | | Total Undiscounted Cash Flows | $40,182 | | Discount applied to cash flows | $(4,461) | | Total discounted cash flows reported as operating lease liabilities | $35,721 | 9. Federal Home Loan Bank Advances FHLB advances significantly increased to $520 million to fund deposit outflows and loan growth, with available borrowing capacity decreasing to $543 million FHLB Advances (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Overnight advances | $450,000 | $75,000 | $375,000 | 500.00% | | Fixed interest rate advances | $70,000 | $20,000 | $50,000 | 250.00% | | Total FHLB advances | $520,000 | $95,000 | $425,000 | 447.37% | | Weighted Average Rate (Total) | 4.88% | N/A | N/A | N/A | | Weighted Average Maturity (Total) | 0.68 years | N/A | N/A | N/A | Available Borrowing Capacity (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Available borrowing capacity with the FHLB | $543,000 | $900,000 | $(357,000) | | Unsecured lines of credit | $125,000 | $125,000 | $0 | - The Company has utilized FHLB advances over the past year to fund its deposit outflow and overall loan growth[155] 10. Off Balance Sheet Risks, Commitments and Contingent Liabilities Off-balance sheet commitments totaled $2.06 billion, with the Allowance for Credit Losses on Off-Balance Sheet Credit Exposures increasing due to loan mix changes Total Commitments (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Unused warehouse lines of credit | $440,940 | $733,940 | $(293,000) | (39.92)% | | Unused home equity lines of credit | $430,954 | $410,057 | $20,897 | 5.10% | | Unused loan commitments - other | $1,175,149 | $951,021 | $224,128 | 23.57% | | Standby letters of credit | $10,232 | $9,735 | $497 | 5.10% | | FHLB letter of credit | $233 | $643 | $(410) | (63.76)% | | Total Commitments | $2,057,508 | $2,105,396 | $(47,988) | (2.28)% | ACLC Roll-forward (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Beginning Balance | $1,250 | $1,052 | | Provision | $280 | $48 | | Ending Balance | $1,530 | $1,100 | - The Company increased its ACLC during the three and six months ended June 30, 2023, primarily due to a change in the loan mix to loans with higher reserve rates[145] 11. Fair Value Financial instruments are measured at fair value using a three-level hierarchy, with AFS debt securities at $604.15 million and consumer loans held for sale at $5.76 million Fair Value Measurements at June 30, 2023 (in thousands) | Financial Asset/Liability | Level 1 | Level 2 | Level 3 | Total Fair Value | | :--- | :--- | :--- | :--- | :--- | | Available-for-sale debt securities | $174,323 | $424,093 | $5,734 | $604,150 | | Equity securities with readily determinable fair value | — | $122 | — | $122 | | Mortgage loans held for sale | — | $4,038 | — | $4,038 | | Consumer loans held for sale | — | — | $5,757 | $5,757 | | Rate lock loan commitments | — | $189 | — | $189 | | Interest rate swap agreements (assets) | — | $7,829 | — | $7,829 | | Mandatory forward contracts (liabilities) | — | $61 | — | $61 | | Interest rate swap agreements (liabilities) | — | $7,829 | — | $7,829 | Non-Recurring Fair Value Measurements at June 30, 2023 (in thousands) | Financial Asset | Level 1 | Level 2 | Level 3 | Total Fair Value | | :--- | :--- | :--- | :--- | :--- | | Collateral-dependent loans | — | — | $2,049 | $2,049 | | Other real estate owned | — | — | $1,478 | $1,478 | - The fair value of the Bank's single private label mortgage-backed security ($1.988 million) and Trust Preferred Security ($3.746 million) are measured using significant unobservable inputs (Level 3)[165][166][167] 12. Mortgage Banking Activities Mortgage Banking income decreased to $1.71 million due to higher interest rates impacting originations, while MSRs decreased to $7.99 million Mortgage Banking Income (Six Months Ended June 30, in thousands) | Component | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net gain realized on sale of mortgage loans held for sale | $605 | $5,407 | $(4,802) | | Net change in fair value recognized on loans held for sale | $39 | $(597) | $636 | | Net change in fair value recognized on rate lock loan commitments | $187 | $(1,184) | $1,371 | | Net change in fair value recognized on forward contracts | $128 | $293 | $(165) | | Net servicing income recognized | $748 | $501 | $247 | | Total Mortgage Banking income | $1,707 | $4,420 | $(2,713) | Capitalized Mortgage Servicing Rights (MSRs) Activity (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Balance, beginning of period | $8,769 | $9,196 | | Additions | $200 | $1,459 | | Amortized to expense | $(974) | $(1,248) | | Balance, end of period | $7,995 | $9,407 | - Mortgage Banking derivatives, including mandatory forward sales contracts and interest rate lock loan commitments, are used to manage interest rate risk on loan commitments and mortgage loans held for sale[186][188] - These instruments typically expire within 90 days[186][188] 