UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2015

or

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

Commission File Number: 0-24649

REPUBLIC BANCORP, INC.

(Exact name of registrant as specified in its charter)

Kentucky	61-0862051
(State of other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
601 West Market Street, Louisville, Kentucky	40202
(Address of principal executive offices)	(Zip Code)

(502) 584-3600

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months(or for such shorter period that the registrant was required to submit and post such files).  x Yes  o No

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

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of July 31, 2015, was 18,603,369 and 2,245,492.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements.
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.
Item 4.	Controls and Procedures.
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6.	Exhibits.
	SIGNATURES

2

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements.

CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)

	June 30, 2015			December 31, 2014
ASSETS
Cash and cash equivalents	$	92,766		$	72,878
Securities available for sale	456,612			435,911
Securities held to maturity (fair value of $43,600 in 2015 and $45,807 in 2014)	43,070			45,437
Mortgage loans held for sale, at fair value	10,277			6,388
Other loans held for sale, at the lower of cost or fair value	1,542			—
Loans	3,323,977			3,040,495
Allowance for loan and lease losses	(25,248		)	(24,410		)
Loans, net	3,298,729			3,016,085
Federal Home Loan Bank stock, at cost	28,208			28,208
Premises and equipment, net	31,092			32,987
Premises, held for sale	2,468			1,317
Goodwill	10,168			10,168
Other real estate owned	2,920			11,243
Bank owned life insurance	52,117			51,415
Other assets and accrued interest receivable	36,250			34,976
TOTAL ASSETS	$	4,066,219		$	3,747,013
LIABILITIES
Deposits:
Non interest-bearing	$	598,572		$	502,569
Interest-bearing	1,681,038			1,555,613
Total deposits	2,279,610			2,058,182
Securities sold under agreements to repurchase and other short-term borrowings	229,825			356,108
Federal Home Loan Bank advances	916,500			707,500
Subordinated note	41,240			41,240
Other liabilities and accrued interest payable	26,072			25,252
Total liabilities	3,493,247			3,188,282
Commitments and contingent liabilities (Footnote 9)	—			—
STOCKHOLDERS’ EQUITY
Preferred stock, no par value	—			—
Class A Common Stock and Class B Common Stock, no par value	4,903			4,904
Additional paid in capital	135,246			134,889
Retained earnings	428,475			414,623
Accumulated other comprehensive income	4,348			4,315
Total stockholders’ equity	572,972			558,731
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,066,219		$	3,747,013

See accompanying footnotes to consolidated financial statements.

