1 min
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, 20222023
or
◻ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 0-24649
REPUBLIC BANCORP, INC.
(Exact name of registrant as specified in its charter)
| | |
Kentucky | | 61-0862051 |
(State | | (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) 584-3600
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 every Interactive Data File required to be submitted 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 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, 20222023 was 17,587,34017,221,953 and 2,159,495.2,156,662.
TABLE OF CONTENTS
| | |
| | |
| ||
| | |
4 | ||
| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
| |
| | |
| ||
| | |
| ||
| | |
| ||
| | |
| ||
| | |
| ||
| | |
Unregistered Sales of Equity Securities and Use of Proceeds. | 119 | |
| | |
119 | ||
| | |
| ||
| | |
|
|
2
GLOSSARY OF TERMS
The terms identified in alphabetical order below are used throughout this Form 10-Q. You may find it helpful to refer to this page as you read this report.
| | |
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 | | The Wall 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)thousands, except share data)
| | | | | | | | | | | | | |
|
| September 30, |
| December 31, | | | September 30, |
| December 31, | ||||
| | 2022 | | 2021 | | | 2023 | | 2022 | ||||
ASSETS | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 754,393 | | $ | 756,971 | | | $ | 219,653 | | $ | 313,689 |
Available-for-sale debt securities, at fair value (amortized cost of $674,329 in 2022 and $492,626 in 2021, allowance for credit losses of $0 in 2022 and 2021) | |
| 629,947 | |
| 495,126 | | | |||||
Held-to-maturity debt securities (fair value of $32,621 in 2022 and $44,764 in 2021, allowance for credit losses of $10 in 2022 and $47 in 2021) | |
| 32,628 | |
| 44,299 | | | |||||
Available-for-sale debt securities, at fair value (amortized cost of $642,019 in 2023 and $663,003 in 2022, allowance for credit losses of $0 in 2023 and 2022) |
| 601,220 | |
| 620,365 | ||||||||
Held-to-maturity debt securities (fair value of $101,202 in 2023 and $87,357 in 2022, allowance for credit losses of $10 in 2023 and $10 in 2022) |
| 101,650 | |
| 87,386 | ||||||||
Equity securities with readily determinable fair value | | | 175 | | | 2,620 | | | | 137 | | | 111 |
Mortgage loans held for sale, at fair value | |
| 2,912 | |
| 29,393 | | |
| 2,711 | |
| 1,302 |
Consumer loans held for sale, at fair value | | | 8,796 | | | 19,747 | | | | 8,443 | | | 4,706 |
Consumer loans held for sale, at the lower of cost or fair value | | | 12,679 | | | 2,937 | | | | 13,529 | | | 13,169 |
Loans (loans carried at fair value of $11 in 2022 and $170 in 2021) | |
| 4,289,450 | |
| 4,496,562 | | | |||||
Loans (loans carried at fair value of $0 in 2023 and $2 in 2022) |
| 5,081,099 | |
| 4,515,802 | ||||||||
Allowance for credit losses | |
| (64,919) | |
| (64,577) | | |
| (74,576) | |
| (70,413) |
Loans, net | |
| 4,224,531 | |
| 4,431,985 | | |
| 5,006,523 | |
| 4,445,389 |
Federal Home Loan Bank stock, at cost | |
| 8,568 | |
| 10,311 | | |
| 31,420 | |
| 9,146 |
Premises and equipment, net | |
| 32,813 | |
| 36,073 | | |
| 33,926 | |
| 31,978 |
Right-of-use assets | | | 41,303 | | | 38,825 | | | | 35,907 | | | 37,017 |
Goodwill | |
| 16,300 | |
| 16,300 | | |
| 40,516 | |
| 16,300 |
Other real estate owned | |
| 1,634 | |
| 1,792 | | |
| 1,423 | |
| 1,581 |
Bank owned life insurance | |
| 101,013 | |
| 99,161 | | |
| 103,211 | |
| 101,687 |
Low-income housing tax credit investments | | 76,047 | | | 75,324 | ||||||||
Other assets and accrued interest receivable | |
| 131,971 | |
| 108,092 | | |
| 110,159 | |
| 76,393 |
| | | | | | | | | | | | | |
TOTAL ASSETS | | $ | 5,999,663 | | $ | 6,093,632 | | | $ | 6,386,475 | | $ | 5,835,543 |
| | | | | | | | | | | | | |
LIABILITIES | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | |
Noninterest-bearing | | $ | 2,014,123 | | $ | 1,990,781 | | | $ | 1,702,979 | | $ | 1,908,768 |
Interest-bearing | |
| 2,786,385 | |
| 2,849,637 | | |
| 3,090,603 | |
| 2,629,077 |
Total deposits | |
| 4,800,508 | |
| 4,840,418 | | |
| 4,793,582 | |
| 4,537,845 |
| | | | | | | | | | | | | |
Securities sold under agreements to repurchase and other short-term borrowings | |
| 209,376 | |
| 290,967 | | |
| 80,797 | |
| 216,956 |
Operating lease liabilities | | | 42,109 | | | 39,672 | | | | 36,726 | | | 37,809 |
Federal Home Loan Bank advances | |
| 20,000 | |
| 25,000 | | |
| 465,000 | |
| 95,000 |
Low-income housing tax credit obligations | | 58,858 | | | 43,609 | ||||||||
Other liabilities and accrued interest payable | |
| 86,712 | |
| 63,343 | | |
| 58,112 | |
| 47,711 |
| | | | | | | | | | | | | |
Total liabilities | |
| 5,158,705 | |
| 5,259,400 | | |
| 5,493,075 | |
| 4,978,930 |
| | | | | | | | | | | | | |
Commitments and contingent liabilities (Footnote 9) | |
| — | |
| — | | | |||||
Commitments and contingent liabilities (Footnote 10) |
| — | |
| — | ||||||||
| | | | | | | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Preferred stock, no par value | |
| — | |
| — | | |
| — | |
| — |
Class A Common Stock and Class B Common Stock, no par value | |
| 4,649 | |
| 4,702 | | | |||||
Class A Common Stock, no par value, 30,000,000 shares authorized, 17,295,968 shares (2023) and 17,584,928 shares (2022) issued and outstanding; Class B Common Stock, no par value, 5,000,000 shares authorized, 2,156,662 shares (2023) and 2,159,495 shares (2022) issued and outstanding |
| 4,572 | |
| 4,648 | ||||||||
Additional paid in capital | |
| 140,958 | |
| 139,956 | | |
| 141,621 | |
| 141,694 |
Retained earnings | |
| 728,639 | |
| 687,700 | | |
| 777,808 | |
| 742,250 |
Accumulated other comprehensive (loss) income | |
| (33,288) | |
| 1,874 | | |
| (30,601) | |
| (31,979) |
| | | | | | | | | | | | | |
Total stockholders’ equity | |
| 840,958 | |
| 834,232 | | |
| 893,400 | |
| 856,613 |
| | | | | | | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 5,999,663 | | $ | 6,093,632 | | | $ | 6,386,475 | | $ | 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 |
| Nine Months Ended | | ||||||||
| September 30, | | September 30, | | ||||||||
| 2022 | | 2021 | | 2022 | | 2021 | | ||||
INTEREST INCOME: | | | | | | | | | | | | |
Loans, including fees | $ | 52,606 | | $ | 52,182 | | $ | 161,537 | | $ | 169,294 | |
Taxable investment securities |
| 3,159 | |
| 1,845 | |
| 7,906 | |
| 5,655 | |
Federal Home Loan Bank stock and other |
| 4,291 | |
| 442 | |
| 6,488 | |
| 978 | |
Total interest income |
| 60,056 | |
| 54,469 | |
| 175,931 | |
| 175,927 | |
| | | | | | | | | | | | |
INTEREST EXPENSE: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Deposits |
| 1,830 | |
| 1,148 | |
| 3,654 | |
| 4,037 | |
Securities sold under agreements to repurchase and other short-term borrowings |
| 94 | |
| 20 | |
| 171 | |
| 37 | |
Federal Home Loan Bank advances |
| 96 | |
| 6 | |
| 226 | |
| 47 | |
Subordinated note |
| — | |
| 166 | |
| — | |
| 507 | |
Total interest expense |
| 2,020 | |
| 1,340 | |
| 4,051 | |
| 4,628 | |
| | | | | | | | | | | | |
NET INTEREST INCOME |
| 58,036 | |
| 53,129 | |
| 171,880 | |
| 171,299 | |
| | | | | | | | | | | | |
Provision for expected credit loss expense for on-balance sheet exposures (loans and investment securities) |
| 1,573 | |
| 1,292 | |
| 14,504 | |
| 12,231 | |
| | | | | | | | | | | | |
NET INTEREST INCOME AFTER PROVISION |
| 56,463 | |
| 51,837 | |
| 157,376 | |
| 159,068 | |
| | | | | | | | | | | | |
NONINTEREST INCOME: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Service charges on deposit accounts |
| 3,409 | |
| 3,277 | |
| 9,998 | |
| 9,221 | |
Net refund transfer fees |
| 593 | |
| 1,280 | |
| 16,594 | |
| 19,924 | |
Mortgage banking income |
| 1,154 | |
| 5,280 | |
| 5,574 | |
| 16,655 | |
Interchange fee income |
| 3,322 | |
| 3,263 | |
| 9,853 | |
| 9,771 | |
Program fees |
| 4,932 | |
| 4,018 | |
| 12,671 | |
| 9,569 | |
Increase in cash surrender value of bank owned life insurance |
| 617 | |
| 626 | |
| 1,852 | |
| 1,616 | |
Net losses on other real estate owned |
| (53) | |
| (52) | |
| (158) | |
| (107) | |
Contract termination fee | | — | | | — | | | 5,000 | | | — | |
Legal settlement | | — | | | — | | | 13,000 | | | — | |
Other |
| 1,073 | |
| 1,133 | |
| 2,230 | |
| 2,845 | |
Total noninterest income |
| 15,047 | |
| 18,825 | |
| 76,614 | |
| 69,494 | |
| | | | | | | | | | | | |
NONINTEREST EXPENSE: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Salaries and employee benefits |
| 27,269 | |
| 26,991 | |
| 85,477 | |
| 83,738 | |
Technology, equipment, and communication |
| 7,235 | |
| 7,498 | |
| 21,678 | |
| 22,009 | |
Occupancy |
| 3,211 | |
| 3,195 | |
| 9,875 | |
| 10,005 | |
Marketing and development |
| 1,951 | |
| 1,233 | |
| 5,019 | |
| 3,099 | |
FDIC insurance expense |
| 423 | |
| 325 | |
| 1,241 | |
| 1,189 | |
Interchange related expense |
| 1,221 | |
| 1,275 | |
| 3,602 | |
| 3,707 | |
Legal and professional fees | | 904 | | | 884 | | | 3,073 | | | 3,564 | |
Other |
| 3,891 | |
| 3,034 | |
| 12,366 | |
| 10,719 | |
Total noninterest expense |
| 46,105 | |
| 44,435 | |
| 142,331 | |
| 138,030 | |
| | | | | | | | | | | | |
INCOME BEFORE INCOME TAX EXPENSE |
| 25,405 | |
| 26,227 | |
| 91,659 | |
| 90,532 | |
INCOME TAX EXPENSE |
| 5,922 | |
| 6,218 | |
| 20,349 | |
| 20,548 | |
NET INCOME | $ | 19,483 | | $ | 20,009 | | $ | 71,310 | | $ | 69,984 | |
| | | | | | | | | | | | |
BASIC EARNINGS PER SHARE: | | | | | | | | | | | | |
Class A Common Stock | $ | 0.99 | | $ | 0.99 | | $ | 3.60 | | $ | 3.40 | |
Class B Common Stock | | 0.90 | | | 0.90 | | | 3.27 | | | 3.10 | |
| | | | | | | | | | | | |
DILUTED EARNINGS PER SHARE: | | | | | | | | | | | | |
Class A Common Stock | $ | 0.99 | | $ | 0.99 | | $ | 3.58 | | $ | 3.39 | |
Class B Common Stock | | 0.90 | | | 0.90 | | | 3.26 | | | 3.09 | |
| | | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, | | September 30, | ||||||||
| 2023 | | 2022 | | 2023 | | 2022 | ||||
INTEREST INCOME: | | | | | | | | | | | |
| | | | | | | | | | | |
Loans, including fees | $ | 78,175 | | $ | 53,167 | | $ | 242,984 | | $ | 163,235 |
Taxable investment securities |
| 4,792 | |
| 3,159 | |
| 14,179 | |
| 7,906 |
Federal Home Loan Bank stock and other |
| 2,901 | |
| 4,291 | |
| 8,115 | |
| 6,488 |
Total interest income |
| 85,868 | |
| 60,617 | |
| 265,278 | |
| 177,629 |
| | | | | | | | | | | |
INTEREST EXPENSE: | | | | | | | | | | | |
| | | | | | | | | | | |
Deposits |
| 15,497 | |
| 1,830 | |
| 31,591 | |
| 3,654 |
Securities sold under agreements to repurchase and other short-term borrowings |
| 196 | |
| 94 | |
| 618 | |
| 171 |
Federal Home Loan Bank advances |
| 5,350 | |
| 96 | |
| 11,073 | |
| 226 |
Total interest expense |
| 21,043 | |
| 2,020 | |
| 43,282 | |
| 4,051 |
| | | | | | | | | | | |
NET INTEREST INCOME |
| 64,825 | |
| 58,597 | |
| 221,996 | |
| 173,578 |
| | | | | | | | | | | |
Provision for expected credit loss expense for on-balance sheet exposures (loans and investment securities) |
| 3,730 | |
| 1,573 | |
| 36,635 | |
| 14,504 |
| | | | | | | | | | | |
NET INTEREST INCOME AFTER PROVISION |
| 61,095 | |
| 57,024 | |
| 185,361 | |
| 159,074 |
| | | | | | | | | | | |
NONINTEREST INCOME: | | | | | | | | | | | |
| | | | | | | | | | | |
Service charges on deposit accounts |
| 3,559 | |
| 3,409 | |
| 10,385 | |
| 9,998 |
Net refund transfer fees |
| 242 | |
| 593 | |
| 15,528 | |
| 16,594 |
Mortgage banking income |
| 852 | |
| 1,154 | |
| 2,559 | |
| 5,574 |
Interchange fee income |
| 3,282 | |
| 3,322 | |
| 9,752 | |
| 9,853 |
Program fees |
| 4,041 | |
| 4,932 | |
| 11,021 | |
| 12,671 |
Increase in cash surrender value of bank owned life insurance |
| 690 | |
| 617 | |
| 2,014 | |
| 1,852 |
Death benefits in excess of cash surrender value of life insurance | | — | | | — | | | 1,728 | | | — |
Net losses on other real estate owned |
| (53) | |
| (53) | |
| (158) | |
| (158) |
Contract termination fee | | — | | | — | | | — | | | 5,000 |
Legal settlement | | — | | | — | | | — | | | 13,000 |
Other |
| 1,406 | |
| 1,134 | |
| 3,522 | |
| 2,302 |
Total noninterest income |
| 14,019 | |
| 15,108 | |
| 56,351 | |
| 76,686 |
| | | | | | | | | | | |
NONINTEREST EXPENSE: | | | | | | | | | | | |
| | | | | | | | | | | |
Salaries and employee benefits |
| 28,747 | |
| 27,269 | |
| 89,472 | |
| 85,477 |
Technology, equipment, and communication |
| 7,311 | |
| 7,235 | |
| 21,459 | |
| 21,678 |
Occupancy |
| 3,503 | |
| 3,211 | |
| 10,500 | |
| 9,875 |
Marketing and development |
| 2,055 | |
| 1,951 | |
| 6,142 | |
| 5,019 |
FDIC insurance expense |
| 677 | |
| 423 | |
| 2,038 | |
| 1,241 |
Interchange related expense |
| 1,580 | |
| 1,221 | |
| 4,429 | |
| 3,602 |
Legal and professional fees | | 803 | | | 904 | | | 2,693 | | | 3,073 |
Merger expense | | (132) | | | — | | | 2,068 | | | — |
Other |
| 3,498 | |
| 3,952 | |
| 13,217 | |
| 12,438 |
Total noninterest expense |
| 48,042 | |
| 46,166 | |
| 152,018 | |
| 142,403 |
| | | | | | | | | | | |
INCOME BEFORE INCOME TAX EXPENSE |
| 27,072 | |
| 25,966 | |
| 89,694 | |
| 93,357 |
INCOME TAX EXPENSE |
| 5,501 | |
| 6,070 | |
| 18,979 | |
| 20,764 |
NET INCOME | $ | 21,571 | | $ | 19,896 | | $ | 70,715 | | $ | 72,593 |
| | | | | | | | | | | |
BASIC EARNINGS PER SHARE: | | | | | | | | | | | |
Class A Common Stock | $ | 1.11 | | $ | 1.01 | | $ | 3.61 | | $ | 3.66 |
Class B Common Stock | | 1.01 | | | 0.92 | | | 3.28 | | | 3.33 |
| | | | | | | | | | | |
DILUTED EARNINGS PER SHARE: | | | | | | | | | | | |
Class A Common Stock | $ | 1.10 | | $ | 1.01 | | $ | 3.60 | | $ | 3.65 |
Class B Common Stock | | 1.01 | | | 0.92 | | | 3.27 | | | 3.32 |
| | | | | | | | | | | |
See accompanying footnotes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| | Nine Months Ended | |
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||
| September 30, | | | September 30, | | | September 30, | | September 30, | ||||||||||||||||
| 2022 |
| 2021 | |
| 2022 |
| 2021 | | | 2023 |
| 2022 | | 2023 |
| 2022 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | $ | 19,483 | | $ | 20,009 | | | $ | 71,310 | | $ | 69,984 | | | $ | 21,571 | | $ | 19,896 | | $ | 70,715 | | $ | 72,593 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
OTHER COMPREHENSIVE INCOME (LOSS) | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized losses on AFS debt securities |
| (15,510) | |
| (1,899) | | |
| (46,892) | |
| (4,542) | | | |||||||||||
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings |
| 1 | |
| 13 | | |
| 10 | |
| 62 | | | |||||||||||
Total other comprehensive loss before income tax |
| (15,509) | |
| (1,886) | | |
| (46,882) | |
| (4,480) | | | |||||||||||
Tax effect |
| 3,875 | |
| 471 | | |
| 11,720 | |
| 1,119 | | | |||||||||||
Total other comprehensive loss, net of tax |
| (11,634) | |
| (1,415) | | |
| (35,162) | |
| (3,361) | | | |||||||||||
Unrealized gain (loss) on AFS debt securities |
| 1,024 | |
| (15,510) | |
| 1,812 | |
| (46,892) | ||||||||||||||
Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings |
| (7) | |
| 1 | |
| 27 | |
| 10 | ||||||||||||||
Total other comprehensive income (loss) before income tax |
| 1,017 | |
| (15,509) | |
| 1,839 | |
| (46,882) | ||||||||||||||
Income tax benefit (expense) related to items of other comprehensive income |
| (250) | |
| 3,875 | |
| (461) | |
| 11,720 | ||||||||||||||
Total other comprehensive income (loss), net of tax |
| 767 | |
| (11,634) | |
| 1,378 | |
| (35,162) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
COMPREHENSIVE INCOME | $ | 7,849 | | $ | 18,594 | | | $ | 36,148 | | $ | 66,623 | | | $ | 22,338 | | $ | 8,262 | | $ | 72,093 | | $ | 37,431 |
See accompanying footnotes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2022 | | | Three Months Ended September 30, 2023 | | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | | Accumulated | | | | | | Common Stock | | | | | | | | Accumulated | | | | | ||||||||||||
|
| Class A |
| Class B |
|
| |
| Additional |
|
| |
| Other |
| Total | |
| Class A |
| Class B |
|
| |
| Additional |
|
| |
| Other |
| Total | | ||||||
| | Shares | | Shares | | | | | Paid In | | Retained | | Comprehensive | | Stockholders’ | | | Shares | | Shares | | | | | Paid In | | Retained | | Comprehensive | | Stockholders’ | | ||||||||
(in thousands, except per share data) | | Outstanding | | Outstanding | | Amount | | Capital | | Earnings | | Income (Loss) | | Equity | | | Outstanding | | Outstanding | | Amount | | Capital | | Earnings | | Income (Loss) | | Equity | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, July 1, 2022 |
| 17,629 | | 2,161 | | $ | 4,663 | | $ | 140,516 | | $ | 718,649 | | $ | (21,654) | | $ | 842,174 | | ||||||||||||||||||||
Balance, July 1, 2023 |
| 17,449 | | 2,157 | | $ | 4,617 | | $ | 142,462 | | $ | 771,260 | | $ | (31,368) | | $ | 886,971 | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income |
| — |
| — | |
| — | |
| — | |
| 19,483 | |
| — | |
| 19,483 | |
| — |
| — | |
| — | |
| — | |
| 21,571 | |
| — | |
| 21,571 | |
Net change in AOCI |
| — |
| — | |
| — | |
| — | |
| — | |
| (11,634) | |
| (11,634) | |
| — |
| — | |
| — | |
| — | |
| — | |
| 767 | |
| 767 | |
Dividends declared on Common Stock: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Class A Shares ($0.341 per share) |
| — |
| — | |
| — | |
| — | |
| (5,995) | |
| — | |
| (5,995) | | ||||||||||||||||||||
Class B Shares ($0.310 per share) |
| — |
| — | |
| — | |
| — | |
| (669) | |
| — | |
| (669) | | ||||||||||||||||||||
Class A Shares ($0.374 per share) |
| — |
| — | |
| — | |
| — | |
| (6,448) | |
| — | |
| (6,448) | | ||||||||||||||||||||
Class B Shares ($0.340 per share) |
| — |
| — | |
| — | |
| — | |
| (734) | |
| — | |
| (734) | | ||||||||||||||||||||
Stock options exercised, net of shares withheld |
| — |
| — | |
| — | |
| (2) | |
| — | |
| — | |
| (2) | |
| — |
| — | |
| — | |
| (10) | |
| — | |
| — | |
| (10) | |
Conversion of Class B to Class A Common Shares | | 1 |
| (1) | |
| — | |
| — | |
| — | |
| — | |
| — | | ||||||||||||||||||||
Repurchase of Class A Common Stock | | (48) |
| — | |
| (15) | |
| (484) | |
| (2,829) | |
| — | |
| (3,328) | | | (206) |
| — | |
| (46) | |
| (1,509) | |
| (7,841) | |
| — | |
| (9,396) | |
Net change in notes receivable on Class A Common Stock |
| — |
| — | |
| — | |
| 43 | |
| — | |
| — | |
| 43 | |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Deferred compensation - Class A Common Stock: |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Directors | | — |
| — | |
| — | |
| 192 | |
| — | |
| — | |
| 192 | | | — |
| — | |
| — | |
| 123 | |
| — | |
| — | |
| 123 | |
Designated key employees | | — |
| — | |
| — | |
| 184 | |
| — | |
| — | |
| 184 | | | — |
| — | |
| — | |
| 36 | |
| — | |
| — | |
| 36 | |
Employee stock purchase plan - Class A Common Stock | | 5 |
| — | |
| 1 | |
| 181 | |
| — | |
| — | |
| 182 | | | 4 |
| — | |
| 1 | |
| 172 | |
| — | |
| — | |
| 173 | |
Stock-based awards - Class A Common Stock: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Performance stock units |
| — |
| — | |
| — | |
| 38 | |
| — | |
| — | |
| 38 | |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Restricted stock |
| — |
| — | |
| — | |
| 161 | |
| — | |
| — | |
| 161 | |
| 49 |
| — | |
| — | |
| 172 | |
| — | |
| — | |
| 172 | |
Stock options |
| — |
| — | |
| — | |
| 129 | |
| — | |
| — | |
| 129 | |
| — |
| — | |
| — | |
| 175 | |
| — | |
| — | |
| 175 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, September 30, 2022 | | 17,587 | | 2,160 | | $ | 4,649 | | $ | 140,958 | | $ | 728,639 | | $ | (33,288) | | $ | 840,958 | | ||||||||||||||||||||
Balance, September 30, 2023 | | 17,296 | | 2,157 | | $ | 4,572 | | $ | 141,621 | | $ | 777,808 | | $ | (30,601) | | $ | 893,400 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | Three Months Ended September 30, 2021 | | | Three Months Ended September 30, 2022 | | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | Common Stock | | | | | | | | Accumulated | | | | | | Common Stock | | | | | | | Accumulated | | | | | |||||||||||||
|
| Class A |
| Class B |
|
| |
| Additional |
|
| |
| Other |
| Total | |
| Class A |
| Class B |
| |
| Additional |
| |
| Other |
| Total | | ||||||||
| | Shares | | Shares | | | | | Paid In | | Retained | | Comprehensive | | Stockholders’ | | | Shares | | Shares | | | | Paid In | | Retained | | Comprehensive | | Stockholders’ | | |||||||||
(in thousands, except per share data) | | Outstanding | | Outstanding | | Amount | | Capital | | Earnings | | Income (Loss) | | Equity | | | Outstanding | | Outstanding | | Amount | | Capital | | Earnings | | Income (Loss) | | Equity | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Balance, July 1, 2021 |
| 18,421 |
| 2,166 | | $ | 4,841 | | $ | 142,884 | | $ | 690,802 | | $ | 6,563 | | $ | 845,090 | | ||||||||||||||||||||
Balance, July 1, 2022 |
| 17,629 |
| 2,161 | | $ | 4,663 | | $ | 140,516 | | $ | 720,341 | | $ | (21,654) | | $ | 843,866 | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Net income |
| — |
| — | |
| — | |
| — | |
| 20,009 | |
| — | |
| 20,009 | |
| — |
| — | |
| — | |
| — | |
| 19,896 | |
| — | |
| 19,896 | |
Net change in AOCI |
| — |
| — | |
| — | |
| — | |
| — | |
| (1,415) | |
| (1,415) | |
| — |
| — | |
| — | |
| — | |
| — | |
| (11,634) | |
| (11,634) | |
Dividends declared on Common Stock: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Class A Shares ($0.308 per share) |
| — |
| — | |
| — | |
| — | |
| (5,557) | |
| — | |
| (5,557) | | ||||||||||||||||||||
Class B Shares ($0.280 per share) |
| — |
| — | |
| — | |
| — | |
| (606) | |
| — | |
| (606) | | ||||||||||||||||||||
Class A Shares ($0.341 per share) |
| — |
| — | |
| — | |
| — | |
| (5,995) | |
| — | |
| (5,995) | | ||||||||||||||||||||
Class B Shares ($0.310 per share) |
| — |
| — | |
| — | |
| — | |
| (669) | |
| — | |
| (669) | | ||||||||||||||||||||
Stock options exercised, net of shares withheld |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (2) | |
| — | |
| — | |
| (2) | |
Conversion of Class B to Class A Common Shares |
| 1 |
| (1) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 1 |
| (1) | |
| — | |
| — | |
| — | |
| — | |
| — | |
Repurchase of Class A Common Stock |
| (387) |
| — | |
| (90) | |
| (2,855) | |
| (16,733) | |
| — | |
| (19,678) | |
| (48) |
| — | |
| (15) | |
| (484) | |
| (2,829) | |
| — | |
| (3,328) | |
Net change in notes receivable on Class A Common Stock |
| — |
| — | |
| — | |
| 100 | |
| — | |
| — | |
| 100 | |
| — |
| — | |
| — | |
| 43 | |
| — | |
| — | |
| 43 | |
Deferred compensation - Class A Common Stock: |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | ||
Directors | | — |
| — | |
| — | |
| 121 | |
| — | |
| — | |
| 121 | | | — |
| — | |
| — | |
| 192 | |
| — | |
| — | |
| 192 | |
Designated key employees | | — |
| — | |
| — | |
| 175 | |
| — | |
| — | |
| 175 | | | — |
| — | |
| — | |
| 184 | |
| — | |
| — | |
| 184 | |
Employee stock purchase plan - Class A Common Stock | | 4 |
| — | |
| 1 | |
| 191 | |
| — | |
| — | |
| 192 | | | 5 |
| — | |
| 1 | |
| 181 | |
| — | |
| — | |
| 182 | |
Stock-based awards - Class A Common Stock: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Performance stock units |
| — |
| — | |
| — | |
| 32 | |
| — | |
| — | |
| 32 | |
| — |
| — | |
| — | |
| 38 | |
| — | |
| — | |
| 38 | |
Restricted stock |
| 1 |
| — | |
| — | |
| 64 | |
| — | |
| — | |
| 64 | |
| — |
| — | |
| — | |
| 161 | |
| — | |
| — | |
| 161 | |
Stock options |
| — |
| — | |
| — | |
| 130 | |
| — | |
| — | |
| 130 | |
| — |
| — | |
| — | |
| 129 | |
| — | |
| — | |
| 129 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Balance, September 30, 2021 |
| 18,040 |
| 2,165 | | $ | 4,752 | | $ | 140,842 | | $ | 687,915 | | $ | 5,148 | | $ | 838,657 | | ||||||||||||||||||||
Balance, September 30, 2022 |
| 17,587 |
| 2,160 | | $ | 4,649 | | $ | 140,958 | | $ | 730,744 | | $ | (33,288) | | $ | 843,063 | |
7
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 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 | | $ | 687,700 | | $ | 1,874 | | $ | 834,232 | |
| | | | | | | | | | | | | | | | | | | | |
Net income |
| — |
| — | |
| — | |
| — | |
| 71,310 | |
| — | |
| 71,310 | |
Net change in AOCI |
| — |
| — | |
| — | |
| — | |
| — | |
| (35,162) | |
| (35,162) | |
Dividends declared on Common Stock: | | | | | | | | | | | | | | | | | | | | |
Class A Shares ($1.023 per share) |
| — |
| — | |
| — | |
| — | |
| (18,123) | |
| — | |
| (18,123) | |
Class B Shares ($0.930 per share) |
| — |
| — | |
| — | |
| — | |
| (2,010) | |
| — | |
| (2,010) | |
Stock options exercised, net of shares withheld |
| 3 |
| — | |
| 2 | |
| 38 | |
| — | |
| — | |
| 40 | |
Conversion of Class B to Class A Common Shares | | 5 |
| (5) | |
| — | |
| — | |
| — | |
| — | |
| — | |
Repurchase of Class A Common Stock | | (263) |
| — | |
| (58) | |
| (1,868) | ��� |
| (10,238) | |
| — | |
| (12,164) | |
Net change in notes receivable on Class A Common Stock |
| — |
| — | |
| — | |
| 61 | |
| — | |
| — | |
| 61 | |
Deferred compensation - Class A Common Stock: |
| | | | | | | | | | | | | | | | | | | |
Directors | | 6 |
| — | |
| — | |
| 403 | |
| — | |
| — | |
| 403 | |
Designated key employees | | — |
| — | |
| — | |
| 541 | |
| — | |
| — | |
| 541 | |
Employee stock purchase plan - Class A Common Stock | | 12 |
| — | |
| 3 | |
| 506 | |
| — | |
| — | |
| 509 | |
Stock-based awards - Class A Common Stock: | | | | | | | | | | | | | | | | | | | | |
Performance stock units |
| — |
| — | |
| — | |
| 114 | |
| — | |
| — | |
| 114 | |
Restricted stock |
| 8 |
| — | |
| — | |
| 771 | |
| — | |
| — | |
| 771 | |
Stock options |
| — |
| — | |
| — | |
| 436 | |
| — | |
| — | |
| 436 | |
| | | | | | | | | | | | | | | | | | | | |
Balance, September 30, 2022 | | 17,587 | | 2,160 | | $ | 4,649 | | $ | 140,958 | | $ | 728,639 | | $ | (33,288) | | $ | 840,958 | |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 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 |
| — |
| — | |
| — | |
| — | |
| 70,715 | |
| — | |
| 70,715 | |
Net change in AOCI |
| — |
| — | |
| — | |
| — | |
| — | |
| 1,378 | |
| 1,378 | |
Dividends declared on Common Stock: | | | | | | | | | | | | | | | | | | | | |
Class A Shares ($1.122 per share) |
| — |
| — | |
| — | |
| — | |
| (19,566) | |
| — | |
| (19,566) | |
Class B Shares ($1.020 per share) |
| — |
| — | |
| — | |
| — | |
| (2,201) | |
| — | |
| (2,201) | |
Stock options exercised, net of shares withheld |
| — |
| — | |
| (1) | |
| (193) | |
| — | |
| — | |
| (194) | |
Conversion of Class B to Class A Common Shares | | 3 |
| (3) | |
| — | |
| — | |
| — | |
| — | |
| — | |
Repurchase of Class A Common Stock | | (363) |
| — | |
| (80) | |
| (2,640) | |
| (13,390) | |
| — | |
| (16,110) | |
Net change in notes receivable on Class A Common Stock |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Deferred compensation - Class A Common Stock: |
| | | | | | | | | | | | | | | | | | | |
Directors | | — |
| — | |
| — | |
| 349 | |
| — | |
| — | |
| 349 | |
Designated key employees | | 7 |
| — | |
| — | |
| 495 | |
| — | |
| — | |
| 495 | |
Employee stock purchase plan - Class A Common Stock | | 13 |
| — | |
| 3 | |
| 535 | |
| — | |
| — | |
| 538 | |
Stock-based awards - Class A Common Stock: | | | | | | | | | | | | | | | | | | | | |
Performance stock units |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Restricted stock |
| 51 |
| — | |
| 2 | |
| 798 | |
| — | |
| — | |
| 800 | |
Stock options |
| — |
| — | |
| — | |
| 583 | |
| — | |
| — | |
| 583 | |
| | | | | | | | | | | | | | | | | | | | |
Balance, September 30, 2023 | | 17,296 | | 2,157 | | $ | 4,572 | | $ | 141,621 | | $ | 777,808 | | $ | (30,601) | | $ | 893,400 | |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | | |||||||||||||||||
| | 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, 2021 |
| 18,697 | | 2,199 | | $ | 4,899 | | $ | 143,637 | | $ | 666,278 | | $ | 8,509 | | $ | 823,323 | |
| | | | | | | | | | | | | | | | | | | | |
Net income |
| — |
| — | |
| — | |
| — | |
| 69,984 | |
| — | |
| 69,984 | |
Net change in AOCI |
| — |
| — | |
| — | |
| — | |
| — | |
| (3,361) | |
| (3,361) | |
Dividends declared on Common Stock: | | | | | | | | | | | | | | | | | | | | |
Class A Shares ($0.924 per share) |
| — |
| — | |
| — | |
| — | |
| (16,980) | |
| — | |
| (16,980) | |
Class B Shares ($0.840 per share) |
| — |
| — | |
| — | |
| — | |
| (1,830) | |
| — | |
| (1,830) | |
Stock options exercised, net of shares withheld |
| 28 |
| — | |
| 13 | |
| (155) | |
| — | |
| — | |
| (142) | |
Conversion of Class B to Class A Common Shares |
| 34 |
| (34) | |
| — | |
| — | |
| — | |
| — | |
| — | |
Repurchase of Class A Common Stock |
| (749) |
| — | |
| (165) | |
| (5,205) | |
| (29,537) | |
| — | |
| (34,907) | |
Net change in notes receivable on Class A Common Stock |
| — |
| — | |
| — | |
| 150 | |
| — | |
| — | |
| 150 | |
Deferred compensation - Class A Common Stock: |
| | | | | | | | | | | | | | | | | | | |
Directors | | 4 |
| — | |
| — | |
| 330 | |
| — | |
| — | |
| 330 | |
Designated key employees | | — |
| — | |
| — | |
| 478 | |
| — | |
| — | |
| 478 | |
Employee stock purchase plan - Class A Common Stock | | 11 |
| — | |
| 3 | |
| 507 | |
| — | |
| — | |
| 510 | |
Stock-based awards - Class A Common Stock: | | | | | | | | | | | | | | | | | | | | |
Performance stock units |
| — |
| — | |
| — | |
| 97 | |
| — | |
| — | |
| 97 | |
Restricted stock |
| 15 |
| — | |
| 2 | |
| 583 | |
| — | |
| — | |
| 585 | |
Stock options |
| — |
| — | |
| — | |
| 420 | |
| — | |
| — | |
| 420 | |
| | | | | | | | | | | | | | | | | | | | |
Balance, September 30, 2021 |
| 18,040 |
| 2,165 | | $ | 4,752 | | $ | 140,842 | | $ | 687,915 | | $ | 5,148 | | $ | 838,657 | |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 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 |
| — |
| — | |
| — | |
| — | |
| 72,593 | |
| — | |
| 72,593 | |
Net change in AOCI |
| — |
| — | |
| — | |
| — | |
| — | |
| (35,162) | |
| (35,162) | |
Dividends declared on Common Stock: | | | | | | | | | | | | | | | | | | | | |
Class A Shares ($1.023 per share) |
| — |
| — | |
| — | |
| — | |
| (18,123) | |
| — | |
| (18,123) | |
Class B Shares ($0.930 per share) |
| — |
| — | |
| — | |
| — | |
| (2,010) | |
| — | |
| (2,010) | |
Stock options exercised, net of shares withheld |
| 3 |
| — | |
| 2 | |
| 38 | |
| — | |
| — | |
| 40 | |
Conversion of Class B to Class A Common Shares |
| 5 |
| (5) | |
| — | |
| — | |
| — | |
| — | |
| — | |
Repurchase of Class A Common Stock |
| (263) |
| — | |
| (58) | |
| (1,868) | |
| (10,238) | |
| — | |
| (12,164) | |
Net change in notes receivable on Class A Common Stock |
| — |
| — | |
| — | |
| 61 | |
| — | |
| — | |
| 61 | |
Deferred compensation - Class A Common Stock: |
| | | | | | | | | | | | | | | | | | | |
Directors | | 6 |
| — | |
| — | |
| 403 | |
| — | |
| — | |
| 403 | |
Designated key employees | | — |
| — | |
| — | |
| 541 | |
| — | |
| — | |
| 541 | |
Employee stock purchase plan - Class A Common Stock | | 12 |
| — | |
| 3 | |
| 506 | |
| — | |
| — | |
| 509 | |
Stock-based awards - Class A Common Stock: | | | | | | | | | | | | | | | | | | | | |
Performance stock units |
| — |
| — | |
| — | |
| 114 | |
| — | |
| — | |
| 114 | |
Restricted stock |
| 8 |
| — | |
| — | |
| 771 | |
| — | |
| — | |
| 771 | |
Stock options |
| — |
| — | |
| — | |
| 436 | |
| — | |
| — | |
| 436 | |
| | | | | | | | | | | | | | | | | | | | |
Balance, September 30, 2022 |
| 17,587 |
| 2,160 | | $ | 4,649 | | $ | 140,958 | | $ | 730,744 | | $ | (33,288) | | $ | 843,063 | |
See accompanying footnotes to consolidated financial statements.
8
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| | | | | | | | | | | | | | |
| | Nine Months Ended | | | Nine Months Ended | | ||||||||
| | September 30, | | | September 30, | | ||||||||
|
| 2022 |
| 2021 | |
| 2023 |
| 2022 | | ||||
OPERATING ACTIVITIES: | | | | | | | | | | | | | | |
Net income | | $ | 71,310 | | $ | 69,984 | | | $ | 70,715 | | $ | 72,593 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | |
Net amortization on investment securities and low-income housing investments | |
| 3,753 | |
| 3,678 | | |
| 4,176 | |
| 3,753 | |
Net accretion and amortization on loans | |
| (3,026) | |
| (12,650) | | |
| (2,756) | |
| (3,026) | |
Unrealized and realized losses on equity securities with readily determinable fair value | | | 204 | | | 505 | | | | (26) | | | 204 | |
Depreciation of premises and equipment | |
| 5,884 | |
| 6,747 | | |
| 4,930 | |
| 5,884 | |
Amortization of mortgage servicing rights | |
| 1,773 | |
| 2,617 | | |
| 1,440 | |
| 1,773 | |
Recovery of mortgage servicing rights | | | — | | | (500) | | |||||||
Provision for on-balance sheet exposures | |
| 14,504 | |
| 12,231 | | |
| 36,635 | |
| 14,504 | |
Provision for off-balance sheet exposures | | | 128 | | | (52) | | | | 90 | | | 128 | |
Net gain on sale of mortgage loans held for sale | |
| (4,704) | |
| (16,339) | | |
| (1,453) | |
| (4,704) | |
Origination of mortgage loans held for sale | |
| (195,006) | |
| (525,246) | | |
| (53,750) | |
| (195,006) | |
Proceeds from sale of mortgage loans held for sale | |
| 226,191 | |
| 562,661 | | |
| 53,794 | |
| 226,191 | |
Net gain on sale of consumer loans held for sale | | | (10,466) | | | (7,889) | | | | (8,880) | | | (10,466) | |
Origination of consumer loans held for sale | | | (820,127) | | | (561,062) | | | | (756,714) | | | (820,127) | |
Proceeds from sale of consumer loans held for sale | | | 831,802 | | | 558,972 | | | | 761,497 | | | 831,802 | |
Net gain realized on sale of other real estate owned | |
| — | |
| (51) | | |||||||
Writedowns of other real estate owned | |
| 158 | |
| 158 | | |
| 158 | |
| 158 | |
Deferred compensation expense - Class A Common Stock | |
| 944 | |
| 808 | | |
| 844 | |
| 944 | |
Stock-based awards and ESPP expense - Class A Common Stock | |
| 1,397 | |
| 1,178 | | |
| 1,407 | |
| 1,397 | |
Net gain on sale of bank premises and equipment | |
| — | |
| (399) | | |||||||
Increase in cash surrender value of bank owned life insurance | |
| (1,852) | |
| (1,616) | | |
| (1,324) | |
| (1,852) | |
Gain from death benefits in excess of cash surrender value of BOLI | | | (1,728) | | | — | | |||||||
Net change in other assets and liabilities: | | | | | | | | | | | | | | |
Accrued interest receivable | |
| (1,225) | |
| 3,573 | | |
| (5,366) | |
| (1,225) | |
Accrued interest payable | |
| 34 | |
| (162) | | |
| 1,778 | |
| 34 | |
Other assets | |
| 1,309 | |
| 2,384 | | |
| (21,085) | |
| 1,309 | |
Other liabilities | |
| 12,117 | |
| (3,104) | | |
| 1,872 | |
| 10,518 | |
Net cash provided by operating activities | |
| 135,102 | |
| 96,426 | | |
| 86,254 | |
| 134,786 | |
| | | | | | | | |||||||
INVESTING ACTIVITIES: | | | | | | | | | | | | | | |
Net cash proceeds paid in acquisition | |
| (40,970) | |
| — | | |||||||
Purchases of available-for-sale debt securities | |
| (244,820) | |
| (141,571) | | |
| (30,000) | |
| (244,820) | |
Purchases of held-to-maturity debt securities | |
| (25,000) | |
| — | | |||||||
Proceeds from calls, maturities and paydowns of equity and available-for-sale debt securities | |
| 65,269 | |
| 164,280 | | |
| 67,571 | |
| 65,269 | |
Proceeds from calls, maturities and paydowns of held-to-maturity debt securities | |
| 11,703 | |
| 8,444 | | |
| 10,736 | |
| 11,703 | |
Net change in outstanding warehouse lines of credit | |
| 408,312 | |
| 212,114 | | |
| (54,472) | |
| 408,312 | |
Net change in other loans | |
| (212,312) | |
| 259,710 | | |
| (323,283) | |
| (212,312) | |
Proceeds from redemption of Federal Home Loan Bank stock | |
| 1,743 | |
| 7,086 | | |||||||
Proceeds from sales of other real estate owned | |
| — | |
| 611 | | |||||||
Proceeds from sale of bank premises and equipment | | | — | | | 637 | | |||||||
Purchase of bank owned life insurance | | | — | | | (30,000) | | |||||||
Purchase of Federal Home Loan Bank stock | | | (22,274) | | | 1,743 | | |||||||
Investments in low-income housing tax partnerships | | | (7,258) | | | (8,277) | | | | 10,221 | | | (7,258) | |
Net purchases of premises and equipment | |
| (2,624) | |
| (4,972) | | |
| (5,278) | |
| (2,624) | |
Net cash provided by investing activities | |
| 20,013 | |
| 468,062 | | |||||||
| | | | | | | | |||||||
Proceeds of principal and earnings from bank-owned life insurance | | | 1,528 | | | — | | |||||||
Net cash used in investing activities | |
| (411,221) | |
| 20,013 | | |||||||
FINANCING ACTIVITIES: | | | | | | | | | | | | | | |
Net change in deposits | |
| (39,910) | |
| 214,766 | | |
| 34,059 | |
| (39,594) | |
Net change in securities sold under agreements to repurchase and other short-term borrowings | |
| (81,591) | |
| 49,557 | | |
| (136,159) | |
| (81,591) | |
Payments of Federal Home Loan Bank advances | |
| (25,000) | |
| (235,000) | | |
| (538,000) | |
| (25,000) | |
Proceeds from Federal Home Loan Bank advances | |
| 20,000 | |
| 25,000 | | |
| 908,000 | |
| 20,000 | |
Payoff of subordinated note, net of common security interest | | | — | | | (40,000) | | |||||||
Repurchase of Class A Common Stock | |
| (12,164) | |
| (34,907) | | |
| (16,110) | |
| (12,164) | |
Net proceeds from Class A Common Stock purchased through employee stock purchase plan | | | 433 | | | 435 | | | | 514 | | | 433 | |
Net proceeds from option exercises and equity awards vested - Class A Common Stock | |
| 40 | |
| (142) | | |
| (194) | |
| 40 | |
Cash dividends paid | |
| (19,501) | |
| (18,537) | | |
| (21,179) | |
| (19,501) | |
Net cash used in financing activities | |
| (157,693) | |
| (38,828) | | |||||||
Net cash (used in) provided by financing activities | |
| 230,931 | |
| (157,377) | | |||||||
| | | | | | | | | | | | | | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| (2,578) | |
| 525,660 | | |
| (94,036) | |
| (2,578) | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |
| 756,971 | |
| 485,587 | | |
| 313,689 | |
| 756,971 | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 754,393 | | $ | 1,011,247 | | | $ | 219,653 | | $ | 754,393 | |
| | | | | | | | |||||||
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION: | | | | | | | | | | | | | | |
Cash paid during the period for: | | | | | | | | | | | | | | |
Interest | | $ | 4,017 | | $ | 4,790 | | | $ | 41,504 | | $ | 4,017 | |
Income taxes | |
| 14,614 | |
| 16,736 | | |
| 17,279 | |
| 14,614 | |
| | | | | | | | |||||||
SUPPLEMENTAL NONCASH DISCLOSURES: | | | | | | | | | | | | | | |
Mortgage servicing rights capitalized | | $ | 1,755 | | $ | 3,889 | | | $ | 381 | | $ | 1,755 | |
Transfers from loans to real estate acquired in settlement of loans | | | — | | | 64 | | |||||||
Unfunded commitments in low-income-housing investments | | | 16,100 | | | 24 | | |||||||
New unfunded obligations in low-income-housing investments | | | 27,000 | | | 16,100 | | |||||||
Right-of-use assets recorded | | | 6,360 | | | 263 | | | | 3,480 | | | 6,360 | |
See accompanying footnotes to consolidated financial statements.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –SEPTEMBER 30, 20222023 and 20212022 AND DECEMBER 31, 20212022 (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-ownedwholly 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-ownedwholly 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. In May 2023, the Company’s Board of Directors voted to dissolve the Company’s Captive. The dissolution of the Captive is expected to occur during the fourth quarter of 2023.
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 and nine months ended September 30, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023. 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, 2021.2022.
As of September 30, 2022,2023, 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.
10
Core Bank
Traditional Banking segment — The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of September 30, 2022,2023, Republic had 42 full-service46 banking centers with locations as follows:
● | Kentucky — |
● | Metropolitan Louisville — 18 |
● | Central Kentucky — 7 |
● | Georgetown — 1 |
● | Lexington — 5 |
● | Shelbyville — 1 |
● | Northern Kentucky — |
●Bellevue— 1
● | Covington — 1 |
● | Crestview Hills — 1 |
● |
|
● |
|
● |
|
● |
|
● |
|
● |
|
● |
|
● | Metropolitan Tampa |
● |
|
● | Metropolitan Cincinnati — 4 |
● | Tennessee — 3 |
● | Metropolitan Nashville |
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: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 loanadvance during the time the loanadvance 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.
11
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 for loans generated in states within its footprint and generally sells servicing for loans generated in states outside of its footprint.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”). SubstantiallyThe majority of all of the business generated by the TRS segmentbusiness occurs induring the first half of theeach year. The TRS segment traditionally operates at a loss duringDuring the second half of theeach year, during which time the segmentTRS generates limited revenue and incurs costs preparing for the upcomingnext 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 EA taxRA credit product is a loan thatmade in conjunction with the filing of a taxpayer’s federal tax return, which allows athe taxpayer to borrow funds as an advance of a portion of their tax refund. The EARA product had the following features during 2022the first quarter of each of 2023 and 2021:2022:
● | 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 |
● | Repayment of the |
● | If an insufficient refund to repay the |
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 taxable income documentation, e.g., W-2. As such, the Company generally uses paystub information to estimate the potential tax
12
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 EA productRAs, including ERAs, as interest income on loans. During 2021, EAsRAs 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. EAsRAs do not have a contractual due date but the Company considered an EAa RA, related to the first quarter 2022 tax season, delinquent in 2022 and 2021 if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority. In 2023, the Company also considered a RA, related to the first quarter 2023 tax season, delinquent if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority. For the ERA product originated in December of 2022 and January 2023, the Company considered it 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 EAsRAs and ERAs are estimated when advances are made. Unpaid EAsRAs, including ERAs, related to the first quarter tax season of a given year are charged-off by June 30th30th of eachthat year, with EAsRAs collected during the second half of eachthat year recorded as recoveries of previously charged-off loans, unless such collections arethey were covered under a loss guaranty arrangement. Any RAs subject to guarantor reimbursement under a loan-loss guaranty. loss guaranty arrangement that are recovered during the second half of the year are distributed to the guarantor.
Related to the overall credit losses on EAs,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 EARA approval model is based primarily on the prior-year’s tax refund payment patterns. Because the substantial majority of the EARA 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 and ERA product parameters do not ensure positive results and could have an overall material negative impact on the performance of all RA and ERA 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.
Settlement of Lawsuit Against Green Dot - OnAs previously disclosed, on June 3, 2022, the Bank and Green Dot entered into the Settlement Agreement to fully resolve the Lawsuit that the Bank filed against Green Dot in the Delaware Court of Chancery on October 5, 2021.
As previously disclosed in the Company’s prior SEC filings, the The Lawsuit arose from Green Dot’s inability to consummate the Sale
Transaction contemplated in the TRS Purchase Agreement through which Green Dot would purchase all of the assets and operations of the Bank’s Tax Refund Solutions business.
12
In accordance with the Settlement Agreement, on June 6, 2022, Green Dot paid $13$13.0 million to the Bank, which was in addition to a $5$5.0 million termination fee that Green Dot paid to the Bank during the first quarter of 2022 under the terms of the TRS Purchase Agreement. On June 6, 2022, the Bank and Green Dot filed a stipulation of dismissal of the Lawsuit with the Delaware Court of Chancery, which was effective to dismiss the Lawsuit when filed.
13
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. For the projected near-term, as the prepaid card program matures,Until the operating results of the RPS division are expected to be immaterialmaterial to the Company’s overall results of operations, andthey will be reported as part of the TRS segment. The Company does not expect to report the RPS division will not be consideredas 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 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 |
The Bank sells participation interests in this product. These participation interests areparticipations sold represent 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 |
The Bank sells participation interests in this product. These participation interests areparticipations sold represent 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 – |
13
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. |
14
● | RCS healthcare receivables products – The Bank originates healthcare-receivables products across the U.S. through |
o | For two of the programs, the Bank retains 100% of the receivables, |
o | For the remaining program, in some instances the Bank retains 100% of the receivables originated, with recourse in |
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.”
15
Recently Adopted Accounting Standards
The following ASUs were adopted by the Company during the nine months ended September 30, 2022:2023:
| | | | | | | | | | |
| | | | | | | | Method of | | Financial |
ASU. No. |
| Topic |
| Nature of Update |
| Date Adopted |
|
|
|
|
| |
| | This ASU | | January 1, | | Prospectively | | Immaterial |
| | | | | | | | | | |
| |
| | This ASU | | January 1, | | Prospectively | |
|
|
|
|
|
|
|
|
|
|
|
|
1416
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 |
2023-06
Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative
This ASU incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification™. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations.
The date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective.
Prospectively
Immaterial
2023-03
Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock (SEC Update)
This ASU amends the FASB Accounting Standards Codification™ for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.
Upon addition to the FASB Codification.
Prospectively
The Company is currently analyzing the impact of this ASU on its financial statements.
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.
1517
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, Inc. (“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 previously reported preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, final recast adjustments to those previously reported preliminary fair values, and the expected fair values of those assets and liabilities as recorded by the Company. Effective September 30, 2023, management has finalized the fair values of the acquired assets and assumed liabilities.
| | | | | | | | | | | | | | |
| | March 15, 2023 | ||||||||||||
| | As Previously Reported | | | As Recasted | |||||||||
|
| As Recorded |
| Fair Value |
| Recast |
| As Recorded | ||||||
(in thousands) | | by CBank | | Adjustments | | | Adjustments | | | by Republic | ||||
| | | | | | | | | | | | | | |
Assets acquired: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 10,030 | | $ | — | | | $ | — | | | $ | 10,030 |
Investment securities | |
| 16,463 | |
| (4) | a | |
| (65) | a | |
| 16,394 |
Loans | |
| 221,707 | |
| (4,219) | b | |
| (150) | b | |
| 217,338 |
Allowance for loan and lease losses | | | (2,953) | | | 1,353 | c | | | 1,391 | c, j | | | (209) |
Loans, net | |
| 218,754 | |
| (2,866) | | |
| 1,241 | | |
| 217,129 |
Goodwill | | | 954 | | | (954) | d | | | — | | | | — |
Core deposit intangible | | | — | | | 2,844 | e | | | — | | | | 2,844 |
Premises and equipment, net | |
| 162 | |
| 35 | f | |
| (24) | f | |
| 173 |
Other assets and accrued interest receivable | |
| 7,067 | |
| (320) | g | |
| — | | |
| 6,747 |
| | | | | | | | | | | | | | |
Total assets acquired | | $ | 253,430 | | $ | (1,265) | | | $ | 1,152 | | | $ | 253,317 |
| | | | | | | | | | | | | | |
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 | |
| 50 | i | |
| 4,855 |
| | | | | | | | | | | | | | |
Total liabilities assumed | |
| 226,356 | |
| 127 | | |
| 50 | | |
| 226,533 |
| | | | | | | | | | | | | | |
Net assets acquired | | $ | 27,074 | | $ | (1,392) | | | $ | 1,102 | | | | 26,784 |
| | | | | | | | | | | | | | |
Cash consideration paid | | | | | | | | | | | | |
| (51,000) |
| | | | | | | | | | | | | | |
Goodwill | | | | | | | | | | | | | $ | 24,216 |
18
Explanation of fair value and recast 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 based on the Company’s evaluation of the acquired loan portfolio. |
c. | Adjustments to the Allowance reflect the fair value adjustment to eliminate the acquiree’s recorded allowance for loan losses and other fair value adjustments based on the Company’s evaluation of the acquired loan portfolio. |
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. |
j. | Adjustment reflects a change in estimated fair value based upon further evaluation of PCD loans, including cash payments received subsequent to the date of acquisition. |
Goodwill of approximately $24 million, which is the excess of the merger consideration over the fair value of net assets acquired, was 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.
2.3. 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 |
|
| |
| |
| Gross |
| Gross |
| Allowance |
|
| | ||||||||
| | Amortized | | Unrealized | | Unrealized | | for |
| Fair | | Amortized | | Unrealized | | Unrealized | | for |
| Fair | ||||||||||
September 30, 2022 (in thousands) | | Cost | | Gains | | Losses | | Credit Losses |
| Value | ||||||||||||||||||||
September 30, 2023 (in thousands) | | Cost | | Gains | | Losses | | Credit Losses |
| Value | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 436,287 | | $ | — | | $ | (25,852) | | $ | — | | $ | 410,435 | | $ | 436,512 | | $ | 1 | | $ | (20,901) | | $ | — | | $ | 415,612 |
Private label mortgage-backed security | |
| 961 | |
| 1,323 | |
| — | |
| — | |
| 2,284 | |
| 574 | |
| 1,311 | |
| — | |
| — | |
| 1,885 |
Mortgage-backed securities - residential | |
| 199,692 | |
| 41 | |
| (19,329) | |
| — | |
| 180,404 | |
| 175,693 | |
| 16 | |
| (20,160) | |
| — | |
| 155,549 |
Collateralized mortgage obligations | |
| 23,663 | |
| 39 | |
| (786) | |
| — | |
| 22,916 | |
| 23,441 | |
| 29 | |
| (1,307) | |
| — | |
| 22,163 |
Corporate bonds | |
| 10,000 | |
| — | |
| (2) | |
| — | |
| 9,998 | |
| 2,014 | |
| 2 | |
| — | |
| — | |
| 2,016 |
Trust preferred security | |
| 3,726 | |
| 184 | |
| — | |
| — | |
| 3,910 | |
| 3,785 | |
| 210 | |
| — | |
| — | |
| 3,995 |
Total available-for-sale debt securities | | $ | 674,329 | | $ | 1,587 | | $ | (45,969) | | $ | — | | $ | 629,947 | | $ | 642,019 | | $ | 1,569 | | $ | (42,368) | | $ | — | | $ | 601,220 |
| | | | | | | | | | | | | | | |
|
| |
| Gross |
| Gross |
| Allowance |
|
| | ||||
| | Amortized | | Unrealized | | Unrealized | | for |
| Fair | |||||
December 31, 2021 (in thousands) | | Cost | | Gains | | Losses | | Credit Losses |
| Value | |||||
| | | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 239,880 | | $ | 473 | | $ | (2,894) | | $ | — | | $ | 237,459 |
Private label mortgage-backed security | |
| 1,418 | |
| 1,313 | |
| — | |
| — | |
| 2,731 |
Mortgage-backed securities - residential | |
| 207,697 | |
| 3,525 | |
| (473) | |
| — | |
| 210,749 |
Collateralized mortgage obligations | |
| 29,947 | |
| 377 | |
| (30) | |
| — | |
| 30,294 |
Corporate bonds | |
| 10,000 | |
| 46 | |
| — | |
| — | |
| 10,046 |
Trust preferred security | |
| 3,684 | |
| 163 | |
| — | |
| — | |
| 3,847 |
Total available-for-sale debt securities | | $ | 492,626 | | $ | 5,897 | | $ | (3,397) | | $ | — | | $ | 495,126 |
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 | |||||
September 30, 2022 (in thousands) | | Cost | | Gains | | Losses | | Value | | Credit Losses | |||||
| | | | | | | | | | | | | | | |
Mortgage-backed securities - residential | | $ | 28 | | $ | — | | $ | — | | $ | 28 | | $ | — |
Collateralized mortgage obligations | |
| 7,514 | |
| 60 | |
| (18) | |
| 7,556 | |
| — |
Corporate bonds | |
| 24,971 | |
| 1 | |
| (58) | |
| 24,914 | |
| (10) |
Obligations of state and political subdivisions | | | 125 | | | — | | | (2) | | | 123 | | | — |
Total held-to-maturity debt securities | | $ | 32,638 | | $ | 61 | | $ | (78) | | $ | 32,621 | | $ | (10) |
| | | | | | | | | | | | | | | |
|
|
| |
| Gross |
| Gross |
|
| |
| Allowance | |||
| | Amortized | | Unrecognized | | Unrecognized | | Fair | | for | |||||
December 31, 2021 (in thousands) | | Cost | | Gains | | Losses | | Value | | Credit Losses | |||||
| | | | | | | | | | | | | | | |
Mortgage-backed securities - residential | | $ | 46 | | $ | — | | $ | — | | $ | 46 | | $ | — |
Collateralized mortgage obligations | |
| 9,080 | |
| 158 | |
| — | |
| 9,238 | |
| — |
Corporate bonds | |
| 34,975 | |
| 263 | |
| (6) | |
| 35,232 | |
| (47) |
Obligations of state and political subdivisions | | | 245 | | | 3 | | | — | | | 248 | | | — |
Total held-to-maturity debt securities | | $ | 44,346 | | $ | 424 | | $ | (6) | | $ | 44,764 | | $ | (47) |
Sales of Available-for-Sale Debt Securities
During the three and nine months ended September 30, 2022 and 2021, there were no material gains or losses on sales or calls of AFS debt securities.
| | | | | | | | | | | | | | | |
|
| |
| 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 |
1619
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 | |||||
September 30, 2023 (in thousands) | | Cost | | Gains | | Losses | | Value | | Credit Losses | |||||
| | | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 90,000 | | $ | — | | $ | (368) | | $ | 89,632 | | $ | — |
Mortgage-backed securities - residential | | | 25 | | | — | | | (1) | | | 24 | | | — |
Collateralized mortgage obligations | |
| 6,652 | |
| 40 | |
| (155) | |
| 6,537 | |
| — |
Corporate bonds | |
| 4,983 | |
| 26 | |
| — | |
| 5,009 | |
| (10) |
Obligations of state and political subdivisions | | | — | | | — | | | — | | | — | | | — |
Total held-to-maturity debt securities | | $ | 101,660 | | $ | 66 | | $ | (524) | | $ | 101,202 | | $ | (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 and nine months ended September 30, 2023 and 2022, there were no material gains or losses on sales or calls of AFS debt securities.
Debt Securities by Contractual Maturity
The amortized cost and fair value of debt securities by contractual maturity as of September 30, 20222023 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 |
| | Available-for-Sale | | Held-to-Maturity | ||||||||||||||||
| | Debt Securities | | Debt Securities |
| | Debt Securities | | Debt Securities | ||||||||||||||||
|
| Amortized |
| Fair |
| Amortized |
| Fair |
|
| Amortized |
| Fair |
| Amortized |
| Fair | ||||||||
September 30, 2022 (in thousands) | | Cost | | Value | | Cost | | Value |
| ||||||||||||||||
September 30, 2023 (in thousands) | | Cost | | Value | | Cost | | Value | |||||||||||||||||
| | | | | | | | | |
| | | | | | | | | | | | | |||
Due in one year or less | | $ | 51,801 | | $ | 51,291 | | $ | 125 | | $ | 124 | | | $ | 169,819 | | $ | 165,862 | | $ | 25,000 | | $ | 24,917 |
Due from one year to five years | |
| 394,486 | |
| 369,142 | |
| 24,971 | |
| 24,913 | | |
| 268,707 | |
| 251,766 | |
| 69,983 | |
| 69,724 |
Due from five years to ten years | |
| — | |
| — | |
| — | |
| — | | |
| — | |
| — | |
| — | |
| — |
Due beyond ten years | |
| 3,726 | |
| 3,910 | |
| — | |
| — | | |
| 3,785 | |
| 3,995 | |
| — | |
| — |
Private label mortgage-backed security | |
| 961 | |
| 2,284 | |
| — | |
| — | | |
| 574 | |
| 1,885 | |
| — | |
| — |
Mortgage-backed securities - residential | |
| 199,692 | |
| 180,404 | |
| 28 | |
| 28 | | |
| 175,693 | |
| 155,549 | |
| 25 | |
| 24 |
Collateralized mortgage obligations | |
| 23,663 | |
| 22,916 | |
| 7,514 | |
| 7,556 | | |
| 23,441 | |
| 22,163 | |
| 6,652 | |
| 6,537 |
Total debt securities | | $ | 674,329 | | $ | 629,947 | | $ | 32,638 | | $ | 32,621 | | | $ | 642,019 | | $ | 601,220 | | $ | 101,660 | | $ | 101,202 |
20
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 September 30, 20222023 and December 31, 2021,2022, aggregated by investment category and length of time in a continuous unrealized loss position:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | Total |
| | Less than 12 months | | 12 months or more | | Total |
| ||||||||||||||||||||||||
|
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized |
|
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized |
| ||||||
September 30, 2022 (in thousands) | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses |
| |||||||||||||||||||||||||
September 30, 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 | | $ | 266,165 | | $ | (10,276) | | $ | 144,296 | | $ | (15,576) | | $ | 410,461 | | $ | (25,852) | | | $ | 26,661 | | $ | (128) | | $ | 373,950 | | $ | (20,773) | | $ | 400,611 | | $ | (20,901) | |
Mortgage-backed securities - residential | | | 162,445 | | | (16,808) | | | 14,420 | | | (2,521) | | | 176,865 | | | (19,329) | | | | 11,905 | | | (628) | | | 141,948 | | | (19,532) | | | 153,853 | | | (20,160) | |
Collateralized mortgage obligations | | | 18,645 | | | (786) | | | — | | | — | | | 18,645 | | | (786) | | | | 3,341 | | | (123) | | | 16,892 | | | (1,184) | | | 20,233 | | | (1,307) | |
Corporate bonds | |
| 9,998 | |
| (2) | |
| — | |
| — | |
| 9,998 | |
| (2) | | |||||||||||||||||||
Trust preferred security | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | | |||||||||||||||||||
Total available-for-sale debt securities | | $ | 457,253 | | $ | (27,872) | | $ | 158,716 | | $ | (18,097) | | $ | 615,969 | | $ | (45,969) | | | $ | 41,907 | | $ | (879) | | $ | 532,790 | | $ | (41,489) | | $ | 574,697 | | $ | (42,368) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | Total |
| | Less than 12 months | | 12 months or more | | Total |
| ||||||||||||||||||||||||
|
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized |
|
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized |
| ||||||
December 31, 2021 (in thousands) | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses |
| |||||||||||||||||||||||||
December 31, 2022 (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 | | $ | 177,138 | | $ | (2,622) | | $ | 9,728 | | $ | (272) | | $ | 186,866 | | $ | (2,894) | | | $ | 229,372 | | $ | (7,139) | | $ | 171,676 | | $ | (18,054) | | $ | 401,048 | | $ | (25,193) | |
Mortgage-backed securities - residential | | | 84,937 | | | (473) | | | — | | | — | | | 84,937 | | | (473) | | | | 105,274 | | | (7,434) | | | 65,520 | | | (10,021) | | | 170,794 | | | (17,455) | |
Collateralized mortgage obligations | | | 4,495 | | | (30) | | | — | | | — | | | 4,495 | | | (30) | | | | 20,418 | | | (1,426) | | | 6 | | | (1) | | | 20,424 | | | (1,427) | |
Total available-for-sale debt securities | | $ | 266,570 | | $ | (3,125) | | $ | 9,728 | | $ | (272) | | $ | 276,298 | | $ | (3,397) | | | $ | 355,064 | | $ | (15,999) | | $ | 237,202 | | $ | (28,076) | | $ | 592,266 | | $ | (44,075) | |
As of September 30, 2022,2023, the Bank’s security portfolio consisted of 181191 securities, 149172 of which were in an unrealized loss position.
As of December 31, 2021,2022, the Bank’s security portfolio consisted of 173179 securities, 29163 of which were in an unrealized loss position.
As of September 30, 20222023 and December 31, 2021,2022, 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 $2.3$2 million as of September 30, 2022.2023. 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-non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support for this investment.
See additional discussion regarding the Bank’s private label mortgage-backed security under Footnote 11 “Fair Value” in this section of the filing.
Mortgage-Backed Securities and Collateralized Mortgage Obligations
As of September 30, 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 September 30, 2023 and December 31, 2022, there were gross unrealized losses of $21.5 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.
1721
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 10 “Fair Value” in this section of the filing.
Mortgage-Backed Securities and Collateralized Mortgage Obligations
As of September 30, 2022, with the exception of the $2.3 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 September 30, 2022 and December 31, 2021, there were gross unrealized losses of $20.1 million and $503,000 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.
Trust Preferred Security
During 2015, the Parent Company purchased a $3 million floating rate TRUP at a price of 68% of par. The coupon on this security is based on the 3-month LIBOR rate plus 159 basis points. The Company performed an initial analysis prior to acquisition and performs ongoing analysis of the credit risk of the underlying borrower in relation to its TRUP.
RollforwardRoll-forward of the Allowance for Credit Losses on Debt Securities
The table below presents a roll-forward for the three months ended September 30, 20222023 and 20212022 of the ACLS on AFS and HTM debt securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | ACLS Rollforward | ||||||||||||||||||||||||||||
| | | Three Months Ended September 30, | ||||||||||||||||||||||||||||
| | | 2022 | 2021 | |||||||||||||||||||||||||||
| | | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | ||||||||||
(in thousands) | | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-Sale Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate Bonds | | | $ | 30 | | $ | (30) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Held-to-Maturity Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate Bonds | | | | 50 | | | (40) | | | — | | | — | | | 10 | | | 56 | | | (2) | | | — | | | — | | | 54 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 80 | | $ | (70) | | $ | — | | $ | — | | $ | 10 | | $ | 56 | | $ | (2) | | $ | — | | $ | — | | $ | 54 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | ACLS Roll-forward | ||||||||||||||||||||||||||||
| | | Three Months Ended September 30, | ||||||||||||||||||||||||||||
| | | 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 | | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 30 | | $ | (30) | | $ | — | | $ | — | | $ | — |
Held-to-Maturity Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate Bonds | | | | 10 | | | — | | | — | | | — | | | 10 | | | 50 | | | (40) | | | — | | | — | | | 10 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 10 | | $ | — | | $ | — | | $ | — | | $ | 10 | | $ | 80 | | $ | (70) | | $ | — | | $ | — | | $ | 10 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | ACLS Rollforward | | ACLS Roll-forward | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Nine Months Ended September 30, | | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | 2022 | | 2021 | | 2023 | | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | ||||||||||||||||||||||
(in thousands) | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Available-for-Sale Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Corporate Bonds | | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Held-to-Maturity Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate Bonds | | | | 47 | | | (37) | | | — | | | — | | | 10 | | | 178 | | | (124) | | | — | | | — | | | 54 | | | | 10 | | | — | | | — | | | — | | | 10 | | | 47 | | | (37) | | | — | | | — | | | 10 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 47 | | $ | (37) | | $ | — | | $ | — | | $ | 10 | | $ | 178 | | $ | (124) | | $ | — | | $ | — | | $ | 54 | | | $ | 10 | | $ | — | | $ | — | | $ | — | | $ | 10 | | $ | 47 | | $ | (37) | | $ | — | | $ | — | | $ | 10 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company decreased theCompany’s ACLS on its AFS and HTM corporate bonds during the three and nine months ended September 30, 2022 based on decreased PD and LGD estimates on these bonds.2023 remained unchanged from December 31, 2022.
There were no HTM debt securities on nonaccrual or past due over 8990 days or more as of September 30, 20222023 and December 31, 2021.2022. All of the Company’s HTM corporate bonds were rated investment grade as of September 30, 20222023 and December 31, 2021.2022.
There were no HTM debt securities considered collateral dependent as of September 30, 20222023 and December 31, 2021.2022.
18
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 $2$3 million and $1$2 million as of September 30, 20222023 and December 31, 2021.2022. Accrued interest receivable on HTM debt securities totaled $187,000$1 million and $89,000$92,000 as of September 30, 20222023 and December 31, 2021.2022.
