UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~[ X ]~~ ~~Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

~~For the quarterly period ended September 30, 2017.~~

[ X ]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, 2018.

~~[ ]~~ ~~Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

~~For the transition period from ____ to ____.~~

[ ]	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from ____ to ____.

Commission File Number: 000-17007

Republic First Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Pennsylvania	23-2486815
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

50 South 16^th Street, Philadelphia, Pennsylvania	19102
(Address of principal executive offices)	(Zip code)

215-735-4422

(~~Registrant's~~Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 [X] 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 [X ] NO [ ]

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

Large accelerated filer [ ]	Accelerated filer [X]
Non-Accelerated filer [ ] (Do not check if a smaller reporting company)	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 [X]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the ~~Registrant's~~Registrant’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 per share	~~56,989,764~~58,747,478
Title of Class	Number of Shares Outstanding as of ~~November 2, 2017~~May 8, 2018

REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

Part I: Financial Information		Page

Item 1.	Financial Statements
	Consolidated balance sheets as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 (unaudited)	1

	Consolidated statements of income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ (unaudited)	2

	Consolidated statements of comprehensive income (loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ (unaudited)	3

	Consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ (unaudited)	4

	Consolidated statements of changes in ~~shareholders'~~shareholders’ equity for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ (unaudited)	5

	Notes to consolidated financial statements (unaudited)	6

Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	4241

Item 3.	Quantitative and Qualitative ~~Disclosures~~Information about Market Risk	6458

Item 4.	Controls and Procedures	6458

Part II: Other Information

Item 1.	Legal Proceedings	6559

Item 1A.	Risk Factors	6559

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6559

Item 3.	Defaults Upon Senior Securities	6559

Item 4.	Mine Safety Disclosures	6559

Item 5.	Other Information	6559

Item 6.	Exhibits	6660

Signatures		6761

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017

(Dollars in thousands, except per share data)

(unaudited)

	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
ASSETS
Cash and due from banks	$	27,181		$	19,830		$	21,927		$	36,073
Interest bearing deposits with banks		71,601			14,724			9,142			25,869
Cash and cash equivalents		98,782			34,554			31,069			61,942

Investment securities available for sale, at fair value		377,757			369,739			519,692			464,430
Investment securities held to maturity, at amortized cost (fair value of $411,257 and $425,183, respectively)		416,987			432,499
Investment securities held to maturity, at amortized cost (fair value of $502,591 and $463,799, respectively)								519,295			472,213
Restricted stock, at cost		1,678			1,366			5,435			1,918
Loans held for sale		41,711			28,065
Loans receivable (net of allowance for loan losses of $8,258 and $9,155, respectively)		1,087,147			955,817
Mortgage loans held for sale, at fair value								19,685			43,375
Other loans held for sale								5,968			2,325
Loans receivable (net of allowance for loan losses of $6,650 and $8,599 respectively)								1,244,262			1,153,679
Premises and equipment, net		71,715			57,040			77,153			74,947
Other real estate owned, net		9,169			10,174			6,966			6,966
Accrued interest receivable		6,340			5,497			7,756			7,009
Goodwill		5,011			5,011			5,011			5,011
Intangible asset		-			61
Other assets		25,266			24,108			29,172			28,532
Total Assets	$	2,141,563		$	1,923,931		$	2,471,464		$	2,322,347

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Demand – non-interest bearing	$	398,794		$	324,912		$	464,383		$	438,500
Demand – interest bearing		745,878			605,950			826,726			807,736
Money market and savings		619,265			635,644			703,263			700,322
Time deposits		121,468			111,164			129,079			116,737
Total Deposits		1,885,405			1,677,670			2,123,451			2,063,295
Short-term borrowings								93,915			-
Accrued interest payable		577			444			339			293
Other liabilities		8,716			8,883			8,431			10,618
Subordinated debt		21,663			21,881			11,254			21,681
Total Liabilities		1,916,361			1,708,878			2,237,390			2,095,887

Shareholders' Equity
Shareholders’ Equity
Preferred stock, par value $0.01 per share: 10,000,000 shares authorized; no shares issued and outstanding		-			-			-			-
Common stock, par value $0.01 per share: 100,000,000 shares authorized; shares issued 57,507,484 as of September 30, 2017 and 57,283,712 as of December 31, 2016; shares outstanding 56,978,639 as of September 30, 2017 and 56,754,867 as of December 31, 2016		575			573
Common stock, par value $0.01 per share: 100,000,000 shares authorized; shares issued 59,252,198 as of March 31, 2018 and 57,518,609 as of December 31, 2017; shares outstanding 58,723,353 as of March 31, 2018 and 56,989,764 as of December 31, 2017								592			575
Additional paid in capital		255,752			253,570			267,313			256,285
Accumulated deficit		(21,721	)		(27,888	)		(15,566	)		(18,983	)
Treasury stock at cost (503,408 shares as of September 30, 2017 and December 31, 2016)		(3,725	)		(3,725	)
Stock held by deferred compensation plan (25,437 shares as of September 30, 2017 and December 31, 2016)		(183	)		(183	)
Treasury stock at cost (503,408 shares as of March 31, 2018 and December 31, 2017)								(3,725	)		(3,725	)
Stock held by deferred compensation plan (25,437 shares as of March 31, 2018 and December 31, 2017)								(183	)		(183	)
Accumulated other comprehensive loss		(5,496	)		(7,294	)		(14,357	)		(7,509	)
Total Shareholders' Equity		225,202			215,053
Total Liabilities and Shareholders' Equity	$	2,141,563		$	1,923,931
Total Shareholders’ Equity								234,074			226,460
Total Liabilities and Shareholders’ Equity							$	2,471,464		$	2,322,347

(See notes to consolidated financial ~~statements)~~statements)

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

For the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~

(Dollars in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2018		2017
Interest income
Interest and fees on taxable loans	$	13,907	$	10,941
Interest and fees on tax-exempt loans		362		258
Interest and dividends on taxable investment securities		6,349		4,733
Interest and dividends on tax-exempt investment securities		109		194
Interest on federal funds sold and other interest-earning assets		172		61
Total interest income		20,899		16,187
Interest expense
Demand-interest bearing		1,257		608
Money market and savings		972		698
Time deposits		369		296
Other borrowings		185		366
Total interest expense		2,783		1,968
Net interest income		18,116		14,219
Provision for loan losses		400		-
Net interest income after provision for loan losses		17,716		14,219
Non-interest income
Loan and servicing fees		147		337
Mortgage banking income		2,186		2,421
Gain on sales of SBA loans		992		688
Service fees on deposit accounts		1,175		846
Other non-interest income		35		46
Total non-interest income		4,535		4,338
Non-interest expenses
Salaries and employee benefits		10,645		8,582
Occupancy		2,113		1,715
Depreciation and amortization		1,357		1,175
Legal		291		252
Other real estate owned		311		346
Appraisal and other loan expenses		278		442
Advertising		329		245
Data processing		824		785
Insurance		292		273
Professional fees		468		428
Regulatory assessments and costs		467		329
Taxes, other		245		236
Other operating expenses		2,482		1,996
Total non-interest expense		20,102		16,804
Income before provision (benefit) for income taxes		2,149		1,753
Provision (benefit) for income taxes		372		(34	)
Net income	$	1,777	$	1,787
Net income per share
Basic	$	0.03	$	0.03
Diluted	$	0.03	$	0.03

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016
Interest income:
Interest and fees on taxable loans $ 12,717 $ 10,446 $ 35,727 $ 30,259
Interest and fees on tax-exempt loans 272 261 791 702
Interest and dividends on taxable investment securities 4,653 2,591 14,163 7,805
Interest and dividends on tax-exempt investment securities 99 173 447 526
Interest on federal funds sold and other interest-earning assets 181 149 312 299
Total interest income 17,922 13,620 51,440 39,591
Interest expense:
Demand- interest bearing 772 553 2,075 1,471
Money market and savings 788 677 2,218 1,923
Time deposits 312 301 903 625
Other borrowings 338 303 1,046 898
Total interest expense 2,210 1,834 6,242 4,917
Net interest income 15,712 11,786 45,198 34,674
Provision for loan losses - 607 500 1,557
Net interest income after provision for loan losses 15,712 11,179 44,698 33,117
Non-interest income:
Loan and servicing fees 677 328 1,330 1,128
Mortgage banking income 3,159 2,405 8,551 2,405
Gain on sales of SBA loans 831 1,630 2,315 4,212
Service fees on deposit accounts 1,067 686 2,820 1,910
Gain (loss) on sale of investment securities - 2 (61 ) 656
Net securities impairment recognized in earnings - (2 ) - (7 )
Other non-interest income 44 93 130 281
Total non-interest income 5,778 5,142 15,085 10,585
Non-interest expenses:
Salaries and employee benefits 9,829 7,731 27,800 20,334
Occupancy 1,772 1,535 5,239 4,387
Depreciation and amortization 1,292 1,051 3,588 2,816
Legal 156 158 535 312
Other real estate owned 746 702 1,704 1,610
Advertising 394 218 861 537
Data processing 785 669 2,335 1,711
Insurance 277 262 750 656
Professional fees 454 352 1,389 1,167
Regulatory assessments and costs 355 296 1,008 1,011
Taxes, other 242 243 716 495
Other operating expenses 2,863 1,796 7,729 5,287
Total non-interest expense 19,165 15,013 53,654 40,323
Income before benefit for income taxes 2,325 1,308 6,129 3,379
Provision (benefit) for income taxes 4 (32 ) (38 ) (69 )
Net income $ 2,321 $ 1,340 $ 6,167 $ 3,448
Net income per share:
Basic $ 0.04 $ 0.04 $ 0.11 $ 0.09
Diluted $ 0.04 $ 0.03 $ 0.11 $ 0.09

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

For the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~

(Dollars in thousands)

(unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016

Net income $ 2,321 $ 1,340 $ 6,167 $ 3,448

Other comprehensive income (loss), net of tax
Unrealized gain (loss) on securities (pre-tax $(7), $(1,082), $2,615, and $3,386, respectively) (5 ) (693 ) 1,676 2,170
Reclassification adjustment for securities losses/(gains) (pre-tax $-, $(2), $61, and $(656), respectively) - (1 ) 39 (420 )
Reclassification adjustment for impairment charge (pre-tax $-, $2, $-, and $7, respectively) - 1 - 4
Net unrealized gains (losses) on securities (5 ) (693 ) 1,715 1,754
Net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity:
Amortization of net unrealized holding losses to income during the period (pre-tax $44, $38, $129, and $133, respectively) 28 24 83 85

Total other comprehensive income (loss) 23 (669 ) 1,798 1,839

Total comprehensive income $ 2,344 $ 671 $ 7,965 $ 5,287

	Three Months Ended March 31,
	2018			2017

Net income	$	1,777		$	1,787

Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities (pre-tax ($6,708), and $971 respectively)		(5,239	)		623

Amortization of net unrealized holding losses during the period (pre-tax $39, and $42 respectively)		31			27

Total other comprehensive income (loss)		(5,208	)		650

Total comprehensive income (loss)	$	(3,431	)	$	2,437

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~

(Dollars in thousands)

(unaudited)

	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2018			2017
Cash flows from operating activities
Net income	$	6,167		$	3,448		$	1,777		$	1,787
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		500			1,557			400			-
Write down of other real estate owned		777			521			-			110
Depreciation and amortization		3,588			2,816			1,357			1,175
Stock based compensation		1,329			562			521			302
Loss (gain) on sale of investment securities		61			(656	)
Impairment charges on investment securities		-			7
Amortization of premiums on investment securities		1,788			1,172			756			676
Accretion of discounts on retained SBA loans		(859	)		(1,057	)		(346	)		(267	)
Fair value adjustments on SBA servicing assets		711			894			504			265
Proceeds from sales of SBA loans originated for sale		28,564			48,031			13,904			8,378
SBA loans originated for sale		(22,395	)		(43,016	)		(16,555	)		(8,881	)
Gains on sales of SBA loans originated for sale		(2,315	)		(4,212	)		(992	)		(688	)
Proceeds from sales of mortgage loans originated for sale		263,689			79,029			87,037			76,740
Mortgage loans originated for sale		(274,133	)		(82,240	)		(61,998	)		(70,507	)
Gains on sales of mortgage loans originated for sale		(7,056	)		(2,783	)
Fair value adjustment for mortgage loans originated for sale								663			(218	)
Gains on mortgage loans originated for sale								(2,185	)		(1,857	)
Amortization of intangible assets		61			17			-			26
Amortization of debt issuance costs		22			22			2			7
Increase in accrued interest receivable and other assets		(3,720	)		(726	)		(504	)		(1,501	)
Decrease in accrued interest payable and other liabilities		(34	)		(396	)		(2,229	)		(1,223	)
Net cash (used in) provided by operating activities		(3,255	)		2,990
Net cash provided by operating activities								22,112			4,324

Cash flows from investing activities
Purchase of investment securities available for sale		(53,052	)		(117,812	)		(75,142	)		(909	)
Purchase of investment securities held to maturity		(21,958	)		(69,792	)		(61,083	)		-
Proceeds from the sale of securities available for sale		21,167			78,582
Proceeds from the paydowns, maturity, or call of securities available for sale		25,665			26,295
Proceeds from the paydowns, maturity, or call of securities held to maturity		36,629			21,106
Net (purchase) redemption of restricted stock		(312	)		1,693
Proceeds from the maturity or call of securities available for sale								12,716			8,955
Proceeds from the maturity or call of securities held to maturity								13,740			10,352
Net purchase of restricted stock								(3,517	)		-
Net increase in loans		(131,100	)		(70,006	)		(90,637	)		(60,878	)
Net proceeds from sale of other real estate owned		357			1,387			-			120
Net cash paid in acquisition		-			(5,913	)
Premises and equipment expenditures		(18,263	)		(12,122	)		(3,563	)		(3,061	)
Net cash used in investing activities		(140,867	)		(146,582	)		(207,486	)		(45,421	)

Cash flows from financing activities
Net proceeds from exercise of stock options		615			226			430			292
Net increase in demand, money market and savings deposits		197,431			291,385			47,814			47,573
Net increase in time deposits		10,304			41,549
Decrease in short-term borrowings		-			(66,666	)
Net increase (decrease) in time deposits								12,342			(4,731	)
Increase in short-term borrowings								93,915			-
Net cash provided by financing activities		208,350			266,494			154,501			43,134

Net increase in cash and cash equivalents		64,228			122,902
Net (decrease) increase in cash and cash equivalents								(30,873	)		2,037
Cash and cash equivalents, beginning of year		34,554			27,139			61,942			34,554
Cash and cash equivalents, end of period	$	98,782		$	150,041		$	31,069		$	36,591

Supplemental disclosures
Interest paid	$	6,109		$	5,011		$	2,849		$	1,992
Income taxes paid	$	75		$	90
Non-cash transfers from loans to other real estate owned	$	129		$	616
Conversion of subordinated debt to common stock	$	240			-		$	10,094		$	240

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in ~~Shareholders'~~Shareholders’ Equity

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~

(Dollars in thousands)

(unaudited)

	Common Stock		Additional Paid in Capital		Accumulated Deficit			Treasury Stock			Stock Held by Deferred Compensation Plan			Accumulated Other Comprehensive Loss			Total Shareholders' Equity		Common Stock		Additional Paid in Capital		Accumulated Deficit			Treasury Stock			Stock Held by Deferred Compensation Plan			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity

Balance January 1, 2018																			$	575	$	256,285	$	(18,983	)	$	(3,725	)	$	(183	)	$	(7,509	)	$	226,460

Reclassification due to the adoption of ASU 2018-02																								1,640									(1,640	)		-
Net income																								1,777												1,777
Other comprehensive loss net of tax																																	(5,208	)		(5,208	)
Stock based compensation																						521														521
Conversion of subordinated debt to common stock (1,624,614 shares)																				16		10,078														10,094
Options exercised (108,975 shares)																				1		429														430

Balance March 31, 2018																			$	592	$	267,313	$	(15,566	)	$	(3,725	)	$	(183	)	$	(14,357	)	$	234,074

Balance January 1, 2017	$	573	$	253,570	$	(27,888	)	$	(3,725	)	$	(183	)	$	(7,294	)	$	215,053	$	573	$	253,570	$	(27,888	)	$	(3,725	)	$	(183	)	$	(7,294	)	$	215,053

Net income						6,167												6,167						1,787												1,787
Other comprehensive income, net of tax															1,798			1,798															650			650
Stock based compensation				1,329														1,329				302														302
Conversion of subordinated debt to common stock (36,922 shares)				240														240				240														240
Options exercised (186,850 shares)		2		613														615
Options exercised (94,800 shares)																				1		291														292

Balance September 30, 2017	$	575	$	255,752	$	(21,721	)	$	(3,725	)	$	(183	)	$	(5,496	)	$	225,202
Balance March 31, 2017																			$	574	$	254,403	$	(26,101	)	$	(3,725	)	$	(183	)	$	(6,644	)	$	218,324


Balance January 1, 2016	$	384	$	152,897	$	(32,833	)	$	(3,725	)	$	(183	)	$	(3,165	)	$	113,375

Net income						3,448												3,448
Other comprehensive income, net of tax															1,839			1,839
Stock based compensation				764														764
Options exercised (80,375 shares)				226														226

Balance September 30, 2016	$	384	$	153,887	$	(29,385	)	$	(3,725	)	$	(183	)	$	(1,326	)	$	119,652

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

Note 1: Basis of Presentation

Republic First Bancorp, Inc. (the ~~"Company"~~“Company”) is a one-bank holding company organized and incorporated under the laws of the Commonwealth of Pennsylvania. It is comprised of one wholly-owned subsidiary, Republic First Bank, which does business under the name of Republic Bank ~~("Republic"~~(“Republic”). Republic is a Pennsylvania state chartered bank that offers a variety of banking services to individuals and businesses throughout the Greater Philadelphia and South Jersey area through its offices and store locations in Philadelphia, Montgomery, Delaware, Bucks, Camden, Burlington, and Gloucester Counties. OnIn July ~~28,~~ 2016, Republic acquired ~~all of the issued and outstanding limited liability company interests of~~ Oak Mortgage Company, LLC ("(“Oak ~~Mortgage"~~Mortgage”) ~~and, as~~, a ~~result, Oak Mortgage became a wholly owned subsidiary of Republic on that date.~~residential mortgage lending organization. Oak Mortgage is headquartered in Marlton, NJ and is licensed to do business in Pennsylvania, Delaware, New Jersey, and Florida. The Company also has ~~three~~two unconsolidated subsidiaries, which are statutory trusts established by the Company in connection with its sponsorship of ~~three~~two separate issuances of trust preferred securities.

The Company and Republic encounter vigorous competition for market share in the geographic areas they serve from bank holding companies, national, regional and other community banks, thrift institutions, credit unions and other non-bank financial organizations, such as mutual fund companies, insurance companies and brokerage companies.

The Company and Republic are subject to federal and state regulations governing virtually all aspects of their activities, including but not limited to, lines of business, liquidity, investments, the payment of dividends and others. Such regulations and the cost of adherence to such regulations can have a significant impact on earnings and financial condition.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Republic. The Company follows accounting standards set by the Financial Accounting Standards Board ~~("FASB"~~(“FASB”). The FASB sets accounting principles generally accepted in the United States of America ("(“US ~~GAAP"~~GAAP”) that are followed to ensure consistent reporting of financial condition, results of operations, and cash flows. All material inter-company transactions have been eliminated. Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to United States Securities and Exchange Commission ~~("SEC"~~(“SEC”) Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for financial statements for a complete fiscal year. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2017~~March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2018.

Note 2: Summary of Significant Accounting Policies

Risks and Uncertainties

The earnings of the Company depend primarily on the earnings of Republic. The earnings of Republic are heavily dependent ~~primarily~~ upon the level of net interest income, which is the difference between interest earned on its interest-earning assets, such as loans and investments, and the interest paid on its interest-bearing liabilities, such as deposits and borrowings. Accordingly, the ~~Company's~~Company’s results of operations are subject to risks and uncertainties surrounding ~~Republic's~~Republic’s exposure to changes in the interest rate environment. Prepayments on residential real estate mortgage and other fixed rate loans and mortgage-backed securities vary significantly and may cause significant fluctuations in interest margins.

Mortgage Banking Activities and Mortgage Loans Held for Sale

~~Loans~~Mortgage loans held for sale are originated and held until sold to permanent investors. ~~On July 28, 2016, management~~Management elected to adopt the fair value option in accordance with FASB Accounting Standards Codification ~~("ASC"~~(“ASC”) 820, Fair Value Measurements and Disclosures, and record loans held for sale at fair value.

Mortgage loans held for sale originated on or subsequent to the election of the fair value option, are recorded on the balance sheet at fair value. The fair value is determined on a recurring basis by utilizing quoted prices from dealers in such securities. ~~Gains and losses on loan sales~~Changes in fair value are ~~recorded~~reflected in ~~non-interest~~mortgage banking income ~~and direct~~in the statements of income. Direct loan origination costs are recognized when incurred and are included in non-interest expense in the statements of income.

Interest Rate Lock Commitments ~~("IRLCs"~~(“IRLCs”)

Mortgage loan commitments known as interest rate locks that relate to the origination of a mortgage that will be held for sale upon funding are considered derivative instruments under the derivatives and hedging accounting guidance FASB ASC 815, Derivatives and Hedging. Loan commitments that are classified as derivatives are recognized at fair value on the balance sheet as other assets and other liabilities with changes in their fair values recorded as mortgage banking income and included in non-interest income in the statements of income. Outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of issuance through the date of loan funding, cancellation or expiration. Loan commitments generally range between 30 and 90 days; however, the borrower is not obligated to obtain the loan. Republic is subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. Republic uses best efforts commitments to substantially eliminate these risks. The valuation of the IRLCs issued by Republic includes the value of the servicing released premium. Republic sells loans servicing released, and the servicing released premium is included in the market price. See Note 1110 Derivatives and Risk Management Activities.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates are made by management in determining the allowance for loan losses, carrying values of other real estate owned, assessment of other than temporary impairment ~~("OTTI"~~(“OTTI”) of investment securities, fair value of financial instruments, (see ~~"Note 7"~~“Note 7” below), and the realization of deferred income tax assets. Consideration is given to a variety of factors in establishing these estimates.

In estimating the allowance for loan losses, management considers current economic conditions, past loss experience, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews and regulatory examinations, ~~borrowers'~~borrowers’ perceived financial and managerial strengths, the adequacy of underlying collateral, if collateral dependent, or present value of future cash flows, and other relevant and qualitative risk factors. Subsequent to foreclosure, an estimate for the carrying value of other real estate owned is normally determined through valuations that are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less the cost to sell. Because the allowance for loan losses and carrying value of other real estate owned are dependent, to a great extent, on the general economy and other conditions that may be beyond the ~~Company's~~Company’s and ~~Republic's~~Republic’s control, the estimates of the allowance for loan losses and the carrying values of other real estate owned could differ materially in the near term.

In estimating OTTI of investment securities, securities are evaluated on at least a quarterly basis and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline, the intent to hold the security and the likelihood of the Company not being required to sell the security prior to an anticipated recovery in the fair value. The term ~~"other-than-temporary"~~“other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of investment. Once a decline in value is determined to be other-than-temporary, the portion of the decline related to credit impairment is charged to earnings.

In evaluating the ~~Company's~~Company’s ability to recover deferred tax assets, management considers all available positive and negative evidence, including the past operating results and forecasts of future taxable income. In determining future taxable income, management makes assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require management to make judgments about the future taxable income and are consistent with the plans and estimates used to manage the business. ~~Any exclusion of or~~A material reduction in estimated future taxable income may require management to record a valuation allowance against the deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on future earnings.

Stock-Based Compensation

The Company has a Stock Option and Restricted Stock Plan ("(“the 2005 ~~Plan"~~Plan”), under which the Company granted options, restricted stock or stock appreciation rights to the ~~Company's~~Company’s employees, directors, and certain consultants. The 2005 Plan became effective on November 14, 1995, and was amended and approved at the ~~Company's~~Company’s 2005 annual meeting of shareholders. Under the terms of the 2005 Plan, 1.5 million shares of common stock, plus an annual increase equal to the number of shares needed to restore the maximum number of shares that could be available for grant under the 2005 Plan to 1.5 million shares, were available for such grants. As of ~~September 30, 2017,~~March 31, 2018, the only grants under the 2005 Plan were option grants. The 2005 Plan provided that the exercise price of each option granted equaled the market price of the ~~Company's~~Company’s stock on the date of the grant. Options granted pursuant to the 2005 Plan vest within one to four years and have a maximum term of 10 years. The 2005 Plan terminated on November 14, 2015 in accordance with the terms and conditions specified in the Plan agreement.

On April 29, 2014 the ~~Company's~~Company’s shareholders approved the 2014 Republic First Bancorp, Inc. Equity Incentive Plan (the ~~"2014 Plan"~~“2014 Plan”), under which the Company may grant options, restricted stock, stock units, or stock appreciation rights to the ~~Company's~~Company’s employees, directors, independent contractors, and consultants. Under the terms of the 2014 Plan, 2.6 million shares of common stock, plus an annual adjustment to be no less than 10% of the outstanding shares or such lower number as the Board of Directors may determine, are available for such grants. At ~~September 30, 2017,~~March 31, 2018, the maximum number of common shares issuable under the 2014 Plan was ~~5.9~~6.0 million shares. During the ~~nine~~three months ended ~~September 30, 2017, 906,500~~March 31, 2018, 1,058,800 options were granted under the 2014 Plan with a fair value of ~~$3,188,984.~~$2,923,473.