3

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

	Three Months Ended						Six Months Ended
	June,						June,
	2015			2014			2015			2014
INTEREST INCOME:
Loans, including fees	$	33,616		$	30,110		$	65,207		$	60,272
Taxable investment securities	1,779			1,908			3,552			3,767
Federal Home Loan Bank stock and other	327			387			724			863
Total interest income	35,722			32,405			69,483			64,902
INTEREST EXPENSE:
Deposits	1,021			937			2,165			1,915
Securities sold under agreements to repurchase and other short-term borrowings	17			22			55			44
Federal Home Loan Bank advances	2,997			3,267			5,925			6,831
Subordinated note	629			629			1,258			1,258
Total interest expense	4,664			4,855			9,403			10,048
NET INTEREST INCOME	31,058			27,550			60,080			54,854
Provision for loan and lease losses	904			693			1,089			(10		)
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES	30,154			26,857			58,991			54,864
NON INTEREST INCOME:
Service charges on deposit accounts	3,247			3,563			6,286			6,858
Net refund transfer fees	1,907			1,836			17,242			16,224
Mortgage banking income	1,224			812			2,577			1,298
Interchange fee income	2,044			1,681			4,238			3,725
Gain on call of security available for sale	88			—			88			—
Net loss on other real estate owned	(155		)	(69		)	(274		)	(551		)
Increase in cash surrender value of bank owned life insurance	353			379			702			570
Other	777			879			1,612			1,672
Total non interest income	9,485			9,081			32,471			29,796
NON INTEREST EXPENSES:
Salaries and employee benefits	14,323			13,965			29,600			28,448
Occupancy and equipment, net	5,142			5,508			10,343			11,330
Communication and transportation	771			856			1,817			1,882
Marketing and development	977			803			1,562			1,331
FDIC insurance expense	474			414			1,148			983
Bank franchise tax expense	847			831			3,248			3,170
Data processing	1,092			874			2,058			1,671
Interchange related expense	931			847			1,938			1,844
Supplies	219			60			580			500
Other real estate owned expense	120			308			339			698
Legal and professional fees	528			438			2,143			949
Other	1,741			1,380			3,463			3,677
Total non interest expenses	27,165			26,284			58,239			56,483
INCOME BEFORE INCOME TAX EXPENSE	12,474			9,654			33,223			28,177
INCOME TAX EXPENSE	4,154			3,332			11,115			9,871
NET INCOME	$	8,320		$	6,322		$	22,108		$	18,306
BASIC EARNINGS PER SHARE:
Class A Common Stock	$	0.40		$	0.31		$	1.07		$	0.88
Class B Common Stock	$	0.37		$	0.29		$	0.97		$	0.85
DILUTED EARNINGS PER SHARE:
Class A Common Stock	$	0.40		$	0.30		$	1.07		$	0.88
Class B Common Stock	$	0.36		$	0.29		$	0.97		$	0.85
DIVIDENDS DECLARED PER COMMON SHARE:
Class A Common Stock	$	0.198		$	0.187		$	0.385		$	0.363
Class B Common Stock	$	0.180		$	0.170		$	0.350		$	0.330

See accompanying footnotes to consolidated financial statements.

4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

	Three Months Ended						Six Months Ended
	June,						June,
	2015			2014			2015			2014
Net income	$	8,320		$	6,322		$	22,108		$	18,306
OTHER COMPREHENSIVE INCOME
Change in fair value of derivatives used for cash flow hedges	175			(364		)	(221		)	(704		)
Reclassification adjustment for derivative losses recognized in income	103			99			204			199
Change in unrealized gain (loss) on securities available for sale	(1,056		)	2,626			182			2,628
Reclassification adjustment for gain on security available for sale recognized in earnings	(88		)	—			(88		)	—
Change in unrealized gain on security available for sale for which a portion of an other-than-temporary impairment has been recognized in earnings	(4		)	315			(26		)	369
Net unrealized gains (losses)	(870		)	2,676			51			2,492
Tax effect	304			(937		)	(18		)	(873		)
Total other comprehensive income (loss), net of tax	(566		)	1,739			33			1,619
COMPREHENSIVE INCOME	$	7,754		$	8,061		$	22,141		$	19,925

See accompanying footnotes to consolidated financial statements.

5

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

SIX MONTHS ENDED JUNE 30, 2015

	Common Stock												Accumulated
	Class A		Class B				Additional						Other		Total
	Shares		Shares				Paid In			Retained			Comprehensive		Stockholders’
(in thousands)	Outstanding		Outstanding	Amount			Capital			Earnings			Income		Equity
Balance, January 1, 2015	18,603		2,245	$	4,904		$	134,889		$	414,623		$	4,315	$	558,731
Net income	—		—	—			—			22,108			—		22,108
Net change in accumulated other comprehensive income	—		—	—			—			—			33		33
Dividend declared Common Stock:
Class A Shares	—		—	—			—			(7,167		)	—		(7,167		)
Class B Shares	—		—	—			—			(786		)	—		(786		)
Stock options exercised, net of shares redeemed	8		—	2			182			(65		)	—		119
Repurchase of Class A Common Stock	(14	)	—	(3		)	(86		)	(238		)	—		(327		)
Net change in notes receivable on Class A Common Stock	—		—	—			(51		)	—			—		(51		)
Deferred director compensation expense - Class A Common Stock	5		—	—			109			—			—		109
Stock based compensation - restricted stock	—		—	—			147			—			—		147
Stock based compensation expense - options	—		—	—			56			—			—		56
Balance, June 30, 2015	18,602		2,245	$	4,903		$	135,246		$	428,475		$	4,348	$	572,972

See accompanying footnotes to consolidated financial statements.

