REPUBLIC BANCORP, INC. The consolidated financial statements include the accounts ofRepublic Bancorp, Inc. (the "Parent Company") and its wholly-owned subsidiaries,Republic Bank & Trust Company andRepublic Insurance Services, Inc. As used in this filing, the terms "Republic," the "Company," "we," "our," and "us" refer toRepublic 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 inLouisville, Kentucky . The Bank is aKentucky -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 theU.S. The Captive is aNevada -based, wholly-owned insurance subsidiary of the Company. The Captive provides property and casualty insurance coverage to the Company and the Bank as well, as a group of third-party insurance captives for which insurance may not be available or economically feasible.
Management's Discussion and Analysis of Financial Condition and Results of Operations of Republic should be read in conjunction with Part I Item 1 "Financial Statements."
Forward-looking statements discuss matters that are not historical facts. As forward-looking statements discuss future events or conditions, the statements often include words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "can," "could," "may," "should," "will," "would," "potential," or similar expressions. Do not rely on forward-looking statements. Forward-looking statements detail management's expectations regarding the future and are not guarantees. Forward-looking statements are assumptions based on information known to management only as of the date the statements are made and management undertakes no obligation to update forward-looking statements, except as required by applicable law.
Broadly speaking, forward-looking statements include:
? the potential impact of the COVID-19 pandemic on Company operations;
? projections of revenue, income, expenses, losses, earnings per share, capital
expenditures, dividends, capital structure, or other financial items;
? descriptions of plans or objectives for future operations, products, or
services;
? 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 the COVID-19 pandemic on Company operations and credit losses;
? the ability of borrowers who received COVID-19 loan accommodations to resume
repaying their loans upon maturity of such accommodations;
? natural disasters impacting Company operations;
? changes in political and economic conditions;
? the magnitude and frequency of changes to the FFTR implemented by the
the FRB;
? long-term and short-term interest rate fluctuations as well as the overall
steepness of the
? 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;
? inflation;
? recession;
? future acquisitions;
73
Table of Contents
? 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;
? success in gaining regulatory approvals when required;
? the Company's ability to qualify for future R&D federal tax credits;
? 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
Annual Report on Form 10-K for the year ended
Item 1A "Risk Factors" of the current filing.
Recently Adopted Accounting Standards
For disclosure regarding the impact to the Company's financial statements of recently adopted 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 endedDecember 31, 2019 . 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 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 the following:
? ACLL and Provision
?
? Mortgage Servicing Rights
? Income Tax Accounting
74
Table of Contents
ACLL and Provision - At June 30, 2020 , 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.
Effective January 1, 2020 , the Company adopted ASC 326 Financial Instruments -
Credit Losses, which replaces the pre-January 1, 2020 "probable-incurred" method
for calculating the Company's ACL with the CECL method. CECL is applicable to
financial assets measured at amortized cost, including loan and lease
receivables and held-to-maturity debt securities. CECL also applies to certain
off-balance sheet credit exposures.
When measuring an ACL, CECL primarily differs from the probable-incurred method
by: a) incorporating a lower "expected" threshold for loss recognition versus a
higher "probable" threshold; b) requiring life-of-loan considerations; and c)
requiring reasonable and supportable forecasts. The Company's CECL method is a
"static-pool" method that analyzes historical closed pools of loans over their
expected lives to attain a loss rate, which is then adjusted for current
conditions and reasonable and supportable forecasts prior to being applied to
the current balance of the analyzed pools. Due to its reasonably strong
correlation to the Company's historical net loan losses, the Company has chosen
to use the U.S. national unemployment rate as its primary forecasting tool.
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.
Adjustments to the historical loss rate for current conditions include
differences in underwriting standards, portfolio mix, delinquency level, or
term, 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 a forecast of the U.S. national unemployment
rate, which has shown a relatively strong historical correlation to the Bank's
loan losses. Subsequent to the one-year forecast, loss rates are assumed to
immediately revert back to the historical loss rate calculated under a static
pool analysis plus adjustments for current conditions.
Prospectively, the impact of utilizing the CECL approach to calculate the ACLL
will be significantly influenced by the composition, characteristics and quality
of the Company's loan portfolio, as well as the prevailing economic conditions
and forecast 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.
See additional detail regarding the Company's adoption of ASC 326 and the CECL
method under Footnote 1 "Basis of Presentation and Summary of Significant
Accounting Policies" and Footnote 4 "Loans and Allowance for Credit Losses" of
Part I Item 1 "Financial Statements."
Goodwill and Other Intangible Assets - The excess purchase price over the fair
value of net assets from acquisitions, or goodwill, is evaluated for impairment
at least annually and on an interim basis if an event or circumstance indicates
that it is likely goodwill impairment has occurred. The Company first assesses
qualitative factors to determine whether the existence of events or
circumstances leads to a determination that it is likely that goodwill
impairment has occurred. If, after assessing the totality of events or
circumstances, the Company determines it is likely that goodwill impairment has
not occurred, then performing a quantitative impairment test is unnecessary. If
the Company concludes otherwise, then it is required to perform an impairment
test by calculating the fair value of the reporting unit and comparing the fair
value with the carrying amount of the reporting unit.
The Company typically performs its impairment test annually as of September 30 ,
however, the Company performed an interim qualitative assessment of its goodwill
at June 30, 2020 due to the economic turmoil and market volatility resulting
from the COVID-19 pandemic. Under its qualitative analysis, management concluded
there was insufficient evidence of impairment of the Company's $16 million of goodwill atJune 30, 2020 .
All goodwill is attributable to the Company's Traditional Banking segment and is not expected to be deductible for tax purposes.
75
Table of Contents
Mortgage Servicing Rights - Mortgage loans held for sale are generally sold with the MSRs retained. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value, with the income statement effect recorded as a component of net servicing income within Mortgage Banking income. Fair value is based on market prices for comparable mortgage servicing contracts, when available or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method, which requires servicing rights to be amortized into Mortgage Banking income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Amortization of MSRs are initially set at seven years and subsequently adjusted on a quarterly basis based on the weighted average remaining life of the underlying loans. MSRs are evaluated for impairment quarterly based upon the fair value of the MSRs as compared to carrying amount. Impairment is determined by stratifying MSRs into groupings based on predominant risk characteristics, such as interest rate, loan type, loan terms and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Bank later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the valuation allowance is recorded as an increase to income. Changes in valuation allowances are reported within Mortgage Banking income on the income statement. The fair value of the MSR portfolio is subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates. 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 is expected to increase, as prepayment speeds on the underlying loans would be anticipated to decline. Based on the estimated fair value atJune 30, 2020 , management determined there was$100,000 of impairment within the Company's$7 million
MSR portfolio. Income Tax Accounting - Income tax liabilities or assets are established for the amount of taxes payable or refundable for the current year. Deferred tax liabilities and assets are also established for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. A deferred tax liability or deferred tax asset is recognized for the estimated future tax effects attributable to temporary differences and deductions that can be carried forward (used) in future years. The valuation of current and deferred income tax liabilities and assets is considered critical, as it requires management to make estimates based on provisions of the enacted tax laws. The assessment of tax liabilities and assets involves the use of estimates, assumptions, interpretations and judgments concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, or additional information concerning the TCJA's impact on the Company's net deferred tax asset, will not differ from management's current assessment, the impact of which could be significant to the consolidated results of operations and reported earnings. The Company believes its tax assets and liabilities are adequate and are properly recorded in the consolidated financial statements atJune 30, 2020 andDecember 31, 2019 . 76 Table of Contents BUSINESS SEGMENT COMPOSITION
As ofJune 30, 2020 , 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. MemoryBank®, the Company's national branchless banking platform, is part of the Traditional Banking segment.
(I) Traditional Banking segment
The Traditional Banking segment provides traditional banking products primarily to customers in the Company's market footprint. As ofJune 30, 2020 , Republic had 42 full-service banking centers and two LPOs with locations as follows:
?Kentucky - 28
? Metropolitan
?Central Kentucky - 7 ?Georgetown - 1 ?Lexington - 5 ?Shelbyville - 1 ?Northern Kentucky - 3 ?Covington - 1 ?Crestview Hills - 1 ? Florence - 1 ?Southern Indiana - 3 ?Floyds Knobs - 1 ?Jeffersonville - 1 ?New Albany - 1
?
?
? Metropolitan
*Includes one LPO
Republic's headquarters are in
As ofJune 30, 2020 and through the date of this filing, generally all Traditional Banking products and services, except for a selection of deposit products offered through the Bank's separately branded national branchless banking platform, MemoryBank, were offered through the Company's traditional RB&T brand.
The Bank's principal lending activities consist of the following:
Retail Mortgage Lending - Through its retail banking centers and its Consumer Direct channel, the Bank originates single family, residential real estate loans. In addition, the Bank originates HEALs and HELOCs through its retail banking centers. Such loans are generally collateralized by owner occupied property.
Consumer Direct Lending - Through its Consumer Direct channel, formerly named its Internet Lending channel, the Bank accepts online loan applications for its RB&T branded products through its website at www.republicbank.com. Historically, the majority of loans originated through its Consumer Direct channel have been within the Bank's traditional markets ofKentucky ,Florida ,Indiana , andTennessee . Other states where loans are marketed includeAlabama ,Arizona ,California ,Colorado ,Connecticut ,Georgia ,Illinois ,Louisiana ,Michigan ,Minnesota ,Missouri ,North Carolina ,Ohio ,Oregon, Pennsylvania ,South Carolina ,Utah ,Virginia ,Washington , andWisconsin , as well as, theDistrict of Columbia . 77 Table of Contents
Commercial Lending - The Bank conducts commercial lending activities primarily through Corporate Banking, Commercial Banking, Business Banking, and Retail Banking channels.
In general, commercial lending credit approvals and processing are prepared and underwritten through the Bank'sCommercial Credit Administration Department . Clients are generally located within the Bank's market footprint, or in adjacent, nearby areas to 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 - InOctober 2017 , the Bank created an Aircraft Lending division. At the beginning, the initial loan size was offered up to$500,000 . In 2019, the Bank increased the opportunity to finance up to$1.0 million . All aircraft loans typically range in amounts from$55,000 to$1,000,000 , with terms up to 20 years, to purchase or refinance personal aircraft, along with engine overhauls and avionic upgrades. The aircraft loan program is open to all states, except forAlaska andHawaii . 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:
MemoryBank - MemoryBank, a national branchless banking platform, is a separately branded division of the Bank, which from a marketing perspective, focuses on technologically savvy clients that prefer to carry larger balances in highly liquid interest-bearing bank accounts. MemoryBank products are offered through its website, www.mymemorybank.com. 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. 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 16 "Segment Information" of Part I Item 1 "Financial Statements."
78
Table of Contents
(II) Warehouse Lending segment
Through its Warehouse segment, theCore Bank provides short-term, revolving credit facilities to mortgage bankers across theU.S. 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. Reverse mortgage loans typically remain on the line longer than conventional mortgage loans. Interest income and loan fees are accrued for each individual loan during the time the loan remains on the warehouse line and collected when the loan is sold. TheCore 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 16 "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 theFNMA . The Bank typically retains servicing on loans sold into the secondary market. Administration of loans with servicing retained by the Bank includes collecting principal and interest payments, escrowing funds for property taxes and property insurance, and remitting payments to secondary market investors. The Bank receives fees for performing these standard servicing functions. See additional detail regarding the Mortgage Banking segment under Footnote 11 "Mortgage Banking Activities" and Footnote 16 "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 theU.S. , as well as tax-preparation software providers (collectively, the "Tax Providers"). Substantially all of the business generated by the TRS segment occurs in the first half of the year. The TRS segment traditionally operates at a loss during the second half of the year, during which time the segment incurs costs preparing for the upcoming year's tax 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." 79 Table of Contents
The EA tax credit product is a loan that allows a taxpayer to borrow funds as an advance of a portion of their tax refund. The EA product had the following features during 2019 and 2020:
? 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
? No requirement that the taxpayer pays for another bank product, such as an RT;
? Multiple funds disbursement methods, including direct deposit, prepaid card,
check, or Walmart Direct2Cash®, based on the taxpayer-customer's election;
? Repayment of the EA to the Bank is deducted from the taxpayer's tax refund
proceeds; and
? If an insufficient refund to repay the EA occurs:
o there is no recourse to the taxpayer,
o no negative credit reporting on the taxpayer, and
o no collection efforts against the taxpayer.
The Company reports fees paid for the EA product as interest income on loans. EAs are generally repaid within three weeks after the taxpayer's tax return is submitted to the applicable taxing authority. EAs do not have a contractual due date but the Company considers an EA delinquent if it remains unpaid three weeks after the taxpayer's tax return is submitted to the applicable taxing authority. Provision on EAs are estimated when advances are made, with Provision for all expected EA losses made in the first quarter of each year. Unpaid EAs are charged off byJune 30th of each year, with EAs collected during the second half of each year recorded as recoveries of previously charged off loans. Related to the overall credit losses on EAs, 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 EA approval model is based primarily on the prior-year's tax refund payment patterns. Because the substantial majority of the EA 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 EAs product parameters. Further changes in EA product parameters do not ensure positive results and could have an overall material negative impact on the performance of the EA product offering and therefore on the Company's financial condition and results of operations.
