REPUBLIC BANCORP INC KY

Previous wording

As of March 31, 2024, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending, TRS, RPS, and RCS. Republic had previously reported mortgage banking as a separate reportable segment prior to the first quarter of 2024. Due to the quantitative and qualitative immateriality of this division, Management concluded its mortgage banking operations no longer constitutes a separate reportable segment for SEC reporting purposes.

Current wording

As of June 30, 2024, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending, TRS, RPS, and RCS. Republic had previously reported mortgage banking as a separate reportable segment prior to the first quarter of 2024. Due to the quantitative and qualitative immateriality of this division, Management concluded its mortgage banking operations no longer constitutes a separate reportable segment for SEC reporting purposes and now includes these results in the Traditional Banking segment. In addition, all prior period mortgage banking results of operations have been reclassified into the Traditional Banking segment, as well.

Previous wording

The Traditional Banking segment, which also includes the results of the former mortgage banking segment, provides traditional banking products primarily to customers in the Company’s market footprint. As of March 31, 2024, Republic had 47 banking centers with locations as follows:

Current wording

The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of June 30, 2024, Republic had 47 banking centers with locations as follows:

Previous wording

the Correspondent Lending channel will be amortized into interest income on the level-yield method over the expected life of the loan. Loans acquired through the Correspondent Lending channel are generally made to borrowers outside of the Bank’s historical market footprint.

Current wording

the Correspondent Lending channel are amortized into interest income on the level-yield method over the expected life of the loan. Loans acquired through the Correspondent Lending channel are generally made to borrowers outside of the Bank’s historical market footprint.

Previous wording

Through the TRS segment, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). The majority of all the business generated by the TRS business occurs during the first half of each year. During the second half of each year, TRS generates limited revenue and incurs costs preparing for the next year’s tax season. During December 2023, TRS originated $103 million of ERAs related to tax returns that were anticipated to be filed during the first quarter 2024 tax filing season. Of these ERAs, $11 million remained outstanding as of March 31, 2024.

Current wording

Through the TRS segment, the Bank facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). The majority of all the business generated by the TRS business occurs during the first half of each year. During the second half of each year, TRS generates limited revenue and incurs costs preparing for the next year’s tax season. During December 2023, TRS originated $103 million of ERAs related to tax returns that were anticipated to be filed during the first quarter 2024 tax filing season.

Previous wording

The RA credit product is a loan made in conjunction with the filing of a taxpayer’s federal tax return, which allows the taxpayer to borrow funds as an advance of a portion of their tax refund. The RA product had the following features during the first quarters of 2024 and 2023:

Current wording

The RA product is a loan made in conjunction with the filing of a taxpayer’s federal tax return, which allows the taxpayer to borrow funds as an advance of a portion of their tax refund. The RA product had the following features during the first quarters of 2024 and 2023:

Previous wording

Since its introduction in December of 2022, the ERA credit product has been structured similarly to the RA with the primary differences being the timing of when the ERAs are originated and the documentation available to underwrite the ERA credits. The ERA is originated prior to the taxpayer receiving their fiscal year taxable income documentation,e.g., W-2, and the filing of the taxpayer’s final federal tax return. As such, the Company generally uses paystub information to underwrite the ERA. The repayment of the ERA is incumbent upon the taxpayer client returning to the Bank’s Tax Provider for the filing of their final federal tax return in order for the tax refund to potentially be received by the Bank from the federal government to pay off the advance. The ERA product had the following features during the 2023 and 2024 tax filing seasons:

Current wording

Since its introduction in December of 2022, the ERA loan product has been structured similarly to the RA with the primary differences being the timing of when the ERAs are originated and the documentation available to underwrite the ERAs. The ERA is originated prior to the taxpayer receiving their fiscal year taxable income documentation,e.g., W-2, and the filing of the taxpayer’s final federal tax return. As such, the Company generally uses paystub information to underwrite the ERA. The repayment of the ERA is incumbent upon the taxpayer client returning to the Bank’s Tax Provider for the filing of their final federal tax return in order for the tax refund to potentially be received by the Bank from the federal government to pay off the advance. The ERA product had the following features during the 2023 and 2024 tax filing seasons:

Previous wording

The Company reports fees paid for the RAs, including ERAs, as interest income on loans. The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times. RAs, including ERAs that were originated related to the first quarter 2023 tax filing season were repaid, on average, within 32 days after the taxpayer’s tax return was submitted to the applicable taxing authority. RAs do not have a contractual due date, but as it did during 2023, the Company will consider an RA delinquent in 2024 if it remains unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority.