The Company utilizes the Black-Scholes option pricing model to calculate the estimated fair value of each stock option granted on the date of the grant. A summary of the assumptions used in the Black-Scholes option pricing model for ~~2017~~2018 and ~~2016~~2017 are as follows:

	2017	2016	2018		2017
Dividend yield⁽¹⁾	0.0%	0.0%	0.0%		0.0%
Expected volatility⁽²⁾	45.46% to 50.09%	46.38% to 52.54%	28.22%	⁽²⁾	45.50% to 50.09%	⁽³⁾
Risk-free interest rate⁽³⁾⁽⁴⁾	1.89% to 2.26%	1.23% to 1.82%	2.38 to 2.84%		1.89% to 2.26%
Expected life⁽⁴⁾⁽⁵⁾	5.5 to 7.0 years	5.5 to 7.0 years	6.25 years		5.5 to 7.0 years
Assumed forfeiture rate(6)	6.0%	10.0%	4.0%		6.0%

⁽¹⁾A dividend yield of 0.0% is utilized because cash dividends have never been paid.

⁽²⁾The expected volatility was based on the historical volatility of the Company’s common stock price as adjusted for certain historical periods of extraordinary volatility in order to provide a basis for a reasonable estimate of fair value.

⁽³⁾Expected volatility is based on ~~Bloomberg's~~Bloomberg’s five and one-half to seven year volatility calculation for ~~"FRBK"~~“FRBK” stock.

⁽³⁾⁽⁴⁾The risk-free interest rate is based on the five to seven year Treasury bond.

⁽⁴⁾⁽⁵⁾The expected life reflects a 1 to 4 year vesting period, the maximum ten year term and review of historical behavior.

⁽⁶⁾Forfeiture rate is determined through forfeited and expired options as a percentage of options granted over the current three year period.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016, 526,624~~716,364 options and ~~487,550~~478,374 options vested, respectively. Expense is recognized ratably over the period required to vest. At ~~September 30,~~March 31, 2018, the intrinsic value of the 3,951,650 options outstanding was $11.0 million, while the intrinsic value of the 1,954,112 exercisable (vested) options was $8.1 million. At March 31, 2017, the intrinsic value of the ~~3,038,450~~3,121,500 options outstanding was ~~$12,954,271,~~$10.5 million, while the intrinsic value of the ~~1,379,848~~1,423,648 exercisable (vested) options was ~~$7,764,313.~~$6.7 million. During the ~~nine~~three months ended ~~September 30, 2017, 186,850~~March 31, 2018, 108,975 options were exercised with cash received of ~~$615,226~~$429,972 and ~~14,100~~4,000 options were forfeited with a weighted average grant date fair value of ~~$53,246.~~$10,000. During the ~~nine~~three months ended ~~September 30, 2016, 80,375~~March 31, 2017, 94,800 options were exercised with cash received of ~~$226,271~~$291,981 and ~~38,550~~9,600 options were forfeited with a weighted average grant date fair value of ~~$55,920.~~$44,000.

Information regarding stock based compensation for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ is set forth below:

	September 30, 2017		September 30, 2016		2018	2017
Stock based compensation expense recognized	$	1,329,000	$	764,000	$ 521,000	$ 302,000
Number of unvested stock options		1,658,602		1,316,476	1,997,538	1,697,852
Fair value of unvested stock options	$	4,553,854	$	2,608,986	$ 5,548,196	$ 4,583,209
Amount remaining to be recognized as expense	$	2,966,049	$	1,284,071	$ 4,893,747	$ 3,935,014

The remaining unrecognized expense amount of ~~$2,966,049~~$4,893,747 will be recognized ratably as expense through ~~July 2021.~~February 2022.

Earnings per Share

Earnings per share ~~("EPS"~~(“EPS”) ~~consist~~consists of two separate components: basic EPS and diluted EPS. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for each period presented. Diluted EPS is calculated by dividing net income by the weighted average number of common shares outstanding plus dilutive common stock equivalents ~~("CSEs"~~(“CSEs”). CSEs consist of dilutive stock options granted through the ~~Company's~~Company’s stock option plans for the three months ended March 31, 2018. CSEs consisted of dilutive stock options granted through the Company’s stock option plans and convertible securities related to ~~the~~ trust preferred securities issued in ~~2008.~~2008 for the three months ended March 31, 2017. The convertible securities related to trust preferred securities issued in 2008 fully converted to common stock in 2018. In the diluted EPS computation, the after tax interest expense on the trust preferred securities issuance iswas added back to the net ~~income.~~income for the three months ended March 31, 2017. There was no interest expense in 2018 related to the trust preferred securities issuance. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017, ~~and 2016,~~ the effect of CSEs (convertible securities related to the trust preferred securities only) and the related add back of after tax interest expense was considered anti-dilutive and therefore was not included in the EPS calculations.

The calculation of EPS for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ is as follows (in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2018		2017

Net income (basic and diluted)	$	2,321	$	1,340	$	6,167	$	3,448
Net income - basic and diluted									$	1,777	$	1,787

Weighted average shares outstanding		56,974		37,916		56,915		37,879		57,100		56,824

Net income per share – basic	$	0.04	$	0.04	$	0.11	$	0.09	$	0.03	$	0.03

Weighted average shares outstanding (including dilutive CSEs)		58,314		38,375		58,213		38,355		58,370		58,048

Net income per share – diluted	$	0.04	$	0.03	$	0.11	$	0.09	$	0.03	$	0.03

The following is a summary of securities that could potentially dilute basic earnings per common share in future periods that were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive for the periods presented.

									Three Months Ended March 31,
(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,				2018		2017
	2017		2016		2017		2016

Anti-dilutive securities

Share based compensation awards		1,698		2,022		1,740		2,005		2,681		1,897

Convertible securities		1,625		1,662		1,625		1,662		-		1,625

Total anti-dilutive securities		3,323		3,684		3,365		3,667		2,681		3,522

Recent Accounting Pronouncements

ASU 2014-09

In May 2014, the FASB issued ~~ASU~~Accounting Standards Update (“ASU”) 2014-09, ~~"Revenue~~“Revenue from Contracts with Customers (Topic 660): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs – Contracts with Customers (Subtopic 340-40)."” ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with The Company (Topic 606): Deferral of the Effective Date. The guidance in this ASU is now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The ~~Company's~~Company’s revenue is comprised of net interest income and noninterest income. The scope of the guidance explicitly excludes interest income as well as many other revenues for financial assets and liabilities including revenue derived from loans, investment securities, and derivatives. ~~Accordingly,~~This ASU was effective for the ~~majority of our revenues will not be affected.~~Company on January 1, 2018. The Company ~~is currently assessing our revenue contracts related to revenue streams that are within the scope~~adopted this ASU on a modified retrospective approach. Since there was no net income impact upon adoption of the ~~standard including loan fees, service fees on deposit accounts,~~new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary. The adoption of this ASU did not have a material impact to its financial condition, results of operations, and ~~other categories of non-interest income. We are continuing~~consolidated financial statements. Refer to ~~evaluate specific contracts, but have not identified material changes~~Note 11: Revenue Recognition for further disclosure as to the ~~timing or amount~~impact of revenue recognition. We are also continuing to evaluate changes in our disclosures associated with our revenues. We expect to adopt the standard using the modified retrospective approach in the first quarter of 2018.Topic 606.

ASU 2016-01

In January 2016, the FASB issued ~~Accounting Standards Update ("ASU")~~ASU No. 2016-01, Financial Instruments - Overall. The guidance in this ASU among other things, (1) requires equity investments with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (3) eliminates the requirement for public businesses entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (4) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (5) requires an entity to present separately in other comprehensive income the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (6) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (7) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The guidance was effective for the Company ~~has evaluated this~~on January 1, 2018 and was adopted using a modified retrospective approach. The adoption of ASU ~~and it is~~No. 2016-01 on January 1, 2018 did not ~~expected to~~ have a ~~significant~~material impact on the Company’s Consolidated Financial Statements. In accordance with (4) above, the Company measured the fair value of its ~~financial condition or results~~loan portfolio as of ~~operations.~~March 31, 2018 using an exit price notion (see Note 7 Fair Value of Financial Instruments).

ASU 2016-02

In February 2016, the FASB issued ~~Accounting Standards Update ("ASU")~~ASU No. 2016-02, Leases. From the ~~Company's~~Company’s perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for lessees. From the landlord perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor ~~doesn't~~doesn’t convey risks and rewards or control, an operating lease results. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ~~After~~The Company is currently evaluating the impact of the ~~pending adoption~~ASU on its financial condition and results of operations and expects to recognize right-of-use assets and lease liabilities for substantially all of its operating lease commitments based on the present value of unpaid lease payments as of the ~~new standard on its consolidated financial statements, the~~date of adoption. The Company ~~expects an increase of assets and liabilities on the Company's consolidated financial statements.~~does not intend to early adopt this ASU.

ASU 2016-09

In March 2016, the FASB issued ~~Accounting Standards Update ("ASU")~~ASU No. 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment ~~Accounting.~~Accounting. ASU 2016-09 will amend current guidance such that all excess tax benefits and tax deficiencies related to share-based payment awards will be recognized as income tax expense or benefit in the income statement during the period in which they occur. Additionally, excess tax benefits will be classified along with other income tax cash flows as an operating activity rather than a financing activity. ASU 2016-09 also provides that any entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest, which is the current requirement, or account for forfeitures when they occur. ASU 2016-09 was effective January 1, 2017. ~~It currently does not have a material impact on the Company's consolidated financial statements, however depending upon the exercise timing of share based awards, the ASU could have a~~There was no material impact on the consolidated financial statements ~~going forward.~~upon adoption.

ASU 2016-13

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The Company has been gathering the data necessary to measure expected credit losses in accordance with the guidance provided in the ASU. For the Company, this update will be effective for interim and annual periods beginning after December 15, 2019. The Company has not yet determined the impact the adoption of ASU 2016-13 will have on the consolidated financial statements.

ASU 2016-15

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The ASU addresses classification of certain cash receipts and cash payments in the statement of cash flows. The new guidance ~~is effective~~was adopted on January 1, 2018, on a retrospective ~~basis, with early~~basis. The adoption ~~permitted. This new accounting guidance will~~of 2016-15 did not result ~~in some~~any changes in ~~classification~~classifications in the Consolidated Statement of Cash Flows, which the Company does not expect will be significant, and will not have a material impact on the consolidated financial statements. Due to the current nature of the Company's operations and financial assets and liabilities in relation to the cash flow classifications impacted by the ASU, the Company has determined that the adoption of ASU 2016-15 will not have a material impact on the Company's financial statements.Flows.

ASU-2017-01

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805). The ASU clarifies the definition of a business in ASC 805. The FASB issued the ASU in response to stakeholder feedback that the definition of a business in ASC 805 is being applied too broadly. In addition, stakeholders said that analyzing transactions under the current definition is difficult and costly. Concerns about the definition of a business were among the primary issues raised in connection with the Financial Accounting ~~Foundation's~~Foundation’s post-implementation review report on FASB Statement No. 141(R), Business Combinations (codified in ASC 805). The amendments in the ASU are intended to make application of the guidance more consistent and cost-efficient. The ASU is effective for public business entities in annual periods beginning after December 15, 2017, including interim periods therein. For all other entities, the ASU is effective in annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The ASU must be applied prospectively on or after the effective date, and no disclosures for a change in accounting principle are required at transition. Early adoption is permitted for transactions (i.e., acquisitions or dispositions) that occurred before the issuance date or effective date of the standard if the transactions were not reported in financial statements that have been issued or made available for issuance. ~~The~~Unless the Company ~~has not yet determined~~enters into a business combination, the impact of the ~~adoption of~~ ASU ~~2017-01~~ will not have a material impact on the consolidated financial statements.

ASU 2017-04

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test For Goodwill Impairment. The ASU simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Instead, if ~~"the~~“the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit."” For public business entities that are SEC filers, the ASU is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. The Company has not yet determined the impact the adoption of ASU 2017-04 will have on the consolidated financial statements.

ASU 2017-08

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Earlier application is permitted for all entities, including adoption in an interim period. If an entity early adopts the ASU in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The Company has not yet determined the impact the adoption of ASU 2017-08 will have on the consolidated financial statements.

ASU 2018-02

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act described in the "Income Taxes" section below. The amount of the reclassification should include the effect of the change in the federal corporate income tax rate related to items remaining in accumulated other comprehensive income (loss). The ASU would require an entity to disclose whether it elects to reclassify stranded tax effects from accumulated other comprehensive income (loss) to retained earnings in the period of adoption and, more generally, a description of the accounting policy for releasing income tax effects from accumulated other comprehensive income (loss). The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption of the amendments in this update is permitted for periods for which financial statements have not yet been issued or made available for issuance, including in the period the Act was enacted. The Company adopted this ASU on January 1, 2018, by recording the reclassification adjustment to its beginning retained earnings in the amount of $1.6 million. The Company utilized the portfolio approach when releasing tax effects from AOCI for its investment securities.

ASU 2018-03

In February of 2018, the FASB Issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10). The ASU was issued to clarify certain aspects of ASU 2016-01 such as treatment for discontinuations and adjustments for equity securities without a readily determinable market value, forward contracts and purchased options, presentation requirements for certain fair value option liabilities, fair value option liabilities denominated in a foreign currency, and transition guidance for equity securities without a readily determinable fair value. The Company adopted this ASU on January 1, 2018. The adoption of this ASU did not have a significant impact on the Company’s financial condition, results of operations and consolidated financial statements.

Note 3: Legal Proceedings

The Company and Republic are from time to time parties (plaintiff or defendant) to lawsuits in the normal course of business. While any litigation involves an element of uncertainty, management is of the opinion that the liability of the Company and Republic, if any, resulting from such actions will not have a material effect on the financial condition or results of operations of the Company and Republic.

Note 4: Segment Reporting

The Company has one reportable segment: community banking. The community bank segment primarily encompasses the commercial loan and deposit activities of Republic, as well as consumer loan products in the area surrounding its stores.

1314

Note 5: Investment Securities

A summary of the amortized cost and market value of securities available for sale and securities held to maturity at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 is as follows:

	At September 30, 2017									At March 31, 2018
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Collateralized mortgage obligations	$	244,170	$	73	$	(4,239	)	$	240,004	$	372,976	$	2	$	(12,725	)	$	360,253
Agency mortgage-backed securities		43,906		3		(1,107	)		42,802		71,055		1		(1,927	)		69,129
Municipal securities		15,600		130		(71	)		15,659		17,182		5		(464	)		16,723
Corporate bonds		66,659		97		(2,427	)		64,329		62,648		95		(2,661	)		60,082
Asset-backed securities		13,858		1		(4	)		13,855		12,971		-		(27	)		12,944
Trust preferred securities		1,545		-		(437	)		1,108		725		-		(164	)		561
Total securities available for sale	$	385,738	$	304	$	(8,285	)	$	377,757	$	537,557	$	103	$	(17,968	)	$	519,692

U.S. Government agencies	$	104,446	$	105	$	(1,710	)	$	102,841	$	116,880	$	-	$	(4,816	)	$	112,064
Collateralized mortgage obligations		179,928		512		(2,413	)		178,027		262,382		745		(7,020	)		256,107
Agency mortgage-backed securities		131,613		22		(2,246	)		129,389		139,033		-		(5,613	)		133,420
Other securities		1,000		-		-			1,000		1,000		-		-			1,000
Total securities held to maturity	$	416,987	$	639	$	(6,369	)	$	411,257	$	519,295	$	745	$	(17,449	)	$	502,591

	At December 31, 2016									At December 31, 2017
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Collateralized mortgage obligations	$	230,252	$	145	$	(5,632	)	$	224,765	$	327,972	$	-	$	(7,731	)	$	320,241
Agency mortgage-backed securities		37,973		32		(1,295	)		36,710		55,664		2		(800	)		54,866
Municipal securities		26,825		151		(429	)		26,547		15,142		20		(62	)		15,100
Corporate bonds		66,718		8		(1,978	)		64,748		62,670		103		(2,491	)		60,282
Asset-backed securities		15,565		-		(416	)		15,149		13,414		38		-			13,452
Trust preferred securities		3,063		-		(1,243	)		1,820		725		-		(236	)		489
Total securities available for sale	$	380,396	$	336	$	(10,993	)	$	369,739	$	475,587	$	163	$	(11,320	)	$	464,430

U.S. Government agencies	$	98,538	$	8	$	(2,238	)	$	96,308	$	112,605	$	50	$	(2,235	)	$	110,420
Collateralized mortgage obligations		202,990		793		(2,553	)		201,230		215,567		314		(3,970	)		211,911
Agency mortgage-backed securities		129,951		1		(3,327	)		126,625		143,041		47		(2,620	)		140,468
Other securities		1,020		-		-			1,020		1,000		-		-			1,000
Total securities held to maturity	$	432,499	$	802	$	(8,118	)	$	425,183	$	472,213	$	411	$	(8,825	)	$	463,799

1415

The following table presents investment securities by stated maturity at ~~September 30, 2017.~~March 31, 2018. Collateralized mortgage obligations and agency mortgage-backed securities have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay with or without prepayment penalties and, therefore, these securities are classified separately with no specific maturity date.

Available for Sale Held to Maturity

(dollars in thousands)

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Due in 1 year or less $ 1,154 $ 1,160 $ 1,000 $ 1,000
After 1 year to 5 years 10,603 10,675 6,038 6,046
After 5 years to 10 years 60,860 59,395 98,408 96,795
After 10 years 25,045 23,721 - -
Collateralized mortgage obligations 244,170 240,004 179,928 178,027
Agency mortgage-backed securities 43,906 42,802 131,613 129,389
Total $ 385,738 $ 377,757 $ 416,987 $ 411,257

~~Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.~~

	Available for Sale				Held to Maturity
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in 1 year or less	$	2,802	$	2,799	$	-	$	-
After 1 year to 5 years		4,938		4,918		21,525		21,098
After 5 years to 10 years		80,553		77,373		96,355		91,966
After 10 years		5,233		5,220		-		-
Collateralized mortgage obligations		372,976		360,253		262,382		256,107
Agency mortgage-backed securities		71,055		69,129		139,033		133,420
Total	$	537,557	$	519,692	$	519,295	$	502,591

The ~~Company's~~Company’s investment securities portfolio consists primarily of debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state governments, local municipalities and certain corporate entities. There were no private label mortgage-backed securities ~~("MBS"~~(“MBS”) or collateralized mortgage obligations ~~("CMO"~~(“CMO”) held in the investment securities portfolio as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. There were also no MBS or CMO securities that were rated ~~"Alt-A"~~“Alt-A” or ~~"sub-prime"~~“sub-prime” as of those dates.

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the available for sale portfolio are included in ~~shareholders'~~shareholders’ equity as a component of accumulated other comprehensive income or loss, net of tax. Securities classified as held to maturity are carried at amortized cost. An unrealized loss exists when the current fair value of an individual security is less than the amortized cost basis.

The Company regularly evaluates investment securities that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, the current interest rate environment and the rating of each security. An ~~other-than-temporary impairment ("OTTI")~~OTTI loss must be recognized for a debt security in an unrealized loss position if the Company intends to sell the security or it is more likely than not that it will be required to sell the security prior to recovery of the amortized cost basis. The amount of OTTI loss recognized is equal to the difference between the fair value and the amortized cost basis of the security that is attributed to credit deterioration. Accounting standards require the evaluation of the expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, that amount must be recognized against income in the current period. The portion of the unrealized loss related to other factors, such as liquidity conditions in the market or the current interest rate environment, is recorded in accumulated other comprehensive income (loss) for investment securities classified available for sale.

NoThere were no impairment charges (credit losses) ~~were incurred on trust preferred securities during the three and nine month periods ended September 30, 2017. Impairment charges~~ on trust preferred securities for the three ~~month period~~months ended ~~September 30, 2016 amounted to $2,000. Impairment charges on trust preferred securities for the nine month period ended September 30, 2016 amounted to $7,000.~~March 31, 2018 and March 31, 2017.

1516

The following table presents a roll-forward of the balance of credit-related impairment losses on securities held at ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ for which a portion of OTTI, as applicable, was recognized in other comprehensive income:

(dollars in thousands)	2017			2016		2018		2017

Beginning Balance, January 1^st	$	937		$	930	$	274	$	937
Additional credit-related impairment loss on securities for which an
other-than-temporary impairment was previously recognized		-			7		-		-
Reductions for securities sold during the period		(483	)		-
Ending Balance, September 30^th	$	454		$	937
Ending Balance, March 31^st						$	274	$	937

The following tables show the fair value and gross unrealized losses associated with the investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position ~~in the available for sale~~as of March 31, 2018 and ~~held to maturity section:~~December 31, 2017:

	At September 30, 2017												At March 31, 2018
	Less than 12 months				12 months or more				Total				Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

Collateralized mortgage obligations	$	106,932	$	1,875	$	85,469	$	2,364	$	192,401	$	4,239	$	176,823	$	4,600	$	163,503	$	8,125	$	340,326	$	12,725
Agency mortgage-backed securities		37,066		994		5,064		113		42,130		1,107		47,543		946		19,691		981		67,234		1,927
Municipal securities		4,278		24		2,591		47		6,869		71		11,537		312		2,539		152		14,076		464
Corporate bonds		19,638		362		32,935		2,065		52,573		2,427		1,646		5		52,344		2,656		53,990		2,661
Asset backed securities		-		-		6,006		4		6,006		4		12,944		27		-		-		12,944		27
Trust preferred securities		-		-		1,108		437		1,108		437		-		-		561		164		561		164
Total Available for Sale	$	167,914	$	3,255	$	133,173	$	5,030	$	301,087	$	8,285	$	250,493	$	5,890	$	238,638	$	12,078	$	489,131	$	17,968

	At September 30, 2017																		At March 31, 2018
	Less than 12 months						12 months or more						Total						Less than 12 months						12 months or more						Total
(dollars in thousands)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses

U.S. Government agencies		$	76,631		$	1,267		$	14,157		$	443		$	90,788		$	1,710		$	55,240		$	1,521		$	56,824		$	3,295		$	112,064		$	4,816
Collateralized mortgage obligations			89,374			1,470			49,751			943			139,125			2,413			122,102			1,879			113,696			5,141			235,798			7,020
Agency mortgage-backed securities			79,935			1,691			17,499			555			97,434			2,246			55,003			1,498			78,417			4,115			133,420			5,613
Total Held to Maturity		$	245,940		$	4,428		$	81,407		$	1,941		$	327,347		$	6,369		$	232,345		$	4,898		$	248,937		$	12,551		$	481,282		$	17,449

	At December 31, 2017
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

Collateralized mortgage obligations	$	150,075	$	1,565	$	170,166	$	6,166	$	320,241	$	7,731
Agency mortgage-backed securities		29,967		226		21,045		574		51,012		800
Municipal securities		5,742		27		2,656		35		8,398		62
Corporate bonds		-		-		52,509		2,491		52,509		2,491
Asset backed securities		-		-		-		-		-		-
Trust preferred securities		-		-		489		236		489		236
Total Available for Sale	$	185,784	$	1,818	$	246,865	$	9,502	$	432,649	$	11,320

	At December 31, 2017
	Less than 12 months						12 months or more					Total
(dollars in thousands)	Fair Value			Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

U.S. Government agencies		$	42,045		$	213	$	59,594		$	2,022	$	101,639		$	2,235
Collateralized mortgage obligations			56,955			767		107,986			3,203		164,941			3,970
Agency mortgage-backed securities			55,170			221		82,479			2,399		137,649			2,620
Total Held to Maturity		$	154,170		$	1,201	$	250,059		$	7,624	$	404,229		$	8,825

At December 31, 2016
Less than 12 months 12 months or more Total

(dollars in thousands)

Fair
Value
Unrealized Losses
Fair
Value
Unrealized Losses
Fair
Value
Unrealized Losses

Collateralized mortgage obligations $ 192,308 $ 5,380 $ 7,579 $ 252 $ 199,887 $ 5,632
Agency mortgage-backed securities 29,916 1,260 3,199 35 33,115 1,295
Municipal securities 15,414 429 - - 15,414 429
Corporate bonds 32,257 1,708 10,726 270 42,983 1,978
Asset backed securities - - 15,149 416 15,149 416
Trust preferred securities - - 1,820 1,243 1,820 1,243
Total Available for Sale $ 269,895 $ 8,777 $ 38,473 $ 2,216 $ 308,368 $ 10,993

At December 31, 2016
Less than 12 months 12 months or more Total

(dollars in thousands)
Fair
Value
Unrealized Losses
Fair
Value
Unrealized Losses
Fair
Value
Unrealized Losses

U.S. Government agencies $ 67,725 $ 2,198 $ 3,586 $ 40 $ 71,311 $ 2,238
Collateralized mortgage obligations 108,974 2,469 8,572 84 117,546 2,553
Agency mortgage-backed securities 97,725 3,327 - - 97,725 3,327
Total Held to Maturity $ 274,424 $ 7,994 $ 12,158 $ 124 $ 286,582 $ 8,118

1617

Unrealized losses on securities in the investment portfolio amounted to ~~$14.7~~$35.4 million with a total fair value of ~~$628.4~~$970.4 million as of ~~September 30, 2017~~March 31, 2018 compared to unrealized losses of ~~$19.1~~$20.1 million with a total fair value of ~~$595.0~~$836.9 million as of December 31, ~~2016.~~2017. The Company believes the unrealized losses presented in the tables above are temporary in nature and primarily related to market interest rates or limited trading activity in particular type of security rather than the underlying credit quality of the issuers. The Company does not believe that these losses are other than temporary and does not currently intend to sell or believe it will be required to sell securities in an unrealized loss position prior to maturity or recovery of the amortized cost bases.

