REPUBLIC BANCORP INC /KY/ - Quarter Report: 2017 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2017

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

Commission File Number: 0-24649

REPUBLIC BANCORP, INC.

(Exact name of registrant as specified in its charter)


Kentucky		61-0862051
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

601 West Market Street, Louisville, Kentucky		40202
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (502) 584-3600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

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


Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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

The number of shares outstanding of the registrant’s Class A Common Stock and Class B Common Stock, as of October 31, 2017, was 18,617,537 and 2,242,955.

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TABLE OF CONTENTS



PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements.	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	68

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	113

Item 4.	Controls and Procedures.	113

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings.	113

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	113

Item 6.	Exhibits.	114

	SIGNATURES

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)


	September 30,		December 31,
	2017		2016
ASSETS

Cash and cash equivalents	$	329,862	$	289,309
Securities available for sale		458,719		481,275
Securities held to maturity (fair value of $65,949 in 2017 and $53,249 in 2016)		65,177		52,864
Mortgage loans held for sale, at fair value		4,083		11,662
Consumer loans held for sale, at fair value		3,368		2,198
Consumer loans held for sale, at the lower of cost or fair value		5,684		1,310
Loans		3,957,512		3,810,778
Allowance for loan and lease losses		(40,191)		(32,920)
Loans, net		3,917,321		3,777,858
Federal Home Loan Bank stock, at cost		32,067		28,208
Premises and equipment, net		41,649		40,462
Premises, held for sale		3,196		2,407
Goodwill		16,300		16,300
Other real estate owned		167		1,391
Bank owned life insurance		62,972		61,794
Other assets and accrued interest receivable		52,609		49,271

TOTAL ASSETS	$	4,993,174	$	4,816,309

LIABILITIES

Deposits:
Noninterest-bearing	$	1,040,414	$	971,952
Interest-bearing		2,309,315		2,188,740
Total deposits		3,349,729		3,160,692

Securities sold under agreements to repurchase and other short-term borrowings		173,311		173,473
Federal Home Loan Bank advances		757,500		802,500
Subordinated note		41,240		41,240
Other liabilities and accrued interest payable		38,107		33,998

Total liabilities		4,359,887		4,211,903

Commitments and contingent liabilities (Footnote 9)		—		—

STOCKHOLDERS’ EQUITY


Preferred stock, no par value		—		—
Class A Common Stock and Class B Common Stock, no par value		4,904		4,906
Additional paid in capital		139,314		138,192
Retained earnings		487,574		460,621
Accumulated other comprehensive income		1,495		687

Total stockholders’ equity		633,287		604,406

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,993,174	$	4,816,309

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
INTEREST INCOME:

Loans, including fees	$	50,271	$	41,597	$	153,010	$	120,772
Taxable investment securities		2,364		1,942		6,910		5,817
Federal Home Loan Bank stock and other		1,090		395		2,509		1,500
Total interest income		53,725		43,934		162,429		128,089

INTEREST EXPENSE:

Deposits		2,587		1,620		6,790		4,359
Securities sold under agreements to repurchase and other short-term borrowings		161		11		332		51
Federal Home Loan Bank advances		2,383		2,664		6,618		8,590
Subordinated note		287		241		807		680
Total interest expense		5,418		4,536		14,547		13,680

NET INTEREST INCOME		48,307		39,398		147,882		114,409

Provision for loan and lease losses		4,221		2,489		21,633		9,489

NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES		44,086		36,909		126,249		104,920

NONINTEREST INCOME:

Service charges on deposit accounts		3,395		3,416		10,032		9,838
Net refund transfer fees		177		132		18,329		19,119
Mortgage banking income		1,102		3,081		3,707		5,902
Interchange fee income		2,475		2,415		7,348		6,755
Program fees		1,597		979		3,972		1,942
Increase in cash surrender value of bank owned life insurance		394		406		1,178		1,114
Net gains (losses) on other real estate owned		31		(137)		422		191
Other		1,203		1,009		3,236		2,163
Total noninterest income		10,374		11,301		48,224		47,024

NONINTEREST EXPENSE:

Salaries and employee benefits		20,505		18,068		61,731		52,965
Occupancy and equipment, net		5,841		5,573		17,594		16,026
Communication and transportation		1,239		1,029		3,450		2,974
Marketing and development		1,677		1,076		4,090		2,773
FDIC insurance expense		300		345		1,050		1,483
Bank franchise tax expense		749		846		3,974		3,944
Data processing		1,795		1,659		5,142		4,535
Interchange related expense		928		1,118		3,057		3,069
Supplies		241		280		1,029		969
Other real estate owned expense		55		159		284		355
Legal and professional fees		446		539		1,794		1,965
FHLB advance prepayment penalty		—		846		—		846
Impairment of premises held for sale		965		58		1,082		133
Other		3,285		1,938		8,422		5,904
Total noninterest expense		38,026		33,534		112,699		97,941

INCOME BEFORE INCOME TAX EXPENSE		16,434		14,676		61,774		54,003
INCOME TAX EXPENSE		5,728		4,848		20,980		18,100
NET INCOME	$	10,706	$	9,828	$	40,794	$	35,903

BASIC EARNINGS PER SHARE:
Class A Common Stock	$	0.51	$	0.47	$	1.97	$	1.73
Class B Common Stock		0.47		0.43		1.79		1.58

DILUTED EARNINGS PER SHARE:
Class A Common Stock	$	0.51	$	0.47	$	1.96	$	1.73
Class B Common Stock		0.47		0.43		1.78		1.57

DIVIDENDS DECLARED PER COMMON SHARE:
Class A Common Stock	$	0.220	$	0.209	$	0.649	$	0.616
Class B Common Stock		0.200		0.190		0.590		0.560

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016

Net income	$	10,706	$	9,828	$	40,794	$	35,903

OTHER COMPREHENSIVE INCOME

Change in fair value of derivatives used for cash flow hedges		9		127		(67)		(663)
Reclassification amount for derivative losses realized in income		51		83		175		256
Change in unrealized gain (loss) on securities available for sale		(237)		(788)		892		1,920
Change in unrealized gain on security available for sale for which a portion of an other-than-temporary impairment has been recognized in earnings		90		57		244		(91)
Total other comprehensive income before income tax		(87)		(521)		1,244		1,422
Tax effect		30		180		(436)		(497)
Total other comprehensive income, net of tax		(57)		(341)		808		925

COMPREHENSIVE INCOME	$	10,649	$	9,487	$	41,602	$	36,828

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2017


	Common Stock								Accumulated
	Class A	Class B			Additional				Other		Total
	Shares	Shares			Paid In		Retained		Comprehensive		Stockholders’
(in thousands)	Outstanding	Outstanding	Amount		Capital		Earnings		Income		Equity

Balance, January 1, 2017	18,615	2,245	$	4,906	$	138,192	$	460,621	$	687	$	604,406

Net income	—	—		—		—		40,794		—		40,794

Net change in accumulated other comprehensive income	—	—		—		—		—		808		808

Dividends declared Common Stock:
Class A Shares	—	—		—		—		(12,082)		—		(12,082)
Class B Shares	—	—		—		—		(1,324)		—		(1,324)

Stock options exercised, net of shares redeemed	2	—		—		33		—		—		33

Repurchase of Class A Common Stock	(13)	—		(2)		(121)		(435)		—		(558)

Conversion of Class B Common Stock to Class A Common Stock	2	(2)		—		—		—		—		—

Net change in notes receivable on Class A Common Stock	—	—		—		135		—		—		135

Deferred director compensation expense - Class A Common Stock	5	—		—		147		—		—		147

Stock based compensation expense - performance stock units	—	—		—		364		—		—		364

Stock based compensation expense - restricted stock	7	—		—		373		—		—		373

Stock based compensation expense - stock options	—	—		—		191		—		—		191

Balance, September 30, 2017	18,618	2,243	$	4,904	$	139,314	$	487,574	$	1,495	$	633,287

See accompanying footnotes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Nine Months Ended
	September 30,
	2017		2016
OPERATING ACTIVITIES:
Net income	$	40,794	$	35,903
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization on investment securities, net		231		425
Accretion on loans, deposits and core deposit intangible, net		(3,981)		(1,813)
Depreciation of premises and equipment		6,178		5,281
Amortization of mortgage servicing rights		1,104		1,200
Provision for loan and lease losses		21,633		9,489
Net gain on sale of mortgage loans held for sale		(3,221)		(5,647)
Origination of mortgage loans held for sale		(119,265)		(154,607)
Proceeds from sale of mortgage loans held for sale		130,065		154,766
Net gain on sale of consumer loans held for sale		(3,869)		(1,768)
Origination of consumer loans held for sale		(454,844)		(248,430)
Proceeds from sale of consumer loans held for sale		453,169		247,928
Net gain realized on sale of other real estate owned		(577)		(392)
Writedowns of other real estate owned		155		200
Impairment of premises held for sale		1,082		133
Deferred director compensation expense - Class A Common Stock		147		149
Stock based compensation expense		928		754
Increase in cash surrender value of bank owned life insurance		(1,178)		(1,114)
Net change in other assets and liabilities:
Accrued interest receivable		(1,001)		(83)
Accrued interest payable		(12)		(219)
Other assets		(3,367)		(3,064)
Other liabilities		3,283		(724)
Net cash provided by operating activities		67,454		38,367

INVESTING ACTIVITIES:
Net change in cash for acquisition of Cornerstone Bancorp, Inc.		—		(9,088)
Purchases of securities available for sale		(91,451)		(400,079)
Purchases of securities held to maturity		(15,460)		—
Proceeds from calls, maturities and paydowns of securities available for sale		114,930		428,649
Proceeds from calls, maturities and paydowns of securities held to maturity		3,129		4,504
Net change in outstanding warehouse lines of credit		14,279		(274,457)
Purchase of non-business-acquisition loans, including premiums paid		(4,811)		(48,876)
Net change in other loans		(166,845)		(62,932)
Proceeds from sale of mortgage loans transferred to held for sale		—		72,330
Proceeds from redemption of Federal Home Loan Bank stock		—		224
Purchase of Federal Home Loan Bank stock		(3,859)		—
Proceeds from sales of other real estate owned		2,202		2,660
Net purchases of premises and equipment		(9,236)		(5,466)
Net cash used in investing activities		(157,122)		(292,531)

FINANCING ACTIVITIES:
Net change in deposits		189,037		443,745
Net change in securities sold under agreements to repurchase and other short-term borrowings		(162)		(242,975)
Payments of Federal Home Loan Bank advances		(460,000)		(267,000)
Proceeds from Federal Home Loan Bank advances		415,000		430,000
Payoff of subordinated note, net of common security interest		—		(4,000)
Repurchase of Class A Common Stock		(558)		(1,134)
Net proceeds from Class A Common Stock options exercised		33		80
Cash dividends paid		(13,129)		(12,467)
Net cash provided by financing activities		130,221		346,249

NET CHANGE IN CASH AND CASH EQUIVALENTS		40,553		92,085
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		289,309		210,082
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	329,862	$	302,167

SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION:
Cash paid during the period for:
Interest	$	14,559	$	13,882
Income taxes		20,570		18,956

SUPPLEMENTAL NONCASH DISCLOSURES:
Transfers from loans to real estate acquired in settlement of loans	$	556	$	3,939
Transfers from loans held for investment to held for sale		—		71,201
Loans provided for sales of other real estate owned		—		256

See accompanying footnotes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – SEPTEMBER 30, 2017 and 2016 AND DECEMBER 31, 2016 (UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The consolidated financial statements include the accounts of Republic Bancorp, Inc. (the “Parent Company”) and its wholly-owned subsidiaries, Republic Bank & Trust Company (“RB&T” or the “Bank”) and Republic Insurance Services, Inc. (the “Captive”). All significant intercompany balances and transactions are eliminated in consolidation. All companies are collectively referred to as (“Republic” or the “Company”).

The Bank is a Kentucky-based, state chartered non-member financial institution that provides both traditional and non-traditional banking products through five reportable segments using a multitude of delivery channels. While the Bank operates primarily in its market footprint, its non-brick-and-mortar delivery channels allow it to reach clients across the United States.

The Captive is a Nevada-based, wholly-owned insurance subsidiary of the Company. The Captive provides property and casualty insurance coverage to the Company and the Bank as well as a group of third-party insurance captives for which insurance may not be available or economically feasible.

Republic Bancorp Capital Trust (“RBCT”) is a Delaware statutory business trust that is a wholly-owned unconsolidated finance subsidiary of Republic Bancorp, Inc.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the consolidated financial statements and footnotes thereto included in Republic’s Form 10-K for the year ended December 31, 2016.

As of September 30, 2017, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending (“Warehouse”), Mortgage Banking, Tax Refund Solutions (“TRS”) and Republic Credit Solutions (“RCS”). Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute Republic Processing Group (“RPG”) operations. The Bank’s Correspondent Lending channel and the Company’s national branchless banking platform, MemoryBank®, are considered part of the Traditional Banking segment.

Prior to the third quarter of 2017, management reported RPG as a segment consisting of its largest division, TRS, along with its relatively smaller divisions, Republic Payment Solutions (“RPS”) and RCS. During the third quarter of 2017, due to RCS’s growth in revenues relative to the total Company’s revenues, management identified TRS and RCS as separate reportable segments under the newly-classified RPG operations. Also, as part of the updated segmentation, management will report the RPS division, which remained below thresholds to be classified a separate reportable segment, within the newly-classified TRS segment. The reportable segments within RPG operations and divisions within those segments operate through the Bank. All prior periods have been reclassified to conform to the current presentation.

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Core Banking

Traditional Banking segment — The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of September 30, 2017, Republic had 45 full-service banking centers and one loan production office (“LPO”) with locations as follows:

Kentucky — 33

Metropolitan Louisville — 19

Central Kentucky — 9

Elizabethtown — 1

Frankfort — 1

Georgetown — 1

Lexington — 5

Shelbyville — 1

Western Kentucky — 2

Owensboro — 2

Northern Kentucky — 3

Covington — 1

Florence — 1

Independence — 1

Southern Indiana — 3

Floyds Knobs — 1

Jeffersonville — 1

New Albany — 1

Metropolitan Tampa, Florida — 6

Metropolitan Cincinnati, Ohio — 1

Metropolitan Nashville, Tennessee — 3*

*Includes one LPO

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

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

Other sources of Traditional Banking income include service charges on deposit accounts, debit and credit card interchange fee income, title insurance commissions, fees charged to clients for trust services, and increases in the cash surrender value of Bank Owned Life Insurance (“BOLI”).

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

Warehouse Lending segment — Through its Warehouse Lending segment, the Core Bank provides short-term, revolving credit facilities to mortgage bankers across the United States through mortgage warehouse lines of credit. These credit facilities are primarily secured by single family, first lien residential real estate loans. The credit facility enables the mortgage banking clients to close single family, first lien residential real estate loans in their own name and temporarily fund their inventory of these closed loans until the loans are sold to investors approved by the Bank or purchased by the Bank through its Correspondent Lending channel. Individual loans are expected to remain on the warehouse line for an average of 15 to 30 days. Reverse mortgage loans typically remain on the line longer than conventional mortgage loans. Interest income and loan fees are accrued for each individual loan during

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the time the loan remains on the warehouse line and collected when the loan is sold. The Core Bank receives the sale proceeds of each loan directly from the investor and applies the funds to pay off the warehouse advance and related accrued interest and fees. The remaining proceeds are credited to the mortgage-banking client.

Mortgage Banking segment — Mortgage Banking activities primarily include 15-, 20- and 30-year fixed-term single family, first lien residential real estate loans that are originated and sold into the secondary market, primarily to the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”) and the Federal National Mortgage Association (“FNMA” or “Fannie Mae”). The Bank typically retains servicing on loans sold into the secondary market. Administration of loans with servicing retained by the Bank includes collecting principal and interest payments, escrowing funds for property taxes and property insurance, and remitting payments to secondary market investors. A fee is received by the Bank for performing these standard servicing functions.

Republic Processing Group

Tax Refund Solutions segment — Through the TRS segment, the Bank is one of a limited number of financial institutions that facilitates the receipt and payment of federal and state tax refund products and offers a credit product through third-party tax preparers located throughout the United States, 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.

Refund Transfers (“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 on RTs, net of rebates, are reported as noninterest income under the line item “Net refund transfer fees.”

TRS first offered its Easy Advance (“EA”) tax credit product during the first two months of 2016 and for a second successive year during the first two months of 2017. For the first quarter 2017 tax season, the Company modified the EA product offering to have more than one advance amount and a different price structure to the Tax Providers based on the amount borrowed by the taxpayer. All other features of the product remained substantially the same as those from the first quarter 2016 tax season, including the following:

No EA fee charged to the taxpayer customer;

All fees for the product were paid by the Tax Providers with a restriction prohibiting the Tax Providers from passing along the fees to the taxpayer customer;

No requirement that the taxpayer customer pay for another bank product, such as an RT;

Multiple funds disbursement methods, including direct deposit, prepaid card, check or Walmart Direct2Cash® product, based on the taxpayer customer’s election;

Repayment of the EA to the Bank was deducted from the taxpayer customer’s tax refund proceeds; and

If an insufficient refund to repay the EA occurred:

there was no recourse to the taxpayer customer,

no negative credit reporting on the taxpayer customer, and

no collection efforts against the taxpayer customer.

Fees paid by the Tax Providers to the Company for the EA product are reported as interest income on loans. EAs during 2017 and 2016 were generally repaid within three weeks after the taxpayer customer’s tax return was submitted to the applicable taxing authority. EAs do not have a contractual due date but are eligible for delinquency consideration three weeks after the taxpayer customer’s tax return is submitted to the applicable taxing authority. Provisions for loan losses on EAs are estimated when advances are made, with all expected loss provisions made in the first quarter of each year. Unpaid EAs are charged-off within 81 days after the taxpayer customer’s tax return is submitted to the applicable taxing authority, with the majority of charge-offs typically recorded during the second quarter of the year.

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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 program managers. 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.

The Company reports fees related to RPS programs under Program fees. Additionally, the Company’s portion of interchange revenue generated by prepaid card transactions is reported as noninterest income under “Interchange fee income.”

Republic Credit Solutions segment — Through the RCS segment, the Bank offers consumer credit products. In general, the credit products are unsecured, small dollar consumer loans with maturities of 30-days-or-more, and are dependent on various factors including the consumer’s ability to repay. 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. Additional information regarding consumer loan products offered through RCS follows:

Line of credit – Through RCS, the Bank originates a line-of-credit product, sells 90% of the balances generated within two business days of loan origination and retains the remaining 10% interest. The line-of-credit product represented the substantial majority of RCS activity during 2017 and 2016, as RCS expanded in June 2015 beyond the pilot phase for this product. Loan balances held for sale are carried at the lower of cost or fair value.

Credit card – Through RCS, the Bank originates a credit card product, sells 90% of the balances generated within two business days of each transaction occurrence and retains the remaining 10% interest. The credit card product was first piloted in December 2015. Loan balances held for sale are carried at the lower of cost or fair value.

Healthcare receivables – Through RCS, the Bank originates a healthcare-receivables product through two different third party relationships. For one third party relationship the Bank retains 100% of the receivables originated. For the other third party relationship, the Bank retains 100% of the receivables originated in some instances and sells 100% of the receivables in other instances within one month of origination. The Bank began offering a healthcare-receivables products during 2014. Loan balances held for sale are carried at the lower of cost or fair value.

Installment loan – Through RCS, the Bank originates an installment-loan product and sells 100% of the balances generated approximately 21 days after origination. The installment-loan product was first offered during the first quarter of 2016. Unlike RCS’s other products, the Company carries these installment loans held for sale at fair value, with this portfolio marked to market on a monthly basis.

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.”

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Accounting Standards Updates (“ASUs”)

The following ASUs were issued prior to September 30, 2017 and are considered relevant to the Company’s financial statements. Generally, if an issued-but-not-yet-effective ASU with an expected immaterial impact to the Company has been disclosed in prior Company financial statements, it will not be included below.


ASU. No.	Topic	Nature of Update	Date Adoption Required	Method of Adoption	Expected Financial Statement Impact
2014-09	Revenue from Contracts with Customers (Topic 606)	Requires that revenue from contracts with clients be recognized upon transfer of control of a good or service in the amount of consideration expected to be received. Changes the accounting for certain contract costs, including whether they may be offset against revenue in the statements of income, and requires additional disclosures about revenue and contract costs.	January 1, 2018	Modified-retrospective approach.	Because most financial instruments are outside the scope of this ASU, the Company believes the impact on its financial statements will likely be immaterial, with the largest impact on the Company's nontraditional products. The Company does expect to take the following actions in association with the adoption of this ASU: 1) amend its accounting policies and procedures to assure proper revenue recognition in conformity with this ASU; 2) update its revenue-recognition financial statement disclosures as guided by this ASU.

2016-02	Leases (Topic 842)	Most leases are considered operating leases, which are not accounted for on the lessees’ balance sheets. The significant change under this ASU is that those operating leases will be recorded on the balance sheet.	January 1, 2019	Modified-retrospective approach, which includes a number of optional practical expedients.	During 2017, the Company completed a pro forma impact analysis on the Company's financial statements of implementing this standard. Based on this analysis, the Company believes approximately $33 million of leases will be placed on its balance sheet, with this amount increasing both total assets and total liabilities. Additionally, the Company's analysis reflected that this ASU would have minimal impact on the Company's performance metrics, including regulatory capital ratios and return on average assets. From a client perspective, the Company is currently reviewing the impact of this ASU on any debt covenants.

2016-13	Financial Instruments – Credit Losses (Topic 326)	Amends guidance on reporting credit losses for assets held at amortized-cost basis and available-for-sale debt securities.	January 1, 2020	Modified-retrospective approach.	As a result of this ASU, the Company expects a substantial, yet fully undetermined, increase in its allowance for credit losses. The Company currently utilizes a third-party software solution as its model to calculate its allowance for loan and lease losses. During 2016 and into 2017, the Company formed a committee to begin the process of transitioning to a current expected credit losses (“CECL”) methodology by the expected adoption date of January 1, 2020. As part of this transition, the committee has analyzed the Company’s loan-level data and preliminarily concluded that no additional loan level segmentation beyond its current methodology segmentation would be warranted under CECL. The Company is also currently analyzing the output from a “beta test” CECL model provided by its third-party software solution.

2017-11	Earnings Per Share (Topic 260)	The amendments in this ASU simplify the accounting for certain financial instruments by requiring companies to disregard the "down round feature" when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Companies that provide earnings per share data ("EPS") will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity.	January 1, 2019	Prospectively, early adoption permitted.	Immaterial

2017-12	Derivatives and Hedging (Topic 815)	The amendments in this ASU make certain targeted improvements to simplify the application of hedge accounting.	January 1, 2019	Prospectively, early adoption permitted.	Immaterial

2017-13	Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)	The amendments in this ASU add Securities and Exchange Commission ("SEC") paragraphs pursuant to an SEC Staff Announcement made at the July 20, 2017 Emerging Issues Task Force meeting.	Effective in conjunction with each ASU addressed within this ASU.	Not applicable.	See above

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The following ASUs were adopted by the Company during the nine months ended September 30, 2017:


ASU. No.	Topic	Nature of Update	Date Adopted	Method of Adoption	Financial Statement Impact
2016-09	Compensation – Stock Compensation (Topic 718)	Provides simplification in areas of accounting for share-based payments, including: the income tax consequences; classification of awards as either equity or liabilities; and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities.	January 1, 2017	Prospectively	Immaterial

2017-08	Receivables - Nonrefundable Fees and Other Costs (Topic 310-20)	This ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the ASU requires the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.	June 1, 2017	Early adoption, modified retrospective approach.	Immaterial

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2. 2016 ACQUISITION OF CORNERSTONE BANCORP, INC.

OVERVIEW

On May 17, 2016, the Company completed its acquisition of Cornerstone Bancorp, Inc. (“Cornerstone”), and its wholly-owned bank subsidiary Cornerstone Community Bank, for approximately $32 million in cash. The primary reason for the acquisition of Cornerstone was to expand the Company’s footprint in the Tampa, Florida metropolitan statistical area.

ACQUISITION SUMMARY

The following table provides a summary of the assets acquired and liabilities assumed as recorded by Cornerstone, the previously reported preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, final recast adjustments to those previously reported preliminary fair values, and the final fair values of those assets and liabilities as recorded by the Company. Effective October 1, 2016, management believed it had finalized the fair values of the acquired assets and assumed liabilities within the 12 months following the date of acquisition, as allowed by GAAP.


Summary of Assets Acquired and Liabilities Assumed

		May 17, 2016
	As Previously Reported					As Recasted
		As Recorded		Fair Value			Recast			As Recorded
(in thousands)		by Cornerstone		Adjustments			Adjustments			by Republic

Assets acquired:

Cash and cash equivalents	$	22,707	$	—		$	—		$	22,707
Investment securities		329		—			—			329
Loans		195,136		(5,525)	a		13	a		189,624
Allowance for loan and lease losses		(1,955)		1,955	a		—			—
Loans, net		193,181		(3,570)			13			189,624
Federal Home Loan Bank stock, at cost		224		—			—			224
Premises and equipment, net		7,770		4,457	b		—			12,227
Core deposit intangible		—		1,205	c		—			1,205
Deferred income taxes		3,714		(74)	d		—			3,640
Bank owned life insurance		7,461		—			—			7,461
Other assets and accrued interest receivable		658		—			—			658

Total assets acquired	$	236,044	$	2,018		$	13		$	238,075

Liabilities assumed:

Deposits:
Noninterest-bearing	$	52,908	$	—		$	—		$	52,908
Interest-bearing		152,257		92	e		—			152,349
Total deposits		205,165		92			—			205,257

Subordinated note		4,124		—			—			4,124
Other liabilities and accrued interest payable		2,244		787	f		—			3,031

Total liabilities assumed		211,533		879			—			212,412

Net assets acquired	$	24,511	$	1,139		$	13			25,663

Cash consideration paid										(31,795)

Goodwill									$	6,132

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Explanation of fair value adjustments

Reflects the fair value adjustment based on the Company’s evaluation of the acquired loan portfolio and to eliminate the acquiree’s recorded allowance for loan losses.

Reflects the fair value adjustment based on the Company’s evaluation of the premises and equipment acquired.

Reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.

Reflects the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.

Reflects the fair value adjustment based on the Company’s evaluation of the assumed time deposits.

Reflects the amount needed to adjust other liabilities to estimated fair value and to record certain liabilities directly attributable to the acquisition of Cornerstone.

Goodwill of approximately $6 million, which is the excess of the merger consideration over the fair value of net assets acquired, was recorded in the Cornerstone acquisition and is the result of expected operational synergies and other factors. This goodwill is all attributable to the Company’s Traditional Banking segment and is not expected to be deductible for tax purposes.

For the three and nine months ended September 30, 2016, the Company’s consolidated statements of income included approximately $257,000 and $1.2 million of acquisition-related noninterest expense associated with the Cornerstone acquisition.

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3. INVESTMENT SECURITIES

Securities Available for Sale

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


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2017 (in thousands)	Cost		Gains		Losses		Value

U.S. Treasury securities and U.S. Government agencies	$	236,899	$	13	$	(653)	$	236,259
Private label mortgage backed security		3,245		1,330		—		4,575
Mortgage backed securities - residential		102,657		1,644		(299)		104,002
Collateralized mortgage obligations		92,348		425		(539)		92,234
Freddie Mac preferred stock		—		407		—		407
Community Reinvestment Act mutual fund		2,500		5		(24)		2,481
Corporate bonds		15,002		259		—		15,261
Trust preferred security		3,482		18		—		3,500
Total securities available for sale	$	456,133	$	4,101	$	(1,515)	$	458,719


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2016 (in thousands)	Cost		Gains		Losses		Value

U.S. Treasury securities and U.S. Government agencies	$	295,425	$	226	$	(1,107)	$	294,544
Private label mortgage backed security		3,691		1,086		—		4,777
Mortgage backed securities - residential		71,197		2,027		(220)		73,004
Collateralized mortgage obligations		88,559		334		(1,239)		87,654
Freddie Mac preferred stock		—		483		—		483
Community Reinvestment Act mutual fund		2,500		—		(45)		2,455
Corporate bonds		15,004		154		—		15,158
Trust preferred security		3,449		—		(249)		3,200
Total securities available for sale	$	479,825	$	4,310	$	(2,860)	$	481,275

Securities Held to Maturity

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


			Gross		Gross
	Carrying		Unrecognized		Unrecognized		Fair
September 30, 2017 (in thousands)	Value		Gains		Losses		Value

Mortgage backed securities - residential	$	153	$	11	$	—	$	164
Collateralized mortgage obligations		24,378		239		(21)		24,596
Corporate bonds		40,182		541		—		40,723
Obligations of state and political subdivisions		464		2		—		466
Total securities held to maturity	$	65,177	$	793	$	(21)	$	65,949


			Gross		Gross
	Carrying		Unrecognized		Unrecognized		Fair
December 31, 2016 (in thousands)	Value		Gains		Losses		Value

U.S. Treasury securities and U.S. Government agencies	$	506	$	—	$	(2)	$	504
Mortgage backed securities - residential		158		12		—		170
Collateralized mortgage obligations		27,142		250		(124)		27,268
Corporate bonds		25,058		312		(63)		25,307
Total securities held to maturity	$	52,864	$	574	$	(189)	$	53,249

At September 30, 2017 and December 31, 2016, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

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Sales of Securities Available for Sale

During the three and nine months ended September 30, 2017 there were no gains or losses on sales or calls of securities available for sale.