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) |
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||
| | | | | | | | | | | | | | |
Amortized cost | | $ | 90,170 | | $ | 236,047 | | |||||||
Fair value | |
| 82,376 | |
| 217,562 | | |||||||
Carrying amount | | $ | 262,392 | | $ | 319,650 | | | | 82,376 | | 217,562 | | |
Fair value | |
| 262,392 | |
| 319,808 | |
22
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 |
|
| |
|
| |
| Gross |
| Gross |
|
| |
| ||||||
| | Amortized | | Unrealized | | Unrealized | | Fair |
| | Amortized | | Unrealized | | Unrealized | | Fair |
| ||||||||
September 30, 2022 (in thousands) | | Cost | | Gains | | Losses | | Value |
| |||||||||||||||||
September 30, 2023 (in thousands) | | Cost | | Gains | | Losses | | Value |
| |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Freddie Mac preferred stock | | $ | — | | $ | 175 | | $ | — | | $ | 175 | | | $ | — | | $ | 137 | | $ | — | | $ | 137 | |
Total equity securities with readily determinable fair values | | $ | — | | $ | 175 | | $ | — | | $ | 175 | | | $ | — | | $ | 137 | | $ | — | | $ | 137 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| Gross |
| Gross |
|
| |
|
| |
| Gross |
| Gross |
|
| |
| ||||||
| | Amortized | | Unrealized | | Unrealized | | Fair |
| | Amortized | | Unrealized | | Unrealized | | Fair |
| ||||||||
December 31, 2021 (in thousands) | | Cost | | Gains | | Losses | | Value |
| |||||||||||||||||
December 31, 2022 (in thousands) | | Cost | | Gains | | Losses | | Value |
| |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Freddie Mac preferred stock | | $ | — | | $ | 170 | | $ | — | | $ | 170 | | | $ | — | | $ | 111 | | $ | — | | $ | 111 | |
Community Reinvestment Act mutual fund | |
| 2,500 | |
| — | |
| (50) | |
| 2,450 | | |||||||||||||
Total equity securities with readily determinable fair values | ��� | $ | 2,500 | | $ | 170 | | $ | (50) | | $ | 2,620 | | | $ | — | | $ | 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 | | | Gains (Losses) Recognized on Equity Securities | | ||||||||||||||||||||||||||||||||
| | Three Months Ended September 30, 2022 |
| Three Months Ended September 30, 2021 |
| | Three Months Ended September 30, 2023 |
| Three Months Ended September 30, 2022 |
| ||||||||||||||||||||||||||||
(in thousands) |
| Realized |
| Unrealized |
| Total |
| Realized |
| Unrealized |
| Total | |
| Realized |
| Unrealized |
| Total |
| Realized |
| Unrealized |
| Total | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Freddie Mac preferred stock | | $ | — | | $ | (14) | | $ | (14) | | $ | — | | $ | (13) | | $ | (13) | | | $ | — | | $ | 16 | | $ | 16 | | $ | — | | $ | (14) | | $ | (14) | |
Community Reinvestment Act mutual fund | |
| — | |
| — | |
| — | |
| — | |
| (9) | |
| (9) | | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Total equity securities with readily determinable fair value | | $ | — | | $ | (14) | | $ | (14) | | $ | — | | $ | (22) | | $ | (22) | | | $ | — | | $ | 16 | | $ | 16 | | $ | — | | $ | (14) | | $ | (14) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gains (Losses) Recognized on Equity Securities | | | Gains (Losses) Recognized on Equity Securities | | ||||||||||||||||||||||||||||||||
| | Nine Months Ended September 30, 2022 |
| Nine Months Ended September 30, 2021 | | | Nine Months Ended September 30, 2023 |
| Nine Months Ended September 30, 2022 | | ||||||||||||||||||||||||||||
(in thousands) | | Realized | | Unrealized | | Total | | Realized | | Unrealized | | Total | | | Realized | | Unrealized | | Total | | Realized | | Unrealized | | Total | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Freddie Mac preferred stock | | $ | — | | $ | 5 | | $ | 5 | | $ | — | | $ | (458) | | $ | (458) | | | $ | — | | $ | 26 | | $ | 26 | | $ | — | | $ | 5 | | $ | 5 | |
Community Reinvestment Act mutual fund | |
| (209) | |
| — | |
| (209) | |
| — | |
| (47) | |
| (47) | | |
| — | |
| — | |
| — | |
| (209) | |
| — | |
| (209) | |
Total equity securities with readily determinable fair value | | $ | (209) | | $ | 5 | | $ | (204) | | $ | — | | $ | (505) | | $ | (505) | | | $ | — | | $ | 26 | | $ | 26 | | $ | (209) | | $ | 5 | | $ | (204) | |
1923
3.4. 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 1112 “Mortgage Banking Activities” of this section of the filing.
Consumer Loans Held for Sale, at Fair Value
In December 2019, theThe Bank began offeringoffers 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 | | Nine Months Ended | |
| Three Months Ended | | Nine Months Ended | | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | | ||||||||||||||||
(in thousands) | | 2022 |
| 2021 |
| 2022 |
| 2021 | | | 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 17,459 | | $ | 13,020 | | $ | 19,747 | | $ | 3,298 | | | $ | 5,757 | | $ | 17,459 | | $ | 4,706 | | $ | 19,747 | |
Origination of consumer loans held for sale | |
| 85,172 | |
| 67,526 | |
| 280,608 | |
| 136,222 | | |
| 34,280 | |
| 85,172 | |
| 87,224 | |
| 280,608 | |
Proceeds from the sale of consumer loans held for sale | |
| (96,169) | |
| (71,427) | |
| (297,253) | |
| (132,330) | | |
| (32,545) | |
| (96,169) | |
| (85,994) | |
| (297,253) | |
Net gain on sale of consumer loans held for sale | |
| 2,334 | |
| 1,660 | |
| 5,694 | |
| 3,589 | | |
| 951 | |
| 2,334 | |
| 2,507 | |
| 5,694 | |
Balance, end of period | | $ | 8,796 | | $ | 10,779 | | $ | 8,796 | | $ | 10,779 | | | $ | 8,443 | | $ | 8,796 | | $ | 8,443 | | $ | 8,796 | |
Consumer Loans Held for Sale, at the Lower of Cost or Fair Value
RCS originates for sale 90% toor 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 |
| Nine Months Ended |
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | | ||||||||||||||||
(in thousands) | | 2022 |
| 2021 |
| 2022 |
| 2021 | | | 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 13,777 | | $ | 11,412 | | $ | 2,937 | | $ | 1,478 | | | $ | 15,787 | | $ | 13,777 | | $ | 13,169 | | $ | 2,937 | |
Origination of consumer loans held for sale | |
| 206,959 | |
| 189,492 | |
| 539,519 | |
| 424,840 | | |
| 252,808 | |
| 206,959 | |
| 669,490 | |
| 539,519 | |
Proceeds from the sale of consumer loans held for sale | |
| (209,924) | |
| (199,036) | |
| (534,549) | |
| (426,642) | | |
| (257,452) | |
| (209,924) | |
| (675,503) | |
| (534,549) | |
Net gain on sale of consumer loans held for sale | |
| 1,867 | |
| 2,108 | |
| 4,772 | |
| 4,300 | | |
| 2,386 | |
| 1,867 | |
| 6,373 | |
| 4,772 | |
Balance, end of period | | $ | 12,679 | | $ | 3,976 | | $ | 12,679 | | $ | 3,976 | | | $ | 13,529 | | $ | 12,679 | | $ | 13,529 | | $ | 12,679 | |
2024
4.5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The composition of the loan portfolio follows:
| | | | | | | | | | | | | ||
(in thousands) |
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||
| | | | | | | | | | | | | ||
Traditional Banking: | | | | | | | | | | | | | ||
Residential real estate: | | | | | | | | | | | | | ||
Owner occupied | | $ | 863,899 | | $ | 820,731 | | | $ | 1,128,745 | | $ | 911,427 | |
Nonowner occupied | |
| 321,037 | |
| 306,323 | | |
| 344,682 | |
| 321,358 | |
Commercial real estate | |
| 1,571,593 | |
| 1,456,009 | | |
| 1,745,187 | |
| 1,599,510 | |
Construction & land development | |
| 147,418 | |
| 129,337 | | |
| 189,756 | |
| 153,875 | |
Commercial & industrial | |
| 404,971 | |
| 340,363 | | |
| 473,790 | |
| 413,387 | |
Paycheck Protection Program | | | 7,855 | | 56,014 | | ||||||||
Lease financing receivables | |
| 11,333 | |
| 8,637 | | |
| 85,242 | |
| 10,505 | |
Aircraft | | | 166,313 | | 142,894 | | | | 226,947 | | 179,785 | | ||
Home equity | |
| 229,038 | |
| 210,578 | | |
| 275,750 | |
| 241,739 | |
Consumer: | | | | | | | | | | | | | ||
Credit cards | |
| 14,897 | |
| 14,510 | | |
| 16,950 | |
| 15,473 | |
Overdrafts | |
| 723 | |
| 683 | | |
| 640 | |
| 726 | |
Automobile loans | |
| 7,890 | |
| 14,448 | | |
| 3,380 | |
| 6,731 | |
Other consumer | |
| 973 | |
| 1,432 | | |
| 5,674 | |
| 626 | |
Total Traditional Banking | | | 3,747,940 | | 3,501,959 | | | | 4,496,743 | | 3,855,142 | | ||
Warehouse lines of credit* | |
| 442,238 | |
| 850,550 | | |
| 457,033 | |
| 403,560 | |
Total Core Banking | | | 4,190,178 | | | 4,352,509 | | | | 4,953,776 | | | 4,258,702 | |
| | | | | | | | | | | | | ||
Republic Processing Group*: | |
| | | | | |
| | | | | ||
Tax Refund Solutions: | | | | | | | | | | | | | ||
Easy Advances | | | — | | — | | ||||||||
Other TRS loans | | | 295 | | 50,987 | | ||||||||
Refund Advances | | | — | | 97,505 | | ||||||||
Other TRS commercial & industrial loans | | | 354 | | 51,767 | | ||||||||
Republic Credit Solutions | | | 98,977 | |
| 93,066 | | | | 126,969 | |
| 107,828 | |
Total Republic Processing Group | | | 99,272 | | | 144,053 | | | | 127,323 | | | 257,100 | |
| | | | | | | | | | | | | ||
Total loans** | |
| 4,289,450 | |
| 4,496,562 | | |
| 5,081,099 | |
| 4,515,802 | |
Allowance for credit losses | |
| (64,919) | |
| (64,577) | | |
| (74,576) | |
| (70,413) | |
| | | | | | | | | | | | | | |
Total loans, net | | $ | 4,224,531 | | $ | 4,431,985 | | | $ | 5,006,523 | | $ | 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) |
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||
| | | | | | | | | | | | | | |
Contractually receivable | | $ | 4,292,481 | | $ | 4,498,671 | | | $ | 5,088,035 | | $ | 4,519,136 | |
Unearned income | |
| (782) | |
| (542) | | |
| (2,325) | |
| (835) | |
Unamortized premiums | |
| 101 | |
| 116 | | |
| 1,209 | |
| 99 | |
Unaccreted discounts | |
| (533) | |
| (641) | | |
| (2,859) | |
| (479) | |
PPP net unamortized deferred origination (fees) and costs | | | (151) | | | (1,203) | | |||||||
Other net unamortized deferred origination (fees) and costs | |
| (1,666) | |
| 161 | | |
| (2,961) | |
| (2,119) | |
Carrying value of loans | | $ | 4,289,450 | | $ | 4,496,562 | | | $ | 5,081,099 | | $ | 4,515,802 | |
21
Paycheck Protection Program
The CARES Act was enacted in March 2020 and provided for the SBA’s PPP, which allowed the Bank to lend to its qualifying small business clients to assist them in their efforts to meet their cashflow needs during the COVID pandemic. The Economic Aid Act was enacted in December 2020 and provided for a second round of PPP loans. PPP loans are fully backed by the SBA and may be entirely forgiven if the loan client uses loan funds for qualifying reasons. As of September 30, 2022, net PPP loans of $8 million remained on the Traditional Bank’s balance sheet compared to $56 million as of December 31, 2021. PPP fees recognized by the Company for the first nine months of 2022 and 2021 were $1.3 million and $16.9 million.
2225
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 September 30, 20222023 remain unchanged from those defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022. 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 TDRsloan modifications (formerly TDRs) generally receive no change in origination date upon extension or renewal.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Revolving Loans | | Revolving Loans | | | | | | | | | | | | | | Revolving Loans | | Revolving Loans | | | ||||||||||||||||
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | ||||||||||||||||||||||||||||||||
As of September 30, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Cost Basis | | to Term | | Total | ||||||||||||||||||||||||||||||||
As of September 30, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Cost Basis | | to Term | | Total | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate owner occupied: | | | | | | �� | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Pass or not rated | | $ | 159,832 | | $ | 193,689 | | $ | 194,203 | | $ | 74,702 | | $ | 218,545 | | $ | — | | $ | — | | $ | 840,971 | | $ | 307,179 | | $ | 208,209 | | $ | 178,744 | | $ | 172,850 | | $ | 238,598 | | $ | — | | $ | 1,500 | | $ | 1,107,080 |
Special Mention | | | — | | 288 | | — | | — | | 7,481 | | — | | — | | 7,769 | | | — | | — | | — | | — | | 6,482 | | — | | — | | 6,482 | ||||||||||||||
Substandard | | | 760 | | 763 | | 1,378 | | 1,629 | | 10,629 | | — | | — | | 15,159 | | | — | | 1,544 | | 1,667 | | 1,138 | | 10,834 | | — | | — | | 15,183 | ||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 160,592 | | $ | 194,740 | | $ | 195,581 | | $ | 76,331 | | $ | 236,655 | | $ | — | | $ | — | | $ | 863,899 | | $ | 307,179 | | $ | 209,753 | | $ | 180,411 | | $ | 173,988 | | $ | 255,914 | | $ | — | | $ | 1,500 | | $ | 1,128,745 |
YTD Gross Charge-offs | | $ | — | | $ | 8 | | $ | 16 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 24 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Residential real estate nonowner occupied: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Pass or not rated | | $ | 65,818 | | $ | 95,597 | | $ | 56,504 | | $ | 34,017 | | $ | 63,577 | | $ | — | | $ | 5,364 | | $ | 320,877 | | $ | 48,424 | | $ | 72,749 | | $ | 85,990 | | $ | 49,442 | | $ | 80,307 | | $ | — | | $ | 7,675 | | $ | 344,587 |
Special Mention | | | — | | — | | — | | — | | 34 | | — | | — | | 34 | | | — | | — | | — | | — | | 27 | | — | | — | | 27 | ||||||||||||||
Substandard | | | — | | 34 | | — | | — | | 92 | | — | | — | | 126 | | | — | | — | | 20 | | — | | 48 | | — | | — | | 68 | ||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 65,818 | | $ | 95,631 | | $ | 56,504 | | $ | 34,017 | | $ | 63,703 | | $ | — | | $ | 5,364 | | $ | 321,037 | | $ | 48,424 | | $ | 72,749 | | $ | 86,010 | | $ | 49,442 | | $ | 80,382 | | $ | — | | $ | 7,675 | | $ | 344,682 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Pass or not rated | | $ | 304,650 | | $ | 447,618 | | $ | 227,149 | | $ | 130,962 | | $ | 285,661 | | $ | 22,845 | | $ | 103,638 | | $ | 1,522,523 | | $ | 176,925 | | $ | 466,888 | | $ | 375,172 | | $ | 197,435 | | $ | 338,991 | | $ | 24,663 | | $ | 125,735 | | $ | 1,705,809 |
Special Mention | | | 1,320 | | 12,721 | | — | | 22,784 | | 11,247 | | 151 | | — | | 48,223 | | | 573 | | 1,684 | | 4,376 | | — | | 30,319 | | 1,520 | | — | | 38,472 | ||||||||||||||
Substandard | | | — | | — | | — | | — | | 847 | | — | | — | | 847 | | | — | | — | | — | | — | | 906 | | — | | — | | 906 | ||||||||||||||
Doubtful | ��� | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 305,970 | | $ | 460,339 | | $ | 227,149 | | $ | 153,746 | | $ | 297,755 | | $ | 22,996 | | $ | 103,638 | | $ | 1,571,593 | | $ | 177,498 | | $ | 468,572 | | $ | 379,548 | | $ | 197,435 | | $ | 370,216 | | $ | 26,183 | | $ | 125,735 | | $ | 1,745,187 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Construction and land development: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Pass or not rated | | $ | 68,101 | | $ | 75,079 | | $ | 1,214 | | $ | 653 | | $ | 612 | | $ | 1,759 | | $ | — | | $ | 147,418 | | $ | 53,267 | | $ | 113,557 | | $ | 21,167 | | $ | 521 | | $ | 252 | | $ | — | | $ | 992 | | $ | 189,756 |
Special Mention | | | — | | — | | — | | — | | — | | — | | — | | — | | | — | | — | | — | | — | | — | | — | | — | | — | ||||||||||||||
Substandard | | | — | | — | | — | | — | | — | | — | | — | | — | | | — | | — | | — | | — | | — | | — | | — | | — | ||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 68,101 | | $ | 75,079 | | $ | 1,214 | | $ | 653 | | $ | 612 | | $ | 1,759 | | $ | — | | $ | 147,418 | | $ | 53,267 | | $ | 113,557 | | $ | 21,167 | | $ | 521 | | $ | 252 | | $ | — | | $ | 992 | | $ | 189,756 |
YTD Gross Charge-offs | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Commercial and industrial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Pass or not rated | | $ | 96,129 | | $ | 84,119 | | $ | 23,230 | | $ | 39,763 | | $ | 45,104 | | $ | 96,756 | | $ | 2,713 | | $ | 387,814 | | $ | 99,935 | | $ | 96,064 | | $ | 76,604 | | $ | 15,758 | | $ | 61,574 | | $ | 102,820 | | $ | 3,744 | | $ | 456,499 |
Special Mention | | | 564 | | 13,572 | | — | | 645 | | 1,888 | | 300 | | — | | 16,969 | | | — | | 452 | | 13,186 | | 438 | | 1,613 | | 376 | | — | | 16,065 | ||||||||||||||
Substandard | | | — | | — | | — | | 91 | | 97 | | — | | — | | 188 | | | — | | 38 | | 3 | | — | | 337 | | 27 | | 821 | | 1,226 | ||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 96,693 | | $ | 97,691 | | $ | 23,230 | | $ | 40,499 | | $ | 47,089 | | $ | 97,056 | | $ | 2,713 | | $ | 404,971 | | $ | 99,935 | | $ | 96,554 | | $ | 89,793 | | $ | 16,196 | | $ | 63,524 | | $ | 103,223 | | $ | 4,565 | | $ | 473,790 |
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||
Paycheck Protection Program: | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||
Pass or not rated | | $ | — | | $ | 5,915 | | $ | 1,940 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 7,855 | ||||||||||||||||||||||||
Special Mention | | | — | | — | | — | | — | | — | | — | | — | | — | |||||||||||||||||||||||||||||||
Substandard | | | — | | — | | — | | — | | — | | — | | — | | — | |||||||||||||||||||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | ||||||||||||||||||||||||
Total | | $ | — | | $ | 5,915 | | $ | 1,940 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 7,855 | ||||||||||||||||||||||||
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Lease financing receivables: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Pass or not rated | | $ | 5,343 | | $ | 2,201 | | $ | 512 | | $ | 1,773 | | $ | 1,504 | | $ | — | | $ | — | | $ | 11,333 | | $ | 36,895 | | $ | 26,631 | | $ | 11,907 | | $ | 5,554 | | $ | 2,973 | | $ | — | | $ | — | | $ | 83,960 |
Special Mention | | | — | | — | | — | | — | | — | | — | | — | | — | | | — | | — | | — | | — | | 981 | | — | | — | | 981 | ||||||||||||||
Substandard | | | — | | — | | — | | — | | — | | — | | — | | — | | | — | | — | | — | | — | | 301 | | — | | — | | 301 | ||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 5,343 | | $ | 2,201 | | $ | 512 | | $ | 1,773 | | $ | 1,504 | | $ | — | | $ | — | | $ | 11,333 | | $ | 36,895 | | $ | 26,631 | | $ | 11,907 | | $ | 5,554 | | $ | 4,255 | | $ | — | | $ | — | | $ | 85,242 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Aircraft: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Pass or not rated | | $ | 46,255 | | $ | 57,010 | | $ | 36,777 | | $ | 18,293 | | $ | 7,763 | | $ | — | | $ | — | | $ | 166,098 | | $ | 67,327 | | $ | 58,637 | | $ | 47,885 | | $ | 31,206 | | $ | 21,892 | | $ | — | | $ | — | | $ | 226,947 |
Special Mention | | | — | | — | | — | | — | | — | | — | | — | | — | | | — | | — | | — | | — | | — | | — | | — | | — | ||||||||||||||
Substandard | | | — | | — | | — | | — | | 215 | | — | | — | | 215 | | | — | | — | | — | | — | | — | | — | | — | | — | ||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 46,255 | | $ | 57,010 | | $ | 36,777 | | $ | 18,293 | | $ | 7,978 | | $ | — | | $ | — | | $ | 166,313 | | $ | 67,327 | | $ | 58,637 | | $ | 47,885 | | $ | 31,206 | | $ | 21,892 | | $ | — | | $ | — | | $ | 226,947 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Home equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Pass or not rated | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 227,274 | | $ | — | | $ | 227,274 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 273,803 | | $ | — | | $ | 273,803 |
Special Mention | | | — | | — | | — | | — | | — | | 365 | | — | | 365 | | | — | | — | | — | | — | | — | | 295 | | — | | 295 | ||||||||||||||
Substandard | | | — | | — | | — | | — | | — | | 1,399 | | — | | 1,399 | | | — | | — | | — | | — | | — | | 1,652 | | — | | 1,652 | ||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 229,038 | | $ | — | | $ | 229,038 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 275,750 | | $ | — | | $ | 275,750 |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
2326
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Revolving Loans | | Revolving Loans | | | | | | | | | | | | | | | Revolving Loans | | Revolving Loans | | | | ||||||||||||||||
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year (Continued) | | Amortized | | Converted | | | | | Term Loans Amortized Cost Basis by Origination Year (Continued) | | Amortized | | Converted | | | | ||||||||||||||||||||||||||||||||
As of September 30, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Cost Basis | | to Term | | Total | | |||||||||||||||||||||||||||||||||
As of September 30, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Cost Basis | | to Term | | Total | | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Pass or not rated | | $ | 505 | | $ | 541 | | $ | 218 | | $ | 2,961 | | $ | 5,194 | | $ | 14,995 | | $ | — | | $ | 24,414 | | | $ | 1,813 | | $ | 1,309 | | $ | 243 | | $ | 92 | | $ | 4,270 | | $ | 18,897 | | $ | — | | $ | 26,624 | |
Special Mention | | | — | | — | | — | | — | | — | | — | | — | | — | | | | — | | — | | — | | — | | — | | — | | — | | — | | ||||||||||||||
Substandard | | | — | | — | | — | | 19 | | 50 | | — | | — | | 69 | | | | — | | — | | 2 | | — | | 18 | | — | | — | | 20 | | ||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | | $ | 505 | | $ | 541 | | $ | 218 | | $ | 2,980 | | $ | 5,244 | | $ | 14,995 | | $ | — | | $ | 24,483 | | | $ | 1,813 | | $ | 1,309 | | $ | 245 | | $ | 92 | | $ | 4,288 | | $ | 18,897 | | $ | — | | $ | 26,644 | |
YTD Gross Charge-offs | | $ | — | | $ | 11 | | $ | 8 | | $ | — | | $ | 7 | | $ | 852 | | $ | — | | $ | 878 | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Warehouse: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Pass or not rated | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 442,238 | | $ | — | | $ | 442,238 | | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 457,033 | | $ | — | | $ | 457,033 | |
Special Mention | | | — | | — | | — | | — | | — | | — | | — | | — | | | | — | | — | | — | | — | | — | | — | | — | | — | | ||||||||||||||
Substandard | | | — | | — | | — | | — | | — | | — | | — | | — | | | | — | | — | | — | | — | | — | | — | | — | | — | | ||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 442,238 | | $ | — | | $ | 442,238 | | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 457,033 | | $ | — | | $ | 457,033 | |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
TRS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Pass or not rated | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 295 | | $ | — | | $ | 295 | | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 354 | | $ | — | | $ | 354 | |
Special Mention | | | — | | — | | — | | — | | — | | — | | — | | — | | | | — | | — | | — | | — | | — | | — | | — | | — | | ||||||||||||||
Substandard | | | — | | — | | — | | — | | — | | — | | — | | — | | | | — | | — | | — | | — | | — | | — | | — | | — | | ||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 295 | | $ | — | | $ | 295 | | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 354 | | $ | — | | $ | 354 | |
YTD Gross Charge-offs | | $ | 126 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 25,825 | | $ | — | | $ | 25,951 | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
RCS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Pass or not rated | | $ | 11,116 | | $ | 2,870 | | $ | 1,558 | | $ | 709 | | $ | 29,360 | | $ | 52,927 | | $ | — | | $ | 98,540 | | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 73,196 | | $ | 52,650 | | $ | — | | $ | 125,846 | |
Special Mention | | | — | | — | | — | | — | | — | | — | | — | | — | | | | — | | — | | — | ��� | | — | | — | | — | | — | | — | | |||||||||||||
Substandard | | | — | | — | | — | | — | | — | | 437 | | — | | 437 | | | | — | | — | | — | | — | | — | | 1,123 | | — | | 1,123 | | ||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | | $ | 11,116 | | $ | 2,870 | | $ | 1,558 | | $ | 709 | | $ | 29,360 | | $ | 53,364 | | $ | — | | $ | 98,977 | | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 73,196 | | $ | 53,773 | | $ | — | | $ | 126,969 | |
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 9,459 | | $ | — | | $ | 9,459 | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Grand Total: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Pass or not rated | | $ | 757,749 | | $ | 964,639 | | $ | 543,305 | | $ | 303,833 | | $ | 657,320 | | $ | 859,089 | | $ | 111,715 | | $ | 4,197,650 | | | $ | 791,765 | | $ | 1,044,044 | | $ | 797,712 | | $ | 472,858 | | $ | 822,053 | | $ | 930,220 | | $ | 139,646 | | $ | 4,998,298 | |
Special Mention | | | 1,884 | | 26,581 | | — | | 23,429 | | 20,650 | | 816 | | — | | 73,360 | | | | 573 | | 2,136 | | 17,562 | | 438 | | 39,422 | | 2,191 | | — | | 62,322 | | ||||||||||||||
Substandard | | | 760 | | 797 | | 1,378 | | 1,739 | | 11,930 | | 1,836 | | — | | 18,440 | | | | — | | 1,582 | | 1,692 | | 1,138 | | 12,444 | | 2,802 | | 821 | | 20,479 | | ||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Grand Total | | $ | 760,393 | | $ | 992,017 | | $ | 544,683 | | $ | 329,001 | | $ | 689,900 | | $ | 861,741 | | $ | 111,715 | | $ | 4,289,450 | | | $ | 792,338 | | $ | 1,047,762 | | $ | 816,966 | | $ | 474,434 | | $ | 873,919 | | $ | 935,213 | | $ | 140,467 | | $ | 5,081,099 | |
YTD Gross Charge-offs | | $ | 126 | | $ | 19 | | $ | 24 | | $ | — | | $ | 7 | | $ | 36,136 | | $ | — | | $ | 36,312 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Revolving Loans | | Revolving Loans | | | | | | | | | | | | | | Revolving Loans | | Revolving Loans | | | ||||||||||||||||
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | ||||||||||||||||||||||||||||||||
As of December 31, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Cost Basis | | to Term | | Total | ||||||||||||||||||||||||||||||||
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 | | $ | 218,981 | | $ | 213,010 | | $ | 89,186 | | $ | 50,301 | | $ | 226,852 | | $ | — | | $ | — | | $ | 798,330 | | $ | 231,638 | | $ | 189,495 | | $ | 188,004 | | $ | 71,306 | | $ | 208,296 | | $ | — | | $ | — | | $ | 888,739 |
Special Mention | | 301 | | — | | — | | 33 | | 8,209 | | — | | — | | 8,543 | | — | | 160 | | — | | — | | 7,240 | | — | | — | | 7,400 | ||||||||||||||||
Substandard | | 45 | | 870 | | 679 | | 1,189 | | 11,075 | | — | | — | | 13,858 | | 1,230 | | 1,103 | | 1,501 | | 1,460 | | 9,994 | | — | | — | | 15,288 | ||||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 219,327 | | $ | 213,880 | | $ | 89,865 | | $ | 51,523 | | $ | 246,136 | | $ | — | | $ | — | | $ | 820,731 | | $ | 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 | | $ | 107,041 | | $ | 65,786 | | $ | 44,376 | | $ | 29,292 | | $ | 55,872 | | $ | — | | $ | 3,729 | | $ | 306,096 | | $ | 78,337 | | $ | 91,778 | | $ | 55,058 | | $ | 32,803 | | $ | 57,053 | | $ | — | | $ | 6,147 | | $ | 321,176 |
Special Mention | | — | | — | | — | | — | | 132 | | — | | — | | 132 | | — | | — | | — | | — | | 32 | | — | | — | | 32 | ||||||||||||||||
Substandard | | — | | — | | — | | — | | 95 | | — | | — | | 95 | | — | | 30 | | — | | — | | 120 | | — | | — | | 150 | ||||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 107,041 | | $ | 65,786 | | $ | 44,376 | | $ | 29,292 | | $ | 56,099 | | $ | — | | $ | 3,729 | | $ | 306,323 | | $ | 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 | | $ | 472,095 | | $ | 256,039 | | $ | 153,224 | | $ | 94,212 | | $ | 286,223 | | $ | 25,188 | | $ | 80,211 | | $ | 1,367,192 | | $ | 451,327 | | $ | 394,317 | | $ | 210,055 | | $ | 117,928 | | $ | 253,213 | | $ | 25,499 | | $ | 99,791 | | $ | 1,552,130 |
Special Mention | | 20,059 | | 2,399 | | 29,639 | | 11,207 | | 18,778 | | — | | — | | 82,082 | | 3,124 | | 11,870 | | — | | 21,296 | | 9,967 | | 318 | | — | | 46,575 | ||||||||||||||||
Substandard | | — | | 111 | | 266 | | 2,453 | | 3,905 | | — | | — | | 6,735 | | — | | — | | — | | — | | 805 | | — | | — | | 805 | ||||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 492,154 | | $ | 258,549 | | $ | 183,129 | | $ | 107,872 | | $ | 308,906 | | $ | 25,188 | | $ | 80,211 | | $ | 1,456,009 | | $ | 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 | | $ | 88,743 | | $ | 30,593 | | $ | 2,599 | | $ | 1,155 | | $ | 128 | | $ | 1,925 | | $ | — | | $ | 125,143 | | $ | 107,153 | | $ | 43,289 | | $ | 638 | | $ | 641 | | $ | 373 | | $ | 1,781 | | $ | — | | $ | 153,875 |
Special Mention | | — | | 524 | | 3,670 | | — | | — | | — | | — | | 4,194 | | — | | — | | — | | — | | — | | — | | — | | — | ||||||||||||||||
Substandard | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | ||||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 88,743 | | $ | 31,117 | | $ | 6,269 | | $ | 1,155 | | $ | 128 | | $ | 1,925 | | $ | — | | $ | 129,337 | | $ | 107,153 | | $ | 43,289 | | $ | 638 | | $ | 641 | | $ | 373 | | $ | 1,781 | | $ | — | | $ | 153,875 |
| | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||
Commercial and industrial: | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||
Risk Rating | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||
Pass or not rated | | $ | 105,148 | | $ | 34,361 | | $ | 54,524 | | $ | 18,110 | | $ | 44,972 | | $ | 60,454 | | $ | 2,541 | | $ | 320,110 | ||||||||||||||||||||||||
Special Mention | | 15,015 | | 1,921 | | 785 | | 34 | | 1,956 | | 350 | | — | | 20,061 | ||||||||||||||||||||||||||||||||
Substandard | | — | | 13 | | 179 | | — | | — | | — | | — | | 192 | ||||||||||||||||||||||||||||||||
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | ||||||||||||||||||||||||
Total | | $ | 120,163 | | $ | 36,295 | | $ | 55,488 | | $ | 18,144 | | $ | 46,928 | | $ | 60,804 | | $ | 2,541 | | $ | 340,363 | ||||||||||||||||||||||||
YTD Gross Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
2427
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Revolving Loans | | Revolving Loans | | | | ||
(in thousands) | | Term Loans Amortized Cost Basis by Origination Year (Continued) | | Amortized | | Converted | | | | |||||||||||||||
As of December 31, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Cost Basis | | to Term | | Total | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Paycheck Protection Program: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 40,607 | | $ | 15,407 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 56,014 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 40,607 | | $ | 15,407 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 56,014 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Lease financing receivables: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 2,638 | | $ | 839 | | $ | 2,641 | | $ | 1,264 | | $ | 1,255 | | $ | — | | $ | — | | $ | 8,637 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 2,638 | | $ | 839 | | $ | 2,641 | | $ | 1,264 | | $ | 1,255 | | $ | — | | $ | — | | $ | 8,637 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Aircraft: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 65,886 | | $ | 43,301 | | $ | 22,933 | | $ | 9,119 | | $ | 1,655 | | $ | — | | $ | — | | $ | 142,894 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 65,886 | | $ | 43,301 | | $ | 22,933 | | $ | 9,119 | | $ | 1,655 | | $ | — | | $ | — | | $ | 142,894 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Home equity: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 208,429 | | $ | — | | $ | 208,429 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | 279 | | | — | | | 279 |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 1,870 | | | — | | | 1,870 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 210,578 | | $ | — | | $ | 210,578 |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 978 | | $ | 417 | | $ | 4,694 | | $ | 4,326 | | $ | 5,768 | | $ | 14,613 | | $ | — | | $ | 30,796 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | 22 | | | 61 | | | 194 | | | — | | | — | | | 277 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 978 | | $ | 417 | | $ | 4,716 | | $ | 4,387 | | $ | 5,962 | | $ | 14,613 | | $ | — | | $ | 31,073 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Warehouse: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 850,550 | | $ | — | | $ | 850,550 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 850,550 | | $ | — | | $ | 850,550 |
| | | | | | | | | | | | | | | | | | | | | | | | |
TRS: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 50,987 | | $ | — | | $ | 50,987 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 50,987 | | $ | — | | $ | 50,987 |
| | | | | | | | | | | | | | | | | | | | | | | | |
RCS: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 5,524 | | $ | 3,409 | | $ | 1,642 | | $ | 869 | | $ | 3,699 | | $ | 77,544 | | $ | — | | $ | 92,687 |
Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | — | | | — | | | — | | | — | | | 379 | | | — | | | 379 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total | | $ | 5,524 | | $ | 3,409 | | $ | 1,642 | | $ | 869 | | $ | 3,699 | | $ | 77,923 | | $ | — | | $ | 93,066 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Grand Total: | | | | | | | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | | | | | | | |
Pass or not rated | | $ | 1,107,641 | | $ | 663,162 | | $ | 375,819 | | $ | 208,648 | | $ | 626,424 | | $ | 1,289,690 | | $ | 86,481 | | $ | 4,357,865 |
Special Mention | | | 35,375 | | | 4,844 | | | 34,094 | | | 11,274 | | | 29,075 | | | 629 | | | — | | | 115,291 |
Substandard | | | 45 | | | 994 | | | 1,146 | | | 3,703 | | | 15,269 | | | 2,249 | | | — | | | 23,406 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Grand Total | | $ | 1,143,061 | | $ | 669,000 | | $ | 411,059 | | $ | 223,625 | | $ | 670,768 | | $ | 1,292,568 | | $ | 86,481 | | $ | 4,496,562 |
25
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 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 |
28
Allowance for Credit Losses on Loans
The following table presents the activity in the ACLL by portfolio class:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | ACLL Rollforward | | ACLL Roll-forward | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | Three Months Ended September 30, | | Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 2022 | | 2021 | | 2023 | | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | | | Beginning | | | | Charge- | | | | Ending | ||||||||||||||||||||
(in thousands) | | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | | | Balance | | Provision | | offs | | Recoveries | | Balance | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Traditional Banking: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Residential real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | $ | 8,445 | | $ | (3) | | $ | — | | $ | 24 | | $ | 8,466 | | $ | 8,977 | | | $ | (677) | | $ | — | | $ | 329 | | $ | 8,629 | | | $ | 9,899 | | $ | 318 | | $ | (9) | | $ | 23 | | $ | 10,231 | | $ | 8,445 | | $ | (3) | | $ | — | | $ | 24 | | $ | 8,466 |
Nonowner occupied | | | | 2,733 | | | 63 | | | — | | | — | | | 2,796 | | | 2,551 | | | | 47 | | | — | | | — | | | 2,598 | | | | 3,086 | | | (51) | | | — | | | 1 | | | 3,036 | | | 2,733 | | | 63 | | | — | | | — | | | 2,796 |
Commercial real estate | | | | 24,341 | | | (1,413) | | | — | | | 275 | | | 23,203 | | | 23,307 | | | | 286 | | | — | | | 3 | | | 23,596 | | | | 25,089 | | | 251 | | | — | | | 7 | | | 25,347 | | | 24,341 | | | (1,413) | | | — | | | 275 | | | 23,203 |
Construction & land development | | | | 3,591 | | | 331 | | | — | | | — | | | 3,922 | | | 3,299 | | | | 376 | | | — | | | — | | | 3,675 | | | | 4,811 | | | 325 | | | — | | | — | | | 5,136 | | | 3,591 | | | 331 | | | — | | | — | | | 3,922 |
Commercial & industrial | | | | 3,768 | | | 82 | | | — | | | 124 | | | 3,974 | | | 4,117 | | | | (139) | | | (35) | | | 16 | | | 3,959 | | | | 4,322 | | | (148) | | | — | | | 7 | | | 4,181 | | | 3,768 | | | 82 | | | — | | | 124 | | | 3,974 |
Paycheck Protection Program | | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | — | |||||||||||||||||||||||||||||||
Lease financing receivables | | | | 119 | | | — | | | — | | | — | | | 119 | | | 97 | | | | 2 | | | — | | | — | | | 99 | | | | 825 | | | 265 | | | — | | | 10 | | | 1,100 | | | 119 | | | — | | | — | | | — | | | 119 |
Aircraft | | | | 400 | | | 16 | | | — | | | — | | | 416 | | | 303 | | | | 23 | | | — | | | — | | | 326 | | | | 521 | | | 46 | | | — | | | — | | | 567 | | | 400 | | | 16 | | | — | | | — | | | 416 |
Home equity | | | | 4,113 | | | 279 | | | — | | | 7 | | | 4,399 | | | 4,305 | | | | (63) | | | — | | | 5 | | | 4,247 | | | | 4,770 | | | 375 | | | — | | | 1 | | | 5,146 | | | 4,113 | | | 279 | | | — | | | 7 | | | 4,399 |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit cards | | | | 994 | | | (41) | | | (27) | | | 33 | | | 959 | | | 949 | | | | 22 | | | (40) | | | 20 | | | 951 | | | | 1,103 | | | 3 | | | (30) | | | 16 | | | 1,092 | | | 994 | | | (41) | | | (27) | | | 33 | | | 959 |
Overdrafts | | | | 901 | | | 57 | | | (288) | | | 53 | | | 723 | | | 717 | | | | 143 | | | (195) | | | 88 | | | 753 | | | | 706 | | | 128 | | | (243) | | | 49 | | | 640 | | | 901 | | | 57 | | | (288) | | | 53 | | | 723 |
Automobile loans | | | | 122 | | | (30) | | | — | | | 9 | | | 101 | | | 273 | | | | (34) | | | (19) | | | 6 | | | 226 | | | | 53 | | | 16 | | | (30) | | | 2 | | | 41 | | | 122 | | | (30) | | | — | | | 9 | | | 101 |
Other consumer | | | | 200 | | | (24) | | | (38) | | | 15 | | | 153 | | | 467 | | | | (28) | | | (25) | | | 14 | | | 428 | | | | 382 | | | 39 | | | (20) | | | 13 | | | 414 | | | 200 | | | (24) | | | (38) | | | 15 | | | 153 |
Total Traditional Banking | | | | 49,727 | | | (683) | | | (353) | | | 540 | | | 49,231 | | | 49,362 | | | | (42) | | | (314) | | | 481 | | | 49,487 | | | | 55,567 | | | 1,567 | | | (332) | | | 129 | | | 56,931 | | | 49,727 | | | (683) | | | (353) | | | 540 | | | 49,231 |
Warehouse lines of credit | | | | 1,491 | | | (386) | | | — | | | — | | | 1,105 | | | 2,100 | | | | (223) | | | — | | | — | | | 1,877 | | | | 1,346 | | | (203) | | | — | | | — | | | 1,143 | | | 1,491 | | | (386) | | | — | | | — | | | 1,105 |
Total Core Banking | | | | 51,218 | | | (1,069) | | | (353) | | | 540 | | | 50,336 | | | 51,462 | | | | (265) | | | (314) | | | 481 | | | 51,364 | | | | 56,913 | | | 1,364 | | | (332) | | | 129 | | | 58,074 | | | 51,218 | | | (1,069) | | | (353) | | | 540 | | | 50,336 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Easy Advances | | | | — | | | (1,296) | | | — | | | 1,296 | | | — | | | — | | | | (2,242) | | | — | | | 2,242 | | | — | |||||||||||||||||||||||||||||||
Other TRS loans | | | | — | | | — | | | — | | | — | | | — | | | — | | | | (19) | | | — | | | 19 | | | — | |||||||||||||||||||||||||||||||
Refund Advances | | | | — | | | (1,939) | | | — | | | 1,939 | | | — | | | — | | | (1,296) | | | — | | | 1,296 | | | — | ||||||||||||||||||||||||||||||||
Other TRS commercial & industrial loans | | | | — | | | (28) | | | — | | | 29 | | | 1 | | | — | | | — | | | — | | | — | | | — | ||||||||||||||||||||||||||||||||
Republic Credit Solutions | | | | 13,231 | | | 4,008 | | | (2,922) | | | 266 | | | 14,583 | | | 8,829 | | | | 3,820 | | | (1,064) | | | 75 | | | 11,660 | | | | 15,289 | | | 4,333 | | | (3,340) | | | 219 | | | 16,501 | | | 13,231 | | | 4,008 | | | (2,922) | | | 266 | | | 14,583 |
Total Republic Processing Group | | | | 13,231 | | | 2,712 | | | (2,922) | | | 1,562 | | | 14,583 | | | 8,829 | | | | 1,559 | | | (1,064) | | | 2,336 | | | 11,660 | | | | 15,289 | | | 2,366 | | | (3,340) | | | 2,187 | | | 16,502 | | | 13,231 | | | 2,712 | | | (2,922) | | | 1,562 | | | 14,583 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 64,449 | | $ | 1,643 | | $ | (3,275) | | $ | 2,102 | | $ | 64,919 | | $ | 60,291 | | | $ | 1,294 | | $ | (1,378) | | $ | 2,817 | | $ | 63,024 | | | $ | 72,202 | | $ | 3,730 | | $ | (3,672) | | $ | 2,316 | | $ | 74,576 | | $ | 64,449 | | $ | 1,643 | | $ | (3,275) | | $ | 2,102 | | $ | 64,919 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2629
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | ACLL Rollforward | |||||||||||||||||||||||||||||
| | | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
| | | 2022 | | 2021 | |||||||||||||||||||||||||||
| | | Beginning | | | | Charge- | | | | Ending | | | Beginning | | | | Charge- | | | | Ending | ||||||||||
(in thousands) | | | Balance | | Provision | | offs | | Recoveries | | Balance | | | Balance | | Provision | | offs | | Recoveries | | Balance | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | $ | 8,647 | | $ | (272) | | $ | — | | $ | 91 | | $ | 8,466 | | $ | 9,715 | | | $ | (1,461) | | $ | — | | $ | 375 | | $ | 8,629 |
Nonowner occupied | | | | 2,700 | | | 94 | | | — | | | 2 | | | 2,796 | | | 2,466 | | | | 131 | | | — | | | 1 | | | 2,598 |
Commercial real estate | | | | 23,769 | | | (843) | | | — | | | 277 | | | 23,203 | | | 23,606 | | | | 336 | | | (428) | | | 82 | | | 23,596 |
Construction & land development | | | | 4,128 | | | (206) | | | — | | | — | | | 3,922 | | | 3,274 | | | | 401 | | | — | | | — | | | 3,675 |
Commercial & industrial | | | | 3,487 | | | 346 | | | — | | | 141 | | | 3,974 | | | 2,797 | | | | 1,170 | | | (35) | | | 27 | | | 3,959 |
Paycheck Protection Program | | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | — |
Lease financing receivables | | | | 91 | | | 28 | | | — | | | — | | | 119 | | | 106 | | | | (7) | | | — | | | — | | | 99 |
Aircraft | | | | 357 | | | 59 | | | — | | | — | | | 416 | | | 253 | | | | 73 | | | — | | | — | | | 326 |
Home equity | | | | 4,111 | | | 169 | | | — | | | 119 | | | 4,399 | | | 4,990 | | | | (789) | | | — | | | 46 | | | 4,247 |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit cards | | | | 934 | | | 50 | | | (97) | | | 72 | | | 959 | | | 929 | | | | 108 | | | (130) | | | 44 | | | 951 |
Overdrafts | | | | 683 | | | 560 | | | (696) | | | 176 | | | 723 | | | 587 | | | | 351 | | | (444) | | | 259 | | | 753 |
Automobile loans | | | | 186 | | | (98) | | | — | | | 13 | | | 101 | | | 399 | | | | (178) | | | (19) | | | 24 | | | 226 |
Other consumer | | | | 314 | | | (137) | | | (68) | | | 44 | | | 153 | | | 577 | | | | (137) | | | (56) | | | 44 | | | 428 |
Total Traditional Banking | | | | 49,407 | | | (250) | | | (861) | | | 935 | | | 49,231 | | | 49,699 | | | | (2) | | | (1,112) | | | 902 | | | 49,487 |
Warehouse lines of credit | | | | 2,126 | | | (1,021) | | | — | | | — | | | 1,105 | | | 2,407 | | | | (530) | | | — | | | — | | | 1,877 |
Total Core Banking | | | | 51,533 | | | (1,271) | | | (861) | | | 935 | | | 50,336 | | | 52,106 | | | | (532) | | | (1,112) | | | 902 | | | 51,364 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Easy Advances | | | | — | | | 7,583 | | | (11,505) | | | 3,922 | | | — | | | — | | | | 7,984 | | | (10,226) | | | 2,242 | | | — |
Other TRS loans | | | | 96 | | | (607) | | | (154) | | | 665 | | | — | | | 158 | | | | (134) | | | (21) | | | (3) | | | — |
Republic Credit Solutions | | | | 12,948 | | | 8,836 | | | (8,005) | | | 804 | | | 14,583 | | | 8,803 | | | | 5,037 | | | (2,427) | | | 247 | | | 11,660 |
Total Republic Processing Group | | | | 13,044 | | | 15,812 | | | (19,664) | | | 5,391 | | | 14,583 | | | 8,961 | | | | 12,887 | | | (12,674) | | | 2,486 | | | 11,660 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 64,577 | | $ | 14,541 | | $ | (20,525) | | $ | 6,326 | | $ | 64,919 | | $ | 61,067 | | | $ | 12,355 | | $ | (13,786) | | $ | 3,388 | | $ | 63,024 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | ACLL Roll-forward | |||||||||||||||||||||||||||||||
| | | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| | | 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 | | $ | — | | $ | 1,298 | | $ | (24) | | $ | 48 | | $ | 10,231 | | $ | 8,647 | | $ | (272) | | $ | — | | $ | 91 | | $ | 8,466 |
Nonowner occupied | | | | 2,831 | | | — | | | 203 | | | — | | | 2 | | | 3,036 | | | 2,700 | | | 94 | | | — | | | 2 | | | 2,796 |
Commercial real estate | | | | 23,739 | | | — | | | 1,542 | | | — | | | 66 | | | 25,347 | | | 23,769 | | | (843) | | | — | | | 277 | | | 23,203 |
Construction & land development | | | | 4,123 | | | — | | | 1,013 | | | — | | | — | | | 5,136 | | | 4,128 | | | (206) | | | — | | | — | | | 3,922 |
Commercial & industrial | | | | 3,976 | | | — | | | 89 | | | — | | | 116 | | | 4,181 | | | 3,487 | | | 346 | | | — | | | 141 | | | 3,974 |
Lease financing receivables | | | | 110 | | | 216 | | | 764 | | | — | | | 10 | | | 1,100 | | | 91 | | | 28 | | | — | | | — | | | 119 |
Aircraft | | | | 449 | | | — | | | 118 | | | — | | | — | | | 567 | | | 357 | | | 59 | | | — | | | — | | | 416 |
Home equity | | | | 4,628 | | | — | | | 516 | | | — | | | 2 | | | 5,146 | | | 4,111 | | | 169 | | | — | | | 119 | | | 4,399 |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit cards | | | | 996 | | | — | | | 158 | | | (103) | | | 41 | | | 1,092 | | | 934 | | | 50 | | | (97) | | | 72 | | | 959 |
Overdrafts | | | | 726 | | | — | | | 437 | | | (676) | | | 153 | | | 640 | | | 683 | | | 560 | | | (696) | | | 176 | | | 723 |
Automobile loans | | | | 87 | | | — | | | (16) | | | (37) | | | 7 | | | 41 | | | 186 | | | (98) | | | — | | | 13 | | | 101 |
Other consumer | | | | 135 | | | — | | | 289 | | | (62) | | | 52 | | | 414 | | | 314 | | | (137) | | | (68) | | | 44 | | | 153 |
Total Traditional Banking | | | | 50,709 | | | 216 | | | 6,411 | | | (902) | | | 497 | | | 56,931 | | | 49,407 | | | (250) | | | (861) | | | 935 | | | 49,231 |
Warehouse lines of credit | | | | 1,009 | | | — | | | 134 | | | — | | | — | | | 1,143 | | | 2,126 | | | (1,021) | | | — | | | — | | | 1,105 |
Total Core Banking | | | | 51,718 | | | 216 | | | 6,545 | | | (902) | | | 497 | | | 58,074 | | | 51,533 | | | (1,271) | | | (861) | | | 935 | | | 50,336 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Refund Advances | | | | 3,797 | | | — | | | 19,615 | | | (25,823) | | | 2,411 | | | — | | | — | | | 7,583 | | | (11,505) | | | 3,922 | | | — |
Other TRS commercial & industrial loans | | | | 91 | | | — | | | 7 | | | (128) | | | 31 | | | 1 | | | 96 | | | (607) | | | (154) | | | 665 | | | — |
Republic Credit Solutions | | | | 14,807 | | | — | | | 10,468 | | | (9,459) | | | 685 | | | 16,501 | | | 12,948 | | | 8,836 | | | (8,005) | | | 804 | | | 14,583 |
Total Republic Processing Group | | | | 18,695 | | | — | | | 30,090 | | | (35,410) | | | 3,127 | | | 16,502 | | | 13,044 | | | 15,812 | | | (19,664) | | | 5,391 | | | 14,583 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 70,413 | | $ | 216 | | $ | 36,635 | | $ | (36,312) | | $ | 3,624 | | $ | 74,576 | | $ | 64,577 | | $ | 14,541 | | $ | (20,525) | | $ | 6,326 | | $ | 64,919 |
The cumulative loss rate used as the basis for the estimate of the Company’s ACLL as of September 30, 20222023 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 2022,2023, 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., TDRs.Loan Modifications.
For its CRE loan pool, the Company employed a one-year forecast of CRE vacancy rates through March 31, 2021 but discontinued use of this forecast during the second quarter of 2021 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.
27
Nonperforming Loans and Nonperforming Assets
Detail of nonperforming loans, nonperforming assets, and select credit quality ratios follows:
| | | | | | | | | | | | | | |
(dollars in thousands) |
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||
| | | | | | | | | | | | | | |
Loans on nonaccrual status* | | $ | 16,322 | | $ | 20,504 | | | $ | 18,127 | | $ | 15,562 | |
Loans past due 90-days-or-more and still on accrual** | |
| 37 | |
| 48 | | |
| 1,037 | |
| 756 | |
Total nonperforming loans | |
| 16,359 | |
| 20,552 | | |
| 19,164 | |
| 16,318 | |
Other real estate owned | |
| 1,634 | |
| 1,792 | | |
| 1,423 | |
| 1,581 | |
Total nonperforming assets | | $ | 17,993 | | $ | 22,344 | | | $ | 20,587 | | $ | 17,899 | |
| | | | | | | | | | | | | | |
Credit Quality Ratios - Total Company: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Nonperforming loans to total loans | |
| 0.38 | % |
| 0.46 | % | |
| 0.38 | % |
| 0.36 | % |
Nonperforming assets to total loans (including OREO) | |
| 0.42 | |
| 0.50 | | |
| 0.41 | |
| 0.40 | |
Nonperforming assets to total assets | |
| 0.30 | |
| 0.37 | | |
| 0.32 | |
| 0.31 | |
| | | | | | | | | | | | | | |
Credit Quality Ratios - Core Bank: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Nonperforming loans to total loans | |
| 0.39 | % |
| 0.47 | % | |
| 0.37 | % |
| 0.37 | % |
Nonperforming assets to total loans (including OREO) | |
| 0.43 | |
| 0.51 | | |
| 0.39 | |
| 0.40 | |
Nonperforming assets to total assets | |
| 0.33 | |
| 0.40 | | |
| 0.33 | |
| 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. |
2830
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 | | | | | | | | | Past Due 90-Days-or-More | ||||||||||
| | Nonaccrual | | and Still Accruing Interest* | | | Nonaccrual | | and Still Accruing Interest* | ||||||||||||||||||
(in thousands) |
| September 30, 2022 |
| December 31, 2021 |
| September 30, 2022 |
| December 31, 2021 | |
| September 30, 2023 |
| December 31, 2022 |
| September 30, 2023 |
| December 31, 2022 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | ||
Traditional Banking: | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Residential real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Owner occupied | | $ | 13,604 | | $ | 12,039 | | $ | — | | $ | — | | | $ | 14,396 | | $ | 13,388 | | $ | — | | $ | — | ||
Nonowner occupied | |
| 125 | |
| 95 | |
| — | |
| — | | |
| 68 | |
| 117 | |
| — | |
| — | ||
Commercial real estate | |
| 1,051 | |
| 6,557 | |
| — | |
| — | | |
| 883 | |
| 1,001 | |
| — | |
| — | ||
Construction & land development | |
| — | |
| — | |
| — | |
| — | | |
| — | |
| — | |
| — | |
| — | ||
Commercial & industrial | |
| — | |
| 13 | |
| — | |
| — | | |
| 1,159 | |
| — | |
| — | |
| — | ||
Paycheck Protection Program | | | — | | | — | | | — | | | — | | ||||||||||||||
Lease financing receivables | |
| — | |
| — | |
| — | |
| — | | |
| 13 | |
| — | |
| — | |
| — | ||
Aircraft | | | — | | | — | | | — | | | — | | | | — | | | | | | — | | | — | ||
Home equity | |
| 1,291 | |
| 1,700 | |
| — | |
| — | | |
| 1,591 | |
| 815 | |
| — | |
| — | ||
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Credit cards | |
| — | |
| — | |
| — | |
| — | | |
| — | |
| — | |
| — | |
| — | ||
Overdrafts | |
| — | |
| — | |
| — | |
| 1 | | |
| — | |
| — | |
| — | |
| — | ||
Automobile loans | |
| 35 | |
| 97 | |
| — | |
| — | | |
| 16 | |
| 31 | |
| — | |
| — | ||
Other consumer | |
| 216 | |
| 3 | |
| — | |
| — | | |
| 1 | |
| 210 | |
| — | |
| — | ||
Total Traditional Banking | | | 16,322 | | | 20,504 | | | — | | | 1 | | | | 18,127 | | | 15,562 | | | — | | | — | ||
Warehouse lines of credit | |
| — | |
| — | |
| — | |
| — | | |
| — | |
| — | |
| — | |
| — | ||
Total Core Banking | | | 16,322 | | | 20,504 | | | — | | | 1 | | | | 18,127 | | | 15,562 | | | — | | | — | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | ||
Republic Processing Group: | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Tax Refund Solutions: | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Easy Advances | | | — | | | — | | | — | | | — | | ||||||||||||||
Other TRS loans | |
| — | |
| — | |
| — | |
| — | | ||||||||||||||
Refund Advances | | | — | | | — | | | — | | | — | |||||||||||||||
Other TRS commercial & industrial loans | |
| — | |
| — | |
| — | |
| — | |||||||||||||||
Republic Credit Solutions | | | — | | | — | | | 37 | | | 47 | | | | — | | | — | | | 1,037 | | | 756 | ||
Total Republic Processing Group | | | — | | | — | | | 37 | | | 47 | | | | — | | | — | | | 1,037 | | | 756 | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | ||
Total | | $ | 16,322 | | $ | 20,504 | | $ | 37 | | $ | 48 | | | $ | 18,127 | | $ | 15,562 | | $ | 1,037 | | $ | 756 |
* Loans past due 90-days-or-more and still accruing consist of smaller balance consumer loans.
| | | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | Three Months Ended | | Nine Months Ended | | | | Three Months Ended | | Nine Months Ended | ||||||||||||||||||
| | As of September 30, 2022 | | September 30, 2022 | | September 30, 2022 | | As of September 30, 2023 | | September 30, 2023 | | September 30, 2023 | ||||||||||||||||||
|
| Nonaccrual |
| Nonaccrual |
| Total | Interest Income |
| Interest Income |
| Nonaccrual |
| Nonaccrual |
| | Total | | Interest Income |
| Interest Income | ||||||||||
| | Loans with | | Loans without | | Nonaccrual | | Recognized | | Recognized | | Loans with | | Loans without | | | Nonaccrual | | Recognized | | Recognized | |||||||||
(in thousands) | | ACLL | | ACLL | | Loans | | on Nonaccrual Loans* | | on Nonaccrual Loans* | | ACLL | | ACLL | | | Loans | | on Nonaccrual Loans* | | on Nonaccrual Loans* | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Residential real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Owner occupied | | $ | 1,738 | | $ | 11,866 | | $ | 13,604 | | $ | 163 | | $ | 734 | | $ | 624 | | $ | 13,772 | | $ | 14,396 | | $ | 224 | | $ | 664 |
Nonowner occupied | |
| 62 | | | 63 | | | 125 | | | 1 | | | 1 | |
| 22 | | | 46 | | | 68 | | | 7 | | | 8 |
Commercial real estate | |
| 1,051 | | | — | | | 1,051 | | | 680 | | | 1,325 | |
| 883 | | | — | | | 883 | | | 31 | | | 142 |
Construction & land development | |
| — | | | — | | | — | | | — | | | — | |
| — | | | — | | | — | | | — | | | — |
Commercial & industrial | |
| — | | | — | | | — | | | — | | | — | |
| 338 | | | 821 | | | 1,159 | | | 23 | | | 23 |
Paycheck Protection Program | | | — | | | — | | | — | | | — | | | — | |||||||||||||||
Lease financing receivables | |
| — | | | — | | | — | | | — | | | — | |
| 13 | | | — | | | 13 | | | — | | | — |
Aircraft | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Home equity | |
| 8 | | | 1,283 | | | 1,291 | | | 31 | | | 185 | |
| — | | | 1,591 | | | 1,591 | | | 45 | | | 106 |
Consumer | | | 19 | | | 232 | | | 251 | | | 4 | | | 12 | | | 8 | | | 9 | | | 17 | | | — | | | 6 |
Total | | $ | 2,878 | | $ | 13,444 | | $ | 16,322 | | $ | 879 | | $ | 2,257 | | $ | 1,888 | | $ | 16,239 | | $ | 18,127 | | $ | 330 | | $ | 949 |
* Includes interest income for loans on nonaccrual as of the beginning of the period that were paid off during the period.
31
| | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Nine Months Ended | |||||||||
| | As of December 31, 2022 | | September 30, 2022 | | September 30, 2022 | |||||||||
|
| Nonaccrual |
| Nonaccrual |
| | Total | | Interest Income |
| Interest Income | ||||
| | Loans with | | Loans without | | | Nonaccrual | | Recognized | | Recognized | ||||
(in thousands) | | ACLL | | ACLL | | | Loans | | on Nonaccrual Loans* | | on Nonaccrual Loans* | ||||
| | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | |
Owner occupied | | $ | 2,252 | | $ | 11,136 | | $ | 13,388 | | $ | 154 | | $ | 257 |
Nonowner occupied | |
| 56 | | | 61 | | | 117 | | | 1 | | | 1 |
Commercial real estate | |
| 1,001 | | | — | | | 1,001 | | | 14 | | | 644 |
Construction & land development | |
| — | | | — | | | — | | | — | | | — |
Commercial & industrial | |
| — | | | — | | | — | | | — | | | — |
Lease financing receivables | |
| — | | | — | | | — | | | — | | | — |
Aircraft | | | — | | | — | | | — | | | — | | | — |
Home equity | |
| — | | | 815 | | | 815 | | | 84 | | | 146 |
Consumer | | | 15 | | | 226 | | | 241 | | | 48 | | | 52 |
Total | | $ | 3,324 | | $ | 12,238 | | $ | 15,562 | | $ | 301 | | $ | 1,100 |
* 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 |
|
| |
|
| |
|
| |
| |||
September 30, 2023 | Days | | Days | | Days | | Total | | Total | | | |
| ||||||
(dollars in thousands) | | Delinquent | | Delinquent | | Delinquent* | | Delinquent** | | Current | | Total |
| ||||||
| | | | | | | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | | |
Owner occupied | | $ | 2,241 | | $ | 1,521 | | $ | 822 | | $ | 4,584 | | $ | 1,124,161 | | $ | 1,128,745 | |
Nonowner occupied | |
| 231 | |
| — | |
| — | |
| 231 | |
| 344,451 | |
| 344,682 | |
Commercial real estate | |
| 23 | |
| — | |
| — | |
| 23 | |
| 1,745,164 | |
| 1,745,187 | |
Construction & land development | |
| — | |
| — | |
| — | |
| — | |
| 189,756 | |
| 189,756 | |
Commercial & industrial | |
| 186 | |
| 27 | |
| 1,159 | |
| 1,372 | |
| 472,418 | |
| 473,790 | |
Lease financing receivables | |
| 4 | |
| — | |
| 12 | |
| 16 | |
| 85,226 | |
| 85,242 | |
Aircraft | | | — | | | — | | | — | | | — | | | 226,947 | | | 226,947 | |
Home equity | |
| 137 | |
| 147 | |
| 83 | |
| 367 | |
| 275,383 | |
| 275,750 | |
Consumer: | | | | | | | | | | | | | | | | | | | |
Credit cards | |
| 11 | |
| 16 | |
| 1 | |
| 28 | |
| 16,922 | |
| 16,950 | |
Overdrafts | |
| 131 | |
| — | |
| 1 | |
| 132 | |
| 508 | |
| 640 | |
Automobile loans | |
| — | |
| — | |
| 4 | |
| 4 | |
| 3,376 | |
| 3,380 | |
Other consumer | |
| 38 | |
| 10 | |
| 1 | |
| 49 | |
| 5,625 | |
| 5,674 | |
Total Traditional Banking | | | 3,002 | | | 1,721 | | | 2,083 | | | 6,806 | | | 4,489,937 | | | 4,496,743 | |
Warehouse lines of credit | |
| — | |
| — | |
| — | |
| — | |
| 457,033 | |
| 457,033 | |
Total Core Banking | | | 3,002 | | | 1,721 | | | 2,083 | | | 6,806 | | | 4,946,970 | | | 4,953,776 | |
| | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | | | | | | |
Refund Advances | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Other TRS commercial & industrial loans | |
| — | |
| — | |
| — | |
| — | |
| 354 | |
| 354 | |
Republic Credit Solutions | | | 8,020 | |
| 3,271 | |
| 1,037 | |
| 12,328 | |
| 114,641 | |
| 126,969 | |
Total Republic Processing Group | | | 8,020 | | | 3,271 | | | 1,037 | | | 12,328 | | | 114,995 | | | 127,323 | |
| | | | | | | | | | | | | | | | | | | |
Total | | $ | 11,022 | | $ | 4,992 | | $ | 3,120 | | $ | 19,134 | | $ | 5,061,965 | | $ | 5,081,099 | |
Delinquency ratio*** | |
| 0.22 | % |
| 0.10 | % |
| 0.06 | % |
| 0.38 | % | | | | | | |
* 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.
32
| | | | | | | | | | | | | | | | | | | |
|
| 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.
33
| | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Nine Months Ended | |||||||||
| | As of December 31, 2021 | | September 30, 2021 | | September 30, 2021 | |||||||||
|
| Nonaccrual |
| Nonaccrual |
| Total | Interest Income |
| Interest Income | ||||||
| | Loans with | | Loans without | | Nonaccrual | | Recognized | | Recognized | |||||
(in thousands) | | ACLL | | ACLL | | Loans | | on Nonaccrual Loans* | | on Nonaccrual Loans* | |||||
| | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | |
Owner occupied | | $ | 1,944 | | $ | 10,095 | | $ | 12,039 | | $ | 225 | | $ | 672 |
Nonowner occupied | |
| 31 | | | 64 | | | 95 | | | 2 | | | 5 |
Commercial real estate | |
| 4,105 | | | 2,452 | | | 6,557 | | | 16 | | | 125 |
Construction & land development | |
| — | | | — | | | — | | | — | | | — |
Commercial & industrial | |
| — | | | 13 | | | 13 | | | — | | | 2 |
Paycheck Protection Program | | | — | | | — | | | — | | | — | | | — |
Lease financing receivables | |
| — | | | — | | | — | | | — | | | — |
Aircraft | | | — | | | — | | | — | | | — | | | — |
Home equity | |
| — | | | 1,700 | | | 1,700 | | | 19 | | | 121 |
Consumer | | | 17 | | | 83 | | | 100 | | | 4 | | | 8 |
| | $ | 6,097 | | $ | 14,407 | | $ | 20,504 | | $ | 266 | | $ | 933 |
* 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 include both 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. TDRs 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 |
|
| |
|
| |
|
| |
| |||
September 30, 2022 | Days | | Days | | Days | | Total | | Total | | | |
| ||||||
(dollars in thousands) | | Delinquent | | Delinquent | | Delinquent* | | Delinquent** | | Current | | Total |
| ||||||
| | | | | | | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | | |
Owner occupied | | $ | 1,373 | | $ | 1,512 | | $ | 876 | | $ | 3,761 | | $ | 860,138 | | $ | 863,899 | |
Nonowner occupied | |
| — | |
| — | |
| 41 | |
| 41 | |
| 320,996 | |
| 321,037 | |
Commercial real estate | |
| — | |
| — | |
| — | |
| — | |
| 1,571,593 | |
| 1,571,593 | |
Construction & land development | |
| — | |
| — | |
| — | |
| — | |
| 147,418 | |
| 147,418 | |
Commercial & industrial | |
| 1 | |
| — | |
| — | |
| 1 | |
| 404,970 | |
| 404,971 | |
Paycheck Protection Program | | | — | | | — | | | — | | | — | | | 7,855 | | | 7,855 | |
Lease financing receivables | |
| — | |
| — | |
| — | |
| — | |
| 11,333 | |
| 11,333 | |
Aircraft | | | — | | | — | | | — | | | — | | | 166,313 | | | 166,313 | |
Home equity | |
| — | |
| — | |
| 315 | |
| 315 | |
| 228,723 | |
| 229,038 | |
Consumer: | | | | | | | | | | | | | | | | | | | |
Credit cards | |
| 23 | |
| 10 | |
| — | |
| 33 | |
| 14,864 | |
| 14,897 | |
Overdrafts | |
| 155 | |
| 2 | |
| — | |
| 157 | |
| 566 | |
| 723 | |
Automobile loans | |
| 18 | |
| 31 | |
| 4 | |
| 53 | |
| 7,837 | |
| 7,890 | |
Other consumer | |
| 5 | |
| 1 | |
| 1 | |
| 7 | |
| 966 | |
| 973 | |
Total Traditional Banking | | | 1,575 | | | 1,556 | | | 1,237 | | | 4,368 | | | 3,743,572 | | | 3,747,940 | |
Warehouse lines of credit | |
| — | |
| — | |
| — | |
| — | |
| 442,238 | |
| 442,238 | |
Total Core Banking | | | 1,575 | | | 1,556 | | | 1,237 | | | 4,368 | | | 4,185,810 | | | 4,190,178 | |
| | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | | | | | | |
Easy Advances | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Other TRS loans | |
| — | |
| — | |
| — | |
| — | |
| 295 | |
| 295 | |
Republic Credit Solutions | | | 5,809 | |
| 1,676 | |
| 37 | |
| 7,522 | |
| 91,455 | |
| 98,977 | |
Total Republic Processing Group | | | 5,809 | | | 1,676 | | | 37 | | | 7,522 | | | 91,750 | | | 99,272 | |
| | | | | | | | | | | | | | | | | | | |
Total | | $ | 7,384 | | $ | 3,232 | | $ | 1,274 | | $ | 11,890 | | $ | 4,277,560 | | $ | 4,289,450 | |
Delinquency ratio*** | |
| 0.17 | % |
| 0.08 | % |
| 0.03 | % |
| 0.28 | % | | | | | | |
* 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.
30
| | | | | | | | | | | | | | | | | | | |
|
| 30 - 59 |
| 60 - 89 |
| 90 or More |
|
| |
|
| |
|
| |
| |||
December 31, 2021 | Days | | Days | | Days | | Total | | Total | | | |
| ||||||
(dollars in thousands) | | Delinquent | | Delinquent | | Delinquent* | | Delinquent** | | Current | | Total |
| ||||||
| | | | | | | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | | |
Owner occupied | | $ | 606 | | $ | 383 | | $ | 610 | | $ | 1,599 | | $ | 819,132 | | $ | 820,731 | |
Nonowner occupied | |
| — | |
| — | |
| — | |
| — | |
| 306,323 | |
| 306,323 | |
Commercial real estate | |
| — | |
| — | |
| 5,292 | |
| 5,292 | |
| 1,450,717 | |
| 1,456,009 | |
Construction & land development | |
| — | |
| — | |
| — | |
| — | |
| 129,337 | |
| 129,337 | |
Commercial & industrial | |
| 8 | |
| — | |
| 13 | |
| 21 | |
| 340,342 | |
| 340,363 | |
Paycheck Protection Program | | | — | | | — | | | — | | | — | | | 56,014 | | | 56,014 | |
Lease financing receivables | |
| — | |
| — | |
| — | |
| — | |
| 8,637 | |
| 8,637 | |
Aircraft | | | — | | | — | | | — | | | — | | | 142,894 | | | 142,894 | |
Home equity | |
| 38 | |
| 35 | |
| 241 | |
| 314 | |
| 210,264 | |
| 210,578 | |
Consumer: | | | | | | | | | | | | | | | | | | | |
Credit cards | |
| 19 | |
| 11 | |
| — | |
| 30 | |
| 14,480 | |
| 14,510 | |
Overdrafts | |
| 160 | |
| 3 | |
| 1 | |
| 164 | |
| 519 | |
| 683 | |
Automobile loans | |
| — | |
| — | |
| 9 | |
| 9 | |
| 14,439 | |
| 14,448 | |
Other consumer | |
| 1 | |
| — | |
| — | |
| 1 | |
| 1,431 | |
| 1,432 | |
Total Traditional Banking | | | 832 | | | 432 | | | 6,166 | | | 7,430 | | | 3,494,529 | | | 3,501,959 | |
Warehouse lines of credit | |
| — | |
| — | |
| — | |
| — | |
| 850,550 | |
| 850,550 | |
Total Core Banking | | | 832 | | | 432 | | | 6,166 | | | 7,430 | | | 4,345,079 | | | 4,352,509 | |
| | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | | | | | | |
Easy Advances | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Other TRS loans | |
| — | |
| — | |
| — | |
| — | |
| 50,987 | |
| 50,987 | |
Republic Credit Solutions | | | 5,010 | |
| 978 | |
| 47 | |
| 6,035 | |
| 87,031 | |
| 93,066 | |
Total Republic Processing Group | | | 5,010 | | | 978 | | | 47 | | | 6,035 | | | 138,018 | | | 144,053 | |
| | | | | | | | | | | | | | | | | | | |
Total | | $ | 5,842 | | $ | 1,410 | | $ | 6,213 | | $ | 13,465 | | $ | 4,483,097 | | $ | 4,496,562 | |
Delinquency ratio*** | |
| 0.13 | % |
| 0.03 | % |
| 0.14 | % |
| 0.30 | % | | | | | | |
* 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.