See additional detail regarding the EA product under Footnote 4 "Loans and Allowance for Credit Losses" of Part I Item 1 "Financial Statements."
Republic Payment Solutions division - RPS is managed and operated within the TRS segment. The RPS division is an issuing bank offering general-purpose reloadable prepaid cards through third-party service providers. For the projected near-term, as the prepaid card program matures, the operating results of the RPS division are expected to be immaterial to the Company's overall results of operations and will be reported as part of the TRS segment. The RPS division will not be considered a separate reportable segment until such time, if any, that it meets quantitative reporting thresholds.
(V) 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 and 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 product - The Bank originates a line-of-credit product to
generally subprime borrowers in multiple states. Elevate Credit, Inc., a
third-party service provider subject to the Bank's oversight and supervision,
provides the Bank with certain marketing, servicing, technology, and support
? services for the RCS line-of-credit program, while a separate third party also
provides customer support, servicing, and other services for the RCS
line-of-credit product on the Bank's behalf. The Bank is the lender for the RCS
line-of-credit product and is marketed as such. Further, the Bank controls the
loan
80
Table of Contents
terms and underwriting guidelines, and the Bank exercises consumer compliance
oversight of the RCS line-of-credit product. The Bank sells participation interests in the RCS line-of-credit product. These participation interests are a 90% interest in advances made to borrowers under the borrower's line-of-credit account, and the participation interests are generally sold three business days following the Bank's funding of the associated advances. Although the Bank retains a 10% participation interest in each advance, it maintains 100% ownership of the underlying RCS line-of-credit account with each borrower. The RCS line-of-credit product represents the substantial majority of RCS activity. Loan balances held for sale through this program are carried at the lower of cost or fair value.
RCS installment loan products - From the first quarter of 2016 through the
first quarter of 2018, the Bank piloted a consumer installment loan product
across the
the Bank sold 100% of the balances generated through the program back to its
third-party service provider approximately 21 days after origination. During
the second quarter of 2018, the Bank and its third-party service provider
? suspended the origination of new loans and the sale of unsold loans through
this program. Since program suspension in 2018, the Bank has carried all unsold
loans under this program as "held for investment" on its balance sheet and has
continued to wind down those balances. Additionally, loans under this program
are carried at fair value under a fair value option on the Bank's balance sheet
with the portfolio marked to market monthly. Approximately
remained held for investment under this program as ofJune 30, 2020 . Through a new program launched inDecember 2019 , the Bank began offering RCS installment loans with terms ranging from 12 to 60 months to borrowers in multiple states. A third-party service provider subject to the Bank's oversight and supervision provides the Bank with marketing services and loan servicing for these RCS installment loans. The Bank is the lender for these RCS installment loans, and is marketed as such. Further, the Bank controls the loan terms and underwriting guidelines, and the Bank exercises consumer compliance oversight of this RCS installment loan product. Currently, all loan balances originated under this RCS installment loan program are carried as "held for sale" on the Bank's balance sheet, with the intention to sell these loans to its 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 theU.S. through two different
third-party service providers. In one program, the Bank retains 100% of the
? receivables originated. In the other program, the Bank retains 100% of the
receivables originated in some instances, and in other instances, sells 100% of
the receivables within one month of origination. Loan balances held for sale
through this program are carried at the lower of cost or fair value.
The Company reports interest income and loan origination fees earned on RCS loans under "Loans, including fees," while any gains or losses on sale and mark-to-market adjustments of RCS loans are reported as noninterest income under "Program fees."
81
Table of Contents
OVERVIEW (Three Months Ended
Total Company net income for the second quarter of 2020 was$15.8 million , a$2.2 million , or 12%, decrease from the same period in 2019. Diluted EPS decreased to$0.76 for the three months endedJune 30, 2020 compared to$0.86 for the same period in 2019. Net income was down from the second quarter of 2019, as it was negatively impacted by Provision expense directly related to the on-going COVID-19 pandemic.
The following are general highlights by reportable segment:
Traditional Banking segment
? Net income decreased
compared to the same period in 2019.
? Net interest income decreased
2020 compared to the same period in 2019.
Driven primarily by COVID-19 related concerns, Provision increased
? to
same period in 2019.
Driven primarily by a change in client savings and spending patterns during the
? pandemic, total noninterest income decreased
second quarter of 2020 compared to the same period in 2019.
Driven by pandemic-related influences on Marketing, Interchange, and Travel &
? Entertainment expenses, total noninterest expense decreased
3%, for the second quarter of 2020 compared to same period in 2019. Warehouse Lending segment
? Net income increased
compared to the same period in 2019.
? Net interest income increased
2020 compared to the same period in 2019.
? The Warehouse Provision was a net charge of
2020 compared to a net charge of
? Total committed Warehouse lines remained at
toJune 30, 2020 .
? Average line usage was 68% during the second quarter of 2020 compared to 57%
during the same period in 2019. Mortgage Banking segment
Within the Mortgage Banking segment, mortgage banking income increased
? million, or 248%, during the second quarter of 2020 compared to the same period
in 2019.
Overall, Republic's originations of secondary market loans totaled
during the second quarter of 2020 compared to
? period in 2019, with the Company's gain recognized as a percent of total
originations increasing to 3.98% during the second quarter of 2020 from 2.71%
during the same period in 2019. Tax Refund Solutions segment
? Net income decreased
the same period in 2019.
? Net interest income increased
to the same period in 2019.
Overall, TRS recorded a net charge to the Provision of
? second quarter of 2020 compared to a net charge of$392,000 for the same period in 2019. 82 Table of Contents
? Noninterest income decreased
compared to the same period in 2019.
? Net RT revenue decreased
compared to the same period in 2019.
? Noninterest expense was
$2.8 million for the same period in 2019.
Republic
? Net income increased
compared to the same period in 2019.
? Net interest income decreased
2020 compared to the same period in 2019.
Overall, RCS recorded a net credit to the Provision of
? second quarter of 2020 compared to a net charge of
period in 2019.
? Noninterest income decreased
to the second quarter of 2020.
? Noninterest expense was
$669,000 for the same period in 2019.
RESULTS OF OPERATIONS (Three Months Ended
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.
Total Company net interest income decreased 3% during the second quarter of 2020 compared to the same period in 2019.Total Company net interest margin decreased to 3.62% during the second quarter of 2020 compared to 4.12% for the same period in 2019. A large amount of the Company's financial instruments track closely with, or are primarily indexed to, either the FFTR, Prime, or LIBOR. These market rates trended higher fromDecember 2015 throughDecember 2018 but began trending lower again during 2019 as theFOMC reduced the FFTR by 75 basis points during the year. TheFOMC further lowered the FFTR 100 basis points during the first quarter of 2020 following market reactions to the COVID-19 pandemic. Consistent with decreases in market rates in the previous 12 months, theTotal Company's net interest spread and net interest margin compressed 30 basis points and 50 basis points, respectively, from the second quarter of 2019 to the same period in 2020. The Company's net interest spread, the difference between the weighted average rate earned on its interest-earning assets less the weighted average cost paid on its interest-bearing liabilities, compressed primarily because the Company's interest-bearing liabilities had less room to reprice downward than its interest-earning assets. The Company's net interest margin compressed 20 basis points more than its net interest spread due to the reduction in benefit the Bank receives from its noninterest-bearing funding in a falling rate environment. Management believes the Company's net interest margin, as well as the net interest margin of its various operating segments will likely continue to decline in the near term as its earning asset yields continue to reprice
lower.
83
Table of Contents
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 decreased
The decrease in the
its interest-earning assets less the weighted average cost paid on its
? interest-bearing liabilities, compressed 45 basis points primarily because the
earning asset counterparts.
basis points more than its net interest spread, due to the decreased value from
the
between the Traditional Banking segment's net interest margin and net interest
? spread was 15 basis points during the second quarter of 2020 compared to 18
basis points during the second quarter of 2019, with the differential of three
basis points representing the decreased value to the net interest margin of
noninterest-bearing deposits and stockholders' equity. The decrease in this
value was driven by a 68 basis-point decline in the yield on the Traditional
Banking segment's interest-earning assets from period to period.
Partially offsetting the decline in net interest income driven by the decrease
in the
interest income increased partially due to a rise in second quarter 2020
average loans of
? of 2020 following the passage of the CARES Act on
portfolio contributed
second quarter of 2020 but was partially offset by a
non-PPP portfolios, including the impact of the sale of
divestiture. Warehouse Lending segment
Warehouse net interest income increased
Falling mortgage rates during 2020 drove a surge in consumer refinance volume for Warehouse clients resulting in a 27% increase in average Warehouse loans for the second quarter of 2020 over the same period in 2019. Overall usage rates on Warehouse lines of credit were 68% for the second quarter of 2020 compared to 57% for the second quarter of 2019.
Republic
RCS's net interest income decreased$1.6 million , or 22%, from the second quarter of 2019 to the second quarter of 2020. The decrease was driven primarily by a decrease in fee income from RCS's line-of-credit product. Loan fees on RCS's line-of-credit product recorded as interest income decreased to$4.6 million during the second quarter of 2020 compared to$6.2 million during the same period in 2019 and accounted for 79% and 79% of all RCS interest income on loans during the periods. The decrease in loan fees was the direct result of a decline in outstanding line-of-credit balances, as the Company reduced marketing for the product. Future loan fee income from RCS's higher-yielding line-of-credit product will likely continue to be negatively impacted by the on-going COVID-19 pandemic. As ofJune 30, 2020 the current on-balance-sheet Board-approved risk limit was$40 million for the Company. As ofJune 30, 2020 , the total outstanding on-balance-sheet amount, including loans held for sale, related to this product was$20 million . 84 Table of Contents
Table 1 - Total Company Average Balance Sheets and Interest Rates
Three Months Ended June 30, 2020 Three Months Ended June 30, 2019
Average Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate
ASSETS
Interest-earning assets:
Federal funds sold and other
interest-earning deposits $ 299,760 $ 87 0.12 % $ 297,205 $ 1,753 2.36 %
Investment securities, including FHLB
stock (1) 605,776 2,819 1.86 514,366 3,700 2.88
TRS Easy Advance loans (2) 22,039 207 3.76 16,687 195 4.67
Other RPG loans (3) (6) 112,769 5,693 20.19 109,747 7,659 27.92
Outstanding Warehouse lines of credit
(4) (6) 806,771 7,294 3.62 634,688 7,872 4.96
All other Traditional Bank loans (5)
(6) 3,926,043 40,991 4.18 3,663,783 44,485 4.86
Total interest-earning assets 5,773,158 57,091
3.96 5,236,476 65,664 5.02 Allowance for credit loss (70,496) (58,825) Noninterest-earning assets: Noninterest-earning cash and cash equivalents 112,624 74,763 Premises and equipment, net 43,733
43,783
Bank owned life insurance 67,079 65,470
Other assets (1) 168,323 118,858
Total assets $ 6,094,421 $ 5,480,525 LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities: Transaction accounts$ 1,264,581 $ 159 0.05 %$ 1,138,347 $ 1,586 0.56 % Money market accounts 727,516 248 0.14 754,207 2,024 1.07 Time deposits 424,190 2,188 2.06 413,530 2,058 1.99 Reciprocal money market and time deposits 289,804 435 0.60 192,486 685 1.42 Brokered deposits 174,897 617 1.41 90,266 550 2.44
Total interest-bearing deposits 2,880,988 3,647
0.51 2,588,836 6,903 1.07
Securities sold under agreements to repurchase and other short-term borrowings 176,541 17 0.04 220,189 330 0.60 Federal Reserve Paycheck Protection Program Liquidity Facility 122,769 105 0.34 - - - Federal Home Loan Bank advances 263,296 822 1.25 710,879 4,062 2.29 Subordinated note 41,240 295 2.86 41,240 423 4.10 Total interest-bearing liabilities 3,484,834 4,886
0.56 3,561,144 11,718 1.32
Noninterest-bearing liabilities and Stockholders' equity: Noninterest-bearing deposits 1,697,603 1,098,817 Other liabilities 114,757 91,841 Stockholders' equity 797,227 728,723 Total liabilities and stockholders' equity$ 6,094,421 $ 5,480,525 Net interest income$ 52,205 $ 53,946 Net interest spread 3.40 % 3.70 % Net interest margin 3.62 % 4.12 %
(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 Easy Advances is composed entirely of loan fees.
(3) Interest income includes loan fees of
three months ended
(4) Interest income includes loan fees of
months ended
(5) Interest income includes loan fees of
three months ended
Average balances for loans include the principal balance of nonaccrual loans (6) and loans held for sale, and are inclusive of all loan premiums, discounts,
fees and costs.