During the three and nine months ended September 30, 2016 there were no gains or losses on sales or calls of securities available for sale.

Investment Securities by Contractual Maturity

The amortized cost and fair value of the investment securities portfolio by contractual maturity at September 30, 2017 follows. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are detailed separately.


	Securities				Securities
	Available for Sale				Held to Maturity
	Amortized		Fair		Carrying		Fair
September 30, 2017 (in thousands)	Cost		Value		Value		Value

Due in one year or less	$	85,073	$	85,055	$	—	$	—
Due from one year to five years		156,828		156,225		10,574		10,606
Due from five years to ten years		10,000		10,240		30,072		30,583
Due beyond ten years		3,482		3,500		—		—
Private label mortgage backed security		3,245		4,575		—		—
Mortgage backed securities - residential		102,657		104,002		153		164
Collateralized mortgage obligations		92,348		92,234		24,378		24,596
Freddie Mac preferred stock		—		407		—		—
Community Reinvestment Act mutual fund		2,500		2,481		—		—
Total securities	$	456,133	$	458,719	$	65,177	$	65,949

Freddie Mac Preferred Stock

During 2008, the U.S. Treasury, the Federal Reserve Board and the Federal Housing Finance Agency (“FHFA”) announced that the FHFA was placing Freddie Mac under conservatorship and giving management control to the FHFA. The Bank contemporaneously determined that its 40,000 shares of Freddie Mac preferred stock were fully impaired and recorded an other-than-temporary impairment (“OTTI”) charge of $2.1 million in 2008. The OTTI charge brought the carrying value of the stock to $0. In 2014, based on active trading volume of Freddie Mac preferred stock, the Company determined it appropriate to record an unrealized gain to AOCI related to its Freddie Mac preferred stock holdings. Based on the stock’s market closing price as of September 30, 2017, the Company’s unrealized gain for its Freddie Mac preferred stock totaled $407,000.

Corporate Bonds

The Company’s portfolio of corporate bonds were rated “investment grade” by accredited rating agencies as of their respective purchase dates. The total fair value of the Bank’s corporate bonds represented 11% and 8% of the Bank’s investment portfolio as of September 30, 2017 and December 31, 2016.

Mortgage Backed Securities and Collateralized Mortgage Obligations

At September 30, 2017, with the exception of the $4.6 million private label mortgage backed security, all other mortgage backed securities and collateralized mortgage obligations (“CMOs”) held by the Bank were issued by U.S. government-sponsored entities and agencies, primarily Freddie Mac and the Fannie Mae. At September 30, 2017 and December 31, 2016, there were gross unrealized losses of $838,000 and $1.5 million related to available for sale mortgage backed securities and CMOs. Because these unrealized losses are attributable to changes in interest rates and illiquidity, and not credit quality, and because the Bank does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, management does not consider these securities to have OTTI.

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Trust Preferred Security

During the fourth quarter of 2015, the Parent Company purchased a $3 million floating rate trust preferred security (“TRUP”) at a price of 68% of par. The coupon on this security is based on the 3-month London Interbank Borrowing Rate (“LIBOR”) rate plus 159 basis points. The Company performed an initial analysis prior to acquisition and performs ongoing analysis of the credit risk of the underlying borrower in relation to its TRUP.

Unrealized-Loss Analysis

Securities with unrealized losses at September 30, 2017 and December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
September 30, 2017 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Securities available for sale:
U.S. Treasury securities and U.S. Government agencies	$	9,933	$	(67)	$	186,270	$	(586)	$	196,203	$	(653)
Mortgage backed securities - residential		—		—		48,738		(299)		48,738		(299)
Collateralized mortgage obligations		—		—		41,752		(539)		41,752		(539)
Community Reinvestment Act mutual fund		1,476		(24)		—		—		1,476		(24)
Total securities available for sale	$	11,409	$	(91)	$	276,760	$	(1,424)	$	288,169	$	(1,515)


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
December 31, 2016 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Securities available for sale:
U.S. Treasury securities and U.S. Government agencies	$	138,002	$	(1,107)	$	—	$	—	$	138,002	$	(1,107)
Mortgage backed securities - residential		9,427		(122)		4,211		(98)		13,638		(220)
Collateralized mortgage obligations		37,547		(690)		15,668		(549)		53,215		(1,239)
Community Reinvestment Act mutual fund		2,455		(45)		—		—		2,455		(45)
Trust preferred security		3,200		(249)		—		—		3,200		(249)
Total securities available for sale	$	190,631	$	(2,213)	$	19,879	$	(647)	$	210,510	$	(2,860)


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
September 30, 2017 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Securities held to maturity:
Collateralized mortgage obligations	$	—	$	—	$	6,602	$	(21)	$	6,602	$	(21)
Total securities held to maturity	$	—	$	—	$	6,602	$	(21)	$	6,602	$	(21)


	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
December 31, 2016 (in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

Securities held to maturity:
U.S. Treasury securities and U.S. Government agencies	$	506	$	(2)	$	—	$	—	$	506	$	(2)
Collateralized mortgage obligations		13,315		(124)		—		—		13,315		(124)
Corporate bonds		—		—		4,937		(63)		4,937		(63)
Total securities held to maturity	$	13,821	$	(126)	$	4,937	$	(63)	$	18,758	$	(189)

At September 30, 2017, the Bank’s security portfolio consisted of 185 securities, 45 of which were in an unrealized loss position.

At December 31, 2016, the Bank’s security portfolio consisted of 179 securities, 45 of which were in an unrealized loss position.

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Other-than-temporary impairment (“OTTI”)

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

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

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

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

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

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

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

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

Any rating changes by a rating agency; and

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

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

The Bank owns one private label mortgage backed security with a total carrying value of $4.6 million at September 30, 2017. This security is mostly backed by “Alternative A” first lien mortgage loans, but also has an insurance “wrap” or guarantee as an added layer of protection to the security holder. This asset is illiquid, and as such, the Bank determined it to be a Level 3 security in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures. Based on this determination, the Bank utilized an income valuation model (“present value model”) approach, in determining the fair value of the security. This approach is beneficial for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support for this investment.

See additional discussion regarding the Bank’s private label mortgage backed security under Footnote 10 “Fair Value” in this section of the filing.

Pledged Investment Securities

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


(in thousands)	September 30, 2017		December 31, 2016

Carrying amount	$	212,825	$	231,695
Fair value		213,048		231,891

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4. LOANS HELD FOR SALE

In the ordinary course of business, the Bank originates for sale mortgage loans and consumer loans. Mortgage loans originated for sale are primarily originated and sold into the secondary market through the Core Bank’s Mortgage Banking segment, while consumer loans originated for sale are originated and sold through the RCS segment.

Mortgage Loans Held for Sale, at Fair Value

See additional detail regarding mortgage loans originated for sale, at fair value under Footnote 11 “Mortgage Banking Activities” of this section of the filing.

Consumer Loans Held for Sale, at Fair Value

During the first quarter of 2016, RCS initiated an installment-loan program, in which the Company sells 100% of the receivables approximately 21 days after origination. The Company carries these loans at fair value, with the loans marked to market on a monthly basis and changes in fair value reported as a component of “Program fees.”

Activity for consumer loans held for sale and carried at fair value was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Balance, beginning of period	$	3,235	$	6,826	$	2,198	$	—
Origination of consumer loans held for sale		15,066		20,057		46,847		33,714
Proceeds from the sale of consumer loans held for sale		(15,115)		(25,397)		(45,988)		(32,355)
Net gain on sale of consumer loans held for sale		182		205		311		332
Balance, end of period	$	3,368	$	1,691	$	3,368	$	1,691

Consumer Loans Held for Sale, at Lower of Cost or Fair Value

RCS originates for sale its line-of-credit product, credit card product and its health care receivables product. The Bank sells 90% of the line-of-credit and credit card balances within two business days of loan origination and retains a 10% interest. Hospital receivables originated for sale are based on a predetermined pool subject to defined criteria. The line-of-credit product represents the substantial majority of activity in consumer loans held for sale carried at the lower of cost or fair value. Any gains or losses on the sale of RCS products are reported as a component of “Program fees.”

Activity for consumer loans held for sale and carried at the lower of cost or market value was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Balance, beginning of period	$	2,464	$	1,122	$	1,310	$	514
Origination of consumer loans held for sale		164,815		99,346		407,997		214,716
Proceeds from the sale of consumer loans held for sale		(162,947)		(100,099)		(407,181)		(215,573)
Net gain on sale of consumer loans held for sale		1,352		724		3,558		1,436
Balance, end of period	$	5,684	$	1,093	$	5,684	$	1,093

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5. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The composition of the loan portfolio at period end follows:


(in thousands)	September 30, 2017		December 31, 2016

Traditional Banking:
Residential real estate:
Owner occupied	$	933,726	$	1,000,148
Owner occupied - correspondent*		125,643		149,028
Nonowner occupied		193,379		156,605
Commercial real estate		1,161,225		1,060,496
Construction & land development		138,837		119,650
Commercial & industrial		327,214		259,026
Lease financing receivables		15,367		13,614
Home equity		346,154		341,285
Consumer:
Credit cards		19,898		13,414
Overdrafts		892		803
Automobile loans		63,639		52,579
Other consumer		13,247		19,744
Total Traditional Banking		3,339,221		3,186,392
Warehouse lines of credit*		571,160		585,439
Total Core Banking		3,910,381		3,771,831

Republic Processing Group*:
Tax Refund Solutions:
Easy Advances		—		—
Commercial & industrial		265		6,695
Republic Credit Solutions		46,866		32,252
Total Republic Processing Group		47,131		38,947

Total loans**		3,957,512		3,810,778
Allowance for loan and lease losses		(40,191)		(32,920)

Total loans, net	$	3,917,321	$	3,777,858

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

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

The following table reconciles the contractually receivable and carrying amounts of loans at September 30, 2017 and December 31, 2016:


(in thousands)	September 30, 2017		December 31, 2016

Contractually receivable	$	3,960,048	$	3,816,086
Unearned income(1)		(1,206)		(1,050)
Unamortized premiums(2)		1,258		1,838
Unaccreted discounts(3)		(6,478)		(9,397)
Net unamortized deferred origination fees and costs(4)		3,890		3,301
Carrying value of loans	$	3,957,512	$	3,810,778

(1)

Unearned income relates to lease financing receivables.

(2)

Unamortized premiums predominately relate to loans acquired through the Bank’s Correspondent Lending channel.

(3)

Unaccreted discounts include accretable and non-accretable discounts and predominately relate to loans acquired in the Bank’s 2016 Cornerstone acquisition and its 2012 FDIC-assisted transactions.

(4)

Primarily attributable to the Traditional Banking segment.

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Loan Purchases

Primarily from its Warehouse clients, the Core Bank acquires single family, first lien mortgage loans that meet the Core Bank’s specifications through its Correspondent Lending channel. The volume of loans purchased through the Correspondent Lending channel may fluctuate from time to time based on several factors, including, but not limited to, borrower demand, other investment options and the Bank’s current and forecasted liquidity position. Substantially all loans purchased through the Correspondent Lending channel are purchased at a premium. Loans acquired through the Correspondent Lending channel generally reflect borrowers outside of the Bank’s historical market footprint, with 73% of loans acquired through this origination channel as of September 30, 2017, secured by collateral in the state of California.

In addition, the Bank has acquired in the past unsecured consumer installment loans for investment from a third-party originator. Such consumer loans were purchased at par and were selected by the Bank based on certain underwriting specifications.

The following table reflects the purchased activity of single family, first lien mortgage loans and unsecured consumer loans, by class, during the three and nine months ended September 30, 2017 and 2016.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016
Residential real estate:
Owner occupied - correspondent*	$	2,155	$	9,631	$	4,811	$	44,454
Consumer:
Other consumer*		—		—		—		4,422
Total purchased loans	$	2,155	$	9,631	$	4,811	$	48,876

* Represents origination amount, inclusive of applicable purchase premiums.

Loans Acquired in Cornerstone Acquisition

The following table summarizes loans acquired in the Company’s May 17, 2016 Cornerstone acquisition, finalized as of October 1, 2016:


	May 17, 2016
(in thousands)	Contractual Receivable		Non-accretable Discount		Accretable Discount		Acquisition-Day Fair Value

Residential real estate:
Owner occupied	$	15,487	$	—	$	(393)	$	15,094
Nonowner occupied		11,196		—		(101)		11,095
Commercial real estate		106,089		—		(1,498)		104,591
Construction & land development		18,277		—		(502)		17,775
Commercial & industrial		11,462		—		(191)		11,271
Home equity		20,652		—		(350)		20,302
Consumer and other		2,347		—		(147)		2,200

Total loans - ASC 310-20		185,510		—		(3,182)		182,328

Residential real estate:
Owner occupied		2,963		(822)		(15)		2,126
Nonowner occupied		1,721		(320)		(167)		1,234
Commercial real estate		4,315		(617)		(197)		3,501
Construction & land development		175		—		—		175
Commercial & industrial		66		(1)		1		66
Home equity		382		(178)		(11)		193
Consumer and other		4		(3)		—		1

Total loans - ASC 310-30 - PCI loans		9,626		(1,941)		(389)		7,296

Total loans acquired	$	195,136	$	(1,941)	$	(3,571)	$	189,624

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Purchased-Credit-Impaired (“PCI”) Loans

The Bank acquired PCI loans on May 17, 2016 in its Cornerstone acquisition and during the year ended December 31, 2012 in two FDIC-assisted transactions. PCI loans are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality.

Management utilized the following criteria in determining which loans were classified as PCI loans for its May 17, 2016 Cornerstone acquisition:

Loans for which the Bank assigned a non-accretable discount

Loans classified as nonaccrual when acquired

Loans past due 90-days-or-more when acquired

The following table reconciles the contractually required and carrying amounts of all PCI loans at September 30, 2017 and December 31, 2016:


(in thousands)	September 30, 2017		December 31, 2016

Contractually-required principal	$	10,792	$	15,587
Non-accretable amount		(1,747)		(1,713)
Accretable amount		(1,693)		(3,600)
Carrying value of loans	$	7,352	$	10,274

The following table presents a rollforward of the accretable amount on all PCI loans:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Balance, beginning of period	$	(3,333)	$	(4,087)	$	(3,600)	$	(4,125)
Transfers between non-accretable and accretable*		(44)		179		31		(299)
Net accretion into interest income on loans, including loan fees		1,684		48		1,876		945
Generated from acquisition of Cornerstone Bancorp, Inc. (recasted)		—		—		—		(381)
Balance, end of period	$	(1,693)	$	(3,860)	$	(1,693)	$	(3,860)

*Transfers are primarily attributable to changes in estimated cash flows of the underlying loans.

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Credit Quality Indicators

Based on the Bank’s internal analyses performed as of September 30, 2017 and December 31, 2016, the following tables reflect loans by risk category. Risk categories are defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016:


September 30, 2017			Special				Doubtful /		PCI Loans -		PCI Loans -		Total Rated
(in thousands)	Pass		Mention		Substandard		Loss		Group 1		Substandard		Loans*

Traditional Banking:
Residential real estate:
Owner occupied	$	—	$	19,866	$	12,180	$	—	$	182	$	1,673	$	33,901
Owner occupied - correspondent		—		—		—		—		—		—		—
Nonowner occupied		—		643		1,016		—		510		—		2,169
Commercial real estate		1,146,117		5,358		4,977		—		4,773		—		1,161,225
Construction & land development		138,095		—		742		—		—		—		138,837
Commercial & industrial		326,846		263		82		—		23		—		327,214
Lease financing receivables		15,367		—		—		—		—		—		15,367
Home equity		83		83		1,743		—		91		97		2,097
Consumer:
Credit cards		—		—		—		—		—		—		—
Overdrafts		—		—		—		—		—		—		—
Automobile loans		—		—		97		—		—		—		97
Other consumer		417		417		240		—		3		—		1,077
Total Traditional Banking		1,626,925		26,630		21,077		—		5,582		1,770		1,681,984
Warehouse lines of credit		571,160		—		—		—		—		—		571,160
Total Core Banking		2,198,085		26,630		21,077		—		5,582		1,770		2,253,144

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		—		—		—		—		—		—
Commercial & industrial		265		—		—		—		—		—		265
Republic Credit Solutions		—		—		851		—		—		—		851
Total Republic Processing Group		265		—		851		—		—		—		1,116

Total rated loans	$	2,198,350	$	26,630	$	21,928	$	—	$	5,582	$	1,770	$	2,254,260


December 31, 2016			Special				Doubtful /		PCI Loans -		PCI Loans -		Total Rated
(in thousands)	Pass		Mention		Substandard		Loss		Group 1		Substandard		Loans*

Traditional Banking:
Residential real estate:
Owner occupied	$	—	$	21,344	$	13,117	$	—	$	218	$	2,267	$	36,946
Owner occupied - correspondent		—		—		—		—		—		—		—
Nonowner occupied		—		656		1,115		—		523		—		2,294
Commercial real estate		1,042,137		7,086		4,224		—		7,049		—		1,060,496
Construction & land development		118,769		90		791		—		—		—		119,650
Commercial & industrial		257,579		1,270		154		—		23		—		259,026
Lease financing receivables		13,614						—		—		—		13,614
Home equity		—		256		1,763		—		94		99		2,212
Consumer:
Credit cards		—		—		—		—		—		—		—
Overdrafts		—		—		—		—		—		—		—
Automobile loans		—		—		—		—		—		—		—
Other consumer		—		—		166		—		1		—		167
Total Traditional Banking		1,432,099		30,702		21,330		—		7,908		2,366		1,494,405
Warehouse lines of credit		585,439		—		—		—		—		—		585,439
Total Core Banking		2,017,538		30,702		21,330		—		7,908		2,366		2,079,844

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		—		—		—		—		—		—
Commercial & industrial		6,695		—		—		—		—		—		6,695
Republic Credit Solutions		—		—		82		—		—		—		82
Total Republic Processing Group		6,695		—		82		—		—		—		6,777

Total rated loans	$	2,024,233	$	30,702	$	21,412	$	—	$	7,908	$	2,366	$	2,086,621

* The above tables exclude all non-classified or non-rated residential real estate, home equity and consumer loans at the respective period ends.

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Allowance for Loan and Lease Losses

Activity in the allowance for loan and lease losses (“Allowance”) by loan class follows:


	Allowance Rollforward
	Three Months Ended September 30,
	2017										2016
	Beginning				Charge-				Ending		Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance

Traditional Banking:
Residential real estate:
Owner occupied	$	6,740	$	(222)	$	(52)	$	107	$	6,573	$	7,893	$	(562)	$	(56)	$	142	$	7,417
Owner occupied - correspondent		324		(10)		—		—		314		592		(200)		—		—		392
Nonowner occupied		1,237		100		—		—		1,337		1,052		113		—		—		1,165
Commercial real estate		8,368		325		—		77		8,770		7,805		192		—		34		8,031
Construction & land development		2,508		(435)		—		3		2,076		1,332		66		—		10		1,408
Commercial & industrial		1,682		388		(152)		12		1,930		1,441		(182)		—		121		1,380
Lease financing receivables		151		11		—		—		162		115		13		—		—		128
Home equity		3,787		14		(4)		51		3,848		3,016		633		(145)		31		3,535
Consumer:
Credit cards		588		50		(38)		6		606		456		105		(91)		17		487
Overdrafts		806		311		(276)		51		892		824		(34)		(239)		55		606
Automobile loans		640		40		(12)		1		669		281		178		(12)		—		447
Other consumer		918		111		(155)		67		941		585		(33)		(180)		70		442
Total Traditional Banking		27,749		683		(689)		375		28,118		25,392		289		(723)		480		25,438
Warehouse lines of credit		1,502		(74)		—		—		1,428		1,465		188		—		—		1,653
Total Core Banking		29,251		609		(689)		375		29,546		26,857		477		(723)		480		27,091

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		(840)		—		840		—		—		(89)		—		89		—
Refund Anticipation Loans		—		—		—		—		—		—		—		—		—		—
Commercial & industrial		—		—		—		—		—		—		—		—		—		—
Republic Credit Solutions		8,647		4,452		(2,680)		226		10,645		2,451		2,101		(1,348)		141		3,345
Total Republic Processing Group		8,647		3,612		(2,680)		1,066		10,645		2,451		2,012		(1,348)		230		3,345

Total	$	37,898	$	4,221	$	(3,369)	$	1,441	$	40,191	$	29,308	$	2,489	$	(2,071)	$	710	$	30,436

Table of Contents


	Allowance Rollforward
	Nine Months Ended September 30,
	2017										2016
	Beginning				Charge-				Ending		Beginning				Charge-				Ending
(in thousands)	Balance		Provision		offs		Recoveries		Balance		Balance		Provision		offs		Recoveries		Balance

Traditional Banking:
Residential real estate:
Owner occupied	$	7,158	$	(653)	$	(163)	$	231	$	6,573	$	8,301	$	(860)	$	(317)	$	293	$	7,417
Owner occupied - correspondent		373		(59)		—		—		314		623		(231)		—		—		392
Nonowner occupied		1,139		212		(14)		—		1,337		1,052		105		—		8		1,165
Commercial real estate		8,078		577		—		115		8,770		7,672		260		(41)		140		8,031
Construction & land development		1,850		222		—		4		2,076		1,303		119		(44)		30		1,408
Commercial & industrial		1,511		537		(152)		34		1,930		1,455		130		(330)		125		1,380
Lease financing receivables		136		26		—		—		162		89		39		—		—		128
Home equity		3,757		62		(99)		128		3,848		2,996		633		(229)		135		3,535
Consumer:
Credit cards		490		181		(86)		21		606		448		163		(153)		29		487
Overdrafts		675		731		(687)		173		892		351		639		(571)		187		606
Automobile loans		526		160		(19)		2		669		56		402		(12)		1		447
Other consumer		771		615		(691)		246		941		479		168		(442)		237		442
Total Traditional Banking		26,464		2,611		(1,911)		954		28,118		24,825		1,567		(2,139)		1,185		25,438
Warehouse lines of credit		1,464		(36)		—		—		1,428		967		686		—		—		1,653
Total Core Banking		27,928		2,575		(1,911)		954		29,546		25,792		2,253		(2,139)		1,185		27,091

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		7,041		(8,123)		1,082		—		—		3,127		(3,474)		347		—
Refund Anticipation Loans		—		(253)		—		253		—		—		(222)		—		222		—
Commercial & industrial		25		(25)		—		—		—		—		—		—		—		—
Republic Credit Solutions		4,967		12,295		(7,216)		599		10,645		1,699		4,331		(3,004)		319		3,345
Total Republic Processing Group		4,992		19,058		(15,339)		1,934		10,645		1,699		7,236		(6,478)		888		3,345

Total	$	32,920	$	21,633	$	(17,250)	$	2,888	$	40,191	$	27,491	$	9,489	$	(8,617)	$	2,073	$	30,436

Nonperforming Loans and Nonperforming Assets

Detail of nonperforming loans and nonperforming assets follows:


(dollars in thousands)	September 30, 2017			December 31, 2016

Loans on nonaccrual status*	$	15,475		$	15,892
Loans past due 90-days-or-more and still on accrual**		906			167

Total nonperforming loans		16,381			16,059
Other real estate owned		167			1,391
Total nonperforming assets	$	16,548		$	17,450

Credit Quality Ratios - Total Company:

Nonperforming loans to total loans		0.41	%		0.42	%
Nonperforming assets to total loans (including OREO)		0.42			0.46
Nonperforming assets to total assets		0.33			0.36

Credit Quality Ratios - Core Bank:

Nonperforming loans to total loans		0.40	%		0.42	%
Nonperforming assets to total loans (including OREO)		0.40			0.46
Nonperforming assets to total assets		0.32			0.36

*Loans on nonaccrual status include impaired loans.

**Loans past due 90-days-or-more and still accruing consist of smaller balance consumer loans.

Table of Contents

The following table presents the recorded investment in nonaccrual loans and loans past due 90-days-or-more and still on accrual by class of loans:


					Past Due 90-Days-or-More
	Nonaccrual				and Still Accruing Interest*
(in thousands)	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016

Traditional Banking:
Residential real estate:
Owner occupied	$	9,528	$	10,955	$	—	$	—
Owner occupied - correspondent		—		—		—		—
Nonowner occupied		21		852		—		—
Commercial real estate		4,411		2,725		—		—
Construction & land development		68		77		—		—
Commercial & industrial		46		154		—		—
Lease financing receivables		—		—		—		—
Home equity		1,308		1,069		—		—
Consumer:
Credit cards		—		—		—		—
Overdrafts		—		—		—		—
Automobile loans		72		—		—		—
Other consumer		21		60		55		85
Total Traditional Banking		15,475		15,892		55		85
Warehouse lines of credit		—		—		—		—
Total Core Banking		15,475		15,892		55		85

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		—		—		—
Commercial & industrial		—		—		—		—
Republic Credit Solutions		—		—		851		82
Total Republic Processing Group		—		—		851		82

Total	$	15,475	$	15,892	$	906	$	167

* Loans past due 90-days-or-more and still accruing consist of smaller balance consumer loans.

Nonaccrual loans and loans past due 90-days-or-more and still on accrual include both smaller balance, primarily retail, homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. Nonaccrual loans are typically returned to accrual status when all the principal and interest amounts contractually due are brought current and held current for six consecutive months and future contractual payments are reasonably assured. Troubled Debt Restructurings (“TDRs”) on nonaccrual status are reviewed for return to accrual status on an individual basis, with additional consideration given to performance under the modified terms.

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Delinquent Loans

The following tables present the aging of the recorded investment in loans by class of loans:


	30 - 59			60 - 89			90 or More
September 30, 2017	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total

Traditional Banking:
Residential real estate:
Owner occupied	$	1,422		$	442		$	1,715		$	3,579		$	930,147	$	933,726
Owner occupied - correspondent		—			—			—			—			125,643		125,643
Nonowner occupied		658			—			—			658			192,721		193,379
Commercial real estate		—			379			1,708			2,087			1,159,138		1,161,225
Construction & land development		—			—			—			—			138,837		138,837
Commercial & industrial		37			—			—			37			327,177		327,214
Lease financing receivables		—			—			—			—			15,367		15,367
Home equity		130			181			526			837			345,317		346,154
Consumer:
Credit cards		56			40			—			96			19,802		19,898
Overdrafts		208			1			—			209			683		892
Automobile loans		23			25			25			73			63,566		63,639
Other consumer		82			44			54			180			13,067		13,247
Total Traditional Banking		2,616			1,112			4,028			7,756			3,331,465		3,339,221
Warehouse lines of credit		—			—			—			—			571,160		571,160
Total Core Banking		2,616			1,112			4,028			7,756			3,902,625		3,910,381

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—			—			—			—			—		—
Commercial & industrial		—			—			—			—			265		265
Republic Credit Solutions		2,793			626			851			4,270			42,596		46,866
Total Republic Processing Group		2,793			626			851			4,270			42,861		47,131

Total	$	5,409		$	1,738		$	4,879		$	12,026		$	3,945,486	$	3,957,512
Delinquency ratio***		0.14	%		0.04	%		0.12	%		0.30	%

*All loans past due 90-days-or-more, excluding PCI loans and small balance consumer loans, were on nonaccrual status.