31
Collateral-Dependent Loans
The following table presents the amortized cost basis of collateral-dependent loans by class of loans:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 | ||||||||||||||||
| | Secured |
| Secured | | Secured |
| Secured | | Secured |
| Secured | | Secured |
| Secured | ||||||||
| | by Real | | by Personal | | by Real | | by Personal | | by Real | | by Personal | | by Real | | by Personal | ||||||||
(in thousands) | | Estate | | Property | | Estate | | Property | | Estate | | Property | | Estate | | Property | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | $ | 17,702 | | $ | — | | $ | 14,798 | | $ | — | | $ | 16,122 | | $ | — | | $ | 18,057 | | $ | — |
Nonowner occupied | |
| 125 | |
| — | |
| 95 | |
| — | |
| 68 | |
| — | |
| 150 | |
| — |
Commercial real estate | |
| 848 | |
| — | |
| 6,736 | |
| — | |
| 909 | |
| — | |
| 1,041 | |
| — |
Construction & land development | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Commercial & industrial | |
| — | |
| 188 | |
| — | |
| 192 | |
| — | |
| 1,226 | |
| — | |
| — |
Paycheck Protection Program | | | — | | | — | | | — | | | — | ||||||||||||
Lease financing receivables | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Aircraft | | | — | |
| — | | | — | |
| — | | | — | |
| — | | | — | |
| 210 |
Home equity | |
| 1,505 | |
| — | |
| 1,976 | |
| — | |
| 1,548 | |
| — | |
| 967 | |
| — |
Consumer | | | — | |
| 258 | | | — | |
| 274 | | | — | |
| 20 | | | — | |
| 26 |
Total Traditional Banking | | $ | 20,180 | | $ | 446 | | $ | 23,605 | | $ | 466 | | $ | 18,647 | | $ | 1,246 | | $ | 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.
32
Troubled Debt RestructuringsLoan and Lease Modification Disclosures Pursuant to ASU 2022-02
A TDR is a situation where, due to a borrower’s financial difficulties,The following table shows the Bank grants a concession to the borroweramortized cost of loans and leases as of September 30, 2023 that the Bank would not otherwise have considered. In order to determine whether a borrower iswere both experiencing financial difficulty an evaluation is performedand modified during the three months ended September 30, 2023, segregated by portfolio segment and type of modification. The following tables shows the probability that the borrower will be in payment default on anyamortized cost of their debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Bank’s internal underwriting policy.loans and leases modified by type.
| | | | | | | | | | | | | | | |
| | Amortized Cost Basis of Modified Financing Receivables | |||||||||||||
| | Three Months Ended September 30, 2023 | |||||||||||||
(in thousands) | | Loans (#) | | Rate Reduction ($) | | Loans (#) | | Term Extension ($) | | Loans (#) | | Principal Deferral ($) | |||
| | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | |
Owner occupied | | — | | $ | — | | — | | $ | — | | 4 | | $ | 239 |
Nonowner occupied | | — | | | — | | — | | | — | | — | | | — |
Home equity | | — | | | — | | — | | | — | | 1 | | | 433 |
Republic Processing Group | | — | | | — | | — | | | — | | 383 | | | 84 |
Total Loan Modifications | | — | | $ | — | | — | | $ | — | | 388 | | $ | 756 |
The majority of the Bank’s commercial-related and construction TDRs involve a restructuring of financing terms, such as a reduction in the payment amount to require only interest and escrow (if required) and/or extending the maturity date of the debt. The substantial majority of the Bank’s residential real estate TDR concessions involve reducing the client’s loan payment through a rate reduction for a set period based on the borrower’s ability to service the modified loan payment. Retail loans may also be classified as TDRs due to legal modifications, such as bankruptcies.
| | | | | | | | | | |
| | Total Loan Modification by Type | ||||||||
| | Accruing | | Nonaccruing | ||||||
| | Three Months Ended September 30, 2023 | ||||||||
(in thousands) | | Loans (#) | | Recorded investment ($) | | Loans (#) | | Recorded investment ($) | ||
| | | | | | | | | | |
Term extension | | — | | $ | — | | — | | $ | — |
Principal deferral | | 383 | | | 84 | | 5 | | | 672 |
Total Loan Modifications | | 383 | | $ | 84 | | 5 | | $ | 672 |
NonaccrualThe following table shows the amortized cost of loans modifiedand leases as TDRs typically remain on nonaccrual status and continue to be reported as nonperforming loans for a minimum of six consecutive months. Accruing loans modified as TDRs are evaluated for nonaccrual status based on a current evaluation of the borrower’s financial condition and ability and willingness to service the modified debt. As of September 30, 20222023 that were both experiencing financial difficulty and December 31, 2021, $3 millionmodified during the nine months ended September 30, 2023, segregated by portfolio segment and $6 milliontype of TDRs were on nonaccrual status.modification. The following tables shows the amortized cost of loans and leases modified by type.
Detail of TDRs differentiated by loan type and accrual status follows:
| | | | | | | | | | | | | | | | |
|
| Troubled Debt |
| Troubled Debt |
| Total |
| |||||||||
| | Restructurings on | | Restructurings on | | Troubled Debt |
| |||||||||
| | Nonaccrual Status | | Accrual Status | | Restructurings |
| |||||||||
|
| Number of |
| Recorded |
| Number of |
| Recorded |
| Number of |
| Recorded |
| |||
September 30, 2022 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
Residential real estate | | 71 | | $ | 3,356 | | 77 | | $ | 7,058 | | 148 | | $ | 10,414 | |
Commercial real estate | | — | | | — | | 1 | | | 865 | | 1 | |
| 865 | |
Commercial & industrial | | — | | | — | | 1 | | | 1 | | 1 | |
| 1 | |
Consumer | | 1 | | | 10 | | 1,887 | | | 418 | | 1,888 | | | 428 | |
Total troubled debt restructurings | | 72 | | $ | 3,366 | | 1,966 | | $ | 8,342 | | 2,038 | | $ | 11,708 | |
| | | | | | | | | | | | | | | | |
|
| Troubled Debt |
| Troubled Debt |
| Total |
| |||||||||
| | Restructurings on | | Restructurings on | | Troubled Debt |
| |||||||||
| | Nonaccrual Status | | Accrual Status | | Restructurings |
| |||||||||
|
| Number of |
| Recorded |
| Number of |
| Recorded |
| Number of |
| Recorded |
| |||
December 31, 2021 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
Residential real estate | | 63 | | $ | 3,179 | | 89 | | $ | 7,856 | | 152 | | $ | 11,035 | |
Commercial real estate | | 2 | | | 2,575 | | 2 | | | 1,239 | | 4 | |
| 3,814 | |
Commercial & industrial | | 2 | | | 45 | | 1 | | | 1 | | 3 | |
| 46 | |
Consumer | | 1 | | | 12 | | 2,269 | | | 479 | | 2,270 | | | 491 | |
Total troubled debt restructurings | | 68 | | $ | 5,811 | | 2,361 | | $ | 9,575 | | 2,429 | | $ | 15,386 | |
| | | | | | | | | | | | | | | |
| | Amortized Cost Basis of Modified Financing Receivables | |||||||||||||
| | Nine Months Ended September 30, 2023 | |||||||||||||
(in thousands) | | Loans (#) | | Rate Reduction ($) | | Loans (#) | | Term Extension ($) | | Loans (#) | | Principal Deferral ($) | |||
| | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | |
Owner occupied | | — | | $ | — | | 2 | | $ | 258 | | 13 | | $ | 1,006 |
Nonowner occupied | | — | | | — | | — | | | — | | — | | | — |
Home equity | | — | | | — | | — | | | — | | 4 | | | 566 |
Republic Processing Group | | — | | | — | | — | | | — | | 383 | | | 84 |
Total Loan Modifications | | — | | $ | — | | 2 | | $ | 258 | | 400 | | $ | 1,656 |
3334
| | | | | | | | | | |
| | Total Loan Modification by Type | ||||||||
| | Accruing | | Nonaccruing | ||||||
| | Nine Months Ended September 30, 2023 | ||||||||
(in thousands) | | Loans (#) | | Recorded investment ($) | | Loans (#) | | Recorded investment ($) | ||
| | | | | | | | | | |
Term extension | | — | | $ | — | | — | | $ | — |
Principal deferral | | 383 | | | 84 | | 19 | | | 1,830 |
Total Loan Modifications | | 383 | | $ | 84 | | 19 | | $ | 1,830 |
The Bank considers a TDR to be performing to its modified terms iffollowing tables show the loan is in accrual status and not past due 30-days-or-more aspercentage of the reporting date. A summaryamortized cost of loans and leases that were modified to borrowers in financial distress as compared to the categoriesamortized cost of TDR loan modifications outstanding and respective performance under modified terms aseach segment of September 30, 2022 and December 31, 2021 follows:financing receivable.
| | | | | | | | | | | | | | | | |
|
| 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 |
| |||
September 30, 2022 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Rate reduction | | 73 | | $ | 6,632 | | 2 | | $ | 119 | | 75 | | $ | 6,751 | |
Principal deferral | | 6 | |
| 552 | | 1 | |
| 157 | | 7 | |
| 709 | |
Legal modification | | 57 | |
| 2,639 | | 9 | |
| 315 | | 66 | |
| 2,954 | |
Total residential TDRs | | 136 | |
| 9,823 | | 12 | |
| 591 | | 148 | |
| 10,414 | |
| | | | | | | | | | | | | | | | |
Commercial related and construction/land development loans: | | | | | | | | | | | | | | | | |
Rate reduction | | 1 | |
| 865 | | — | |
| — | | 1 | |
| 865 | |
Principal deferral | | 1 | |
| 1 | | — | |
| — | | 1 | |
| 1 | |
Total commercial TDRs | | 2 | |
| 866 | | — | |
| — | | 2 | |
| 866 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 1,885 | | | 414 | | — | |
| — | | 1,885 | |
| 414 | |
Legal modification | | 3 | | | 14 | | — | | | — | | 3 | |
| 14 | |
Total consumer TDRs | | 1,888 | |
| 428 | | — | |
| — | | 1,888 | |
| 428 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 2,026 | | $ | 11,117 | | 12 | | $ | 591 | | 2,038 | | $ | 11,708 | |
| | | | | | | | | | | | | | | | |
| | Accruing Loan Modifications | ||||||||||||||
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | ||||||||||||
| | | | | | | % of Total | | | | | | | % of Total | ||
| | | | Amortized | | of Financing | | | | Amortized | | of Financing | ||||
(dollars in thousands) | | Loans (#) | | Cost Basis ($) | | Receivable | | Loans | | Cost Basis | | Receivable | ||||
| | | | | | | | | | | | | | | | |
Republic Processing Group | | 383 | | $ | 84 | | 0.07 | % | | 383 | | | 84 | | 0.07 | |
Total Accruing Loan Modifications | | 383 | | $ | 84 | | 0.00 | | | 383 | | $ | 84 | | 0.00 | |
| | | | | | | | | | | | | | | | |
| | Nonaccruing Loan Modifications | ||||||||||||||
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | ||||||||||||
| | | | | | | % of Total | | | | | | | % of Total | ||
| | | | Amortized | | of Financing | | | | Amortized | | of Financing | ||||
(dollars in thousands) | | Loans (#) | | Cost Basis ($) | | Receivable | | Loans | | Cost Basis | | Receivable | ||||
| | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | |
Owner occupied | | 4 | | $ | 239 | | 0.02 | % | | 4 | | $ | 566 | | 0.05 | % |
Home equity | | 1 | | | 433 | | 0.16 | | | 15 | | | 1,264 | | 0.46 | |
Total Nonaccruing Loan Modifications | | 5 | | $ | 672 | | 0.01 | % | | 19 | | $ | 1,830 | | 0.04 | |
| | | | | | | | | | | | | | | | |
|
| 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, 2021 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Interest only payments | | — | | | — | | — | | | — | | — | | $ | — | |
Rate reduction | | 82 | | $ | 7,461 | | 4 | | $ | 303 | | 86 | |
| 7,764 | |
Principal deferral | | 7 | |
| 729 | | — | |
| — | | 7 | |
| 729 | |
Legal modification | | 48 | |
| 2,100 | | 11 | |
| 442 | | 59 | |
| 2,542 | |
Total residential TDRs | | 137 | |
| 10,290 | | 15 | |
| 745 | | 152 | |
| 11,035 | |
| | | | | | | | | | | | | | | | |
Commercial related and construction/land development loans: | | | | | | | | | | | | | | | | |
Interest only payments | | — | |
| — | | — | |
| — | | — | |
| — | |
Rate reduction | | 1 | |
| 919 | | — | |
| — | | 1 | |
| 919 | |
Principal deferral | | 5 | |
| 477 | | 1 | |
| 2,464 | | 6 | |
| 2,941 | |
Total commercial TDRs | | 6 | |
| 1,396 | | 1 | |
| 2,464 | | 7 | |
| 3,860 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 2,266 | | | 470 | | — | |
| — | | 2,266 | |
| 470 | |
Legal modification | | 4 | | | 21 | | — | | | — | | 4 | |
| 21 | |
Total consumer TDRs | | 2,270 | |
| 491 | | — | |
| — | | 2,270 | |
| 491 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 2,413 | | $ | 12,177 | | 16 | | $ | 3,209 | | 2,429 | | $ | 15,386 | |
As of September 30, 2022 and December 31, 2021, 95% and 79% of the Bank’s TDR balancesThere were performing according to their modified terms. The Bank had provided $804,000 and $2 million of specific ACLL allocations to clients whose loan terms have been modified in TDRs as of September 30, 2022 and December 31, 2021. The Bank had no commitments to lend any additional material amounts to its existing TDR relationships as of September 30, 2022 or December 31, 2021.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 and nine months ended September 30, 2023.
| | | | | | | | | | | | | | | | | | |
| | Accruing Loan Modifications | ||||||||||||||||
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | ||||||||||||||
| | | | | 30-89 Days | | 90+ Days | | | | | 30-89 Days | | 90+ Days | ||||
(in thousands) | | Current | | Past Due | | Past Due | | Current | | Past Due | | Past Due | ||||||
| | | | | | | | | | | | | | | | | | |
Republic Processing Group | | $ | 84 | | $ | — | | $ | — | | | 84 | | | — | | | — |
Total Accruing Loan Modifications | | $ | 84 | | $ | — | | $ | — | | $ | 84 | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | |
| | Nonaccruing Loan Modifications | ||||||||||||||||
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | ||||||||||||||
| | | | | 30-89 Days | | 90+ Days | | | | | 30-89 Days | | 90+ Days | ||||
(in thousands) | | Current | | Past Due | | Past Due | | Current | | Past Due | | Past Due | ||||||
| | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | |
Owner occupied | | $ | 75 | | $ | 164 | | $ | — | | $ | 932 | | $ | 188 | | $ | 168 |
Nonowner occupied | | | — | | | — | | | — | | | — | | | — | | | — |
Home equity | | | 433 | | | — | | | — | | | 542 | | | — | | | — |
Total Nonaccruing Loan Modifications | | $ | 508 | | $ | 164 | | $ | — | | $ | 1,474 | | $ | 188 | | $ | 168 |
There were three loans and leases with a total balance of $188,000 that had a payment default during the three months ended September 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty. There were five loans and leases with a total balance of $356,000 that had a payment default during the nine months ended September 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.
3435
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.
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 September 30, 2022 and 2021 that were modified during the three months ended September 30, 2022 and 2021 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 |
| |||
September 30, 2022 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Legal modification | | 10 | | $ | 443 | | 1 | | $ | 47 | | 11 | | $ | 490 | |
Total residential TDRs | | 10 | | | 443 | | 1 | | | 47 | | 11 | | | 490 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 332 | |
| 62 | | — | |
| — | | 332 | |
| 62 | |
Total consumer TDRs | | 332 | |
| 62 | | — | |
| — | | 332 | |
| 62 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 342 | | $ | 505 | | 1 | | $ | 47 | | 343 | | $ | 552 | |
| | | | | | | | | | | | | | | | |
|
| 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 |
| |||
September 30, 2021 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Legal modification | | 3 | | $ | 142 | | 1 | | $ | 14 | | 4 | | $ | 156 | |
Total residential TDRs | | 3 | |
| 142 | | 1 | |
| 14 | | 4 | |
| 156 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 124 | |
| 13 | | — | |
| — | | 124 | | | 13 | |
Total consumer TDRs | | 124 | |
| 13 | | — | |
| — | | 124 | |
| 13 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 127 | | $ | 155 | | 1 | | $ | 14 | | 128 | | $ | 169 | |
The tables above are inclusive of loans that were TDRs at the end of previous periods and were re-modified, e.g., a maturity date extension during the current period.
| | | | | | | | | | | | | | | | |
|
| 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 |
| |||
September 30, 2022 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Legal modification | | 10 | | $ | 443 | | 1 | | $ | 47 | | 11 | | $ | 490 | |
Total residential TDRs | | 10 | |
| 443 | | 1 | |
| 47 | | 11 | |
| 490 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 332 | |
| 62 | | — | |
| — | | 332 | |
| 62 | |
Total consumer TDRs | | 332 | |
| 62 | | — | |
| — | | 332 | |
| 62 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 342 | | $ | 505 | | 1 | | $ | 47 | | 343 | | $ | 552 | |
AsA summary of the categories of TDR loan modifications by respective performance as of September 30, 2022 and 2021, 91% and 92% of the Bank’s TDR balances that occurredwere modified during the third quartersnine months ended September 30, 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 |
| |||
September 30, 2022 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Legal modification | | 17 | | $ | 954 | | 1 | | $ | 47 | | 18 | | $ | 1,001 | |
Total residential TDRs | | 17 | |
| 954 | | 1 | |
| 47 | | 18 | |
| 1,001 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 605 | |
| 109 | | — | |
| — | | 605 | |
| 109 | |
Total consumer TDRs | | 605 | |
| 109 | | — | |
| — | | 605 | |
| 109 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 622 | | $ | 1,063 | | 1 | | $ | 47 | | 623 | | $ | 1,110 | |
| | | | | | | | | | | | | | | | |
The classification between nonperforming and performing was determined at the time of 2022 and 2021modification. 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 performing according to their modified terms. The Bank provided approximately $30,000 and $6,000 in specific ACLL allocations to clients whose loan terms were modified in TDRsno modifications during the third quarters ofthree months or nine months ended September 30, 2022 and 2021.that resulted in an interest rate below market rate.
There was no significant change betweenone TDRs with a recorded investment of $47,000 which had a payment default within the pre and posttwelve months following modification loan balances forduring the three months endingended September 30, 2022 and 2021.
2022. There were four TDRs with a recorded investment of $93,000 which had a payment default within the twelve months following modification during the nine months ended September 30, 2022. Default occurs when a loan or lease is 90 days or more past due under the modified terms or transferred to nonaccrual.
3536
A summaryThe following table shows the recorded investment of the categories of TDR loan modifications by respective performanceloans and leases classified as troubled debt restructurings as of September 30, 2022 and 2021 that were modified during the nine months ended September 30, 2022 and 2021 follows:
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 |
| |||
September 30, 2022 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Legal modification | | 17 | | $ | 954 | | 1 | | $ | 47 | | 18 | | $ | 1,001 | |
Total residential TDRs | | 17 | |
| 954 | | 1 | |
| 47 | | 18 | |
| 1,001 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 605 | |
| 109 | | — | |
| — | | 605 | |
| 109 | |
Total consumer TDRs | | 605 | |
| 109 | | — | |
| — | | 605 | |
| 109 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 622 | | $ | 1,063 | | 1 | | $ | 47 | | 623 | | $ | 1,110 | |
| | | | | | | | | | | | | | | | |
|
| 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 |
| |||
September 30, 2021 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Principal deferral | | — | | $ | — | | 1 | | $ | 160 | | 1 | | | 160 | |
Legal modification | | 6 | | | 378 | | 5 | | | 288 | | 11 | | | 666 | |
Total residential TDRs | | 6 | |
| 378 | | 6 | |
| 448 | | 12 | |
| 826 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 556 | |
| 72 | | — | |
| — | | 556 | | | 72 | |
Legal modification | | 1 | |
| 3 | | — | |
| — | | 1 | | | 3 | |
Total consumer TDRs | | 557 | |
| 75 | | — | |
| — | | 557 | |
| 75 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 563 | | $ | 453 | | 6 | | $ | 448 | | 569 | | $ | 901 | |
The tables above are inclusive of loans that were TDRs at the end of previous periods and were re-modified, e.g., a maturity date extension during the current period.
As of September 30, 2022 and 2021, 96% and 50% of the Bank’s TDR balances that occurred during the first nine months of 2022 and 2021 were performing according to their modified terms. The Bank provided approximately $53,000 and $38,000 in specific ACLL allocations to clients whose loan terms were modified in TDRs during the first nine months of 2022 and 2021.
| | | | | | | | | | | | | | | | |
|
| 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 ninethree months ending September 30, 2022 and 2021.2022.
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) | | September 30, 2023 | | December 31, 2022 |
| ||
| | | | | | | |
Commercial real estate | | $ | 1,423 | | $ | 1,581 | |
| | | | | | | |
Total other real estate owned | | $ | 1,423 |
| $ | 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) |
| September 30, 2023 |
| December 31, 2022 | ||
| | | | | | |
Recorded investment in consumer residential real estate mortgage loans in the process of foreclosure |
| $ | 1,067 |
| $ | 909 |
3637
Refund Advances
The following table presents loans by class modified as troubled debt restructurings withinCompany’s TRS segment offered its RA product during the previous 12first two months of September 30,2023 and 2022, along with its ERA product which was offered during December 2022 and 2021the first two weeks of 2023. The ERA originations during December 2022 and for which there was a payment defaultthe first two weeks of 2023 were made in relation to estimated tax returns that were anticipated to be filed during the three and/or nine months ended Septemberfirst quarter 2023 tax season. The Company originated $98 million of ERAs during December 2022 that were made in anticipation of the first quarter 2023 tax season. Each year, all unpaid RAs, including ERAs, are charged off by June 30 2022th, and 2021.each quarter thereafter, any credits to the Provision for RAs, including ERAs, match the recovery of previously charged-off accounts.
Information regarding calendar year activities for RAs follows:
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
| | Three Months Ended | | Nine Months Ended | | |||||||||||||||||||||||||||||||||
| | September 30, | | September 30, | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | | | Three Months Ended | | | Nine Months Ended | ||||||||||||||||||||||||
|
| |
| Recorded |
| Number of |
| Recorded |
| Number of |
| Recorded |
| Number of |
| Recorded |
|
| September 30, | |
| September 30, | ||||||||||||||||
(dollars in thousands) | | Loans | | Investment | | Loans | | Investment |
| Loans | | Investment |
| Loans | | Investment | |
| 2023 | | 2022 | |
| 2023 |
| 2022 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Residential real estate: | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
Owner occupied |
| 1 | | $ | 47 | | 2 | | $ | 179 | | 3 | | $ | 83 | | 6 | | $ | 468 | | |||||||||||||||||
Commercial real estate |
| — | |
| — | | — | |
| — | | — | |
| — | | 1 | |
| 116 | | |||||||||||||||||
Home equity |
| — | | | — | | 1 | |
| 14 | | 1 | |
| 10 | | 1 | |
| 14 | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
Total |
| 1 | | $ | 47 | | 3 | | $ | 193 | | 4 | | $ | 93 | | 8 | | $ | 598 | | |||||||||||||||||
Refund Advances originated |
| $ | — | | $ | — | |
| $ | 737,047 | | | $ | 311,207 | | |||||||||||||||||||||||
Net charge to the Provision for RAs, including ERAs |
| | (1,939) | | | (1,296) | |
| | 19,615 | | | | 7,583 | | |||||||||||||||||||||||
Provision as a percentage of RAs, including ERAs, originated during the first quarter | | | NA | | | NA | | | | 2.66 | % | | | 2.44 | % | |||||||||||||||||||||||
Refund Advances net charge-offs (recoveries) |
| $ | (1,939) | | $ | (1,296) | |
| $ | 23,412 | | | $ | 7,583 | | |||||||||||||||||||||||
Refund Advances net charge-offs (recoveries) to total Refund Advances originated | | | NA | | | NA | | | | 3.18 | % | | | 2.44 | % |
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) | | September 30, 2022 | | December 31, 2021 |
| ||
| | | | | | | |
Commercial real estate | | $ | 1,634 | | $ | 1,792 | |
| | | | | | | |
Total other real estate owned | | $ | 1,634 |
| $ | 1,792 | |
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) |
| September 30, 2022 |
| December 31, 2021 |
| ||
| | | | | | | |
Recorded investment in consumer residential real estate mortgage loans in the process of foreclosure |
| $ | 762 |
| $ | 508 | |
37
Easy Advances
The Company’s TRS segment offered its EA product during the first two months of 2022 and 2021. During the first quarter of each year, the Company bases its estimated Provision for EAs on the current year’s EA delinquency information and prior years’ tax refund payment patterns subsequent to the first quarter. Unpaid EAs are charged-off by June 30th of each year, with EAs collected during the second half of each year recorded as recoveries of previously charged-off loans, unless such collections are subject to guarantor reimbursement under a loan-loss guaranty.
Information regarding EAs follows:
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |||||||||||
|
| September 30, | | September 30, | |||||||||||
(dollars in thousands) |
| 2022 | | 2021 | | 2022 |
| 2021 | | ||||||
| | | | | | | | | | | | | | | |
Easy Advances originated |
| $ | — | | $ | — | | $ | 311,207 | | | $ | 250,045 | | |
Net charge (credit) to the Provision for Easy Advances |
| | (1,296) | | | (2,242) | | | 7,583 | | | | 7,984 | | |
Provision to total Easy Advances originated | | | NA | | | NA | | | 2.44 | % | | | 3.19 | % | |
Easy Advances net charge-offs (recoveries) |
| $ | (1,296) | | $ | (2,242) | | $ | 7,583 | | | $ | 7,984 | | |
Easy Advances net charge-offs (recoveries) to total Easy Advances originated | | | NA | | | NA | | | 2.44 | % | | | 3.19 | % | |
5.6. DEPOSITS
The composition of the deposit portfolio follows:
| | | | | | | | | | | ||||
(in thousands) |
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||
| | | | | | | | | | | | | | |
Core Bank: | | | | | | | | | | | | | | |
Demand | | $ | 1,398,760 | | $ | 1,381,522 | | | $ | 1,233,328 | | $ | 1,336,082 | |
Money market accounts | |
| 764,523 | |
| 789,876 | | |
| 939,499 | |
| 707,272 | |
Savings | |
| 331,300 | |
| 311,624 | | |
| 263,249 | |
| 323,015 | |
Reciprocal money market | |
| 206,347 | |
| 28,635 | | |||||||
Individual retirement accounts (1) | |
| 40,658 | |
| 43,724 | | |
| 33,823 | |
| 38,640 | |
Time deposits, $250 and over (1) | |
| 61,579 | |
| 81,050 | | |
| 94,521 | |
| 54,855 | |
Other certificates of deposit (1) | |
| 135,836 | |
| 154,174 | | |
| 207,481 | |
| 129,324 | |
Reciprocal money market and time deposits (1) | |
| 44,534 | |
| 77,950 | | |||||||
Reciprocal time deposits (1) | |
| 94,629 | |
| 7,405 | | |||||||
Wholesale brokered deposits (1) | | | 805 | | | — | | |||||||
Total Core Bank interest-bearing deposits | |
| 2,777,190 | |
| 2,839,920 | | |
| 3,073,682 | |
| 2,625,228 | |
Total Core Bank noninterest-bearing deposits | | | 1,581,663 | | | 1,579,173 | | | | 1,269,643 | | | 1,464,493 | |
Total Core Bank deposits | | | 4,358,853 | | | 4,419,093 | | | | 4,343,325 | | | 4,089,721 | |
| | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | |
Money market accounts | | | 9,195 | | | 9,717 | | | | 16,921 | | | 3,849 | |
Total RPG interest-bearing deposits | | | 9,195 | | | 9,717 | | | | 16,921 | | | 3,849 | |
| | | | | | | | | | | | | | |
Brokered prepaid card deposits | | | 332,655 | | | 320,907 | | | | 326,505 | | | 328,655 | |
Other noninterest-bearing deposits | | | 99,805 | | | 90,701 | | | | 106,831 | | | 115,620 | |
Total RPG noninterest-bearing deposits | | | 432,460 | | | 411,608 | | | | 433,336 | | | 444,275 | |
Total RPG deposits | | | 441,655 | | | 421,325 | | | | 450,257 | | | 448,124 | |
| | | | | | | | | | | | | | |
Total deposits | | $ | 4,800,508 | | $ | 4,840,418 | | | $ | 4,793,582 | | $ | 4,537,845 | |
(1) | Includes time |
��
38
6.7. 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 September 30, 20222023 and December 31, 2021,2022, all securities sold under agreements to repurchase had overnight maturities. Additional information regarding securities sold under agreements to repurchase and other short-term borrowings follows:
| | | | | | | | | | | | | | | | | | | |
(dollars in thousands) |
| September 30, 2022 |
|
| December 31, 2021 |
| | |
| September 30, 2023 |
|
| December 31, 2022 |
| | ||||
| | | | | | | | | | | | | | | | | | | |
Outstanding balance at end of period | | $ | 209,376 | | | $ | 290,967 | | | | | $ | 80,797 | | | $ | 216,956 | | |
Weighted average interest rate at end of period | |
| 0.33 | % | |
| 0.04 | % | | | |
| 0.56 | % | |
| 0.41 | % | |
| | | | | | | | | | | | | | | | | | | |
Fair value of securities pledged: | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 230,798 | | | $ | 108,813 | | | | | $ | 82,376 | | | $ | 254,296 | | |
Mortgage backed securities - residential | | | 23,208 | | | | 167,561 | | | | |||||||||
Collateralized mortgage obligations | | | — | | | | 33,441 | | | | |||||||||
Total securities pledged | | $ | 254,006 | | | $ | 309,815 | | | | | $ | 82,376 | | | $ | 254,296 | | |
| | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | | Nine Months Ended | | | ||||||||||
|
| September 30, | | | September 30, | | | ||||||||||
(dollars in thousands) |
| 2022 |
| | 2021 |
|
| 2022 |
|
| 2021 | | | ||||
| | | | | | | | | | | | | | | | | |
Average outstanding balance during the period |
| $ | 220,149 |
| | $ | 242,867 | | | $ | 271,276 |
| | $ | 201,992 | | |
Average interest rate during the period | | | 0.17 | % | | | 0.03 | % | | | 0.08 | % | | | 0.02 | % | |
Maximum outstanding at any month end during the period |
| $ | 209,376 |
| | $ | 307,358 | | | $ | 303,315 |
| | $ | 307,358 | | |
| | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | | Nine Months Ended | | | | ||||||||||
|
| September 30, | | | September 30, | | | | ||||||||||
(dollars in thousands) |
| 2023 |
| | 2022 |
|
| 2023 |
|
| 2022 | | | | ||||
| | | | | | | | | | | | | | | | | | |
Average outstanding balance during the period |
| $ | 90,063 |
| | $ | 220,149 | | | $ | 136,528 |
| | $ | 271,276 | | | |
Weighted average interest rate during the period | | | 0.87 | % | | | 0.17 | % | | | 0.60 | % | | | 0.08 | % | | |
Maximum outstanding at any month end during the period |
| $ | 88,862 |
| | $ | 209,376 | | | $ | 224,067 |
| | $ | 303,315 | | | |
39
7.8. 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 September 30, 2022,2023, the Company was under 45 separate and distinct operating lease contracts to lease the land and/or buildings for 3740 of its offices, with 12 such operating leases contracted with a related party of the Company. As of September 30, 2022,2023, 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 two new third-party office leases, renewed onelease renewals during the first nine months of its existing related-party leases,2023 with a total right-of-use asset value of $1.5 million and extended six of itsrecorded five new third-party leases during the first nine months of 2022,2023 with a related total right-of-use asset value of $6$2.0 million connected to this 2022 activity.million.
The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the “Occupancy” category for the three and nine months ended September 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | ||
|
| Three Months Ended | | | Nine Months Ended |
| Three Months Ended | | | Nine Months Ended | |||||||||||||||||
|
| September 30, | | | September 30, |
| September 30, | | | September 30, | |||||||||||||||||
(in thousands) |
| 2022 | | 2021 |
| | 2022 | | 2021 | ||||||||||||||||||
(dollars in thousands) |
| 2023 | | 2022 |
| | 2023 | | | 2022 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating lease expense: |
| | | | | | | | | | | |
| | | | | | | | | | | | | ||
Related Party: | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Variable lease expense | | $ | 1,101 |
| $ | 1,224 | | | $ | 3,635 | | $ | 3,662 | | $ | 1,202 |
| $ | 1,101 | | | $ | 3,631 |
| | $ | 3,635 |
Fixed lease expense |
| | 57 | | | 34 | | | | 149 | | 102 |
| | 58 | | | 57 | | | | 175 | | | 149 | ||
Third Party: | | | | | | | | | | | | | |||||||||||||||
Third-Party: | | | | | | | | | | | | | | ||||||||||||||
Variable lease expense | | | 222 | | | 197 | | | | 639 | | 590 | | | 390 | | | 222 | | | | 1,070 | | | 639 | ||
Fixed lease expense | | | 346 | | | 337 | | | | 1,040 | | | 1,021 | | | 409 | | | 346 | | | | 1,184 | | | | 1,040 |
Total operating lease expense | | $ | 1,726 |
| $ | 1,792 | | | $ | 5,463 | | $ | 5,375 | | $ | 2,059 |
| $ | 1,726 | | | $ | 6,060 |
| | $ | 5,463 |
| | | | | | | | | | | | | | | | | | | | | | | | | | ||
Other information concerning operating leases: | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 1,709 | | $ | 1,793 | | | $ | 5,121 | | $ | 5,390 | | $ | 1,667 | | $ | 1,709 | | | $ | 5,168 | | | $ | 5,121 |
Cash paid for variable rent payments not included in measurement of operating lease liabilities | | | 151 | | | — | | | | 453 | | | — | | | 151 | | | 151 | | | | 453 | | | 453 | |
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 September 30, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | | | | | |
|
| September 30, 2022 | | December 31, 2021 |
| |
| September 30, 2023 | | December 31, 2022 | | ||||
| | | | | | | | | | | | | | | |
Weighted average remaining term in years | | | 8.28 | | | 7.57 | | | | | 7.78 | | | 8.44 | |
Weighted average discount rate | |
| 2.66 | % |
| 3.05 | % | | |
| 2.28 | % |
| 2.10 | % |
40
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 September 30, 2022:2023:
| | | | | | | | | | | | | | | ||||||
Year (dollars in thousands) |
| Related Party |
| Third Party |
| Total |
| |||||||||||||
Year (in thousands) |
| Related Party |
| Third-Party |
| Total |
| |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
2022 |
| $ | 1,062 |
| $ | 664 |
| $ | 1,726 | | ||||||||||
2023 |
| | 4,274 |
| | 2,522 |
| | 6,796 | |
| $ | 961 |
| $ | 720 |
| $ | 1,681 | |
2024 |
| | 4,189 |
| | 2,143 |
| | 6,332 | |
| | 3,726 |
| | 2,826 |
| | 6,552 | |
2025 |
| | 4,053 |
| | 1,609 |
| | 5,662 | |
| | 3,569 |
| | 2,244 |
| | 5,813 | |
2026 |
| | 4,124 |
| | 1,310 |
| | 5,434 | |
| | 3,640 |
| | 1,925 |
| | 5,565 | |
2027 |
| | 3,680 |
| | 1,603 |
| | 5,283 | | ||||||||||
Thereafter |
| | 16,375 |
| | 4,593 |
| | 20,968 | |
| | 11,750 |
| | 4,698 |
| | 16,448 | |
Total undiscounted cash flows | | $ | 34,077 | | $ | 12,841 | | $ | 46,918 | | | $ | 27,326 | | $ | 14,016 | | $ | 41,342 | |
Discount applied to cash flows | | | (3,216) | | | (1,593) | | | (4,809) | | | | (2,884) | | | (1,732) | | | (4,616) | |
Total discounted cash flows reported as operating lease liabilities | | $ | 30,861 | | $ | 11,248 | | $ | 42,109 | | | $ | 24,442 | | $ | 12,284 | | $ | 36,726 | |
40
8.9. FEDERAL HOME LOAN BANK ADVANCES
FHLB advances were as follows:
| | | | | | | | | | | | | ||
(in thousands) |
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||
| | | | | | | | | | | | | | |
Overnight advances | | $ | — | | $ | 25,000 | | | $ | 195,000 | | $ | 75,000 | |
Fixed interest rate advances | |
| 20,000 | |
| — | | |
| 270,000 | |
| 20,000 | |
Total FHLB advances | | $ | 20,000 | | $ | 25,000 | | | $ | 465,000 | | $ | 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 September 30, 20222023 and December 31, 2021,2022, Republic had available borrowing capacity of $940$639 million and $900 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 September 30, 20222023 and December 31, 2021.2022.
Aggregate future principal payments on FHLB advances based on contractual maturity and the weighted average cost of such advances are detailed below:
| | | | | | | | | | | ||
|
| |
| Weighted |
|
| |
| Weighted |
| ||
| | | | Average |
| | | | Average |
| ||
Year (dollars in thousands) | | Principal | | Rate |
| | Principal | | Rate |
| ||
| | | | | | | | | | | | |
2022 |
| $ | — |
| — | % | ||||||
2023 |
| | — | | — | |
| $ | 195,000 |
| 5.37 | % |
2024 |
| | — |
| — | |
| | — | | — | |
2025 |
| | — |
| — | |
| | — |
| — | |
2026 | | | — |
| — | |
| | 30,000 |
| 4.82 | |
2027 |
| | 20,000 |
| 1.89 | | | | 80,000 |
| 4.01 | |
2028 |
| | 160,000 |
| 4.39 | | ||||||
Total | | $ | 20,000 |
| 1.89 | % | | $ | 465,000 |
| 4.76 | % |
41
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 | | | Nine Months Ended | | | Three Months Ended | | | Nine Months Ended | | ||||||||||||||||||||
| | September 30, | | | September 30, | | | September 30, | | | September 30, | | ||||||||||||||||||||
(dollars in thousands) |
| 2022 |
| | 2021 |
| | 2022 |
| | 2021 | |
| 2023 |
| | 2022 |
| | 2023 |
| | 2022 | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Average outstanding balance during the period |
| $ | — |
| | $ | 25,000 | |
| $ | 5,641 |
| | $ | 30,037 | |
| $ | 250,348 |
| | $ | — | |
| $ | 150,833 |
| | $ | 5,641 | |
Average interest rate during the period | | | — | % | | | 0.10 | % | | | 0.15 | % | | 0.15 | % | |||||||||||||||||
Weighted average interest rate during the period | | | 5.20 | % | | | — | % | | | 7.75 | % | | 0.15 | % | |||||||||||||||||
Maximum outstanding at any month end during the period |
| $ | — |
| | $ | 25,000 | |
| $ | 25,000 |
| | $ | 25,000 | |
| $ | 365,000 |
| ` | $ | — | |
| $ | 485,000 |
| | $ | 25,000 | |
The following table illustrates real estate loans pledged to collateralize advances and letters of credit with the FHLB:
| | | | | | | | | | | | | | |
(in thousands) |
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||
| | | | | | | | | | | | | | |
First lien, single family residential real estate | | $ | 1,070,626 | | $ | 1,041,461 | | | $ | 1,336,038 | | $ | 1,106,287 | |
Home equity lines of credit | |
| 207,824 | |
| 186,396 | | |
| 249,819 | |
| 219,644 | |
Multi-family commercial real estate | |
| 141,133 | |
| — | |
4241
9.10. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES
COVID Pandemic
COVID was declared a pandemic by the World Health Organization on March 11, 2020. Since March 2020, jurisdictions within and outside the U.S. have imposed economic and social restrictions on the population, in general, and non-essential businesses to slow the spread of COVID. These restrictions, in combination with the public’s response to them, have disrupted supply chains and effectively suspended or curtailed economic activity for many industries across the U.S. and the world. Industries within the Company’s market footprint have been impacted by these supply chain disruptions as well as the corresponding inflationary pressures driven by them in combination with on-going governmental stimulus programs.
The future potential financial impact of the COVID pandemic is still unknown at this time. This pandemic and the public’s response to it could cause the Company to experience a material adverse impact on its business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or a combination of valuation impairments on the Company’s intangible assets, investments, loans, MSRs, deferred tax assets, or counterparty risk derivatives.
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’sCompany��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) |
| September 30, 2022 |
| December 31, 2021 | |
| September 30, 2023 |
| December 31, 2022 | | ||||
| | | | | | | | | | | | | | |
Unused warehouse lines of credit | | $ | 739,723 | | $ | 565,950 | | | $ | 557,467 | | $ | 733,940 | |
Unused home equity lines of credit | |
| 395,240 | |
| 348,681 | | |
| 439,107 | |
| 410,057 | |
Unused loan commitments - other | |
| 857,333 | |
| 828,229 | | |
| 1,202,822 | |
| 951,021 | |
Standby letters of credit | |
| 10,373 | |
| 11,305 | | |
| 11,921 | |
| 9,735 | |
FHLB letter of credit | |
| 643 | |
| 643 | | |
| — | |
| 643 | |
Total commitments | | $ | 2,003,312 | | $ | 1,754,808 | | | $ | 2,211,317 | | $ | 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.
4342
The following tables present a rollforwardroll-forward of the ACLC for the three and nine months ended September 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | ACLC Rollforward | | ACLC Roll-forward | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Three Months Ended | | Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | 2022 | | 2021 | | 2023 | | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | ||||||||||||||||||||||
(in thousands) | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Loan Commitments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Unused warehouse lines of credit | | | $ | 162 | | $ | 28 | | $ | — | | $ | — | | $ | 190 | | $ | 140 | | $ | — | | $ | — | | $ | — | | $ | 140 | | | $ | 145 | | $ | (43) | | $ | — | | $ | — | | $ | 102 | | $ | 162 | | $ | 28 | | $ | — | | $ | — | | $ | 190 |
Unused home equity lines of credit | | | | 277 | | | 20 | | | — | | | — | | | 297 | | | 213 | | | 29 | | | — | | | — | | | 242 | | | | 353 | | | (315) | | | — | | | — | | | 38 | | | 277 | | | 20 | | | — | | | — | | | 297 |
Unused construction lines of credit | | | | 633 | | | 225 | | | — | | | — | | | 858 | | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||||||||||||||
Unused loan commitments - other | | | | 661 | | | 32 | | | — | | | — | | | 693 | | | 581 | | | (26) | | | — | | | — | | | 555 | | | | 399 | | | (57) | | | — | | | — | | | 342 | | | 661 | | | 32 | | | — | | | — | | | 693 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 1,100 | | $ | 80 | | $ | — | | $ | — | | $ | 1,180 | | $ | 934 | | $ | 3 | | $ | — | | $ | — | | $ | 937 | | | $ | 1,530 | | $ | (190) | | $ | — | | $ | — | | $ | 1,340 | | $ | 1,100 | | $ | 80 | | $ | — | | $ | — | | $ | 1,180 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | ACLC Rollforward | | ACLC Roll-forward | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Nine Months Ended September 30, | | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | 2022 | | 2021 | | 2023 | | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | | Beginning | | | | Charge- | | | | Ending | ||||||||||||||||||||||
(in thousands) | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | | Balance | | Provision | | offs | | Recoveries | | Balance | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Loan Commitments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Unused warehouse lines of credit | | | $ | 154 | | $ | 36 | | $ | — | | $ | — | | $ | 190 | | $ | 79 | | $ | 61 | | $ | — | | $ | — | | $ | 140 | | | $ | 190 | | $ | (88) | | $ | — | | $ | — | | $ | 102 | | $ | 154 | | $ | 36 | | $ | — | | $ | — | | $ | 190 |
Unused home equity lines of credit | | | | 247 | | | 50 | | | — | | | — | | | 297 | | | 173 | | | 69 | | | — | | | — | | | 242 | | | | 332 | | | (294) | | | — | | | — | | | 38 | | | 247 | | | 50 | | | — | | | — | | | 297 |
Unused construction lines of credit | | | | 384 | | | 474 | | | — | | | — | | | 858 | | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||||||||||||||
Unused loan commitments - other | | | | 651 | | | 42 | | | — | | | — | | | 693 | | | 737 | | | (182) | | | — | | | — | | | 555 | | | | 344 | | | (2) | | | — | | | — | | | 342 | | | 651 | | | 42 | | | — | | | — | | | 693 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 1,052 | | $ | 128 | | $ | — | | $ | — | | $ | 1,180 | | $ | 989 | | $ | (52) | | $ | — | | $ | — | | $ | 937 | | | $ | 1,250 | | $ | 90 | | $ | — | | $ | — | | $ | 1,340 | | $ | 1,052 | | $ | 128 | | $ | — | | $ | — | | $ | 1,180 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company increased its ACLC during the three and nine months ended September 30, 20222023 based primarily on an increasea change in total unused commitments.
the loan mix to loans with higher reserve rates.
4443
10.11. 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 23 “Investment Securities” for additional discussion regarding the Bank’s private label mortgage-backed security.
For its TRUP investment, the Company considered the most recent bid price for the same instrument to approximate market value as of September 30, 2022.2023. 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 Community Reinvestment Act 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: In December 2019, the Bank began offering 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 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. 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.
4544
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 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.
4645
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 September 30, 20222023 is presented net of any applicable ACL.
| | | | | | | | | | | | | | | | | | | | | | | ||||
| | Fair Value Measurements at | | |
| | Fair Value Measurements at | | |
| ||||||||||||||||
| | September 30, 2022 Using: | | |
| | September 30, 2023 Using: | | |
| ||||||||||||||||
|
| Quoted Prices in |
| Significant |
| |
| |
|
| Quoted Prices in |
| Significant |
| |
| |
| ||||||||
| | Active Markets | | Other | | Significant | | |
| | Active Markets | | Other | | Significant | | |
| ||||||||
| | for Identical | | Observable | | Unobservable | | Total |
| | for Identical | | Observable | | Unobservable | | Total |
| ||||||||
| | Assets | | Inputs | | Inputs | | Fair |
| | Assets | | Inputs | | Inputs | | Fair |
| ||||||||
(in thousands) | | (Level 1) | | (Level 2) | | (Level 3) | | Value |
| | (Level 1) | | (Level 2) | | (Level 3) | | Value |
| ||||||||
Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 203,013 | | $ | 207,422 | | $ | — | | $ | 410,435 | | | $ | 175,623 | | $ | 239,989 | | $ | — | | $ | 415,612 | |
Private label mortgage-backed security | |
| — | |
| — | |
| 2,284 | |
| 2,284 | | |
| — | |
| — | |
| 1,885 | |
| 1,885 | |
Mortgage-backed securities - residential | |
| — | |
| 180,404 | |
| — | |
| 180,404 | | |
| — | |
| 155,549 | |
| — | |
| 155,549 | |
Collateralized mortgage obligations | |
| — | |
| 22,916 | |
| — | |
| 22,916 | | |
| — | |
| 22,163 | |
| — | |
| 22,163 | |
Corporate bonds | | | — | | | 9,998 | | | — | | | 9,998 | | | | — | | | 2,016 | | | — | | | 2,016 | |
Trust preferred security | |
| — | |
| — | |
| 3,910 | |
| 3,910 | | |
| — | |
| — | |
| 3,995 | |
| 3,995 | |
Total available-for-sale debt securities | | $ | 203,013 | | $ | 420,740 | | $ | 6,194 | | $ | 629,947 | | | $ | 175,623 | | $ | 419,717 | | $ | 5,880 | | $ | 601,220 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities with readily determinable fair value: | | | | | | | | | | | | | | | | | | | | | | | ||||
Freddie Mac preferred stock | | $ | — | | $ | 175 | | $ | — | | $ | 175 | | | $ | — | | $ | 137 | | $ | — | | $ | 137 | |
Total equity securities with readily determinable fair value | | $ | — | | $ | 175 | | $ | — | | $ | 175 | | | $ | — | | $ | 137 | | $ | — | | $ | 137 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Mortgage loans held for sale | | $ | — | | $ | 2,912 | | $ | — | | $ | 2,912 | | | $ | — | | $ | 2,711 | | $ | — | | $ | 2,711 | |
Consumer loans held for sale | | | — | | | — | | 8,796 | | 8,796 | | | | — | | | — | | 8,443 | | 8,443 | | ||||
Consumer loans held for investment | | | — | | | — | | 11 | | 11 | | |||||||||||||||
Mandatory forward contracts | | | — | | | 639 | | — | | 639 | | |||||||||||||||
Rate lock loan commitments | |
| — | |
| 95 | |
| — | |
| 95 | | |||||||||||||
Interest rate swap agreements | | | — | | | 7,121 | | | — | | | 7,121 | | | | — | | | 8,935 | | | — | | | 8,935 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rate lock loan commitments | | $ | — | | $ | 175 | | $ | — | | $ | 175 | | |||||||||||||
Mandatory forward contracts | | $ | — | | $ | 77 | | $ | — | | $ | 77 | | |||||||||||||
Interest rate swap agreements | | | — | | | 7,121 | | | — | | | 7,121 | | | | — | | | 8,935 | | | — | | | 8,935 | |
| | | | | | | | | | | | | |
| | 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 | |
Interest rate swap agreements | |
| — | |
| 8,128 | |
| — | |
| 8,128 | |
| | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | |
Mandatory forward contracts | | $ | — | | $ | 67 | | $ | — | | $ | 67 | |
Interest rate swap agreements | | | — | | | 8,128 | | | — | |
| 8,128 | |
4746
| | | | | | | | | | | | | |
| | Fair Value Measurements at | | | |
| |||||||
| | December 31, 2021 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 | | $ | 70,112 | | $ | 167,347 | | $ | — | | $ | 237,459 | |
Private label mortgage-backed security | |
| — | |
| — | |
| 2,731 | |
| 2,731 | |
Mortgage-backed securities - residential | |
| — | |
| 210,749 | |
| — | |
| 210,749 | |
Collateralized mortgage obligations | |
| — | |
| 30,294 | |
| — | |
| 30,294 | |
Corporate bonds | | | — | | | 10,046 | | | — | | | 10,046 | |
Trust preferred security | |
| — | |
| — | |
| 3,847 | |
| 3,847 | |
Total available-for-sale debt securities | | $ | 70,112 | | $ | 418,436 | | $ | 6,578 | | $ | 495,126 | |
| | | | | | | | | | | | | |
Equity securities with readily determinable fair value: | | | | | | | | | | | | | |
Freddie Mac preferred stock | | $ | — | | $ | 170 | | $ | — | | $ | 170 | |
Community Reinvestment Act mutual fund | |
| 2,450 | |
| — | |
| — | |
| 2,450 | |
Total equity securities with readily determinable fair value | | $ | 2,450 | | $ | 170 | | $ | — | | $ | 2,620 | |
| | | | | | | | | | | | | |
Mortgage loans held for sale | | $ | — | | $ | 29,393 | | $ | — | | $ | 29,393 | |
Consumer loans held for sale | | | — | | | — | | | 19,747 | | | 19,747 | |
Consumer loans held for investment | | | — | | | — | | | 170 | | | 170 | |
Rate lock loan commitments | |
| — | |
| 1,404 | |
| — | |
| 1,404 | |
Mandatory forward contracts | | | — | | | 66 | | | — | | | 66 | |
Interest rate swap agreements | |
| — | |
| 5,786 | |
| — | |
| 5,786 | |
| | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | |
Interest rate swap agreements | | | — | | | 5,786 | | | — | |
| 5,786 | |
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 and nine months ended September 30, 20222023 and 2021.2022.
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 |
| Nine Months Ended | |
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | ||||||||||||||||
(in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| | 2023 | | 2022 | | 2023 | | 2022 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||
Balance, beginning of period | | $ | 2,478 | | $ | 2,824 | | $ | 2,731 | | $ | 2,957 | | | $ | 1,988 | | $ | 2,478 | | $ | 2,127 | | $ | 2,731 |
Total gains or losses included in earnings: | | | | | | | | | | | | | | | | | | | | | | ||||
Net change in unrealized gain | |
| 1 | |
| 13 | |
| 10 | |
| 62 | | |
| (6) | |
| 1 | |
| 26 | |
| 10 |
Principal paydowns | |
| (195) | |
| (57) | |
| (457) | |
| (239) | | |
| (97) | |
| (195) | |
| (268) | |
| (457) |
Balance, end of period | | $ | 2,284 | | $ | 2,780 | | $ | 2,284 | | $ | 2,780 | | | $ | 1,885 | | $ | 2,284 | | $ | 1,885 | | $ | 2,284 |
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.
Quantitative information about recurring Level 3 fair value measurement inputs for the Bank’s single private label mortgage-backed security follows:
| | | | | | | | | | |
|
| Fair |
| Valuation |
|
|
| |
| |
September 30, 2023 (dollars in thousands) | | Value | | Technique | | Unobservable Inputs | | Range |
| |
| | | | | | | | | | |
Private label mortgage-backed security | | $ | 1,885 |
| Discounted cash flow |
| (1) Constant prepayment rate |
| 2.8% - 4.5% | |
| | | | | | | | | | |
| | | | | |
| (2) Probability of default |
| 1.8% - 9.3% | |
| | | | | | | | | | |
| | | | | |
| (3) Loss severity |
| 12% - 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% | |
4847
Quantitative information about recurring Level 3 fair value measurement inputs for the Bank’s single private label mortgage-backed security follows:
| | | | | | | | | | |
|
| Fair |
| Valuation |
|
|
| |
| |
September 30, 2022 (dollars in thousands) | | Value | | Technique | | Unobservable Inputs | | Range |
| |
| | | | | | | | | | |
Private label mortgage-backed security | | $ | 2,284 |
| 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, 2021 (dollars in thousands) | | Value | | Technique | | Unobservable Inputs | | Range |
| |
| | | | | | | | | | |
Private label mortgage-backed security | | $ | 2,731 |
| Discounted cash flow |
| (1) Constant prepayment rate |
| 4.5% - 5.7% | |
| | | | | | | | | | |
| | | | | |
| (2) Probability of default |
| 1.8% - 9.3% | |
| | | | | | | | | | |
| | | | | |
| (3) Loss severity |
| 50% - 75% | |
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 |
| Nine Months Ended | |
| Three Months Ended |
| Nine Months Ended | | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | | ||||||||||||||||
(in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 3,824 | | $ | 3,700 | | $ | 3,847 | | $ | 3,800 | | | $ | 3,746 | | $ | 3,824 | | $ | 3,855 | | $ | 3,847 | |
Total gains or losses included in earnings: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount accretion | | | 14 | | | 14 | | | 42 | | | 40 | | | | 15 | | | 14 | | | 44 | | | 42 | |
Net change in unrealized gain | |
| 72 | |
| 136 | |
| 21 | |
| 10 | | |
| 234 | |
| 72 | |
| 96 | |
| 21 | |
Balance, end of period | | $ | 3,910 | | $ | 3,850 | | $ | 3,910 | | $ | 3,850 | | | $ | 3,995 | | $ | 3,910 | | $ | 3,995 | | $ | 3,910 | |
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.
49
MortgageCollateral-Dependent 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 September 30, 2022 and December 31, 2021.
The aggregate fair value, contractual balance, and unrealized gain were as follows:
| | | | | | | |
(in thousands) |
| September 30, 2022 |
| December 31, 2021 |
| ||
| | | | | | | |
Aggregate fair value | | $ | 2,912 | | $ | 29,393 | |
Contractual balance | |
| 2,925 | |
| 28,668 | |
Unrealized (loss) gain | |
| (13) | |
| 725 | |
The total amount of gains and losses from changes in fair value included in earnings for the three and nine months ended September 30, 2022 and 2021 for mortgage loans held for sale are presented in the following table:
| | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended |
| ||||||||
| | September 30, | | September 30, | | ||||||||
(in thousands) | | 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
| | | | | | | | | | | | | |
Interest income | | $ | 112 | | $ | 253 | | $ | 469 | | $ | 802 | |
Change in fair value | |
| (141) | |
| (373) | |
| (738) | |
| (1,527) | |
Total included in earnings | | $ | (29) | | $ | (120) | | $ | (269) | | $ | (725) | |
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 September 30, 2022 and December 31, 2021.
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 installmentthe amortized cost basis of collateral-dependent loans by class of loans:
| | | | | | | | | | | | | | | | | | | | | |
|
| Fair |
| Valuation |
|
|
| | | September 30, 2023 | | December 31, 2022 | |||||||||
September 30, 2022 (dollars in thousands) | | Value | | Technique | | Unobservable Inputs | | Rate | |||||||||||||
| | | | | | | | | | ||||||||||||
Consumer loans held for sale | | $ | 8,796 |
| Contract Terms |
| (1) Net Premium |
| 0.15% | ||||||||||||
| | | | | | | | | | | Secured |
| Secured | | Secured |
| Secured | ||||
| | | | | |
| (2) Discounted Sales |
| 10.00% | | by Real | | by Personal | | by Real | | by Personal | ||||
(in thousands) | | Estate | | Property | | Estate | | Property | |||||||||||||
| | | | | | | | | | | | | |||||||||
Traditional Banking: | | | | | | | | | | | | | |||||||||
Residential real estate: | | | | | | | | | | | | | |||||||||
Owner occupied | | $ | 16,122 | | $ | — | | $ | 18,057 | | $ | — | |||||||||
Nonowner occupied | |
| 68 | |
| — | |
| 150 | |
| — | |||||||||
Commercial real estate | |
| 909 | |
| — | |
| 1,041 | |
| — | |||||||||
Construction & land development | |
| — | |
| — | |
| — | |
| — | |||||||||
Commercial & industrial | |
| — | |
| 1,226 | |
| — | |
| — | |||||||||
Lease financing receivables | |
| — | |
| — | |
| — | |
| — | |||||||||
Aircraft | | | — | |
| — | | | — | |
| 210 | |||||||||
Home equity | |
| 1,548 | |
| — | |
| 967 | |
| — | |||||||||
Consumer | | | — | |
| 20 | | | — | |
| 26 | |||||||||
Total Traditional Banking | | $ | 18,647 | | $ | 1,246 | | $ | 20,215 | | $ | 236 |
| | | | | | | | | |
|
| Fair |
| Valuation |
|
|
| | |
December 31, 2021 (dollars in thousands) | | Value | | Technique | | Unobservable Inputs | | Rate | |
| | | | | | | | | |
Consumer loans held for sale | | $ | 19,747 |
| Contract Terms |
| (1) Net Premium |
| 1.4% |
| | | | | | | | | |
| | | | | |
| (2) Discounted Sales |
| 5.00% |
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 and Lease Modification Disclosures Pursuant to ASU 2022-02
50
loans and leases as of September 30, 2023 that were both experiencing financial difficulty and modified during the three months ended September 30, 2023, segregated by portfolio segment and type of modification. The aggregate fair value, contractual balance,following tables shows the amortized cost of loans and unrealized gain on consumer loans held for sale, at fair value, were as follows:leases modified by type.
| | | | | | | | | | | | | ||||||||||
| | Amortized Cost Basis of Modified Financing Receivables | ||||||||||||||||||||
| | | | | | | | Three Months Ended September 30, 2023 | ||||||||||||||
(in thousands) |
| September 30, 2022 |
| December 31, 2021 | | | Loans (#) | | Rate Reduction ($) | | Loans (#) | | Term Extension ($) | | Loans (#) | | Principal Deferral ($) | |||||
| | | | | | | | | | | | | | | | | | | | | | |
Aggregate fair value | | $ | 8,796 | | $ | 19,747 | | |||||||||||||||
Contractual balance | |
| 8,868 | |
| 19,633 | | |||||||||||||||
Unrealized (loss) gain | |
| (72) | |
| 114 | | |||||||||||||||
Residential real estate: | | | | | | | | | | | | | ||||||||||
Owner occupied | | — | | $ | — | | — | | $ | — | | 4 | | $ | 239 | |||||||
Nonowner occupied | | — | | | — | | — | | | — | | — | | | — | |||||||
Home equity | | — | | | — | | — | | | — | | 1 | | | 433 | |||||||
Republic Processing Group | | — | | | — | | — | | | — | | 383 | | | 84 | |||||||
Total Loan Modifications | | — | | $ | — | | — | | $ | — | | 388 | | $ | 756 |
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 | | Nine Months Ended | | Total Loan Modification by Type | ||||||||||||||||
| | September 30, | | September 30, | | Accruing | | Nonaccruing | ||||||||||||||
| | Three Months Ended September 30, 2023 | ||||||||||||||||||||
(in thousands) | | 2022 |
| 2021 |
| 2022 |
| 2021 | | Loans (#) | | Recorded investment ($) | | Loans (#) | | Recorded investment ($) | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Interest income | | $ | 3,009 | | $ | 2,102 | | $ | 8,889 | | $ | 4,070 | ||||||||||
Change in fair value | |
| 32 | |
| (16) | |
| (186) | |
| 62 | ||||||||||
Total included in earnings | | $ | 3,041 | | $ | 2,086 | | $ | 8,703 | | $ | 4,132 | ||||||||||
Term extension | | — | | $ | — | | — | | $ | — | ||||||||||||
Principal deferral | | 383 | | | 84 | | 5 | | | 672 | ||||||||||||
Total Loan Modifications | | 383 | | $ | 84 | | 5 | | $ | 672 |
The following table shows the amortized cost of loans and leases as of September 30, 2023 that were both experiencing financial difficulty and modified during the nine months ended September 30, 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 | |||||||||||||
| | Nine Months Ended September 30, 2023 | |||||||||||||
(in thousands) | | Loans (#) | | Rate Reduction ($) | | Loans (#) | | Term Extension ($) | | Loans (#) | | Principal Deferral ($) | |||
| | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | |
Owner occupied | | — | | $ | — | | 2 | | $ | 258 | | 13 | | $ | 1,006 |
Nonowner occupied | | — | | | — | | — | | | — | | — | | | — |
Home equity | | — | | | — | | — | | | — | | 4 | | | 566 |
Republic Processing Group | | — | | | — | | — | | | — | | 383 | | | 84 |
Total Loan Modifications | | — | | $ | — | | 2 | | $ | 258 | | 400 | | $ | 1,656 |
5134
Assets measured at fair value on a non-recurring basis are summarized below:
| | | | | | | | | | |
| | Total Loan Modification by Type | ||||||||
| | Accruing | | Nonaccruing | ||||||
| | Nine Months Ended September 30, 2023 | ||||||||
(in thousands) | | Loans (#) | | Recorded investment ($) | | Loans (#) | | Recorded investment ($) | ||
| | | | | | | | | | |
Term extension | | — | | $ | — | | — | | $ | — |
Principal deferral | | 383 | | | 84 | | 19 | | | 1,830 |
Total Loan Modifications | | 383 | | $ | 84 | | 19 | | $ | 1,830 |
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at | | | | | | Accruing Loan Modifications | |||||||||||||||||||||
| | September 30, 2022 Using: | | | | | | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | |||||||||||||||||||
|
| Quoted Prices in |
| Significant |
| | |
|
| | | | | | | | | % of Total | | | | | | % of Total | |||||
| | Active Markets | | Other | | Significant | | | | | | | | Amortized | | of Financing | | | | Amortized | | of Financing | |||||||
(dollars in thousands) | | Loans (#) | | Cost Basis ($) | | Receivable | | Loans | | Cost Basis | | Receivable | |||||||||||||||||
| | 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 | | $ | — | | $ | — | | $ | 1,314 | | $ | 1,314 | | ||||||||||||||||
Commercial real estate | |
| — | |
| — | |
| 944 | |
| 944 | | ||||||||||||||||
Total collateral-dependent loans* | | $ | — | | $ | — | | $ | 2,258 | | $ | 2,258 | | ||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||
Other real estate owned: | | | | | | | | | | | | | | ||||||||||||||||
Commercial real estate | | $ | — | | $ | — | | $ | 1,634 | | $ | 1,634 | | ||||||||||||||||
Total other real estate owned | | $ | — | | $ | — | | $ | 1,634 | | $ | 1,634 | | ||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||
Republic Processing Group | | 383 | | $ | 84 | | 0.07 | % | | 383 | | | 84 | | 0.07 | | |||||||||||||
Total Accruing Loan Modifications | | 383 | | $ | 84 | | 0.00 | | | 383 | | $ | 84 | | 0.00 | |
|
|
| | | | | | | | | | | | | | | | |
| | Nonaccruing Loan Modifications | ||||||||||||||
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | ||||||||||||
| | | | | | | % of Total | | | | | | | % of Total | ||
| | | | Amortized | | of Financing | | | | Amortized | | of Financing | ||||
(dollars in thousands) | | Loans (#) | | Cost Basis ($) | | Receivable | | Loans | | Cost Basis | | Receivable | ||||
| | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | |
Owner occupied | | 4 | | $ | 239 | | 0.02 | % | | 4 | | $ | 566 | | 0.05 | % |
Home equity | | 1 | | | 433 | | 0.16 | | | 15 | | | 1,264 | | 0.46 | |
Total Nonaccruing Loan Modifications | | 5 | | $ | 672 | | 0.01 | % | | 19 | | $ | 1,830 | | 0.04 | |
| | | | | | | | | | | | |
| | Fair Value Measurements at | | | | |||||||
| | December 31, 2021 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 | | $ | — | | $ | — | | $ | 1,626 | | $ | 1,626 |
Commercial real estate | |
| — | |
| — | |
| 2,841 | |
| 2,841 |
Home equity | |
| — | |
| — | |
| 378 | |
| 378 |
Total collateral-dependent loans* | | $ | — | | $ | — | | $ | 4,845 | | $ | 4,845 |
| | | | | | | | | | | | |
Other real estate owned: | | | | | | | | | | | | |
Residential real estate | | $ | — | | $ | — | | $ | 1,792 | | $ | 1,792 |
Total other real estate owned | | $ | — | | $ | — | | $ | 1,792 | | $ | 1,792 |
| | | | | | | | | | | | |
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 and nine months ended September 30, 2023.
| | | | | | | | | | | | | | | | | | |
| | Accruing Loan Modifications | ||||||||||||||||
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | ||||||||||||||
| | | | | 30-89 Days | | 90+ Days | | | | | 30-89 Days | | 90+ Days | ||||
(in thousands) | | Current | | Past Due | | Past Due | | Current | | Past Due | | Past Due | ||||||
| | | | | | | | | | | | | | | | | | |
Republic Processing Group | | $ | 84 | | $ | — | | $ | — | | | 84 | | | — | | | — |
Total Accruing Loan Modifications | | $ | 84 | | $ | — | | $ | — | | $ | 84 | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | |
| | Nonaccruing Loan Modifications | ||||||||||||||||
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | ||||||||||||||
| | | | | 30-89 Days | | 90+ Days | | | | | 30-89 Days | | 90+ Days | ||||
(in thousands) | | Current | | Past Due | | Past Due | | Current | | Past Due | | Past Due | ||||||
| | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | |
Owner occupied | | $ | 75 | | $ | 164 | | $ | — | | $ | 932 | | $ | 188 | | $ | 168 |
Nonowner occupied | | | — | | | — | | | — | | | — | | | — | | | — |
Home equity | | | 433 | | | — | | | — | | | 542 | | | — | | | — |
Total Nonaccruing Loan Modifications | | $ | 508 | | $ | 164 | | $ | — | | $ | 1,474 | | $ | 188 | | $ | 168 |
There were three loans and leases with a total balance of $188,000 that had a payment default during the three months ended September 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty. There were five loans and leases with a total balance of $356,000 that had a payment default during the nine months ended September 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.
5235
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.
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 September 30, 2022 that were modified during the three months ended September 30, 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 |
| |||
September 30, 2022 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Legal modification | | 10 | | $ | 443 | | 1 | | $ | 47 | | 11 | | $ | 490 | |
Total residential TDRs | | 10 | |
| 443 | | 1 | |
| 47 | | 11 | |
| 490 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 332 | |
| 62 | | — | |
| — | | 332 | |
| 62 | |
Total consumer TDRs | | 332 | |
| 62 | | — | |
| — | | 332 | |
| 62 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 342 | | $ | 505 | | 1 | | $ | 47 | | 343 | | $ | 552 | |
A summary of the categories of TDR loan modifications by respective performance as of September 30, 2022 that were modified during the nine months ended September 30, 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 |
| |||
September 30, 2022 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Legal modification | | 17 | | $ | 954 | | 1 | | $ | 47 | | 18 | | $ | 1,001 | |
Total residential TDRs | | 17 | |
| 954 | | 1 | |
| 47 | | 18 | |
| 1,001 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 605 | |
| 109 | | — | |
| — | | 605 | |
| 109 | |
Total consumer TDRs | | 605 | |
| 109 | | — | |
| — | | 605 | |
| 109 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 622 | | $ | 1,063 | | 1 | | $ | 47 | | 623 | | $ | 1,110 | |
| | | | | | | | | | | | | | | | |
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 or nine months ended September 30, 2022 that resulted in an interest rate below market rate.
There was one TDRs with a recorded investment of $47,000 which had a payment default within the twelve months following modification during the three months ended September 30, 2022. There were four TDRs with a recorded investment of $93,000 which had a payment default within the twelve months following modification during the nine months ended September 30, 2022. Default occurs when a loan or lease is 90 days or more past due under the modified terms or transferred to nonaccrual.
36
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 September 30, 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) | | September 30, 2023 | | December 31, 2022 |
| ||
| | | | | | | |
Commercial real estate | | $ | 1,423 | | $ | 1,581 | |
| | | | | | | |
Total other real estate owned | | $ | 1,423 |
| $ | 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) |
| September 30, 2023 |
| December 31, 2022 | ||
| | | | | | |
Recorded investment in consumer residential real estate mortgage loans in the process of foreclosure |
| $ | 1,067 |
| $ | 909 |
37
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. The Company originated $98 million of ERAs during December 2022 that were made in anticipation of 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 calendar year activities for RAs follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | ||||||||||||
|
| September 30, | |
| September 30, | ||||||||||||
(dollars in thousands) |
| 2023 | | 2022 | |
| 2023 |
| 2022 | ||||||||
| | | | | | | | | | | | | | | | | |
Refund Advances originated |
| $ | — | | | $ | — | | |
| $ | 737,047 | | | $ | 311,207 | |
Net charge to the Provision for RAs, including ERAs |
| | (1,939) | | | | (1,296) | | |
| | 19,615 | | | | 7,583 | |
Provision as a percentage of RAs, including ERAs, originated during the first quarter | | | NA | | | | NA | | | | | 2.66 | % | | | 2.44 | % |
Refund Advances net charge-offs (recoveries) |
| $ | (1,939) | | | $ | (1,296) | | |
| $ | 23,412 | | | $ | 7,583 | |
Refund Advances net charge-offs (recoveries) to total Refund Advances originated | | | NA | | | | NA | | | | | 3.18 | % | | | 2.44 | % |
6.DEPOSITS
The composition of the deposit portfolio follows:
| | | | | | | |
(in thousands) |
| September 30, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Core Bank: | | | | | | | |
Demand | | $ | 1,233,328 | | $ | 1,336,082 | |
Money market accounts | |
| 939,499 | |
| 707,272 | |
Savings | |
| 263,249 | |
| 323,015 | |
Reciprocal money market | |
| 206,347 | |
| 28,635 | |
Individual retirement accounts (1) | |
| 33,823 | |
| 38,640 | |
Time deposits, $250 and over (1) | |
| 94,521 | |
| 54,855 | |
Other certificates of deposit (1) | |
| 207,481 | |
| 129,324 | |
Reciprocal time deposits (1) | |
| 94,629 | |
| 7,405 | |
Wholesale brokered deposits (1) | | | 805 | | | — | |
Total Core Bank interest-bearing deposits | |
| 3,073,682 | |
| 2,625,228 | |
Total Core Bank noninterest-bearing deposits | | | 1,269,643 | | | 1,464,493 | |
Total Core Bank deposits | | | 4,343,325 | | | 4,089,721 | |
| | | | | | | |
Republic Processing Group: | | | | | | | |
Money market accounts | | | 16,921 | | | 3,849 | |
Total RPG interest-bearing deposits | | | 16,921 | | | 3,849 | |
| | | | | | | |
Brokered prepaid card deposits | | | 326,505 | | | 328,655 | |
Other noninterest-bearing deposits | | | 106,831 | | | 115,620 | |
Total RPG noninterest-bearing deposits | | | 433,336 | | | 444,275 | |
Total RPG deposits | | | 450,257 | | | 448,124 | |
| | | | | | | |
Total deposits | | $ | 4,793,582 | | $ | 4,537,845 | |
(1) | Includes time deposits. |
��
38
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 September 30, 2023 and December 31, 2022, all securities sold under agreements to repurchase had overnight maturities. Additional information regarding securities sold under agreements to repurchase and other short-term borrowings follows:
| | | | | | | | | |
(dollars in thousands) |
| September 30, 2023 |
|
| December 31, 2022 |
| | ||
| | | | | | | | | |
Outstanding balance at end of period | | $ | 80,797 | | | $ | 216,956 | | |
Weighted average interest rate at end of period | |
| 0.56 | % | |
| 0.41 | % | |
| | | | | | | | | |
Fair value of securities pledged: | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 82,376 | | | $ | 254,296 | | |
Total securities pledged | | $ | 82,376 | | | $ | 254,296 | | |
| | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | | Nine Months Ended | | | | ||||||||||
|
| September 30, | | | September 30, | | | | ||||||||||
(dollars in thousands) |
| 2023 |
| | 2022 |
|
| 2023 |
|
| 2022 | | | | ||||
| | | | | | | | | | | | | | | | | | |
Average outstanding balance during the period |
| $ | 90,063 |
| | $ | 220,149 | | | $ | 136,528 |
| | $ | 271,276 | | | |
Weighted average interest rate during the period | | | 0.87 | % | | | 0.17 | % | | | 0.60 | % | | | 0.08 | % | | |
Maximum outstanding at any month end during the period |
| $ | 88,862 |
| | $ | 209,376 | | | $ | 224,067 |
| | $ | 303,315 | | | |
39
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 September 30, 2023, the Company was under 45 separate and distinct operating lease contracts to lease the land and/or buildings for 40 of its offices, with 12 such operating leases contracted with a related party of the Company. As of September 30, 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 two third-party lease renewals during the first nine months of 2023 with a total right-of-use asset value of $1.5 million and recorded five new third-party leases during the first nine months of 2023 with a total right-of-use asset value of $2.0 million.