85
Table of Contents
Table 2 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 2 - Total Company Volume/Rate Variance Analysis
Three Months Ended June 30, 2020
Compared to
Three Months Ended June 30, 2019
Total Net Increase / (Decrease) Due to
(in thousands) Change Volume Rate
Interest income:
Federal funds sold and other
interest-earning deposits $ (1,666) $ 15 $ (1,681)
Investment securities, including
FHLB stock (881) 580 (1,461)
TRS Easy Advance loans* 12 (1) 13
Other RPG loans (1,966) 206 (2,172)
Outstanding Warehouse lines of
credit (578) 1,845 (2,423)
All other Traditional Bank loans (3,494) 3,034
(6,528)
Net change in interest income (8,573) 5,679 (14,252)
Interest expense:
Transaction accounts (1,427) 159 (1,586)
Money market accounts (1,776) (69) (1,707)
Time deposits 130 54 76
Reciprocal money market and time
deposits (250) 253 (503)
Brokered deposits 67 366
(299)
Securities sold under agreements to repurchase and other short-term borrowings (313) (55) (258) Federal Reserve Paycheck Protection Program Liquidity Facility 105 105 -
Federal Home Loan Bank advances (3,240) (1,883)
(1,357)
Subordinated note (128) -
(128)
Net change in interest expense (6,832) (1,070)
(5,762)
Net change in net interest income
* Volume for Easy Advances is based on total loans originated during the period
presented. Provision EffectiveJanuary 1, 2020 , the Company adopted ASC 326 Financial Instruments - Credit Losses, which replaces the pre-January 1, 2020 "probable-incurred" method for calculating the Company's ACL with the CECL method. CECL is applicable to financial assets measured at amortized cost, including loan and lease receivables and held-to-maturity debt securities. CECL also applies to certain off-balance sheet credit exposures.
See additional detail regarding the Company's adoption of ASC 326 and the CECL method under Footnote 1 "Basis of Presentation and Summary of Significant Accounting Policies" of Part I Item 1 "Financial Statements."
Total Company Provision was
86
Table of Contents
The following were the most significant components comprising the Company's Provision by reportable segment:
Traditional Banking segment The Traditional Banking Provision during the second quarter of 2020 was$3.1 million , compared to$1.4 million for the second quarter of 2019. An analysis of the Provision for the second quarter of 2020 compared to the same period in
2019 follows:
Related to the Bank's pass-rated and non-rated loans, the Bank recorded net
charges of
of 2020 and 2019. For the second quarter of 2020, the
?
economic impact of the COVID-19 pandemic. Offsetting the increase in Provision
due to the impact of the COVID-19 pandemic was a reduction in Provision of
million driven by a
balances during the second quarter of 2020.
The Bank recorded a net reduction to the Provision of
quarter of 2020 related to loans rated Substandard, Special Mention, and PCD
? compared to a net charge to the Provision of
2019. The charge during the second quarter of 2019 includes a
Provision for one C&I relationship that defaulted during the quarter. As a percentage of total loans, the Traditional Banking ACLL was 1.10% atJune 30, 2020 compared to 0.78% atDecember 31, 2019 and 0.87% atJune 30, 2019 . The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses atJune 30, 2020 .
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.
See additional detail regarding the impact of COVID-19 under:
? Part I Item 1 "Financial Statements"
o Footnote 2 "
o Footnote 4 "Loans and Allowance for Credit Losses"
o Footnote 9 "Off Balance Sheet Risks, Commitments, and Contingent Liabilities"
? Part II Item 1A "Risk Factors"
87
Table of Contents
Warehouse Lending segment
Warehouse recorded a net charge to the Provision of$449,000 for the second quarter of 2020 compared to a net charge of$417,000 for the same period in 2019. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances.Outstanding Warehouse period-end balances increased$179 million during the second quarter of 2020 compared to an increase of$167 million during the second quarter of 2019.
As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was
0.25% at
Tax Refund Solutions segment
The TRS Provision increased from a net charge of$392,000 during the second quarter of 2019 to a net charge of$4.4 million during the second quarter of 2020. The higher net charges to the Provision during the second quarter of 2020 resulted from repayment rates on EA loans from theU.S. Treasury that significantly lagged those during the second quarter of 2019. Management believes the significant decline in repayment rates from theU.S. Treasury during the second quarter of 2020 was directly related to the impact of the current COVID-19 pandemic and the resulting delay in tax-return processing by theIRS for certain types of tax returns that require further taxpayer communication and verification. While EA loss rates for 2020 could still finish more in-line with those from the prior year, management is uncertain if or when this turnaround could occur. As a result, the Company completely charged-off all remaining unpaid EAs as ofJune 30, 2020 , in-line with its customaryJune 30th charge-off policy for EA loans. Any EA payments received afterJune 30, 2020 will be credited as a direct recovery to the Provision in the period it is received.
See additional detail regarding the EA product under Footnote 4 "Loans and Allowance for Credit Losses" of Part I Item 1 "Financial Statements."
Republic
As illustrated in Table 3 below, RCS recorded a credit to the Provision of$1.4 million during the second quarter of 2020 compared to a charge to the Provision of$2.2 million for the same period in 2019. The decrease in the Provision was driven by a reduction in both net charge-offs and outstanding balances for RCS's line-of-credit product, as the Company reduced marketing for RCS's line-of-credit product in response to the COVID-19 pandemic. 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 9.21% atJune 30, 2020 , 12.45% atDecember 31, 2019 and 13.19% atJune 30, 2019 . The Company believes, based on information presently available, that it has adequately provided for RCS loan losses atJune 30, 2020 .
The following table presents net charges (credits) to the RCS Provision by product:
Table 3 - RCS Provision by Product
Three Months Ended Jun. 30,
(in thousands) 2020 2019 $ Change % Change
Product:
Line of credit $ (1,454) $ 2,213 $ (3,667) (166) %
Hospital receivables 11 11 - -
Total $ (1,443) $ 2,224 $ (3,667) (165) %
88
Table of Contents
Table 4 - Summary of Loan and Lease Loss Experience
Three Months Ended
June 30,
(dollars in thousands) 2020 2019
ACLL at beginning of period $ 70,431 $ 57,961
Charge-offs:
Traditional Banking:
Residential real estate - (368)
Commercial real estate (270) -
Commercial & industrial (192) -
Consumer (238) (423)
Total Traditional Banking (700) (791)
Warehouse lines of credit - -
Total Core Banking (700) (791)
Republic Processing Group :
Tax Refund Solutions:
Easy Advances (19,575) (13,425)
Other TRS loans (28) (264)
Republic Credit Solutions (2,008) (2,683)
Total Republic Processing Group (21,611) (16,372)
Total charge-offs (22,311) (17,163)
Recoveries:
Traditional Banking:
Residential real estate 45 229
Commercial real estate 2 2
Commercial & industrial 41 3
Home equity 12 8
Consumer 119 119
Total Traditional Banking 219 361
Warehouse lines of credit - -
Total Core Banking 219 361
Republic Processing Group :
Tax Refund Solutions:
Easy Advances - 5
Other TRS loans 1 (6)
Republic Credit Solutions 199 365
Total Republic Processing Group 200 364
Total recoveries 419 725
Net loan charge-offs (21,892) (16,438)
Provision - Core Banking 3,553 1,844
Provision - RPG 3,005 2,616
Total Provision 6,558 4,460
ACLL at end of period $ 55,097 $ 45,983 Credit Quality Ratios -
ACLL to total loans 1.09 % 1.04 % ACLL to nonperforming loans 270 237 Net loan charge-offs to average loans 1.80 1.49
Credit Quality Ratios - Core Banking:
ACLL to total loans 0.92 % 0.76 %
ACLL to nonperforming loans 230 171
Net loan charge-offs to average loans 0.04 0.04
89
Table of Contents
Noninterest Income
Total Company noninterest income increased $3.6 million , or 24%%, during the
second quarter of 2020 compared to the same period in 2019. The following were
the most significant components comprising the total Company's noninterestincome by reportable segment: Traditional Banking segment Traditional Banking's noninterest income decreased$1.7 million for the second quarter of 2020 compared to the same period in 2019. Service charges on deposit accounts decreased$1.1 million and interchange income decreased$444,000 from the second quarter of 2019 to the same period in 2020. Both decreases largely reflect a change in client savings and spending patterns during the pandemic-driven economic restrictions. In general, during the second quarter of 2020, client spending decreased meaningfully from the second quarter of 2019, while client deposit balances increased, thus producing less overdraft activity and less interchange revenue for the Bank. Client spending patterns did return to more normalized levels inJune 2020 , however, management is uncertain at this time if this pattern will continue given the on-going spread of COVID-19 nationally. The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the three months endedJune 30, 2020 and 2019 were$893,000 and$2.2 million . The total daily overdraft charges, net of refunds, included in interest income for the three months endedJune 30, 2020 and 2019 were$0 and$566,000 , with the Bank suspending its daily overdraft charges during the second quarter of 2020 to cushion the economic blow of the COVID-19 pandemic on its clients. The Bank expects to reinstitute the daily overdraft fee charge in the third quarter of 2020, with this expectation subject to changing pandemic-related circumstances. Mortgage Banking segment
Within the Mortgage Banking segment, mortgage banking income increased$6.0 million , or 248%, during the second quarter of 2020 compared to the same period in 2019. Falling mortgage rates during 2020 drove strong growth in the Company's consumer refinance activity, particularly within the Company's relatively new Consumer Direct channel. Overall, the Company originated$219 million of secondary market mortgage loans during the second quarter of 2020 compared to$82 million for the second quarter of 2019. In addition to the strong mortgage banking origination volume during the second quarter of 2020, the Company's gain recognized as a percent of total originations increased to 3.98% during the second quarter of 2020 from 2.71% during the same period in 2019. The stronger gain percentages resulted from favorable market conditions on pricing during the quarter. If and when consumer refinance volume begins to slow down in the future, management believes market conditions for pricing will become more competitive and return to a range of 2.0%-3.0%, which is more in-line with historical averages for gains-as-a-percentage-of-loans-sold. Tax Refund Solutions segment TRS's noninterest income decreased$86,000 during the second quarter of 2020 compared to the same period in 2019 resulting from a$716,000 , or 20%, decrease in net RT revenue partially offset by a$568,000 increase in prepaid card program fees as a result of the Company'sMay 1, 2020 acquisition of$250 million in prepaid card balances. RTs processed decreased 8% and revenue per RT decreased 1% from 2019 to 2020. As with the lag in payments from theU.S. Treasury related to EAs, management believes the COVID-19 pandemic also negatively impacted 2020 RT volume, particularly within the second quarter
of
2020.
90
Table of Contents
Republic
RCS's noninterest income decreased$499,000 , or 49%, during the second quarter of 2020 compared to the same period in 2019. As illustrated in Table 5 below, RCS program fees decreased$467,000 resulting primarily from a decline in outstanding line-of-credit balances as the Company reduced marketing for its installment loan product and its line-of-credit product in response to the
COVID-19 pandemic.
The following table presents RCS program fees by product:
Table 5 - RCS Program Fees by Product
Three Months Ended Jun. 30,
(in thousands) 2020 2019 $ Change % Change
Product:
Line of credit $ 529 $ 1,121 $ (592) (53) %
Hospital receivables (10) 58 (68) (117)
Installment loans* 1 (192) 193 NM
Total $ 520 $ 987 $ (467) (47) %
* 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$1.4 million , or 3%, during the second quarter of 2020 compared to the same period in 2019. The following were the most significant components comprising the increase in noninterest expense by reportable segment: Traditional Banking segment
Driven by pandemic-related influences primarily on Marketing, Interchange, and Travel & Entertainment expenses, Traditional Banking noninterest expense decreased$1.1 million , or 3%, for the second quarter of 2020 compared to the same period in 2019. Mortgage Banking segment
Noninterest expense at the Mortgage Banking segment increased,
Income Tax Expense
The Total Company effective income tax rate was 19% for the second quarter of 2020 compared to 15% for the same period in 2019. The following drove the lower rate in 2019:
In
company income tax return for
which it had maintained a valuation allowance against the related deferred tax
asset. HB458 also allows for certain net operating losses to be utilized on a
? combined return.
in 2021 and to utilize these previously generated net operating losses. The tax
benefit to reverse the valuation allowance on the deferred tax asset for these
losses was approximately
the second quarter of 2019, with 100% of this benefit attributed to theTraditional Bank .
The Company received
? of 2019 associated with equity compensation. Substantially all of this benefit
was attributed to theTraditional Bank . 91 Table of Contents
OVERVIEW (Six Months Ended
Total Company net income for the first six months of 2020 was$42.5 million , a$5.0 million , or 11%, decrease from the same period in 2019. Diluted EPS decreased to$2.04 for the six months endedJune 30, 2020 compared to$2.28 for the same period in 2019. Net income was down from the first six months of 2019, as it was significantly impacted by the increase in the Company's estimated ACL in response to the potential impact of the COVID-19 pandemic.
