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.
or
[ ] | 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 16th Street, Philadelphia, Pennsylvania | 19102 |
(Address of principal executive offices) | (Zip code) |
215-735-4422
(Registrant'sRegistrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock | FRBK | Nasdaq Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [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 [ ] | 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'sRegistrant’s classes of common stock, as of the latest practicable date.
Common Stock, $0.01 per share |
|
Title of Class | Number of Shares Outstanding as of November |
REPUBLIC FIRST BANCORP, INC. AND | ||
TABLE OF CONTENTS | ||
Part I: Financial Information | Page | |
Item 1. | Financial Statements | |
Consolidated balance sheets as of September 30, | 1 | |
Consolidated statements of | 2 | |
Consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, | 3 | |
Consolidated statements of cash flows for the nine months ended September 30, | 4 | |
Consolidated statements of changes in | 5 | |
Notes to consolidated financial statements (unaudited) | 6 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 37 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 58 |
Item 4. | Controls and Procedures | |
Part II: Other Information | ||
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | 59 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 59 |
Item 3. | Defaults Upon Senior Securities | 59 |
Item 4. | Mine Safety Disclosures | 59 |
Item 5. | Other Information | 59 |
Item 6. | Exhibits | 60 |
Signatures | 61 |
Republic First Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets September 30 (Dollars in thousands, except per share data) (unaudited) September 30, 2019 December 31, 2018 ASSETS Cash and due from banks Interest bearing deposits with banks Cash and cash equivalents Investment securities available for sale, at fair value Investment securities held to maturity, at amortized cost (fair value of $699,054 and $747,323, respectively) Restricted stock, at cost Mortgage loans held for sale, at fair value Other loans held for sale Loans receivable (net of allowance for loan losses of $8,467 and $8,615, respectively) Premises and equipment, net Other real estate owned, net Accrued interest receivable Operating lease right-of-use asset Goodwill Other assets Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits Demand – non-interest bearing Demand – interest bearing Money market and savings Time deposits Total Deposits Short-term borrowings Accrued interest payable Other liabilities Operating lease liability Subordinated debt Total Liabilities 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 59,371,623 as of September 30, 2019 and 59,318,073 as of December 31, 2018; shares outstanding 58,842,778 as of September 30, 2019 and 58,789,228 as of December 31, 2018 Additional paid in capital Accumulated deficit Treasury stock at cost (503,408 shares as of September 30, 2019 and December 31, 2018) Stock held by deferred compensation plan (25,437 shares as of September 30, 2019 and December 31, 2018) Accumulated other comprehensive loss Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity (See notes to consolidated financial statements) Republic Consolidated For the Three and Nine Months Ended September 30 (Dollars in thousands, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 Interest income: Interest and fees on taxable loans Interest and fees on tax-exempt loans Interest and dividends on taxable investment securities Interest and dividends on tax-exempt investment securities Interest on federal funds sold and other interest-earning assets Total interest income Interest expense: Demand- interest bearing Money market and savings Time deposits Other borrowings Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Non-interest income: Loan and servicing fees Mortgage banking income Gain on sales of SBA loans Service fees on deposit accounts Gain (loss) on sale of investment securities Other non-interest income Total non-interest income Non-interest expenses: Salaries and employee benefits Occupancy Depreciation and amortization Legal Other real estate owned Appraisal and other loan expenses Advertising Data processing Insurance Professional fees Automated teller machine expenses Regulatory assessments and costs Taxes, other Other operating expenses Total non-interest expense Income (loss) before provision (benefit) for income taxes Provision (benefit) for income taxes Net income (loss) Net income (loss) per share: Basic Diluted (See notes to consolidated financial statements) Republic First Bancorp, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income For the Three and Nine Months Ended September 30 (Dollars in thousands) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 Net income (loss) Other comprehensive income (loss), net of tax Unrealized gains (losses) on securities (pre-tax $720, ($3,202), $5,495, and $(12,210), respectively) Reclassification adjustment for securities (gains) losses (pre-tax ($520), $-, ($1,103), and $1, respectively) Net unrealized gains (losses) on securities 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 $393, $37, $1,037, and $106 respectively) Total other comprehensive income (loss) Total comprehensive income (loss) (See notes to consolidated financial statements) Republic First Bancorp, Inc. and Subsidiaries Consolidated Statements of For the NineMonths Ended September 30 (Dollars in thousands) (unaudited) Nine Months Ended September 30, 2019 2018 Cash flows from operating activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for loan losses Write down of other real estate owned Depreciation and amortization Stock based compensation Net (gain) loss on sale of investment securities Amortization of premiums on investment securities Accretion of discounts on retained SBA loans Fair value adjustments on SBA servicing assets Proceeds from sales of SBA loans originated for sale SBA loans originated for sale Gains on sales of SBA loans originated for sale Proceeds from sales of mortgage loans originated for sale Mortgage loans originated for sale Fair value adjustment for mortgage loans originated for sale Gains on sales of mortgage loans originated for sale Amortization of debt issuance costs Non-cash expense related to leases Increase in accrued interest receivable and other assets Increase (decrease) in accrued interest payable and other liabilities Net cash provided by operating activities Cash flows from investing activities Purchase of investment securities available for sale Purchase of investment securities held to maturity Proceeds from the sale of securities available for sale Proceeds from the maturity or call of securities available for sale Proceeds from the maturity or call of securities held to maturity Redemption of restricted stock Net increase in loans Net proceeds from sale of other real estate owned Premises and equipment expenditures Net cash used in investing activities Cash flows from financing activities Net proceeds from exercise of stock options Net increase in demand, money market and savings deposits Net increase in time deposits Repayment of short-term borrowings Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of period Supplemental disclosures Interest paid Non-cash transfers from loans to other real estate owned Conversion of subordinated debt to common stock (See notes to consolidated financial statements) Republic First Bancorp, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity For the Three and Nine Months Ended September 30, 2019 and 2018 (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 Balance July 1, 2019 Net loss Other comprehensive income, net of tax Stock based compensation Balance September 30, 2019 Balance January 1, 2019 Net loss Other comprehensive income, net of tax Stock based compensation Options exercised (53,550 shares) Balance September 30, 2019 Balance July 1, 2018 Net income Other comprehensive loss, net of tax Stock based compensation Options exercised (28,750 shares) Balance September 30, 2018 Balance January 1, 2018 Reclassification due to the adoption of ASU 2018-02 Net income Other comprehensive loss, net of tax Stock based compensation Conversion of subordinated debt to common stock (1,624,614 shares) Options exercised (174,225 shares) Balance September 30, 2018 (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 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 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 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 Mortgage Banking Activities and Mortgage Loans Held for Sale Mortgage loans held for sale are originated and held until sold to permanent investors. 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. Interest Rate Lock Commitments 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 where the servicing is released, and the servicing released premium is included in the market price. See Note 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 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, 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 In evaluating the Stock-Based Compensation The Company has a Stock Option and Restricted Stock Plan On April 29, 2014 the 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 2019 2018 Dividend yield(1) Expected volatility(2) Risk-free interest rate(3) Expected life(4) (years) Assumed forfeiture rate(5) (1) A dividend yield of 0.0% is utilized because cash dividends have never been paid. (2) (3) The risk-free interest rate is based on the five to seven year Treasury bond. (4) The expected life reflects a 1 to 4 year vesting period, the maximum ten year term and review of historical behavior. (5) Forfeiture rate is determined through forfeited and expired options as a percentage of options granted over the current three year period. During the nine months ended September 30, Information regarding stock based compensation for the nine months ended September 30, 2019 2018 Stock based compensation expense recognized Number of unvested stock options Fair value of unvested stock options Amount remaining to be recognized as expense The remaining unrecognized expense amount of Earnings per Share Earnings per share The calculation of EPS for the three and nine months ended September 30, Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 Net income (loss) -basic and diluted Weighted average shares outstanding Net income (loss) per share – basic Weighted average shares outstanding (including dilutive CSEs) Net income (loss) per share – diluted The following is a summary of securities that could potentially dilute basic earnings per common share in future (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 Anti-dilutive securities Share based compensation awards Recent Accounting Pronouncements ASU 2014-09 In May 2014, the FASB issued ASU 2016-01 In January 2016, the FASB issued ASU 2016-02 In February 2016, the FASB issued In July 2018, the FASB issued ASU 2018-11 “Leases (Topic 842): Targeted Improvements,” which provided lessees the option to apply the new leasing standard to all open leases as of the adoption date. Prior to this ASU issuance, a modified retrospective transition approach In December 2018, the FASB issued ASU 2018-20 "Leases (Topic 842): Narrow-Scope Improvements for Lessors," which provided lessors a policy election to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Additionally, the update requires certain lessors to exclude from variable payments lessor costs paid by lessees directly to third parties. The Company adopted this ASU on January 1, 2019. The Company recognized an ROU asset of $34.2 million and total operating lease liability obligations of $35.1 million at January 1, 2019. Capital ratios remained in compliance with the regulatory definition of well capitalized. There were no material changes to the recognition of operating lease expense in the consolidated statements of income. The Company adopted certain practical expedients available under the new guidance, which did not require it to (1) reassess whether any expired or existing contracts contain leases, (2) reassess the lease classification for 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 is currently evaluating the impact of this ASU, continuing its implementation efforts and reviewing the loss modeling requirements consistent with lifetime expected loss estimates. Calculations of expected losses under the new guidance are currently being run parallel to the calculations under existing guidance to assess and evaluate the potential impact to the Company’s financial statements. The Company expects that the new model will include different assumptions used in calculating credit losses, such as estimating losses over the estimated life of a financial asset and will consider expected future changes in macroeconomic conditions. The adoption of this ASU may result in an increase to the Company's allowance for loan losses which will depend upon the nature and characteristics of the Company's loan portfolio at the adoption date, as well as the macroeconomic conditions and forecasts at that date. For the Company, this update will be effective for interim and annual periods beginning after December 15, 2019. 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 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 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 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 ASU 2017-09 In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification in ASC 718. The ASU also provides that modification accounting is only required if the fair value, vesting conditions, or the classification of the award as equity or a liability changes as a result of the change in terms or conditions. The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The ASU became effective January 1, 2018 on a prospective basis for awards modified on or after the adoption date. The adoption of ASU-2017-09 did not have a material impact 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 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. ASU 2018-07 In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718). The ASU simplifies the accounting for share based payments granted to non-employees for goods and services. The ASU applies to all share based payment transactions in which a grantor acquires goods or services from non-employees to be used or consumed in a grantor’s own operations by issuing share based payment awards. With the amended guidance from ASU 2018-07, non-employees share based payments are measured with an estimate of the fair value of the equity of the business is obligated to issue at the grant date (the date that the business and the stock award recipient agree to the terms of the award). Compensation would be recognized in the same period and in the same manner as if the entity had paid cash for goods and services instead of stock. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company adopted this ASU on January 1, 2019. 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 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, At September 30, 2019 (dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Government agencies Collateralized mortgage obligations Agency mortgage-backed securities Municipal securities Corporate bonds Total securities available for sale U.S. Government agencies Collateralized mortgage obligations Agency mortgage-backed securities Total securities held to maturity At December 31, 2018 (dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Collateralized mortgage obligations Agency mortgage-backed securities Municipal securities Corporate bonds Asset-backed securities Total securities available for sale U.S. Government agencies Collateralized mortgage obligations Agency mortgage-backed securities Total securities held to maturity The following table presents investment securities by stated maturity at September 30, Available for Sale Held to Maturity (dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Due in 1 year or less After 1 year to 5 years After 5 years to 10 years After 10 years Collateralized mortgage obligations Agency mortgage-backed securities Total The 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 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 There were no impairment charges (credit losses) The following table presents a roll-forward of the balance of credit-related impairment losses on securities held at September 30, (dollars in thousands) 2019 2018 Beginning Balance, January 1st Additional credit-related impairment loss on securities for which an other-than-temporary impairment was previously recognized Reductions for securities sold during the period Ending Balance, September 30th 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 and held to maturity section: At September 30, 2019 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 Agency mortgage-backed securities Corporate bonds Total Available for Sale At September 30, 2019 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 Collateralized mortgage obligations Agency mortgage-backed securities Total Held to Maturity At December 31, 2018 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 Agency mortgage-backed securities Municipal securities Corporate bonds Asset backed securities Total Available for Sale At December 31, 2018 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 Collateralized mortgage obligations Agency mortgage-backed securities Total Held to Maturity Unrealized losses on securities in the investment portfolio amounted to The Company held 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 At September 30, The unrealized Proceeds associated with the sale of There were no proceeds from the sale of investments securities for the three months ended September 30, 2018. During the nine months ended September 30, 2018, the proceeds from the sale of investment securities were $5.7 million. A gross loss of $1,000 was Note 6: Loans Receivable and Allowance for Loan Losses The following table sets forth the (dollars in thousands) September 30, 2019 December 31, 2018 Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total loans receivable Deferred costs (fees) Allowance for loan losses Net loans receivable The Company disaggregates its loan portfolio into groups of loans with similar risk characteristics for purposes of estimating the allowance for loan losses. The 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 months ended September 30, 2019 and 2018: (dollars in thousands) 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, 2019 Allowance for loan losses: Beginning balance: Charge-offs Recoveries Provisions (credits) Ending balance Three months ended September 30, 2018 Allowance for loan losses: Beginning balance: Charge-offs Recoveries Provisions (credits) Ending balance The following tables provide the activity in and ending balances of the allowance for loan losses by loan portfolio class at and for the nine months ended September 30, (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, 2019 Allowance for loan losses: Beginning balance: Charge-offs Recoveries Provisions (credits) Ending balance Nine months ended September 30, 2018 Allowance for loan losses: Beginning balance: Charge-offs Recoveries Provisions (credits) Ending balance 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, (dollars in thousands) Commercial Real Estate Construction and Land Development Commercial and Industrial Owner Occupied Real Estate Consumer and Other Residential Mortgage Unallocated Total September 30, 2019 Allowance for loan losses: Individually evaluated for impairment Collectively evaluated for impairment Total allowance for loan losses Loans receivable: Loans evaluated individually Loans evaluated collectively Total loans receivable (dollars in thousands) Commercial Real Estate Construction and Land Development Commercial and Industrial Owner Occupied Real Estate Consumer and Other Residential Mortgage Unallocated Total December 31, 2018 Allowance for loan losses: Individually evaluated for impairment Collectively evaluated for impairment Total allowance for loan losses Loans receivable: Loans evaluated individually Loans evaluated collectively Total loans receivable 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, September 30, 2019 December 31, 2018 (dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total With an allowance recorded: Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total Total: Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total The following table presents additional information