The Company held ~~nine~~fourteen U.S. Government agency securities, ~~fifty-seven~~eighty-five collateralized mortgage obligations and ~~twenty-one~~twenty-nine agency mortgage-backed securities that were in an unrealized loss position at ~~September 30, 2017.~~March 31, 2018. Principal and interest payments of the underlying collateral for each of these securities are backed by U.S. Government sponsored agencies and carry minimal credit risk. Management found no evidence of OTTI on any of these securities and believes the unrealized losses are due to fluctuations in fair values resulting from changes in market interest rates and are considered temporary as of ~~September 30, 2017.~~March 31, 2018.

All municipal securities held in the investment portfolio are reviewed on least a quarterly basis for impairment. Each bond carries an investment grade rating by either ~~Moody's~~Moody’s or Standard & ~~Poor's.~~Poor’s. In addition, the Company periodically conducts its own independent review on each issuer to ensure the financial stability of the municipal entity. The largest geographic concentration was in Pennsylvania and New Jersey and consisted of either general obligation or revenue bonds backed by the taxing power of the issuing municipality. At ~~September 30, 2017, there were ten~~March 31, 2018, the investment portfolio included twenty municipal securities that were in an unrealized loss position. Management believes the unrealized losses were the result of movements in long-term interest rates and are not reflective of credit deterioration.

At ~~September 30, 2017,~~March 31, 2018, the investment portfolio included ~~one~~two asset-backed ~~security~~securities that ~~was~~were in an unrealized loss position. The asset-backed securities held in the investment securities portfolio consist solely of Sallie Mae bonds, collateralized by student loans which are ~~guaranteed~~insured by the U.S. Department of Education. Management believes the unrealized ~~loss~~losses on ~~this security was~~these securities were driven by changes in market interest rates and not a result of credit deterioration. At ~~September 30, 2017,~~March 31, 2018, the investment portfolio included ~~six~~seven corporate bonds that were in an unrealized loss position. Management believes the unrealized losses on these securities were also driven by changes in market interest rates and not a result of credit deterioration.

The unrealized ~~losses~~loss on the trust preferred ~~securities are~~security is primarily the result of the secondary market for such ~~securities~~a security becoming inactive and ~~are~~is also considered temporary at this time. The following table provides additional detail ~~about~~on the trust preferred ~~securities~~security held in the portfolio as of ~~September 30, 2017.~~March 31, 2018.

(dollars in thousands)	Class / Tranche	Amortized Cost		Fair Value		Unrealized Losses			Lowest Credit Rating Assigned		Number of Banks Currently Performing		Deferrals / Defaults as % of Current Balance			Conditional Default Rates for 2018 and beyond			Cumulative OTTI Life to Date		Class / Tranche	Amortized Cost		Fair Value		Unrealized Losses		Lowest Credit Rating Assigned	Number of Banks Currently Performing	Deferrals / Defaults as % of Current Balance	Conditional Default Rates for 2018 and beyond	Cumulative OTTI Life to Date
TPREF Funding II	Class B Notes	$	725	$	489	$	(236	)		C		19		29	%		0.42	%	$	274	Class B Notes	$	725	$	561	$	(164)	C	18	29%	0.39%	$	274
ALESCO Preferred Funding V	Class C1 Notes		820		619		(201	)		C		39		14			0.49			180
Total		$	1,545	$	1,108	$	(437	)				58		21	%				$	454

~~There~~No securities were ~~no proceeds from the sale of investment securities~~sold during the three months ended ~~September 30,~~March 31, 2018 and March 31, 2017. Proceeds from the sale of investment securities during the nine months ended September 30, 2017 was $21.2 million. Gross gains of $487,000 were realized on these sales which were offset by gross losses of $548,000. The tax provision applicable to the net losses for the nine months ended September 30, 2017 was $22,000.

1718

There were no proceeds from the sale of investment securities during the three months ended September 30, 2016. Proceeds from the sale of investment securities during the nine months ended September 30, 2016 was $78.6 million. Gross gains of $680,000 and gross losses of $24,000 were realized on these sales. The tax provision applicable to the net gains for the nine months ended September 30, 2016 was $235,000.

Note 6: Loans Receivable and Allowance for Loan Losses

The following table sets forth the ~~Company's~~Company’s gross loans by major ~~categories~~category as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

(dollars in thousands)	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017

Commercial real estate	$	415,532		$	378,519		$	467,585		$	433,304
Construction and land development		93,657			61,453			118,607			104,617
Commercial and industrial		163,085			174,744			189,420			173,343
Owner occupied real estate		297,880			276,986			315,418			309,838
Consumer and other		71,888			63,660			78,992			76,183
Residential mortgage		53,384			9,682			81,048			64,764
Total loans receivable		1,095,426			965,044			1,251,070			1,162,049
Deferred fees		(21	)		(72	)
Deferred costs (fees)								(158	)		229
Allowance for loan losses		(8,258	)		(9,155	)		(6,650	)		(8,599	)
Net loans receivable	$	1,087,147		$	955,817		$	1,244,262		$	1,153,679

The Company disaggregates its loan portfolio into groups of loans with similar risk characteristics for purposes of estimating the allowance for loan losses. The ~~Company's~~Company’s loan groups include commercial real estate, construction and land development, commercial and industrial, owner occupied real estate, consumer, and residential mortgages. The loan groups are also considered classes for purposes of monitoring and assessing credit quality based on certain risk characteristics.

The following tables provide the activity in and ending balances of the allowance for loan losses by loan portfolio class at and for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:

(dollars in thousands)		Commercial Real Estate		Construction and Land Development			Commercial and Industrial			Owner Occupied Real Estate			Consumer and Other			Residential Mortgage		Unallocated			Total				Commercial Real Estate			Construction and Land Development			Commercial and Industrial			Owner Occupied Real Estate			Consumer and Other			Residential Mortgage		Unallocated			Total

Three months ended September 30, 2017
Three months ended March 31, 2018																								Three months ended March 31, 2018
Allowance for loan losses:	Allowance for loan losses:																							Allowance for loan losses:

Beginning balance:		$	3,171	$	580		$	2,496		$	1,598		$	544		$	238	$	827		$	9,454			$	3,774		$	725		$	1,317		$	1,737		$	573		$	392	$	81		$	8,599
Charge-offs			-		-			(1,195	)		(49	)		(4	)		-		-			(1,248	)			(1,535	)		-			(151	)		(465	)		(198	)		-		-			(2,349	)
Recoveries			47		-			5			-			-			-		-			52				-			-			-			-			-			-		-			-
Provisions (credits)			381		69			(85	)		87			11			85		(548	)		-				(336	)		26			95			420			85			116		(6	)		400
Ending balance		$	3,599	$	649		$	1,221		$	1,636		$	551		$	323	$	279		$	8,258			$	1,903		$	751		$	1,261		$	1,692		$	460		$	508	$	75		$	6,650

Three months ended September 30, 2016
Three months ended March 31, 2017																								Three months ended March 31, 2017
Allowance for loan losses:	Allowance for loan losses:																							Allowance for loan losses:

Beginning balance:		$	3,293	$	365		$	3,136		$	1,366		$	324		$	11	$	266		$	8,761			$	3,254		$	557		$	2,884		$	1,382		$	588		$	58	$	432		$	9,155
Charge-offs			-		(3	)		-			-			-			-		-			(3	)			-			-			-			(8	)		(2	)		-		-			(10	)
Recoveries			-		-			88			-			-			-		-			88				7			-			29			-			-			-		-			36
Provisions (credits)			9		137			(79	)		251			16			31		242			607				(299	)		(11	)		(143	)		253			(11	)		72		139			-
Ending balance		$	3,302	$	499		$	3,145		$	1,617		$	340		$	42	$	508		$	9,453			$	2,962		$	546		$	2,770		$	1,627		$	575		$	130	$	571		$	9,181

(dollars in thousands)

Commercial
Real Estate
Construction and Land Development
Commercial
and
Industrial
Owner Occupied Real Estate
Consumer and Other

Residential Mortgage

Unallocated

Total

Nine months ended September 30, 2017
Allowance for loan losses:

Beginning balance: $ 3,254 $ 557 $ 2,884 $ 1,382 $ 588 $ 58 $ 432 $ 9,155
Charge-offs - - (1,347 ) (157 ) (12 ) - - (1,516 )
Recoveries 54 - 64 - 1 - - 119
Provisions (credits) 291 92 (380 ) 411 (26 ) 265 (153 ) 500
Ending balance $ 3,599 $ 649 $ 1,221 $ 1,636 $ 551 $ 323 $ 279 $ 8,258

Nine months ended September 30, 2016
Allowance for loan losses:

Beginning Balance: $ 2,393 $ 338 $ 2,932 $ 2,030 $ 295 $ 14 $ 701 $ 8,703
Charge-offs - (3 ) (18 ) (954 ) - - - (975 )
Recoveries 6 - 162 - - - - 168
Provisions (credits) 903 164 69 541 45 28 (193 ) 1,557
Ending balance $ 3,302 $ 499 $ 3,145 $ 1,617 $ 340 $ 42 $ 508 $ 9,453

The following tables provide a summary of the allowance for loan losses and balance of loans receivable by loan class and by impairment method as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

(dollars in thousands)	Commercial Real Estate		Construction and Land Development		Commercial and Industrial		Owner Occupied Real Estate		Consumer and Other		Residential Mortgage		Unallocated		Total		Commercial Real Estate		Construction and Land Development		Commercial and Industrial		Owner Occupied Real Estate		Consumer and Other		Residential Mortgage		Unallocated		Total

September 30, 2017
March 31, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	1,834	$	-	$	337	$	190	$	218	$	-	$	-	$	2,579	$	-	$	-	$	448	$	169	$	51	$	-	$	-	$	668
Collectively evaluated for impairment		1,765		649		884		1,446		333		323		279		5,679		1,903		751		813		1,523		409		508		75		5,982
Total allowance for loan losses	$	3,599	$	649	$	1,221	$	1,636	$	551	$	323	$	279	$	8,258	$	1,903	$	751	$	1,261	$	1,692	$	460	$	508	$	75	$	6,650

Loans receivable:
Loans evaluated individually	$	13,393	$	-	$	3,852	$	3,490	$	1,267	$	-	$	-	$	22,002	$	13,844	$	-	$	7,091	$	3,425	$	791	$	-	$	-	$	25,151
Loans evaluated collectively		402,139		93,657		159,233		294,390		70,621		53,384		-		1,073,424		453,741		118,607		182,329		311,993		78,201		81,048		-		1,225,919
Total loans receivable	$	415,532	$	93,657	$	163,085	$	297,880	$	71,888	$	53,384	$	-	$	1,095,426	$	467,585	$	118,607	$	189,420	$	315,418	$	78,992	$	81,048	$	-	$	1,251,070

(dollars in thousands)	Commercial Real Estate		Construction and Land Development		Commercial and Industrial		Owner Occupied Real Estate		Consumer and Other		Residential Mortgage		Unallocated		Total		Commercial Real Estate		Construction and Land Development		Commercial and Industrial		Owner Occupied Real Estate		Consumer and Other		Residential Mortgage		Unallocated		Total

December 31, 2016
December 31, 2017
Allowance for loan losses:
Individually evaluated for impairment	$	1,277	$	-	$	1,624	$	274	$	293	$	-	$	-	$	3,468	$	1,964	$	-	$	374	$	235	$	217	$	-	$	-	$	2,790
Collectively evaluated for impairment		1,977		557		1,260		1,108		295		58		432		5,687		1,810		725		943		1,502		356		392		81		5,809
Total allowance for loan losses	$	3,254	$	557	$	2,884	$	1,382	$	588	$	58	$	432	$	9,155	$	3,774	$	725	$	1,317	$	1,737	$	573	$	392	$	81	$	8,599

Loans receivable:
Loans evaluated individually	$	19,245	$	-	$	5,180	$	2,325	$	1,290	$	130	$	-	$	28,170	$	15,415	$	-	$	4,501	$	3,798	$	1,002	$	-	$	-	$	24,716
Loans evaluated collectively		359,274		61,453		169,564		274,661		62,370		9,552		-		936,874		417,889		104,617		168,842		306,040		75,181		64,764		-		1,137,333
Total loans receivable	$	378,519	$	61,453	$	174,744	$	276,986	$	63,660	$	9,682	$	-	$	965,044	$	433,304	$	104,617	$	173,343	$	309,838	$	76,183	$	64,764	$	-	$	1,162,049

A loan is considered impaired, when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans, but also include internally classified accruing loans. The following table summarizes information with regard to impaired loans by loan portfolio class as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

	September 30, 2017						December 31, 2016						March 31, 2018						December 31, 2017
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial real estate	$	7,003	$	7,007	$	-	$	12,347	$	12,348	$	-	$	13,844	$	15,040	$	-	$	9,264	$	9,268	$	-
Construction and land development		-		-		-		-		-		-		-		-		-		-		-		-
Commercial and industrial		2,490		6,403		-		1,955		3,111		-		5,507		9,432		-		2,756		6,674		-
Owner occupied real estate		2,471		2,633		-		621		733		-		2,583		2,732		-		2,595		2,743		-
Consumer and other		920		1,236		-		687		976		-		639		976		-		655		981		-
Residential mortgage		-		-		-		130		130		-		-		-		-		-		-		-
Total	$	12,884	$	17,279	$	-	$	15,740	$	17,298	$	-	$	22,573	$	28,180	$	-	$	15,270	$	19,666	$	-

With an allowance recorded:
Commercial real estate	$	6,389	$	6,403	$	1,834	$	6,898	$	6,912	$	1,277	$	-	$	-	$	-	$	6,151	$	6,165	$	1,964
Construction and land development		-		-		-		-		-		-		-		-		-		-		-		-
Commercial and industrial		1,363		1,380		337		3,225		5,892		1,624		1,584		1,599		448		1,745		1,752		374
Owner occupied real estate		1,019		1,019		190		1,704		1,704		274		842		849		169		1,203		1,206		235
Consumer and other		347		377		218		603		627		293		152		152		51		347		379		217
Residential mortgage		-		-		-		-		-		-		-		-		-		-		-		-
Total	$	9,118	$	9,179	$	2,579	$	12,430	$	15,135	$	3,468	$	2,578	$	2,600	$	668	$	9,446	$	9,502	$	2,790

Total:
Commercial real estate	$	13,393	$	13,410	$	1,834	$	19,245	$	19,260	$	1,277	$	13,844	$	15,040	$	-	$	15,415	$	15,433	$	1,964
Construction and land development		-		-		-		-		-		-		-		-		-		-		-		-
Commercial and industrial		3,852		7,783		337		5,180		9,003		1,624		7,091		11,031		448		4,501		8,426		374
Owner occupied real estate		3,490		3,652		190		2,325		2,437		274		3,425		3,581		169		3,798		3,949		235
Consumer and other		1,267		1,613		218		1,290		1,603		293		791		1,128		51		1,002		1,360		217
Residential mortgage		-		-		-		130		130		-		-		-		-		-		-		-
Total	$	22,002	$	26,458	$	2,579	$	28,170	$	32,433	$	3,468	$	25,151	$	30,780	$	668	$	24,716	$	29,168	$	2,790

The following table presents additional information regarding the ~~Company's~~Company’s impaired loans for the three months ended ~~September 30, 2017~~March 31, 2018 and ~~September 30, 2016:~~2017:

	Three Months Ended September 30,												Three Months Ended March 31,
	2017						2016						2018						2017
(dollars in thousands)	Average Recorded Investment			Interest Income Recognized			Average Recorded Investment			Interest Income Recognized			Average Recorded Investment			Interest Income Recognized			Average Recorded Investment			Interest Income Recognized
With no related allowance recorded:
Commercial real estate		$	7,024		$	106		$	12,188		$	65		$	11,554		$	72		$	12,290		$	70
Construction and land development			-			-			22			-			-			-			-			-
Commercial and industrial			2,366			8			1,611			9			4,132			5			1,931			8
Owner occupied real estate			2,313			17			665			3			2,589			14			1,126			12
Consumer and other			923			9			1,027			5			647			1			752			3
Residential mortgage			-			-			-			-			-			-			65			1
Total		$	12,626		$	140		$	15,513		$	82		$	18,922		$	92		$	16,164		$	94

With an allowance recorded:
Commercial real estate	$	3,076	$	-	$	6,759	$	5
Construction and land development		-		-		-		-
Commercial and industrial		1,664		3		3,303		17
Owner occupied real estate		1,023		6		1,774		6
Consumer and other		249		1		529		4
Residential mortgage		-		-		-		-
Total	$	6,012	$	10	$	12,365	$	32

Total:
Commercial real estate	$	14,630	$	72	$	19,049	$	75
Construction and land development		-		-		-		-
Commercial and industrial		5,796		8		5,234		25
Owner occupied real estate		3,612		20		2,900		18
Consumer and other		896		2		1,281		7
Residential mortgage		-		-		65		1
Total	$	24,934	$	102	$	28,529	$	126

With an allowance recorded:
Commercial real estate $ 6,391 $ 4 $ 6,058 $ 19
Construction and land development - - 43 -
Commercial and industrial 2,118 16 3,607 18
Owner occupied real estate 1,100 8 1,977 9
Consumer and other 346 2 278 2
Residential mortgage - - - -
Total $ 9,955 $ 30 $ 11,963 $ 48

Total:
Commercial real estate $ 13,415 $ 110 $ 18,246 $ 84
Construction and land development - - 65 -
Commercial and industrial 4,484 24 5,218 27
Owner occupied real estate 3,413 25 2,642 12
Consumer and other 1,269 11 1,305 7
Residential mortgage - - - -
Total $ 22,581 $ 170 $ 27,476 $ 130

~~The following table presents additional information regarding the Company's impaired loans for the nine months ended September 30, 2017 and September 30, 2016:~~

Nine Months Ended September 30,
2017 2016

(dollars in thousands)
Average Recorded Investment
Interest Income Recognized Average Recorded Investment Interest Income Recognized
With no related allowance recorded:
Commercial real estate $ 9,657 $ 271 $ 11,954 $ 197
Construction and land development - - 72 -
Commercial and industrial 2,149 26 1,797 30
Owner occupied real estate 1,719 46 647 6
Consumer and other 837 17 901 11
Residential mortgage 33 1 - -
Total $ 14,395 $ 361 $ 15,371 $ 244

With an allowance recorded:
Commercial real estate $ 6,575 $ 13 $ 3,844 $ 43
Construction and land development - - 15 -
Commercial and industrial 2,710 50 3,389 56
Owner occupied real estate 1,437 22 2,205 23
Consumer and other 438 8 252 7
Residential mortgage - - - -
Total $ 11,160 $ 93 $ 9,705 $ 129

Total:
Commercial real estate $ 16,232 $ 284 $ 15,798 $ 240
Construction and land development - - 87 -
Commercial and industrial 4,859 76 5,186 86
Owner occupied real estate 3,156 68 2,852 29
Consumer and other 1,275 25 1,153 18
Residential mortgage 33 1 - -
Total $ 25,555 $ 454 $ 25,076 $ 373

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days and Accruing
At March 31, 2018
Commercial real estate	$	129	$	-	$	7,426	$	7,555	$	460,030	$	467,585	$	-
Construction and land development		-		-		-		-		118,607		118,607		-
Commercial and industrial		14		-		3,897		3,911		185,509		189,420		-
Owner occupied real estate		-		-		2,018		2,018		313,400		315,418		-
Consumer and other		20		-		791		811		78,181		78,992		-
Residential mortgage		-		-		-		-		81,048		81,048		-
Total	$	163	$	-	$	14,132	$	14,295	$	1,236,775	$	1,251,070	$	-

(dollars in thousands)
30-59
Days
Past Due

60-89
Days
Past Due

Greater than 90 Days

Total
Past Due

Current

Total
Loans Receivable

Loans
Receivable
> 90 Days
and
Accruing

At September 30, 2017
Commercial real estate $ 129 $ - $ 8,975 $ 9,104 $ 406,428 $ 415,532 $ 2,538
Construction and land development - - - - 93,657 93,657 -
Commercial and industrial 767 - 2,100 2,867 160,218 163,085 -
Owner occupied real estate 451 - 1,816 2,267 295,613 297,880 192
Consumer and other 149 35 859 1,043 70,845 71,888 -
Residential mortgage - - - - 53,384 53,384 -
Total $ 1,496 $ 35 $ 13,750 $ 15,281 $ 1,080,145 $ 1,095,426 $ 2,730

(dollars in thousands)	30-59 Days Past Due			60-89 Days Past Due			Greater than 90 Days			Total Past Due			Current			Total Loans Receivable			Loans Receivable > 90 Days and Accruing			30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days and Accruing
At December 31, 2016
At December 31, 2017
Commercial real estate		$	-		$	9		$	13,089		$	13,098		$	365,421		$	378,519		$	-	$	-	$	-	$	8,963	$	8,963	$	424,341	$	433,304	$	-
Construction and land development			-			-			-			-			61,453			61,453			-		-		-		-		-		104,617		104,617		-
Commercial and industrial			568			-			3,151			3,719			171,025			174,744			-		969		-		2,895		3,864		169,479		173,343		-
Owner occupied real estate			468			-			1,718			2,186			274,800			276,986			172		-		-		2,136		2,136		307,702		309,838		-
Consumer and other			24			22			808			854			62,806			63,660			-		144		-		851		995		75,188		76,183		-
Residential mortgage			-			-			130			130			9,552			9,682			130		-		-		-		-		64,764		64,764		-
Total		$	1,060		$	31		$	18,896		$	19,987		$	945,057		$	965,044		$	302	$	1,113	$	-	$	14,845	$	15,958	$	1,146,091	$	1,162,049	$	-

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the ~~Company's~~Company’s internal risk rating system as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
At September 30, 2017:
At March 31, 2018:
Commercial real estate	$	407,787	$	838	$	6,907	$	-	$	415,532	$	459,211	$	948	$	7,426	$	-	$	467,585
Construction and land development		93,657		-		-		-		93,657		118,607		-		-		-		118,607
Commercial and industrial		158,304		929		3,572		280		163,085		182,196		133		6,811		280		189,420
Owner occupied real estate		294,390		-		3,490		-		297,880		310,621		1,372		3,425		-		315,418
Consumer and other		70,621		-		1,267		-		71,888		78,201		-		791		-		78,992
Residential mortgage		53,257		127		-		-		53,384		80,922		126		-		-		81,048
Total	$	1,078,016	$	1,894	$	15,236	$	280	$	1,095,426	$	1,229,758	$	2,579	$	18,453	$	280	$	1,251,070

(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
At December 31, 2016:
At December 31, 2017:
Commercial real estate	$	364,066	$	877	$	13,576	$	-	$	378,519	$	423,382	$	959	$	8,963	$	-	$	433,304
Construction and land development		61,453		-		-		-		61,453		104,617		-		-		-		104,617
Commercial and industrial		168,958		606		3,751		1,429		174,744		168,702		140		4,221		280		173,343
Owner occupied real estate		274,150		511		2,325		-		276,986		306,040		-		3,798		-		309,838
Consumer and other		62,370		-		1,290		-		63,660		75,181		-		1,002		-		76,183
Residential mortgage		9,552		-		130		-		9,682		64,637		127		-		-		64,764
Total	$	940,549	$	1,994	$	21,072	$	1,429	$	965,044	$	1,142,559	$	1,226	$	17,984	$	280	$	1,162,049

2423

The following table shows non-accrual loans by class as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

(dollars in thousands)	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017

Commercial real estate	$	6,437	$	13,089	$	7,426	$	8,963
Construction and land development		-		-		-		-
Commercial and industrial		2,100		3,151		3,897		2,895
Owner occupied real estate		1,624		1,546		2,018		2,136
Consumer and other		859		808		791		851
Residential mortgage		-		-		-		-
Total	$	11,020	$	18,594	$	14,132	$	14,845

If these loans were performing under their original contractual rate, interest income on such loans would have increased approximately ~~$127,000~~$179,000 and ~~$372,000~~$276,000 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~respectively, and $271,000 and $784,000 for the nine months ended September 30, 2016,~~ respectively.

Troubled Debt Restructurings

A modification to the contractual terms of a loan which results in a concession to a borrower that is experiencing financial difficulty is classified as a troubled debt restructuring ~~("TDR"~~(“TDR”). The concessions made in a TDR are those that would not otherwise be considered for a borrower or collateral with similar risk characteristics. A TDR is typically the result of efforts to minimize potential losses that may be incurred during loan workouts, foreclosure, or repossession of collateral at a time when collateral values are declining. Concessions include a reduction in interest rate below current market rates, a material extension of time to the loan term or amortization period, partial forgiveness of the outstanding principal balance, acceptance of interest only payments for a period of time, or a combination of any of these conditions.