6

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)

	Six Months Ended
	June,
	2015			2014
OPERATING ACTIVITIES:
Net income	$	22,108		$	18,306
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization on investment securities, net	380			330
Accretion on loans, net	(1,649		)	(4,494		)
Depreciation of premises and equipment	3,251			2,724
Amortization of mortgage servicing rights	716			662
Provision for loan and lease losses	1,089			(10		)
Net gain on sale of mortgage loans held for sale	(2,353		)	(1,166		)
Origination of mortgage loans held for sale	(96,008		)	(33,284		)
Proceeds from sale of mortgage loans held for sale	94,472			31,147
Origination of other loans held for sale	(24,410		)	—
Proceeds from sale of other loans held for sale	22,868			—
Gain on call of security available for sale	(88		)	—
Net gain realized on sale of other real estate owned	(430		)	(666		)
Writedowns of other real estate owned	704			1,217
Deferred director compensation expense - Company Stock	109			91
Stock based compensation expense	203			268
Increase in cash surrender value of bank owned life insurance	(702		)	(570		)
Net change in other assets and liabilities:
Accrued interest receivable	(131		)	189
Accrued interest payable	(55		)	(198		)
Other assets	(1,859		)	5,887
Other liabilities	581			(1,549		)
Net cash provided by operating activities	18,796			18,884
INVESTING ACTIVITIES:
Purchases of securities available for sale	(889,325		)	(109,549		)
Proceeds from maturities, calls and paydowns of securities available for sale	868,424			81,567
Proceeds from maturities and paydowns of securities held to maturity	2,342			2,269
Net change in outstanding warehouse lines of credit	(169,474		)	(94,555		)
Purchase of loans, including premiums paid	(63,163		)	(14,695		)
Net change in other loans	(48,458		)	(25,008		)
Proceeds from redemption of Federal Home Loan Bank stock	—			134
Proceeds from sales of other real estate owned	7,009			8,136
Net purchases of premises and equipment	(2,507		)	(2,297		)
Purchase of bank owned life insurance	—			(25,000		)
Net cash used in investing activities	(295,152		)	(178,998		)
FINANCING ACTIVITIES:
Net change in deposits	221,428			14,126
Net change in securities sold under agreements to repurchase and other short-term borrowings	(126,283		)	31,884
Payments of Federal Home Loan Bank advances	(208,000		)	(83,000		)
Proceeds from Federal Home Loan Bank advances	417,000			118,000
Repurchase of Common Stock	(327		)	(347		)
Net proceeds from Common Stock options exercised	119			117
Cash dividends paid	(7,693		)	(7,256		)
Net cash provided by financing activities	296,244			73,524
NET CHANGE IN CASH AND CASH EQUIVALENTS	19,888			(86,590		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	72,878			170,863
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	92,766		$	84,273
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
Cash paid during the period for:
Interest	$	9,458		$	10,246
Income taxes	6,130			7,304
SUPPLEMENTAL NONCASH DISCLOSURES:
Transfers from loans to real estate acquired in settlement of loans	$	1,922		$	4,492
Loans provided for sales of other real estate owned	2,962			1,294

See accompanying footnotes to consolidated financial statements.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — JUNE 30, 2015 and 2014 (UNAUDITED) AND DECEMBER 31, 2014