regarding the Three Months Ended September 30, 2019 2018 (dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total The following table presents additional information regarding the Nine Months Ended September 30, 2019 2018 (dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total 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, (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, 2019 Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total (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 December 31, 2018 Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total 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 (dollars in thousands) Pass Special Mention Substandard Doubtful Total At September 30, 2019: Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total (dollars in thousands) Pass Special Mention Substandard Doubtful Total At December 31, 2018: Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total The following table shows non-accrual loans by class as of September 30, (dollars in thousands) September 30, 2019 December 31, 2018 Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total If these loans were performing under their original contractual rate, interest income on such loans would have increased approximately 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 The following table summarizes (dollars in thousands) Number of Loans Accrual Status Non- Accrual Status Total TDRs September 30, 2019 Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total December 31, 2018 Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total 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 There were no loan modifications made during the three and nine months ended September 30, After a loan is determined to be a TDR, the Company continues to track its performance under the most recent restructured terms. There were no TDRs that subsequently defaulted during the three and nine months ended September 30, There was one residential mortgage in the process of foreclosure as of September 30, 2019. There were no residential mortgages in the process of foreclosure as of December 31, 2018. There was no other real estate owned relating to residential real estate at September 30, 2019 and December 31, 2018. Note Management uses its best judgment in estimating the fair value of the 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 Level 2 Level 3 An asset or For financial assets (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, 2019 Assets: U.S. Government agencies Collateralized mortgage obligations Agency mortgage-backed securities Municipal securities Corporate bonds Securities Available for Sale Mortgage Loans Held for Sale SBA Servicing Assets Interest Rate Lock Commitments Best Efforts Forward Loan Sales Commitments Mandatory Forward Loan Sales Commitments Liabilities: Interest Rate Lock Commitments Best Efforts Forward Loan Sales Commitments Mandatory Forward Loan Sales Commitments December 31, 2018 Assets: Collateralized mortgage obligations Agency mortgage-backed securities Municipal securities Corporate bonds Asset-backed securities Securities Available for Sale Mortgage Loans Held for Sale SBA Servicing Assets Interest Rate Lock Commitments Best Efforts Forward Loan Sales Commitments Mandatory Forward Loan Sales Commitments Liabilities: Interest Rate Lock Commitments Best Efforts Forward Loan Sales Commitments Mandatory Forward Loan Sales Commitments The following Three Months Ended September 30, (dollars in thousands) 2019 2018 Beginning balance, July 1st Additions Fair value adjustments Ending balance, September 30th Nine Months Ended September 30, (dollars in thousands) 2019 2018 Beginning balance, January 1st Additions Fair value adjustments Ending balance, September 30th Fair value adjustments are recorded as loan 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, Three Months Ended September 30, 2019 Three Months Ended September 30, 2018 Level 3 Investments Only (dollars in thousands) Trust Preferred Securities Corporate Bonds Trust Preferred Securities Corporate Bonds Balance, July 1st Unrealized gains (losses) Proceeds from sales Realized losses Balance, September 30th Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018 Level 3 Investments Only (dollars in thousands) Trust Preferred Securities Corporate Bonds Trust Preferred Securities Corporate Bonds Balance, January 1st Unrealized gains (losses) Proceeds from sales Realized losses Balance, September 30th 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, (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, 2019 Impaired loans Other real estate owned December 31, 2018 Impaired loans Other real estate owned The table below presents additional quantitative information about Quantitative Information about Level 3 Fair Value Measurements Asset Description Fair Value Valuation Technique Unobservable Input Range (Weighted Average) September 30, 2019 Corporate bonds Discounted Cash Flows Discount Rate (7.14%) SBA servicing assets Discounted Cash Flows Conditional Prepayment Rate (13.28%) Impaired loans Appraised Value of Collateral (1) Liquidation expenses (2) (12%) (3) Other real estate owned Appraised Value of Collateral (1) Liquidation expenses (2) (14%) (3) December 31, 2018 Corporate bonds Discounted Cash Flows Discount Rate (8.24%) SBA servicing assets Discounted Cash Flows Conditional Prepayment Rate (10.31%) Impaired loans Appraised Value of Collateral (1) Liquidation expenses (2) (13%) (3) Other real estate owned Appraised Value of Collateral (1) Liquidation expenses (2) (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 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 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 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 The types of instruments valued based on matrix pricing in active markets include all of the 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, The 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. 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, (dollars in thousands) September 30, 2019 December 31, 2018 Carrying Amount Aggregate Unpaid Principal Balance Excess Carrying Amount Over Aggregate Unpaid Principal Balance Changes in Interest Rate Lock Commitments The Company determines the value of IRLCs by comparing the market price to the price locked in with the customer, adding fees or points to be collected at closing, subtracting commissions to be paid at closing, and subtracting estimated remaining loan origination costs to the bank based on the processing status of the loan. The Company also considers pull-through as it determines the fair value of 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. 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 Other Real Estate Owned (Carried at Lower of Cost or Fair Value) These assets are carried at the lower of cost or fair value. Fair value is determined through valuations periodically performed by third-party appraisers, and the real estate is carried at the lower of its carrying amount or fair value less estimated costs to sell. Any declines in the fair value of the real estate properties below the initial cost basis are recorded through a valuation expense. At September 30, 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 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, (dollars in thousands) September 30, 2019 December 31, 2018 SBA Servicing Asset Fair Value of SBA Servicing Asset Composition of SBA Loans Serviced for Others Fixed-rate SBA loans Adjustable-rate SBA loans Total Weighted Average Remaining Term (years) 20.7 20.4 Prepayment Speed Effect on fair value of a 10% increase Effect on fair value of a 20% increase Weighted Average Discount Rate Effect on fair value of a 10% increase Effect on fair value of a 20% increase 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. Off-Balance Sheet Financial Instruments (Disclosed at notional amounts) Fair values for the The estimated fair values of the Fair Value Measurements at September 30, 2019 (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 Investment securities available for sale Investment securities held to maturity Restricted stock Loans held for sale Loans receivable, net SBA servicing assets Accrued interest receivable Interest rate lock commitments Best efforts forward loan sales commitments Mandatory forward loan sales commitments Financial liabilities: Deposits Demand, savings and money market Time Subordinated debt Accrued interest payable Interest rate lock commitments Best efforts forward loan sales commitments Mandatory forward loan sales commitments Off-Balance Sheet Data Commitments to extend credit Standby letters-of-credit The estimated fair values of the Fair Value Measurements at December 31, 2018 Carrying Amount Fair Value Quoted Prices in Active Markets for I dentical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents Investment securities available for sale Investment securities held to maturity Restricted stock Loans held for sale Loans receivable, net SBA servicing assets Accrued interest receivable Interest rate lock commitments Best efforts forward loan sales commitments Mandatory forward loan sales commitments Financial liabilities: Deposits Demand, savings and money market Time Subordinated debt Accrued interest payable Interest rate lock commitments Best efforts forward loan sales commitments Mandatory forward loan sales commitments Off-Balance Sheet Data Commitments to extend credit Standby letters-of-credit Note 8: Changes in The following table presents the changes in accumulated other comprehensive loss by component for the nine months ended September 30, 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, 2019 Unrealized gain on securities Amounts reclassified from accumulated other comprehensive income to net income (2) Net current-period other comprehensive income Total change in accumulated other comprehensive income Balance September 30, 2019 Balance January 1, 2018 Reclassification due to the adoption of ASU 2018-02 Unrealized loss on securities Amounts reclassified from accumulated other comprehensive income to net income (2) Net current-period other comprehensive income (loss) Total change in accumulated other comprehensive income (loss) Balance September 30, 2018 Balance January 1, 2018 Reclassification due to the