**Delinquent status may be determined by either the number of days past due or number of payments past due.

***Represents total loans 30-days-or-more past due by aging category divided by total loans.

Table of Contents


	30 - 59			60 - 89			90 or More
December 31, 2016	Days			Days			Days			Total			Total
(dollars in thousands)	Delinquent			Delinquent			Delinquent*			Delinquent**			Current		Total

Traditional Banking:
Residential real estate:
Owner occupied	$	1,696		$	337		$	2,521		$	4,554		$	995,594	$	1,000,148
Owner occupied - correspondent		—			—			—			—			149,028		149,028
Nonowner occupied		—			—			46			46			156,559		156,605
Commercial real estate		8			—			417			425			1,060,071		1,060,496
Construction & land development		—			—			—			—			119,650		119,650
Commercial & industrial		342			—			—			342			258,684		259,026
Lease financing receivables		—			—			—			—			13,614		13,614
Home equity		316			160			494			970			340,315		341,285
Consumer:
Credit cards		14			4			—			18			13,396		13,414
Overdrafts		159			1			1			161			642		803
Automobile loans		—			—			—			—			52,579		52,579
Other consumer		114			106			85			305			19,439		19,744
Total Traditional Banking		2,649			608			3,564			6,821			3,179,571		3,186,392
Warehouse lines of credit		—			—			—			—			585,439		585,439
Total Core Banking		2,649			608			3,564			6,821			3,765,010		3,771,831

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—			—			—			—			—		—
Commercial & industrial		—			—			—			—			6,695		6,695
Republic Credit Solutions		1,751			304			82			2,137			30,115		32,252
Total Republic Processing Group		1,751			304			82			2,137			36,810		38,947

Total	$	4,400		$	912		$	3,646		$	8,958		$	3,801,820	$	3,810,778
Delinquency ratio***		0.12	%		0.02	%		0.10	%		0.24	%

*All loans past due 90-days-or-more, excluding PCI loans and small balance consumer loans, were on nonaccrual status.

**Delinquent status may be determined by either the number of days past due or number of payments past due.

***Represents total loans 30-days-or-more past due by aging category divided by total loans.

Impaired Loans

Information regarding the Bank’s impaired loans follows:


(in thousands)	September 30, 2017		December 31, 2016

Loans with no allocated Allowance	$	19,419	$	21,416
Loans with allocated Allowance		28,300		31,268

Total impaired loans	$	47,719	$	52,684

Amount of the allocated Allowance	$	4,584	$	4,925

Approximately $2 million and $4 million of impaired loans at September 30, 2017 and December 31, 2016 were PCI loans. Approximately $2 million and $3 million of impaired loans at September 30, 2017 and December 31, 2016 were formerly PCI loans that became classified as “Impaired” through a post-acquisition troubled debt restructuring.

Table of Contents

The following tables present the balance in the Allowance and the recorded investment in loans by portfolio class based on impairment method:


	Allowance for Loan and Lease Losses										Loans
	Individually				PCI with		PCI without				Individually				PCI with		PCI without
September 30, 2017	Evaluated		Collectively		Post Acquisition		Post Acquisition		Total		Evaluated		Collectively		Post Acquisition		Post Acquisition		Total
(dollars in thousands)	Excluding PCI		Evaluated		Impairment		Impairment		Allowance		Excluding PCI		Evaluated		Impairment		Impairment		Loans

Traditional Banking:
Residential real estate:
Owner occupied	$	2,721	$	3,519	$	333	$	—	$	6,573	$	29,581	$	902,290	$	1,673	$	182	$	933,726
Owner occupied - correspondent		—		314		—		—		314		—		125,643		—		—		125,643
Nonowner occupied		7		1,323		7		—		1,337		1,526		191,343		259		251		193,379
Commercial real estate		438		8,295		37		—		8,770		10,898		1,145,554		142		4,631		1,161,225
Construction & land development		112		1,964		—		—		2,076		742		138,095		—		—		138,837
Commercial & industrial		90		1,840		—		—		1,930		356		326,835		—		23		327,214
Lease financing receivables		—		162		—		—		162		—		15,367		—		—		15,367
Home equity		539		3,211		98		—		3,848		1,743		344,223		97		91		346,154
Consumer:
Credit cards		—		606		—		—		606		—		19,898		—		—		19,898
Overdrafts		—		892		—		—		892		—		892		—		—		892
Automobile loans		30		639		—		—		669		97		63,542		—		—		63,639
Other consumer		169		769		3		—		941		602		12,642		3		—		13,247
Total Traditional Banking		4,106		23,534		478		—		28,118		45,545		3,286,324		2,174		5,178		3,339,221
Warehouse lines of credit		—		1,428		—		—		1,428		—		571,160		—		—		571,160
Total Core Banking		4,106		24,962		478		—		29,546		45,545		3,857,484		2,174		5,178		3,910,381

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		—		—		—		—		—		—		—		—		—
Commercial & industrial		—		—		—		—		—		—		265		—		—		265
Republic Credit Solutions		—		10,645		—		—		10,645		—		46,866		—		—		46,866
Total Republic Processing Group		—		10,645		—		—		10,645		—		47,131		—		—		47,131
Total	$	4,106	$	35,607	$	478	$	—	$	40,191	$	45,545	$	3,904,615	$	2,174	$	5,178	$	3,957,512


	Allowance for Loan and Lease Losses										Loans
	Individually				PCI with		PCI without				Individually				PCI with		PCI without
December 31, 2016	Evaluated		Collectively		Post Acquisition		Post Acquisition		Total		Evaluated		Collectively		Post Acquisition		Post Acquisition		Total
(dollars in thousands)	Excluding PCI		Evaluated		Impairment		Impairment		Allowance		Excluding PCI		Evaluated		Impairment		Impairment		Loans

Traditional Banking:
Residential real estate:
Owner occupied	$	3,203	$	3,797	$	158	$	—	$	7,158	$	31,908	$	965,755	$	2,297	$	188	$	1,000,148
Owner occupied - correspondent		—		373		—		—		373		—		149,028		—		—		149,028
Nonowner occupied		65		1,067		7		—		1,139		1,601		154,481		268		255		156,605
Commercial real estate		532		7,501		45		—		8,078		11,769		1,041,678		1,164		5,885		1,060,496
Construction & land development		120		1,730		—		—		1,850		882		118,768		—		—		119,650
Commercial & industrial		227		1,284		—		—		1,511		686		258,317		—		23		259,026
Lease financing receivables		—		136		—		—		136		—		13,614		—		—		13,614
Home equity		433		3,225		99		—		3,757		1,929		339,163		99		94		341,285
Consumer:
Credit cards		—		490		—		—		490		—		13,414		—		—		13,414
Overdrafts		—		675		—		—		675		—		803		—		—		803
Automobile loans		—		526		—		—		526		—		52,579		—		—		52,579
Other consumer		36		735		—		—		771		81		19,662		—		1		19,744
Total Traditional Banking		4,616		21,539		309		—		26,464		48,856		3,127,262		3,828		6,446		3,186,392
Warehouse lines of credit		—		1,464		—		—		1,464		—		585,439		—		—		585,439
Total Core Banking		4,616		23,003		309		—		27,928		48,856		3,712,701		3,828		6,446		3,771,831

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—		—		—		—		—		—		—		—		—		—
Commercial & industrial		—		25		—		—		25		—		6,695		—		—		6,695
Republic Credit Solutions		—		4,967		—		—		4,967		—		32,252		—		—		32,252
Total Republic Processing Group		—		4,992		—		—		4,992		—		38,947		—		—		38,947
Total	$	4,616	$	27,995	$	309	$	—	$	32,920	$	48,856	$	3,751,648	$	3,828	$	6,446	$	3,810,778

Table of Contents

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016. The difference between the “Unpaid Principal Balance” and “Recorded Investment” columns represents life-to-date partial write downs/charge offs taken on individual impaired credits.


	As of						Three Months Ended						Nine Months Ended
	September 30, 2017						September 30, 2017						September 30, 2017
											Cash Basis						Cash Basis
	Unpaid						Average		Interest		Interest		Average		Interest		Interest
	Principal		Recorded		Allocated		Recorded		Income		Income		Recorded		Income		Income
(in thousands)	Balance		Investment		Allowance		Investment		Recognized		Recognized		Investment		Recognized		Recognized

Impaired loans with no allocated Allowance:
Residential real estate:
Owner occupied	$	11,438	$	10,620	$	—	$	11,166	$	39	$	—	$	11,713	$	117	$	—
Owner occupied - correspondent		—		—		—		—		—		—		—		—		—
Nonowner occupied		1,512		1,445		—		1,494		23		—		1,444		62		—
Commercial real estate		6,787		5,618		—		5,127		19		—		5,140		58		—
Construction & land development		596		596		—		597		7		—		537		22		—
Commercial & industrial		45		45		—		195		—		—		128		1		—
Lease financing receivables		—		—		—		—		—		—		—		—		—
Home equity		1,026		953		—		1,213		2		—		1,281		10		—
Consumer		142		142		—		92		2		—		67		5		—
Impaired loans with allocated Allowance:
Residential real estate:
Owner occupied		20,689		20,634		3,054		20,682		177		—		20,943		529		—
Owner occupied - correspondent		—		—		—		—		—		—		—		—		—
Nonowner occupied		340		340		14		410		5		—		450		15		—
Commercial real estate		5,422		5,422		475		4,895		66		—		5,819		196		—
Construction & land development		146		146		112		149		1		—		275		3		—
Commercial & industrial		311		311		90		230		2		—		308		7		—
Lease financing receivables		—		—		—		—		—		—		—		—		—
Home equity		929		887		637		834		—		—		820		11		—
Consumer		560		560		202		349		2		—		206		8		—
Total impaired loans	$	49,943	$	47,719	$	4,584	$	47,433	$	345	$	—	$	49,131	$	1,044	$	—


	As of						Three Months Ended						Nine Months Ended
	December 31, 2016						September 30, 2016						September 30, 2016
											Cash Basis						Cash Basis
	Unpaid						Average		Interest		Interest		Average		Interest		Interest
	Principal		Recorded		Allocated		Recorded		Income		Income		Recorded		Income		Income
(in thousands)	Balance		Investment		Allowance		Investment		Recognized		Recognized		Investment		Recognized		Recognized

Impaired loans with no allocated Allowance:
Residential real estate:
Owner occupied	$	13,727	$	12,629	$	—	$	13,702	$	37	$	—	$	13,376	$	104	$	—
Owner occupied - correspondent		—		—		—		—		—		—		—		—		—
Non owner occupied		1,399		1,376		—		891		—		—		1,431		—		—
Commercial real estate		6,610		5,536		—		6,349		32		—		6,764		109		—
Construction & land development		476		476		—		476		5		—		874		15		—
Commercial & industrial		67		67		—		192		2		—		103		5		—
Lease financing receivables		—		—		—		—		—		—		—		—		—
Home equity		1,358		1,287		—		1,610		3		—		1,874		14		—
Consumer		45		45		—		47		—		—		69		—		—
Impaired loans with allocated Allowance:
Residential real estate:
Owner occupied		21,595		21,576		3,361		22,803		204		—		23,936		600		—
Owner occupied - correspondent		—		—		—		—		—		—		—		—		—
Non owner occupied		491		493		73		832		11		—		977		31		—
Commercial real estate		7,397		7,397		577		9,191		93		—		9,369		280		—
Construction & land development		405		406		120		421		5		—		482		15		—
Commercial & industrial		619		619		227		179		—		—		841		—		—
Lease financing receivables		—		—		—		—		—		—		—		—		—
Home equity		742		741		532		236		5		—		203		11		—
Consumer		37		36		35		39		—		—		42		1		—
Total impaired loans	$	54,968	$	52,684	$	4,925	$	56,968	$	397	$	—	$	60,341	$	1,185	$	—

Table of Contents

Troubled Debt Restructurings

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. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of their debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Bank’s internal underwriting policy.

All TDRs are considered “Impaired,” including PCI loans subsequently restructured. The majority of the Bank’s commercial related and construction TDRs involve a restructuring of financing terms such as a reduction in the payment amount to require only interest and escrow (if required) and/or extending the maturity date of the debt. The substantial majority of the Bank’s residential real estate TDR concessions involve reducing the client’s loan payment through a rate reduction for a set period based on the borrower’s ability to service the modified loan payment. Retail loans may also be classified as TDRs due to legal modifications, such as bankruptcies.

Nonaccrual loans modified as TDRs typically remain on nonaccrual status and continue to be reported as nonperforming loans for a minimum of six consecutive months. Accruing loans modified as TDRs are evaluated for nonaccrual status based on a current evaluation of the borrower’s financial condition and ability and willingness to service the modified debt. At September 30, 2017 and December 31, 2016, $7 million and $10 million of TDRs were on nonaccrual status.

Detail of TDRs differentiated by loan type and accrual status follows:


	Troubled Debt			Troubled Debt			Total
	Restructurings on			Restructurings on			Troubled Debt
	Nonaccrual Status			Accrual Status			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
September 30, 2017 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate	61	$	4,918	201	$	22,384	262	$	27,302
Commercial real estate	6		2,219	13		7,057	19		9,276
Construction & land development	1		68	3		674	4		742
Commercial & industrial	—		—	2		274	2		274
Total troubled debt restructurings	68	$	7,205	219	$	30,389	287	$	37,594


	Troubled Debt			Troubled Debt			Total
	Restructurings on			Restructurings on			Troubled Debt
	Nonaccrual Status			Accrual Status			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
December 31, 2016 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate	79	$	7,199	198	$	21,554	277	$	28,753
Commercial real estate	6		2,430	17		8,835	23		11,265
Construction & land development	1		77	4		804	5		881
Commercial & industrial	1		154	2		533	3		687
Total troubled debt restructurings	87	$	9,860	221	$	31,726	308	$	41,586

Table of Contents

The Bank considers a TDR to be performing to its modified terms if the loan is in accrual status and not past due 30-days-or-more as of the reporting date. A summary of the categories of TDR loan modifications outstanding and respective performance under modified terms at September 30, 2017 and December 31, 2016 follows:


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
September 30, 2017 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate loans (including home equity loans):
Interest only payments	1	$	6	1	$	467	2	$	473
Rate reduction	155		19,103	35		3,271	190		22,374
Principal deferral	18		1,937	2		123	20		2,060
Legal modification	23		1,140	27		1,255	50		2,395
Total residential TDRs	197		22,186	65		5,116	262		27,302

Commercial related and construction/land development loans:
Interest only payments	3		864	1		379	4		1,243
Rate reduction	7		3,701	2		210	9		3,911
Principal deferral	8		3,440	4		1,698	12		5,138
Total commercial TDRs	18		8,005	7		2,287	25		10,292
Total troubled debt restructurings	215	$	30,191	72	$	7,403	287	$	37,594


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
December 31, 2016 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate loans (including home equity loans):
Interest only payments	2	$	155	1	$	493	3	$	648
Rate reduction	148		18,125	57		6,213	205		24,338
Principal deferral	7		616	7		306	14		922
Legal modification	17		806	38		2,039	55		2,845
Total residential TDRs	174		19,702	103		9,051	277		28,753

Commercial related and construction/land development loans:
Interest only payments	5		2,666	1		413	6		3,079
Rate reduction	8		4,769	2		228	10		4,997
Principal deferral	10		2,737	5		2,020	15		4,757
Total commercial TDRs	23		10,172	8		2,661	31		12,833
Total troubled debt restructurings	197	$	29,874	111	$	11,712	308	$	41,586

As of September 30, 2017 and December 31, 2016, 80% and 72% of the Bank’s TDRs were performing according to their modified terms. The Bank had provided $3 million and $4 million of specific reserve allocations to clients whose loan terms have been modified in TDRs as of September 30, 2017 and December 31, 2016. The Bank had no commitments to lend any additional material amounts to its existing TDR relationships at September 30, 2017 or December 31, 2016.

Table of Contents

A summary of the categories of TDR loan modifications by respective performance as of September 30, 2017 and 2016 that were modified during the three months ended September 30, 2017 and 2016 follows:


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
September 30, 2017 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate loans (including home equity loans):
Interest only payments	—	$	—	—	$	—	—	$	—
Rate reduction	—		—	—		—	—		—
Principal deferral	7		701	—		—	7		701
Legal modification	6		337	1		131	7		468
Total residential TDRs	13		1,038	1		131	14		1,169

Commercial related and construction/land development loans:
Interest only payments	—		—	—		—	—		—
Rate reduction	—		—	—		—	—		—
Principal deferral	1		242	—		—	1		242
Total commercial TDRs	1		242	—		—	1		242
Total troubled debt restructurings	14	$	1,280	1	$	131	15	$	1,411


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
September 30, 2016 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate loans (including home equity loans):
Interest only payments	—	$	—	—	$	—	—	$	—
Rate reduction	1		262	—		—	1		262
Principal deferral	—		—	—		—	—		—
Legal modification	3		263	1		135	4		398
Total residential TDRs	4		525	1		135	5		660

Commercial related and construction/land development loans:
Interest only payments	—		—	—		—	—		—
Rate reduction	1		88	1		137	2		225
Principal deferral	—		—	1		1,504	1		1,504
Total commercial TDRs	1		88	2		1,641	3		1,729
Total troubled debt restructurings	5	$	613	3	$	1,776	8	$	2,389

The tables above are inclusive of loans that were TDRs at the end of previous periods and were re-modified, e.g., a maturity date extension during the current period.

As of September 30, 2017 and 2016, 91% and 26% of the Bank’s TDRs that occurred during the third quarters of 2017 and 2016 were performing according to their modified terms. The Bank provided approximately $155,000 and $75,000 in specific reserve allocations to clients whose loan terms were modified in TDRs during the third quarters of 2017 and 2016.

There was no significant change between the pre and post modification loan balances for the three months ending September 30, 2017 and 2016.

Table of Contents

A summary of the categories of TDR loan modifications by respective performance as of September 30, 2017 and 2016 that were modified during the nine months ended September 30, 2017 and 2016 follows:


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
September 30, 2017 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate loans (including home equity loans):
Interest only payments	—	$	—	—	$	—	—	$	—
Rate reduction	1		220	—		—	1		220
Principal deferral	9		1,506	—		—	9		1,506
Legal modification	6		337	1		131	7		468
Total residential TDRs	16		2,063	1		131	17		2,194

Commercial related and construction/land development loans:
Interest only payments	—		—	—		—	—		—
Rate reduction	—		—	—		—	—		—
Principal deferral	1		242	—		—	1		242
Total commercial TDRs	1		242	—		—	1		242
Total troubled debt restructurings	17	$	2,305	1	$	131	18	$	2,436


	Troubled Debt			Troubled Debt
	Restructurings			Restructurings			Total
	Performing to			Not Performing to			Troubled Debt
	Modified Terms			Modified Terms			Restructurings
	Number of	Recorded		Number of	Recorded		Number of	Recorded
September 30, 2016 (dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment
Residential real estate loans (including home equity loans):
Interest only payments	—	$	—	—	$	—	—	$	—
Rate reduction	5		494	3		151	8		645
Principal deferral	—		—	—		—	—		—
Legal modification	5		350	3		212	8		562
Total residential TDRs	10		844	6		363	16		1,207
Commercial related and construction/land development loans:
Interest only payments	—		—	—		—	—		—
Rate reduction	1		88	1		137	2		225
Principal deferral	—		—	1		1,504	1		1,504
Total commercial TDRs	1		88	2		1,641	3		1,729
Total troubled debt restructurings	11	$	932	8	$	2,004	19	$	2,936

As of September 30, 2017 and 2016, 95% and 32% of the Bank’s TDRs that occurred during the first nine months of 2017 and 2016 were performing according to their modified terms. The Bank provided approximately $186,000 and $75,000 in specific reserve allocations to clients whose loan terms were modified in TDRs during the first nine months of 2017 and 2016.

There was no significant change between the pre and post modification loan balances for the nine months ending September 30, 2017 and 2016.

Table of Contents

The following table presents loans by class modified as troubled debt restructurings within the previous 12 months of September 30, 2017 and 2016 and for which there was a payment default during the three and/or nine months ended September 30, 2017 and 2016.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
		Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded
(dollars in thousands)	Loans	Investment		Loans	Investment		Loans	Investment		Loans	Investment

Residential real estate:
Owner occupied	1	$	131	3	$	150	1	$	131	4	$	359
Owner occupied - correspondent	—		—	—		—	—		—	—		—
Nonowner occupied	—		—	—		—	—		—	—		—
Commercial real estate	—		—	—		—	—		—	1		88
Construction & land development	—		—	—		—	—		—	—		—
Commercial & industrial	—		—	—		—	—		—	—		—
Lease financing receivables	—		—	—		—	—		—	—		—
Home equity	—		—	1		135	—		—	1		135
Consumer	—		—	—		—	—		—	—		—

Total	1	$	131	4	$	285	1	$	131	6	$	582

Foreclosures

The following table presents the carrying amount of foreclosed properties held at September 30, 2017 and December 31, 2016 as a result of the Bank obtaining physical possession of such properties:


(in thousands)	September 30, 2017		December 31, 2016

Residential real estate	$	167	$	1,391

Total other real estate owned	$	167	$	1,391

The following table presents the recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction as of September 30, 2017 and December 31, 2016:


(in thousands)	September 30, 2017		December 31, 2016

Recorded investment in consumer residential real estate mortgage loans in the process of foreclosure	$	1,259	$	1,677

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Easy Advances

The Company’s TRS segment offered its EA product during the first two months of 2017 and 2016. The Company based its estimated provision for loan losses of EAs on current year EA delinquency information and prior year IRS funding patterns of federal tax refunds subsequent to the first quarter.

Additional information regarding EAs follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands)	2017		2016		2017			2016

Easy Advances originated	$	—	$	—	$	328,523		$	123,230
Net Charge (Credit) to the Provision for Easy Advances		(840)		(89)		7,041			3,127
Provision to total Easy Advances originated		NA		NA		2.14	%		2.54	%
Easy Advances net charge-offs (recoveries)	$	(840)	$	(89)	$	7,041		$	3,127
Easy Advances net charge-offs to total Easy Advances originated		NA		NA		2.14	%		2.54	%

NA – Not applicable

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6. DEPOSITS

Ending deposit balances at September 30, 2017 and December 31, 2016 were as follows:


(in thousands)	September 30, 2017		December 31, 2016

Core Bank:
Demand	$	940,081	$	872,709
Money market accounts		540,521		541,622
Brokered money market accounts		302,469		360,597
Savings		182,153		164,410
Individual retirement accounts*		46,967		42,642
Time deposits, $250 and over*		76,362		37,200
Other certificates of deposit*		177,606		140,894
Brokered certificates of deposit*		41,561		28,666
Total Core Bank interest-bearing deposits		2,307,720		2,188,740
Total Core Bank noninterest-bearing deposits		991,218		943,459
Total Core Bank deposits		3,298,938		3,132,199

Republic Processing Group ("RPG"):
Money market accounts		1,595		—
Total RPG interest-bearing deposits		1,595		—

Brokered prepaid card deposits		1,167		15
Other noninterest-bearing deposits		48,029		28,478
Total RPG noninterest-bearing deposits		49,196		28,493
Total RPG deposits		50,791		28,493

Total deposits	$	3,349,729	$	3,160,692

*Represents a time deposit.

The following table summarizes deposits assumed in the Company’s May 17, 2016 Cornerstone acquisition, finalized as of October 1, 2016:


	May 17, 2016
(in thousands)	Contractual Principal		Fair Value Adjustment		Acquisition-Day Fair Value

Demand	$	59,507	$	—	$	59,507
Money market accounts		53,773		—		53,773
Savings		12,352		—		12,352
Individual retirement accounts*		3,897		13		3,910
Time deposits, $250 and over*		3,385		12		3,397
Other certificates of deposit*		19,343		67		19,410

Total interest-bearing deposits		152,257		92		152,349
Total noninterest-bearing deposits		52,908		—		52,908

Total deposits	$	205,165	$	92	$	205,257

*Represents a time deposit.

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7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS

Securities sold under agreements to repurchase consist of short-term excess funds from correspondent banks, repurchase agreements and overnight liabilities to deposit clients arising from the Bank’s treasury management program. While comparable to deposits in their transactional nature, these overnight liabilities to clients are in the form of repurchase agreements. Repurchase agreements collateralized by securities are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. Should the fair value of currently pledged securities fall below the associated repurchase agreements, the Bank would be required to pledge additional securities. To mitigate the risk of under collateralization, the Bank typically pledges at least two percent more in securities than the associated repurchase agreements. All such securities are under the Bank’s control.

At September 30, 2017 and December 31, 2016, all securities sold under agreements to repurchase had overnight maturities. Information regarding securities sold under agreements to repurchase follows:


(dollars in thousands)	September 30, 2017			December 31, 2016

Outstanding balance at end of period	$	173,311		$	173,473
Weighted average interest rate at end of period		0.37	%		0.05	%

Fair value of securities pledged:
U.S. Treasury securities and U.S. Government agencies	$	74,655		$	116,025
Mortgage backed securities - residential		58,437			45,894
Collateralized mortgage obligations		55,551			41,155
Total securities pledged	$	188,643		$	203,074


	Three Months Ended							Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2017			2016			2017			2016

Average outstanding balance during the period	$	208,160		$	215,343		$	202,018		$	296,574
Average interest rate during the period		0.31	%		0.02	%		0.22	%		0.02	%
Maximum outstanding at any month end during the period	$	173,311		$	169,691		$	183,709		$	367,373

8. FEDERAL HOME LOAN BANK ADVANCES

At September 30, 2017 and December 31, 2016, FHLB advances were as follows:


(dollars in thousands)	September 30, 2017		December 31, 2016

Overnight advances	$	350,000	$	285,000
Variable interest rate advance indexed to 3-Month LIBOR plus 0.14% due in December 2017		10,000		10,000
Fixed interest rate advances		397,500		457,500
Putable fixed interest rate advances		—		50,000
Total FHLB advances	$	757,500	$	802,500

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Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances that are paid off earlier than maturity. FHLB advances are collateralized by a blanket pledge of eligible real estate loans. At September 30, 2017 and December 31, 2016, Republic had available borrowing capacity of $337 million and $378 million, respectively, from the FHLB. In addition to its borrowing capacity with the FHLB, Republic also had unsecured lines of credit totaling $125 million and $150 million available through various other financial institutions as of September 30, 2017 and December 31, 2016.

Aggregate future principal payments on FHLB advances based on contractual maturity and the weighted average cost of such advances are detailed below:


			Weighted
			Average
Year (dollars in thousands)	Principal		Rate

2017 (Overnight)	$	350,000	1.17	%
2017 (Term)		30,000	1.32
2018		117,500	1.53
2019		100,000	1.80
2020		120,000	1.81
2021		20,000	1.86
2022		10,000	2.08
Thereafter		10,000	2.14
Total	$	757,500	1.46

Due to their nature, the Bank considers average balance information more meaningful than period-end balances for its overnight borrowings from the FHLB. Information regarding overnight FHLB advances follows:


(dollars in thousands)	September 30, 2017			December 31, 2016

Outstanding balance at end of period	$	350,000		$	285,000
Weighted average interest rate at end of period		1.17	%		0.64	%


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2017			2016			2017			2016

Average outstanding balance during the period	$	224,402		$	99,946		$	149,707		$	78,960
Average interest rate during the period		1.17	%		0.44	%		1.03	%		0.42	%
Maximum outstanding at any month end during the period	$	350,000		$	430,000		$	625,000		$	495,000

The following table illustrates real estate loans pledged to collateralize advances and letters of credit with the FHLB:


(in thousands)	September 30, 2017		December 31, 2016

First lien, single family residential real estate	$	1,127,811	$	1,172,161
Home equity lines of credit		315,289		300,681
Multi-family commercial real estate		—		14,913

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9. OFF BALANCE SHEET RISKS, COMMITMENTS AND CONTINGENT LIABILITIES

The Company, in the normal course of business, is party to financial instruments with off balance sheet risk. These financial instruments primarily include commitments to extend credit and standby letters of credit. The contract or notional amounts of these instruments reflect the potential future obligations of the Company pursuant to those financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Company’s credit policies. Collateral from the client may be required based on the Company’s credit evaluation of the client and may include business assets of commercial clients, as well as personal property and real estate of individual clients or guarantors.

The Company also extends binding commitments to clients and prospective clients. Such commitments assure a borrower of financing for a specified period of time at a specified rate. Additionally, the Company makes binding purchase commitments to third-party loan correspondent originators. These commitments assure that the Company will purchase a loan from such correspondent originators at a specific price for a specific period of time. The risk to the Company under such loan commitments is limited by the terms of the contracts. For example, the Company may not be obligated to advance funds if the client’s financial condition deteriorates or if the client fails to meet specific covenants.

An approved but unfunded loan commitment represents a potential credit risk and a liquidity risk, since the Company’s client(s) may demand immediate cash that would require funding. In addition, unfunded loan commitments represent interest rate risk as market interest rates may rise above the rate committed to the Company’s client. Since a portion of these loan commitments normally expire unused, the total amount of outstanding commitments at any point in time may not require future funding.

The following table presents the Company’s commitments, exclusive of Mortgage Banking loan commitments, for each period ended:


(in thousands)	September 30, 2017		December 31, 2016

Unused warehouse lines of credit	$	518,840	$	453,110
Unused home equity lines of credit		364,319		341,434
Unused loan commitments - other		792,405		560,629
Commitments to purchase loans*		893		3,176
Standby letters of credit		11,195		15,568
Total commitments	$	1,687,652	$	1,373,917

*Commitments made through the Bank's Correspondent Lending channel.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, the Company also has liquidity risk associated with standby letters of credit because funding for these obligations could be required immediately. The Company does not deem this risk to be material.

