UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| |
☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2017March 31, 2023
or
|
Commission File Number: 0-24649
REPUBLIC BANCORP, INC.
(Exact name of registrant as specified in its charter)
| | |
Kentucky | | 61-0862051 |
(State | | (I.R.S. Employer Identification No.) |
601 West Market Street, Louisville, Kentucky | | 40202 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (502) 584-3600584-3600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Class A Common | RBCAA | The Nasdaq Stock Market |
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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒⌧ Yes ☐◻ No
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 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒⌧ Yes ☐◻ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | |
Large accelerated filer | | Accelerated filer | | Non-accelerated filer | | Smaller reporting company |
Emerging growth company | | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ ◻Yes ☒ No
The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of October 31, 2017,April 30, 2023 was 18,617,53717,588,374 and 2,242,955.2,159,495.
| | |
| | |
| ||
| | |
| ||
| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
| |
| | |
101 | ||
| | |
101 | ||
| | |
| ||
| | |
101 | ||
| | |
102 | ||
| | |
Unregistered Sales of Equity Securities and Use of Proceeds. | 103 | |
| | |
104 | ||
| | |
| 105 |
2
2
PART I — FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| ||
| 2017 |
| 2016 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 329,862 |
| $ | 289,309 |
|
Securities available for sale |
| 458,719 |
|
| 481,275 |
|
Securities held to maturity (fair value of $65,949 in 2017 and $53,249 in 2016) |
| 65,177 |
|
| 52,864 |
|
Mortgage loans held for sale, at fair value |
| 4,083 |
|
| 11,662 |
|
Consumer loans held for sale, at fair value |
| 3,368 |
|
| 2,198 |
|
Consumer loans held for sale, at the lower of cost or fair value |
| 5,684 |
|
| 1,310 |
|
Loans |
| 3,957,512 |
|
| 3,810,778 |
|
Allowance for loan and lease losses |
| (40,191) |
|
| (32,920) |
|
Loans, net |
| 3,917,321 |
|
| 3,777,858 |
|
Federal Home Loan Bank stock, at cost |
| 32,067 |
|
| 28,208 |
|
Premises and equipment, net |
| 41,649 |
|
| 40,462 |
|
Premises, held for sale |
| 3,196 |
|
| 2,407 |
|
Goodwill |
| 16,300 |
|
| 16,300 |
|
Other real estate owned |
| 167 |
|
| 1,391 |
|
Bank owned life insurance |
| 62,972 |
|
| 61,794 |
|
Other assets and accrued interest receivable |
| 52,609 |
|
| 49,271 |
|
|
|
|
|
|
|
|
TOTAL ASSETS | $ | 4,993,174 |
| $ | 4,816,309 |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
Noninterest-bearing | $ | 1,040,414 |
| $ | 971,952 |
|
Interest-bearing |
| 2,309,315 |
|
| 2,188,740 |
|
Total deposits |
| 3,349,729 |
|
| 3,160,692 |
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase and other short-term borrowings |
| 173,311 |
|
| 173,473 |
|
Federal Home Loan Bank advances |
| 757,500 |
|
| 802,500 |
|
Subordinated note |
| 41,240 |
|
| 41,240 |
|
Other liabilities and accrued interest payable |
| 38,107 |
|
| 33,998 |
|
|
|
|
|
|
|
|
Total liabilities |
| 4,359,887 |
|
| 4,211,903 |
|
|
|
|
|
|
|
|
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 |
| 4,904 |
|
| 4,906 |
|
Additional paid in capital |
| 139,314 |
|
| 138,192 |
|
Retained earnings |
| 487,574 |
|
| 460,621 |
|
Accumulated other comprehensive income |
| 1,495 |
|
| 687 |
|
|
|
|
|
|
|
|
Total stockholders’ equity |
| 633,287 |
|
| 604,406 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 4,993,174 |
| $ | 4,816,309 |
|
See accompanying footnotes to consolidated financial statements.
3
CONSOLIDATED STATEMENTSGLOSSARY OF INCOME (UNAUDITED)
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
| September 30, |
| September 30, |
| ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
INTEREST INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees | $ | 50,271 |
| $ | 41,597 |
| $ | 153,010 |
| $ | 120,772 |
|
Taxable investment securities |
| 2,364 |
|
| 1,942 |
|
| 6,910 |
|
| 5,817 |
|
Federal Home Loan Bank stock and other |
| 1,090 |
|
| 395 |
|
| 2,509 |
|
| 1,500 |
|
Total interest income |
| 53,725 |
|
| 43,934 |
|
| 162,429 |
|
| 128,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| 2,587 |
|
| 1,620 |
|
| 6,790 |
|
| 4,359 |
|
Securities sold under agreements to repurchase and other short-term borrowings |
| 161 |
|
| 11 |
|
| 332 |
|
| 51 |
|
Federal Home Loan Bank advances |
| 2,383 |
|
| 2,664 |
|
| 6,618 |
|
| 8,590 |
|
Subordinated note |
| 287 |
|
| 241 |
|
| 807 |
|
| 680 |
|
Total interest expense |
| 5,418 |
|
| 4,536 |
|
| 14,547 |
|
| 13,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
| 48,307 |
|
| 39,398 |
|
| 147,882 |
|
| 114,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
| 4,221 |
|
| 2,489 |
|
| 21,633 |
|
| 9,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES |
| 44,086 |
|
| 36,909 |
|
| 126,249 |
|
| 104,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
| 3,395 |
|
| 3,416 |
|
| 10,032 |
|
| 9,838 |
|
Net refund transfer fees |
| 177 |
|
| 132 |
|
| 18,329 |
|
| 19,119 |
|
Mortgage banking income |
| 1,102 |
|
| 3,081 |
|
| 3,707 |
|
| 5,902 |
|
Interchange fee income |
| 2,475 |
|
| 2,415 |
|
| 7,348 |
|
| 6,755 |
|
Program fees |
| 1,597 |
|
| 979 |
|
| 3,972 |
|
| 1,942 |
|
Increase in cash surrender value of bank owned life insurance |
| 394 |
|
| 406 |
|
| 1,178 |
|
| 1,114 |
|
Net gains (losses) on other real estate owned |
| 31 |
|
| (137) |
|
| 422 |
|
| 191 |
|
Other |
| 1,203 |
|
| 1,009 |
|
| 3,236 |
|
| 2,163 |
|
Total noninterest income |
| 10,374 |
|
| 11,301 |
|
| 48,224 |
|
| 47,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
| 20,505 |
|
| 18,068 |
|
| 61,731 |
|
| 52,965 |
|
Occupancy and equipment, net |
| 5,841 |
|
| 5,573 |
|
| 17,594 |
|
| 16,026 |
|
Communication and transportation |
| 1,239 |
|
| 1,029 |
|
| 3,450 |
|
| 2,974 |
|
Marketing and development |
| 1,677 |
|
| 1,076 |
|
| 4,090 |
|
| 2,773 |
|
FDIC insurance expense |
| 300 |
|
| 345 |
|
| 1,050 |
|
| 1,483 |
|
Bank franchise tax expense |
| 749 |
|
| 846 |
|
| 3,974 |
|
| 3,944 |
|
Data processing |
| 1,795 |
|
| 1,659 |
|
| 5,142 |
|
| 4,535 |
|
Interchange related expense |
| 928 |
|
| 1,118 |
|
| 3,057 |
|
| 3,069 |
|
Supplies |
| 241 |
|
| 280 |
|
| 1,029 |
|
| 969 |
|
Other real estate owned expense |
| 55 |
|
| 159 |
|
| 284 |
|
| 355 |
|
Legal and professional fees |
| 446 |
|
| 539 |
|
| 1,794 |
|
| 1,965 |
|
FHLB advance prepayment penalty |
| — |
|
| 846 |
|
| — |
|
| 846 |
|
Impairment of premises held for sale |
| 965 |
|
| 58 |
|
| 1,082 |
|
| 133 |
|
Other |
| 3,285 |
|
| 1,938 |
|
| 8,422 |
|
| 5,904 |
|
Total noninterest expense |
| 38,026 |
|
| 33,534 |
|
| 112,699 |
|
| 97,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAX EXPENSE |
| 16,434 |
|
| 14,676 |
|
| 61,774 |
|
| 54,003 |
|
INCOME TAX EXPENSE |
| 5,728 |
|
| 4,848 |
|
| 20,980 |
|
| 18,100 |
|
NET INCOME | $ | 10,706 |
| $ | 9,828 |
| $ | 40,794 |
| $ | 35,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock | $ | 0.51 |
| $ | 0.47 |
| $ | 1.97 |
| $ | 1.73 |
|
Class B Common Stock |
| 0.47 |
|
| 0.43 |
|
| 1.79 |
|
| 1.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock | $ | 0.51 |
| $ | 0.47 |
| $ | 1.96 |
| $ | 1.73 |
|
Class B Common Stock |
| 0.47 |
|
| 0.43 |
|
| 1.78 |
|
| 1.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS DECLARED PER COMMON SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock | $ | 0.220 |
| $ | 0.209 |
| $ | 0.649 |
| $ | 0.616 |
|
Class B Common Stock |
| 0.200 |
|
| 0.190 |
|
| 0.590 |
|
| 0.560 |
|
See accompanying footnotes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
| September 30, |
| September 30, |
| ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 10,706 |
| $ | 9,828 |
| $ | 40,794 |
| $ | 35,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives used for cash flow hedges |
| 9 |
|
| 127 |
|
| (67) |
|
| (663) |
|
Reclassification amount for derivative losses realized in income |
| 51 |
|
| 83 |
|
| 175 |
|
| 256 |
|
Change in unrealized gain (loss) on securities available for sale |
| (237) |
|
| (788) |
|
| 892 |
|
| 1,920 |
|
Change in unrealized gain on security available for sale for which a portion of an other-than-temporary impairment has been recognized in earnings |
| 90 |
|
| 57 |
|
| 244 |
|
| (91) |
|
Total other comprehensive income before income tax |
| (87) |
|
| (521) |
|
| 1,244 |
|
| 1,422 |
|
Tax effect |
| 30 |
|
| 180 |
|
| (436) |
|
| (497) |
|
Total other comprehensive income, net of tax |
| (57) |
|
| (341) |
|
| 808 |
|
| 925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME | $ | 10,649 |
| $ | 9,487 |
| $ | 41,602 |
| $ | 36,828 |
|
See accompanying footnotes to consolidated financial statements.
5
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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, 2017 |
| 18,615 |
| 2,245 |
| $ | 4,906 |
| $ | 138,192 |
| $ | 460,621 |
| $ | 687 |
| $ | 604,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| — |
| — |
|
| — |
|
| — |
|
| 40,794 |
|
| — |
|
| 40,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated other comprehensive income |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 808 |
|
| 808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Shares |
| — |
| — |
|
| — |
|
| — |
|
| (12,082) |
|
| — |
|
| (12,082) |
Class B Shares |
| — |
| — |
|
| — |
|
| — |
|
| (1,324) |
|
| — |
|
| (1,324) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised, net of shares redeemed |
| 2 |
| — |
|
| — |
|
| 33 |
|
| — |
|
| — |
|
| 33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of Class A Common Stock |
| (13) |
| — |
|
| (2) |
|
| (121) |
|
| (435) |
|
| — |
|
| (558) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Class B Common Stock to Class A Common Stock |
| 2 |
| (2) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in notes receivable on Class A Common Stock |
| — |
| — |
|
| — |
|
| 135 |
|
| — |
|
| — |
|
| 135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred director compensation expense - Class A Common Stock |
| 5 |
| — |
|
| — |
|
| 147 |
|
| — |
|
| — |
|
| 147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense - performance stock units |
| — |
| — |
|
| — |
|
| 364 |
|
| — |
|
| — |
|
| 364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense - restricted stock |
| 7 |
| — |
|
| — |
|
| 373 |
|
| — |
|
| — |
|
| 373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense - stock options |
| — |
| — |
|
| — |
|
| 191 |
|
| — |
|
| — |
|
| 191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2017 |
| 18,618 |
| 2,243 |
| $ | 4,904 |
| $ | 139,314 |
| $ | 487,574 |
| $ | 1,495 |
| $ | 633,287 |
See accompanying footnotes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
| Nine Months Ended |
| ||||
| September 30, |
| ||||
| 2017 |
| 2016 |
| ||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net income | $ | 40,794 |
| $ | 35,903 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Amortization on investment securities, net |
| 231 |
|
| 425 |
|
Accretion on loans, deposits and core deposit intangible, net |
| (3,981) |
|
| (1,813) |
|
Depreciation of premises and equipment |
| 6,178 |
|
| 5,281 |
|
Amortization of mortgage servicing rights |
| 1,104 |
|
| 1,200 |
|
Provision for loan and lease losses |
| 21,633 |
|
| 9,489 |
|
Net gain on sale of mortgage loans held for sale |
| (3,221) |
|
| (5,647) |
|
Origination of mortgage loans held for sale |
| (119,265) |
|
| (154,607) |
|
Proceeds from sale of mortgage loans held for sale |
| 130,065 |
|
| 154,766 |
|
Net gain on sale of consumer loans held for sale |
| (3,869) |
|
| (1,768) |
|
Origination of consumer loans held for sale |
| (454,844) |
|
| (248,430) |
|
Proceeds from sale of consumer loans held for sale |
| 453,169 |
|
| 247,928 |
|
Net gain realized on sale of other real estate owned |
| (577) |
|
| (392) |
|
Writedowns of other real estate owned |
| 155 |
|
| 200 |
|
Impairment of premises held for sale |
| 1,082 |
|
| 133 |
|
Deferred director compensation expense - Class A Common Stock |
| 147 |
|
| 149 |
|
Stock based compensation expense |
| 928 |
|
| 754 |
|
Increase in cash surrender value of bank owned life insurance |
| (1,178) |
|
| (1,114) |
|
Net change in other assets and liabilities: |
|
|
|
|
|
|
Accrued interest receivable |
| (1,001) |
|
| (83) |
|
Accrued interest payable |
| (12) |
|
| (219) |
|
Other assets |
| (3,367) |
|
| (3,064) |
|
Other liabilities |
| 3,283 |
|
| (724) |
|
Net cash provided by operating activities |
| 67,454 |
|
| 38,367 |
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
Net change in cash for acquisition of Cornerstone Bancorp, Inc. |
| — |
|
| (9,088) |
|
Purchases of securities available for sale |
| (91,451) |
|
| (400,079) |
|
Purchases of securities held to maturity |
| (15,460) |
|
| — |
|
Proceeds from calls, maturities and paydowns of securities available for sale |
| 114,930 |
|
| 428,649 |
|
Proceeds from calls, maturities and paydowns of securities held to maturity |
| 3,129 |
|
| 4,504 |
|
Net change in outstanding warehouse lines of credit |
| 14,279 |
|
| (274,457) |
|
Purchase of non-business-acquisition loans, including premiums paid |
| (4,811) |
|
| (48,876) |
|
Net change in other loans |
| (166,845) |
|
| (62,932) |
|
Proceeds from sale of mortgage loans transferred to held for sale |
| — |
|
| 72,330 |
|
Proceeds from redemption of Federal Home Loan Bank stock |
| — |
|
| 224 |
|
Purchase of Federal Home Loan Bank stock |
| (3,859) |
|
| — |
|
Proceeds from sales of other real estate owned |
| 2,202 |
|
| 2,660 |
|
Net purchases of premises and equipment |
| (9,236) |
|
| (5,466) |
|
Net cash used in investing activities |
| (157,122) |
|
| (292,531) |
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
Net change in deposits |
| 189,037 |
|
| 443,745 |
|
Net change in securities sold under agreements to repurchase and other short-term borrowings |
| (162) |
|
| (242,975) |
|
Payments of Federal Home Loan Bank advances |
| (460,000) |
|
| (267,000) |
|
Proceeds from Federal Home Loan Bank advances |
| 415,000 |
|
| 430,000 |
|
Payoff of subordinated note, net of common security interest |
| — |
|
| (4,000) |
|
Repurchase of Class A Common Stock |
| (558) |
|
| (1,134) |
|
Net proceeds from Class A Common Stock options exercised |
| 33 |
|
| 80 |
|
Cash dividends paid |
| (13,129) |
|
| (12,467) |
|
Net cash provided by financing activities |
| 130,221 |
|
| 346,249 |
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
| 40,553 |
|
| 92,085 |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 289,309 |
|
| 210,082 |
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 329,862 |
| $ | 302,167 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION: |
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
Interest | $ | 14,559 |
| $ | 13,882 |
|
Income taxes |
| 20,570 |
|
| 18,956 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL NONCASH DISCLOSURES: |
|
|
|
|
|
|
Transfers from loans to real estate acquired in settlement of loans | $ | 556 |
| $ | 3,939 |
|
Transfers from loans held for investment to held for sale |
| — |
|
| 71,201 |
|
Loans provided for sales of other real estate owned |
| — |
|
| 256 |
|
See accompanying footnotes to consolidated financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – SEPTEMBER 30, 2017 and 2016 AND DECEMBER 31, 2016 (UNAUDITED)
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”). All significant intercompany balances and transactions are eliminated in consolidation. All companies are collectively referred to as (“Republic” or the “Company”).
TERMS
The Bank is a Kentucky-based, state chartered non-member financial institution that provides both traditional and non-traditional banking products through five reportable segments using a multitude of delivery channels. While the Bank operates primarilyterms identified in its market footprint, its non-brick-and-mortar delivery channels allowalphabetical order below are used throughout this Form 10-Q. You may find it helpful to reach clients across the United States.
The Captive is a Nevada-based, wholly-owned insurance subsidiary of the Company. The Captive provides property and casualty insurance coverage to the Company and the Bank as well as a group of third-party insurance captives for which insurance may not be available or economically feasible.
Republic Bancorp Capital Trust (“RBCT”) is a Delaware statutory business trust that is a wholly-owned unconsolidated finance subsidiary of Republic Bancorp, Inc.
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 nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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, 2016.
As of September 30, 2017, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending (“Warehouse”), Mortgage Banking, Tax Refund Solutions (“TRS”) and Republic Credit Solutions (“RCS”). Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute Republic Processing Group (“RPG”) operations. The Bank’s Correspondent Lending channel and the Company’s national branchless banking platform, MemoryBank®, are considered part of the Traditional Banking segment.
Prior to the third quarter of 2017, management reported RPGthis page as a segment consisting of its largest division, TRS, along with its relatively smaller divisions, Republic Payment Solutions (“RPS”) and RCS. During the third quarter of 2017, due to RCS’s growth in revenues relative to the total Company’s revenues, management identified TRS and RCS as separate reportable segments under the newly-classified RPG operations. Also, as part of the updated segmentation, management will report the RPS division, which remained below thresholds to be classified a separate reportable segment, within the newly-classified TRS segment. The reportable segments within RPG operations and divisions within those segments operate through the Bank. All prior periods have been reclassified to conform to the current presentation.you read this report.
8
Core Banking
Traditional Banking segment — The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of September 30, 2017, Republic had 45 full-service banking centers and one loan production office (“LPO”) with locations as follows:
Kentucky — 33
Metropolitan Louisville — 19
Central Kentucky — 9
Elizabethtown — 1
Frankfort — 1
Georgetown — 1
Lexington — 5
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 — 6
Metropolitan Cincinnati, Ohio — 1
Metropolitan Nashville, Tennessee — 3*
*Includes one LPO
Republic’s headquarters are located in Louisville, which is the largest city in Kentucky based on population.
Traditional Banking results of operations are primarily dependent upon net interest income, which represents the difference between the interest income and fees on interest-earning assets and the interest expense on interest-bearing liabilities. Principal interest-earning Traditional Banking assets represent investment securities and commercial and consumer loans primarily secured by real estate and/or personal property. Interest-bearing liabilities primarily consist of interest-bearing deposit accounts, securities sold under agreements to repurchase, as well as short-term and long-term borrowing sources. Federal Home Loan Bank (“FHLB”) advances have traditionally been a significant borrowing source for the Bank.
Other sources of Traditional Banking income include service charges on deposit accounts, debit and credit card interchange fee income, title insurance commissions, fees charged to clients for trust services, and increases in the cash surrender value of Bank Owned Life Insurance (“BOLI”).
Traditional 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 other general and administrative costs. Traditional Banking results of operations are significantly impacted by general economic and competitive conditions, particularly changes in market interest rates, government laws and policies and actions of regulatory agencies.
Warehouse Lending segment — Through its Warehouse Lending segment, the Core Bank provides short-term, revolving credit facilities to mortgage bankers across the United States through mortgage warehouse lines of credit. These credit facilities are primarily secured by single family, first lien residential real estate loans. The credit facility enables the mortgage banking clients to close single family, first lien residential real estate loans in their own name and temporarily fund their inventory of these closed loans until the loans are sold to investors approved by the Bank or purchased by the Bank through its Correspondent Lending channel. Individual loans are expected to remain on the warehouse line for an average of 15 to 30 days. Reverse mortgage loans typically remain on the line longer than conventional mortgage loans. Interest income and loan fees are accrued for each individual loan during
9
the time the loan remains on the warehouse line and collected when the loan is sold. The Core Bank receives the sale proceeds of each loan directly from the investor and applies the funds to pay off the warehouse advance and related accrued interest and fees. The remaining proceeds are credited to the mortgage-banking client.