The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the “Occupancy” category for the three and nine months ended September 30, 2023 and 2022:
| | | | | | | | | | | | | | |
|
| Three Months Ended | | | Nine Months Ended | |||||||||
|
| September 30, | | | September 30, | |||||||||
(dollars in thousands) |
| 2023 | | 2022 |
| | 2023 | | | 2022 | ||||
| | | | | | | | | | | | | | |
Operating lease expense: |
| | | | | | | | | | | | | |
Related Party: | | | | | | | | | | | | | | |
Variable lease expense | | $ | 1,202 |
| $ | 1,101 | | | $ | 3,631 |
| | $ | 3,635 |
Fixed lease expense |
| | 58 | | | 57 | | | | 175 | | | | 149 |
Third-Party: | | | | | | | | | | | | | | |
Variable lease expense | | | 390 | | | 222 | | | | 1,070 | | | | 639 |
Fixed lease expense | | | 409 | | | 346 | | | | 1,184 | | | | 1,040 |
Total operating lease expense | | $ | 2,059 |
| $ | 1,726 | | | $ | 6,060 |
| | $ | 5,463 |
| | | | | | | | | | | | | | |
Other information concerning operating leases: | | | | | | | | | | | | | | |
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 1,667 | | $ | 1,709 | | | $ | 5,168 | | | $ | 5,121 |
Cash paid for variable rent payments not included in measurement of operating lease liabilities | | | 151 | | | 151 | | | | 453 | | | | 453 |
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 September 30, 2023 and December 31, 2022:
| | | | | | | |
|
| September 30, 2023 | | December 31, 2022 | | ||
| | | | | | | |
Weighted average remaining term in years | | | 7.78 | | | 8.44 | |
Weighted average discount rate | |
| 2.28 | % |
| 2.10 | % |
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 September 30, 2023:
| | | | | | | | | | |
Year (in thousands) |
| Related Party |
| Third-Party |
| Total |
| |||
| | | | | | | | | | |
2023 |
| $ | 961 |
| $ | 720 |
| $ | 1,681 | |
2024 |
| | 3,726 |
| | 2,826 |
| | 6,552 | |
2025 |
| | 3,569 |
| | 2,244 |
| | 5,813 | |
2026 |
| | 3,640 |
| | 1,925 |
| | 5,565 | |
2027 |
| | 3,680 |
| | 1,603 |
| | 5,283 | |
Thereafter |
| | 11,750 |
| | 4,698 |
| | 16,448 | |
Total undiscounted cash flows | | $ | 27,326 | | $ | 14,016 | | $ | 41,342 | |
Discount applied to cash flows | | | (2,884) | | | (1,732) | | | (4,616) | |
Total discounted cash flows reported as operating lease liabilities | | $ | 24,442 | | $ | 12,284 | | $ | 36,726 | |
40
9.FEDERAL HOME LOAN BANK ADVANCES
FHLB advances were as follows:
| | | | | | | |
(in thousands) |
| September 30, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Overnight advances | | $ | 195,000 | | $ | 75,000 | |
Fixed interest rate advances | |
| 270,000 | |
| 20,000 | |
Total FHLB advances | | $ | 465,000 | | $ | 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 September 30, 2023 and December 31, 2022, Republic had available borrowing capacity of $639 million and $900 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 September 30, 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 |
| $ | 195,000 |
| 5.37 | % |
2024 |
| | — | | — | |
2025 |
| | — |
| — | |
2026 |
| | 30,000 |
| 4.82 | |
2027 | | | 80,000 |
| 4.01 | |
2028 |
| | 160,000 |
| 4.39 | |
Total | | $ | 465,000 |
| 4.76 | % |
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 | | | Nine Months Ended | | ||||||||||
| | September 30, | | | September 30, | | ||||||||||
(dollars in thousands) |
| 2023 |
| | 2022 |
| | 2023 |
| | 2022 | | ||||
| | | | | | | | | | | | | | | | |
Average outstanding balance during the period |
| $ | 250,348 |
| | $ | — | |
| $ | 150,833 |
| | $ | 5,641 | |
Weighted average interest rate during the period | | | 5.20 | % | | | — | % | | | 7.75 | % | | | 0.15 | % |
Maximum outstanding at any month end during the period |
| $ | 365,000 |
| ` | $ | — | |
| $ | 485,000 |
| | $ | 25,000 | |
The following table illustrates real estate loans pledged to collateralize advances and letters of credit with the FHLB:
| | | | | | | |
(in thousands) |
| September 30, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
First lien, single family residential real estate | | $ | 1,336,038 | | $ | 1,106,287 | |
Home equity lines of credit | |
| 249,819 | |
| 219,644 | |
Multi-family commercial real estate | |
| 141,133 | |
| — | |
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) |
| September 30, 2023 |
| December 31, 2022 | | ||
| | | | | | | |
Unused warehouse lines of credit | | $ | 557,467 | | $ | 733,940 | |
Unused home equity lines of credit | |
| 439,107 | |
| 410,057 | |
Unused loan commitments - other | |
| 1,202,822 | |
| 951,021 | |
Standby letters of credit | |
| 11,921 | |
| 9,735 | |
FHLB letter of credit | |
| — | |
| 643 | |
Total commitments | | $ | 2,211,317 | | $ | 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 quantitative informationa roll-forward of the ACLC for the three and nine months ended September 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | ACLC Roll-forward | ||||||||||||||||||||||||||||
| | | Three Months Ended | ||||||||||||||||||||||||||||
| | | 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 | | | $ | 145 | | $ | (43) | | $ | — | | $ | — | | $ | 102 | | $ | 162 | | $ | 28 | | $ | — | | $ | — | | $ | 190 |
Unused home equity lines of credit | | | | 353 | | | (315) | | | — | | | — | | | 38 | | | 277 | | | 20 | | | — | | | — | | | 297 |
Unused construction lines of credit | | | | 633 | | | 225 | | | — | | | — | | | 858 | | | — | | | — | | | — | | | — | | | — |
Unused loan commitments - other | | | | 399 | | | (57) | | | — | | | — | | | 342 | | | 661 | | | 32 | | | — | | | — | | | 693 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 1,530 | | $ | (190) | | $ | — | | $ | — | | $ | 1,340 | | $ | 1,100 | | $ | 80 | | $ | — | | $ | — | | $ | 1,180 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | ACLC Roll-forward | ||||||||||||||||||||||||||||
| | | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| | | 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 | | $ | (88) | | $ | — | | $ | — | | $ | 102 | | $ | 154 | | $ | 36 | | $ | — | | $ | — | | $ | 190 |
Unused home equity lines of credit | | | | 332 | | | (294) | | | — | | | — | | | 38 | | | 247 | | | 50 | | | — | | | — | | | 297 |
Unused construction lines of credit | | | | 384 | | | 474 | | | — | | | — | | | 858 | | | — | | | — | | | — | | | — | | | — |
Unused loan commitments - other | | | | 344 | | | (2) | | | — | | | — | | | 342 | | | 651 | | | 42 | | | — | | | — | | | 693 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 1,250 | | $ | 90 | | $ | — | | $ | — | | $ | 1,340 | | $ | 1,052 | | $ | 128 | | $ | — | | $ | — | | $ | 1,180 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company increased its ACLC during the three and nine months ended September 30, 2023 based primarily on a change in the loan mix to loans with higher reserve rates.
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.
For its TRUP investment, the Company considered the most recent bid price for the same instrument to approximate market value as of September 30, 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 Community Reinvestment Act 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: In December 2019, the Bank began offering 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 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. 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 measurementsclassification. Collateral-dependent loans are evaluated on a quarterly basis for financial instrumentsadditional 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 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.
45
Assets and liabilities measured at fair value on a non-recurringrecurring basis:, including financial assets and liabilities for which the Bank has elected the fair value option, are summarized below. Information as of September 30, 2023 is presented net of any applicable ACL.
| | | | | | | | | | | | | | | | | | | | |||
|
|
| |
|
|
|
|
| Range | | Fair Value Measurements at | | |
| ||||||||
| | Fair | | Valuation | | Unobservable | | (Weighted | | September 30, 2023 Using: | | |
| |||||||||
September 30, 2022 (dollars in thousands) | | Value | | Technique | | Inputs | | Average) | ||||||||||||||
| | | | | | | | |
| Quoted Prices in |
| Significant |
| |
| |
| |||||
Collateral-dependent loans - residential real estate owner occupied | | $ | 1,314 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 0% - 41% (11%) | |||||||||||||
| | | | | | | | | | Active Markets | | Other | | Significant | | |
| |||||
Collateral-dependent loans - commercial real estate | | $ | 944 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 16% (16%) | |||||||||||||
| | | | | | | | | | for Identical | | Observable | | Unobservable | | Total |
| |||||
Other real estate owned - commercial real estate | | $ | 1,634 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 39% (39%) | |||||||||||||
| | 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 | | $ | 175,623 | | $ | 239,989 | | $ | — | | $ | 415,612 | | |||||||||
Private label mortgage-backed security | |
| — | |
| — | |
| 1,885 | |
| 1,885 | | |||||||||
Mortgage-backed securities - residential | |
| — | |
| 155,549 | |
| — | |
| 155,549 | | |||||||||
Collateralized mortgage obligations | |
| — | |
| 22,163 | |
| — | |
| 22,163 | | |||||||||
Corporate bonds | | | — | | | 2,016 | | | — | | | 2,016 | | |||||||||
Trust preferred security | |
| — | |
| — | |
| 3,995 | |
| 3,995 | | |||||||||
Total available-for-sale debt securities | | $ | 175,623 | | $ | 419,717 | | $ | 5,880 | | $ | 601,220 | | |||||||||
| | | | | | | | | | | | | | |||||||||
Equity securities with readily determinable fair value: | | | | | | | | | | | | |||||||||||
Freddie Mac preferred stock | | $ | — | | $ | 137 | | $ | — | | $ | 137 | | |||||||||
Total equity securities with readily determinable fair value | | $ | — | | $ | 137 | | $ | — | | $ | 137 | | |||||||||
| | | | | | | | | | | | | | |||||||||
Mortgage loans held for sale | | $ | — | | $ | 2,711 | | $ | — | | $ | 2,711 | | |||||||||
Consumer loans held for sale | | | — | | | — | | 8,443 | | 8,443 | | |||||||||||
Rate lock loan commitments | |
| — | |
| 95 | |
| — | |
| 95 | | |||||||||
Interest rate swap agreements | | | — | | | 8,935 | | | — | | | 8,935 | | |||||||||
| | | | | | | | | | | | | | |||||||||
Financial liabilities: | | | | | | | | | | | | | | |||||||||
Mandatory forward contracts | | $ | — | | $ | 77 | | $ | — | | $ | 77 | | |||||||||
Interest rate swap agreements | | | — | | | 8,935 | | | — | | | 8,935 | |
| | | | | | | | | |
|
|
| |
|
|
|
|
| Range |
| | Fair | | Valuation | | Unobservable | | (Weighted | |
December 31, 2021 (dollars in thousands) | | Value | | Technique | | Inputs | | Average) | |
| | | | | | | | | |
Collateral-dependent loans - residential real estate owner occupied | | $ | 1,626 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 0% - 51% (10%) |
| | | | | | | | | |
Collateral-dependent loans - commercial real estate | | $ | 2,841 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 12% - 13% (12%) |
| | | | | | | | | |
Collateral-dependent loans - home equity | | $ | 378 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 2%-4% (3%) |
| | | | | | | | | |
Other real estate owned - commercial real estate | | $ | 1,792 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 33% (33%) |
| | | | | | | | | | | | | |
| | 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 | |
Interest rate swap agreements | |
| — | |
| 8,128 | |
| — | |
| 8,128 | |
| | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | |
Mandatory forward contracts | | $ | — | | $ | 67 | | $ | — | | $ | 67 | |
Interest rate swap agreements | | | — | | | 8,128 | | | — | |
| 8,128 | |
5346
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 and nine months ended September 30, 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 |
| Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands) | | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | | | | | | | | | | | |
Balance, beginning of period | | $ | 1,988 | | $ | 2,478 | | $ | 2,127 | | $ | 2,731 |
Total gains or losses included in earnings: | | | | | | | | | | | | |
Net change in unrealized gain | |
| (6) | |
| 1 | |
| 26 | |
| 10 |
Principal paydowns | |
| (97) | |
| (195) | |
| (268) | |
| (457) |
Balance, end of period | | $ | 1,885 | | $ | 2,284 | | $ | 1,885 | | $ | 2,284 |
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.
Quantitative information about recurring Level 3 fair value measurement inputs for the Bank’s single private label mortgage-backed security follows:
| | | | | | | | | | |
|
| Fair |
| Valuation |
|
|
| |
| |
September 30, 2023 (dollars in thousands) | | Value | | Technique | | Unobservable Inputs | | Range |
| |
| | | | | | | | | | |
Private label mortgage-backed security | | $ | 1,885 |
| Discounted cash flow |
| (1) Constant prepayment rate |
| 2.8% - 4.5% | |
| | | | | | | | | | |
| | | | | |
| (2) Probability of default |
| 1.8% - 9.3% | |
| | | | | | | | | | |
| | | | | |
| (3) Loss severity |
| 12% - 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% | |
47
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 |
| Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(in thousands) | | 2023 | | 2022 | | 2023 | | 2022 | | ||||
| | | | | | | | | | | | | |
Balance, beginning of period | | $ | 3,746 | | $ | 3,824 | | $ | 3,855 | | $ | 3,847 | |
Total gains or losses included in earnings: | | | | | | | | | | | | | |
Discount accretion | | | 15 | | | 14 | | | 44 | | | 42 | |
Net change in unrealized gain | |
| 234 | |
| 72 | |
| 96 | |
| 21 | |
Balance, end of period | | $ | 3,995 | | $ | 3,910 | | $ | 3,995 | | $ | 3,910 | |
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.
Collateral-Dependent Loans
The following table presents the amortized cost basis of collateral-dependent loans by class of loans:
| | | | | | | | | | | | |
| | September 30, 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 | | $ | 16,122 | | $ | — | | $ | 18,057 | | $ | — |
Nonowner occupied | |
| 68 | |
| — | |
| 150 | |
| — |
Commercial real estate | |
| 909 | |
| — | |
| 1,041 | |
| — |
Construction & land development | |
| — | |
| — | |
| — | |
| — |
Commercial & industrial | |
| — | |
| 1,226 | |
| — | |
| — |
Lease financing receivables | |
| — | |
| — | |
| — | |
| — |
Aircraft | | | — | |
| — | | | — | |
| 210 |
Home equity | |
| 1,548 | |
| — | |
| 967 | |
| — |
Consumer | | | — | |
| 20 | | | — | |
| 26 |
Total Traditional Banking | | $ | 18,647 | | $ | 1,246 | | $ | 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 and Lease Modification Disclosures Pursuant to ASU 2022-02
The following table shows the amortized cost of loans and leases as of September 30, 2023 that were both experiencing financial difficulty and modified during the three months ended September 30, 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 | |||||||||||||
| | Three Months Ended September 30, 2023 | |||||||||||||
(in thousands) | | Loans (#) | | Rate Reduction ($) | | Loans (#) | | Term Extension ($) | | Loans (#) | | Principal Deferral ($) | |||
| | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | |
Owner occupied | | — | | $ | — | | — | | $ | — | | 4 | | $ | 239 |
Nonowner occupied | | — | | | — | | — | | | — | | — | | | — |
Home equity | | — | | | — | | — | | | — | | 1 | | | 433 |
Republic Processing Group | | — | | | — | | — | | | — | | 383 | | | 84 |
Total Loan Modifications | | — | | $ | — | | — | | $ | — | | 388 | | $ | 756 |
| | | | | | | | | | |
| | Total Loan Modification by Type | ||||||||
| | Accruing | | Nonaccruing | ||||||
| | Three Months Ended September 30, 2023 | ||||||||
(in thousands) | | Loans (#) | | Recorded investment ($) | | Loans (#) | | Recorded investment ($) | ||
| | | | | | | | | | |
Term extension | | — | | $ | — | | — | | $ | — |
Principal deferral | | 383 | | | 84 | | 5 | | | 672 |
Total Loan Modifications | | 383 | | $ | 84 | | 5 | | $ | 672 |
The following table shows the amortized cost of loans and leases as of September 30, 2023 that were both experiencing financial difficulty and modified during the nine months ended September 30, 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 | |||||||||||||
| | Nine Months Ended September 30, 2023 | |||||||||||||
(in thousands) | | Loans (#) | | Rate Reduction ($) | | Loans (#) | | Term Extension ($) | | Loans (#) | | Principal Deferral ($) | |||
| | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | |
Owner occupied | | — | | $ | — | | 2 | | $ | 258 | | 13 | | $ | 1,006 |
Nonowner occupied | | — | | | — | | — | | | — | | — | | | — |
Home equity | | — | | | — | | — | | | — | | 4 | | | 566 |
Republic Processing Group | | — | | | — | | — | | | — | | 383 | | | 84 |
Total Loan Modifications | | — | | $ | — | | 2 | | $ | 258 | | 400 | | $ | 1,656 |
34
| | | | | | | | | | |
| | Total Loan Modification by Type | ||||||||
| | Accruing | | Nonaccruing | ||||||
| | Nine Months Ended September 30, 2023 | ||||||||
(in thousands) | | Loans (#) | | Recorded investment ($) | | Loans (#) | | Recorded investment ($) | ||
| | | | | | | | | | |
Term extension | | — | | $ | — | | — | | $ | — |
Principal deferral | | 383 | | | 84 | | 19 | | | 1,830 |
Total Loan Modifications | | 383 | | $ | 84 | | 19 | | $ | 1,830 |
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 September 30, 2023 | | Nine Months Ended September 30, 2023 | ||||||||||||
| | | | | | | % of Total | | | | | | | % of Total | ||
| | | | Amortized | | of Financing | | | | Amortized | | of Financing | ||||
(dollars in thousands) | | Loans (#) | | Cost Basis ($) | | Receivable | | Loans | | Cost Basis | | Receivable | ||||
| | | | | | | | | | | | | | | | |
Republic Processing Group | | 383 | | $ | 84 | | 0.07 | % | | 383 | | | 84 | | 0.07 | |
Total Accruing Loan Modifications | | 383 | | $ | 84 | | 0.00 | | | 383 | | $ | 84 | | 0.00 | |
| | | | | | | | | | | | | | | | |
| | Nonaccruing Loan Modifications | ||||||||||||||
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | ||||||||||||
| | | | | | | % of Total | | | | | | | % of Total | ||
| | | | Amortized | | of Financing | | | | Amortized | | of Financing | ||||
(dollars in thousands) | | Loans (#) | | Cost Basis ($) | | Receivable | | Loans | | Cost Basis | | Receivable | ||||
| | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | |
Owner occupied | | 4 | | $ | 239 | | 0.02 | % | | 4 | | $ | 566 | | 0.05 | % |
Home equity | | 1 | | | 433 | | 0.16 | | | 15 | | | 1,264 | | 0.46 | |
Total Nonaccruing Loan Modifications | | 5 | | $ | 672 | | 0.01 | % | | 19 | | $ | 1,830 | | 0.04 | |
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 and nine months ended September 30, 2023.
| | | | | | | | | | | | | | | | | | |
| | Accruing Loan Modifications | ||||||||||||||||
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | ||||||||||||||
| | | | | 30-89 Days | | 90+ Days | | | | | 30-89 Days | | 90+ Days | ||||
(in thousands) | | Current | | Past Due | | Past Due | | Current | | Past Due | | Past Due | ||||||
| | | | | | | | | | | | | | | | | | |
Republic Processing Group | | $ | 84 | | $ | — | | $ | — | | | 84 | | | — | | | — |
Total Accruing Loan Modifications | | $ | 84 | | $ | — | | $ | — | | $ | 84 | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | |
| | Nonaccruing Loan Modifications | ||||||||||||||||
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | ||||||||||||||
| | | | | 30-89 Days | | 90+ Days | | | | | 30-89 Days | | 90+ Days | ||||
(in thousands) | | Current | | Past Due | | Past Due | | Current | | Past Due | | Past Due | ||||||
| | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | |
Owner occupied | | $ | 75 | | $ | 164 | | $ | — | | $ | 932 | | $ | 188 | | $ | 168 |
Nonowner occupied | | | — | | | — | | | — | | | — | | | — | | | — |
Home equity | | | 433 | | | — | | | — | | | 542 | | | — | | | — |
Total Nonaccruing Loan Modifications | | $ | 508 | | $ | 164 | | $ | — | | $ | 1,474 | | $ | 188 | | $ | 168 |
There were three loans and leases with a total balance of $188,000 that had a payment default during the three months ended September 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty. There were five loans and leases with a total balance of $356,000 that had a payment default during the nine months ended September 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.
35
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.
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 September 30, 2022 that were modified during the three months ended September 30, 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 |
| |||
September 30, 2022 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Legal modification | | 10 | | $ | 443 | | 1 | | $ | 47 | | 11 | | $ | 490 | |
Total residential TDRs | | 10 | |
| 443 | | 1 | |
| 47 | | 11 | |
| 490 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 332 | |
| 62 | | — | |
| — | | 332 | |
| 62 | |
Total consumer TDRs | | 332 | |
| 62 | | — | |
| — | | 332 | |
| 62 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 342 | | $ | 505 | | 1 | | $ | 47 | | 343 | | $ | 552 | |
A summary of the categories of TDR loan modifications by respective performance as of September 30, 2022 that were modified during the nine months ended September 30, 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 |
| |||
September 30, 2022 (dollars in thousands) | | Loans | | Investment | | Loans | | Investment | | Loans | | Investment | | |||
| | | | | | | | | | | | | | | | |
Residential real estate loans (including home equity loans): | | | | | | | | | | | | | | | | |
Legal modification | | 17 | | $ | 954 | | 1 | | $ | 47 | | 18 | | $ | 1,001 | |
Total residential TDRs | | 17 | |
| 954 | | 1 | |
| 47 | | 18 | |
| 1,001 | |
| | | | | | | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | |
Principal deferral | | 605 | |
| 109 | | — | |
| — | | 605 | |
| 109 | |
Total consumer TDRs | | 605 | |
| 109 | | — | |
| — | | 605 | |
| 109 | |
| | | | | | | | | | | | | | | | |
Total troubled debt restructurings | | 622 | | $ | 1,063 | | 1 | | $ | 47 | | 623 | | $ | 1,110 | |
| | | | | | | | | | | | | | | | |
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 or nine months ended September 30, 2022 that resulted in an interest rate below market rate.
There was one TDRs with a recorded investment of $47,000 which had a payment default within the twelve months following modification during the three months ended September 30, 2022. There were four TDRs with a recorded investment of $93,000 which had a payment default within the twelve months following modification during the nine months ended September 30, 2022. Default occurs when a loan or lease is 90 days or more past due under the modified terms or transferred to nonaccrual.
36
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 September 30, 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) | | September 30, 2023 | | December 31, 2022 |
| ||
| | | | | | | |
Commercial real estate | | $ | 1,423 | | $ | 1,581 | |
| | | | | | | |
Total other real estate owned | | $ | 1,423 |
| $ | 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) |
| September 30, 2023 |
| December 31, 2022 | ||
| | | | | | |
Recorded investment in consumer residential real estate mortgage loans in the process of foreclosure |
| $ | 1,067 |
| $ | 909 |
37
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. The Company originated $98 million of ERAs during December 2022 that were made in anticipation of 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 calendar year activities for RAs follows:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | ||||||||||||
|
| September 30, | |
| September 30, | ||||||||||||
(dollars in thousands) |
| 2023 | | 2022 | |
| 2023 |
| 2022 | ||||||||
| | | | | | | | | | | | | | | | | |
Refund Advances originated |
| $ | — | | | $ | — | | |
| $ | 737,047 | | | $ | 311,207 | |
Net charge to the Provision for RAs, including ERAs |
| | (1,939) | | | | (1,296) | | |
| | 19,615 | | | | 7,583 | |
Provision as a percentage of RAs, including ERAs, originated during the first quarter | | | NA | | | | NA | | | | | 2.66 | % | | | 2.44 | % |
Refund Advances net charge-offs (recoveries) |
| $ | (1,939) | | | $ | (1,296) | | |
| $ | 23,412 | | | $ | 7,583 | |
Refund Advances net charge-offs (recoveries) to total Refund Advances originated | | | NA | | | | NA | | | | | 3.18 | % | | | 2.44 | % |
6.DEPOSITS
The composition of the deposit portfolio follows:
| | | | | | | |
(in thousands) |
| September 30, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Core Bank: | | | | | | | |
Demand | | $ | 1,233,328 | | $ | 1,336,082 | |
Money market accounts | |
| 939,499 | |
| 707,272 | |
Savings | |
| 263,249 | |
| 323,015 | |
Reciprocal money market | |
| 206,347 | |
| 28,635 | |
Individual retirement accounts (1) | |
| 33,823 | |
| 38,640 | |
Time deposits, $250 and over (1) | |
| 94,521 | |
| 54,855 | |
Other certificates of deposit (1) | |
| 207,481 | |
| 129,324 | |
Reciprocal time deposits (1) | |
| 94,629 | |
| 7,405 | |
Wholesale brokered deposits (1) | | | 805 | | | — | |
Total Core Bank interest-bearing deposits | |
| 3,073,682 | |
| 2,625,228 | |
Total Core Bank noninterest-bearing deposits | | | 1,269,643 | | | 1,464,493 | |
Total Core Bank deposits | | | 4,343,325 | | | 4,089,721 | |
| | | | | | | |
Republic Processing Group: | | | | | | | |
Money market accounts | | | 16,921 | | | 3,849 | |
Total RPG interest-bearing deposits | | | 16,921 | | | 3,849 | |
| | | | | | | |
Brokered prepaid card deposits | | | 326,505 | | | 328,655 | |
Other noninterest-bearing deposits | | | 106,831 | | | 115,620 | |
Total RPG noninterest-bearing deposits | | | 433,336 | | | 444,275 | |
Total RPG deposits | | | 450,257 | | | 448,124 | |
| | | | | | | |
Total deposits | | $ | 4,793,582 | | $ | 4,537,845 | |
(1) | Includes time deposits. |
��
38
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 September 30, 2023 and December 31, 2022, all securities sold under agreements to repurchase had overnight maturities. Additional information regarding securities sold under agreements to repurchase and other short-term borrowings follows:
| | | | | | | | | |
(dollars in thousands) |
| September 30, 2023 |
|
| December 31, 2022 |
| | ||
| | | | | | | | | |
Outstanding balance at end of period | | $ | 80,797 | | | $ | 216,956 | | |
Weighted average interest rate at end of period | |
| 0.56 | % | |
| 0.41 | % | |
| | | | | | | | | |
Fair value of securities pledged: | | | | | | | | | |
U.S. Treasury securities and U.S. Government agencies | | $ | 82,376 | | | $ | 254,296 | | |
Total securities pledged | | $ | 82,376 | | | $ | 254,296 | | |
| | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | | Nine Months Ended | | | | ||||||||||
|
| September 30, | | | September 30, | | | | ||||||||||
(dollars in thousands) |
| 2023 |
| | 2022 |
|
| 2023 |
|
| 2022 | | | | ||||
| | | | | | | | | | | | | | | | | | |
Average outstanding balance during the period |
| $ | 90,063 |
| | $ | 220,149 | | | $ | 136,528 |
| | $ | 271,276 | | | |
Weighted average interest rate during the period | | | 0.87 | % | | | 0.17 | % | | | 0.60 | % | | | 0.08 | % | | |
Maximum outstanding at any month end during the period |
| $ | 88,862 |
| | $ | 209,376 | | | $ | 224,067 |
| | $ | 303,315 | | | |
39
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 September 30, 2023, the Company was under 45 separate and distinct operating lease contracts to lease the land and/or buildings for 40 of its offices, with 12 such operating leases contracted with a related party of the Company. As of September 30, 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 two third-party lease renewals during the first nine months of 2023 with a total right-of-use asset value of $1.5 million and recorded five new third-party leases during the first nine months of 2023 with a total right-of-use asset value of $2.0 million.
The following table presents information concerning the Company’s operating lease expense recorded as a noninterest expense within the “Occupancy” category for the three and nine months ended September 30, 2023 and 2022:
| | | | | | | | | | | | | | |
|
| Three Months Ended | | | Nine Months Ended | |||||||||
|
| September 30, | | | September 30, | |||||||||
(dollars in thousands) |
| 2023 | | 2022 |
| | 2023 | | | 2022 | ||||
| | | | | | | | | | | | | | |
Operating lease expense: |
| | | | | | | | | | | | | |
Related Party: | | | | | | | | | | | | | | |
Variable lease expense | | $ | 1,202 |
| $ | 1,101 | | | $ | 3,631 |
| | $ | 3,635 |
Fixed lease expense |
| | 58 | | | 57 | | | | 175 | | | | 149 |
Third-Party: | | | | | | | | | | | | | | |
Variable lease expense | | | 390 | | | 222 | | | | 1,070 | | | | 639 |
Fixed lease expense | | | 409 | | | 346 | | | | 1,184 | | | | 1,040 |
Total operating lease expense | | $ | 2,059 |
| $ | 1,726 | | | $ | 6,060 |
| | $ | 5,463 |
| | | | | | | | | | | | | | |
Other information concerning operating leases: | | | | | | | | | | | | | | |
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 1,667 | | $ | 1,709 | | | $ | 5,168 | | | $ | 5,121 |
Cash paid for variable rent payments not included in measurement of operating lease liabilities | | | 151 | | | 151 | | | | 453 | | | | 453 |
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 September 30, 2023 and December 31, 2022:
| | | | | | | |
|
| September 30, 2023 | | December 31, 2022 | | ||
| | | | | | | |
Weighted average remaining term in years | | | 7.78 | | | 8.44 | |
Weighted average discount rate | |
| 2.28 | % |
| 2.10 | % |
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 September 30, 2023:
| | | | | | | | | | |
Year (in thousands) |
| Related Party |
| Third-Party |
| Total |
| |||
| | | | | | | | | | |
2023 |
| $ | 961 |
| $ | 720 |
| $ | 1,681 | |
2024 |
| | 3,726 |
| | 2,826 |
| | 6,552 | |
2025 |
| | 3,569 |
| | 2,244 |
| | 5,813 | |
2026 |
| | 3,640 |
| | 1,925 |
| | 5,565 | |
2027 |
| | 3,680 |
| | 1,603 |
| | 5,283 | |
Thereafter |
| | 11,750 |
| | 4,698 |
| | 16,448 | |
Total undiscounted cash flows | | $ | 27,326 | | $ | 14,016 | | $ | 41,342 | |
Discount applied to cash flows | | | (2,884) | | | (1,732) | | | (4,616) | |
Total discounted cash flows reported as operating lease liabilities | | $ | 24,442 | | $ | 12,284 | | $ | 36,726 | |
40
9.FEDERAL HOME LOAN BANK ADVANCES
FHLB advances were as follows:
| | | | | | | |
(in thousands) |
| September 30, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Overnight advances | | $ | 195,000 | | $ | 75,000 | |
Fixed interest rate advances | |
| 270,000 | |
| 20,000 | |
Total FHLB advances | | $ | 465,000 | | $ | 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 September 30, 2023 and December 31, 2022, Republic had available borrowing capacity of $639 million and $900 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 September 30, 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 |
| $ | 195,000 |
| 5.37 | % |
2024 |
| | — | | — | |
2025 |
| | — |
| — | |
2026 |
| | 30,000 |
| 4.82 | |
2027 | | | 80,000 |
| 4.01 | |
2028 |
| | 160,000 |
| 4.39 | |
Total | | $ | 465,000 |
| 4.76 | % |
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 | | | Nine Months Ended | | ||||||||||
| | September 30, | | | September 30, | | ||||||||||
(dollars in thousands) |
| 2023 |
| | 2022 |
| | 2023 |
| | 2022 | | ||||
| | | | | | | | | | | | | | | | |
Average outstanding balance during the period |
| $ | 250,348 |
| | $ | — | |
| $ | 150,833 |
| | $ | 5,641 | |
Weighted average interest rate during the period | | | 5.20 | % | | | — | % | | | 7.75 | % | | | 0.15 | % |
Maximum outstanding at any month end during the period |
| $ | 365,000 |
| ` | $ | — | |
| $ | 485,000 |
| | $ | 25,000 | |
The following table illustrates real estate loans pledged to collateralize advances and letters of credit with the FHLB:
| | | | | | | |
(in thousands) |
| September 30, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
First lien, single family residential real estate | | $ | 1,336,038 | | $ | 1,106,287 | |
Home equity lines of credit | |
| 249,819 | |
| 219,644 | |
Multi-family commercial real estate | |
| 141,133 | |
| — | |
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) |
| September 30, 2023 |
| December 31, 2022 | | ||
| | | | | | | |
Unused warehouse lines of credit | | $ | 557,467 | | $ | 733,940 | |
Unused home equity lines of credit | |
| 439,107 | |
| 410,057 | |
Unused loan commitments - other | |
| 1,202,822 | |
| 951,021 | |
Standby letters of credit | |
| 11,921 | |
| 9,735 | |
FHLB letter of credit | |
| — | |
| 643 | |
Total commitments | | $ | 2,211,317 | | $ | 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 and nine months ended September 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | ACLC Roll-forward | ||||||||||||||||||||||||||||
| | | Three Months Ended | ||||||||||||||||||||||||||||
| | | 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 | | | $ | 145 | | $ | (43) | | $ | — | | $ | — | | $ | 102 | | $ | 162 | | $ | 28 | | $ | — | | $ | — | | $ | 190 |
Unused home equity lines of credit | | | | 353 | | | (315) | | | — | | | — | | | 38 | | | 277 | | | 20 | | | — | | | — | | | 297 |
Unused construction lines of credit | | | | 633 | | | 225 | | | — | | | — | | | 858 | | | — | | | — | | | — | | | — | | | — |
Unused loan commitments - other | | | | 399 | | | (57) | | | — | | | — | | | 342 | | | 661 | | | 32 | | | — | | | — | | | 693 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 1,530 | | $ | (190) | | $ | — | | $ | — | | $ | 1,340 | | $ | 1,100 | | $ | 80 | | $ | — | | $ | — | | $ | 1,180 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | ACLC Roll-forward | ||||||||||||||||||||||||||||
| | | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| | | 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 | | $ | (88) | | $ | — | | $ | — | | $ | 102 | | $ | 154 | | $ | 36 | | $ | — | | $ | — | | $ | 190 |
Unused home equity lines of credit | | | | 332 | | | (294) | | | — | | | — | | | 38 | | | 247 | | | 50 | | | — | | | — | | | 297 |
Unused construction lines of credit | | | | 384 | | | 474 | | | — | | | — | | | 858 | | | — | | | — | | | — | | | — | | | — |
Unused loan commitments - other | | | | 344 | | | (2) | | | — | | | — | | | 342 | | | 651 | | | 42 | | | — | | | — | | | 693 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 1,250 | | $ | 90 | | $ | — | | $ | — | | $ | 1,340 | | $ | 1,052 | | $ | 128 | | $ | — | | $ | — | | $ | 1,180 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company increased its ACLC during the three and nine months ended September 30, 2023 based primarily on a change in the loan mix to loans with higher reserve rates.
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.
For its TRUP investment, the Company considered the most recent bid price for the same instrument to approximate market value as of September 30, 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 Community Reinvestment Act 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: In December 2019, the Bank began offering 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 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. 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 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.
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 September 30, 2023 is presented net of any applicable ACL.
| | | | | | | | | | | | | |
| | Fair Value Measurements at | | | |
| |||||||
| | September 30, 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 | | $ | 175,623 | | $ | 239,989 | | $ | — | | $ | 415,612 | |
Private label mortgage-backed security | |
| — | |
| — | |
| 1,885 | |
| 1,885 | |
Mortgage-backed securities - residential | |
| — | |
| 155,549 | |
| — | |
| 155,549 | |
Collateralized mortgage obligations | |
| — | |
| 22,163 | |
| — | |
| 22,163 | |
Corporate bonds | | | — | | | 2,016 | | | — | | | 2,016 | |
Trust preferred security | |
| — | |
| — | |
| 3,995 | |
| 3,995 | |
Total available-for-sale debt securities | | $ | 175,623 | | $ | 419,717 | | $ | 5,880 | | $ | 601,220 | |
| | | | | | | | | | | | | |
Equity securities with readily determinable fair value: | | | | | | | | | | | | | |
Freddie Mac preferred stock | | $ | — | | $ | 137 | | $ | — | | $ | 137 | |
Total equity securities with readily determinable fair value | | $ | — | | $ | 137 | | $ | — | | $ | 137 | |
| | | | | | | | | | | | | |
Mortgage loans held for sale | | $ | — | | $ | 2,711 | | $ | — | | $ | 2,711 | |
Consumer loans held for sale | | | — | | | — | | | 8,443 | | | 8,443 | |
Rate lock loan commitments | |
| — | |
| 95 | |
| — | |
| 95 | |
Interest rate swap agreements | | | — | | | 8,935 | | | — | | | 8,935 | |
| | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | |
Mandatory forward contracts | | $ | — | | $ | 77 | | $ | — | | $ | 77 | |
Interest rate swap agreements | | | — | | | 8,935 | | | — | | | 8,935 | |
| | | | | | | | | | | | | |
| | 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 | |
Interest rate swap agreements | |
| — | |
| 8,128 | |
| — | |
| 8,128 | |
| | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | |
Mandatory forward contracts | | $ | — | | $ | 67 | | $ | — | | $ | 67 | |
Interest rate swap agreements | | | — | | | 8,128 | | | — | |
| 8,128 | |
46
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 and nine months ended September 30, 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 |
| Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands) | | 2023 | | 2022 | | 2023 | | 2022 | ||||
| | | | | | | | | | | | |
Balance, beginning of period | | $ | 1,988 | | $ | 2,478 | | $ | 2,127 | | $ | 2,731 |
Total gains or losses included in earnings: | | | | | | | | | | | | |
Net change in unrealized gain | |
| (6) | |
| 1 | |
| 26 | |
| 10 |
Principal paydowns | |
| (97) | |
| (195) | |
| (268) | |
| (457) |
Balance, end of period | | $ | 1,885 | | $ | 2,284 | | $ | 1,885 | | $ | 2,284 |
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.
Quantitative information about recurring Level 3 fair value measurement inputs for the Bank’s single private label mortgage-backed security follows:
| | | | | | | | | | |
|
| Fair |
| Valuation |
|
|
| |
| |
September 30, 2023 (dollars in thousands) | | Value | | Technique | | Unobservable Inputs | | Range |
| |
| | | | | | | | | | |
Private label mortgage-backed security | | $ | 1,885 |
| Discounted cash flow |
| (1) Constant prepayment rate |
| 2.8% - 4.5% | |
| | | | | | | | | | |
| | | | | |
| (2) Probability of default |
| 1.8% - 9.3% | |
| | | | | | | | | | |
| | | | | |
| (3) Loss severity |
| 12% - 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% | |
47
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 |
| Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(in thousands) | | 2023 | | 2022 | | 2023 | | 2022 | | ||||
| | | | | | | | | | | | | |
Balance, beginning of period | | $ | 3,746 | | $ | 3,824 | | $ | 3,855 | | $ | 3,847 | |
Total gains or losses included in earnings: | | | | | | | | | | | | | |
Discount accretion | | | 15 | | | 14 | | | 44 | | | 42 | |
Net change in unrealized gain | |
| 234 | |
| 72 | |
| 96 | |
| 21 | |
Balance, end of period | | $ | 3,995 | | $ | 3,910 | | $ | 3,995 | | $ | 3,910 | |
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.
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 September 30, 2023 and December 31, 2022.
The aggregate fair value, contractual balance, and unrealized gain were as follows:
| | | | | | | |
(in thousands) |
| September 30, 2023 |
| December 31, 2022 |
| ||
| | | | | | | |
Aggregate fair value | | $ | 2,711 | | $ | 1,302 | |
Contractual balance | |
| 2,671 | |
| 1,265 | |
Unrealized gain | |
| 40 | |
| 37 | |
The total amount of gains and losses from changes in fair value included in earnings for the three and nine months ended September 30, 2023 and 2022 for mortgage loans held for sale are presented in the following table:
| | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended |
| ||||||||
| | September 30, | | September 30, | | ||||||||
(in thousands) | | 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||
| | | | | | | | | | | | | |
Interest income | | $ | 84 | | $ | 112 | | $ | 206 | | $ | 469 | |
Change in fair value | |
| (36) | |
| (141) | |
| 3 | |
| (738) | |
Total included in earnings | | $ | 48 | | $ | (29) | | $ | 209 | | $ | (269) | |
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 September 30, 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.
48
The following table presents quantitative information about recurring Level 3 fair value measurement inputs for installment loans:
| | | | | | | | | |
|
| Fair |
| Valuation |
|
|
| | |
September 30, 2023 (dollars in thousands) | | Value | | Technique | | Unobservable Inputs | | Rate | |
| | | | | | | | | |
Consumer loans held for sale | | $ | 8,443 |
| 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% |
The aggregate fair value, contractual balance, and unrealized gain on consumer loans held for sale, at fair value, were as follows:
| | | | | | | |
(in thousands) |
| September 30, 2023 |
| December 31, 2022 | | ||
| | | | | | | |
Aggregate fair value | | $ | 8,443 | | $ | 4,706 | |
Contractual balance | |
| 8,494 | |
| 4,734 | |
Unrealized loss | |
| (51) | |
| (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 | | Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(in thousands) | | 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||
| | | | | | | | | | | | | |
Interest income | | $ | 1,077 | | $ | 3,009 | | $ | 2,790 | | $ | 8,889 | |
Change in fair value | |
| (16) | |
| 32 | |
| (23) | |
| (186) | |
Total included in earnings | | $ | 1,061 | | $ | 3,041 | | $ | 2,767 | | $ | 8,703 | |
Assets measured at fair value on a non-recurring basis are summarized below:
| | | | | | | | | | | | | |
| | Fair Value Measurements at | | | | | |||||||
| | September 30, 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 | | $ | — | | $ | — | | $ | 973 | | $ | 973 | |
Commercial real estate | |
| — | |
| — | |
| 818 | |
| 818 | |
Total collateral-dependent loans* | | $ | — | | $ | — | | $ | 1,791 | | $ | 1,791 | |
| | | | | | | | | | | | | |
Other real estate owned: | | | | | | | | | | | | | |
Commercial real estate | | $ | — | | $ | — | | $ | 1,423 | | $ | 1,423 | |
Total other real estate owned | | $ | — | | $ | — | | $ | 1,423 | | $ | 1,423 | |
| | | | | | | | | | | | | |
* | The difference between the carrying value and the fair value of collateral-dependent loans measured at fair value is reconciled in a subsequent table of this Footnote. |
49
| | | | | | | | | | | | |
| | 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 |
| | | | | | | | | | | | |
* | The difference between the carrying value and the fair value of collateral-dependent loans measured at fair value is reconciled in a subsequent table of this Footnote. |
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 | |
September 30, 2023 (dollars in thousands) | | Value | | Technique | | Inputs | | Average) | |
| | | | | | | | | |
Collateral-dependent loans - residential real estate owner occupied | | $ | 973 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 0% - 27% (5%) |
| | | | | | | | | |
Collateral-dependent loans - commercial real estate | | $ | 818 |
| Sales comparison approach |
| Adjustments determined for differences between comparable sales |
| 11% (11%) |
| | | | | | | | | |
Other real estate owned - commercial real estate | | $ | 1,423 |
| 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%) |
50
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-necessaryas 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-dependentThe Provision on collateral-dependent loans are as follows:
| | | | | | | |
(in thousands) |
| September 30, 2022 |
| December 31, 2021 |
| ||
| | | | | | | |
Carrying amount of loans measured at fair value | | $ | 1,815 | | $ | 4,928 | |
Estimated selling costs considered in carrying amount | |
| 479 | |
| 842 | |
Valuation allowance | | | (36) | | | (925) | |
Total fair value | | $ | 2,258 | | $ | 4,845 | |
| | | | | | | | | | | | | | | | | | | | ||||||
|
| Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended | | ||||||||||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | | ||||||||||||||||
(in thousands) | | 2022 |
| 2021 |
| 2022 |
| 2021 | | 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Provision on collateral-dependent loans | | $ | (7) | | $ | 345 | | $ | (11) | | $ | 393 | | $ | — | | $ | (7) | | $ | (20) | | $ | (11) | |
Other Real Estate Owned
Details of other real estate owned carrying value and write downs follows:
| | | | | | | | | | | ||||
|
| | | |
| | | | ||||||
(in thousands) | | September 30, 2022 |
| December 31, 2021 |
| | September 30, 2023 |
| December 31, 2022 |
| ||||
| | | | | | | | | | | | | | |
Other real estate owned carried at fair value | | $ | 1,634 | | $ | 1,792 | | | $ | 1,423 | | $ | 1,581 | |
Other real estate owned carried at cost | |
| — | |
| — | | |||||||
Total carrying value of other real estate owned | | $ | 1,634 | | $ | 1,792 | | | $ | 1,423 | | $ | 1,581 | |
Other real estate owned write-downs during the years ended | | $ | 158 | | $ | 211 | |
| | | | | | | | | | | | | | | | | | | ||||||||
|
| Three Months Ended | | Nine Months Ended |
|
| Three Months Ended | | Nine Months Ended |
| ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | | ||||||||||||||||
(in thousands) | | 2022 |
| 2021 |
| 2022 |
| 2021 | | | 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other real estate owned write-downs during the period | | $ | 53 | | $ | 53 | | $ | 158 | | $ | 158 | | | $ | 53 | | $ | 53 | | $ | 158 | | $ | 158 | |
5451
The carrying amounts and estimated exit price fair values of all financial instruments follow:
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||
| | | | Fair Value Measurements at |
| | | | | Fair Value Measurements at |
| |||||||||||||||||||||
| | | | September 30, 2022: |
| | | | | September 30, 2023: |
| |||||||||||||||||||||
|
| | |
| |
| |
| |
| Total |
|
| | |
| |
| |
| |
| Total |
| ||||||||
| | Carrying | | | | | | | | Fair |
| | Carrying | | | | | | | | Fair |
| ||||||||||
(in thousands) | | Value | | Level 1 | | Level 2 | | Level 3 | | Value |
| | Value | | Level 1 | | Level 2 | | Level 3 | | Value |
| ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 754,393 | | $ | 754,393 | | $ | — | | $ | — | | $ | 754,393 | | | $ | 219,653 | | $ | 219,653 | | $ | — | | $ | — | | $ | 219,653 | |
Available-for-sale debt securities | |
| 629,947 | |
| 203,013 | |
| 420,740 | |
| 6,194 | |
| 629,947 | | |
| 601,220 | |
| 175,623 | |
| 419,717 | |
| 5,880 | |
| 601,220 | |
Held-to-maturity debt securities | |
| 32,628 | |
| — | |
| 32,621 | |
| — | |
| 32,621 | | |
| 101,650 | |
| — | |
| 101,202 | |
| — | |
| 101,202 | |
Equity securities with readily determinable fair values | | | 175 | | | — | | | 175 | | | — | | | 175 | | | | 137 | | | — | | | 137 | | | — | | | 137 | |
Mortgage loans held for sale, at fair value | |
| 2,912 | |
| — | |
| 2,912 | |
| — | |
| 2,912 | | |
| 2,711 | |
| — | |
| 2,711 | |
| — | |
| 2,711 | |
Consumer loans held for sale, at fair value | | | 8,796 | | | — | | | — | | | 8,796 | | | 8,796 | | | | 8,443 | | | — | | | — | | | 8,443 | | | 8,443 | |
Consumer loans held for sale, at the lower of cost or fair value | | | 12,679 | | | — | | | — | | | 12,679 | | | 12,679 | | | | 13,529 | | | — | | | — | | | 13,529 | | | 13,529 | |
Loans, net | |
| 4,224,531 | |
| — | |
| — | |
| 4,048,246 | |
| 4,048,246 | | |
| 5,006,523 | |
| — | |
| — | |
| 4,692,640 | |
| 4,692,640 | |
Federal Home Loan Bank stock | |
| 8,568 | |
| — | |
| — | |
| — | |
| NA | | |
| 31,420 | |
| — | |
| — | |
| — | |
| NA | |
Accrued interest receivable | |
| 11,102 | |
| — | |
| 11,102 | |
| — | |
| 11,102 | | |
| 18,938 | |
| — | |
| 4,588 | |
| 14,350 | |
| 18,938 | |
Mortgage servicing rights | | | 9,177 | | | — | | | 17,592 | | | — | | | 17,592 | | | | 7,710 | | | — | | | 17,300 | | | — | | | 17,300 | |
Mandatory forward contracts | | | 639 | | | — | | | 639 | | | — | | | 639 | | ||||||||||||||||
Rate lock loan commitments | | | 95 | | | — | | | 95 | | | — | | | 95 | | ||||||||||||||||
Interest rate swap agreements | | | 7,121 | | | — | | | 7,121 | | | — | | | 7,121 | | | | 8,935 | | | — | | | 8,935 | | | — | | | 8,935 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing deposits | | $ | 2,014,123 | | $ | — | | $ | 2,014,123 | | $ | — | | $ | 2,014,123 | | | $ | 1,702,979 | | $ | — | | $ | 1,702,979 | | $ | — | | $ | 1,702,979 | |
Transaction deposits | |
| 2,540,961 | |
| — | |
| 2,540,961 | |
| — | |
| 2,540,961 | | |
| 2,660,149 | |
| — | |
| 2,660,149 | |
| — | |
| 2,660,149 | |
Time deposits | |
| 245,424 | |
| — | |
| 239,058 | |
| — | |
| 239,058 | | |
| 430,454 | |
| — | |
| 426,808 | |
| — | |
| 426,808 | |
Securities sold under agreements to repurchase and other short-term borrowings | |
| 209,376 | |
| — | |
| 209,376 | |
| — | |
| 209,376 | | |
| 82,376 | |
| — | |
| 82,376 | |
| — | |
| 82,376 | |
Federal Home Loan Bank advances | |
| 20,000 | |
| — | |
| 21,671 | |
| — | |
| 21,671 | | |
| 465,000 | |
| — | |
| 458,487 | |
| — | |
| 458,487 | |
Accrued interest payable | |
| 193 | |
| — | |
| 193 | |
| — | |
| 193 | | |
| 2,017 | |
| — | |
| 2,017 | |
| — | |
| 2,017 | |
Rate lock loan commitments | | | 175 | | | — | | | 175 | | | — | | | 175 | | | | 95 | | | — | | | 95 | | | — | | | 95 | |
Mandatory forward contracts | | | 77 | | | — | | | 77 | | | — | | | 77 | | ||||||||||||||||
Interest rate swap agreements | | | 7,121 | | | — | | | 7,121 | | | — | | | 7,121 | | | | 8,935 | | | — | | | 8,935 | | | — | | | 8,935 | |
5552
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||
| | | | Fair Value Measurements at |
| | | | Fair Value Measurements at |
| ||||||||||||||||||||||
| | | | December 31, 2021: |
| | | | December 31, 2022: |
| ||||||||||||||||||||||
|
| |
| |
| |
| |
| Total |
|
| |
| |
| |
| |
| Total |
| ||||||||||
| | Carrying | | | | | | | | Fair |
| | Carrying | | | | | | | | Fair |
| ||||||||||
(in thousands) | | Value | | Level 1 | | Level 2 | | Level 3 | | Value |
| | Value | | Level 1 | | Level 2 | | Level 3 | | Value |
| ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 756,971 | | $ | 756,971 | | $ | — | | $ | — | | $ | 756,971 | | | $ | 313,689 | | $ | 313,689 | | $ | — | | $ | — | | $ | 313,689 | |
Available-for-sale debt securities | |
| 495,126 | |
| 70,112 | |
| 418,436 | |
| 6,578 | |
| 495,126 | | |
| 620,365 | |
| 193,385 | |
| 420,998 | |
| 5,982 | |
| 620,365 | |
Held-to-maturity debt securities | |
| 44,299 | |
| — | |
| 44,764 | |
| — | |
| 44,764 | | |
| 87,386 | |
| — | |
| 87,357 | |
| — | |
| 87,357 | |
Equity securities with readily determinable fair values | | | 2,620 | | | 2,450 | | | 170 | | | — | | | 2,620 | | | | 111 | | | — | | | 111 | | | — | | | 111 | |
Mortgage loans held for sale, at fair value | |
| 29,393 | |
| — | |
| 29,393 | |
| — | |
| 29,393 | | |
| 1,302 | |
| — | |
| 1,302 | |
| — | |
| 1,302 | |
Consumer loans held for sale, at fair value | | | 19,747 | | | — | | | — | | | 19,747 | | | 19,747 | | | | 4,706 | | | — | | | — | | | 4,706 | | | 4,706 | |
Consumer loans held for sale, at the lower of cost or fair value | | | 2,937 | | | — | | | — | | | 2,937 | | | 2,937 | | | | 13,169 | | | — | | | — | | | 13,169 | | | 13,169 | |
Loans, net | |
| 4,431,985 | |
| — | |
| — | |
| 4,445,244 | |
| 4,445,244 | | |
| 4,445,389 | |
| — | |
| — | |
| 4,276,423 | |
| 4,276,423 | |
Federal Home Loan Bank stock | |
| 10,311 | |
| — | |
| — | |
| — | |
| NA | | |
| 9,146 | |
| — | |
| — | |
| — | |
| NA | |
Accrued interest receivable | |
| 9,877 | |
| — | |
| 9,877 | |
| — | |
| 9,877 | | |
| 13,572 | |
| — | |
| 2,462 | |
| 11,110 | |
| 13,572 | |
Mortgage servicing rights | | | 9,196 | | | — | | | 11,540 | | | — | | | 11,540 | | | | 8,769 | | | — | | | 17,592 | | | — | | | 17,592 | |
Rate lock loan commitments | | | 1,404 | | | — | | | 1,404 | | | — | | | 1,404 | | | | 2 | | | — | | | 2 | | | — | | | 2 | |
Mandatory forward contracts | | | 66 | | | — | | | 66 | | | — | | | 66 | | ||||||||||||||||
Interest rate swap agreements | | | 5,786 | | | — | | | 5,786 | | | — | | | 5,786 | | | | 8,128 | | | — | | | 8,128 | | | — | | | 8,128 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing deposits | | $ | 1,990,781 | | $ | — | | $ | 1,990,781 | | $ | — | | $ | 1,990,781 | | | $ | 1,908,768 | | $ | — | | $ | 1,908,768 | | $ | — | | $ | 1,908,768 | |
Transaction deposits | |
| 2,553,423 | |
| — | |
| 2,553,423 | |
| — | |
| 2,553,423 | | |
| 2,398,853 | |
| — | |
| 2,398,853 | |
| — | |
| 2,398,853 | |
Time deposits | |
| 296,214 | |
| — | |
| 298,236 | |
| — | |
| 298,236 | | |
| 230,224 | |
| — | |
| 223,912 | |
| — | |
| 223,912 | |
Securities sold under agreements to repurchase and other short-term borrowings | |
| 290,967 | |
| — | |
| 290,967 | |
| — | |
| 290,967 | | |
| 216,956 | |
| — | |
| 216,956 | |
| — | |
| 216,956 | |
Federal Home Loan Bank advances | |
| 25,000 | |
| — | |
| 25,000 | |
| — | |
| 25,000 | | |
| 95,000 | |
| — | |
| 93,044 | |
| — | |
| 93,044 | |
Accrued interest payable | |
| 159 | |
| — | |
| 159 | |
| — | |
| 159 | | |
| 239 | |
| — | |
| 239 | |
| — | |
| 239 | |
Mandatory forward contracts | | | 67 | | | — | | | 67 | | | — | | | 67 | | ||||||||||||||||
Interest rate swap agreements | | | 5,786 | | | — | | | 5,786 | | | — | | | 5,786 | | | | 8,128 | | | — | | | 8,128 | | | — | | | 8,128 | |
5653
11.12. 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 | | Nine Months Ended |
|
| Three Months Ended | | Nine Months Ended |
| ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | | ||||||||||||||||
(in thousands) | | 2022 |
| 2021 |
| 2022 |
| 2021 | | | 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 8,491 | | $ | 32,401 | | $ | 29,393 | | $ | 46,867 | | | $ | 4,038 | | $ | 8,491 | | $ | 1,302 | | $ | 29,393 | |
Origination of mortgage loans held for sale | |
| 32,856 | |
| 170,482 | |
| 195,006 | |
| 525,246 | | |
| 23,860 | |
| 32,856 | |
| 53,750 | |
| 195,006 | |
Proceeds from the sale of mortgage loans held for sale | |
| (39,220) | |
| (182,422) | |
| (226,191) | |
| (562,661) | | |
| (25,681) | |
| (39,220) | |
| (53,794) | |
| (226,191) | |
Net gain on sale of mortgage loans held for sale | |
| 785 | |
| 5,330 | |
| 4,704 | |
| 16,339 | | |
| 494 | |
| 785 | |
| 1,453 | |
| 4,704 | |
Balance, end of period | | $ | 2,912 | | $ | 25,791 | | $ | 2,912 | | $ | 25,791 | | | $ | 2,711 | | $ | 2,912 | | $ | 2,711 | | $ | 2,912 | |
The following table presents the components of Mortgage Banking income:
| | | | | | | | | | | | | | | | | | | | | | | ||||
|
| Three Months Ended |
| Nine Months Ended | |
| Three Months Ended |
| Nine Months Ended | | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | | ||||||||||||||||
(in thousands) | | 2022 |
| 2021 | | 2022 |
| 2021 | | | 2023 |
| 2022 | | 2023 |
| 2022 | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net gain realized on sale of mortgage loans held for sale | | $ | 1,041 | | $ | 5,008 | | $ | 6,448 | | $ | 18,764 | | | $ | 608 | | $ | 1,041 | | $ | 1,213 | | $ | 6,448 | |
Net change in fair value recognized on loans held for sale | |
| (141) | |
| (373) | |
| (738) | |
| (1,527) | | |
| (36) | |
| (141) | |
| 3 | |
| (738) | |
Net change in fair value recognized on rate lock loan commitments | |
| (395) | |
| (258) | |
| (1,579) | |
| (2,596) | | |
| (94) | |
| (395) | |
| 93 | |
| (1,579) | |
Net change in fair value recognized on forward contracts | |
| 280 | |
| 953 | |
| 573 | |
| 1,698 | | |
| 16 | |
| 280 | |
| 144 | |
| 573 | |
Net gain recognized | |
| 785 | |
| 5,330 | |
| 4,704 | |
| 16,339 | | |
| 494 | |
| 785 | |
| 1,453 | |
| 4,704 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Loan servicing income | |
| 894 | |
| 832 | |
| 2,643 | |
| 2,433 | | |
| 824 | |
| 894 | |
| 2,546 | |
| 2,643 | |
Amortization of mortgage servicing rights | |
| (525) | |
| (882) | |
| (1,773) | |
| (2,617) | | |
| (466) | |
| (525) | |
| (1,440) | |
| (1,773) | |
Change in mortgage servicing rights valuation allowance | |
| — | |
| — | |
| — | |
| 500 | | |
| — | |
| — | |
| — | |
| — | |
Net servicing income recognized | |
| 369 | |
| (50) | |
| 870 | |
| 316 | | |
| 358 | |
| 369 | |
| 1,106 | |
| 870 | |
Total Mortgage Banking income | | $ | 1,154 | | $ | 5,280 | | $ | 5,574 | | $ | 16,655 | | | $ | 852 | | $ | 1,154 | | $ | 2,559 | | $ | 5,574 | |
Activity for capitalized mortgage servicing rights was as follows:
| | | | | | | | | | | | | | | | | | | | | | ||||
|
| Three Months Ended | | Nine Months Ended | |
| Three Months Ended | | Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | ||||||||||||||||
(in thousands) | | 2022 |
| 2021 |
| 2022 |
| 2021 | | | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 9,407 | | $ | 8,335 | | $ | 9,196 | | $ | 7,095 | | | $ | 7,995 | | $ | 9,407 | | $ | 8,770 | | $ | 9,196 |
Additions | |
| 296 | |
| 1,414 | |
| 1,755 | |
| 3,889 | | |
| 182 | |
| 296 | |
| 381 | |
| 1,755 |
Amortized to expense | |
| (525) | |
| (882) | |
| (1,773) | |
| (2,617) | | |
| (466) | |
| (525) | |
| (1,440) | |
| (1,773) |
Change in valuation allowance | |
| — | |
| — | |
| — | |
| 500 | | |
| — | |
| — | |
| — | |
| — |
Balance, end of period | | $ | 9,178 | | $ | 8,867 | | $ | 9,178 | | $ | 8,867 | | | $ | 7,711 | | $ | 9,178 | | $ | 7,711 | | $ | 9,178 |
Activity in the valuation allowance for capitalized mortgage servicing rights follows:
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||||
|
| Three Months Ended | | Nine Months Ended | |
| Three Months Ended | | Nine Months Ended | | ||||||||||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | | ||||||||||||||||||||||||
(in thousands) | | 2022 |
| 2021 |
| 2022 |
| 2021 | | | 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||
Beginning valuation allowance | | $ | — | | $ | — | | $ | — | | $ | 500 | | | $ | — | | $ | — | | $ | — | | $ | — | | ||||||||
Charge during the period | |
| — | |
| — | |
| — | |
| (500) | | |
| — | |
| — | |
| — | |
| — | | ||||||||
Ending valuation allowance | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — | |
5754
Other information relating to mortgage servicing rights follows:
| | | | | | | | | | | | | | | | | | | |
(dollars in thousands) |
| September 30, 2022 |
|
| December 31, 2021 | |
| |
| September 30, 2023 |
|
| December 31, 2022 | |
| ||||
| | | | | | | | | | | | | | | | | | | |
Fair value of mortgage servicing rights portfolio | | $ | 17,592 | | | $ | 11,540 | | | | | $ | 17,300 | | | $ | 17,145 | | |
Monthly weighted average prepayment rate of unpaid principal balance* | |
| 125 | % | |
| 208 | % | | | |
| 120 | % | |
| 127 | % | |
Discount rate | | | 10.21 | % | | | 10.15 | % | | | | | 10.39 | % | | | 10.21 | % | |
Weighted average foreclosure rate | | | 0.13 | % | | | 0.19 | % | | | | | 0.11 | % | | | 0.10 | % | |
Weighted average life in years | |
| 7.60 | | |
| 5.93 | | | | |
| 7.69 | | |
| 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 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.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 loan 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:
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
| | September 30, 2022 |
| December 31, 2021 | | | September 30, 2023 |
| December 31, 2022 | | ||||||||||||||||||||||||||
| | Notional | | | | Notional | | | | | Notional | | | | | Notional | | | | | ||||||||||||||||
(in thousands) | | Amount |
| Fair Value | | Amount |
| Fair Value | | | Amount |
| Fair Value | | Amount |
| Fair Value | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Included in Mortgage loans held for sale: | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Mortgage loans held for sale, at fair value | | $ | 2,925 | | $ | 2,912 | | $ | 28,668 | | $ | 29,393 | | | $ | 2,671 | | $ | 2,711 | | $ | 1,265 | | $ | 1,302 | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Included in other assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Rate lock loan commitments | | $ | — | | $ | — | | $ | 56,736 | | $ | 1,404 | | | $ | 9,487 | | $ | 95 | | $ | 4,118 | | $ | 2 | | ||||||||||
Mandatory forward contracts | | | 13,852 | | 639 | | 70,812 | | 66 | | | | — | | | — | | | — | | | — | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Included in other liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
Rate lock loan commitments | | $ | 12,168 | | $ | 175 | | $ | — | | $ | — | | |||||||||||||||||||||||
Mandatory forward contracts | | $ | 9,325 | | $ | 77 | | $ | 4,009 | | $ | 67 | |
5855
12.13. 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, to meet client needs, 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:
| | | | | | | | | | | | | | | | | | | | | | | | ||||||||
| | |
| September 30, 2022 | | December 31, 2021 | |
| | |
| September 30, 2023 | | December 31, 2022 | | ||||||||||||||||
| | | | Notional | | | | | Notional | | | | |
| | | | Notional | | | | | Notional | | | | | ||||
(in thousands) |
| Bank Position | | Amount |
| Fair Value |
| Amount |
| Fair Value | |
|
| Bank Position | | Amount |
| Fair Value |
| Amount |
| Fair Value | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swaps with Bank clients - Assets |
| Pay variable/receive fixed |
| $ | — |
| $ | — |
| $ | 107,502 |
| $ | 5,786 | | |
| Pay variable/receive fixed |
| $ | 13,413 |
| $ | 202 |
| $ | 40,032 |
| $ | 1,386 | |
Interest rate swaps with Bank clients - Liabilities |
| Pay variable/receive fixed |
| | 92,743 |
| | (7,121) |
| | 16,423 | | | (298) | | |
| Pay variable/receive fixed |
| | 155,242 |
| | (8,733) |
| | 91,636 | | | (6,742) | |
Interest rate swaps with Bank clients - Total |
| Pay variable/receive fixed |
| $ | 92,743 |
| $ | (7,121) |
| $ | 123,925 |
| $ | 5,488 | | |
| Pay variable/receive fixed |
| $ | 168,655 |
| $ | (8,531) |
| $ | 131,668 |
| $ | (5,356) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||
Offsetting interest rate swaps with institutional swap dealer | | Pay fixed/receive variable | | | 92,743 | | | 7,121 | | | 123,925 | | | (5,488) | | | |||||||||||||||
Offsetting interest rate swaps with institutional swap dealer - Assets | | Pay fixed/receive variable | | 153,132 | | | 8,733 | | 91,636 | | 6,742 | | |||||||||||||||||||
Offsetting interest rate swaps with institutional swap dealer - Liabilities | | Pay fixed/receive variable | | | 15,523 | | | (202) | | | 40,032 | | | (1,386) | | ||||||||||||||||
Offsetting interest rate swaps with institutional swap dealer - Total | | Pay fixed/receive variable | | $ | 168,655 |
| $ | 8,531 |
| $ | 131,668 |
| $ | 5,356 | | ||||||||||||||||
| | | | | | | | | | | | | |||||||||||||||||||
Total | | |
| $ | 185,486 | | $ | — |
| $ | 247,850 | | $ | — | | | | |
| $ | 337,310 | | $ | — |
| $ | 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 $0$9 million and $6.8 million$560,000 as of September 30, 20222023 and December 31, 2021.2022.