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10. FAIR VALUE

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Bank used the following methods and significant assumptions to estimate fair value:

Securities available for sale: Quoted market prices in an active market are available for the Bank’s Community Reinvestment Act (“CRA”) mutual fund investment and fall within Level 1 of the fair value hierarchy.

Except for the Bank’s CRA mutual fund investment, its private label mortgage backed security and its TRUP investment, the fair value of securities available for sale is typically determined by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The Bank’s private label mortgage backed security remains illiquid, and as such, the Bank classifies this security as a Level 3 security in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. Based on this determination, the Bank utilized an income valuation model (present value model) approach in determining the fair value of this security.

See in this section of the filing under Footnote 3 “Investment Securities” for additional discussion regarding the Bank’s private label mortgage backed security.

For its TRUP investment, the Company considered the most recent bid price for the same instrument to approximate market value at September 30, 2017. The Company’s TRUP investment is considered highly illiquid and also valued using Level 3 inputs, as the most recent bid price for this instrument is not always considered generally observable.

Mortgage loans held for sale, at fair value: The fair value of mortgage loans held for sale is determined using quoted secondary market prices. Mortgage loans held for sale are classified as Level 2 in the fair value hierarchy.

Consumer loans held for sale, at fair value: During 2016, RCS initiated an installment loan program and elected to carry all loans originated through this program at fair value. Such loans are generally sold within 21 days of origination, with their fair value based on contractual terms, Level 3 inputs.

Mortgage Banking derivatives: Mortgage Banking derivatives used in the ordinary course of business primarily consist of mandatory forward sales contracts (“forward contracts”) and interest rate lock loan commitments. The fair value of the Bank’s derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. The pricing is derived from market observable inputs that can generally be verified and do not typically involve significant judgment by the Bank. Forward contracts and rate-lock loan commitments are classified as Level 2 in the fair value hierarchy.

Interest rate swap agreements: Interest rate swaps are recorded at fair value on a recurring basis. The Company values its interest rate swaps using a third-party valuation service and classifies such valuations as Level 2. Valuations of these interest rate swaps are also received from the relevant dealer counterparty and validated against the Company’s calculations. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets and has considered its own credit risk in the valuation of its interest rate swap liabilities.

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Impaired loans: Collateral-dependent impaired loans generally reflect partial charge-downs to their respective fair value, which is commonly based on recent real estate appraisals or broker price opinions (“BPOs”). These appraisals or BPOs may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the process by the independent experts to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Collateral-dependent loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Premises and Equipment carried at fair value: Premises and equipment are accounted for at the lower of cost less accumulated depreciation or fair value less estimated costs to sell. The fair value of Bank premises are commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other real estate owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals or BPOs. These appraisals or BPOs may utilize a single approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the process by the independent experts to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for collateral-dependent impaired loans, impaired premises and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Bank. Once the appraisal is received, a member of the Bank’s Credit Administration Department reviews the assumptions and approaches utilized in the appraisal, as well as the overall resulting fair value in comparison with independent data sources, such as recent market data or industry-wide statistics. On at least an annual basis, the Bank performs a back test of collateral appraisals by comparing actual selling prices on recent collateral sales to the most recent appraisal of such collateral. Back tests are performed for each collateral class, e.g., residential real estate or commercial real estate, and may lead to additional adjustments to the value of unliquidated collateral of similar class.

Mortgage servicing rights: On at least a quarterly basis, MSRs are evaluated for impairment based upon the fair value of the MSRs as compared to carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded and the respective individual tranche is carried at fair value. If the carrying amount of an individual tranche does not exceed fair value, impairment is reversed if previously recognized and the carrying value of the individual tranche is based on the amortization method. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and can generally be validated against available market data (Level 2). There were no MSR tranches carried at fair value at September 30, 2017 and December 31, 2016.

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Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Bank has elected the fair value option, are summarized below:


	Fair Value Measurements at
	September 30, 2017 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Securities available for sale:
U.S. Treasury securities and U.S. Government agencies	$	—	$	236,259	$	—	$	236,259
Private label mortgage backed security		—		—		4,575		4,575
Mortgage backed securities - residential		—		104,002		—		104,002
Collateralized mortgage obligations		—		92,234		—		92,234
Freddie Mac preferred stock		—		407		—		407
Community Reinvestment Act mutual fund		2,481		—		—		2,481
Corporate bonds		—		15,261		—		15,261
Trust preferred security		—		—		3,500		3,500
Total securities available for sale	$	2,481	$	448,163	$	8,075	$	458,719

Mortgage loans held for sale	$	—	$	4,083	$	—	$	4,083
Consumer loans held for sale		—		—		3,368		3,368
Rate lock loan commitments		—		484		—		484
Interest rate swap agreements		—		620		—		620

Financial liabilities:
Mandatory forward contracts	$	—	$	44	$	—	$	44
Interest rate swap agreements		—		905		—		905


	Fair Value Measurements at
	December 31, 2016 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Securities available for sale:
U.S. Treasury securities and U.S. Government agencies	$	—	$	294,544	$	—	$	294,544
Private label mortgage backed security		—		—		4,777		4,777
Mortgage backed securities - residential		—		73,004		—		73,004
Collateralized mortgage obligations		—		87,654		—		87,654
Freddie Mac preferred stock		—		483		—		483
Community Reinvestment Act mutual fund		2,455		—		—		2,455
Corporate bonds		—		15,158		—		15,158
Trust preferred security		—		—		3,200		3,200
Total securities available for sale	$	2,455	$	470,843	$	7,977	$	481,275

Mortgage loans held for sale	$	—	$	11,662	$	—	$	11,662
Consumer loans held for sale		—		—		2,198		2,198
Rate lock loan commitments		—		299		—		299
Mandatory forward contracts		—		204		—		204
Interest rate swap agreements		—		305		—		305

Financial liabilities:
Interest rate swap agreements	$	—	$	597	$	—		597

All transfers between levels are generally recognized at the end of each quarter. There were no transfers into or out of Level 1, 2 or 3 assets during the three and nine months ended September 30, 2017 and 2016.

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Private Label Mortgage Backed Security

The following table presents a reconciliation of the Bank’s private label mortgage backed security measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods ended September 30, 2017 and 2016:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Balance, beginning of period	$	4,540	$	4,946	$	4,777	$	5,132
Total gains or losses included in earnings:
Net change in unrealized gain		91		57		244		(91)
Principal paydowns		(56)		(135)		(446)		(173)
Balance, end of period	$	4,575	$	4,868	$	4,575	$	4,868

The fair value of the Bank’s single private label mortgage backed security is supported by analysis prepared by an independent third party. The third party’s approach to determining fair value involved several steps: 1) detailed collateral analysis of the underlying mortgages, including consideration of geographic location, original loan-to-value and the weighted average Fair Isaac Corporation (“FICO”) score of the borrowers; 2) collateral performance projections for each pool of mortgages underlying the security (probability of default, severity of default, and prepayment probabilities); and 3) discounted cash flow modeling.

The significant unobservable inputs in the fair value measurement of the Bank’s single private label mortgage backed security are prepayment rates, probability of default and loss severity in the event of default. Significant fluctuations in any of those inputs in isolation would result in a significantly lower/higher fair value measurement.

The following tables present quantitative information about recurring Level 3 fair value measurement inputs for the Bank’s single private label mortgage backed security at September 30, 2017 and December 31, 2016:


	Fair		Valuation
September 30, 2017 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range

Private label mortgage backed security	$	4,575	Discounted cash flow	(1) Constant prepayment rate	3.5% - 6.5%

				(2) Probability of default	2.5% - 8.0%

				(3) Loss severity	60% - 85%


	Fair		Valuation
December 31, 2016 (dollars in thousands)	Value		Technique	Unobservable Inputs	Range

Private label mortgage backed security	$	4,777	Discounted cash flow	(1) Constant prepayment rate	2.0% - 6.5%

				(2) Probability of default	3.0% - 9.0%

				(3) Loss severity	60% - 90%

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Trust Preferred Security

The Company invested in its TRUP in November 2015. The following table presents a reconciliation of the Company’s TRUP measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2017 and 2016:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Balance, beginning of period	$	3,453	$	3,150	$	3,200	$	3,405
Total gains or losses included in earnings:
Discount accretion		11		11		33		33
Net change in unrealized loss		36		(61)		267		(338)
Balance, end of period	$	3,500	$	3,100	$	3,500	$	3,100

The fair value of the Company’s TRUP investment is based on the most recent bid price for this instrument, as provided by a third-party broker.

Mortgage Loans Held for Sale

The Bank has elected the fair value option for mortgage loans held for sale. These loans are intended for sale and the Bank believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loans and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more or on nonaccrual as of September 30, 2017 and December 31, 2016.

As of September 30, 2017 and December 31, 2016, the aggregate fair value, contractual balance, and unrealized gain was as follows:


(in thousands)	September 30, 2017		December 31, 2016

Aggregate fair value	$	4,083	$	11,662
Contractual balance		3,980		11,568
Unrealized gain		103		94

The total amount of gains and losses from changes in fair value included in earnings for the three and nine months ended September 30, 2017 and 2016 for mortgage loans held for sale are presented in the following table:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Interest income	$	102	$	76	$	255	$	148
Change in fair value		(102)		57		9		155
Total included in earnings	$	—	$	133	$	264	$	303

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Consumer Loans Held for Sale

During 2016, the RCS segment of the Company’s RPG segment initiated an installment loan program and elected to carry all loans originated through this program at fair value. Such loans are generally sold within 21 days of origination, with their fair value based on contractual terms. Interest income is recorded based on the contractual terms of the loan and in accordance with Bank policy for such instruments. None of these loans were past due 90-days-or-more or on nonaccrual as of September 30, 2017 and 2016.

A reconciliation of the Company’s consumer loans held for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September, 2017 and 2016 is included in Footnote 4 of this section of the filing.

The significant unobservable inputs in the fair value measurement of the Bank’s installment loans are the net contractual premiums and level of loans sold at a discount price. Significant fluctuations in any of those inputs in isolation would result in a significantly lower/higher fair value measurement.

The following table presents quantitative information about recurring Level 3 fair value measurement inputs for installment loans as of September 30, 2017 and December 31, 2016:


	Fair		Valuation
September 30, 2017 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate

Consumer loans held for sale	$	3,368	Contractual Terms	(1) Net Premium	0.9%

				(2) Discounted Sales	5.0%


	Fair		Valuation
December 31, 2016 (dollars in thousands)	Value		Technique	Unobservable Inputs	Rate

Consumer loans held for sale	$	2,198	Contractual Terms	(1) Net Premium	0.9%

				(2) Discounted Sales	5.0%

As of September 30, 2017 and December 31, 2016 the aggregate fair value, contractual balance, and unrealized gain on consumer loans held for sale, at fair value, was as follows:


(in thousands)	September 30, 2017		December 31, 2016

Aggregate fair value	$	3,368	$	2,198
Contractual balance		3,189		2,084
Unrealized gain		179		114

The total amount of net gains from changes in fair value included in earnings for the three and nine months ended September 30, 2017 and 2016 for consumer loans held for sale, at fair value, are presented in the following table:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Interest income	$	240	$	378	$	748	$	537
Change in fair value		7		(279)		65		83
Total included in earnings	$	247	$	99	$	813	$	620

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Assets measured at fair value on a non-recurring basis are summarized below:


	Fair Value Measurements at
	September 30, 2017 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value

Impaired loans:
Residential real estate:
Owner occupied	$	—	$	—	$	4,206	$	4,206
Nonowner occupied		—		—		26		26
Commercial real estate		—		—		2,668		2,668
Home equity		—		—		449		449
Total impaired loans*	$	—	$	—	$	7,349	$	7,349

Other real estate owned:
Residential real estate	$	—	$	—	$	83	$	83
Total other real estate owned	$	—	$	—	$	83	$	83

Premises and equipment	$	—	$	—	$	3,196	$	3,196


	Fair Value Measurements at
	December 31, 2016 Using:
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Value

Impaired loans:
Residential real estate:
Owner occupied	$	—	$	—	$	4,787	$	4,787
Nonowner occupied		—		—		8		8
Commercial real estate		—		—		2,643		2,643
Home equity		—		—		426		426
Total impaired loans*	$	—	$	—	$	7,864	$	7,864

Other real estate owned:
Residential real estate	$	—	$	—	$	400	$	400
Total other real estate owned	$	—	$	—	$	400	$	400

Premises and equipment	$	—	$	—	$	2,407	$	2,407

* The difference between the carrying value and the fair value of impaired loans measured at fair value is reconciled in a subsequent table of this Footnote.

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The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis:


					Range
	Fair		Valuation	Unobservable	(Weighted
September 30, 2017 (dollars in thousands)	Value		Technique	Inputs	Average)

Impaired loans - residential real estate owner occupied	$	4,206	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 53% (6%)

Impaired loans - residential real estate nonowner occupied	$	26	Sales comparison approach	Adjustments determined for differences between comparable sales	4% (4%)

Impaired loans - commercial real estate	$	1,357	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 23% (8%)

Impaired loans - commercial real estate	$	1,311	Income approach	Adjustments for differences between net operating income expectations	17% (17%)

Impaired loans - home equity	$	449	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 71% (24%)

Other real estate owned - residential real estate	$	83	Sales comparison approach	Adjustments determined for differences between comparable sales	86% (86%)

Premises and equipment	$	3,196	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 61% (18%)

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					Range
	Fair		Valuation	Unobservable	(Weighted
December 31, 2016 (dollars in thousands)	Value		Technique	Inputs	Average)

Impaired loans - residential real estate owner occupied	$	4,787	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 53% (6%)

Impaired loans - residential real estate nonowner occupied	$	8	Sales comparison approach	Adjustments determined for differences between comparable sales	0% (0%)

Impaired loans - commercial real estate	$	1,214	Sales comparison approach	Adjustments determined for differences between comparable sales	3% - 49% (30%)

Impaired loans - commercial real estate	$	1,429	Income approach	Adjustments for differences between net operating income expectations	17% (17%)

Impaired loans - home equity	$	426	Sales comparison approach	Adjustments determined for differences between comparable sales	0% - 29% (16%)

Other real estate owned - residential real estate	$	400	Sales comparison approach	Adjustments determined for differences between comparable sales	17% (17%)

Premises and equipment	$	2,407	Sales comparison approach	Adjustments determined for differences between comparable sales	6% - 50% (22%)

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Impaired Loans

Collateral-dependent impaired loans are generally measured for impairment using the fair value for reasonable disposition of the underlying collateral. The Bank’s practice is to obtain new or updated appraisals or BPOs on the loans subject to the initial impairment review and then to evaluate the need for an update to this value on an as-necessary or possibly annual basis thereafter (depending on the market conditions impacting the value of the collateral). The Bank may discount the valuation amount as necessary for selling costs and past due real estate taxes. If a new or updated appraisal or BPO is not available at the time of a loan’s impairment review, the Bank may apply a discount to the existing value of an old valuation to reflect the property’s current estimated value if it is believed to have deteriorated in either: (i) the physical or economic aspects of the subject property or (ii) material changes in market conditions. The impairment review generally results in a partial charge-off of the loan if fair value less selling costs are below the loan’s carrying value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

Impaired collateral-dependent loans are as follows:


(in thousands)	September 30, 2017		December 31, 2016

Carrying amount of loans measured at fair value	$	6,576	$	6,963
Estimated selling costs considered in carrying amount		862		936
Valuation allowance		(89)		(35)
Total fair value	$	7,349	$	7,864


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Provisions on collateral-dependent, impaired loans	$	59	$	(16)	$	281	$	(40)

Other Real Estate Owned

Other real estate owned, which is carried at the lower of cost or fair value, is periodically assessed for impairment based on fair value at the reporting date. Fair value is determined from external appraisals or BPOs using judgments and estimates of external professionals. Many of these inputs are not observable and, accordingly, these measurements are classified as Level 3.

Details of other real estate owned carrying value and write downs follow:



(in thousands)	September 30, 2017		December 31, 2016

Other real estate owned carried at fair value	$	83	$	400
Other real estate owned carried at cost		84		991
Total carrying value of other real estate owned	$	167	$	1,391


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Other real estate owned write-downs during the period	$	76	$	200	$	155	$	200

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Premises and Equipment

The Company’s Traditional Banking segment classified four of its former banking centers as held for sale as of September 30, 2017, with three of these former banking centers classified as held for sale as of December 31, 2016. Impairment charges are recorded when the value of a piece of property is reappraised or reassessed below the property’s then-carrying value. Impairment charges related to these properties were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Impairment charges on premises and equipment	$	965	$	58	$	1,082	$	133

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The carrying amounts and estimated fair values of all financial instruments at September 30, 2017 and December 31, 2016 follows:


			Fair Value Measurements at
			September 30, 2017:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value

Assets:
Cash and cash equivalents	$	329,862	$	329,862	$	—	$	—	$	329,862
Securities available for sale		458,719		2,481		448,163		8,075		458,719
Securities held to maturity		65,177		—		65,949		—		65,949
Mortgage loans held for sale, at fair value		4,083		—		4,083		—		4,083
Consumer loans held for sale, at fair value		3,368		—		—		3,368		3,368
Consumer loans held for sale, at the lower of cost or fair value		5,684		—		5,684		—		5,684
Loans, net		3,917,321		—		—		3,895,200		3,895,200
Federal Home Loan Bank stock		32,067		—		—		—		NA
Accrued interest receivable		11,357		—		11,357		—		11,357

Liabilities:
Noninterest-bearing deposits	$	1,040,414		—	$	1,040,414		—	$	1,040,414
Transaction deposits		1,966,819		—		1,966,819		—		1,966,819
Time deposits		342,496		—		341,510		—		341,510
Securities sold under agreements to repurchase and other short-term borrowings		173,311		—		173,311		—		173,311
Federal Home Loan Bank advances		757,500		—		753,504		—		753,504
Subordinated note		41,240		—		36,188		—		36,188
Accrued interest payable		936		—		936		—		936


			Fair Value Measurements at
			December 31, 2016:
									Total
	Carrying								Fair
(in thousands)	Value		Level 1		Level 2		Level 3		Value

Assets:
Cash and cash equivalents	$	289,309	$	289,309	$	—	$	—	$	289,309
Securities available for sale		481,275		2,455		470,843		7,977		481,275
Securities held to maturity		52,864		—		53,249		—		53,249
Mortgage loans held for sale, at fair value		11,662		—		11,662		—		11,662
Consumer loans held for sale, at fair value		2,198		—		—		2,198		2,198
Consumer loans held for sale, at the lower of cost or fair value		1,310		—		1,310		—		1,310
Loans, net		3,777,858		—		—		3,757,698		3,757,698
Federal Home Loan Bank stock		28,208		—		—		—		NA
Accrued interest receivable		10,356		—		10,356		—		10,356

Liabilities:
Noninterest-bearing deposits	$	971,952		—	$	971,952		—	$	971,952
Transaction deposits		1,939,338		—		1,939,338		—		1,939,338
Time deposits		249,417		—		248,684		—		248,684
Securities sold under agreements to repurchase and other short-term borrowings		173,473		—		173,473		—		173,473
Federal Home Loan Bank advances		802,500		—		798,594		—		798,594
Subordinated note		41,240		—		30,821		—		30,821
Accrued interest payable		948		—		948		—		948

NA - Not applicable

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Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the Bank’s estimates.

The assumptions used in the estimation of the fair value of the Company’s financial instruments are explained below. Where quoted market prices are not available, fair values are based on estimates using discounted cash flow and other valuation techniques. Discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered representative of the liquidation value of the Company’s financial instruments, but rather a good-faith estimate of the fair value of financial instruments held by the Company.

In addition to those previously disclosed, the following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash and cash equivalents — The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Consumer loans held for sale, at lower of cost or fair value – Consumer loans held for sale at the lower of cost or fair value constitute consumer loans generally sold within two business days of origination. The carrying amounts of these loans, due to their nature, approximate fair value and result in a Level 2 classification.

Loans, net of Allowance — The fair value of loans is calculated using discounted cash flows by loan type resulting in a Level 3 classification. The discount rate used to determine the present value of the loan portfolio is an estimated market rate that reflects the credit and interest rate risk inherent in the loan portfolio without considering widening credit spreads due to market illiquidity. The estimated maturity is based on the Bank’s historical experience with repayments adjusted to estimate the effect of current market conditions. The Allowance is considered a reasonable discount for credit risk. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Federal Home Loan Bank stock — It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Accrued interest receivable/payable — The carrying amounts of accrued interest, due to their short-term nature, approximate fair value and result in a Level 2 classification.

Deposits — Fair values for time deposits have been determined using discounted cash flows. The discount rate used is based on estimated market rates for deposits of similar remaining maturities and are classified as Level 2. The carrying amounts of all other deposits, due to their short-term nature, approximate their fair values and are also classified as Level 2.

Securities sold under agreements to repurchase and other short-term borrowings — The carrying amount for securities sold under agreements to repurchase and other short-term borrowings generally maturing within ninety days approximates its fair value resulting in a Level 2 classification.

Federal Home Loan Bank advances — The fair value of the FHLB advances is obtained from the FHLB and is calculated by discounting contractual cash flows using an estimated interest rate based on the current rates available to the Company for debt of similar remaining maturities and collateral terms resulting in a Level 2 classification.

Subordinated note — The fair value for the subordinated note is calculated using discounted cash flows based upon current market spreads to LIBOR for debt of similar remaining maturities and collateral terms resulting in a Level 2 classification.

The fair value estimates presented herein are based on pertinent information available to management as of the respective period ends. Although management is not aware of any factors that would dramatically affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, estimates of fair value may differ significantly from the amounts presented.

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11. MORTGAGE BANKING ACTIVITIES

Activity for mortgage loans held for sale, at fair value, was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Balance, beginning of period	$	6,057	$	12,280	$	11,662	$	4,083
Origination of mortgage loans held for sale		43,489		58,820		119,265		154,607
Transferred from held for investment to held for sale		—		71,201		—		71,201
Proceeds from the sale of mortgage loans held for sale		(46,428)		(136,946)		(130,065)		(227,096)
Net gain on sale of mortgage loans held for sale		965		3,087		3,221		5,647
Balance, end of period	$	4,083	$	8,442	$	4,083	$	8,442

The following table presents the components of Mortgage Banking income:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Net gain realized on sale of mortgage loans held for sale	$	1,161	$	1,754	$	3,275	$	3,861
Net gain realized on sale of mortgage loans transferred from held for investment to held for sale		—		1,129		—		1,129
Net change in fair value recognized on loans held for sale		(102)		57		9		155
Net change in fair value recognized on rate lock loan commitments		(98)		69		185		604
Net change in fair value recognized on forward contracts		4		78		(248)		(102)
Net gain recognized		965		3,087		3,221		5,647

Loan servicing income		527		511		1,590		1,455
Amortization of mortgage servicing rights		(390)		(517)		(1,104)		(1,200)
Net servicing income recognized		137		(6)		486		255
Total Mortgage Banking income	$	1,102	$	3,081	$	3,707	$	5,902

Activity for capitalized mortgage servicing rights was as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Balance, beginning of period	$	5,158	$	4,998	$	5,180	$	4,912
Additions		360		857		1,052		1,626
Amortized to expense		(390)		(517)		(1,104)		(1,200)
Balance, end of period	$	5,128	$	5,338	$	5,128	$	5,338

There was no balance or activity in the valuation allowance for capitalized mortgage servicing rights for the three and nine months ended September 30, 2017 and 2016.

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Other information relating to mortgage servicing rights follows:


(dollars in thousands)	September 30, 2017			December 31, 2016

Fair value of mortgage servicing rights portfolio	$	7,729		$	7,478
Monthly weighted average prepayment rate of unpaid principal balance*		204	%		158	%
Discount rate		10	%		13	%
Weighted average default rate		3.72	%		1.50	%
Weighted average life in years		5.42			6.75

* Rates are applied to individual tranches with similar characteristics.

Mortgage Banking derivatives used in the ordinary course of business primarily consist of mandatory forward sales contracts and interest rate lock loan commitments. Mandatory forward contracts represent future commitments to deliver loans at a specified price and date and are used to manage interest rate risk on loan commitments and mortgage loans held for sale. Interest rate lock loan commitments represent commitments to fund loans at a specific rate. These derivatives involve underlying items, such as interest rates, and are designed to transfer risk. Substantially all of these instruments expire within 90 days from the date of issuance. Notional amounts are amounts on which calculations and payments are based, but which do not represent credit exposure, as credit exposure is limited to the amounts required to be received or paid.

Mandatory forward contracts also contain an element of risk in that the counterparties may be unable to meet the terms of such agreements. In the event the counterparties fail to deliver commitments or are unable to fulfill their obligations, the Bank could potentially incur significant additional costs by replacing the positions at then current market rates. The Bank manages its risk of exposure by limiting counterparties to those banks and institutions deemed appropriate by management and the Board of Directors. The Bank does not expect any counterparty to default on their obligations and therefore, the Bank does not expect to incur any cost related to counterparty default.

The Bank is exposed to interest rate risk on loans held for sale and rate lock loan commitments. As market interest rates fluctuate, the fair value of mortgage loans held for sale and rate lock commitments will decline or increase. To offset this interest rate risk the Bank enters into derivatives, such as mandatory forward contracts to sell loans. The fair value of these mandatory forward contracts will fluctuate as market interest rates fluctuate, and the change in the value of these instruments is expected to largely, though not entirely, offset the change in fair value of loans held for sale and rate lock commitments. The objective of this activity is to minimize the exposure to losses on rate-loan lock commitments and loans held for sale due to market interest rate fluctuations. The net effect of derivatives on earnings will depend on risk management activities and a variety of other factors, including: market interest rate volatility; the amount of rate lock commitments that close; the ability to fill the forward contracts before expiration; and the time period required to close and sell loans.

The following table includes the notional amounts and fair values of mortgage loans held for sale at fair value and mortgage banking derivatives as of the period ends presented:


	September 30, 2017				December 31, 2016
	Notional				Notional
(in thousands)	Amount		Fair Value		Amount		Fair Value

Included in Mortgage loans held for sale:
Mortgage loans held for sale, at fair value	$	3,980	$	4,083	$	11,568	$	11,662

Included in other assets:
Rate lock loan commitments	$	19,810	$	484	$	19,521	$	299
Mandatory forward contracts		—		—		25,618		204

Included in other liabilities:
Mandatory forward contracts	$	24,724	$	44	$	—	$	—

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12. INTEREST RATE SWAPS

Interest rate swap derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a cash flow hedging relationship. For a derivative designated as a cash flow hedge, the effective portion of the derivative’s unrealized gain or loss is recorded as a component of other comprehensive income (“OCI”). For derivatives not designated as hedges, the gain or loss is recognized in current period earnings.

Interest Rate Swaps Used as Cash Flow Hedges

The Bank entered into two interest rate swap agreements (“swaps”) 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.

The swaps were determined to be fully effective during all periods presented; therefore, no amount of ineffectiveness was included in net income. The aggregate fair value of the swaps is recorded in other liabilities with changes in fair value recorded in OCI. The amount included in AOCI would be reclassified to current earnings should the hedge no longer be considered effective. The Bank expects the hedges to remain fully effective during the remaining term of the swaps.

The following table reflects information about swaps designated as cash flow hedges as of September 30, 2017 and December 31, 2016:


								September 30, 2017				December 31, 2016
										Unrealized				Unrealized
		Notional	Pay		Receive			Assets /		Gain (Loss)		Assets /		Gain (Loss)
(dollars in thousands)		Amount	Rate		Rate	Term		(Liabilities)		AOCI		(Liabilities)		in AOCI

Interest rate swap on money market deposits	$	10,000	2.17	%	1M LIBOR	12/2013 - 12/2020	$	(126)	$	(82)	$	(186)	$	(121)
Interest rate swap on FHLB advance		10,000	2.33	%	3M LIBOR	12/2013 - 12/2020		(159)		(103)		(207)		(135)
	$	20,000					$	(285)	$	(185)	$	(393)	$	(256)

The following table reflects the total interest expense recorded on these swap transactions in the consolidated statements of income for the three and nine months ended September 30, 2017 and 2016:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Interest rate swap on money market deposits	$	27	$	42	$	87	$	128
Interest rate swap on FHLB advance		24		41		88		128
Total interest expense on swap transactions	$	51	$	83	$	175	$	256

The following table presents the net gains (losses) recorded in OCI and the consolidated statements of income relating to the swaps designated as cash flow hedges for the three and nine months ended September 30, 2017 and 2016:


\	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Gains (losses) recognized in OCI on derivative (effective portion)	$	9	$	127	$	(67)	$	(663)

Losses reclassified from OCI on derivative (effective portion)		(51)		(83)		(175)		(256)

Gains (losses) recognized in income on derivative (ineffective portion)		—		—		—		—

The estimated net amount of existing losses reported in AOCI at September 30, 2017 expected to be reclassified into earnings within the next 12 months is $156,000.