Mortgage Banking segment — Mortgage Banking activities primarily include 15-, 20- and 30-year fixed-term single family, first lien residential real estate loans that are originated and sold into the secondary market, primarily to the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”) and the Federal National Mortgage Association (“FNMA” or “Fannie Mae”). The Bank typically retains servicing on loans sold into the secondary market. Administration of loans with servicing retained by the Bank includes collecting principal and interest payments, escrowing funds for property taxes and property insurance, and remitting payments to secondary market investors. A fee is received by the Bank for performing these standard servicing functions.
| | |
Term | Definition | |
| | |
ACH | | Automated Clearing House |
ACL | | Allowance for Credit Losses |
ACLC | | Allowance for Credit Losses on Off-Balance Sheet Credit Exposures |
ACLL | | Allowance for Credit Losses on Loans |
ACLS | | Allowance for Credit Losses on Securities |
AFS | | Available for Sale |
AOCI | | Accumulated Other Comprehensive Income |
ASC | | Accounting Standards Codification |
ASU | | Accounting Standards Update |
Basic EPS | | Basic earnings per Class A Common Share |
BOLI | | Bank Owned Life Insurance |
BPO | | Brokered Price Opinion |
C&D | | Construction and Development |
C&I | | Commercial and Industrial |
CARES Act | | Coronavirus Aid, Relief, and Economic Security Act |
CBank Agreement | | Agreement and Plan of Merger between Republic Bancorp, Inc., CBank, and RB&T |
CECL | | Current Expected Credit Losses |
CMO | | Collateralized Mortgage Obligation |
Core Bank | | The Traditional Banking, Warehouse Lending, and Mortgage Banking reportable segments of the Company |
COVID | | Coronavirus Disease of 2019 |
CRE | | Commercial Real Estate |
DDA | | Demand Deposit Account |
Diluted EPS | | Diluted earnings per Class A Common Share |
Economic Aid Act | | Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act |
ERA | | Early Season Refund Advance |
ESPP | | Employee Stock Purchase Plan |
EVP | | Executive Vice President |
FASB | | Financial Accounting Standards Board |
FDIC | | Federal Deposit Insurance Corporation |
FFTR | | Federal Funds Target Rate |
FHLB | | Federal Home Loan Bank |
FHLMC | | Federal Home Loan Mortgage Corporation |
FICO | | Fair Isaac Corporation |
FNMA | | Federal National Mortgage Association |
FOMC | | Federal Open Market Committee |
FRB | | Federal Reserve Bank |
FTE | | Full Time Equivalent |
FTP | | Funds Transfer Pricing |
GAAP | | Generally Accepted Accounting Principles in the United States |
Green Dot | | Green Dot Corporation |
HEAL | | Home Equity Amortizing Loan |
HELOC | | Home Equity Line of Credit |
HTM | | Held to Maturity |
IRS | | Internal Revenue Service |
ITM | | Interactive Teller Machine |
Lawsuit | | The lawsuit the Bank filed against Green Dot in the Delaware Court of Chancery on October 5, 2021 |
LGD | | Loss Given Default |
LIBOR | | London Interbank Offered Rate |
LOC | | Line of Credit |
LOC I | | RCS product introduced in 2014 for which the Bank participates out a 90% interest and holds a 10% interest |
LOC II | | RCS product introduced in 2021 for which the Bank participates out a 95% interest and holds a 5% interest |
LTV | | Loan to Value |
MBS | | Mortgage Backed Securities |
MSRs | | Mortgage Servicing Rights |
NA | | Not Applicable |
NIM | | Net Interest Margin |
NM | | Not Meaningful |
OBS | | Off-Balance Sheet |
OCI | | Other Comprehensive Income |
OREO | | Other Real Estate Owned |
OTTI | | Other than Temporary Impairment |
PCD | | Purchased with Credit Deterioration |
PD | | Probability of Default |
PPP | | SBA's Paycheck Protection Program |
Prime | | TheWall Street Journal Prime Interest Rate |
Provision | | Provision for Expected Credit Loss Expense |
PSU | | Performance Stock Unit |
RA | | Refund Advance |
RB&T / the Bank | | Republic Bank & Trust Company |
RCS | | Republic Credit Solutions segment |
Republic / the Company | | Republic Bancorp, Inc. |
RPG | | Republic Processing Group |
RPS | | Republic Payment Solutions |
RT | | Refund Transfer |
Sale Transaction | | Sale contemplated in the May 13, 2021 Asset Purchase Agreement between the Bank and Green Dot |
SBA | | U.S. Small Business Administration |
Settlement Agreement | | The agreement between the Bank and Green Dot that settled the Lawsuit filed by the Bank against Green Dot |
SEC | | Securities and Exchange Commission |
SSUAR | | Securities Sold Under Agreements to Repurchase |
TDR | | Troubled Debt Restructuring |
The Captive | | Republic Insurance Services, Inc. |
TRS | | Tax Refund Solutions segment |
TRS Purchase Agreement | | May 13, 2021 Asset Purchase Agreement for the sale of substantially all of the Bank's TRS assets and operations to Green Dot |
TRUP | | Trust Preferred Security Investment |
Warehouse | | Warehouse Lending segment |
3
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands)
| | | | | |
| March 31, |
| December 31, | ||
| 2023 | | 2022 | ||
ASSETS | | | | | |
| | | | | |
Cash and cash equivalents | $ | 249,289 | | $ | 313,689 |
Available-for-sale debt securities, at fair value (amortized cost of $650,379 in 2023 and $663,003 in 2022, allowance for credit losses of $3 in 2023 and $0 in 2022) |
| 612,948 | |
| 620,365 |
Held-to-maturity debt securities (fair value of $111,796 in 2023 and $87,357 in 2022, allowance for credit losses of $10 in 2023 and $10 in 2022) |
| 112,108 | |
| 87,386 |
Equity securities with readily determinable fair value | | 107 | | | 111 |
Mortgage loans held for sale, at fair value |
| 1,034 | |
| 1,302 |
Consumer loans held for sale, at fair value | | 4,688 | | | 4,706 |
Consumer loans held for sale, at the lower of cost or fair value | | 12,744 | | | 13,169 |
Loans (loans carried at fair value of $0 in 2023 and $2 in 2022) |
| 4,774,234 | |
| 4,515,802 |
Allowance for credit losses |
| (96,121) | |
| (70,413) |
Loans, net |
| 4,678,113 | |
| 4,445,389 |
Federal Home Loan Bank stock, at cost |
| 25,939 | |
| 9,146 |
Premises and equipment, net |
| 33,672 | |
| 31,978 |
Right-of-use assets | | 36,245 | | | 37,017 |
Goodwill |
| 41,618 | |
| 16,300 |
Other real estate owned |
| 1,529 | |
| 1,581 |
Bank owned life insurance |
| 102,322 | |
| 101,687 |
Low-income housing tax credit investments | | 73,901 | | | 75,324 |
Other assets and accrued interest receivable |
| 87,834 | |
| 76,393 |
| | | | | |
TOTAL ASSETS | $ | 6,074,091 | | $ | 5,835,543 |
| | | | | |
LIABILITIES | | | | | |
| | | | | |
Deposits: | | | | | |
Noninterest-bearing | $ | 2,013,957 | | $ | 1,908,768 |
Interest-bearing |
| 2,785,711 | |
| 2,629,077 |
Total deposits |
| 4,799,668 | |
| 4,537,845 |
| | | | | |
Securities sold under agreements to repurchase and other short-term borrowings |
| 134,412 | |
| 216,956 |
Operating lease liabilities | | 37,031 | | | 37,809 |
Federal Home Loan Bank advances |
| 108,000 | |
| 95,000 |
Low-income housing tax credit obligations | | 42,437 | | | 43,609 |
Other liabilities and accrued interest payable |
| 70,341 | |
| 47,711 |
| | | | | |
Total liabilities |
| 5,191,889 | |
| 4,978,930 |
| | | | | |
Commitments and contingent liabilities (Footnote 10) |
| — | |
| — |
| | | | | |
STOCKHOLDERS’ EQUITY | | | | | |
| | | | | |
Preferred stock, no par value |
| — | |
| — |
Class A Common Stock, no par value, 30,000,000 shares authorized, 17,597,874 shares (2023) and 17,584,928 shares (2022) issued and outstanding; Class B Common Stock, no par value, 5,000,000 shares authorized, 2,159,495 shares (2023) and 2,159,495 shares (2022) issued and outstanding |
| 4,648 | |
| 4,648 |
Additional paid in capital |
| 142,601 | |
| 141,694 |
Retained earnings |
| 763,027 | |
| 742,250 |
Accumulated other comprehensive (loss) income |
| (28,074) | |
| (31,979) |
| | | | | |
Total stockholders’ equity |
| 882,202 | |
| 856,613 |
| | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 6,074,091 | | $ | 5,835,543 |
See accompanying footnotes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
| | | | | |
| Three Months Ended | ||||
| March 31, | ||||
| 2023 | | 2022 | ||
INTEREST INCOME: | | | | | |
| | | | | |
Loans, including fees | $ | 92,609 | | $ | 61,570 |
Taxable investment securities |
| 4,603 | |
| 2,059 |
Federal Home Loan Bank stock and other |
| 3,144 | |
| 481 |
Total interest income |
| 100,356 | |
| 64,110 |
| | | | | |
INTEREST EXPENSE: | | | | | |
| | | | | |
Deposits |
| 4,878 | |
| 879 |
Securities sold under agreements to repurchase and other short-term borrowings |
| 248 | |
| 28 |
Federal Home Loan Bank advances |
| 2,588 | |
| 36 |
Total interest expense |
| 7,714 | |
| 943 |
| | | | | |
NET INTEREST INCOME |
| 92,642 | |
| 63,167 |
| | | | | |
Provision for expected credit loss expense for on-balance sheet exposures (loans and investment securities) |
| 26,766 | |
| 9,226 |
| | | | | |
NET INTEREST INCOME AFTER PROVISION |
| 65,876 | |
| 53,941 |
| | | | | |
NONINTEREST INCOME: | | | | | |
| | | | | |
Service charges on deposit accounts |
| 3,299 | |
| 3,226 |
Net refund transfer fees |
| 10,807 | |
| 12,051 |
Mortgage banking income |
| 800 | |
| 2,657 |
Interchange fee income |
| 3,051 | |
| 3,070 |
Program fees |
| 3,241 | |
| 3,854 |
Increase in cash surrender value of bank owned life insurance |
| 635 | |
| 612 |
Net losses on other real estate owned |
| (53) | |
| (53) |
Contract termination fee | | — | | | 5,000 |
Other |
| 901 | |
| 592 |
Total noninterest income |
| 22,681 | |
| 31,009 |
| | | | | |
NONINTEREST EXPENSE: | | | | | |
| | | | | |
Salaries and employee benefits |
| 29,961 | |
| 29,312 |
Technology, equipment, and communication |
| 7,228 | |
| 7,214 |
Occupancy |
| 3,406 | |
| 3,440 |
Marketing and development |
| 1,574 | |
| 1,348 |
FDIC insurance expense |
| 637 | |
| 419 |
Interchange related expense |
| 1,499 | |
| 1,117 |
Legal and professional fees | | 1,061 | | | 1,365 |
Merger expense | | 2,073 | | | — |
Other |
| 5,004 | |
| 4,366 |
Total noninterest expense |
| 52,443 | |
| 48,581 |
| | | | | |
INCOME BEFORE INCOME TAX EXPENSE |
| 36,114 | |
| 36,369 |
INCOME TAX EXPENSE |
| 8,022 | |
| 8,019 |
NET INCOME | $ | 28,092 | | $ | 28,350 |
| | | | | |
BASIC EARNINGS PER SHARE: | | | | | |
Class A Common Stock | $ | 1.42 | | $ | 1.42 |
Class B Common Stock | | 1.30 | | | 1.29 |
| | | | | |
DILUTED EARNINGS PER SHARE: | | | | | |
Class A Common Stock | $ | 1.42 | | $ | 1.42 |
Class B Common Stock | | 1.29 | | | 1.29 |
| | | | | |
See accompanying footnotes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
| | | | | |
| Three Months Ended | ||||
| March 31, | ||||
| 2023 |
| 2022 | ||
| | | | | |
Net income | $ | 28,092 | | $ | 28,350 |
| | | | | |
OTHER COMPREHENSIVE INCOME (LOSS) | | | | | |
| | | | | |
Unrealized gain (loss) on AFS debt securities |
| 5,205 | |
| (21,249) |
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings |
| 5 | |
| 24 |
Total other comprehensive loss before income tax |
| 5,210 | |
| (21,225) |
Tax effect |
| (1,305) | |
| 5,308 |
Total other comprehensive loss, net of tax |
| 3,905 | |
| (15,917) |
| | | | | |
COMPREHENSIVE INCOME | $ | 31,997 | | $ | 12,433 |
See accompanying footnotes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 | | |||||||||||||||||
| | Common Stock | | | | | | | | Accumulated | | | |
| ||||||
|
| Class A |
| Class B |
|
| |
| Additional |
|
| |
| Other |
| Total |
| |||
| | Shares | | Shares | | | | | Paid In | | Retained | | Comprehensive | | Stockholders’ |
| ||||
(in thousands, except per share data) | | Outstanding | | Outstanding | | Amount | | Capital | | Earnings | | Income (Loss) | | Equity |
| |||||
| | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2023 |
| 17,585 |
| 2,160 | | $ | 4,648 | | $ | 141,694 | | $ | 742,250 | | $ | (31,979) | | $ | 856,613 | |
| | | | | | | | | | | | | | | | | | | | |
Net income |
| — |
| — | |
| — | |
| — | |
| 28,092 | |
| — | |
| 28,092 | |
Net change in AOCI |
| — |
| — | |
| — | |
| — | |
| — | |
| 3,905 | |
| 3,905 | |
Dividends declared on Common Stock: | | | | | | | | | | | | | | | | | | | | |
Class A Shares ($0.374 per share) |
| — |
| — | |
| — | |
| — | |
| (6,581) | |
| — | |
| (6,581) | |
Class B Shares ($0.340 per share) |
| — |
| — | |
| — | |
| — | |
| (734) | |
| — | |
| (734) | |
Stock options exercised, net of shares withheld |
| — |
| — | |
| — | |
| (84) | |
| — | |
| — | |
| (84) | |
Conversion of Class B to Class A Common Shares | | — |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Repurchase of Class A Common Stock | | — |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Net change in notes receivable on Class A Common Stock |
| — |
| — | |
| — | |
| 84 | |
| — | |
| — | |
| 84 | |
Deferred compensation - Class A Common Stock: |
| | | | | | | | | | | | | | | | | | | |
Directors | | — |
| — | |
| — | |
| 110 | |
| — | |
| — | |
| 110 | |
Designated key employees | | 7 |
| — | |
| — | |
| 221 | |
| — | |
| — | |
| 221 | |
Employee stock purchase plan - Class A Common Stock | | 4 |
| — | |
| — | |
| 162 | |
| — | |
| — | |
| 162 | |
Stock-based awards - Class A Common Stock: | | | | | | | | | | | | | | | | | | | | |
Performance stock units |
| — |
| — | |
| — | |
| 39 | |
| — | |
| — | |
| 39 | |
Restricted stock |
| 2 |
| — | |
| — | |
| 173 | |
| — | |
| — | |
| 173 | |
Stock options |
| — |
| — | |
| — | |
| 202 | |
| — | |
| — | |
| 202 | |
| | | | | | | | | | | | | | | | | | | | |
Balance, March 31, 2023 | | 17,598 | | 2,160 | | $ | 4,648 | | $ | 142,601 | | $ | 763,027 | | $ | (28,074) | | $ | 882,202 | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 | | |||||||||||||||||
| | Common Stock | | | | | | | | Accumulated | | | |
| ||||||
|
| Class A |
| Class B |
|
| |
| Additional |
|
| |
| Other |
| Total |
| |||
| | Shares | | Shares | | | | | Paid In | | Retained | | Comprehensive | | Stockholders’ |
| ||||
(in thousands, except per share data) | | Outstanding | | Outstanding | | Amount | | Capital | | Earnings | | Income (Loss) | | Equity |
| |||||
| | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2022 |
| 17,816 | | 2,165 | | $ | 4,702 | | $ | 139,956 | | $ | 688,522 | | $ | 1,874 | | $ | 835,054 | |
| | | | | | | | | | | | | | | | | | | | |
Net income |
| — |
| — | |
| — | |
| — | |
| 28,350 | |
| — | |
| 28,350 | |
Net change in AOCI |
| — |
| — | |
| — | |
| — | |
| — | |
| (15,917) | |
| (15,917) | |
Dividends declared on Common Stock: | | | | | | | | | | | | | | | | | | | | |
Class A Shares ($0.341 per share) |
| — |
| — | |
| — | |
| — | |
| (6,081) | |
| — | |
| (6,081) | |
Class B Shares ($0.310 per share) |
| — |
| — | |
| — | |
| — | |
| (671) | |
| — | |
| (671) | |
Stock options exercised, net of shares withheld |
| 1 |
| — | |
| — | |
| (48) | |
| — | |
| — | |
| (48) | |
Conversion of Class B to Class A Common Shares |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Repurchase of Class A Common Stock |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Net change in notes receivable on Class A Common Stock |
| — |
| — | |
| — | |
| 60 | |
| — | |
| — | |
| 60 | |
Deferred compensation - Class A Common Stock: |
| | | | | | | | | | | | | | | | | | | |
Directors | | 6 |
| — | |
| — | |
| 129 | |
| — | |
| — | |
| 129 | |
Designated key employees | | — |
| — | |
| — | |
| 179 | |
| — | |
| — | |
| 179 | |
Employee stock purchase plan - Class A Common Stock | | 4 |
| — | |
| 1 | |
| 162 | |
| — | |
| — | |
| 163 | |
Stock-based awards - Class A Common Stock: | | | | | | | | | | | | | | | | | | | | |
Performance stock units |
| — |
| — | |
| — | |
| 38 | |
| — | |
| — | |
| 38 | |
Restricted stock |
| 7 |
| — | |
| — | |
| 163 | |
| — | |
| — | |
| 163 | |
Stock options |
| — |
| — | |
| — | |
| 156 | |
| — | |
| — | |
| 156 | |
| | | | | | | | | | | | | | | | | | | | |
Balance, March 31, 2022 |
| 17,834 |
| 2,165 | | $ | 4,703 | | $ | 140,795 | | $ | 710,120 | | $ | (14,043) | | $ | 841,575 | |
See accompanying footnotes to consolidated financial statements.
7
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2023 |
| 2022 | | ||
OPERATING ACTIVITIES: | | | | | | | |
Net income | | $ | 28,092 | | $ | 28,350 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Net amortization on investment securities and low-income housing investments | |
| 1,438 | |
| 1,391 | |
Net accretion and amortization on loans | |
| (618) | |
| (1,256) | |
Unrealized and realized losses on equity securities with readily determinable fair value | | | 4 | | | 118 | |
Depreciation of premises and equipment | |
| 1,594 | |
| 2,038 | |
Amortization of mortgage servicing rights | |
| 490 | |
| 668 | |
Provision for on-balance sheet exposures | |
| 26,766 | |
| 9,226 | |
Provision for off-balance sheet exposures | | | 210 | | | (12) | |
Net gain on sale of mortgage loans held for sale | |
| (420) | |
| (2,460) | |
Origination of mortgage loans held for sale | |
| (15,942) | |
| (100,661) | |
Proceeds from sale of mortgage loans held for sale | |
| 16,630 | |
| 119,212 | |
Net gain on sale of consumer loans held for sale | | | (2,534) | | | (3,117) | |
Origination of consumer loans held for sale | | | (207,222) | | | (245,214) | |
Proceeds from sale of consumer loans held for sale | | | 210,199 | | | 256,280 | |
Writedowns of other real estate owned | |
| 52 | |
| 52 | |
Deferred compensation expense - Class A Common Stock | |
| 331 | |
| 308 | |
Stock-based awards and ESPP expense - Class A Common Stock | |
| 438 | |
| 381 | |
Increase in cash surrender value of bank owned life insurance | |
| (635) | |
| (612) | |
Net change in other assets and liabilities: | | | | | | | |
Accrued interest receivable | |
| (2,502) | |
| 451 | |
Accrued interest payable | |
| 103 | |
| 33 | |
Other assets | |
| (3,858) | |
| 795 | |
Other liabilities | |
| 18,120 | |
| 14,897 | |
Net cash provided by operating activities | |
| 70,736 | |
| 80,868 | |
INVESTING ACTIVITIES: | | | | | | | |
Net cash proceeds paid in acquisition | |
| (40,970) | |
| — | |
Purchases of available-for-sale debt securities | |
| (25,000) | |
| (115,777) | |
Purchases of held-to-maturity debt securities | |
| (25,000) | |
| — | |
Proceeds from calls, maturities and paydowns of equity and available-for-sale debt securities | |
| 54,066 | |
| 15,944 | |
Proceeds from calls, maturities and paydowns of held-to-maturity debt securities | |
| 278 | |
| 5,508 | |
Net change in outstanding warehouse lines of credit | |
| (53,805) | |
| 160,350 | |
Net change in other loans | |
| 10,939 | |
| (54,869) | |
Purchase of Federal Home Loan Bank stock | | | (16,793) | | | — | |
Investments in low-income housing tax partnerships | | | (1,172) | | | (3,645) | |
Net purchases of premises and equipment | |
| (1,688) | |
| (323) | |
Net cash (used in) provided by investing activities | |
| (99,145) | |
| 7,188 | |
FINANCING ACTIVITIES: | | | | | | | |
Net change in deposits | |
| 40,145 | |
| 246,688 | |
Net change in securities sold under agreements to repurchase and other short-term borrowings | |
| (82,544) | |
| (3,149) | |
Payments of Federal Home Loan Bank advances | |
| — | |
| (25,000) | |
Proceeds from Federal Home Loan Bank advances | |
| 13,000 | |
| 20,000 | |
Net proceeds from Class A Common Stock purchased through employee stock purchase plan | | | 138 | | | 139 | |
Net proceeds from option exercises and equity awards vested - Class A Common Stock | |
| (84) | |
| (48) | |
Cash dividends paid | |
| (6,646) | |
| (6,075) | |
Net cash (used in) provided by financing activities | |
| (35,991) | |
| 232,555 | |
| | | | | | | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| (64,400) | |
| 320,611 | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |
| 313,689 | |
| 756,971 | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 249,289 | | $ | 1,077,582 | |
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION: | | | | | | | |
Cash paid during the period for: | | | | | | | |
Interest | | $ | 7,611 | | $ | 910 | |
Income taxes | |
| 471 | |
| 470 | |
SUPPLEMENTAL NONCASH DISCLOSURES: | | | | | | | |
Mortgage servicing rights capitalized | | $ | 127 | | $ | 974 | |
Right-of-use assets recorded | | | 772 | | | 4,538 | |
See accompanying footnotes to consolidated financial statements.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –MARCH 31, 2023 and 2022 AND DECEMBER 31, 2022 (UNAUDITED)
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 and Republic Insurance Services, Inc. As used in this filing, the terms “Republic,” the “Company,” “we,” “our,” and “us” refer to Republic Bancorp, Inc., and, where the context requires, Republic Bancorp, Inc. and its subsidiaries. The term “Bank” refers to the Company’s subsidiary bank: Republic Bank & Trust Company. The term “Captive” refers to the Company’s insurance subsidiary: Republic Insurance Services, Inc. All significant intercompany balances and transactions are eliminated in consolidation.
Republic is a financial holding company headquartered in Louisville, Kentucky. The Bank is a Kentucky-based, state-chartered non-member financial institution that provides both traditional and non-traditional banking products through five reportable segments using a multitude of delivery channels. While the Bank operates primarily in its market footprint, its non-brick-and-mortar delivery channels allow it to reach clients across the U.S. The Captive is a Nevada-based, wholly owned insurance subsidiary of the Company. The Captive provides property and casualty insurance coverage to the Company and the Bank, as well as a group of third-party insurance captives for which insurance may not be available or economically feasible.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. 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 months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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, 2022.
As of March 31, 2023, the Company was divided into five reportable segments: Traditional Banking, Warehouse, Mortgage Banking, TRS, and RCS. Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute RPG operations.
9
Core Bank
Traditional Banking segment — The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of March 31, 2023, Republic had 45 banking centers with locations as follows:
● | Kentucky — 29 |
● | Metropolitan Louisville — 18 |
● | Central Kentucky — 7 |
● | Georgetown — 1 |
● | Lexington — 5 |
● | Shelbyville — 1 |
● | Northern Kentucky — 4 |
● | Bellevue — 1 |
● | Covington — 1 |
● | Crestview Hills — 1 |
● | Florence — 1 |
● | Southern Indiana — 3 |
● | Floyds Knobs — 1 |
● | Jeffersonville — 1 |
● | New Albany — 1 |
● | Metropolitan Tampa, Florida — 7 |
● | Metropolitan Cincinnati, Ohio — 4 |
● | Metropolitan Nashville, Tennessee — 2 |
Republic’s headquarters are in Louisville, which is the largest city in Kentucky based on population.
Traditional Banking results of operations are primarily dependent upon net interest income, which represents the difference between the interest income and fees on interest-earning assets and the interest expense on interest-bearing liabilities. Principal interest-earning Traditional Banking assets represent investment securities and commercial and consumer loans primarily secured by real estate and/or personal property. Interest-bearing liabilities primarily consist of interest-bearing deposit accounts, securities sold under agreements to repurchase, as well as short-term and long-term borrowing sources. FHLB advances have traditionally been a significant borrowing source for the Bank.
Other sources of Traditional Banking income include service charges on deposit accounts, debit and credit card interchange fee income, title insurance commissions, and increases in the cash surrender value of BOLI.
Traditional Banking operating expenses consist primarily of salaries and employee benefits; technology, equipment, and communication; occupancy; interchange related expense; marketing and development; FDIC insurance expense, and various other general and administrative costs. Traditional Banking results of operations are significantly impacted by general economic and competitive conditions, particularly changes in market interest rates, government laws and policies, and actions of regulatory agencies.
Warehouse Lending segment — The Core Bank provides short-term, revolving credit facilities to mortgage bankers across the United States through mortgage warehouse lines of credit. These credit facilities are primarily secured by single-family, first-lien residential real estate loans. The credit facility enables the mortgage banking clients to close single-family, first-lien residential real estate loans in their own name and temporarily fund their inventory of these closed loans until the loans are sold to investors approved by the Bank. Individual loans are expected to remain on the warehouse line for an average of 15 to 30 days. Advances for Reverse mortgage loans and construction loans typically remain on the line longer than conventional mortgage loans. Interest income and loan fees are accrued for each individual advance during the time the advance remains on the warehouse line and collected when the loan is sold. The Core Bank receives the sale proceeds of each loan directly from the investor and applies the funds to pay off the warehouse advance and related accrued interest and fees. The remaining proceeds are credited to the mortgage-banking client.
10
Mortgage Banking segment — Mortgage Banking activities primarily include 15-, 20- and 30-year fixed-term, single-family, first-lien residential real estate loans that are originated and sold into the secondary market, primarily to the FHLMC and the FNMA. The Bank typically retains servicing on loans sold into the secondary market. Administration of loans with servicing retained by the Bank includes collecting principal and interest payments, escrowing funds for property taxes and property insurance, and remitting payments to secondary market investors. The Bank receives fees for performing these standard servicing functions.