1.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The consolidated financial statements include the accounts of Republic Bancorp, Inc. (the “Parent Company”) and its wholly-owned subsidiaries, Republic Bank & Trust Company (“RB&T” or the “Bank”) and Republic Insurance Services, Inc. (the “Captive”). The Bank is a Kentucky-based, state chartered non-member financial institution. The Captive, which was formed during the third quarter of 2014, is a wholly-owned insurance subsidiary of the Company.  The Captive provides property and casualty insurance coverage to the Company and the Bank as well as five other third-party insurance captives for which insurance may not be available or economically feasible.  Republic Bancorp Capital Trust (“RBCT”) is a Delaware statutory business trust that is a wholly-owned unconsolidated finance subsidiary of Republic Bancorp, Inc. All companies are collectively referred to as “Republic” or the “Company.” All significant intercompany balances and transactions are eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. For further information, refer to the consolidated financial statements and footnotes thereto included in Republic’s Form 10-K for the year ended December 31, 2014.

As of June 30, 2015, the Company was divided into four distinct business operating segments: Traditional Banking, Warehouse Lending (“Warehouse”), Mortgage Banking and Republic Processing Group (“RPG”). Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” activities. The Warehouse segment was reported as a division of the Traditional Banking segment prior to the fourth quarter of 2014, but realized the quantitative and qualitative nature of a segment by the end of 2014. All prior periods have been reclassified to conform to the current presentation.

8

Traditional Banking, Warehouse Lending and Mortgage Banking (collectively “Core Banking”)

The Traditional Bank provides traditional banking products primarily to customers in the Company’s market footprint. As of June 30, 2015, in addition to Internet Banking and Correspondent Lending delivery channels, Republic had 40 full-service banking centers with locations as follows:

·Kentucky – 32

·Metropolitan Louisville – 19

·Central Kentucky – 8

·Elizabethtown – 1

·Frankfort – 1

·Georgetown – 1

·Lexington – 4

·Shelbyville – 1

·Western Kentucky – 2

·Owensboro – 2

·Northern Kentucky – 3

·Covington – 1

·Florence – 1

·Independence – 1

·Southern Indiana – 3

·Floyds Knobs – 1

·Jeffersonville – 1

·New Albany – 1

·Metropolitan Tampa, Florida – 2

·Metropolitan Cincinnati, Ohio – 1

·Metropolitan Nashville, Tennessee – 2

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

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

Other sources of Core Banking income include service charges on deposit accounts, debit and credit card interchange fee income, title insurance commissions, fees charged to clients for trust services, increases in the cash surrender value of Bank Owned Life Insurance (“BOLI”) and revenue generated from Mortgage Banking activities. Mortgage Banking activities represent both the origination and sale of loans in the secondary market and the servicing of loans for others, primarily the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”).

Core Banking operating expenses consist primarily of salaries and employee benefits, occupancy and equipment expenses, communication and transportation costs, data processing, interchange related expenses, marketing and development expenses, Federal Deposit Insurance Corporation (“FDIC”) insurance expense, franchise tax expense and various general and administrative costs. Core Banking results of operations are significantly impacted by general economic and competitive conditions, particularly changes in market interest rates, government laws and policies and actions of regulatory agencies.

The Core Bank began acquiring single family, first lien mortgage loans for investment through its Correspondent Lending channel in May 2014. Correspondent Lending generally involves the Bank acquiring, primarily from its Warehouse clients, closed loans that meet the Bank’s specifications. Substantially all loans purchased through the Correspondent Lending channel are purchased at a premium.

9

The Core Bank provides short-term, revolving credit facilities to mortgage bankers across the Nation through its Warehouse segment in the form of warehouse lines of credit.  These credit facilities are secured by single family, first lien residential real estate loans. Outstanding balances on these credit facilities may be subject to significant fluctuations consistent with the overall market demand for mortgage loans.

Republic Processing Group

All divisions of the RPG segment operate through the Bank. Nationally, RPG facilitates the receipt and payment of federal and state tax refunds under the Tax Refund Solutions (“TRS”) division, primarily through refund transfers (“RTs”). RTs are products whereby a tax refund is issued to the taxpayer after the Bank has received the refund from the federal or state government. There is no credit risk or borrowing cost associated with these products because they are only delivered to the taxpayer upon receipt of the tax refund directly from the governmental paying authority. Fees earned on RTs, net of rebates, are the primary source of revenue for the TRS division and the RPG segment, and are reported as non interest income under the line item “Net refund transfer fees.”