Current wording

The Company reports fees paid for the RAs, including ERAs, as interest income on loans. The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times. RAs, including ERAs that were originated related to the first quarter 2023 tax filing season were repaid, on average, within 32 days after the taxpayer’s tax return was submitted to the applicable taxing authority. RAs do not have a contractual due date, but as it did during 2023, the Company considered an RA delinquent during the first six months of 2024 if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority.

Previous wording

Provisions on RAs are estimated when advances are made. Unpaid RAs, including ERAs, related to the first quarter tax filing season of a given year are charged-off by June 30 th of that year, unless they are deemed to be uncollectible earlier than June 30 th, at which time they are charged off. RAs collected during the second half of that year, not subject to loan loss guarantee arrangements, are recorded as recoveries of previously charged-off loans.

Current wording

Provisions on RAs are estimated when advances are made. Unpaid RAs, including ERAs, related to the first quarter tax filing season of a given year are considered delinquent at June 30 th of that year and charged-off. In addition, as of June 30, 2024, RAs that were subject to Tax Provider loan loss guarantees were charged off and immediately recorded as recoveries of previously charged-off loans with corresponding receivables recorded in other assets for the Tax Provider guarantees. As of June 30, 2024, the Company was carrying $4 million of previously charged-off RAs as receivables from Tax Providers within other assets on its balance sheet. RAs collected during the second half of that year, not subject to loan loss guarantee arrangements, are recorded as recoveries of previously charged-off loans.

Previous wording

A large amount of the Company’s financial instruments track closely with, or are primarily indexed to, either the FFTR, Prime, or SOFR. These indices trended lower beginning in the first quarter of 2020 with the onset of the COVID pandemic, as the FOMC reduced the FFTR to approximately 25 basis points. During 2022 inflation rose to levels not seen in approximately 40 years. In response, the FOMC began executing a quantitative tightening program by reducing its balance sheet, selling certain types of bonds in the market, and repeatedly increasing the FFTR. The FOMC’s increases to the FFTR since January 1, 2022 included the following:

Current wording

A large amount of the Company’s financial instruments track closely with, or are primarily indexed to, either the FFTR, Prime, or SOFR. These indices trended lower beginning in the first quarter of 2020 with the onset of the COVID pandemic, as the FOMC reduced the FFTR to approximately 25 basis points. During 2022 inflation rose to levels not seen in approximately 40 years. In response, the FOMC began executing a quantitative tightening program by reducing its balance sheet, selling certain types of bonds in the market, and beginning in March 2022 repeatedly increasing the FFTR until it reached its peak of 5.50% in July 2023.

Previous wording

The FOMC’s actions and signals continued to place upward pressure on short-term market interest rates throughout the prior two years. While long-term interest rates initially rose in tandem with the increases to the FFTR through the middle part of 2022, they generally moved lower than short-term rates during the second half of 2022. Long-term rates generally maintained this lower level relative to short-term rates throughout 2023 as the market generally began anticipating a recession to take place in the near-term future. As a result of the higher short-term interest rates and the lower long-term interest rates, the yield curve has been inverted for several months, with short-term rates generally higher than long-term rates on the yield curve. Because banks generally price customer deposits based on the shorter-end of the yield curve and price many loans based on the longer-end of the yield curve, an inverted yield curve is generally negative for banks’ net interest income while a steep yield curve, in which long-term rates exceed short-term rates, is generally more favorable for banks.

Current wording

While long-term interest rates initially rose in tandem with the increases to the FFTR through the middle part of 2022, they generally moved lower than short-term rates during the second half of 2022. Long-term rates have generally maintained this lower level relative to short-term rates throughout 2023 and the first six months of 2024. As a result of the higher short-term interest rates and the lower long-term interest rates, the yield curve has been inverted for over two years. Because banks generally price customer deposits based on the shorter-end of the yield curve and price many loans based on the longer-end of the yield curve, an inverted yield curve is generally negative for banks’ net interest income while a steep yield curve, in which long-term rates exceed short-term rates, is generally more favorable for banks.