adoption of ASU 2018-02 Unrealized gain on securities Net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity Amounts reclassified from accumulated other comprehensive income to net income (2) Net current-period other comprehensive income (loss) Total change in accumulated other comprehensive income (loss) Balance December 31, 2018 (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 The The Company’s goodwill and intangible assets related to the acquisition of Oak Mortgage in July 2016 is detailed below: Three Months Ended September 30, (dollars in thousands) 2019 2018 Balance, July 1st Additions/Adjustments Amortization Balance, September 30th Amortization Period (in years) Indefinite Indefinite Nine Months Ended September 30, (dollars in thousands) 2019 2018 Balance, January 1st Additions/Adjustments Amortization Balance, September 30th Amortization Period (in years) Indefinite Indefinite Note Republic did not have any derivative instruments designated as hedging instruments, or subject to master netting and collateral agreements for the nine months ended September 30, September 30, 2019 Balance Sheet Presentation Fair Value Notional Amount Asset derivatives: IRLCs Other Assets Best efforts forward loan sales commitments Other Assets Mandatory forward loan sales commitments Other Assets Liability derivatives: IRLCs Other Liabilities Best efforts forward loan sales commitments Other Liabilities Mandatory forward loan sales commitments Other Liabilities December 31, 2018 Balance Sheet Presentation Fair Value Notional Amount Asset derivatives: IRLCs Other Assets Best efforts forward loan sales commitments Other Assets Mandatory forward loan sales commitments Other Assets Liability derivatives: IRLCs Other Liabilities Best efforts forward loan sales commitments Other Liabilities Mandatory forward loan sales commitments Other Liabilities The following tables Statement of Operations Presentation Three Months Ended September 30, 2019 Gain/(Loss) Nine Months Ended September 30, 2019 Gain/(Loss) Asset derivatives: IRLCs Mortgage banking income Best efforts forward loan sales commitments Mortgage banking income Mandatory forward loan sales commitments Mortgage banking income Liability derivatives: IRLCs Mortgage banking income Best efforts forward loan sales commitments Mortgage banking income Mandatory forward loan sales commitments Mortgage banking income Statement of Operations Presentation Three Months Ended September 30, 2018 Gain/(Loss) Nine Months Ended September 30, 2018 Gain/(Loss) Asset derivatives: IRLCs Mortgage banking income Best efforts forward loan sales commitments Mortgage banking income Mandatory forward loan sales commitments Mortgage banking income Liability derivatives: IRLCs Mortgage banking income Best efforts forward loan sales commitments Mortgage banking income Mandatory forward loan sales commitments Mortgage banking income The fair value of 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. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and investments. 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 tables present non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2019 and 2018. Three Months Ended September 30, (dollars in thousands) 2019 2018 Non-interest income In-scope of Topic 606 Service charges on deposit accounts Other non-interest income Non-interest income (in-scope of Topic 606) Non-interest income (out-of-scope of Topic 606) Total non-interest income Nine Months Ended September 30, (dollars in thousands) 2019 2018 Non-interest income In-scope of Topic 606 Service charges on deposit accounts Other non-interest income Non-interest income (in-scope of Topic 606) Non-interest income (out-of-scope of Topic 606) Total non-interest income 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 September 30, 2019 and December 31, 2018, 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. Note 12: Leases In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The new standard was adopted by the Company on January 1, 2019. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption. The Company elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and will not restate comparative periods. Adoption of ASU 2016-02 resulted in the recognition of total operating lease liability obligations totaling $35.1 million and the recognition of operating lease right-of-use assets totaling $34.2 million at the date of adoption. The initial balance sheet gross up upon adoption was related to operating leases on land and buildings for twenty-three lease agreements. The Company has no finance leases or material subleases for which it is the lessor of property or equipment. The Company has elected to apply the package of practical expedients allowed by the new standard under which the Company need not reassess whether any expired or existing contracts are leases or contain leases, the Company need not reassess the lease classification for any expired or existing lease, and the Company need not reassess initial direct costs for any existing leases. At January 1, 2019, the Company had thirty-four operating leases for real property, which includes operating leases for fifteen branch stores, eight offices that are used for general office space, and eleven operating leases for equipment. All of the real property operating leases include one of more options to extend the lease term. Five of the operating leases for branch stores are a lease for the land under the building and the Company owns the leasehold improvements. At September 30, 2019, the Company had thirty-seven operating lease agreements, which include operating leases for seventeen branch stores, eight offices that are used for general office space, and twelve operating leases for equipment. Sixteen of the real property operating leases did not include one of more options to extend the lease term. Five of the operating leases for branch stores are a lease for the land under the building and the Company owns the leasehold improvements. The thirty-nine operating leases have maturity dates ranging from December 2019 to December 2058 which includes options for multiple five and ten year extensions which the Company is reasonably certain to exercise. The weighted average remaining operating lease term for these leases is 19.1 years as of September 30, 2019. The discount rate used in determining the operating lease liability obligation for each individual lease was the assumed incremental borrowing rate for the Company that corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption and as of the lease commencement date for leases subsequently entered in to. The weighted average operating lease discount rate was 3.58% as of September 30, 2019. The following table presents operating lease costs net of sublease income for the three and nine months ended September 30, 2019. Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019 (dollars in thousands) Operating lease cost Sublease income Total lease cost The following table presents a maturity analysis of total operating lease liability obligations and reconciliation of the undiscounted cash flows to total operating lease liability obligations at September 30, 2019. September 30, 2019 (dollars in thousands) Operating lease payments due: Within one year One to three years Three to five years More than five years Total undiscounted cash flows Discount on cash flows Total operating lease liability obligations The following table presents cash and non-cash activities for the three and nine months ended September 30, 2019. Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019 (dollars in thousands) Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Non-cash investing and financing activities Additions to Operating leases – right of use asset New operating lease liability obligation ITEM 2: The following is We may from time to time make written or oral "forward-looking statements", including statements contained in this Financial Condition Assets Total assets increased by Cash and Cash Equivalents Cash and due from banks and interest bearing deposits Loans Held for Sale Loans held for sale are comprised of loans guaranteed by the U.S. Small Business Administration 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 Loans 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 Small Business Administration (“SBA”) bonds, U.S. Government agency collateralized mortgage obligations 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 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, At September 30, Premises and Equipment The balance of premises and equipment increased to $111.6 million at September 30, 2019 from $87.7 million at December 31, 2018. The increase was primarily due to premises and equipment expenditures of $28.6 million less depreciation and amortization expenses of $4.7 million during the first nine months of Expansion into New York City began in 2019. The Company opened its first store located at 14th Street & 5th Avenue in Manhattan in July 2019. A second store location at 51st Street & 3rd Avenue in Manhattan opened in November 2019. Other Real Estate Owned The balance of other real estate owned Operating Leases – Right of Use Asset Accounting Standards Codification Topic 842, also known as ASC 842 and ASU 2016-02, is the new lease accounting standard published by the FASB. ASC 842 represents a significant modification to the accounting treatment for leases, with the most significant change being that most leases, including operating leases, will now be capitalized on the balance sheet. Under the previous guidance (ASC 840), FASB permitted operating leases to be reported only in the footnotes of corporate financial statements. Under ASC 842, the only leases that are exempt from the capitalization requirement are short-term leases less than or equal to twelve months in length. The right-of-use asset is valued as the initial amount of Goodwill Goodwill We early adopted Accounting Standards Update ("ASU") 2017-04, Simplifying the Test for Goodwill Impairment during our annual goodwill impairment review in 2018. The new rules under this guidance provide that the goodwill impairment charge will be the amount by which the reporting unit's carrying amount exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. At July Deposits Deposits, which include non-interest and interest-bearing