The TRS division historically originated and obtained a significant source of revenue from Refund Anticipation Loans (“RAL”s), but terminated this product effective April 30, 2012. RALs were short-term consumer loans offered to taxpayers that were secured by the client’s anticipated tax refund, which represented the sole source of repayment. While RALs were terminated in 2012, TRS may receive recoveries from previously charged-off RALs.

The Republic Payment Solutions (“RPS”) division is an issuing bank offering general purpose reloadable prepaid debit cards through third party program managers.

The Republic Credit Solutions (“RCS”) division offers short-term consumer credit products.

Accounting Standards Update (“ASU”) 2015-3 — Interest — Imputation of Interest (Topic 835-30): Simplifying the Presentation of Debt Issuance Costs

To simplify presentation of debt issuance costs, the amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. This ASU is not expected to have a material impact on the Company’s financial statements.

10

2.                   INVESTMENT SECURITIES

Securities Available for Sale

The gross amortized cost and fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
June 30, 2015 (in thousands)	Cost		Gains		Losses			Value
U.S. Treasury securities and U.S. Government agencies	$	198,071	$	905	$	(125	)	$	198,851
Private label mortgage backed security	4,037		1,194		—			5,231
Mortgage backed securities - residential	103,378		4,631		(129		)	107,880
Collateralized mortgage obligations	127,922		1,065		(727		)	128,260
Freddie Mac preferred stock	—		231		—			231
Mutual fund	1,000		15		—			1,015
Corporate bonds	15,010		134		—			15,144
Total securities available for sale	$	449,418	$	8,175	$	(981	)	$	456,612
	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2014 (in thousands)	Cost		Gains		Losses			Value
U.S. Treasury securities and U.S. Government agencies	$	146,625	$	312	$	(15	)	$	146,922
Private label mortgage backed security	4,030		1,220		—			5,250
Mortgage backed securities - residential	118,836		5,511		(91		)	124,256
Collateralized mortgage obligations	143,283		1,034		(1,146		)	143,171
Freddie Mac preferred stock	—		231		—			231
Mutual fund	1,000		18		—			1,018
Corporate bonds	15,011		52		—			15,063
Total securities available for sale	$	428,785	$	8,378	$	(1,252	)	$	435,911

Securities Held to Maturity

The carrying value, gross unrecognized gains and losses, and fair value of securities held to maturity were as follows:

			Gross		Gross
	Carrying		Unrecognized		Unrecognized			Fair
June 30, 2015 (in thousands)	Value		Gains		Losses			Value
U.S. Treasury securities and U.S. Government agencies	$	1,536	$	5	$	(2	)	$	1,539
Mortgage backed securities - residential	144		18		—			162
Collateralized mortgage obligations	36,390		554		—			36,944
Corporate bonds	5,000		—		(45		)	4,955
Total securities held to maturity	$	43,070	$	577	$	(47	)	$	43,600
			Gross		Gross
	Carrying		Unrecognized		Unrecognized			Fair
December 31, 2014 (in thousands)	Value		Gains		Losses			Value
U.S. Treasury securities and U.S. Government agencies	$	1,747	$	1	$	(7	)	$	1,741
Mortgage backed securities - residential	147		20		—			167
Collateralized mortgage obligations	38,543		423		(4		)	38,962
Corporate bonds	5,000		—		(63		)	4,937
Total securities held to maturity	$	45,437	$	444	$	(74	)	$	45,807

11

At June 30, 2015 and December 31, 2014, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

Sales of Securities Available for Sale

During the three and six months ended June 30, 2015, the Bank recognized a gain of $88,000 on the call of one available for sale security.

During the three and six months ended June 30, 2014, there were no sales or calls of securities available for sale.