Previous wording

As of the date of this filing, the near-term shape of the yield curve is uncertain. The Federal Reserve continues to signal its willingness to implement appropriate monetary policy to maintain inflation at an acceptable level. Many market forecasters, however, believe that near-term interest rate cuts by the FOMC are more likely than near-term interest rate increases or no change to the FFTR at all. Any further monetary tightening by the FOMC in the future will likely cause short-term interest rates to increase. It is unknown what impact additional short-term rate increases by the FOMC could have on long-term market interest rates. Alternatively, future rate cuts are likely to decrease interest rates on the shorter end of the yield curve. Similarly, it is unknown how corresponding long-term rates will move, if at all, if the FOMC does cut short-term interest rates in the near-term. Additionally, if the FFTR experiences no changes in the near-term, it is uncertain if long term rates will remain generally below short-term interest rates or if the yield curve could begin to steepen.

Current wording

Any further monetary tightening by the FOMC in the future will likely cause short-term interest rates to increase. It is unknown what impact additional short-term rate increases by the FOMC could have on long-term market interest rates. Alternatively, future rate cuts are likely to decrease interest rates on the shorter end of the yield curve. Similarly, it is unknown how corresponding long-term rates will move, if at all, if the FOMC does cut short-term interest rates in the near-term. Additionally, if the FFTR experiences no changes in the near-term, it is uncertain if long term rates will remain generally below short-term interest rates or if the yield curve could begin to steepen.

Previous wording

Total Company net interest income was $96.9 million during the first quarter of 2024 and represented an increase of $4.3 million, or 5%, from the first quarter of 2023. Total Company net interest margin decreased to 5.87% during the first quarter of 2024 compared to 6.52% for the same period in 2023.

Current wording

Total Company net interest income was $68.5 million during the second quarter of 2024 and represented an increase of $4.0 million, or 6%, from the second quarter of 2023. The Total Company net interest margin decreased to 4.36% during the second quarter of 2024 compared to 4.46% for the same period in 2023.

Previous wording

The primary driver of this decrease in net interest income and net interest margin at the Traditional Bank was an on-going shift in funding mix away from noninterest-bearing deposit balances into higher-costing, interest-bearing deposits and FHLB borrowings. As a continuance in trend from 2023, the Traditional Bank’s average noninterest-bearing deposits decreased from $1.6 billion during the first quarter of 2023 to $1.2 billion for the first quarter of 2024. In addition to this change in funding mix, the Traditional Bank’s cost

Current wording

bearing deposit balances into higher-costing, interest-bearing deposits and FHLB borrowings. Overall, the Traditional Bank’s average noninterest-bearing deposits decreased from $1.4 billion during the second quarter of 2023 to $1.2 billion for the second quarter of 2024. In addition to this change in funding mix, the Traditional Bank’s cost of interest-bearing liabilities also increased 113 basis points from the second quarter of 2023 to the second quarter of 2024, outpacing the 62-basis-point increase to its yield on interest-earning assets over the same periods.

Previous wording

Further impacting the Traditional Bank’s change in net interest income and NIM between the first quarter of 2023 and the first quarter of 2024 were the following:

Current wording

Additional items of note impacting the Traditional Bank’s change in net interest income and NIM between the second quarter of 2023 and the second quarter of 2024 were as follows:

Previous wording

Management believes the Traditional Bank could likely continue to experience net interest margin compression during the remainder of 2024 as a result of the negative impact of 1) a continuing shift from noninterest-bearing deposits into interest-bearing deposits; 2) larger, higher-costing average balances of FHLB borrowings; and 3) a continuing rise in the cost of interest-bearing deposits in order to maintain client balances. Additional variables which may also impact the Traditional Bank’s net interest income and net interest margin in the future include, but are not limited to, the actual steepness and shape of the yield curve, future demand for the Traditional Bank’s financial products, and the Traditional Bank’s overall future liquidity needs.

Current wording

Management believes the Traditional Bank could experience net interest margin compression during the second half of 2024 because of the negative impact of 1) a continuing shift from noninterest-bearing deposits into interest-bearing deposits; 2) larger, higher-costing average balances of FHLB borrowings; and 3) a continuing rise in the cost of interest-bearing deposits in order to maintain client balances. Additional variables which may also impact the Traditional Bank’s net interest income and net interest margin in the future include, but are not limited to, the actual steepness and shape of the yield curve, future demand for the Traditional Bank’s financial products, and the Traditional Bank’s overall future liquidity needs.