The following are general highlights by reportable segment:
Traditional Banking segment
? Net income decreased
compared to the same period in 2019.
? Net interest income decreased
2020 compared to the same period in 2019.
Driven by COVID-19 related concerns in combination with the new allowance
? methodology as required by the adoption of ASC 326, Provision increased
million to
million for the same period in 2019.
? Total noninterest income decreased
months of 2020 compared to the same period in 2019.
? Total noninterest expense increased
compared to same period in 2019.
? Total nonperforming loans to total loans for the Traditional Banking segment
was 0.51% at
? Delinquent loans to total loans for the Traditional Banking segment was 0.20%
at
At
? COVID-19 loan modifications for
loan portfolio. Warehouse Lending segment
? Net income increased
compared to the same period in 2019.
? Net interest income increased
2020 compared to the same period in 2019.
? The Warehouse Provision was a net charge of
of 2020 compared to a net charge of
? Total committed Warehouse lines remained at
toJune 30, 2020 .
? Average line usage was 63% during the first six months of 2020 compared to 48%
during the same period in 2019. Mortgage Banking segment
Within the Mortgage Banking segment, mortgage banking income increased
? million, or 234%, during the first six months of 2020 compared to the same
period in 2019.
Overall, Republic's originations of secondary market loans totaled
during the first six months of 2020 compared to
? period in 2019, with the Company's gain recognized as a percent of total
originations increasing to 3.93% during the first six months of 2020 from 2.83%
during the same period in 2019.
92
Table of Contents
Tax Refund Solutions segment
? Net income decreased
compared to the same period in 2019.
? Net interest income increased
compared to the same period in 2019.
? Total EA originations were
compared to$389 million for the first six months of 2019.
Overall, TRS recorded a net charge to the Provision of
? first six months of 2020 compared to a net charge to the Provision of
million for the same period in 2019.
? Noninterest income decreased
2020 compared to the same period in 2019.
? Net RT revenue decreased
compared to the same period in 2019.
? Noninterest expense was
to$10.0 million for the same period in 2019.
Republic
? Net income increased
compared to the same period in 2019.
? Net interest income decreased
2020 compared to the same period in 2019.
Overall, RCS recorded a net charge to the Provision of
? first six months of 2020 compared to a net charge of
period in 2019.
? Noninterest income increased
2019 to the first six months of 2020.
? Noninterest expense was
to
? Total nonperforming loans to total loans for the RCS segment was 0.36% at June
30, 2020 compared to 0.10% at
? Delinquent loans to total loans for the RCS segment was 5.97% at
compared to 7.25% atDecember 31, 2019 .
RESULTS OF OPERATIONS (Six months Ended
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.
Total Company net interest income decreased 1% during the first six months of 2020 compared to the same period in 2019.Total Company net interest margin decreased to 4.55% during the first six months of 2020 compared to 4.88% for the same period in 2019. 93 Table of Contents
A large amount of the Company's financial instruments track closely with or are primarily indexed to either the FFTR, Prime, or LIBOR. These market rates trended higher fromDecember 2015 throughDecember 2018 but began trending lower again during 2019 as theFOMC reduced the FFTR by 75 basis points during the year. TheFOMC further lowered the FFTR 100 basis points during the first quarter of 2020 following market reactions to the COVID-19 pandemic. Consistent with decreases in market rates in the previous 12 month, theTotal Company's net interest spread and net interest margin compressed 20 basis points and 33 basis points, respectively, from the first six months of 2019 to the same period in 2020. The Company's net interest spread, the difference between the weighted average rate earned on its interest-earning assets less the weighted average cost paid on its interest-bearing liabilities, compressed primarily because the Company's interest-bearing liabilities had less room to reprice downward than its interest-earning assets. The Company's net interest margin compressed 13 basis points more than its net interest spread due to the reduction in benefit the Bank sees from noninterest-bearing funding in a falling rate environment. Management believes the Company's net interest margin, as well as the net interest margin of its various operating segments will likely continue to decline in the near term as its earning asset yields continue to reprice lower.
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 decreased$3.6 million , or 4%, for the first six months of 2020 compared to the same period in 2019. Traditional Banking's net interest margin was 3.52% for the first six months of 2020, a decrease of 29 basis points from the same period in 2019.
The decrease in the
its interest-earning assets less the weighted average cost paid on its
? interest-bearing liabilities, compressed 24 basis points primarily because the
Core Bank's liabilities had less room to reprice downward than its interest-earning asset counterparts.
basis points more than its net interest spread, due to the decreased value from
the
between the Traditional Banking segment's net interest margin and net interest
? spread was 14 basis points during the first six months of 2020 compared to 19
basis points during the first six months of 2019, with the differential of five
basis points representing the decreased value to the net interest margin of
noninterest-bearing deposits and stockholders' equity. The decrease in this
value was driven by a 38 basis-point decline in the yield on the Traditional
Banking segment's interest-earning assets from period to period.
Partially offsetting the decline in net interest income driven by the decrease
in the
interest income increased partially due to a rise in YTD 2020 average loans,
which increased
? of 2020 following the passage of the CARES Act on
portfolio contributed
first six months of 2020 but was partially offset by a
non-PPP portfolios, including the impact of the sale of
divestiture. Warehouse Lending segment
Net interest income increased
Falling mortgage rates during 2020 drove a surge in consumer refinance volume
for Warehouse clients resulting in a 39% increase in average Warehouse loans for
the first six months of 2020 over the same period in 2019. Overall usage rates
on Warehouse lines of credit were 63% for the first six months of 2020 compared
to 48% for the first six months of 2019.
94
Table of Contents
Tax Refund Solutions segment
TRS's net interest income increased $458,000 for the first six months of 2020
compared to the same period in 2019. TRS's EA product earned $19.5 million in
interest income during the first six months of 2020, a $416,000 increase
resulting primarily from modifications to the product's pricing tiers. EA
pricing includes a direct fee to the taxpayer, with the annual percentage rate
to the taxpayer for his or her portion of the total fee being less than 36%for all offering tiers.
See additional detail regarding the EA product under Footnote 4 "Loans and Allowance for Credit Losses" of Part I Item 1 "Financial Statements."
Republic
RCS's net interest income decreased$2.1 million , or 14%, from the first six months of 2019 to the first six months of 2020. The decrease was driven primarily by a decrease in fee income from RCS's line-of-credit product. Loan fees on RCS's line-of-credit product recorded as interest income decreased to$10.7 million during the first six months of 2020 compared to$12.8 million during the same period in 2019 and accounted for 79% and 80% of all RCS interest income on loans during the periods. The decrease in loan fees was the direct result of a decline in outstanding line-of-credit balances, as the Company reduced marketing for the product in response to the COVID-19 pandemic. Future loan fee income from RCS's higher-yielding line-of-credit product will likely continue to be negatively impacted by the on-going COVID-19 pandemic. As ofJune 30, 2020 the current on-balance-sheet Board-approved risk limit was$40 million for the Company. As ofJune 30, 2020 , the total outstanding on-balance-sheet amount, including loans held for sale, related to this product was$20 million . 95 Table of Contents
Table 6 - Total Company Average Balance Sheets and Interest Rates
Six Months Ended June 30, 2020 Six Months Ended June 30, 2019
Average Average Average Average
(dollars in thousands) Balance Interest Rate Balance Interest Rate
ASSETS
Interest-earning assets:
Federal funds sold and other
interest-earning deposits $ 253,548 $ 724 0.57 % $ 293,587 $ 3,477 2.37 %
Investment securities, including
FHLB stock (1) 562,751 5,828 2.07 538,923 7,781 2.89
TRS Easy Advance loans (2) 78,673 19,468 49.49 68,667 19,052 55.49
Other RPG loans (3) (6) 129,281 14,455 22.36 119,632 16,930 28.30
Outstanding Warehouse lines of
credit (4) (6) 724,977 14,339 3.96 521,643 13,314 5.10
All other Traditional Bank loans
(5) (6) 3,747,449 83,436 4.45 3,631,312 87,743 4.83
Total interest-earning assets 5,496,679 138,250 5.03 5,173,764 148,297 5.73
Allowance for credit loss (62,157) (54,588)
Noninterest-earning assets:
Noninterest-earning cash and cash
equivalents 156,068 132,931
Premises and equipment, net 44,680 44,051
Bank owned life insurance 66,866 65,283
Other assets (1) 158,547 117,168
Total assets $ 5,860,683 $ 5,478,609
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
Transaction accounts $ 1,196,681 $ 841 0.14 % $ 1,129,824 $ 3,104 0.55 %
Money market accounts 744,745 1,490 0.40 750,434 3,803 1.01
Time deposits 421,257 4,345 2.06 399,252 3,889 1.95
Reciprocal money market and time
deposits 248,887 1,053 0.85 194,971 1,274 1.31
Brokered deposits 256,590 2,220 1.73 134,707 1,581 2.35
Total interest-bearing deposits 2,868,160 9,949 0.69
2,609,188 13,651 1.05
Securities sold under agreements to repurchase and other short-term borrowings 192,755 136 0.14 225,864 751 0.67 Federal Reserve Paycheck Protection Program Liquidity Facility 61,384 105 0.34 - - -
Federal Home Loan Bank advances 317,307 2,470 1.56 611,695 6,792 2.22 Subordinated note 41,240 647 3.14
41,240 858 4.16
Total interest-bearing liabilities 3,480,846 13,307 0.76
3,487,987 22,052 1.26
Noninterest-bearing liabilities and Stockholders' equity: Noninterest-bearing deposits 1,473,314 1,178,198 Other liabilities 118,459 94,586 Stockholders' equity 788,064 717,838 Total liabilities and stock-holders' equity$ 5,860,683 $ 5,478,609 Net interest income$ 124,943 $ 126,245 Net interest spread 4.27 % 4.47 % Net interest margin 4.55 % 4.88 %
(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 Easy Advances is composed entirely of loan fees.
(3) Interest income includes loan fees of
six months ended
(4) Interest income includes loan fees of
six months ended
(5) Interest income includes loan fees of
six months ended
Average balances for loans include the principal balance of nonaccrual loans (6) and loans held for sale, and are inclusive of all loan premiums, discounts,
fees and costs.
96
Table of Contents
Table 7 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 7 - Total Company Volume/Rate Variance Analysis
Six Months Ended June 30, 2020
Compared to
Six Months Ended June 30, 2019
Total Net Increase / (Decrease) Due to
(in thousands) Change Volume Rate
Interest income:
Federal funds sold and other
interest-earning deposits $ (2,753) $ (419) $ (2,334)
Investment securities, including
FHLB stock (1,953) 331 (2,284)
TRS Easy Advance loans* 416 (1,927) 2,343
Other RPG loans (2,475) 1,286 (3,761)
Outstanding Warehouse lines of
credit 1,025 4,449 (3,424)
All other Traditional Bank loans (4,307) 2,742
(7,049)
Net change in interest income (10,047) 6,462 (16,509)
Interest expense:
Transaction accounts (2,263) 174 (2,437)
Money market accounts (2,313) (29) (2,284)
Time deposits 456 220 236
Reciprocal money market and time
deposits (221) 298 (519)
Brokered deposits 639 1,139
(500)
Securities sold under agreements to repurchase and other short-term borrowings (615) (96)
(519)
Federal Reserve Paycheck Protection Program Liquidity Facility 105 105 - Federal Home Loan Bank advances (4,322) (2,666)
(1,656)
Subordinated note (211) -
(211)
Net change in interest expense (8,745) (855)
(7,890)
Net change in net interest income
(8,619)
* Volume for Easy Advances is based on total loans originated during the period
presented.
97
Table of Contents
Provision
Effective January 1, 2020 , the Company adopted ASC 326 Financial Instruments -
Credit Losses, which replaces the pre-January 1, 2020 "probable-incurred" method
for calculating the Company's ACL with the CECL method. CECL is applicable to
financial assets measured at amortized cost, including loan and lease
receivables and held-to-maturity debt securities. CECL also applies to certain
off-balance sheet credit exposures.
See additional detail regarding the Company's adoption of ASC 326 and the CECL method under Footnote 1 "Basis of Presentation and Summary of Significant Accounting Policies" of Part I Item 1 "Financial Statements."
Total Company Provision was
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 six months of 2020 was$8.7 million , compared to$1.6 million for the first six months of 2019. An analysis of the Provision for the first six months of 2020 compared to the same period in 2019 follows:
Related to the Bank's pass-rated and non-rated loans, the Bank recorded net
charges of
months of 2020 and 2019. For the first six months of 2020, the
recorded
? impact of the COVID-19 pandemic, with the pandemic expected to increase the
unemployment levels above 8%. Offsetting the increase in the Provision due to
the impact of the COVID-19 pandemic was a reduction in the Provision of
million driven by a
balances fromDecember 31, 2019 toJune 30, 2020 .
The Bank recorded a net reduction to the Provision of
six months of 2020 compared to a net charge to the Provision of
the same period in 2019 related to loans rated Substandard, Special Mention, or
? PCD. The net reduction during the first six months of 2020 was driven by a
been partially charged-off in a prior period. The charge during the first six
months of 2019 includes a
defaulted during the period.