The following table summarizes ~~the balance of~~information with regard to outstanding ~~TDRs September 30, 2017~~troubled debt restructurings at March 31, 2018 and December 31, ~~2016:~~2017:

(dollars in thousands)	Number of Loans		Accrual Status		Non-Accrual Status		Total TDRs		Number of Loans		Accrual Status		Non- Accrual Status		Total TDRs
September 30, 2017
March 31, 2018
Commercial real estate		1	$	6,486	$	-	$	6,486		1	$	6,418	$	-	$	6,418
Construction and land development		-		-		-		-		-		-		-		-
Commercial and industrial		2		1,184		349		1,533		3		-		1,524		1,524
Owner occupied real estate		1		243		-		243		1		-		242		242
Consumer and other		-		-		-		-		-		-		-		-
Residential mortgage		-		-		-		-		-		-		-		-
Total		4	$	7,913	$	349	$	8,262		5	$	6,418	$	1,766	$	8,184

December 31, 2016
December 31, 2017
Commercial real estate		1	$	5,669	$	-	$	5,669		1	$	6,452	$	-	$	6,452
Construction and land development		-		-		-		-		-		-		-		-
Commercial and industrial		2		228		349		577		3		1,175		349		1,524
Owner occupied real estate		-		-		-		-		1		242		-		242
Consumer and other		-		-		-		-		-		-		-		-
Residential mortgage		-		-		-		-		-		-		-		-
Total		3	$	5,897	$	349	$	6,246		5	$	7,869	$	349	$	8,218

2524

All TDRs are considered impaired and are therefore individually evaluated for impairment in the calculation of the allowance for loan losses. Some TDRs may not ultimately result in the full collection of principal and interest as restructured and could lead to potential incremental losses. These potential incremental losses would be factored into ~~the Company's~~our estimate of the allowance for loan losses. The level of any subsequent defaults will likely be affected by future economic conditions.

~~The Company made~~There were no loan modifications made during the three months ended ~~September 30, 2017.~~March 31, 2018 that met the criteria of a TDR.

The Company modified one commercial and industrial loan during the ~~nine months~~twelve month period ended ~~September 30,~~December 31, 2017. In accordance with the modified terms of the commercial and industrial loan, the principal balance of $975,000 was converted from a line of credit to a term loan with a five year maturity. ~~This commercial and industrial loan has been and continues to be an accruing loan.~~

The Company modified one owner occupied real estate loan during the ~~nine months~~twelve month period ended ~~September 30,~~December 31, 2017. In accordance with the modified terms of the owner occupied loan of $245,000, certain concessions have been granted, including a reduction in the interest rate and an extension of the maturity date of the loan. ~~The owner occupied loan has been and continues to be an accruing loan.~~

The Company modified one commercial real estate loan in the amount of $6.5 million during the ~~nine months~~twelve month period ended ~~September 30,~~December 31, 2017 that met the criteria of a TDR. This loan was transferred to non-accrual status during the second quarter of 2015 as a result of delinquency caused by tenant vacancies. The Company restructured the loan based on new leases obtained by the borrower. In accordance with the modified terms of the loan, certain concessions have been granted, including ~~an increase in the principal balance of $421,000 and~~ a reduction in the interest rate. ~~Due to~~In addition, the principal was increased by $421,000. As a ~~performance period~~result of current payments for six consecutive months, the loan was returned to accrual status in the third quarter of 2017.

~~There were no loan modifications made during the three and nine months ended September 30, 2016 that met the criteria of a TDR.~~

There were no residential mortgages in the process of foreclosure as of September 30, 2017 and December 31, 2016. Other real estate owned relating to residential real estate was $42,000 and $126,000 at September 30, 2017 and December 31, 2016.

After a loan is determined to be a TDR, the Company continues to track its performance under the most recent restructured terms. There were nothree TDRs that subsequently defaulted during the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2018. There were no TDRs that subsequently defaulted during the year ended December 31, ~~2016.~~2017.

There were no residential mortgages in the process of foreclosure as of March 31, 2018 and December 31, 2017. Other real estate owned relating to residential real estate was $42,000 at March 31, 2018 and December 31, 2017.

Note 7: Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of the ~~Company's~~Company’s financial ~~instruments,~~instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a ~~sale~~sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

The Company follows the guidance issued under ASC 820, Fair Value Measurement, which defines fair value, establishes a framework for measuring fair value under GAAP, and identifies required disclosures on fair value measurements.

ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

An asset or ~~liability's~~liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

2726

For financial assets ~~and liabilities~~ measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were as follows:

(dollars in thousands)	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs

March 31, 2018
Assets:

Collateralized mortgage obligations	$	360,253	$	-	$	360,253	$	-
Agency mortgage-backed securities		69,129		-		69,129		-
Municipal securities		16,723		-		16,723		-
Corporate bonds		60,082		-		56,992		3,090
Asset-backed securities		12,944		-		12,944		-
Trust Preferred Securities		561		-		-		561
Securities Available for Sale	$	519,692	$	-	$	516,041	$	3,651

Mortgage Loans Held for Sale	$	19,685	$	-	$	19,685	$	-
SBA Servicing Assets		5,059		-		-		5,059
Interest Rate Lock Commitments		634		-		634		-
Best Efforts Forward Loan Sales Commitments		5		-		5		-
Mandatory Forward Loan Sales Commitments		9		-		9		-

Liabilities:

Interest Rate Lock Commitments		1		-		1		-
Best Efforts Forward Loan Sales Commitments		228		-		228		-
Mandatory Forward Loan Sales Commitments		148		-		148		-


December 31, 2017
Assets:

Collateralized mortgage obligations	$	320,241	$	-	$	320,241	$	-
Agency mortgage-backed securities		54,866		-		54,866		-
Municipal securities		15,100		-		15,100		-
Corporate bonds		60,282		-		57,196		3,086
Asset-backed securities		13,452		-		13,452		-
Trust Preferred Securities		489		-		-		489
Securities Available for Sale	$	464,430	$	-	$	460,855	$	3,575

Mortgage Loans Held for Sale	$	43,375	$	-	$	43,375	$	-
SBA Servicing Assets		5,243		-		-		5,243
Interest Rate Lock Commitments		363		-		363		-
Best Efforts Forward Loan Sales Commitments		5		-		5		-
Mandatory Forward Loan Sales Commitments		19		-		19		-

Liabilities:

Interest Rate Lock Commitments		1		-		1		-
Best Efforts Forward Loan Sales Commitments		93		-		93		-
Mandatory Forward Loan Sales Commitments		195		-		195		-

(dollars in thousands)

Total

(Level 1)
Quoted Prices in Active Markets for Identical Assets

(Level 2)
Significant Other Observable Inputs

(Level 3)
Significant Unobservable Inputs

September 30, 2017
Assets:

Collateralized mortgage obligations $ 240,004 $ - $ 240,004 $ -
Agency mortgage-backed securities 42,802 - 42,802 -
Municipal securities 15,659 - 15,659 -
Corporate bonds 64,329 - 61,304 3,025
Asset-backed securities 13,855 - 13,855 -
Trust Preferred Securities 1,108 - - 1,108
Securities Available for Sale $ 377,757 $ - $ 373,624 $ 4,133

Mortgage Loans Held for Sale $ 41,411 $ - $ 41,411 $ -
SBA Servicing Assets 5,387 - - 5,387
Interest Rate Lock Commitments 635 - 635 -
Best Efforts Forward Loan Sales Commitments 13 - 13 -
Mandatory Forward Loan Sales Commitments 51 - 51 -

Liabilities:

Interest Rate Lock Commitments 1 - 1 -
Best Efforts Forward Loan Sales Commitments 125 - 125 -
Mandatory Forward Loan Sales Commitments 137 - 137 -

December 31, 2016
Assets:

Collateralized mortgage obligations $ 224,765 $ - $ 224,765 $ -
Agency mortgage-backed securities 36,710 - 36,710 -
Municipal securities 26,547 - 26,547 -
Corporate bonds 64,748 - 61,777 2,971
Asset-backed securities 15,149 - 15,149 -
Trust Preferred Securities 1,820 - - 1,820
Securities Available for Sale $ 369,739 $ - $ 364,948 $ 4,791

Mortgage Loans Held for Sale $ 23,911 $ - $ 23,911 $ -
SBA Servicing Assets 5,352 - - 5,352
Interest Rate Lock Commitments 439 - 439 -
Best Efforts Forward Loan Sales Commitments 103 - 103 -
Mandatory Forward Loan Sales Commitments 229 - 229 -

Liabilities:

Interest Rate Lock Commitments 55 - 55 -
Best Efforts Forward Loan Sales Commitments 125 - 125 -
Mandatory Forward Loan Sales Commitments 38 - 38 -

2827

The following table presents an analysis of the activity in the SBA servicing assets for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016:~~:

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
(dollars in thousands)	2017		2016		2017		2016		2018			2017
Beginning balance	$	5,194	$	5,118	$	5,352	$	4,886

Beginning balance, January 1st									$	5,243		$	5,352
Additions		268		503		746		1,305		320			211
Fair value adjustments		(75)		(324)		(711)		(894)		(504	)		(265	)
Ending balance	$	5,387	$	5,297	$	5,387	$	5,297
Ending balance, March 31^st									$	5,059		$	5,298

Fair value adjustments are recorded as loan ~~advisory~~ and servicing fees on the statement of income. Servicing fee income, not including fair value adjustments, totaled ~~$468,000~~$493,000 and ~~$458,000~~$433,000 for the three months ended ~~September 30,~~March 31, 2018 and 2017, respectively. Total loans in the amount of $206.5 million at March 31, 2018 and ~~2016, respectively. Servicing fee income, not including fair value adjustments, totaled $1.4~~$204.9 million ~~and $1.3 million~~at December 31, 2017 were serviced for ~~the nine months ended September 30, 2017 and 2016, respectively.~~others.

The following table presents a reconciliation of the securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:

Three Months Ended
September 30, 2017

Three Months Ended
September 30, 2016

Level 3 Investments Only
(dollars in thousands)
Trust Preferred Securities Corporate Bonds Trust Preferred Securities Corporate Bonds
Balance, July 1^st
$ 968 $ 3,079 $ 1,755 $ 2,870
Unrealized gains (losses) 140 (54 ) (62 ) 63
Paydowns - - - -
Proceeds from sales - - - -
Realized losses - - - -
Impairment charges on Level 3 - - (2 ) -
Balance, September 30th $ 1,108 $ 3,025 $ 1,691 $ 2,933

Nine Months Ended
September 30, 2017

Nine Months Ended
September 30, 2016

Level 3 Investments Only
(dollars in thousands)
Trust Preferred Securities Corporate Bonds Trust Preferred Securities Corporate Bonds
Balance, January 1st $ 1,820 $ 2,971 $ 1,883 $ 2,834
Unrealized gains (losses) 806 54 (185 ) 99
Paydowns - - - -
Proceeds from sales (970 ) - - -
Realized losses (548 ) - - -
Impairment charges on Level 3 - - (7 ) -
Balance, September 30th $ 1,108 $ 3,025 $ 1,691 $ 2,933

	Three Months Ended March 31, 2018				Three Months Ended March 31, 2017
Level 3 Investments Only (dollars in thousands)	Trust Preferred Securities		Corporate Bonds		Trust Preferred Securities		Corporate Bonds
Balance, January 1^st	$	489	$	3,086	$	1,820	$	2,971
Unrealized gains		72		4		141		53
Paydowns		-		-		-		-
Proceeds from sales		-		-		-		-
Realized gains		-		-		-		-
Impairment charges on Level 3		-		-		-		-
Balance, March 31^st	$	561	$	3,090	$	1,961	$	3,024

For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were as follows:

(dollars in thousands)	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
March 31, 2018
Impaired loans	$	6,527	$	-	$	-	$	6,527
Other real estate owned		-		-		-		-

December 31, 2017
Impaired loans	$	7,322	$	-	$	-	$	7,322
Other real estate owned		5,727		-		-		5,727

(dollars in thousands)

Total

(Level 1)
Quoted Prices in Active Markets for Identical Assets

(Level 2)
Significant Other Observable Inputs

(Level 3)
Significant Unobservable Inputs
September 30, 2017:
Impaired loans $ 7,161 $ - $ - $ 7,161
Other real estate owned 7,468 - - 7,468

December 31, 2016:
Impaired loans $ 9,110 $ - $ - $ 9,110
Other real estate owned 8,563 - - 8,563

The table below presents additional quantitative information about ~~level~~Level 3 assets measured at fair value on a nonrecurring basis (dollars in thousands):

	Quantitative Information about Level 3 Fair Value Measurements					Quantitative Information about Level 3 Fair Value Measurements
Asset Description	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
September 30, 2017
March 31, 2018
Corporate bonds	$	3,025	Discounted Cash Flows	Discount Rate	(5.57%)	$	3,090	Discounted Cash Flows	Discount Rate	(6.77%)

Trust preferred securities	$	1,108	Discounted Cash Flows	Discount Rate	7.62% - 7.85% (7.71%)
Trust preferred security						$	561	Discounted Cash Flows	Discount Rate	(7.74%)

SBA servicing assets	$	5,387	Discounted Cash Flows	Conditional Prepayment Rate	(6.70%)	$	5,059	Discounted Cash Flows	Conditional Prepayment Rate Discount Rate	(9.33%) (10.75%)
				Discount Rate	(10.25%)
Impaired loans						$	6,527	Appraised Value of Collateral (1)	Liquidation expenses (2)	10% - 30% (12%) (3)

December 31, 2017
Corporate bonds						$	3,086	Discounted Cash Flows	Discount Rate	(5.99%)

Trust preferred security						$	489	Discounted Cash Flows	Discount Rate	(8.33%)

SBA servicing assets						$	5,243	Discounted Cash Flows	Conditional Prepayment Rate Discount Rate	(7.85%) (10.50%)

Impaired loans	$	7,161	Appraised Value of Collateral (1)	Liquidation expenses (2)	10% - 28% (14%) (3)	$	7,322	Appraised Value of Collateral (1)	Liquidation expenses (2)	10% - 21% (14%) (3)

Other real estate owned	$	7,468	Appraised Value of Collateral (1)	Liquidation expenses (2)	14% - 22% (15%) (3)	$	5,727	Appraised Value of Collateral (1) Sales Price	Liquidation expenses (2) Liquidation expenses (2)	(22%) (3) 4% - 7% (7%) (3)
			Sales Price	Liquidation expenses (2)	7% - 13% (13%) (3)

December 31, 2016
Corporate bonds	$	2,971	Discounted Cash Flows	Discount Rate	(4.68%)

Trust preferred securities	$	1,820	Discounted Cash Flows	Discount Rate	8.85% - 9.35% (9.08%)

SBA servicing assets	$	5,352	Discounted Cash Flows	Conditional Prepayment Rate	(6.12%)
				Discount Rate	(10.00%)

Impaired loans	$	9,110	Appraised Value of Collateral (1)	Liquidation expenses (2)	7% - 20% (11%) (3)
			Sales Price	Liquidation expenses (2)	(7%) (3)

Other real estate owned	$	8,563	Appraised Value of Collateral (1)	Liquidation expenses (2)	5% - 76% (17%) (3)
			Sales Price	Liquidation expenses (2)	7% - 8% (7%) (3)

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which include Level 3 inputs that are not identifiable.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

(3)

The range and weighted average of qualitative factors such as economic conditions and estimated liquidation expenses are ~~presented as~~presentedas a percent of the appraised value.

The significant unobservable inputs for impaired loans and other real estate owned are the appraised value or an agreed upon sales price. These values are adjusted for estimated costs to sell which are incremental direct costs to transact a sale such as broker commissions, legal fees, closing costs and title transfer fees. The costs must be considered essential to the sale and would not have been incurred if the decision to sell had not been made. The costs to sell are based on costs associated with the ~~Company's~~Company’s actual sales of other real estate owned which are assessed annually.

Fair Value Assumptions

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the ~~Company's~~Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the ~~Company's~~Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of ~~certain assets and liabilities of~~ the ~~Company~~Company’s financial instruments at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

Cash and Cash Equivalents (Carried at Cost)

The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those ~~assets'~~assets’ fair values.

Investment Securities

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the ~~securities'~~securities’ relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, ~~management's~~management’s best estimate is used. ~~Management's~~Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) were used to support fair values of certain Level 3 investments.

The types of instruments valued based on matrix pricing in active markets include all of the ~~Company's~~Company’s U.S. government and agency securities, corporate bonds, asset backed securities, and municipal obligations. Such instruments are generally classified within Level 2 of the fair value hierarchy. As required by ASC 820-10, the Company does not adjust the matrix pricing for such instruments.

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, and may be adjusted to reflect illiquidity and/or non-transferability, with such adjustment generally based on available market evidence. In the absence of such evidence, ~~management's~~management’s best estimate is used. Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows. The Level 3 investment securities classified as available for sale are comprised of ~~various issues of~~a single trust preferred ~~securities~~security and a single corporate bond.

The trust preferred ~~securities are pools~~security is a pool of similar securities that are grouped into an asset structure commonly referred to as collateralized debt obligations ~~("CDOs"~~(“CDOs”) which consist of the debt instruments of various banks, diversified by the number of participants in the security as well as geographically. The secondary market for ~~these securities~~this security has become inactive, and therefore ~~these securities are~~this security is classified as a Level 3 ~~securities.~~security. The fair value analysis does not reflect or represent the actual terms or prices at which any party could purchase the ~~securities.~~security. There is currently a limited secondary market for the ~~securities~~security and there can be no assurance that any secondary market for the ~~securities~~security will expand.

An independent, third party pricing service is used to estimate the current fair market value of ~~each~~the CDO held in the investment securities portfolio. The calculations used to determine fair value are based on the attributes of the trust preferred ~~securities,~~security, the financial condition of the issuers of the trust preferred ~~securities,~~security, and market based assumptions. The INTEX CDO Deal Model Library was utilized to obtain information regarding the attributes of ~~each~~the security and its specific collateral as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. Financial information on the issuers was also obtained from Bloomberg, the FDIC, and SNL Financial. Both published and unpublished industry sources were utilized in estimating fair value. Such information includes ~~loan~~ prepayment speed assumptions, discount rates, default rates, and loss severity percentages.

The fair market valuation for ~~each~~the CDO was determined based on discounted cash flow analyses. The cash flows are primarily dependent on the estimated speeds at which the underlying trust preferred securities are expected to prepay, the estimated rates at which the trust preferred securities are expected to defer payments, the estimated rates at which the trust preferred securities are expected to default, and the severity of the losses on the securities that do default.

Increases (decreases) in actual or expected issuer defaults tend to decrease (increase) the fair value of ~~the Company's~~ senior and mezzanine tranches of CDOs. The ~~values~~value of the ~~Company's~~Company’s mezzanine tranches of ~~CDOs are~~the CDO is also affected by expected future interest rates. However, due to the structure of ~~each~~the security, timing of cash flows, and secondary effects on the financial performance of the underlying issuers, the effects of changes in future interest rates on the fair value of the ~~Company's~~Company’s holdings are not quantifiably estimable.

Also included in Level 3 investment securities classified as available for sale is a corporate bond ~~transferred from Level 2 in 2010~~ that is not actively traded. Impairment would depend on the repayment ability of the underlying issuer, which is assessed through a detailed quarterly review of the ~~issuer's~~issuer’s financial statements. The issuer is a ~~"well capitalized"~~“well capitalized” financial institution as defined by federal banking regulations and has demonstrated the ability to raise additional capital, when necessary, through the public capital markets. The fair value of this corporate bond is estimated by obtaining a price of a comparable floating rate debt instrument through Bloomberg.

SBA Loans Held For Sale (Carried at Lower of Cost or Fair Value)

The fair values of SBA loans held for sale is determined, when possible, using quoted secondary-market prices and are classified within Level 3 of the fair value hierarchy. If no such quoted prices exist, the fair value of a loan is determined using quoted prices for a similar loan or loans, adjusted for the specific attributes of that loan. The Company did not write down any loans held for sale during the three months ended ~~September 30, 2017~~March 31, 2018 and the year ended December 31, ~~2016.~~2017.

Mortgage Loans Held for Sale (Carried at Fair Value)

The fair value of mortgage loans held for sale is determined by obtaining prices at which they could be sold in the principal market at the measurement date and are classified within Level 2 of the fair value hierarchy. ~~In 2016,~~ Republic elected to adopt the fair value option for its mortgage loans held for sale portfolio in order to more accurately reflect their economic value. All mortgage loans held for sale originated subsequent to the election date are carried at fair value. All loans held for sale originated prior to the election date were sold prior to December 31, 2016. Interest income on loans held for sale, which totaled ~~$277,000~~$294,000 for three months ended March 31, 2018 and ~~$577,000~~$129,000 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017, ~~, respectively, and $89,000 for the three and nine months ended September 30, 2016,~~ are included in interest and fees in the statements of income.

The following table reflects the difference between the carrying amount of mortgage loans held for sale, measured at fair value and the aggregate unpaid principal amount that Republic is contractually entitled to receive at maturity as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 (dollars in thousands):

Mortgage loans held for sale
Carrying
Amount
Aggregate Unpaid Principal Balance Excess Carrying Amount Over Aggregate Unpaid Principal Balance

September 30, 2017 $ 41,411 $ 40,212 $ 1,199

December 31, 2016 $ 23,911 $ 23,428 $ 483

	Carrying Amount		Aggregate Unpaid Principal Balance		Excess Carrying Amount Over Aggregate Unpaid Principal Balance
March 31, 2018	$	19,685	$	19,019	$	666

December 31, 2017	$	43,375	$	42,046	$	1,329

Changes in the excess carrying amount over aggregate unpaid principal balance are recorded in the statement of income in mortgage banking income. Republic did not have any mortgage loans held for sale recorded at fair value that were 90 or more days past due and on non-accrual at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

Interest Rate Lock Commitments ~~("IRLC"~~(“IRLC”)

The fair value of ~~Republic's~~Republic’s IRLC instruments are based upon the underlying loans measured at fair value on a recurring basis and the probability of such commitments being exercised. Due to observable market data inputs used by Republic, IRLCs are classified within Level 2 of the valuation hierarchy.

Best Efforts Forward Loan Sales Commitments

Best efforts forward loan sales commitments are classified within Level 2 of the valuation hierarchy. Best efforts forward loan sales commitments fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market. Best efforts forward loan sales commitments are entered into for loans at the time the borrower commitment is made. These best efforts forward loan sales commitments are valued using the committed price to the counterparty against the current market price of the interest rate lock commitment or mortgage loan held for sale.

Mandatory Forward Loan Sales Commitments

Fair values for mandatory forward loan sales commitments are based on fair values of the underlying mortgage loans and the probability of such commitments being exercised. Due to the observable inputs used by Republic, best efforts mandatory loan sales commitments are classified within Level 2 of the valuation hierarchy.

~~Loans Receivable (Carried at Cost)~~

The fair values of loans receivable, excluding all nonaccrual loans and accruing loans deemed impaired with specific loan allowances, are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. ~~Due to the significant judgment involved in evaluating credit quality, loans are classified within Level 3 of the fair value hierarchy.~~

Impaired Loans (Carried at Lower of Cost or Fair Value)

Impaired loans are those that the Company has measured impairment based on the fair value of the ~~loan's~~loan’s collateral. Fair value is generally determined based upon independent third party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances less any valuation allowance. The valuation allowance amount is calculated as the difference between the recorded investment in a loan and the present value of expected future cash flows or it is calculated based on discounted collateral values if the loans are collateral dependent.

Other Real Estate Owned (Carried at Lower of Cost or Fair Value)

These assets are carried at the lower of cost or fair value. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, these assets are carried at current fair value and classified within Level 3 of the fair value hierarchy.

SBA Servicing Asset (Carried at Fair Value)

The SBA servicing asset is initially recorded when loans are sold and the servicing rights are retained and recorded on the balance sheet. An updated fair value is obtained from an independent third party on a quarterly basis and adjustments are presented as loan ~~advisory~~ and servicing fees on the statement of ~~operations.~~income. The valuation begins with the projection of future cash flows for each asset based on their unique characteristics, the ~~Company's~~Company’s market-based assumptions for prepayment speeds and estimated losses and recoveries. The present value of the future cash flows are then calculated utilizing the ~~Company's~~Company’s market-based discount ratio assumptions. In all cases, the ~~Company's~~Company’s models expected payments for every loan for each quarterly period in order to create the most detailed cash flow stream possible.

The Company uses assumptions and estimates in determining the impairment of the SBA servicing asset. These assumptions include prepayment speeds and discount rates commensurate with the risks involved and comparable to assumptions used by participants to value and bid serving rights available for sale in the market. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the sensitivity of the current fair value of the SBA loan servicing rights to immediate 10% and 20% adverse changes in key assumptions are included in the accompanying table.

(dollars in thousands)	September 30, 2017		December 31, 2016		March 31, 2018			December 31, 2017

SBA Servicing Asset

Fair Value of SBA Servicing Asset	$	5,387	$	5,352	$	5,059		$	5,243

Composition of SBA Loans Serviced for Others
Fixed-rate SBA loans		2%		0%		2	%		2	%
Adjustable-rate SBA loans		98%		100%		98	%		98	%
Total		100%		100%		100	%		100	%

Weighted Average Remaining Term		20.6 years		21.1 years	20.4 years			20.5 years

Prepayment Speed		6.70%		6.12%		9.33	%		7.85	%
Effect on fair value of a 10% increase	$	(167)	$	(161)	$	(173	)	$	(171	)
Effect on fair value of a 20% increase		(327)		(316)		(337	)		(333	)

Weighted Average Discount Rate		10.25%		10.00%		10.75	%		10.50	%
Effect on fair value of a 10% increase	$	(225)	$	(226)	$	(195	)	$	(211	)
Effect on fair value of a 20% increase		(433)		(435)		(376	)		(407	)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in value may not be linear. Also in this table, the effect of an adverse variation in a particular assumption on the value of the SBA servicing rights is calculated without changing any other assumption. While in reality, changes in one factor may magnify or counteract the effect of the change.

Restricted Stock (Carried at Cost)

The carrying amount of restricted stock approximates fair value, and considers the limited marketability of such securities. Restricted stock is classified within Level 2 of the fair value hierarchy.

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amounts of accrued interest receivable and accrued interest payable approximates fair value and are classified within Level 2 of the fair value hierarchy.

Deposit Liabilities (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. Deposit liabilities are classified within Level 2 of the fair value hierarchy.