Previous wording

RCS’s net interest income increased $3.4 million, or 39%, from the first quarter of 2023 to the first quarter of 2024. The increase was driven primarily by an increase in fee income from RCS’s LOC II product. Loan fees on this product, recorded as interest income on loans, increased $3.5 million from the first quarter of 2023 to the first quarter of 2024.

Current wording

RCS’s net interest income increased $2.8 million, or 31%, from the second quarter of 2023 to the second quarter of 2024. The increase was driven primarily by an increase in fee income from RCS’s LOC II product. Loan fees on this product, recorded as interest income on loans, increased $2.9 million from the second of 2023 to the second quarter of 2024 primarily the result of a $9 million increase in average outstanding loan balances for the product.

Previous wording

Total Company Provision was a net charge of $30.6 million for the first quarter of 2024 compared to a net charge of $26.8 million for the same period in 2023.

Current wording

Total Company Provision was a net charge of $5.1 million for the second quarter of 2024 compared to a net charge of $6.1 million for the same period in 2023.

Previous wording

As a percentage of total Traditional Bank loans, the Traditional Banking ACLL was 1.29% as of March 31, 2024 compared to 1.28% as of December 31, 2023 and 1.33% as of March 31, 2023. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses as of March 31, 2024.

Current wording

As a percentage of total Traditional Bank loans, the Traditional Banking ACLL was 1.30% as of June 30, 2024 compared to 1.28% as of December 31, 2023 and 1.26% as of June 30, 2023. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses as of June 30, 2024.

Previous wording

Warehouse recorded a net charge to the Provision of $309,000 for the first quarter of 2024 compared to a net charge of $135,000 for the same period in 2023. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances increased $124 million during the first quarter of 2024 compared to an increase of $54 million during the first quarter of 2023.

Current wording

Warehouse recorded a net charge to the Provision of $214,000 for the second quarter of 2024 compared to a net charge of $202,000 for the same period in 2023. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances increased $86 million during the second quarter of 2024 compared to an increase of $81 million during the second quarter of 2023.

Previous wording

RAs related to a first quarter tax filing season are only originated during December of the previous year and the first two months of the current year. As is the case each year as of March 31 st, the Allowance related to RAs is an estimate with that estimate finalized during the second quarter when all uncollected RAs are ultimately charged off as of June 30th. The final charge-off figures posted during the second quarter of a calendar year can be meaningfully different (higher or lower) than its March 31 st estimate based on actual paydowns received from the U.S. Treasury during the second quarter. RAs collected during the second half of that year, not subject to loan loss guarantee arrangements, are recorded as recoveries of previously charged-off loans. TRS’s loss rate as of June 30, 2023 was 3.22% of total originations and it finished 2023 with a RA loss rate of 2.84% of total RAs originated.

Current wording

RAs related to the first quarter 2024 tax filing season were only originated during December of 2023 and the first two months of 2024, while RAs related to the first quarter 2023 tax filing season were only originated during December of 2022 and the first two months of 2023. As is the case each year as of March 31 st, the Allowance related to RAs is an estimate with that estimate finalized during the second quarter when all uncollected RAs are ultimately charged off as of June 30th. The final charge-off figures posted during the

Previous wording

For factors affecting the comparison of the TRS results of operations for the first quarter of 2024 and the first quarter of 2023, see section titled*“OVERVIEW (Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023) - Tax Refund Solutions.”*

Current wording

For factors affecting the comparison of the TRS results of operations for the second quarter of 2024 and the second quarter of 2023, see section titled*“OVERVIEW (Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023) - Tax Refund Solutions.”*

Previous wording

As illustrated in Table 4 below, RCS recorded a net charge to the Provision of $4.2 million during the first quarter of 2024 compared to a net charge to the Provision of $1.8 million for the same period in 2023. The increase in the Provision was driven primarily by a $1.4 million increase in net charge-offs for RCS’s LOC II product. The $1.4 million, or 117%, increase in net charge-offs within the LOC II product was driven by a $9.9 million, or 88%, increase in average outstanding balances from the first quarter of 2023 to the first quarter of 2024.

Current wording

As illustrated in Table 3 below, RCS recorded a net charge to the Provision of $5.2 million during the second quarter of 2024 compared to a net charge to the Provision of $4.3 million for the same period in 2023. The increase in the Provision was driven primarily by a $1.2 million increase in net charge-offs for RCS’s LOC II product. The 91% increase in net charge-offs within the LOC II product for the second quarter of 2024 was generally in-line with the 66% increase in average outstanding balances for the same periods.