demand deposits, money market, savings and time deposits, are Total deposits increased by We are also in the midst of Short-term Borrowings As of September 30, 2019, we had no short-term borrowings with the FHLB compared to $91.4 million at December 31, 2018. The short-term borrowings were paid off in 2019 as a result of growth in deposit balances. Operating Lease Liability Obligation Accounting Standards Codification Topic 842, also known as ASC 842 and ASU 2016-02, is the new lease accounting standard published by the FASB. ASC 842 represents a significant modification to the accounting treatment for leases, with the most significant change being that most leases, including operating leases, will now be capitalized on the balance sheet. Under the previous guidance (ASC 840), FASB permitted operating leases to be reported only in the footnotes of corporate financial statements. Under ASC 842, the only leases that are exempt from the capitalization requirement are short-term leases less than or equal to twelve months in length. The operating lease liability obligation is calculated as the present value of the lease payments, using the discount rate specified in the lease, or if that is not available, our incremental borrowing rate. At September 30, 2019, the balance of the operating lease liability obligation was $69.6 million. Shareholders’ Equity Total Results of Operations Three Months Ended We reported a net loss of $1.8 million, or ($0.03) per diluted share, for the three months ended September 30, 2019 and compared to net income of $2.3 million, or $0.04 per diluted share for the three months ended September 30, Net interest income was $19.4 million for the three month period ended September 30, We recorded a provision for loan losses in the amount of Non-interest income increased by Non-interest expenses increased We recorded a benefit for income taxes in the Return on average assets and average equity from continuing operations was Nine Months Ended September 30, 2019Compared to Nine Months Ended September 30, 2018 We reported a net loss of $1.0 million, or ($0.02) per diluted share, for the nine months ended September 30, Net interest income for the nine months ended September 30, We recorded a provision for loan losses of $750,000 for the nine months ended September 30, 2019 compared to a provision for loan losses of $1.7 million for the nine months ended September 30, Non-interest income increased Non-interest expenses increased We recorded a benefit for income taxes in the Return on average assets and average equity from continuing operations were Analysis of Net Interest Income Historically, our earnings have depended primarily upon Average Balances and Net Interest Income For the three months ended September 30, 2019 For the three months ended September 30, 2018 (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 % % Investment securities and restricted stock (2) % % Loans receivable (2) % % Total interest-earning assets % % Other assets Total assets Interest-earning liabilities: Demand – non-interest bearing Demand – interest bearing % % Money market & savings % % Time deposits % % Total deposits % % Total interest-bearing deposits % % Other borrowings % % Total interest-bearing liabilities % % Total deposits and other borrowings % % Non-interest bearing other liabilities Shareholders’ equity Total liabilities and shareholders’ equity (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 Average Balances and Net Interest Income For the nine months ended September 30, 2019 For the nine months ended September 30, 2018 (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 % % Investment securities and restricted stock (2) % % Loans receivable (2) % % Total interest-earning assets % % Other assets Total assets Interest-earning liabilities: Demand – non-interest bearing Demand – interest bearing % % Money market & savings % % Time deposits % % Total deposits % % Total interest-bearing deposits % % Other borrowings % % Total interest-bearing liabilities % % Total deposits and other borrowings % % Non-interest bearing other liabilities Shareholders’ equity Total liabilities and shareholders’ equity Net interest income (2) Net interest spread % % Net interest margin (2) % % (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 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, For the three months ended September 30, 2019 vs. 2018 For the nine months ended September 30, 2019 vs. 2018 Changes due to: Changes due to: (dollars in thousands) Average Volume Average Rate Total Change Average Volume Average Rate Total Change Interest earned: Federal funds sold and other interest-earning assets Securities Loans Total interest-earning assets Interest expense: Deposits Interest-bearing demand deposits Money market and savings Time deposits Total deposit interest expense Other borrowings Total interest expense Net interest income Net Interest Income and Net Interest Margin Net interest income, on a fully tax-equivalent basis, a non-GAAP measure, for the three months ended September 30, Net interest income, on a fully tax-equivalent basis, a non-GAAP measure, for the nine months ended September 30, 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 Provision for Loan Losses We recorded a Non-Interest Income Total non-interest income for the three Total non-interest income for the nine months ended September 30, 2019 increased Non-Interest Expenses Three Months Ended September 30, 2019Compared to Three Months Ended September 30, 2018 Non-interest expenses increased $7.0 million, or 34%, for the three months ended September 30, 2019 compared to the same period in 2018. An explanation of changes in non-interest expenses for certain categories is presented in the following paragraphs. Salaries and employee benefits increased by Occupancy expense, including depreciation and Other real estate All other non-interest expenses increased by $2.0 million, or 33%, for the three months ended September 30, Nine Months Ended September 30, 2019Compared to Nine Months Ended September 30, 2018 Non-interest expenses increased $15.3 million, or 25%, for the nine months ended September 30, 2019 compared to the same period in 2018. An explanation of changes in non-interest expenses for certain categories is presented in the following paragraphs. Salaries and employee benefits increased by $7.6 million, or 23%, for the nine months ended September 30, 2019 compared to the same period in 2018 which was primarily driven by annual merit increases along with increased staffing levels related to our growth strategy of adding and relocating stores, which we refer to as “The Power of Red is Back”. There were twenty-eight stores open as of September 30, 2019 compared to twenty-three stores at September 30, 2018. Our first store in New York City opened in July 2019. Occupancy expense, including depreciation and amortization expenses, increased by $2.9 million, or 29%, for the nine months ended September 30, 2019 compared to the same period last year, also as a result of our continuing growth and expansion strategy. Other real estate expenses totaled $1.7 million during the nine months ended September 30, 2019, an increase of $772,000, or 88%, compared to the same period in 2018. This increase was a result of higher costs to carry foreclosed properties and higher writedowns on foreclosed assets in the current period. All other non-interest expenses increased by $4.0 million, or 22%, for the nine months ended September 30, 2019 compared to the same period last year. Increases in data processing, advertising, professional fees, automated teller machine expenses, legal, insurance, other taxes, appraisal and other loan 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 Another productivity measure utilized by management is the operating efficiency Provision (Benefit) for Income Taxes We recorded a benefit for income taxes in the 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 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 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. The net deferred tax asset balance Net Income and Net Income per Common Share The net loss for the three months ended September 30, The net loss for the nine months ended September 30, The changes in For the three month period ended September 30, Return on Average Assets and Average Equity Return on average assets (ROA) measures our net income in relation to our total average assets. Commitments, Contingencies and Concentrations Financial instruments 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 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 Regulatory Matters We are required to comply with certain Under the 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 2016 2017 2018 2019 Common equity Tier 1 capital (CET1) Tier 1 capital (to risk-weighted assets) Total capital (to risk-weighted assets) The risk-based capital ratios measure the adequacy of a Management believes that the Company and Republic met, as of September 30, The Company and The following table presents the capital regulatory ratios for both Republic and the Company as of September 30, (dollars in thousands) 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 At September 30, 2019: Total risk-based capital Republic % % % % Company % % % % Tier 1 risk-based capital Republic % % % % Company % % % % CET 1 risk-based capital Republic % % % % Company % % % % Tier 1 leveraged capital Republic % % % % Company % % % % Republic % % % % Company % % % % Tier 1 risk-based capital Republic % % % % Company % % % % CET 1 risk-based capital Republic % % % % Company % % % % Tier 1 leveraged capital Republic % % % % Company % % % % Dividend Policy We have not paid any cash dividends on our common 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, 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), comprised of certain members of 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 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 Investment Securities Portfolio At September 30, 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. Credit Quality 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 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 September 30, 2019 December 31, 2018 Loans accruing, but past due 90 days or more Non-accrual loans Total non-performing loans