As part of the sale of loans with servicing retained, the Bank records MSRs. MSRs represent an estimate of the present value of future cash servicing income, net of estimated costs, which the Bank expects to receive on loans sold with servicing retained by the Bank. MSRs are capitalized as separate assets. This transaction is posted to net gain on sale of loans, a component of “Mortgage Banking income” in the income statement. Management considers all relevant factors, in addition to pricing considerations from other servicers, to estimate the fair value of the MSRs to be recorded when the loans are initially sold with servicing retained by the Bank. The carrying value of MSRs is initially amortized in proportion to and over the estimated period of net servicing income and subsequently adjusted quarterly based on the weighted average remaining life of the underlying loans. The MSR amortization is recorded as a reduction to net servicing income, a component of Mortgage Banking income.
With the assistance of an independent third-party, the MSRs asset is reviewed at least quarterly for impairment based on the fair value of the MSRs using groupings of the underlying loans based on predominant risk characteristics. Any impairment of a grouping is reported as a valuation allowance. A primary factor influencing the fair value is the estimated life of the underlying loans serviced. The estimated life of the loans serviced is significantly influenced by market interest rates. During a period of declining interest rates, the fair value of the MSRs is expected to decline due to increased anticipated prepayment speeds within the portfolio. Alternatively, during a period of rising interest rates, the fair value of MSRs would be expected to increase as prepayment speeds on the underlying loans would be expected to decline.
Republic Processing Group
Tax Refund Solutions segment — Through the TRS segment, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the U.S., as well as tax-preparation software providers (collectively, the “Tax Providers”). 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. TRS also originated $98 million of ERAs during December 2022 related to estimated tax returns that were anticipated to be filed during the first quarter 2023 tax filing season.
RTs are fee-based products whereby a tax refund is issued to the taxpayer after the Bank has received the refund from the federal or state government. There is no credit risk or borrowing cost associated with these products because they are only delivered to the taxpayer upon receipt of the tax refund directly from the governmental paying authority. Fees earned by the Company on RTs, net of revenue share, are reported as noninterest income under the line item “Net refund transfer fees.”
The 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 2023 and 2022:
● | Offered only during the first two months of each year; |
● | The taxpayer was given the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $6,250; |
● | No requirement that the taxpayer pays for another bank product, such as an RT; |
● | Multiple disbursement methods were available with most Tax Providers, including direct deposit, prepaid card, or check, based on the taxpayer-customer’s election; |
● | Repayment of the RA to the Bank is deducted from the taxpayer’s tax refund proceeds; and |
● | If an insufficient refund to repay the RA occurs: |
o | there is no recourse to the taxpayer, |
o | no negative credit reporting on the taxpayer, and |
o | no collection efforts against the taxpayer. |
The ERA credit product is also a loan that allows a taxpayer to borrow funds as an advance of a portion of their tax refund. Unlike the RA product described immediately above, however, which is originated in conjunction with the filing of the taxpayer’s federal tax return, an ERA is originated prior to the filing of the taxpayer’s federal tax return and prior to the taxpayer receiving their year-end
11
taxable income documentation, e.g., W-2. As such, the Company generally uses paystub information to estimate the potential tax refund and 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 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 related to the first quarter 2023 tax filing season had the following features:
● | Offered only during December 2022 and January 2023; |
● | The taxpayer had the option to choose from multiple loan-amount tiers, subject to underwriting, up to a maximum advance amount of $1,000; |
● | No requirement that the taxpayer pays for another bank product, such as an RT; |
● | Multiple disbursement methods were available with most Tax Providers, including direct deposit or prepaid card, based on the taxpayer-customer’s election; |
● | Repayment of the ERA to the Bank is deducted from the taxpayer’s tax refund proceeds; and |
● | If an insufficient refund to repay the ERA occurs, including the failure to file a federal tax return through a Republic Tax Provider: |
o | there is no recourse to the taxpayer, |
o | no negative credit reporting on the taxpayer, and |
o | no collection efforts against the taxpayer. |
The Company reports fees paid for the RAs, including ERAs, as interest income on loans. RAs that were originated related to the first quarter 2022 tax 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 the Company considered a RA, related to the first quarter 2022 tax season, delinquent if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority. The number of days for delinquency eligibility is based on management’s annual analysis of tax return processing times. Provisions on RAs are estimated when advances are made. Unpaid RAs, including ERAs, related to the first quarter tax season of a given year are charged-off by June 30th of that year, with RAs collected during the second half of that year recorded as recoveries of previously charged-off loans.
Related to the overall credit losses on RAs, including ERAs, the Bank’s ability to control losses is highly dependent upon its ability to predict the taxpayer’s likelihood to receive the tax refund as claimed on the taxpayer’s tax return. Each year, the Bank’s RA approval model is based primarily on the prior-year’s tax refund payment patterns. Because the substantial majority of the RA volume occurs each year before that year’s tax refund payment patterns can be analyzed and subsequent underwriting changes made, credit losses during a current year could be higher than management’s predictions if tax refund payment patterns change materially between years.
In response to changes in the legal, regulatory, and competitive environment, management annually reviews and revises the RA, including the ERA, product parameters. Further changes in the RA product parameters do not ensure positive results and could have an overall material negative impact on the performance of all RA product offerings and therefore on the Company’s financial condition and results of operations.
Cancelled Sale Transaction – As previously disclosed, Green Dot paid RB&T a contract termination fee of $5.0 million during the first quarter of 2022 related to the cancelled Sale Transaction.
Republic Payment Solutions division
RPS is currently managed and operated within the TRS segment. The RPS division offers general-purpose reloadable prepaid cards, payroll debit cards, and limited-purpose demand deposit accounts with linked debit cards as an issuing bank through third-party service providers. Until the operating results of the RPS division are material to the Company’s overall results of operations, they will be reported as part of the TRS segment. The Company does not expect to report the RPS division as a separate reportable segment until such time, if any, that it meets quantitative reporting thresholds.
The Company reports fees related to RPS programs under Program fees. Additionally, the Company’s portion of interchange revenue generated by prepaid card transactions is reported as noninterest income under “Interchange fee income.”
Republic Credit Solutions segment — Through the RCS segment, the Bank offers consumer credit products. In general, the credit products are unsecured, small dollar consumer loans that are dependent on various factors. RCS loans typically earn a higher yield but also have higher credit risk compared to loans originated through the Traditional Banking segment, with a significant portion of RCS
12
clients considered subprime or near-prime borrowers. The Bank uses third-party service providers for certain services such as marketing and loan servicing of RCS loans. Additional information regarding consumer loan products offered through RCS follows:
● | RCS line-of-credit products – Using separate third-party service providers, the Bank originates two line-of-credit products to generally subprime borrowers in multiple states. |
o | RCS’s LOC I represented the substantial majority of RCS activity during 2022 and 2023. Elastic Marketing, LLC and Elevate Decision Sciences, LLC, are third-party service providers for the product and are subject to the Bank’s oversight and supervision. Together, these companies provide the Bank with certain marketing, servicing, technology, and support services, while a separate third-party provides customer support, servicing, and other services on the Bank’s behalf. The Bank is the lender for this product and is marketed as such, up to a maximum amount of $3,500. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of the product. |
The Bank sells participation interests in this product. These participation interests are a 90% interest in advances made to borrowers under the borrower’s line-of-credit account, and the participation interests are generally sold three business days following the Bank’s funding of the associated advances. Although the Bank retains a 10% participation interest in each advance, it maintains 100% ownership of the underlying LOC I account with each borrower. Loan balances held for sale through this program are carried at the lower of cost or fair value.
o | One of RCS’s third-party service providers, subject to the Bank’s oversight and supervision, provides the Bank with marketing services and loan servicing for the LOC II product. The Bank is the lender for this product and is marketed as such, up to a maximum advance amount of $10,000. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this product. |
The Bank sells participation interests in this product. These participation interests are a 95% interest in advances made to borrowers under the borrower’s line-of-credit account, and the participation interests are generally sold three business days following the Bank’s funding of the associated advances. Although the Bank retains a 5% participation interest in each advance, it maintains 100% ownership of the underlying LOC II account with each borrower. Loan balances held for sale through this program are carried at the lower of cost or fair value.
● | RCS installment loan product – Through RCS, the Bank offers installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. The same third-party service provider for RCS’s LOC II is the third-party provider for the installment loans. This third-party provider is subject to the Bank’s oversight and supervision and provides the Bank with marketing services and loan servicing for these RCS installment loans. The Bank is the lender for these RCS installment loans and is marketed as such. Furthermore, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this RCS installment loan product. Currently, all loan balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intention to sell these loans to a third-party, who is an affiliate of the Bank’s third-party service provider, generally within sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried at fair value under a fair-value option, with the portfolio marked to market monthly. |
● | RCS healthcare receivables products – The Bank originates healthcare-receivables products across the U.S. through three different third-party service providers. |
o | For two of the programs, the Bank retains 100% of the receivables, with recourse in the event of default. |
o | For the remaining program, in some instances the Bank retains 100% of the receivables originated, with recourse in the event of default, and in other instances, the Bank sells 100% of the receivables generally within one month of origination. Loan balances held for sale through this program are carried at the lower of cost or fair value. |
The Company reports interest income and loan origination fees earned on RCS loans under “Loans, including fees,” while any gains or losses on sale and mark-to-market adjustments of RCS loans are reported as noninterest income under “Program fees.”
13
Recently Adopted Accounting Standards
The following ASUs were adopted by the Company during the three months ended March 31, 2023:
| | | | | | | | | | |
| | | | | | | | Method of | | Financial |
ASU. No. | Topic | Nature of Update | Date Adopted | Adoption | Statement Impact | |||||
2022-02 | | Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures | | This ASU eliminates the TDR recognition and measurement guidance and, instead, requires the Company to evaluate (consistent with the accounting for other loan modifications) whether a modification represents a new loan or a continuation of an existing loan. This ASU also enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. | | January 1, 2023 | | Prospectively | | Immaterial |
| | | | | | | | | | |
2022-06 | | Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 | | This ASU extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. | | January 1, 2023 | | Prospectively | | Immaterial. The Company ceased making new loans and renewing loans indexed to LIBOR on January 1, 2022. |
14
Accounting Standards Update
The following not-yet-effective ASUs were issued since the Company’s most recently filed Form 10-K and are considered relevant to the Company’s financial statements.
| | | | | | | | | | |
| | | | | | Date Adoption | | Adoption | | Expected |
ASU. No. | | Topic | | Nature of Update | | Required | | Method | | Financial Impact |
2022-03 | | Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to | | This ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. | | January 1, 2024 | | Prospectively | | Immaterial |
| | | | | | | | | | |
2023-02 | | Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force) | | This ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. | | January 1, 2024 | | Prospectively | | The Company is currently analyzing the impact of this ASU on its financial statements. |
| | | | | | | | | | |
2023-01 | | Leases (Topic 842): Common Control Arrangements | | This ASU requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with a related party (on the basis of legally enforceable terms and conditions). | | January 1, 2024 | | Prospectively | | The Company is currently analyzing the impact of this ASU on its financial statements. |
15
2. ACQUISITION OF CBANK
OVERVIEW
On March 15, 2023, the Company completed its acquisition of CBank (“CBank”), and its wholly owned bank subsidiary Commercial Industrial Finance (“CIF”), for approximately $51 million in cash. The primary reason for the acquisition of CBank was to expand the Company’s footprint in the Cincinnati, Ohio metropolitan statistical area.
ACQUISITION SUMMARY
The following table provides a summary of the assets acquired and liabilities assumed as recorded by CBank, the preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, and the preliminary fair values of those assets and liabilities as recorded by the Company. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities. The preliminary fair value adjustments and the preliminary resultant fair values shown in the following table continue to be evaluated by management and may be subject to further adjustment.
| | | | | | | | | | |
| | March 15, 2023 | ||||||||
|
| As Recorded |
| Fair Value |
| As Recorded | ||||
(in thousands) | | by CBank | | Adjustments (1) | | | by Republic (1) | |||
| | | | | | | | | | |
Assets acquired: | | | | | | | | | | |
| | | | | | | | | | |
Cash and cash equivalents | | $ | 10,030 | | $ | — | | | $ | 10,030 |
Investment securities | |
| 16,463 | |
| (4) | a | |
| 16,459 |
Loans | |
| 221,707 | |
| (4,219) | b | |
| 217,488 |
Allowance for loan and lease losses | | | (2,953) | | | 1,353 | c | | | (1,600) |
Loans, net | |
| 218,754 | |
| (2,866) | | |
| 215,888 |
Goodwill | | | 954 | | | (954) | d | | | — |
Core deposit intangible | | | — | | | 2,844 | e | | | 2,844 |
Premises and equipment, net | |
| 162 | |
| 35 | f | |
| 197 |
Other assets and accrued interest receivable | |
| 7,067 | |
| (320) | g | |
| 6,747 |
| | | | | | | | | | |
Total assets acquired | | $ | 253,430 | | $ | (1,265) | | | $ | 252,165 |
| | | | | | | | | | |
Liabilities assumed: | | | | | | | | | | |
| | | | | | | | | | |
Deposits: | | | | | | | | | | |
Noninterest-bearing | | $ | 42,160 | | $ | — | | | $ | 42,160 |
Interest-bearing | |
| 179,487 | |
| 31 | h | |
| 179,518 |
Total deposits | |
| 221,647 | |
| 31 | | |
| 221,678 |
| | | | | | | | | | |
Other liabilities and accrued interest payable | |
| 4,709 | |
| 96 | i | |
| 4,805 |
| | | | | | | | | | |
Total liabilities assumed | |
| 226,356 | |
| 127 | | |
| 226,483 |
| | | | | | | | | | |
Net assets acquired | | $ | 27,074 | | $ | (1,392) | | | | 25,682 |
| | | | | | | | | | |
Cash consideration paid | | | | | | | | |
| (51,000) |
| | | | | | | | | | |
Goodwill | | | | | | | | | $ | 25,318 |
16
(1) | The Company’s acquisition of CBank closed on March 15, 2023. Accordingly, the fair value adjustments shown are preliminary estimates of the purchase accounting adjustments. Management is continuing to evaluate each of these fair value adjustments and may revise one or more of such fair value adjustments in future periods based on this continuing evaluation. To the extent that any of these preliminary fair value adjustments are revised in future periods, the resultant fair values and the amount of goodwill recorded by the Company will change. |
Explanation of preliminary fair value adjustments:
a. | Adjustment reflects the fair value adjustment based on the Company’s evaluation of the investment securities. |
b. | Adjustments to loans to reflect estimated fair value adjustments, include the following: |
| | | |
| | Fair Value | |
(in thousands) | | Adjustments | |
| | | |
Fair value adjustment - acquired non PCD loans | | $ | (4,251) |
Fair value adjustment - acquired PCD loans | | | 75 |
Eliminate unrecognized loan fees on acquired loans | | | (43) |
Net loan fair value adjustments | | $ | (4,219) |
c. | The net adjustment to the allowance for credit losses includes the following: |
| | | |
| | Fair Value | |
(in thousands) | | Adjustments | |
| | | |
Reversal of historical CBank allowance for credit losses on loans | | $ | 2,953 |
Estimate of lifetime credit losses for PCD loans | | | (1,600) |
Net change in allowance for credit losses | | $ | 1,353 |
d. | Adjustment reflects the fair value adjustment to eliminate the recorded goodwill. |
e. | Adjustment reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition. |
f. | Adjustment reflects the fair value adjustment based on the Company’s evaluation of the premises and equipment, net. |
g. | Adjustment reflects the fair value adjustment based on the Company’s evaluation of the other assets and accrued interest receivable. |
h. | Adjustment reflects the fair value adjustment based on the Company’s evaluation of the assumed time deposits. |
i. | Adjustment reflects the fair value adjustment based on the Company’s evaluation of the other liabilities and accrued interest payable. |
Goodwill of approximately $25 million, which is the excess of the merger consideration over the fair value of net assets acquired, is expected to be recorded in the CBank acquisition and is the result of expected operational synergies and other factors. This goodwill is all attributable to the Company’s Traditional Banking segment and is expected to be deductible for tax purposes. To the extent that management revises any of the above fair value adjustments as a result of its continuing evaluation, the amount of goodwill recorded in the CBank acquisition will change.
17
CBANK CONTRIBUTION FOR THE REPORTING PERIOD
The Company’s consolidated statements of income include the impact of the Company’s CBank acquisition for the three months ended March 31, 2023. Because the current levels of revenue and net earnings for CBank are not material to the Company’s consolidated statements of income, supplemental pro forma disclosures have been omitted. The results of operations of the assets acquired and liabilities assumed in the Company’s CBank acquisition, inclusive of any pre-acquisition related costs, are summarized in the following table:
| | | | | | | | | | |
| | Three Months Ended March 31, 2023 | ||||||||
| | | | | | | | | | |
| | Non-Acquisition | | Acquisition | | | | |||
(in thousands) | | Related | | Related | | | Total | |||
| | | | | | | | | | |
INTEREST INCOME: | | | | | | | | | | |
| | | | | | | | | | |
Loans, including fees | | $ | 625 | | $ | — | | | $ | 625 |
Taxable investment securities | |
| 47 | |
| — | | |
| 47 |
Federal Home Loan Bank stock and other | |
| 13 | |
| — | | |
| 13 |
Total interest income | |
| 685 | |
| — | | |
| 685 |
| | | | | | | | | | |
INTEREST EXPENSE: | | | | | | | | | | |
| | | | | | | | | | |
Deposits | |
| 295 | |
| — | | |
| 295 |
Total interest expense | | | 295 | | | — | | | | 295 |
| | | | | | | | | | |
NET INTEREST INCOME | | | 390 | | | — | | | | 390 |
| | | | | | | | | | |
Provision for expected credit loss expense | | | — | | | 2,684 | a | | | 2,684 |
| | | | | | | | | | |
NET INTEREST INCOME AFTER PROVISION | | | 390 | | | (2,684) | | | | (2,294) |
| | | | | | | | | | |
NONINTEREST INCOME: | | | | | | | | | | |
| | | | | | | | | | |
Service charges on deposit accounts | |
| 8 | |
| — | | |
| 8 |
Other | |
| 32 | |
| — | | |
| 32 |
Total noninterest income | |
| 40 | |
| — | | |
| 40 |
| | | | | | | | | | |
NONINTEREST EXPENSE: | | | | | | | | | | |
| | | | | | | | | | |
Salaries and employee benefits | |
| 76 | |
| 106 | c | |
| 182 |
Technology, equipment, and communication | |
| 51 | |
| — | | |
| 51 |
Occupancy | |
| 55 | |
| — | | |
| 55 |
FDIC insurance expense | |
| 8 | |
| — | | |
| 8 |
Interchange related expense | |
| 12 | |
| — | | |
| 12 |
Legal and professional fees | | | — | | | (81) | b | | | (81) |
Other | |
| 31 | |
| 2,199 | b,d | |
| 2,230 |
Total noninterest expense | |
| 233 | |
| 2,224 | | |
| 2,457 |
| | | | | | | | | | |
INCOME BEFORE INCOME TAX EXPENSE | |
| 197 | |
| (4,908) | | |
| (4,711) |
INCOME TAX EXPENSE | |
| 7 | |
| (171) | | |
| (164) |
| | | | | | | | | | |
NET INCOME | | $ | 190 | | $ | (4,737) | | | $ | (4,547) |
Explanation of acquisition-related items:
a. | The initial recognition of the allowance for credit losses on non-PCD loans through an increase to the Provision for expected credit loss expense. |
b. | Includes legal, audit, tax and other acquisition related consulting costs. |
c. | Retention bonuses for CBank employees. |
d. | Core systems conversion-related costs. |
18
3.INVESTMENT SECURITIES
Available-for-Sale Debt Securities
The following tables summarize the amortized cost, fair value, and ACLS of AFS debt securities and the corresponding amounts of related gross unrealized gains and losses recognized in AOCI:
| | | | | | | | | | | | | | | |
|
| |
| Gross |
| Gross |
| Allowance |
|
| | ||||
| | Amortized | | Unrealized | | Unrealized | | for |
| Fair | |||||
March 31, 2023 (in thousands) | | Cost | | Gains | | Losses | | Credit Losses |
| Value | |||||
| | | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 416,388 | | $ | — | | $ | (21,771) | | $ | — | | $ | 394,617 |
Private label mortgage-backed security | |
| 721 | |
| 1,289 | |
| — | |
| — | |
| 2,010 |
Mortgage-backed securities - residential | |
| 192,614 | |
| 134 | |
| (16,066) | |
| — | |
| 176,682 |
Collateralized mortgage obligations | |
| 24,884 | |
| 69 | |
| (1,302) | |
| — | |
| 23,651 |
Corporate bonds | |
| 12,017 | |
| — | |
| (27) | |
| (3) | |
| 11,987 |
Trust preferred security | |
| 3,755 | |
| 246 | |
| — | |
| — | |
| 4,001 |
Total available-for-sale debt securities | | $ | 650,379 | | $ | 1,738 | | $ | (39,166) | | $ | (3) | | $ | 612,948 |
| | | | | | | | | | | | | | | |
|
| |
| Gross |
| Gross |
| Allowance |
|
| | ||||
| | Amortized | | Unrealized | | Unrealized | | for |
| Fair | |||||
December 31, 2022 (in thousands) | | Cost | | Gains | | Losses | | Credit Losses |
| Value | |||||
| | | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 436,333 | | $ | 1 | | $ | (25,193) | | $ | — | | $ | 411,141 |
Private label mortgage-backed security | |
| 843 | |
| 1,284 | |
| — | |
| — | |
| 2,127 |
Mortgage-backed securities - residential | |
| 189,312 | |
| 16 | |
| (17,455) | |
| — | |
| 171,873 |
Collateralized mortgage obligations | |
| 22,774 | |
| 21 | |
| (1,427) | |
| — | |
| 21,368 |
Corporate bonds | |
| 10,000 | |
| 1 | |
| — | |
| — | |
| 10,001 |
Trust preferred security | |
| 3,741 | |
| 114 | |
| — | |
| — | |
| 3,855 |
Total available-for-sale debt securities | | $ | 663,003 | | $ | 1,437 | | $ | (44,075) | | $ | — | | $ | 620,365 |
Held-to-Maturity Debt Securities
The following tables summarize the amortized cost, fair value, and ACLS of HTM debt securities and the corresponding amounts of related gross unrecognized gains and losses:
| | | | | | | | | | | | | | | |
|
|
| |
| Gross |
| Gross |
|
| |
| Allowance | |||
| | Amortized | | Unrecognized | | Unrecognized | | Fair | | for | |||||
March 31, 2023 (in thousands) | | Cost | | Gains | | Losses | | Value | | Credit Losses | |||||
| | | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 100,000 | | $ | 6 | | $ | (234) | | $ | 99,772 | | $ | — |
Mortgage-backed securities - residential | | | 27 | | | — | | | (1) | | | 26 | | | — |
Collateralized mortgage obligations | |
| 6,989 | |
| 58 | |
| (133) | |
| 6,914 | |
| — |
Corporate bonds | |
| 4,977 | |
| — | |
| (18) | |
| 4,959 | |
| (10) |
Obligations of state and political subdivisions | | | 125 | | | — | | | — | | | 125 | | | — |
Total held-to-maturity debt securities | | $ | 112,118 | | $ | 64 | | $ | (386) | | $ | 111,796 | | $ | (10) |
| | | | | | | | | | | | | | | |
|
|
| |
| Gross |
| Gross |
|
| |
| Allowance | |||
| | Amortized | | Unrecognized | | Unrecognized | | Fair | | for | |||||
December 31, 2022 (in thousands) | | Cost | | Gains | | Losses | | Value | | Credit Losses | |||||
| | | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 75,000 | | $ | 106 | | $ | — | | $ | 75,106 | | $ | — |
Mortgage-backed securities - residential | | | 27 | | | — | | | (1) | | | 26 | | | — |
Collateralized mortgage obligations | |
| 7,270 | |
| 54 | |
| (148) | |
| 7,176 | |
| — |
Corporate bonds | |
| 4,974 | |
| — | |
| (49) | |
| 4,925 | |
| (10) |
Obligations of state and political subdivisions | | | 125 | | | — | | | (1) | | | 124 | | | — |
Total held-to-maturity debt securities | | $ | 87,396 | | $ | 160 | | $ | (199) | | $ | 87,357 | | $ | (10) |
Sales of Available-for-Sale Debt Securities
During the three months ended March 31, 2023 and 2022, there were no gains or losses on sales or calls of AFS debt securities.