Previous wording

While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products, particularly within RCS’s unsecured LOC I and LOC II products. As a percentage of total RCS loans, the RCS ACLL was 14.09% as of March 31, 2024, 13.82% as of December 31, 2023, and 12.34% as of March 31, 2023. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of March 31, 2024.

Current wording

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 15.44% as of June 30, 2024, 13.82% as of December 31, 2023, and 12.88% as of June 30, 2023. The segment continued to experience a change in loan mix, growing in categories with higher loan loss reserve requirements thus driving its higher ACLL for the quarter. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of June 30, 2024.

Previous wording

The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the three months ended March 31, 2024 and 2023 were $1.7 million and $1.7 million. The total daily overdraft charges, net of refunds, included in interest income for the three months ended March 31, 2024 and 2023 were $301,000 and $294,000.

Current wording

The Traditional Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the three months ended June 30, 2024 and 2023 were both $1.8 million. The total daily overdraft charges, net of refunds, included in interest income for the three months ended June 30, 2024 and 2023 were $298,000 and $316,000.

Previous wording

TRS’s noninterest income was flat at $10.9 million for the first quarters of 2024 and 2023. RT fees constituted the substantial majority of all TRS noninterest income for each of these quarters. Total RT fees were flat at $10.8 million from quarter to quarter as a 5.6% increase in the net revenue earned for each RT product was offset by a 5.2% decrease in the number of funded RTs from quarter to quarter. The 5.6% improvement in per-unit net RT revenue was the result of pricing adjustments made by the Company since the last tax season while the decrease in funded RTs was the result of a decrease in the level of payments received from the US Treasury for tax payer refunds during the first quarter of 2024 compared to the level of payments received during the first quarter of 2023.

Current wording

TRS’s noninterest income decreased $720,000 from the second quarter 2023 to the second quarter of 2024. RT fees constituted the substantial majority of all TRS noninterest income for each of these quarters. Total RT fees decreased $668,000 from the second quarter of 2023 to the second quarter of 2024.

Previous wording

For factors affecting the comparison of the TRS results of operations for the first quarter of 2024 and the first quarter of 2023, see section titled*“OVERVIEW (Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023) - Tax Refund Solutions.”*

Current wording

While the number of RTs processed by TRS during the second quarter of 2024 increased approximately 6% over the second quarter of 2023, the net revenue earned per RT declined by approximately 15% for those same periods as the volume mix shifted toward Tax Providers with revenue sharing arrangements less favorable to Republic. For factors affecting the comparison of the TRS results of operations for the first quarter of 2024 and the first quarter of 2023, see section titled*“OVERVIEW (Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023) - Tax Refund Solutions.”*

Previous wording

RCS’s noninterest income increased $848,000, or 33%, during the first quarter of 2024 compared to the same period in 2023, with program fees representing the substantial majority of RCS’s noninterest income. The increase in program fees at RCS primarily reflected higher sales volume from RCS’s LOC II product, and to a lesser degree, higher sales volume for its installment loan product. Proceeds from the sale of RCS LOC II product totaled $136 million for the first quarter of 2024 compared to $77 million for the first quarter of 2023, while proceeds from the sale of RCS’s installment loan products totaled $197 million during the first quarter of 2024 compared to $210 million for the first quarter of 2023.

Current wording

RCS’s noninterest income increased $588,000, or 19%, during the second quarter of 2024 compared to the same period in 2023, with program fees representing the entirety of RCS’s noninterest income. The increase in program fees at RCS primarily reflected higher sales volume from RCS’s LOC products. Proceeds from the sale of RCS products totaled $393 million for the second quarter of 2024, compared to $261 million for the second quarter of 2023. Proceeds from the sale of RCS LOC products totaled $329 million for the second quarter of 2024 compared to $209 million for the second quarter of 2023.

Previous wording

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

Current wording

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

Previous wording

RCS noninterest expense increased $812,000 for the first quarter of 2024 compared to the same period in 2023. The most notable item driving this increase was a$770,000 increase in marketing development expenses and was driven primarily by a higher volume of originations for RCS’s LOC II product. Under the terms of the Company’s contract with its LOC II marketer-servicer, Republic reimburses the marketer-servicer a certain dollar amount for marketing costs based on each new line of credit originated during the period.