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Non-hedge Interest Rate Swaps

The Bank enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments to meet client needs, the Bank enters into offsetting positions in order to minimize the Bank’s interest rate risk. These swaps are derivatives, but are not designated as hedging instruments, and therefore changes in fair value are reported in current year earnings.

Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counter party or client owes the Bank, and results in credit risk to the Bank. When the fair value of a derivative instrument contract is negative, the Bank owes the client or counterparty, and therefore, has no credit risk.

A summary of the Bank’s interest rate swaps related to clients as of September 30, 2017 and December 31, 2016 is included in the following table:


		September 30, 2017				December 31, 2016
		Notional				Notional
(in thousands)	Bank Position	Amount		Fair Value		Amount		Fair Value

Interest rate swaps with Bank clients	Pay variable/receive fixed	$	53,536	$	477	$	31,553	$	156
Offsetting interest rate swaps with institutional swap dealer	Pay fixed/receive variable		53,536		(477)		31,553		(55)
Total		$	107,072	$	—	$	63,106	$	101

The Bank is required to pledge securities as collateral when the Bank is in a net loss position exceeding $250,000 for all swaps with dealer counterparties. The fair value of cash or investment securities pledged as collateral by the Bank to cover such net loss positions totaled $1.5 million and $1.8 million at September 30, 2017 and December 31, 2016.

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13. EARNINGS PER SHARE

Class A and Class B Shares participate equally in undistributed earnings. The difference in earnings per share between the two classes of common stock results solely from the 10% per share cash dividend premium paid on Class A Common Stock over that paid on Class B Common Stock.

A reconciliation of the combined Class A and Class B Common Stock numerators and denominators of the earnings per share and diluted earnings per share computations is presented below:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2017		2016		2017		2016

Net income	$	10,706	$	9,828	$	40,794	$	35,903

Weighted average shares outstanding		21,153		20,925		20,921		20,946
Effect of dilutive securities		83		13		79		11
Average shares outstanding including dilutive securities		21,236		20,938		21,000		20,957

Basic earnings per share:
Class A Common Stock	$	0.51	$	0.47	$	1.97	$	1.73
Class B Common Stock		0.47		0.43		1.79		1.58

Diluted earnings per share:
Class A Common Stock	$	0.51	$	0.47	$	1.96	$	1.73
Class B Common Stock		0.47		0.43		1.78		1.57

Stock options excluded from the detailed earnings per share calculation because their impact was antidilutive are as follows:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2017	2016	2017	2016

Antidilutive stock options	4,500	5,000	4,500	7,500
Average antidilutive stock options	3,833	2,500	1,667	5,000

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14. STOCK PLANS AND STOCK BASED COMPENSATION

In January 2015, the Company’s Board of Directors adopted the Republic Bancorp, Inc. 2015 Stock Incentive Plan (the “2015 Plan”), which became effective April 2015 when the Company’s shareholders approved the 2015 Plan. The 2015 Plan replaced the Company’s 2005 Stock Incentive Plan, which expired March 2015.

The number of authorized shares under the 2015 Plan is fixed at 3,000,000, with such number subject to adjustment in the event of certain events, such as stock dividends, stock splits or the like. There is a minimum three-year vesting period for awards granted to employees under the 2015 Plan that vest based solely on the completion of a specified period of service, with options generally exercisable five to six years after the issue date. Stock options generally must be exercised within one year from the date the options become exercisable and have an exercise price that is at least equal to the fair market value of the Company’s stock on their grant date. Forfeitures of stock-based awards are accounted for when incurred in lieu of using forfeiture estimates.

All shares issued under the above-mentioned plans were from authorized and reserved unissued shares. The Company has a sufficient number of authorized and reserved unissued shares to satisfy all anticipated option exercises. There are no Class B stock options outstanding or available for exercise under the Company’s plans.

Stock Options

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes based stock option valuation model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. Expected volatilities are based on historical volatility of Republic’s stock and other factors. Expected dividends are based on dividend trends and the market price of Republic’s stock price at grant. Republic uses historical data to estimate option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve at the time of grant.

All share-based payments to employees, including grants of employee stock options, are recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values.

The following table summarizes stock option activity from January 1, 2016 through September 30, 2017:


				Weighted
		Weighted		Average
	Options	Average		Remaining	Aggregate
	Class A	Exercise		Contractual	Intrinsic
	Shares	Price		Term	Value

Outstanding, January 1, 2016	323,400	$	24.40
Granted	5,000		26.43
Exercised	(4,000)		20.12
Forfeited or expired	(11,800)		24.47
Outstanding, December 31, 2016	312,600	$	24.49	3.77	$	4,705,807

Outstanding, January 1, 2017	312,600	$	24.49
Granted	4,500		35.54
Exercised	(2,000)		16.61
Forfeited or expired	(2,000)		24.93
Outstanding, September 30, 2017	313,100	$	24.69	3.01	$	4,445,192

Fully vested and unvested	313,100	$	24.69	3.01	$	4,445,192
Exercisable (vested) at September 30, 2017	1,500	$	23.65	0.95	$	22,860

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Information related to stock options for each period follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2017		2016		2017		2016

Intrinsic value of options exercised	$	—	$	—	$	44	$	18
Cash received from options exercised, net of shares redeemed		—		—		33		80
Weighted-average fair value per share of options granted		—		—		3.99		3.27

Restricted Stock Awards

Restricted stock awards generally vest five to six years after issue, with accelerated vesting due to “change in control” or “death or disability of a participant” as defined and outlined in the 2015 Plan.

The following table summarizes restricted stock awards activity from January 1, 2016 through September 30, 2017:


	Restricted
	Stock Awards	Weighted-Average
	Class A Shares	Grant Date Fair Value
Outstanding, January 1, 2016	79,000	$	20.02
Granted	—		—
Forfeited	(2,000)		19.85
Earned and issued	—		—
Outstanding, December 31, 2016	77,000	$	20.02

Outstanding, January 1, 2017	77,000	$	20.02
Granted	7,413		35.77
Forfeited	—		—
Earned and issued	(4,803)		35.68
Outstanding, September 30, 2017	79,610	$	20.54

Unvested	79,610	$	20.54

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Performance Stock Units

The Company first granted performance stock units (“PSUs”) under the 2015 Plan in January 2016. Shares of stock underlying the PSUs may be earned over a four-year performance period commencing on January 1, 2017 and ending on December 31, 2020 as follows:

If the Company achieves a Return on Average Assets (“ROAA”), as defined in the award agreement, of 1.25% for a calendar year in the performance period, then between March 1 and March 15 of the following year, provided that the recipient is still employed in good standing on the payment date, the Company will issue shares of fully-vested stock to the participant equal to 50% of the number of the PSUs initially granted to the participant; and

If the ROAA of 1.25% is met again at the end of another calendar year during the remaining term of the performance period, the Company will similarly issue fully vested stock in an amount equal to the remaining 50% of the initial PSUs granted to the participant.

The following table summarizes PSU activity from January 1, 2016 through September 30, 2017:


	Performance
	Stock Units	Weighted-Average
	Class A Shares	Grant Date Fair Value
Outstanding, January 1, 2016	—	$	—
Granted	55,000		23.13
Forfeited	—		—
Earned and issued	—		—
Outstanding, December 31, 2016	55,000	$	23.13

Outstanding, January 1, 2017	55,000	$	23.13
Granted	—		—
Forfeited	(2,500)		25.29
Earned and issued	—		—
Outstanding, September 30, 2017	52,500	$	23.08

Unvested	52,500	$	23.08

Expense Related to the 2015 Stock Incentive Plan

The Company recorded expense related to the 2015 Plan for the three and nine months ended September 30, 2017 and 2016 as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Stock option expense	$	65	$	58	$	191	$	184
Restricted stock award expense		81		72		373		189
Performance stock unit expense		127		127		364		381
Total expense	$	273	$	257	$	928	$	754

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Unrecognized expenses related to unvested awards (net of estimated forfeitures) under the 2015 Plan are estimated as follows:


	Stock			Restricted	Performance
Year Ended (in thousands)	Options			Stock Awards	Stock Units		Total

2017	$	65	$	70	$	127	$	262
2018		257		138		198		593
2019		148		35		—		183
2020		37		27		—		64
2021		5		12		—		17
2022		1		2		—		3
Total	$	513	$	284	$	325	$	1,122

15. OTHER COMPREHENSIVE INCOME

OCI components and related tax effects were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Available for Sale Securities:
Change in unrealized gain (loss) on securities available for sale	$	(237)	$	(788)	$	892	$	1,920
Change in unrealized gain on security available for sale for which a portion of an other-than-temporary impairment has been recognized in earnings		90		57		244		(91)
Net unrealized gains (losses)		(147)		(731)		1,136		1,829
Tax effect		51		255		(399)		(640)
Net of tax		(96)		(476)		737		1,189

Cash Flow Hedges:
Change in fair value of derivatives used for cash flow hedges		9		127		(67)		(663)
Reclassification amount for derivative losses realized in income		51		83		175		256
Net unrealized gains (losses)		60		210		108		(407)
Tax effect		(21)		(75)		(37)		143
Net of tax		39		135		71		(264)

Total other comprehensive income (loss) components, net of tax	$	(57)	$	(341)	$	808	$	925

Significant amounts reclassified out of each component of AOCI for the three and nine months ended September 30, 2017 and 2016:


		Amounts Reclassified From Accumulated
			Other Comprehensive Income
	Affected Line Items	Three Months Ended				Nine Months Ended
	in the Consolidated	September 30,				September 30,
(in thousands)	Statements of Income	2017		2016		2017		2016

Cash Flow Hedges:
Interest rate swap on money market deposits	Interest expense on deposits	$	(27)	$	(42)	$	(87)	$	(128)
Interest rate swap on FHLB advance	Interest expense on FHLB advances		(24)		(41)		(88)		(128)
Total derivative losses on cash flow hedges	Total interest expense		(51)		(83)		(175)		(256)
Tax effect	Income tax expense		18		29		61		90
Net of tax	Net income	$	(33)	$	(54)	$	(114)	$	(166)

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The following is a summary of the AOCI balances, net of tax:


			2017
(in thousands)	December 31, 2016		Change		September 30, 2017

Unrealized gain on securities available for sale	$	237	$	579	$	816
Unrealized gain on security available for sale for which a portion of an other-than-temporary impairment has been recognized in earnings		706		158		864
Unrealized loss on cash flow hedge		(256)		71		(185)
Total unrealized gain	$	687	$	808	$	1,495


			2016
(in thousands)	December 31, 2015		Change		September 30, 2016

Unrealized gain on securities available for sale	$	1,727	$	1,247	$	2,974
Unrealized gain on security available for sale for which a portion of an other-than-temporary impairment has been recognized in earnings		712		(58)		654
Unrealized loss on cash flow hedge		(390)		(264)		(654)
Total unrealized gain	$	2,049	$	925	$	2,974

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16. SEGMENT INFORMATION

Reportable segments are determined by the type of products and services offered and the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business (such as banking centers and business units), which are then aggregated if operating performance, products/services, and clients are similar.

As of September 30, 2017, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending (“Warehouse”), Mortgage Banking, Tax Refund Solutions (“TRS”) and Republic Credit Solutions (“RCS”). Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute Republic Processing Group (“RPG) operations. The Bank’s Correspondent Lending channel and the Company’s national branchless banking platform, MemoryBank, are considered part of the Traditional Banking segment.

The nature of segment operations and the primary drivers of net revenues by reportable segment are provided below:


Reportable Segment:	Nature of Operations:	Primary Drivers of Net Revenues:

Core Banking:

Traditional Banking	Provides traditional banking products to clients primarily in its market footprint via its network of banking centers and to clients outside of its market footprint primarily via its Digital and Correspondent Lending delivery channels.	Loans, investments, and deposits.

Warehouse Lending	Provides short-term, revolving credit facilities to mortgage bankers across the United States.	Mortgage warehouse lines of credit.

Mortgage Banking	Primarily originates, sells and services long-term, single family, first lien residential real estate loans primarily to clients in the Bank's market footprint.	Loan sales and servicing.

Republic Processing Group:

Tax Refund Solutions	TRS offers tax-related credit products and facilitates the receipt and payment of federal and state tax refund products. The RPS division of TRS offers general-purpose reloadable cards. TRS and RPS products are primarily provided to clients outside of the Bank’s market footprint.	Loans, refund transfers, and prepaid cards.

Republic Credit Solutions	Offers short-term credit products. RCS products are primarily provided to clients outside of the Bank’s market footprint.	Unsecured small-dollar, consumer loans.

The accounting policies used for Republic’s reportable segments are the same as those described in the summary of significant accounting policies in the Company’s 2016 Annual Report on Form 10-K. Segment performance is evaluated using operating income. Goodwill is allocated to the Traditional Banking segment. Income taxes are generally allocated based on income before income tax expense unless specific segment allocations can be reasonably made. Transactions among reportable segments are made at carrying value.

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Segment information for the three months ended September 30, 2017 and 2016 follows:


	Three Months Ended September 30, 2017
	Core Banking											Republic Processing Group ("RPG")
									Total			Tax		Republic
	Traditional			Warehouse			Mortgage		Core			Refund		Credit		Total		Total
(dollars in thousands)	Banking			Lending			Banking		Banking			Solutions		Solutions		RPG		Company

Net interest income	$	37,396		$	4,737		$	102	$	42,235		$	60	$	6,012	$	6,072	$	48,307

Provision for loan and lease losses		683			(74)			—		609			(840)		4,452		3,612		4,221

Net refund transfer fees		—			—			—		—			177		—		177		177
Mortgage banking income		—			—			1,102		1,102			—		—		—		1,102
Program fees		—			—			—		—			63		1,534		1,597		1,597
Other noninterest income		7,130			11			65		7,206			16		276		292		7,498
Total noninterest income		7,130			11			1,167		8,308			256		1,810		2,066		10,374

Total noninterest expense		32,280			848			1,149		34,277			2,851		898		3,749		38,026

Income (loss) before income tax expense		11,563			3,974			120		15,657			(1,695)		2,472		777		16,434
Income tax expense (benefit)		3,951			1,454			41		5,446			(615)		897		282		5,728
Net income (loss)	$	7,612		$	2,520		$	79	$	10,211		$	(1,080)	$	1,575	$	495	$	10,706

Segment end-of-period assets	$	4,361,591		$	570,676		$	9,395	$	4,941,662		$	13,090	$	38,422	$	51,512	$	4,993,174

Net interest margin		3.70	%		3.54	%		NM		3.68	%		NM		NM		NM		4.17	%


	Three Months Ended September 30, 2016
	Core Banking											Republic Processing Group ("RPG")
									Total			Tax		Republic
	Traditional			Warehouse			Mortgage		Core			Refund		Credit		Total		Total
(dollars in thousands)	Banking			Lending			Banking		Banking			Solutions		Solutions		RPG		Company

Net interest income	$	31,134		$	4,924		$	76	$	36,134		$	38	$	3,226	$	3,264	$	39,398

Provision for loan and lease losses		289			188			—		477			(89)		2,101		2,012		2,489

Net refund transfer fees		—			—			—		—			132		—		132		132
Mortgage banking income		—			—			3,081		3,081			—		—		—		3,081
Program fees		—			—			—		—			29		950		979		979
Other noninterest income		6,899			4			57		6,960			13		136		149		7,109
Total noninterest income		6,899			4			3,138		10,041			174		1,086		1,260		11,301

Total noninterest expense		28,939			727			1,184		30,850			2,075		609		2,684		33,534

Income (loss) before income tax expense		8,805			4,013			2,030		14,848			(1,774)		1,602		(172)		14,676
Income tax expense (benefit)		2,707			1,493			710		4,910			(642)		580		(62)		4,848
Net income (loss)	$	6,098		$	2,520		$	1,320	$	9,938		$	(1,132)	$	1,022	$	(110)	$	9,828

Segment end-of-period assets	$	4,109,464		$	660,410		$	15,003	$	4,784,877		$	26,608	$	15,792	$	42,400	$	4,827,277

Net interest margin		3.35	%		3.63	%		NM		3.38	%		NM		NM		NM		3.65	%

Segment assets are reported as of the respective period ends while income and margin data are reported for the respective periods.

NM — Not Meaningful

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Segment information for the nine months ended September 30, 2017 and 2016 follows:


	Nine Months Ended September 30, 2017
	Core Banking											Republic Processing Group ("RPG")
									Total			Tax		Republic
	Traditional			Warehouse			Mortgage		Core			Refund		Credit		Total		Total
(dollars in thousands)	Banking			Lending			Banking		Banking			Solutions		Solutions		RPG		Company

Net interest income	$	103,490		$	13,073		$	255	$	116,818		$	15,179	$	15,885	$	31,064	$	147,882

Provision for loan and lease losses		2,611			(36)			—		2,575			6,763		12,295		19,058		21,633

Net refund transfer fees		—			—			—		—			18,329		—		18,329		18,329
Mortgage banking income		—			—			3,707		3,707			—		—		—		3,707
Program fees		—			—			—		—			103		3,869		3,972		3,972
Other noninterest income		20,618			27			192		20,837			152		1,227		1,379		22,216
Total noninterest income		20,618			27			3,899		24,544			18,584		5,096		23,680		48,224

Total noninterest expense		93,552			2,448			3,347		99,347			10,891		2,461		13,352		112,699

Income before income tax expense		27,945			10,688			807		39,440			16,109		6,225		22,334		61,774
Income tax expense		8,684			3,909			282		12,875			5,846		2,259		8,105		20,980
Net income	$	19,261		$	6,779		$	525	$	26,565		$	10,263	$	3,966	$	14,229	$	40,794

Segment end-of-period assets	$	4,361,591		$	570,676		$	9,395	$	4,941,662		$	13,090	$	38,422	$	51,512	$	4,993,174

Net interest margin		3.48	%		3.58	%		NM		3.49	%		NM		NM		NM		4.34	%


	Nine Months Ended September 30, 2016
	Core Banking											Republic Processing Group ("RPG")
									Total			Tax		Republic
	Traditional			Warehouse			Mortgage		Core			Refund		Credit		Total		Total
(dollars in thousands)	Banking			Lending			Banking		Banking			Solutions		Solutions		RPG		Company

Net interest income	$	89,279		$	11,369		$	148	$	100,796		$	6,589	$	7,024	$	13,613	$	114,409

Provision for loan and lease losses		1,567			686			—		2,253			2,905		4,331		7,236		9,489

Net refund transfer fees		—			—			—		—			19,119		—		19,119		19,119
Mortgage banking income		—			—			5,902		5,902			—		—		—		5,902
Program fees		—			—			—		—			174		1,768		1,942		1,942
Other noninterest income		19,380			14			212		19,606			176		279		455		20,061
Total noninterest income		19,380			14			6,114		25,508			19,469		2,047		21,516		47,024

Total noninterest expense		81,551			2,157			3,576		87,284			9,029		1,628		10,657		97,941

Income before income tax expense		25,541			8,540			2,686		36,767			14,124		3,112		17,236		54,003
Income tax expense		7,733			3,174			940		11,847			5,125		1,128		6,253		18,100
Net income	$	17,808		$	5,366		$	1,746	$	24,920		$	8,999	$	1,984	$	10,983	$	35,903

Segment end-of-period assets	$	4,109,464		$	660,410		$	15,003	$	4,784,877		$	26,608	$	15,792	$	42,400	$	4,827,277

Net interest margin		3.22	%		3.64	%		NM		3.26	%		NM		NM		NM		3.62	%

Segment assets are reported as of the respective period ends while income and margin data are reported for the respective periods.

NM — Not Meaningful

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The consolidated financial statements include the accounts of Republic Bancorp, Inc. (the “Parent Company”) and its wholly-owned subsidiaries, Republic Bank & Trust Company (“RB&T” or the “Bank”) and Republic Insurance Services, Inc. (the “Captive”). All significant intercompany balances and transactions are eliminated in consolidation. As used in this filing, the terms “Republic,” the “Company,” “we,” “our” and “us” refer to Republic Bancorp, Inc., and, where the context requires, Republic Bancorp, Inc. and its subsidiaries; and the term the “Bank” refers to the Company’s subsidiary bank, RB&T.

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.”

Republic Bancorp Capital Trust (“RBCT”) is a Delaware statutory business trust that is a wholly-owned unconsolidated finance subsidiary of Republic Bancorp, Inc.

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 may not update them to reflect changes that occur subsequent to the date the statements are made.

Broadly speaking, forward-looking statements include:

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:

changes in political and economic conditions;

the magnitude and frequency of changes to the Federal Funds Target Rate (“FFTR”) implemented by the Federal Open Market Committee (“FOMC”) of the Federal Reserve Bank (“FRB”);

long-term and short-term interest rate fluctuations as well as the overall steepness of the yield curve;

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;

natural disasters impacting Company operations;

future acquisitions;

integrations of acquired businesses;

changes in technology;

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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;

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 Securities and Exchange Commission (“SEC”), including Part 1 Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

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SEGMENT COMPOSITION

As of September 30, 2017, the Company was divided into five reportable segments: Traditional Banking, Warehouse Lending (“Warehouse”), Mortgage Banking, Tax Refund Solutions (“TRS”) and Republic Credit Solutions (“RCS”). Management considers the first three segments to collectively constitute “Core Bank” or “Core Banking” operations, while the last two segments collectively constitute Republic Processing Group (“RPG) operations. The Bank’s Correspondent Lending channel and the Company’s national branchless banking platform, MemoryBank®, are considered part of the Traditional Banking segment.

Table 1 — Segment Information


	Three Months Ended September 30, 2017
	Core Banking											Republic Processing Group ("RPG")
									Total			Tax		Republic
	Traditional			Warehouse			Mortgage		Core			Refund		Credit		Total		Total
(dollars in thousands)	Banking			Lending			Banking		Banking			Solutions		Solutions		RPG		Company
Net income (loss)	$	7,612		$	2,520		$	79	$	10,211		$	(1,080)	$	1,575	$	495	$	10,706
Segment end-of-period assets		4,361,591			570,676			9,395		4,941,662			13,090		38,422		51,512		4,993,174
Net interest margin		3.70	%		3.54	%		NM		3.68	%		NM		NM		NM		4.17	%


	Three Months Ended September 30, 2016
	Core Banking											Republic Processing Group ("RPG")
									Total			Tax		Republic
	Traditional			Warehouse			Mortgage		Core			Refund		Credit		Total		Total
(dollars in thousands)	Banking			Lending			Banking		Banking			Solutions		Solutions		RPG		Company
Net income (loss)	$	6,098		$	2,520		$	1,320	$	9,938		$	(1,132)	$	1,022	$	(110)	$	9,828
Segment end-of-period assets		4,109,464			660,410			15,003		4,784,877			26,608		15,792		42,400		4,827,277
Net interest margin		3.35	%		3.63	%		NM		3.38	%		NM		NM		NM		3.65	%


	Nine Months Ended September 30, 2017
	Core Banking											Republic Processing Group ("RPG")
									Total			Tax		Republic
	Traditional			Warehouse			Mortgage		Core			Refund		Credit		Total		Total
(dollars in thousands)	Banking			Lending			Banking		Banking			Solutions		Solutions		RPG		Company
Net income	$	19,261		$	6,779		$	525	$	26,565		$	10,263	$	3,966	$	14,229	$	40,794
Segment end-of-period assets		4,361,591			570,676			9,395		4,941,662			13,090		38,422		51,512		4,993,174
Net interest margin		3.48	%		3.58	%		NM		3.49	%		NM		NM		NM		4.34	%


	Nine Months Ended September 30, 2016
	Core Banking											Republic Processing Group ("RPG")
									Total			Tax		Republic
	Traditional			Warehouse			Mortgage		Core			Refund		Credit		Total		Total
(dollars in thousands)	Banking			Lending			Banking		Banking			Solutions		Solutions		RPG		Company
Net income	$	17,808		$	5,366		$	1,746	$	24,920		$	8,999	$	1,984	$	10,983	$	35,903
Segment end-of-period assets		4,109,464			660,410			15,003		4,784,877			26,608		15,792		42,400		4,827,277
Net interest margin		3.22	%		3.64	%		NM		3.26	%		NM		NM		NM		3.62	%

Segment assets are reported as of the respective period ends while income and margin data are reported for the respective periods.

NM — Not Meaningful

For expanded segment financial data see Footnote 16 “Segment Information” of Part I Item 1 “Financial Statements.”

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(I) Traditional Banking segment

The Traditional Banking segment provides traditional banking products primarily to customers in the Company’s market footprint. As of September 30, 2017, Republic had 45 full-service banking centers and one loan production office (“LPO”) with locations as follows:

Kentucky — 33

Metropolitan Louisville — 19

Central Kentucky — 9

Elizabethtown — 1

Frankfort — 1

Georgetown — 1

Lexington — 5

Shelbyville — 1

Western Kentucky — 2

Owensboro — 2

Northern Kentucky — 3

Covington — 1

Florence — 1

Independence — 1

Southern Indiana — 3

Floyds Knobs — 1

Jeffersonville — 1

New Albany — 1

Metropolitan Tampa, Florida — 6

Metropolitan Cincinnati, Ohio — 1

Metropolitan Nashville, Tennessee — 3*

*Includes one LPO

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

As of September 30, 2017 and through the date of this filing, generally all Traditional Banking products and services, except for the EarnMore and MemoryBuilder deposit accounts, were offered through the Company’s traditional RB&T brand. The EarnMore and MemoryBuilder deposit accounts were offered through the Bank’s separately branded national branchless banking platform, MemoryBank.

The Bank’s principal lending activities consist of the following:

Retail Mortgage Lending — Through its retail banking centers, its Correspondent Lending channel and its Internet Banking channel, the Bank originates single family, residential real estate loans. In addition, the Bank originates home equity amortizing loans (“HEALs”) and home equity lines of credit (“HELOCs”) through its retail banking centers. Such loans are generally collateralized by owner occupied property.

Commercial Lending — The Bank conducts commercial lending activities primarily through its Commercial and Corporate Banking Department and its Business Banking Department.

The Commercial and Corporate Banking Department is composed of the following divisions: Corporate Banking; Commercial Finance; Municipal Lending; and Republic Realty. All credit approvals and processing for the Commercial and Corporate Banking Department are prepared and underwritten through the Bank’s Credit Administration Department (“CAD”). Clients are generally located within the Bank’s market footprint, including adjacent areas within an approximately two-hour drive of a specific market.

The Business Banking Department focuses on locally based small-to-medium sized businesses in the Bank’s market footprint with annual revenues between $1 million to $20 million. The needs of Business Banking clients range from expansion or acquisition, equipment financing, owner-occupied real estate financing, and operating lines of credit. Business Banking utilizes all appropriate

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programs of the Small Business Administration (“SBA”) to reduce credit risk exposure. Additionally, Business Banking includes making loans to real estate investors for various types of investment properties, including rental homes and apartments, shopping centers, and office buildings. Business Banking also makes loans to various not-for-profit agencies located within the Bank’s market footprint. The targeted credit size for a relationship in this area is between $500,000 and $5 million.

Construction and Land Development Lending — The Bank originates business loans for the construction of both single family residential properties and commercial properties. On a much smaller scale, the Bank may originate loans for the acquisition and development of residential or commercial land into buildable lots.

Internet Lending — The Bank accepts online loan applications for its RB&T brand through its website at www.republicbank.com. Historically, the majority of loans originated through the Internet have been within the Bank’s traditional markets of Kentucky, Florida and Indiana. Other states where loans are marketed include California, Colorado, Georgia, Illinois, Michigan, Minnesota, North Carolina, Ohio, Tennessee and Virginia, as well as, the District of Columbia.

Correspondent Lending — Primarily from its Warehouse clients, the Core Bank acquires for investment single family, first lien mortgage loans that meet the Core Bank’s specifications through its Correspondent Lending channel. Substantially all loans purchased through the Correspondent Lending channel are purchased at a premium. The volume of loans purchased through the Correspondent Lending channel may fluctuate from time to time based on several factors, including, but not limited to, borrower demand, other investment options and the Bank’s current and forecasted liquidity position.

Consumer Lending — Traditional consumer loans made by the Bank include home improvement and home equity loans, other secured and unsecured personal loans, and credit cards. With the exception of home equity loans, which are actively marketed in conjunction with single family, first lien residential real estate loans, other traditional consumer loan products, while available, are not and have not been actively promoted in the Bank’s markets.

