Building and Protecting Wealth in Communities

PROPOSAL FOUR : SHAREHOLDER PROPOSAL, SHORT TERM BANK PRODUCTS

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” THIS PROPOSAL FOR THE FOLLOWING REASONS:

   The Company believes that the adoption of the resolution proposed by the shareholder, The Community Reinvestment Association of North Carolina, would not be in the best interest of the Company, its shareholders, or its many customers.

    The shareholder proposal seeks to eliminate two consumer products offered by Republic Bank & Trust Company (the “Bank”). The first consumer product is the Bank’s deferred deposit product, a product whereby customers receive cash advances in exchange for a check for the advanced amount plus a fixed fee (commonly referred to as a “payday loan”). In providing this product, the Bank delays presentment of the check for payment until the advance due date. On or before the advance due date, the customer can redeem his or her check in cash for the amount of the advance plus the customary fee.  If the customer does not reclaim the check in cash by the advance due date, the check is deposited.

    The second consumer product targeted for elimination by the proposed shareholder resolution is the Company’s tax refund processing service for taxpayers receiving both federal and state tax refunds through tax preparers located nationwide.  Refund anticipation loans (“RALs”) are made to taxpayers filing income tax returns electronically.  The RALs are repaid by the taxpayer when the taxpayer’s refunds are electronically received by the Bank from governmental taxing authorities. Electronic refund checks (“ERCs”) and electronic refund deposits (“ERDs”) are also tax refund products offered to taxpayers.  After the Bank receives refunds electronically from governmental taxing authorities, a check or a direct payment to the taxpayer’s bank account is issued for the amount of the refund, less the agreed upon Bank fee.

   The Bank’s deferred deposit business and the Bank’s tax refund services business, are not only lawfully conducted businesses subject to regulatory oversight, but they also serve to meet the need for short-term credit that may not otherwise be available to customers that avail themselves of these products and services.  These consumer products fill a need in that we believe they are a simple, convenient, affordable solution for persons who may have a temporary cash-flow problem or who simply want the convenience of having access to their funds quickly.  We believe there is a demonstrated need for small, short-term consumer products in the marketplace, and this belief has been confirmed by the Kentucky legislature through their enactment of a deferred transaction law that specifically permits the deferred deposit product offerings provided by the Bank. There are no hidden fees and terms are fully disclosed to customers.  We also emphasize that deferred deposit transactions are a short-term solution to a temporary cash flow problem, and strongly encourage consumers to seek credit counseling if they consistently experience cash flow problems.

   Tax refund processing services are also products that the Bank is legally authorized to provide to consumers. There are limited opportunities for customers who seek short-term credit products and services in the traditional mainstream banking system.  These products are offered in order to serve customer needs within the framework of substantial consumer protections, statutory authorization and regulatory oversight.  

    The Company agrees that the products and services targeted for elimination by the Shareholder proposal, as well as all other Bank products, must be offered responsibly.  The Company complies with this standard in that its products are designed to meet the applicable requirements of both state and federal law and, in the case of deferred deposits are administered in accordance with the Federal Deposit Insurance Corporation (the ”FDIC”) Guidance. Similarly, the Bank’s tax refund processing services provides consumer products that are also subject to consumer protection laws and regulatory oversight.  The rates charged on these Company products are not only authorized under the law, but are reasonable given the costs required to maintain the availability of the products in the marketplace.  

    Our Company has been widely recognized, receiving honors for its record of investing in Community Reinvestment Act defined initiatives, which over the last five years totaled $1.35 billion. In 2002, we were awarded the prestigious Community Partnership Award for affordable housing and community investment achievement.  The award is presented annually to one of 750 Federal Home Loan Bank members in the Fifth district including Kentucky , Ohio and Tennessee .  Furthermore, we have a long corporate history of supporting, both financially and through organization wide involvement, many non-profit organizations whose missions involve assisting low-to-moderate income families.

    The Company does recognize that these product offerings have been questioned by some consumer groups that would endorse restricting the access of individual consumers to short-term credit. However, such a position denies the consumer a choice of products in a free marketplace, impairing the Company’s thousands of satisfied customers access to short term credit products.. 

    Accordingly, the Board recommends that you vote “AGAINST” this proposal, and your duly executed proxy will be so voted if the proposal is presented unless you specify otherwise.