5956
13.14. 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 | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | ||||||||||||||||||
(in thousands, except per share data) | |
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | ||
Net income | | $ | 19,483 | | $ | 20,009 | | $ | 71,310 | | $ | 69,984 | | | $ | 21,571 | | $ | 19,896 | | $ | 70,715 | | $ | 72,593 | ||
Dividends declared on Common Stock: | | | | | | | | | | | | | | | | | | | | | | | |||||
Class A Shares | | | (5,995) | | | (5,557) | | (18,123) | | | (16,980) | | | | (6,456) | | | (5,995) | | (19,574) | | | (18,123) | ||||
Class B Shares | | | (669) | | | (606) | | | (2,010) | | | (1,830) | | | | (733) | | | (669) | | | (2,200) | | | (2,010) | ||
Undistributed net income for basic earnings per share | | | 12,819 | | | 13,846 | | | 51,177 | | | 51,174 | | | | 14,382 | | | 13,232 | | | 48,941 | | | 52,460 | ||
Weighted average potential dividends on Class A shares upon exercise of dilutive options | | | (21) | | | (17) | | | (70) | | | (40) | | | | (25) | | | (21) | | | (62) | | | (70) | ||
Undistributed net income for diluted earnings per share | | $ | 12,798 | | $ | 13,829 | | $ | 51,107 | | $ | 51,134 | | | $ | 14,357 | | $ | 13,211 | | $ | 48,879 | | $ | 52,390 | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | ||
Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Class A Shares | |
| 17,759 | |
| 18,342 | |
| 17,904 | |
| 18,625 | | |
| 17,549 | |
| 17,759 | |
| 17,697 | |
| 17,904 | ||
Class B Shares | | | 2,160 | | | 2,166 | | | 2,162 | | | 2,182 | | | | 2,157 | | | 2,160 | | | 2,158 | | | 2,162 | ||
Effect of dilutive securities on Class A Shares outstanding | |
| 62 | |
| 83 | |
| 68 | |
| 72 | | |
| 68 | |
| 62 | |
| 55 | |
| 68 | ||
Weighted average shares outstanding including dilutive securities | |
| 19,981 | |
| 20,591 | |
| 20,134 | |
| 20,879 | | |
| 19,774 | |
| 19,981 | |
| 19,910 | |
| 20,134 | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | ||
Basic earnings per share: | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Class A Common Stock: | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Per share dividends distributed | | $ | 0.34 | | $ | 0.31 | | $ | 1.02 | | $ | 0.92 | | | $ | 0.37 | | $ | 0.34 | | $ | 1.12 | | $ | 1.02 | ||
Undistributed earnings per share* | | | 0.65 | | | 0.68 | | | 2.58 | | | 2.48 | | | | 0.74 | | | 0.67 | | | 2.49 | | | 2.64 | ||
Total basic earnings per share - Class A Common Stock | | $ | 0.99 | | $ | 0.99 | | $ | 3.60 | | $ | 3.40 | | | $ | 1.11 | | $ | 1.01 | | $ | 3.61 | | $ | 3.66 | ||
| | | | | | | | | | | | | | | | | | | | | | | | ||||
Class B Common Stock: | | | | | | | | | | | | | | | | | | | | | | | | ||||
Per share dividends distributed | | $ | 0.31 | | $ | 0.28 | | $ | 0.93 | ��� | $ | 0.84 | | | $ | 0.34 | | $ | 0.31 | | $ | 1.02 | | $ | 0.93 | ||
Undistributed earnings per share* | | | 0.59 | | | 0.62 | | | 2.34 | | | 2.26 | | | | 0.67 | | | 0.61 | | | 2.26 | | | 2.40 | ||
Total basic earnings per share - Class B Common Stock | | $ | 0.90 | | $ | 0.90 | | $ | 3.27 | | $ | 3.10 | | | $ | 1.01 | | $ | 0.92 | | $ | 3.28 | | $ | 3.33 | ||
| | | | | | | | | | | | | | | | | | | | | | | | | | ||
Diluted earnings per share: | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Class A Common Stock: | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Per share dividends distributed | | $ | 0.34 | | $ | 0.31 | | $ | 1.02 | | $ | 0.92 | | | $ | 0.37 | | $ | 0.34 | | $ | 1.12 | | $ | 1.02 | ||
Undistributed earnings per share* | | | 0.65 | | | 0.68 | | | 2.56 | | | 2.47 | | | | 0.73 | | | 0.67 | | | 2.48 | | | 2.63 | ||
Total diluted earnings per share - Class A Common Stock | | $ | 0.99 | | $ | 0.99 | | $ | 3.58 | | $ | 3.39 | | | $ | 1.10 | | $ | 1.01 | | $ | 3.60 | | $ | 3.65 | ||
| | | | | | | | | | | | | | | | | | | | | | | | ||||
Class B Common Stock: | | | | | | | | | | | | | | | | | | | | | | | | ||||
Per share dividends distributed | | $ | 0.31 | | $ | 0.28 | | $ | 0.93 | | $ | 0.84 | | | $ | 0.34 | | $ | 0.31 | | $ | 1.02 | | $ | 0.93 | ||
Undistributed earnings per share* | | | 0.59 | | | 0.62 | | | 2.33 | | | 2.25 | | | | 0.67 | | | 0.61 | | | 2.25 | | | 2.39 | ||
Total diluted earnings per share - Class B Common Stock | | $ | 0.90 | | $ | 0.90 | | $ | 3.26 | | $ | 3.09 | | | $ | 1.01 | | $ | 0.92 | | $ | 3.27 | | $ | 3.32 |
* | 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 | | Nine Months Ended | | |
| Three Months Ended | | Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | | | September 30, | | September 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | |
| 2023 |
| 2022 |
| 2023 |
| 2022 | |
| | | | | | | | | | | | | | | | | | | |
Antidilutive stock options |
| 180,000 |
| 141,000 |
| 180,000 | | 144,000 | | |
| 121,781 |
| 180,000 |
| 193,398 | | 180,000 | |
Average antidilutive stock options |
| 177,000 |
| 141,000 |
| 174,000 | | 144,000 | | |
| 117,998 |
| 177,000 |
| 193,398 | | 174,000 | |
6057
14.15. OTHER COMPREHENSIVE INCOME
OCI components and related tax effects were as follows:
| | | | | | | | | | | | | | | | | | ||||||||
|
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended |
| Nine Months Ended | | ||||||||||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | | ||||||||||||||||
(in thousands) | | 2022 |
| 2021 |
| 2022 |
| 2021 | | 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-Sale Debt Securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized losses on AFS debt securities | | $ | (15,510) | | $ | (1,899) | | $ | (46,892) | | $ | (4,542) | |||||||||||||
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings | |
| 1 | |
| 13 | |
| 10 | |
| 62 | |||||||||||||
Net losses | |
| (15,509) | |
| (1,886) | |
| (46,882) | |
| (4,480) | |||||||||||||
Tax effect | |
| 3,875 | |
| 471 | |
| 11,720 | |
| 1,119 | |||||||||||||
Unrealized gain (loss) on AFS debt securities | | $ | 1,024 | | $ | (15,510) | | $ | 1,812 | | $ | (46,892) | | ||||||||||||
Unrealized gain (loss) on AFS debt security for which a portion of OTTI has been recognized in earnings | |
| (7) | |
| 1 | |
| 27 | |
| 10 | | ||||||||||||
Net gains (losses) | |
| 1,017 | |
| (15,509) | |
| 1,839 | |
| (46,882) | | ||||||||||||
Income tax benefit (expense) related to items of other comprehensive income | |
| (250) | |
| 3,875 | |
| (461) | |
| 11,720 | | ||||||||||||
Net of tax | |
| (11,634) | |
| (1,415) | | $ | (35,162) | | $ | (3,361) | |
| 767 | |
| (11,634) | | $ | 1,378 | | $ | (35,162) | |
The following is a summary of the AOCI balances, net of tax:
| | | | | | | | | | | | | | | ||||||
|
| | |
| 2022 |
| | |
|
| | |
| 2023 |
| | |
| ||
(in thousands) | | December 31, 2021 | | Change | | September 30, 2022 |
| | December 31, 2022 | | Change | | September 30, 2023 |
| ||||||
| | | | | | | | | | | | | | | | | | | | |
Unrealized gain (loss) on AFS debt securities | | $ | 890 | | $ | (35,169) | | $ | (34,279) | | | $ | (32,934) | | $ | 1,351 | | $ | (31,583) | |
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings | |
| 984 | |
| 7 | |
| 991 | | |
| 955 | |
| 27 | |
| 982 | |
Total unrealized gain (loss) | | $ | 1,874 | | $ | (35,162) | | $ | (33,288) | | | $ | (31,979) | | $ | 1,378 | | $ | (30,601) | |
| | | | | | | | | | | | | | | ||||||
|
| | |
| 2021 |
| | |
|
| | |
| 2022 |
| | |
| ||
(in thousands) | | December 31, 2020 | | Change | | September 30, 2021 |
| | December 31, 2021 | | Change | | September 30, 2022 |
| ||||||
| | | | | | | | | | | | | | | | | | | | |
Unrealized gain (loss) on AFS debt securities | | $ | 7,571 | | $ | (3,407) | | $ | 4,164 | | | $ | 890 | | $ | (35,169) | | $ | (34,279) | |
Unrealized gain on AFS debt security for which a portion of OTTI has been recognized in earnings | |
| 938 | |
| 46 | |
| 984 | | |
| 984 | |
| 7 | |
| 991 | |
Total unrealized gain (loss) | | $ | 8,509 | | $ | (3,361) | | $ | 5,148 | | | $ | 1,874 | | $ | (35,162) | | $ | (33,288) | |
6158
15.16. REVENUE FROM CONTRACTS WITH CUSTOMERS
The following tables present the Company’s net revenue and net revenue concentration by reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
| | Three Months Ended September 30, 2022 |
| | Three Months Ended September 30, 2023 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Core Banking | | | Republic Processing Group | | | | |
| | Core Banking | | | Republic Processing Group | | | | |
| ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | Total | | | Tax | | Republic | | | | | | | | | | | | | | | | | | | | | Total | | | Tax | | Republic | | | | | | | | | | ||||||||
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| ||||||||||||||||
(dollars in thousands) | | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income (1) | | $ | 46,562 | | $ | 3,011 | | $ | 112 | |
| $ | 49,685 | | | $ | 1,709 | | $ | 6,642 | | | $ | 8,351 | | | | $ | 58,036 | | | $ | 47,409 | | $ | 2,467 | | $ | 84 | |
| $ | 49,960 | | | $ | 4,525 | | $ | 10,340 | | | $ | 14,865 | | | | $ | 64,825 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | | | 3,397 | | | 13 | | | — | | | | 3,410 | | | | (1) | | | — | | | | (1) | | | | | 3,409 | | | | 3,547 | | | 11 | | | — | | | | 3,558 | | | | — | | | 1 | | | | 1 | | | | | 3,559 | |
Net refund transfer fees | |
| — | |
| — | |
| — | | |
| — | | |
| 593 | |
| — | | |
| 593 | | | |
| 593 | | |
| — | |
| — | |
| — | | |
| — | | |
| 242 | |
| — | | |
| 242 | | | |
| 242 | |
Mortgage banking income (1) | |
| — | |
| — | |
| 1,154 | | |
| 1,154 | | |
| — | |
| — | | |
| — | | | |
| 1,154 | | |
| — | |
| — | |
| 852 | | |
| 852 | | |
| — | |
| — | | |
| — | | | |
| 852 | |
Interchange fee income | | | 3,292 | | | — | | | — | | | | 3,292 | | | | 30 | | | — | | | | 30 | | | | | 3,322 | | | | 3,258 | | | — | | | — | | | | 3,258 | | | | 23 | | | 1 | | | | 24 | | | | | 3,282 | |
Program fees (1) | | | — | | | — | | | — | | | | — | | | | 724 | | | 4,208 | | | | 4,932 | | | | | 4,932 | | | | — | | | — | | | — | | | | — | | | | 705 | | | 3,336 | | | | 4,041 | | | | | 4,041 | |
Increase in cash surrender value of BOLI (1) | | | 617 | | | — | | | — | | | | 617 | | | | — | | | — | | | | — | | | | | 617 | | | | 690 | | | — | | | — | | | | 690 | | | | — | | | — | | | | — | | | | | 690 | |
Death benefits in excess of cash surrender value of life insurance | | | — | | | — | | | — | | | | — | | | | — | | | — | | | | — | | | | | — | | ||||||||||||||||||||||||||||||
Net losses on OREO | | | (53) | | | — | | | — | | | | (53) | | | | — | | | — | | | | — | | | | | (53) | | | | (53) | | | — | | | — | | | | (53) | | | | — | | | — | | | | — | | | | | (53) | |
Legal settlement | | | — | | | — | | | — | | | | — | | | | — | | | — | | | | — | | | | | — | | ||||||||||||||||||||||||||||||
Other | |
| 1,007 | |
| — | |
| 33 | | |
| 1,040 | | |
| 33 | |
| — | | |
| 33 | | | |
| 1,073 | | |
| 1,306 | |
| — | |
| 15 | | |
| 1,321 | | |
| 59 | |
| 26 | | |
| 85 | | | |
| 1,406 | |
Total noninterest income | |
| 8,260 | |
| 13 | |
| 1,187 | | |
| 9,460 | | |
| 1,379 | |
| 4,208 | | |
| 5,587 | | | |
| 15,047 | | |
| 8,748 | |
| 11 | |
| 867 | | |
| 9,626 | | |
| 1,029 | |
| 3,364 | | |
| 4,393 | | | |
| 14,019 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total net revenue | | $ | 54,822 | | $ | 3,024 | | $ | 1,299 | | | $ | 59,145 | | | $ | 3,088 | | $ | 10,850 | | | $ | 13,938 | | | | $ | 73,083 | | | $ | 56,157 | | $ | 2,478 | | $ | 951 | | | $ | 59,586 | | | $ | 5,554 | | $ | 13,704 | | | $ | 19,258 | | | | $ | 78,844 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net-revenue concentration (2) | | | 75 | % | | 4 | % | | 2 | % | | | 81 | % | | | 4 | % | | 15 | % | | | 19 | % | | | | 100 | % | | | 72 | % | | 3 | % | | 1 | % | | | 76 | % | | | 7 | % | | 17 | % | | | 24 | % | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
| | Three Months Ended September 30, 2021 |
| | Three Months Ended September 30, 2022 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Core Banking | | | Republic Processing Group | | | | |
| | Core Banking | | | Republic Processing Group | | | | |
| ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | Total | | | Tax | | Republic | | | | | | | | | | | | | | | | | | | | | Total | | | Tax | | Republic | | | | | | | | | | ||||||||
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| ||||||||||||||||
(dollars in thousands) | | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income (1) | | $ | 40,297 | | $ | 6,291 | | $ | 253 | |
| $ | 46,841 | | | $ | 294 | | $ | 5,994 | | | $ | 6,288 | | | | $ | 53,129 | | | $ | 46,562 | | $ | 3,011 | | $ | 112 | |
| $ | 49,685 | | | $ | 1,709 | | $ | 7,203 | | | $ | 8,912 | | | | $ | 58,597 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | | | 3,262 | | | 15 | | | — | | | | 3,277 | | | | — | | | — | | | | — | | | | | 3,277 | | | | 3,397 | | | 13 | | | — | | | | 3,410 | | | | (1) | | | — | | | | (1) | | | | | 3,409 | |
Net refund transfer fees | |
| — | |
| — | |
| — | | |
| — | | |
| 1,280 | |
| — | | |
| 1,280 | | | |
| 1,280 | | |
| — | |
| — | |
| — | | |
| — | | |
| 593 | |
| — | | |
| 593 | | | |
| 593 | |
Mortgage banking income (1) | |
| — | |
| — | |
| 5,280 | | |
| 5,280 | | |
| — | |
| — | | |
| — | | | |
| 5,280 | | |
| — | |
| — | |
| 1,154 | | |
| 1,154 | | |
| — | |
| — | | |
| — | | | |
| 1,154 | |
Interchange fee income | | | 3,198 | | | — | | | — | | | | 3,198 | | | | 65 | | | — | | | | 65 | | | | | 3,263 | | | | 3,292 | | | — | | | — | | | | 3,292 | | | | 30 | | | — | | | | 30 | | | | | 3,322 | |
Program fees (1) | | | — | | | — | | | — | | | | — | | | | 762 | | | 3,256 | | | | 4,018 | | | | | 4,018 | | | | — | | | — | | | — | | | | — | | | | 724 | | | 4,208 | | | | 4,932 | | | | | 4,932 | |
Increase in cash surrender value of BOLI (1) | | | 626 | | | — | | | — | | | | 626 | | | | — | | | — | | | | — | | | | | 626 | | | | 617 | | | — | | | — | | | | 617 | | | | — | | | — | | | | — | | | | | 617 | |
Net losses on OREO | | | (52) | | | — | | | — | | | | (52) | | | | — | | | — | | | | — | | | | | (52) | | | | (53) | | | — | | | — | | | | (53) | | | | — | | | — | | | | — | | | | | (53) | |
Other | |
| 1,071 | |
| — | |
| 62 | | |
| 1,133 | | |
| — | |
| — | | |
| — | | | |
| 1,133 | | |
| 1,068 | |
| — | |
| 33 | | |
| 1,101 | | |
| 33 | |
| — | | |
| 33 | | | |
| 1,134 | |
Total noninterest income | |
| 8,105 | |
| 15 | |
| 5,342 | | |
| 13,462 | | |
| 2,107 | |
| 3,256 | | |
| 5,363 | | | |
| 18,825 | | |
| 8,321 | |
| 13 | |
| 1,187 | | |
| 9,521 | | |
| 1,379 | |
| 4,208 | | |
| 5,587 | | | |
| 15,108 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total net revenue | | $ | 48,402 | | $ | 6,306 | | $ | 5,595 | | | $ | 60,303 | | | $ | 2,401 | | $ | 9,250 | | | $ | 11,651 | | | | $ | 71,954 | | | $ | 54,883 | | $ | 3,024 | | $ | 1,299 | | | $ | 59,206 | | | $ | 3,088 | | $ | 11,411 | | | $ | 14,499 | | | | $ | 73,705 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net-revenue concentration (2) | | | 67 | % | | 9 | % | | 8 | % | | | 84 | % | | | 3 | % | | 13 | % | | | 16 | % | | | | 100 | % | | | 75 | % | | 4 | % | | 2 | % | | | 81 | % | | | 4 | % | | 15 | % | | | 19 | % | | | | 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. |
6259
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
| | Nine Months Ended September 30, 2022 |
| | Nine Months Ended September 30, 2023 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Core Banking | | | Republic Processing Group | | | | |
| | Core Banking | | | Republic Processing Group | | | | |
| ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | Total | | | Tax | | Republic | | | | | | | | | | | | | | | | | | | | | Total | | | Tax | | Republic | | | | | | | | | | ||||||||
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| ||||||||||||||||
(dollars in thousands) | | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income (1) | | $ | 121,868 | | $ | 11,412 | | $ | 469 | |
| $ | 133,749 | | | $ | 18,751 | | $ | 19,380 | | | $ | 38,131 | | | | $ | 171,880 | | | $ | 146,198 | | $ | 7,196 | | $ | 206 | |
| $ | 153,600 | | | $ | 40,300 | | $ | 28,096 | | | $ | 68,396 | | | | $ | 221,996 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | | | 9,971 | | | 38 | | | — | | | | 10,009 | | | | (11) | | | — | | | | (11) | | | | | 9,998 | | | | 10,351 | | | 33 | | | — | | | | 10,384 | | | | — | | | 1 | | | | 1 | | | | | 10,385 | |
Net refund transfer fees | |
| — | |
| — | |
| — | | |
| — | | |
| 16,594 | |
| — | | |
| 16,594 | | | |
| 16,594 | | |
| — | |
| — | |
| — | | |
| — | | |
| 15,528 | |
| — | | |
| 15,528 | | | |
| 15,528 | |
Mortgage banking income (1) | |
| — | |
| — | |
| 5,574 | | |
| 5,574 | | |
| — | |
| — | | |
| — | | | |
| 5,574 | | |
| — | |
| — | |
| 2,559 | | |
| 2,559 | | |
| — | |
| — | | |
| — | | | |
| 2,559 | |
Interchange fee income | | | 9,693 | | | — | | | — | | | | 9,693 | | | | 160 | | | — | | | | 160 | | | | | 9,853 | | | | 9,639 | | | — | | | — | | | | 9,639 | | | | 112 | | | 1 | | | | 113 | | | | | 9,752 | |
Program fees (1) | | | — | | | — | | | — | | | | — | | | | 2,187 | | | 10,484 | | | | 12,671 | | | | | 12,671 | | | | — | | | — | | | — | | | | — | | | | 2,140 | | | 8,881 | | | | 11,021 | | | | | 11,021 | |
Increase in cash surrender value of BOLI (1) | | | 1,852 | | | — | | | — | | | | 1,852 | | | | — | | | — | | | | — | | | | | 1,852 | | | | 2,014 | | | — | | | — | | | | 2,014 | | | | — | | | — | | | | — | | | | | 2,014 | |
Death benefits in excess of cash surrender value of life insurance (1) | | | 1,728 | | | — | | | — | | | | 1,728 | | | | — | | | — | | | | — | | | | | 1,728 | | ||||||||||||||||||||||||||||||
Net losses on OREO | | | (158) | | | — | | | — | | | | (158) | | | | — | | | — | | | | — | | | | | (158) | | | | (158) | | | — | | | — | | | | (158) | | | | — | | | — | | | | — | | | | | (158) | |
Contract termination fee | | | — | | | — | | | — | | | | — | | | | 5,000 | | | — | | | | 5,000 | | | | | 5,000 | | ||||||||||||||||||||||||||||||
Legal settlement | | | — | | | — | | | — | | | | — | | | | 13,000 | | | — | | | | 13,000 | | | | | 13,000 | | ||||||||||||||||||||||||||||||
Other | |
| 1,867 | |
| — | |
| 113 | | |
| 1,980 | | |
| 250 | |
| — | | |
| 250 | | | |
| 2,230 | | |
| 3,158 | |
| — | |
| 59 | | |
| 3,217 | | |
| 214 | |
| 91 | | |
| 305 | | | |
| 3,522 | |
Total noninterest income | |
| 23,225 | |
| 38 | |
| 5,687 | | |
| 28,950 | | |
| 37,180 | |
| 10,484 | | |
| 47,664 | | | |
| 76,614 | | |
| 26,732 | |
| 33 | |
| 2,618 | | |
| 29,383 | | |
| 17,994 | |
| 8,974 | | |
| 26,968 | | | |
| 56,351 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total net revenue | | $ | 145,093 | | $ | 11,450 | | $ | 6,156 | | | $ | 162,699 | | | $ | 55,931 | | $ | 29,864 | | | $ | 85,795 | | | | $ | 248,494 | | | $ | 172,930 | | $ | 7,229 | | $ | 2,824 | | | $ | 182,983 | | | $ | 58,294 | | $ | 37,070 | | | $ | 95,364 | | | | $ | 278,347 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net-revenue concentration (2) | | | 58 | % | | 5 | % | | 2 | % | | | 65 | % | | | 23 | % | | 12 | % | | | 35 | % | | | | 100 | % | | | 62 | % | | 3 | % | | 1 | % | | | 66 | % | | | 21 | % | | 13 | % | | | 34 | % | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||
| | Nine Months Ended September 30, 2021 |
| | Nine Months Ended September 30, 2022 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Core Banking | | | Republic Processing Group | | | | |
| | Core Banking | | | Republic Processing Group | | | | |
| ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | Total | | | Tax | | Republic | | | | | | | | | | | | | | | | | | | | | Total | | | Tax | | Republic | | | | | | | | | | ||||||||
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| ||||||||||||||||
(dollars in thousands) | | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income (1) | | $ | 119,677 | | $ | 19,387 | | $ | 802 | |
| $ | 139,866 | | | $ | 15,593 | | $ | 15,840 | | | $ | 31,433 | | | | $ | 171,299 | | | $ | 121,868 | | $ | 11,412 | | $ | 469 | |
| $ | 133,749 | | | $ | 18,751 | | $ | 21,078 | | | $ | 39,829 | | | | $ | 173,578 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | | | 9,188 | | | 43 | | | — | | | | 9,231 | | | | (10) | | | — | | | | (10) | | | | | 9,221 | | | | 9,971 | | | 38 | | | — | | | | 10,009 | | | | (11) | | | — | | | | (11) | | | | | 9,998 | |
Net refund transfer fees | |
| 2 | |
| — | |
| — | | |
| 2 | | |
| 19,922 | |
| — | | |
| 19,922 | | | |
| 19,924 | | |
| — | |
| — | |
| — | | |
| — | | |
| 16,594 | |
| — | | |
| 16,594 | | | |
| 16,594 | |
Mortgage banking income (1) | |
| — | |
| — | |
| 16,655 | | |
| 16,655 | | |
| — | |
| — | | |
| — | | | |
| 16,655 | | |
| — | |
| — | |
| 5,574 | | |
| 5,574 | | |
| — | |
| — | | |
| — | | | |
| 5,574 | |
Interchange fee income | | | 9,534 | | | — | | | — | | | | 9,534 | | | | 237 | | | — | | | | 237 | | | | | 9,771 | | | | 9,693 | | | — | | | — | | | | 9,693 | | | | 160 | | | — | | | | 160 | | | | | 9,853 | |
Program fees (1) | | | — | | | — | | | — | | | | — | | | | 2,373 | | | 7,196 | | | | 9,569 | | | | | 9,569 | | | | — | | | — | | | — | | | | — | | | | 2,187 | | | 10,484 | | | | 12,671 | | | | | 12,671 | |
Increase in cash surrender value of BOLI (1) | | | 1,616 | | | — | | | — | | | | 1,616 | | | | — | | | — | | | | — | | | | | 1,616 | | | | 1,852 | | | — | | | — | | | | 1,852 | | | | — | | | — | | | | — | | | | | 1,852 | |
Net losses on OREO | | | (107) | | | — | | | — | | | | (107) | | | | — | | | — | | | | — | | | | | (107) | | | | (158) | | | — | | | — | | | | (158) | | | | — | | | — | | | | — | | | | | (158) | |
Contract termination fee | | | — | | | — | | | — | | | | — | | | | 5,000 | | | — | | | | 5,000 | | | | | 5,000 | | ||||||||||||||||||||||||||||||
Legal settlement | | | — | | | — | | | — | | | | — | | | | 13,000 | | | — | | | | 13,000 | | | | | 13,000 | | ||||||||||||||||||||||||||||||
Other | |
| 2,628 | |
| — | |
| 140 | | |
| 2,768 | | |
| 77 | |
| — | | |
| 77 | | | |
| 2,845 | | |
| 1,939 | |
| — | |
| 113 | | |
| 2,052 | | |
| 250 | |
| — | | |
| 250 | | | |
| 2,302 | |
Total noninterest income | |
| 22,861 | |
| 43 | |
| 16,795 | | |
| 39,699 | | |
| 22,599 | |
| 7,196 | | |
| 29,795 | | | |
| 69,494 | | |
| 23,297 | |
| 38 | |
| 5,687 | | |
| 29,022 | | |
| 37,180 | |
| 10,484 | | |
| 47,664 | | | |
| 76,686 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total net revenue | | $ | 142,538 | | $ | 19,430 | | $ | 17,597 | | | $ | 179,565 | | | $ | 38,192 | | $ | 23,036 | | | $ | 61,228 | | | | $ | 240,793 | | | $ | 145,165 | | $ | 11,450 | | $ | 6,156 | | | $ | 162,771 | | | $ | 55,931 | | $ | 31,562 | | | $ | 87,493 | | | | $ | 250,264 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net-revenue concentration (2) | | | 59 | % | | 8 | % | | 7 | % | | | 74 | % | | | 16 | % | | 10 | % | | | 26 | % | | | | 100 | % | | | 58 | % | | 5 | % | | 2 | % | | | 65 | % | | | 22 | % | | 13 | % | | | 35 | % | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(3) | This revenue is not subject to ASC 606. |
(4) | 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 histhe taxpayer’s federal or state government tax refund, with the remainder of the tax refund disbursed directly to the taxpayer. RT 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
60
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
63
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, printed at a tax office, 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 fulfillmentfulfilment 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 writedowns 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 writedowns 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.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$5.0 million during the same quarter.
Legal settlement– During the second quarter of 2022, Green Dot paid Republic Bank $13 million in settlement of a lawsuit.
6461
16.17. 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 September 30, 2022,2023, 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.
The nature of segment operations and the primary drivers of net revenue by reportable segment are provided below:
| | | | |
Reportable Segment: | | Nature of Operations: | | Primary Drivers of Net Revenue: |
| | | | |
Core Banking: | | | | |
| | | | |
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 |
| | | | |
Warehouse Lending | | Provides short-term, revolving credit facilities to mortgage bankers across the United States. | | Mortgage warehouse lines of credit |
| | | | |
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 |
| | | | |
Republic Processing Group: | | | | |
| | | | |
Tax Refund Solutions | | TRS offers tax-related credit products and facilitates the receipt and payment of federal and state tax refunds through Refund Transfer products. The RPS division of TRS offers general-purpose reloadable cards. TRS and RPS products are primarily provided to clients outside of the Bank’s market footprint. | | Loans, refund transfers, and prepaid cards. |
| | | | |
Republic Credit Solutions | | Offers consumer credit products. RCS products are primarily provided to clients outside of the Bank’s market footprint, with a substantial portion of RCS clients considered subprime or near-prime borrowers. | | Unsecured, consumer loans |
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 20212022 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.
6562
Segment information follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
| | Three Months Ended September 30, 2022 |
| | Three Months Ended September 30, 2023 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Core Banking | | | Republic Processing Group | | | | |
| | Core Banking | | | Republic Processing Group | | | | |
| ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | Total | | | Tax | | Republic | | | | | | | | | | | | | | | | | | | | Total | | | Tax | | Republic | | | | | | | | | | ||||||||||
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| ||||||||||||||||
(dollars in thousands) | | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 46,562 | | $ | 3,011 | | $ | 112 | |
| $ | 49,685 | | | $ | 1,709 | | $ | 6,642 | | | $ | 8,351 | | | | $ | 58,036 | | | $ | 47,409 | | $ | 2,467 | | $ | 84 | |
| $ | 49,960 | | | $ | 4,525 | | $ | 10,340 | | | $ | 14,865 | | | | $ | 64,825 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Provision for expected credit loss expense | |
| (753) | |
| (386) | |
| — | | |
| (1,139) | | |
| (1,296) | |
| 4,008 | | |
| 2,712 | | | |
| 1,573 | | |
| 1,567 | |
| (203) | |
| — | | |
| 1,364 | | |
| (1,967) | |
| 4,333 | | |
| 2,366 | | | |
| 3,730 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net refund transfer fees | |
| — | |
| — | |
| — | | |
| — | | |
| 593 | |
| — | | |
| 593 | | | |
| 593 | | |
| — | |
| — | |
| — | | |
| — | | |
| 242 | |
| — | | |
| 242 | | | |
| 242 | |
Mortgage banking income | |
| — | |
| — | |
| 1,154 | | |
| 1,154 | | |
| — | |
| — | | |
| — | | | |
| 1,154 | | |
| — | |
| — | |
| 852 | | |
| 852 | | |
| — | |
| — | | |
| — | | | |
| 852 | |
Program fees | | | — | | | — | | | — | | | | — | | | | 724 | | | 4,208 | | | | 4,932 | | | | | 4,932 | | | | — | | | — | | | — | | | | — | | | | 705 | | | 3,336 | | | | 4,041 | | | | | 4,041 | |
Other noninterest income | |
| 8,260 | |
| 13 | |
| 33 | | |
| 8,306 | | |
| 62 | |
| — | | |
| 62 | | | |
| 8,368 | | |
| 8,748 | |
| 11 | |
| 15 | | |
| 8,774 | | |
| 82 | |
| 28 | | |
| 110 | | | |
| 8,884 | |
Total noninterest income | |
| 8,260 | |
| 13 | |
| 1,187 | | |
| 9,460 | | |
| 1,379 | |
| 4,208 | | |
| 5,587 | | | |
| 15,047 | | |
| 8,748 | |
| 11 | |
| 867 | | |
| 9,626 | | |
| 1,029 | |
| 3,364 | | |
| 4,393 | | | |
| 14,019 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total noninterest expense | |
| 37,777 | |
| 851 | |
| 2,005 | | |
| 40,633 | | |
| 3,248 | |
| 2,224 | | |
| 5,472 | | | |
| 46,105 | | |
| 39,381 | |
| 640 | |
| 1,793 | | |
| 41,814 | | |
| 3,116 | |
| 3,112 | | |
| 6,228 | | | |
| 48,042 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income tax expense | |
| 17,798 | |
| 2,559 | |
| (706) | | |
| 19,651 | | |
| 1,136 | |
| 4,618 | | |
| 5,754 | | | |
| 25,405 | | |
| 15,209 | |
| 2,041 | |
| (842) | | |
| 16,408 | | |
| 4,405 | |
| 6,259 | | |
| 10,664 | | | |
| 27,072 | |
Income tax expense (benefit) | | | 4,278 | | | 572 | | | (156) | | | | 4,694 | | | | 202 | | | 1,026 | | | | 1,228 | | | | | 5,922 | | | | 2,942 | | | 456 | | | (185) | | | | 3,213 | | | | 896 | | | 1,392 | | | | 2,288 | | | | | 5,501 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 13,520 | | $ | 1,987 | | $ | (550) | | | $ | 14,957 | | | $ | 934 | | $ | 3,592 | | | $ | 4,526 | | | | $ | 19,483 | | | $ | 12,267 | | $ | 1,585 | | $ | (657) | | | $ | 13,195 | | | $ | 3,509 | | $ | 4,867 | | | $ | 8,376 | | | | $ | 21,571 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Period-end assets | | $ | 5,036,343 | | $ | 441,885 | | $ | 16,418 | | | $ | 5,494,646 | | | $ | 395,873 | | $ | 109,144 | | | $ | 505,017 | | | | $ | 5,999,663 | | | $ | 5,375,648 | | $ | 458,542 | | $ | 14,457 | | | $ | 5,848,647 | | | $ | 403,733 | | $ | 134,095 | | | $ | 537,828 | | | | $ | 6,386,475 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
Net interest margin | |
| 3.63 | % |
| 2.54 | % |
| NM | | |
| 3.54 | % | |
| NM | |
| NM | | |
| NM | | | |
| 4.05 | % | |
| 3.52 | % |
| 2.33 | % |
| NM | | |
| 3.43 | % | |
| NM | |
| NM | | |
| NM | | | |
| 4.35 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net-revenue concentration* | | | 75 | % | | 4 | % | | 2 | % | | | 81 | % | | | 4 | % | | 15 | % | | | 19 | % | | | | 100 | % | | | 72 | % | | 3 | % | | 1 | % | | | 76 | % | | | 7 | % | | 17 | % | | | 24 | % | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
| | Three Months Ended September 30, 2021 |
| | Three Months Ended September 30, 2022 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Core Banking | | | Republic Processing Group | | | | |
| | Core Banking | | | Republic Processing Group | | | | |
| ||||||||||||||||||||||||||||||||||||||||
|
| | |
| | |
| | |
|
| Total |
|
| Tax | | Republic |
| | | |
| | | |
|
| | |
| | |
| | |
|
| Total |
|
| Tax | | Republic |
| | | |
| | | |
| ||||||||
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| ||||||||||||||||
(dollars in thousands) | | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 40,297 | | $ | 6,291 | | $ | 253 | | | $ | 46,841 | | | $ | 294 | | $ | 5,994 | | | $ | 6,288 | | | | $ | 53,129 | | | $ | 46,562 | | $ | 3,011 | | $ | 112 | | | $ | 49,685 | | | $ | 1,709 | | $ | 7,203 | | | $ | 8,912 | | | | $ | 58,597 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Provision for expected credit loss expense | |
| (44) | |
| (223) | |
| — | | |
| (267) | | |
| (2,261) | |
| 3,820 | | |
| 1,559 | | | |
| 1,292 | | |
| (753) | |
| (386) | |
| — | | |
| (1,139) | | |
| (1,296) | |
| 4,008 | | |
| 2,712 | | | |
| 1,573 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net refund transfer fees | |
| — | |
| — | |
| — | | |
| — | | |
| 1,280 | |
| — | | |
| 1,280 | | | |
| 1,280 | | |
| — | |
| — | |
| — | | |
| — | | |
| 593 | |
| — | | |
| 593 | | | |
| 593 | |
Mortgage banking income | |
| — | |
| — | |
| 5,280 | | |
| 5,280 | | |
| — | |
| — | | |
| — | | | |
| 5,280 | | |
| — | |
| — | |
| 1,154 | | |
| 1,154 | | |
| — | |
| — | | |
| — | | | |
| 1,154 | |
Program fees | | | — | | | — | | | — | | | | — | | | | 762 | | | 3,256 | | | | 4,018 | | | | | 4,018 | | | | — | | | — | | | — | | | | — | | | | 724 | | | 4,208 | | | | 4,932 | | | | | 4,932 | |
Other noninterest income | |
| 8,105 | |
| 15 | |
| 62 | | |
| 8,182 | | |
| 65 | |
| — | | |
| 65 | | | |
| 8,247 | | |
| 8,321 | |
| 13 | |
| 33 | | |
| 8,367 | | |
| 62 | |
| — | | |
| 62 | | | |
| 8,429 | |
Total noninterest income | |
| 8,105 | |
| 15 | |
| 5,342 | | |
| 13,462 | | |
| 2,107 | |
| 3,256 | | |
| 5,363 | | | |
| 18,825 | | |
| 8,321 | |
| 13 | |
| 1,187 | | |
| 9,521 | | |
| 1,379 | |
| 4,208 | | |
| 5,587 | | | |
| 15,108 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total noninterest expense | |
| 35,924 | |
| 1,056 | |
| 3,257 | | |
| 40,237 | | |
| 2,966 | |
| 1,232 | | |
| 4,198 | | | |
| 44,435 | | |
| 37,838 | |
| 851 | |
| 2,005 | | |
| 40,694 | | |
| 3,248 | |
| 2,224 | | |
| 5,472 | | | |
| 46,166 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income tax expense | |
| 12,522 | |
| 5,473 | |
| 2,338 | | |
| 20,333 | | |
| 1,696 | |
| 4,198 | | |
| 5,894 | | | |
| 26,227 | | |
| 17,798 | |
| 2,559 | |
| (706) | | |
| 19,651 | | |
| 1,136 | |
| 5,179 | | |
| 6,315 | | | |
| 25,966 | |
Income tax expense | |
| 3,038 | |
| 1,258 | |
| 514 | | |
| 4,810 | | |
| 371 | |
| 1,037 | | |
| 1,408 | | | |
| 6,218 | | |
| 4,299 | |
| 572 | |
| (156) | | |
| 4,715 | | |
| 202 | |
| 1,153 | | |
| 1,355 | | | |
| 6,070 | |
| | | | | | | | �� | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 9,484 | | $ | 4,215 | | $ | 1,824 | | | $ | 15,523 | | | $ | 1,325 | | $ | 3,161 | | | $ | 4,486 | | | | $ | 20,009 | | | $ | 13,499 | | $ | 1,987 | | $ | (550) | | | $ | 14,936 | | | $ | 934 | | $ | 4,026 | | | $ | 4,960 | | | | $ | 19,896 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period-end assets | | $ | 4,907,503 | | $ | 750,266 | | $ | 41,196 | | | $ | 5,698,965 | | | $ | 365,552 | | $ | 123,117 | | | $ | 488,669 | | | | $ | 6,187,634 | | | $ | 5,036,343 | | $ | 441,885 | | $ | 16,418 | | | $ | 5,494,646 | | | $ | 395,873 | | $ | 109,144 | | | $ | 505,017 | | | | $ | 5,999,663 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest margin | |
| 3.22 | % |
| 3.51 | % |
| NM | | |
| 3.25 | % | |
| NM | |
| NM | | |
| NM | | | |
| 3.61 | % | |
| 3.63 | % |
| 2.54 | % |
| NM | | |
| 3.54 | % | |
| NM | |
| NM | | |
| NM | | | |
| 4.09 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net-revenue concentration* | | | 67 | % | | 9 | % | | 8 | % | | | 84 | % | | | 3 | % | | 13 | % | | | 16 | % | | | | 100 | % | | | 75 | % | | 4 | % | | 2 | % | | | 81 | % | | | 4 | % | | 15 | % | | | 19 | % | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net revenue.
6663
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
| | Nine Months Ended September 30, 2022 |
| | Nine Months Ended September 30, 2023 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Core Banking | | | Republic Processing Group | | | | |
| | Core Banking | | | Republic Processing Group | | | | |
| ||||||||||||||||||||||||||||||||||||||||
|
| | |
| | |
| | |
|
| Total |
|
| Tax | | Republic |
| | | |
| | | |
|
| | |
| | |
| | |
|
| Total |
|
| Tax | | Republic |
| | | |
| | | |
| ||||||||
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| ||||||||||||||||
(dollars in thousands) | | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 121,868 | | $ | 11,412 | | $ | 469 | | | $ | 133,749 | | | $ | 18,751 | | $ | 19,380 | | | $ | 38,131 | | | | $ | 171,880 | | | $ | 146,198 | | $ | 7,196 | | $ | 206 | | | $ | 153,600 | | | $ | 40,300 | | $ | 28,096 | | | $ | 68,396 | | | | $ | 221,996 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Provision for expected credit loss expense | |
| (287) | |
| (1,021) | |
| — | | |
| (1,308) | | |
| 6,976 | |
| 8,836 | | |
| 15,812 | | | |
| 14,504 | | |
| 6,411 | |
| 134 | |
| — | | |
| 6,545 | | |
| 19,622 | |
| 10,468 | | |
| 30,090 | | | |
| 36,635 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net refund transfer fees | |
| — | |
| — | |
| — | | |
| — | | |
| 16,594 | |
| — | | |
| 16,594 | | | |
| 16,594 | | |
| — | |
| — | |
| — | | |
| — | | |
| 15,528 | |
| — | | |
| 15,528 | | | |
| 15,528 | |
Mortgage banking income | |
| — | |
| — | |
| 5,574 | | |
| 5,574 | | |
| — | |
| — | | |
| — | | | |
| 5,574 | | |
| — | |
| — | |
| 2,559 | | |
| 2,559 | | |
| — | |
| — | | |
| — | | | |
| 2,559 | |
Program fees | | | — | | | — | | | — | | | | — | | | | 2,187 | | | 10,484 | | | | 12,671 | | | | | 12,671 | | | | — | | | — | | | — | | | | — | | | | 2,140 | | | 8,881 | | | | 11,021 | | | | | 11,021 | |
Contract termination fee | | | — | | | — | | | — | | | | — | | | | 5,000 | | | — | | | | 5,000 | | | | | 5,000 | | | | — | | | — | | | — | | | | — | | | | — | | | — | | | | — | | | | | — | |
Legal settlement | | | — | | | — | | | — | | | | — | | | | 13,000 | | | — | | | | 13,000 | | | | | 13,000 | | | | — | | | — | | | — | | | | — | | | | — | | | — | | | | — | | | | | — | |
Other noninterest income | |
| 23,225 | |
| 38 | |
| 113 | | |
| 23,376 | | |
| 399 | |
| — | | |
| 399 | | | |
| 23,775 | | |
| 26,732 | |
| 33 | |
| 59 | | |
| 26,824 | | |
| 326 | |
| 93 | | |
| 419 | | | |
| 27,243 | |
Total noninterest income | |
| 23,225 | |
| 38 | |
| 5,687 | | |
| 28,950 | | |
| 37,180 | |
| 10,484 | | |
| 47,664 | | | |
| 76,614 | | |
| 26,732 | |
| 33 | |
| 2,618 | | |
| 29,383 | | |
| 17,994 | |
| 8,974 | | |
| 26,968 | | | |
| 56,351 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total noninterest expense | |
| 114,310 | |
| 2,838 | |
| 7,527 | | |
| 124,675 | | |
| 11,926 | |
| 5,730 | | |
| 17,656 | | | |
| 142,331 | | |
| 122,386 | |
| 2,616 | |
| 6,669 | | |
| 131,671 | | |
| 11,907 | |
| 8,440 | | |
| 20,347 | | | |
| 152,018 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income tax expense | |
| 31,070 | |
| 9,633 | |
| (1,371) | | |
| 39,332 | | |
| 37,029 | |
| 15,298 | | |
| 52,327 | | | |
| 91,659 | | |
| 44,133 | |
| 4,479 | |
| (3,845) | | |
| 44,767 | | |
| 26,765 | |
| 18,162 | | |
| 44,927 | | | |
| 89,694 | |
Income tax expense (benefit) | | | 6,397 | | | 2,168 | | | (302) | | | | 8,263 | | | | 8,573 | | | 3,513 | | | | 12,086 | | | | | 20,349 | | | | 8,965 | | | 1,001 | | | (846) | | | | 9,120 | | | | 5,828 | | | 4,031 | | | | 9,859 | | | | | 18,979 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 24,673 | | $ | 7,465 | | $ | (1,069) | | | $ | 31,069 | | | $ | 28,456 | | $ | 11,785 | | | $ | 40,241 | | | | $ | 71,310 | | | $ | 35,168 | | $ | 3,478 | | $ | (2,999) | | | $ | 35,647 | | | $ | 20,937 | | $ | 14,131 | | | $ | 35,068 | | | | $ | 70,715 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period-end assets | | $ | 5,036,343 | | $ | 441,885 | | $ | 16,418 | | | $ | 5,494,646 | | | $ | 395,873 | | $ | 109,144 | | | $ | 505,017 | | | | $ | 5,999,663 | | | $ | 5,375,648 | | $ | 458,542 | | $ | 14,457 | | | $ | 5,848,647 | | | $ | 403,733 | | $ | 134,095 | | | $ | 537,828 | | | | $ | 6,386,475 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest margin | |
| 3.20 | % |
| 2.79 | % |
| NM | | |
| 3.16 | % | |
| NM | |
| NM | | |
| NM | | | |
| 3.95 | % | |
| 3.76 | % |
| 2.37 | % |
| NM | | |
| 3.68 | % | |
| NM | |
| NM | | |
| NM | | | |
| 5.09 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net-revenue concentration* | | | 58 | % | | 5 | % | | 2 | % | | | 65 | % | | | 23 | % | | 12 | % | | | 35 | % | | | | 100 | % | | | 62 | % | | 3 | % | | 1 | % | | | 66 | % | | | 21 | % | | 13 | % | | | 34 | % | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||
| | Nine Months Ended September 30, 2021 |
| | Nine Months Ended September 30, 2022 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Core Banking | | | Republic Processing Group | | | | |
| | Core Banking | | | Republic Processing Group | | | | |
| ||||||||||||||||||||||||||||||||||||||||
|
| | |
| | |
| | |
|
| Total |
|
| Tax | | Republic |
| | | |
| | | |
|
| | |
| | |
| | |
|
| Total |
|
| Tax | | Republic |
| | | |
| | | |
| ||||||||
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| | Traditional | | Warehouse | | Mortgage | | | Core | | | Refund | | Credit | | | Total | | | | Total |
| ||||||||||||||||
(dollars in thousands) | | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| | Banking | | Lending | | Banking | | | Banking | | | Solutions | | Solutions | | | RPG | | | | Company |
| ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 119,677 | | $ | 19,387 | | $ | 802 | | | $ | 139,866 | | | $ | 15,593 | | $ | 15,840 | | | $ | 31,433 | | | | $ | 171,299 | | | $ | 121,868 | | $ | 11,412 | | $ | 469 | | | $ | 133,749 | | | $ | 18,751 | | $ | 21,078 | | | $ | 39,829 | | | | $ | 173,578 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Provision for expected credit loss expense | |
| (126) | |
| (530) | |
| — | | |
| (656) | | |
| 7,850 | |
| 5,037 | | |
| 12,887 | | | |
| 12,231 | | |
| (287) | |
| (1,021) | |
| — | | |
| (1,308) | | |
| 6,976 | |
| 8,836 | | |
| 15,812 | | | |
| 14,504 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net refund transfer fees | |
| 2 | |
| — | |
| — | | |
| 2 | | |
| 19,922 | |
| — | | |
| 19,922 | | | |
| 19,924 | | |
| — | |
| — | |
| — | | |
| — | | |
| 16,594 | |
| — | | |
| 16,594 | | | |
| 16,594 | |
Mortgage banking income | |
| — | |
| — | |
| 16,655 | | |
| 16,655 | | |
| — | |
| — | | |
| — | | | |
| 16,655 | | |
| — | |
| — | |
| 5,574 | | |
| 5,574 | | |
| — | |
| — | | |
| — | | | |
| 5,574 | |
Program fees | | | — | | | — | | | — | | | | — | | | | 2,373 | | | 7,196 | | | | 9,569 | | | | | 9,569 | | | | — | | | — | | | — | | | | — | | | | 2,187 | | | 10,484 | | | | 12,671 | | | | | 12,671 | |
Contract termination fee | | | — | | | — | | | — | | | | — | | | | 5,000 | | | — | | | | 5,000 | | | | | 5,000 | | ||||||||||||||||||||||||||||||
Legal settlement | | | — | | | — | | | — | | | | — | | | | 13,000 | | | — | | | | 13,000 | | | | | 13,000 | | ||||||||||||||||||||||||||||||
Other noninterest income | |
| 22,859 | |
| 43 | |
| 140 | | |
| 23,042 | | |
| 304 | |
| — | | |
| 304 | | | |
| 23,346 | | |
| 23,297 | |
| 38 | |
| 113 | | |
| 23,448 | | |
| 399 | |
| — | | |
| 399 | | | |
| 23,847 | |
Total noninterest income | |
| 22,861 | |
| 43 | |
| 16,795 | | |
| 39,699 | | |
| 22,599 | |
| 7,196 | | |
| 29,795 | | | |
| 69,494 | | |
| 23,297 | |
| 38 | |
| 5,687 | | |
| 29,022 | | |
| 37,180 | |
| 10,484 | | |
| 47,664 | | | |
| 76,686 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | | | | | | |
Total noninterest expense | |
| 110,191 | |
| 3,150 | |
| 9,384 | | |
| 122,725 | | |
| 11,965 | |
| 3,340 | | |
| 15,305 | | | |
| 138,030 | | |
| 114,381 | |
| 2,838 | |
| 7,527 | | |
| 124,746 | | |
| 11,928 | |
| 5,729 | | |
| 17,657 | | | |
| 142,403 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income tax expense | |
| 32,473 | |
| 16,810 | |
| 8,213 | | |
| 57,496 | | |
| 18,377 | |
| 14,659 | | |
| 33,036 | | | |
| 90,532 | | |
| 31,071 | |
| 9,633 | |
| (1,371) | | |
| 39,333 | | |
| 37,027 | |
| 16,997 | | |
| 54,024 | | | |
| 93,357 | |
Income tax expense | |
| 6,718 | |
| 3,919 | |
| 1,807 | | |
| 12,444 | | |
| 4,467 | |
| 3,637 | | |
| 8,104 | | | |
| 20,548 | | |
| 6,419 | |
| 2,168 | |
| (302) | | |
| 8,285 | | |
| 8,573 | |
| 3,906 | | |
| 12,479 | | | |
| 20,764 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 25,755 | | $ | 12,891 | | $ | 6,406 | | | $ | 45,052 | | | $ | 13,910 | | $ | 11,022 | | | $ | 24,932 | | | | $ | 69,984 | | | $ | 24,652 | | $ | 7,465 | | $ | (1,069) | | | $ | 31,048 | | | $ | 28,454 | | $ | 13,091 | | | $ | 41,545 | | | | $ | 72,593 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period-end assets | | $ | 4,907,503 | | $ | 750,266 | | $ | 41,196 | | | $ | 5,698,965 | | | $ | 365,552 | | $ | 123,117 | | | $ | 488,669 | | | | $ | 6,187,634 | | | $ | 5,036,343 | | $ | 441,885 | | $ | 16,418 | | | $ | 5,494,646 | | | $ | 395,873 | | $ | 109,144 | | | $ | 505,017 | | | | $ | 5,999,663 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest margin | |
| 3.21 | % |
| 3.47 | % |
| NM | | |
| 3.24 | % | |
| NM | |
| NM | | |
| NM | | | |
| 3.86 | % | |
| 3.20 | % |
| 2.79 | % |
| NM | | |
| 3.16 | % | |
| NM | |
| NM | | |
| NM | | | |
| 3.99 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net-revenue concentration* | | | 59 | % | | 8 | % | | 7 | % | | | 74 | % | | | 16 | % | | 10 | % | | | 26 | % | | | | 100 | % | | | 58 | % | | 5 | % | | 2 | % | | | 65 | % | | | 22 | % | | 13 | % | | | 35 | % | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net revenue.
67
17.SUBSEQUENT EVENT – AGREEMENT AND PLAN OF MERGER
On October 26, 2022, the Company, RB&T, and CBank entered into the CBank Agreement. Upon completion of the transaction, CBank will be merged with and into RB&T, with RB&T as the survivor of the merger. CBank is headquartered in Cincinnati, Ohio.
Under the terms of the CBank Agreement, the Company will acquire all of CBank’s outstanding common stock in an all-cash direct merger of CBank with RB&T, resulting in a total cash payment of approximately $51 million to CBank’s existing shareholders. Republic expects to fund the cash payment through existing resources on-hand at RB&T. The completion of the transaction is subject to customary closing conditions, including regulatory approval and approval by CBank’s shareholders. The CBank Agreement also contains reciprocal termination provisions in the event the transaction does not receive the required regulatory approvals within six months of the effective date of the CBank Agreement or if certain minimum capital levels are not maintained by CBank as of the closing date.
The CBank Agreement was unanimously approved by the Republic, RB&T and CBank boards of directors on October 25, 2022. In connection with entering into the CBank Agreement, Republic entered into customary support agreements with the members of CBank’s board of directors and other shareholders in their capacities as shareholders of CBank (the “CBank Support Agreements”). Subject to the terms and conditions, and non-termination, of the CBank Support Agreements, each such shareholder agreed, among other things, to vote his or her respective shares of CBank Common Stock in favor of the approval of the CBank Agreement and the transaction contemplated thereby, and against alternative acquisition proposals. The CBank Support Agreements do not prevent the shareholders, in their capacity as directors, from exercising their fiduciary obligations in connection with alternative acquisition proposals. The CBank Agreement provides certain termination rights for both Republic and CBank and further provides that a termination fee of $2,040,000 will be payable by CBank to Republic upon termination of the CBank Agreement under certain circumstances, including CBank’s termination of the CBank Agreement to accept a Superior Proposal (as defined in the CBank Agreement).
As of September 30, 2022, CBank had approximately $271 million in assets, consisting of approximately $214 million in gross loans, no other real estate owned, approximately $17 million of marketable securities, approximately $35 million in cash and cash equivalents and approximately $8 million in other assets. As of September 30, 2022, CBank had approximately $242 million of liabilities, including approximately $240 million in customer deposits and $1 million in FHLB advances.
6864
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-ownedwholly 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-ownedwholly 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. In May 2023, the Company’s Board of Directors voted to dissolve the Captive. The dissolution of the Captive is expected to occur during the fourth quarter of 2023.
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:
● | the potential impact of inflation on Company operations; |
● | projections of revenue, income, expenses, losses, earnings per share, capital expenditures, dividends, capital structure, loan volume, loan growth, deposit growth, or other financial items; |
● | descriptions of plans or objectives for future operations, products, or services; |
● | descriptions and projections related to management strategies for loans, deposits, investments, and borrowings; |
● | forecasts of future economic performance; and |
● | descriptions of assumptions underlying or relating to any of the foregoing. |
Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to the following:
● | the impact of |
● | litigation liabilities, including related costs, expenses, settlements and judgments, or the outcome of matters before regulatory agencies, whether pending or commencing in the future; |
● | natural disasters impacting the Company’s operations; |
● | changes in political and economic conditions; |
● | the impact of bank failures and potential bank failures to the industry, the Bank’s deposit base and the FDIC’s deposit insurance fund; |
● | the discontinuation of LIBOR; |
● | the magnitude and frequency of changes to the FFTR implemented by the FOMC of the FRB; |
● | long-term and short-term interest rate fluctuations and the overall shape and steepness of the U.S. Treasury yield curve, as well as their impact on the Company’s net interest income and Mortgage Banking operations; |
● | competitive product and pricing pressures in each of the Company’s five reportable segments; |
● | equity and fixed income market fluctuations; |
● | client bankruptcies and loan defaults; |
6965
● | recession; |
● | future acquisitions; |
● | integrations of acquired businesses; |
● | changes in technology; |
● | changes in applicable laws and regulations or the interpretation and enforcement thereof; |
● | changes in fiscal, monetary, regulatory, and tax policies; |
● | changes in accounting standards; |
● | monetary fluctuations; |
● | changes to the Company’s overall internal control environment; |
● |
● | the Company’s ability to qualify for future R&D federal tax credits; |
● | the ability for Tax Providers to successfully market and realize the expected |
● | information security breaches or cyber security attacks involving either the Company or one of the Company’s third-party service providers; and |
● | other risks and uncertainties reported from time to time in the Company’s filings with the SEC, including Part |
On October 26, 2022, Republic, the Bank and CBank entered into the CBank Agreement. Upon completion of the transaction, CBank will be merged with and into RB&T, with RB&T as the survivor of the merger. CBank is headquartered in Cincinnati, Ohio. This document contains statements regarding the proposed acquisition transaction that are not statements of historical fact and are considered forward-looking statements within the criteria described above. These statements are likewise subject to various risks and uncertainties that may cause actual results and outcomes of the proposed transaction to differ, possibly materially, from the anticipated results or outcomes expressed or implied in these forward-looking statements. In addition to factors disclosed in reports filed by Republic with the SEC, risks and uncertainties for Republic, CBank and the combined company include, but are not limited to: the ability for CBank to receive shareholder approval for the CBank Agreement, for all parties to receive regulatory approvals as provided for in the CBank Agreement, the ability to grow CBank loan and deposit balances post-acquisition, unanticipated post-acquisition loan losses for Republic on CBank-originated loans, the ability of Republic to integrate acquired operations including obtaining synergies, integration objectives and anticipated timelines, the ability of Republic to integrate, manage and keep secure our information systems, and other factors set forth as “Risk Factors” at Part II, Item 1A in the Company’s Form 10-K for the period ended December 31, 2021.
Accounting Standards Update
For disclosure regarding the impact to the Company’s financial statements of ASUs, see Footnote 1 “Basis of Presentation and Summary of Significant Accounting Policies” of Part I Item 1 “Financial Statements.”
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Republic’s consolidated financial statements and accompanying footnotes have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods.
A summary of the Company's significant accounting policies is set forth in Part II “Item 8. Financial Statements and Supplementary Data” of its Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022.
Management continually evaluates the Company’s accounting policies and estimates that it uses to prepare the consolidated financial statements. In general, management’s estimates and assumptions are based on historical experience, accounting and regulatory guidance, and information obtained from independent third-party professionals. Actual results may differ from those estimates made by management.
Critical accounting policies are those that management believes are the most important to the portrayal of the Company’s financial condition and operating results and require management to make estimates that are difficult, subjective and complex. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the financial statements. These factors include, among other things, whether the estimates have a significant impact on the financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including independent third parties or available pricing, sensitivity of the estimates to changes in economic conditions
70
and whether alternative methods of accounting may be utilized under GAAP. Management has discussed each critical accounting policy and the methodology for the identification and determination of critical accounting policies with the Company’s Audit Committee.
Republic believes its critical accounting policies and estimates relate to its ACLL and Provision.
ACLL and Provision — As of September 30, 2022,2023, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. Management evaluates the adequacy of the ACLL monthly and presents and discusses the ACLL with the Audit Committee and the Board of Directors quarterly.
Management’s evaluation of the appropriateness of the ACLL is often the most critical accounting estimate for a financial institution, as the ACLL requires significant reliance on the use of estimates and significant judgment as to the reliance on historical loss rates, consideration of quantitative and qualitative economic factors, and the reliance on a reasonable and supportable forecast.
66
Adjustments to the historical loss rate for current conditions include differences in underwriting standards, portfolio mix or term, delinquency level, as well as for changes in environmental conditions, such as changes in property values or other relevant factors. One-year forecast adjustments to the historical loss rate are based on the U.S. national unemployment rate and CRE values. Subsequent to the one-year forecasts, loss rates are assumed to immediately revert back to long-term historical averages.
The ACLL is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the ACLL, and therefore, greater volatility to the Company’s reported earnings.
BUSINESS SEGMENT COMPOSITION
As of September 30, 2022,2023, 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.
(I) Traditional Banking segment
The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of September 30, 2022,2023, Republic had 42 full-service46 banking centers with locations as follows:
● | Kentucky — |
● | Metropolitan Louisville — 18 |
● | Central Kentucky — 7 |
● | Georgetown — 1 |
● | Lexington — 5 |
● | Shelbyville — 1 |
● | Northern Kentucky — |
●Bellevue— 1
● | Covington — 1 |
● | Crestview Hills — 1 |
● |
|
● |
|
● |
|
● |
|
● |
|
● |
|
● |
|
● | Metropolitan Tampa |
● |
|
● | Metropolitan Cincinnati — 4 |
● | Tennessee — 3 |
● | Metropolitan Nashville |
Republic’s headquarters are in Louisville, which is the largest city in Kentucky based on population.
71
The Bank’s principal lending activities consist of the following:
Retail Mortgage Lending — Through its retail banking centers and its online Consumer Direct channel, the Bank originates single-family, residential real estate loans and HELOCs. In addition, the Bank originates HEALs through its retail banking centers. Such loans are generally collateralized by owner-occupied, residential real estate properties. For those loans originated through the Bank’s retail banking centers, the collateral is predominately located in the Bank’s market footprint, while loans originated through its Consumer Direct channel are generally secured by owner occupied-collateralowner-occupied collateral located outside of the Bank’s market footprint.
Commercial Lending — The Bank conducts commercial lending and commercial leasing activities primarily through Corporate Banking, Commercial Banking, Business Banking, Republic Bank Finance, and Retail Banking channels.
67
In general, commercial lending credit approvals and processing are prepared and underwritten through the Bank’s Commercial Credit Administration Department. Clients are generally located within the Bank’s market footprint or in areas nearby the market footprint.
Construction and Land Development Lending — The Bank originates business loans for the construction of both single-family, residential properties and commercial properties (apartment complexes, shopping centers, office buildings). While not a focus for the Bank, the Bank may originate loans for the acquisition and development of residential or commercial land into buildable lots.
Consumer Lending — Traditional Banking consumer loans made by the Bank include home improvement and home equity loans, other secured and unsecured personal loans, and credit cards. Except for home equity loans, which are actively marketed in conjunction with single family, first lien residential real estate loans, other Traditional Banking consumer loan products (not including products offered through RPG), while available, are not and have not been actively promoted in the Bank’s markets.
Aircraft Lending — In October 2017, the Bank created an Aircraft Lending division. Aircraft loans are typically made to purchase or refinance personal aircrafts, along with engine overhauls and avionic upgrades. Loans range between $55,000$200,000 and $3,000,000$4,000,000 in size and have terms up to 20 years. The aircraft loan program is open to all states, except for Alaska and Hawaii.
fifty states. The credit characteristics of an aircraft borrower are higher than a typical consumer in that they must demonstrate and indicate a higher degree of credit worthiness for approval.
The Bank’s other Traditional Banking activities generally consist of the following:
Private Banking — The Bank provides financial products and services to high-net-worth individuals through its Private Banking department. The Bank’s Private Banking officers have extensive banking experience and are trained to meet the unique financial needs of this clientele.
Treasury Management Services — The Bank provides various deposit products designed for commercial business clients located throughout its market footprint. Lockbox processing, remote deposit capture, business on-line banking, account reconciliation, and ACH processing are additional services offered to commercial businesses through the Bank’s Treasury Management department. Treasury Management officers work closely with commercial and retail officers to support the cash management needs of Bank clients.
Digital ExperienceCorrespondent Lending — The Bank began acquiring single family, first lien mortgage loans for investment through its Correspondent Lending channel during the first quarter of 2023. Correspondent Lending generally involves the Bank acquiring, primarily from its Warehouse clients, closed loans that meet the Bank’s specifications. Substantially all loans purchased through the Correspondent Lending channel are purchased at a premium. Premiums on loans held for investment acquired through the Correspondent Lending channel will be amortized into interest income on the level-yield method over the expected life of the loan. Loans acquired through the Correspondent Lending channel are generally made to borrowers outside of the Bank’s historical market footprint.
Internet Banking — The Bank expands its market penetration and service delivery of its RB&T brand by offering clients Internet Banking services and products through its website, www.republicbank.com.
Mobile Banking — The Bank allows clients to easily and securely access and manage their accounts through its mobile banking application.
Other Banking Services — The Bank also provides title insurance and other financial institution related products and services.
Bank Acquisitions — The Bank maintains an acquisition strategy to selectively grow its franchise as a complement to its organic growth strategies.
See additional detail regarding the Traditional Banking segment under Footnote 1617 “Segment Information” of Part I Item 1 “Financial Statements.”
72
(II) 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
68
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 loanadvance during the time the loanadvance 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.
See additional detail regarding the Warehouse Lending segment under Footnote 1617 “Segment Information” of Part I Item 1 “Financial Statements.”
(III) 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 for loans generated in states within its footprint and generally sells servicing for loans generated in states outside of its footprint.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.
See additional detail regarding the Mortgage Banking segment under Footnote 1112 “Mortgage Banking Activities” and Footnote 1617 “Segment Information” of Part I Item 1 “Financial Statements.”
(IV) 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”). SubstantiallyThe majority of all of 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 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 EA taxRA credit product is a loan thatmade in conjunction with the filing of a taxpayer’s federal tax return, which allows athe taxpayer to borrow funds as an advance of a portion of their tax refund. The EARA product had the following features during 2022the first quarters of 2023 and 2021:2022:
● | 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; |
69
● | No requirement that the taxpayer pays for another bank product, such as an RT; |
● | Multiple |
● | Repayment of the |
● | If an insufficient refund to repay the |
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 taxable income documentation, e.g., W-2. As such, the Company generally uses paystub information to estimate the tax refund and 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 EA productRAs, including ERAs, as interest income on loans. During 2021, EAsRAs 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. EAsRAs do not have a contractual due date but the
73
Company considered an EAa 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. In 2023, the Company also considered a RA, related to the first quarter 2023 tax season, delinquent if it remained unpaid 35 days after the taxpayer’s tax return was submitted to the applicable taxing authority. For the ERA product originated in December of 2022 and 2021January 2023, the Company considered it 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 EAsRAs and ERAs are estimated when advances are made. Unpaid EAsRAs, including ERAs, related to the first quarter tax season of a given year are charged-off by June 30th30th of eachthat year, with EAsRAs collected during the second half of eachthat year recorded as recoveries of previously charged-off loans, unless such collections arethey were covered under a loss guaranty arrangement. Any RAs subject to guarantor reimbursement under a loan-loss guaranty. loss guaranty arrangement that are recovered during the second half of the year are distributed to the guarantor.
Related to the overall credit losses on EAs,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 EARA approval model is based primarily on the prior-year’s tax refund payment patterns. Because the substantial majority of the EARA 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 EAsRA, including the ERA, product parameters. In addition, as part of its normal annual marketing and sales process, TRS renews existing contracts and enters into new contracts to offer EA products through additional Tax Providers. Further changes in EAthe RA and ERA product parameters and/or new contracts with new Tax Providers do not ensure positive results and could have an overall material negative impact on the performance of the EAall RA and ERA product offeringofferings and therefore on the Company’s financial condition and results of operations.
See additional detail regarding the EARA product under Footnote 45 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements.”
70
Settlement of Lawsuit Against Green DotCancelled Sale Transaction - On June 3, 2022, the Bank and Green Dot entered into the Settlement Agreement to fully resolve the Lawsuit that the Bank filed against Green Dot in the Delaware Court of Chancery on October 5, 2021.
As previously disclosed, in the Company’s prior SEC filings, the Lawsuit arose from Green Dot’s inability to consummate the Sale
Transaction contemplated in the TRS Purchase Agreement through which Green Dot would purchase all of the assets and operations of the Bank’s Tax Refund Solutions business.
In accordance with the Settlement Agreement, on June 6, 2022, Green DotCorporation paid $13 million to the Bank, which was in addition toRB&T a $5 millioncontract termination fee that Green Dot paid to the Bankof $5.0 million during the first quarter of 2022 underand a legal settlement of $13.0 million during the termssecond quarter of 2022 related to the TRS Purchase Agreement. On June 6, 2022, the Bank and Green Dot filed a stipulation of dismissal of the Lawsuit with the Delaware Court of Chancery, which was effective to dismiss the Lawsuit when filed.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. For the projected near-term, as the prepaid card program matures,Until the operating results of the RPS division are expected to be immaterialmaterial to the Company’s overall results of operations, andthey will be reported as part of the TRS segment. The Company does not expect to report the RPS division will not be consideredas 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.”
(V) Republic Credit Solutions segment
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 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. |
74
o | RCS’s LOC I represented the substantial majority of RCS activity during 2022 and |
The Bank sells participation interests in this product. These participation interests areparticipations sold represent 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 |
The Bank sells participation interests in this product. These participation interests areparticipations sold represent 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 – |
71
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 |
o | For two of the programs, the Bank retains 100% of the receivables, |
o | For the remaining program, in some instances the Bank retains 100% of the receivables originated, with recourse in |
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.”
RECENT DEVELOPMENTS
Bank Acquisition
On October 26, 2022, the Company, RB&T, and CBank entered into the CBank Agreement. Upon completion of the transaction, CBank will be merged with and into RB&T, with RB&T as the survivor of the merger. CBank is headquartered in Cincinnati, Ohio.
Under the terms of the CBank Agreement, the Company will acquire all of CBank’s outstanding common stock in an all-cash direct merger of CBank with RB&T, resulting in a total cash payment of approximately $51 million to CBank’s existing shareholders. Republic expects to fund the cash payment through existing resources on-hand at RB&T. The completion of the transaction is subject
75
to customary closing conditions, including regulatory approval and approval by CBank’s shareholders. The CBank Agreement also contains reciprocal termination provisions in the event the transaction does not receive the required regulatory approvals within six months of the effective date of the CBank Agreement or if certain minimum capital levels are not maintained by CBank as of the closing date.
The CBank Agreement was unanimously approved by the Republic, RB&T and CBank boards of directors on October 25, 2022. In connection with entering into the CBank Agreement, Republic entered into customary support agreements with the members of CBank’s board of directors and other shareholders in their capacities as shareholders of CBank (the “CBank Support Agreements”). Subject to the terms and conditions, and non-termination, of the CBank Support Agreements, each such shareholder agreed, among other things, to vote his or her respective shares of CBank Common Stock in favor of the approval of the CBank Agreement and the transaction contemplated thereby, and against alternative acquisition proposals. The CBank Support Agreements do not prevent the shareholders, in their capacity as directors, from exercising their fiduciary obligations in connection with alternative acquisition proposals. The CBank Agreement provides certain termination rights for both Republic and CBank and further provides that a termination fee of $2,040,000 will be payable by CBank to Republic upon termination of the CBank Agreement under certain circumstances, including CBank’s termination of the CBank Agreement to accept a Superior Proposal (as defined in the CBank Agreement).
As of September 30, 2022, CBank had approximately $271 million in assets, consisting of approximately $214 million in gross loans, no other real estate owned, approximately $17 million of marketable securities, approximately $35 million in cash and cash equivalents and approximately $8 million in other assets. As of September 30, 2022, CBank had approximately $242 million of liabilities, including approximately $240 million in customer deposits and $1 million in Federal Home Loan Bank advances.
Tax Refund Solutions
On October 19, 2022, TRS entered into a new agreement with a large Tax Provider, for which TRS had previously only provided RTs. As part of the new agreement, TRS will be the exclusive provider of refund advance loans originated through this provider through October 2025. As a result of the new agreement, management expects to increase its calendar-year 2023 refund advance origination volume an additional $400 million to $600 million over the $311 million, in total EA loans, TRS originated during the 2022 calendar year.
OVERVIEW (Three Months Ended September 30, 20222023 Compared to Three Months Ended September 30, 2021)2022)
Total Company net income for the third quarter of 20222023 was $19.5$21.6 million, a decreasean increase of $526,000 from$1.7 million over the same period in 2021.2022. Diluted EPS remained at $0.99also increased to $1.10 for the third quarter of 20222023 compared to $0.99$1.01 for the same period in 2021.2022. The decreaseincrease in net income primarily reflected the following:
The following are general highlights by reportable segment:
Traditional Banking segment
● | Net income |
● | Net interest income increased |
● | Provision was a net |
● | Noninterest income increased |
● | Noninterest expense increased |
76
Warehouse Lending segment
● | Net income decreased |
● | Net interest income decreased |
● | The Warehouse Provision was a net credit of |
● | Average committed Warehouse lines decreased to $1.0 billion in the third quarter of 2023 compared to $1.3 billion in the third quarter of |
● | Average line usage was |
Mortgage Banking segment
● | Within the Mortgage Banking segment, mortgage banking income decreased |
72
● | Overall, Republic’s proceeds from the sale of secondary market loans totaled |
Tax Refund Solutions segment
● | Net income |
● | Net interest income increased |
● | Overall, TRS recorded a net credit to the Provision of |
● | Noninterest income decreased |
● |
● | Noninterest expense was |
TRS had multiple factors during 2021 and 2022 that impacted and will continue to impact its 2022 performance and the comparability of that performance to the same periods in 2021. By year, these factors discussed below include, but may not be limited to, the following:
2021
2022
77
As it relates to factors impacting 2021, the processing season with the IRS started approximately two weeks later than normal. As a result, RT funding volume and loan repayments from the IRS lagged normal funding patterns in non-COVID-impacted years and effectively pushed RT revenue and loan recovery activity later into the 2021 calendar year. In addition, management believes government stimulus programs during 2021 negatively impacted demand for TRS EA and RT products.
In addition to the more normal timing of the tax season in 2022 as compared to 2021, the TRS business for the first nine months of 2022, in totality, was favorably impacted by a contractual change with one of the Company’s large Tax Providers. As a result of the amended contract, TRS shares certain revenues with this provider. Also, under the amended contract, this provider absorbs certain overhead costs of the program and furnishes TRS a loan loss guaranty ceiling as a percentage of EAs originated by this provider. Under the terms of the loan loss guaranty, if the losses for EAs through this provider are above the loss guaranty ceiling as of June 30th for the current year, the provider will make a payment to TRS early in the third quarter to initially settle charge-off activity through the June 30th date. Subsequent to the initial settlement, TRS will reimburse to this provider any EA recoveries of loans originated through this provider until such time that the loss rate reaches the loss guaranty ceiling, at which time TRS would retain all recoveries thereafter.
While the overall result of this loss guaranty arrangement was a net benefit to RB&T for the nine months ended September 30, 2022, TRS’s reimbursement to this provider of EA recoveries during the third quarter of 2022 above the contractual loss ceiling resulted in a negative performance comparison for the third quarter of 2022 as compared to the third quarter of 2021, when no such loss guaranty arrangement existed and TRS recorded all such recoveries as a benefit directly to income. Management believes this negative quarter-to-quarter performance comparison will exist during the fourth quarter of 2022, as well, because the EA loss rate for this provider is not expected to reach the loss guaranty ceiling during this time. Through this specific provider, TRS originated $172 million of EAs during the first quarter of 2022 as compared to $135 million originated during the first quarter of 2021.