Short-term Borrowings (Carried at Cost)

Due to their short-term nature, the carrying amounts of short-term borrowings, which include overnight borrowings, approximate their fair value. Short-term borrowings are classified within Level 2 of the fair value hierarchy.

Subordinated Debt (Carried at Cost)

Fair values of subordinated debt are estimated using discounted cash flow analysis, based on market rates currently offered on such debt with similar credit risk characteristics, terms and remaining maturity. Due to the significant judgment involved in developing the spreads used to value the subordinated debt, it is classified within Level 3 of the fair value hierarchy.

Off-Balance Sheet Financial Instruments (Disclosed at notional amounts)

Fair values for the Company's’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the ~~counterparties'~~counterparties’ credit standing.

The estimated fair values of the Company’s financial instruments at March 31, 2018 were as follows:

	Fair Value Measurements at March 31, 2018
(dollars in thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Balance Sheet Data
Financial assets:
Cash and cash equivalents	$	31,069	$	31,069	$	31,069	$	-	$	-
Investment securities available for sale		519,692		519,692		-		516,041		3,651
Investment securities held to maturity		519,295		502,591		-		502,591		-
Restricted stock		5,435		5,435		-		5,435		-
Loans held for sale		25,653		26,069		-		19,685		6,384
Loans receivable, net		1,244,262		1,209,861		-		-		1,209,861
SBA servicing assets		5,059		5,059		-		-		5,059
Accrued interest receivable		7,756		7,756		-		7,756		-
Interest rate lock commitments		634		634		-		634		-
Best efforts forward loan sales commitments		5		5		-		5		-
Mandatory forward loan sales commitments		9		9		-		9		-

Financial liabilities:
Deposits
Demand, savings and money market	$	1,994,372	$	1,994,372	$	-	$	1,994,372	$	-
Time		129,079		127,491		-		127,491		-
Short-term borrowings		93,915		93,915		-		93,915		-
Subordinated debt		11,254		8,514		-		-		8,514
Accrued interest payable		339		339		-		339		-
Interest rate lock commitments		1		1		-		1		-
Best efforts forward loan sales commitments		228		228		-		228		-
Mandatory forward loan sales commitments		148		148		-		148		-

Off-Balance Sheet Data
Commitments to extend credit		-		-		-		-		-
Standby letters-of-credit		-		-		-		-		-

The estimated fair values of the ~~Company's~~Company’s financial instruments at December 31, 2017 were as ~~follows at September 30, 2017.~~follows:

	Fair Value Measurements at December 31, 2017
(dollars in thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Balance Sheet Data
Financial assets:
Cash and cash equivalents	$	61,942	$	61,942	$	61,942	$	-	$	-
Investment securities available for sale		464,430		464,430		-		460,855		3,575
Investment securities held to maturity		472,213		463,799		-		463,799		-
Restricted stock		1,918		1,918		-		1,918		-
Loans held for sale		45,700		45,714		-		43,375		2,339
Loans receivable, net		1,153,679		1,120,305		-		-		1,120,305
SBA servicing assets		5,243		5,243		-		-		5,243
Accrued interest receivable		7,009		7,009		-		7,009		-
Interest rate lock commitments		363		363		-		363		-
Best efforts forward loan sales commitments		5		5		-		5		-
Mandatory forward loan sales commitments		19		19		-		19		-

Financial liabilities:
Deposits
Demand, savings and money market	$	1,946,558	$	1,946,558	$	-	$	1,946,558	$	-
Time		116,737		115,673		-		115,673		-
Subordinated debt		21,681		18,458		-		-		18,458
Accrued interest payable		293		293		-		293		-
Interest rate lock commitments		1		1		-		1		-
Best efforts forward loan sales commitments		93		93		-		93		-
Mandatory forward loan sales commitments		195		195		-		195		-

Off-Balance Sheet Data
Commitments to extend credit		-		-		-		-		-
Standby letters-of-credit		-		-		-		-		-

Fair Value Measurements at September 30, 2017

(dollars in thousands)
Carrying Amount
Fair
Value

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Balance Sheet Data
Financial assets:
Cash and cash equivalents $ 98,782 $ 98,782 $ 98,782 $ - $ -
Investment securities available for sale 377,757 377,757 - 373,624 4,133
Investment securities held to maturity 416,987 411,257 - 411,257 -
Restricted stock 1,678 1,678 - 1,678 -
Loans held for sale 41,711 41,711 - 41,411 300
Loans receivable, net 1,087,147 1,056,761 - - 1,056,761
SBA servicing assets 5,387 5,387 - - 5,387
Accrued interest receivable 6,340 6,340 - 6,340 -
Interest rate lock commitments 635 635 - 635 -
Best efforts forward loan sales commitments 13 13 - 13 -
Mandatory forward loan sales commitments 51 51 - 51 -

Financial liabilities:
Deposits
Demand, savings and money market $ 1,763,937 $ 1,763,937 $ - $ 1,763,937 $ -
Time 121,468 120,968 - 120,968 -
Subordinated debt 21,663 18,191 - - 18,191
Accrued interest payable 577 577 - 577 -
Interest rate lock commitments 1 1 - 1 -
Best efforts forward loan sales commitments 125 125 - 125 -
Mandatory forward loan sales commitments 137 137 - 137 -

Off-Balance Sheet Data
Commitments to extend credit - - - - -
Standby letters-of-credit - - - - -

~~The estimated fair values of the Company's financial instruments were as follows at December 31, 2016:~~

Fair Value Measurements at December 31, 2016

(dollars in thousands)
Carrying Amount
Fair
Value

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Balance Sheet Data
Financial assets:
Cash and cash equivalents $ 34,554 $ 34,554 $ 34,554 $ - $ -
Investment securities available for sale 369,739 369,739 - 364,948 4,791
Investment securities held to maturity 432,499 425,183 - 425,183 -
Restricted stock 1,366 1,366 - 1,366 -
Loans held for sale 28,065 28,267 - 23,911 4,356
Loans receivable, net 955,817 937,944 - - 937,944
SBA servicing assets 5,352 5,352 - - 5,352
Accrued interest receivable 5,497 5,497 - 5,497 -
Interest rate lock commitments 439 439 - 439 -
Best efforts forward loan sales commitments 103 103 - 103 -
Mandatory forward loan sales commitments 229 229 - 229 -

Financial liabilities:
Deposits
Demand, savings and money market $ 1,566,506 $ 1,566,506 $ - $ 1,566,506 $ -
Time 111,164 110,988 - 110,988 -
Subordinated debt 21,881 16,286 - - 16,286
Accrued interest payable 444 444 - 444 -
Interest rate lock commitments 55 55 - 55 -
Best efforts forward loan sales commitments 125 125 - 125 -
Mandatory forward loan sales commitments 38 38 - 38 -

Off-Balance Sheet Data
Commitments to extend credit - - - - -
Standby letters-of-credit - - - - -

Note 8: Changes in Accumulated Other Comprehensive ~~Loss~~Income (Loss) By Component (1)

The following table presents the changes in accumulated other comprehensive loss by component for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ and the year ended December 31, ~~2016.~~2017.

	Unrealized Gains (Losses) on Available-For-Sale Securities			Unrealized Holding Losses on Securities Transferred From Available-For-Sale To Held-To-Maturity			Total			Unrealized Gains (Losses) on Available-For-Sale Securities			Unrealized Holding Losses on Securities Transferred From Available-For-Sale To Held-To-Maturity			Total
(dollars in thousands)
Balance January 1, 2018										$	(7,150	)	$	(359	)	$	(7,509	)
Reclassification due to the adoption of ASU 2018-02											(1,562	)		(78	)		(1,640	)
Unrealized loss on securities											(5,239	)		-			(5,239	)
Amounts reclassified from accumulated other comprehensive income to net income (2)											-			31			31
Net current-period other comprehensive income (loss)											(5,239	)		31			(5,208	)
Balance March 31, 2018										$	(13,951	)	$	(406	)	$	(14,357	)

Balance January 1, 2017	$	(6,831	)	$	(463	)	$	(7,294	)	$	(6,831	)	$	(463	)	$	(7,294	)
Unrealized gain on securities		1,676			-			1,676			623			-			623
Amounts reclassified from accumulated other comprehensive income to net income (2)		39			83			122			-			27			27
Net current-period other comprehensive income		1,715			83			1,798			623			27			650
Balance September 30, 2017	$	(5,116	)	$	(380	)	$	(5,496	)
Balance March 31, 2017										$	(6,208	)	$	(436	)	$	(6,644	)

Balance January 1, 2016	$	(2,562	)	$	(603	)	$	(3,165	)
Balance January 1, 2017										$	(6,831	)	$	(463	)	$	(7,294	)
Unrealized loss on securities		2,170			-			2,170			(413	)		-			(413	)
Amounts reclassified from accumulated other comprehensive income to net income (2)		(416	)		85			(331	)		94			104			198
Net current-period other comprehensive income (loss)		1,754			85			1,839			(319	)		104			(215	)
Balance September 30, 2016	$	(808	)	$	(518	)	$	(1,326	)

Balance January 1, 2016	$	(2,562	)	$	(603	)	$	(3,165	)
Unrealized loss on securities		(3,853	)		-			(3,853	)
Amounts reclassified from accumulated other comprehensive income to net income (2)		(416	)		140			(276	)
Net current-period other comprehensive income (loss)		(4,269	)		140			(4,129	)
Balance December 31, 2016	$	(6,831	)	$	(463	)	$	(7,294	)
Balance December 31, 2017										$	(7,150	)	$	(359	)	$	(7,509	)

(1)

All amounts are net of tax. Amounts in parentheses indicate reductions to other comprehensive income.

(2)

Reclassification amounts are reported as gains on sales of investment securities, impairment losses, and amortization of net unrealized losses on the Consolidated Statement of Operations.

~~Note 9: Business Combination~~

~~Oak Mortgage Company, LLC~~

On July 28, 2016, Republic acquired all of the issued and outstanding limited liability company interests of Oak Mortgage Company, LLC ("Oak Mortgage") and, as a result, Oak Mortgage became a wholly owned subsidiary of Republic on that date. The aggregate cash purchase price paid to the Sellers for their limited liability company interests at closing was $7.1 million, $1.0 million of which was deposited in an escrow account to be disbursed one year from closing subject to adjustment for any covered indemnity claims under the Purchase Agreement. Escrow funds were disbursed in the third quarter of 2017. The purchase price was subject to certain post-closing adjustments.

In connection with the Oak Mortgage acquisition, the following table details the consideration paid, the initial estimated fair value of identifiable assets acquired and liabilities assumed as of the date of the acquisition, the subsequent adjustments to estimates, the final valuation of the fair value of identifiable assets acquired and liabilities assumed as of the date of the acquisition, and the resulting goodwill recorded (in thousands):

Consideration paid: Original Estimates Adjustments to Estimates
Final
Valuation

Cash $ 7,136 $ - $ 7,136
Equity instruments 202 - 202
Deferred additional purchase price 500 - 500

Value of consideration $ 7,838 $ - $ 7,838

Assets acquired:

Cash and cash equivalents $ 1,223 $ - $ 1,223
Loans held for sale 20,871 - 20,871
Loans receivable 1,132 - 1,132
Premises and equipment 103 - 103
Derivative assets 1,508 - 1,508
Intangible assets – non compete agreements 104 - 104
Other assets 125 - 125
Total assets 25,066 - 25,066

Liabilities assumed:

Warehouse lines of credit 19,666 - 19,666
Derivative liabilities 412 - 412
Other liabilities 2,042 119 2,161
Total liabilities 22,120 119 22,239

Net assets acquired 2,946 (119 ) 2,827

Goodwill resulting from acquisition of Oak Mortgage $ 4,892 $ 119 $ 5,011

~~As of December 31, 2016, the estimates of fair values of the assets acquired and liabilities assumed in the acquisition of Oak Mortgage were finalized.~~

The following table presents unaudited pro forma information, in thousands, as if the acquisition of Oak Mortgage by the Company had been completed on January 1, 2016. The pro forma information does not necessarily reflect the results of operations that would have occurred had Oak Mortgage been acquired by the Company at the beginning of 2016. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies or other factors.

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

Nine Months Ended
September 30, 2016

Total revenues $ 15,755
$
52,610

Net income $ 1,259 $ 4,462

Note ~~10:~~9: Goodwill and Other Intangibles

The ~~Company's~~Company completed an annual impairment test for goodwill as of July 31, 2017. Future impairment testing will be conducted each July 31, unless a triggering event occurs in the interim that would suggest impairment, in which case it would be tested as of the date of the triggering event. During the three months ended March 31, 2018 and 2017, there was no goodwill impairment recorded. There can be no assurance that future impairment assessments or tests will not result in a charge to earnings.

The Company’s goodwill and intangible assets related to the acquisition of Oak Mortgage in July 2016 is detailed below:

(dollars in thousands)	Balance December 31, 2016		Additions/ Adjustments		Amortization		Balance September 30, 2017		Amortization Period (in years)	Balance December 31, 2017		Additions/ Adjustments		Amortization		Balance March 31, 2018		Amortization Period (in years)

Goodwill	$	5,011	$	-	$	-	$	5,011	Indefinite	$	5,011	$	-	$	-	$	5,011	Indefinite
Non-compete agreements		61		-		(61)		-	1
Total	$	5,072	$	-	$	(61)	$	5,011

(dollars in thousands)	Balance December 31, 2016		Additions/ Adjustments		Amortization			Balance March 31, 2017		Amortization Period (in years)

Goodwill	$	5,011	$	-	$	-		$	5,011	Indefinite
Non-compete agreements		61		-		(26	)		35		1
Total	$	5,072	$	-	$	(26	)	$	5,046

Note ~~11:~~10: Derivatives and Risk Management Activities

Republic did not have any derivative instruments designated as hedging instruments, or subject to master netting and collateral agreements for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and the three months ended March 31, 2017. The following table summarizes the amounts recorded in ~~Republic's~~Republic’s statement of financial condition for derivatives not designated as hedging instruments as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 (in thousands):

September 30, 2017	Balance Sheet Presentation	Fair Value		Notional Amount
March 31, 2018						Balance Sheet Presentation	Fair Value		Notional Amount

Asset derivatives:

IRLC's	Other Assets	$	635	$	32,137
IRLCs						Other Assets	$	634	$	25,566
Best efforts forward loan sales commitments	Other Assets		13		4,219	Other Assets		5		615
Mandatory forward loan sales commitments	Other Assets		51		6,791	Other Assets		9		2,647

Liability derivatives:

IRLC's	Other Liabilities	$	1	$	308
IRLCs						Other Liabilities	$	1	$	412
Best efforts forward loan sales commitments	Other Liabilities		125		28,226	Other Liabilities		228		25,363
Mandatory forward loan sales commitments	Other Liabilities		137		31,509	Other Liabilities		148		16,276

December 31, 2017	Balance Sheet Presentation	Fair Value		Notional Amount

Asset derivatives:

IRLCs	Other Assets	$	363	$	16,366
Best efforts forward loan sales commitments	Other Assets		5		1,807
Mandatory forward loan sales commitments	Other Assets		19		4,566

Liability derivatives:

IRLCs	Other Liabilities	$	1	$	424
Best efforts forward loan sales commitments	Other Liabilities		93		14,983
Mandatory forward loan sales commitments	Other Liabilities		195		36,223

December 31, 2016

Balance Sheet
Presentation

Fair
Value

Notional
Amount

Asset derivatives:

IRLC's Other Assets $ 439 $ 20,792
Best efforts forward loan sales commitments Other Assets 103 8,586
Mandatory forward loan sales commitments Other Assets 229 18,373

Liability derivatives:

IRLC's Other Liabilities $ 55 $ 6,757
Best efforts forward loan sales commitments Other Liabilities 125 18,963
Mandatory forward loan sales commitments Other Liabilities 38 5,024

4038

The following ~~tables~~table summarizes the amounts recorded in ~~Republic's~~Republic’s statement of income for derivative instruments not designated as hedging instruments for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 (in thousands):

		Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
	Income Statement Presentation	Gain/(Loss)		Gain/(Loss)
Three Months Ended March 31, 2018						Income Statement Presentation	Gain/(Loss)

Asset derivatives:

IRLC's	Mortgage banking income	$	(126)	$	196
IRLCs						Mortgage banking income	$	271
Best efforts forward loan sales commitments	Mortgage banking income		(8)		(90)	Mortgage banking income		-
Mandatory forward loan sales commitments	Mortgage banking income		47		(178)	Mortgage banking income		(10	)

Liability derivatives:

IRLC's	Mortgage banking income	$	-	$	54
IRLCs						Mortgage banking income	$	-
Best efforts forward loan sales commitments	Mortgage banking income		38		-	Mortgage banking income		(135	)
Mandatory forward loan sales commitments	Mortgage banking income		12		(99)	Mortgage banking income		47

Three and Nine Months Ended September 30, 2016	Income Statement Presentation	Gain/(Loss)
Three Months Ended March 31, 2017					Income Statement Presentation	Gain/(Loss)

Asset derivatives:

IRLC's	Mortgage banking income		$	(454)
IRLCs					Mortgage banking income	$	392
Best efforts forward loan sales commitments	Mortgage banking income			(26)	Mortgage banking income		(100	)
Mandatory forward loan sales commitments	Mortgage banking income			-	Mortgage banking income		(221	)

Liability derivatives:

IRLC's	Mortgage banking income		$	14
IRLCs					Mortgage banking income	$	48
Best efforts forward loan sales commitments	Mortgage banking income			11	Mortgage banking income		(145	)
Mandatory forward loan sales commitments	Mortgage banking income			(294)	Mortgage banking income		(87	)

The fair value of ~~Republic's~~Republic’s IRLCs, best efforts forward loan sales commitments, and mandatory forward loan sales commitments are based upon the estimated value of the underlying mortgage loan (determined consistent with ~~"Loans~~“Loans Held for ~~Sale"~~Sale”), adjusted for (1) estimated costs to complete and originate the loan, and (2) the estimated percentage of IRLCs that will result in a closed mortgage loan. The valuation of the IRLCs issued by Republic includes the value of the servicing released premium. Republic sells loans servicing released, and the servicing released premium is included in the market price.

Note 11: Revenue Recognition

On January 1, 2018, the Company adopted ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. As stated in Note 2 Summary of Significant Accounting Policies, the implementation of the new standard did not have a material impact on the measurement of recognition of revenue. Management determined that a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

4139

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain non-interest income streams such as gains on sales of residential mortgage and SBA loans, income associated with servicing assets, and loan fees, including residential mortgage originations to be sold and prepayment and late fees charged across all loan categories are also not in scope of the new guidance. Topic 606 is applicable to non-interest revenue streams such as service charges on deposit accounts. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Non-interest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), ATM fees, NSF fees, and other deposit related fees.

The Company’s performance obligation for account analysis fees and monthly services fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided, which is typically one month. Revenue is recognized at month end after the completion of the service period and payment for these service charges on deposit accounts is primarily received through a direct charge to customers’ accounts.

ATM fees, NSF fees, and other deposit related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and the related revenue recognized, at a point in time. Payment for these service charges are received immediately through a direct charge to customers’ accounts.

For the Company, there are no other material revenue streams within the scope of Topic 606.

The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2018 and 2017.

	Three Months Ended March 31,
(dollars in thousands)	2018		2017
Non-interest income
In-scope of Topic 606
Service charges on deposit accounts	$	1,175	$	846
Other non-interest income		35		46
Non-interest income (in-scope of Topic 606)		1,210		892
Non-interest income (out-of-scope of Topic 606)		3,325		3,446
Total non-interest income	$	4,535	$	4,338

Contract Balances

A contract assets balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s non-interest revenue streams are largely based on transaction activity, or standard month-end revenue accruals. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term contracts with customers, and therefore, does not experience significant contract balances. As of March 31, 2018 and December 31, 2017, the Company did not have any significant contract balances.

Contract Acquisition Costs

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize as an expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the assets that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.

ITEM 2: ~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is ~~management's~~management’s discussion and analysis of our financial condition, changes in financial condition, and results of operations in the accompanying consolidated financial statements. This discussion should be read in conjunction with the accompanying notes to the consolidated financial statements.

We may from time to time make written or oral "forward-looking statements", including statements contained in this ~~presentation.~~quarterly report. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For example, risks and uncertainties can arise with changes in: general economic conditions, including turmoil in the financial markets and related efforts of government agencies to stabilize the financial system; the adequacy of our allowance for loan losses and our methodology for determining such allowance; adverse changes in our loan portfolio and credit risk-related losses and expenses; concentrations within our loan portfolio, including our exposure to commercial real estate loans, and to our primary service area; changes in interest rates; our ability to identify, negotiate, secure and develop new store locations and renew, modify, or terminate leases or dispose of properties for existing store locations effectively; business conditions in the financial services industry, including competitive pressure among financial services companies, new service and product offerings by competitors, price pressures and similar items; deposit flows; loan demand; the regulatory environment, including evolving banking industry standards, changes in legislation or regulation; impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act; our securities portfolio and the valuation of our securities; accounting principles, policies and guidelines as well as estimates and assumptions used in the preparation of our financial statements; rapidly changing technology; litigation liabilities, including costs, expenses, settlements and judgments; and other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services. You should carefully review the risk factors described in the Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 and other documents we file from time to time with the Securities and Exchange Commission. The words "would be," "could be," "should be," "probability," "risk," "target," "objective," "may," "will," "estimate," "project," "believe," "intend," "anticipate," "plan," "seek," "expect" and similar expressions or variations on such expressions are intended to identify forward-looking statements. All such statements are made in good faith by us pursuant to the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of us, except as may be required by applicable law or regulations.

Regulatory Reform and Legislation

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the ~~"Dodd-Frank Act"~~“Dodd-Frank Act”) has ~~and will continue to have~~had a broad impact on the financial services industry, including significant regulatory and compliance changes including, among other things, (i) enhanced resolution authority of troubled and failing banks and their holding companies; (ii) increased capital and liquidity requirements; (iii) increased regulatory examination fees; (iv) changes to assessments to be paid to the FDIC for federal deposit insurance; and (v) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector. Additionally, the Dodd-Frank Act ~~establishes~~established a new framework for systemic risk oversight within the financial system to be distributed among new and existing federal regulatory agencies, including the Financial Stability Oversight Council, the Consumer Financial Protection Bureau, the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC. A summary of certain provisions of the Dodd-Frank Act is set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2017. For information regarding our updated capital requirements, see ~~"Regulatory Matters"~~“Regulatory Matters” below.

4241

Financial Condition

Assets

Total assets increased by ~~$217.6~~$149.1 million ~~or 11.3%,~~ to ~~$2.1~~$2.5 billion at ~~September 30, 2017,~~March 31, 2018, compared to ~~$1.9~~$2.3 billion at December 31, ~~2016 as a result of the continued branding success with "The Power of Red is Back" growth and expansion strategy.~~2017.

Cash and Cash Equivalents

Cash and due from banks and interest bearing deposits ~~with banks~~ comprise this category, which consists of our most liquid assets. The aggregate amount inof these ~~three~~two categories ~~increased~~decreased by ~~$64.2~~$30.9 million to ~~$98.8~~$31.1 million at ~~September 30, 2017 compared to $34.6~~March 31, 2018, from $61.9 million at December 31, ~~2016. The increase in cash was primarily driven by the increase in deposit balances during the period ended September 30,~~ 2017.

Loans Held for Sale

Loans held for sale are comprised of loans guaranteed by the U.S. Small Business Administration ~~("SBA"~~(“SBA”) which we usually originate with the intention of selling in the future and residential mortgage loans originated ~~by Republic's subsidiary, Oak Mortgage Company,~~ which we also intend to sell in the future. Total SBA loans held for sale were ~~$300,000~~$6.0 million at ~~September 30, 2017~~March 31, 2018 as compared to ~~$4.2~~$2.3 million at December 31, ~~2016.~~2017. Residential mortgage loans held for sale ~~totaled $41.4~~were $19.7 million at ~~September 30, 2017~~March 31, 2018 compared to ~~$23.9~~$43.4 million at December 31, ~~2016.~~2017. The ~~increase~~decrease in ~~the balance of~~ residential mortgage loans held for sale was ~~driven by an increase in~~ the ~~volume~~result of extended timing of sales related to loans originated ~~along with the timing of closings which pushed a number of sales into~~during the fourth ~~quarter.~~quarter of 2017. Loans held for sale, as a percentage of total Company assets, were ~~1.9%~~1% at ~~September 30, 2017.~~March 31, 2018.

Loans Receivable

The loan portfolio represents our largest asset category and is our most significant source of interest income. Our lending strategy is focused on small and medium sized businesses and professionals that seek highly personalized banking services. The loan portfolio consists of secured and unsecured commercial loans including commercial real estate, construction loans, residential mortgages, home improvement loans, home equity loans and lines of credit, overdraft lines of credit, and others. Commercial loans typically range between $250,000 and $5,000,000 but customers may borrow significantly larger amounts up to our legal lending limit to a customer, which was approximately ~~$27.0~~$28.5 million at ~~September 30, 2017.~~March 31, 2018. Loans made to one individual customer, even if secured by different collateral, are aggregated for purposes of the lending limit.

Loans ~~receivable~~ increased ~~$130.4~~$90.6 million, or ~~13.5%~~8%, to ~~$1.1~~$1.25 billion at ~~September 30, 2017,~~March 31, 2018, versus ~~$965.0 million~~$1.16 billion at December 31, ~~2016.~~2017. This growth was the result of an increase in loan demand ~~in residential mortgage, commercial real estate, construction and development, owner occupied real estate, and consumer~~across all categories driven by the successful execution of our relationship banking strategy which focuses on customer service.