Other real estate owned Total non-performing assets Non-performing loans as a percentage of total loans, net of unearned income Non-performing assets as a percentage of total assets Non-performing asset balances The following table presents our 30 to 89 days past due loans at September 30, (dollars in thousands) September 30, December 31, 2019 2018 30 to 59 days past due 60 to 89 days past due Total loans 30 to 89 days past due Other Real Estate Owned The balance of other real estate owned (dollars in thousands) September 30, 2019 December 31, 2018 Beginning Balance, January 1st Additions Valuation adjustments Dispositions Ending Balance At September 30, 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 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 months ended September 30, (dollars in thousands) For the nine months ended September 30, 2019 For the twelve months ended December 31, 2018 For the nine months ended September 30, 2018 Balance at beginning of period Charge-offs: Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total charge-offs Recoveries: Commercial real estate Construction and land development Commercial and industrial Owner occupied real estate Consumer and other Residential mortgage Total recoveries Net charge-offs/(recoveries) Provision for loan losses Balance at end of period Average loans outstanding(1) As a percent of average loans:(1) Net charge-offs (annualized) Provision for loan losses (annualized) Allowance for loan losses Allowance for loan losses to: Total loans, net of unearned income Total non-performing loans (1)Includes non-accruing loans. We The allowance for loan losses as a percentage of non-performing loans (coverage ratio) was Management makes at least a quarterly determination as to an appropriate provision from earnings to maintain an allowance for loan losses that it determines is adequate to absorb inherent losses in the loan portfolio. The Board of Directors periodically reviews the status of all non-accrual and impaired loans and loans classified by the management team. The Board of Directors also considers specific loans, pools of similar loans, historical charge-off activity, economic conditions and other relevant factors in reviewing the adequacy of the allowance for loan losses. Any additions deemed necessary to the allowance for loan losses are charged to operating expenses. We evaluate loans for impairment and potential charge-offs on a quarterly basis. Any loan rated as substandard or lower will have a collateral evaluation analysis completed in accordance with the guidance under Serious delinquency is often the first indicator of a potential charge-off. Reductions in appraised collateral values and deteriorating financial condition of borrowers and guarantors are factors considered when evaluating potential charge-offs. The likelihood of possible recoveries or improvements in a Partial charge-offs of non-performing and impaired loans can significantly reduce the coverage ratio and other credit loss statistics due to the fact that the balance of the allowance for loan losses will be reduced while still carrying the remainder of a non-performing loan balance in the impaired loan category. The amount of non-performing loans for which partial charge-offs have been recorded amounted to The following table provides additional analysis of partially charged-off (dollars in thousands) September 30, 2019 December 31, 2018 Total nonperforming loans Nonperforming and impaired loans with partial charge-offs Ratio of nonperforming loans with partial charge-offs to total loans % % Ratio of nonperforming loans with partial charge-offs to total nonperforming loans % % Coverage ratio net of nonperforming loans with partial charge-offs % % Our charge-off policy is reviewed on an annual basis and updated as necessary. During the nine month period ended September 30, Effects of Inflation The majority of assets and liabilities of a financial institution are monetary in nature. Therefore, a financial institution differs greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. Management believes that the most significant impact of inflation on its financial results is through our need and ability to react to changes in interest rates. Management attempts to maintain an essentially balanced position between rate sensitive assets and liabilities over a one-year time horizon in order to protect net interest income from being affected by wide interest rate fluctuations. ITEM 3: QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK There has been no material change in the ITEM 4: CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange The Changes in Internal Controls The principal executive officer and principal financial officer also conducted an evaluation of the Limitations on the Effectiveness of Controls Control systems, no matter how well designed and operated, can provide only reasonable, not an absolute, level of assurance that the objectives of the control system are met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. PART II. OTHER INFORMATION ITEM 1. 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. ITEM 1A. RISK FACTORS Significant risk factors could adversely affect the ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS The following Exhibits are filed as part of this report. (Exhibit numbers correspond to the exhibits required by Item 601 of Regulation 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 3.2 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. 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Republic First Bancorp, Inc. 32.1 32.2 101 The following materials from the SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. REPUBLIC FIRST BANCORP, INC. Date: November By: /s/ Harry D. Madonna Harry D. Madonna President and Chief Executive Officer (principal executive officer) Date: November By: /s/ Frank A. Cavallaro Frank A. Cavallaro Executive Vice President and Chief Financial Officer (principal financial and accounting officer) 61 2017, 2019 and December 31, 2016 $ 57,562 $ 35,685 143,915 36,788 201,477 72,473 379,962 321,014 687,425 761,563 2,371 5,754 18,734 20,887 2,476 5,404 1,560,913 1,427,983 111,573 87,661 6,653 6,223 9,277 9,025 65,860 - 5,011 5,011 34,189 30,299 $ 3,085,921 $ 2,753,297 $ 595,869 $ 519,056 1,227,969 1,042,561 698,991 676,993 217,203 154,257 2,740,032 2,392,867 - 91,422 1,655 558 12,482 12,002 69,646 - 11,263 11,259 2,835,078 2,508,108 - - 594 593 271,412 269,147 (9,731 ) (8,716 ) (3,725 ) (3,725 ) (183 ) (183 ) (7,524 ) (11,927 ) 250,843 245,189 $ 3,085,921 $ 2,753,297 (unaudited) ASSETS Cash and due from banks $ 27,181 $ 19,830 Interest bearing deposits with banks 71,601 14,724 Cash and cash equivalents 98,782 34,554 Investment securities available for sale, at fair value 377,757 369,739 Investment securities held to maturity, at amortized cost (fair value of $411,257 and $425,183, respectively) 416,987 432,499 Restricted stock, at cost 1,678 1,366 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 Premises and equipment, net 71,715 57,040 Other real estate owned, net 9,169 10,174 Accrued interest receivable 6,340 5,497 Goodwill 5,011 5,011 Intangible asset - 61 Other assets 25,266 24,108 Total Assets $ 2,141,563 $ 1,923,931 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits Demand – non-interest bearing $ 398,794 $ 324,912 Demand – interest bearing 745,878 605,950 Money market and savings 619,265 635,644 Time deposits 121,468 111,164 Total Deposits 1,885,405 1,677,670 Accrued interest payable 577 444 Other liabilities 8,716 8,883 Subordinated debt 21,663 21,881 Total Liabilities 1,916,361 1,708,878 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 Additional paid in capital 255,752 253,570 Accumulated deficit (21,721 ) (27,888 ) Treasury stock at cost (503,408 shares as of September 30, 2017 and December 31, 2016) (3,725 ) (3,725 ) (183 ) (183 ) Accumulated other comprehensive loss (5,496 ) (7,294 ) Total Shareholders' Equity 225,202 215,053 Total Liabilities and Shareholders' Equity $ 2,141,563 $ 1,923,931 1FirstFirst Bancorp, Inc. and SubsidiariesStatementsStatements of Income 2017, 2019 and 2016 $ 18,298 $ 16,353 $ 53,827 $ 45,342 409 411 1,249 1,148 6,652 6,511 21,134 19,536 72 130 131 367 777 153 1,631 388 26,208 23,558 77,972 66,781 3,753 1,948 11,897 4,754 1,813 1,308 4,893 3,454 1,123 386 2,608 1,121 137 770 681 1,528 6,826 4,412 20,079 10,857 19,382 19,146 57,893 55,924 450 500 750 1,700 18,932 18,646 57,143 54,224 257 320 1,156 839 2,797 2,580 8,048 7,948 944 816 2,593 2,654 1,990 1,386 5,450 3,887 520 - 1,103 (1 ) 46 29 175 107 6,554 5,131 18,525 15,434 14,314 11,203 40,378 32,731 2,994 1,975 8,270 5,976 1,740 1,285 4,700 4,107 462 276 1,024 916 799 378 1,653 881 476 583 1,327 1,316 698 290 1,467 916 1,434 1,009 3,780 2,773 301 181 752 690 661 498 1,864 1,476 526 498 1,689 1,327 62 396 904 1,258 288 243 782 733 3,069 2,018 8,412 6,564 27,824 20,833 77,002 61,664 (2,338 ) 2,944 (1,334 ) 7,994 (516 ) 622 (319 ) 1,524 $ (1,822 ) $ 2,322 $ (1,015 ) $ 6,470 $ (0.03 ) $ 0.04 $ (0.02 ) $ 0.11 $ (0.03 ) $ 0.04 $ (0.02 ) $ 0.11 (unaudited) 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 2 2017, 2019 and 2016 $ (1,822 ) $ 2,322 $ (1,015 ) $ 6,470 583 (2,500 ) 4,456 (9,536 ) (217 ) - (894 ) 1 366 (2,500 ) 3,562 (9,535 ) 318 29 841 83 684 (2,471 ) 4,403 (9,452 ) $ (1,138 ) $ (149 ) $ 3,388 $ (2,982 ) (unaudited) 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 (See notes to consolidated financial statements)3Republic First Bancorp, Inc. and SubsidiariesConsolidated Statements of Cash FlowsFor the Nine Months Ended September 30, 2017 and 2016(Dollars in thousands)(unaudited) Nine Months Ended September 30, 2017 2016 Cash flows from operating activities Net income $ 6,167 $ 3,448 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Provision for loan losses 500 1,557 Write down of other real estate owned 777 521 Depreciation and amortization 3,588 2,816 Stock based compensation 1,329 562 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 Accretion of discounts on retained SBA loans (859 ) (1,057 ) Fair value adjustments on SBA servicing assets 711 894 Proceeds from sales of SBA loans originated for sale 28,564 48,031 SBA loans originated for sale (22,395 ) (43,016 ) Gains on sales of SBA loans originated for sale (2,315 ) (4,212 ) Proceeds from sales of mortgage loans