Related to the Bank's corporate bonds held within its investment securities
portfolio, the Bank recorded
? of 2020, driven by higher PD and LGD assumptions stemming from COVID-19
economic concerns. The Company began provisioning for credit loss for its
investment securities in 2020 as part of its adoption of ASC 326; therefore, no
similar Provision was recognized during the first six months of 2019. As a percentage of total loans, the Traditional Banking ACLL was 1.10% atJune 30, 2020 compared to 0.78% atDecember 31, 2019 and 0.87% atJune 30, 2019 . The Company believes, based on information presently available, that it has adequately provided for Traditional Banking loan losses atJune 30, 2020 .
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.
See additional detail regarding the impact of COVID-19 under:
? Part I Item 1 "Financial Statements"
o Footnote 2 "
o Footnote 4 "Loans and Allowance for Credit Losses"
o Footnote 9 "Off Balance Sheet Risks, Commitments, and Contingent Liabilities"
? Part II Item 1A "Risk Factors"
98
Table of Contents
Warehouse Lending segment
Warehouse recorded a net charge to the Provision of$781,000 for the first six months of 2020 compared to a net charge of$642,000 for the same period in 2019. Provision for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances.Outstanding Warehouse period-end balances increased$312 million during the first six months of 2020 compared to an increase of$257 million during the first six months of 2019.
As a percentage of total Warehouse outstanding balances, the Warehouse ACLL was
0.25% at
Tax Refund Solutions segment TRS recorded a net charge to the Provision of$19.6 million during the first six months of 2020 compared to a net charge of$13.8 million for the same period in 2019. Substantially all TRS Provision in both periods was related to its EA product. TRS's Provision for EA loan losses was$19.5 million , or 5.04% of its$388 million in EAs originated during the first six months of 2020, compared to a Provision of$13.4 million , or 3.45% of its$389 million of EAs originated during the first six months of 2019. The higher net charges to the Provision during the first six months of 2020 resulted from EA repayment rates from theU.S. Treasury that significantly lagged those during the same period in 2019. Management believes the significant decline in repayment rates from theU.S. Treasury during 2020, particularly during the second quarter, was directly related to the impact of the current COVID-19 pandemic and the resulting delay in tax return processing by theIRS for certain types of tax returns that require further taxpayer communication and verification. While EA loss rates for 2020 could still finish more in-line with those from the prior year, management is uncertain if or when this turnaround could occur. As a result, the Company completely charged-off all remaining unpaid EAs as ofJune 30, 2020 , in-line with its customaryJune 30th charge-off policy for EA loans. Any EA payments received afterJune 30, 2020 will be credited as a direct recovery to the Provision in the period it is received.
See additional detail regarding the EA product under Footnote 4 "Loans and Allowance for Credit Losses" of Part I Item 1 "Financial Statements."
Republic
As illustrated in Table 8 below, RCS recorded a charge to the Provision of
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 9.21% atJune 30, 2020 , 12.45% atDecember 31, 2019 and 13.19% atJune 30, 2019 . The Company believes, based on information presently available, that it has adequately provided for RCS loan losses atJune 30, 2020 .
The following table presents net charges to the RCS Provision by product:
Table 8 - RCS Provision by Product
Six Months Ended Jun. 30,
(in thousands) 2020 2019 $ Change % Change
Product:
Line of credit $ 253 $ 5,573 $ (5,320) (95) %
Hospital receivables 10 34 (24) (71)
Total $ 263 $ 5,607 $ (5,344) (95) %
99
Table of Contents
Table 9 - Summary of Loan and Lease Loss Experience
Six Months Ended
June 30,
(dollars in thousands) 2020 2019
ACLL at beginning of period $ 43,351 $ 44,675
Adoption of ASC 326 6,734 -
Charge-offs:
Traditional Banking:
Residential real estate (27) (457)
Commercial real estate (270) -
Commercial & industrial (192) -
Home equity - (13)
Consumer (733) (933)
Total Traditional Banking (1,222) (1,403)
Warehouse lines of credit - -
Total Core Banking (1,222) (1,403)
Republic Processing Group :
Tax Refund Solutions:
Easy Advances (19,575) (13,425)
Commercial & industrial (72) (281)
Republic Credit Solutions (4,717) (6,507)
Total Republic Processing Group (24,364) (20,213)
Total charge-offs (25,586) (21,616)
Recoveries:
Traditional Banking:
Residential real estate 86 267
Commercial real estate 473 4
Commercial & industrial 44 5
Home equity 87 38
Consumer 323 295
Total Traditional Banking 1,013 609
Warehouse lines of credit - -
Total Core Banking 1,013 609
Republic Processing Group :
Tax Refund Solutions:
Easy Advances 42 5
Commercial & industrial 1 -
Republic Credit Solutions 470 619
Total Republic Processing Group 513 624
Total recoveries 1,526 1,233
Net loan charge-offs (24,060) (20,383)
Provision - Core Banking 9,228 2,258
Provision - RPG 19,844 19,433
Total Provision 29,072 21,691
ACLL at end of period $ 55,097 $ 45,983 Credit Quality Ratios -
ACLL to total loans 1.09 % 1.04 % ACLL to nonperforming loans 270 237
Net loan charge-offs to average loans 1.03 0.94
Credit Quality Ratios - Core Banking:
ACLL to total loans 0.92 % 0.76 % ACLL to nonperforming loans 230 171
Net loan charge-offs to average loans 0.01 0.04
100
Table of Contents
Noninterest Income
Traditional Banking segment
Traditional Banking's noninterest income decreased$1.4 million , or 9%, for the first six months of 2020 compared to the same period in 2019. Service charges on deposit accounts decreased$1.3 million and interchange income decreased$577,000 from the first six months of 2019 to the same period in 2020. Both decreases largely reflect a change in client savings and spending patterns during the pandemic-driven economic restrictions. In general, during the second quarter of 2020, client spending decreased meaningfully from the second quarter of 2019, while client deposit balances increased, thus producing less overdraft activity and less interchange revenue for the Bank. Client spending patterns did return to more normalized levels inJune 2020 , however, management is uncertain at this time if this pattern will continue given the on-going spread of COVID-19 nationally. The Bank earns a substantial majority of its fee income related to its overdraft service program from the per item fee it assesses its customers for each insufficient funds check or electronic debit presented for payment. The total per item fees, net of refunds, included in service charges on deposits for the six months endedJune 30, 2020 and 2019 were$2.7 million and$4.2 million . The total daily overdraft charges, net of refunds, included in interest income for the six months endedJune 30, 2020 and 2019 were$417,000 and$1.1 million , with the Bank suspending its daily overdraft charges during the second quarter of 2020 to cushion the economic blow of the COVID-19 pandemic on its clients. The Bank expects to reinstitute the daily overdraft fee charge in the third quarter of 2020, with this expectation subject to changing pandemic-related circumstances. The Bank recognized a$353,000 net gain on sale of one of its former banking centers during the first six months of 2020. The now-sold property is located inTampa, Florida . Mortgage Banking segment
Within the Mortgage Banking segment, mortgage banking income increased$9.2 million , or 234%, during the first six months of 2020 compared to the same period in 2019. Falling mortgage rates during 2020 drove strong growth in the Company's consumer refinance activity, particularly within the Company's relatively new Consumer Direct channel. Overall, the Company originated$344 million of secondary market mortgage loans during the first six months of 2020 compared to$123 million for the first six months of 2019. In addition to the strong mortgage banking origination volume during the first six months of 2020, the Company's gain recognized as a percent of total originations increased to 3.93% during the first six months of 2020 from 2.83% during the same period in 2019. The stronger gain percentages resulted from favorable market conditions on pricing during the first six months of 2020. If and when consumer refinance volume begins to slow down in the future, management believes market conditions for pricing will become more competitive and return to a range of 2.0%-3.0%, which is more in-line with historical averages for gains-as-a-percentage-of-loans-sold. Tax Refund Solutions segment
TRS's noninterest income decreased$1.3 million during the first six months of 2020 compared to the same period in 2019 resulting from a$2.0 million , or 10%, decrease in net RT revenue. RTs processed decreased 8% and revenue per RT decreased 1% from 2019 to 2020. 101 Table of Contents
Republic
RCS's noninterest income increased$258,000 , or 10%, during the first six months of 2020 compared to the same period in 2019. As illustrated in Table 10 below, RCS program fees increased$917,000 resulting primarily from$1.4 million in fees from RCS's new installment loan product launched inDecember 2019 partially offset by a$599,000 reduction in fees for RCS's line-of-credit product. The Company reduced marketing for RCS's installment loan product during 2020 in response to the COVID-19 pandemic.
The following table presents RCS program fees by product:
Table 10 - RCS Program Fees by Product
Six Months Ended Jun. 30,
(in thousands) 2020 2019 $ Change % Change
Product:
Line of credit $ 1,448 $ 2,047 $ (599) (29) %
Hospital receivables 8 93 (85) (91)
Installment loans* 1,376 (225) 1,601 NM
Total $ 2,832 $ 1,915 $ 917 48 %
* 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$2.9 million , or 3%, during the first six months of 2020 compared to the same period in 2019. The following were the most significant components comprising the increase in noninterest expense by reportable segment: Traditional Banking segment
Traditional Banking noninterest expense increased
? Salaries and employee benefits expense increased
primarily by annual merit increases.
? Data Processing expense increased
increased investment in Software-as-a-Service applications since
Offsetting the above were decreases in Marketing and Development, Interchange,
? and Travel and Entertainment expenses, with each of these expenses driven
downward as a direct result of pandemic-related influences.
?
its small-bank credits against its first quarter 2020 insurance premium. Mortgage Banking segment Noninterest expense at the Mortgage Banking segment increased$2.0 million , or 75%, during the first six months of 2020 compared to the same period in 2019 primarily due to higher mortgage commissions recorded during 2020. 102 Table of Contents Income Tax ExpenseThe Total Company effective income tax rate was 20% for the first six months of 2020 compared to 18% for the same period in 2019. The following drove the lower rate in 2019:
As a financial institution doing business in
capital-based
income tax. In
? transition the Bank from the bank franchise tax to a corporate income tax
beginning
5%. As of
federal benefit, of
of this benefit attributed to theTraditional Bank .
In
separate company income tax return for
losses, for which it had maintained a valuation allowance against the related
deferred tax asset. HB458 also allows for certain net operating losses to be
? utilized on a combined return.
return beginning in 2021 and to utilize these previously generated net
operating losses. The tax benefit to reverse the valuation allowance on the
deferred tax asset for these losses was approximately
This benefit was recorded in the second quarter of 2019, with 100% of this
benefit attributed to theTraditional Bank .
The Company received
? of 2019 associated with equity compensation. Substantially all of this benefit
was attributed to theTraditional Bank . 103 Table of Contents
COMPARISON OF FINANCIAL CONDITION AT
Table 11 - Loan Portfolio Composition
(in thousands) June 30, 2020 December 31, 2019 $ Change % Change Traditional Banking: Residential real estate: Owner occupied$ 885,325 $ 949,568$ (64,243) (7) % Nonowner occupied 254,700 258,803 (4,103) (2) Commercial real estate 1,322,290 1,303,000 19,290 1 Construction & land development 157,254 159,702 (2,448) (2) Commercial & industrial* 904,727 477,236 427,491 90 Lease financing receivables 11,864 14,040 (2,176) (15) Home equity 265,266 293,186 (27,920) (10) Consumer: Credit cards 14,265 17,836 (3,571) (20) Overdrafts 488 1,522 (1,034) (68) Automobile loans 41,059 52,923 (11,864) (22) Other consumer 78,585 68,115 10,470 15 Total Traditional Banking 3,935,823 3,595,931 339,892 9 Warehouse lines of credit** 1,029,779 717,458 312,321 44 Total Core Banking 4,965,602
4,313,389 652,213 15
Republic Processing Group**: Tax Refund Solutions: Easy Advances - - - NM Other TRS loans 289 14,365 (14,076) (98) Republic Credit Solutions 99,201 105,397 (6,196) (6)Total Republic Processing Group 99,490
119,762 (20,272) (17)
Total loans*** 5,065,092 4,433,151 631,941 14 Allowance for credit losses (55,097) (43,351) (11,746) 27 Total loans, net$ 5,009,995 $ 4,389,800$ 620,195 14 %
*Includes
**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 increased by
Traditional Banking segment
Period-end balances for Traditional Banking loans increased
Within the C&I category, the origination of
the second quarter of 2020 was partially offset by the payoff of approximately
?
within C&I payoffs was
began strategically winding down this business line during 2019.
The owner-occupied residential real estate and home equity categories decreased
? long-term market interest rates during the first six months of 2020 that drove
an increase in refinance volume for residential mortgages, with much of the
refinance activity going into fixed rate products sold on the secondary market.