13. Interest Rate Swaps The Bank uses non-hedge interest rate swaps with a total notional amount of $286.12 million to facilitate client transactions and manage its own risk Interest Rate Swaps Summary (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Notional Amount | $286,116 | $263,336 | | Total Fair Value | $0 | $0 | | Fair value of cash or investment securities pledged as collateral | $4,900 | $560 | - The Bank enters into interest rate swaps to facilitate client transactions and minimize its own interest rate risk through offsetting positions, with changes in fair value reported in current year earnings as they are not designated as hedging instruments[191] 14. Earnings Per Share Basic and diluted EPS for Class A Common Stock decreased to $2.50 for the six months ended June 30, 2023, calculated using the two-class method Earnings Per Share (Six Months Ended June 30) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Basic EPS Class A Common Stock | $2.50 | $2.65 | $(0.15) | | Basic EPS Class B Common Stock | $2.27 | $2.41 | $(0.14) | | Diluted EPS Class A Common Stock | $2.50 | $2.64 | $(0.14) | | Diluted EPS Class B Common Stock | $2.27 | $2.40 | $(0.13) | - The difference in earnings per share between Class A and Class B Common Stock results from a 10% per share cash dividend premium paid on Class A Common Stock[195] 15. Other Comprehensive Income Total OCI, net of tax, was a gain of $611 thousand for the six months ended June 30, 2023, a significant improvement from the prior year's loss Other Comprehensive Income (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Unrealized gain (loss) on AFS debt securities | $787 | $(31,382) | $32,169 | | Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings | $33 | $9 | $24 | | Net gains (losses) | $820 | $(31,373) | $32,193 | | Income tax benefit (expense) related to OCI | $(209) | $7,845 | $(8,054) | | Total other comprehensive income (loss), net of tax | $611 | $(23,528) | $24,139 | Accumulated Other Comprehensive Income (Loss) Balances (net of tax, in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total unrealized gain (loss) | $(31,368) | $(31,979) | $611 | 16. Revenue from Contracts with Customers Total net revenue increased to $199.50 million, with Core Banking contributing 62%, but non-recurring legal settlement income impacted prior year comparison Total Net Revenue and Concentration by Segment (Six Months Ended June 30, in thousands) | Segment | 2023 Net Revenue | 2023 % Concentration | 2022 Net Revenue | 2022 % Concentration | | :--- | :--- | :--- | :--- | :--- | | Core Banking | $123,397 | 62% | $103,565 | 59% | | Republic Processing Group | $76,106 | 38% | $72,994 | 41% | | Total Net Revenue | $199,503 | 100% | $176,559 | 100% | Key Noninterest Income Components (Six Months Ended June 30, in thousands) | Component | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Service charges on deposit accounts | $6,826 | $6,589 | $237 | | Net refund transfer fees | $15,286 | $16,001 | $(715) | | Mortgage banking income | $1,707 | $4,420 | $(2,713) | | Interchange fee income | $6,470 | $6,531 | $(61) | | Program fees | $6,980 | $7,739 | $(759) | | Death benefits in excess of cash surrender value of life insurance | $1,728 | — | $1,728 | | Contract termination fee | — | $5,000 | $(5,000) | | Legal settlement | — | $13,000 | $(13,000) | - Net refund transfer fees decreased by $715 thousand for the first six months of 2023, negatively impacted by a general decline in overall RT demand across the industry[204][208] 17. Segment Information The company operates five reportable segments, with Traditional Banking and RCS showing increased net income for the six months ended June 30, 2023 Net Income by Segment (Six Months Ended June 30, in thousands) | Segment | 2023 Net Income | 2022 Net Income | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Traditional Banking | $22,901 | $11,152 | $11,749 | 105.35% | | Warehouse Lending | $1,893 | $5,478 | $(3,585) | (65.44)% | | Mortgage Banking | $(2,342) | $(519) | $(1,823) | 351.25% | | Tax Refund Solutions | $17,428 | $27,522 | $(10,094) | (36.68)% | | Republic Credit Solutions | $9,264 | $9,064 | $200 | 2.21% | | Total Company | $49,144 | $52,697 | $(3,553) | (6.74)% | Primary Drivers of Net Revenue by Reportable Segment | Reportable Segment | Primary Drivers of Net Revenue | | :--- | :--- | | Traditional Banking | Loans, investments, and deposits | | Warehouse Lending | Mortgage warehouse lines of credit | | Mortgage Banking | Loan sales and servicing | | Tax Refund Solutions | Loans, refund transfers, and prepaid cards | | Republic Credit Solutions | Unsecured, consumer loans | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, critical accounting policies, and financial condition for the periods presented Overview and Forward-Looking Statements Republic Bancorp, a financial holding company, provides an overview of its operations