Also negatively impacting the third quarter 2022 tax season as compared to the third quarter of 2021 was a loss of RT volume by RB&T to Green Dot from certain third-party Tax Providers following the execution of the TRS Purchase Agreement. While TRS was able to partially offset this lost volume through higher volume from other existing relationships, the lost volume to Green Dot from this one provider had a negative impact to the overall results of TRS for 2022 and may continue to have a negative impact to the overall results of TRS beyond 2022, if TRS is unable to win this business back through its normal solicitation process.
As a net result of all the factors in the preceding paragraphs, TRS experienced a significant net decrease to its third quarter 2022 tax results as compared to the third quarter of 2021. Management believes TRS’s results of operations, and more specifically RT revenue and net recoveries for previously charged-off EAs for the fourth quarter of 2022, will likely be negative as compared to fourth quarter of 2021 because of these same factors.
Republic Credit Solutions segment
● | Net income increased |
● | Net interest income increased |
● | Overall, RCS recorded a net charge to the Provision of |
● | Noninterest income |
● | Noninterest expense was |
78
RESULTS OF OPERATIONS (Three Months Ended September 30, 20222023 Compared to Three Months Ended September 30, 2021)2022)
Net Interest Income
Banking operations are significantly dependent upon net interest income. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities and the interest expense on interest-bearing liabilities used to fund those assets, such as interest-bearing deposits, securities sold under agreements to repurchase, and FHLB advances. Net interest income is impacted by both changes in the amount and composition of interest-earning assets and interest-bearing liabilities, as well as market interest rates.
See the section titled “Asset/Liability Management and Market Risk” in this section of the filing regarding the Bank’s interest rate sensitivity.
A large amount of the Company’s financial instruments tracktracks closely with, or areis primarily indexed to, either the FFTR Prime, or LIBOR.Prime. These rates trended lower beginning in the first quarter of 2020 with the onset of the COVID pandemic, as the FOMC reduced the FFTR to approximately 25 basis points. With the rise ofDuring 2022 inflation during the latter half of 2021 and a steep inflationary rise during the first nine months of 2022, representing inflationaryrose to levels not seen in approximately 40 years,years. In response, the FOMC began executing a quantitative tightening program by reducing its balance sheet, selling certain types of bonds in the market, and repeatedly increasing the FFTR. The FOMC’s increases to the FFTR during 2022 and the first nine months of 20222023 included the following:
73
Table 1 — Increases to the Federal Funds Target Rate duringfrom January 1, 2022 through September 30, 2023
| | | | | | | | | | | | | |
| | | Increase to | | FFTR | | Increase to | | FFTR | ||||
Date | | | the FFTR | | after Increase | | the FFTR | | after Increase | ||||
| | | | | | | | | | | | | |
March 17, 2022 | | | 0.25 | % | | 0.50 | % | | 0.25 | % | | 0.50 | % |
May 5, 2022 | | | 0.50 | | | 1.00 | | | 0.50 | | | 1.00 | |
June 16, 2022 | | | 0.75 | | | 1.75 | | | 0.75 | | | 1.75 | |
July 27, 2022 | | | 0.75 | | | 2.50 | | | 0.75 | | | 2.50 | |
September 21, 2022 | | | 0.75 | | | 3.25 | | | 0.75 | | | 3.25 | |
November 2, 2022 | | 0.75 | | | 4.00 | | |||||||
December 15, 2022 | | 0.50 | | | 4.50 | | |||||||
February 2, 2023 | | 0.25 | | | 4.75 | | |||||||
March 23, 2023 | | 0.25 | | | 5.00 | | |||||||
May 4, 2023 | | 0.25 | | | 5.25 | | |||||||
July 26, 2023 | | 0.25 | | | 5.50 | |
Along with the above increases, the FOMC continued to signal that additional FFTR increases are likely based on the current level of inflation. The FOMC’s actions and signals continued to place upward pressure on long-termshort-term market interest rates throughout the second half of 2022 and the first nine months of 2023. While long-term interest rates initially rose in tandem with the increases to the FFTR through the middle part of 2022, they generally moved lower than short-term rates during the second half of 2022 and maintained a relative lower level into 2023 as the market generally began to anticipate a recession to take place in 2023. As a result of the increase in short-term interest rates and the moderation of long-term interest rates, the yield curve has been inverted for bonds and loansseveral months, with short-term rates generally higher than long-term rates on the yield curve.
During the third quarter of 2023, long-term rates began to increase meaningfully with short-term rates remaining relatively stable by comparison. As a result, the inversion of the yield curve became less extreme during the third quarter of 2022. Further2023 as the yields on longer-term interest rates approached the yields on shorter-term interest rates. While the inversion did become less extreme during the quarter, the yield curve remained inverted as of September 30, 2023. Because banks generally price customer deposits based on the shorter-end of the yield curve and price many loans based on the longer-end of the yield curve, an inverted yield curve is generally negative for banks’ net interest income while a steep yield curve, in which long-term rates exceed short-term rates, is generally favorable for banks.
At this time, the near-term shape of the yield curve is uncertain. The Federal Reserve continues to signal its willingness to implement appropriate monetary policy to reduce inflation. Any further monetary tightening by the Federal ReserveFOMC in the future will likely cause both short-term andinterest rates to increase. The impact additional short-term rate increases by the FOMC could have on long-term market interest rates to increase during the remainder of 2022 and potentially into 2023. Increases in market interest rates are expected to impact the various business segments of the Company differently and will be discussed in further detail in the sections below.is unknown.
Total Company net interest income was $58.0$64.8 million during the third quarter of 20222023 and represented an increase of $4.9$6.2 million, or 9%11%, from the third quarter of 2021.2022. The Total Company net interest margin increased to 4.05%4.35% during the third quarter of 20222023 compared to 3.61%4.09% for the same period in 2021.2022.
The following were the most significant components affecting the Company’s net interest income by reportable segment:
Traditional Banking segment
TheNet interest income within the Traditional Banking’sBank was slightly higher from the third quarter of 2022 to the third quarter of 2023 with a slight decrease in NIM over the same periods. Overall, the Traditional Bank’s net interest income increased $6.3 million,$847,000, or 16%2%, while its NIM declined 13 basis points from the third quarter of 2022 to 3.50% for the third quarter of 2023.
The small increase in net interest income at the Traditional Bank from the third quarter of 2022 to the third quarter of 2023 is a continuing change in trend from early 2023, when the Traditional Bank’s net interest income was much higher on a period-over-same-period-last-year basis. The on-going drivers of this change in trend, which began to emerge late in the first quarter of 2023, were a reduction in average interest-earning cash balances compared to the same period in 2021.the prior year combined with an on-going shift in funding mix away from noninterest-bearing deposit balances into higher-costing, interest-bearing deposits and Federal Home Loan Bank advances. As a result of these factors, the Traditional Banking’s netBank’s yield on its interest margin was 3.63% forearning assets increased 120 basis points from the third quarter of 2022 an increase of 41 basis points from the same period in 2021.
The increase in the Traditional Bank’s net interest income and net interest margin duringto the third quarter of 2022 was primarily attributable to2023, while the following factors:cost of its interest-bearing liabilities increased 203 basis points over the same periods.
7974
Further detailing this change in net interest income and NIM between the third quarter of 2022 and the third quarter of 2023 were the following:
● | Traditional Bank average loans grew from $3.7 billion with a weighted-average yield of 4.23% during the third quarter of 2022 to $4.4 billion with a weighted average yield of 5.23% during the third quarter of 2023. As previously noted, loan growth remained particularly strong within the Core Bank during the first nine months of 2023, with the acquisition of CBank adding approximately $217 million to the Core Bank’s average loans during the third quarter of 2023. |
● | Average investments were $772 million with a weighted-average yield of 2.75% during the third quarter of 2023 compared to $695 million with a weighted-average yield of 1.88% for the third quarter of 2022. As part of its overall interest rate risk management strategy, the Traditional Bank generally maintains an investment portfolio with a shorter overall duration as compared to its peers. This strategy is generally favorable to net interest income in a rising interest rate environment. |
● | The Traditional Bank’s average noninterest-bearing deposits decreased from $1.6 billion during the third quarter of 2022 to $1.4 billion for the third quarter of 2023. This decrease in average noninterest-bearing deposits was primarily funded through a decrease in interest-earning cash balances and an increase in FHLB borrowings. |
● | The Traditional Bank’s weighted-average cost of interest-bearing liabilities increased from 0.02% during the third quarter of 2022 to 2.05% for the third quarter of 2023. Further segmenting the Traditional Bank’s interest-bearing liabilities: |
o | The weighted-average cost of total interest-bearing deposits increased from 0.26% during the third quarter of 2022 to 2.08% for the third quarter of 2023. In addition, average interest-bearing deposits grew $199 million from the third quarter of 2022 to the third quarter of 2023. |
o | The average balance of FHLB borrowings increased from $20 million for the third quarter of 2022 to $442 million for the third quarter of 2023. In addition, the weighted-average cost of these borrowings increased from 1.91% to 4.85% for the same time periods. As noted above, this increase in the average balance of borrowings was generally driven by a period-to-period decline in average deposit balances. |
● | Average interest-earning cash was |
80
Table 2 — Traditional Bank Net Interest Income and Net Interest Margin Excluding PPP (Non-GAAP)
The Company earns fees and a coupon interest rate of 1.0% on its PPP portfolio. Due to the short-term nature of the PPP, management believes Traditional Bank net interest income excluding PPP fees and coupon interest is a more appropriate measure to analyze the performance of the Traditional Bank’s net interest income and net interest margin. The following table reconciles Traditional Bank net interest income and net interest margin to Traditional Bank net interest income and net interest margin excluding PPP fees and interest, a non-GAAP measure.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Interest Income | | | Interest-Earning Assets | | | Net Interest Margin | | |||||||||||||||||||||||||
| | | Three Months Ended Sep. 30, | | | | | | | | Three Months Ended Sep. 30, | | | | | | | | Three Months Ended Sep. 30, | | | | |||||||||||||
(dollars in thousands) |
|
| 2022 |
| 2021 |
| $ Change |
| % Change |
|
| 2022 |
| 2021 |
| $ Change |
| % Change |
|
| 2022 |
| 2021 |
| % Change | | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Traditional Banking - GAAP | | | $ | 46,562 | | $ | 40,297 | | $ | 6,265 | | 16 | % | | $ | 5,136,395 | | $ | 5,006,198 | | $ | 130,197 | | 3 | % | | 3.63 | % | | 3.22 | % | | | 0.41 | % |
Less: Impact of PPP fees and interest | | | | 184 | | | 5,668 | | | (5,484) | | (97) | | | | 12,462 | | | 185,931 | | | (173,469) | | (93) | | | 0.01 | | | 0.35 | | | | (0.34) | |
Traditional Banking ex PPP fees and interest - non-GAAP | | | $ | 46,378 | | $ | 34,629 | | $ | 11,749 | | 34 | | | $ | 5,123,933 | | $ | 4,820,267 | | $ | 303,666 | | 6 | | | 3.62 | | | 2.87 | | | | 0.75 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As previously disclosed, both short-term and long-term market interest rates are expected to continue increasing during the remainderhave risen dramatically since March of 2022 and potentially into 2023 becauseas a result of expectedFOMC monetary tightening by the FOMC. Additionalactions. From March 2022 through December 2022, increases in short-term interest rates and overall market rates arewere generally believed by management to be favorable to the Traditional Bank’s net interest income and net interest margin primarily as a result of the substantial amount of immediately-repricing, interest-earning cash it maintained on its balance sheet and its ability to sustain a low cost of deposits in the near term, while decreases in short-term interest rates and overall market rates are generally believed by management to be unfavorablerelation to the rising FFTR. During the third quarter of 2022, however, the Traditional Bank began to use its excess cash to fund a decline in deposit balances. This trend of declining interest-earning cash to fund decreasing deposit balances continued into the second quarter of 2023. In addition, during the first quarter of 2023, the cost of the Traditional Bank’s interest-bearing deposits began to increase more significantly during the latter part of the quarter due to customer pricing pressures. This trend of increasing deposit costs continued into the third quarter of 2023.
As a result of the declining cash balances, the increasing cost of deposits and the increasing balances of higher costing FHLB advances, the Bank began to experience a diminishing benefit to its net interest income and net interest margin with additional increases in the near term.FFTR during the first quarter of 2023. This trend continued during the third quarter of 2023, as the increase in Traditional Bank interest income only slightly exceeded the increase in Traditional Bank interest expense.
Increases in market interest rates, however, could have a negative impact on net interest income andManagement believes the Traditional Bank will continue to experience net interest margin ifcompression during the Traditional Bank is unable to maintain itsfourth quarter of 2023 as a result of the negative impact of 1) lower interest-earning cash and low-cost deposit balances; 2) larger, higher-costing average balances of FHLB borrowings; and 3) a continuing rise in the cost of thoseinterest-bearing deposits at the levels assumed in its interest-rate-risk model. In addition, a flattening or inversion of the yield curve, causing the spread between long-term interest rates and short-term interest ratesorder to decrease, could negatively impact the Traditional Bank’s net interest income and net interest margin. Variablesmaintain client balances. Additional variables which may also impact the Traditional Bank’s net interest income and net interest margin in the future include, but are not limited to, the actual steepness and shape of the yield curve, future demand for the Traditional Bank’s financial products, and the Traditional Bank’s overall future liquidity needs.
For additional discussion of the factors impacting interest-earning cash and deposit balances as well as deposit betas, see sections titled “Cash and Cash Equivalents” and “Deposits” in the “COMPARISON OF FINANCIAL CONDITION” of this document.
75
Warehouse Lending segment
Net interest income within the Warehouse segment decreased $3.3 million,$544,000, or 52%18%, from the third quarter of 20212022 to the third quarter of 2022,2023, driven by decreases in both average outstanding balances and net interest margin. Overall average outstanding Warehouse balances declined from $717$474 million during the third quarter of 20212022 to $474$423 million for the third quarter of 2022, driven largely by2023, as home-mortgage refinancing dipped from a sharp risesignificantly higher volume in long-term interestearly 2022. Driving this decrease in average outstanding balances was a decline in committed lines-of-credit to $1.0 billion as September 30, 2023 from $1.2 billion as of September 30, 2022. Concurrent with the decline in committed lines of credit, the average usage rates during 2022, which depressed mortgage-refinancing demand and resulted in a sharp drop infor Warehouse line usage.
In addition, the Warehouse net interest margin decreased 97 basis points from 3.51%lines increased to 42% during the third quarter of 2021 to2023 from 38% for the first quarter of 2022.
The Warehouse net interest margin compressed 21 basis points from 2.54% during the third quarter of 2022.2022 to 2.33% during the third quarter of 2023. The decline in the Warehouse net interest margin occurred as its funding costs, as charged through the Company’s funds-transfer-pricinginternal FTP methodology, generally rose in tandem with the increase in short-term interest rates during the year,since rates began rising in March 2022, while its yield increases were delayed until the adjustable rates on its clients’ lines of credit surpassed their contractual interest rate floors. These interest rate floors benefited the Warehouse’s net interest margin substantially during 2020 and 2021 when market rates declined to historical lows but have produced margin compression since the onset of the FFTR increases during 2022.
Committed Warehouse lines-of-credit decreased from $1.4 billion as of September 30, 2021 to $1.2 billion as of September 30, 2022, while average usage rates for Warehouse lines were 40% and 52%, respectively, during the first nine monthsquarter of 2022 and 2021.
Average Committed Warehouse lines-of-credit decreased to $1.3 billion from $1.4 billion for the quarter-ended September 30, 2022, while average usage rates for Warehouse lines were 38% and 51%, respectively, during the third quarters of 2022 and 2021.2022.
Additional increases in short-termlong-term market interest rates and overall market rates are generally believed by managementwill likely lead to be favorable to Warehouse’s net interest income and net interest margin in the near term, however, the benefit of an increase in rates could be partially or entirely offset by a continued reduction in average outstanding balances driven by a decline in demand from Warehouse clients, as higher long-term interest rates generally drive lower demand for Warehouse borrowings. In addition, a lower demand forbecause the yields on Warehouse borrowingslines of credit are generally tied to short-term interest rates, additional increases in short-term interest rates could cause additionalfurther competitive pricing pressures for the industry and the Core Bank, driving down the yield Warehouse earns on its lines of credits.
81
Tax Refund Solutions segment
TRS’s net interest income increased $1.4$2.8 million for the third quarter of 20222023 compared to the same period in 2021,2022, driven primarily by an increase interest income on TRS’s prepaid card balances as a function of the Company’s FTP methodology and a rise in interest rates. For factors affecting
The prepaid card product component of TRS drove a $3 million increase to net interest income for the comparisonsegment. This increase was generally driven by a higher crediting rate applied through the Company’s internal FTP. The prepaid card FTP credit yield was 5.00% for average prepaid card-related balances of the TRS results of operations for$343 million during the third quarter of 2022 and2023 compared to 1.70% for average prepaid card-related balances of $338 million during the third quarter of 2021, see section titled “OVERVIEW (Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021) - Tax Refund Solutions.”2022.
Republic Credit Solutions segment
RCS’s net interest income increased $648,000,$3.1 million, or 11%44%, from the third quarter of 20212022 to the third quarter of 2022.2023. The increase was driven primarily by an increase in fee income from RCS’s LOC products partially offset by a decrease in interest income from RCS’s hospital receivables.II product.
RCS’s LOC II loan fees, which are recorded as interest income on loans, increased to $6.6$9.8 million during the third quarter of 20222023 compared to $4.9$6.6 million during the same period in 2021. Interest income on RCS’s LOC I product increased $635,000, driven by a $3 million increase in average outstanding balances for this product from the third quarter of 2021 to the third quarter of 2022. Interest income on RCS’s LOC II product increased $540,000, as theThe Company first piloted this product during the first quarter of 2021 with limited outstanding balances during the pilot phase. It began to ramp up origination volume for the product during early 2022 and has steadily increased its volume since then, leading to corresponding higher year-over-year revenue.
Interest income from RCS’s hospital receivables decreased $545,000 from the third quarter of 2021 to the third quarter of 2022 resulting from a $28 million decrease in average receivables from period to period.
Overall productcustomer demand for the RCS segmentsegment’s products is not assumed to be interest rate sensitive and therefore management does not believe a rising interest rate environment will impact demandorigination volume for its various consumer loan products. A rising interest rate environment, however, likely will impact the Company’s internal FTP cost allocated to this segment. As a result, the impact of rising interest rates to RCS during 2022 and, potentially into 2023 will be negative to the segment’s financial results, although the exact amount of the negative impact will depend on the internal FTP cost assigned as well as the overall volume and mix of loans it generates.
8276
The following table presents the average balance sheets for the three-month periods ended September 30, 2023 and 2022, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.
Table 32 — Total Company Average Balance Sheets and Interest Rates
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2022 | | | | Three Months Ended September 30, 2021 | | | | Three Months Ended September 30, 2023 | | | | Three Months Ended September 30, 2022 | | | ||||||||||||||||||||||||
|
| Average |
| | |
| Average |
| | | Average |
| | |
| Average |
| |
| Average |
| | |
| Average |
| | | Average |
| | |
| Average |
| | ||||
(dollars in thousands) |
| Balance |
| Interest |
| Rate |
| | | Balance |
| Interest |
| Rate | | |
| Balance |
| Interest |
| Rate |
| | | Balance |
| Interest |
| Rate | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | |
Federal funds sold and other interest-earning deposits | | $ | 727,626 | | $ | 4,176 |
| 2.30 | % |
|
| $ | 924,859 | | $ | 359 |
| 0.16 | % | | | $ | 177,003 | | $ | 2,395 |
| 5.41 | % |
|
| $ | 727,626 | | $ | 4,175 |
| 2.30 | % | |
Investment securities, including FHLB stock (1) | | | 694,781 | | | 3,274 |
| 1.88 | | | | | 555,934 | | | 1,928 |
| 1.39 | | | | | 771,453 | | | 5,298 |
| 2.75 | | | | | 694,781 | | | 3,275 |
| 1.89 | | |
RCS LOC products (2) | | | 30,919 | | | 6,635 | | 85.84 | | | | | 22,804 | | | 4,863 | | 85.30 | | | | | 37,319 | | | 9,762 | | 104.63 | | | | | 30,919 | | | 7,196 | | 93.09 | | |
Other RPG loans (3) | |
| 77,429 | |
| 1,102 |
| 5.69 | | | |
| 105,414 | |
| 1,288 |
| 4.89 | | | |
| 99,036 | |
| 2,079 |
| 8.40 | | | |
| 77,429 | |
| 1,102 |
| 5.69 | | |
Outstanding Warehouse lines of credit (4) | | | 473,923 | | | 5,491 | | 4.63 | | | | | 717,036 | | | 6,698 | | 3.74 | | | | | 423,141 | | | 8,154 | | 7.71 | | | | | 473,923 | | | 5,491 | | 4.63 | | |
Paycheck Protection Program loans (5) (7) | | | 12,462 | | | 184 | | 5.91 | | | | | 185,931 | | | 5,668 | | 12.19 | | | ||||||||||||||||||||
All other Core Bank loans (6) (7) | |
| 3,711,436 | |
| 39,194 |
| 4.22 | | | |
| 3,373,085 | |
| 33,665 |
| 3.99 | | | ||||||||||||||||||||
All other Core Bank loans (5) (6) | |
| 4,446,585 | |
| 58,180 |
| 5.23 | | | |
| 3,723,898 | |
| 39,378 |
| 4.23 | | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-earning assets | |
| 5,728,576 | |
| 60,056 |
| 4.19 | | | |
| 5,885,063 | |
| 54,469 |
| 3.70 | | | |
| 5,954,537 | |
| 85,868 |
| 5.77 | | | |
| 5,728,576 | |
| 60,617 |
| 4.23 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses | |
| (65,262) | | | | | | | | |
| (61,562) | | | | | | | | |
| (73,438) | | | | | | | | |
| (65,262) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-earning cash and cash equivalents | |
| 108,069 | | | | | | | | |
| 140,037 | | | | | | | | |
| 96,303 | | | | | | | | |
| 108,069 | | | | | | | |
Premises and equipment, net | |
| 33,307 | | | | | | | | |
| 38,377 | | | | | | | | |
| 34,013 | | | | | | | | |
| 33,307 | | | | | | | |
Bank owned life insurance | |
| 100,740 | | | | | | | | |
| 99,386 | | | | | | | | |
| 102,825 | | | | | | | | |
| 100,740 | | | | | | | |
Other assets (1) | |
| 170,692 | | | | | | | | |
| 187,287 | | | | | | | | |
| 220,595 | | | | | | | | |
| 170,693 | | | | | | | |
Total assets | | $ | 6,076,122 | | | | | | | | | $ | 6,288,588 | | | | | | | | | $ | 6,334,835 | | | | | | | | | $ | 6,076,123 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transaction accounts | | $ | 1,703,020 | | $ | 496 |
| 0.12 | % | | | $ | 1,569,408 | | $ | 91 |
| 0.02 | % | | | $ | 1,455,193 | | $ | 3,552 |
| 0.98 | % | | | $ | 1,703,020 | | $ | 495 |
| 0.12 | % | |
Money market accounts | |
| 787,523 | | | 601 |
| 0.31 | | | |
| 822,190 | | | 96 |
| 0.05 | | | |
| 905,089 | | | 6,391 |
| 2.82 | | | |
| 787,523 | | | 601 |
| 0.31 | | |
Time deposits | |
| 238,149 | | | 702 |
| 1.18 | | | |
| 298,179 | | | 835 |
| 1.12 | | | |
| 328,071 | | | 2,706 |
| 3.30 | | | |
| 238,149 | | | 703 |
| 1.18 | | |
Reciprocal money market and time deposits | | | 48,432 | |
| 31 |
| 0.26 | | | |
| 188,357 | |
| 124 |
| 0.26 | | | | | 281,277 | |
| 2,748 |
| 3.91 | | | |
| 48,432 | | | 31 |
| 0.26 | | |
Brokered deposits | |
| — | |
| — |
| — | | | |
| 30,001 | |
| 2 |
| 0.03 | | | |
| 7,222 | |
| 100 |
| 5.54 | | | |
| — | | | — |
| — | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-bearing deposits | |
| 2,777,124 | |
| 1,830 |
| 0.26 | | | |
| 2,908,135 | |
| 1,148 |
| 0.16 | | | |
| 2,976,852 | |
| 15,497 |
| 2.08 | | | |
| 2,777,124 | | | 1,830 |
| 0.26 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SSUARs and other short-term borrowings | |
| 220,149 | | | 94 |
| 0.17 | | | |
| 242,867 | | | 20 |
| 0.03 | | | |
| 90,063 | | | 196 |
| 0.87 | | | |
| 220,149 | | | 94 |
| 0.17 | | |
Federal Home Loan Bank advances | |
| 20,000 | | | 96 |
| 1.92 | | | |
| 25,000 | | | 6 |
| 0.10 | | | ||||||||||||||||||||
Subordinated note | |
| — | | | — |
| — | | | |
| 40,791 | | | 166 |
| 1.63 | | | ||||||||||||||||||||
Federal Home Loan Bank advances and other long-term borrowings | |
| 441,543 | | | 5,350 |
| 4.85 | | | |
| 20,000 | | | 96 |
| 1.92 | | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-bearing liabilities | |
| 3,017,273 | |
| 2,020 |
| 0.27 | | | |
| 3,216,793 | |
| 1,340 |
| 0.17 | | | |
| 3,508,458 | |
| 21,043 |
| 2.40 | | | |
| 3,017,273 | | | 2,020 |
| 0.27 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing liabilities and Stockholders’ equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing deposits | |
| 2,096,911 | | | | | | | | |
| 2,118,200 | | | | | | | | |
| 1,794,874 | | | | | | | | |
| 2,096,206 | | | | | | | |
Other liabilities | |
| 110,190 | | | | | | | | |
| 104,660 | | | | | | | | |
| 133,237 | | | | | | | | |
| 108,965 | | | | | | | |
Stockholders’ equity | |
| 851,748 | | | | | | | | |
| 848,935 | | | | | | | | |
| 898,266 | | | | | | | | |
| 853,679 | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 6,076,122 | | | | | | | | | $ | 6,288,588 | | | | | | | | | $ | 6,334,835 | | | | | | | | | $ | 6,076,123 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income | | | | | $ | 58,036 | | | | | | | | | $ | 53,129 | | | | | | | | | $ | 64,825 | | | | | | | | | $ | 58,597 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest spread | | | | | | |
| 3.92 | % | | | | | | | |
| 3.53 | % | | | | | | | |
| 3.37 | % | | | | | | | |
| 3.96 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest margin | | | | | | |
| 4.05 | % | | | | | | | |
| 3.61 | % | | | | | | | |
| 4.35 | % | | | | | | | |
| 4.09 | % | |
| | | | | | | | | | | | | | | | | | | | |
(1) | For the purpose of this calculation, the fair market value adjustment on debt securities is included as a component of other assets. |
(2) | Interest income for Refund Advances and RCS line-of-credit products is composed entirely of loan fees. |
(3) | Interest income includes loan fees of $0 and $0 for the three months ended September 30, |
(4) | Interest income includes loan fees of |
(5) | Interest income includes loan fees of |
(6) |
Average balances for loans include the principal balance of nonaccrual loans and loans held for sale, and are inclusive of all loan premiums, discounts, fees and costs. |
8377
Table 43 illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities impacted Republic’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Table 43 — Total Company Volume/Rate Variance Analysis
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2022 | | | | | Three Months Ended September 30, 2023 | | ||||||||||||
| | | Compared to | | | | | Compared to | | ||||||||||||
| | | Three Months Ended September 30, 2021 | | | | | Three Months Ended September 30, 2022 | | ||||||||||||
| | Total Net | | Increase / (Decrease) Due to | | | | Total Net | | Increase / (Decrease) Due to | | ||||||||||
(in thousands) |
| Change |
| Volume |
| Rate |
| |
| Change |
| Volume |
| Rate |
| ||||||
| | | | | | | | | | | | | | | | | | | | | |
Interest income: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Federal funds sold and other interest-earning deposits | | $ | 3,817 | | $ | (93) | | $ | 3,910 | | | | $ | (1,780) | | $ | (4,695) | | $ | 2,915 | |
Investment securities, including FHLB stock | | | 1,346 | | | 552 | | | 794 | | | | | 2,023 | | | 394 | | | 1,629 | |
RCS LOC products | | | 1,772 | | | 1,741 | | | 31 | | | | | 2,566 | | | 1,605 | | | 961 | |
Other RPG loans | |
| (186) | |
| (378) | |
| 192 | | | |
| 977 | |
| 362 | |
| 615 | |
Outstanding Warehouse lines of credit | | | (1,207) | | | (2,590) | | | 1,383 | | | | | 2,663 | | | (643) | | | 3,306 | |
Paycheck Protection Program loans | | | (5,484) | | | (3,532) | | | (1,952) | | | ||||||||||
All other Core Bank loans | |
| 5,529 | |
| 3,501 | |
| 2,028 | | | |
| 18,802 | |
| 8,458 | |
| 10,344 | |
Net change in interest income | |
| 5,587 | |
| (799) | |
| 6,386 | | | |
| 25,251 | |
| 5,481 | |
| 19,770 | |
| | | | | | | | | | | | | | | | | | | | | |
Interest expense: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Transaction accounts | |
| 405 | |
| 8 | |
| 397 | | | |
| 3,057 | |
| (82) | |
| 3,139 | |
Money market accounts | |
| 505 | |
| (4) | |
| 509 | | | |
| 5,790 | |
| 103 | |
| 5,687 | |
Time deposits | |
| (133) | |
| (175) | |
| 42 | | | |
| 2,003 | |
| 348 | |
| 1,655 | |
Reciprocal money market and time deposits | | | (93) | |
| (89) | |
| (4) | | | | | 2,717 | |
| 685 | |
| 2,032 | |
Brokered deposits | |
| (2) | |
| (2) | |
| — | | | | | 100 | | | 100 | |
| — | |
SSUARs and other short-term borrowings | |
| 74 | |
| (2) | |
| 76 | | | |
| 102 | |
| (84) | |
| 186 | |
Federal Home Loan Bank advances | |
| 90 | |
| (2) | |
| 92 | | | |
| 5,254 | |
| 4,900 | |
| 354 | |
Subordinated note | |
| (166) | |
| (166) | |
| — | | | ||||||||||
Net change in interest expense | |
| 680 | |
| (432) | |
| 1,112 | | | |
| 19,023 | |
| 5,970 | |
| 13,053 | |
| | | | | | | | | | | | | | | | | | | | | |
Net change in net interest income | | $ | 4,907 | | $ | (367) | | $ | 5,274 | | | | $ | 6,228 | | $ | (489) | | $ | 6,717 | |
8478
Provision
Total Company Provision was a net charge of $1.6$3.7 million for the third quarter of 20222023 compared to a net charge of $1.3$1.6 million for the same period in 2021.2022.
The following were the most significant components comprising the Company’s Provision by reportable segment:
Traditional Banking segment
The Traditional Banking Provision during the third quarter of 20222023 was a net creditcharge of $753,000$1.6 million compared to a net credit of $44,000$753,000 for the third quarter of 2021. An analysis of the Provision for2022.
The net charge during the third quarter of 2022 compared to2023 was primarily driven by the same period in 2021 follows:following:
● |
The net credit during the third quarter of 2022 was primarily driven by the following:
The Traditional Bank |
● |
As a percentage of total Traditional Bank loans, the Traditional Banking ACLL was 1.27% as of September 30, 2023 compared to 1.32% as of December 31, 2022 and 1.31% as of September 30, 2022 compared to 1.41% as of December 31, 2021 and 1.42% as of September 30, 2021.2022. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses as of September 30, 2022.2023.
See the sections titled “Allowance for Credit Losses” and “Asset Quality” in this section of the filing under “Comparison of Financial Condition” for additional discussion regarding the Provision and the Bank’s credit quality.
Warehouse Lending segment
Warehouse recorded a net credit to the Provision of $386,000$203,000 for the third quarter of 20222023 compared to a net credit of $223,000$386,000 for the same period in 2021.2022. Provision for both periods reflected changes in general reserves consistent with changes in declining outstanding period-end balances. Outstanding Warehouse period-end balances decreased $154increased $81 million during the third quarter of 20222023 compared to a decrease of $89$93 million during the third quarter of 2021.2022.
As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was 0.25% as of September 30, 2022,2023, December 31, 2021,2022, and September 30, 2021.2022. The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses as of September 30, 2022.2023.
Tax Refund Solutions segment
TRS recorded a net credit to the Provision of $1.3$2.0 million during the third quarter of 2023 compared to a net credit of $1.3 million for the same period in 2022. Substantially all TRS Provision in both periods was related to its RA product.
RAs related to the first quarter 2023 tax filing season were only originated during December of 2022 decreasing its weighted average net EA loss rate from 2.85%and the first two months of total EA originations2023. RAs related to the first quarter 2022 tax filing season were only originated during the first two months of 2022. As is the case each year as of March 31st, the Allowance related to RAs is an estimate with that estimate finalized during the second quarter when all uncollected RAs are ultimately charged off as of June 30, 2022,30th. RAs collected during the second half of a year are recorded as recoveries of previously charged-off loans unless they were covered under a loss guaranty arrangement. Any RAs subject to 2.44%a loss guaranty arrangement that are recovered during the second half of total EA originations asthe year are distributed to the guarantor.
As of September 30, 2022.2023, TRS’s net credit of $2.3 million to the Provision for the third quarter of 2021, decreased its weighted average net EAincurred loss rate from 4.09% of total EA originations as of June 30, 2021,related to 3.19% of total EA originations as of September 30, 2021.
Negatively impactingRAs that were associated with the comparabilityfirst quarter 2023 tax filing season was 3.79% of the TRS Provision from$835 million of the third quarter of 2021 to the third quarter of 2022 was the previously discussed loan loss guaranty arrangement with one of TRS’s Tax Providers. Under this loan loss guaranty arrangement, one large Tax Provider for TRS guarantees a certain loan loss ceiling as a percentage of EA’s originated through this provider. This provider made a payment to TRS early in the third quarter of 2022 under the loss guaranty arrangement to initially settle charge-off activity through June 30, 2022. During the third quarter of 2022, TRS set aside for reimbursement to this provider all EA recoveries oftotal loans originated through this provider. TRS will continue to reimburse this provider for recoveriesduring December 2022 and the first two months of EA loans originated through this provider during 2022 until such time that the loss rate reaches the loss guaranty ceiling, at which time TRS would retain all recoveries thereafter.2023. TRS’s incurred
8579
During the third quarter of 2021, TRS recorded a net benefit of $1.0 millionloss rate for recoveries of EAs through this one provider when no loss guaranty ceiling existed. During the third quarter of 2022, TRS recorded no benefit for recoveries of EAs originated through this provider as all amounts collected during the quarter were reimbursed to the provider. Management believes all EA recoveries during the fourth quarter of 2022 that are covered under this loss guaranty arrangement will also be reimbursed to this provider.
EAs are originated only during the first two months of each year, with losses on those originations initially estimated during the same origination period. All unpaid EAs are charged off by June 30th of each year, with first quarter loss estimates trued-up to actual charge-offs incurred through a second quarter Provision charge or credit. EAs collected during the second half of each year are recorded as recoveries of previously charged-off loans unless such recovery is subject to guarantor reimbursement under a loan-loss guaranty.
For the 2022 and 2021 tax seasons, the following table presents information regarding EA originations, second quarter losses recorded, and third quarter Provision true-ups/loss recoveries:
Table 5 — Easy Advance Performance
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
(dollars in thousands) | | | 2022 Tax Season | | 2021 Tax Season | | 2022/2021 Change | ||||||
| | | | | | | | | | | | | |
EAs originated during the first two months of the year | (a) | | $ | 311,207 | | | $ | 250,045 | | | $ | 61,162 | |
| | | | | | | | | | | | | |
EA net charge-offs (recoveries) recorded ($): | | | | | | | | | | | | | |
EA net losses recognized for the nine months ended September 30, | (b) | | $ | 7,583 | | | $ | 7,984 | | | $ | (401) | |
Provision expense recorded during the six months ended June 30, | (c) | | | 8,879 | | | | 10,226 | | | | (1,347) | |
Provision true-up/EA (recoveries) for the three months ended September 30, | (d) | | $ | (1,296) | | | $ | (2,242) | | | $ | 946 | |
| | | | | | | | | | | | | |
EA net charge-offs (recoveries) recorded (%): | | | | | | | | | | | | | |
EA net losses recognized for the nine months ended September 30, | (b)/(a) | | | 2.44 | % | | | 3.19 | % | | | (0.75) | % |
Provision expense recorded during the six months ended June 30, | (c)/(a) | | | 2.85 | | | | 4.09 | | | | (1.24) | |
Provision true-up/EA (recoveries) for the three months ended September 30, | (d)/(a) | | | (0.41) | % | | | (0.90) | % | | | 0.49 | % |
With all unpaid or unguaranteed EAs having been charged offRAs as of JuneSeptember 30, 2022 any payments received during the fourth quarterwas 2.87% of total originations and it finished 2022 for unguaranteed EAs will continue to represent recovery credits directly to income.with a final RA loss rate of 2.20% of total RAs originated.
For factors affecting the comparison of the TRS results of operations for the third quarter of 20222023 and the third quarter of 2021,2022, see section titled “OVERVIEW (Three Months Ended September 30, 20222023 Compared to Three Months Ended September 30, 2021)2022) - Tax Refund Solutions.”
See additional detail regarding the EARA product under Footnote 5 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements.”
Table 4 — Refund Advance Performance
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
(dollars in thousands) | | | 2023 Tax Season | | 2022 Tax Season | | 2023/2022 Change | ||||||
| | | | | | | | | | | | | |
RAs originated during the tax season (1) | (a) | | $ | 834,552 | | | $ | 311,207 | | | $ | 523,345 | |
| | | | | | | | | | | | | |
RA net charge-offs (recoveries) recorded ($): | | | | | | | | | | | | | |
RA net losses recognized for the six months ended June 30, | (b) | | $ | 25,823 | | | $ | 7,583 | | | $ | 18,240 | |
Provision expense recorded during the six months ended June 30, | (c) | | | 25,798 | | | | 8,879 | | | | 16,919 | |
Second quarter Provision true-up for three months ended June 30, | (d) | | $ | 25 | | | $ | (1,296) | | | $ | 1,321 | |
| | | | | | | | | | | | | |
RA net charge-offs (recoveries) recorded (%): | | | | | | | | | | | | | |
RA net losses recognized for the six months ended June 30, | (b)/(a) | | | 3.09 | % | | | 2.44 | % | | | 0.65 | % |
Provision expense recorded during the six months ended June 30, | (c)/(a) | | | 3.09 | | | | 2.85 | | | | 0.24 | |
Second quarter Provision true-up for three months ended June 30, | (d)/(a) | | | - | % | | | (0.41) | % | | | 0.41 | % |
(1) | The Company originated $98 million of ERAs in December of 2022 related to the 2023 Tax Season. ERAs were not offered in December of 2021 related to the 2022 Tax Season. |
See additional detail regarding the RA product under Footnote 5 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements.”
Republic Credit Solutions segment
As illustrated in Table 65 below, RCS recorded a net charge to the Provision of $4.0$4.3 million during the third quarter of 20222023 compared to a net charge to the Provision of $3.8$4.0 million for the same period in 2021.2022. The increase in the Provision was driven primarily by a $1.7 million$965,000 increase in net charge-offs onfor RCS’s line-of-credit products. NetLOC II product, which resulted in a higher reserve percentage being applied to the outstanding balances. Partially offsetting the increase in Provision related to the RCS LOC II product, net charge-offs for RCS’s LOC I product increased to $1.8 milliondecreased $500,000 for the third quarter of 2022 from $733,000 during the2023 compared to third quarter of 2021, with government stimulus programs generally driving down usage of this product during the third quarter of 2021. Net charge-offs for RCS’s LOC II product were $809,000 for the third quarter of 2022 compared to $254,000 during the third quarter of 2021.2022.
While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products. As a percentage of total RCS loans, the RCS ACLL was 13.00% as of September 30, 2023, 12.88% as of June 30, 2023, 13.73% as of December 31, 2022, and 14.73% as of September 30, 2022, 13.91% as of December 31, 2021, and 9.99% as of September 30, 2021.2022. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of September 30, 2022.2023.
8680
The following table presents net charges to the RCS Provision by product:
Table 65 — RCS Provision by Product
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended Sep. 30, | | | | | | | | Three Months Ended Sep. 30, | | | | | | | | ||||||||
(dollars in thousands) | | 2022 | | 2021 | | $ Change | | % Change | | | 2023 | | 2022 | | $ Change | | % Change | | | ||||||
Product: | | | | | | | | | | | | | | | | | | | | | | | | | |
Lines of credit | | $ | 3,996 | | $ | 3,830 | | $ | 166 | | 4 | % | | $ | 4,320 | | $ | 3,996 | | $ | 324 | | 8 | % | |
Hospital receivables | | | 12 | | | (10) | | | 22 | | NM | | |||||||||||||
Healthcare receivables | | | 13 | | | 12 | | | 1 | | 8 | | | ||||||||||||
Total | | $ | 4,008 | | $ | 3,820 | | $ | 188 | | 5 | % | | $ | 4,333 | | $ | 4,008 | | $ | 325 | | 8 | % | |
81
Table 6 — Summary of Loan and Lease Loss Experience
| | | | | | | |
|
| Three Months Ended | | ||||
| | September 30, | | ||||
(dollars in thousands) |
| 2023 |
| 2022 | | ||
| | | | | | | |
ACLL at beginning of period | | $ | 72,202 | | $ | 64,449 | |
| | | | | | | |
Charge-offs: | | | | | | | |
| | | | | | | |
Traditional Banking: | | | | | | | |
Residential real estate | | | (9) | |
| — | |
Consumer | | | (323) | | | (353) | |
Total Traditional Banking | | | (332) | | | (353) | |
Warehouse lines of credit | |
| — | |
| — | |
Total Core Banking | | | (332) | | | (353) | |
| | | | | | | |
Republic Processing Group: | | | | | �� | | |
Tax Refund Solutions: | | | | | | | |
Refund Advances | | | — | |
| — | |
Other TRS loans | | | — | |
| — | |
Republic Credit Solutions | | | (3,340) | |
| (2,922) | |
Total Republic Processing Group | | | (3,340) | | | (2,922) | |
Total charge-offs | |
| (3,672) | |
| (3,275) | |
| | | | | | | |
Recoveries: | | | | | | | |
| | | | | | | |
Traditional Banking: | | | | | | | |
Residential real estate | | | 24 | | | 24 | |
Commercial real estate | |
| 7 | |
| 275 | |
Commercial & industrial | |
| 7 | |
| 124 | |
Lease financing receivables | |
| 10 | |
| — | |
Home equity | |
| 1 | |
| 7 | |
Consumer | | | 80 | | | 110 | |
Total Traditional Banking | | | 129 | | | 540 | |
Warehouse lines of credit | |
| — | |
| — | |
Total Core Banking | | | 129 | | | 540 | |
| | | | | | | |
Republic Processing Group: | | | | | | | |
Tax Refund Solutions: | | | | | | | |
Refund Advances | | | 1,939 | |
| 1,296 | |
Other TRS commercial & industrial loans | | | 29 | |
| — | |
Republic Credit Solutions | | | 219 | |
| 266 | |
Total Republic Processing Group | | | 2,187 | | | 1,562 | |
| | | | | | | |
Total recoveries | |
| 2,316 | |
| 2,102 | |
| | | | | | | |
Net loan recoveries (charge-offs) | |
| (1,356) | |
| (1,173) | |
| | | | | | | |
Provision - Core Banking | |
| 1,364 | |
| (1,069) | |
Provision - RPG | |
| 2,366 | |
| 2,712 | |
Total Provision | |
| 3,730 | |
| 1,643 | |
ACLL at end of period | | $ | 74,576 | | $ | 64,919 | |
| | | | | | | |
| | | | | | | |
Credit Quality Ratios - Total Company: | | | | | | | |
| | | | | | | |
ACLL to total loans | |
| 1.47 | % |
| 1.51 | % |
ACLL to nonperforming loans | |
| 389 | |
| 397 | |
Net loan charge-offs (recoveries) to average loans | | | 0.11 | |
| 0.11 | |
| | | | | | | |
Credit Quality Ratios - Core Banking: | | | | | | | |
| | | | | | | |
ACLL to total loans | |
| 1.17 | % |
| 1.20 | % |
ACLL to nonperforming loans | |
| 320 | |
| 308 | |
Net loan charge-offs (recoveries) to average loans | | | 0.02 | | | (0.02) | |
8782
Table 7 — Summary of Loan and Lease Loss Experience
| | | | | | | |
|
| Three Months Ended | | ||||
| | September 30, | | ||||
(dollars in thousands) |
| 2022 |
| 2021 | | ||
| | | | | | | |
ACLL at beginning of period | | $ | 64,449 | | $ | 60,291 | |
| | | | | | | |
| | | | | | | |
Charge-offs: | | | | | | | |
| | | | | | | |
Traditional Banking: | | | | | | | |
Commercial & industrial | |
| — | |
| (35) | |
Consumer | | | (353) | | | (279) | |
Total Traditional Banking | | | (353) | | | (314) | |
Warehouse lines of credit | |
| — | |
| — | |
Total Core Banking | | | (353) | | | (314) | |
| | | | | | | |
Republic Processing Group: | | | | | | | |
Tax Refund Solutions: | | | | | | | |
Easy Advances | | | — | |
| — | |
Other TRS loans | | | — | |
| — | |
Republic Credit Solutions | | | (2,922) | |
| (1,064) | |
Total Republic Processing Group | | | (2,922) | | | (1,064) | |
Total charge-offs | |
| (3,275) | |
| (1,378) | |
| | | | | | | |
Recoveries: | | | | | | | |
| | | | | | | |
Traditional Banking: | | | | | | | |
Residential real estate | | | 24 | | | 329 | |
Commercial real estate | |
| 275 | |
| 3 | |
Commercial & industrial | |
| 124 | |
| 16 | |
Home equity | |
| 7 | |
| 5 | |
Consumer | | | 110 | | | 128 | |
Total Traditional Banking | | | 540 | | | 481 | |
Warehouse lines of credit | |
| — | |
| — | |
Total Core Banking | | | 540 | | | 481 | |
| | | | | | | |
Republic Processing Group: | | | | | | | |
Tax Refund Solutions: | | | | | | | |
Easy Advances | | | 1,296 | |
| 2,242 | |
Other TRS loans | | | — | |
| 19 | |
Republic Credit Solutions | | | 266 | |
| 75 | |
Total Republic Processing Group | | | 1,562 | | | 2,336 | |
| | | | | | | |
Total recoveries | |
| 2,102 | |
| 2,817 | |
| | | | | | | |
Net loan recoveries (charge-offs) | |
| (1,173) | |
| 1,439 | |
| | | | | | | |
Provision - Core Banking | |
| (1,069) | |
| (265) | |
Provision - RPG | |
| 2,712 | |
| 1,559 | |
Total Provision | |
| 1,643 | |
| 1,294 | |
ACLL at end of period | | $ | 64,919 | | $ | 63,024 | |
| | | | | | | |
| | | | | | | |
Credit Quality Ratios - Total Company: | | | | | | | |
| | | | | | | |
ACLL to total loans | |
| 1.51 | % |
| 1.45 | % |
ACLL to nonperforming loans | |
| 397 | |
| 301 | |
Net loan charge-offs (recoveries) to average loans | | | 0.11 | |
| (0.13) | |
| | | | | | | |
Credit Quality Ratios - Core Banking: | | | | | | | |
| | | | | | | |
ACLL to total loans | |
| 1.20 | % |
| 1.22 | % |
ACLL to nonperforming loans | |
| 308 | |
| 254 | |
Net loan charge-offs (recoveries) to average loans | | | (0.02) | | | (0.02) | |
88
Table 8 — Annualized Net Loan Charge-offs (Recoveries) to Average Loans by Loan Category
| | | | | | | | | | | | | | |
| | | Net Loan Charge-Offs (Recoveries) to Average Loans | | | Net Loan Charge-Offs (Recoveries) to Average Loans | ||||||||
| | | Three Months Ended | | | Three Months Ended | ||||||||
| | | September 30, | | | September 30, | ||||||||
| | | 2022 | | 2021 | | | 2023 | | 2022 | ||||
| | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | |
Owner occupied | | | (0.01) | % | | (0.15) | % | | | (0.01) | % | | (0.01) | % |
Nonowner occupied | | | — | | | — | | | | — | | | — | |
Commercial real estate | | | (0.07) | | | — | | | | — | | | (0.07) | |
Construction & land development | | | — | | | — | | | | — | | | — | |
Commercial & industrial | | | (0.13) | | | — | | | | (0.01) | | | (0.13) | |
Paycheck Protection Program | | | — | | | — | | |||||||
Lease financing receivables | | | — | | | — | | | | (0.05) | | | — | |
Aircraft | | | — | | | — | | | | — | | | — | |
Home equity | | | (0.01) | | | — | | | | — | | | (0.01) | |
Consumer: | | | | | | | | | | | | | | |
Credit cards | | | 0.15 | | | 0.51 | | | | 0.30 | | | 0.15 | |
Overdrafts | | | 111.26 | | | 63.97 | | | | 89.88 | | | 111.26 | |
Automobile loans | | | (0.47) | | | (0.13) | | | | 3.78 | | | (0.47) | |
Other consumer | | | 3.49 | | | 1.66 | | | | 0.41 | | | 3.49 | |
Total Traditional Banking | | | — | | | (0.02) | | | | 0.02 | | | (0.02) | |
Warehouse lines of credit | | | — | | | — | | | | — | | | — | |
Total Core Banking | | | (0.02) | | | (0.02) | | | | 0.02 | | | (0.02) | |
| | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | |
Easy Advances* | | | NM | | | NM | | |||||||
Other TRS loans | | | NM | | | NM | | |||||||
Refund Advances* | | | NM | | | NM | | |||||||
Other TRS commercial & industrial loans | | | NM | | | NM | | |||||||
Republic Credit Solutions | | | 2.77 | | | 0.81 | | | | 2.45 | | | 2.77 | |
Total Republic Processing Group | | | 1.42 | | | (1.05) | | | | 0.91 | | | 1.42 | |
Total | | | 0.11 | % | | (0.13) | % | | | 0.11 | % | | 0.11 | % |
* All loss rates above are based on net charge-offs as a function of average outstanding portfolio balances. EasyRefund Advances are originated during the first two months of each year, with all EAsRAs charged-off by June 30th of each year. Due to their relatively short life, EARA net charge-offs are typically analyzed by the Company as a percentage of total EARA originations, not as a percentage of average outstanding balances.
The Company swung from net recoveries to total average loans of 0.13% during the third quarter of 2021 toCompany’s net charge-offs to total average loans ofremained at 0.11% duringfrom the third quarter of 2022. The 24-basis-point negative swing was driven by net charge-offs within2022 to the Company’s RPG operations.third quarter of 2023.
From the third quarter of 20212022 to the third quarter of 2022, RPG2023, TRS experienced a $946,000 decrease$643,000 increase in net EARA recoveries within its TRS segment. For factors affectingdue to the comparison of the TRS results of operations for the third quarter of 2022 and the third quarter of 2021, see section titled “OVERVIEW (Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021) - Tax Refund Solutions.”$523 million increase in year-over-year tax-season origination volume.
From the third quarter of 20212022 to the third quarter of 2022, RPG2023, RCS experienced a $1.7 million$465,000 increase in net charge-offs primarily driven by an increase in net charge-offs within its RCS segment.RCS’s LOC II product. Net charge-offs for RCS’s LOC Iwithin this product increased to $1.8 million for$965,000 from the third quarter of 2022 from $733,000 forto the third quarter of 2021, with government stimulus programs generally driving down usage of this2023. This product during the third quarter of 2021. Net charge-offs for RCS’s LOC II product were $809,000 for the third quarter of 2022 compared to $254,000 of net charge-offs for the third quarter of 2021, with this productwas first piloted during the first quarter of 2021. RCS began to ramp up origination volume for the RCS LOC II product during early 2022 and has steadily increased its volume since then, leading to a continuing increase in the period-over-previous-period net charge-offs for the product.
During the third quarters of 20222023 and 2021,2022, the Company’s Core Bank net charge-offs to average Core Bank loans remained near zero.
8983
Noninterest Income
Total Company noninterest income decreased $3.8$1.1 million during the third quarter of 20222023 compared to the same period in 2021.2022.
The following were the most significant components comprising the total Company’s noninterest income by reportable segment:
Traditional Banking segment
Traditional Banking’s noninterest income increased $155,000,$427,000, or 2%5%, for the third quarter of 20222023 compared to the same period in 2021, primarily driven by a $94,000 increase in Interchange Fee Income and a $135,000 increase in Service Charges on Deposit Accounts.2022, with no material fluctuations to note.
The Traditional Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the three months ended September 30, 2023 and 2022 and 2021 were $1.8$1.9 million and $1.6 $1.8million. The total daily overdraft charges, net of refunds, included in interest income for the three months ended September 30, 2023 and 2022 were $327,000 and 2021 were $337,000 and $304,000.$337,000.
Mortgage Banking segment
A decrease in Mortgage banking income for the third quarter of 2023 was generally caused by a large and rapid rise insubstantially higher long-term market interest rates, during the first nine months of 2022, which led to a significant slowdown in the origination of mortgage loans to be sold into the secondary market. AsFor the third quarter of September 30, 2022,2023, the 30-year mortgage rate was hovering near levels not generally seen since 2008.fluctuating within a range between 7.0% and 7.50% for most of the entire quarter. As a result, the Core Bank sold only $39$26 million in secondary market loans and achieved an average cash-gain-as-a-percent-of-loans-sold of 2.33% during the third quarter of 2023 compared to sales of $39 million with comparable cash-gain-as-a-percent-of-loans-sold of 2.23% during the third quarter of 2022 compared to sales of $182 million with comparable cash-gain-as-a-percent-of-loans-sold of 2.82%when mortgage rates were notably lower.
With long term interest rates trending during the third quarter of 2021.
With the FOMC moving forward with its quantitative tightening program during 2022,2023, management believes it is likely that the Core Bank’s mortgage origination volume will continue to be negatively impacted by risinghigher interest rates causing additional declines in mortgage banking income throughout 2022.
Tax Refund Solutions segment
TRS’s noninterest income decreased $728,000 during the thirdfourth quarter of 2022 compared to the same period in 2021, primarily driven by a $687,000 decrease in net RT fees. The decrease in net RT fees was primarily driven by 3% overall decrease in RT volume from the 2021 to the 2022 tax season, with a significant portion of that decrease driven by the loss of one of TRS’s Tax Providers following the announcement of the now-cancelled May 2021 Asset Purchase Agreement. Also impacting the decrease in net RT fees from the third quarter of 2021 to the third quarter of 2022 was the previously mentioned two-week delay in the 2021 tax season, which pushed a greater percentage of RT volume into the third quarter of 2021.
For factors affecting the comparison of the TRS results of operations for the third quarter of 2022 and the third quarter of 2021, see section titled “OVERVIEW (Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021) - Tax Refund Solutions.”2023.
9084
Republic Credit Solutions segment
RCS’s noninterest income increased $952,000,decreased $844,000, or 29%20%, during the third quarter of 20222023 compared to the same period in 2021,2022, with program fees representing the entirety of RCS’s noninterest income. The increasedecrease in RCS program fees primarily reflected lower sales volume and corresponding gains from RCS’s installment loan product which were substantially offset by higher sales volume and gains from RCS’s line of credit and installment loan products, as sales volume was negatively impacted during the third quarter of 2021 by federal government stimulus programs implemented to combat the economic impact of the COVID pandemic. LOC II product.
Proceeds from the sale of RCSRCS’s installment loan products totaled $306$33 million during the third quarter of 2022,2023, a 13% increase66% decrease from the same period in 2021.2022. Proceeds from the sale of RCS's loan products totaled $290 million during the third quarter of 2023, a 21% decrease from the same period in 2022. Partially offsetting the decrease, RCS sold approximately $133 million of balances for the LOC II product during the third quarter of 2023, an increase of 109% over the third quarter of 2022. This increase in sales volume for the LOC II product contributed to a $702,000 increase in RCS program fee revenue, which partially offset the decline in revenue from the installment product. RCS began to ramp up origination volume for the LOC II product during early 2022 and has steadily increased its volume since then, leading to corresponding higher year-over-year net program revenue.
The following table presents RCS program fees by product:
Table 98 — RCS Program Fees by Product
| | | | | | | | | | | | | | | | | | | | | | | ||||
| | Three Months Ended Sep. 30, | | | | | | | | | Three Months Ended Sep. 30, | | | | | | | | ||||||||
(dollars in thousands) | | 2022 | | 2021 | | $ Change | | % Change | | | | 2023 | | 2022 | | $ Change | | % Change | | | ||||||
Product: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lines of credit | | $ | 1,828 | | $ | 1,535 | | $ | 293 | | 19 | % | | | $ | 2,335 | | $ | 1,828 | | $ | 507 | | 28 | % | |
Hospital receivables | | | 38 | | 62 | | | (24) | | (39) | | | ||||||||||||||
Healthcare receivables | | | 50 | | 38 | | | 12 | | 32 | | | ||||||||||||||
Installment loans* | | | 2,342 | | | 1,659 | | | 683 | | 41 | | | | | 951 | | | 2,342 | | | (1,391) | | (59) | | |
Total | | $ | 4,208 | | $ | 3,256 | | $ | 952 | | 29 | % | | | $ | 3,336 | | $ | 4,208 | | $ | (872) | | (21) | % | |
| | | | | | | | | | | | | | | | | | | | | | |
* | The Company has elected the fair value option for this product, with mark-to-market adjustments recorded as a component of program fees. |
Noninterest Expense
Total Company noninterest expense increased $1.7$1.9 million, or 4%, during the third quarter of 20222023 compared to the same period in 2021.2022.
The following were the most significant components comprising the increase in noninterest expense by reportable segment:
Traditional Banking segment
Traditional Banking noninterest expense increased $1.9$1.5 million, or 5%4%, for the third quarter of 20222023 compared to the same period in 2021.2022. The following primarily drove the change in noninterest expense:
● |
● | Legacy Salaries and Benefits expense increased |
o |
91
Direct Legacy salaries increased a net |
o | Legacy Overhead salaries increased |
85
Warehouse Lending segment
Noninterest expense at the Warehouse segment decreased $205,000 during the third quarterTable of 2022 compared to the same period in 2021, primarily due to lower incentive compensation expense recorded during 2022, generally due to lower Warehouse client loan volumes during 2022.Contents
Mortgage Banking segment
Noninterest expense at the Mortgage Banking segment decreased $1.3 million,$212,000, or 38%27%, during the third quarter of 20222023 compared to the same period in 2021,2022, primarily due to a $710,000$128,000 reduction in overhead salaries allocated to the Mortgage Banking segment and a $680,000 reduction$65,000 decrease in mortgage commissions,other overhead shared costs, with both reductions resulting from the previously discussed slowdown in mortgage origination volume.
Republic Credit Solutions segment
Noninterest expense at the RCS segment increased $992,000,$888,000, or 81%40%, during the third quarter of 20222023 compared to the same period in 2021, primarily due to increased marketing2022. Approximately $792,000 of RCS’s LOC II product. Thethis increase was concentrated within the LOC II product and was first piloted duringprimarily a result of a year-over-year increase in marketing activity for the first quarter of 2021.product.
OVERVIEW (Nine Months Ended September 30, 20222023 Compared to Nine Months Ended September 30, 2021)2022)
Total Company net income for the first nine months of 20222023 was $71.3$70.7 million, a $1.3$1.9 million, or 2%3%, increasedecrease from the same period in 2021.2022. Diluted EPS increaseddecreased to $3.58$3.60 for the first nine months of 20222023 compared to $3.39$3.65 for the same period in 2021.2022. The increasedecrease in net income primarily reflected the following:
The following are general highlights by reportable segment:
Traditional Banking segment
● | Net income |
● | Net interest income increased |
92
● | Provision was a net |
● | Noninterest income increased |
● | Noninterest expense increased |
● | Total Traditional Bank loans increased |
● | Total nonperforming loans to total loans for the Traditional Banking segment was |
● | Delinquent loans to total loans for the Traditional Banking segment was |
● | Total Traditional Bank deposits |
Warehouse Lending segment
● | Net income decreased |
● | Net interest income decreased |
● | The Warehouse Provision was a net charge of $134,000 for the first nine months of 2023 compared to a net credit of $1.0 million for the |
● | Average committed Warehouse lines |
● | Average line usage was |
86
Mortgage Banking segment
● | Within the Mortgage Banking segment, mortgage banking income decreased |
● | Overall, Republic’s proceeds from sale of secondary market loans totaled |
Tax Refund Solutions segment
● | Net income |
● | Net interest income increased |
● | Total |
● | In addition to the originations for the first nine months of 2023 and 2022 noted in the preceding bullet, TRS originated $98 million of ERAs related to the first quarter 2023 tax season during December 2022. No ERAs were originated during December 2021 related to the first quarter 2022 tax season. |
● | Overall, TRS recorded a net charge to the Provision of |
● | Noninterest income |
93
● | Net RT revenue decreased |
● | Noninterest expense was $11.9 million for the first nine months of |
TRS had multiple factors during 2021 and 2022 that impacted and will continue to impact its 2022 performance and the comparability of that performance to the same periods in 2021. By year, these factors discussed below include, but may not be limited to, the following:
2021
2022
As it relates to factors impacting 2021, the processing season with the IRS started approximately two weeks later than normal. As a result, RT funding volume and loan repayments from the IRS lagged normal funding patterns in non-COVID-impacted years and effectively pushed RT revenue and loan recovery activity later into the 2021 calendar year. In addition, management believes government stimulus programs during 2021 negatively impacted demand for TRS EA and RT products.
In addition to the more normal timing of the tax season in 2022 as compared to 2021, the fiscal year 2022 tax season, in totality, was favorably impacted by a contractual amendment with one of the Company’s large Tax Providers. As a result of the amended contract, TRS shares certain revenues with this provider, while this provider absorbs certain overhead costs of the program and furnishes to TRS a loan loss guaranty ceiling as a percentage of EAs originated by this provider. Through this provider, TRS originated $172 million of EAs during the first quarter of 2022 as compared to $135 million originated during the first quarter of 2021. The net cost of the revenue share to the provider from TRS was approximately $266,000 for the $172 million of EA volume, while the benefit to TRS of the overhead costs absorbed by this provider was approximately $543,000 and the net benefit to TRS of the loan loss guaranty ceiling for the first nine months of 2022 was approximately $1.3 million.
Negatively impacting the first nine months of 2022 as compared to the first nine months of 2021 was a loss of RT volume by RB&T to Green Dot from certain third-party Tax Providers following the execution of the TRS Purchase Agreement. While TRS was able to partially offset this lost volume through higher volume from other existing relationships, the lost volume to Green Dot from this one provider had a negative impact to the overall results of TRS for the first nine months of 2022 and may continue to have a negative impact to the overall results of TRS beyond 2022, if TRS is unable to win this business back through its normal solicitation process.
As a net result of all the factors in the preceding paragraphs as well as the positive impact to non-interest income of the Green Dot settlement, TRS experienced a net positive improvement to its first nine months of 2022 operating results as compared to the first nine months of 2021.
94
Republic Credit Solutions segment
● | Net income increased |
● | Net interest income increased |
● | Overall, RCS recorded a net charge to the Provision of |
● | Noninterest income |
● | Noninterest expense was |
● | Total nonperforming loans to total loans for the RCS segment was |
● | Delinquent loans to total loans for the RCS segment was |
87
RESULTS OF OPERATIONS (Nine Months Ended September 30, 20222023 Compared to Nine Months Ended September 30, 2021)2022)
Net Interest Income
Banking operations are significantly dependent upon net interest income. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities and the interest expense on interest-bearing liabilities used to fund those assets, such as interest-bearing deposits, securities sold under agreements to repurchase, and FHLB advances. Net interest income is impacted by both changes in the amount and composition of interest-earning assets and interest-bearing liabilities, as well as market interest rates.
See the section titled “Asset/Liability Management and Market Risk” in this section of the filing regarding the Bank’s interest rate sensitivity.
A large amount of the Company’s financial instruments tracktracks closely with, or areis primarily indexed to, either the FFTR or Prime, or LIBOR. These rates trended lower beginning in the first quarter of 2020 with the onset of the COVID pandemic, as the FOMC reduced the FFTR to approximately 25 basis points. With the rise ofDuring 2022 inflation during the latter half of 2021 and a steep inflationary rise during the first half of 2022, representing inflationaryrose to levels not seen in approximately 40 years,years. In response, the FOMC began executing a quantitative tightening program by reducing its balance sheet, selling certain types of bonds in the market, and repeatedly increasing the FFTR. The FOMC’s increases to the FFTR during 2022 and the first nine months of 20222023 included the following:
95
Table 109 — Increases to the Federal Funds Target Rate duringsince January 1, 2022
| | | | | | | | | | | | | |
| | | Increase to | | FFTR | | Increase to | | FFTR | ||||
Date | | | the FFTR | | after Increase | | the FFTR | | after Increase | ||||
| | | | | | | | | | | | | |
March 17, 2022 | | | 0.25 | % | | 0.50 | % | | 0.25 | % | | 0.50 | % |
May 5, 2022 | | | 0.50 | | | 1.00 | | | 0.50 | | | 1.00 | |
June 16, 2022 | | | 0.75 | | | 1.75 | | | 0.75 | | | 1.75 | |
July 27, 2022 | | | 0.75 | | | 2.50 | | | 0.75 | | | 2.50 | |
September 21, 2022 | | | 0.75 | | | 3.25 | | | 0.75 | | | 3.25 | |
November 2, 2022 | | 0.75 | | | 4.00 | | |||||||
December 15, 2022 | | 0.50 | | | 4.50 | | |||||||
February 2, 2023 | | 0.25 | | | 4.75 | | |||||||
March 23, 2023 | | 0.25 | | | 5.00 | | |||||||
May 4, 2023 | | 0.25 | | | 5.25 | | |||||||
July 26, 2023 | | 0.25 | | | 5.50 | |
The FOMC’s actions and signals continued to place upward pressure on long-termshort-term market interest rates throughout the second half of 2022 and the first nine months of 2023. While long-term interest rates initially rose in tandem with the increases to the FFTR through the middle part of 2022, they generally moved lower than short-term rates during the second half of 2022 and maintained a relative lower level into 2023 as the market generally began to anticipate a recession to take place in 2023. As a result of the increase in short-term interest rates and the moderation of long-term interest rates, the yield curve has been inverted for bonds and loansseveral months, with short-term rates generally higher than long-term rates on the yield curve.
During the third quarter of 2023, long-term rates began to increase meaningfully with short-term rates remaining relatively stable by comparison. As a result, the inversion of the yield curve became less extreme during the third quarter of 2022. Further2023 as the yields on longer-term interest rates approached the yields on shorter-term interest rates. While the inversion did become less extreme during the quarter, the yield curve remained inverted as of September 30, 2023. Because banks generally price customer deposits based on the shorter-end of the yield curve and price many loans based on the longer-end of the yield curve, an inverted yield curve is generally negative for banks’ net interest income while a steep yield curve, in which long-term rates exceed short-term rates, is generally favorable for banks.
At this time, the near-term shape of the yield curve is uncertain. The Federal Reserve continues to signal its willingness to implement appropriate monetary policy to reduce inflation. Any further monetary tightening by the Federal ReserveFOMC in the future will likely cause both short-term andinterest rates to increase. The impact additional short-term rate increases by the FOMC could have on long-term market interest rates to increase during the remainder of 2022 and, potentially, into 2023. Increases in market interest rates are expected to impact the various business segments of the Company differently and will be discussed in further detail in the sections below.is unknown.
88
Total Company net interest income was $171.9$222.0 million during the first nine months of 20222023 and represented an increase of $581,000$48.4 million from the first nine months of 2021.2022. Total Company net interest margin expanded to 3.95%5.09% during the first nine months of 2022 compared to 3.86%3.99% for the same period in 2021.2022.
The following were the most significant components affecting the Company’s net interest income by reportable segment:
Traditional Banking segment
The Traditional Banking’s net interest income increased $2.2$24.3 million, or 2%20%, for the first nine months of 20222023 compared to the same period in 2021.2022. Traditional Banking’s net interest margin was 3.20%3.76% for the first nine months of 2022, a decrease2023, an increase of one56 basis pointpoints from the same period in 2021.2022.
The increase in the Traditional Bank’s net interest income during the first nine months of 20222023 was primarily attributable to the following factors:
● | Traditional Bank |
● |
● | The Traditional |
● | The Traditional Bank’s average cost of |
o | The weighted-average cost of total interest-bearing deposits increased from 0.17% during the first nine months of 2022 to 1.49% for the first nine months of 2023. In addition, average interest-bearing deposits increased $33 million from the first nine months of 2022 to the first nine months of 2023. |
o | The average balance of FHLB borrowings increased from $21 million for the first nine months of 2022 to $315 million for the first nine months of 2023. In addition, the weighted-average cost of these borrowings increased from 1.43% to 4.69% for the same time periods. This increase in the average balance of borrowings was generally driven by the period-to-period decline in average deposit balances. |
96
Table 11 — Traditional Bank Net Interest Income and Net Interest Margin Excluding PPP (Non-GAAP)
The Company earns fees and a coupon interest rate of 1.0% on its PPP portfolio. Due to the short-term nature of the PPP, management believes Traditional Bank net interest income excluding PPP fees and coupon interest is a more appropriate measure to analyze the performance of the Traditional Bank’s net interest income and net interest margin. The following table reconciles Traditional Bank net interest income and net interest margin to Traditional Bank net interest income and net interest margin excluding PPP fees and interest, a non-GAAP measure.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Interest Income | | | Interest-Earning Assets | | | Net Interest Margin | | |||||||||||||||||||||||||
| | | Nine Months Ended Sep. 30, | | | | | | | | Nine Months Ended Sep. 30, | | | | | | | | Nine Months Ended Sep. 30, | | | | |||||||||||||
(dollars in thousands) |
|
| 2022 |
| 2021 |
| $ Change |
| % Change |
|
| 2022 |
| 2021 |
| $ Change | | % Change |
|
| 2022 |
| 2021 |
| % Change | | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Traditional Banking - GAAP | | | $ | 121,868 | | $ | 119,677 | | $ | 2,191 | | 2 | % | | $ | 5,081,360 | | $ | 4,966,562 | | $ | 114,798 | | 2 | % | | 3.20 | % | | 3.21 | % | | | (0.01) | % |
Less: Impact of PPP fees and interest | | | | 1,307 | | | 16,949 | | | (15,642) | | (92) | | | | 19,844 | | | 299,458 | | | (279,614) | | (93) | | | 0.02 | | | 0.28 | | | | (0.26) | |
Traditional Banking ex PPP fees and interest - non-GAAP | | | $ | 120,561 | | $ | 102,728 | | $ | 17,833 | | 17 | | | $ | 5,061,516 | | $ | 4,667,104 | | $ | 394,412 | | 8 | | | 3.18 | | | 2.93 | | | | 0.25 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
● | Average interest-earning cash was $174 million with a weighted-average yield of 5.11% during the first nine months of 2023 compared to $797 million with a weighted-average yield of 1.04% for the first nine months of 2022. The decline in average cash balances was driven generally by a decline in average deposit balances for the same periods. |
As previously disclosed, both short-term and long-term market interest rates are expected to continue to increase duringhave risen dramatically since March of 2022 and, potentially, into 2023 as a result of expectedFOMC monetary tightening by the FOMC. Additionalactions. From March 2022 through December 2022, increases in short-term interest rates and overall market rates arewere generally believed by management to be favorable to the Traditional Bank’s net interest income and net interest margin primarily as a result of the substantial amount of immediately-repricing, interest-earning cash it maintained on its balance sheet and its ability to sustain a low cost of deposits in the near term, while decreases in short-term interest rates and overall market rates are generally believed by management to be unfavorablerelation to the rising FFTR. During the third quarter of 2022, however, the Traditional Bank began to use its excess cash to fund a decline in deposit balances. This trend of declining interest-earning cash to fund decreasing deposit balances continued into the second quarter of 2023. In addition, during the first quarter of 2023, the cost of the Traditional Bank’s interest-bearing deposits began to increase more significantly during the latter part of the quarter due to customer pricing pressures. This trend of increasing deposit costs continued into the third quarter of 2023.