Current wording

Noninterest expense at the RCS segment increased $1.0 million, or 36%, during the second quarter of 2024 compared to the same period in 2023. The most notable items driving this increase were in the LOC II product, including a $585,000 increase in third-party servicing costs for the product and a$284,000 increase in marketing and development expenses related to the Company’s share of these expenses based on overall origination volume. Under the terms of the Company’s contract with its LOC II marketer-servicer, Republic reimburses the marketer-servicer a certain dollar amount for marketing costs based on each new line of credit originated during the period.

Previous wording

Total Company net income for the first quarter of 2024 was $30.6 million, a $2.5 million, or 9%, increase over the same period in 2023. Diluted EPS was $1.58 for first quarter of 2024 compared to $1.42 for the first quarter of 2023.

Current wording

Total Company net income for the first six months of 2024 was $55.8 million, a $6.7 million, or 14%, increase from the same period in 2023. Diluted EPS increased to $2.87 for the first six months of 2024 compared to $2.50 for the same period in 2023. The increase in net income primarily reflected the following:

Previous wording

The Traditional Banking’s net interest income decreased $1.9 million, or 4%, for the first quarter of 2024 compared to the same period in 2023. Traditional Banking’s net interest margin was 3.33% for the first quarter of 2024, a decrease of 74 basis points from the same period in 2023.

Current wording

The Traditional Bank’s net interest income decreased $737,000, or 1%, for the first six months of 2024 compared to the same period in 2023. Traditional Banking’s net interest margin was 3.43% for the first six months of 2024, a decrease of 49 basis points from the first six months of 2023.

Previous wording

Net interest income within the TRS segment was up $2.6 million from the first quarter of 2023 to the first quarter of 2024

Current wording

Net interest income within the TRS segment was up $3.4 million from the first six months of 2023 to the first six months of 2024. Loan-related interest and fees increased $4.2 million for the period and was generally driven by a 4.75% increase in tax season loan origination volume from period to period. In addition, loan fees includeda $560,000 payment received during the second quarter of 2024 representing a Tax Provider yield enhancement for the RA program to help offset the Company’s higher funding costs. This yield enhancement was new for the 2024 tax season. The increase in loan interest and fees was partially offset by an $870,000 increase to the segment’s net cost of funds.

Previous wording

Net interest income from the Company’s prepaid card division was flat at $3.5 million for the first quarters of 2024 and 2023. RPS earned a higher yield of 5.07% applied to the $375 million average of prepaid program balances for the first quarter of 2024 compared to a yield of 3.84% for the $377 million in average prepaid card balances for the first quarter of 2023. The increase in this higher yield, however, was substantially offset by a $969,000 charge to interest expense for a new revenue sharing arrangement for the program which began in January 2024, as previously disclosed within Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operationsin the Company’s 2023 Annual Report on Form 10-K.

Current wording

Net interest income from the Company’s prepaid card division decreased $960,000 for the first six months of 2024 compared to the same period in 2023. Overall, RPS earned a higher yield of 5.05% applied to the $368 million average of prepaid program balances for the second quarter of 2024 compared to a yield of 4.17% for the $371 million in average prepaid card balances for the second quarter of 2023. The increase in this higher yield, however, was substantially offset by a $2.5 million charge to interest expense for a new revenue sharing arrangement for the program which began in January 2024.

Previous wording

The Traditional Banking Provision during the first quarter of 2024 was a net charge of $358,000 compared to a net charge of $3.0 million for the first quarter of 2023. An analysis of the Provision for the first quarter of 2024 compared to the same period in 2023 follows:

Current wording

The Traditional Banking Provision during the first six months of 2024 was a net charge of $1.3 million compared to a net charge of $4.8 million for the first six months of 2023. An analysis of the Provision for the first six months of 2024 compared to the same period in 2023 follows:

Previous wording

TRS recorded a net charge to the Provision of $25.8 million during the first quarter of 2024 compared to a net charge of $21.8 million for the same period in 2023. Substantially all TRS Provision in both periods was related to its RA product.

Current wording

TRS recorded a net charge to the Provision of $24.6 million during the first six months of 2024 compared to a net charge of $21.6 million for the same period in 2023. Substantially all TRS Provision in both periods was related to its RA product.