Investment Securities by Contractual Maturity

The amortized cost and fair value of the investment securities portfolio by contractual maturity at June 30, 2015 follows. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are detailed separately.

	Securities				Securities
	Available for Sale				Held to Maturity
	Amortized		Fair		Carrying		Fair
June 30, 2015 (in thousands)	Cost		Value		Value		Value
Due in one year or less	$	10,020	$	10,041	$	1,016	$	1,021
Due from one year to five years	193,061		193,854		5,520		5,473
Due from five years to ten years	10,000		10,100		—		—
Due beyond ten years	—		—		—		—
Private label mortgage backed security	4,037		5,231		—		—
Mortgage backed securities - residential	103,378		107,880		144		162
Collateralized mortgage obligations	127,922		128,260		36,390		36,944
Freddie Mac preferred stock	—		231		—		—
Mutual fund	1,000		1,015		—		—
Total securities	$	449,418	$	456,612	$	43,070	$	43,600

Freddie Mac Preferred Stock

During 2008, the U.S. Treasury, the Federal Reserve Board, and the Federal Housing Finance Agency (“FHFA”) announced that the FHFA was placing Freddie Mac under conservatorship and giving management control to the FHFA. The Bank contemporaneously determined that its 40,000 shares of Freddie Mac preferred stock were fully impaired and recorded an other-than-temporarily impairment (“OTTI”) charge of $2.1 million in 2008.  The OTTI charge brought the carrying value of the stock to $0.  During the second quarter of 2014, based on active trading volume of Freddie Mac preferred stock, the Company determined it appropriate to record an unrealized gain to Other Comprehensive Income (“OCI”) related to its Freddie Mac preferred stock holdings.  Based on the stock’s market closing price as of June 30, 2015, the Company’s unrealized gain for its Freddie Mac preferred stock totaled $231,000.

Mortgage Backed Securities and Collateralized Mortgage Obligations

At June 30, 2015, with the exception of the $5.2 million private label mortgage backed security, all other mortgage backed securities and collateralized mortgage obligations (“CMOs”) held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily Freddie Mac and the Federal National Mortgage Association (“Fannie Mae” or “FNMA”), institutions that the government has affirmed its commitment to support. At June 30, 2015 and December 31, 2014, there were gross unrealized losses of $856,000 and $1.2 million related to available for sale mortgage backed securities and CMOs. Because the decline in fair value of these securities is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these mortgage backed securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, management does not consider these securities to be OTTI.

12

Market Loss Analysis

Securities with unrealized losses at June 30, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	Less than 12 months					12 months or more					Total
June 30, 2015 (in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities available for sale:
U.S. Treasury securities and U.S. Government agencies	$	19,880	$	(120	)	$	995	$	(5	)	$	20,875	$	(125	)
Mortgage backed securities - residential	6,602		(129		)	—		—			6,602		(129		)
Collateralized mortgage obligations	3,963		(142		)	28,736		(585		)	32,699		(727		)
Total securities available for sale	$	30,445	$	(391	)	$	29,731	$	(590	)	$	60,176	$	(981	)
	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities held to maturity:
U.S. Treasury securities and U.S. Government agencies	$	518	$	(2	)	$	—	$	—		$	518	$	(2	)
Corporate bonds	4,955		(45		)	—		—			4,955		(45		)
Total securities held to maturity	$	5,473	$	(47	)	$	—	$	—		$	5,473	$	(47	)
	Less than 12 months					12 months or more					Total
December 31, 2014 (in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities available for sale:
U.S. Treasury securities and U.S. Government agencies	$	2,089	$	(15	)	$	—	$	—		$	2,089	$	(15	)
Mortgage backed securities - residential	7,535		(91		)	—		—			7,535		(91		)
Collateralized mortgage obligations	46,058		(881		)	12,534		(265		)	58,592		(1,146		)
Total securities available for sale	$	55,682	$	(987	)	$	12,534	$	(265	)	$	68,216	$	(1,252	)
	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities held to maturity:
U.S. Treasury securities and U.S. Government agencies	$	517	$	(7	)	$	—	$	—		$	517	$	(7	)
Collateralized mortgage obligations	9,045		(4		)	—		—			9,045		(4		)
Corporate bonds	4,936		(63		)	—		—			4,936		(63		)
Total securities held to maturity	$	14,498	$	(74	)	$	—	$	—		$	14,498	$	(74	)