89
As a result of the declining cash balances, the increasing cost of deposits and the increasing balances of higher costing FHLB advances, the Bank began to experience a diminishing benefit to its net interest income and net interest margin with additional increases in the near term.FFTR during the first quarter of 2023. This trend continued during the third quarter of 2023, as the increase in Traditional Bank interest income only slightly exceeded the increase in Traditional Bank interest expense.
Increases in market interest rates, however, could have a negative impact on net interest income andManagement believes the Traditional Bank will continue to experience net interest margin ifcompression during the Traditional Bank is unable to maintain itsfourth quarter of 2023 as a result of the negative impact of 1) lower interest-earning cash and low-cost deposit balances; 2) larger, higher-costing average balances of FHLB borrowings; and 3) a continuing rise in the cost of thoseinterest-bearing deposits at the levels assumed in its interest-rate-risk model. In addition, a flattening or inversion of the yield curve, causing the spread between long-term interest rates and short-term interest ratesorder to decrease, could negatively impact the Traditional Bank’s net interest income and net interest margin. Variablesmaintain client balances. Additional variables which may also impact the Traditional Bank’s net interest income and net interest margin in the future include, but are not limited to, the actual steepness and shape of the yield curve, future demand for the Traditional Bank’s financial products, and the Traditional Bank’s overall future liquidity needs.
Warehouse Lending segment
Net interest income within the Warehouse segment decreased $8.0$4.2 million, or 41%37%, from the first nine months of 20212022 to the first nine months of 2022,2023, driven by decreases in both average outstanding balances and net interest margin. Overall average outstanding Warehouse balances declined from $745$545 million during the first nine months of 20212022 to $545$406 million for the first nine months of 2022,2023, driven largely by the sharp rise in long-term interest rates during 2022, which depressed mortgage-refinancing demand and resulted in a sharp drop in Warehouse line usage.
In addition, the Warehouse net interest margin decreased 6842 basis points from 3.47% during the first nine months of 2021 to 2.79% during the first nine months of 2022.2022 to 2.37% during the first nine months of 2023. The decline in the Warehouse net interest margin occurred as its funding costs, as charged through the Company’s funds-transfer-pricinginternal FTP methodology, generally rose in tandem with the increase in short-term interest rates during the year,since rates began rising in March 2022, while its yield increases were delayed until the adjustable rates on its clients’ lines of credit surpassed their contractual interest rate floors. These interest rate floors benefited Warehouse’sthe Warehouse net interest margin substantially during 2020 and 2021 when market rates declined to historical lows but have produced margin compression since the onset of the FFTR increases during the first quarter of 2022.
Committed Warehouse lines-of-credit decreased from $1.4$1.2 billion as September 30, 2022 to $1.0 billion as of September 30, 2021 to $1.2 billion as of September 30, 2022,2023, while average usage rates for Warehouse lines were 40%41% and 52%40%, respectively, during the first nine months of 20222023 and 2021.2022.
Additional increases in short-termlong-term market interest rates and overall market rates are generally believed by managementwill likely lead to be favorable to Warehouse’s net interest income and net interest margin in the near term, however, the benefit of an increase in rates could be partially or entirely offset by a continued reduction in average outstanding balances driven by a decline in demand from Warehouse clients, as higher long-term interest rates generally drive lower demand for Warehouse borrowings. In addition, a lower demand forbecause the yield on Warehouse borrowingslines of credit are generally tied to short-term interest rates, additional increases in short-term interest rates could cause additionalfurther competitive pricing pressures for the industry and the Core Bank, driving down the yield Warehouse earns on its lines of credits.
97
Tax Refund Solutions segment
TRS’sNet interest income within the TRS segment was up $21.5 million from the first nine months of 2022 to the first nine months of 2023. Net interest income at TRS includes income from its prepaid card products as well as the income associated with its tax-related credit products.
The prepaid card product component of TRS drove a $9.0 million increase to net interest income for the segment. This increase was generally driven by a higher crediting rate applied through the Company’s internal FTP. The prepaid card FTP credit yield was 3.26% for average prepaid card-related balances of $350 million during the first nine months of 2023 compared to 0.62% for average prepaid card-related balances of $359 million during the first nine months of 2022.
Related to the segment’s tax-related products, net interest income increased $3.2$21.5 million for the first nine months of 20222023 compared to the same period in 2021, driven by an increase in EA fees, an increase in outstanding commercial loan balances, and an increase in interest income on TRS’s prepaid card balances as a function of the Company’s FTP methodology and a rise in interest rates. TRS’s EA product earned $13.6 million in interest income during the first nine months of 2022,2022. Loan-related interest and fees increased $17.0 million for the period and was driven primarily by a $447,000 increase from the first nine months of 2021 resulting primarily from a $61$426 million increase in EA originationsRA origination volume, most of which resulted from perioda new contract with a large national tax preparation provider. This increase in loan revenue was partially offset by a $4.7 million increase to period. For factors affecting the comparisonsegment’s net cost of the TRS results of operations for the first nine months of 2022 and the first nine months of 2021, see section titled “OVERVIEW (Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021) - Tax Refund Solutions.”funds as applied through its internal FTP.
See additional detail regarding the EARA product under Footnote 4 “Loans5“Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements.”
9890
Republic Credit Solutions segment
RCS’s net interest income increased $3.5$7.0 million, or 22%33%, from the first nine months of 20212022 to the first nine months of 2022.2023. The increase was driven primarily by an increase in fee income from RCS’s LOC products partially offset by a decrease in interest income from RCS’s hospital receivables.II product.
RCS’s LOC II loan fees, which are recorded as interest income on loans, increased to $18.1$13.2 million during the first nine months of 20222023 compared to $12.6$5.7 million during the same period in 2021.
Interest income on RCS’s LOC I product increased $2.6 million, driven by a $5 million increase in average outstanding balances for this product from the first nine months of 2021 to the first nine months of 2022. Interest income on RCS’s LOC II product increased $2.3 million, as theThe Company first piloted this product during the first nine monthsquarter of 2021 with limited outstanding balances during the pilot phase. It began to ramp up origination volume for the product during early 2022 and has steadily increased its volume since then, leading to corresponding higher year-over-year revenue.
Interest income from RCS’s hospital receivables decreased $1.4 million from the first nine months 2021 to the same period in 2022 resulting from a $33 million decrease in average receivables from period to period.
Overall productcustomer demand for the RCS segmentsegment’s products is not assumed to be interest rate sensitive and therefore management does not believe a rising interest rate environment will impact demandorigination volume for its various consumer loan products. A rising interest rate environment, however, likely will impact the Company’s internal FTP cost allocated to this segment. As a result, the impact of rising interest rates to RCS during 20222023 will be negative to the segment’s financial results, although the exact amount of the negative impact will depend on the internal FTP cost assigned, as well as the overall volume and mix of loans it generates.
The following table presents the average balance sheets for the nine-month periods ended September 30, 2023 and 2022, along with the related calculations of tax-equivalent net interest income, net interest margin and net interest spread for the related periods.
9991
Table 1211 — Total Company Average Balance Sheets and Interest Rates
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2022 | | | | Nine Months Ended September 30, 2021 | | | | Nine Months Ended September 30, 2023 | | | | Nine Months Ended September 30, 2022 | | | ||||||||||||||||||||||||
| | Average |
| | |
| Average |
| | | Average |
| | |
| Average |
| | | Average |
| | |
| Average |
| | | Average |
| | |
| Average |
| | ||||
(dollars in thousands) | | Balance | | Interest | | Rate | | | | Balance | | Interest | | Rate | | | | Balance | | Interest | | Rate | | | | Balance | | Interest | | Rate | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Federal funds sold and other interest-earning deposits | | $ | 800,643 | | $ | 6,243 |
| 1.04 | % |
| | $ | 792,858 | | $ | 776 |
| 0.13 | % | | | $ | 177,292 | | $ | 6,653 |
| 5.00 | % |
| | $ | 800,643 | | $ | 6,242 |
| 1.04 | % | |
Investment securities, including FHLB stock (1) | | | 664,455 | | | 8,151 |
| 1.64 | | | | | 560,780 | | | 5,857 |
| 1.39 | | | | | 773,145 | | | 15,641 |
| 2.70 | | | | | 664,455 | | | 8,152 |
| 1.64 | | |
TRS Easy Advance loans (2) | | | 31,946 | | | 13,606 | | 56.79 | | | | | 35,203 | | | 13,159 | | 49.84 | | | ||||||||||||||||||||
TRS Refund Advance loans (2) | | | 91,493 | | | 31,476 | | 45.87 | | | | | 31,946 | | | 13,606 | | 56.79 | | | ||||||||||||||||||||
RCS LOC products (2) | | | 28,123 | | | 18,119 | | 85.90 | | | | | 18,648 | | | 12,552 | | 89.75 | | | | | 33,783 | | | 26,141 | | 103.17 | | | | | 28,123 | | | 19,817 | | 93.95 | | |
Other RPG loans (3) | |
| 96,448 | | | 4,392 |
| 6.07 | | | |
| 116,709 | | | 5,196 |
| 5.94 | | | |
| 113,954 | | | 6,621 |
| 7.75 | | | |
| 96,448 | | | 4,392 |
| 6.07 | | |
Outstanding Warehouse lines of credit (4) | | | 545,301 | | | 15,444 | | 3.78 | | | | | 744,522 | | | 20,892 | | 3.74 | | | | | 405,546 | | | 22,395 | | 7.36 | | | | | 545,301 | | | 15,444 | | 3.78 | | |
Paycheck Protection Program loans (5) (7) | | | 19,844 | | | 1,307 | | 8.78 | | | | | 299,458 | | | 16,949 | | 7.55 | | | ||||||||||||||||||||
All other Core Bank loans (6) (7) | |
| 3,611,777 | | | 108,669 |
| 4.01 | | | |
| 3,349,804 | | | 100,546 |
| 4.00 | | | ||||||||||||||||||||
All other Core Bank loans (5) (6) | |
| 4,215,069 | | | 156,351 |
| 4.95 | | | |
| 3,631,621 | | | 109,976 |
| 4.04 | | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-earning assets | |
| 5,798,537 | |
| 175,931 |
| 4.05 | | | |
| 5,917,982 | |
| 175,927 |
| 3.96 | | | |
| 5,810,282 | |
| 265,278 |
| 6.09 | | | |
| 5,798,537 | |
| 177,629 |
| 4.08 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit loss | |
| (68,847) | | | | | | | | |
| (67,415) | | | | | | | | |
| (84,415) | | | | | | | | |
| (68,847) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-earning cash and cash equivalents | |
| 210,637 | | | | | | | | |
| 177,667 | | | | | | | | |
| 167,960 | | | | | | | | |
| 210,637 | | | | | | | |
Premises and equipment, net | |
| 34,355 | | | | | | | | |
| 38,891 | | | | | | | | |
| 33,411 | | | | | | | | |
| 34,355 | | | | | | | |
Bank owned life insurance | |
| 100,146 | | | | | | | | |
| 88,414 | | | | | | | | |
| 102,479 | | | | | | | | |
| 100,146 | | | | | | | |
Other assets (1) | |
| 171,819 | | | | | | | | |
| 188,250 | | | | | | | | |
| 205,828 | | | | | | | | |
| 171,819 | | | | | | | |
Total assets | | $ | 6,246,647 | | | | | | | | | $ | 6,343,789 | | | | | | | | | $ | 6,235,545 | | | | | | | | | $ | 6,246,647 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transaction accounts | | $ | 1,698,005 | | $ | 762 |
| 0.06 | % | | | $ | 1,551,690 | | $ | 266 |
| 0.02 | % | | | $ | 1,526,490 | | $ | 7,858 |
| 0.69 | % | | | $ | 1,698,005 | | $ | 762 |
| 0.06 | % | |
Money market accounts | |
| 791,625 | | | 863 |
| 0.15 | | | |
| 776,448 | | | 292 |
| 0.05 | | | |
| 830,731 | | | 13,236 |
| 2.12 | | | |
| 791,625 | | | 862 |
| 0.15 | | |
Time deposits | |
| 244,412 | | | 1,916 |
| 1.05 | | | |
| 305,456 | | | 2,871 |
| 1.25 | | | |
| 280,715 | | | 5,466 |
| 2.60 | | | |
| 244,412 | | | 1,917 |
| 1.05 | | |
Reciprocal money market and time deposits | | | 60,627 | | | 113 | | 0.25 | | | | | 273,312 | | | 585 | | 0.29 | | | | | 171,481 | | | 4,469 | | 3.47 | | | | | 60,627 | | | 113 | | 0.25 | | |
Brokered deposits | |
| — | | | — |
| — | | | |
| 38,864 | | | 23 |
| 0.08 | | | |
| 14,626 | | | 562 |
| 5.12 | | | |
| — | | | — |
| — | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-bearing deposits | |
| 2,794,669 | |
| 3,654 |
| 0.17 | | | |
| 2,945,770 | |
| 4,037 |
| 0.18 | | | |
| 2,824,043 | |
| 31,591 |
| 1.49 | | | |
| 2,794,669 | |
| 3,654 |
| 0.17 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SSUARs and other short-term borrowings | |
| 271,276 | |
| 171 |
| 0.08 | | | |
| 201,992 | |
| 37 |
| 0.02 | | | |
| 136,528 | |
| 618 |
| 0.60 | | | |
| 271,276 | |
| 171 |
| 0.08 | | |
Federal Home Loan Bank advances | |
| 21,099 | |
| 226 |
| 1.43 | | | |
| 30,989 | |
| 47 |
| 0.20 | | | ||||||||||||||||||||
Subordinated note | |
| — | |
| — |
| — | | | |
| 41,089 | |
| 507 |
| 1.65 | | | ||||||||||||||||||||
Federal Home Loan Bank advances and other long-term borrowings | |
| 315,015 | |
| 11,073 |
| 4.69 | | | |
| 21,099 | |
| 226 |
| 1.43 | | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-bearing liabilities | |
| 3,087,044 | |
| 4,051 |
| 0.17 | | | |
| 3,219,840 | |
| 4,628 |
| 0.19 | | | |
| 3,275,586 | |
| 43,282 |
| 1.76 | | | |
| 3,087,044 | |
| 4,051 |
| 0.17 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing liabilities and Stockholders’ equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest-bearing deposits | |
| 2,201,793 | | | | | | | | |
| 2,163,334 | | | | | | | | |
| 1,936,096 | | | | | | | | |
| 2,200,953 | | | | | | | |
Other liabilities | |
| 107,814 | | | | | | | | |
| 115,730 | | | | | | | | |
| 133,081 | | | | | | | | |
| 107,214 | | | | | | | |
Stockholders’ equity | |
| 849,996 | | | | | | | | |
| 844,885 | | | | | | | | |
| 890,782 | | | | | | | | |
| 851,436 | | | | | | | |
Total liabilities and stock-holders’ equity | | $ | 6,246,647 | | | | | | | | | $ | 6,343,789 | | | | | | | | | $ | 6,235,545 | | | | | | | | | $ | 6,246,647 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income | | | | | $ | 171,880 | | | | | | | | | $ | 171,299 | | | | | | | | | $ | 221,996 | | | | | | | | | $ | 173,578 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest spread | | | | | | |
| 3.88 | % | | | | | | | |
| 3.77 | % | | | | | | | |
| 4.33 | % | | | | | | | |
| 3.91 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest margin | | | | | | |
| 3.95 | % | | | | | | | |
| 3.86 | % | | | | | | | |
| 5.09 | % | | | | | | | |
| 3.99 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | For the purpose of this calculation, the fair market value adjustment on debt securities is included as a component of other assets. |
(2) | Interest income for |
(3) | Interest income includes loan fees of |
(4) | Interest income includes loan fees of |
(5) | Interest income includes loan fees of |
(6) |
Average balances for loans include the principal balance of nonaccrual loans and loans held for sale, and are inclusive of all loan premiums, discounts, fees and costs. |
10092
Table 1312 illustrates the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities impacted Republic’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Table 1312 — Total Company Volume/Rate Variance Analysis
| | | | | | | | | | |
| | | Nine Months Ended September 30, 2022 | | ||||||
| | | Compared to | | ||||||
| | | Nine Months Ended September 30, 2021 | | ||||||
| | Total Net | | Increase / (Decrease) Due to | | |||||
(in thousands) | | Change |
| Volume |
| Rate | | |||
| | | | | | | | | | |
Interest income: | | | | | | | | | | |
| | | | | | | | | | |
Federal funds sold and other interest-earning deposits | | $ | 5,467 | | $ | 7 | | $ | 5,460 | |
Investment securities, including FHLB stock | | | 2,294 | | | 1,180 | | | 1,114 | |
TRS Easy Advance loans* | | | 447 | | | 2,897 | | | (2,450) | |
RCS LOC products | | | 5,567 | | | 6,126 | | | (559) | |
Other RPG loans | |
| (804) | |
| (920) | |
| 116 | |
Outstanding Warehouse lines of credit | | | (5,448) | | | (5,641) | | | 193 | |
Paycheck Protection Program loans | | | (15,642) | | | (18,030) | | | 2,388 | |
All other Core Bank loans | |
| 8,123 | |
| 7,882 | |
| 241 | |
Net change in interest income | |
| 4 | |
| (6,499) | |
| 6,503 | |
| | | | | | | | | | |
Interest expense: | | | | | | | | | | |
| | | | | | | | | | |
Transaction accounts | |
| 496 | |
| 27 | |
| 469 | |
Money market accounts | |
| 571 | |
| 6 | |
| 565 | |
Time deposits | |
| (955) | |
| (522) | |
| (433) | |
Reciprocal money market and time deposits | | | (472) | |
| (405) | |
| (67) | |
Brokered deposits | |
| (23) | |
| (23) | |
| — | |
SSUARs and other short-term borrowings | |
| 134 | |
| 16 | |
| 118 | |
Federal Home Loan Bank advances | |
| 179 | |
| (20) | |
| 199 | |
Subordinated note | |
| (507) | |
| (507) | |
| — | |
Net change in interest expense | |
| (577) | |
| (1,428) | |
| 851 | |
| | | | | | | | | | |
Net change in net interest income | | $ | 581 | | $ | (5,071) | | $ | 5,652 | |
| | | | | | | | | | |
| | | Nine Months Ended September 30, 2023 | | ||||||
| | | Compared to | | ||||||
| | | Nine Months Ended September 30, 2022 | | ||||||
| | Total Net | | Increase / (Decrease) Due to | | |||||
(in thousands) | | Change |
| Volume |
| Rate | | |||
| | | | | | | | | | |
Interest income: | | | | | | | | | | |
| | | | | | | | | | |
Federal funds sold and other interest-earning deposits | | $ | 411 | | $ | (8,003) | | $ | 8,414 | |
Investment securities, including FHLB stock | | | 7,489 | | | 1,508 | | | 5,981 | |
TRS Refund Advance loans* | | | 17,870 | | | 20,942 | | | (3,072) | |
RCS LOC products | | | 6,324 | | | 4,252 | | | 2,072 | |
Other RPG loans | |
| 2,229 | |
| 884 | |
| 1,345 | |
Outstanding Warehouse lines of credit | | | 6,951 | | | (4,757) | | | 11,708 | |
All other Core Bank loans | |
| 46,375 | |
| 19,325 | |
| 27,050 | |
Net change in interest income | |
| 87,649 | |
| 34,151 | |
| 53,498 | |
| | | | | | | | | | |
Interest expense: | | | | | | | | | | |
| | | | | | | | | | |
Transaction accounts | |
| 7,096 | |
| (85) | |
| 7,181 | |
Money market accounts | |
| 12,374 | |
| 45 | |
| 12,329 | |
Time deposits | |
| 3,549 | |
| 323 | |
| 3,226 | |
Reciprocal money market and time deposits | | | 4,356 | |
| 537 | |
| 3,819 | |
Brokered deposits | | | 562 | | | 562 | | | — | |
SSUARs and other short-term borrowings | |
| 447 | |
| (124) | |
| 571 | |
Federal Home Loan Bank advances | |
| 10,847 | |
| 9,320 | |
| 1,527 | |
Net change in interest expense | |
| 39,231 | |
| 10,578 | |
| 28,653 | |
| | | | | | | | | | |
Net change in net interest income | | $ | 48,418 | | $ | 23,573 | | $ | 24,845 | |
* Since interest income for EasyRefund Advances is composed entirely of loan fees and EAsRAs are only offered during the first two months of each year, volume and rate measurements for this product are based on total EAs originated instead of average EA balances during the period. EA originations totaled $311 million and $250 millionnot a meaningful metric for the nine months ended September 30, 2022 and 2021. The unannualized EA yield as a function of total EA originations was 4.37% and 5.26% for the nine months ended September 30, 2022 and 2021.periods presented above.
10193
Provision
Total Company Provision was a net charge of $14.5$36.6 million for the first nine months of 20222023 compared to a net charge of $12.2$14.5 million for the same period in 2021.2022.
The following were the most significant components comprising the Company’s Provision by reportable segment:
Traditional Banking segment
The Traditional Banking Provision during the first nine months of 20222023 was a net creditcharge of $287,000$6.4 million compared to a net credit of $126,000$287,000 for the first nine months of 2021.2022. An analysis of the Provision for the first nine months of 20222023 compared to the same period in 20212022 follows:
● | For the first nine months of 2023, the Traditional Bank Provision primarily reflected the following: |
o | The Traditional Bank incurred a net charge of $2.7 million during the first quarter of 2023 for the Day-1 Provision associated with the acquired CBank non-PCD loans. A net credit of $1.4 million was recorded during the second quarter of 2023 to reflect a change in estimated fair value based upon further evaluation of PCD loans. |
o | The Traditional Bank recorded approximately $5.0 million in general formula reserves for $642 million of loan growth during the first nine months of 2023. Approximately $1.0 million of these general formula reserves was due to an increase in the Traditional Bank’s qualitative factor reserves generally related to uncertain market conditions brought about by high inflation, government actions to combat inflation, and elevated vacancy rates for commercial office space. |
o | Offsetting the above, the Traditional Bank recognized a $2.7 million credit to the Provision during the first nine months of 2023 driven primarily by the release of $1.5 million in COVID-related reserves. The release of these reserves coincided with the federal government’s declaration of the official end to the COVID pandemic in May of 2023. |
● | For the first nine months of 2022, the Traditional Bank Provision primarily reflected the following: |
o |
tied to general loan growth. Non-PPP Traditional Bank loans grew $294 million from December 31, 2021 to September 30, |
As a percentage of total Traditional Bank loans, the Traditional Banking ACLL was 1.27% as of September 30, 2023 compared to 1.32% as of December 31, 2022 and 1.31% as of September 30, 2022 compared to 1.41% as of December 31, 2021 and 1.42% as of September 30, 2021.2022. The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses as of September 30, 2022.2023.
See the sections titled “Allowance for Credit Losses” and “Asset Quality” in this section of the filing under “Comparison of Financial Condition” for additional discussion regarding the Provision and the Bank’s credit quality.
Warehouse Lending segment
Warehouse recorded a net creditcharge to the Provision of $1.0 million$134,000 for the first nine months of 20222023 compared to a net credit of $530,000$1.0 million for the same period in 2021.2022. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances decreasedincreased $53 million during the first nine months of 2023 compared to a decrease of $408 million during the first nine months of 2022 compared to a decrease of $212 million during the first nine months of 2021.2022.
As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was 0.25% as of September 30, 2022,2023, December 31, 2021,2022, and September 30, 2021.2022. The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses as of September 30, 2022.2023.
94
Tax Refund Solutions segment
TRS recorded a net charge to the Provision of $7.0$19.6 million during the first nine months of 20222023 compared to a net charge of $7.9$7.0 million for the same period in 2021.2022. Substantially all TRS Provision in both periods was related to its EARA product.
TRS recorded a charge to the Provision for EARA loans of $7.6$21.6 million, or 2.44%2.92% of its $311$737 million in EAsRAs originated during the first nine months of 2022 compared to a charge to the Provision of $8.0$7.6 million, or 3.19%2.44% of its $250$311 million of EAsRAs originated during the first nine months of 2021.2022. The decreaseincrease in Provision for the first nine months of 20222023 was primarily due to the following two factors:increased volume from the previously mentioned new contract with a large national tax preparation provider, which generated approximately $462 million in new RA volume related to the first quarter 2023 tax filing season.
102
With all unpaid or unguaranteed EAs having beenRAs charged off as of June 30, 2022,2023, any payments received for unguaranteed EAsRAs during the third and fourth quarter of 20222023 will continue to represent recovery credits directly to income.
For factors affecting the comparison of the TRS results of operations for the first nine months of 2022 and the first nine months of 2021, see section titled “OVERVIEW (Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021) - Tax Refund Solutions.”
See additional detail regarding the EARA product under Footnote 45 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements.”
Republic Credit Solutions segment
As illustrated in Table 1413 below, RCS recorded a net charge to the Provision of $8.8$10.5 million during the first nine months of 20222023 compared to a net charge to the Provision of $5.0$8.8 million for the same period in 2021.2022. The increase in the Provision was driven primarily by a $7.2$2.1 million increase in net charge-offs, on RCS’s line-of-credit products. Net charge-offswhich resulted in a higher reserve percentage being applied to the outstanding balances, and a $401,000 Allowance build for RCS’s LOC I product increased to $5.1 million for the first nine months of 2022 from $1.9 million during the first nine months of 2021, with government stimulus programs generally driving down usage of this product during the first nine months of 2021.II product. Net charge-offs for RCS’s LOC II product were $2.1$4.3 million for the first nine months of 20222023 compared to $254,000$2.2 million of net charge-offs during the first nine months of 2022. As previously disclosed in the quarterly discussion, this product was first piloted during the first quarter of 2021. RCS began to ramp up origination volume for the RCS LOC II product during early 2022 and has steadily increased its volume since then leading to corresponding higher year-over-year net charge-offs in the product.
While RCS loans generally return higher yields, they also present a greater credit risk than Traditional Banking loan products. As a percentage of total RCS loans, the RCS ACLL was 13.0% as of September 30, 2023, 12.88% as of June 30, 2023, 13.73% as of December 31, 2022, and 14.73% as of September 30, 2022, 13.91% as of December 31, 2021, and 9.99% as of September 30, 2021.2022. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses as of September 30, 2022.2023.
The following table presents net charges to the RCS Provision by product:
Table 1413 — RCS Provision by Product
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended Sep. 30, | | | | | | | | Nine Months Ended Sep. 30, | | | | | | | | ||||||||
(in thousands) | | 2022 | | | 2021 | | $ Change | | % Change | | 2023 | | | 2022 | | $ Change | | % Change | | ||||||
Product: | | | | | | | | | | | | | | | | | | | | | | | | | |
Lines of credit | | $ | 8,827 | | $ | 5,036 | | $ | 3,791 | | 75 | % | | $ | 10,431 | | $ | 8,827 | | $ | 1,604 | | 18 | % | |
Hospital receivables | | | 9 | | | 1 | | | 8 | | 800 | | | | 37 | | | 9 | | | 28 | | 311 | | |
Total | | $ | 8,836 | | $ | 5,037 | | $ | 3,799 | | 75 | % | | $ | 10,468 | | $ | 8,836 | | $ | 1,632 | | 18 | % | |
95
Table 14 — Summary of Loan and Lease Loss Experience
| | | | | | | |
| | Nine Months Ended | | ||||
| | September 30, | | ||||
(dollars in thousands) | | 2023 |
| 2022 | | ||
| | | | | | | |
ACLL at beginning of period | | $ | 70,413 | | $ | 64,577 | |
| | | | | | | |
CBank Initial Recognition of ACLL and Fair Value Adjustment | | | 216 | | | — | |
| | | | | | | |
Charge-offs: | | | | | | | |
| | | | | | | |
Traditional Banking: | | | | | | | |
Residential real estate | | | (24) | |
| — | |
Consumer | | | (878) | | | (861) | |
Total Traditional Banking | | | (902) | | | (861) | |
Warehouse lines of credit | |
| — | |
| — | |
Total Core Banking | | | (902) | | | (861) | |
| | | | | | | |
Republic Processing Group: | | | | | | | |
Tax Refund Solutions: | | | | | | | |
Refund Advances | | | (25,823) | |
| (11,505) | |
Other TRS commercial & industrial loans | | | (128) | |
| (154) | |
Republic Credit Solutions | | | (9,459) | |
| (8,005) | |
Total Republic Processing Group | | | (35,410) | | | (19,664) | |
Total charge-offs | |
| (36,312) | |
| (20,525) | |
| | | | | | | |
Recoveries: | | | | | | | |
| | | | | | | |
Traditional Banking: | | | | | | | |
Residential real estate | | | 50 | | | 93 | |
Commercial real estate | |
| 66 | |
| 277 | |
Commercial & industrial | |
| 116 | |
| 141 | |
Lease financing receivables | |
| 10 | |
| — | |
Home equity | |
| 2 | |
| 119 | |
Consumer | | | 253 | | | 305 | |
Total Traditional Banking | | | 497 | | | 935 | |
Warehouse lines of credit | |
| — | |
| — | |
Total Core Banking | | | 497 | | | 935 | |
| | | | | | | |
Republic Processing Group: | | | | | | | |
Tax Refund Solutions: | | | | | | | |
Refund Advances | | | 2,411 | |
| 3,922 | |
Other TRS commercial & industrial loans | | | 31 | |
| 665 | |
Republic Credit Solutions | | | 685 | |
| 804 | |
Total Republic Processing Group | | | 3,127 | | | 5,391 | |
Total recoveries | |
| 3,624 | |
| 6,326 | |
| | | | | | | |
Net loan charge-offs | |
| (32,688) | |
| (14,199) | |
| | | | | | | |
Provision - Core Banking | |
| 6,545 | |
| (1,271) | |
Provision - RPG | |
| 30,090 | |
| 15,812 | |
Total Provision | |
| 36,635 | |
| 14,541 | |
ACLL at end of period | | $ | 74,576 | | $ | 64,919 | |
| | | | | | | |
Credit Quality Ratios - Total Company: | | | | | | | |
| | | | | | | |
ACLL to total loans | |
| 1.47 | % |
| 1.51 | % |
ACLL to nonperforming loans | |
| 389 | |
| 397 | |
Net loan charge-offs to average loans | |
| 0.90 | |
| 0.44 | |
| | | | | | | |
Credit Quality Ratios - Core Banking: | | | | | | | |
| | | | | | | |
ACLL to total loans | |
| 1.17 | % |
| 1.20 | % |
ACLL to nonperforming loans | |
| 320 | |
| 308 | |
Net loan charge-offs to average loans | | | 0.01 | | | (0.00) | |
96
Table 15 — Summary of Loan and Lease Loss Experience
| | | | | | | |
| | Nine Months Ended | | ||||
| | September 30, | | ||||
(dollars in thousands) | | 2022 |
| 2021 | | ||
| | | | | | | |
ACLL at beginning of period | | $ | 64,577 | | $ | 61,067 | |
| | | | | | | |
Charge-offs: | | | | | | | |
| | | | | | | |
Traditional Banking: | | | | | | | |
Commercial real estate | |
| — | |
| (428) | |
Commercial & industrial | |
| — | |
| (35) | |
Consumer | | | (861) | | | (649) | |
Total Traditional Banking | | | (861) | | | (1,112) | |
Warehouse lines of credit | |
| — | |
| — | |
Total Core Banking | | | (861) | | | (1,112) | |
| | | | | | | |
Republic Processing Group: | | | | | | | |
Tax Refund Solutions: | | | | | | | |
Easy Advances | | | (11,505) | |
| (10,226) | |
Other TRS loans | | | (154) | |
| (21) | |
Republic Credit Solutions | | | (8,005) | |
| (2,427) | |
Total Republic Processing Group | | | (19,664) | | | (12,674) | |
Total charge-offs | |
| (20,525) | |
| (13,786) | |
| | | | | | | |
Recoveries: | | | | | | | |
| | | | | | | |
Traditional Banking: | | | | | | | |
Residential real estate | | | 93 | | | 376 | |
Commercial real estate | |
| 277 | |
| 82 | |
Commercial & industrial | |
| 141 | |
| 27 | |
Home equity | |
| 119 | |
| 46 | |
Consumer | | | 305 | | | 371 | |
Total Traditional Banking | | | 935 | | | 902 | |
Warehouse lines of credit | |
| — | |
| — | |
Total Core Banking | | | 935 | | | 902 | |
| | | | | | | |
Republic Processing Group: | | | | | | | |
Tax Refund Solutions: | | | | | | | |
Easy Advances | | | 3,922 | |
| 2,242 | |
Other TRS loans | | | 665 | |
| (3) | |
Republic Credit Solutions | | | 804 | |
| 247 | |
Total Republic Processing Group | | | 5,391 | | | 2,486 | |
Total recoveries | |
| 6,326 | |
| 3,388 | |
| | | | | | | |
Net loan charge-offs | |
| (14,199) | |
| (10,398) | |
| | | | | | | |
Provision - Core Banking | |
| (1,271) | |
| (532) | |
Provision - RPG | |
| 15,812 | |
| 12,887 | |
Total Provision | |
| 14,541 | |
| 12,355 | |
ACLL at end of period | | $ | 64,919 | | $ | 63,024 | |
| | | | | | | |
Credit Quality Ratios - Total Company: | | | | | | | |
| | | | | | | |
ACLL to total loans | |
| 1.51 | % |
| 1.45 | % |
ACLL to nonperforming loans | |
| 397 | |
| 301 | |
Net loan charge-offs to average loans | |
| 0.44 | |
| 0.30 | |
| | | | | | | |
Credit Quality Ratios - Core Banking: | | | | | | | |
| | | | | | | |
ACLL to total loans | |
| 1.20 | % |
| 1.22 | % |
ACLL to nonperforming loans | |
| 308 | |
| 254 | |
Net loan charge-offs to average loans | | | — | | | 0.01 | |
104
Table 16 — Annualized Net Loan Charge-offs (Recoveries) to Average Loans by Loan Category
| | | | | | | | | | | | | | | |
| | | Net Loan Charge-Offs (Recoveries) to Average Loans | | | | Net Loan Charge-Offs (Recoveries) to Average Loans | ||||||||
| | | Nine Months Ended | | | | Nine Months Ended | ||||||||
| | | September 30, | | | | September 30, | ||||||||
| | | 2022 | | 2021 | | | | 2023 | | 2022 | ||||
| | | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | |
Owner occupied | | | (0.01) | % | | (0.06) | % | | | | — | % | | (0.01) | % |
Nonowner occupied | | | — | | | — | | | | | — | | | — | |
Commercial real estate | | | (0.02) | | | 0.03 | | | | | (0.01) | | | (0.02) | |
Construction & land development | | | — | | | — | | | | | — | | | — | |
Commercial & industrial | | | (0.05) | | | — | | | | | (0.03) | | | (0.05) | |
Paycheck Protection Program | | | — | | | — | | | |||||||
Lease financing receivables | | | — | | | — | | | | | (0.04) | | | — | |
Aircraft | | | — | | | — | | | | | — | | | — | |
Home equity | | | (0.07) | | | (0.03) | | | | | — | | | (0.07) | |
Consumer: | | | | | | | | | | | | | | | |
Credit cards | | | 0.21 | | | 0.74 | | | | | 0.46 | | | 0.21 | |
Overdrafts | | | 90.38 | | | 41.32 | | | | | 84.97 | | | 90.38 | |
Automobile loans | | | (0.02) | | | (0.15) | | | | | 1.01 | | | (0.02) | |
Other consumer | | | 1.19 | | | — | | | | | 0.22 | | | 1.19 | |
Total Traditional Banking | | | — | | | 0.01 | | | | | 0.01 | | | — | |
Warehouse lines of credit | | | — | | | — | | | | | — | | | — | |
Total Core Banking | | | — | | | 0.01 | | | | | 0.01 | | | — | |
| | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | | |
Easy Advances* | | | 30.29 | | | 29.13 | | | |||||||
Refund Advances* | | | 32.93 | | | 30.29 | | ||||||||
Other TRS loans | | | (6.49) | | | 0.20 | | | | | 0.67 | | | (6.49) | |
Republic Credit Solutions | | | 10.32 | | | 2.55 | | | | | 9.74 | | | 10.32 | |
Total Republic Processing Group | | | 13.89 | | | 8.27 | | | | | 18.37 | | | 13.89 | |
Total | | | 0.44 | % | | 0.30 | % | | | | 0.90 | % | | 0.44 | % |
* All loss rates above are based on net charge-offs as a function of average outstanding portfolio balances. EasyRefund Advances are originated during the first two months of each year, with all EAsRAs charged-off by June 30th of each year. Due to their relatively short life, EARA net charge-offs are typically analyzed by the Company as a percentage of total EARA originations, not as a percentage of average outstanding balances.
The Company’s net charge-offs to average total Company loans increased from 0.30% during the first nine months of 2021 to 0.44 %0.44% during the first nine months of 2022 to 0.90% during the first nine months of 2023, with net charge-offs increasing $3.8$18.5 million and average total Company loans decreasing $231increasing $4.9 million, or 5%12%. TheAs discussed in more detail above, the increase in net charge-offs was primarily driven by a $4.1$18.0 million increase in net charge-offs within the Company’s RPG operations, which has historically conducted higher-risk lending activities than the Company’s Core BankingTRS and RCS operations.
From the first nine months of 2021 to the first nine months of 2022, RPG experienced a $5.0 million increase in net charge-offs within its RCS segment. Net charge-offs for RCS’s LOC I product increased to $5.1 million for the first nine months of 2022 from $1.9 million for the first nine months of 2021, with government stimulus programs generally driving down usage of this product during the first nine months of 2021. Net charge-offs for RCS’s LOC II product were $2.1 million for the first nine months of 2022 compared to $254,000 of net charge-offs for the first nine months of 2021, with this product first piloted during the first quarter of 2021.
From the first nine months of 2021 to the first nine months of 2022, RPG experienced a $938,000 decrease in net charge-offs within its TRS segment, as TRS amended one of its existing Tax Provider contracts to place a cap on loan losses from EAs originated through this Tax Provider. For factors affecting the comparison of the TRS results of operations for the first nine months of 2022 and the first nine months of 2021, see section titled “OVERVIEW (Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021) - Tax Refund Solutions.”
During the first nine months of 20222023 and 2021,2022, the Company’s Core Bank net charge-offs to average Core Bank loans remained near zero.
10597
Noninterest Income
Total Company noninterest income increased $7.1decreased $20.3 million during the first nine months of 20222023 compared to the same period in 2021.2022.
The following were the most significant components comprising the total Company’s noninterest income by reportable segment:
Traditional Banking segment
Traditional Banking’s noninterest income increased $364,000,$3.4 million, or 2%15%, for the first nine months of 20222023 compared to the same period in 2021,2022, driven primarily by a $783,000 increase$1.7 million death benefit payment received during the second quarter of 2023 in Service Charges on Deposit Accounts offset by a $399,000 nonrecurring gain on saleexcess of the cash surrender value of a former banking center recorded during the first nine months of 2021.BOLI policy.
The Traditional Bank also earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient-funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the nine months ended September 30, 2023 and 2022 and 2021 were $5.1$5.3 million and $4.0$5.1 million. The total daily overdraft charges, net of refunds, included in interest income for the nine months ended September 30, 2023 and 2022 were $937,000 and 2021 were $933,000 and $810,000.$933,000.
Mortgage Banking segment
A significant risedecrease in long-term interest rates duringMortgage banking income for the first nine months of 20222023 was generally caused by substantially higher market long-term interest rates, which led to a significant slowdown in the origination and subsequent sale of mortgage loans to be sold into the secondary market. As a result, Mortgage Banking income decreased from $16.7 million during the first nine months of 2021 to $5.6 million for the first nine months of 2022. For the first nine months of 2022,2023, the 30-year mortgage rate fluctuated in a range between 6.00% and 7.50% for most of the entire period. As a result, the Bank sold $226$53 million in secondary market loans and achieved an average cash-gain-as-a-percent-of-loans-sold during the quarter of 2.23%. During2.25% during the first nine months of 2021,2023. During the first two months of 2022, however, long-term interest rates were closer to historical lows, driving secondary market loan sales of $563$226 million with comparable cash-gain-as-a-percent-of-loans-sold of 3.12%2.23%.
With the FOMC moving forward withcontinuing its quantitative tightening program during 2022 and, potentially, intothe second half of 2023, management believes it is likely that the Core Bank’s mortgage origination volume will continue to be negatively impacted by risinghigher interest rates causing additional declines in mortgage banking income.income throughout 2023.
Tax Refund Solutions segment
TRS’s noninterest income increased $14.6decreased $19.2 million, or 65%52%, during the first nine months of 20222023 compared to the same period in 2021.2022. Green Dot paid RB&T a total of $18 million in nonrecurring payments during the first nine months of 2022 related to the now-cancelled TRS Purchase Agreement. These nonrecurring payments included the following:
● | A contract termination fee of $5.0 million in January 2022 after RB&T provided Green Dot a notice of termination of the May 2021 TRS Purchase Agreement for the sale of substantially all of RB&T’s TRS assets and operations to Green Dot. |
● | A legal settlement of $13.0 million in June 2022 regarding RB&T’s lawsuit against Green Dot. |
Regarding the noninterest income from TRS’s RT product, net RT revenue decreased 17%6% from $19.9$16.6 million during the first nine months of 20212022 to $16.6$15.5 million during the same period in 2022. The decrease2023. RT revenue for 2023 was primarily drivennegatively impacted by an 3%a general decline in overall decrease in RT volume fromdemand across the 2021 to the 2022 tax season, with a substantial portion of that decrease driven by the loss of one of TRS’s tax providers following the announcement of the now-cancelled May 2021 Asset Purchase Agreement.
For factors affecting the comparison of the TRS results of operations for the first nine months of 2022 and the first nine months of 2021, see section titled industry.“OVERVIEW (Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021) - Tax Refund Solutions.”
10698
Republic Credit Solutions segment
RCS’s noninterest income increased $3.3decreased $1.5 million, or 46%14%, during the first nine months of 20222023 compared to the same period in 2021,2022, with program fees representing the entiretysubstantial majority of RCS’s noninterest income. The increasedecrease in RCS program fees primarily reflected lower sales volume and corresponding gains from RCS’s installment loan product which were substantially offset by higher sales volume and gains from RCS’s line of credit and installment loan products as sales volume was negatively impacted during the first nine months of 2021 by federal government stimulus programs implemented to combat the economic impact of the COVID pandemic. LOC II product.
Proceeds from the sale of RCSRCS’s installment loan products totaled $832$86 million during the third quarter of 2023, a 71% decrease from the same period in 2022. Proceeds from the sale of RCS's loan products totaled $761 million during the first nine months of 2022, an 49% increase2023, a 8% decrease from the same period in 2021.2022. Partially offsetting the decrease, RCS sold approximately $363 million of balances for the LOC II product during the first nine months 2023, an increase of 137% over the first nine months of 2022. This increase in sales volume for the LOC II product contributed to a $1.8 million increase in RCS program fee revenue, which partially offset the decline in revenue from the installment product. RCS began to ramp up origination volume for the LOC II product during early 2022 and has steadily increased its volume since then, leading to corresponding higher year-over-year net program revenue.
The following table presents RCS program fees by product:
Table 1716 — RCS Program Fees by Product
| | | | | | | | | | | | | | | | | | | | | | | ||||
| | Nine Months Ended Sep. 30, | | | | | | | | | Nine Months Ended Sep. 30, | | | | | | | | ||||||||
(dollars in thousands) | | 2022 | | 2021 | | $ Change | | % Change | | | 2023 | | 2022 | | $ Change | | % Change | | ||||||||
Product: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lines of credit | | $ | 4,647 | | $ | 3,433 | | $ | 1,214 | | 35 | % | | | $ | 6,227 | | $ | 4,647 | | $ | 1,580 | | 34 | % | |
Hospital receivables | | | 125 | | 133 | | | (8) | | (6) | | | | | 147 | | 125 | | | 22 | | 18 | | | ||
Installment loans* | | | 5,712 | | | 3,630 | | | 2,082 | | 57 | | | | | 2,507 | | | 5,712 | | | (3,205) | | (56) | | |
Total | | $ | 10,484 | | $ | 7,196 | | $ | 3,288 | | 46 | % | | | $ | 8,881 | | $ | 10,484 | | $ | (1,603) | | (15) | % | |
| | | | | | | | | | | | | | | | | | | | | | |
* | The Company has elected the fair value option for this product, with mark-to-market adjustments recorded as a component of program fees. |
Noninterest Expense
Total Company noninterest expense increased $4.3$9.7 million, or 3%7%, during the first nine months of 20222023 compared to the same period in 2021.2022.
The following were the most significant components comprising the increase in noninterest expense by reportable segment:
Traditional Banking segment
Traditional Banking noninterest expense increased $4.1$8.1 million for the first nine months of 20222023 compared to the same period in 2021.2022. The following primarily drove the change in noninterest expense:
● |
● | Legacy Salaries and Benefits expense increased a net |
107
o | Direct legacy salaries increased a net |
o | Legacy Overhead salaries increased |
99
● | Legacy technology expenses declined $887,000 as the Traditional Bank continued to combine technology platforms as part of a Company-wide efficiency initiative. |
● | Interchange related expenses increased $709,000 due to higher debit card and credit card purchasing activity. |
● | FDIC Insurance expense increased $443,000 due to higher premiums charged by the FDIC in 2023. |
Mortgage Banking segment
Noninterest expense at the Mortgage Banking segment decreased $1.9 million,$858,000, or 20%11%, during the first nine months of 20222023 compared to the same period in 2021,2022, primarily due to a $796,000$383,000 reduction in overhead salaries allocated to the Mortgage Banking segment and a $2.1 million reduction$369,000 decrease in mortgage commissions offset by a $1.7 million reduction in credits to deferred salary expense.other shared overhead costs.
The Company records a credit offset to salary expense for each loan it originates and recognizes the cost of that credit as an adjustment to the loan’s yield over its estimated life. The amount of credit benefit to salary expense during a given quarterperiod is determined by the overall loan origination volume during that quarter. With the dramatic decrease in mortgage origination volume during 2022, the overall credit benefit recognized by the Mortgage Banking segment during the first nine months of 2022 decreased substantially as compared to the first nine months of 2021 when mortgage origination volume was much higher.period.
Republic Credit Solutions segment
Noninterest expense at the RCS segment increased $2.4$2.7 million, or 72%47%, during the first nine months of 20222023 compared to the same period in 2021, primarily due to increased marketing2022. Approximately $2.0 of RCS’s LOC II product. Thethis increase was concentrated within the LOC II product and was first piloted duringa result of a year-over-year increase in marketing activity for the first quarterproduct. Approximately $538,000 of 2021.
the increase was within Salaries and Benefits and was primarily the result of annual merit increases and an increase in headcount.
COMPARISON OF FINANCIAL CONDITION AS OF SEPTEMBER 30, 20222023 AND DECEMBER 31, 20212022
Cash and Cash Equivalents
Cash and cash equivalents include cash, deposits with other financial institutions with original maturities less than 90 days, and federal funds sold. Republic had $754$220 million in cash and cash equivalents as of September 30, 20222023 compared to $757$314 million as of December 31, 2021. Although2022. Comparing average balances for the third quarters of 2023 and 2022, the Company deployed somehad average interest-earning cash and cash equivalent balances of its excess cash through$177 million for the purchase of long-term investment securities during the fourththird quarter of 20212023 compared to $801 million for the third quarter of 2022. The decline in average interest-earning cash balances from period to period was driven generally by a decrease in average deposits and the first nine months of 2022 as a result of movementsan increase in the yield curve, it has maintained an overall general strategy of keeping a large amount of cash on balance sheet for interest rate risk protection. This strategy benefitted the Traditional Bank’s net interest income during the first nine months of 2022 as the FOMC began raising the FFTR.average loan balances.
For additional discussion regarding the Bank’s net interest income, see the sections titled “Net Interest Income” in this section of the filing under “RESULTS OF OPERATIONS (Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021) and “RESULTS OF OPERATIONS (Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021).
For cash held at the FRB, the Bank earns a yield on amounts exceedingmore than required reserves. This cash earned a weighted-average yield of 1.04%5.00% during the first nine months of 20222023 with a spot balance yield of 3.15%approximately 5.40% on September 30, 2022.2023. For cash held within the Bank’s banking center and ATM networks, the Bank does not earn interest.
108100
Investment Securities
Table 1817 — Purchases of Investment Securities
| | | | | | | | | | | | | | | | | ||||
|
| | Nine Months Ended September 30, 2022 |
| | Nine Months Ended September 30, 2023 | ||||||||||||||
| | Purchase | | Yield to | | Average | | Purchase | | Yield to | | Average | ||||||||
(in thousands) | | Cost | | Maturity | | Life | | Cost | | Maturity | | Life | ||||||||
| | | | | | | | | | | | | | | | | ||||
Purchases by Class for the Three Months Ended March 31, 2022 | | | | | | | | | ||||||||||||
U.S. Treasury | | $ | 85,614 | | 1.51 | % | | 2.5 | yrs | |||||||||||
Purchases by Class for the Three Months Ended March 31, 2023 | | | | | | | | | ||||||||||||
Corporate (acquired as a part of the CBank acquisition) | | $ | 2,017 | | 6.05 | % | | 2.60 | yrs | |||||||||||
U.S. Government Agencies | | | 10,028 | | 1.39 | | 10.0 | | | | 25,000 | | 5.38 | | 2.50 | | ||||
Mortgage-backed securities - residential | | | 20,134 | | 1.25 | | 10.0 | | ||||||||||||
Mortgage-backed securities - residential (acquired as a part of the CBank acquisition) | | | 14,442 | | 4.56 | | 9.10 | | ||||||||||||
Total | | $ | 115,776 | | 1.45 | | 4.4 | yrs | | $ | 41,459 | | 5.38 | | 2.50 | yrs | ||||
| | | | | | | | | | | | | | | | | ||||
Purchases by Class for the Three Months Ended June 30, 2022 | | | | | | | | | ||||||||||||
U.S. Treasury | | $ | 74,043 | | 2.62 | % | | 2.1 | yrs | |||||||||||
Total | | $ | 74,043 | | 2.62 | | 2.1 | yrs | ||||||||||||
| | | | | | | | | ||||||||||||
Purchases by Class for the Three Months Ended September 30, 2022 | | | | | | | | | ||||||||||||
Purchases by Class for the Three Months Ended June 30, 2023 | | | | | | | | | ||||||||||||
U.S. Government Agencies | | $ | 55,001 | | 3.98 | % | | 2.6 | yrs | | $ | 15,000 | | 5.75 | % | | 2.91 | yrs | ||
Total | | $ | 55,001 | | 3.98 | | 2.6 | yrs | | $ | 15,000 | | 5.75 | | 2.91 | yrs | ||||
| | | | | | | | | | | | | | | | | ||||
Total Purchases for the Nine Months Ended September 30, 2022 | | $ | 244,820 | | 2.37 | % | | 3.3 | yrs | |||||||||||
Purchases by Class for the Three Months Ended September 30, 2023 | | | | | | | | | ||||||||||||
U.S. Government Agencies | | $ | 15,000 | | 6.00 | % | | 3.00 | yrs | |||||||||||
Total | | $ | 15,000 | | 6.00 | | 3.00 | yrs | ||||||||||||
| | | | | | | | | ||||||||||||
Total Purchases for the Nine Months Ended September 30, 2023 | | $ | 71,459 | | 5.44 | % | | 4.03 | yrs |
DuringRepublic’s investment portfolio increased $17 million from December 31, 2022 to September 30, 2023, driven by $55 million in portfolio purchases, $16 million of investments acquired as part of the third quarter, management generally targeted purchasesCBank merger, and a $22 million increase in FHLB stock. These increases were offset by portfolio declines of investment securities with$50 million from calls and maturities of approximately two years. While the Company will likely continue to replace some of its maturing investments with new purchases, it will likely maintaindebt securities, $28 million in paydowns on mortgage-backed securities, and a general policy of limited growth$2 million increase in the total securities portfolio in the near-term as long as its yield on interest-earning cash continues to rise in proportion to future FFTR increases.
The overall timing and amount of any purchases will depend on many factors including, but not limited to, the Company’s overall current and projected liquidity positions, its customers’ demand for its loans and deposit products, the interest rate environment at the time, as well as the anticipated interest rate environment in the near and long term.market value.
109101
Table 1918 — Loan Portfolio Composition
| | | | | | | | | | | | | | | | | | | | | | | | | ||
(dollars in thousands) |
| September 30, 2022 |
| December 31, 2021 | | $ Change | | % Change |
| September 30, 2023 |
| December 31, 2022 | | $ Change | | % Change | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||
Traditional Banking: | | | | | | | | | | | | | | | | | | | | | | | | | ||
Residential real estate: | | | | | | | | | | | | | | | | | | | | | | | | | ||
Owner occupied | | $ | 863,899 | | $ | 820,731 | | $ | 43,168 | | 5 | % | | $ | 1,128,745 | | $ | 911,427 | | $ | 217,318 | | 24 | % | ||
Nonowner occupied | |
| 321,037 | |
| 306,323 | |
| 14,714 | | 5 | | |
| 344,682 | |
| 321,358 | |
| 23,324 | | 7 | | ||
Commercial real estate | |
| 1,571,593 | |
| 1,456,009 | |
| 115,584 | | 8 | | |
| 1,745,187 | |
| 1,599,510 | |
| 145,677 | | 9 | | ||
Construction & land development | |
| 147,418 | |
| 129,337 | |
| 18,081 | | 14 | | |
| 189,756 | |
| 153,875 | |
| 35,881 | | 23 | | ||
Commercial & industrial | |
| 404,971 | |
| 340,363 | |
| 64,608 | | 19 | | |
| 473,790 | |
| 413,387 | |
| 60,403 | | 15 | | ||
Paycheck Protection Program | |
| 7,855 | |
| 56,014 | |
| (48,159) | | (86) | | ||||||||||||||
Lease financing receivables | |
| 11,333 | |
| 8,637 | |
| 2,696 | | 31 | | |
| 85,242 | |
| 10,505 | |
| 74,737 | | 711 | | ||
Aircraft | |
| 166,313 | |
| 142,894 | |
| 23,419 | | 16 | | |
| 226,947 | |
| 179,785 | |
| 47,162 | | 26 | | ||
Home equity | |
| 229,038 | |
| 210,578 | |
| 18,460 | | 9 | | |
| 275,750 | |
| 241,739 | |
| 34,011 | | 14 | | ||
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | ||
Credit cards | | | 14,897 | |
| 14,510 | |
| 387 | | 3 | | | | 16,950 | |
| 15,473 | |
| 1,477 | | 10 | | ||
Overdrafts | | | 723 | |
| 683 | |
| 40 | | 6 | | | | 640 | |
| 726 | |
| (86) | | (12) | | ||
Automobile loans | | | 7,890 | |
| 14,448 | |
| (6,558) | | (45) | | | | 3,380 | |
| 6,731 | |
| (3,351) | | (50) | | ||
Other consumer | | | 973 | |
| 1,432 | |
| (459) | | (32) | | | | 5,674 | |
| 626 | |
| 5,048 | | 806 | | ||
Total Traditional Banking | | | 3,747,940 | | | 3,501,959 | | | 245,981 | | 7 | | | | 4,496,743 | | | 3,855,142 | | | 641,601 | | 17 | | ||
Warehouse lines of credit* | |
| 442,238 | |
| 850,550 | |
| (408,312) | | (48) | | |
| 457,033 | |
| 403,560 | |
| 53,473 | | 13 | | ||
Total Core Banking | | | 4,190,178 | | | 4,352,509 | | | (162,331) | | (4) | | | | 4,953,776 | | | 4,258,702 | | | 695,074 | | 16 | | ||
| | | | | | | | | | | | | | | | | | | | | | | | | ||
Republic Processing Group*: | | | | | | | | | | | | | | | | | | | | | | | | | ||
Tax Refund Solutions: | |
| | |
| | |
| | | | | |
| | |
| | |
| | | | | ||
Easy Advances | |
| — | |
| — | |
| — | | NM | | ||||||||||||||
Other TRS loans | | | 295 | | | 50,987 | | | (50,692) | | (99) | | ||||||||||||||
Refund Advances | |
| — | |
| 97,505 | |
| (97,505) | | (100) | | ||||||||||||||
Other TRS commercial & industrial loans | | | 354 | | | 51,767 | | | (51,413) | | (99) | | ||||||||||||||
Republic Credit Solutions | |
| 98,977 | |
| 93,066 | |
| 5,911 | | 6 | | |
| 126,969 | |
| 107,828 | |
| 19,141 | | 18 | | ||
Total Republic Processing Group | |
| 99,272 | |
| 144,053 | |
| (44,781) | | (31) | | |
| 127,323 | |
| 257,100 | |
| (129,777) | | (50) | | ||
| | | | | | | | | | | | | | | | | | | | | | | | | ||
Total loans** | | | 4,289,450 | | | 4,496,562 | | | (207,112) | | (5) | | | | 5,081,099 | | | 4,515,802 | | | 565,297 | | 13 | | ||
Allowance for credit losses | |
| (64,919) | |
| (64,577) | |
| (342) | | 1 | | |
| (74,576) | |
| (70,413) | |
| (4,163) | | 6 | | ||
| | | | | | | | | | | | | | | | | | | | | | | | | ||
Total loans, net | | $ | 4,224,531 | | $ | 4,431,985 | | $ | (207,454) | | (5) | | | $ | 5,006,523 | | $ | 4,445,389 | | $ | 561,134 | | 13 | |
*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.
Gross loans decreasedincreased by $207$565 million, or 5%13%, during the first nine months of 2022 to $4.3$5.1 billion as of September 30, 2022.2023. The most significant components comprising the change in loans by reportable segment follow:
Traditional Banking segment
Period-end balances for Traditional Banking loans increased $246$642 million, or 7%17%, from December 31, 20212022 to September 30, 2022.2023. The following primarily drove the change in loan balances during the first nine months of 2022:2023:
● | The Traditional Bank acquired loans and leases with a fair value of $216 million in connection with the CBank acquisition as of September 30, 2023, CBank related loan balances were approximately $211 million. |
● | The Traditional Bank’s legacy CRE portfolio, which excludes the CRE loans acquired from CBank, grew |
● | With mortgage refinance volume at all-time record levels during 2020 and 2021, balances of 1-4 family loans, including HELOCs, generally declined as the vast majority of the volume of refinancings was sold into the secondary market. This trend began to change in mid to late 2022, however, as a significant rise in long-term, fixed-rate mortgages caused portfolio level ARM loans to become generally more attractive than secondary market loans. As a result, |
110102
● | After a multi-year pause in operations, the |
The CARES Act was enacted in March 2020 and provided for the SBA’s PPP, which allowed the Bank to lend to its qualifying small business clients to assist them in their efforts to meet their cash-flow needs during the COVID pandemic. The Economic Aid Act was enacted in December 2020 and provided for a second round of PPP loans. PPP loans are fully backed by the SBA and may be entirely forgiven if the loan client uses loan funds for qualifying reasons. As of September 30, 2022, net PPP loans of $8 million remained on the Traditional Bank’s balance sheet.
Warehouse Lending segment
Outstanding Warehouse period-end balances decreased $408increased $53 million from December 31, 20212022 to September 30, 2022.2023. Due to the volatility and seasonality of the mortgage market, it is difficult to project future outstanding balances of Warehouse lines of credit. The growth of the Bank’s Warehouse Lending business greatly depends on the overall mortgage market and typically follows industry trends. Since its entrance into this business during 2011, the Bank has experienced volatility in the Warehouse portfolio consistent with overall demand for mortgage products. Weighted average quarterly usage rates on the Bank’s Warehouse lines have ranged from a low of 31% during the fourthfirst quarter of 20132023 to a high of 71% during the fourth quarter of 2019. On an annual basis, weighted average usage rates on the Bank’s Warehouse lines have ranged from a low of 40% during 2013 to a high of 66% during 2020.
As previously discussed, additional increases in short-termlong-term market interest rates and overall market rates are generally believed by managementwill likely lead to be unfavorable to Warehouse’s client demand, likely leading to a continued reduction in average outstanding balances driven by a decline in demand from Warehouse clients, as higher long-term interest rates generally drive lower demand for Warehouse borrowings. In addition, because the yield on Warehouse lines of credit are generally tied to short-term interest rates, additional increases in short-term interest rates could cause further competitive pricing pressures for the industry and the Core Bank, driving down the yield Warehouse earns on its lines of credits.
Tax Refund Solutions segment
Outstanding TRS loans decreased $51$149 million from December 31, 20212022 to September 30, 20222023 primarily reflecting a $51 million reduction in otherthe substantial paydown of RAs originated during the 2023 tax season. In addition, TRS loans. Other TRS loans asalso received substantial paydowns of December 31, 2021 were primarily commercial loans to Tax Providers. These loans are typically made induring the fourth quarter of 2022 to third-party tax-related businesses for their cash flow needs for the first quarter tax season. RAs, including ERAs, are only made during the December of the previous year and the first two months of each year, and fully repaidwith all unpaid RAs charged off by the endJune 30th of the first nine months of the followingeach year.
Allowance for Credit Losses
As of September 30, 2022,2023, the Bank maintained an ACLL for expected credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. The Bank also maintained an ACLS and an ACLC for expected losses in its securities portfolio and its off-balance sheet credit exposures, respectively. Management evaluates the adequacy of the ACLL monthly, and the adequacy of the ACLS and ACLC quarterly. All ACLs are presented and discussed with the Audit Committee and the Board of Directors quarterly.
The Company’s ACLL remained at $65increased from $70 million fromas of December 31, 20212022 to $75 million as of September 30, 2022.2023. As a percent of total loans, the total Company’s ACLL increaseddecreased to 1.51%1.47% as of September 30, 20222023 compared to 1.44%1.56% as of December 31, 2021.2022. An analysis of the ACL by reportable segment follows:
Traditional Banking segment
The Traditional Banking ACLL decreasedincreased approximately $177,000$6 million to $49$57 million as of September 30, 20222023, generally driven primarily by formula reserves tied to loan growth during the first nine months of 20222023 partially offset by the $1.5 million release of COVID-related reserves. The release of these reserves released followingcoincided with the payoff or upgradefederal government’s declaration of loans graded Substandard or Special Mention.
the official end to the COVID pandemic in May of 2023.
111103
Warehouse Lending segment
The Warehouse ACLL decreased toremained at approximately $1.0$1 million, and the Warehouse ACLL to total Warehouse loans remained at 0.25% when comparing September 30, 20222023 to December 31, 2021.2022. As of September 30, 2022,2023, the Warehouse ACLL was entirely qualitative in nature with no adjustments to the qualitative reserve percentage required for the first nine months of 2023.
Tax Refund Solutions
The TRS ACLL decreased $4 million from December 31, 2022 to $1,000 as of September 30, 2023, with this decrease driven by the June 30, 2023 charge-off of all unpaid RAs originated during December 2022.
Republic Credit Solutions segment
The RCS ACLL increased $1.5$2 million from $13 million as of December 31, 2021 to $15$17 million as of September 30, 2022.2023, with this increase driven by an increase in the RCS LOC II spot balance and a change in the RCS loan mix as the outstanding healthcare receivables spot balance increased and the RCS LOC I spot balance decreased.
RCS maintained an ACLL for two distinct credit products offered as of September 30, 2022,2023, including its line-of-credit products and its healthcare-receivables products. As of September 30, 2022,2023, the ACLL to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables products to as high as 56%48.96% for its LOC II product.line-of-credit products. The lower reserve percentage of 0.25% was provided for RCS’s healthcare receivables, as such receivables have recourse back to the third-party providers.
Table 1719 — Management’s Allocation of the Allowance for Credit Losses on Loans
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | December 31, 2021 | September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||
| | | |
| Percent of |
|
| Percent of | | | |
| Percent of |
|
| Percent of | | | |
| Percent of |
| Percent of | | | |
| Percent of |
| Percent of | ||||||
| | | | | Loans to | | | ACLL to | | | | | Loans to | | | ACLL to | | | | | Loans to | | ACLL to | | | | | Loans to | | ACLL to | ||||||
| | | | | Total | | | Total | | | | | Total | | | Total | | | | | Total | | Total | | | | | Total | | Total | ||||||
(dollars in thousands) |
| ACLL | | Loans* | | | Loan Class |
| ACLL | | Loans* | | | Loan Class* | ||||||||||||||||||||||
(in thousands) |
| ACLL | | Loans* | | Loan Class |
| ACLL | | Loans* | | Loan Class* | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | $ | 8,466 | | 21 | % | | 0.98 | % | | $ | 8,647 |
| 19 | % |
| 1.05 | |
| $ | 10,231 |
| 22 | % |
| 0.91 | % | | $ | 8,909 |
| 21 | % |
| 0.98 | % |
Nonowner occupied | |
| 2,796 | | 7 | | | 0.87 | | |
| 2,700 |
| 7 | |
| 0.88 | |
|
| 3,036 |
| 7 | |
| 0.88 | | |
| 2,831 |
| 7 | |
| 0.88 | |
Commercial real estate | |
| 23,203 | | 37 | | | 1.48 | | |
| 23,769 |
| 32 | |
| 1.63 | |
|
| 25,347 |
| 35 | |
| 1.45 | | |
| 23,739 |
| 36 | |
| 1.48 | |
Construction & land development | |
| 3,922 | | 3 | | | 2.66 | | |
| 4,128 |
| 3 | |
| 3.19 | |
|
| 5,136 |
| 4 | |
| 2.71 | | |
| 4,123 |
| 3 | |
| 2.68 | |
Commercial & industrial | | | 3,974 | | 9 | | | 0.98 | | | | 3,487 | | 8 | | | 1.02 | | | | 4,181 | | 9 | | | 0.88 | | | | 3,976 | | 9 | | | 0.97 | |
Paycheck Protection Program | | | — | | — | | | — | | | | — | | 1 | | | — | | ||||||||||||||||||
Lease financing receivables | | | 119 | | — | | | 1.05 | | | | 91 | | — | | | 1.05 | | | | 1,100 | | 2 | | | 1.29 | | | | 110 | | — | | | 1.05 | |
Aircraft | | | 416 | | 4 | | | 0.25 | | | | 357 | | 3 | | | 0.25 | | | | 567 | | 4 | | | 0.25 | | | | 449 | | 4 | | | 0.25 | |
Home equity | | | 4,399 | | 5 | | | 1.92 | | | | 4,111 | | 5 | | | 1.95 | | | | 5,146 | | 5 | | | 1.87 | | | | 4,628 | | 5 | | | 1.91 | |
Consumer: | | | — | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit cards | | | 959 | | 1 | | | 6.44 | | | | 934 | | — | | | 6.44 | | | | 1,092 | | — | | | 6.44 | | | | 996 | | — | | | 6.44 | |
Overdrafts | | | 723 | | 1 | | | 100.00 | | | | 683 | | — | | | 100.00 | | | | 640 | | — | | | 100.00 | | | | 726 | | — | | | 100.00 | |
Automobile loans | | | 101 | | — | | | 1.28 | | | | 186 | | — | | | 1.29 | | | | 41 | | — | | | 1.21 | | | | 87 | | — | | | 1.29 | |
Other consumer | | | 153 | | — | | | 15.72 | | | | 314 | | — | | | 21.93 | | | | 414 | | — | | | 7.30 | | | | 135 | | — | | | 21.57 | |
Total Traditional Banking | | | 49,231 | | 88 | | | 1.31 | | | | 49,407 | | 78 | | | 1.41 | | | | 56,931 | | 88 | | | 1.27 | | | | 50,709 | | 85 | | | 1.32 | |
Warehouse lines of credit | | | 1,105 | | 10 | | | 0.25 | | | | 2,126 | | 19 | | | 0.25 | | | | 1,143 | | 9 | | | 0.25 | | | | 1,009 | | 9 | | | 0.25 | |
Total Core Banking | | | 50,336 | | 98 | | | 1.20 | | | | 51,533 | | 97 | | | 1.18 | | | | 58,074 | | 97 | | | 1.17 | | | | 51,718 | | 94 | | | 1.18 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tax Refund Solutions: | |
| | | | | | | | |
| | | | | | | |
|
| | | | | | | | |
| | | | | | | |
Easy Advances | |
| — | | — | | | — | | |
| — |
| — | |
| — | | ||||||||||||||||||
Other TRS loans | |
| — | | — | | | — | | |
| 96 |
| 1 | |
| 0.19 | | ||||||||||||||||||
Refund Advances |
|
| — |
| — | |
| — | | |
| 3,797 |
| 2 | |
| 4 | | ||||||||||||||||||
Other TRS commercial & industrial loans |
|
| 1 |
| — | |
| 0.28 | | |
| 91 |
| 1 | |
| 0.18 | | ||||||||||||||||||
Republic Credit Solutions | | | 14,583 | | 2 | | | 14.73 | | | | 12,948 | | 2 | | | 13.91 | |
| | 16,501 | | 3 | | | 13.00 | | | | 14,807 | | 3 | | | 13.73 | |
Total Republic Processing Group | | | 14,583 | | 2 | | | 14.69 | | | | 13,044 | | 3 | | | 9.06 | | | | 16,502 | | 3 | | | 12.96 | | | | 18,695 | | 6 | | | 7.27 | |
Total | | $ | 64,919 | | 100 | | | 1.51 | | | $ | 64,577 |
| 100 | |
| 1.44 | |
| $ | 74,576 |
| 100 | |
| 1.47 | | | $ | 70,413 |
| 100 | |
| 1.56 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* Values of less than 50 basis points are rounded down to zero.
112104
Asset Quality
Classified and Special Mention Loans
The Bank applies credit quality indicators, or ratings, to individual loans based on internal Bank policies. Such internal policies are informed by regulatory standards. Loans rated “Loss,” “Doubtful,” “Substandard,” and PCD-Substandard are considered “Classified.” Loans rated “Special Mention” or PCD-Special Mention are considered Special Mention. The Bank’s Classified and Special Mention loans decreased approximately $47$6 million during the first nine months of 2022,2023, driven primarily by commercial-purpose loans repaid or upgraded to a Pass rating during the first nine months of 2022.
See Footnote 45 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding Classified and Special Mention loans.
Table 1820 — Classified and Special Mention Loans
| | | | | | | | | | | | |
(dollars in thousands) |
| September 30, 2022 |
| December 31, 2021 | | $ Change | | % Change | | |||
| | | | | | | | | | | | |
Loss | | $ | — | | $ | — | | $ | — | | — | % |
Doubtful | |
| — | |
| — | | | — | | — | |
Substandard | |
| 16,893 | |
| 21,714 | | | (4,821) | | (22) | |
PCD - Substandard | |
| 1,547 | |
| 1,692 | | | (145) | | (9) | |
Total Classified Loans | |
| 18,440 | |
| 23,406 | | | (4,966) | | (21) | |
| | | | | | | | | | | | |
Special Mention | |
| 72,623 | |
| 114,496 | | | (41,873) | | (37) | |
PCD - Special Mention | |
| 737 | |
| 795 | | | (58) | | (7) | |
Total Special Mention Loans | |
| 73,360 | |
| 115,291 | | | (41,931) | | (36) | |
| | | | | | | | | | | | |
Total Classified and Special Mention Loans | | $ | 91,800 | | $ | 138,697 | | $ | (46,897) | | (34) | % |
| | | | | | | | | | | |
(dollars in thousands) | September 30, 2023 |
| December 31, 2022 | | $ Change | | % Change | | |||
| | | | | | | | | | | |
Loss | $ | — | | $ | — | | $ | — | | — | % |
Doubtful |
| — | |
| — | | | — | | — | |
Substandard |
| 18,659 | |
| 17,010 | | | 1,649 | | 10 | |
PCD - Substandard |
| 1,820 | |
| 1,498 | | | 322 | | 21 | |
Total Classified Loans |
| 20,479 | |
| 18,508 | | | 1,971 | | 11 | |
| | | | | | | | | | | |
Special Mention |
| 61,853 | |
| 69,246 | | | (7,393) | | (11) | |
PCD - Special Mention |
| 469 | |
| 718 | | | (249) | | (35) | |
Total Special Mention Loans |
| 62,322 | |
| 69,964 | | | (7,642) | | (11) | |
| | | | | | | | | | | |
Total Classified and Special Mention Loans | $ | 82,801 | | $ | 88,472 | | $ | (5,671) | | (6) | % |
Nonperforming Loans
Nonperforming loans include loans on nonaccrual status and loans past due 90-days-or-more and still accruing. The nonperforming loan category includes TDRs totaling approximately $3$0 million and $6$2 million as of September 30, 20222023 and December 31, 2021.2022.