19
Debt Securities by Contractual Maturity
The amortized cost and fair value of debt securities by contractual maturity as of March 31, 2023 follow. 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.
| | | | | | | | | | | | |
| | Available-for-Sale | | Held-to-Maturity | ||||||||
| | Debt Securities | | Debt Securities | ||||||||
|
| Amortized |
| Fair |
| Amortized |
| Fair | ||||
March 31, 2023 (in thousands) | | Cost | | Value | | Cost | | Value | ||||
| | | | | | | | | | | | |
Due in one year or less | | $ | 50,468 | | $ | 49,327 | | $ | 125 | | $ | 125 |
Due from one year to five years | |
| 377,937 | |
| 357,277 | |
| 104,977 | |
| 104,731 |
Due from five years to ten years | |
| — | |
| — | |
| — | |
| — |
Due beyond ten years | |
| 3,755 | |
| 4,001 | |
| — | |
| — |
Private label mortgage-backed security | |
| 721 | |
| 2,010 | |
| — | |
| — |
Mortgage-backed securities - residential | |
| 192,614 | |
| 176,682 | |
| 27 | |
| 26 |
Collateralized mortgage obligations | |
| 24,884 | |
| 23,651 | |
| 6,989 | |
| 6,914 |
Total debt securities | | $ | 650,379 | | $ | 612,948 | | $ | 112,118 | | $ | 111,796 |
Unrealized-Loss Analysis on Debt Securities
The following tables summarize AFS debt securities in an unrealized loss position for which an ACLS had not been recorded as of March 31, 2023 and December 31, 2022, aggregated by investment category and length of time in a continuous unrealized loss position:
| | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | Total |
| ||||||||||||
|
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized |
| |||
March 31, 2023 (in thousands) | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses |
| ||||||
| | | | | | | | | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 204,723 | | $ | (6,741) | | $ | 189,895 | | $ | (15,030) | | $ | 394,618 | | $ | (21,771) | |
Mortgage-backed securities - residential | | | 62,400 | | | (6,174) | | | 101,703 | | | (9,892) | | | 164,103 | | | (16,066) | |
Collateralized mortgage obligations | | | 11,444 | | | (750) | | | 8,151 | | | (552) | | | 19,595 | | | (1,302) | |
Corporate bonds | |
| 1,986 | |
| (27) | |
| — | |
| — | |
| 1,986 | |
| (27) | |
Total available-for-sale debt securities | | $ | 280,553 | | $ | (13,692) | | $ | 299,749 | | $ | (25,474) | | $ | 580,302 | | $ | (39,166) | |
| | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | Total |
| ||||||||||||
|
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized |
| |||
December 31, 2023 (in thousands) | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses |
| ||||||
| | | | | | | | | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 229,372 | | $ | (7,139) | | $ | 171,676 | | $ | (18,054) | | $ | 401,048 | | $ | (25,193) | |
Mortgage-backed securities - residential | | | 105,274 | | | (7,434) | | | 65,520 | | | (10,021) | | | 170,794 | | | (17,455) | |
Collateralized mortgage obligations | | | 20,418 | | | (1,426) | | | 6 | | | (1) | | | 20,424 | | | (1,427) | |
Total available-for-sale debt securities | | $ | 355,064 | | $ | (15,999) | | $ | 237,202 | | $ | (28,076) | | $ | 592,266 | | $ | (44,075) | |
As of March 31, 2023, the Bank’s security portfolio consisted of 198 securities, 162 of which were in an unrealized loss position.
As of December 31, 2022, the Bank’s security portfolio consisted of 179 securities, 163 of which were in an unrealized loss position.
As of March 31, 2023 and December 31, 2022, there were no holdings of debt securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.
Private Label Mortgage-Backed Security
The Bank owns one private label mortgage-backed security with a total carrying value of $2 million as of March 31, 2023. This security is mostly backed by “Alternative A” first-lien mortgage loans, but also has an insurance “wrap” or guarantee as an added layer of protection to the security holder. This asset is illiquid, and as such, the Bank determined it to be a Level 3 security in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model (“present value model”) approach in determining the fair value of the security. This approach is beneficial for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-
20
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 11 “Fair Value” in this section of the filing.
Mortgage-Backed Securities and Collateralized Mortgage Obligations
As of March 31, 2023, with the exception of the $2 million private label mortgage-backed security, all other mortgage-backed securities and CMOs held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily the FHLMC and FNMA. As of March 31, 2023 and December 31, 2022, there were gross unrealized losses of $17.4 million and $18.9 million related to AFS mortgage-backed securities and CMOs. Because these unrealized losses are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, management does not consider these securities to have OTTI.
Roll-forward of the Allowance for Credit Losses on Debt Securities
The table below presents a roll-forward for the three months ended March 31, 2023 and 2022 of the ACLS on AFS and HTM debt securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | ACLS Roll-forward | ||||||||||||||||||||||||||||
| | | Three Months Ended March 31, | ||||||||||||||||||||||||||||
| | | 2023 | | 2022 | ||||||||||||||||||||||||||
| | | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | ||||||||||
(in thousands) | | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-Sale Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate Bonds | | | $ | — | | $ | 3 | | $ | — | | $ | — | | $ | 3 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Held-to-Maturity Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate Bonds | | | | 10 | | | — | | | — | | | — | | | 10 | | | 47 | | | (7) | | | — | | | — | | | 40 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 10 | | $ | 3 | | $ | — | | $ | — | | $ | 13 | | $ | 47 | | $ | (7) | | $ | — | | $ | — | | $ | 40 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company’s ACLS on its HTM corporate bonds during the three months ended March 31, 2023 remains unchanged from December 31, 2022.
There were no HTM debt securities on nonaccrual or past due 90 days or more as of March 31, 2023 and December 31, 2022. All of the Company’s HTM corporate bonds were rated investment grade as of March 31, 2023 and December 31, 2022.
There were no HTM debt securities considered collateral dependent as of March 31, 2023 and December 31, 2022.
Accrued interest on AFS debt securities is presented as a component of other assets on the Company’s balance sheet and is excluded from the ACLS. Accrued interest on AFS debt securities totaled $3 million and $2 million as of March 31, 2023 and December 31, 2022. Accrued interest receivable on HTM debt securities totaled $1 million and $92,000 as of March 31, 2023 and December 31, 2022.
Pledged Debt Securities
Debt securities pledged to secure public deposits, securities sold under agreements to repurchase, and debt securities held for other purposes, as required or permitted by law, were as follows:
| | | | | | | |
(in thousands) |
| March 31, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Amortized cost | | $ | 146,011 | | $ | 236,047 | |
Fair value | | | 133,652 | | | 217,562 | |
Carrying amount | |
| 133,652 | |
| 217,562 | |
21
Equity Securities
The carrying value, gross unrealized gains and losses, and fair value of equity securities with readily determinable fair values were as follows:
| | | | | | | | | | | | | |
|
| |
| Gross |
| Gross |
|
| |
| |||
| | Amortized | | Unrealized | | Unrealized | | Fair |
| ||||
March 31, 2023 (in thousands) | | Cost | | Gains | | Losses | | Value |
| ||||
| | | | | | | | | | | | | |
Freddie Mac preferred stock | | $ | — | | $ | 107 | | $ | — | | $ | 107 | |
Total equity securities with readily determinable fair values | | $ | — | | $ | 107 | | $ | — | | $ | 107 | |
| | | | | | | | | | | | | |
|
| |
| Gross |
| Gross |
|
| |
| |||
| | Amortized | | Unrealized | | Unrealized | | Fair |
| ||||
December 31, 2022 (in thousands) | | Cost | | Gains | | Losses | | Value |
| ||||
| | | | | | | | | | | | | |
Freddie Mac preferred stock | | $ | — | | $ | 111 | | $ | — | | $ | 111 | |
Total equity securities with readily determinable fair values | | $ | — | | $ | 111 | | $ | — | | $ | 111 | |
For equity securities with readily determinable fair values, the gross realized and unrealized gains and losses recognized in the Company’s consolidated statements of income were as follows:
| | | | | | | | | | | | | | | | | | | |
| | Gains (Losses) Recognized on Equity Securities | | ||||||||||||||||
| | Three Months Ended March 31, 2023 |
| Three Months Ended March 31, 2022 | | ||||||||||||||
(in thousands) | | Realized | | Unrealized | | Total | | Realized | | Unrealized | | Total | | ||||||
| | | | | | | | | | | | | | | | | | | |
Freddie Mac preferred stock | | $ | — | | $ | (4) | | $ | (4) | | $ | — | | $ | (6) | | $ | (6) | |
Community Reinvestment Act mutual fund | |
| — | |
| — | |
| — | |
| — | |
| (112) | |
| (112) | |
Total equity securities with readily determinable fair value | | $ | — | | $ | (4) | | $ | (4) | | $ | — | | $ | (118) | | $ | (118) | |
22
4. LOANS HELD FOR SALE
In the ordinary course of business, the Bank originates for sale mortgage loans and consumer loans. Mortgage loans originated for sale are primarily originated and sold into the secondary market through the Bank’s Mortgage Banking segment, while consumer loans originated for sale are originated and sold through the RCS segment.
Mortgage Loans Held for Sale, at Fair Value
See additional detail regarding mortgage loans originated for sale, at fair value under Footnote 12 “Mortgage Banking Activities” of this section of the filing.
Consumer Loans Held for Sale, at Fair Value
The Bank offers RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. Balances originated under this RCS installment loan program are carried as “held for sale” on the Bank’s balance sheet, with the intent to sell generally within sixteen days following the Bank’s origination of the loans. Loans originated under this RCS installment loan program are carried at fair value under a fair-value option, with the portfolio marked to market monthly.
Activity for consumer loans held for sale and carried at fair value was as follows:
| | | | | | | |
|
| Three Months Ended | | ||||
| | March 31, | | ||||
(in thousands) | | 2023 |
| 2022 | | ||
| | | | | | | |
Balance, beginning of period | | $ | 4,706 | | $ | 19,747 | |
Origination of consumer loans held for sale | |
| 22,797 | |
| 96,732 | |
Proceeds from the sale of consumer loans held for sale | |
| (23,560) | |
| (106,648) | |
Net gain on sale of consumer loans held for sale | |
| 745 | |
| 1,878 | |
Balance, end of period | | $ | 4,688 | | $ | 11,709 | |
Consumer Loans Held for Sale, at the Lower of Cost or Fair Value
RCS originates for sale 90% or 95% of the balances from its line-of-credit products and 100% for some of its healthcare receivables products. Ordinary gains or losses on the sale of these RCS products are reported as a component of “Program fees.”
Activity for consumer loans held for sale and carried at the lower of cost or market value was as follows:
| | | | | | | |
|
| Three Months Ended |
| ||||
| | March 31, | | ||||
(in thousands) | | 2023 |
| 2022 | | ||
| | | | | | | |
Balance, beginning of period | | $ | 13,169 | | $ | 2,937 | |
Origination of consumer loans held for sale | |
| 184,425 | |
| 148,482 | |
Proceeds from the sale of consumer loans held for sale | |
| (186,639) | |
| (149,632) | |
Net gain on sale of consumer loans held for sale | |
| 1,789 | |
| 1,239 | |
Balance, end of period | | $ | 12,744 | | $ | 3,026 | |
23
5.LOANS AND ALLOWANCE FOR CREDIT LOSSES
The composition of the loan portfolio follows:
| | | | | | | |
(in thousands) |
| March 31, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Traditional Banking: | | | | | | | |
Residential real estate: | | | | | | | |
Owner occupied | | $ | 972,214 | | $ | 911,427 | |
Nonowner occupied | |
| 328,529 | |
| 321,358 | |
Commercial real estate | |
| 1,682,573 | |
| 1,599,510 | |
Construction & land development | |
| 167,829 | |
| 153,875 | |
Commercial & industrial | |
| 478,101 | |
| 413,387 | |
Lease financing receivables | |
| 73,270 | |
| 10,505 | |
Aircraft | | | 184,344 | | | 179,785 | |
Home equity | |
| 250,050 | |
| 241,739 | |
Consumer: | | | | | | | |
Credit cards | |
| 16,775 | |
| 15,473 | |
Overdrafts | |
| 775 | |
| 726 | |
Automobile loans | |
| 5,267 | |
| 6,731 | |
Other consumer | |
| 5,450 | |
| 626 | |
Total Traditional Banking | | | 4,165,177 | | | 3,855,142 | |
Warehouse lines of credit* | |
| 457,365 | |
| 403,560 | |
Total Core Banking | | | 4,622,542 | | | 4,258,702 | |
| | | | | | | |
Republic Processing Group*: | |
| | | | | |
Tax Refund Solutions: | | | | | | | |
Refund Advances | | | 31,665 | | | 97,505 | |
Other TRS commercial & industrial loans | | | 8,327 | | | 51,767 | |
Republic Credit Solutions | | | 111,700 | |
| 107,828 | |
Total Republic Processing Group | | | 151,692 | | | 257,100 | |
| | | | | | | |
Total loans** | |
| 4,774,234 | |
| 4,515,802 | |
Allowance for credit losses | |
| (96,121) | |
| (70,413) | |
| | | | | | | |
Total loans, net | | $ | 4,678,113 | | $ | 4,445,389 | |
*Identifies loans to borrowers located primarily outside of the Bank’s market footprint.
**Total loans are presented inclusive of premiums, discounts, and net loan origination fees and costs. See table directly below for expanded detail.
The following table reconciles the contractually receivable and carrying amounts of loans:
| | | | | | | |
(in thousands) |
| March 31, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Contractually receivable | | $ | 4,781,284 | | $ | 4,519,136 | |
Unearned income | |
| (714) | |
| (835) | |
Unamortized premiums | |
| 169 | |
| 99 | |
Unaccreted discounts | |
| (4,100) | |
| (479) | |
PPP net unamortized deferred origination (fees) and costs | | | (84) | | | (91) | |
Other net unamortized deferred origination (fees) and costs | |
| (2,321) | |
| (2,028) | |
Carrying value of loans | | $ | 4,774,234 | | $ | 4,515,802 | |
24
Credit Quality Indicators
The following tables include loans by segment, risk category, and, for non-revolving loans, origination year. Loan segments and risk categories as of March 31, 2023 remain unchanged from those defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Regarding origination year, loan extensions and renewals are generally considered originated in the year extended or renewed unless the loan is classified as a loan modification (formerly TDR.) Loan extensions and renewals classified as loan modifications (formerly TDRs) generally receive no change in origination date upon extension or renewal.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Revolving Loans | | Revolving Loans | | | | ||
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | |||||||||||||||
As of March 31, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Cost Basis | | to Term | | Total | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate owner occupied: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 71,391 | | $ | 221,178 | | $ | 189,378 | | $ | 186,685 | | $ | 280,428 | | $ | — | | $ | 749 | | $ | 949,809 |
Special Mention | | | 47 | | | — | | | — | | | — | | | 7,002 | | | — | | | — | | | 7,049 |
Substandard | | | — | | | 1,297 | | | 1,361 | | | 1,160 | | | 11,538 | | | — | | | — | | | 15,356 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 71,438 | | $ | 222,475 | | $ | 190,739 | | $ | 187,845 | | $ | 298,968 | | $ | — | | $ | 749 | | $ | 972,214 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | 6 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 6 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate nonowner occupied: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 19,017 | | $ | 74,848 | | $ | 88,212 | | $ | 51,821 | | $ | 86,161 | | $ | — | | $ | 8,364 | | $ | 328,423 |
Special Mention | | | — | | | — | | | — | | | — | | | 30 | | | — | | | — | | | 30 |
Substandard | | | — | | | — | | | 27 | | | — | | | 49 | | | — | | | — | | | 76 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 19,017 | | $ | 74,848 | | $ | 88,239 | | $ | 51,821 | | $ | 86,240 | | $ | — | | $ | 8,364 | | $ | 328,529 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 57,928 | | $ | 457,789 | | $ | 389,353 | | $ | 213,912 | | $ | 377,754 | | $ | 22,947 | | $ | 113,157 | | $ | 1,632,840 |
Special Mention | | | 586 | | | 10,897 | | | 4,000 | | | — | | | 30,808 | | | 142 | | | — | | | 46,433 |
Substandard | | | — | | | — | | | — | | | — | | | 3,300 | | | — | | | — | | | 3,300 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 58,514 | | $ | 468,686 | | $ | 393,353 | | $ | 213,912 | | $ | 411,862 | | $ | 23,089 | | $ | 113,157 | | $ | 1,682,573 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land development: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 28,475 | | $ | 106,203 | | $ | 29,978 | | $ | 1,958 | | $ | 642 | | $ | 275 | | $ | 298 | | $ | 167,829 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 28,475 | | $ | 106,203 | | $ | 29,978 | | $ | 1,958 | | $ | 642 | | $ | 275 | | $ | 298 | | $ | 167,829 |
YTD Gross Charge-offs | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 47,157 | | $ | 112,078 | | $ | 89,610 | | $ | 20,170 | | $ | 73,499 | | $ | 115,529 | | $ | 3,707 | | $ | 461,750 |
Special Mention | | | — | | | 508 | | | 12,817 | | | — | | | 1,752 | | | 255 | | | — | | | 15,332 |
Substandard | | | — | | | — | | | — | | | — | | | 1,019 | | | — | | | — | | | 1,019 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 47,157 | | $ | 112,586 | | $ | 102,427 | | $ | 20,170 | | $ | 76,270 | | $ | 115,784 | | $ | 3,707 | | $ | 478,101 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Lease financing receivables: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 12,346 | | $ | 31,683 | | $ | 14,896 | | $ | 7,298 | | $ | 6,229 | | $ | — | | $ | — | | $ | 72,452 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | 818 | | | — | | | — | | | 818 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 12,346 | | $ | 31,683 | | $ | 14,896 | | $ | 7,298 | | $ | 7,047 | | $ | — | | $ | — | | $ | 73,270 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Aircraft: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 13,640 | | $ | 62,951 | | $ | 51,083 | | $ | 33,033 | | $ | 23,432 | | $ | — | | $ | — | | $ | 184,139 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | 205 | | | — | | | — | | | 205 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 13,640 | | $ | 62,951 | | $ | 51,083 | | $ | 33,033 | | $ | 23,637 | | $ | — | | $ | — | | $ | 184,344 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Home equity: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 248,978 | | $ | — | | $ | 248,978 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | 106 | | | — | | | 106 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 966 | | | — | | | 966 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 250,050 | | $ | — | | $ | 250,050 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
25
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Revolving Loans | | Revolving Loans | | | | | ||
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year (Continued) | | Amortized | | Converted | | | | | |||||||||||||||
As of March 31, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Cost Basis | | to Term | | Total | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 563 | | $ | 1,864 | | $ | 868 | | $ | 133 | | $ | 5,272 | | $ | 19,528 | | $ | — | | $ | 28,228 | |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | | | — | | | — | | | 10 | | | — | | | 29 | | | — | | | — | | | 39 | |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | | $ | 563 | | $ | 1,864 | | $ | 878 | | $ | 133 | | $ | 5,301 | | $ | 19,528 | | $ | — | | $ | 28,267 | |
YTD Gross Charge-offs | | $ | — | | $ | 9 | | $ | 7 | | $ | — | | $ | 4 | | $ | 305 | | $ | — | | $ | 325 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Warehouse: | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 457,365 | | $ | — | | $ | 457,365 | |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 457,365 | | $ | — | | $ | 457,365 | |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
TRS: | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 39,992 | | $ | — | | $ | 39,992 | |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 39,992 | | $ | — | | $ | 39,992 | |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
RCS: | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 10,577 | | $ | 18,530 | | $ | 1,668 | | $ | 1,059 | | $ | 29,120 | | $ | 49,864 | | $ | — | | $ | 110,818 | |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 882 | | | — | | | 882 | |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | | $ | 10,577 | | $ | 18,530 | | $ | 1,668 | | $ | 1,059 | | $ | 29,120 | | $ | 50,746 | | $ | — | | $ | 111,700 | |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 3,099 | | $ | — | | $ | 3,099 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Grand Total: | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 261,094 | | $ | 1,087,124 | | $ | 855,046 | | $ | 516,069 | | $ | 882,537 | | $ | 954,478 | | $ | 126,275 | | $ | 4,682,623 | |
Special Mention | | | 633 | | | 11,405 | | | 16,817 | | | — | | | 39,592 | | | 503 | | | — | | | 68,950 | |
Substandard | | | — | | | 1,297 | | | 1,398 | | | 1,160 | | | 16,958 | | | 1,848 | | | — | | | 22,661 | |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Grand Total | | $ | 261,727 | | $ | 1,099,826 | | $ | 873,261 | | $ | 517,229 | | $ | 939,087 | | $ | 956,829 | | $ | 126,275 | | $ | 4,774,234 | |
YTD Gross Charge-offs | | $ | — | | $ | 9 | | $ | 13 | | $ | — | | $ | 4 | | $ | 3,404 | | $ | — | | $ | 3,430 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Revolving Loans | | Revolving Loans | | | | ||
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | |||||||||||||||
As of December 31, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Cost Basis | | to Term | | Total | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate owner occupied: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 231,638 | | $ | 189,495 | | $ | 188,004 | | $ | 71,306 | | $ | 208,296 | | $ | — | | $ | — | | $ | 888,739 |
Special Mention | | | — | | | 160 | | | — | | | — | | | 7,240 | | | — | | | — | | | 7,400 |
Substandard | | | 1,230 | | | 1,103 | | | 1,501 | | | 1,460 | | | 9,994 | | | — | | | — | | | 15,288 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 232,868 | | $ | 190,758 | | $ | 189,505 | | $ | 72,766 | | $ | 225,530 | | $ | — | | $ | — | | $ | 911,427 |
YTD Gross Charge-offs | | $ | 21 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 21 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate nonowner occupied: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 78,337 | | $ | 91,778 | | $ | 55,058 | | $ | 32,803 | | $ | 57,053 | | $ | — | | $ | 6,147 | | $ | 321,176 |
Special Mention | | | — | | | — | | | — | | | — | | | 32 | | | — | | | — | | | 32 |