Investment Securities

Investment securities considered available-for-sale are investments that may be sold in response to changing market and interest rate conditions, and for liquidity and other purposes. Our investment securities classified as available-for-sale consist primarily of U.S. Government agency collateralized mortgage obligations ~~(CMO)~~(“CMO”), agency mortgage-backed securities ~~(MBS)~~(“MBS”), municipal securities, corporate bonds, asset-backed securities ~~(ABS)~~(“ABS”), and pooled trust preferred securities ~~(CDO)~~(“CDO”). Available-for-sale securities totaled ~~$377.8~~$519.7 million at ~~September 30, 2017,~~March 31, 2018, compared to ~~$369.7~~$464.4 million at December 31, ~~2016.~~2017. The increase was primarily due to the purchase of securities totaling ~~$53.1~~$75.1 million, partially offset by ~~the sales and~~ paydowns of securities ~~held in the portfolio~~ totaling ~~$46.8~~$12.7 million during the first ~~nine~~three months of ~~2017.~~2018. At ~~September 30, 2017,~~March 31, 2018, the portfolio had a net unrealized loss of ~~$8.0~~$17.9 million compared to a net unrealized loss of ~~$10.7~~$11.2 million at December 31, ~~2016.~~2017. The change in value of the investment portfolio was driven by ~~a decrease~~an increase in market interest rates which drove ~~an increase~~a decrease in ~~the fair~~ value of the ~~bonds~~securities held in our portfolio during the first ~~nine~~three months of ~~2017.~~2018.

Investment securities held-to-maturity are investments for which there is the intent and ability to hold the investment to maturity. These investments are carried at amortized cost. The held-to-maturity portfolio consists primarily of U.S. Government agency Small Business Investment Company bonds ~~(SBIC)~~(“SBIC”) and Small Business Administration ~~(SBA)~~(“SBA”) bonds, ~~CMO's~~CMOs and ~~MBS's.~~ TheMBSs. The fair value of securities held-to-maturity totaled ~~$411.3~~$502.6 million and ~~$425.2~~$463.8 million at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. The ~~decrease~~increase was primarily due to the ~~receipt~~purchase of ~~principal payments on CMO and MBS~~securities totaling $61.1 million partially offset by paydowns of securities held in the portfolio totaling ~~$36.6 million partially offset by the purchase of securities totaling $22.0~~$13.7 million during the first ~~nine~~three months of ~~2017.~~2018.

Restricted Stock

Restricted stock, which represents a required investment in the capital stock of correspondent banks related to available credit facilities, is carried at cost as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. As of those dates, restricted stock consisted of investments in the capital stock of the Federal Home Loan Bank of Pittsburgh ~~("FHLB"~~(“FHLB”) and Atlantic Community Bankers Bank ~~("ACBB"~~(“ACBB”).

At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the investment in FHLB of Pittsburgh capital stock totaled ~~$1.5~~$5.3 million and ~~$1.2~~$1.8 million, respectively. The increase was due to a higher required investment in FHLB stock during ~~2017.~~the first three months of 2018. At both ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, ACBB capital stock totaled $143,000. Both the FHLB and ACBB issued dividend payments during the ~~nine months~~first quarter of ~~2017.~~2018.

Other Real Estate Owned

The balance of other real estate owned ~~decreased to $9.2~~was $7.0 million at ~~September 30, 2017 from $10.2 million at~~March 31, 2018 and December 31, ~~2016,~~ ~~primarily due to writedowns in the amount of $777,000 and sales totaling $357,000 on existing foreclosed properties during the nine months ended September 30, 2017.~~2017, respectively.

Goodwill

Goodwill ~~resulting from the acquisition of Oak Mortgage in July 2016~~ amounted to $5.0 million at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. All goodwill was allocated to Oak Mortgage (“the Reporting Unit”) as of March 31, 2018 and December 31, 2017, respectively.

Goodwill is reviewed for impairment annually as of July 31 and between annual tests when events and circumstances indicate that impairment may have occurred. Impairment is a condition that exists when the carrying amount of goodwill exceeds its implied fair value. As of July 31, 2017, the fair value of the Reporting Unit exceeded its carrying value by 11%. The determination of the fair value of the Reporting Unit incorporates assumptions that marketplace participants would use in their estimates of fair value of the Reporting Unit in a change of control transaction, as prescribed by ASC Topic 820.

To arrive at a conclusion of fair value, we utilize both the Income and Market Approach and then apply weighting factors to each result. Weighting factors represent our best business judgment of the weightings a market participant would utilize in arriving at a fair value for the reporting unit. In performing our analyses, we also made numerous assumptions with respect to industry performance, business, economic and market conditions and various other matters, many of which cannot be predicted and are beyond our control. With respect to financial projections, projections reflect the best currently available estimates and judgments as to the expected future financial performance of the Reporting Unit.

Premises and Equipment

The balance of premises and equipment increased to $77.2 million at March 31, 2018 from $74.9 million at December 31, 2017. The increase was primarily due to premises and equipment expenditures of $3.6 million less depreciation and amortization expenses of $1.4 million during the first quarter of 2018. A new store was opened in Fairless Hills, PA in early 2018 bringing the total store count to twenty-three. Ground has been broken on sites in Gloucester Township and Lumberton in NJ and are expected to be completed by mid-year. There are also several additional sites in various stages of development for future store locations.

Deposits

Deposits, which include non-interest and interest-bearing demand deposits, money market, savings and time deposits, are ~~Republic's~~Republic’s major source of funding. Deposits are generally solicited from our market area through the offering of a variety of products to attract and retain customers, with a primary focus on multi-product relationships.

Total deposits increased by ~~$207.7~~$60.2 million ~~or 12.4%,~~ to ~~$1.9~~$2.12 billion at ~~September 30, 2017~~March 31, 2018 from ~~$1.7~~$2.06 billion at December 31, ~~2016.~~2017. The increase was the result of growth across all deposit categories, led by significant accumulation in demand deposit ~~balances and time deposit balances partially offset by decreases in money market and savings~~ balances. We constantly focus our efforts on the growth of deposit balances through the successful execution of our relationship banking model which is based upon a high level of customer service and satisfaction. We are also in the midst of an aggressive expansion and relocation plan which we refer to as ~~"The~~“The Power of Red is ~~Back"~~Back”. Over the last ~~three~~four years, we have opened ~~eleven~~twelve new store locations and have several more in various stages of construction and development. This strategy has also allowed us to build a stable core-deposit base and nearly eliminate our dependence upon the more volatile sources of funding found in brokered and ~~public fund~~internet based certificates of deposit.

Short-term Borrowings

As of March 31, 2018, there were $93.9 million in short-term borrowings from FHLB compared to $0 at December 31, 2017.

~~Shareholders'~~

Shareholders’ Equity

Total ~~shareholders'~~shareholders’ equity increased ~~$10.1~~$7.6 million to ~~$225.2~~$234.1 million at ~~September 30, 2017~~March 31, 2018 compared to ~~$215.1~~$226.5 million at December 31, ~~2016.~~2017. The increase was primarily due to the conversion of outstanding trust preferred securities during the first quarter. $10.1 million of trust preferred securities were converted into 1.6 million shares of common stock. The change in shareholders’ equity was also driven by net income of ~~$6.2~~$1.8 million recognized during the first ~~nine~~three months of ~~2017, an increase of $2.2 million related to the issuance of stock based compensation,~~2018 and stock option exercises ~~and securities conversion, and the reduction~~of $430,000, partially offset by a $5.2 million increase in accumulated other comprehensive losses associated with ~~an increase~~a decrease in the market value of the investment securities portfolio. The shift in market value of the securities portfolio ~~resulting in accumulated other comprehensive losses of $5.5 million at September 30, 2017 compared to accumulated other comprehensive losses of $7.3 million at December 31, 2016~~ was primarily driven by ~~a decrease~~an increase in market interest rates which drove ~~an increase~~a decrease in ~~the fair~~ value of the securities held in our portfolio.

Results of Operations

Three Months Ended ~~September 30, 2017~~March 31, 2018 Compared to Three Months Ended ~~September~~30~~, 2016~~March 31, 2017

We reported net income of ~~$2.3 million, or $0.04 per diluted share, for the three months ended September 30, 2017, compared to net income of $1.3~~$1.8 million or $0.03 per diluted share, for the three ~~months~~month periods ended ~~September 30, 2016. The increase in net income was primarily driven by growth in interest-earning assets along with the addition of a residential mortgage lending division.~~

March 31, 2018 and March 31, 2017.

Net interest income was $18.1 million for the three month period ended ~~September 30, 2017 was $15.7 million~~March 31, 2018 compared to ~~$11.8~~$14.2 million for the three months ended ~~September 30, 2016.~~March 31, 2017. Interest income increased ~~$4.3~~$4.7 million, or ~~32%~~29.1%, due to ~~$17.9 million for the three months ended September 30, 2017 compared to $13.6 million for the three months ended September 30, 2016 primarily as a~~ ~~result of a $288.1 million~~an increase in average loans receivable and investment securities ~~balances and a $149.8 million increase in average loan~~ balances. Interest expense increased ~~$376,000~~$815,000, or ~~21%~~41.4%, ~~to $2.2 million for the three months ended September 30, 2017 compared to $1.8 million for the three months ended September 30, 2016. This increase was~~ primarily due to an increase in average ~~deposit~~deposits balances.

We did not record a provision for loan losses for the three months ended September 30, 2017. We recorded a provision for loan losses in the amount of $607,000 for the three months ended September 30, 2016 primarily due to an increase in the allowance required for loans individually evaluated for impairment.

Non-interest income increased by $636,000 to $5.8 million during the three months ended September 30, 2017 compared to $5.1 million during the three months ended September 30, 2016. The increase during the three months ended September 30, 2017 was primarily due increases in mortgage banking income, service fees on deposit accounts, and loan advisory and service fees partially offset by a decrease in the gain on sale of SBA loans.

Non-interest expenses increased by $4.2 million to $19.2 million during the three months ended September 30, 2017 compared to $15.0 million during the three months ended September 30, 2016. This increase was primarily driven by higher salaries, employee benefits, occupancy expenses associated with the addition of new stores related to our expansion strategy which we refer to as "The Power of Red is Back", as well as the addition of the Oak Mortgage residential mortgage lending team in the third quarter of 2016.

Return on average assets and average equity was 0.45% and 4.11%, respectively, during the three months ended September 30, 2017 compared to 0.32% and 4.49%, respectively, for the three months ended September 30, 2016.

~~Nine Months Ended September 30, 2017 compared to September 30, 2016~~

We reported net income of $6.2 million, or $0.11 per diluted share, for the nine months ended September 30, 2017 compared to net income of $3.4 million, or $0.09 per diluted share, for the nine months ended September 30, 2016. The increase in net income was primarily driven by growth in interest-earning assets along with the addition of a residential mortgage lending division.

Net interest income for the nine months ended September 30, 2017 increased $10.5 million to $45.2 million as compared to $34.7 million for the nine months ended September 30, 2016. Interest income increased $11.8 million, or 30%, due primarily to increases in average investment securities balances and average loan balances. Interest expense increased $1.3 million or 27%, to $6.2 million for the nine months ended September 30, 2017 compared to $4.9 million for the nine months ended September 30, 2016. This increase was primarily due to an increase in average interest bearing deposits.

We recorded a provision for loan losses of ~~$500,000~~$400,000 for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to no provision for loan losses at March 31, 2017. This was primarily due to an increase in the allowance required for loans collectively evaluated for impairment driven by an increase in ~~total~~ loans outstanding. We recorded a provision for loan losses of $1.6 million for the nine months ended September 30, 2016 primarily due to an increase in the allowance required for loans individually evaluated for impairment.

receivable.

Non-interest income increased by ~~$4.5 million~~$197,000 to ~~$15.1~~$4.5 million during the ~~nine~~three months ended ~~September 30, 2017 as~~March 31, 2018 compared to ~~$10.6~~$4.3 million during the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. The increase during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was primarily due to increases in ~~mortgage banking income,~~ service fees on deposit accounts and gains on sales of SBA loans offset by decreases in mortgage banking income and loan advisory and servicing ~~fees partially offset by decreases in the gain on the sale of SBA loans and the gain (loss) on the sale of securities.~~

fees.

Non-interest expenses increased ~~$13.3~~$3.3 million to ~~$53.7~~$20.1 million during the ~~nine~~three months ended ~~September 30, 2017 as~~March 31, 2018 compared to ~~$40.3~~$16.8 million during the ~~nine~~three months ended ~~September 30, 2016. The~~March 31, 2017. This increase was primarily driven by higher salaries, employee benefits, occupancy and ~~occupancy~~equipment expenses associated with the addition of new stores related to our expansion strategy which we refer to as ~~"The~~“The Power of Red is ~~Back", as well as,~~Back”. Annual merit increases also contributed to the ~~addition~~increase in salaries and employee benefit costs.

Provision for income taxes increased $406,000 to $372,000 during the three months ended March 31, 2018 compared to a $34,000 benefit for income taxes during the three months ended March 31, 2017. The amount recorded during the first quarter of 2018 is a normalized provision reflective of the ~~Oak Mortgage residential mortgage lending team~~new corporate tax rate included in the ~~third~~Tax Cuts and Jobs Act of 2017. The benefit for income taxes recognized during the first quarter of ~~2016.~~

2017 was driven by an adjustment to the deferred tax asset valuation allowance that had been recorded in previous years. This valuation allowance was reversed during the fourth quarter of 2017.

Return on average assets and average equity from continuing operations ~~were 0.41%~~was 0.30% and ~~3.74%~~3.19%, respectively, during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to ~~0.30%~~0.37% and ~~3.93%~~3.35%, respectively, for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017.

4645

Analysis of Net Interest Income

Historically, our earnings have depended primarily upon ~~Republic's~~Republic’s net interest income, which is the difference between interest earned on interest‑earning assets and interest paid on interest‑bearing liabilities. Net interest income is affected by changes in the mix of the volume and rates of interest‑earning assets and interest‑bearing liabilities. The following table provides an analysis of net interest income on an annualized basis, setting forth for the ~~periods' (i)~~periods average assets, liabilities, and ~~shareholders'~~shareholders’ equity, ~~(ii)~~ interest income earned on ~~interest‑earning~~interest-earning assets and interest expense on ~~interest‑bearing~~interest-bearing liabilities, ~~(iii) annualized~~ average yields earned on ~~interest‑earning~~interest-earning assets and average rates on ~~interest‑bearing~~interest-bearing liabilities, and ~~(iv) Republic's annualized~~Republic’s net interest margin (net interest income as a percentage of average total ~~interest‑earning~~interest-earning assets). Averages are computed based on daily balances. Non-accrual loans are included in average loans receivable. ~~All yields~~Yields are adjusted for tax equivalency, a non-GAAP ~~measure.~~

~~Average Balances~~measure, using a rate of 21% in 2018 and ~~Net Interest Income~~

For the three months ended
September 30, 2017

For the three months ended
September 30, 2016

(dollars in thousands)
Average Balance Interest
Yield/
Rate⁽¹⁾
Average Balance Interest
Yield/
Rate⁽¹⁾

Interest-earning assets:
Federal funds sold and other interest-earning assets $ 56,316 $ 181 1.28 % $ 114,260 $ 149 0.52 %
Investment securities and restricted stock 765,678 4,805 2.51 % 477,601 2,858 2.39 %
Loans receivable 1,115,920 13,136 4.67 % 966,106 10,848 4.47 %
Total interest-earning assets 1,937,914 18,122 3.71 % 1,557,967 13,855 3.54 %

Other assets 122,513 103,826

Total assets $ 2,060,427 $ 1,661,793

Interest-earning liabilities:
Demand – non-interest bearing $ 381,380 $ 282,571
Demand – interest bearing 692,423 772 0.44 % 533,222 553 0.41 %
Money market & savings 613,506 788 0.51 % 583,256 677 0.46 %
Time deposits 109,878 312 1.13 % 104,701 301 1.14 %
Total deposits 1,797,187 1,872 0.41 % 1,503,750 1,531 0.41 %

Total interest-bearing deposits 1,415,807 1,872 0.52 % 1,221,179 1,531 0.50 %

Other borrowings 30,220 338 4.44 % 29,938 303 4.03 %

Total interest-bearing liabilities 1,446,027 2,210 0.61 % 1,251,117 1,834 0.58 %

Total deposits and other borrowings 1,827,407 2,210 0.48 % 1,533,688 1,834 0.48 %

Non-interest-bearing other liabilities 9,179 9,247
Shareholders' equity 223,841 118,858

Total liabilities and shareholders' equity $ 2,060,427 $ 1,661,793
Net interest income ⁽²⁾
$ 15,912 $ 12,021
Net interest spread 3.10 % 2.96 %

Net interest margin ⁽²⁾
3.26 % 3.07 %

⁽¹⁾~~Yields on investments are calculated based on amortized cost.~~

⁽²⁾Net interest income and net interest margin are presented on a tax equivalent basis, a non-GAAP measure. Net interest income has been increased over the financial statement amount by $200 and $235 for the three months ended September 30, 2017 and 2016, respectively, to adjust for tax equivalency. The tax equivalent net interest margin is calculated by dividing tax equivalent net interest income by average total interest earning assets.

4735% in 2017.

Average Balances and Net Interest Income

	For the nine months ended September 30, 2017							For the nine months ended September 30, 2016							For the three months ended March 31, 2018							For the three months ended March 31, 2017
(dollars in thousands)	Average Balance		Interest		Yield/ Rate⁽¹⁾			Average Balance		Interest		Yield/ Rate⁽¹⁾			Average Balance		Interest Income/ Expense		Yield/ Rate⁽¹⁾			Average Balance		Interest Income/ Expense		Yield/ Rate⁽¹⁾
Interest-earning assets:
Federal funds sold and other interest-earning assets	$	36,431	$	312		1.15	%	$	78,094	$	299		0.51	%	$	40,425	$	172		1.73	%	$	23,929	$	61		1.03	%
Investment securities and restricted stock		785,121		14,850		2.52	%		458,496		8,615		2.51	%		1,015,605		6,487		2.55	%		808,029		5,032		2.49	%
Loans receivable		1,063,581		36,944		4.64	%		925,110		31,339		4.53	%		1,235,124		14,365		4.72	%		1,008,329		11,338		4.56	%
Total interest-earning assets		1,885,133		52,106		3.70	%		1,461,700		40,253		3.68	%		2,291,154		21,024		3.72	%		1,840,287		16,431		3.62	%

Other assets		112,018							95,054							127,001							101,820

Total assets	$	1,997,151						$	1,556,754						$	2,418,155						$	1,942,107

Interest-earning liabilities:
Demand – non-interest bearing	$	355,432						$	270,503						$	431,234						$	329,015
Demand – interest bearing		657,722		2,075		0.42	%		476,134		1,471		0.41	%		893,530		1,257		0.57	%		620,090		608		0.40	%
Money market & savings		607,822		2,218		0.49	%		572,347		1,923		0.45	%		687,818		972		0.57	%		607,181		698		0.47	%
Time deposits		107,881		903		1.12	%		82,738		625		1.01	%		129,897		369		1.15	%		107,923		296		1.11	%
Total deposits		1,728,857		5,196		0.40	%		1,401,722		4,019		0.38	%		2,142,479		2,598		0.49	%		1,664,209		1,602		0.39	%

Total interest-bearing deposits		1,373,425		5,196		0.51	%		1,131,219		4,019		0.47	%		1,711,245		2,598		0.62	%		1,335,194		1,602		0.49	%

Other borrowings		39,408		1,046		3.55	%		29,947		898		4.01	%		40,552		185		1.85	%		53,138		366		2.79	%

Total interest-bearing liabilities		1,412,833		6,242		0.59	%		1,161,166		4,917		0.57	%		1,751,797		2,783		0.64	%		1,388,332		1,968		0.57	%

Total deposits and other borrowings		1,768,265		6,242		0.47	%		1,431,669		4,917		0.46	%		2,183,031		2,783		0.52	%		1,717,347		1,968		0.46	%

Non-interest-bearing other liabilities		8,628							7,957
Shareholders' equity		220,258							117,128

Total liabilities and shareholders' equity	$	1,997,151						$	1,556,754
Non interest-bearing other liabilities																9,540							8,295
Shareholders’ equity																225,584							216,465
Total liabilities and shareholders’ equity															$	2,418,155						$	1,942,107
Net interest income ⁽²⁾			$	45,864						$	35,336						$	18,241						$	14,463
Net interest spread						3.11	%						3.11	%						3.08	%						3.05	%

Net interest margin ⁽²⁾						3.25	%						3.23	%						3.23	%						3.19	%

⁽¹⁾Yields on investments are calculated based on amortized cost.

⁽²⁾Net interest income and net interest margin are presented on a tax equivalent basis, a non-GAAP measure. Net interest income has been increased over the financial statement amount by ~~$666~~$125 and ~~$662~~$244 for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively, to adjust for tax equivalency. The tax equivalent net interest margin is calculated by dividing tax equivalent net interest income by average total interest earning assets.

4846

Rate/Volume Analysis of Changes in Net Interest Income

Net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. The following table sets forth an analysis of volume and rate changes in net interest income for the ~~three and nine months ended September 30, 2017, as compared to the three and nine months ended September 30, 2016.~~periods indicated. For purposes of this table, changes in tax-equivalent interest income and expense are allocated to volume and rate categories based upon the respective changes in average balances and average rates.

	For the three months ended September 30, 2017 vs. 2016								For the nine months ended September 30, 2017 vs. 2016							For the three months ended March 31, 2018 vs. 2017
	Changes due to:								Changes due to:							Changes due to:
(dollars in thousands)	Average Volume			Average Rate			Total Change		Average Volume			Average Rate		Total Change		Average Volume			Average Rate			Total Change
Interest earned:
Federal funds sold and other interest-earning assets	$	(191	)	$	223		$	32	$	(358	)	$	371	$	13	$	70		$	41		$	111
Securities		1,804			143			1,947		6,178			57		6,235		1,327			128			1,455
Loans		1,652			636			2,288		4,651			954		5,605		2,548			479			3,027
Total interest-earning assets		3,265			1,002			4,267		10,471			1,382		11,853		3,945			648			4,593

Interest expense:
Deposits
Interest-bearing demand deposits		181			38			219		573			31		604		385			264			649
Money market and savings		32			79			111		115			180		295		115			159			274
Time deposits		16			(5	)		11		211			67		278		62			11			73
Total deposit interest expense		229			112			341		899			278		1,177		562			434			996
Other borrowings		(4	)		39			35		43			105		148		(58	)		(123	)		(181	)
Total interest expense		225			151			376		942			383		1,325		504			311			815
Net interest income	$	3,040		$	851		$	3,891	$	9,529		$	999	$	10,528	$	3,441		$	337		$	3,778

Net Interest Income and Net Interest Margin

Net interest income, on a fully tax-equivalent basis, a non-GAAP measure, for the first three months ~~ended September 30, 2017~~of 2018 increased ~~by $3.9~~$3.8 million, or ~~32%~~26.1%, over the same period in ~~2016.~~2017. Interest income ~~on a fully tax-equivalent basis,~~ on interest-earning assets totaled ~~$18.1~~$21.0 million and ~~$13.9~~$16.4 million for the first three months ~~ended September 30,~~of 2018 and 2017, and 2016, respectively. The increase in interest income was the result of a $288.1 million increase in average investment securities balances and a $149.8 million increase in average loan balances for the three months ended September 30, 2017 as compared to September 30, 2016. Total interest expense for the three months ended September 30, 2017 increased $376,000, or 21%, to $2.2 million from $1.8 million over the same period in 2016. Interest expense on deposits for the three months ended September 30, 2017 increased by $341,000, or 23%, over the same period in 2016.

Net interest income, on a fully tax-equivalent basis, for the nine months ended September 30, 2017 increased by $10.5 million, or 30%, over the same period in 2016. Interest income on a fully tax-equivalent basis, on interest-earning assets totaled $52.1 million and $40.3 million for the nine months ended September 30, 2017 and 2016, respectively. The increase in interest income earned was primarily the result of ~~a $326.6 million~~an increase in the average balances of loans receivable and investment ~~securities balances and a $138.5 million increase in average loan balances for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.~~ securities. Total interest expense for the ~~nine~~first three months ~~ended September 30, 2017~~of 2018 increased ~~$1.3 million,~~by $815,000, or ~~27%~~41.4%, to ~~$6.2~~$2.8 million from ~~$4.9~~$2.0 million ~~over~~for the first three months of 2017. Interest expense on deposits increased by $996,000, or 62.2%, for the first three months of 2018 versus the same period in ~~2016.~~2017. Interest expense on ~~deposits~~other borrowings decreased by $181,000 for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 as compared to March 31, 2017 ~~increased by $1.2 million, or 29%, over~~due to the ~~same period~~fact that no interest expense was incurred on the subordinated debt issue that converted to common stock in ~~2016.~~

492018.

Changes in net interest income are frequently measured by two statistics: net interest rate spread and net interest margin. Net interest rate spread is the difference between the average rate earned on interest-earning assets and the average rate incurred on interest-bearing liabilities. Our net interest rate spread on a fully tax-equivalent basis was ~~3.10%~~3.08% during the first three months ~~ended September 30, 2017~~of 2018 compared to ~~2.96%~~3.05% during the ~~same period in 2016 and was 3.11% during both the nine~~first three months ~~ended September 30, 2017 and the nine months ended September 30, 2016.~~of 2017. Net interest margin represents the difference between interest income, including net loan fees earned, and interest expense, reflected as a percentage of average interest-earning assets. ~~The fully tax-equivalent net interest margin increased to 3.26% for~~For the first three months ~~ended September 30, 2017 from 3.07% for the same period in 2016 primarily as a result~~ of ~~an increase in the yield on loans outstanding. For the nine months ended September 30,~~2018 and 2017, the fully tax-equivalent net interest margin was 3.23% and 3.19%, respectively. The net interest margin for the three months ending March 31, 2018 increased primarily due to ~~3.25% from 3.23% during the same period in 2016 primarily as~~ a ~~result of an~~$226.8 million increase in ~~the yield on~~average loans ~~outstanding.~~receivable and a $207.6 million increase in average investment securities.