104
Table of Contents
Regarding the Company's PPP loans, these loans have a stated maturity of two
years, an annualized fixed coupon rate of 1.0% to the client, are 100%
guaranteed by the SBA, and 100% forgivable to the client if certain program
metrics are met. The Bank earns an origination fee of 1%, 3%, or 5% based on the
size of the loan.
Republic carried $15 million in unaccreted PPP loan fees as of June 30, 2020 ,
which it expects to accrete into income over the life of the loan. While no
guarantee can be made as to the overall life of these loans, management believes
the loans are likely to remain on the Company's balance sheet less than one
year, as it expects the substantial majority of its clients to request
forgiveness for their loans at the earliest possible time, presuming these
clients achieve the required program metrics.
Warehouse Lending segment
Outstanding Warehouse period end balances increased $312 million from December
31, 2019 to June 30, 2020 . A sharp decline in long-term fixed mortgage rates
during the first six months of 2020 drove the increase in Warehouse balances.
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 fourth quarter of 2013 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 59%during 2019. Tax Refund Solutions segment
Outstanding TRS loans decreased$14 million fromDecember 31, 2019 toJune 30, 2020 primarily reflecting a$14 million reduction in other TRS loans. Other TRS loans atDecember 31, 2019 were primarily commercial loans to Tax Providers. These loans are typically made in the fourth quarter of each year and fully repaid by the end of the first quarter of the following year.
Republic
Outstanding RCS loans decreased$6 million fromDecember 31, 2019 toJune 30, 2020 primarily reflecting a$10 million decrease in outstanding balances for RCS's line-of-credit product partially offset by a$4 million increase in hospital receivables. As previously mentioned, the decrease in balances for RCS's line-of-credit product was the direct result of a reduction in marketing for the product in response to the COVID-19 pandemic.
See additional detail regarding the impact of COVID-19 under:
? Part I Item 1 "Financial Statements"
o Footnote 2 "
o Footnote 4 "Loans and Allowance for Credit Losses"
o Footnote 9 "Off Balance Sheet Risks, Commitments, and Contingent Liabilities"
? Part II Item 1A "Risk Factors"
Allowance for Credit Losses AtJune 30, 2020 , 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. EffectiveJanuary 1, 2020 , the Company adopted ASC 326 Financial Instruments - Credit Losses, which replaces the pre-January 1, 2020 "probable-incurred" method for calculating the Company's ACL with the CECL method. CECL is applicable to financial assets measured at amortized cost, including loan and lease receivables and held-to-maturity debt securities. CECL also applies to certain off-balance sheet credit exposures. 105 Table of Contents When measuring an ACL, CECL primarily differs from the probable-incurred method by: a) incorporating a lower "expected" threshold for loss recognition versus a higher "probable" threshold; b) requiring life-of-loan considerations; and c) requiring reasonable and supportable forecasts. The Company's CECL method is a "static-pool" method that analyzes historical closed pools of loans over their expected lives to attain a loss rate, which is then adjusted for current conditions and reasonable and supportable forecasts prior to being applied to the current balance of the analyzed pools. Due to its reasonably strong correlation to the Company's historical net loan losses, the Company has chosen to use theU.S. national unemployment rate as its primary forecasting tool. In accordance with the adoption of ASC 326 and CECL, the Company recorded onJanuary 1, 2020 a$6.7 million , or 16%, increase in the ACLL for its loans, a$51,000 ACLS for its investment debt securities, and a$456,000 ACLC for its off-balance sheet credit exposures. Of the$6.7 million increase in ACLL, approximately$1.4 million was a gross-up reclassification of non-accretable discount on previously-PCI, now-PCD loans, and the remaining$5.3 million was a difference in ACL between CECL and the probable-incurred method. The Company also made a cumulative effect entry of$4.3 million to reduce its opening balance of retained earnings upon adoption of ASC 326, with no impact on 2020 earnings for these adoption entries. The adoption date increase in ACLL for the Company's loans primarily reflects additional ACLL for longer duration loan portfolios, such as the Company's residential real estate and consumer loan portfolios. No additional segmentation of the Bank's loan portfolios was deemed necessary upon adoption.
See additional detail regarding the Company's adoption of ASC 326 and the CECL method under Footnote 1 "Basis of Presentation and Summary of Significant Accounting Policies" of Part I Item 1 "Financial Statements."
The Company's ACLL increased$12 million from$43 million atDecember 31, 2019 to$55 million atJune 30, 2020 . As a percent of total loans, the total Company's ACLL increased to 1.09% atJune 30, 2020 compared to 0.98% atDecember 31, 2019 . An analysis of the ACL by reportable segment follows: Traditional Banking segment The Traditional Banking ACLL increased$15 million to$43 million atJune 30, 2020 , driven partially by the Company'sJanuary 1, 2020 CECL adoption entry of approximately$7 million and partially by approximately$11 million of reserves for the expected impact of the COVID-19 pandemic. The pandemic is projected to increase theTraditional Bank's losses in the near-term to loss levels consistent with unemployment levels above 8%. Offsetting the increase in the ACLL due to the pandemic was a reduction in the ACLL of approximately$2 million driven by a$170 million decrease in non-PPP Traditional Bank spot balances fromJanuary 1, 2020 toJune 30, 2020 . The Traditional Bank ACLL to totalTraditional Bank loans increased 32 basis points to 1.10% when comparingJune 30, 2020 toDecember 31, 2019 . Following the Company's$51,000 ASC 326 adoption entry onJanuary 1, 2020 establishing an ACLS for its debt securities, the Company increased its ACLS$222,000 during the first six months of 2020 to$273,000 based on higher PD and LGD expectations on its corporate bond portfolios. These higher PD and LGD expectations generally reflect economic concerns from the COVID-19 pandemic. Following the Company's ASC 326 adoption entry onJanuary 1, 2020 for an ACLC on its off-balance sheet credit exposures of$456,000 , the Company increased its ACLC$180,000 during the first six months of 2020 to$636,000 atJune 30, 2020 . The higher ACLC atJune 30, 2020 reflects higher assumed loss rates on these exposures as they convert to outstanding balances over their expected lives. The ACLC is recorded on the liability side of the balance sheet, with any provision for loss recorded within other noninterest expense. 106 Table of Contents Warehouse Lending segment The Warehouse ACLL increased to approximately$2.6 million , and the Warehouse ACLL to total Warehouse loans remained at 0.25% when comparingJune 30, 2020 toDecember 31, 2019 . As ofJune 30, 2020 , the Warehouse ACLL was entirely qualitative in nature with no adjustments to the qualitative reserve percentage required for the first six months of 2020. Warehouse lines are generally short-term, sound quality facilities secured by marketable collateral; therefore, the Company made no adjustment to the Warehouse ACLL upon adoption of CECL. Additionally, the Company made no ACLL adjustment for Warehouse lines for COVID-19 concerns atJune 30, 2020 , as its Warehouse clients are experiencing relatively high demand for refinance transactions as borrowers take advantage of the low interest rate environment.
Republic
The RCS ACLL decreased$4 million to$9 million atJune 30, 2020 from$13 million atDecember 31, 2019 . The decrease in ACLL was driven by a$10 million decrease in outstanding balances for RCS's line-of-credit product partially offset by a higher estimated loss rate on this product to account for COVID-19 economic concerns. As previously mentioned, the decrease in balances for RCS's line-of-credit product was the direct result of a reduction in marketing for the product in response to the COVID-19 pandemic. RCS maintained an ACLL for two distinct credit products offered atJune 30, 2020 , including its line-of-credit product and its healthcare-receivables product. AtJune 30, 2020 , the ACLL to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables product to as high as 49% for its line-of-credit product. 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.
See additional detail regarding the impact of COVID-19 under:
? Part I Item 1 "Financial Statements"
o Footnote 2 "
o Footnote 4 "Loans and Allowance for Credit Losses"
o Footnote 9 "Off Balance Sheet Risks, Commitments, and Contingent Liabilities"
? Part II Item 1A "Risk Factors"
107
Table of Contents
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 PCI/PCD-Substandard are considered "Classified." Loans rated "Special Mention" or PCI/PCD-Special Mention are considered Special Mention. The Bank's Classified and Special Mention loans decreased$3 million during the first six months of 2020 resulting primarily from the transfer of one$2 million CRE classified
loan to OREO.
See Footnote 4 "Loans and Allowance for Credit Losses" of Part I Item 1 "Financial Statements" for additional discussion regarding Classified and Special Mention loans.
Table 12 - Classified and Special Mention Loans
(in thousands) June 30, 2020 December 31, 2019 $ Change % Change Loss $ - $ - $ - - % Doubtful - - - - Substandard 30,804 33,297 (2,493) (7) PCI/PCD* - Substandard 1,998 1,289 709 55 Total Classified Loans 32,802 34,586 (1,784) (5) Special Mention 20,803 21,754 (951) (4) PCI/PCD* - Special Mention 956 797 159 20 Total Special Mention Loans 21,759 22,551 (792) (4) Total Classified and Special Mention Loans$ 54,561 $ 57,137$ (2,576) (5) %
The Bank's PCI loans at
Policies" of Part I Item 1 "Financial Statements" for additional discussion
regarding the Company's adoption of ASC 326. 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
Nonperforming loans to total loans decreased to 0.40% atJune 30, 2020 from 0.53% atDecember 31, 2019 , as the total balance of nonperforming loans decreased by$3 million , or 13%, while total loans increased$632 million , or 14%, during the first six months of 2020. The ultimate impact to the Company's nonperforming loans related to the COVID-19 pandemic is currently unknown due to COVID-19-related loan accommodations the Bank made to businesses and consumers, including deferrals and forbearances. During the second quarter of 2020, the Bank entered into accommodations for loans totaling$793 million . These accommodations generally lasted for a term of three months. Management expects a significant amount of these borrower accommodations to expire during the third quarter of 2020, at which time management expects the majority of these clients to continue repayment of their loans. When evaluating further borrower accommodations for borrowers needing additional relief, the Bank considers prudent accommodation options based on the borrower's credit risk; applicable federal and state laws and regulations, including COVID-related accommodations provided by the CARES Act and states and localities; and the Bank's ability to ease cash flow pressures on the affected borrowers while improving the Bank's likelihood of collection on its loans. If enough borrowers were unable to meet their loan payment obligations at the end of their accommodation periods and were also unable to further extend their accommodation arrangements with the Bank, the Bank's nonperforming loans would substantially increase and negatively impact the Company's overall operating performance.
108
Table of Contents
Table 13 - Nonperforming Loans and Nonperforming Assets Summary
(in thousands) June 30, 2020 December 31, 2019 Loans on nonaccrual status* $ 19,884 $ 23,332 Loans past due 90-days-or-more and still on accrual** 535 157 Total nonperforming loans 20,419 23,489 Other real estate owned 2,194 113 Total nonperforming assets $ 22,613 $ 23,602 Credit Quality Ratios -Total Company : Nonperforming loans to total loans 0.40 % 0.53 % Nonperforming assets to total loans (including OREO) 0.45
0.53
Nonperforming assets to total assets 0.35
0.42
Credit Quality Ratios -Core Bank : Nonperforming loans to total loans 0.40 % 0.54 % Nonperforming assets to total loans (including OREO) 0.44
0.54
Nonperforming assets to total assets 0.36
0.43
Loans on nonaccrual status include collateral-dependent loans. See Footnote 4 * "Loans and Allowance for Credit Losses" of Part I Item 1 "Financial Statements"
for additional discussion regarding collateral-dependent loans.
** Loans past due 90-days-or-more and still accruing consist of smaller balance
consumer loans.