Substandard | | | — | | | 30 | | | — | | | — | | | 120 | | | — | | | — | | | 150 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 78,337 | | $ | 91,808 | | $ | 55,058 | | $ | 32,803 | | $ | 57,205 | | $ | — | | $ | 6,147 | | $ | 321,358 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 451,327 | | $ | 394,317 | | $ | 210,055 | | $ | 117,928 | | $ | 253,213 | | $ | 25,499 | | $ | 99,791 | | $ | 1,552,130 |
Special Mention | | | 3,124 | | | 11,870 | | | — | | | 21,296 | | | 9,967 | | | 318 | | | — | | | 46,575 |
Substandard | | | — | | | — | | | — | | | — | | | 805 | | | — | | | — | | | 805 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 454,451 | | $ | 406,187 | | $ | 210,055 | | $ | 139,224 | | $ | 263,985 | | $ | 25,817 | | $ | 99,791 | | $ | 1,599,510 |
YTD Gross Charge-offs | | $ | — | | $ | 9 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 9 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land development: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 107,153 | | $ | 43,289 | | $ | 638 | | $ | 641 | | $ | 373 | | $ | 1,781 | | $ | — | | $ | 153,875 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 107,153 | | $ | 43,289 | | $ | 638 | | $ | 641 | | $ | 373 | | $ | 1,781 | | $ | — | | $ | 153,875 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
26
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Revolving Loans | | Revolving Loans | | | | ||
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year (Continued) | | Amortized | | Converted | | | | |||||||||||||||
As of December 31, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Cost Basis | | to Term | | Total | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 116,483 | | $ | 82,431 | | $ | 17,944 | | $ | 36,254 | | $ | 36,367 | | $ | 103,257 | | $ | 4,865 | | $ | 397,601 |
Special Mention | | | 536 | | | 13,239 | | | — | | | — | | | 1,756 | | | 255 | | | — | | | 15,786 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 117,019 | | $ | 95,670 | | $ | 17,944 | | $ | 36,254 | | $ | 38,123 | | $ | 103,512 | | $ | 4,865 | | $ | 413,387 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Lease financing receivables: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 5,469 | | $ | 1,964 | | $ | 542 | | $ | 1,548 | | $ | 982 | | $ | — | | $ | — | | $ | 10,505 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 5,469 | | $ | 1,964 | | $ | 542 | | $ | 1,548 | | $ | 982 | | $ | — | | $ | — | | $ | 10,505 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Aircraft: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 65,399 | | $ | 54,749 | | $ | 35,085 | | $ | 16,888 | | $ | 7,454 | | $ | — | | $ | — | | $ | 179,575 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | 210 | | | — | | | — | | | 210 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 65,399 | | $ | 54,749 | | $ | 35,085 | | $ | 16,888 | | $ | 7,664 | | $ | — | | $ | — | | $ | 179,785 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Home equity: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 240,704 | | $ | — | | $ | 240,704 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | 171 | | | — | | | 171 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 864 | | | — | | | 864 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 241,739 | | $ | — | | $ | 241,739 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 415 | | $ | 499 | | $ | 168 | | $ | 2,531 | | $ | 4,328 | | $ | 15,573 | | $ | — | | $ | 23,514 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | 9 | | | 33 | | | — | | | — | | | 42 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 415 | | $ | 499 | | $ | 168 | | $ | 2,540 | | $ | 4,361 | | $ | 15,573 | | $ | — | | $ | 23,556 |
YTD Gross Charge-offs | | $ | — | | $ | 5 | | $ | — | | $ | 11 | | $ | — | | $ | 1,274 | | $ | — | | $ | 1,290 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Warehouse: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 403,560 | | $ | — | | $ | 403,560 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 403,560 | | $ | — | | $ | 403,560 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
TRS: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 149,272 | | $ | — | | $ | 149,272 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 149,272 | | $ | — | | $ | 149,272 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 11,659 | | $ | — | | $ | 11,659 |
| | | | | | | | | | | | | | | | | | | | | | | | |
RCS: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 22,357 | | $ | 2,273 | | $ | 1,264 | | $ | 602 | | $ | 29,594 | | $ | 50,589 | | $ | — | | $ | 106,679 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 1,149 | | | — | | | 1,149 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 22,357 | | $ | 2,273 | | $ | 1,264 | | $ | 602 | | $ | 29,594 | | $ | 51,738 | | $ | — | | $ | 107,828 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 11,390 | | $ | — | | $ | 11,390 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Grand Total: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 1,078,578 | | $ | 860,795 | | $ | 508,758 | | $ | 280,501 | | $ | 597,660 | | $ | 990,235 | | $ | 110,803 | | $ | 4,427,330 |
Special Mention | | | 3,660 | | | 25,269 | | | — | | | 21,296 | | | 18,995 | | | 744 | | | — | | | 69,964 |
Substandard | | | 1,230 | | | 1,133 | | | 1,501 | | | 1,469 | | | 11,162 | | | 2,013 | | | — | | | 18,508 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Grand Total | | $ | 1,083,468 | | $ | 887,197 | | $ | 510,259 | | $ | 303,266 | | $ | 627,817 | | $ | 992,992 | | $ | 110,803 | | $ | 4,515,802 |
YTD Gross Charge-offs | | $ | 21 | | $ | 14 | | $ | — | | $ | 11 | | $ | — | | $ | 24,323 | | $ | — | | $ | 24,369 |
27
Allowance for Credit Losses on Loans
The following table presents the activity in the ACLL by portfolio class:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | ACLL Roll-forward | |||||||||||||||||||||||||||||||
| | | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
| | | 2023 | 2022 | ||||||||||||||||||||||||||||||
| | | Beginning | | | CBank | | | | Charge- | | | | Ending | | | Beginning | | | | Charge- | | | | Ending | |||||||||
(in thousands) | | | Balance | | | Adjustment* | | Provision | | offs | | Recoveries | | Balance | | | Balance | | Provision | | offs | | Recoveries | | Balance | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | $ | 8,909 | | $ | — | | $ | (120) | | $ | (6) | | $ | 15 | | $ | 8,798 | | $ | 8,647 | | $ | (331) | | $ | — | | $ | 42 | | $ | 8,358 |
Nonowner occupied | | | | 2,831 | | | — | | | 64 | | | — | | | — | | | 2,895 | | | 2,700 | | | 45 | | | — | | | 1 | | | 2,746 |
Commercial real estate | | | | 23,739 | | | — | | | 1,041 | | | — | | | 47 | | | 24,827 | | | 23,769 | | | 854 | | | — | | | 1 | | | 24,624 |
Construction & land development | | | | 4,123 | | | — | | | 329 | | | — | | | — | | | 4,452 | | | 4,128 | | | (235) | | | — | | | — | | | 3,893 |
Commercial & industrial | | | | 3,976 | | | 1,008 | | | 602 | | | — | | | 90 | | | 5,676 | | | 3,487 | | | (84) | | | — | | | 9 | | | 3,412 |
Lease financing receivables | | | | 110 | | | 592 | | | 648 | | | — | | | — | | | 1,350 | | | 91 | | | 18 | | | — | | | — | | | 109 |
Aircraft | | | | 449 | | | — | | | 12 | | | — | | | — | | | 461 | | | 357 | | | 21 | | | — | | | — | | | 378 |
Home equity | | | | 4,628 | | | — | | | 31 | | | — | | | 1 | | | 4,660 | | | 4,111 | | | (70) | | | — | | | 3 | | | 4,044 |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit cards | | | | 996 | | | — | | | 112 | | | (40) | | | 12 | | | 1,080 | | | 934 | | | 32 | | | (39) | | | 17 | | | 944 |
Overdrafts | | | | 726 | | | — | | | 52 | | | (247) | | | 64 | | | 595 | | | 683 | | | 188 | | | (214) | | | 59 | | | 716 |
Automobile loans | | | | 87 | | | — | | | (16) | | | (7) | | | 2 | | | 66 | | | 186 | | | (36) | | | — | | | 1 | | | 151 |
Other consumer | | | | 135 | | | — | | | 229 | | | (31) | | | 23 | | | 356 | | | 314 | | | (75) | | | (10) | | | 12 | | | 241 |
Total Traditional Banking | | | | 50,709 | | | 1,600 | | | 2,984 | | | (331) | | | 254 | | | 55,216 | | | 49,407 | | | 327 | | | (263) | | | 145 | | | 49,616 |
Warehouse lines of credit | | | | 1,009 | | | — | | | 135 | | | — | | | — | | | 1,144 | | | 2,126 | | | (401) | | | — | | | — | | | 1,725 |
Total Core Banking | | | | 51,718 | | | 1,600 | | | 3,119 | | | (331) | | | 254 | | | 56,360 | | | 51,533 | | | (74) | | | (263) | | | 145 | | | 51,341 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Refund Advances | | | | 3,797 | | | — | | | 21,715 | | | — | | | 285 | | | 25,797 | | | — | | | 8,315 | | | — | | | — | | | 8,315 |
Other TRS commercial & industrial loans | | | | 91 | | | — | | | 93 | | | — | | | — | | | 184 | | | 96 | | | (403) | | | — | | | 362 | | | 55 |
Republic Credit Solutions | | | | 14,807 | | | — | | | 1,839 | | | (3,099) | | | 233 | | | 13,780 | | | 12,948 | | | 1,395 | | | (2,673) | | | 275 | | | 11,945 |
Total Republic Processing Group | | | | 18,695 | | | — | | | 23,647 | | | (3,099) | | | 518 | | | 39,761 | | | 13,044 | | | 9,307 | | | (2,673) | | | 637 | | | 20,315 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 70,413 | | $ | 1,600 | | $ | 26,766 | | $ | (3,430) | | $ | 772 | | $ | 96,121 | | $ | 64,577 | | $ | 9,233 | | $ | (2,936) | | $ | 782 | | $ | 71,656 |
* The net fair value adjustment to ACLL includes an estimate of lifetime credit losses for Purchased Credit Deteriorated loans.
The cumulative loss rate used as the basis for the estimate of the Company’s ACLL as of March 31, 2023 was primarily based on a static pool analysis of each of the Company’s loan pools using the Company’s loss experience from 2013 through 2023, supplemented by qualitative factor adjustments for current and forecasted conditions. The Company employs one-year forecasts of unemployment and CRE values within its ACLL model, with reversion to long-term averages following the forecasted period. The cumulative loss rate within the Company’s ACLL also includes estimated losses based on an individual evaluation of loans which are either collateral dependent or which do not share risk characteristics with pooled loans, e.g., Loan Modifications.
For its CRE loan pool, the Company employed a one-year forecast of CRE vacancy rates through March 31, 2022 but discontinued use of this forecast during the second quarter of 2022 in favor of a one-year forecast of general CRE values. This change in forecast method had no material impact on the Company’s ACLL.
28
Nonperforming Loans and Nonperforming Assets
Detail of nonperforming loans, nonperforming assets, and select credit quality ratios follows:
| | | | | | | |
(dollars in thousands) |
| March 31, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Loans on nonaccrual status* | | $ | 15,833 | | $ | 15,562 | |
Loans past due 90-days-or-more and still on accrual** | |
| 777 | |
| 756 | |
Total nonperforming loans | |
| 16,610 | |
| 16,318 | |
Other real estate owned | |
| 1,529 | |
| 1,581 | |
Total nonperforming assets | | $ | 18,139 | | $ | 17,899 | |
| | | | | | | |
Credit Quality Ratios - Total Company: | | | | | | | |
| | | | | | | |
Nonperforming loans to total loans | |
| 0.35 | % |
| 0.36 | % |
Nonperforming assets to total loans (including OREO) | |
| 0.38 | |
| 0.40 | |
Nonperforming assets to total assets | |
| 0.30 | |
| 0.31 | |
| | | | | | | |
Credit Quality Ratios - Core Bank: | | | | | | | |
| | | | | | | |
Nonperforming loans to total loans | |
| 0.34 | % |
| 0.37 | % |
Nonperforming assets to total loans (including OREO) | |
| 0.38 | |
| 0.40 | |
Nonperforming assets to total assets | |
| 0.32 | |
| 0.32 | |
* | Loans on nonaccrual status include collateral-dependent loans. |
** | Loans past due 90-days-or-more and still accruing consist of smaller balance consumer loans. |
29
The following tables present the recorded investment in nonaccrual loans and loans past due 90-days-or-more and still on accrual by class of loans:
| | | | | | | | | | | | | |
| | | | | | | | | Past Due 90-Days-or-More | ||||
| | Nonaccrual | | | and Still Accruing Interest* | ||||||||
(in thousands) |
| March 31, 2023 |
| December 31, 2022 |
|
| March 31, 2023 |
| December 31, 2022 | ||||
| | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | |
Owner occupied | | $ | 13,046 | | $ | 13,388 | | | $ | — | | $ | — |
Nonowner occupied | |
| 76 | |
| 117 | | |
| — | |
| — |
Commercial real estate | |
| 1,568 | |
| 1,001 | | |
| — | |
| — |
Construction & land development | |
| — | |
| — | | |
| — | |
| — |
Commercial & industrial | |
| — | |
| — | | |
| — | |
| — |
Lease financing receivables | |
| — | |
| — | | |
| — | |
| — |
Aircraft | | | — | | | | | | | — | | | — |
Home equity | |
| 904 | |
| 815 | | |
| — | |
| — |
Consumer: | | | | | | | | | | | | | |
Credit cards | |
| — | |
| — | | |
| — | |
| — |
Overdrafts | |
| — | |
| — | | |
| — | |
| — |
Automobile loans | |
| 33 | |
| 31 | | |
| — | |
| — |
Other consumer | |
| 206 | |
| 210 | | |
| — | |
| — |
Total Traditional Banking | | | 15,833 | | | 15,562 | | | | — | | | — |
Warehouse lines of credit | |
| — | |
| — | | |
| — | |
| — |
Total Core Banking | | | 15,833 | | | 15,562 | | | | — | | | — |
| | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | |
Refund Advances | | | — | | | — | | | | — | | | — |
Other TRS commercial & industrial loans | |
| — | |
| — | | |
| — | |
| — |
Republic Credit Solutions | | | — | | | — | | | | 777 | | | 756 |
Total Republic Processing Group | | | — | | | — | | | | 777 | | | 756 |
| | | | | | | | | | | | | |
Total | | $ | 15,833 | | $ | 15,562 | | | $ | 777 | | $ | 756 |
* Loans past due 90-days-or-more and still accruing consist of smaller balance consumer loans.
| | | | | | | | | | | | |
| | | | Three Months Ended | ||||||||
| | As of March 31, 2023 | | March 31, 2023 | ||||||||
|
| Nonaccrual |
| Nonaccrual |
| | Total | | Interest Income | |||
| | Loans with | | Loans without | | | Nonaccrual | | Recognized | |||
(in thousands) | | ACLL | | ACLL | | | Loans | | on Nonaccrual Loans* | |||
| | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | |
Owner occupied | | $ | 222 | | $ | 12,824 | | $ | 13,046 | | $ | 181 |
Nonowner occupied | |
| 24 | | | 52 | | | 76 | | | 1 |
Commercial real estate | |
| 966 | | | 602 | | | 1,568 | | | 23 |
Construction & land development | |
| — | | | — | | | — | | | — |
Commercial & industrial | |
| — | | | — | | | — | | | — |
Lease financing receivables | |
| — | | | — | | | — | | | — |
Aircraft | | | — | | | — | | | — | | | — |
Home equity | |
| 1 | | | 903 | | | 904 | | | 23 |
Consumer | | | — | | | 239 | | | 239 | | | 3 |
Total | | $ | 1,213 | | $ | 14,620 | | $ | 15,833 | | $ | 231 |
* Includes interest income for loans on nonaccrual as of the beginning of the period that were paid off during the period.
30
| | | | | | | | | | | | |
| | | | Three Months Ended | ||||||||
| | As of December 31, 2022 | | December 31, 2022 | ||||||||
|
| Nonaccrual |
| Nonaccrual |
| | Total | | Interest Income | |||
| | Loans with | | Loans without | | | Nonaccrual | | Recognized | |||
(in thousands) | | ACLL | | ACLL | | | Loans | | on Nonaccrual Loans* | |||
| | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | |
Owner occupied | | $ | 2,252 | | $ | 11,136 | | $ | 13,388 | | $ | 230 |
Nonowner occupied | |
| 56 | | | 61 | | | 117 | | | 1 |
Commercial real estate | |
| 1,001 | | | — | | | 1,001 | | | 630 |
Construction & land development | |
| — | | | — | | | — | | | — |
Commercial & industrial | |
| — | | | — | | | — | | | — |
Lease financing receivables | |
| — | | | — | | | — | | | — |
Aircraft | | | — | | | — | | | — | | | — |
Home equity | |
| — | | | 815 | | | 815 | | | 44 |
Consumer | | | 15 | | | 226 | | | 241 | | | 46 |
Total | | $ | 3,324 | | $ | 12,238 | | $ | 15,562 | | $ | 951 |
* Includes interest income for loans on nonaccrual as of the beginning of the period that were paid off during the period.
Nonaccrual loans and loans past due 90-days-or-more and still on accrual both include smaller balance, primarily retail, homogeneous loans. Nonaccrual loans are typically returned to accrual status when all the principal and interest amounts contractually due are brought current and held current for six consecutive months and future contractual payments are reasonably assured. Loan Modifications (formerly TDRs prior to the adoption of ASU 2022-02) on nonaccrual status are reviewed for return to accrual status on an individual basis, with additional consideration given to performance under the modified terms.
Delinquent Loans
The following tables present the aging of the recorded investment in loans by class of loans:
| | | | | | | | | | | | | | | | | | | |
|
| 30 - 59 |
| 60 - 89 |
| 90 or More |
|
| |
|
| |
|
| |
| |||
March 31, 2023 | Days | | Days | | Days | | Total | | Total | | | |
| ||||||
(dollars in thousands) | | Delinquent | | Delinquent | | Delinquent* | | Delinquent** | | Current | | Total |
| ||||||
| | | | | | | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | | |
Owner occupied | | $ | 2,587 | | $ | 1,195 | | $ | 929 | | $ | 4,711 | | $ | 967,503 | | $ | 972,214 | |
Nonowner occupied | |
| — | |
| — | |
| — | |
| — | |
| 328,529 | |
| 328,529 | |
Commercial real estate | |
| — | |
| — | |
| 602 | |
| 602 | |
| 1,681,971 | |
| 1,682,573 | |
Construction & land development | |
| — | |
| — | |
| — | |
| — | |
| 167,829 | |
| 167,829 | |
Commercial & industrial | |
| — | |
| — | |
| — | |
| — | |
| 478,101 | |
| 478,101 | |
Lease financing receivables | |
| — | |
| — | |
| — | |
| — | |
| 73,270 | |
| 73,270 | |
Aircraft | | | — | | | — | | | — | | | — | | | 184,344 | | | 184,344 | |
Home equity | |
| 59 | |
| — | |
| 4 | |
| 63 | |
| 249,987 | |
| 250,050 | |
Consumer: | | | | | | | | | | | | | | | | | | | |
Credit cards | |
| 24 | |
| 6 | |
| — | |
| 30 | |
| 16,745 | |
| 16,775 | |
Overdrafts | |
| 109 | |
| 1 | |
| 2 | |
| 112 | |
| 663 | |
| 775 | |
Automobile loans | |
| — | |
| — | |
| 13 | |
| 13 | |
| 5,254 | |
| 5,267 | |
Other consumer | |
| 5 | |
| 1 | |
| — | |
| 6 | |
| 5,444 | |
| 5,450 | |
Total Traditional Banking | | | 2,784 | | | 1,203 | | | 1,550 | | | 5,537 | | | 4,159,640 | | | 4,165,177 | |
Warehouse lines of credit | |
| — | |
| — | |
| — | |
| — | |
| 457,365 | |
| 457,365 | |
Total Core Banking | | | 2,784 | | | 1,203 | | | 1,550 | | | 5,537 | | | 4,617,005 | | | 4,622,542 | |
| | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | | | | | | |
Refund Advances | | | 18,450 | |
| — | |
| — | |
| 18,450 | |
| 13,215 | |
| 31,665 | |
Other TRS commercial & industrial loans | |
| 406 | |
| — | |
| — | |
| 406 | |
| 7,921 | |
| 8,327 | |
Republic Credit Solutions | | | 7,685 | |
| 3,269 | |
| 777 | |
| 11,731 | |
| 99,969 | |
| 111,700 | |
Total Republic Processing Group | | | 26,541 | | | 3,269 | | | 777 | | | 30,587 | | | 121,105 | | | 151,692 | |
| | | | | | | | | | | | | | | | | | | |
Total | | $ | 29,325 | | $ | 4,472 | | $ | 2,327 | | $ | 36,124 | | $ | 4,738,110 | | $ | 4,774,234 | |
Delinquency ratio*** | |
| 0.61 | % |
| 0.09 | % |
| 0.05 | % |
| 0.76 | % | | | | | | |
* All loans past due 90-days-or-more, excluding small balance consumer loans, were on nonaccrual status.
** Delinquent status may be determined by either the number of days past due or number of payments past due.
*** Represents total loans 30-days-or-more past due by aging category divided by total loans.
31
| | | | | | | | | | | | | | | | | | | |
|
| 30 - 59 |
| 60 - 89 |
| 90 or More |
|
| |
|
| |
|
| |
| |||
December 31, 2022 | Days | | Days | | Days | | Total | | Total | | | |
| ||||||
(dollars in thousands) | | Delinquent | | Delinquent | | Delinquent* | | Delinquent** | | Current | | Total |
| ||||||
| | | | | | | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | | |
Owner occupied | | $ | 2,382 | | $ | 1,185 | | $ | 1,267 | | $ | 4,834 | | $ | 906,593 | | $ | 911,427 | |
Nonowner occupied | |
| — | |
| — | |
| — | |
| — | |
| 321,358 | |
| 321,358 | |
Commercial real estate | |
| 604 | |
| — | |
| — | |
| 604 | |
| 1,598,906 | |
| 1,599,510 | |
Construction & land development | |
| — | |
| — | |
| — | |
| — | |
| 153,875 | |
| 153,875 | |
Commercial & industrial | |
| 177 | |
| — | |
| — | |
| 177 | |
| 413,210 | |
| 413,387 | |
Lease financing receivables | |
| — | |
| — | |
| — | |
| — | |
| 10,505 | |
| 10,505 | |
Aircraft | | | — | | | — | | | — | | | — | | | 179,785 | | | 179,785 | |
Home equity | |
| 56 | |
| 93 | |
| 26 | |
| 175 | |
| 241,564 | |
| 241,739 | |
Consumer: | | | | | | | | | | | | | | | | | | | |
Credit cards | |
| 50 | |
| 5 | |
| — | |
| 55 | |
| 15,418 | |
| 15,473 | |
Overdrafts | |
| 158 | |
| 1 | |
| 1 | |
| 160 | |
| 566 | |
| 726 | |
Automobile loans | |
| 8 | |
| — | |
| 3 | |
| 11 | |
| 6,720 | |
| 6,731 | |
Other consumer | |
| 43 | |
| 1 | |
| — | |
| 44 | |
| 582 | |
| 626 | |
Total Traditional Banking | | | 3,478 | | | 1,285 | | | 1,297 | | | 6,060 | | | 3,849,082 | | | 3,855,142 | |
Warehouse lines of credit | |
| — | |
| — | |
| — | |
| — | |
| 403,560 | |
| 403,560 | |
Total Core Banking | | | 3,478 | | | 1,285 | | | 1,297 | | | 6,060 | | | 4,252,642 | | | 4,258,702 | |
| | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | | | | | | |
Refund Advances | | | — | |
| — | |
| — | |
| — | |
| 97,505 | |
| 97,505 | |
Other TRS commercial & industrial loans | |
| — | |
| — | |
| — | |
| — | |
| 51,767 | |
| 51,767 | |
Republic Credit Solutions | | | 6,488 | |
| 1,956 | |
| 756 | |
| 9,200 | |
| 98,628 | |
| 107,828 | |
Total Republic Processing Group | | | 6,488 | | | 1,956 | | | 756 | | | 9,200 | | | 247,900 | | | 257,100 | |
| | | | | | | | | | | | | | | | | | | |
Total | | $ | 9,966 | | $ | 3,241 | | $ | 2,053 | | $ | 15,260 | | $ | 4,500,542 | | $ | 4,515,802 | |
Delinquency ratio*** | |
| 0.22 | % |
| 0.07 | % |
| 0.05 | % |
| 0.34 | % | | | | | | |
* All loans past due 90-days-or-more, excluding smaller balance consumer loans, were on nonaccrual status.
** Delinquent status may be determined by either the number of days past due or number of payments past due.
*** Represents total loans 30-days-or-more past due by aging category divided by total loans.
32
Collateral-Dependent Loans
The following table presents the amortized cost basis of collateral-dependent loans by class of loans:
| | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | ||||||||
| | Secured |
| Secured | | Secured |
| Secured | ||||
| | by Real | | by Personal | | by Real | | by Personal | ||||
(in thousands) | | Estate | | Property | | Estate | | Property | ||||
| | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | |
Owner occupied | | $ | 17,011 | | $ | — | | $ | 18,057 | | $ | — |
Nonowner occupied | |
| 77 | |
| — | |
| 150 | |
| — |
Commercial real estate | |
| 1,602 | |
| — | |
| 1,041 | |
| — |
Construction & land development | |
| — | |
| — | |
| — | |
| — |
Commercial & industrial | |
| — | |
| — | |
| — | |
| — |
Lease financing receivables | |
| — | |
| — | |
| — | |
| — |
Aircraft | | | — | |
| 205 | | | — | |
| 210 |
Home equity | |
| 967 | |
| — | |
| 967 | |
| — |
Consumer | | | — | |
| 38 | | | — | |
| 26 |
Total Traditional Banking | | $ | 19,657 | | $ | 243 | | $ | 20,215 | | $ | 236 |
Collateral-dependent loans are generally secured by real estate or personal property. If there is insufficient collateral value to secure the Company’s recorded investment in these loans, they are charged down to collateral value less estimated selling costs, when selling costs are applicable. Selling costs range from 10% to 13%, with those percentages based on annual studies performed by the Company.