13

At June 30, 2015, the Bank’s security portfolio consisted of 159 securities, 19 of which were in an unrealized loss position. At December 31, 2014, the Bank’s security portfolio consisted of 157 securities, 17 of which were in an unrealized loss position.

Other-than-temporary impairment (“OTTI”)

Unrealized losses for all investment securities are reviewed to determine whether the losses are “other-than-temporary.” Investment securities are evaluated for OTTI on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in value below amortized cost is other-than-temporary. In conducting this assessment, the Bank evaluates a number of factors including, but not limited to:

·The length of time and the extent to which fair value has been less than the amortized cost basis;

·The Bank’s intent to hold until maturity or sell the debt security prior to maturity;

·An analysis of whether it is more likely than not that the Bank will be required to sell the debt security before its anticipated recovery;

·Adverse conditions specifically related to the security, an industry, or a geographic area;

·The historical and implied volatility of the fair value of the security;

·The payment structure of the security and the likelihood of the issuer being able to make payments;

·Failure of the issuer to make scheduled interest or principal payments;

·Any rating changes by a rating agency; and

·Recoveries or additional decline in fair value subsequent to the balance sheet date.

The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a general lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized for the anticipated credit losses.

The Bank owns one private label mortgage backed security with a total carrying value of $5.2 million at June 30, 2015. This security, with an average remaining life currently estimated at five years, is mostly backed by “Alternative A” first lien mortgage loans, but also has an insurance “wrap” or guarantee as an added layer of protection to the security holder. This asset is illiquid, and as such, the Bank determined it to be a Level 3 security in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures. Based on this determination, the Bank utilized an income valuation model (“present value model”) approach, in determining the fair value of the security. This approach is beneficial for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support for this investment.

See additional discussion regarding the Bank’s private label mortgage backed security under Footnote 6 “Fair Value” in this section of the filing.

Pledged Investment Securities

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

(in thousands)	June 30, 2015		December 31, 2014
Carrying amount	$	328,844	$	409,868
Fair value	329,417		410,307

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3.LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The composition of the loan portfolio at June 30, 2015 and December 31, 2014 follows:

(in thousands)	June 30, 2015			December 31, 2014
Residential real estate:
Owner occupied	$	1,100,133		$	1,118,341
Owner occupied - correspondent*	243,140			226,628
Non owner occupied	101,765			96,492
Commercial real estate	799,158			772,309
Commercial real estate - purchased whole loans*	35,277			34,898
Construction & land development	47,038			38,480
Commercial & industrial	202,456			157,339
Lease financing receivables	7,242			2,530
Warehouse lines of credit	488,905			319,431
Home equity	267,570			245,679
Consumer:
RPG loans	6,467			4,095
Credit cards	10,942			9,573
Overdrafts	1,404			1,180
Purchased whole loans*	3,607			4,626
Other consumer	8,873			8,894
Total loans**	3,323,977			3,040,495
Allowance for loan and lease losses	(25,248		)	(24,410		)
Total loans, net	$	3,298,729		$	3,016,085

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

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

The table below reconciles the contractually receivable and carrying amounts of loans at June 30, 2015 and December 31, 2014:

(in thousands)	June 30, 2015			December 31, 2014
Contractually receivable	$	3,329,849		$	3,050,599
Unearned income(1)	(635		)	(174		)
Unamortized premiums(2)	4,191			4,490
Unaccreted discounts(3)	(10,859		)	(15,675		)
Net unamortized deferred origination fees and costs	1,431			1,255
Carrying value of loans	$	3,323,977		$	3,040,495

(1) — Unearned income relates to lease financing receivables.