Nonperforming loans to total loans decreasedincreased to 0.38% at September 30, 20222023 from 0.46%0.36% at December 31, 2021,2022, as the total balance of nonperforming loans decreasedincreased by $4$3 million, or 20%17%, while total loans decreased $207increased $561 million, or 5%13%, during the first nine months of 2022. As presented in Tables 25 and 26 below, the decrease in nonperforming loans during 2022, including the nonaccrual loan component, was primarily driven by the refinancing of $8 million of these loans to another financial institution.2023.
The ACLL to total nonaccrual loans increaseddecreased to 398%412% as of September 30, 20222023 from 315%452% as of December 31, 2021,2022, as the total ACLL increased $342,000$4 million and the balance of nonaccrual loans decreasedincreased by $4$3 million, or 20%16%. The driver of the decreaseincrease in nonaccrual loansACLL was primarily the refinancing out of the Bank of $8formula reserves applied to $565 million of these loans during the first nine months of 2022.
loan growth from December 31, 2022 to September 30, 2023.
113105
Table 1921 — Nonperforming Loans and Nonperforming Assets Summary
| | | | | | | | | | | | | | |
(dollars in thousands) |
| September 30, 2022 |
| December 31, 2021 |
|
| September 30, 2023 |
| December 31, 2022 |
| ||||
| | | | | | | | | | | | | | |
Loans on nonaccrual status* | | $ | 16,322 | | $ | 20,504 | | | $ | 18,127 | | $ | 15,562 | |
Loans past due 90-days-or-more and still on accrual** | |
| 37 | |
| 48 | | |
| 1,037 | |
| 756 | |
Total nonperforming loans | |
| 16,359 | |
| 20,552 | | |
| 19,164 | |
| 16,318 | |
Other real estate owned | |
| 1,634 | |
| 1,792 | | |
| 1,423 | |
| 1,581 | |
Total nonperforming assets | | $ | 17,993 | | $ | 22,344 | | | $ | 20,587 | | $ | 17,899 | |
| | | | | | | | | | | | | | |
Credit Quality Ratios - Total Company: | | | | | | | | | | | | | | |
ACLL to total loans | | | 1.51 | % | | 1.44 | % | | | 1.47 | % | | 1.56 | % |
Nonaccrual loans to total loans | | | 0.38 | | | 0.46 | | | | 0.36 | | | 0.34 | |
ACLL to nonaccrual loans | | | 398 | | | 315 | | | | 411 | | | 452 | |
Nonperforming loans to total loans | |
| 0.38 | |
| 0.46 | | |
| 0.38 | |
| 0.36 | |
Nonperforming assets to total loans (including OREO) | |
| 0.42 | |
| 0.50 | | |
| 0.41 | |
| 0.40 | |
Nonperforming assets to total assets | |
| 0.30 | |
| 0.37 | | |
| 0.32 | |
| 0.31 | |
| | | | | | | �� | | | | | | | |
Credit Quality Ratios - Core Bank: | | | | | | | | | | | | | | |
ACLL to total loans | |
| 1.20 | % | | 1.18 | % | |
| 1.17 | % | | 1.21 | % |
Nonaccrual loans to total loans | | | 0.39 | | | 0.47 | | | | 0.37 | | | 0.37 | |
ACLL to nonaccrual loans | | | 308 | | | 251 | | | | 320 | | | 332 | |
Nonperforming loans to total loans | |
| 0.39 | | | 0.47 | | |
| 0.37 | | | 0.37 | |
Nonperforming assets to total loans (including OREO) | |
| 0.43 | |
| 0.51 | | |
| 0.39 | |
| 0.40 | |
Nonperforming assets to total assets | |
| 0.33 | |
| 0.40 | | |
| 0.33 | |
| 0.32 | |
* | Loans on nonaccrual status include collateral-dependent loans. See Footnote |
** | Loans past due 90-days-or-more and still accruing consist of smaller balance consumer loans. |
Table 2022 — Nonperforming Loan Composition
| | | | | | | | | | | | | | |
| | September 30, 2022 | December 31, 2021 | | ||||||||||
| | | | | | Percent of | | | | | Percent of | | ||
| |
| | | | Total | | | | | Total | | ||
(dollars in thousands) | | Balance | | Loan Class | Balance | | Loan Class |
| ||||||
| |
| | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | |
Residential real estate: | |
| | | | | | | | | | | | |
Owner occupied | |
| $ | 13,604 | | 1.57 | % |
| $ | 12,039 | | 1.47 | % | |
Nonowner occupied |
|
|
| 125 | | 0.04 | | |
| 95 | | 0.03 | | |
Commercial real estate |
|
|
| 1,051 | | 0.07 | | |
| 6,557 | | 0.45 | | |
Construction & land development |
|
|
| — | | — | | |
| — | | — | | |
Commercial & industrial |
|
|
| — | | — | | |
| 13 | | 0.00 | | |
Paycheck Protection Program | | | | — | | — | | |
| — | | — | | |
Lease financing receivables |
|
|
| — | | — | | |
| — | | — | | |
Aircraft | | | | — | | — | | |
| — | | — | | |
Home equity |
|
|
| 1,291 | | 0.56 | |
|
| 1,700 | | 0.81 | | |
Consumer: | |
| | | | | | | | | | | | |
Credit cards | | | | — | | — | | | | — | | — | | |
Overdrafts | | | | — | | — | | | | 1 | | 0.15 | | |
Automobile loans | | | | 35 | | 0.44 | | | | 97 | | 0.67 | | |
Other consumer | | | | 216 | | 22.20 | | | | 3 | | 0.21 | | |
Total Traditional Banking | | | | 16,322 | | 0.44 | | | | 20,505 | | 0.59 | | |
Warehouse lines of credit |
|
|
| — | | — | | |
| — | | — | | |
Total Core Banking | | | | 16,322 | | 0.39 | | | | 20,505 | | 0.47 | | |
| | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | |
Tax Refund Solutions: |
|
|
| | | | | |
| | | | | |
Easy Advances |
|
|
| — | | — | | |
| — | | — | | |
Other TRS loans | | | | — | | — | | | | — | | — | | |
Republic Credit Solutions |
|
|
| 37 | | 0.04 | | |
| 47 | | 0.05 | | |
Total Republic Processing Group | |
|
| 37 | | 0.04 | | |
| 47 | | 0.03 | | |
| |
| | | | | | | | | | | | |
Total nonperforming loans | |
| $ | 16,359 | | 0.38 | % | | $ | 20,552 | | 0.46 | % | |
| |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | September 30, 2023 | December 31, 2022 | ||||||||||
| | | | | | Percent of | | | | | Percent of | ||
| |
| | | | Total | | | | | Total | ||
(dollars in thousands) | | Balance | | Loan Class | Balance | | Loan Class | ||||||
| |
| | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | |
Residential real estate: | |
| | | | | | | | | | | |
Owner occupied | |
| $ | 14,396 | | 1.28 | % |
| $ | 13,388 | | 1.47 | % |
Nonowner occupied |
|
|
| 68 | | 0.02 | | |
| 117 | | 0.04 | |
Commercial real estate |
|
|
| 883 | | 0.05 | | |
| 1,001 | | 0.06 | |
Construction & land development |
|
|
| — | | — | | |
| — | | — | |
Commercial & industrial |
|
|
| 1,159 | | 0.24 | | |
| — | | — | |
Lease financing receivables |
|
|
| 13 | | 0.02 | | |
| — | | — | |
Aircraft | | | | — | | — | | |
| — | | — | |
Home equity |
|
|
| 1,591 | | 0.58 | |
|
| 815 | | 0.34 | |
Consumer: | |
| | | | | | | | | | | |
Credit cards | | | | — | | — | | | | — | | — | |
Overdrafts | | | | — | | — | | | | — | | — | |
Automobile loans | | | | 16 | | 0.47 | | | | 31 | | 0.46 | |
Other consumer | | | | 1 | | 0.02 | | | | 210 | | 33.55 | |
Total Traditional Banking | | | | 18,127 | | 0.40 | | | | 15,562 | | 0.40 | |
Warehouse lines of credit |
|
|
| — | | — | | |
| — | | — | |
Total Core Banking | | | | 18,127 | | 0.37 | | | | 15,562 | | 0.37 | |
| | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | |
Tax Refund Solutions: |
|
|
| | | | | |
| | | | |
Refund Advances |
|
|
| — | | — | | |
| — | | — | |
Other TRS commercial & industrial loans | | | | — | | — | | | | — | | — | |
Republic Credit Solutions |
|
|
| 1,037 | | 0.82 | | |
| 756 | | 0.70 | |
Total Republic Processing Group | |
|
| 1,037 | | 0.81 | | |
| 756 | | 0.29 | |
| |
| | | | | | | | | | | |
Total nonperforming loans | |
| $ | 19,164 | | 0.38 | % | | $ | 16,318 | | 0.36 | % |
| |
| | | | | | | | | | | |
114106
Table 2123 — Stratification of Nonperforming Loans
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Nonperforming Loans and Recorded Investment |
| | Number of Nonperforming Loans and Recorded Investment |
| ||||||||||||||||||||||||||||||||||||||||||
|
| |
| | |
| | |
| Balance |
| | |
| | |
| | |
| | |
|
| |
| | |
| | |
| Balance |
| | |
| | |
| | |
| | |
| ||
September 30, 2022 | | | | Balance | | | | | > $100 & | | | | | Balance | | | | | Total |
| ||||||||||||||||||||||||||||
September 30, 2023 | | | | Balance | | | | | > $100 & | | | | | Balance | | | | | Total |
| ||||||||||||||||||||||||||||
(dollars in thousands) | | No. | | <= $100 | | | No. | | <= $500 | | | No. | | > $500 | | | No. | | Balance |
| | No. | | <= $100 | | | No. | | <= $500 | | | No. | | > $500 | | | No. | | Balance |
| ||||||||
|
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Traditional Banking: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied |
| 142 | | $ | 4,771 |
| | 44 | | $ | 7,407 |
| | 1 | | $ | 1,426 |
| | 187 | | $ | 13,604 | |
| 130 | | $ | 4,677 |
| | 47 | | $ | 7,424 |
| | 2 | | $ | 2,295 |
| | 179 | | $ | 14,396 | |
Nonowner occupied |
| 4 | |
| 125 |
| | — | |
| — |
| | — | |
| — |
| | 4 | |
| 125 | |
| 3 | |
| 68 |
| | — | |
| — |
| | — | |
| — |
| | 3 | |
| 68 | |
Commercial real estate |
| — | |
| — |
| | 1 | |
| 243 |
| | 1 | |
| 808 |
| | 2 | |
| 1,051 | |
| — | |
| — |
| | 1 | |
| 201 |
| | 1 | |
| 682 |
| | 2 | |
| 883 | |
Construction & land development |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
Commercial & industrial |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
| — | |
| — |
| | 1 | |
| 339 |
| | 1 | |
| 820 |
| | 2 | |
| 1,159 | |
Paycheck Protection Program | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | ||||||||||||||||||||||||
Lease financing receivables |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
| 2 | |
| 13 |
| | — | |
| — |
| | — | |
| — |
| | 2 | |
| 13 | |
Aircraft | | — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | | | — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
Home equity |
| 27 | |
| 745 |
| | 3 | |
| 546 |
| | — | |
| — |
| | 30 | |
| 1,291 | |
| 31 | |
| 911 |
| | 3 | |
| 680 |
| | — | |
| — |
| | 34 | |
| 1,591 | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit cards |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
Overdrafts | | NM | |
| — |
| | — | |
| — |
| | — | |
| — |
| | NM | |
| — | | | NM | |
| — |
| | — | |
| — |
| | — | |
| — |
| | NM | |
| — | |
Automobile loans | | 6 | |
| 35 |
| | — | |
| — |
| | — | |
| — |
| | 6 | |
| 35 | | | 5 | |
| 16 |
| | — | |
| — |
| | — | |
| — |
| | 5 | |
| 16 | |
Other consumer | | 1 | | | 1 | | | 1 | |
| 215 | | | — | | | — | | | 2 | |
| 216 | | | 1 | | | 1 | | | — | |
| — | | | — | | | — | | | 1 | |
| 1 | |
Total Traditional Banking | | 180 | | | 5,677 | | | 49 | | | 8,411 | | | 2 | | | 2,234 | | | 231 | | | 16,322 | | | 172 | | | 5,686 | | | 52 | | | 8,644 | | | 4 | | | 3,797 | | | 228 | | | 18,127 | |
Warehouse lines of credit |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
Total Core Banking | | 180 | | | 5,677 | | | 49 | | | 8,411 | | | 2 | | | 2,234 | | | 231 | | | 16,322 | | | 172 | | | 5,686 | | | 52 | | | 8,644 | | | 4 | | | 3,797 | | | 228 | | | 18,127 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Easy Advances | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| — | | ||||||||||||||||||||||||
Other TRS loans | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| — | | ||||||||||||||||||||||||
Refund Advances | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| — | | ||||||||||||||||||||||||
Other TRS commercial & industrial loans | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| — | | ||||||||||||||||||||||||
Republic Credit Solutions | | NM | | | 37 | | | — | | | — | | | — | | | — | | | NM | |
| 37 | | | NM | | | — | | | — | | | — | | | — | | | 1,037 | | | NM | |
| 1,037 | |
Total Republic Processing Group | | NM | | | 37 | | | — | | | — | | | — | | | — | | | NM | | | 37 | | | NM | | | — | | | — | | | — | | | — | | | 1,037 | | | NM | | | 1,037 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
| 180 | | $ | 5,714 |
| | 49 | | $ | 8,411 |
| | 2 | | $ | 2,234 |
| | 231 | | $ | 16,359 | |
| 172 | | $ | 5,686 |
| | 52 | | $ | 8,644 |
| | 4 | | $ | 4,834 |
| | 228 | | $ | 19,164 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Nonperforming Loans and Recorded Investment |
| | Number of Nonperforming Loans and Recorded Investment |
| ||||||||||||||||||||||||||||||||||||||||||
|
| |
| | |
| | |
| Balance |
| | |
| | |
| | |
| | |
|
| |
| | |
| | |
| Balance |
| | |
| | |
| | |
| | |
| ||
December 31, 2021 | | | | Balance | | | | | > $100 & | | | | | Balance | | | | | Total |
| ||||||||||||||||||||||||||||
December 31, 2022 | | | | Balance | | | | | > $100 & | | | | | Balance | | | | | Total |
| ||||||||||||||||||||||||||||
(dollars in thousands) | | No. | | <= $100 | | | No. | | <= $500 | | | No. | | > $500 | | | No. | | Balance |
| | No. | | <= $100 | | | No. | | <= $500 | | | No. | | > $500 | | | No. | | Balance |
| ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied |
| 146 | | $ | 5,042 |
| | 27 | | $ | 4,857 |
| | 2 | | $ | 2,140 |
| | 175 | | $ | 12,039 | |
| 134 | | $ | 4,650 |
| | 45 | | $ | 7,353 |
| | 1 | | $ | 1,385 |
| | 180 | | $ | 13,388 | |
Nonowner occupied |
| 3 | |
| 95 |
| | — | |
| — |
| | — | |
| — |
| | 3 | |
| 95 | |
| 4 | |
| 117 |
| | — | |
| — |
| | — | |
| — |
| | 4 | |
| 117 | |
Commercial real estate |
| — | |
| — |
| | 4 | |
| 872 |
| | 3 | |
| 5,685 |
| | 7 | |
| 6,557 | |
| — | |
| — |
| | 1 | |
| 232 |
| | 1 | |
| 769 |
| | 2 | |
| 1,001 | |
Construction & land development |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
Commercial & industrial |
| 1 | |
| 13 |
| | — | |
| — |
| | — | |
| — |
| | 1 | |
| 13 | |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
Paycheck Protection Program | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| — | | ||||||||||||||||||||||||
Lease financing receivables |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
Aircraft | | — | |
| — | | | — | |
| — | | | — | |
| — |
| | — | | | — | | | — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
Home equity |
| 25 | |
| 695 |
| | 5 | |
| 1,005 |
| | — | |
| — |
| | 30 | |
| 1,700 | |
| 28 | |
| 711 |
| | 1 | |
| 104 |
| | — | |
| — |
| | 29 | |
| 815 | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit cards |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | NM | |
| — | |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
Overdrafts | | NM | |
| 1 |
| | — | |
| — |
| | — | |
| — |
| | NM | |
| 1 | | | NM | |
| — |
| | — | |
| — |
| | — | |
| — |
| | NM | |
| — | |
Automobile loans | | 13 | |
| 97 |
| | — | |
| — |
| | — | |
| — |
| | 13 | |
| 97 | | | 6 | |
| 31 |
| | — | |
| — |
| | — | |
| — |
| | 6 | |
| 31 | |
Other consumer | | 4 | | | 3 | | | — | | | — | | | — | | | — | | | 4 | |
| 3 | | | — | | | — | | | 1 | |
| 210 | | | — | | | — | | | 1 | |
| 210 | |
Total Traditional Banking | | 192 | | | 5,946 | | | 36 | | | 6,734 | | | 5 | | | 7,825 | | | 233 | | | 20,505 | | | 172 | | | 5,509 | | | 48 | | | 7,899 | | | 2 | | | 2,154 | | | 222 | | | 15,562 | |
Warehouse lines of credit |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
| — | |
| — |
| | — | |
| — |
| | — | |
| — |
| | — | |
| — | |
Total Core Banking | | 192 | | | 5,946 | | | 36 | | | 6,734 | | | 5 | | | 7,825 | | | 233 | | | 20,505 | | | 172 | | | 5,509 | | | 48 | | | 7,899 | | | 2 | | | 2,154 | | | 222 | | | 15,562 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tax Refund Solutions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Easy Advances | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| — | | ||||||||||||||||||||||||
Other TRS loans | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| — | | ||||||||||||||||||||||||
Refund Advances | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| — | | ||||||||||||||||||||||||
Other TRS commercial & industrial loans | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| — | | ||||||||||||||||||||||||
Republic Credit Solutions | | NM | | | 47 | | | — | | | — | | | — | | | — | | | NM | |
| 47 | | | NM | | | — | | | — | | | — | | | — | | | 756 | | | NM | |
| 756 | |
Total Republic Processing Group | | NM | | | 47 | | | — | | | — | | | — | | | — | | | NM | | | 47 | | | NM | | | — | | | — | | | — | | | — | | | 756 | | | NM | | | 756 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
| 192 | | $ | 5,993 |
| | 36 | | $ | 6,734 |
| | 5 | | $ | 7,825 |
| | 233 | | $ | 20,552 | |
| 172 | | $ | 5,509 |
| | 48 | | $ | 7,899 |
| | 2 | | $ | 2,910 |
| | 222 | | $ | 16,318 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
115107
Table 2524 — Roll-forward of Nonperforming Loans
| | | | | | | | | | | | | | | | | | | | | | | | ||
|
| Three Months Ended |
| Nine Months Ended |
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | ||||||||||||||||
(in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| | 2023 | | 2022 | | 2023 | | 2022 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Nonperforming loans at the beginning of the period | | $ | 16,210 | | $ | 22,344 | | $ | 20,552 | | $ | 23,595 | | | $ | 17,504 | | $ | 16,210 | | $ | 16,318 | | $ | 20,552 |
Loans added to nonperforming status during the period that remained nonperforming at the end of the period | |
| 3,554 | |
| 1,248 | |
| 5,778 | |
| 2,641 | | |
| 2,564 | |
| 3,554 | |
| 7,345 | |
| 5,778 |
Loans removed from nonperforming status during the period that were nonperforming at the beginning of the period (see table below) | |
| (3,051) | |
| (2,233) | |
| (9,021) | |
| (4,839) | | |
| (949) | |
| (3,051) | |
| (3,798) | |
| (9,021) |
Principal balance paydowns of loans nonperforming at both period ends | | | (349) | | | (384) | | | (940) | | | (1,098) | | | | (457) | | | (349) | | | (997) | | | (940) |
Net change in principal balance of other loans nonperforming at both period ends* | |
| (5) | |
| (32) | |
| (10) | |
| 644 | | |
| 502 | |
| (5) | |
| 296 | |
| (10) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Nonperforming loans at the end of the period | | $ | 16,359 | | $ | 20,943 | | $ | 16,359 | | $ | 20,943 | | | $ | 19,164 | | $ | 16,359 | | $ | 19,164 | | $ | 16,359 |
* | Includes relatively small consumer portfolios, e.g., RCS loans. |
Table 2625 — Detail of Loans Removed from Nonperforming Status
| | | | | | | | | | | | | | | | | | | | | | ||||
|
| Three Months Ended |
| Nine Months Ended | |
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | ||||||||||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Loans charged off | | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — |
Loans transferred to OREO | |
| — | |
| — | |
| — | |
| — | | |
| — | |
| — | |
| — | |
| — |
Loan payoffs and paydowns | |
| (2,431) | |
| (2,150) | |
| (8,125) | |
| (4,559) | | |
| — | |
| (2,431) | |
| (1,521) | |
| (8,125) |
Loans returned to accrual status | |
| (620) | |
| (83) | |
| (1) | |
| (280) | | |
| (949) | |
| (620) | |
| (2,277) | |
| (1) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans removed from nonperforming status during the period that were nonperforming at the beginning of the period | | $ | (3,051) | | $ | (2,233) | | $ | (8,126) | | $ | (4,839) | | | $ | (949) | | $ | (3,051) | | $ | (3,798) | | $ | (8,126) |
Based on the Bank’s review as of September 30, 2022,2023, management believes that its reserves are adequate to absorb expected losses on all nonperforming loans.
Delinquent Loans
Total Company delinquent loans to total loans decreasedincreased to 0.28%0.38% as of September 30, 20222023 from 0.30%0.34% as of December 31, 2021.2022. Core Bank delinquent loans to total Core Bank loans decreased to 0.12%remained unchanged at 0.14% as of September 30, 20222023 from 0.17% as of December 31, 2021.2022. With the exception of small-dollar consumer loans, all Traditional Bank loans past due 90-days-or-more as of September 30, 20222023 and December 31, 20212022 were on nonaccrual status.
116108
Table 2426 — Delinquent Loan Composition*
| | | | | | | | | | | | | | | | | | | | | | | | | |||
| | September 30, 2022 | December 31, 2021 | | | September 30, 2023 | December 31, 2022 | ||||||||||||||||||||
| | | | | | Percent of | | | | | Percent of | | | | | | | Percent of | | | | | Percent of | ||||
| | | | | | Total | | | | | Total | | | | | | | Total | | | | | Total | ||||
(dollars in thousands) |
| Balance | | Loan Class | Balance | | Loan Class | |
| Balance | | Loan Class | Balance | | Loan Class | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Traditional Banking: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | |
| $ | 3,761 | | 0.44 | % |
| $ | 1,599 | | 0.19 | % | | |
| $ | 4,584 | | 0.41 | % |
| $ | 4,834 | | 0.53 | % |
Nonowner occupied | |
|
| 41 | | 0.01 | |
|
| — | | — | | | |
|
| 231 | | 0.07 | |
|
| — | | — | |
Commercial real estate | |
|
| — | | — | |
|
| 5,292 | | 0.36 | | | |
|
| 23 | | 0.00 | |
|
| 604 | | 0.04 | |
Construction & land development | |
|
| — | | — | |
|
| — | | — | | | |
|
| — | | — | |
|
| — | | — | |
Commercial & industrial | |
|
| 1 | | 0.00 | |
|
| 21 | | 0.01 | | | |
|
| 1,372 | | 0.29 | |
|
| 177 | | 0.04 | |
Paycheck Protection Program | | | | — | | — | |
|
| — | | — | | | |||||||||||||
Lease financing receivables | | | | — | | — | | | | — | | — | | | | | | 16 | | 0.02 | | | | — | | — | |
Aircraft | | | | — | | — | | | | — | | — | | | | | | — | | — | | | | — | | — | |
Home equity | | | | 315 | | 0.14 | | | | 314 | | 0.15 | | | | | | 367 | | 0.13 | | | | 175 | | 0.07 | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit cards | | | | 33 | | 0.22 | | | | 30 | | 0.21 | | | | | | 28 | | 0.17 | | | | 55 | | 0.36 | |
Overdrafts | | | | 157 | | 21.72 | | | | 164 | | 24.01 | | | | | | 132 | | 20.63 | | | | 160 | | 22.04 | |
Automobile loans | | | | 53 | | 0.67 | | | | 9 | | 0.06 | | | | | | 4 | | 0.12 | | | | 11 | | 0.16 | |
Other consumer | | | | 7 | | 0.72 | | | | 1 | | 0.07 | | | | | | 49 | | 0.86 | | | | 44 | | 7.03 | |
Total Traditional Banking | | | | 4,368 | | 0.12 | | | | 7,430 | | 0.21 | | | | | | 6,806 | | 0.15 | | | | 6,060 | | 0.16 | |
Warehouse lines of credit | | | | — | | — | | | | — | | — | | | | | | — | | — | | | | — | | — | |
Total Core Banking | | | | 4,368 | | 0.10 | | | | 7,430 | | 0.17 | | | | | | 6,806 | | 0.14 | | | | 6,060 | | 0.14 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | |
|
| | | | | | | | | | | | |
|
| | | | | | | | | | |
Tax Refund Solutions: | |
|
| | | | | | | | | | | | |
|
| | | | | | | | | | |
Easy Advances | |
|
| — | | — | |
|
| — | | — | | | |||||||||||||
Other TRS loans | |
|
| — | | — | |
|
| — | | — | | | |||||||||||||
Refund Advances | |
|
| — | | — | |
|
| — | | — | | ||||||||||||||
Other TRS commercial & industrial loans | |
|
| — | | — | |
|
| — | | — | | ||||||||||||||
Republic Credit Solutions | |
|
| 7,522 | | 7.60 | |
|
| 6,035 | | 6.48 | | | |
|
| 12,328 | | 9.71 | |
|
| 9,200 | | 8.53 | |
Total Republic Processing Group | |
|
| 7,522 | | 7.58 | |
|
| 6,035 | | 4.19 | | | |
|
| 12,328 | | 9.68 | |
|
| 9,200 | | 3.58 | |
| |
| | | | | |
| | | | | | | |
| | | | | |
| | | | | |
Total delinquent loans | |
| $ | 11,890 | | 0.28 | % |
| $ | 13,465 | | 0.30 | % | | |
| $ | 19,134 | | 0.38 | % |
| $ | 15,260 | | 0.34 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
* Represents total loans 30-days-or-more past due. Delinquent status may be determined by either the number of days past due or number of payments past due.
117109
Table 2827 — Roll-forward of Delinquent Loans
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended | |
| Three Months Ended | | Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | ||||||||||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Delinquent loans at the beginning of the period | | $ | 11,451 | | $ | 18,718 | | $ | 13,465 | | $ | 19,947 | | | $ | 15,918 | | $ | 11,451 | | $ | 15,260 | | $ | 13,465 |
Loans added to delinquency status during the period and remained in delinquency status at the end of the period | |
| 2,531 | |
| 945 | |
| 3,767 | |
| 1,268 | | |
| 3,076 | |
| 2,531 | |
| 5,668 | |
| 3,767 |
Loans removed from delinquency status during the period that were in delinquency status at the beginning of the period (see table below) | |
| (3,466) | |
| (3,109) | |
| (6,803) | |
| (3,179) | | |
| (2,087) | |
| (3,466) | |
| (4,833) | |
| (6,803) |
Principal balance paydowns of loans delinquent at both period ends | | | (20) | | | (34) | | | (24) | | | (81) | | | | (61) | | | (20) | | | (52) | | | (24) |
Net change in principal balance of other loans delinquent at both period ends* | |
| 1,394 | |
| 873 | |
| 1,485 | |
| (562) | | |
| 2,288 | |
| 1,394 | |
| 3,091 | |
| 1,485 |
Delinquent loans at the end of period | | $ | 11,890 | | $ | 17,393 | | $ | 11,890 | | $ | 17,393 | | | $ | 19,134 | | $ | 11,890 | | $ | 19,134 | | $ | 11,890 |
* | Includes |
Table 2928 — Detail of Loans Removed from Delinquent Status
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended | |
| Three Months Ended | | Nine Months Ended | | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | | ||||||||||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | |
| 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||||||
| | | | | | | | | |
| | | | | | | | | | | | |
| | | |
Loans charged off | | $ | — | | $ | — | | $ | (1) | | $ | (1) | | | $ | — | | $ | — | | $ | (1) | | $ | (1) | |
Easy Advances paid off or charged off | | | — | | | — | | | — | | | — | | |||||||||||||
Refund Advances paid off or charged off | | | — | | | — | | | — | | | — | | |||||||||||||
Loans transferred to OREO | |
| — | |
| — | |
| — | |
| — | | |
| — | |
| — | |
| — | |
| — | |
Loan payoffs and paydowns | |
| (2,620) | |
| (1,652) | |
| (6,186) | |
| (1,938) | | |
| — | |
| (2,620) | |
| (1,629) | |
| (6,186) | |
Loans paid current | |
| (846) | |
| (1,457) | |
| (616) | |
| (1,240) | | |
| (2,087) | |
| (846) | |
| (3,203) | |
| (616) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans removed from delinquency status during the period that were in delinquency status at the beginning of the period | | $ | (3,466) | | $ | (3,109) | | $ | (6,803) | | $ | (3,179) | | | $ | (2,087) | | $ | (3,466) | | $ | (4,833) | | $ | (6,803) | |
Collateral-Dependent Loans and Troubled Debt RestructuringsLoan Modifications
When management determines that a loan is collateral dependent and foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs, if appropriate. The Bank’s policy is to charge-off all or that portion of its recorded investment in collateral-dependent loans upon a determination that it expects the full amount of contractual principal and interest will not be collected.
A loan modification (formerly a TDR prior to the adoption of ASU 2022-02) is a situation where, due to a borrower’s financial difficulties, the Bank grants a concession to the borrower that the Bank would not otherwise have considered. The majority of the Bank’s TDRsloan modifications involve a restructuring of loan terms such as a temporary reduction in the payment amount to require only interest and escrow (if required), reducing the loan’s interest rate, and/or extending the maturity date of the debt. Nonaccrual loans modified as TDRsloan modifications remain on nonaccrual status and continue to be reported as nonperforming loans. Accruing loans modified as TDRsloan modifications are evaluated for nonaccrual status based on a current evaluation of the borrower’s financial condition and ability and willingness to service the modified debt. With the adoption of ASU 2022-02 in 2023, all loan modifications will now be recognized as collateral-dependent. As of September 30, 2023 there were $1.9 million collateral-dependent loan modifications.
Table 3029 — Collateral-Dependent Loans and Troubled Debt Restructurings
| | | | | | | | | | | | | | | | |
(dollars in thousands) |
| September 30, 2022 |
| December 31, 2021 | | $ Change | | % Change |
|
| December 31, 2022 | |||||
| | | | | | | | | | | | | | | | |
Cashflow-dependent TDRs | | $ | 5,430 | | $ | 5,960 | | $ | (530) | | (9) | % | | | $ | 5,761 |
Collateral-dependent TDRs | | | 6,278 | | | 9,426 | | | (3,148) | | (33) | | | | | 6,265 |
Total TDRs | | | 11,708 | | | 15,386 | | | (3,678) | | (24) | | | | | 12,026 |
Collateral-dependent loans (which are not TDRs) | |
| 14,348 | |
| 14,645 | | | (297) | | (2) | | | |
| 14,186 |
Total recorded investment in TDRs and collateral-dependent loans | | $ | 26,056 | | $ | 30,031 | | $ | (3,975) | | (13) | % | | | $ | 26,212 |
See Footnote 45 “Loans and Allowance for Credit Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding collateral-dependent loans and TDRs.
118110
Deposits
Table 2830 — Deposit Composition
| | | | | �� | | | | | | | | | | | | | | | | | | |
(dollars in thousands) |
| September 30, 2022 |
| December 31, 2021 | | $ Change | | % Change | | ||||||||||||||
(in thousands) | September 30, 2023 |
| December 31, 2022 | | $ Change | | % Change | | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Core Bank: | | | | | | | | | | | | | | | | | | | | | | | |
Demand | | $ | 1,398,760 | | $ | 1,381,522 | | $ | 17,238 | | 1 | % | $ | 1,233,328 | | $ | 1,336,082 | | $ | (102,754) | | (8) | % |
Money market accounts | |
| 764,523 | |
| 789,876 | | | (25,353) | | (3) | |
| 939,499 | |
| 707,272 | | | 232,227 | | 33 | |
Savings | |
| 331,300 | |
| 311,624 | | | 19,676 | | 6 | |
| 263,249 | |
| 323,015 | | | (59,766) | | (19) | |
Reciprocal money market |
| 206,347 | |
| 28,635 | | | 177,712 | | 621 | | ||||||||||||
Individual retirement accounts (1) | |
| 40,658 | |
| 43,724 | | | (3,066) | | (7) | |
| 33,823 | |
| 38,640 | | | (4,817) | | (12) | |
Time deposits, $250 and over (1) | |
| 61,579 | |
| 81,050 | | | (19,471) | | (24) | |
| 94,521 | |
| 54,855 | | | 39,666 | | 72 | |
Other certificates of deposit (1) | |
| 135,836 | |
| 154,174 | | | (18,338) | | (12) | |
| 207,481 | |
| 129,324 | | | 78,157 | | 60 | |
Reciprocal money market and time deposits (1) | |
| 44,534 | |
| 77,950 | | | (33,416) | | (43) | | |||||||||||
Reciprocal time deposits (1) | | 94,629 | | | 7,405 | | | 87,224 | | 1,178 | | ||||||||||||
Wholesale brokered deposits (1) |
| 805 | |
| — | | | 805 | | — | | ||||||||||||
Total Core Bank interest-bearing deposits | | | 2,777,190 | | | 2,839,920 | | | (62,730) | | (2) | | | 3,073,682 | | | 2,625,228 | | | 448,454 | | 17 | |
Total Core Bank noninterest-bearing deposits | |
| 1,581,663 | |
| 1,579,173 | | | 2,490 | | 0 | |
| 1,269,643 | |
| 1,464,493 | | | (194,850) | | (13) | |
Total Core Bank deposits | |
| 4,358,853 | |
| 4,419,093 | | | (60,240) | | (1) | |
| 4,343,325 | |
| 4,089,721 | | | 253,604 | | 6 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Republic Processing Group: | | | | | | | | | | | | | | | | | | | | | | | |
Money market accounts | | | 9,195 | | | 9,717 | | | (522) | | (5) | | | 16,921 | | | 3,849 | | | 13,072 | | 340 | |
Total RPG interest-bearing deposits | | | 9,195 | | | 9,717 | | | (522) | | (5) | | | 16,921 | | | 3,849 | | | 13,072 | | 340 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Brokered prepaid card deposits | | | 332,655 | | | 320,907 | | | 11,748 | | 4 | | | 326,505 | | | 328,655 | | | (2,150) | | (1) | |
Other noninterest-bearing deposits | | | 99,805 | | | 90,701 | | | 9,104 | | 10 | | | 106,831 | | | 115,620 | | | (8,789) | | (8) | |
Total RPG noninterest-bearing deposits | | | 432,460 | | | 411,608 | | | 20,852 | | 5 | | | 433,336 | | | 444,275 | | | (10,939) | | (2) | |
Total RPG deposits | | | 441,655 | | | 421,325 | | | 20,330 | | 5 | | | 450,257 | | | 448,124 | | | 2,133 | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total deposits | | $ | 4,800,508 | | $ | 4,840,418 | | $ | (39,910) | | (1) | % | $ | 4,793,582 | | $ | 4,537,845 | | $ | 255,737 | | 6 | % |
(1) | Includes time |
Total Company deposits decreased $40increased $256 million from December 31, 20212022 to $4.8 billion as of September 30, 2023. Total Core Bank deposits increased by $250 million with the March 2023 CBank acquisition resulting in $182 million of this growth. Core Bank legacy deposits, which excludes the deposits assumed from the CBank acquisition, increased $68 million, or 2%, from December 31, 2022. Within the Core Bank’s legacy deposits, interest-bearing deposits increased $302 million and noninterest-bearing deposits decreased $234 million.
As it relates to the decrease of $234 million in Core Bank legacy noninterest-bearing deposits, Management believes two factors generally drove, and continue to drive, this overall decline. The first is a general decline in liquidity among both businesses and consumers as the excess liquidity created during the COVID pandemic continued to wane. Second, Management believes that the substantial increase in market interest rates over the past year has caused the difference between what a client can earn for an interest-bearing deposit versus the client’s lack of a financial return for a noninterest-bearing deposit to become large enough to cause some clients to pursue other opportunities for their cash both inside and outside the Bank.
Total Core Bank deposits decreased by $60 million with a $63 million decrease interest-bearing deposits offset by a $3Related to the $302 million increase in noninterest-bearing deposits.Core Bank legacy interest-bearing deposits, much of this increase occurred during the second and third quarters of 2023 as Core Bank legacy interest-bearing deposits were down $61 million for the first quarter of 2023. The net decreasemajority of this increase was in the Bank’s CDARs and ICS product types.
CDARs accounts represent reciprocal, term certificate-of-deposit accounts and ICS accounts represent liquid money market accounts in which:
1) | The Bank receives large client deposits above the FDIC insurance limit of $250,000; |
2) | The Bank places these large deposits into like term CDs or money market accounts in a nationwide network of banks in amounts under the FDIC insurance threshold of $250,000 in order to receive full FDIC insurance on the total deposit amount; and |
3) | The Bank receives an equivalent amount of deposits back from the network of banks from numerous clients of theirs, under the $250,000 FDIC insurance limit for each of those clients. |
These balances grew $228 million for the first nine months of 2022, compares unfavorablythe year with $167 million of this growth occurring during the second and third quarters when the Bank offered significantly higher rates on these products in order to combat deposit run-off. In addition to
111
the net growth in depositshigher offering rates available through these two products, CDARs and ICS accounts are also attractive to clients because they offer clients the ability to receive full FDIC insurance for the previous two calendar years whentheir deposit growth generally reached historical highs for the Company. Management believes the Company is more likelybalances up to experience slower overall growth in its deposits over the foreseeable future as the excess liquidity in the United States is expected to decline due to the tightening of monetary and fiscal policy by the Federal Government.$50 million per client.
Management believes the higher offering rates it is paying for its interest-bearing deposits as of September 30, 2023 will continue to raise the Traditional Bank's overall cost of funds into the second half of 2023 and cause further contraction to its net interest margin on a linked-quarter basis. This strategy is subject to change depending upon several factors including, but not limited to, the Bank’s current and projected overall liquidity positions, its clients’ demand for its loans and deposit products, the Bank’s overall interest rate risk position, the interest rate environment at the time, as well as the projected interest rate environment for the near term and the long term.
Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings
SSUARs are collateralized by securities and 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. All securities underlying the agreements are under the Bank’s control.
SSUARs decreased $136 million, or 63%, during the first nine months of 2023 to $81 million as of September 30, 2023. SSUARs generally represent large customer relationships deposited into the Bank that require security collateral above the $250,000 FDIC insurance limit of the Bank. Due to the size of the underlying relationships, large fluctuations in the underlying account balances from period to period are common.
While the Bank has changed its pricing strategy with deposits in order to retain and attract funds, it has not generally changed its pricing strategy with SSUARs. As a result, its SSUAR balances have continued to decline during the first nine months of 2023. At this time, management is not contemplating a change in its pricing strategy for SSUARs, and as a result, a further decline in outstanding balances is possible. The Bank’s SSUAR pricing strategy, however, is subject to change depending upon several factors including, but not limited to, the Bank’s current and projected overall liquidity positions, its clients’ demand for its loans and deposit products, the Bank’s overall interest rate risk position, the interest rate environment at the time, as well as the projected interest rate environment for the near term and the long term.
Federal Home Loan Bank Advances
The Bank held $20 million of long-termBank’s total FHLB advances were $465 million as of September 30, 20222023 compared to $25$95 million of overnight FHLB advances as of December 31, 2021.2022. During the first nine monthsthird quarter of 2022,2023, the Bank extended the term on $20of an additional $200 million of its FHLBin overnight borrowings into longer-term, fixed rate advances in anticipation of increasing long-term interest rates and repaid the remaining $5 million. As of September 30, 2022, the Company’s $20 million of FHLB advances hadwith a weighted average maturityterm of five4.33 years and a weighted average cost of 1.89%4.61%. With overnight borrowings costing approximately 5.40% during the quarter, the Bank extended these borrowings to mitigate the risk of rising interest rates to its balance sheet, while also taking advantage of the inverted yield curve by lowering its total borrowings costs. As of September 30, 2023, approximately $270 million of the Bank’s FHLB advances were fixed terms with a weighted average maturity of 4.5 years and a weighted-average cost of 4.33%. In addition, the Bank had remaining $195 million of overnight borrowings with a cost of 5.37% as of September 30, 2023.
Overall use of FHLB advances during a given year is dependent upon many factors including asset growth, deposit growth, current earnings, and expectations of future interest rates, among others.
Interest Rate Swaps
The Bank enters into interest rate swapsmaintains sufficient liquidity to facilitate client transactionsfund routine loan demand and meet their financing needs. Upon entering into these instruments,routine deposit withdrawal activity. Liquidity is managed by maintaining sufficient liquid assets, primarily in the Bank enters into offsetting positions in order to minimizeform of cash, cash equivalents, and unencumbered investment securities. Funding and cash flows can also be realized through deposit product promotions, the Bank’s interest rate risk. These swaps are derivatives, but are not designated as hedging instruments,sale of AFS debt securities, principal paydowns on loans and therefore changes in fair value are reported in current year earnings.mortgage-backed securities, and proceeds realized from loans held for sale.
See Footnote 1213 “Interest Rate Swaps” of Part I Item 1 “Financial Statements” for additional discussion regarding the Bank’s interest rate swaps.
119112
Liquidity
The Bank maintains sufficient liquidity to fund routine loan demand and routine deposit withdrawal activity. Liquidity is managed by maintaining sufficient liquid assets, primarily in the form of cash, cash equivalents, and unincumberedunencumbered investment securities. Funding and cash flows can also be realized through deposit product promotions, the sale of AFS debt securities, principal paydowns on loans and mortgage-backed securities, and proceeds realized from loans held for sale.
Table 2931 — Liquid Assets and Borrowing Capacity
The Company’sBank’s liquid assets and borrowing capacity included the following:
| | | | | | | | | | | ||||
(in thousands) |
| September 30, 2022 |
| December 31, 2021 | |
| September 30, 2023 |
| December 31, 2022 | | ||||
| | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 754,393 | | $ | 756,971 | | | $ | 219,653 | | $ | 313,689 | |
Unincumbered debt securities | |
| 400,183 | |
| 219,775 | | |||||||
Unencumbered debt securities | |
| 518,844 | |
| 438,052 | | |||||||
Total liquid assets | | | 1,154,576 | | | 976,746 | | | | 738,497 | | | 751,741 | |
| | | | | | | | | | | | | | |
Borrowing capacity with the FHLB | |
| 940,155 | |
| 900,424 | | |||||||
Borrowing capacity through unsecured credit lines | |
| 125,000 | |
| 125,000 | | |||||||
Total borrowing capacity | | | 1,065,155 | | | 1,025,424 | | |||||||
Available borrowing capacity with the FHLB | |
| 638,554 | |
| 899,362 | | |||||||
Available borrowing capacity through unsecured credit lines | |
| 125,000 | |
| 125,000 | | |||||||
Total available borrowing capacity | | | 763,554 | | | 1,024,362 | | |||||||
| | | | | | | | | | | | | | |
Total liquid assets and borrowing capacity | | $ | 2,219,731 | | $ | 2,002,170 | | |||||||
Total liquid assets and available borrowing capacity | | $ | 1,502,051 | | $ | 1,776,103 | |
The BankCompany had a loan to deposit ratio (excluding wholesale brokered deposits) of 96%106% as of September 30, 20222023 and 99% as of December 31, 2021.2022. Republic’s banking centers and its website, www.republicbank.com, provide access to retail deposit markets. These retail deposit products, if offered at attractive rates, have historically been a source of additional funding when needed. If the Bank were to lose a significant funding source, such as a few major depositors, or if any of its lines of credit were cancelled, or if the Bank cannot obtain brokered deposits, the Bank would be compelled to offer market leading deposit interest rates to meet its funding and liquidity needs.
As noted in the sections above titled “Deposits” and “Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings,” the Bank implemented a general strategy during 2022 and most of the first quarter of 2023 to maintain a low beta for its client-related interest-bearing liabilities as part of its overall strategy to increase its net interest margin and net interest income. As a result of this strategy, however, the Bank did experience a decline in both personal and business deposit balances and SSUAR balances as some clients moved their funds to more attractive offerings outside of the Bank. In response to this deposit outflow, during the third quarter of 2023 the Bank began marketing some deposit products, such as money market accounts and short-term certificates of deposit, with higher offering rates. This strategy appears to have generally reversed the outflow of deposits during late May and June of 2023. These higher offering rates also raised the Traditional Bank's overall cost of funds meaningfully during the third quarter of 2023 and caused contraction to its net interest margin on a linked-quarter basis. Management is unsure if these higher offering rates will continue to prevent future deposit outflows or if the Bank may be required to raise its offering rates more in order to prevent future deposit outflows. The Bank’s overall deposit and SSUAR pricing strategies are subject to change depending upon several factors including, but not limited to, the Bank’s current and projected overall liquidity positions, its clients’ demand for its loans and deposit products, the Bank’s overall interest rate risk position, the interest rate environment at the time, as well as the projected interest rate environment for the near term and the long term.
As of September 30, 2022,2023, the Bank had approximately $1.2 billion$681 million in deposits from 228133 large non-sweep deposit relationships, including reciprocal deposits, where the individual relationship exceeded $2 million. Total uninsured deposits for the Bank were $1.7 billion, or 36%, of total deposits as of September 30, 2023. The 20 largest non-sweep deposit relationships represented approximately $395$224 million, or 8%5%, of the Company’sBank’s total deposit balances as of September 30, 2022.2023. These accounts do not require collateral; therefore, cash from these accounts can generally be utilized to fund the loan portfolio. If any of these balances were moved from the Bank, the Bank would likely utilize overnight borrowing lines in the short-term to replace the balances. On a longer-term basis, the Bank would likely utilize wholesale-brokered deposits to replace withdrawn balances, or alternatively, higher-cost internet-sourced deposits. Based on past experience utilizing brokered deposits and internet-sourced deposits, the Bank believes it can quickly obtain these types of deposits if needed. The overall cost of gathering these types of deposits, however, could be substantially higher than the Traditional Bank deposits they replace, potentially decreasing the Bank’s earnings.
The Bank’s liquidity is impacted by its ability to sell certain investment securities, which is limited due to the level of investment securities that are needed to secure public deposits, securities sold under agreements to repurchase, FHLB borrowings, and for other purposes, as required by law. As of September 30, 2022 and December 31, 2021, these pledged investment securities had a fair value of $262 million and $320 million.
120113
purposes, as required by law. As of September 30, 2023 and December 31, 2022, these pledged investment securities had a fair value of $82 million and $218 million.
Capital
Total stockholders’ equity increased from $834$857 million as of December 31, 20212022 to $841$893 million as of September 30, 2022.2023. The increase in stockholders’ equity was primarily attributable to net income earned during 20222023 reduced primarily by cash dividends declared, repurchases of Class A Common shares, and a $35 million decrease in AOCI.declared.
Common Stock — The Class A Common shares are entitled to cash dividends equal to 110% of the cash dividend paid per share on Class B Common Stock. Class A Common shares have one vote per share and Class B Common shares have ten votes per share. Class B Common shares may be converted, at the option of the holder, to Class A Common shares on a share for share basis. The Class A Common shares are not convertible into any other class of Republic’s capital stock.
Dividend Restrictions — The Parent Company’s principal source of funds for dividend payments are dividends received from RB&T. Banking regulations limit the amount of dividends that may be paid to the Parent Company by the Bank without prior approval of the respective states’ banking regulators. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years. As of October 1, 2022,2023, RB&T could, without prior approval, declare dividends of approximately $142$126 million. Any payment of dividends in the future will depend, in large part, on the Company’s earnings, capital requirements, financial condition, and other factors considered relevant by the Company’s Board of Directors.
Regulatory Capital Requirements — The Company and the Bank are subject to capital regulations in accordance with Basel III, as administered by banking regulators. Regulatory agencies measure capital adequacy within a framework that makes capital requirements, in part, dependent on the individual risk profiles of financial institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Republic’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Parent Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items, as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators regarding components, risk weightings, and other factors.
Banking regulators have categorized the Bank as well capitalized. For prompt corrective action, the regulations in accordance with Basel III define “well capitalized” as a 10.0% Total Risk-Based Capital ratio, a 6.5% Common Equity Tier 1 Risk-Based Capital ratio, an 8.0% Tier 1 Risk-Based Capital ratio, and a 5.0% Tier 1 Leverage ratio. Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, the Company and Bank must hold a capital conservation buffer of 2.5% composed of Common Equity Tier 1 Risk-Based Capital above their minimum risk-based capital requirements.
Republic continues to exceed the regulatory requirements for Total Risk-Based Capital, Common Equity Tier I Risk-Based Capital, Tier I Risk Based-Capital, and Tier I Leverage Capital. Republic and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the Capital Conservation Buffer. Republic’s average stockholders’ equity to average assets ratio was 13.61%14.29% as of September 30, 20222023 and 13.41%13.82% as of December 31, 2021.2022. Formal measurements of the capital ratios for Republic and the Bank are performed by the Company at each quarter end.
121114
Table 3032 — Capital Ratios (1)
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2022 | | As of December 31, 2021 |
| | | As of September 30, 2023 | | As of December 31, 2022 |
| ||||||||||||
(dollars in thousands) |
| Amount |
| Ratio |
| Amount |
| Ratio |
| |
| Amount |
| Ratio |
| Amount |
| Ratio |
| ||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total capital to risk-weighted assets | | | | | | | | | | | | | | | | | | | | | | | |
Republic Bancorp, Inc. | | $ | 922,001 |
| 18.55 | % | $ | 878,488 |
| 17.47 | % | | | $ | 953,455 |
| 16.24 | % | $ | 941,865 |
| 17.92 | % |
Republic Bank & Trust Company | |
| 890,151 |
| 17.92 | |
| 861,815 |
| 17.14 | | | |
| 920,004 |
| 15.68 | |
| 904,592 |
| 17.23 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Common equity tier 1 capital to risk-weighted assets | | | | | | | | | | | | | | | | | | | | | | | |
Republic Bancorp, Inc. | | $ | 863,443 |
| 17.37 | % | $ | 823,504 |
| 16.37 | % | | | $ | 884,368 |
| 15.06 | % | $ | 877,735 |
| 16.70 | % |
Republic Bank & Trust Company | |
| 831,593 |
| 16.74 | |
| 806,831 |
| 16.05 | | | |
| 848,512 |
| 14.47 | |
| 840,462 |
| 16.01 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Tier 1 (core) capital to risk-weighted assets | | | | | | | | | | | | | | | | | | | | | | | |
Republic Bancorp, Inc. | | $ | 863,443 |
| 17.37 | % | $ | 823,504 |
| 16.37 | % | | | $ | 884,368 |
| 15.06 | % | $ | 877,735 |
| 16.70 | % |
Republic Bank & Trust Company | |
| 831,593 |
| 16.74 | |
| 806,831 |
| 16.05 | | | |
| 848,512 |
| 14.47 | |
| 840,462 |
| 16.01 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Tier 1 leverage capital to average assets | | | | | | | | | | | | | | | | | | | | | | | |
Republic Bancorp, Inc. | | $ | 863,443 |
| 14.24 | % | $ | 823,504 |
| 13.35 | % | | | $ | 884,368 |
| 14.05 | % | $ | 877,735 |
| 14.81 | % |
Republic Bank & Trust Company | |
| 831,593 |
| 13.66 | |
| 806,831 |
| 13.10 | | | |
| 848,512 |
| 13.42 | |
| 840,462 |
| 14.09 | |
(1) | The Company and the Bank elected in 2020 to defer the impact of CECL on regulatory capital. The deferral period is five years, with the total estimated CECL impact 100% deferred for the first two years, then phased in over the next three years. If not for this election, the Company’s regulatory capital ratios would have been approximately |
Asset/Liability Management and Market Risk
Asset/liability management is designed to ensure safety and soundness, maintain liquidity, meet regulatory capital standards, and achieve acceptable net interest income based on the Bank’s risk tolerance. Interest rate risk is the exposure to adverse changes in net interest income as a result of market fluctuations in interest rates. The Bank, on an ongoing basis, monitors interest rate and liquidity risk in order to implement appropriate funding and balance sheet strategies. Management considers interest rate risk to be a significant risk to the Bank’s overall earnings and balance sheet.
The interest sensitivity profile of the Bank at any point in time will be impacted by a number of factors. These factors include the mix of interest sensitive assets and liabilities, as well as their relative pricing schedules. It is also influenced by changes in market interest rates, deposit and loan balances, and other factors.
The Bank utilizes earnings simulation models as tools to measure interest rate sensitivity, including both a static and dynamic earnings simulation model. A static simulation model is based on current exposures and assumes a constant balance sheet. In contrast, a dynamic simulation model relies on detailed assumptions regarding changes in existing business lines, new business, and changes in management and customer behavior. While the Bank runs the static simulation model as one measure of interest rate risk, historically, the Bank has utilized its dynamic earnings simulation model as its primary interest rate risk tool to measure the potential changes in market interest rates and their subsequent effects on net interest income for a one-year time period. This dynamic model projects a “Base” case net interest income over the next 12 months and the effect on net interest income of instantaneous movements in interest rates between various basis point increments equally across all points on the yield curve. Many assumptions based on growth expectations and on the historical behavior of the Bank’s depositloans and loan ratesdeposits and their related balances in relation to changes in interest rates are incorporated into this dynamic model. These assumptions are inherently uncertain and, as a result, the dynamic model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to the actual timing, magnitude and frequency of interest rate changes, the actual timing and magnitude of changes in loan and deposit balances, as well as the actual changes in market conditions and the application and timing of various management strategies as compared to those projected in the various simulated models. Additionally, actual results could differ materially from the model if interest rates do not move equally across all points on the yield curve.
122115
As of September 30, 2023, a dynamic simulation model was run for interest rate changes from “Down 200” basis points to “Up 300” basis points. The following table illustrates the Bank’s projected percent change from its Base net interest income over the period beginning October 1, 20222023 and ending September 30, 20232024 based on instantaneous movements in interest rates from Down 200 to Up 300 basis points equally across all points on the yield curve. The Bank’s dynamic earnings simulation model includes secondary market loan fees and excludes Traditional Bank loan fees.
Table 3133 — Bank Interest Rate Sensitivity
| | | | | | | | | | | | | | | | | | | | | | | ||||||||
| Change in Rates | | Change in Rates | | ||||||||||||||||||||||||||
| -200 |
| -100 |
| +100 |
| +200 |
| +300 |
| -200 |
| -100 |
| +100 |
| +200 |
| +300 |
| ||||||||||
| Basis Points | | Basis Points | | Basis Points | | Basis Points | | Basis Points | | Basis Points | | Basis Points | | Basis Points | | Basis Points | | Basis Points | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
% Change from base net interest income as of September 30, 2022 | (8.3) | % | | (4.2) | % | | 3.9 | % | | 7.7 | % | | 11.8 | % | | |||||||||||||||
% Change from base net interest income as of December 31, 2021 | (2.9) | % | | 1.3 | % | | (0.6) | % | | 0.7 | % | | 4.7 | % | | |||||||||||||||
% Change from base net interest income as of September 30, 2023 | 3.0 | % | | 1.8 | % | | (0.6) | % | | (1.2) | % | | (1.6) | % | | |||||||||||||||
% Change from base net interest income as of December 31, 2022 | (2.8) | % | | (0.6) | % | | 1.8 | % | | 3.7 | % | | 5.7 | % | |
For the Down-100 and Down-200 scenarios, the September 2022 simulation reflected a more negative outcome than the December 2021 simulation. For the Up-100, Up-200, and Up-300 scenarios, the September 30, 2022 simulation reflected a more positive outcomeNotable changes for the Bank’s net interest income than the comparablerate sensitivity projections from December 31, 2021 simulation. 2022 to September 30, 2023 occurred in all the scenarios.
TheIn general, the period-to-period declinedeclines in the Down-rateup-rate scenarios was generallywere tied to interest rate floors for the Bank’s floating rate loans. As of December 31, 2021, market interest rates were significantly lower than market interest rates as of September 30, 2022. As a result, many of the Bank’s floating rate loans were priced at their contractual interest rate floors as of December 31, 2021. The Bank’s interest rate simulation model for December 31, 2021, assumed that interest rates for most of these loans would remain at their contractual interest rate floors, even as market rates declined in the simulation. With market interest rates significantly higher as of September 30, 2022, the current rates for a substantial amount of the Bank’s floating rate loans are above their contractual interest rate floors, and therefore, now have room to reprice lower in a declining marketfollowing three main factors.
● | The Company’s average interest-earning cash balances further declined from December to September. As a result, the benefit the Company expects to receive from rising short-term interest rates, as a result of its immediately repricing interest-earning cash, decreased. |
● | The Company increased its assumed deposit betas from December to September in anticipation of a more competitive deposit gathering and retention environment. These higher deposit betas resulted in higher projected costs for the Company’s interest-bearing deposits in a rising rate environment. |
● | Lastly, net interest income is projected to decline in the up-rate scenarios due to the increased amount of immediately repricing overnight borrowings on the Company’s balance sheet as of September 30, 2023 as compared to December 31, 2022. |
As compared toConversely in the December 2021 simulation,down rate scenarios, the Company’s interest rate risk position notably improved. This improvement for the September 2022 simulation outcomes for the Up-rate scenarios was generally tied to contractual interest rate floors, as well. As previously noted, market interest rates were significantly lowerthe following four factors.
● | The Company expects to achieve a notable increase above current levels for mortgage banking income as refinance activity is assumed to increase with a decline in interest rates. |
● | Net interest income is expected to improve due to the assumed benefit for interest rate floors related to loans, which are projected to take effect with a substantial drop in interest rates. |
● | Net interest income is projected to improve in the down rate scenarios due to the increased amount of immediately repricing overnight borrowings on the Company’s balance sheet as of September 30, 2023 as compared to December 31, 2022. |
● | Lastly, a significant portion of the Company’s interest-bearing deposits have repriced higher since December 31, 2022, bringing them more in-line with current market rates. As a result, the Company’s interest sensitivity model as of September 30, 2023 assumes the Company will reprice a significant amount of its deposits lower in the event of a decline in market interest rates. Conversely, as of December 31, 2022, a significant amount of the Company’s deposits was priced below then-current market rates, and as a result, the Company’s interest rate sensitivity model assumed the Company did not have the ability to reprice many of its deposits lower in the event of a decline in market rates. |
For further discussion of December 31, 2021 than market interest rates as of September 30, 2022, and many of the Bank’s loans were already priced at their contractual interest rate floors as of December 31, 2021. By formula, the interest rates for many of the Bank’s floating rate loans would have been much lower at December 31, 2021 had their contractual interest rate floors not existed. As a result, the formula interest rate for each floating rate loan had to increase substantially,interest-bearing deposit betas, see section titled “Deposits” in many cases, before the formula interest rate surpassed the contractual interest rate floor and the loan starting repricing higher. With most of the Bank’s floating rate loans now above their contractual interest rate floors as of September 30, 2022, the Bank would generally benefit, based on each loan’s floating rate formula, in a rising interest rate environment.this Form 10-Q.
LIBOR Exposure
In July 2017, the Financial Conduct Authority (“FCA”), the authority regulating LIBOR, along with various other regulatory bodies, announced that LIBOR would likely be discontinued at the end of 2021. Subsequent to that announcement, in November 2020, the FCA announced that many tenors of LIBOR would continue to be published through June 2023. In compliance with regulatory
116
guidance, the Bank discontinued referencing LIBOR for new financial instruments during 2021 and chose SOFR to be its primary alternative reference rate for most transaction types upon the discontinuance or unavailability of LIBOR.
Regarding its legacy assets that reference LIBOR, the Bank has previously disclosed that the underlying contracts for these assets may not include adequate “fallback” language to use alternative indexes and margins when LIBOR ceases.ceased. However, on March 15, 2022, President Biden signed into law the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Law”), which is designed to accomplish the following:
123
With limited exception, the. The LIBOR Law generally covers legacy LIBOR contracts with no or inadequate fallback provisions. Additionally, under the LIBOR Law,provides for a statutory transition to a replacement rate selected by the Board of Governors of the Federal Reserve System (the “Board”“FRS Board”) based on the SOFR for contracts referencing LIBOR that contain no or ineffective fallback provisions, unless a replacement rate is selected by a determining person as outlined in the statute.
On December 16, 2022, under the LIBOR Law, the FRS Board issued final regulations giving effect to the law, including(the “LIBOR Regulations”) that included the selection of a Board-Selected Benchmark Replacement that isan FRS Board-selected benchmark replacement rate based on SOFR and incorporatesincorporated an applicable tenor spread adjustment and identification of any related conforming changes.
As of September 30, 2022, the Company had approximately $471 million of legacy assets that reference(“Selected Benchmark Rate”). The Selected Benchmark Rate replaced LIBOR with short-term Warehouse loans representing $78 million of these assets and commercial and mortgage loans primarily making up the remainder. As of September 30, 2022, of the Bank’s legacy assets that reference LIBOR, approximately $364 million of those assets were scheduled to maturein certain financial contracts after September 30, 2023. These amounts exclude derivative assets and liabilities on the Company’s consolidated balance sheet. As of September 30, 2022, the notional amountSubstantially all of the Company’s LIBOR-referenced interest rate derivative contracts was approximately $185 million, with $181 millionfinancial instruments transitioned to the Selected Benchmark as of such notional amount scheduled to mature after June 30,July 1, 2023.
For additional discussion regarding the Bank’s net interest income, see the sections titled “Net Interest Income” in this section of the filing under “RESULTS OF OPERATIONS (Three Months Ended September 30, 20222023 Compared to Three Months Ended September 30, 2021)2022) and “RESULTS OF OPERATIONS (Nine Months Ended September 30, 20222023 Compared to Nine Months Ended September 30, 2021.2022.”
Item 3.Quantitative and Qualitative Disclosures about Market Risk.
Information required by this item is included under Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out by Republic Bancorp, Inc.’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were not effective as of the end of the period covered by this report. report because of material weaknesses in our internal control over financial reporting, as described in Management’s Report on Internal Control over Financial Reporting in “Item 9A. Controls and Procedures” in its Annual Report on Form 10-K for the year ended December 31, 2022.
In addition, other than the measures described below taken in response to the material weaknesses, no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Material Weakness Remediation Efforts
The Company has commenced the implementation of some remediation measures with respect to the material weaknesses as outlined in its Annual Report on Form 10-K for the year ended December 31, 2022. As part of its remediation efforts for its material weaknesses, Management has completed the following:
● | Enhanced its internal monthly financial reporting during the first quarter of 2023 to provide a more detailed yield analysis at the product level for the performance of each RCS product. |
● | In July 2023, the Company hired and designated a new Chief Accounting Officer for the RPG operations. This new position reports up through the Chief Financial Officer of the Company and not to the business unit. This position has day-to-day responsibilities overseeing the financial reporting of the RPG segment. |
117
● | In July 2023, the Company’s Board of Directors approved a new policy with enhanced reconciliation policies and procedures. This revised policy provides better guidance to reconciliation personnel for escalation requirements of reconciliation items as well as internal responsibilities for resolving reconciliation issues. |
● | Consistent with the Company’s new policy approved by the Board in July 2023, the Company’s accounting and reconciliation team established a process of regular meetings, with enhanced documentation, to identify and appropriately escalate potential issues within the Company’s reconciliations. In addition, the Company’s accounting and reconciliation team continues to partner with an outside technology company to automate select reconciliation processes to facilitate the timely identification and escalation of reconciling items. |
Moreover, the Company continues to evaluate and enhance its product implementation policies and procedures for new third-party products offered through RPG to ensure proper implementation and design, as well as adequate reviews and approvals from all required stakeholders within the Company.
Management cannot determine when all its remediation plans will be fully completed, and Management cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts.
PART II — OTHER INFORMATION
Item 1.Legal Proceedings.
In the ordinary course of operations, Republic and the Bank are defendants in various legal proceedings. There is no proceeding, pending, or threatened litigation in which Republic and the Bank are a defendant, to the knowledge of management, in which an adverse decision could result in a material adverse change in the business or consolidated financial position of Republic or the Bank.
124
Item 1A.Risk Factors.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Except for the additional risk factor(s)factor information described below, there have been no material changes in the Company’s risk factors as previously disclosed in Part 1, “Item 1A. Risk Factors” of its Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022. You should carefully consider the risk factors discussed below and in Republic’s 20212022 Form 10-K, which could materially affect itsthe Company’s business, financial condition or future results.and results of operations in the future.
Recent negative developments in the banking industry could adversely affect our current and projected business operations and our financial condition and results of operations. Recent bank failures and their related negative media attention have generated significant market trading volatility among publicly traded bank holding companies and, in particular, bank holding companies for regional, and community banks. These developments have negatively impacted customer confidence in regional and community banks, which could prompt customers to maintain their deposits with larger financial institutions. Further, competition for deposits has increased in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin. If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings.
The proposed acquisitionproportion of our deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk and integrationearnings risks in times of CBank pursuantfinancial distress. A significant factor in the two recent bank failures that occurred during the first quarter of 2023 appears to have been the CBank Agreement includes certain acquisition-related risksproportion of the deposits held by each institution that exceeded FDIC insurance limits. In these two failures, the estimated percentage of uninsured deposits to total deposits, as previously disclosed, were at, or approaching, 90%. In response to these failures, many large depositors across the industry have withdrawn deposits in excess of applicable deposit insurance limits and deposited these funds in other financial institutions and, in many instances, moved these funds into money market mutual funds or other similar securities accounts in an effort to diversify the risk of further bank failure(s).
Uninsured deposits historically have been less stable than insured deposits. As a result, in the event of financial distress, uninsured depositors historically have been more likely to withdraw their deposits. The Company andestimates that 36% of its total deposits as of September 30, 2023, were uninsured as they were above the Bank. FDIC’s insurance limit. If a significant portion of these uninsured deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet
118
withdrawal demands, RB&T may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin. Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present period. Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Further, interest rates paid for borrowings generally exceed the interest rates paid on deposits. This spread may be exacerbated by higher prevailing interest rates.
We may experience additional increases in FDIC insurance assessments. The FDIC deposit insurance fund has recently incurred losses with the resolution of bank failures during the first quarter of 2023. As a result, the FDIC issued a notice of proposed rulemaking for a special assessment in May 2023. It is possible that our regular deposit insurance assessment rates, which were already expected to increase significantly during 2023 over 2022, will further increase should the FDIC alter its assessment rate schedule or calculation methodology for financial institutions as a result of these recent bank failures. Although we cannot predict the specific timing and terms of any special assessment or any other increase in our deposit insurance assessment rates, any increase in our assessment fees could have a materially adverse effect on our results of operations and financial condition.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Details of Republic’s Class A Common Stock purchases during the third quarter of 20222023 are included in the following table:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | Total Number of | | Maximum Number |
| | | | | | | Total Number of | | Maximum Number |
|
| | | | | | | Shares Purchased | | of Shares that May |
| | | | | | | Shares Purchased | | of Shares that May |
|
| | | | | | | as Part of Publicly | | Yet Be Purchased |
| | | | | | | as Part of Publicly | | Yet Be Purchased |
|
| | Total Number of | | Average Price | | Announced Plans | | Under the Plan |
| | Total Number of | | Average Price | | Announced Plans | | Under the Plan |
| ||
Period |
| Shares Purchased |
| Paid Per Share |
| or Programs |
| or Programs |
|
| Shares Purchased |
| Paid Per Share |
| or Programs |
| or Programs |
| ||
| | | | | | | | | | | | | | | | | | | | |
July 1 - July 31 |
| 47,983 |
| $ | 49.15 |
| 47,983 | | 207,194 | |
| 59,152 |
| $ | 44.57 |
| 59,152 | | 334,187 | |
August 1 - August 31 |
| — | |
| — |
| — | | 207,194 | |
| 85,357 | |
| 45.87 |
| 85,357 | | 248,830 | |
September 1 - September 30 |
| — | |
| — |
| — | | 207,194 | |
| 62,323 | |
| 44.14 |
| 62,323 | | 186,507 | |
Total |
| 47,983 |
| $ | 49.15 |
| 47,983 |
| 207,194 | |
| 206,832 |
| $ | 44.98 |
| 206,832 |
| 186,507 | |
The Company repurchased 47,983206,832 shares of its Class A Common Stock during the third quarter of 2022.2023. In addition, in connection with employee stock awards, there were 850no shares withheld upon exercise of stock options to satisfy the withholding taxes and exercise price. Thetaxes. On October 25, 2022, the Board of Directors of Republic Bancorp, Inc. (the “Board”), took the following actions as it relates toincreased the Company’s existing stock repurchase program:
125
its Class A Common Stock to 500,000 shares. The repurchase program will remain effective until the total number of shares authorized is repurchased or until Republic’s Board of Directors terminates the program. As of September 30, 2023, the Company had 186,507 shares which could be repurchased under its current share repurchase programs.
During the first nine monthsthird quarter of 2022,2023, there were approximately 1,000no shares of Class A Common Stock issued upon conversion of shares of Class B Common Stock by stockholders of Republic in accordance with the share-for-share conversion option of the Class B Common Stock. The exemption from registration of newly issued Class A Common Stock relies upon Section (3)(a)(9) of the Securities Act of 1933.
There were no equity securities of the registrant sold without registration during the quarter covered by this report.
Item 5.Other Information.
Rule 10b5-1 Trading Plans
During the three months ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.
119
Item 6.Exhibits.
The following exhibits are filed or furnished as a part of this report:
| ||
Exhibit Number | | Description of Exhibit |
| | |
31.1 | | Certification of Principal Executive Officer pursuant to the Sarbanes-Oxley Act of 2002 |
| | |
31.2 | | Certification of Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 |
| | |
32* | | |
| | |
101 | | The following financial statements from the Company’s quarterly report on Form 10-Q were formatted in iXBRL(Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, |
| | |
104 | | Cover Page Interactive Data File formatted in iXBRL and contained in Exhibit 101. |
* | This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. |
126120
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | |
| | | REPUBLIC BANCORP, INC. | |
| | | (Registrant) | |
| | | | |
| | | Principal Executive Officer: | |
| | | | |
| | | | |
Date: November |
|
| /s/ Steven E. Trager | |
| | | By: Steven E. Trager | |
| | | Executive Chair | |
| | | | |
| | | | |
| | | Principal Financial Officer: | |
| | | | |
| | | | |
Date: November | | | /s/ Kevin Sipes | |
| | | By: Kevin Sipes | |
| | | Executive Vice President, Chief Financial | |
| | | Officer and Chief Accounting Officer |
127121