Loan Modification Disclosures Pursuant to ASU 2022-02
The following table shows the amortized cost of loans and leases as of March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2023, segregated by portfolio segment and type of modification. The following tables shows the amortized cost of loans and leases modified by type.
| | | | | | | | | | | | | | | |
| | Amortized Cost Basis of Modified Financing Receivables | |||||||||||||
March 31, 2023 (dollars in thousands) | | Loans (#) | | Rate Reduction ($) | | Loans (#) | | Term Extension ($) | | Loans (#) | | Principal Deferral ($) | |||
Residential real estate: | | | | | | | | | | | | | | | |
Owner occupied | | — | | $ | — | | 2 | | $ | 265 | | 4 | | $ | 344 |
Nonowner occupied | | — | | | — | | — | | | — | | — | | | — |
Home equity | | — | | | — | | — | | | — | | 1 | | | 72 |
Republic Processing Group | | — | | | — | | — | | | — | | 537 | | | 105 |
Total Loan Modifications | | — | | $ | — | | 2 | | $ | 265 | | 542 | | $ | 521 |
| | | | | | | | | | |
| | Total Loan Modification by Type | ||||||||
| | Accruing | | Nonaccruing | ||||||
March 31, 2023 (dollars in thousands) | | Loans (#) | | Recorded investment ($) | | Loans (#) | | Recorded investment ($) | ||
Term extension | | — | | $ | — | | 2 | | $ | 265 |
Principal deferral | | 537 | | | 105 | | 5 | | | 416 |
Total Loan Modifications | | 537 | | $ | 105 | | 7 | | $ | 681 |
33
The following tables show the percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financing receivable.
| | | | | | | | |
| | Accruing Loan Modifications | ||||||
| | Three Months Ended March 31, 2023 | ||||||
| | | | | | | % of Total | |
| | | | Amortized | | of Financing | ||
(dollars in thousands) | | Loans (#) | | Cost Basis ($) | | Receivable | ||
Republic Processing Group | | 537 | | $ | 105 | | 0.07 | % |
Total Accruing Loan Modifications | | 537 | | $ | 105 | | NM | |
| | | | | | | | |
| | Nonaccruing Loan Modifications | ||||||
| | Three Months Ended March 31, 2023 | ||||||
| | | | | | | % of Total | |
| | | | Amortized | | of Financing | ||
(dollars in thousands) | | Loans (#) | | Cost Basis ($) | | Receivable | ||
Residential real estate: | | | | | | | | |
Owner occupied | | 6 | | $ | 609 | | 0.06 | % |
Home equity | | 1 | | | 72 | | 0.03 | |
Total Nonaccruing Loan Modifications | | 7 | | $ | 681 | | 0.01 | % |
There were no commitments to lend additional amounts to the borrowers included in the previous table.
The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans and leases that have been modified during the three months ended March 31, 2023.
| | | | | | | | | |
| | Accruing Loan Modifications | |||||||
| | Three Months Ended March 31, 2023 | |||||||
| | | | | 30-89 Days | | 90+ Days | ||
(in thousands) | | Current | | Past Due | | Past Due | |||
Republic Processing Group | | $ | 105 | | $ | — | | $ | — |
Total Accruing Loan Modifications | | $ | 105 | | $ | — | | $ | — |
| | | | | | | | | |
| | Nonaccruing Loan Modifications | |||||||
| | Three Months Ended March 31, 2023 | |||||||
| | | | | 30-89 Days | | 90+ Days | ||
(in thousands) | | Current | | Past Due | | Past Due | |||
Residential real estate: | | | | | | | | | |
Owner occupied | | $ | 609 | | $ | — | | $ | — |
Nonowner occupied | | | — | | | — | | | — |
Home equity | | | 72 | | | — | | | — |
Total Nonaccruing Loan Modifications | | $ | 681 | | $ | — | | $ | — |
There were no modified loans and leases that had a payment default during the three months ended March 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.
Upon the Company’s determination that a modified loan or lease has subsequently been deemed uncollectible, the loan or lease is written off. Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for loan and lease losses is adjusted by the same amount.
34
Troubled Debt Restructuring (TDR) Disclosures Prior to the Adoption of ASU 2022-02
A summary of the categories of TDR loan modifications by respective performance as of March 31, 2022 that were modified during the three months ended March 31, 2022 follows:
| | | | | | | | | | | | | | | | |
|
| Troubled Debt |
| Troubled Debt |
| | |
| |
| ||||||
| | Restructurings | | Restructurings | | Total |
| |||||||||
| | Performing to | | Not Performing to | | Troubled Debt |
| |||||||||
| | Modified Terms | | Modified Terms | | Restructurings |
| |||||||||
|
| Number of |
| Recorded |
| Number of |
| Recorded |
| Number of |
| Recorded |
| |||
March 31, 2022 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Legal modification | | 6 | | $ | 772 | | — | | $ | — | | 6 | | $ | 772 | |
Total residential TDRs | | 6 | |
| 772 | | — | |
| — | | 6 | |
| 772 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 258 | |
| 42 | | — | |
| — | | 258 | |
| 42 | |
Total consumer TDRs | | 258 | |
| 42 | | — | |
| — | | 258 | |
| 42 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 264 | | $ | 814 | | — | | $ | — | | 264 | | $ | 814 | |
| | | | | | | | | | | | | | | | |
The classification between nonperforming and performing was determined at the time of modification. Modification programs focus on extending maturity dates or modifying payment patterns with most TDRs experiencing a combination of concessions. Modifications do not result in the contractual forgiveness of principal or interest. There were no modifications during the three months ended March 31, 2022 that resulted in an interest rate below market rate.
There were no TDRs which had a payment default within the twelve months following modification during the three months ended March 31, 2022. Default occurs when a loan or lease is 90 days or more past due under the modified terms or transferred to nonaccrual.
The following table shows the recorded investment of loans and leases classified as troubled debt restructurings as of December 31, 2022.
| | | | | | | | | | | | | | | | |
|
| Troubled Debt |
| Troubled Debt |
| | |
| |
| ||||||
| | Restructurings | | Restructurings | | Total |
| |||||||||
| | Performing to | | Not Performing to | | Troubled Debt |
| |||||||||
| | Modified Terms | | Modified Terms | | Restructurings |
| |||||||||
|
| Number of |
| Recorded |
| Number of |
| Recorded |
| Number of |
| Recorded |
| |||
December 31, 2022 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Rate reduction | | 67 | | $ | 6,305 | | 3 | | $ | 242 | | 70 | | $ | 6,547 | |
Principal deferral | | 7 | |
| 699 | | — | |
| — | | 7 | |
| 699 | |
Legal modification | | 67 | |
| 3,149 | | 6 | |
| 377 | | 73 | |
| 3,526 | |
Total residential TDRs | | 141 | |
| 10,153 | | 9 | |
| 619 | | 150 | |
| 10,772 | |
| | | | | | | | | | | | | | | | |
Commercial related and construction/land development loans: | | | | | | | | | | | | | | | | |
Rate reduction | | 1 | |
| 847 | | — | |
| — | | 1 | |
| 847 | |
Principal deferral | | 1 | |
| 1 | | — | |
| — | | 1 | |
| 1 | |
Total commercial TDRs | | 2 | |
| 848 | | — | |
| — | | 2 | |
| 848 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 2,320 | | | 393 | | — | |
| — | | 2,320 | |
| 393 | |
Legal modification | | 3 | | | 13 | | — | | | — | | 3 | |
| 13 | |
Total consumer TDRs | | 2,323 | |
| 406 | | — | |
| — | | 2,323 | |
| 406 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 2,466 | | $ | 11,407 | | 9 | | $ | 619 | | 2,475 | | $ | 12,026 | |
There was no significant change between the pre and post modification loan balances for the three months ending March 31, 2022.
35
There were no loans modified as troubled debt restructurings within the previous 12 months of March 31, 2022 for which there was a payment default during the three months ended March 31, 2022.
Foreclosures
The following table presents the carrying amount of foreclosed properties held as a result of the Bank obtaining physical possession of such properties:
| | | | | | | |
(in thousands) | | March 31, 2023 | | December 31, 2022 |
| ||
| | | | | | | |
Commercial real estate | | $ | 1,529 | | $ | 1,581 | |
| | | | | | | |
Total other real estate owned | | $ | 1,529 |
| $ | 1,581 | |
The following table presents the recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to requirements of the applicable jurisdiction:
| | | | | | |
(in thousands) |
| March 31, 2023 |
| December 31, 2022 | ||
| | | | | | |
Recorded investment in consumer residential real estate mortgage loans in the process of foreclosure |
| $ | 546 |
| $ | 909 |
Refund Advances
The Company’s TRS segment offered its RA product during the first two months of 2023 and 2022, along with its ERA product which was offered during December 2022 and the first two weeks of 2023. The ERA originations during December 2022 and the first two weeks of 2023 were made in relation to estimated tax returns that were anticipated to be filed during the first quarter 2023 tax season. Each year, all unpaid RAs, including ERAs, are charged off by June 30th, and each quarter thereafter, any credits to the Provision for RAs, including ERAs, match the recovery of previously charged-off accounts.
Information regarding RAs follows:
| | | | | | | | | | |
| | | Three Months Ended | |||||||
|
| | March 31, | |||||||
(dollars in thousands) |
| | 2023 |
| 2022 | |||||
| | | | | | | | | | |
Refund Advances originated |
| | $ | 737,047 | | | $ | 311,207 | | |
Net charge to the Provision for RAs, including ERAs |
| | | 21,715 | | | | 8,315 | | |
Provision as a percentage of RAs, including ERAs, originated during the first quarter | | | | 2.95 | % | | | 2.67 | % | |
36
6.DEPOSITS
The composition of the deposit portfolio follows:
| | | | | | | |
(in thousands) |
| March 31, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Core Bank: | | | | | | | |
Demand | | $ | 1,272,086 | | $ | 1,336,082 | |
Money market accounts | |
| 794,710 | |
| 707,272 | |
Savings | |
| 316,947 | |
| 323,015 | |
Reciprocal money market | |
| 123,486 | |
| 28,635 | |
Individual retirement accounts (1) | |
| 36,334 | |
| 38,640 | |
Time deposits, $250 and over (1) | |
| 46,687 | |
| 54,855 | |
Other certificates of deposit (1) | |
| 176,257 | |
| 129,324 | |
Reciprocal time deposits (1) | |
| 13,273 | |
| 7,405 | |
Total Core Bank interest-bearing deposits | |
| 2,779,780 | |
| 2,625,228 | |
Total Core Bank noninterest-bearing deposits | | | 1,471,180 | | | 1,464,493 | |
Total Core Bank deposits | | | 4,250,960 | | | 4,089,721 | |
| | | | | | | |
Republic Processing Group: | | | | | | | |
Money market accounts | | | 5,931 | | | 3,849 | |
Total RPG interest-bearing deposits | | | 5,931 | | | 3,849 | |
| | | | | | | |
Brokered prepaid card deposits | | | 390,052 | | | 328,655 | |
Other noninterest-bearing deposits | | | 152,725 | | | 115,620 | |
Total RPG noninterest-bearing deposits | | | 542,777 | | | 444,275 | |
Total RPG deposits | | | 548,708 | | | 448,124 | |
| | | | | | | |
Total deposits | | $ | 4,799,668 | | $ | 4,537,845 | |
(1) | Includes time deposit. |
37
7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS
Securities sold under agreements to repurchase consist of short-term excess funds from correspondent banks, repurchase agreements, and overnight liabilities to deposit clients arising from the Bank’s treasury management program. While comparable to deposits in their transactional nature, these overnight liabilities to clients are in the form of repurchase agreements. Repurchase agreements collateralized by securities are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. Should the fair value of currently pledged securities fall below the associated repurchase agreements, the Bank would be required to pledge additional securities. To mitigate the risk of under collateralization, the Bank typically pledges at least two percent more in securities than the associated repurchase agreements. All such securities are under the Bank’s control.
As of March 31, 2023 and December 31, 2022, all securities sold under agreements to repurchase had overnight maturities. Additional information regarding securities sold under agreements to repurchase follows:
| | | | | | | | | |
(dollars in thousands) |
| March 31, 2023 |
|
| December 31, 2022 |
| | ||
| | | | | | | | | |
Outstanding balance at end of period | | $ | 134,412 | | | $ | 216,956 | | |
Weighted average interest rate at end of period | |
| 0.45 | % | |
| 0.41 | % | |
| | | | | | | | | |
Fair value of securities pledged: | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 133,652 | | | $ | 254,296 | | |
Total securities pledged | | $ | 133,652 | | | $ | 254,296 | | |
| | | | | | | | | | |
|
| Three Months Ended | | | | |||||
|
| March 31, | | | | |||||
(dollars in thousands) |
| 2023 |
| | 2022 |
| | | ||
| | | | | | | | | | |
Average outstanding balance during the period |
| $ | 202,910 |
| | $ | 300,169 | | | |
Weighted average interest rate during the period | | | 0.49 | % | | | 0.04 | % | | |
Maximum outstanding at any month end during the period |
| $ | 224,067 |
| | $ | 299,376 | | | |
38
8.RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES
The Company records as operating lease liabilities the present value of its required minimum lease payments plus any amounts probable of being owed under a residual value guarantee. Offsetting these operating lease liabilities, the Company records right-of-use assets for the underlying leased property.
As of March 31, 2023, the Company was under 45 separate and distinct operating lease contracts to lease the land and/or buildings for 36 of its offices, with 12 such operating leases contracted with a related party of the Company. As of March 31, 2023, payments on 22 of the Company’s operating leases were considered variable because such payments were adjustable based on periodic changes in the Consumer Price Index.
The Company recorded a renewal to one of its third-party leases during the first quarter of 2023 with a total right-of-use asset value of $772,000.
The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the “Occupancy” category for the three months ended March 31, 2023 and 2022:
| | | | | | | |
|
| Three Months Ended | | ||||
|
| March 31, | | ||||
(dollars in thousands) |
| 2023 | | 2022 |
| ||
| | | | | | | |
Operating lease expense: |
| | | | | | |
Related Party: | | | | | | | |
Variable lease expense | | $ | 1,224 |
| $ | 1,265 | |
Fixed lease expense |
| | 59 | | | 35 | |
Third-Party: | | | | | | | |
Variable lease expense | | | 311 | | | 197 | |
Fixed lease expense | | | 389 | | | 345 | |
Total operating lease expense | | $ | 1,983 |
| $ | 1,842 | |
| | | | | | | |
Other information concerning operating leases: | | | | | | | |
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 1,730 | | $ | 1,705 | |
Cash paid for variable rent payments not included in measurement of operating lease liabilities | | | 151 | | | 151 | |
Short-term lease payments not included in the measurement of lease liabilities | | | — | | | — | |
The following table presents the weighted average remaining term and weighted average discount rate for the Company’s non-short-term operating leases as of March 31, 2023 and December 31, 2022:
| | | | | | | |
|
| March 31, 2023 | | December 31, 2022 | | ||
| | | | | | | |
Weighted average remaining term in years | | | 8.19 | | | 8.44 | |
Weighted average discount rate | |
| 2.13 | % |
| 2.10 | % |
39
The following table presents a maturity schedule of the Company’s operating lease liabilities based on undiscounted cash flows, and a reconciliation of those undiscounted cash flows to the operating lease liabilities recognized on the Company’s balance sheet as of March 31, 2023:
| | | | | | | | | | |
Year (in thousands) |
| Related Party |
| Third-Party |
| Total |
| |||
| | | | | | | | | | |
2023 |
| $ | 2,988 |
| $ | 1,932 |
| $ | 4,920 | |
2024 |
| | 3,726 |
| | 2,316 |
| | 6,042 | |
2025 |
| | 3,570 |
| | 1,782 |
| | 5,352 | |
2026 |
| | 3,640 |
| | 1,483 |
| | 5,123 | |
2027 |
| | 3,680 |
| | 1,160 |
| | 4,840 | |
Thereafter |
| | 11,751 |
| | 3,630 |
| | 15,381 | |
Total undiscounted cash flows | | $ | 29,355 | | $ | 12,303 | | $ | 41,658 | |
Discount applied to cash flows | | | (3,143) | | | (1,484) | | | (4,627) | |
Total discounted cash flows reported as operating lease liabilities | | $ | 26,212 | | $ | 10,819 | | $ | 37,031 | |
9.FEDERAL HOME LOAN BANK ADVANCES
FHLB advances were as follows:
| | | | | | | |
(in thousands) |
| March 31, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Overnight advances | | $ | 88,000 | | $ | 75,000 | |
Fixed interest rate advances | |
| 20,000 | |
| 20,000 | |
Total FHLB advances | | $ | 108,000 | | $ | 95,000 | |
Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances that are paid off earlier than maturity. FHLB advances are collateralized by a blanket pledge of eligible real estate loans. As of March 31, 2023 and December 31, 2022, Republic had available borrowing capacity of $930 million and $899 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $125 million available through various other financial institutions as of March 31, 2023 and December 31, 2022.
Aggregate future principal payments on FHLB advances based on contractual maturity and the weighted average cost of such advances are detailed below:
| | | | | | |
|
|
| |
| Weighted |
|
| | | | | Average |
|
Year (dollars in thousands) | | Principal | | Rate |
| |
| | | | | | |
2023 |
| $ | 88,000 |
| 4.86 | % |
2024 |
| | — | | — | |
2025 |
| | — |
| — | |
2026 |
| | — |
| — | |
2027 | | | 20,000 |
| 1.89 | |
Total | | $ | 108,000 |
| 4.31 | % |
40
Due to their nature, the Bank considers average balance information more meaningful than period-end balances for its overnight borrowings from the FHLB. Information regarding overnight FHLB advances follows:
| | | | | | | | | |
| | Three Months Ended | | | |||||
| | March 31, | | | |||||
(dollars in thousands) |
| 2023 |
| | 2022 |
| | ||
| | | | | | | | | |
Average outstanding balance during the period |
| $ | 225,344 |
| | $ | 1,711 | |
|
Weighted average interest rate during the period | | | 4.43 | % | | | 0.15 | % | |
Maximum outstanding at any month end during the period |
| $ | 485,000 |
| | $ | 25,000 | |
|
The following table illustrates real estate loans pledged to collateralize advances and letters of credit with the FHLB:
| | | | | | | |
(in thousands) |
| March 31, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
First lien, single family residential real estate | | $ | 1,159,090 | | $ | 1,106,287 | |
Home equity lines of credit | |
| 223,472 | |
| 219,644 | |
41
10.OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES
Commitments to Extend Credit
The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. These financial instruments primarily include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.
The Company also extends binding commitments to clients and prospective clients. Such commitments assure a borrower of financing for a specified period of time at a specified rate. The risk to the Company under such loan commitments is limited by the terms of the contracts. For example, the Company may not be obligated to advance funds if the client’s financial condition deteriorates or if the client fails to meet specific covenants.
An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(s) may demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates may rise above the rate committed to the Company’s client. Since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time may not require future funding.
The following table presents the Company’s commitments, exclusive of Mortgage Banking loan commitments, for each period ended:
| | | | | | | |
(in thousands) |
| March 31, 2023 |
| December 31, 2022 | | ||
| | | | | | | |
Unused warehouse lines of credit | | $ | 540,135 | | $ | 733,940 | |
Unused home equity lines of credit | |
| 419,814 | |
| 410,057 | |
Unused loan commitments - other | |
| 1,027,617 | |
| 951,021 | |
Standby letters of credit | |
| 8,819 | |
| 9,735 | |
FHLB letter of credit | |
| 233 | |
| 643 | |
Total commitments | | $ | 1,996,618 | | $ | 2,105,396 | |
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third-party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does not deem this risk to be material.
42
The following tables present a roll-forward of the ACLC for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | ACLC Roll-forward | ||||||||||||||||||||||||||||
| | | Three Months Ended March 31, | ||||||||||||||||||||||||||||
| | | 2023 | | 2022 | ||||||||||||||||||||||||||
| | | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | ||||||||||
(in thousands) | | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loan Commitments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unused warehouse lines of credit | | | $ | 190 | | $ | 8 | | $ | — | | $ | — | | $ | 198 | | $ | 154 | | $ | (24) | | $ | — | | $ | — | | $ | 130 |
Unused home equity lines of credit | | | | 332 | | | 9 | | | — | | | — | | | 341 | | | 247 | | | 9 | | | — | | | — | | | 256 |
Unused construction lines of credit | | | | 384 | | | 163 | | | — | | | — | | | 547 | | | 383 | | | (16) | | | — | | | — | | | 367 |
Unused loan commitments - other | | | | 344 | | | 30 | | | — | | | — | | | 374 | | | 268 | | | 19 | | | — | | | — | | | 287 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 1,250 | | $ | 210 | | $ | — | | $ | — | | $ | 1,460 | | $ | 1,052 | | $ | (12) | | $ | — | | $ | — | | $ | 1,040 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company increased its ACLC during the three months ended March 31, 2023 based on an increase in the expected loss rate for its unused commitments.
43
11.FAIR VALUE
Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Bank used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
Available-for-sale debt securities: Except for the Bank’s U.S. Treasury securities, its private label mortgage-backed security, and its TRUP investment, the fair value of AFS debt securities is typically determined by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
The Bank’s U.S. Treasury securities are based on quoted market prices (Level 1 inputs) and considered highly liquid.
The Bank’s private label mortgage-backed security remains illiquid, and as such, the Bank classifies this security as a Level 3 security in accordance with ASC Topic 820, Fair Value Measurement. Based on this determination, the Bank utilized an income valuation model (present value model) approach in determining the fair value of this security.
See in this section of the filing under Footnote 3 “Investment Securities” for additional discussion regarding the Bank’s private label mortgage-backed security.
The Company acquired its TRUP investment in 2015 and considered the most recent bid price for the same instrument to approximate market value as of March 31, 2023. The Company’s TRUP investment is considered highly illiquid and also valued using Level 3 inputs, as the most recent bid price for this instrument is not always considered generally observable.
Equity securities with readily determinable fair value: Quoted market prices in an active market are available for the Bank’s CRA mutual fund investment and fall within Level 1 of the fair value hierarchy.
The fair value of the Company’s Freddie Mac preferred stock is determined by matrix pricing, as described above (Level 2 inputs).
Mortgage loans held for sale, at fair value: The fair value of mortgage loans held for sale is determined using quoted secondary market prices. Mortgage loans held for sale are classified as Level 2 in the fair value hierarchy.
Consumer loans held for sale, at fair value: The fair value for these loans is based on contractual sales terms, Level 3 inputs.
Consumer loans held for investment, at fair value: The Bank held an immaterial amount of consumer loans at fair value through a consumer loan program the Company is currently unwinding. The fair value of these loans was based on the discounted cash flows of the underlying loans, Level 3 inputs. Further disclosure of these loans is considered immaterial and thus omitted.
44
Mortgage Banking derivatives: Mortgage Banking derivatives used in the ordinary course of business primarily consist of mandatory forward sales contracts (“forward contracts”) and interest rate lock loan commitments. The fair value of the Bank’s derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. The pricing is derived from market observable inputs that can generally be verified and do not typically involve significant judgment by the Bank. Forward contracts and rate lock loan commitments are classified as Level 2 in the fair value hierarchy.
Interest rate swap agreements: Interest rate swaps are recorded at fair value on a recurring basis. The Company values its interest rate swaps using a third-party valuation service and classifies such valuations as Level 2. Valuations of these interest rate swaps are also received from the relevant dealer counterparty and validated against the Company’s calculations. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets and has considered its own credit risk in the valuation of its interest rate swap liabilities.
Collateral-dependent loans: Collateral-dependent loans generally reflect partial charge-downs to their respective fair value, which is commonly based on recent real estate appraisals or BPOs. These appraisals or BPOs may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the process by the independent experts to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Collateral-dependent loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Other real estate owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals or BPOs. These appraisals or BPOs may utilize a single approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the process by the independent experts to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.
Appraisals for collateral-dependent loans, impaired premises and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Bank. Once the appraisal is received, a member of the Bank’s CCAD reviews the assumptions and approaches utilized in the appraisal, as well as the overall resulting fair value in comparison with independent data sources, such as recent market data or industry-wide statistics. On at least an annual basis, the Bank performs a back test of collateral appraisals by comparing actual selling prices on recent collateral sales to the most recent appraisal of such collateral. Back tests are performed for each collateral class, e.g., residential real estate or commercial real estate, and may lead to additional adjustments to the value of unliquidated collateral of similar class.
Mortgage servicing rights: At least quarterly, MSRs are evaluated for impairment based upon the fair value of the MSRs as compared to carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded, and the respective individual tranche is carried at fair value. If the carrying amount of an individual tranche does not exceed fair value, impairment is reversed if previously recognized and the carrying value of the individual tranche is based on the amortization method. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and can generally be validated against available market data (Level 2).