(2) - Premiums predominately relate to loans acquired through the Bank’s Correspondent Lending channel.

(3) - Discounts predominately relate to loans acquired in the Bank’s 2012 FDIC-assisted transactions.

15

Loan Purchases

In May 2014, the Bank began acquiring single family, first lien mortgage loans for investment within its loan portfolio through its Correspondent Lending channel. Correspondent Lending generally involves the Bank acquiring, primarily from Warehouse clients, closed loans that meet the Bank’s specifications. Substantially all loans purchased through the Correspondent Lending channel are purchased at a premium. Loans acquired through the Correspondent Lending channel generally reflect borrowers outside of the Bank’s historical market footprint, with 83% of such loans as of June 30, 2015 secured by collateral in the state of California.

In addition to secured mortgage loans acquired through its Correspondent Lending channel, the Bank also began acquiring unsecured consumer installment loans for investment from a third-party originator in April 2014. Such consumer loans are purchased at par and are selected by the Bank based on certain underwriting characteristics.

The table below reflects the purchased activity of single family, first lien mortgage loans and unsecured consumer loans, by class, during the three and six months ended June 30, 2015 and 2014.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2015		2014		2015		2014
Residential real estate:
Owner occupied - correspondent*	$	43,632	$	12,067	$	62,802	$	12,067
Consumer:
Purchased whole loans*	—		2,628		361		2,628
Total purchased loans	$	43,632	$	14,695	$	63,163	$	14,695

* - Represents origination amount, inclusive of purchase premiums, where applicable.

Purchased Credit Impaired (“PCI”) Loans

PCI loans acquired during the Bank’s 2012 FDIC-assisted transactions are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality.

The table below reconciles the contractually required and carrying amounts of PCI loans at June 30, 2015 and December 31, 2014:

(in thousands)	June 30, 2015			December 31, 2014
Contractually-required principal	$	20,080		$	26,571
Non-accretable amount	(2,076		)	(6,784		)
Accretable amount	(4,323		)	(2,297		)
Carrying value of PCI loans	$	13,681		$	17,490

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The following table presents a rollforward of the accretable amount on PCI loans for the three and six months ended June 30, 2015 and 2014:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2015			2014			2015			2014
Balance, beginning of period	$	(2,170	)	$	(2,765	)	$	(2,297	)	$	(3,457	)
Transfers between non-accretable and accretable	(3,378		)	(1,029		)	(3,354		)	(2,340		)
Net accretion into interest income on loans, including loan fees	1,225			1,307			1,328			3,310
Balance, end of period	$	(4,323	)	$	(2,487	)	$	(4,323	)	$	(2,487	)

17

Credit Quality Indicators

Based on the Bank’s internal analyses performed as of June 30, 2015 and December 31, 2014, the following tables reflect loans by risk category. Risk categories are defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014:

									Purchased		Purchased
									Credit		Credit
									Impaired		Impaired		Total
			Special				Doubtful /		Loans -		Loans -		Rated
June 30, 2015 (in thousands)	Pass		Mention *		Substandard *		Loss		Group 1		Substandard		Loans**
Residential real estate:
Owner occupied	$	—	$	24,473	$	15,456	$	—	$	927	$	—	$	40,856
Owner occupied - correspondent	—		—		—		—		—		—		—
Non owner occupied	—		1,544		1,983		—		1,203		—		4,730
Commercial real estate	770,583		7,455		10,842		—		10,278		—		799,158
Commercial real estate - purchased whole loans	35,277		—		—		—		—		—		35,277
Construction & land development	44,199		115		2,687		—		37		—		47,038
Commercial & industrial	198,956		2,063		201		—		1,236		—		202,456
Lease financing receivables	7,242		—		—		—		—		—		7,242
Warehouse lines of credit	488,905		—		—		—		—		—		488,905
Home equity	—		—		2,658		—