originated for sale 263,689 79,029 Mortgage loans originated for sale (274,133 ) (82,240 ) Gains on sales of mortgage loans originated for sale (7,056 ) (2,783 ) Amortization of intangible assets 61 17 Amortization of debt issuance costs 22 22 Increase in accrued interest receivable and other assets (3,720 ) (726 ) Decrease in accrued interest payable and other liabilities (34 ) (396 ) Net cash (used in) provided by operating activities (3,255 ) 2,990 Cash flows from investing activities Purchase of investment securities available for sale (53,052 ) (117,812 ) Purchase of investment securities held to maturity (21,958 ) (69,792 ) 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 Net increase in loans (131,100 ) (70,006 ) Net proceeds from sale of other real estate owned 357 1,387 Net cash paid in acquisition - (5,913 ) Premises and equipment expenditures (18,263 ) (12,122 ) Net cash used in investing activities (140,867 ) (146,582 ) Cash flows from financing activities Net proceeds from exercise of stock options 615 226 Net increase in demand, money market and savings deposits 197,431 291,385 Net increase in time deposits 10,304 41,549 Decrease in short-term borrowings - (66,666 ) Net cash provided by financing activities 208,350 266,494 Net increase in cash and cash equivalents 64,228 122,902 Cash and cash equivalents, beginning of year 34,554 27,139 Cash and cash equivalents, end of period $ 98,782 $ 150,041 Supplemental disclosures Interest paid $ 6,109 $ 5,011 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 - 4Changes in Shareholders' Equity 2017, 2019 and 2016 $ (1,015 ) $ 6,470 750 1,700 240 18 4,700 4,107 2,005 1,584 (1,103 ) 1 2,257 2,271 (1,083 ) (1,073 ) 1,106 1,252 37,916 36,811 (32,395 ) (34,969 ) (2,593 ) (2,654 ) 246,816 355,181 (239,045 ) (335,734 ) 285 474 (6,215 ) (6,400 ) 4 5 924 - (4,524 ) (1,278 ) 2,996 (1,049 ) 12,026 26,717 (150,734 ) (81,744 ) - (61,083 ) 54,742 5,713 41,571 39,409 73,890 46,156 3,383 2 (133,667 ) (217,967 ) 401 495 (28,612 ) (11,072 ) (139,026 ) (280,091 ) 261 668 284,219 324,658 62,946 12,405 (91,422 ) - 256,004 337,731 129,004 84,357 72,473 61,942 $ 201,477 $ 146,299 $ 18,982 $ 10,749 $ 1,071 $ 315 $ - $ 10,094 (unaudited) Stock Held by Deferred Compensation Plan Accumulated Other Comprehensive Loss Balance January 1, 2017 $ 573 $ 253,570 $ (27,888 ) $ (3,725 ) $ (183 ) $ (7,294 ) $ 215,053 Net income 6,167 6,167 1,798 1,798 Stock based compensation 1,329 1,329 Conversion of subordinated debt to common stock (36,922 shares) 240 240 Options exercised (186,850 shares) 2 613 615 Balance September 30, 2017 $ 575 $ 255,752 $ (21,721 ) $ (3,725 ) $ (183 ) $ (5,496 ) $ 225,202 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 5 $ 594 $ 270,789 $ (7,909 ) $ (3,725 ) $ (183 ) $ (8,208 ) $ 251,358 (1,822 ) (1,822 ) 684 684 623 623 $ 594 $ 271,412 $ (9,731 ) $ (3,725 ) $ (183 ) $ (7,524 ) $ 250,843 $ 593 $ 269,147 $ (8,716 ) $ (3,725 ) $ (183 ) $ (11,927 ) $ 245,189 (1,015 ) (1,015 ) 4,403 4,403 2,005 2,005 1 260 261 $ 594 $ 271,412 $ (9,731 ) $ (3,725 ) $ (183 ) $ (7,524 ) $ 250,843 $ 593 $ 267,974 $ (13,195 ) $ (3,725 ) $ (183 ) $ (16,130 ) $ 235,334 2,322 2,322 (2,471 ) (2,471 ) 532 532 107 107 $ 593 $ 268,613 $ (10,873 ) $ (3,725 ) $ (183 ) $ (18,601 ) $ 235,824 $ 575 $ 256,285 $ (18,983 ) $ (3,725 ) $ (183 ) $ (7,509 ) $ 226,460 1,640 (1,640 ) - 6,470 6,470 (9,452 ) (9,452 ) 1,584 1,584 16 10,078 10,094 2 666 668 $ 593 $ 268,613 $ (10,873 ) $ (3,725 ) $ (183 ) $ (18,601 ) $ 235,824 "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, Southern New Jersey, and South Jersey areaNew York City markets through its offices and store locations in Philadelphia, Montgomery, Delaware, Bucks, Camden, Burlington, Atlantic, Gloucester, and GloucesterNew York Counties. ("(“Oak Mortgage"Mortgage”) and, as a result, Oak Mortgage became a wholly owned subsidiary of Republic on that date. Oak Mortgage is headquartered in Marlton, NJ and is licensed to do business in Pennsylvania, Delaware, New Jersey, and Florida. On January 1, 2018, Oak Mortgage was merged into Republic and restructured as a division with Republic. The Oak Mortgage name is still utilized for marketing and branding purposes. The Company also has threetwo unconsolidated subsidiaries, which are statutory trusts established by the Company in connection with its sponsorship of threetwo separate issuances of trust preferred securities.("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. ("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 periodsperiod ended September 30, 20172019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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'sCompany’s results of operations are subject to risks and uncertainties surrounding Republic'sRepublic’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.6LoansOn July 28, 2016, management elected to adoptManagement has adopted 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.Gains and losses on loan salesChanges in fair value are recordedreflected in non-interestmortgage banking income and directin the statements of income. Direct loan origination costs are recognized when incurred and are included in non-interest expense in the statements of income. ("IRLCs" (“IRLCs”)1110 Derivatives and Risk Management Activities.("OTTI"(“OTTI”) of investment securities, fair value of financial instruments, (see "Note 7" below), and the realization of deferred income tax assets. Consideration is given to a variety of factors in establishing these estimates.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'sCompany’s and Republic'sRepublic’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.7"other-than-temporary"“other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospectprospects 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 the 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.Company'sCompany’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 orA 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.("(“the 2005 Plan"Plan”), under which the Company granted options, restricted stock or stock appreciation rights to the Company'sCompany’s employees, directors, and certain consultants. The 2005 Plan became effective on November 14, 1995, and was amended and approved at the Company'sCompany’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, 2017,2019, 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'sCompany’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.Company'sCompany’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'sCompany’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, 2017,2019, the maximum number of common shares issuable under the 2014 Plan was 5.96.3 million shares. During the nine months ended September 30, 2017, 906,5002019, 1.3 million options were granted under the 2014 Plan with a fair value of $3,188,984.820172019 and 20162018 are as follows: 0.0% 0.0% 28.81% 28.22% 1.42% to 2.78% 2.35% to 2.96% 6.25 6.25 4.0% 4.0% 2017 2016 0.0% 0.0% 45.46% to 50.09% 46.38% to 52.54% 1.89% to 2.26% 1.23% to 1.82% 5.5 to 7.0 years 5.5 to 7.0 years Assumed forfeiture rate 6.0% 10.0% ExpectedThe expected volatility iswas based on Bloomberg's five and one-halfthe historical volatility of the Company’s common stock price as adjusted for certain historical periods of extraordinary volatility in order to seven year volatility calculationprovide a basis for "FRBK" stock.(4) 20172019 and 2016, 526,624 options2018, 842,898 shares and 487,550 options753,864 shares vested, respectively. Expense is recognized ratably over the period required to vest. At September 30, 2017,2019, the intrinsic value of the 3,038,4505,007,725 options outstanding was $12,954,271,$780,000, while the intrinsic value of the 1,379,8482,645,960 exercisable (vested) options was $7,764,313.$753,000. At September 30, 2018, the intrinsic value of the 3,841,275 options outstanding was $6.7 million, while the intrinsic value of the 1,905,112 exercisable (vested) options was $5.4 million. During the nine months ended September 30, 2017, 186,8502019, 53,550 options were exercised withresulting in cash receivedreceipts of $615,226$261,143 and 14,100142,875 options were forfeited with a weighted average grant date fair value of $53,246.$381,811. During the nine months ended September 30, 2016, 80,3752018, 174,225 options were exercised withresulting in cash receivedreceipts of $226,271$668,194 and 38,55070,125 options were forfeited with a weighted average grant date fair value of $55,920.20172019 and 20162018 is set forth below: $ 2,005,000 $ 1,584,000 2,361,765 1,936,163 $ 6,095,468 $ 5,499,104 $ 4,183,148 $ 3,886,278 Stock based compensation expense recognized $ 1,329,000 $ 764,000 Number of unvested stock options 1,658,602 1,316,476 Fair value of unvested stock options $ 4,553,854 $ 2,608,986 Amount remaining to be recognized as expense $ 2,966,049 $ 1,284,071 $2,966,049$4,183,148 will be recognized ratably as expense through July 2021.