45
Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Bank has elected the fair value option, are summarized below. Information as of March 31, 2023 is presented net of any applicable ACL.
| | | | | | | | | | | | | |
| | Fair Value Measurements at | | | |
| |||||||
| | March 31, 2023 Using: | | | |
| |||||||
|
| Quoted Prices in |
| Significant |
|
| |
|
| |
| ||
| | Active Markets | | Other | | Significant | | | |
| |||
| | for Identical | | Observable | | Unobservable | | Total |
| ||||
| | Assets | | Inputs | | Inputs | | Fair |
| ||||
(in thousands) | | (Level 1) | | (Level 2) | | (Level 3) | | Value |
| ||||
Financial assets: | | | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 174,871 | | $ | 219,746 | | $ | — | | $ | 394,617 | |
Private label mortgage-backed security | |
| — | |
| — | |
| 2,010 | |
| 2,010 | |
Mortgage-backed securities - residential | |
| — | |
| 176,682 | |
| — | |
| 176,682 | |
Collateralized mortgage obligations | |
| — | |
| 23,651 | |
| — | |
| 23,651 | |
Corporate bonds | | | — | | | 11,987 | | | — | | | 11,987 | |
Trust preferred security | |
| — | |
| — | |
| 4,001 | |
| 4,001 | |
Total available-for-sale debt securities | | $ | 174,871 | | $ | 432,066 | | $ | 6,011 | | $ | 612,948 | |
| | | | | | | | | | | | | |
Equity securities with readily determinable fair value: | | | | | | | | | | | | | |
Freddie Mac preferred stock | | $ | — | | $ | 107 | | $ | — | | $ | 107 | |
Total equity securities with readily determinable fair value | | $ | — | | $ | 107 | | $ | — | | $ | 107 | |
| | | | | | | | | | | | | |
Mortgage loans held for sale | | $ | — | | $ | 1,034 | | $ | — | | $ | 1,034 | |
Consumer loans held for sale | | | — | | | — | | | 4,688 | | | 4,688 | |
Rate lock loan commitments | |
| — | |
| 96 | |
| — | |
| 96 | |
Mandatory forward contracts | | | — | | | 19 | | | — | | | 19 | |
Interest rate swap agreements | | | — | | | 6,852 | | | — | | | 6,852 | |
| | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | |
Interest rate swap agreements | | | — | | | 6,852 | | | — | | | 6,852 | |
46
| | | | | | | | | | | | | |
| | Fair Value Measurements at | | | |
| |||||||
| | December 31, 2022 Using: | | | |
| |||||||
|
| Quoted Prices in |
| Significant |
|
| |
|
| |
| ||
| | Active Markets | | Other | | Significant | | | |
| |||
| | for Identical | | Observable | | Unobservable | | Total |
| ||||
| | Assets | | Inputs | | Inputs | | Fair |
| ||||
(in thousands) | | (Level 1) | | (Level 2) | | (Level 3) | | Value |
| ||||
Financial assets: | | | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 193,385 | | $ | 217,756 | | $ | — | | $ | 411,141 | |
Private label mortgage-backed security | |
| — | |
| — | |
| 2,127 | |
| 2,127 | |
Mortgage-backed securities - residential | |
| — | |
| 171,873 | |
| — | |
| 171,873 | |
Collateralized mortgage obligations | |
| — | |
| 21,368 | |
| — | |
| 21,368 | |
Corporate bonds | | | — | | | 10,001 | | | — | | | 10,001 | |
Trust preferred security | |
| — | |
| — | |
| 3,855 | |
| 3,855 | |
Total available-for-sale debt securities | | $ | 193,385 | | $ | 420,998 | | $ | 5,982 | | $ | 620,365 | |
| | | | | | | | | | | | | |
Equity securities with readily determinable fair value: | | | | | | | | | | | | | |
Freddie Mac preferred stock | | $ | — | | $ | 111 | | $ | — | | $ | 111 | |
Total equity securities with readily determinable fair value | | $ | — | | $ | 111 | | $ | — | | $ | 111 | |
| | | | | | | | | | | | | |
Mortgage loans held for sale | | $ | — | | $ | 1,302 | | $ | — | | $ | 1,302 | |
Consumer loans held for sale | | | — | | | — | | | 4,706 | | | 4,706 | |
Consumer loans held for investment | | | — | | | — | | | 2 | | | 2 | |
Rate lock loan commitments | |
| — | |
| 2 | |
| — | |
| 2 | |
Mandatory forward contracts | | | — | | | — | | | — | | | — | |
Interest rate swap agreements | |
| — | |
| 8,127 | |
| — | |
| 8,127 | |
| | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | |
Mandatory forward contracts | | $ | — | | $ | 67 | | $ | — | | $ | 67 | |
Interest rate swap agreements | | | — | | | 8,127 | | | — | |
| 8,127 | |
All transfers between levels are generally recognized at the end of each quarter. There were no transfers into or out of Level 1, 2, or 3 assets during the three months ended March 31, 2023 and 2022.
Private Label Mortgage-Backed Security
The following table presents a reconciliation of the Bank’s private label mortgage-backed security measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| | | | | | |
|
| Three Months Ended | ||||
| | March 31, | ||||
(in thousands) | | 2023 | | 2022 | ||
| | | | | | |
Balance, beginning of period | | $ | 2,127 | | $ | 2,731 |
Total gains or losses included in earnings: | | | | | | |
Net change in unrealized gain | |
| 5 | |
| 24 |
Principal paydowns | |
| (122) | |
| (153) |
Balance, end of period | | $ | 2,010 | | $ | 2,602 |
The fair value of the Bank’s single private label mortgage-backed security is supported by analysis prepared by an independent third-party. The third-party’s approach to determining fair value involved several steps: 1) detailed collateral analysis of the underlying mortgages, including consideration of geographic location, original loan-to-value and the weighted average FICO score of the borrowers; 2) collateral performance projections for each pool of mortgages underlying the security (probability of default, severity of default, and prepayment probabilities) and 3) discounted cash flow modeling.
The significant unobservable inputs in the fair value measurement of the Bank’s single private label mortgage-backed security are prepayment rates, probability of default and loss severity in the event of default. Significant fluctuations in any of those inputs in isolation would result in a significantly different fair value measurement.
47
Quantitative information about recurring Level 3 fair value measurement inputs for the Bank’s single private label mortgage-backed security follows:
| | | | | | | | | | |
|
| Fair |
| Valuation |
|
|
| |
| |
March 31, 2023 (dollars in thousands) | | Value | | Technique | | Unobservable Inputs | | Range |
| |
| | | | | | | | | | |
Private label mortgage-backed security | | $ | 2,010 |
| Discounted cash flow |
| (1) Constant prepayment rate |
| 4.5% - 4.7% | |
| | | | | | | | | | |
| | | | | |
| (2) Probability of default |
| 1.8% - 9.3% | |
| | | | | | | | | | |
| | | | | |
| (3) Loss severity |
| 25% - 35% | |
| | | | | | | | | | |
|
| Fair |
| Valuation |
|
|
| |
| |
December 31, 2022 (dollars in thousands) | | Value | | Technique | | Unobservable Inputs | | Range |
| |
| | | | | | | | | | |
Private label mortgage-backed security | | $ | 2,127 |
| Discounted cash flow |
| (1) Constant prepayment rate |
| 4.5% - 4.7% | |
| | | | | | | | | | |
| | | | | |
| (2) Probability of default |
| 1.8% - 9.3% | |
| | | | | | | | | | |
| | | | | |
| (3) Loss severity |
| 25% - 35% | |
Trust Preferred Security
The following table presents a reconciliation of the Company’s TRUP measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| | | | | | | |
|
| Three Months Ended | | ||||
| | March 31, | | ||||
(in thousands) | | 2023 | | 2022 | | ||
| | | | | | | |
Balance, beginning of period | | $ | 3,855 | | $ | 3,847 | |
Total gains or losses included in earnings: | | | | | | | |
Discount accretion | | | 14 | | | 14 | |
Net change in unrealized gain | |
| 132 | |
| (136) | |
Balance, end of period | | $ | 4,001 | | $ | 3,725 | |
The fair value of the Company’s TRUP investment is based on the most recent bid price for this instrument, as provided by a third-party broker.
48
Mortgage Loans Held for Sale
The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loans and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more or on nonaccrual as of March 31, 2023 and December 31, 2022.
The aggregate fair value, contractual balance, and unrealized gain were as follows:
| | | | | | | |
(in thousands) |
| March 31, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Aggregate fair value | | $ | 1,034 | | $ | 1,302 | |
Contractual balance | |
| 1,005 | |
| 1,265 | |
Unrealized (loss) gain | |
| 29 | |
| 37 | |
The total amount of gains and losses from changes in fair value included in earnings for the three months ended March 31, 2023 and 2022 for mortgage loans held for sale are presented in the following table:
| | | | | | | |
| | Three Months Ended |
| ||||
| | March 31, | | ||||
(in thousands) |
| 2023 |
| 2022 | | ||
| | | | | | | |
Interest income | | $ | 61 | | $ | 204 | |
Change in fair value | |
| (8) | |
| (706) | |
Total included in earnings | | $ | 53 | | $ | (502) | |
Consumer Loans Held for Sale
RCS carries loans originated through its installment loan program at fair value. Interest income is recorded based on the contractual terms of the loan and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more or on nonaccrual as of March 31, 2023 and December 31, 2022.
The significant unobservable inputs in the fair value measurement of the Bank’s short-term installment loans are the net contractual premiums and level of loans sold at a discount price. Significant fluctuations in any of those inputs in isolation would result in a significantly lower/higher fair value measurement.
The following table presents quantitative information about recurring Level 3 fair value measurement inputs for installment loans:
| | | | | | | | | |
|
| Fair |
| Valuation |
|
|
| | |
March 31, 2023 (dollars in thousands) | | Value | | Technique | | Unobservable Inputs | | Rate | |
| | | | | | | | | |
Consumer loans held for sale | | $ | 4,688 |
| Contract Terms |
| (1) Net Premium |
| 0.15% |
| | | | | | | | | |
| | | | | |
| (2) Discounted Sales |
| 10.00% |
| | | | | | | | | |
|
| Fair |
| Valuation |
|
|
| | |
December 31, 2022 (dollars in thousands) | | Value | | Technique | | Unobservable Inputs | | Rate | |
| | | | | | | | | |
Consumer loans held for sale | | $ | 4,706 |
| Contract Terms |
| (1) Net Premium |
| 0.15% |
| | | | | | | | | |
| | | | | |
| (2) Discounted Sales |
| 10.00% |
49
The aggregate fair value, contractual balance, and unrealized gain on consumer loans held for sale, at fair value, were as follows:
| | | | | | | |
(in thousands) |
| March 31, 2023 |
| December 31, 2022 | | ||
| | | | | | | |
Aggregate fair value | | $ | 4,688 | | $ | 4,706 | |
Contractual balance | |
| 4,713 | |
| 4,734 | |
Unrealized (loss) gain | |
| (25) | |
| (28) | |
The total amount of net gains from changes in fair value included in earnings for consumer loans held for sale, at fair value, are presented in the following table:
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
(in thousands) |
| 2023 |
| 2022 | | ||
| | | | | | | |
Interest income | | $ | 765 | | $ | 2,890 | |
Change in fair value | |
| 3 | |
| (37) | |
Total included in earnings | | $ | 768 | | $ | 2,853 | |
50
Assets measured at fair value on a non-recurring basis are summarized below:
| | | | | | | | | | | | | |
| | Fair Value Measurements at | | | | | |||||||
| | March 31, 2023 Using: | | | | | |||||||
|
| Quoted Prices in |
| Significant |
| | |
|
| | | ||
| | Active Markets | | Other | | Significant | | | | | |||
| | for Identical | | Observable | | Unobservable | | Total | | ||||
| | Assets | | Inputs | | Inputs | | Fair | | ||||
(in thousands) | | (Level 1) | | (Level 2) | | (Level 3) | | Value | | ||||
| | | | | | | | | | | | | |
Collateral-dependent loans: | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | |
Owner occupied | | $ | — | | $ | — | | $ | 1,270 | | $ | 1,270 | |
Commercial real estate | |
| — | |
| — | |
| 879 | |
| 879 | |
Total collateral-dependent loans* | | $ | — | | $ | — | | $ | 2,149 | | $ | 2,149 | |
| | | | | | | | | | | | | |
Other real estate owned: | | | | | | | | | | | | | |
Commercial real estate | | $ | — | | $ | — | | $ | 1,529 | | $ | 1,529 | |
Total other real estate owned | | $ | — | | $ | — | | $ | 1,529 | | $ | 1,529 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Fair Value Measurements at | | | | |||||||
| | December 31, 2022 Using: | | | | |||||||
|
| Quoted Prices in |
| Significant |
| | |
|
| | ||
| | Active Markets | | Other | | Significant | | | | |||
| | for Identical | | Observable | | Unobservable | | Total | ||||
| | Assets | | Inputs | | Inputs | | Fair | ||||
(in thousands) | | (Level 1) | | (Level 2) | | (Level 3) | | Value | ||||
| | | | | | | | | | | | |
Collateral-dependent loans: | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | |
Owner occupied | | $ | — | | $ | — | | $ | 1,456 | | $ | 1,456 |
Commercial real estate | |
| — | |
| — | |
| 906 | |
| 906 |
Total collateral-dependent loans* | | $ | — | | $ | — | | $ | 2,362 | | $ | 2,362 |
| | | | | | | | | | | | |
Other real estate owned: | | | | | | | | | | | | |
Residential real estate | | $ | — | | $ | — | | $ | 1,581 | | $ | 1,581 |
Total other real estate owned | | $ | — | | $ | — | | $ | 1,581 | | $ | 1,581 |
| | | | | | | | | | | | |
51
The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis:
| | | | | | | | | |
|
|
| |
|
|
|
|
| Range |
| | Fair | | Valuation | | Unobservable | | (Weighted | |
March 31, 2023 (dollars in thousands) | | Value | | Technique | | Inputs | | Average) | |
| | | | | | | | | |
Collateral-dependent loans - residential real estate owner occupied | | $ | 1,270 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 0% - 22% (5%) |
| | | | | | | | | |
Collateral-dependent loans - commercial real estate | | $ | 879 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 16% (16%) |
| | | | | | | | | |
Other real estate owned - commercial real estate | | $ | 1,529 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 39% (39%) |
| | | | | | | | | |
|
|
| |
|
|
|
|
| Range |
| | Fair | | Valuation | | Unobservable | | (Weighted | |
December 31, 2022 (dollars in thousands) | | Value | | Technique | | Inputs | | Average) | |
| | | | | | | | | |
Collateral-dependent loans - residential real estate owner occupied | | $ | 1,456 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 0% - 41% (11%) |
| | | | | | | | | |
Collateral-dependent loans - commercial real estate | | $ | 906 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 16% (16%) |
| | | | | | | | | |
Other real estate owned - commercial real estate | | $ | 1,581 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 39% (39%) |
52
Collateral-Dependent Loans
Collateral-dependent loans are generally measured for loss using the fair value for reasonable disposition of the underlying collateral. The Bank’s practice is to obtain new or updated appraisals or BPOs on the loans subject to the initial review and then to evaluate the need for an update to this value on an as-necessary or possibly annual basis thereafter (depending on the market conditions impacting the value of the collateral). The Bank may discount the valuation amount as necessary for selling costs and past due real estate taxes. If a new or updated appraisal or BPO is not available at the time of a loan’s loss review, the Bank may apply a discount to the existing value of an old valuation to reflect the property’s current estimated value if it is believed to have deteriorated in either: (i) the physical or economic aspects of the subject property or (ii) material changes in market conditions. The review generally results in a partial charge-off of the loan if fair value, less selling costs, are below the loan’s carrying value. Collateral-dependent loans are valued within Level 3 of the fair value hierarchy.
Collateral-dependent loans are as follows:
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
(in thousands) |
| 2023 |
| 2022 | | ||
| | | | | | | |
Provision on collateral-dependent loans | | $ | (19) | | $ | (4) | |
Other Real Estate Owned
Details of other real estate owned carrying value and write downs follows:
| | | | | | | |
|
| | | | |||
(in thousands) | | March 31, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Other real estate owned carried at fair value | | $ | 1,529 | | $ | 1,581 | |
Total carrying value of other real estate owned | | $ | 1,529 | | $ | 1,581 | |
Other real estate owned write-downs during the years ended | | $ | 52 | | $ | 211 | |
| | | | | | | |
| | Three Months Ended |
| ||||
| | March 31, | | ||||
(in thousands) |
| 2023 |
| 2022 | | ||
| | | | | | | |
Other real estate owned write-downs during the period | | $ | 52 | | $ | 52 | |
53
The carrying amounts and estimated exit price fair values of all financial instruments follow:
| | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at |
| ||||||||||
| | | | | March 31, 2023: |
| ||||||||||
|
| | |
|
| |
|
| |
|
| |
| Total |
| |
| | Carrying | | | | | | | | | | | Fair |
| ||
(in thousands) | | Value | | Level 1 | | Level 2 | | Level 3 | | Value |
| |||||
| | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 249,289 | | $ | 249,289 | | $ | — | | $ | — | | $ | 249,289 | |
Available-for-sale debt securities | |
| 612,948 | |
| 174,871 | |
| 432,066 | |
| 6,011 | |
| 612,948 | |
Held-to-maturity debt securities | |
| 112,108 | |
| — | |
| 111,796 | |
| — | |
| 111,796 | |
Equity securities with readily determinable fair values | | | 107 | | | — | | | 107 | | | — | | | 107 | |
Mortgage loans held for sale, at fair value | |
| 1,034 | |
| — | |
| 1,034 | |
| — | |
| 1,034 | |
Consumer loans held for sale, at fair value | | | 4,688 | | | — | | | — | | | 4,688 | | | 4,688 | |
Consumer loans held for sale, at the lower of cost or fair value | | | 12,744 | | | — | | | — | | | 12,744 | | | 12,744 | |
Loans, net | |
| 4,678,113 | |
| — | |
| — | |
| 4,488,620 | |
| 4,488,620 | |
Federal Home Loan Bank stock | |
| 25,939 | |
| — | |
| — | |
| — | |
| NA | |
Accrued interest receivable | |
| 16,074 | |
| — | |
| 5,316 | |
| 10,758 | |
| 16,074 | |
Mortgage servicing rights | | | 8,406 | | | — | | | 16,554 | | | — | | | 16,554 | |
Rate lock loan commitments | | | 96 | | | — | | | 96 | | | — | | | 96 | |
Mandatory forward contracts | | | 19 | | | — | | | 19 | | | — | | | 19 | |
Interest rate swap agreements | | | 6,852 | | | — | | | 6,852 | | | — | | | 6,852 | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Noninterest-bearing deposits | | $ | 2,013,957 | | $ | — | | $ | 2,013,957 | | $ | — | | $ | 2,013,957 | |
Transaction deposits | |
| 2,513,160 | |
| — | |
| 2,513,160 | |
| — | |
| 2,513,160 | |
Time deposits | |
| 272,551 | |
| — | |
| 259,421 | |
| — | |
| 259,421 | |
Securities sold under agreements to repurchase and other short-term borrowings | |
| 134,412 | |
| — | |
| 134,412 | |
| — | |
| 134,412 | |
Federal Home Loan Bank advances | |
| 108,000 | |
| — | |
| 106,490 | |
| — | |
| 106,490 | |
Accrued interest payable | |
| 342 | |
| — | |
| 342 | |
| — | |
| 342 | |
Rate lock loan commitments | | | 96 | | | — | | | 96 | | | — | | | 96 | |
Mandatory forward contracts | | | 19 | | | — | | | 19 | | | — | | | 19 | |
Interest rate swap agreements | | | 6,852 | | | — | | | 6,852 | | | — | | | 6,852 | |
54
| | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at |
| ||||||||||
| | | | | December 31, 2022: |
| ||||||||||
|
|
| |
|
| |
|
| |
|
| |
| Total |
| |
| | Carrying | | | | | | | | | | | Fair |
| ||
(in thousands) | | Value | | Level 1 | | Level 2 | | Level 3 | | Value |
| |||||
| | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 313,689 | | $ | 313,689 | | $ | — | | $ | — | | $ | 313,689 | |
Available-for-sale debt securities | |
| 620,365 | |
| 193,385 | |
| 420,998 | |
| 5,982 | |
| 620,365 | |
Held-to-maturity debt securities | |
| 87,386 | |
| — | |
| 87,357 | |
| — | |
| 87,357 | |
Equity securities with readily determinable fair values | | | 111 | | | — | | | 111 | | | — | | | 111 | |
Mortgage loans held for sale, at fair value | |
| 1,302 | |
| — | |
| 1,302 | |
| — | |
| 1,302 | |
Consumer loans held for sale, at fair value | | | 4,706 | | | — | | | — | | | 4,706 | | | 4,706 | |
Consumer loans held for sale, at the lower of cost or fair value | | | 13,169 | | | — | | | — | | | 13,169 | | | 13,169 | |
Loans, net | |
| 4,445,389 | |
| — | |
| — | |
| 4,276,423 | |
| 4,276,423 | |
Federal Home Loan Bank stock | |
| 9,146 | |
| — | |
| — | |
| — | |
| NA | |
Accrued interest receivable | |
| 13,572 | |
| — | |
| 2,462 | |
| 11,110 | |
| 13,572 | |
Mortgage servicing rights | | | 8,769 | | | — | | | 17,592 | | | — | | | 17,592 | |
Rate lock loan commitments | | | 2 | | | — | | | 2 | | | — | | | 2 | |
Interest rate swap agreements | | | 8,127 | | | — | | | 8,127 | | | — | | | 8,127 | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Noninterest-bearing deposits | | $ | 1,908,768 | | $ | — | | $ | 1,908,768 | | $ | — | | $ | 1,908,768 | |
Transaction deposits | |
| 2,398,853 | |
| — | |
| 2,398,853 | |
| — | |
| 2,398,853 | |
Time deposits | |
| 230,224 | |
| — | |
| 223,912 | |
| — | |
| 223,912 | |
Securities sold under agreements to repurchase and other short-term borrowings | |
| 216,956 | |
| — | |
| 216,956 | |
| — | |
| 216,956 | |
Federal Home Loan Bank advances | |
| 95,000 | |
| — | |
| 93,044 | |
| — | |
| 93,044 | |
Accrued interest payable | |
| 239 | |
| — | |
| 239 | |
| — | |
| 239 | |
Interest rate swap agreements | | | 8,127 | | | — | | | 8,127 | | | — | | | 8,127 | |
55
12.MORTGAGE BANKING ACTIVITIES
Mortgage Banking activities primarily include residential mortgage originations and servicing.
Activity for mortgage loans held for sale, at fair value, was as follows:
| | | | | | | |
|
| Three Months Ended |
| ||||
| | March 31, | | ||||
(in thousands) | | 2023 |
| 2022 | | ||
| | | | | | | |
Balance, beginning of period | | $ | 1,302 | | $ | 29,393 | |
Origination of mortgage loans held for sale | |
| 15,942 | |
| 100,661 | |
Proceeds from the sale of mortgage loans held for sale | |
| (16,630) | |
| (119,212) | |
Net gain on sale of mortgage loans held for sale | |
| 420 | |
| 2,460 | |
Balance, end of period | | $ | 1,034 | | $ | 13,302 | |
The following table presents the components of Mortgage Banking income:
| | | | | | | |
|
| Three Months Ended | | ||||
| | March 31, | | ||||
(in thousands) | | 2023 |
| 2022 | | ||
| | | | | | | |
Net gain realized on sale of mortgage loans held for sale | | $ | 248 | | $ | 2,733 | |
Net change in fair value recognized on loans held for sale | |
| (8) | |
| (706) | |
Net change in fair value recognized on rate lock loan commitments | |
| 94 | |
| (962) | |
Net change in fair value recognized on forward contracts | |
| 86 | |
| 1,395 | |
Net gain recognized | |
| 420 | |
| 2,460 | |
| | | | | | | |
Loan servicing income | |
| 870 | |
| 865 | |
Amortization of mortgage servicing rights | |
| (490) | |
| (668) | |
Change in mortgage servicing rights valuation allowance | |
| — | |
| — | |
Net servicing income recognized | |
| 380 | |
| 197 | |
Total Mortgage Banking income | | $ | 800 | | $ | 2,657 | |
Activity for capitalized mortgage servicing rights was as follows:
| | | | | | |
|
| Three Months Ended | ||||
| | March 31, | ||||
(in thousands) | | 2023 |
| 2022 | ||
| | | | | | |
Balance, beginning of period | | $ | 8,769 | | $ | 9,196 |
Additions | |
| 127 | |
| 974 |
Amortized to expense | |
| (490) | |
| (668) |
Change in valuation allowance | |
| — | |
| — |
Balance, end of period | | $ | 8,406 | | $ | 9,502 |
There was no valuation allowance for capitalized mortgage servicing rights for the three months ended March 31, 2023 and 2022.