and discusses various forward-looking risks - Republic Bancorp, Inc. is a financial holding company headquartered in Louisville, Kentucky, operating through its subsidiary bank and an insurance subsidiary (Captive), which is expected to dissolve in the second half of 2023[225][226] - Forward-looking statements involve known and unknown risks, including the potential impact of inflation, litigation, natural disasters, changes in political and economic conditions, bank failures, LIBOR discontinuation, interest rate fluctuations, and competitive pressures[228][229][230] Critical Accounting Policies and Estimates Management identifies the Allowance for Credit Losses on Loans and Provision for Expected Credit Loss Expense as critical accounting policies - Management considers the Allowance for Credit Losses on Loans (ACLL) and Provision for Expected Credit Loss Expense to be critical accounting policies, requiring significant reliance on estimates and judgment regarding historical loss rates, economic factors, and reasonable forecasts[236][238] - Adjustments to historical loss rates for current conditions include underwriting standards, portfolio mix, delinquency levels, and environmental changes like property values[239] - One-year forecast adjustments are based on unemployment and Commercial Real Estate (CRE) values, with reversion to long-term averages thereafter[239] Business Segment Composition The company is structured into five reportable segments: Traditional Banking, Warehouse Lending, Mortgage Banking, Tax Refund Solutions, and Republic Credit Solutions - The Company is organized into five reportable segments: Traditional Banking, Warehouse Lending, Mortgage Banking (collectively 'Core Bank'), and Tax Refund Solutions (TRS), Republic Credit Solutions (RCS) (collectively 'Republic Processing Group' or 'RPG')[241] - Traditional Banking offers retail mortgage, commercial, construction, consumer, and aircraft lending, along with private banking, treasury management, correspondent lending, and internet/mobile banking services, primarily within its market footprint[243][244][247][248][249][250][251][252][253][254] - Warehouse Lending provides short-term, revolving credit facilities to mortgage bankers nationwide, secured by single-family residential real estate loans, with individual loans typically on the line for 15-30 days[256][257] - Mortgage Banking originates and sells 15-, 20-, and 30-year fixed-term residential real estate loans into the secondary market, primarily to FHLMC and FNMA, typically retaining servicing rights and recording Mortgage Servicing Rights (MSRs)[258][259] - Tax Refund Solutions (TRS) facilitates federal and state tax refund products (Refund Transfers, Refund Advances, Early Season Refund Advances) and operates the Republic Payment Solutions (RPS) division, offering prepaid cards and payroll debit cards[261][262][264][272] - Republic Credit Solutions (RCS) offers unsecured, small-dollar consumer credit products, including line-of-credit products (LOC I, LOC II), installment loans, and healthcare receivables products, primarily to subprime or near-prime borrowers outside the Bank's market footprint[273][275][277][280] Results of Operations (Q2 2023 vs. Q2 2022) Net income decreased by $3.3 million, or 13.5%, driven by lower noninterest income and higher provision for credit losses, despite increased net interest income Overall Company Performance Total company net income decreased by $3.3 million, or 13.53%, for the three months ended June 30, 2023 Net Income and Diluted EPS (Three Months Ended June 30) | Metric | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Income (in thousands) | $21,052 | $24,347 | $(3,295) | (13.53)% | | Diluted EPS Class A Common Stock | $1.07 | $1.22 | $(0.15) | (12.30)% | - Traditional Banking net income increased by $5.3 million (78%), while Warehouse net income decreased by $1.3 million (53%)[281][282] - Mortgage Banking income decreased by $856 thousand (49%), and Tax Refund Solutions net income decreased by $7.1 million (59%)[284][285] - Republic Credit Solutions net income increased by $189 thousand (5%)[286] Net Interest Income Total company net interest income increased by $12.7 million, or 24.54%, with NIM expanding to 4.46% for Q2 2023 Net Interest Income and Margin (Three Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Company Net Interest Income | $64,529 | $51,814 | $12,715 | 24.54% | | Total Company Net Interest Margin (NIM) | 4.46% | 3.55% | 0.91% | 25.63% | | Traditional Banking Net Interest Income | $48,682 | $39,158 | $9,524 | 24.32% | | Traditional Banking NIM | 3.77% | 3.06% | 0.71% | 23.20% | | Warehouse Net Interest Income | $2,642 | $3,886 | $(1,244) | (32.01)% | | Warehouse NIM | 2.28% | 2.69% | (0.41)% | (15.24)% | | TRS Net Interest Income | $4,010 | $1,638 | $2,372 | 144.81% | | RCS Net Interest Income | $9,134 | $6,979 | $2,155 | 30.88% | - Traditional