Provision for Loan Losses

~~The~~We recorded a provision of $400,000 for ~~loan losses is charged to operations in an amount necessary to bring~~ the ~~total allowance for loan losses to a level that management believes is adequate to absorb inherent losses in the loan portfolio. We did not record a~~three month period ended March 31, 2018 and no provision for loan losses for the three ~~months ended September 30, 2017.We recorded a $500,000 provision for the nine~~ month period ended ~~September 30,~~March 31, 2017. During the ~~nine month period ended September 30, 2017,~~first three months of 2018, there was an increase in the allowance required for loans collectively evaluated for impairment ~~was~~ driven by an increase in ~~total~~ loans outstanding. We recorded a $607,000 provision for the three month period ended September 30, 2016 and a $1.6 million provision for the nine month period ended September 30, 2016. During the nine month period ended September 30, 2016, there was an increase in the allowance for loans individually evaluated for impairment primarily as a result of a single loan relationship that moved to non-accrual status during the second quarter of 2016.receivable.

Nonperforming assets at September 30, 2017 totaled $22.9 million, or 1.07%, of total assets, down $6.2 million, or 21%, from $29.1 million, or 1.51%, of total assets at December 31, 2016 and down $6.8 million, or 23%, from $29.8 million, or 1.72%, of total assets at September 30, 2016, due primarily to one commercial real estate loan relationship in the amount of $6.5 million which moved from non-accrual to performing status during the quarter ended September 30, 2017.

~~Non-Interest~~Non-interest Income

Total non-interest income ~~increased by $636,000, or 12%, to $5.8 million~~ for the three months ended ~~September 30, 2016,~~March 31, 2018 increased by $197,000, or 4.5%, compared to ~~$5.1 million for~~ the ~~three months ended September 30, 2016. Mortgage banking income~~ increased by $754,000 to $3.2 million during the three months ended September 30, 2017 from $2.4 million primarily due to gains on the sale of residential mortgage loans originated through Oak Mortgage which was acquiredsame period in ~~the third quarter of 2016.~~ 2017. Service fees on deposit accounts totaled ~~$1.1~~$1.2 million for the first three months ~~ended September 30, 2017,~~of 2018 which represents an increase of ~~$381,000~~$329,000 over the ~~three months ended September 30, 2016.~~same period in 2017. This increase was due to the growth in the number of customer accounts and transaction volume. Gains on the sale of SBA loans ~~sold~~ totaled ~~$831,000~~$992,000 for the first three months ~~ended September 30, 2017 compared to $1.6 million~~of 2018 versus $688,000 for the ~~three months ended September 30, 2016~~.same period in 2017. The ~~decrease~~increase of ~~$799,000~~$304,000 in gains on the sale of SBA loans was driven by ~~a decrease~~an increase in SBA loans sold during the first quarter of 2018. Mortgage banking income totaled $2.2 million during the first three months ~~ended September 30,~~of 2018 compared to $2.4 million during the first three months of 2017 ~~as a result of lower origination volume.~~due to reduced premiums on loans sold. Loan advisory and servicing fees totaled ~~$677,000~~$147,000 for the first three months ~~ended September 30, 2017~~of 2018 which represents ~~an increase~~a decrease of ~~$349,000~~$190,000 from the same period in ~~2016~~2017. The decrease was primarily due to ~~higher loan volumes.~~

~~Total non-interest~~a decrease in SBA servicing fee income ~~increased by $4.5 million, or 43%, to $15.1 million for~~in the ~~nine~~first three months ended September 30, 2017, compared to $10.6 million for the nine months ended September 30, 2016. Mortgage banking income increased by $6.1 million to $8.6 million during the nine months ended September 30, 2017 from $2.4 million primarily due toof 2018. There were no gains on the sale of residential mortgage loans originated through Oak Mortgage which was acquired in the third quarter of 2016. Service fees on deposit accounts totaled $2.8 million for the nine months ended September 30, 2017 which represents an increase of $910,000 over the same period in 2016. This increase was due to the growth in the number of customer accounts and transaction volume. Gains on the sale of SBA loans sold were $2.3 million during the nine months ended September 30, 2017 compared to $4.2 million in the same period of 2016 as a result of a decrease in SBA loans sold during the nine months ended September 30, 2017 as a result of lower origination volume. There were recognized losses in the amount of $61,000 on sales of investment securities during the ~~nine~~first three months ~~ended September 30, 2017 as compared to gains~~ of ~~$656,000 during the nine months ended September 30, 2016. Loan advisory~~2018 and ~~service fees totaled $1.3 million for the nine months ended September 30, 2017 which represents an increase of $202,000 from the same period in 2016.~~

2017.

Non-interest Expenses

~~Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016~~

Non-interest expenses increased ~~by $4.2~~$3.3 million, or ~~28%~~19.6%, for the first three months ~~ended September 30, 2017~~of 2018 compared to the same period in ~~2016. A detailed~~2017. An explanation of ~~the most significant variances~~changes in non-interest expenses for ~~the three months ended September 30, 2017 and September 30, 2016~~certain categories is presented in the following paragraphs.

~~Salary~~Salaries and employee benefits ~~expenses, which represent the largest component of non-interest expenses,~~ increased by $2.1 million, or ~~27%~~24.0%, for the first three months ~~ended September 30, 2017~~of 2018 compared to the same period in ~~2016. This increase~~ 2017 which was primarily driven by annual merit increases along with increased staffing levels related to our growth strategy of adding and ~~expansion strategy,~~relocating stores, which we refer to as ~~"The~~“The Power of Red is ~~Back"~~Back”. ~~Two new~~There were twenty-three stores ~~were opened during the three month period ended September 30,~~open as of March 31, 2018 compared to nineteen stores at March 31, 2017. ~~Salaries and employee benefits also increased as a result of the acquisition of Oak Mortgage in the third quarter of 2016.~~

Occupancy ~~expenses~~expense increased by ~~$237,000,~~$398,000, or ~~15%~~23.2%, and depreciation and amortization ~~expense~~expenses increased by ~~$241,000,~~$182,000, or ~~23%~~15.5%, for the first three months ~~ended September 30, 2017~~of 2018 compared to the same period last year, also as a result of our continuing growth and relocation strategy.

Other real estate ~~owned~~ expenses totaled ~~$746,000 for~~$311,000 during the first three months ~~ended September 30, 2017, an increase~~ of ~~$44,000,~~2018, a decrease of $35,000, or 6%10.1%, compared to the same period in ~~2016.~~2017. This ~~increase~~decrease was a result of ~~higher~~ writedowns ~~on foreclosed assets held in other real estate owned in~~during the ~~current period.~~three months ended March 31, 2017.

All other non-interest expenses increased ~~$1.5 million,~~by $690,000, or ~~38%~~13.8%, ~~during~~for the first three months ~~ended September 30, 2017,~~of 2018 compared to the same period ~~in 2016. This increase was mainly attributable to the addition of expenses related to the residential mortgage loan operation of Oak Mortgage.~~last year. Increases in regulatory assessments and costs, director fees, transaction fees, advertising ~~data processing~~ expense, ~~professional fees,~~ and other expenses resulting from our expansion strategy also contributed to the growth in other operating expenses.

~~Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016~~

For the nine months ended September 30, 2017, non-interest expenses increased by $13.3 million, or 33%, compared to the first nine months of 2016. A detailed explanation of the most significant variances in non-interest expenses is presented in the following paragraphs.

Salary expenses and employee benefits, which represent the largest component of non-interest expenses, were $27.8 million for the nine months ended September 30, 2017, an increase of $7.5 million, or 37%, compared to the same period in 2016. This increase was primarily driven by annual merit increases along with increased staffing levels related to our growth and expansion strategy, which we refer to as "The Power of Red is Back". There were twenty-two stores open as of September 30, 2017 compared to nineteen stores at September 30, 2016. In addition, another store was under construction as of September 30, 2017, which is expected to open in the fourth quarter of 2017. Salaries and employee benefits also increased as a result of the acquisition of Oak Mortgage in the third quarter of 2016.

Occupancy expenses increased by $852,000, or 19%, and depreciation and amortization expense increased by $772,000, or 27%, for the nine months ended September 30, 2017 versus the same period in 2016 also as a result of our continuing growth and relocation strategy.

Other real estate owned expenses totaled $1.7 million for the nine months ended September 30, 2017, an increase of $94,000, or 6%, from the same period of 2016 primarily as a result of higher writedowns on foreclosed assets held in other real estate owned in the current period.

All other non-interest expenses increased $4.1 million, or 37%, during the nine months ended September 30, 2017, compared to the same period in 2016. This increase was mainly attributable to the addition of expenses related to the residential mortgage loan operation of Oak Mortgage. Increases in data processing expense, advertising, professional fees, legal expenses, and other expenses resulting from our expansion strategy also contributed to the growth in other operating expenses.

One key measure that management utilizes to monitor progress in controlling overhead expenses is the ratio of annualized net non-interest expenses to average ~~assets.~~assets, a non-GAAP measure. For the purposes of this calculation, net non-interest expenses equal non-interest expenses less non-interest ~~income and nonrecurring expense.~~income. For the three ~~months~~month period ended ~~September 30, 2017, this~~March 31, 2018, the ratio ~~equaled 2.58%~~was 2.61% compared to ~~2.36%~~2.60% for the three ~~months ended September 30, 2016. For the nine months ended September 30, 2017, the ratio equaled 2.58% compared to 2.55% for the nine~~ month period ended ~~September 30, 2016, respectively, reflecting higher net non-interest expenses~~ ~~related~~March 31, 2017, respectively. The increase in this ratio was mainly due to our growth strategy of adding and relocating stores.

Another productivity measure utilized by management is the operating efficiency ~~ratio.~~ratio, a non-GAAP measure. This ratio expresses the relationship of non-interest expenses to net interest income plus non-interest income. ~~For the three months ended September 30, 2017, the operating efficiency ratio was 89.2%, compared to 88.7% for the three months ended September 30, 2016.~~ The efficiency ratio equaled ~~89.1%~~88.8% for ~~both~~ the ~~nine~~first three months ~~ended September 30,~~of 2017, ~~and~~compared to 90.6% for the ~~same period in 2016.~~first months of 2017. The decrease for the three months ended ~~September 30,~~March 31, 2018 versus March 31, 2017 ~~versus September 30, 2016~~ was due to ~~both~~ net interest income and non-interest income increasing at a ~~slower~~faster rate than non-interest expenses.

Provision (Benefit) for Federal Income Taxes

We recorded a provision for income taxes of ~~$4,000~~$372,000 for the three months ended ~~September 30, 2017,~~March 31, 2018, compared to a ~~$32,000~~$34,000 benefit for the three months ended ~~September 30, 2016. For~~March 31, 2017. The $372,000 provision recorded during the ~~nine~~first three months ~~ended September 30, 2017, we recorded~~of 2018 is a normalized provision reflective of the new corporate tax rate included in the Tax Cuts and Jobs Act of 2017. The benefit for income taxes ~~of $38,000 compared to a $69,000 benefit for the nine months ended September 30, 2016. The $38,000 benefit recorded~~recognized during the first ~~nine months~~quarter of 2017 was ~~the net result of a tax provision in the amount of $1.8 million calculated on the net profit generated during the period using our normal effective tax rate, offset~~driven by an adjustment to the deferred tax asset valuation allowance that had been recorded by us in previous years. This valuation allowance was reversed during the ~~amount~~fourth quarter of ~~$1.8 million.~~2017. The effective tax rates for the three-month periods ended ~~September 30,~~March 31, 2018 and 2017 were 17% and 2016 were 30% and 25%, respectively, and for the nine month periods ended September 30, 2017 and 2016 were 29% and 24%, respectively, excluding an adjustment to the deferred tax asset valuation allowance.27%.

We evaluate the carrying amount of our deferred tax assets on a quarterly basis or more frequently, if necessary, in accordance with the guidance provided in ~~Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic~~ASC 740, ~~(ASC 740),~~ in particular, applying the criteria set forth therein to determine whether it is more likely than not (i.e. a likelihood of more than 50%) that some portion, or all, of the deferred tax asset will not be realized within its life cycle, based on the weight of available evidence. If management makes a determination ~~is made~~ based on the available evidence that it is more likely than not that some portion or all of the deferred tax assets will not be realized in future periods, a valuation allowance is calculated and recorded. These determinations are inherently subjective and dependent upon estimates and judgments concerning ~~management's~~management’s evaluation of both positive and negative evidence.

In conducting the deferred tax asset analysis, we believe it is important to consider the unique characteristics of an industry or business. In particular, characteristics such as business model, level of capital and reserves held by a financial ~~institutions~~institution and ~~their~~the ability to absorb potential losses are important distinctions to be considered for bank holding companies like us. In addition, it is also important to consider that net operating loss carryforwards ~~("NOLs"~~(“NOLs”) calculated for federal income tax purposes can generally be carried back two years and carried forward for a period of twenty years. In order to realize our deferred tax assets, we must generate sufficient taxable income in such future years.

In assessing the need for a valuation allowance, we carefully weighed both positive and negative evidence currently available. Judgment is required when considering the relative impact of such evidence. The weight given to the potential effect of positive and negative evidence must be commensurate with the extent to which it can be objectively verified.

~~Positive evidence evaluated~~The ongoing success of the our growth and expansion strategy, along with the successful integration of the mortgage company and the limited exposure remaining with current asset quality issues, put us in a position to rely on projections of future taxable income when ~~considering~~evaluating the need for a valuation allowance ~~included:~~

~~the improvement in earnings during the nine month period ended September 30, 2017 compared to September 30, 2016;~~

~~continued growth in interest-earning assets is expected and supported by the capital raise completed during the fourth quarter of 2016; and~~

~~the acquisition of a residential lending organization (Oak Mortgage Company) completed in July 2016 continues to supplement earnings growth.~~

~~Negative~~against deferred tax assets. Based on the guidance provided in ASC 740, we believed that the positive evidence ~~evaluated when considering~~considered at March 31, 2018 and December 31, 2017 outweighed the ~~need for~~negative evidence and that it was more likely than not that all of our deferred tax assets would be realized within their life cycle. Therefore, a valuation allowance ~~included:~~is not required.

~~the elevated level of non-performing asset balances primarily driven by two legacy loan relationships which may result in reduced taxable income in future periods;~~

~~the historical trend of recording significant loan loss provisions and charge-offs due to asset quality over the last several years;~~

~~the impact to profitability in recent years due to one-time or non-core items including a legal settlement and gains on the sale of investment securities;~~

past and projected future earnings are heavily dependent upon the success of the SBA Lending Team which has recently experienced reduced loan volumes and the recently acquired Mortgage Division which can be significantly impacted by a changing interest rate environment and other various economic factors;

~~limited experience with forecasting profitability and managing operations of the residential mortgage division acquired in July 2016; and~~

a high level of uncertainty exists over interest rate environment and economic decisions to be made by the recently elected administration of the Federal government which may result in compression of the Company's net interest margin causing a decline in future profitability.

5349

~~Based on the analysis of available positive and negative evidence, we determined that a valuation allowance should be recorded as of September 30, 2017 and December 31, 2016.~~

We did assess tax planning strategies as defined under ASC 740 to determine the amount of a valuation allowance. Strategies reviewed included the sale of investment securities and loans with fair values greater than book values, redeployment of cash and cash equivalents into higher yielding investment options, a switch from tax-exempt to taxable investments and loans, and the election of a decelerated depreciation method for tax purposes on future fixed asset purchases. We believe that these tax planning strategies are (a) prudent and feasible, (b) steps that we would not ordinarily take, but would take to prevent an operating loss or tax credit carryforward from expiring unused, and (c) would result in the realization of existing deferred tax assets. These tax planning strategies, if implemented, would result in taxable income in the first full reporting period after deployment and accelerate the recovery of deferred tax asset balances if faced with the inability to recover those assets or the risk of potential expiration. We believe that these are viable tax planning strategies and appropriately considered in the analysis at this time, but may not align with the strategic direction of the organization today and therefore, have no present intention to implement such strategies.

The net deferred tax asset balance ~~before consideration of a valuation allowance~~ was ~~$18.6~~$13.8 million as of ~~September 30, 2017~~March 31, 2018 and ~~$21.4~~$12.7 million as of December 31, 2016. After assessment of all available tax planning strategies, we determined that a partial valuation allowance in the amount of $10.0 million as of September 30, 2017 and $12.2 million as of December 31, 2016 should be recorded.

2017. The deferred tax asset will continue to be analyzed on a quarterly basis for changes affecting realizability. ~~When the determination is made that a valuation allowance is no longer required, it will be reduced accordingly resulting in a corresponding increase in net income.~~

Net Income and Net Income per Common Share

~~Net income for the three months ended September 30, 2017 was $2.3 million, an increase of $981,000, compared to $1.3 million recorded for the three months ended September 30, 2016.~~

Net income for the ~~nine~~first three months ~~ended September 30, 2017~~of 2018 was ~~$6.2~~$1.78 million, ~~an increase~~a decrease of ~~$2.7 million,~~$10,000, compared to ~~$3.4~~$1.79 million recorded for the ~~nine~~first three months ~~ended September 30, 2016.~~of 2017. The ~~increase~~decrease in net income ~~for~~in the ~~nine~~first three months ~~ended September 30, 2017~~of 2018 was due to ~~a $10.5 million~~an increase ~~in net interest income, a $4.5 million increase in non-interest income and a $1.1 million decrease~~ in the provision for ~~loan losses, partially~~income taxes of $406,000 which offset ~~by a $13.3 million~~an increase in ~~non-interest expenses.~~pre-tax income of $396,000.

For the three month period ended September 30, 2017, basic net income per common share was $0.04 compared to $0.04 for the three months ended September 30, 2016 and fully-diluted net income per common share was $0.04 for the three month period ended September 30, 2017 compared to $0.03 for the three months ended September 30, 2016. For the nine months ended September 30, 2016,March 31, 2018, basic and fully-diluted net income per common share was ~~$0.11~~$0.03 compared to ~~$0.09~~basic and fully-diluted net income per common share of $0.03 for the ~~nine months~~three month period ended ~~September 30, 2016.~~March 31, 2017.

Return on Average Assets and Average Equity

Return on average assets ~~(ROA)~~(“ROA”) measures our net income in relation to our total average assets. ~~Our annualized ROA for the three months ended September 30, 2017 was 0.45%, compared to 0.32% for the three months ended September 30, 2016.~~ The ROA for the ~~nine~~first three months ~~ended September 30,~~of 2018 and 2017 was 0.30% and ~~2016 was 0.41% and 0.30%~~0.37%, respectively. Return on average equity ~~(ROE)~~(“ROE”) indicates how effectively we can generate net income on the capital invested by our stockholders. ROE is calculated by dividing annualized net income by average stockholders' equity. The ROE ~~was 4.11%~~ for the first three months ~~ended September 30,~~of 2018 and 2017 ~~compared to 4.49% for the three months ended September 30, 2016. The ROE for the nine months ended September 30, 2017~~was 3.19% and ~~2016 was 3.74% and 3.93%~~3.35%, respectively.

Commitments, Contingencies and Concentrations

Financial instruments ~~whose~~with contract amounts ~~represent~~representing potential credit risk were commitments to extend credit of approximately ~~$266.1~~$251.3 million and ~~$215.9~~$264.3 million, and standby letters of credit of approximately ~~$11.9~~$11.3 million and ~~$5.7~~$12.6 million, at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. These financial instruments constitute off-balance sheet arrangements. Commitments often expire without being drawn upon. Substantially all of the ~~$266.1~~$251.3 million of commitments to extend credit at ~~September 30, 2017~~March 31, 2018 were committed as variable rate credit facilities.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and many require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each ~~customer's~~customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on ~~management's~~management’s credit evaluation of the customer. Collateral held varies but may include real estate, marketable securities, pledged deposits, equipment and accounts receivable.

Standby letters of credit are conditional commitments issued that guarantee the performance of a customer to a third party. The credit risk and collateral policy involved in issuing letters of credit is essentially the same as that involved in extending loan commitments. The amount of collateral obtained is based on ~~management's~~management’s credit evaluation of the customer. Collateral held varies but may include real estate, marketable securities, pledged deposits, equipment and accounts receivable. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding ~~guidelines.~~guarantees. The current amount of liability as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 for guarantees under standby letters of credit issued is not material.

Regulatory Matters

We are required to comply with certain ~~"risk-based"~~“risk-based” capital adequacy guidelines issued by the ~~FRB~~Federal Reserve and the FDIC. The risk-based capital guidelines assign varying risk weights to the individual assets held by a bank. The guidelines also assign weights to the ~~"credit-equivalent"~~“credit-equivalent” amounts of certain off-balance sheet items, such as letters of credit and interest rate and currency swap contracts.

In July 2013, the federal bank regulatory agencies adopted revisions to the ~~agencies'~~agencies’ capital adequacy guidelines and prompt corrective action rules, which were designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. The final rules generally implemented higher minimum capital requirements, added a new common equity tier 1 capital requirement, and established criteria that instruments must meet to be considered common equity tier 1 capital, additional tier 1 capital or tier 2 capital. Under the ~~final~~ capital rules, ~~that became effective~~risk-based capital ratios are calculated by dividing common equity Tier 1, Tier 1, and total risk-based capital, respectively, by risk-weighted assets. Assets and off-balance sheet credit equivalents are assigned to one of several categories of risk-weights, based primarily on ~~January 1, 2015, there was~~relative risk. Under the Federal Reserve’s rules, Republic is required to maintain a ~~requirement for a~~minimum common equity Tier 1 capital ratio requirement of 4.5%, a minimum Tier 1 capital ratio requirement of 6%, a minimum total capital requirement of 8% and a minimum leverage ratio requirement of 4%. Under the new rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of ~~2.5% of risk-weighted assets which is in addition to the other~~common equity tier 1 capital above its minimum risk-based capital ~~standards~~requirements in an amount greater than 2.5% of total risk-weighted assets. The capital conservation buffer, which is composed of common equity tier 1 capital, began on January 1, 2016 at the ~~rule. Institutions~~0.625% level and will be phased in over a three year period (increasing by that ~~do not maintain this required~~amount on each January 1, until it reaches 2.5% on January 1, 2019). Implementation of the deductions and other adjustments to common equity tier 1 capital ~~buffer~~began on January 1, 2015 and will ~~become subject to progressively more stringent limitations~~be phased-in over a three-year period (beginning at 40% on ~~the percentage of earnings that can be paid out in dividends or used for stock repurchases~~January 1, 2015 and ~~on the payment of discretionary bonuses to senior executive management.~~

an additional 20% per year thereafter).

The following table shows the required capital ratios with the conversation buffer over the phase-in period.

	Basel III Community Banks Minimum Capital Ratio Requirements				Basel III Community Banks Minimum Capital Ratio Requirements
	2016	2017	2018	2019	2016			2017			2018			2019

Common equity tier 1 capital (CET1)	5.125%	5.750%	6.375%	7.000%		5.125	%		5.750	%		6.375	%		7.000	%
Tier 1 capital (to risk weighted assets)	6.625%	7.250%	7.875%	8.500%
Tier 1 capital (to risk-weighted assets)						6.625	%		7.250	%		7.875	%		8.500	%
Total capital (to risk-weighted assets)	8.625%	9.250%	9.875%	10.500%		8.625	%		9.250	%		9.875	%		10.500	%
Tier 1 capital (to average assets, leverage)	4.000%	4.000%	4.000%	6.500%

The risk-based capital ratios measure the adequacy of a ~~bank's~~bank’s capital against the riskiness of its assets and off-balance sheet activities. Failure to maintain adequate capital is a basis for ~~"prompt~~“prompt corrective ~~action"~~action” or other regulatory enforcement action. In assessing a ~~bank's~~bank’s capital adequacy, regulators also consider other factors such as interest rate risk exposure; liquidity, funding and market risks; quality and level orof earnings; concentrations of credit, quality of loans and investments; risks of any nontraditional activities; effectiveness of bank policies; and ~~management's~~management’s overall ability to monitor and control risks.

Management believes that the Company and Republic met, as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis as if all such requirements were currently in effect. In the current year, the FDIC categorized Republic as well capitalized under the regulatory framework for prompt corrective action provisions of the Federal Deposit Insurance Act. There are no calculations or events since that notification which management believes would have changed ~~Republic's~~Republic’s category.

The Company and ~~Republic's~~Republic’s ability to maintain the required levels of capital is substantially dependent upon the success of their capital and business plans, the impact of future economic events on ~~Republic's~~Republic’s loan customers and ~~Republic's~~Republic’s ability to manage its interest rate risk, growth and other operating expenses.

5651

The following table presents ~~the~~our regulatory capital ~~regulatory~~ ratios ~~for both Republic and the Company as of September 30, 2017,~~at March 31, 2018, and December 31, ~~2016 (dollars in thousands):~~2017.