The Bank has, from time to time, acquired unsecured consumer installment loans for investment from a third-party originator. Such consumer loans were purchased at par and were selected by the Bank based on certain underwriting characteristics.

Dealer Services — The Bank offers dealer floor plan loans, consumer indirect automobile loans, and consumer aircraft loans through its Dealer Services Department. Dealer floor plan loans are commercial loans to automobile dealers in the Bank’s market footprint secured by the dealer’s current inventory of vehicles. The indirect automobile program involves establishing relationships with automobile dealers in the Bank’s market footprint and obtaining consumer automobile loans in a low-cost delivery method. First offered by the Bank in August 2017, consumer aircraft loans typically range in amounts from $55,000 to $500,000, with terms up to 20 years, to purchase or refinance aircrafts, along with engine overhauls and avionic upgrades. The aircraft loan program is open to all states, except for Alaska and Hawaii.

The Bank’s other Traditional Banking activities generally consist of the following:

MemoryBank — In October 2016, the Bank opened the “digital doors” of MemoryBank, a national branchless banking platform. MemoryBank 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 bank accounts. The Bank promotes the EarnMore and MemoryBuilder accounts solely through its MemoryBank brand.

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 areas. Lockbox processing, business on-site deposit, business on-line banking, Internet bill pay, payroll processing, virtual vault, courier service, controlled disbursement accounts, corporate purchasing credit cards, account reconciliation and Automated Clearing House (“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.

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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.”

(II) Warehouse Lending segment

The Bank provides short-term, revolving credit facilities to mortgage bankers across the United States through mortgage warehouse lines of credit. These credit facilities are primarily secured by single family, first lien residential real estate loans. The credit facility enables the mortgage banking clients to close single family, first lien residential real estate loans in their own name and temporarily fund their inventory of these closed loans until the loans are sold to investors approved by the Bank or purchased by the Bank through its Correspondent Lending channel. Individual loans are expected to remain on the warehouse line for an average of 15 to 30 days. Reverse mortgage loans typically remain on the line longer than conventional mortgage loans. Interest income and loan fees are accrued for each individual loan during the time the loan remains on the warehouse line and collected when the loan is sold. The 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 sold into the secondary market, primarily to the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”) and the Federal National Mortgage Association (“FNMA” or “Fannie Mae”). The Bank typically retains servicing on loans sold into the secondary market. Administration of loans with servicing retained by the Bank includes collecting principal and interest payments, escrowing funds for property taxes and property insurance, and remitting payments to secondary market investors. A fee is received by the Bank for performing these standard servicing functions.

See additional detail regarding Mortgage Banking 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 the United States, 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.

Refund Transfers (“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 refund directly from the governmental paying authority.

“Easy Advance” Product

The Easy Advance (“EA”) tax credit product is a loan that allows a taxpayer to receive an advance of a portion of their refund, with the taxpayer’s Tax Provider paying all fees to RB&T for the advance.

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TRS first offered its EA tax credit product during the first two months of 2016 and for a second successive year during the first two months of 2017. For the first quarter 2017 tax season, the Company modified the EA product offering to allow more than one advance amount and a different price structure to the Tax Providers based on the amount borrowed by the taxpayer. All other features of the product remained substantially the same as those from the first quarter 2016 tax season, including the following:

No EA fee charged to the taxpayer customer;

All fees for the product were paid by the Tax Providers with a restriction prohibiting the Tax Providers from passing along the fees to the taxpayer customer;

No requirement that the taxpayer customer pay for another bank product, such as an RT;

Multiple funds disbursement methods, including direct deposit, prepaid card, check or Walmart Direct2Cash® product, based on the taxpayer customer’s election;

Repayment of the EA to the Bank was deducted from the taxpayer customer’s tax refund proceeds; and

If an insufficient refund to repay the EA occurred:

there was no recourse to the taxpayer customer,

no negative credit reporting on the taxpayer customer, and

no collection efforts against the taxpayer customer.

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 funding patterns. Because much of the loan volume occurs each year before that year’s tax refund funding 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 funding patterns change materially between years. For the first quarter 2018 tax season, the Company plans to modify the EA product offering to increase the maximum advance amount, which is expected to increase overall EA loan volume, absent any other changes. Any EA losses in 2018 would be heightened by an increase in overall EA loan volume.

See additional detail regarding the Easy Advance (“EA”) product under Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements.”

(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 with maturities of 30-days-or-more, and are dependent on various factors including the consumer’s ability to repay. 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. Additional information regarding consumer loan products offered through RCS follows:

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OVERVIEW (Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016)

Total Company net income for the third quarter of 2017 was $10.7 million, an $878,000, or 9%, increase from the same period in 2016. Diluted earnings per Class A Common Share increased to $0.51 for the quarter ended September 30, 2017 compared to $0.47 for the same period in 2016.

The Company maintains six banking centers in the Tampa, Florida metropolitan statistical area. The Company’s results of operations for the quarter ended September 30, 2017 were not meaningfully impacted by hurricane Irma, which struck Florida during the third quarter of 2017.

General highlights by reportable segment for the quarter ended September 30, 2017 consisted of the following:

Traditional Banking segment

Net income increased $1.5 million, or 25%, for the third quarter of 2017 compared to the same period in 2016.

Net interest income increased $6.3 million, or 20%, for the third quarter of 2017 compared to the same period in 2016.

Provision for Loan and Lease Losses (“Provision”) was $683,000 for the third quarter of 2017 compared to $289,000 for the same period in 2016.

Total noninterest income increased $231,000, or 3%, for the third quarter of 2017 compared to the same period in 2016.

Total noninterest expense increased $3.3 million, or 12%, during the third quarter of 2017 compared to the third quarter of 2016.

Warehouse Lending segment

Net income was $2.5 million for the third quarter of 2017 and the same period in 2016.

Net interest income decreased $187,000, or 4%, for the third quarter of 2017 compared to the same period in 2016.

The Provision was a net credit of $74,000 for the third quarter of 2017 compared to a net charge of $188,000 for the same period in 2016.

Total noninterest expense increased $121,000, or 17%, during the third quarter of 2017 compared to the third quarter of 2016.

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Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income decreased $2.0 million during the third quarter of 2017 compared to the same period in 2016. Approximately $1.1 million of the decrease in mortgage banking income was attributable to a nonrecurring gain recorded during the third quarter of 2016 from the bulk sale of $71 million in mortgage loans, which represented a portion of the Company’s correspondent loan portfolio. The remainder of the decrease in mortgage banking income was consistent with a decrease in consumer refinance activity.

Tax Refund Solutions segment

Net loss remained at $1.1 million for the third quarter of 2017 compared to the same period in 2016.

Net interest income increased $22,000 for the third quarter of 2017 compared to the same period in 2016.

Overall, TRS recorded a credit to the Provision of $840,000 during the third quarter of 2017, compared to a credit to the Provision of $89,000 for the same period in 2016.

Noninterest income increased $82,000 for the third quarter of 2017 compared to the same period in 2016.

Noninterest expense increased $776,000, or 37%, for the third quarter of 2017 compared to the same period in 2016.

Republic Credit Solutions segment

Net income increased $553,000, or 54%, for the third quarter of 2017 compared to the same period in 2016.

Net interest income increased $2.8 million, or 86%, for the third quarter of 2017 compared to the same period in 2016.

Overall, RCS recorded a Provision of $4.5 million during the third quarter of 2017, compared to $2.1 million for the same period in 2016.

Noninterest income increased $724,000, or 67%, for the third quarter of 2017 compared to the same period in 2016.

Noninterest expense increased $289,000, or 47%, for the third quarter of 2017 compared to for the same period in 2016.

RESULTS OF OPERATIONS (Three Months Ended September 30, 2017 Compared to Three Months Ended June 30, 2016)

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 Federal Home Loan Bank (“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.

Total Company net interest income increased $8.9 million, or 23%, during the third quarter of 2017 compared to the same period in 2016. Growth in average loans across the Traditional Banking and RCS segments was the primary contributor to the Company’s growth in net interest income. Such growth was further enhanced by a 52-basis-point increase in the Company’s net interest margin to 4.17% during the third quarter of 2017 compared to 3.65% for the same period in 2016.

The most significant components affecting the total Company’s net interest income by reportable segment follow:

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Traditional Banking segment

Net interest income within the Traditional Banking segment increased $6.3 million, or 20%, for the third quarter of 2017 compared to the same period in 2016. The Traditional Banking net interest margin was 3.70% for the third quarter of 2017, an increase of 35 basis points from the same period in 2016.

The Traditional Banking segment’s financial instruments were favorably impacted by increases in short-term interest rates during 2017, with the increase in yield on interest-earning assets outpacing the increase in cost on interest-bearing liabilities. The changes in the Traditional Bank’s net interest income and net interest margin during the third quarter of 2017 were primarily attributable to the following:

Average Traditional Bank loans outstanding, excluding loans from the Company’s 2012 FDIC-assisted transactions, were $3.3 billion with a weighted average yield of 4.41% during the third quarter of 2017 compared to $3.1 billion with a weighted average yield of 4.17% during the third quarter of 2016. The overall effect of these changes in rate and volume was an increase of $3.6 million, or 11%, in interest income. This increase in average loans for the third quarter of 2017 over the third quarter of 2016 was driven primarily by growth in the Bank’s Commercial Real Estate (“CRE”), Commercial and Industrial (“C&I”), and Construction and Land Development (“Construction”) portfolios over the previous 12 months.

Net interest income related to loans from the Company’s 2012 FDIC-assisted transactions was significantly higher during the third quarter of 2017 compared to the same period in 2016 primarily due to the early payoff of one loan. When loans from these transactions are paid off, all unearned discount on such loans is immediately accreted into income. Discount accretion recorded in interest income during the third quarter of 2017 was $1.7 million, with $1.6 million of such accretion connected to the payoff of the previously mentioned loan. Discount accretion on this portfolio totaled $47,000 for the same period in 2016. Overall, the average balance of the portfolio was $11 million with a yield of 65.33% during the third quarter of 2017 compared to $19 million with a yield of 7.08% for 2016. The overall effect of these changes in rate and volume was an increase of $1.5 million in interest income.

As of September 30, 2017, the remaining unearned accretable discount related to loans from the Company’s 2012 FDIC-assisted transactions totaled $1.6 million, with 95% of this discount attributable to one loan.

The weighted average cost of interest-bearing deposits during the third quarter of 2017 compared to the same period in 2016 increased to 0.46% from 0.30%, while the average outstanding interest-bearing deposits increased $94 million when comparing the two periods. The net effect of these changes in rate and volume was a decrease in net interest income of $966,000.

The FFTR, the index that many of the Bank’s short-term deposit rates track, increased three times between December 2016 and June 2017. Additionally, the FOMC of the FRB has provided further guidance that additional FFTR increases are possible during the remainder of 2017 and in 2018. While an increase in short-term interest rates is generally believed by management to be favorable to the Bank’s net interest income and net interest margin in the near-term, such increases in short-term interest rates could have a negative impact to net interest income and net interest margin if the Bank is unable to maintain its overall funding costs at those levels assumed in its interest rate risk model or the yield curve flattens causing the spread between long-term interest rates and short-term interest rates to decrease. Unknown variables, which may impact the Bank’s net interest income and net interest margin in the future, include, but are not limited to, the actual steepness of the yield curve, future demand for the Bank’s financial products and the Bank’s overall future liquidity needs.

Warehouse Lending segment

Net interest income within the Warehouse Lending segment decreased $187,000, or 4%, for the third quarter of 2017 compared to the same period in 2016. The decrease in net interest income was partially attributable to reduced spreads on outstanding warehouse balances and partially attributable to lower usage rates on warehouse lines compared to the same period in 2016.

The net interest spread on outstanding warehouse balances, which is equal to the yield on average outstanding balances less the cost of funding those balances, decreased 17 basis points to 3.35% during the third quarter of 2017 from 3.52% for the same period in 2016. The reduced spread was driven by competitive market pricing to attract and retain Warehouse clients.

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commitments decreased to 49% during the third quarter of 2017 compared to 62% during the third quarter of 2016. These usage rates equated to a decrease of $7 million, or 1%, in average outstanding warehouse balances from the third quarter of 2016 to the third quarter of 2017, with usage rates during the third quarter of 2017 negatively impacted by a general industry decline in mortgage refinance activity. For the remainder of 2017, management believes that usage rates for Warehouse lines will likely continue to be lower than comparable periods in 2016, as the mortgage industry anticipates higher long-term interest rates.

Republic Credit Solutions segment

Net interest income within the RCS segment increased $2.8 million, or 86%, for the third quarter of 2017 compared to the same period in 2016. The increase was primarily attributable to significant growth in consumer credit products, which earned $6.0 million in net interest income during the third quarter of 2017 compared to $3.2 million for the same period in 2016. Average RCS loans were $48 million during the third quarter of 2017 compared to $19 million for the same period in 2016.

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Table 2 — Total Company Average Balance Sheets and Interest Rates for the Three Months Ended September 30, 2017 and 2016


	Three Months Ended September 30, 2017						Three Months Ended September 30, 2016
	Average				Average		Average				Average
(dollars in thousands)	Balance		Interest		Rate		Balance		Interest		Rate

ASSETS

Interest-earning assets:
Investment securities, including FHLB stock(1)	$	552,821	$	2,793	2.02	%	$	554,508	$	2,216	1.60	%
Federal funds sold and other interest-earning deposits		208,688		661	1.27			58,910		122	0.83
Other RPG loans and fees(2)(5)		48,371		6,072	50.21			18,855		3,201	67.91
Outstanding Warehouse lines of credit and fees(3)(5)		535,703		6,170	4.61			542,894		5,457	4.02
All other Traditional Bank loans and fees(4)(5)		3,291,346		38,029	4.62			3,140,344		32,936	4.20

Total interest-earning assets		4,636,929		53,725	4.63			4,315,511		43,932	4.07

Allowance for loan and lease losses		(38,797)						(29,544)

Noninterest-earning assets:
Noninterest-earning cash and cash equivalents		63,244						74,055
Premises and equipment, net		44,674						43,506
Bank owned life insurance		62,798						61,225
Other assets(1)		65,805						67,205
Total assets	$	4,834,653					$	4,531,958

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing liabilities:
Transaction accounts	$	1,122,087	$	753	0.27	%	$	1,012,417	$	275	0.11	%
Money market accounts		549,534		426	0.31			552,115		289	0.21
Time deposits		278,566		843	1.21			230,386		560	0.97
Brokered money market and brokered certificates of deposit		299,249		565	0.76			360,371		497	0.55

Total interest-bearing deposits		2,249,436		2,587	0.46			2,155,289		1,621	0.30

Securities sold under agreements to repurchase and other short-term borrowings		208,160		161	0.31			215,343		10	0.02
Federal Home Loan Bank advances		618,750		2,383	1.54			584,946		2,662	1.82
Subordinated note		41,240		287	2.78			44,288		241	2.18

Total interest-bearing liabilities		3,117,586		5,418	0.70			2,999,866		4,534	0.60

Noninterest-bearing liabilities and Stockholders’ equity:
Noninterest-bearing deposits		1,052,162						900,432
Other liabilities		31,031						30,617
Stockholders’ equity		633,874						601,043
Total liabilities and stockholders’ equity	$	4,834,653					$	4,531,958

Net interest income			$	48,307					$	39,398

Net interest spread					3.93	%					3.47	%

Net interest margin					4.17	%					3.65	%

(1)

For the purpose of this calculation, the fair market value adjustment on investment securities resulting from ASC Topic 320, Investments — Debt and Equity Securities, is included as a component of other assets.

(2)

Interest income includes loan fees of $5.4 million and $2.8 million for the three months ended September 30, 2017 and 2016.

(3)

Interest income includes loan fees of $828,000 and $975,000 for the three months ended September 30, 2017 and 2016.

(4)

Interest income includes loan fees of $2.9 million and $1.0 million for the three months ended September 30, 2017 and 2016.

(5)

Average balances for loans include the principal balance of nonaccrual loans and loans held for sale, and are inclusive of all loan premiums, discounts, fees and costs.

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Table 3 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 3 — Total Company Volume/Rate Variance Analysis for the Three Months Ended September 30, 2017 and 2016


		Three Months Ended September 30, 2017
		Compared to
		Three Months Ended September 30, 2016
	Total Net		Increase / (Decrease) Due to
(in thousands)	Change		Volume		Rate

Interest income:

Investment securities, including FHLB stock	$	578	$	(7)	$	585
Federal funds sold and other interest-earning deposits		539		446		93
Other RPG loans and fees		2,871		3,892		(1,021)
Outstanding Warehouse lines of credit and fees		713		(73)		786
All other Traditional Bank loans and fees		5,090		1,635		3,455

Net change in interest income		9,791		5,893		3,898

Interest expense:

Transaction accounts		478		33		445
Money market accounts		137		(1)		138
Time deposits		283		130		153
Brokered money market and brokered certificates of deposit		69		(94)		163
Securities sold under agreements to repurchase and other short-term borrowings		150		—		150
Federal Home Loan Bank advances		(281)		147		(428)
Subordinated note		46		(18)		64

Net change in interest expense		882		197		685

Net change in net interest income	$	8,909	$	5,696	$	3,213

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Provision for Loan and Lease Losses

The Company recorded a Provision of $4.2 million for the third quarter of 2017, compared to $2.5 million for the same period in 2016. The significant components comprising the Company’s Provision by reportable segment were as follows:

Traditional Banking segment

The Traditional Banking Provision during the third quarter of 2017 was $683,000, compared to $289,000 for the third quarter of 2016. An analysis of the Provision for the third quarter of 2017 compared to the same period in 2016 follows:

Related to the Bank’s pass-rated and non-rated credits, the Bank recorded net charges of $622,000 and $499,000 to the Provision for the third quarters of 2017 and 2016. Loan growth primarily drove the net charges to the Provision in both periods, as gross loans increased $66 million during the third quarter of 2017 and $52 million during the third quarter of 2016.

Provision activity related to the Bank’s loans rated Substandard and Special Mention, as well as purchased-credit-impaired (“PCI”) loans, was immaterial during the third quarters of 2017 and 2016.

As a percentage of total loans, the Traditional Banking Allowance for Loan and Lease Losses (“Allowance”) was 0.84% at September 30, 2017 compared to 0.83% at December 31, 2016 and 0.81% at September 30, 2016. The Company believes, based on information presently available, that it has adequately provided for Traditional Bank loan losses at September 30, 2017.

Warehouse Lending segment

The Warehouse Provision was a credit of $74,000 for the third quarter of 2017, a $262,000 decrease from the same period in 2016. Provision expense for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances decreased $29 million during the third quarter of 2017 compared to an increase of $75 million during the third quarter of 2016.

As a percentage of total Warehouse outstanding balances, the Warehouse Allowance was 0.25% at September 30, 2017, December 31, 2016 and September 30, 2016. The Company believes, based on information presently available, that it has adequately provided for Warehouse loan losses at September 30, 2017.

Tax Refund Solutions segment

TRS recorded a credit to the Provision of $840,000 during the third quarter of 2017 compared to a credit of $89,000 for the same period in 2016. These credits primarily represent recoveries on EAs previously charged off in the first or second quarter of each year.

Republic Credit Solutions segment

RCS recorded a Provision of $4.5 million during the third quarter of 2017, an increase of $2.4 million compared to the same period in 2016. Provision expense was higher at RCS due to an increase in general loss reserves for growth in RCS loans and an increase in the historical loss factors within the loan loss reserve calculation resulting from a rise in charge-offs from the prior year.

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 Allowance was 22.71% at September 30, 2017 compared to 15.40% at December 31, 2016 and 19.80% at September 30, 2016. The Company believes, based on information presently available, that it has adequately provided for RCS loan losses at September 30, 2017.

See the sections titled “Allowance for Loan and Lease 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.

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Table 4 — Summary of Loan and Lease Loss Experience for the Three Months Ended September 30, 2017 and 2016


	Three Months Ended
	September 30,
(dollars in thousands)	2017			2016

Allowance at beginning of period	$	37,898		$	29,308

Charge-offs:

Traditional Banking:
Residential real estate		(52)			(56)
Commercial real estate		—			—
Construction & land development		—			—
Commercial & industrial		(152)			—
Lease financing receivables		—			—
Home equity		(4)			(145)
Consumer		(481)			(522)
Total Traditional Banking		(689)			(723)
Warehouse lines of credit		—			—
Total Core Banking		(689)			(723)

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		—			—
Commercial & industrial		—			—
Republic Credit Solutions		(2,681)			(1,352)
Total Republic Processing Group		(2,681)			(1,352)
Total charge-offs		(3,370)			(2,075)

Recoveries:

Traditional Banking:
Residential real estate		107			142
Commercial real estate		77			34
Construction & land development		3			10
Commercial & industrial		12			121
Lease financing receivables		—			—
Home equity		51			31
Consumer:		125			142
Total Traditional Banking		375			480
Warehouse lines of credit		—			—
Total Core Banking		375			480

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		841			93
Refund Anticipation Loans		—			—
Commercial & industrial		—			—
Republic Credit Solutions		226			141
Total Republic Processing Group		1,067			234

Total recoveries		1,442			714

Net loan charge-offs		(1,928)			(1,361)

Provision - Core Banking		609			477
Provision - RPG		3,612			2,012
Total Provision		4,221			2,489
Allowance at end of period	$	40,191		$	30,436

Credit Quality Ratios - Total Company:

Allowance to total loans		1.02	%		0.80	%
Allowance to nonperforming loans		245			169
Net loan charge-offs to average loans		0.20			0.15

Credit Quality Ratios - Core Banking:

Allowance to total loans		0.76	%		0.71	%
Allowance to nonperforming loans		190			152
Net loan charge-offs to average loans		0.03			0.03

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Noninterest Income

Total Company noninterest income decreased $927,000, or 8%, during the third quarter of 2017 compared to the same period in 2016. The most significant components comprising the total Company’s noninterest income by reportable segment were as follows:

Traditional Banking segment

Traditional Banking segment noninterest income increased $231,000, or 3%, for the third quarter of 2017 compared to the same period in 2016. The most significant categories affecting the change in noninterest income for the quarter were as follows:

Service charges on deposit accounts remained at $3.4 million for the third quarter of 2017 compared to the same period in 2016. 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. Total per item fees, net of refunds, included in service charges on deposits remained at $2.1 million for the quarters ended September 30, 2017 and 2016. Total daily overdraft charges, net of refunds, included in interest income were $465,000 and $445,000 for the quarters ended September 30, 2017 and 2016.

The Traditional Bank recorded a positive swing of $147,000 on the net gain/loss on sale of other real estate owned (“REO”) from the third quarter of 2017 compared to the same period in 2016.

Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income decreased $2.0 million during the third quarter of 2017 compared to the same period in 2016. Approximately $1.1 million of the decrease in mortgage banking income was attributable to a gain recorded during the third quarter of 2016 from a nonrecurring bulk sale of $71 million in mortgage loans, which represented a portion of the Company’s correspondent loan portfolio. The remainder of the decrease in mortgage banking income was consistent with a decrease in consumer refinance activity.

Overall, excluding the aforementioned bulk loan sale, Republic’s originations of secondary market loans totaled $43 million during the third quarter of 2017 compared to $59 million during the same period in 2016. Excluding the bulk sale, the ratio of net gain on sale of mortgage loans originated for sale was 2.22% and 3.33% during the third quarters of 2017 and 2016.

Republic Credit Solutions segment

Within the RCS segment, noninterest income increased $724,000, or 67%, during the third quarter of 2017 compared to the same period in 2016 driven by a $584,000, or 61%, increase in Program fees. These fees represent gains from the sale of consumer loans. The increase in program fees resulted from an increase in volume from RCS’ small-dollar consumer loan programs. During the third quarter of 2017, loans sold through the RCS programs increased $53 million, or 42%, to $178 million compared to $125 million during the third quarter of 2016.

Noninterest Expense

Total Company noninterest expense increased $4.5 million, or 13%, during the third quarter of 2017 compared to the same period in 2016. The most significant components comprising the increase in noninterest expense by reportable segment were as follows:

Traditional Banking segment

For the third quarter of 2017 compared to the same period in 2016, Traditional Banking noninterest expense increased $3.3 million, or 12%. The most significant categories affecting the change in noninterest expense for the quarter were as follows:

Salaries and benefits expense increased $1.8 million, or 12%, primarily due to an increase of 67 full-time-equivalent (“FTE”) employees from September 30, 2016 to September 30, 2017. The increase in FTEs was driven by additional staffing needed to implement the Company’s strategic initiatives.

Marketing and development expense increased $531,000, or 53%, with a substantial portion of this increase focused on driving loan and deposit growth in markets outside of the Company’s Louisville, Kentucky footprint. In addition, the Company also instituted a marketing awareness campaign in its Louisville, Kentucky market as part of a mortgage lending initiative.

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Impairment of premises held for sale increased $907,000 resulting from a mark-to-market charge for a bank property that the Company plans to market for sale in the coming months.

Tax Refund Solutions segment

Within the TRS segment, noninterest expense increased $776,000, or 37%, during the third quarter of 2017 compared to the same period in 2016. The increase was partially due to a $334,000 increase in salaries and benefits expense, driven by additional staff added during the previous 12 months to support growth. The remaining increase was primarily in the other expense category and was related to an accrual for future Tax Provider payments triggered by the attainment of certain agreed upon incentive metrics for the applicable program.

See additional detail regarding the Easy Advance (“EA”) product under Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements.”

Republic Credit Solutions segment

Within the RCS segment, noninterest expense increased $289,000, or 47%, during the third quarter of 2017 compared to the same period in 2016. The increase was primarily due to a $198,000 increase in data processing expenses and $102,000 increase in salaries and employee benefits expense, with both increases consistent with growth in RCS products.

OVERVIEW (Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016)

Total Company net income for the first nine months of 2017 was $40.8 million, a $4.9 million, or 14%, increase from the same period in 2016. Diluted earnings per Class A Common Share increased to $1.96 for the nine months ended September 30, 2017 compared to $1.73 for the same period in 2016.

The Company maintains six banking centers in the Tampa, Florida metropolitan statistical area. The Company’s results of operations for the nine months ended September 30, 2017 were not meaningfully impacted by hurricane Irma, which struck Florida during the third quarter of 2017.

General highlights by reportable segment for the nine months ended September 30, 2017 consisted of the following:

Traditional Banking segment

Net income increased $1.5 million, or 8%, for the first nine months of 2017 compared to the same period in 2016.

Net interest income increased $14.2 million, or 16%, for the first nine months of 2017 compared to the same period in 2016.

The Provision was $2.6 million for the first nine months of 2017 compared to $1.6 million for the same period in 2016.

Total noninterest income increased $1.2 million, or 6%, for the first nine months of 2017 compared to the same period in 2016.

Total noninterest expense increased $12.0 million, or 15%, during the first nine months of 2017 compared to the first nine months of 2016.

Warehouse Lending segment

Net income increased $1.4 million, or 26%, for the first nine months of 2017 compared to the same period in 2016.

Net interest income increased $1.7 million, or 15%, for the first nine months of 2017 compared to the same period in 2016.

The Provision was a net credit of $36,000 for the first nine months of 2017 compared to a net charge of $686,000 for the same period in 2016.

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Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income decreased $2.2 million during the first nine months of 2017 compared to the same period in 2016.

Overall, excluding the aforementioned bulk loan sale that occurred during the third quarter of 2016, Republic’s originations of secondary market loans totaled $119 million during the first nine months of 2017 compared to $155 million during the same period in 2016.

Tax Refund Solutions segment

Net income increased $1.3 million, or 14%, for the first nine months of 2017 compared to the same period in 2016.

Net interest income increased $8.6 million for the first nine months of 2017 compared to the same period in 2016.

EA loan originations increased $206 million to $329 million for the first nine months of 2017 compared to $123 million for the same period in 2016. EAs were only offered during the first two months of each year.

The Provision was $6.8 million during the first nine months of 2017 compared to $2.9 million for the same period in 2016.

Noninterest income decreased $885,000, or 5%, for the first nine months of 2017 compared to the same period in 2016.

Noninterest expense increased $1.9 million, or 21%, for the first nine months of 2017 compared to the same period in 2016.

Republic Credit Solutions segment

Net income increased $2.0 million for the first nine months of 2017 compared to the same period in 2016.

Net interest income increased $8.9 million for the first nine months of 2017 compared to the same period in 2016.

The Provision was $12.3 million during the first nine months of 2017 compared to $4.3 million for the same period in 2016.

Noninterest income increased $3.0 million for the first nine months of 2017 compared to the same period in 2016.

Noninterest expense increased $833,000, or 51%, for the first nine months of 2017 compared to the same period in 2016.

RESULTS OF OPERATIONS (Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016)

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.