Banking's net interest income and NIM increased due to higher loan yields outpacing increased cost of interest-bearing liabilities, driven by loan growth and the CBank acquisition[293][296][297] - However, declining noninterest-bearing deposits and rising FHLB borrowings are expected to cause future NIM compression[293][296][297] - Warehouse net interest income and NIM decreased due to lower average outstanding balances (driven by reduced mortgage refinancing) and funding costs rising faster than yields, as interest rate floors on client lines of credit were surpassed[299][302][303] - TRS net interest income increased, primarily from higher FTP crediting rates on prepaid card balances[305][306][307] - RCS net interest income increased due to higher fee income from its LOC II product, with customer demand not assumed to be interest rate sensitive[308][309] Provision for Expected Credit Loss Expense Total company provision for expected credit loss expense increased by $2.4 million, or 65.69%, for the three months ended June 30, 2023 Provision for Expected Credit Loss Expense (Three Months Ended June 30, in thousands) | Segment | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Traditional Banking | $1,860 | $146 | $1,714 | | Warehouse | $202 | $(234) | $436 | | Tax Refund Solutions | $(219) | $360 | $(579) | | Republic Credit Solutions | $4,296 | $3,433 | $863 | | Total Company Provision | $6,139 | $3,705 | $2,434 | - Traditional Banking's Provision increased due to $3.9 million in general formula reserves for loan growth and $1.0 million in qualitative factor reserves, partially offset by a $2.0 million release of COVID-related reserves[325] - TRS recorded a net credit to Provision in Q2 2023, compared to a net charge in Q2 2022, primarily related to its Refund Advance (RA) product[323] - The incurred loss rate for 2023 tax season RAs was 3.09% of originations, up from 2.85% in 2022[328] - RCS's Provision increased due to a $638 thousand increase in net charge-offs and a $221 thousand increase in general formula reserves for its LOC product, driven by increased origination volume for LOC II[330] Annualized Net Loan Charge-offs (Recoveries) to Average Loans (Three Months Ended June 30) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Total Company | 2.37% | 1.00% | | Core Bank | 0.01% | —% | | Republic Processing Group | 18.73% | 10.46% | Noninterest Income Total company noninterest income decreased by $10.9 million, or 35.72%, primarily due to a non-recurring legal settlement in Q2 2022 Noninterest Income (Three Months Ended June 30, in thousands) | Segment | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Total Company Noninterest Income | $19,651 | $30,569 | $(10,918) | | Traditional Banking | $10,330 | $7,734 | $2,596 | | Mortgage Banking | $907 | $1,763 | $(856) | | Tax Refund Solutions | $5,325 | $17,865 | $(12,540) | | Republic Credit Solutions | $3,051 | $3,149 | $(98) | - Traditional Banking's noninterest income increased by $2.6 million, primarily due to a $1.7 million death benefit payment from a Bank Owned Life Insurance (BOLI) policy[340] - Mortgage Banking income decreased by $856 thousand (49%) due to substantially higher long-term market interest rates, leading to a significant slowdown in mortgage loan originations and sales[342] - Tax Refund Solutions' noninterest income decreased by $12.5 million, primarily due to a $13 million legal settlement received in the second quarter of 2022 that did not recur in 2023[344] - Republic Credit Solutions' noninterest income decreased by $98 thousand (3%), reflecting lower sales volume from installment loans (due to a new credit model under testing) partially offset by higher sales volume from LOC II products[346][347] Noninterest Expense Total company noninterest expense increased by $3.9 million, or 8.14%, driven by the CBank acquisition and higher legacy salaries and benefits Noninterest Expense (Three Months Ended June 30, in thousands) | Segment | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Total Company Noninterest Expense | $51,533 | $47,656 | $3,877 | | Traditional Banking | $42,153 | $38,317 | $3,836 | | Mortgage Banking | $2,322 | $2,832 | $(510) | | Republic Credit Solutions | $2,907 | $1,939 | $968 | - Traditional Banking noninterest expense increased by $3.8 million, driven by $2.0 million from the CBank acquisition, a $1.2 million increase in legacy salaries and benefits, higher interchange-related expenses, and increased FDIC insurance expense[350][351][428] - Mortgage Banking noninterest expense decreased by $510 thousand (18%), primarily due to a $281 thousand reduction in overhead salaries and a $146 thousand reduction in mortgage commissions, both resulting from the slowdown in mortgage origination volume[351] - Republic Credit Solutions noninterest expense increased by $968 thousand (50%), with approximately $745 thousand concentrated in