Previous wording

RAs are only originated during December of the previous year and the first two months of the current year related to the first quarter tax season of a year. As is the case each year as of March 31 st, the Allowance related to RAs is an estimate with that estimate finalized during the second quarter when all uncollected RAs are ultimately charged off as of June 30th. The final charge-off figures posted during the second quarter of a calendar year can be meaningfully different (higher or lower) than its March 31 st estimate based on actual paydowns received during the second quarter. RAs collected during the second half of that year, not subject to loan loss guarantee arrangements, are recorded as recoveries of previously charged-off loans.

Current wording

RAs related to the first quarter 2024 tax filing season were only originated during December of 2023 and the first two months of 2024, while RAs related to the first quarter 2023 tax filing season were only originated during December of 2022 and the first two months of 2023. As is the case each year as of March 31 st, the Allowance related to RAs is an estimate with that estimate finalized during the second quarter when all uncollected RAs are ultimately charged off as of June 30th. The final charge-off figures posted during the second quarter of a calendar year can be different (higher or lower) than its March 31 st estimate based on actual paydowns received during the second quarter. RAs collected during the second half of a year are recorded as recoveries of previously charged-off loans, unless they are covered under a loss guaranty arrangement. Any RAs subject to a loss guaranty arrangement that are recovered during the second half of the year are distributed to the guarantor.

Previous wording

The Company’s net charge-offs to average total Company loans increased from 0.23% during the first quarter of 2023 to 0.30% during the first quarter of 2024, with net charge-offs increasing $1.4 million, or 52%, and average total Company loans increasing $789 million, or 17%. The increase in net charge-offs was primarily driven by a $1.3 million increase in net charge-offs within the Company’s RCS operations, which generally conducts significantly higher risk lending activities that the Company’s Core Banking operations. As previously noted above, the net charge-offs within the RCS division was primarily driven by an increase in the average outstanding balances for the RCS LOC II product. During the first quarters of 2024 and 2023, the Company’s Core Bank net charge-offs to average Core Bank loans remained near zero.

Current wording

The Company’s net charge-offs to average total Company loans increased from 1.32% during the first six months of 2023 to 1.40% during the first six months of 2024, with net charge-offs increasing $5.9 million, or 19%, and average total Company loans increasing $573 million, or 12% over the same periods. As discussed in more detail above, the increase in net charge-offs was primarily driven by a $3.1 million increase in period-over-period net charge-offs within the Company’s TRS operations, and a $2.6 million increase in period-over-period net charge-offs within the Company’s RCS operations.

Previous wording

Total Company noninterest expense decreased $1.5 million, or 3%, during the first quarter of 2024 compared to the same period in 2023.

Current wording

Total Company noninterest expense decreased $3.4 million, or 3%, during the first six months of 2024 compared to the same period in 2023.

Previous wording

Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90 days, and federal funds sold. Republic had $546 million in period-end cash and cash equivalents as of March 31, 2024 compared to $317 million as of December 31, 2023. Comparing average balances for the first quarters of 2024 and 2023, the Company had average interest-earning cash and cash equivalent balances of $454 million for the first quarter of 2024 compared to $241 million for the first quarter of 2023. The Company generally carried higher average interest-earning cash balances during the first quarter of 2024 as the result of a strategic decision to maintain additional on-balance sheet liquidity above required minimums in response to the uncertainty of the economic environment.

Current wording

Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90 days, and federal funds sold. Republic had $400 million in cash and cash equivalents as of June 30, 2024 compared to $317 million as of December 31, 2023. Comparing average balances for the first six months of 2024 and 2023, the Company had average interest-earning cash and cash equivalent balances of $424 million for the first six months of 2024 compared to $178 million for the first six months of 2023. The increase in average interest-earning cash balances was the continuance of a strategic decision over the past year for additional on-balance sheet liquidity above required minimums in response to the uncertainty of the economic environment.

Previous wording

For cash held at the FRB, the Bank earns a yield on amounts more than required reserves. This cash earned a weighted-average yield of 4.94% during the first quarter of 2024 with a spot balance yield of 5.40% on March 31, 2024. For cash held within the Bank’s banking center and ATM networks, the Bank does not earn interest.

Current wording

For cash held at the FRB, the Bank earns a yield on amounts more than required reserves. This cash earned a weighted-average yield of 4.96% during the first six months of 2024 with a spot balance yield of approximately 4.82% on June 30, 2023. For cash held within the Bank’s banking center and ATM networks, the Bank does not earn interest.