Total Company net interest income increased $33.5 million, or 29%, during the first nine months of 2017 compared to the same period in 2016. Loan growth was the primary contributor to the Company’s growth in net interest income. The total Company net interest margin increased to 4.34% during the first nine months of 2017 compared to 3.62% for the same period in 2016, with additional fee income from consumer credit products offered through the TRS and RCS segments primarily driving the increase.

The most significant components affecting the total Company’s net interest income by reportable segment follow:

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Traditional Banking segment

Net interest income within the Traditional Banking segment increased $14.2 million, or 16%, for the first nine months of 2017 compared to the same period in 2016. The Traditional Banking net interest margin was 3.48% for the first nine months of 2017, an increase of 26 basis points from the same period in 2016.

The Traditional Banking segment’s financial instruments were favorably impacted by increases in short-term interest rates during 2017, with the increase in yield on interest-earning assets outpacing the increase in cost on interest-bearing liabilities. The changes in the Traditional Bank’s net interest income and net interest margin during the first nine months of 2017 were primarily attributable to the following:

Average Traditional Bank loans outstanding, excluding loans from the Company’s 2012 FDIC-assisted transactions, were $3.2 billion with a weighted average yield of 4.28% during the first nine months of 2017 compared to $3.0 billion with a weighted average yield of 4.09% during the first nine months of 2016. The overall effect of these changes in rate and volume was an increase of $10.4 million, or 11%, in interest income. This increase in average loans for the first nine months of 2017 over the first nine months of 2016 was driven primarily by growth in the Bank’s CRE, Construction, and C&I portfolios over the previous 12 months.

Net interest income related to loans from the Company’s 2012 FDIC-assisted transactions was higher during the first nine months of 2017 compared to the same period in 2016 primarily due to the early payoff of one loan during the third quarter of 2017. When loans from these transactions are paid off, all unearned discount on such loans is immediately accreted into income. Discount accretion recorded in interest income during the first nine months of 2017 was $1.9 million, with $1.7 million of such accretion connected to the previously mentioned loan repaid in the third quarter of 2017. Discount accretion on this portfolio totaled $966,000 for the first nine months of 2016. Overall, the average balance of the portfolio was $13 million with a yield of 26.47% during the first nine months of 2017 compared to $21 million with a yield of 12.80% for 2016. The overall effect of these changes in rate and volume was an increase of $585,000 in interest income.

The weighted average cost of interest-bearing deposits during the first nine months of 2017 compared to the same period in 2016 increased to 0.41% from 0.29%, while the average outstanding interest-bearing deposits increased $215 million when comparing the two periods. The net effect of these changes in rate and volume was a decrease in net interest income of $2.4 million.

The weighted average cost of FHLB advances during the first nine months of 2017 compared to the same period in 2016 declined to 1.54% from 1.95%, while the average outstanding FHLB advances decreased $16 million when comparing the two periods. The net effect of these changes in rate and volume was an increase in net interest income of $2.0 million.

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Warehouse Lending segment

Net interest income within the Warehouse Lending segment increased $1.7 million, or 15%, for the first nine months of 2017 compared to the same period in 2016. The increase in net interest income was primarily attributable to higher average outstanding balances for the current period as compared to the same period in 2016. Overall, average outstanding Warehouse balances during the first nine months of 2017 increased $71 million, or 17%, compared to the same period in 2016.

Total Warehouse line commitments increased to $1.1 billion at September 30, 2017 from $915 million at September 30, 2016, with the Company continuing to grow its Warehouse client base over the previous 12 months. Average line usage on Warehouse commitments was 47% during the first nine months of 2017 compared to 56% during the first nine months of 2016. For the remainder of 2017, management believes that usage rates for Warehouse lines will likely continue to be lower than comparable periods in 2016, as the mortgage industry anticipates higher long-term interest rates.

Tax Refund Solutions segment

Net interest income within the TRS segment increased $8.6 million the first nine months of 2017 compared to the same period in 2016. The increase in TRS’s net interest income was primarily attributed to the following factors:

The TRS segment’s EA product earned $14.2 million in interest income during the first nine months of 2017, a $9.0 million increase from the same period in 2016. The higher EA income was driven by an increase in EA origination volume as the Company originated $329 million in EAs during the first nine months of 2017 compared to $123 million during the first nine months of 2016. Additional demand for EAs during 2017 was partially driven by the previously announced delays in certain taxpayer refunds from the U.S. Treasury due to additional fraud prevention measures taken by the Federal government. In addition, the Company’s increase in EA dollar volume during 2017 was driven by a higher weighted average advance amount as compared to 2016.

See additional detail regarding the EA product under Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements.”

Partially offsetting growth in EA-related interest income, the TRS segment did not renew a short-term commercial loan from which it earned $1.1 million in loan fees during the first nine months of 2016. However, TRS did earn $635,000 in loan fees during the first nine months of 2017 from other commercial loan relationships.

Republic Credit Solutions segment

Net interest income within the RCS segment increased $8.9 million for the first nine months of 2017 compared to the same period in 2016. The increase was driven by product expansion at RCS over the previous 12 months, particularly within the segment’s line-of-credit product. Average RCS loans increased $26 million to $39 million during the first nine months of 2017 compared to $13 million for the same period in 2016.

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Table 5 — Total Company Average Balance Sheets and Interest Rates for the Nine Months Ended September 30, 2017 and 2016


	Nine Months Ended September 30, 2017						Nine Months Ended September 30, 2016
	Average				Average		Average				Average
(dollars in thousands)	Balance		Interest		Rate		Balance		Interest		Rate

ASSETS

Interest-earning assets:
Investment securities, including FHLB stock(1)	$	578,963	$	8,051	1.85	%	$	571,740	$	6,611	1.54	%
Federal funds sold and other interest-earning deposits		174,538		1,368	1.05			147,180		706	0.64
TRS Easy Advance loans and fees(2)		26,210		14,220	72.34			7,040		5,210	98.67
Other RPG loans and fees(3)(6)		43,072		16,632	51.49			20,431		8,053	52.55
Outstanding Warehouse lines of credit and fees(4)(6)		487,545		16,253	4.44			416,665		12,569	4.02
All other Traditional Bank loans and fees(5)(6)		3,228,812		105,905	4.37			3,048,861		94,940	4.15

Total interest-earning assets		4,539,140		162,429	4.77			4,211,917		128,089	4.05

Allowance for loan and lease losses		(38,476)						(29,451)

Noninterest-earning assets:
Noninterest-earning cash and cash equivalents		111,947						105,537
Premises and equipment, net		44,224						36,986
Bank owned life insurance		62,378						57,112
Other assets(1)		64,221						58,780
Total assets	$	4,783,434					$	4,440,881

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Transaction accounts	$	1,085,030	$	1,697	0.21	%	$	941,138	$	660	0.09	%
Money market accounts		551,270		1,108	0.27			542,888		790	0.19
Time deposits		251,795		2,132	1.13			220,403		1,668	1.01
Brokered money market and brokered certificates of deposit		340,636		1,853	0.73			309,768		1,241	0.53

Total interest-bearing deposits		2,228,731		6,790	0.41			2,014,197		4,359	0.29

Securities sold under agreements to repurchase and other short-term borrowings		202,018		332	0.22			296,574		51	0.02
Federal Home Loan Bank advances		572,390		6,618	1.54			588,109		8,590	1.95
Subordinated note		41,240		807	2.61			42,926		680	2.11

Total interest-bearing liabilities		3,044,379		14,547	0.64			2,941,806		13,680	0.62

Noninterest-bearing liabilities and Stockholders’ equity:
Noninterest-bearing deposits		1,082,361						874,060
Other liabilities		32,531						29,779
Stockholders’ equity		624,164						595,236
Total liabilities and stock-holders’ equity	$	4,783,435					$	4,440,881

Net interest income			$	147,882					$	114,409

Net interest spread					4.13	%					3.43	%

Net interest margin					4.34	%					3.62	%

(1)

(2)

Interest income for Easy Advances is composed entirely of loan fees.

(3)

Interest income includes loan fees of $15.0 million and $7.4 million for the nine months ended September 30, 2017 and 2016.

(4)

Interest income includes loan fees of $2.5 million and $2.3 million for the nine months ended September 30, 2017 and 2016.

(5)

Interest income includes loan fees of $5.1 million and $3.4 million for the nine months ended September 30, 2017 and 2016.

(6)

Average balances for loans include the principal balance of nonaccrual loans and loans held for sale, and are inclusive of all loan premiums, discounts, fees and costs.

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Table 6 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 6 — Total Company Volume/Rate Variance Analysis for the Nine Months Ended September 30, 2017 and 2016


		Nine Months Ended September 30, 2017
		Compared to
		Nine Months Ended September 30, 2016
	Total Net		Increase / (Decrease) Due to
(in thousands)	Change		Volume		Rate

Interest income:

Investment securities, including FHLB stock	$	1,440	$	84	$	1,356
Federal funds sold and other interest-earning deposits		662		150		512
TRS Easy Advance loans and fees		9,010		10,739		(1,729)
Other RPG loans and fees		8,579		8,746		(167)
Outstanding Warehouse lines of credit and fees		3,684		2,277		1,407
All other Traditional Bank loans and fees		10,965		5,760		5,205

Net change in interest income		34,340		27,756		6,584

Interest expense:

Transaction accounts		1,037		115		922
Money market accounts		318		12		306
Time deposits		464		253		211
Brokered money market and brokered certificates of deposit		612		133		479
Securities sold under agreements to repurchase and other short-term borrowings		281		(22)		303
Federal Home Loan Bank advances		(1,972)		(224)		(1,748)
Subordinated note		127		(28)		155

Net change in interest expense		867		239		628

Net change in net interest income	$	33,473	$	27,517	$	5,956

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Provision for Loan and Lease Losses

The Company recorded a Provision of $21.6 million for the first nine months of 2017, compared to $9.5 million for the same period in 2016. The significant components comprising the Company’s Provision by reportable segment were as follows:

Traditional Banking segment

The Traditional Banking Provision during the first nine months of 2017 was $2.6 million, compared to $1.6 million for the first nine months of 2016. An analysis of the Provision for the first nine months of 2017 compared to the same period in 2016 follows:

Related to the Bank’s pass-rated and non-rated credits, the Bank recorded net charges of $2.7 million and $1.7 million to the Provision for the first nine months of 2017 and 2016. Loan growth primarily drove the net charges to the Provision in both periods, as gross loans increased $153 million during the first nine months of 2017 and $212 million during the same period in 2016. Growth during the first nine months of 2016 was primarily driven by the Company’s May 2016 Cornerstone acquisition, while growth during the same period in 2017 was primarily organic in nature. Since business-acquisition loans are purchased at fair value and the credit risk is a component of the valuation when determining the fair value, only a minimal Provision was recorded during 2016 for loan growth attributable to the Cornerstone acquisition.

Provision activity related to the Bank’s loans rated Substandard and Special Mention, as well as PCI loans, was immaterial during the first nine months of 2017 and 2016.

As a percentage of total loans, the Traditional Banking Allowance was 0.84% at September 30, 2017 compared to 0.83% at December 31, 2016 and 0.81% at September 30, 2016. The Company believes, based on information presently available, that it has adequately provided for Traditional Bank loan losses at September 30, 2017.

Warehouse Lending segment

The Warehouse Provision was a net credit of $36,000 for the first nine months of 2017, a $722,000 improvement from the same period in 2016. Provision expense for both periods reflected changes in general reserves consistent with changes in outstanding period-end balances. Outstanding Warehouse period-end balances decreased $14 million during the first nine months of 2017 compared to an increase of $274 million during the first nine months of 2016.

Tax Refund Solutions segment

TRS recorded a Provision of $6.8 million during the first nine months of 2017, an increase of $3.9 million compared to same period in 2016.

The increase in Provision at TRS was attributable to an increase in estimated losses for EA loans, as EA volume increased 167% for the first nine months of 2017 compared to the first nine months of 2016. As of September 30, 2017 and 2016, the Company had Provisions of 2.14% and 2.54% of total EAs originated during the first nine months of 2017 and 2016.

See additional detail regarding the EA product under Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements.”

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Republic Credit Solutions segment

RCS recorded a Provision of $12.3 million during the first nine months of 2017, an increase of $8.0 million compared to same period in 2016. Provision expense was higher at RCS due to an increase in general loss reserves for growth in RCS loans, as well as an increase in the historical loss factors for the general reserves for RCS loans resulting from a rise in charge-offs from the prior year.

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Table 7 — Summary of Loan and Lease Loss Experience for the Nine Months Ended September 30, 2017 and 2016


	Nine Months Ended
	September 30,
(dollars in thousands)	2017			2016

Allowance at beginning of period	$	32,920		$	27,491

Charge-offs:

Traditional Banking:
Residential real estate		(177)			(317)
Commercial real estate		—			(41)
Construction & land development		—			(44)
Commercial & industrial		(152)			(330)
Lease financing receivables		—			—
Home equity		(99)			(229)
Consumer		(1,483)			(1,178)
Total Traditional Banking		(1,911)			(2,139)
Warehouse lines of credit		—			—
Total Core Banking		(1,911)			(2,139)

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		(8,121)			(3,474)
Commercial & industrial		—			—
Republic Credit Solutions		(7,217)			(3,072)
Total Republic Processing Group		(15,338)			(6,546)
Total charge-offs		(17,249)			(8,685)

Recoveries:

Traditional Banking:
Residential real estate		231			301
Commercial real estate		115			140
Construction & land development		4			30
Commercial & industrial		34			125
Lease financing receivables		—			—
Home equity		128			135
Consumer:		442			454
Total Traditional Banking		954			1,185
Warehouse lines of credit		—			—
Total Core Banking		954			1,185

Republic Processing Group:
Tax Refund Solutions:
Easy Advances		1,082			347
Refund Anticipation Loans		252			290
Commercial & industrial		—			—
Republic Credit Solutions		599			319
Total Republic Processing Group		1,933			956
Total recoveries		2,887			2,141

Net loan charge-offs		(14,362)			(6,544)

Provision - Core Banking		2,575			2,253
Provision - RPG		19,058			7,236
Total Provision		21,633			9,489
Allowance at end of period	$	40,191		$	30,436

Credit Quality Ratios - Total Company:

Allowance to total loans		1.02	%		0.80	%
Allowance to nonperforming loans		245			169
Net loan charge-offs to average loans		0.51			0.25

Credit Quality Ratios - Core Banking:

Allowance to total loans		0.76	%		0.71	%
Allowance to nonperforming loans		190			152
Net loan charge-offs to average loans		0.03			0.04

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Noninterest Income

Total Company noninterest income increased $1.2 million, or 3%, during the first nine months of 2017 compared to the same period in 2016. The most significant components comprising the total Company’s noninterest income by reportable segment were as follows:

Traditional Banking segment

Traditional Banking segment noninterest income increased $1.2 million, or 6%, for the first nine months of 2017 compared to the same period in 2016. The most significant categories affecting the change in noninterest income for the period were as follows:

Service charges on deposit accounts increased $220,000, or 2%, to $10.0 million for the first nine months of 2017 compared to $9.8 million during the same period in 2016 driven by a 7% growth in the Company’s transactional account base from September 30, 2016 to September 30, 2017. 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 nine months ended September 30, 2017 and 2016 were $6.1 million and $5.7 million. The total daily overdraft charges, net of refunds, included in interest income for the nine months ended September 30, 2017 and 2016 were $1.3 million and $1.2 million.

Interchange income increased $435,000, or 7%, due to an 11% increase in the number of active debit cards and a 9% increase in the number of transactions experienced by the Company for such cards.

Mortgage Banking segment

Within the Mortgage Banking segment, mortgage banking income decreased $2.2 million during the first nine months of 2017 compared to the same period in 2016. Approximately $1.1 million of the decrease in mortgage banking income was attributable to a nonrecurring gain recorded during the third quarter of 2016 from the bulk sale of $71 million in mortgage loans, which represented a portion of the Company’s correspondent loan portfolio. The remainder of the decrease in mortgage banking income was consistent with a decrease in consumer refinance activity.

Overall, excluding the aforementioned bulk loan sale, Republic’s originations of secondary market loans totaled $119 million during the first nine months of 2017 compared to $155 million during the same period in 2016. Excluding the bulk sale, the ratio of net gain on sale of mortgage loans originated for sale was 2.70% and 2.92% during the first nine months of 2017 and 2016.

Tax Refund Solutions segment

Within the TRS segment, noninterest income decreased $885,000, or 5%, during the first nine months of 2017 compared to the same period in 2016. The overall decrease was primarily attributable to a $790,000, or 4%, decrease in net RT revenue at TRS from the first nine months of 2016 to the first nine months of 2017, consistent with the 10% decrease in RT product volume for the same periods.

Republic Credit Solutions segment

Within the RCS segment, noninterest income increased $3.0 million, or 149%, during the first nine months of 2017 compared to the same period in 2016. The overall increase was primarily attributable to an increase of $2.1 million in RCS program fees, which represents gains from the sale of consumer loans. The increase in program fees resulted from an increase in volume from RCS’ small-dollar consumer loan programs. During the first nine months of 2017, loans sold through the RCS programs increased $205 million, or 83%, to $453 million compared to $248 million during the first nine months of 2016. In addition, RCS benefitted during the first nine months of 2017 from the final revenue payment of $427,000 from a program sponsor related to a first-year volume guarantee for its credit product.

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Noninterest Expense

Total Company noninterest expense increased $14.8 million, or 15%, during the first nine months of 2017 compared to the same period in 2016. The most significant components comprising the increase in noninterest expense by reportable segment were as follows:

Traditional Banking segment

For the first nine months of 2017 compared to the same period in 2016, Traditional Banking noninterest expense increased $12.0 million, or 15%. The most significant categories affecting the change in noninterest expense for the periods were as follows:

Salaries and benefits expense increased $7.0 million, or 16%, primarily due to an increase of 67 FTE employees from September 30, 2016 to September 30, 2017. The increase in FTEs was driven by additional staffing needed to implement the Company’s strategic initiatives.

Occupancy expense increased $1.6 million, or 11%, driven by increases in rent expense and depreciation expense resulting from new locations, existing banking center renovations and the cost of technology to support the Bank’s strategic initiatives.

Marketing and development expense increased $1.1 million, or 42%, with $660,000 of the increase attributable to the Company’s national branchless banking platform, MemoryBank. The remainder of the increase was focused on driving loan and deposit growth in markets outside of the Company’s Louisville, Kentucky footprint. In addition, the Company also instituted a marketing awareness campaign in its Louisville, Kentucky market as part of a mortgage lending initiative.

Impairment of premises held for sale increased $949,000 resulting from a mark-to-market charge for a bank property that the Company plans to market for sale in the coming months.

Tax Refund Solutions segment

Within the TRS segment, noninterest expense increased $1.9 million, or 21%, during the first nine months of 2017 compared to the same period in 2016. The increase was primarily due to a $1.3 million increase in salaries and benefits expense, driven by additional staff added during the previous 12 months to support growth. The remaining increase was primarily in the other expense category and was related to an accrual for future Tax Provider payments triggered by the attainment of certain agreed upon incentive metrics for the applicable program.

Republic Credit Solutions segment

Within the RCS segment, noninterest expense increased $833,000, or 51%, during the first nine months of 2017 compared to the same period in 2016. The increase was primarily due to increases of $439,000 in data processing expenses and $173,000 in marketing expenses, with both increases consistent with RCS product growth from the first nine months of 2016 to the same period in 2017.

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COMPARISON OF FINANCIAL CONDITION AT September 30, 2017 AND December 31, 2016

Loan Portfolio

Table 8 — Loan Portfolio Composition


(in thousands)	September 30, 2017		December 31, 2016

Traditional Banking:
Residential real estate:
Owner occupied	$	933,726	$	1,000,148
Owner occupied - correspondent*		125,643		149,028
Nonowner occupied		193,379		156,605
Commercial real estate		1,161,225		1,060,496
Construction & land development		138,837		119,650
Commercial & industrial		327,214		259,026
Lease financing receivables		15,367		13,614
Home equity		346,154		341,285
Consumer:
Credit cards		19,898		13,414
Overdrafts		892		803
Automobile loans		63,639		52,579
Other consumer		13,247		19,744
Total Traditional Banking		3,339,221		3,186,392
Warehouse lines of credit*		571,160		585,439
Total Core Banking		3,910,381		3,771,831

Republic Processing Group*:
Tax Refund Solutions:
Easy Advances		—		—
Commercial & industrial		265		6,695
Republic Credit Solutions		46,866		32,252
Total Republic Processing Group		47,131		38,947

Total loans**		3,957,512		3,810,778
Allowance for loan and lease losses		(40,191)		(32,920)

Total loans, net	$	3,917,321	$	3,777,858

* 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 $147 million, or 4%, during 2017 to $4.0 billion at September 30, 2017.

Traditional Banking segment

Traditional Banking loans increased $153 million, or 5%, during the first nine months of 2017. Within the Traditional Banking segment’s portfolio, CRE loans experienced the largest increase of $101 million, or 9%, with the Bank’s Commercial and Corporate Banking Department primarily driving growth. The Bank’s owner occupied residential real estate loans, including correspondent loans, declined $90 million in total. These category fluctuations were generally in-line with the Company’s overall long-term loan growth strategy, which is to reduce the Bank’s reliance on residential real estate loans for balance sheet growth and to rely more on commercial type loans for future growth. While the Company does currently intend to reduce its reliance on residential real estate loans for future balance sheet growth, it also continues to make plans to expand its agency-eligible volume of first mortgage residential real estate loans, which it will sell into the secondary market in order to generate fee income.

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Warehouse Lending segment

As of September 30, 2017, the Bank had $571 million outstanding on total committed Warehouse credit lines of $1.1 billion. As of December 31, 2016, the Bank had $585 million outstanding on total committed Warehouse credit lines of $915 million. The $14 million decrease in outstanding balances generally reflects lower usage rates on outstanding Warehouse lines during 2017, with usage rates negatively impacted by a general industry decline in mortgage refinance activity. For the remainder of 2017, management believes that usage rates for Warehouse lines will likely continue to be lower than comparable periods in 2016, as the mortgage industry anticipates higher long-term interest rates.

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 64% during the third quarter of 2015. 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 57% during 2016.

Republic Credit Solutions segment

RCS loans increased $15 million, or 45%, during the first nine months of 2017, with RCS expanding all four of its product lines during 2017. RCS’s line-of-credit product increased $6 million, or 32%, during the first nine months of 2017, with this product representing 54% and 60% of all RCS loans outstanding at September 30, 2017 and December 31, 2016.

Allowance for Loan and Lease Losses (“Allowance”)

The Bank maintains an Allowance for probable incurred credit losses inherent in the Bank’s loan portfolio, which includes overdrawn deposit accounts. Management evaluates the adequacy of the Allowance on a monthly basis and presents and discusses the analysis with the Audit Committee and the Board of Directors on a quarterly basis.

The Allowance consists of both specific and general components. The specific component relates to loans that are individually classified as impaired. The general component relates to pooled loans collectively evaluated on historical loss experience adjusted for qualitative factors.

Specific Component – Loans Individually Classified as Impaired

The Bank defines impaired loans as follows:

All loans internally rated as “Substandard,” “Doubtful” or “Loss”

All loans on nonaccrual status;

All Troubled Debt Restructurings (“TDRs”);

All loans internally rated in a purchased credit impaired (“PCI”) category with cash flows that have deteriorated from management’s initial acquisition day estimate; and

Any other situation where the full collection of the total amount due for a loan is improbable or otherwise meets the definition of impaired.

Generally, loans are designated as “Classified” or “Special Mention” to ensure more frequent monitoring. These loans are reviewed to ensure proper accrual status and management strategy. If it is determined that there is serious doubt as to performance in accordance with original or modified contractual terms, then the loan is generally downgraded and may be charged down to its estimated value and placed on nonaccrual status.

Under GAAP, the Bank uses the following methods to measure specific loan impairment, including:

Cash Flow Method — The recorded investment in the loan is measured against the present value of expected future cash flows discounted at the loan’s effective interest rate. The Bank employs this method for a significant portion of its TDRs. Impairment amounts under this method are reflected in the Bank’s Allowance as specific reserves on the respective impaired loan. These specific reserves are adjusted quarterly based upon reevaluation of the expected future cash flows and changes in the recorded investment.

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Collateral Method — The recorded investment in the loan is measured against the fair value of the collateral less applicable selling costs. The Bank employs the fair value of collateral method for its impaired loans when repayment is based solely on the sale or operations of the underlying collateral. Collateral fair value is typically based on the most recent real estate valuation on file. Measured impairment under this method is generally charged off unless the loan is a smaller-balance, homogeneous loan. The Bank’s selling costs for its collateral-dependent loans typically range from 10-13% of the fair value of the underlying collateral, depending on the asset class. Selling costs are not applicable for collateral-dependent loans whose repayment is based solely on the operations of the underlying collateral.

In addition to obtaining appraisals at the time of origination, the Bank typically updates appraisals and/or broker price opinions (“BPOs”) for loans with potential impairment. Updated valuations for commercial-related credits exhibiting an increased risk of loss are typically obtained within one year of the previous valuation. Collateral values for delinquent residential mortgage loans and home equity loans are generally updated prior to a loan becoming 90 days delinquent, but no more than 180 days past due. When measuring impairment, to the extent updated collateral values cannot be obtained due to the lack of recent comparable sales or for other reasons, the Bank discounts such stale valuations primarily based on age of valuation and market conditions of the underlying collateral.

General Component – Pooled Loans Collectively Evaluated

The general component of the Allowance covers loans collectively evaluated for impairment by loan class and is based on historical loss experience, with potential adjustments for current relevant qualitative factors. Historical loss experience is determined by loan performance and class and is based on the actual loss history experienced by the Bank. Large groups of smaller-balance, homogeneous loans are typically included in the general component but may be individually evaluated if classified as a TDR, on nonaccrual, or a case where the full collection of the total amount due for a such loan is improbable or otherwise meets the definition of impaired.

As this analysis, or any similar analysis, is an imprecise measure of loss, the Allowance is subject to ongoing adjustments. Therefore, management will often take into account other significant factors that may be necessary or prudent in order to reflect probable incurred losses in the total loan portfolio.

The Company’s Allowance increased $7 million, or 22%, from December 31, 2016 to $40 million at September 30, 2017, primarily driven by growth in RCS small-dollar credit products and general growth in commercial Core Bank portfolios.

As a percent of total loans, the total Company’s Allowance increased to 1.02% at September 30, 2017 compared to 0.86% at December 31, 2016. The increase in ratio of Allowance to total loans was primarily driven by reserves for RCS small-dollar consumer products. An analysis of the Allowance by reportable segment follows:

Traditional Banking segment

The Allowance at the Traditional Banking segment increased to $28 million at September 30, 2017 compared to $26 million at December 31, 2016. The Allowance to total Traditional Bank loans increased to 0.84% at September 30, 2017 from 0.83% at December 31, 2016. The growth in the Allowance for the Traditional Banking segment was generally related to the growth in the overall loan portfolio with changes to the historical loss percentages and qualitative factors of the calculation providing minimal impact.

Warehouse Lending segment

The Allowance on loans originated through the Company’s Warehouse segment decreased to $1.4 million at September 30, 2017 from $1.5 million at December 31, 2016, with the Allowance to total outstanding Warehouse balances remaining at 0.25% at both period ends. The decrease in the Allowance for the Warehouse Lending segment was entirely related to the decline in the overall loan portfolio.

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Republic Credit Solutions segment

The Allowance on loans originated through the Company’s RCS segment increased to $11 million at September 30, 2017 from $5 million at December 31, 2016, driven primarily by $6 million of estimated reserves for growth in RCS loans, as well as an increase in the historical loss factors for the general reserves for RCS loans resulting from a rise in charge-offs from the prior year. The Allowance to total RPG loans increased to 22.71% at September 30, 2017 from 15.40% at December 31, 2016.

RPG maintained an Allowance for three loan products offered through its RCS segment at September 30, 2017, including its line-of-credit product, its credit card product and its healthcare-receivables product. At September 30, 2017, the Allowance to total loans estimated for each RCS product ranged from as low as 0.25% for its healthcare-receivables portfolio to as high as 36% for its line-of-credit portfolio. A lower reserve percentage was provided for RCS’s healthcare receivables at September 30, 2017, as such receivables have recourse back to the Company’s partners in the transactions.

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-Substandard (“PCI-Sub”) are considered “Classified.” Loans rated “Special Mention” or PCI Group 1 (“PCI-1”) are considered Special Mention. The Bank’s Classified and Special Mention loans decreased $6 million during the first nine months of 2017, primarily due to the payoffs and paydowns of Special Mention loans during the period.

See Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding Classified and Special mention loans.