the LOC II product due to increased marketing activity[352] Results of Operations (H1 2023 vs. H1 2022) Net income decreased by $3.6 million, or 6.7%, due to lower noninterest income from non-recurring payments and increased provision for credit losses Overall Company Performance Total company net income decreased by $3.6 million, or 6.74%, for the six months ended June 30, 2023 Net Income and Diluted EPS (Six Months Ended June 30) | Metric | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Income (in thousands) | $49,144 | $52,697 | $(3,553) | (6.74)% | | Diluted EPS Class A Common Stock | $2.50 | $2.64 | $(0.14) | (5.30)% | - Traditional Banking net income increased by $11.7 million (105%), while Warehouse net income decreased by $3.6 million (65%)[353][354] - Mortgage Banking income decreased by $2.7 million (61%), and Tax Refund Solutions net income decreased by $10.1 million (37%)[355][359] - Republic Credit Solutions net income increased by $200 thousand (2%)[360] Net Interest Income Total company net interest income increased by $42.2 million, or 36.69%, with NIM expanding to 5.48% for H1 2023 Net Interest Income and Margin (Six Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Company Net Interest Income | $157,171 | $114,981 | $42,190 | 36.69% | | Total Company Net Interest Margin (NIM) | 5.48% | 3.94% | 1.54% | 39.09% | | Traditional Banking Net Interest Income | $98,789 | $75,306 | $23,483 | 31.18% | | Traditional Banking NIM | 3.92% | 2.98% | 0.94% | 31.54% | | Warehouse Net Interest Income | $4,729 | $8,401 | $(3,672) | (43.71)% | | Warehouse NIM | 2.39% | 2.89% | (0.50)% | (17.30)% | | TRS Net Interest Income | $35,775 | $17,042 | $18,733 | 109.92% | | RCS Net Interest Income | $17,756 | $13,875 | $3,881 | 27.97% | - Traditional Banking's net interest income increased by $23.5 million (31%), and NIM expanded by 94 basis points, driven by loan growth (including CBank acquisition and correspondent lending) and higher investment yields[367][368][371][372] - However, declining cash and noninterest-bearing deposits, coupled with rising FHLB borrowings and deposit costs, are expected to lead to future NIM compression[367][368][371][372] - Warehouse net interest income decreased by $3.7 million (44%), and NIM compressed by 50 basis points, primarily due to lower average outstanding balances (driven by reduced mortgage refinancing demand) and funding costs rising faster than yields[373][374] - TRS net interest income increased by $18.7 million, driven by higher FTP crediting rates on prepaid card products and a $17.0 million increase in loan-related interest and fees from a $426 million increase in Refund Advance (RA) origination volume[377][378][379] - RCS net interest income increased by $3.9 million (28%), primarily due to a $7.7 million increase in LOC II loan fees, driven by steadily increasing origination volume since early 2022[381][382] - While customer demand is not interest rate sensitive, rising FTP costs are expected to negatively impact segment financial results[383] Provision for Expected Credit Loss Expense Total company provision for expected credit loss expense increased by $20.0 million, or 154.47%, for the six months ended June 30, 2023 Provision for Expected Credit Loss Expense (Six Months Ended June 30, in thousands) | Segment | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Traditional Banking | $4,844 | $466 | $4,378 | | Warehouse | $337 | $(635) | $972 | | Tax Refund Solutions | $27,724 | $13,100 | $14,624 | | Republic Credit Solutions | $6,135 | $4,828 | $1,307 | | Total Company Provision | $32,905 | $12,898 | $20,007 | - Traditional Banking's Provision increased due to a $2.7 million charge for CBank non-PCD loans, $6.9 million for loan growth (including $1.0 million in qualitative factor reserves), partially offset by a $2.7 million release of COVID-related reserves[398] - TRS recorded a $21.6 million charge to Provision for Refund Advance (RA) loans, primarily due to a $426 million increase in RA origination volume from a new contract[400][401] - The incurred loss rate for 2023 tax season RAs was 2.92% of originations[401] - RCS's Provision increased due to a $1.2 million increase in net charge-offs and a $620 thousand Allowance build for its LOC II product, driven by increased origination volume[402] Annualized Net Loan Charge-offs (Recoveries) to Average Loans (Six Months Ended June 30) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Total Company | 1.32% | 0.60% | | Core Bank | 0.01% | 0.01% | | Republic Processing Group | 21.68% | 19.16% | Noninterest Income Total company noninterest income decreased by $19.2 million, or 31.26%, primarily due to non-recurring payments in H1 2022 Noninterest Income (Six Months Ended June 30, in thousands) | Segment | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Total Company Noninterest Income | $42,332 | $61,578 | $(19,246) | | Traditional Banking | $17,984 | $14,976 | $3,008 | | Mortgage Banking | $1,751 | $4,500 | $(2,749) | | Tax Refund Solutions | $16,965 | $35,801 | $(18,836) | | Republic Credit Solutions | $5,610 | $6,276 | $(666) | - Traditional Banking's noninterest income increased by $3.0 million (20%), primarily due to a $1.7 million death benefit payment from a BOLI policy[412] - Mortgage Banking income decreased by $2.7 million (61%) due to substantially higher long-term market interest rates, leading to a significant slowdown in mortgage loan originations and sales[414] - Tax Refund Solutions' noninterest income decreased by $18.8 million (53%), primarily due to $18 million in nonrecurring payments received in the first six months of 2022 (a $5.0 million contract termination fee and a $13.0 million legal settlement) that did not recur in 2023[415] - Republic Credit Solutions' noninterest income decreased by $666 thousand (11%), reflecting lower sales volume and gains from installment loans (due to a new credit model under testing) partially offset by higher sales volume and gains from LOC II products[416][417] Noninterest Expense Total company noninterest expense increased by $7.7 million, or 8.04%, driven by the CBank acquisition and higher legacy salaries and benefits Noninterest Expense (Six Months Ended June 30, in thousands) | Segment | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Total Company Noninterest Expense | $103,976 | $96,237 | $7,739 | | Traditional Banking | $83,005 | $76,544 | $6,461 | | Mortgage Banking | $4,876 | $5,522 | $(646) | | Republic Credit Solutions | $5,328 | $3,506 | $1,822 | - Traditional Banking noninterest expense increased by $6.5 million, driven by $4.4 million from the CBank acquisition (including $2.2 million in non-recurring merger expenses) and a $1.3 million increase in legacy salaries and benefits[420] - Mortgage Banking noninterest expense decreased by $646 thousand (12%), primarily due to a $304 thousand reduction in overhead salaries and a $149 thousand reduction in mortgage commissions, both resulting from the slowdown in mortgage origination volume[423] - Republic Credit Solutions noninterest expense increased by $1.8 million (52%), with approximately $867 thousand concentrated in the LOC II product due to increased marketing activity and $532 thousand in salaries and benefits due to annual merit increases[425] Comparison of Financial Condition (June 30, 2023 vs. Dec 31, 2022) Total assets and deposits increased, while cash decreased and FHLB advances rose significantly, with capital ratios exceeding regulatory requirements Cash and Cash Equivalents Cash and cash equivalents decreased by $71.7 million, or 22.87%, primarily due to lower average deposits and increased loan balances | Metric (in thousands) | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $241,967 | $313,689 | $(71,722) | (22.87)% | - The decline in average interest-earning cash balances was generally driven by a decrease in average deposits and an increase in average loan balances[426] - Cash held at the Federal Reserve Bank earned a weighted-average yield of 4.82% during the first six months of 2023, with a spot balance yield of 5.15% on June 30, 2023[427] Investment Securities The investment portfolio increased by $19 million, driven by purchases and the CBank merger, partially offset by calls and paydowns - Republic's investment portfolio increased by $19 million from December 31, 2022, to June 30, 2023[429] - This was driven by $40 million in portfolio purchases, $16 million from the CBank merger, and a $20 million increase in FHLB stock[429] - These increases were partially offset by portfolio declines of $40 million from calls and maturities of debt securities, $18 million in paydowns on mortgage-backed securities, and a $1 million increase in the portfolio market value[429] Purchases of Investment Securities (Six Months Ended June 30, 2023, in thousands) | Class | Purchase Cost | Yield to Maturity | Average Life | | :--- | :--- | :--- | :--- | | Corporate (CBank acquisition) | $2,017 | 6.05% | 2.60 yrs | | U.S. Government Agencies | $65,000 | 5.47% | 2.60 yrs | | Mortgage-backed securities - residential (CBank acquisition) | $14,442 | 4.56% | 9.10 yrs | | Total Purchases | $81,459 | 5.32% | 3.75 yrs | Loans Total loans increased by $537 million, or 12%, primarily from Traditional Banking and Warehouse segments, partially offset by RPG loan paydowns Gross Loan Portfolio Composition (in thousands) | Segment | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Traditional Banking | $4,394,668 | $3,855,142 | $539,526 | 14% | | Warehouse lines of credit | $539,560 | $403,560 | $136,000 | 34% | | Republic Processing Group | $118,914 | $257,100 | $(138,186) | (54)% | | Total Loans | $5,053,142 | $4,515,802 | $537,340 | 12% | - Traditional Banking loans increased by $540 million (14%), driven by $216 million from the CBank acquisition, $54 