56
Other information relating to mortgage servicing rights follows:
| | | | | | | | | | |
(dollars in thousands) |
| March 31, 2023 |
|
| December 31, 2022 | |
| | ||
| | | | | | | | | | |
Fair value of mortgage servicing rights portfolio | | $ | 16,554 | | | $ | 17,145 | | | |
Monthly weighted average prepayment rate of unpaid principal balance* | |
| 125 | % | |
| 127 | % | | |
Discount rate | | | 10.22 | % | | | 10.21 | % | | |
Weighted average foreclosure rate | | | 0.08 | % | | | 0.10 | % | | |
Weighted average life in years | |
| 7.64 | | |
| 7.54 | | | |
* | Rates are applied to individual tranches with similar characteristics. |
Mortgage Banking derivatives used in the ordinary course of business primarily consist of mandatory forward sales contracts and interest rate lock loan commitments. Mandatory forward contracts represent future commitments to deliver loans at a specified price and date or to purchase TBA securities and are used to manage interest rate risk on loan commitments and mortgage loans held for sale. Interest rate lock loan commitments represent commitments to fund loans at a specific rate. These derivatives involve underlying items, such as interest rates, and are designed to transfer risk. Substantially all of these instruments expire within 90 days from the date of issuance. Notional amounts are amounts on which calculations and payments are based, but which do not represent credit exposure, as credit exposure is limited to the amounts required to be received or paid.
Mandatory forward contracts also contain an element of risk in that the counterparties may be unable to meet the terms of such agreements. In the event the counterparties fail to deliver commitments or are unable to fulfill their obligations, the Bank could potentially incur significant additional costs by replacing the positions at then current market rates. The Bank manages its risk of exposure by limiting counterparties to those banks and institutions deemed appropriate by management and the Board of Directors. The Bank does not expect any counterparty to default on their obligations and therefore, the Bank does not expect to incur any cost related to counterparty default.
The Bank is exposed to interest rate risk on loans held for sale and rate lock loan commitments. As market interest rates fluctuate, the fair value of mortgage loans held for sale and rate lock commitments will decline or increase. To offset this interest rate risk the Bank enters into derivatives, such as mandatory forward contracts to sell loans or purchase TBA securities. The fair value of these mandatory forward contracts will fluctuate as market interest rates fluctuate, and the change in the value of these instruments is expected to largely, though not entirely, offset the change in fair value of loans held for sale and rate lock commitments. The objective of this activity is to minimize the exposure to losses on rate loan lock commitments and loans held for sale due to market interest rate fluctuations. The net effect of derivatives on earnings will depend on risk management activities and a variety of other factors, including: market interest rate volatility; the amount of rate lock commitments that close; the ability to fill the forward contracts before expiration; and the time period required to close and sell loans.
The following table includes the notional amounts and fair values of mortgage loans held for sale and mortgage banking derivatives as of the period ends presented:
| | | | | | | | | | | | | |
| | March 31, 2023 |
| December 31, 2022 | | ||||||||
| | Notional | | | | | Notional | | | | | ||
(in thousands) | | Amount |
| Fair Value | | Amount |
| Fair Value | | ||||
| | | | | | | | | | | | | |
Included in Mortgage loans held for sale: | | | | | | | | | | | | | |
Mortgage loans held for sale, at fair value | | $ | 1,005 | | $ | 1,034 | | $ | 1,265 | | $ | 1,302 | |
| | | | | | | | | | | | | |
Included in other assets: | | | | | | | | | | | | | |
Rate lock loan commitments | | $ | 5,174 | | $ | 96 | | $ | 4,118 | | $ | 2 | |
Mandatory forward contracts | | | 2,936 | | | 19 | | | — | | | — | |
| | | | | | | | | | | | | |
Included in other liabilities: | | | | | | | | | | | | | |
Mandatory forward contracts | | | — | | | — | | | 4,009 | | | 67 | |
57
13.INTEREST RATE SWAPS
Non-hedge Interest Rate Swaps
The Bank enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments, the Bank enters into offsetting positions in order to minimize the Bank’s interest rate risk. These swaps are derivatives, but are not designated as hedging instruments, and therefore changes in fair value are reported in current year earnings.
Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or client owes the Bank, and results in credit risk to the Bank. When the fair value of a derivative instrument contract is negative, the Bank owes the client or counterparty, and therefore, has no credit risk.
A summary of the Bank’s interest rate swaps related to clients is included in the following table:
| | | | | | | | | | | | | | | |
| | |
| March 31, 2023 | | December 31, 2022 | | ||||||||
| | | | Notional | | | | | Notional | | | | | ||
(in thousands) |
| Bank Position | | Amount |
| Fair Value |
| Amount |
| Fair Value | | ||||
| | | | | | | | | | | | | | | |
Interest rate swaps with Bank clients - Assets |
| Pay variable/receive fixed |
| $ | 50,941 |
| $ | 2,131 |
| $ | 40,032 |
| $ | 1,386 | |
Interest rate swaps with Bank clients - Liabilities |
| Pay variable/receive fixed |
| | 77,830 |
| | (4,721) |
| | 91,636 | | | (6,742) | |
Interest rate swaps with Bank clients - Total |
| Pay variable/receive fixed |
| $ | 128,771 |
| $ | (2,590) |
| $ | 131,668 |
| $ | (5,356) | |
| | | | | | | | | | | | | | | |
Offsetting interest rate swaps with institutional swap dealer - Assets | | Pay fixed/receive variable | | | 77,830 | | | 4,721 | | | 91,636 | | | 6,742 | |
Offsetting interest rate swaps with institutional swap dealer - Liabilities | | Pay fixed/receive variable | | | 50,941 | | | (2,131) | | | 40,032 | | | (1,386) | |
Offsetting interest rate swaps with institutional swap dealer - Total | | Pay fixed/receive variable | | $ | 128,771 |
| $ | 2,590 |
| $ | 131,668 |
| $ | 5,356 | |
| | | | | | | | | | | | | | | |
Total | | |
| $ | 257,542 | | $ | — |
| $ | 263,336 | | $ | — | |
The Bank is required to pledge securities as collateral when the Bank is in a net loss position for all swaps with dealer counterparties when such net loss positions exceed $250,000. The fair value of cash or investment securities pledged as collateral by the Bank to cover such net loss positions totaled $590,000 and $560,000 as of March 31, 2023 and December 31, 2022.
58
14.EARNINGS PER SHARE
The Company calculates earnings per share under the two-class method. Under the two-class method, earnings available to common shareholders for the period are allocated between Class A Common Stock and Class B Common Stock according to dividends declared (or accumulated) and participation rights in undistributed earnings. The difference in earnings per share between the two classes of common stock results from the 10% per share cash dividend premium paid on Class A Common Stock over that paid on Class B Common Stock.
A reconciliation of the combined Class A and Class B Common Stock numerators and denominators of the earnings per share and diluted earnings per share computations is presented below:
| | | | | | | | |
| |
| | Three Months Ended | ||||
| | | | March 31, | ||||
(in thousands, except per share data) | |
|
| 2023 |
| 2022 | ||
| | | | | | | | |
Net income | | | | $ | 28,092 | | $ | 28,350 |
Dividends declared on Common Stock: | | | | | | | | |
Class A Shares | | | | | (6,581) | | | (6,081) |
Class B Shares | | | | | (734) | | | (671) |
Undistributed net income for basic earnings per share | | | | | 20,777 | | | 21,598 |
Weighted average potential dividends on Class A shares upon exercise of dilutive options | | | | | (21) | | | (27) |
Undistributed net income for diluted earnings per share | | | | $ | 20,756 | | $ | 21,571 |
| | | | | | | | |
Weighted average shares outstanding: | | | | | | | | |
Class A Shares | | | |
| 17,776 | |
| 17,980 |
Class B Shares | | | | | 2,159 | | | 2,165 |
Effect of dilutive securities on Class A Shares outstanding | | | |
| 55 | |
| 80 |
Weighted average shares outstanding including dilutive securities | | | |
| 19,990 | |
| 20,225 |
| | | | | | | | |
Basic earnings per share: | | | | | | | | |
Class A Common Stock: | | | | | | | | |
Per share dividends distributed | | | | $ | 0.37 | | $ | 0.34 |
Undistributed earnings per share* | | | | | 1.05 | | | 1.08 |
Total basic earnings per share - Class A Common Stock | | | | $ | 1.42 | | $ | 1.42 |
| | | | | | | | |
Class B Common Stock: | | | | | | | | |
Per share dividends distributed | | | | $ | 0.34 | | $ | 0.31 |
Undistributed earnings per share* | | | | | 0.96 | | | 0.98 |
Total basic earnings per share - Class B Common Stock | | | | $ | 1.30 | | $ | 1.29 |
| | | | | | | | |
Diluted earnings per share: | | | | | | | | |
Class A Common Stock: | | | | | | | | |
Per share dividends distributed | | | | $ | 0.37 | | $ | 0.34 |
Undistributed earnings per share* | | | | | 1.05 | | | 1.08 |
Total diluted earnings per share - Class A Common Stock | | | | $ | 1.42 | | $ | 1.42 |
| | | | | | | | |
Class B Common Stock: | | | | | | | | |
Per share dividends distributed | | | | $ | 0.34 | | $ | 0.31 |
Undistributed earnings per share* | | | | | 0.95 | | | 0.98 |
Total diluted earnings per share - Class B Common Stock | | | | $ | 1.29 | | $ | 1.29 |
* | To arrive at undistributed earnings per share, undistributed net income is first prorated between Class A and Class B Common Shares, with Class A Common Shares receiving a 10% premium. The resulting pro-rated, undistributed net income for each class is then divided by the weighted average shares for each class. |
Stock options excluded from the detailed earnings per share calculation because their impact was antidilutive are as follows:
| | | | | |
|
| Three Months Ended | | ||
| | March 31, | | ||
|
| 2023 |
| 2022 | |
| | | | | |
Antidilutive stock options |
| 245,898 | | 186,000 | |
Average antidilutive stock options |
| 245,898 | | 175,000 | |
59
15. OTHER COMPREHENSIVE INCOME
OCI components and related tax effects were as follows:
| | | | | | | |
|
| Three Months Ended | | ||||
| | March 31, | | ||||
(in thousands) |
| 2023 |
| 2022 | | ||
| | | | | | | |
Available-for-Sale Debt Securities: | | | | | | | |
Unrealized gain (loss) on AFS debt securities | | $ | 5,205 | | $ | (21,249) | |
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings | |
| 5 | |
| 24 | |
Net gains (losses) | |
| 5,210 | |
| (21,225) | |
Tax effect | |
| (1,305) | |
| 5,308 | |
Net of tax | | $ | 3,905 | | $ | (15,917) | |
The following is a summary of the AOCI balances, net of tax:
| | | | | | | | | | |
|
| | |
| 2023 |
| | |
| |
(in thousands) | | December 31, 2022 | | Change | | March 31, 2023 |
| |||
| | | | | | | | | | |
Unrealized gain (loss) on AFS debt securities | | $ | (32,934) | | $ | 3,900 | | $ | (29,034) | |
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings | |
| 955 | |
| 5 | |
| 960 | |
Total unrealized gain (loss) | | $ | (31,979) | | $ | 3,905 | | $ | (28,074) | |
| | | | | | | | | | |
|
| | |
| 2022 |
| | |
| |
(in thousands) | | December 31, 2021 | | Change | | March 31, 2022 |
| |||
| | | | | | | | | | |
Unrealized gain (loss) on AFS debt securities | | $ | 890 | | $ | (15,935) | | $ | (15,045) | |
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings | |
| 984 | |
| 18 | |
| 1,002 | |
Total unrealized gain (loss) | | $ | 1,874 | | $ | (15,917) | | $ | (14,043) | |
60
16.REVENUE FROM CONTRACTS WITH CUSTOMERS
The following tables present the Company’s net revenue and net revenue concentration by reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 |
| |||||||||||||||||||||||||||
| | Core Banking | | | Republic Processing Group | | | | |
| ||||||||||||||||||||
| | | | | | | | | | | | Total | | | Tax | | Republic | | | | | | | | | | ||||
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| ||||||||
(dollars in thousands) | | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income (1) | | $ | 50,107 | | $ | 2,087 | | $ | 61 | |
| $ | 52,255 | | | $ | 31,765 | | $ | 8,622 | | | $ | 40,387 | | | | $ | 92,642 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | | | 3,288 | | | 11 | | | — | | | | 3,299 | | | | — | | | — | | | | — | | | | | 3,299 | |
Net refund transfer fees | |
| — | |
| — | |
| — | | |
| — | | |
| 10,807 | |
| — | | |
| 10,807 | | | |
| 10,807 | |
Mortgage banking income (1) | |
| — | |
| — | |
| 800 | | |
| 800 | | |
| — | |
| — | | |
| — | | | |
| 800 | |
Interchange fee income | | | 3,006 | | | — | | | — | | | | 3,006 | | | | 45 | | | — | | | | 45 | | | | | 3,051 | |
Program fees (1) | | | — | | | — | | | — | | | | — | | | | 707 | | | 2,534 | | | | 3,241 | | | | | 3,241 | |
Increase in cash surrender value of BOLI (1) | | | 635 | | | — | | | — | | | | 635 | | | | — | | | — | | | | — | | | | | 635 | |
Net losses on OREO | | | (53) | | | — | | | — | | | | (53) | | | | — | | | — | | | | — | | | | | (53) | |
Other | |
| 778 | |
| — | |
| 17 | | |
| 795 | | |
| 81 | |
| 25 | | |
| 106 | | | |
| 901 | |
Total noninterest income | |
| 7,654 | |
| 11 | |
| 817 | | |
| 8,482 | | |
| 11,640 | |
| 2,559 | | |
| 14,199 | | | |
| 22,681 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total net revenue | | $ | 57,761 | | $ | 2,098 | | $ | 878 | | | $ | 60,737 | | | $ | 43,405 | | $ | 11,181 | | | $ | 54,586 | | | | $ | 115,323 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net-revenue concentration (2) | | | 49 | % | | 2 | % | | 1 | % | | | 52 | % | | | 38 | % | | 10 | % | | | 48 | % | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 |
| |||||||||||||||||||||||||||
| | Core Banking | | | Republic Processing Group | | | | |
| ||||||||||||||||||||
| | | | | | | | | | | | Total | | | Tax | | Republic | | | | | | | | | | ||||
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| ||||||||
(dollars in thousands) | | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income (1) | | $ | 36,148 | | $ | 4,515 | | $ | 204 | |
| $ | 40,867 | | | $ | 15,404 | | $ | 6,896 | | | $ | 22,300 | | | | $ | 63,167 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | | | 3,219 | | | 13 | | | — | | | | 3,232 | | | | (6) | | | — | | | | (6) | | | | | 3,226 | |
Net refund transfer fees | |
| — | |
| — | |
| — | | |
| — | | |
| 12,051 | |
| — | | |
| 12,051 | | | |
| 12,051 | |
Mortgage banking income (1) | |
| — | |
| — | |
| 2,657 | | |
| 2,657 | | |
| — | |
| — | | |
| — | | | |
| 2,657 | |
Interchange fee income | | | 3,012 | | | — | | | — | | | | 3,012 | | | | 58 | | | — | | | | 58 | | | | | 3,070 | |
Program fees (1) | | | — | | | — | | | — | | | | — | | | | 727 | | | 3,127 | | | | 3,854 | | | | | 3,854 | |
Increase in cash surrender value of BOLI (1) | | | 612 | | | — | | | — | | | | 612 | | | | — | | | — | | | | — | | | | | 612 | |
Net losses on OREO | | | (53) | | | — | | | — | | | | (53) | | | | — | | | — | | | | — | | | | | (53) | |
Contract termination fee | | | — | | | — | | | — | | | | — | | | | 5,000 | | | — | | | | 5,000 | | | | | 5,000 | |
Other | |
| 452 | |
| — | |
| 34 | | |
| 486 | | |
| 106 | |
| — | | |
| 106 | | | |
| 592 | |
Total noninterest income | |
| 7,242 | |
| 13 | |
| 2,691 | | |
| 9,946 | | |
| 17,936 | |
| 3,127 | | |
| 21,063 | | | |
| 31,009 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total net revenue | | $ | 43,390 | | $ | 4,528 | | $ | 2,895 | | | $ | 50,813 | | | $ | 33,340 | | $ | 10,023 | | | $ | 43,363 | | | | $ | 94,176 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net-revenue concentration (2) | | | 46 | % | | 5 | % | | 3 | % | | | 54 | % | | | 35 | % | | 11 | % | | | 46 | % | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | This revenue is not subject to ASC 606. |
(2) | Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net revenue. |
The following represents information for significant revenue streams subject to ASC 606:
Service charges on deposit accounts – The Company earns revenue for account-based and event-driven services on its retail and commercial deposit accounts. Contracts for these services are generally in the form of deposit agreements, which disclose fees for deposit services. Revenue for event-driven services is recognized in close proximity or simultaneously with service performance. Revenue for certain account-based services may be recognized at a point in time or over the period the service is rendered, typically no longer than a month. Examples of account-based and event-driven service charges on deposits include per item fees, paper-statement fees, check-cashing fees, and analysis fees.
Net refund transfer fees – An RT is a fee-based product offered by the Bank through third-party tax preparers located throughout the United States, as well as tax-preparation software providers (collectively, the “Tax Providers”), with the Bank acting as an independent contractor of the Tax Providers. An RT allows a taxpayer to pay any applicable tax preparation and filing related fees directly from his federal or state government tax refund, with the remainder of the tax refund disbursed directly to the taxpayer. RT
61
fees and all applicable tax preparation, transmitter, audit, and any other taxpayer authorized amounts are deducted from the tax refund by either the Bank or the Bank’s service provider and automatically forwarded to the appropriate party as authorized by the taxpayer. RT fees generally receive first priority when applying fees against the taxpayer’s refund, with the Bank’s share of RT fees generally superior to the claims of other third-party service providers, including the Tax Providers. The remainder of the refund is disbursed to the taxpayer by a Bank check, direct deposit to the taxpayer’s personal bank account, or loaded to a prepaid card.
The Company executes contracts with individual Tax Providers to offer RTs to their taxpayer customers. RT revenue is recognized by the Bank immediately after the taxpayer’s refund is disbursed in accordance with the RT contract with the taxpayer customer. The fee paid by the taxpayer for the RT is shared between the Bank and the Tax Providers based on contracts executed between the parties.
The Company presents RT revenue net of any amounts shared with the Tax Providers. The Bank’s share of RT revenue is generally based on the obligations undertaken by the Tax Provider for each individual RT program, with more obligations generally corresponding to higher RT revenue share. The significant majority of net RT revenue is recognized and obligations under RT contracts fulfilled by the Bank during the first half of each year. Incremental expenses associated with the fulfilment of RT contracts are generally expensed during the first half of the year.
Interchange fee income – As an “issuing bank” for card transactions, the Company earns interchange fee income on transactions executed by its cardholders with various third-party merchants. Through third-party intermediaries, merchants compensate the Company for each transaction for the ability to efficiently settle the transaction, and for the Company’s willingness to accept certain risks inherent in the transaction. There is no written contract between the merchant and the Company, but a contract is implied between the two parties by customary business practices. Interchange fee income is recognized almost simultaneously by the Company upon the completion of a related card transaction.
The Company compensates its cardholders by way of cash or other “rewards” for generating card transactions. These rewards are disclosed in cardholder agreements between the Company and its cardholders. Reward costs are accrued over time based on card transactions generated by the cardholder. Interchange fee income is presented net of reward costs within noninterest income.
Net gains/(losses) on other real estate – The Company routinely sells OREO it has acquired through loan foreclosure. Net gains/(losses) on OREO reflect both 1) the gain or loss recognized upon an executed deed and 2) mark-to-market write-downs the Company takes on its OREO inventory.
The Company generally recognizes gains or losses on OREO at the time of an executed deed, although gains may be recognized over a financing period if the Company finances the sale. For financed OREO sales, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on sale, the Company adjusts the transaction price and related gain/(loss) on sale if a significant financing component is present.
Mark-to-market write-downs taken by the Company during the property’s holding period are generally at least 10% per year but may be higher based on updated real estate appraisals or BPOs. Incremental expenditures to bring OREO to salable condition are generally expensed as-incurred.
Contract termination fee– During the first quarter of 2022, RB&T provided Green Dot a notice of termination for the May 2021 Purchase Agreement for the sale of substantially all of RB&T’s TRS assets and operations to Green Dot. As a result of this contract termination, Green Dot paid RB&T a contract termination fee of $5.0 million during the quarter.
62
17.SEGMENT INFORMATION
Reportable segments are determined by the type of products and services offered and the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business (such as banking centers and business units), which are then aggregated if operating performance, products/services, and clients are similar.
As of March 31, 2023, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending, Mortgage Banking, TRS, and RCS. Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute RPG operations.
The nature of segment operations and the primary drivers of net revenue by reportable segment are provided below:
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Reportable Segment: | | Nature of Operations: | | Primary Drivers of Net Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Core Banking: | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Traditional Banking | | Provides traditional banking products to clients in its market footprint primarily via its network of banking centers and to clients outside of its market footprint primarily via its digital delivery channels. | | Loans, investments, and deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Warehouse Lending | | Provides short-term, revolving credit facilities to mortgage bankers across the United States. | | Mortgage warehouse lines of credit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mortgage Banking | | Primarily originates, sells, and services long-term, single-family, first-lien residential real estate loans primarily to clients in the Bank's market footprint. | | Loan sales and servicing | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Republic Processing Group: | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Tax Refund Solutions | | TRS offers tax-related credit products and facilitates the receipt and payment of federal and state tax Refund
| | Loans, refund transfers, and
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Republic Credit Solutions | | Offers consumer credit products. | | Unsecured, consumer
The accounting policies used for Republic’s reportable segments are generally the same as those described in the summary of significant accounting policies in the Company’s 2022 Annual Report on Form 10-K. Republic evaluates segment performance using operating income. The Company allocates goodwill to the Traditional Banking segment. Republic generally allocates income taxes based on income before income tax expense unless reasonable and specific segment allocations can be made. The Company makes transactions among reportable segments at carrying value. 63 Segment information follows:
* Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net revenue. 64 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The consolidated financial statements include the accounts of Republic Bancorp, Inc. (the “Parent Company”) and its wholly owned subsidiaries, Republic Bank & Trust Company and Republic Insurance Services, Inc. As used in this filing, the terms “Republic,” the “Company,” “we,” “our,” and “us” refer to Republic Bancorp, Inc., and, where the context requires, Republic Bancorp, Inc. and its subsidiaries. The term the “Bank” refers to the Company’s subsidiary bank: Republic Bank & Trust Company. The term the “Captive” refers to the Company’s insurance subsidiary: Republic Insurance Services, Inc. All significant intercompany balances and transactions are eliminated in consolidation. Republic is a financial holding company headquartered in Louisville, Kentucky. The Bank is a Kentucky-based, state-chartered non-member financial institution that provides both traditional and non-traditional banking products through five reportable segments using a multitude of delivery channels. While the Bank operates primarily in its market footprint, its non-brick-and-mortar delivery channels allow it to reach clients across the U.S. The Captive is a Nevada-based, wholly owned insurance subsidiary of the Company. The Captive provides property and casualty insurance coverage to the Company and the Bank, as well as a group of third-party insurance captives for which insurance may not be available or economically feasible. Management’s Discussion and Analysis of Financial Condition and Results of Operations of Republic should be read in conjunction with Part I Item 1 “Financial Statements.” Forward-looking statements discuss matters that are not historical facts. As forward-looking statements discuss future events or conditions, the statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” “potential,” or similar expressions. Do not rely on forward-looking statements. Forward-looking statements detail management’s expectations regarding the future and are not guarantees. Forward-looking statements are assumptions based on information known to management only as of the date the statements are made and management undertakes no obligation to update forward-looking statements, except as required by applicable law. Broadly speaking, forward-looking statements include:
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