Table 9 — Classified and Special Mention Loans


(in thousands)	September 30, 2017		December 31, 2016

Loss	$	—	$	—
Doubtful		—		—
Substandard		21,928		21,412
Purchased Credit Impaired - Substandard		1,770		2,366
Total Classified Loans		23,698		23,778

Special Mention		26,630		30,702
Purchased Credit Impaired - Group 1		5,582		7,908
Total Special Mention Loans		32,212		38,610

Total Classified and Special Mention Loans	$	55,910	$	62,388

Nonperforming Loans

Nonperforming loans include loans on nonaccrual status and loans past due 90-days-or-more and still accruing. Impaired loans that are not placed on nonaccrual status are not included as nonperforming loans. The nonperforming loan category includes TDRs totaling approximately $7 million and $10 million at September 30, 2017 and December 31, 2016. Generally, all nonperforming loans are considered impaired.

Nonperforming loans to total loans decreased to 0.41% at September 30, 2017 from 0.42% at December 31, 2016, as the total balance of nonperforming loans increased by $322,000, or 2%, while total loans increased $147 million, or 4% during the first nine months of 2017.

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Table 10 — Nonperforming Loans and Nonperforming Assets Summary


(dollars in thousands)	September 30, 2017			December 31, 2016

Loans on nonaccrual status*	$	15,475		$	15,892
Loans past due 90-days-or-more and still on accrual**		906			167
Total nonperforming loans		16,381			16,059
Other real estate owned		167			1,391
Total nonperforming assets	$	16,548		$	17,450

Credit Quality Ratios - Total Company:
Nonperforming loans to total loans		0.41	%		0.42	%
Nonperforming assets to total loans (including OREO)		0.42			0.46
Nonperforming assets to total assets		0.33			0.36

Credit Quality Ratios - Core Bank:
Nonperforming loans to total loans		0.40	%		0.42	%
Nonperforming assets to total loans (including OREO)		0.40			0.46
Nonperforming assets to total assets		0.32			0.36

*Loans on nonaccrual status include impaired loans. See Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding impaired loans.

** Loans past due 90-days-or-more and still accruing consist of smaller balance consumer loans.

Approximately $11 million, or 66%, of the Bank’s total nonperforming loans at September 30, 2017, compared to $13 million, or 80%, as of December 31, 2016, were concentrated in the residential real estate and HELOC categories, with the underlying collateral predominantly located in the Bank’s primary market area of Kentucky.

Approximately $4 million, or 27%, of the Bank’s total nonperforming loans at September 30, 2017, compared to $3 million, or 17%, at December 31, 2016 were concentrated in the CRE and construction and land development portfolios. While CRE is the primary collateral for such loans, the Bank also obtains in many cases, at the time of origination, personal guarantees from the principal borrowers and/or secured liens on the guarantors’ primary residences.

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Table 11 — Nonperforming Loan Composition


	September 30, 2017					December 31, 2016
				Percent of					Percent of
				Total					Total
(dollars in thousands)	Balance			Loan Class		Balance			Loan Class

Traditional Banking:
Residential real estate:
Owner occupied		$	9,528	1.02	%		$	10,955	1.10	%
Owner occupied - correspondent			—	—				—	—
Nonowner occupied			21	0.01				852	0.54
Commercial real estate			4,411	0.38				2,725	0.26
Construction & land development			68	0.05				77	0.06
Commercial & industrial			46	0.01				154	0.06
Lease financing receivables			—	—				—	—
Home equity			1,308	0.38				1,069	0.31
Consumer:
Credit cards			—	—				—	—
Overdrafts			—	—				—	—
Automobile loans			72	0.11				—	—
Other consumer			76	0.57				145	0.73
Total Traditional Banking			15,530	0.47				15,977	0.50
Warehouse lines of credit			—	—				—	—
Total Core Banking			15,530	0.40				15,977	0.42

Republic Processing Group:
Tax Refund Solutions:
Easy Advances			—	—				—	—
Commercial & industrial			—	—				—	—
Republic Credit Solutions			851	1.82				82	0.25
Total Republic Processing Group			851	1.81				82	0.21

Total nonperforming loans		$	16,381	0.41			$	16,059	0.42

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Table 12 — Stratification of Nonperforming Loans


	Number of Nonperforming Loans and Recorded Investment
					Balance
September 30, 2017		Balance			> $100 &			Balance			Total
(dollars in thousands)	No.	<= $100		No.	<= $500		No.	> $500		No.	Balance

Traditional Banking:
Residential real estate:
Owner occupied	95	$	4,464	18	$	3,484	1	$	1,580	114	$	9,528
Owner occupied - correspondent	—		—	—		—	—		—	—		—
Nonowner occupied	1		21	—		—	—		—	1		21
Commercial real estate	1		78	6		1,248	3		3,085	10		4,411
Construction & land development	1		68	—		—	—		—	1		68
Commercial & industrial	1		46	—		—	—		—	1		46
Lease financing receivables	—		—	—		—	—		—	—		—
Home equity	25		593	5		715	—		—	30		1,308
Consumer:
Credit cards	—		—	—		—	—		—	—		—
Overdrafts	—		—	—		—	—		—	—		—
Automobile loans	3		72	—		—	—		—	3		72
Other consumer	18		76	—		—	—		—	18		76
Total Traditional Banking	145		5,418	29		5,447	4		4,665	178		15,530
Warehouse lines of credit	—		—	—		—	—		—	—		—
Total Core Banking	145		5,418	29		5,447	4		4,665	178		15,530

Republic Processing Group:
Tax Refund Solutions:
Easy Advances	—		—	—		—	—		—	—		—
Commercial & industrial	—		—	—		—	—		—	—		—
Republic Credit Solutions	8,508		851	—		—	—		—	8,508		851
Total Republic Processing Group	8,508		851	—		—	—		—	8,508		851

Total	8,653	$	6,269	29	$	5,447	4	$	4,665	8,686	$	16,381

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	Number of Nonperforming Loans and Recorded Investment
					Balance
December 31, 2016		Balance			> $100 &			Balance			Total
(dollars in thousands)	No.	<= $100		No.	<= $500		No.	> $500		No.	Balance

Traditional Banking:
Residential real estate:
Owner occupied	120	$	5,417	30	$	5,538	—	$	—	150	$	10,955
Owner occupied - correspondent	—		—	—		—	—		—	—		—
Nonowner occupied	5		77	—		—	1		775	6		852
Commercial real estate	2		106	5		1,190	1		1,429	8		2,725
Construction & land development	1		77	—		—	—		—	1		77
Commercial & industrial	—		—	1		154	—		—	1		154
Lease financing receivables	—		—	—		—	—		—	—		—
Home equity	25		589	3		480	—		—	28		1,069
Consumer:
Credit cards	—		—	—		—	—		—	—		—
Overdrafts	—		—	—		—	—		—	—		—
Automobile loans	—		—	—		—	—		—	—		—
Other consumer	39		145	—		—	—		—	39		145
Total Traditional Banking	192		6,411	39		7,362	2		2,204	233		15,977
Warehouse lines of credit	—		—	—		—	—		—	—		—
Total Core Banking	192		6,411	39		7,362	2		2,204	233		15,977

Republic Processing Group:
Tax Refund Solutions:
Easy Advances	—		—	—		—	—		—	—		—
Commercial & industrial	—		—	—		—	—		—	—		—
Republic Credit Solutions	1,163		82	—		—	—		—	1,163		82
Total Republic Processing Group	1,163		82	—		—	—		—	1,163		82

Total	1,355	$	6,493	39	$	7,362	2	$	2,204	1,396	$	16,059

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As presented in Tables 13 and 14 below, approximately $7 million and $7 million in nonperforming loans at December 31, 2016 and 2015 were removed from the nonperforming loan classification during the first nine months of 2017 and 2016.

Based on the Bank’s review at September 30, 2017, management believes that its reserves are adequate to absorb probable losses on all nonperforming loans.

Table 13 — Rollforward of Nonperforming Loans


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Nonperforming loans at the beginning of the period	$	15,802	$	19,956	$	16,059	$	21,936
Loans added to nonperforming status during the period that remained in nonperforming status at the end of the period		3,408		1,946		6,978		4,293
Loans removed from nonperforming status during the period that were in nonperforming status at the beginning of the period (see table below)		(3,050)		(3,446)		(6,660)		(7,153)
Changes in principal balance on loans in nonperforming status at both the beginning and at the end of the period		221		(464)		4		(1,084)

Nonperforming loans at the end of the period	$	16,381	$	17,992	$	16,381	$	17,992

Table 14 — Detail of Loans at the Beginning of the Period Removed from Nonperforming Status during the Period


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Loans charged-off	$	(230)	$	(144)	$	(239)	$	(209)
Loans transferred to OREO		(84)		(2,041)		(556)		(2,786)
Loans refinanced at other institutions		(1,217)		(1,261)		(2,553)		(4,158)
Loans returned to accrual status		(1,519)		—		(3,312)		—

Total loans removed from nonperforming status during the period that were in nonperforming status at the beginning of the period	$	(3,050)	$	(3,446)	$	(6,660)	$	(7,153)

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Delinquent Loans

Delinquent loans to total loans increased to 0.30% at September 30, 2017, from 0.24% at December 31, 2016. Core Bank delinquent loans to total Core Bank loans increased to 0.20% at September 30, 2017 compared 0.18% at December 31, 2016. With the exception of PCI loans and small-dollar consumer loans, all Traditional Bank loans past due 90-days-or-more as of September 30, 2017 and December 31, 2016 were on nonaccrual status.

Table 15 — Delinquent Loan Composition*


	September 30, 2017					December 31, 2016
				Percent of					Percent of
				Total					Total
(dollars in thousands)	Balance			Loan Class		Balance			Loan Class

Traditional Banking:
Residential real estate:
Owner occupied		$	3,579	0.38	%		$	4,554	0.46	%
Owner occupied - correspondent			—	—				—	—
Nonowner occupied			658	0.34				46	0.03
Commercial real estate			2,087	0.18				425	0.04
Construction & land development			—	—				—	—
Commercial & industrial			37	0.01				342	0.13
Lease financing receivables			—	—				—	—
Home equity			837	0.24				970	0.28
Consumer:
Credit cards			96	0.48				18	0.13
Overdrafts			209	23.43				161	20.05
Automobile loans			73	0.11				—	—
Other consumer			180	1.36				305	1.54
Total Traditional Banking			7,756	0.23				6,821	0.21
Warehouse lines of credit			—	—				—	—
Total Core Banking			7,756	0.20				6,821	0.18

Republic Processing Group:
Tax Refund Solutions:
Easy Advances			—	—				—	—
Commercial & industrial			—	—				—	—
Republic Credit Solutions			4,270	9.11				2,137	6.63
Total Republic Processing Group			4,270	9.06				2,137	5.49

Total delinquent loans		$	12,026	0.30			$	8,958	0.24

*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.

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As presented in Tables 16 and 17 below, approximately $5 million and $9 million in delinquent loans at December 31, 2016 and 2015 were removed from delinquent status through the first nine months of September 30, 2017 and 2016.

Table 16 — Rollforward of Delinquent Loans


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Delinquent loans at the beginning of the period	$	9,013	$	10,607	$	8,958	$	11,731
Loans added to delinquency status during the period and remained in delinquency status at the end of period		4,164		3,361		5,715		5,749
Loans removed from delinquency status during the period that were in delinquency status at the beginning of the period (see table below)		(3,297)		(5,440)		(4,709)		(9,302)
Change in principal balance of loans delinquent at both period ends*		2,146		186		2,062		536

Delinquent loans at the end of period	$	12,026	$	8,714	$	12,026	$	8,714

*Includes relatively-small consumer portfolios, e.g., credit cards and RCS portfolios.

Table 17 — Detail of Loans Removed from Delinquency Status during the Period that were in Delinquency Status at the Beginning of the Period


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Loans charged-off	$	(198)	$	(24)	$	(83)	$	(69)
Loans transferred to OREO		(84)		(1,360)		(526)		(2,605)
Loans refinanced at other institutions		(1,736)		(2,724)		(2,143)		(3,476)
Loans paid current		(1,279)		(1,332)		(1,957)		(3,152)

Total loans removed from delinquency status during the period that were in delinquency status at the beginning of the period	$	(3,297)	$	(5,440)	$	(4,709)	$	(9,302)

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Impaired Loans and Troubled Debt Restructurings

The Bank’s policy is to charge-off all or that portion of its recorded investment in a collateral-dependent impaired credit upon a determination that it is probable the full amount of contractual principal and interest will not be collected. Impaired loans totaled $48 million at September 30, 2017 compared to $53 million at December 31, 2016, representing a decrease of $5 million during the first nine months of 2017.

A TDR is the 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. As of September 30, 2017, the Bank had $38 million in TDRs, of which $7 million were also on nonaccrual status. As of December 31, 2016, the Bank had $42 million in TDRs, of which $10 million were also on nonaccrual status.

Table 18 — Impaired Loan Composition


(in thousands)	September 30, 2017		December 31, 2016

Troubled debt restructurings	$	37,594	$	41,586
Impaired loans (which are not TDRs)		10,125		11,098

Total impaired loans	$	47,719	$	52,684

See Footnote 5 “Loans and Allowance for Loan and Lease Losses” of Part I Item 1 “Financial Statements” for additional discussion regarding impaired loans and TDRs.

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Other Real Estate Owned

Table 19 — Stratification of Other Real Estate Owned


	Number of OREO Properties and Carrying Value Range
					Carrying
		Carrying			Value			Carrying			Total
September 30, 2017		Value			> $100 &			Value			Carrying
(dollars in thousands)	No.	< = $100		No.	< = $500		No.	> $500		No.	Value

Residential real estate	4	$	167	—	$	—	—	$	—	4	$	167

Total	4	$	167	—	$	—	—	$	—	4	$	167


	Number of OREO Properties and Carrying Value Range
					Carrying
		Carrying			Value			Carrying			Total
December 31, 2016		Value			> $100 &			Value			Carrying
(dollars in thousands)	No.	< = $100		No.	< = $500		No.	> $500		No.	Value

Residential real estate	3	$	848	1	$	543	—	$	—	4	$	1,391

Total	3	$	848	1	$	543	—	$	—	4	$	1,391

Table 20 — Rollforward of Other Real Estate Owned Activity


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

OREO at beginning of period	$	300	$	1,503	$	1,391	$	1,220
Transfer from loans to OREO		84		2,001		556		3,939
Proceeds from sale*		(248)		(933)		(2,202)		(2,916)
Net gain on sale		107		64		577		392
Writedowns		(76)		(200)		(155)		(200)

OREO at end of period	$	167	$	2,435	$	167	$	2,435

* Inclusive of non-cash proceeds where the Bank financed the sale of the property.

The fair value of OREO represents the estimated value that management expects to receive when the property is sold, net of related costs to sell. These estimates are based on the most recently available real estate appraisals, with certain adjustments made based on the type of property, age of appraisal, current status of the property and other relevant factors to estimate the current value of the property.

Bank Owned Life Insurance (“BOLI”)

BOLI offers tax advantaged noninterest income to help the Bank offset employee benefits expenses. The Company carried $63 million and $62 million of BOLI on its consolidated balance sheet at September 30, 2017 and December 31, 2016.

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Deposits

Table 21 — Deposit Composition


(in thousands)	September 30, 2017		December 31, 2016

Core Bank:
Demand	$	940,081	$	872,709
Money market accounts		540,521		541,622
Brokered money market accounts		302,469		360,597
Savings		182,153		164,410
Individual retirement accounts*		46,967		42,642
Time deposits, $250 and over*		76,362		37,200
Other certificates of deposit*		177,606		140,894
Brokered certificates of deposit*		41,561		28,666
Total Core Bank interest-bearing deposits		2,307,720		2,188,740
Total Core Bank noninterest-bearing deposits		991,218		943,459
Total Core Bank deposits		3,298,938		3,132,199

Republic Processing Group ("RPG"):
Money market accounts		1,595		—
Total RPG interest-bearing deposits		1,595		—

Brokered prepaid card deposits		1,167		15
Other noninterest-bearing deposits		48,029		28,478
Total RPG noninterest-bearing deposits		49,196		28,493
Total RPG deposits		50,791		28,493

Total deposits	$	3,349,729	$	3,160,692

* Represents a time deposit.

Total Company deposits increased $189 million, or 6%, from December 31, 2016 to $3.3 billion at September 30, 2017.

Total Company interest-bearing deposits increased $121 million, or 6%, during the first nine months of 2017 largely driven by $58 million in interest-bearing deposits raised through the Company’s separately branded digital platform, MemoryBank. In addition, the Company experienced an increase of $80 million, or 36%, in its non-brokered time deposits during the first nine months of 2017 as the Bank maintained a more attractive rate offering on its certificates of deposit in order to attract longer-term deposits.

Total Company noninterest bearing deposits increased $68 million, or 7%, during the first nine months of 2017. Noninterest-bearing deposits at RPG increased $21 million from December 31, 2016 to $51 million at September 30, 2017, while Core Banking noninterest-bearing deposits increased $47 million, or 5%. The increase in the Core Bank’s noninterest-bearing deposits was largely driven by growth in the Bank’s free-business-checking products, which are the Bank’s primary product offering for small business accounts.

Securities Sold Under Agreements to Repurchase and Other Short-term Borrowings

Securities Sold under Agreements to Repurchase (“SSUARs”) are collateralized by securities and are treated as financings; accordingly, the securities involved with the agreements are recorded as assets and are held by a safekeeping agent and the obligations to repurchase the securities are reflected as liabilities. All securities underlying the agreements are under the Bank’s control.

SSUARs totaled $173 million at both December 31, 2016 and September 30, 2017. The substantial majority of SSUARs are indexed to immediately repricing indices such as the FFTR.

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Federal Home Loan Bank Advances

FHLB advances decreased $45 million, or 6%, from December 31, 2016 to $758 million at September 30, 2017, with the Bank reducing its term advances by $110 million and increasing its overnight advances by $65 million during the first nine months of 2017. During the first nine months of 2017, the Bank obtained $65 million in additional fixed-rate term advances with a weighted average rate of 1.88% and a weighted average term of 2.6 years, while $175 million of fixed-rate term advances with a weighted average rate of 1.88% and a weighted average term of 1.7 years matured during the period. The Bank held $350 million in overnight advances at a rate of 1.17% as of September 30, 2017, compared to $285 million in overnight advances at a rate of 0.64% at December 31, 2016.

The Bank chose to increase its overnight advances and reduce its term advances in order to take advantage of the lower borrowing costs associated with overnight borrowings. The Bank was able to implement this strategy due to its projected favorable risk position in the event of rising interest rates. See the section titled “Asset/Liability Management and Market Risk” in this section of the filing for additional discussion regarding the Bank’s interest-rate sensitivity.

Overall use of FHLB advances during a given year is dependent upon many factors including asset growth, deposit growth, current earnings, and expectations of future interest rates, among others. If a meaningful amount of the Bank’s loan originations in the future have repricing terms longer than five years, management will likely elect to borrow additional funds 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. If the Bank does obtain longer-term FHLB advances for interest rate risk mitigation, it will have a negative impact on then current earnings. The amount of the negative impact will be dependent upon the dollar amount, coupon and final maturity of the advances obtained.

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 132% at September 30, 2017 and 138% at December 31, 2016. At September 30, 2017 and December 31, 2016, the Company had cash and cash equivalents on-hand of $330 million and $289 million. In addition, the Bank had available borrowing capacity of $337 million and $378 million from the FHLB at September 30, 2017 and December 31, 2016. In addition to its borrowing capacity with the FHLB, the Bank’s liquidity resources included unencumbered securities of $313 million and $291 million as of September 30, 2017 and December 31, 2016 and unsecured lines of credit totaling $125 million and $150 million available through various other financial institutions as of September 30, 2017 and December 31, 2016.

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 cash or unencumbered investment securities. Funding and cash flows can also be realized by the sale of securities available for sale, principal paydowns on loans and MBSs 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

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purposes, as required by law. At September 30, 2017 and December 31, 2016, these pledged investment securities had a fair value of $213 million and $232 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 could not obtain brokered deposits, the Bank would be compelled to offer market leading deposit interest rates to meet its funding and liquidity needs.

At September 30, 2017, the Bank had approximately $576 million in deposits from 75 large non-sweep deposit relationships where the individual relationship individually exceeded $2 million. The 20 largest non-sweep deposit relationships represented approximately $355 million, or 11%, of the Company’s total deposit balances at September 30, 2017. 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 brokered deposits to replace withdrawn balances. Based on past experience utilizing brokered deposits, the Bank believes it can quickly obtain brokered deposits if needed. The overall cost of gathering brokered deposits, however, could be substantially higher than the Traditional Bank deposits they replace, potentially decreasing the Bank’s earnings.

Due to the its historical success of growing loans and its overall use of non-core funding sources, the Bank has approached, and periodically has fallen short of, its minimum internal policy limits for liquidity management, as set forth by the Bank’s Board of Directors. As of September 30, 2017, the Bank was in compliance with all Board-approved liquidity policies, however, the Bank will likely continue to maintain its liquidity levels near the Bank’s board approved minimums for the foreseeable future. It is also likely the Bank will fall short of these minimums on occasion in the future as the Company manages its liquidity levels in order to maximize overall earnings.

Capital

Total stockholders’ equity increased from $604 million at December 31, 2016 to $633 million at September 30, 2017. The increase in stockholders’ equity was primarily attributable to net income earned during 2017 reduced by cash dividends declared.

See Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” for additional detail regarding stock repurchases and stock buyback programs.

Common Stock — The Class A Common Shares are entitled to cash dividends equal to 110% of the cash dividend paid per share on Class B Common Stock. Class A Common Shares have one vote per share and Class B Common shares have ten votes per share. Class B Common Shares may be converted, at the option of the holder, to Class A Common shares on a share for share basis. The Class A Common Shares are not convertible into any other class of Republic’s capital stock.

Dividend Restrictions — The Parent Company’s principal source of funds for dividend payments are dividends received from RB&T. Banking regulations limit the amount of dividends that may be paid to the Parent Company by the Bank without prior approval of the respective states’ banking regulators. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years. At September 30, 2017, RB&T could, without prior approval, declare dividends of approximately $74 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 6.5% Common Equity Tier 1 Risk-Based Capital ratio, an 8.0% Tier 1 Risk-Based Capital ratio, a 10.0% Total Risk-Based Capital ratio and a 5.0% Tier 1 Leverage ratio. Additionally, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, the Company and Bank must hold a capital conservation buffer composed of Common Equity Tier 1 Risk-Based Capital above their minimum risk-based

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capital requirements. The capital conservation buffer began phasing in during 2016 and continues to phase in through 2019 on the following schedule: a capital conservation buffer of 0.625% effective January 1, 2016; 1.25% effective January 1, 2017; 1.875% effective January 1, 2018; and a fully phased in capital conservation buffer of 2.5% on January 1, 2019.

Republic continues to exceed the regulatory requirements for Total Risk Based Capital, Common Equity Tier I Risk Based, Tier I Risk Based Capital and Tier I Leverage Capital. Republic and the Bank intend to maintain a capital position that meets or exceeds the “well-capitalized” requirements as defined by the FRB and the FDIC, in addition to the Capital Conservation Buffer. Republic’s average stockholders’ equity to average assets ratio was 13.05% at September 30, 2017 compared to 13.32% at December 31, 2016. Formal measurements of the capital ratios for Republic and the Bank are performed by the Company at each quarter end.

In 2005, Republic Bancorp Capital Trust (“RBCT”), an unconsolidated trust subsidiary of Republic, was formed and issued $40 million in Trust Preferred Securities (“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’s Tier 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% through September 30, 2015 and adjusted to 3-month LIBOR plus 1.42% on a quarterly basis thereafter. The subordinated note matures on December 31, 2035 and is redeemable at the Company’s option on a quarterly basis. The Company chose not to redeem the subordinated note on October 1, 2017, and is currently carrying the note at a cost of LIBOR plus 1.42%.

Table 22 — Capital Ratios


	As of September 30, 2017				As of December 31, 2016
	Actual				Actual
(dollars in thousands)	Amount		Ratio		Amount		Ratio

Total capital to risk-weighted assets
Republic Bancorp, Inc.	$	691,566	16.15	%	$	655,908	16.37	%
Republic Bank & Trust Company		588,618	13.77			553,905	13.86

Common equity tier 1 capital to risk-weighted assets
Republic Bancorp, Inc.	$	612,104	14.30	%	$	584,530	14.59	%
Republic Bank & Trust Company		548,427	12.83			520,985	13.03

Tier 1 (core) capital to risk-weighted assets
Republic Bancorp, Inc.	$	651,375	15.21	%	$	622,988	15.55	%
Republic Bank & Trust Company		548,427	12.83			520,985	13.03

Tier 1 leverage capital to average assets
Republic Bancorp, Inc.	$	651,375	13.53	%	$	622,988	13.54	%
Republic Bank & Trust Company		548,427	11.41			520,985	11.34

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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 a 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 to 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 of September 30, 2017, a dynamic simulation model was run for interest rate changes from “Down 100” basis points to “Up 400” basis points. From December 2016 to June 2017, the Federal Open Market Committee raised the FFTR three times, with further guidance suggesting that increases to the FFTR were more likely than not for the remainder of 2017 and in 2018.

The following table illustrates the Bank’s projected percent change from its Base net interest income over the period beginning October 1, 2017 and ending September 30, 2018 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 excludes all loan fees.

Table 23 — Bank Interest Rate Sensitivity as of September 30, 2017


	Change in Rates
	-100			+100			+200			+300			+400
	Basis Points			Basis Points			Basis Points			Basis Points			Basis Points

% Change from base net interest income		(0.40)	%		4.80	%		6.60	%		8.00	%		8.30	%
Board policy limit on % change from base		(4.00)			(4.00)			(8.00)			(12.00)			(16.00)

As reflected in the table above, based on its dynamic simulation model, the Bank was in compliance with its Board-approved policies concerning sensitivity to interest rate risk as of September 30, 2017.

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Item 3.Quantitative and Qualitative Disclosures about Market Risk.

Information required by this item is included under Part I, Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

Item 4.Controls and Procedures.

As of the end of the period covered by this report, an evaluation was carried out by Republic Bancorp, Inc.’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.Legal Proceedings.

In the ordinary course of operations, Republic and the Bank are defendants in various legal proceedings. There is no proceeding pending or threatened litigation, to the knowledge of management, in which an adverse decision could result in a material adverse change in the business or consolidated financial position of Republic or the Bank.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

Details of Republic’s Class A Common Stock purchases during the third quarter of 2017 are included in the following table:


				Total Number of	Maximum Number
				Shares Purchased	of Shares that May
				as Part of Publicly	Yet Be Purchased
	Total Number of	Average Price		Announced Plans	Under the Plan
Period	Shares Purchased	Paid Per Share		or Programs	or Programs

July 1 - July 31	—	$	—	—
August 1 - August 31	—		—	—
September 1 - September 30	385		34.79	385
Total	385	$	34.79	385	235,976

The Company repurchased 385 shares during the third quarter of 2017. There were no shares exchanged for stock option exercises during the third quarter of 2017. During 2011, the Company’s Board of Directors amended its existing share repurchase program by approving the repurchase of 300,000 additional shares from time to time, as market conditions are deemed attractive to the Company. The repurchase program will remain effective until the total number of shares authorized is repurchased or until Republic’s Board of Directors terminates the program. As of September 30, 2017, the Company had 235,976 shares that could be repurchased under its current share repurchase programs.

During the third quarter of 2017, there were 10 shares of Class A Common Stock issued upon conversion of shares of Class B Common Stock by stockholders of Republic in accordance with the share-for-share conversion provision option of the Class B Common Stock. The exemption from registration of newly issued Class A Common Stock relies upon Section (3)(a)(9) of the Securities Act of 1933.

There were no equity securities of the registrant sold without registration during the quarter covered by this report.

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Item 6.Exhibits.

The following exhibits are filed or furnished as a part of this report:


Exhibit Number		Description of Exhibit

10.1		First Amendment dated September 20, 2017 to lease between Republic Bank & Trust Company and Jaytee Properties II SPE, LLC dated March 15, 2017, relating to 200 South Seventh Street, Louisville, KY

31.1		Certification of Principal Executive Officer pursuant to the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002

32*		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		Interactive data files: (i) Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016, (iii) Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2017, (iv) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 and (v) Notes to Consolidated Financial Statements

* This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	REPUBLIC BANCORP, INC.
	(Registrant)

	Principal Executive Officer:


November 9, 2017	By: /s/ Steven E. Trager
		Steven E. Trager
		Chairman and Chief Executive Officer


	Principal Financial Officer:


November 9, 2017	By: /s/ Kevin Sipes
		Kevin Sipes
		Executive Vice President, Chief Financial
		Officer and Chief Accounting Officer

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