Table 14 - Nonperforming Loan Composition
June 30, 2020 December 31, 2019
Percent of Percent of
Total Total
(in thousands) Balance Loan Class Balance Loan Class
Traditional Banking:
Residential real estate:
Owner occupied $ 14,106 1.59 % $ 12,220 1.29 %
Nonowner occupied 952 0.37 623 0.24
Commercial real estate 881 0.07 6,865 0.53Construction & land development - - 143
0.09 Commercial & industrial 1,563 0.17 1,424 0.30 Lease financing receivables - - - - Home equity 2,209 0.83 1,865 0.64 Consumer: Credit cards - - - - Overdrafts - - - - Automobile loans 152 0.37 179 0.34 Other consumer 21 0.03 13 0.02 Total Traditional Banking 19,884 0.51 23,332 0.65 Warehouse lines of credit - - - - Total Core Banking 19,884 0.40 23,332 0.54Republic Processing Group : Tax Refund Solutions: Easy Advances - - - - Other TRS loans 182 62.98 53 0.37 Republic Credit Solutions 353 0.36 104 0.10
Total Republic Processing Group 535 0.54 157
0.13 Total nonperforming loans$ 20,419 0.40 %$ 23,489 0.53 % 109 Table of Contents
Table 15 - Stratification of Nonperforming Loans
Number of Nonperforming
Loans and
Balance
June 30, 2020 Balance >$100 & Balance Total
(dollars in thousands) No. <= $100 No. <= $500 No. >$500 No. Balance
Traditional Banking:
Residential real estate:
Owner occupied 150 $ 5,482 25 $ 4,717 4 $ 3,907 179 $ 14,106
Nonowner occupied 2 78 1 334 1 540 4 952
Commercial real estate 2 44 3 837 - - 5 881Construction & land development - - - - - - - - Commercial & industrial - - 3 809 1 754 4 1,563 Lease financing receivables - - - -
- - - -
Home equity 29 906 6 1,303 - - 35 2,209
Consumer:
Credit cards - - - - - - - -
Overdrafts - - - - - - - -
Automobile loans 13 152 - - - - 13 152
Other consumer 8 21 - - - - 8 21Total Traditional Banking 204 6,683 38 8,000 6 5,201 248 19,884 Warehouse lines of credit - - - - - - - - Total Core Banking 204 6,683 38 8,000
6 5,201 248 19,884
Republic Processing Group : Tax Refund Solutions: Easy Advances - - - - - - - - Other TRS loans NM 182 - - - - NM 182
Republic Credit Solutions NM 353 - - - - NM 353Total Republic Processing Group NM 535 - -
- - NM 535
Total 204 $ 7,218 38 $ 8,000 6 $ 5,201 248 $ 20,419
Number of Nonperforming
Loans and
Balance
December 31, 2019 Balance >$100 & Balance Total
(dollars in thousands) No. <= $100 No. <= $500 No. >$500 No. Balance
Traditional Banking:
Residential real estate:
Owner occupied 137 $ 5,005 24 $ 4,525 3 $ 2,690 164 $ 12,220
Nonowner occupied 3 84 - - 1 539 4 623
Commercial real estate 2 45 2 609 4 6,211 8 6,865Construction & land development - - 1 143 - - 1 143 Commercial & industrial - - 2 397 1 1,027 3 1,424 Lease financing receivables - - - -
- - - -
Home equity 23 795 5 1,070 - - 28 1,865
Consumer:
Credit cards - - - - - - - -
Overdrafts - - - - - - - -
Automobile loans 13 179 - - - - 13 179
Other consumer 7 13 - - - - 7 13Total Traditional Banking 185 6,121 34 6,744 9 10,467 228 23,332 Warehouse lines of credit - - - - - - - - Total Core Banking 185 6,121 34 6,744
9 10,467 228 23,332
Republic Processing Group : Tax Refund Solutions: Easy Advances - - - - - - - - Other TRS loans NM 53 - - - - NM 53
Republic Credit Solutions NM 104 - - - - NM 104Total Republic Processing Group NM 157 - -
- - NM 157
Total 185 $ 6,278 34 $ 6,744 9 $ 10,467 228 $ 23,489
110
Table of Contents
Table 16 - Rollforward of Nonperforming Loans
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2020 2019 2020 2019
Nonperforming loans at the beginning of
the period $ 20,853 $ 15,560 $ 23,489 $ 16,138
Loans added to nonperforming status
during the period that remained
nonperforming at the end of the period 3,069 6,575 4,658 7,680
Loans removed from nonperforming status
during the period that were
nonperforming at the beginning of the
period (see table below) (2,981) (2,119) (7,898) (3,478)
Principal balance paydowns of loans
nonperforming at both period ends (561) (578) (208) (956)
Net change in principal balance of
other loans nonperforming at both
period ends* 39 (34) 378 20
Nonperforming loans at the end of the period$ 20,419 $ 19,404 $
20,419
* Includes relatively small consumer portfolios, e.g., RCS loans.
Table 17 - Detail of Loans Removed from Nonperforming Status
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2020 2019 2020 2019
Loans charged off $ (273) $ (285) $ (2) $ (298)
Loans transferred to OREO (2,109) (980) (2,109) (1,036)
Loans refinanced at other institutions (490) (830) (2,445) (2,060)
Loans returned to accrual status (109) (24) (3,342) (84)
Total loans removed from nonperforming status during the period that were nonperforming at the beginning of the period$ (2,981) $ (2,119) $ (7,898) $ (3,478)
Based on the Bank's review at
Delinquent LoansTotal Company delinquent loans to total loans decreased to 0.28% atJune 30, 2020 , from 0.47% atDecember 31, 2019 , primarily due to a$7 million , or 32%, decrease in delinquent loans and a$632 million , or 14%, increase in total loans during the first six months of 2020. The ultimate impact to the Company's delinquent loans related to the COVID-19 pandemic is currently unknown due to COVID-19-related loan accommodations the Bank made to businesses and consumers, including deferrals and forbearances. During the second quarter of 2020, the Bank entered into accommodations for loans totaling$793 million . These accommodations generally lasted for a term of three months. Management expects a significant amount of these borrower accommodations to expire during the third quarter of 2020, at which time management expects the majority of these clients to continue repayment of their loans. When evaluating further borrower accommodations for borrowers needing additional relief, the Bank considers prudent accommodation options based on the borrower's credit risk; applicable federal and state laws and regulations, including COVID-related accommodations provided by the CARES Act and states and localities; and the Bank's ability to ease cash flow pressures on the affected borrowers while improving the Bank's likelihood of collection on its loans. If enough borrowers were unable to meet their loan payment obligations at the end of their accommodation periods and were also unable to further extend their accommodation arrangements with the Bank, the Bank's delinquent loans would substantially increase and negatively impact the Company's overall operating performance.Core Bank delinquent loans to totalCore Bank loans decreased to 0.16% atJune 30, 2020 from 0.30% atDecember 31, 2019 . With the exception of small-dollar consumer loans, allTraditional Bank loans past due 90-days-or-more as ofJune 30, 2020 andDecember 31, 2019 were on nonaccrual status. 111 Table of Contents
Table 18 - Delinquent Loan Composition*
June 30, 2020 December 31, 2019
Percent of Percent of
Total Total
(in thousands) Balance Loan Class Balance Loan Class
Traditional Banking:
Residential real estate:
Owner occupied $ 4,214 0.48 % $ 4,434 0.47 %
Nonowner occupied 539 0.21 539 0.21
Commercial real estate 543 0.04 3,300 0.25Construction & land development - - -
-
Commercial & industrial 1,362 0.15 1,355 0.28
Lease financing receivables - - - -
Home equity 1,053 0.40 2,918 1.00
Consumer:
Credit cards 7 0.05 155 0.87
Overdrafts 94 19.26 283 18.59
Automobile loans 27 0.07 49 0.09
Other consumer 22 0.03 9 0.01
Total Traditional Banking 7,861 0.20 13,042 0.36
Warehouse lines of credit - - - -
Total Core Banking 7,861 0.16 13,042 0.30
Republic Processing Group :
Tax Refund Solutions:
Easy Advances - - - -
Other TRS loans 259 89.62 119 0.83
Republic Credit Solutions 5,926 5.97 7,643 7.256.48 Total delinquent loans$ 14,046 0.28 %$ 20,804 0.47 %
* 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.
112
Table of Contents
Table 19 - Rollforward of Delinquent Loans
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2020 2019 2020 2019
Delinquent loans at the beginning of the
period $ 42,627 $ 34,187 $ 20,804 $ 15,962
Loans added to delinquency status during
the period and remained in delinquency
status at the end of the period 2,823 8,685 3,080 8,519
Loans removed from delinquency status
during the period that were in
delinquency status at the beginning of
the period (see table below) (29,901) (22,991) (7,513) (4,661)
Principal balance paydowns of loans
delinquent at both period ends (1,394) (84) (2,189) (293)
Net change in principal balance of other
loans delinquent at both period ends* (109) (471)
(136) (201)
Delinquent loans at the end of period
* Includes relatively-small consumer portfolios, e.g., RCS loans.
Table 20 - Detail of Loans Removed from Delinquent Status
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2020 2019 2020 2019
Loans charged off $ (2) $ (306) $ (2) $ (316) Easy Advances paid-off or charged-off (23,467) (19,099) - - Loans transferred to OREO (2,109) (1,062) (2,109) (1,119) Loans refinanced at other institutions (1,270) (746) (3,012) (1,309) Loans paid current (3,053) (1,778)
(2,390) (1,917)
Total loans removed from delinquency status during the period that were in delinquency status at the beginning of the period$ (29,901) $ (22,991) $ (7,513) $ (4,661)
Collateral Dependent Loans and Troubled Debt Restructurings
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 TDR 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 TDRs 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 TDRs remain on nonaccrual status and continue to be reported as nonperforming loans. 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.
Table 21 - Collateral-Dependent Loans and Troubled Debt Restructurings
(in thousands) June 30, 2020 December 31, 2019 Cashflow-dependent TDRs$ 12,575 $ 14,348 Collateral-dependent TDRs 13,904 16,433 Total TDRs 26,479 30,781
Collateral dependent loans (which are not TDRs) 18,237
19,569
Total recorded investment in TDRs and collateral-dependent loans$ 44,716 $ 50,350
See Footnote 4 "Loans and Allowance for Credit Losses" of Part I Item 1 "Financial Statements" for additional discussion regarding collateral-dependent loans and TDRs.
113
Table of Contents
COVID-19 Loan Accommodations
The ultimate impact to the Company's nonperforming and delinquent loans related
to the COVID-19 pandemic is currently unknown due to COVID-19-related loan
accommodations the Bank made to businesses and consumers, including deferrals
and forbearances. These accommodations generally lasted for a term of three
months. During the second quarter of 2020, the Bank entered into COVID-19 loan
accommodations for loans totaling $793 million .
Management expects a significant amount of these borrower accommodations to
expire during the third quarter of 2020, at which time management expects the
majority of these clients to continue repayment of their loans. When evaluating
further borrower accommodations for borrowers needing additional relief, the
Bank considers prudent accommodation options based on the borrower's credit
risk; applicable federal and state laws and regulations, including COVID-related
accommodations provided by the CARES Act and states and localities; and the
Bank's ability to ease cash flow pressures on the affected borrowers while
improving the Bank's likelihood of collection on its loans. If enough borrowers
were unable to meet their loan payment obligations at the end of their
accommodation periods and were also unable to further extend their accommodation
arrangements with the Bank, the Bank's nonperforming and delinquent loans would
substantially increase and negatively impact the Company's overall operating
performance. The following table presents the balances of loans in COVID-19
accommodations, the balance of PPP loans, and the remainder of the Traditional
Bank's loan portfolio by loan class as of June 30, 2020 :
Table 22 - COVID-19 Accommodations, PPP Loans, and Other Traditional Bank Loans
COVID-19 TotalJune 30, 2020 (dollars in thousands) Accommodations PPP Loans
Other Loans Traditional Banking
Traditional Banking: Residential real estate: Owner occupied$ 51,570 $ -$ 833,755 $ 885,325 Nonowner occupied 58,754 - 195,946 254,700 Commercial real estate 491,314 - 830,976 1,322,290 Commercial & industrial 141,720 511,065 251,942 904,727
Construction & land development 28,927 -
128,327 157,254
Lease financing receivables 2,443 - 9,421 11,864
Home equity 13,776 - 251,490 265,266
Consumer 4,678 - 129,719 134,397
Total Traditional Banking $ 793,182 $ 511,065 $ 2,631,576 $ 3,935,823Percent of Total Traditional Banking 20 % 13
% 67 % 100 % As ofJune 30, 2020 , 80% of the Traditional Banking segment's loans under COVID-19 accommodations were either within the CRE or C&I categories. Table 23 below presents CRE and C&I COVID-19 accommodations by industry as ofJune 30, 2020 :
Table 23 -
June 30, 2020 (dollars in thousands) Total CRE &
C&I % Concentration
Industry:
Lessors of Nonresidential Buildings (except
Miniwarehouses) $ 184,087 29 %
Hotels (except Casino Hotels) and Motels 66,969 11
Lessors of Residential Buildings and Dwellings 55,835 9
Limited-Service Restaurants 45,155 7
Full-Service Restaurants 38,947 6
Offices of Physicians (except Mental Health
Specialists) 37,957 6
Fitness and Recreational Sports Centers 29,199 5
Offices of Dentists 14,122 2
Religious Organizations 11,909 2
Sports Teams and Clubs 11,644 2
Car Washes 9,951 2
General Freight Trucking, Long-Distance, Truckload 6,606 1
Golf Courses and Country Clubs 6,570 1
Public Relations Agencies 5,757 1
General Freight Trucking, Local 5,189 1
All other industries 103,137 15
Total CRE and C&I $ 633,034 100 %
114
Table of Contents
Deposits
Table 24 - Deposit Composition
(in thousands) June 30, 2020 December 31, 2019 $ Change % Change Core Bank: Demand$ 1,124,321 $ 922,972$ 201,349 22 % Money market accounts 748,832 793,950 (45,118) (6) Savings 207,729 175,588 32,141 18 Individual retirement accounts (1) 51,715 51,548 167 0 Time deposits,$250 and over (1) 111,725 104,412 7,313 7 Other certificates of deposit (1) 258,884 248,161 10,723 4 Reciprocal money market and time deposits (1) 290,441 189,774 100,667 53 Brokered deposits (1) 400,000 200,072 199,928 100Total Core Bank interest-bearing deposits 3,193,647 2,686,477 507,170 19Total Core Bank noninterest-bearing deposits 1,431,866 981,164 450,702 46Total Core Bank deposits 4,625,513 3,667,641 957,872 26Republic Processing Group : Money market accounts 3,038 66,152 (63,114) (95) Total RPG interest-bearing deposits 3,038 66,152 (63,114) (95)
Brokered prepaid card deposits 256,703 9,128 247,575 2,712 Other noninterest-bearing deposits 132,831 43,087 89,744 208 Total RPG noninterest-bearing deposits 389,534 52,215 337,319 646 Total RPG deposits 392,572 118,367 274,205 232 Total deposits$ 5,018,085 $ 3,786,008$ 1,232,077 33 % (1) Includes time deposits.