(dollars in thousands)	Actual					Minimum Capital Adequacy						Minimum Capital Adequacy with Capital Buffer					To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual					Minimum Capital Adequacy						Minimum Capital Adequacy with Capital Buffer					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount			Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount			Ratio			Amount		Ratio			Amount		Ratio
At September 30, 2017:
At March 31, 2018:

Total risk based capital
Total risk-based capital
Republic	$	184,514		13.01	%		$	113,449		8.00	%	$	131,175		9.25	%	$	141,811		10.00	%	$	218,820		13.98	%		$	125,213		8.00	%	$	154,559		9.875	%	$	156,516		10.00	%
Company		251,194		17.64	%			113,895		8.00	%		131,691		9.25	%		-		-	%		250,599		16.00	%			125,299		8.00	%		154,666		9.875	%		-		-	%
Tier one risk based capital
Tier 1 risk-based capital
Republic		176,256		12.43	%			85,087		6.00	%		102,813		7.25	%		113,449		8.00	%		212,170		13.56	%			93,909		6.00	%		123,256		7.875	%		125,213		8.00	%
Company		242,936		17.06	%			85,421		6.00	%		103,217		7.25	%		-		-	%		243,949		15.58	%			93,974		6.00	%		123,341		7.875	%		-		-	%
CET 1 risk based capital
CET 1 risk-based capital
Republic		176,256		12.43	%			63,815		4.50	%		81,541		5.75	%		92,177		6.50	%		212,170		13.56	%			70,432		4.50	%		99,779		6.375	%		101,735		6.50	%
Company		221,376		15.55	%			64,066		4.50	%		81,862		5.75	%		-		-	%		232,949		14.87	%			70,480		4.50	%		99,847		6.375	%		-		-	%
Tier one leveraged capital
Tier 1 leveraged capital
Republic		176,256		8.59	%			82,093		4.00	%		92,355		4.50	%		102,617		5.00	%		212,170		8.78	%			96,640		4.00	%		96,640		4.00	%		120,801		5.00	%
Company		242,936		11.80	%			82,394		4.00	%		92,625		4.50	%		-		-	%		243,949		10.09	%			96,708		4.00	%		96,708		4.00	%		-		-	%

At December 31, 2016:
At December 31, 2017:

Total risk based capital
Total risk-based capital
Republic	$	179,057		13.93	%		$	102,811		8.00	%	$	110,843		8.625	%	$	128,514		10.00	%	$	187,732		12.57	%		$	119,446		8.00	%	$	138,109		9.25	%	$	149,307		10.00	%
Company		245,043		18.99	%			103,226		8.00	%		111,290		8.625	%		-		-	%		249,510		16.70	%			119,521		8.00	%		138,197		9.25	%		-		-	%
Tier one risk based capital
Tier 1 risk-based capital
Republic		169,902		13.22	%			77,108		6.00	%		85,140		6.625	%		102,811		8.00	%		179,133		12.00	%			89,584		6.00	%		108,248		7.25	%		119,446		8.00	%
Company		235,888		18.28	%			77,419		6.00	%		85,484		6.625	%		-		-	%		240,911		16.13	%			89,641		6.00	%		108,316		7.25	%		-		-	%
CET 1 risk based capital
CET 1 risk-based capital
Republic		169,902		13.22	%			57,831		4.50	%		65,863		5.125	%		83,534		6.50	%		179,133		12.00	%			67,188		4.50	%		85,852		5.75	%		97,050		6.50	%
Company		214,088		16.59	%			58,064		4.50	%		66,129		5.125	%		-		-	%		220,433		14.75	%			67,231		4.50	%		85,906		5.75	%		-		-	%
Tier one leveraged capital
Tier 1 leveraged capital
Republic		169,902		9.20	%			73,843		4.00	%		73,843		4.50	%		92,304		5.00	%		179,133		7.91	%			90,531		4.00	%		90,531		4.00	%		113,164		5.00	%
Company		235,888		12.74	%			74,073		4.00	%		74,073		4.50	%		-		-	%		240,911		10.64	%			90,586		4.00	%		90,586		4.00	%		-		-	%

Dividend Policy

We have not paid any cash dividends on our common ~~stock during 2017, nor do we~~stock. We have ~~any~~no plans to pay cash dividends in ~~2017.~~2018. Our ability to pay dividends depends primarily on receipt of dividends from our subsidiary, Republic. Dividend payments from Republic are subject to legal and regulatory limitations. The ability of Republic to pay dividends is also subject to profitability, financial condition, capital expenditures and other cash flow requirements.

Liquidity

A financial institution must maintain and manage liquidity to ensure it has the ability to meet its financial obligations. These obligations include the payment of deposits on demand or at their contractual maturity; the repayment of borrowings as they mature; the payment of lease obligations as they become due; the ability to fund new and existing loans and other funding commitments; and the ability to take advantage of new business opportunities. Liquidity needs can be met by either reducing assets or increasing liabilities. Our most liquid assets consist of cash and amounts due from banks.

Regulatory authorities require us to maintain certain liquidity ratios in order for funds to be available to satisfy commitments to borrowers and the demands of depositors. In response to these requirements, we have formed an asset/liability committee ~~(ALCO)~~(“ALCO”), comprised of certain members of ~~Republic's~~Republic’s Board of Directors and senior management to monitor such ratios. The ALCO committee is responsible for managing the liquidity position and interest sensitivity. That ~~committee's~~committee’s primary objective is to maximize net interest income while configuring ~~Republic's~~Republic’s interest-sensitive assets and liabilities to manage interest rate risk and provide adequate liquidity for projected needs. The ALCO committee meets on a quarterly basis or more frequently if deemed necessary.

Our target and actual liquidity levels are determined by comparisons of the estimated repayment and marketability of interest-earning assets with projected future outflows of deposits and other liabilities. Our most liquid assets, comprised of cash and cash equivalents on the balance sheet, totaled ~~$98.8~~$31.1 million at ~~September 30, 2017,~~March 31, 2018, compared to ~~$34.6~~$61.9 million at December 31, ~~2016.~~2017. Loan maturities and repayments are another source of asset liquidity. At ~~September 30, 2017,~~March 31, 2018, Republic estimated that more than ~~$90.0~~$110.0 million of loans would mature or repay in the six-month period ending ~~March 31,~~September 30, 2018. Additionally, a significant portion of our investment securities are available to satisfy liquidity requirements through sales on the open market or by pledging as collateral to access credit facilities. At ~~September 30, 2017,~~March 31, 2018, we had outstanding commitments (including unused lines of credit and letters of credit) of ~~$278.0~~$251.3 million. Certificates of deposit scheduled to mature in one year totaled ~~$73.5~~$71.2 million at ~~September 30, 2017.~~March 31, 2018. We anticipate that we will have sufficient funds available to meet all current commitments.

Daily funding requirements have historically been satisfied by generating core deposits and certificates of deposit with competitive rates, buying federal funds or utilizing the credit facilities of the FHLB. We have established a line of credit with the FHLB of Pittsburgh. Our maximum borrowing capacity with the FHLB was ~~$542.4~~$598.8 million at ~~September 30, 2017.~~March 31, 2018. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, we had no outstanding term borrowings with the FHLB. At ~~September 30, 2017 and~~March 31, 2018, we had outstanding short-term borrowings of $93.9 million. At December 31, ~~2016,~~2017, we had no outstanding short-term borrowings with the FHLB. As of ~~September 30, 2017,~~March 31, 2018, FHLB had issued letters of credit, on ~~Republic's~~Republic’s behalf, totaling $75.0 million against our available credit line. We also established a contingency line of credit of $10.0 million with ACBB to assist in managing our liquidity position. We had no amounts outstanding against the ACBB line of credit at both ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

Investment Securities Portfolio

At ~~September 30, 2017,~~March 31, 2018, we identified certain investment securities that were being held for indefinite periods of time, including securities that will be used as part of our asset/liability management strategy and that may be sold in response to changes in interest rates, prepayments and similar factors. These securities are classified as ~~available for sale~~available-for-sale and are intended to increase the flexibility of our asset/liability management. Our investment securities classified as ~~available-for-sale~~available for sale consist primarily of CMOs, MBSs, municipal securities, corporate bonds, ABSs, and ~~CDOs. Available-for-sale~~a CDO. Available for sale securities totaled ~~$377.8~~$519.7 million and ~~$369.7~~$464.4 million as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. At ~~September 30, 2017, the portfolio~~March 31, 2018, securities classified as available for sale had a net unrealized loss of ~~$8.0~~$17.9 million and a net unrealized loss of ~~$10.7~~$11.2 million at December 31, ~~2016.~~

2017.

Loan Portfolio

Our loan portfolio consists of secured and unsecured commercial loans including commercial real estate loans, construction and land development loans, commercial and industrial loans, owner occupied real estate loans, consumer and other loans, and residential mortgages. Commercial loans are primarily secured term loans made to small to medium-sized businesses and professionals for working capital, asset acquisition and other purposes. Commercial loans are originated as either fixed or variable rate loans with typical terms of 1 to 5 years. ~~Republic's~~Republic’s commercial loans typically range between $250,000 and $5.0 million, but customers may borrow significantly larger amounts up to ~~Republic's~~Republic’s legal lending limit of approximately ~~$27.0~~$28.5 million at ~~September 30, 2017.~~March 31, 2018. Individual customers may have several loans often secured by different collateral.

Credit Quality

~~Republic's~~Republic’s written lending policies require specified underwriting, loan documentation and credit analysis standards to be met prior to funding, with independent credit department approval for the majority of new loan balances. A committee consisting of senior management and certain members of the Board of Directors oversees the loan approval process to monitor that proper standards are maintained, while approving the majority of commercial loans.

Loans, including impaired loans, are generally classified as non-accrual if they are past due as to maturity or payment of interest or principal for a period of more than 90 days, unless such loans are well‑secured and in the process of collection. Loans that are on a current payment status or past due less than 90 days may also be classified as non-accrual if repayment in full of principal and/or interest is in doubt. Loans may be returned to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower, in accordance with the contractual terms.

While a loan is classified as non-accrual, any collections of interest and principal are generally applied as a reduction to principal outstanding. When the future collectability of the recorded loan balance is expected, interest income may be recognized on a cash basis. For non-accrual loans, which have been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Cash interest receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered.

The following table shows information concerning loan delinquency and non‑performing assets as of the dates indicated (dollars in thousands):

	March 31, 2018		December 31, 2017
Loans accruing, but past due 90 days or more	$	-	$	-
Non-accrual loans		14,132		14,845
Total non-performing loans		14,132		14,845
Other real estate owned		6,966		6,966
Total non-performing assets	$	21,098	$	21,811

September 30,
2017

December 31,
2016
Loans accruing, but past due 90 days or more $ 2,730 $ 302
Non-accrual loans 11,020 18,594
Total non-performing loans 13,750 18,896
Other real estate owned 9,169 10,174
Total non-performing assets $ 22,919 $ 29,070

Non-performing loans as a percentage of total loans, net of unearned income⁽¹⁾
1.26%

1.96%
Non-performing assets as a percentage of total assets 1.07% 1.51%

Non-performing loans as a percentage of total loans, net of unearned income			1.13	%			1.28	%
Non-performing assets as a percentage of total assets			0.85	%			0.94	%

Non-performing asset balances decreased by ~~$6.2 million~~$713,000 to ~~$22.9~~$21.1 million as of ~~September 30, 2017~~March 31, 2018 from ~~$29.1~~$21.8 million at December 31, ~~2016.~~2017. Non-accrual loans decreased ~~$7.6 million~~$713,000 to ~~$11.0~~$14.1 million at ~~September 30, 2017,~~March 31, 2018, from ~~$18.6~~$14.8 million at December 31, ~~2016.~~2017 due primarily to loans transferred to non-accrual status of $1.7 million which were offset by $2.3 million in loan charge-offs during the three months ended March 31, 2018. The ~~decrease~~$2.3 million in ~~non-accrual loans~~charge-offs during the first quarter of 2018 was primarily driven by ~~one~~a single loan relationship ~~that was returned~~for which loan losses provisions had been recorded in prior periods. Management determined this amount to ~~accrual status during~~be uncollectible and accordingly charged-off the ~~third quarter of 2017. This loan was restructured earlier~~balance in the ~~year as a result of a reduction in tenant vacancies in the property held as collateral. Loans~~first quarter. There were no loans accruing, but past due 90 days or more ~~increased to $2.7 million~~ at ~~September 30, 2017 from $302,000 at December~~March 31, ~~2016. At September 30, 2017~~2018 and December 31, ~~2016,~~2017. At March 31, 2018 and December 31, 2017, all identified impaired loans are internally classified and individually evaluated for impairment in accordance with the guidance under ASC 310.

5954

The following table presents our 30 to 89 days past due loans at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

(dollars in thousands)	September 30,			December 31,			March 31,			December 31,
	2017			2016			2018			2017
30 to 59 days past due		$	1,496		$	1,060		$	163	$	1,113
60 to 89 days past due			35			31			-		-
Total loans 30 to 89 days past due		$	1,531		$	1,091		$	163	$	1,113

Other Real Estate Owned

The balance of other real estate owned ~~decreased to $9.2~~was $7.0 million at ~~September 30, 2017 from $10.2 million at~~March 31, 2018 and December 31, ~~2016.~~2017. The following table presents a reconciliation of other real estate owned for the three months ended ~~September 30, 2017~~March 31, 2018 and the year ended December 31, ~~2016:~~2017:

(dollars in thousands)	September 30, 2017			December 31, 2016			March 31, 2018		December 31, 2017
Beginning Balance, January 1^st	$	10,174		$	11,313		$	6,966	$	10,174
Additions		129			616			-		291
Valuation adjustments		(777	)		(355	)		-		(3,000	)
Dispositions		(357	)		(1,400	)		-		(499	)
Ending Balance	$	9,169		$	10,174		$	6,966	$	6,966

At ~~September 30, 2017,~~March 31, 2018, we had no credit exposure to ~~"highly~~“highly leveraged ~~transactions"~~transactions” as defined by the FDIC.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish an allowance against loan losses on a quarterly basis. When an increase in this allowance is necessary, a provision for loan losses is charged to earnings. The allowance for loan losses consists of three components. The first component is allocated to individually evaluated loans found to be impaired and is calculated in accordance with ASC 310 Receivables. The second component is allocated to all other loans that are not individually identified as impaired. This component is calculated for all non-impaired loans on a collective basis in accordance with ASC 450 Contingencies. The third component is an unallocated allowance to account for a level of imprecision in ~~management's~~management’s estimation process.

We evaluate loans for impairment and potential charge-off on a quarterly basis. Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any loan relationships have deteriorated. Any loan rated as substandard or lower will have an individual collateral evaluation analysis prepared to determine if a deficiency exists. We first evaluate the primary repayment source. If the primary repayment source is determined to be insufficient and unlikely to repay the debt, we then look to the secondary repayment sources. Secondary sources are conservatively reviewed for liquidation values. Updated appraisals and financial data are obtained to substantiate current values. If the reviewed sources are deemed to be inadequate to cover the outstanding principal and any costs associated with the resolution of the troubled loan, an estimate of the deficient amount will be calculated and a specific allocation of loan loss reserve is recorded.

Factors considered in the calculation of the allowance for non-impaired loans include several qualitative and quantitative factors such as historical loss experience, trends in delinquency and nonperforming loan balances, changes in risk composition and underwriting standards, experience and ability of management, and general economic conditions along with other external factors. Historical loss experience is analyzed by reviewing charge-offs over a three year period to determine loss rates consistent with the loan categories depicted in the allowance for loan loss table below.

The factors supporting the allowance for loan losses do not diminish the fact that the entire allowance for loan losses is available to absorb losses in the loan portfolio and related commitment portfolio, respectively. Our principal focus, therefore, is on the adequacy of the total allowance for loan losses. The allowance for loan losses is subject to review by banking regulators. Our primary bank regulators regularly conduct examinations of the allowance for loan losses and make assessments regarding the adequacy and the methodology employed in their determination.

An analysis of the allowance for loan losses for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ and the twelve months ended December 31, ~~2016~~2017 is as follows:

(dollars in thousands)	For the nine months ended September 30, 2017			For the twelve months ended December 31, 2016			For the nine months ended September 30, 2016			For the three months ended March 31, 2018		For the twelve months ended December 31, 2017		For the three months ended March 31, 2017

Balance at beginning of period	$	9,155		$	8,703		$	8,703		$	8,599	$	9,155	$	9,155
Charge‑offs:
Commercial real estate		-			-			-			1,535		-		-
Construction and land development		-			60			3			-		-		-
Commercial and industrial		1,347			143			18			151		1,366		-
Owner occupied real estate		157			1,052			954			465		157		8
Consumer and other		12			11			-			198		53		2
Residential mortgage		-			10			-			-		-		-
Total charge‑offs		1,516			1,276			975			2,349		1,576		10
Recoveries:
Commercial real estate		54			6			6			-		54		7
Construction and land development		-			-			-			-		-		-
Commercial and industrial		64			163			162			-		64		29
Owner occupied real estate		-			-			-			-		-		-
Consumer and other		1			2			-			-		2		-
Residential mortgage		-			-			-			-		-		-
Total recoveries		119			171			168			-		120		36
Net charge‑offs		1,397			1,105			807
Net charge‑offs/(recoveries)											2,349		1,456		(26	)
Provision for loan losses		500			1,557			1,557			400		900		-
Balance at end of period	$	8,258		$	9,155		$	9,453		$	6,650	$	8,599	$	9,181

Average loans outstanding⁽¹⁾	$	1,063,581		$	936,492		$	925,110
As a percent of average loans:⁽¹⁾
Net charge‑offs (annualized)		0.18	%		0.12	%		0.12	%
Provision for loan losses (annualized)		0.06	%		0.17	%		0.22	%
Allowance for loan losses		0.78	%		0.98	%		1.02	%
Allowance for loan losses to:
Total loans, net of unearned income		0.75	%		0.95	%		1.00	%
Total non‑performing loans		60.06	%		48.45	%		48.50	%


Average loans outstanding⁽¹⁾	$	1,235,124		$	1,090,851		$	1,008,329
As a percent of average loans:⁽¹⁾
Net charge‑offs (annualized)		0.77	%		0.13	%		(0.01	)%
Provision for loan losses (annualized)		0.13	%		0.08	%		-	%
Allowance for loan losses		0.54	%		0.79	%		0.91	%
Allowance for loan losses to:
Total loans, net of unearned income		0.53	%		0.74	%		0.89	%
Total non‑performing loans		47.06	%		57.93	%		49.55	%

With an allowance recorded:
Commercial real estate	$	6,391	$	4	$	6,058	$	19
Construction and land development		-		-		43		-
Commercial and industrial		2,118		16		3,607		18
Owner occupied real estate		1,100		8		1,977		9
Consumer and other		346		2		278		2
Residential mortgage		-		-		-		-
Total	$	9,955	$	30	$	11,963	$	48

Total:
Commercial real estate	$	13,415	$	110	$	18,246	$	84
Construction and land development		-		-		65		-
Commercial and industrial		4,484		24		5,218		27
Owner occupied real estate		3,413		25		2,642		12
Consumer and other		1,269		11		1,305		7
Residential mortgage		-		-		-		-
Total	$	22,581	$	170	$	27,476	$	130

With an allowance recorded:
Commercial real estate	$	6,575	$	13	$	3,844	$	43
Construction and land development		-		-		15		-
Commercial and industrial		2,710		50		3,389		56
Owner occupied real estate		1,437		22		2,205		23
Consumer and other		438		8		252		7
Residential mortgage		-		-		-		-
Total	$	11,160	$	93	$	9,705	$	129

Total:
Commercial real estate	$	16,232	$	284	$	15,798	$	240
Construction and land development		-		-		87		-
Commercial and industrial		4,859		76		5,186		86
Owner occupied real estate		3,156		68		2,852		29
Consumer and other		1,275		25		1,153		18
Residential mortgage		33		1		-		-
Total	$	25,555	$	454	$	25,076	$	373

(dollars in thousands)	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs

September 30, 2017
Assets:

Collateralized mortgage obligations	$	240,004	$	-	$	240,004	$	-
Agency mortgage-backed securities		42,802		-		42,802		-
Municipal securities		15,659		-		15,659		-
Corporate bonds		64,329		-		61,304		3,025
Asset-backed securities		13,855		-		13,855		-
Trust Preferred Securities		1,108		-		-		1,108
Securities Available for Sale	$	377,757	$	-	$	373,624	$	4,133

Mortgage Loans Held for Sale	$	41,411	$	-	$	41,411	$	-
SBA Servicing Assets		5,387		-		-		5,387
Interest Rate Lock Commitments		635		-		635		-
Best Efforts Forward Loan Sales Commitments		13		-		13		-
Mandatory Forward Loan Sales Commitments		51		-		51		-

Liabilities:

Interest Rate Lock Commitments		1		-		1		-
Best Efforts Forward Loan Sales Commitments		125		-		125		-
Mandatory Forward Loan Sales Commitments		137		-		137		-

December 31, 2016
Assets:

Collateralized mortgage obligations	$	224,765	$	-	$	224,765	$	-
Agency mortgage-backed securities		36,710		-		36,710		-
Municipal securities		26,547		-		26,547		-
Corporate bonds		64,748		-		61,777		2,971
Asset-backed securities		15,149		-		15,149		-
Trust Preferred Securities		1,820		-		-		1,820
Securities Available for Sale	$	369,739	$	-	$	364,948	$	4,791

Mortgage Loans Held for Sale	$	23,911	$	-	$	23,911	$	-
SBA Servicing Assets		5,352		-		-		5,352
Interest Rate Lock Commitments		439		-		439		-
Best Efforts Forward Loan Sales Commitments		103		-		103		-
Mandatory Forward Loan Sales Commitments		229		-		229		-

Liabilities:

Interest Rate Lock Commitments		55		-		55		-
Best Efforts Forward Loan Sales Commitments		125		-		125		-
Mandatory Forward Loan Sales Commitments		38		-		38		-

	Three Months Ended September 30, 2017					Three Months Ended September 30, 2016
Level 3 Investments Only (dollars in thousands)	Trust Preferred Securities		Corporate Bonds			Trust Preferred Securities			Corporate Bonds
Balance, July 1^st	$	968	$	3,079		$	1,755		$	2,870
Unrealized gains (losses)		140		(54	)		(62	)		63
Paydowns		-		-			-			-
Proceeds from sales		-		-			-			-
Realized losses		-		-			-			-
Impairment charges on Level 3		-		-			(2	)		-
Balance, September 30th	$	1,108	$	3,025		$	1,691		$	2,933

	Nine Months Ended September 30, 2017					Nine Months Ended September 30, 2016
Level 3 Investments Only (dollars in thousands)	Trust Preferred Securities			Corporate Bonds		Trust Preferred Securities			Corporate Bonds
Balance, January 1st	$	1,820		$	2,971	$	1,883		$	2,834
Unrealized gains (losses)		806			54		(185	)		99
Paydowns		-			-		-			-
Proceeds from sales		(970	)		-		-			-
Realized losses		(548	)		-		-			-
Impairment charges on Level 3		-			-		(7	)		-
Balance, September 30th	$	1,108		$	3,025	$	1,691		$	2,933

Consideration paid:	Original Estimates		Adjustments to Estimates			Final Valuation
Cash	$	7,136	$	-		$	7,136
Equity instruments		202		-			202
Deferred additional purchase price		500		-			500

Value of consideration	$	7,838	$	-		$	7,838

Assets acquired:

Cash and cash equivalents	$	1,223	$	-		$	1,223
Loans held for sale		20,871		-			20,871
Loans receivable		1,132		-			1,132
Premises and equipment		103		-			103
Derivative assets		1,508		-			1,508
Intangible assets – non compete agreements		104		-			104
Other assets		125		-			125
Total assets		25,066		-			25,066

Liabilities assumed:

Warehouse lines of credit		19,666		-			19,666
Derivative liabilities		412		-			412
Other liabilities		2,042		119			2,161
Total liabilities		22,120		119			22,239

Net assets acquired		2,946		(119	)		2,827

Goodwill resulting from acquisition of Oak Mortgage	$	4,892	$	119		$	5,011

Exhibit Number	Description	Location

3.1	Amended and Restated Articles of Incorporation of Republic First Bancorp, Inc.	Incorporated by reference to Form 10-K filed March ~~10, 2017~~14, 2018

3.2	Amended and Restated ~~By-Laws~~By-laws of Republic First Bancorp, Inc.	Incorporated by reference to Form S-1 filed April 23, 2010 (333-166286)

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Republic First Bancorp, Inc.	Filed herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Republic First Bancorp, Inc.	Filed herewith

32.1	Section 1350 Certification of Harry D. Madonna	Furnished herewith

32.2	Section 1350 Certification of Frank A. Cavallaro	Furnished herewith

101	The following materials from the ~~Company's~~Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2017~~,March 31, 2018, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of ~~September 30, 2017~~ March 31, 2018 and December 31, ~~2016,~~2017, (ii) Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30~~,March 31, 2018 and 2017,~~and 2016,~~ (iii) Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three ~~and nine~~ months ended ~~September 30~~,March 31, 2018 and 2017,~~and 2016,~~ (iv) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30~~,March 31, 2018 and 2017,~~and 2016,~~ (v) Consolidated Statements of Changes in ~~Shareholders'~~Shareholders’ Equity for the ~~nine~~three months ended ~~September 30~~,March 31, 2018 and 2017,~~and 2016,~~ and (vi) Notes to Consolidated Financial Statements.

		REPUBLIC FIRST BANCORP, INC.

Date: ~~November 3, 2017~~May 9, 2018	By:	/s/ Harry D. Madonna
		Harry D. Madonna
		President and Chief Executive Officer (principal executive officer)

Date: ~~November 3, 2017~~May 9, 2018	By:	/s/ Frank A. Cavallaro
		Frank A. Cavallaro
		Executive Vice President and Chief Financial Officer (principal financial and accounting officer)