million in legacy Commercial Real Estate (CRE), $89 million in residential real estate, and $96 million from Correspondent Lending[432][433][434] - Warehouse outstanding balances increased by $136 million, but future balances are difficult to project due to mortgage market volatility[435] - Tax Refund Solutions (TRS) loans decreased by $98 million, primarily due to paydowns of Early Season Refund Advances (ERAs)[437] Allowance for Credit Losses Total ACLL increased by $1.8 million, or 2.54%, to $72.2 million, with Traditional Banking ACLL rising and TRS ACLL decreasing to $0 Allowance for Credit Losses (ACLL) (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Company ACLL | $72,202 | $70,413 | $1,789 | 2.54% | | ACLL to Total Loans | 1.43% | 1.56% | (0.13)% | (8.33)% | | Traditional Banking ACLL | $55,567 | $50,709 | $4,858 | 9.58% | | Warehouse ACLL | $1,346 | $1,009 | $337 | 33.40% | | Tax Refund Solutions ACLL | $0 | $3,797 | $(3,797) | (100.00)% | | Republic Credit Solutions ACLL | $15,289 | $14,807 | $482 | 3.26% | - Traditional Banking ACLL increased by approximately $324 thousand, driven by formula reserves tied to loan growth, partially offset by a $1.5 million release of COVID-related reserves[439] - Tax Refund Solutions ACLL decreased by $4 million to $0, primarily due to the charge-off of all unpaid Early Season Refund Advances (ERAs) originated in December 2022[441] - Republic Credit Solutions ACLL increased by $482 thousand, driven by an increase in the LOC II spot balance and a change in the loan mix[442] Asset Quality Asset quality metrics remained stable, with a decrease in total classified and special mention loans and a slight increase in nonperforming loans Classified and Special Mention Loans Total Classified and Special Mention loans decreased by $8.6 million, or 9.68%, primarily due to commercial loan repayments or upgrades Classified and Special Mention Loans (in thousands) | Category | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Classified Loans | $18,623 | $18,508 | $115 | 0.62% | | Total Special Mention Loans | $61,287 | $69,964 | $(8,677) | (12.40)% | | Total Classified and Special Mention Loans | $79,910 | $88,472 | $(8,562) | (9.68)% | - The Bank's Classified and Special Mention loans decreased by approximately $9 million during the first six months of 2023, primarily due to commercial-purpose loans being repaid or upgraded to a Pass rating[445] Nonperforming Loans Total nonperforming loans increased by $1.2 million, or 7.27%, to $17.5 million, while the ratio to total loans slightly decreased Nonperforming Loans and Assets Summary (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Nonperforming Loans | $17,504 | $16,318 | $1,186 | 7.27% | | Nonperforming loans to total loans | 0.35% | 0.36% | (0.01)% | (2.78)% | | ACLL to nonaccrual loans | 426% | 452% | (26)% | (5.75)% | - The increase in nonperforming loans was primarily driven by the refinancing of $8 million of these loans to another financial institution[450] Roll-forward of Nonperforming Loans (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Nonperforming loans at beginning of period | $16,318 | $20,552 | | Loans added to nonperforming status | $5,267 | $2,324 | | Loans removed from nonperforming status | $(3,193) | $(5,633) | | Nonperforming loans at end of period | $17,504 | $16,210 | Delinquent Loans Total delinquent loans increased by $658 thousand, or 4.31%, to $15.9 million, while the delinquency ratio to total loans slightly decreased Delinquent Loan Composition (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Delinquent Loans | $15,918 | $15,260 | $658 | 4.31% | | Total Company delinquent loans to total loans | 0.32% | 0.34% | (0.02)% | (5.88)% | | Core Bank delinquent loans to total Core Bank loans | 0.12% | 0.14% | (0.02)% | (14.29)% | Roll-forward of Delinquent Loans (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Delinquent loans at beginning of period | $15,260 | $13,465 | | Loans added to delinquency status | $4,588 | $2,348 | | Loans removed from delinquency status | $(4,684) | $(4,104) | | Delinquent loans at end of period | $15,918 | $11,451 | Collateral-Dependent Loans and Loan Modifications Collateral-dependent loan modifications totaled $1.3 million as of June 30, 2023, following the adoption of ASU 2022-02 - As of June 30, 2023, there were $1.3 million in collateral-dependent loan modifications, following the adoption of ASU 2022-02, which now recognizes all loan modifications as collateral-dependent[465] Collateral-Dependent Loans and Troubled Debt Restructurings (December 31, 2022, in thousands) | Category | Balance | | :--- | :--- | | Cashflow-dependent TDRs | $5,761 | | Collateral-dependent TDRs | $6,265 | | Total TDRs | $12,026 | | Collateral-dependent loans (not TDRs) | $14,186 | | Total recorded investment in TDRs and collateral-dependent loans | $26,212 | Deposits Total deposits increased by $191 million, or 4%, driven by the CBank acquisition and growth in interest-bearing deposits, despite noninterest-bearing declines Deposit Composition (in thousands) | Segment/Type | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Deposits | $4,729,281 | $4,537,845 | $191,436 | 4% | | Core Bank Deposits | $4,269,758 | $4,089,721 | $180,037 | 4% | | Core Bank Noninterest-bearing | $1,405,543 | $1,464,493 | $(58,950) | (4)% | | Core Bank Interest-bearing | $2,864,215 | $2,625,228 | $238,987 | 9% | | RPG Deposits | $459,523 | $448,124 | $11,399 | 3% | - Core Bank legacy noninterest-bearing deposits decreased by $110 million due to a general decline in liquidity and customers seeking higher market interest rates[468] - This was partially offset by a $99 million increase in Core Bank legacy interest-bearing deposits, primarily in CDARs and ICS products, driven by higher offering rates[469] - Management expects the higher offering rates for interest-bearing deposits to continue raising the Traditional Bank's cost of funds and cause further net interest margin contraction in the second half of 2023[471] Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings SSUARs decreased by $125 million, or 57.55%, due to large customer relationships and the Bank's unchanged pricing strategy | Metric (in thousands) | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | SSUARs outstanding balance | $92,093 | $216,956 | $(124,863) | (57.55)% | - SSUARs decreased by $125 million (58%) due to large customer relationships and the Bank's unchanged pricing strategy, which has not been adjusted to match higher market rates[473] - A further decline in outstanding balances is possible if the pricing strategy remains unchanged[474] Federal Home Loan Bank Advances Total FHLB advances significantly increased by $425 million, or 447.37%, to $520 million, used to fund deposit outflows and loan growth | Metric (in thousands) | June 30, 2023 | December 31, 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total FHLB advances | $520,000 | $95,000 | $425,000 | 447.37% | | Weighted-average maturity | 0.68 years | N/A | N/A | N/A | | Weighted-average cost | 4.88% | N/A | N/A | N/A | - The Company has utilized FHLB advances to fund its deposit outflow and overall loan growth[475] - During Q2 2023, $50 million of borrowings were extended to longer maturities due to the inverted yield curve and more attractive costs[475] Liquidity Total liquid assets and available borrowing capacity decreased by $350.9 million, with the loan to deposit ratio increasing to 107% Liquid Assets and Borrowing Capacity (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $241,967 | $313,689 | $(71,722) | | Unencumbered debt securities | $515,603 | $438,052 | $77,551 | | Total Liquid Assets | $757,570 | $751,741 | $5,829 | | Available borrowing capacity with the FHLB | $542,656 | $899,362 | $(356,706) | | Available borrowing capacity through unsecured credit lines | $125,000 | $125,000 | $0 | | Total Available Borrowing Capacity | $667,656 | $1,024,362 | $(356,706) | | Total Liquid Assets and Available Borrowing Capacity | $1,425,226 | $1,776,103 | $(350,877) | - The loan to deposit ratio (excluding wholesale brokered deposits) increased to 107% as of June 30, 2023, from 99% at December 31, 2022[481] - Total uninsured deposits were $1.7 billion, representing 36% of total deposits as of June 30, 2023[483] - The 20 largest non-sweep deposit relationships accounted for approximately $233 million (5%) of total deposits[483] - In Q2 2023, the Bank began marketing deposit products with higher offering rates to combat deposit outflow, which generally reversed the outflow in late May and June[482] - However, management is uncertain if these rates will prevent future outflows or if further increases will be needed, potentially impacting earnings[482] Capital Total stockholders' equity increased to $887 million, and the company and Bank continue to exceed regulatory 'well-capitalized' requirements - Total stockholders' equity increased from $857 million at December 31, 2022, to $887 million at June 30, 2023, primarily due to net income, reduced by cash dividends[486] - The Company and the Bank continue to exceed regulatory 'well-capitalized' requirements, including the Capital Conservation Buffer[488][490][491] - As of July 1, 2023, RB&T could declare approximately $116 million in dividends without prior regulatory approval[488][490][491] Capital Ratios (June 30, 2023) | Metric | Republic Bancorp, Inc. Ratio | Republic Bank & Trust Company Ratio | | :--- | :--- | :--- | | Total capital to risk-weighted assets | 16.39% | 15.69% | | Common equity tier 1 capital to risk-weighted assets | 15.20% | 14.50% | | Tier 1 (core) capital to risk-weighted assets | 15.20% | 14.50% | | Tier 1 leverage capital to average assets | 14.36% | 13.49% | [Asset/Liability Management and Market Risk](index=160&type=section&id