? quarter of 2020, with a substantial portion of the funds loaned retained in the
Bank's deposit accounts atJune 30, 2020 . Management believes much of the remaining growth in noninterest-bearing
deposits at the
? COVID-19 pandemic. At this time, management is unable to predict how long these
funds might remain at the Bank due to the uncertain economic environment for
many of the depositors, including the depositors' short-term and long-term cash
needs.
RPG noninterest-bearing deposits increased
? months of 2020, with growth driven by the Company's
approximately
institution.
? during the first six months of 2020 for additional liquidity during the
COVID-19 pandemic.
Similar to growth in noninterest-bearing deposits, management believes much of
? the remaining growth in interest-bearing deposits at the
flight to safety brought about by the COVID-19 pandemic.
Offsetting the positive drivers above was a
? online money market accounts, as the Bank significantly lowered its pricing
during the period due to the overall decrease in market interest rates.
115
Table of Contents
In addition to the decline in MemoryBank balances, the Bank also had a
? million deposit outflow from one money-market client. At this time, management
does not anticipate this large deposit will be replaced by this particular
client in the foreseeable future.
RPG interest-bearing deposits decreased
? short-term seasonal funding used by the TRS segment during the first half of
2020.
Federal Reserve Paycheck Protection Program Lending Facility
The Bank began participating in theFederal Reserve's PPPLF onApril 24, 2020 , with$169 million of borrowings outstanding through this program as ofJune 30, 2020 . Under the PPPLF program, the Bank can fully fund its PPP loans on a dollar-for-dollar basis at a borrowing rate of 0.35%, with the Bank's PPP loans serving as collateral for its PPPLF borrowings. PPPLF borrowings mature as the underlying PPP loans mature, generally within two to five years. ThroughJune 30, 2020 , the Bank chose not to fully fund its PPP loans through the PPPLF since a significant portion of the Bank's PPP loan clients retained their PPP funds within their deposit accounts at the Bank. Management is currently uncertain of the Bank's level of PPPLF usage for the remainder of the year.
Federal Home Loan Bank Advances
As the overall increase in deposits outpaced the overall increase in interest-earning assets for the first six months of 2020, FHLB advances declined by$613 million fromDecember 31, 2019 toJune 30, 2020 . The Bank held no overnight advances atJune 30, 2020 , compared to$200 million in overnight advances at a rate of 1.63% atDecember 31, 2019 . The usage of overnight FHLB advances is expected to continue to fluctuate based on the overall usage rates for the Bank's warehouse lines of credit, which are also tied to short-term repricing indices, as well as current favorable deposit gathering trends. The Bank currently borrows from the FHLB substantially on an overnight or short-term basis due to its current interest rate risk position. The overall use and types 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. Because of the Bank's current interest rate position, management expects the Company will continue to predominately borrow on an overnight or short-term basis from the FHLB. If a meaningful amount of the Bank's loan originations in the future have repricing terms longer than five years, management could elect to borrow additional longer-term funds from the FHLB to mitigate its risk of future increases in market interest rates. Whether the Bank ultimately does so, and how much in advances it extends out, will be dependent upon circumstances at that time. Interest Rate Swaps
Interest Rate Swaps Used as Cash Flow Hedges
The Bank entered into two interest rate swap agreements during 2013 as part of its interest rate risk management strategy. The Bank designated the swaps as cash flow hedges intended to reduce the variability in cash flows attributable to either FHLB advances tied to the 3-month LIBOR or the overall changes in cash flows on certain money market deposit accounts tied to 1-month LIBOR. The counterparty for both swaps met the Bank's credit standards and the Bank believes that the credit risk inherent in the swap contracts is not significant.
Non-hedge Interest Rate Swaps
The Bank also enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments, the Bank enters into offsetting positions in order to minimize the Bank's interest rate risk. These swaps are derivatives, but are not designated as hedging instruments, and therefore changes in fair value are reported in current year earnings.
See Footnote 12 "Interest Rate Swaps" of Part I Item 1 "Financial Statements" for additional discussion regarding the Bank's interest rate swaps.
Liquidity
The Bank had a loan to deposit ratio (excluding brokered deposits) of 110% atJune 30, 2020 and 126% atDecember 31, 2019 . AtJune 30, 2020 andDecember 31, 2019 , the Company had cash and cash equivalents on-hand of$560 million and$385 million . The Bank also had available borrowing capacity of$814 million and$259 million from the FHLB atJune 30, 2020 andDecember 31, 2019 . In addition, the Bank's liquidity resources included unencumbered debt securities of$283 million and$304 million as ofJune 116 Table of Contents
30, 2020 and
The Bank maintains sufficient liquidity to fund routine loan demand and routine deposit withdrawal activity. Liquidity is managed by maintaining sufficient liquid assets in the form of investment securities. Funding and cash flows can also be realized by the sale of AFS debt securities, principal paydowns on loans and mortgage backed securities and proceeds realized from loans held for sale. 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. AtJune 30, 2020 andDecember 31, 2019 , these pledged investment securities had a fair value of$260 million and$230 million . Republic's banking centers and its websites, www.republicbank.com and www.mymemorybank.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 canceled, 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. AtJune 30, 2020 , the Bank had approximately$1.4 billion in deposits from 226 large non-sweep deposit relationships, including reciprocal deposits, where the individual relationship exceeded$2 million . The 20 largest non-sweep deposit relationships represented approximately$631 million , or 13%, of the Company's total deposit balances atJune 30, 2020 . 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 theTraditional Bank deposits they replace, potentially decreasing the Bank's earnings. Due to its historical success of growing loans and its overall use of non-core funding sources, the Bank has approached and, periodically during each quarter, has fallen short of its Board-approved minimum internal policy limits for liquidity management. Most recently, the Bank has experienced a significant increase in its outstanding Warehouse line-of-credit balances. Because management deems this increase in Warehouse balances to not be long-term in nature and the Bank is asset sensitive for its interest rate risk position, it has elected to utilize overnight borrowings from the FHLB in order to fund these outstanding balances. While the Bank was in compliance with all Board-approved liquidity policies as ofJune 30, 2020 , it was not always within policy parameters for each day of the quarter. The Bank will likely continue to maintain its liquidity levels near the Bank's Board-approved minimums for the foreseeable future and will also likely utilize much of its FHLB borrowing capacity or short-term brokered deposits to fund the current spike in Warehouse balances.
In addition to its typical operations which impacts liquidity, the COVID-19 pandemic could create both substantially positive and negative impacts to the Bank's liquidity over the short-term and long-term. The overall impact to Bank's liquidity over the long-term will likely depend heavily on the length and breadth of the economy's shut-down. A near-term positive to the Bank's liquidity is the apparent flight to safety by its clients and the increase in the Bank's deposit balances. Management is uncertain as to how long these deposit balances might stay in the Bank, however, as a protracted shut-down of the economy could put a financial strain on the Banks' clients requiring them to drawdown their deposit funds in order to meet their own liquidity demands.
See additional detail regarding the impact of COVID-19 under:
? Part I Item 1 "Financial Statements"
o Footnote 2 "
o Footnote 4 "Loans and Allowance for Credit Losses"
o Footnote 9 "Off Balance Sheet Risks, Commitments, and Contingent Liabilities"
? Part II Item 1A "Risk Factors"
117
Table of Contents
Capital
Total stockholders' equity increased from
See Part II, Item 2. "Unregistered Sales of
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 ClassB Common shares have ten votes per share. ClassB 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. AtJune 30, 2020 , RB&T could, without prior approval, declare dividends of approximately$155 million . 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 1Risk-Based Capital ratio, an 8.0% Tier 1Risk-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 1Risk-Based Capital above their minimum risk-based capital requirements. Republic continues to exceed the regulatory requirements forTotal Risk Based Capital ,Common Equity Tier I Risk Based Capital ,Tier I Risk Based Capital andTier 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 theFDIC , in addition to the Capital Conservation Buffer. Republic's average stockholders' equity to average assets ratio was 13.45% atJune 30, 2020 compared to 13.16% atDecember 31, 2019 . Formal measurements of the capital ratios for Republic and the Bank are performed by the Company at each quarter end. In 2005, RBCT, an unconsolidated trust subsidiary of Republic, was formed and issued$40 million in TPS. The sole asset of RBCT represents the proceeds of the offering loaned to Republic in exchange for a subordinated note with similar terms to the TPS. The RBCT TPS are treated as part of Republic'sTier I Capital . The subordinated note and related interest expense are included in Republic's consolidated financial statements. The subordinated note paid a fixed interest rate of 6.015% throughSeptember 30, 2015 and adjusted to 3-month LIBOR plus 1.42% on a quarterly basis thereafter. The subordinated note matures onDecember 31, 2035 and is redeemable at the Company's option on a quarterly basis. The Company chose not to redeem the subordinated note onJuly 1, 2020 and is currently carrying the note at a cost of LIBOR plus 1.42%. 118 Table of Contents
Table 25 - Capital Ratios (1)
As of June 30, 2020 As of December 31, 2019
(dollars in thousands) Amount Ratio Amount Ratio
Total capital to risk-weighted assets
Republic Bancorp, Inc. $ 864,422 17.37 % $ 825,987 17.01 %
Republic Bank & Trust Company 754,493 15.18 723,248 14.91
Common equity tier 1 capital to risk-weighted assets Republic Bancorp, Inc.$ 777,068 15.62 %$ 742,636 15.29 % Republic Bank & Trust Company 707,139 14.22 679,897 14.01 Tier 1 (core) capital to risk-weighted assets Republic Bancorp, Inc.$ 817,068 16.42 %$ 782,636 16.11 % Republic Bank & Trust Company 707,139 14.22 679,897 14.01 Tier 1 leverage capital to average assets Republic Bancorp, Inc.$ 817,068 14.89 %$ 782,636 13.93 % Republic Bank & Trust Company 707,139 11.90 679,897 12.11
The Company and the Bank elected to defer the impact of CECL on regulatory
capital. The deferral period is five years, with the total estimated CECL (1) 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 12 basis points lower than those
presented in the table above as of June 30, 2020 .
119
Table of Contents
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 deposit and loan rates 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. As ofJune 30, 2020 , a dynamic simulation model was run for interest rate changes from "Down 100" basis points to "Up 400" basis points. The following table illustrates the Bank's projected percent change from its Base net interest income over the period beginningJuly 1, 2020 and endingJune 30, 2021 based on instantaneous movements in interest rates from Down 100 to Up 400 basis points equally across all points on the yield curve. The Bank's dynamic earnings simulation model includes secondary market loan fees and excludesTraditional Bank loan fees.
Table 26 - Bank Interest Rate Sensitivity
Change in Rates
(100) +100 +200 +300 +400
Basis Points Basis Points Basis Points Basis Points Basis Points
% Change from base net interest income at June 30, 2020 (0.1) % (4.9) % (8.0) % (9.5) % (7.8) % % Change from base net interest income at December 31, 2019 (4.3) % 0.9 %
1.6 % 1.9 % 2.5 %
The Bank's dynamic simulation model run forJune 2020 projected a decrease in the Bank's net interest income plus secondary market loan fees for all down-rate and Up-rate scenarios, while the projections as ofDecember 2019 reflected a decrease in the Down-100 scenario and an increase in all Up-rate scenarios. As compared toDecember 2019 , the deterioration in the Up-rate scenarios forJune 2020 was generally due to the impact of an expected reduction in secondary market loan fees in a rising rate environment. The improvement in the Down-100 scenario primarily related to the number of loans that have reached or are expected to reach their interest rate floors, and therefore not subject to further rate reductions. The Company's interest rate risk projections generally assume parallel shifts in the yield curve across all points on the yield curve. A flattening or inverting of the yield curve, causing the spread between long-term interest rates and short-term interest rates to decrease or invert, would likely have a further negative impact on the Company's net interest income and net interest margin. Under any interest rate scenario, however, if theCore Bank is unable to reasonably maintain its deposit balances and the cost of those deposits at acceptable levels, it will likely have a negative impact to theCore Bank's net interest income and net interest margin. 120 Table of Contents
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
© Edgar Online, source