("EPS"(“EPS”) consistconsists 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'sCompany’s stock option plans and convertible securities related tofor the trust preferred securities issued in 2008. In the diluted EPS computation, the after tax interest expense on the trust preferred securities issuance is added back to net income. For the three and nine months ended September 30, 20172019 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.920172019 and 20162018 is as follows (in thousands, except per share amounts): $ (1,822 ) $ 2,322 $ (1,015 ) $ 6,470 58,843 58,774 58,830 58,213 $ (0.03 ) $ 0.04 $ (0.02 ) $ 0.11 58,843 59,774 58,830 59,338 $ (0.03 ) $ 0.04 $ (0.02 ) $ 0.11 2017 2016 2017 2016 Net income (basic and diluted) $ 2,321 $ 1,340 $ 6,167 $ 3,448 Weighted average shares outstanding 56,974 37,916 56,915 37,879 Net income per share – basic $ 0.04 $ 0.04 $ 0.11 $ 0.09 Weighted average shares outstanding (including dilutive CSEs) 58,314 38,375 58,213 38,355 Net income per share – diluted $ 0.04 $ 0.03 $ 0.11 $ 0.09 periods thatperiods. These securities were not included in the computation of diluted earnings per common share because to do sothe effect would have been anti-dilutive for the periods presented. - 2,845 - 2,720 (in thousands) 2017 2016 2017 2016 Anti-dilutive securities Share based compensation awards 1,698 2,022 1,740 2,005 Convertible securities 1,625 1,662 1,625 1,662 Total anti-dilutive securities 3,323 3,684 3,365 3,667 ASUAccounting 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, The Company'sThe Company’s revenue is comprised of net interest income and noninterestnon-interest 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 scopeadopted 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 continuingconsolidated financial statements. Refer to evaluate specific contracts, but have not identified material changesNote 11: Revenue Recognition for further disclosure as to the timing or amountimpact 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 2018.10Accounting 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 thison January 1, 2018 and was adopted using a modified retrospective approach. The adoption of ASU and it isNo. 2016-01 on January 1, 2018 did not expected to have a significantmaterial impact on the Company’s Consolidated Financial Statements. In accordance with (4) above, the Company measured the fair value of its financial condition or resultsloan portfolio as of operations.Accounting Standards Update ("ASU")ASU No. 2016-02, Leases. From the Company'sCompany’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 beare 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 beis 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'tdoesn’t convey risks and rewards or control, an operating lease results. The new standard iswas effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Ais requiredwas required.capitalany expired or existing leases, (3) reassess initial direct costs for any existing leases, and operating leases existing(4) evaluate whether certain sales taxes and other similar taxes are lessor costs. The Company elected the use-of-hindsight practical expedient. Additionally, the Company elected to apply the new lease guidance at or entered into after,the adoption date, rather than at 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 evaluating the impact of the pending adoption of the new standard on its consolidated financial statements, the Company expects an increase of assets and liabilities on the Company's consolidated financial statements.11ASU 2016-09 In March 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment 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 material impact on the consolidated financial statements going forward. The Company has not yet determined the impact the adoption of ASU 2016-13 will have on the consolidated financial statements.is effectivewas adopted on January 1, 2018, on a retrospective basis, with earlybasis. The adoption permitted. This new accounting guidance willof 2016-15 did not result in someany changes in classificationclassifications 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.ASU-2017-01Foundation'sFoundation’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. TheUnless the Company has not yet determinedenters into a business combination, the impact of the adoption of ASU 2017-01 will not have a material impact on the consolidated financial statements.12"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 determinedearly adopted this ASU on July 1, 2018 using the impact thesimplified method. The adoption of ASU 2017-04 willdid not have a material impact on the consolidated financial statements.Company has not yet determined the impact the adoption of ASU 2017-08 willdid not have a material impact on the consolidated financial statements.bankbanking segment primarily encompasses the commercial loan and deposit activities of Republic, as well as, residential mortgage and consumer loan products in the area surrounding its stores.1320172019 and December 31, 20162018 is as follows: $ 29,404 $ 16 $ - $ 29,420 254,439 2,641 (691 ) 256,389 23,889 93 (81 ) 23,901 4,065 17 - 4,082 69,499 9 (3,338 ) 66,170 $ 381,296 $ 2,776 $ (4,110 ) $ 379,962 $ 98,481 $ 1,192 $ (97 ) $ 99,576 448,807 9,962 (620 ) 458,149 140,137 1,768 (576 ) 141,329 $ 687,425 $ 12,922 $ (1,293 ) $ 699,054 $ 197,812 $ 567 $ (2,120 ) $ 196,259 39,105 5 (611 ) 38,499 20,807 64 (232 ) 20,639 62,583 87 (3,396 ) 59,274 6,433 - (90 ) 6,343 $ 326,740 $ 723 $ (6,449 ) $ 321,014 $ 107,390 $ - $ (3,772 ) $ 103,618 500,690 570 (5,793 ) 495,467 153,483 - (5,245 ) 148,238 $ 761,563 $ 570 $ (14,810 ) $ 747,323 At September 30, 2017 Gross Unrealized Gains Gross Unrealized Losses Collateralized mortgage obligations $ 244,170 $ 73 $ (4,239 ) $ 240,004 Agency mortgage-backed securities 43,906 3 (1,107 ) 42,802 Municipal securities 15,600 130 (71 ) 15,659 Corporate bonds 66,659 97 (2,427 ) 64,329 Asset-backed securities 13,858 1 (4 ) 13,855 Trust preferred securities 1,545 - (437 ) 1,108 Total securities available for sale $ 385,738 $ 304 $ (8,285 ) $ 377,757 U.S. Government agencies $ 104,446 $ 105 $ (1,710 ) $ 102,841 Collateralized mortgage obligations 179,928 512 (2,413 ) 178,027 Agency mortgage-backed securities 131,613 22 (2,246 ) 129,389 Other securities 1,000 - - 1,000 Total securities held to maturity $ 416,987 $ 639 $ (6,369 ) $ 411,257 At December 31, 2016 Gross Unrealized Gains Gross Unrealized Losses Collateralized mortgage obligations $ 230,252 $ 145 $ (5,632 ) $ 224,765 Agency mortgage-backed securities 37,973 32 (1,295 ) 36,710 Municipal securities 26,825 151 (429 ) 26,547 Corporate bonds 66,718 8 (1,978 ) 64,748 Asset-backed securities 15,565 - (416 ) 15,149 Trust preferred securities 3,063 - (1,243 ) 1,820 Total securities available for sale $ 380,396 $ 336 $ (10,993 ) $ 369,739 U.S. Government agencies $ 98,538 $ 8 $ (2,238 ) $ 96,308 Collateralized mortgage obligations 202,990 793 (2,553 ) 201,230 Agency mortgage-backed securities 129,951 1 (3,327 ) 126,625 Other securities 1,020 - - 1,020 Total securities held to maturity $ 432,499 $ 802 $ (8,118 ) $ 425,183 142017.2019. 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. $ 3,439 $ 3,448 $ - $ - 20,839 20,855 11,487 11,617 75,690 72,478 86,994 87,959 3,000 2,891 - - 254,439 256,389 448,807 458,149 23,889 23,901 140,137 141,329 $ 381,296 $ 379,962 $ 687,425 $ 699,054 Available for Sale Held to Maturity 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.Company'sCompany’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, 20172019 and December 31, 2016.2018. There were also no MBS or CMO securities that were rated "Alt-A"“Alt-A” or "sub-prime"“sub-prime” as of those dates.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.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. Nowere incurred on trust preferredany securities duringheld in the portfolio for the three and nine month periodsmonths ended September 30, 2017. Impairment charges on trust preferred securities for the three month period ended2019 and September 30, 2016 amounted to $2,000. Impairment charges on trust preferred securities for the nine month period ended September 30, 2016 amounted to $7,000.1520172019 and 20162018 for which a portion of OTTI was recognized in other comprehensive income: $ - $ 274 - - - - $ - $ 274 (dollars in thousands) 2017 2016 $ 937 $ 930 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 ) - $ 454 $ 937 $ 55,237 $ 623 $ 9,339 $ 68 $ 64,576 $ 691 2,716 8 8,742 73 11,458 81 11,390 110 51,772 3,228 63,162 3,338 $ 69,343 $ 741 $ 69,853 $ 3,369 $ 139,196 $ 4,110 $ 13,938 $ 70 $ 3,750 $ 27 $ 17,688 $ 97 2,575 11 68,023 609 70,598 620 - - 69,551 576 69,551 576 $ 16,513 $ 81 $ 141,324 $ 1,212 $ 157,837 $ 1,293 At September 30, 2017 Less than 12 months 12 months or more Total Unrealized Losses Unrealized Losses Unrealized Losses Collateralized mortgage obligations $ 106,932 $ 1,875 $ 85,469 $ 2,364 $ 192,401 $ 4,239 Agency mortgage-backed securities 37,066 994 5,064 113 42,130 1,107 Municipal securities 4,278 24 2,591 47 6,869 71 Corporate bonds 19,638 362 32,935 2,065 52,573 2,427 Asset backed securities - - 6,006 4 6,006 4 Trust preferred securities - - 1,108 437 1,108 437 Total Available for Sale $ 167,914 $ 3,255 $ 133,173 $ 5,030 $ 301,087 $ 8,285 $ 58,883 $ 270 $ 83,377 $ 1,850 $ 142,260 $ 2,120 1,134 10 16,768 601 17,902 611 1,549 7 12,154 225 13,703 232 - - 53,189 3,396 53,189 3,396 6,343 90 - - 6,343 90 $ 67,909 $ 377 $ 165,488 $ 6,072 $ 233,397 $ 6,449 At September 30, 2017 Less than 12 months 12 months or more Total Unrealized Losses Unrealized Losses Unrealized Losses U.S. Government agencies $ 76,631 $ 1,267 $ 14,157 $ 443 $ 90,788 $ 1,710 Collateralized mortgage obligations 89,374 1,470 49,751 943 139,125 2,413 Agency mortgage-backed securities 79,935 1,691 17,499 555 97,434 2,246 Total Held to Maturity $ 245,940 $ 4,428 $ 81,407 $ 1,941 $ 327,347 $ 6,369 $ 5,351 $ 26 $ 98,267 $ 3,746 $ 103,618 $ 3,772 44,574 475 173,467 5,318 218,041 5,793 - - 119,243 5,245 119,243 5,245 $ 49,925 $ 501 $ 390,977 $ 14,309 $ 440,902 $ 14,810 At December 31, 2016 Less than 12 months 12 months or more Total Unrealized Losses Unrealized Losses 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 Unrealized Losses Unrealized Losses 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 16$14.7$5.4 million with a total fair value of $628.4$297.0 million as of September 30, 20172019 compared to unrealized losses of $19.1$21.3 million with a total fair value of $595.0$674.3 million as of December 31, 2016.2018. 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.ninefour U.S. Government agency securities, fifty-seventwenty-nine collateralized mortgage obligations and twenty-oneseventeen agency mortgage-backed securities that were in an unrealized loss position at September 30, 2017.2019. 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.Moody'sMoody’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 ten2019, the investment portfolio included no 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.2017,2019, the investment portfolio included one asset-backed security that was 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 by the U.S. Department of Education. Management believes the unrealized loss on this security was driven by changes in market interest rates and not a result of credit deterioration. At September 30, 2017, the investment portfolio included sixeight 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.lossesloss on the trust preferred securities aresecurity at September 30, 2018 was primarily the result of the secondary market becoming inactive for such securities becoming inactivea security and are alsowas considered temporary at thisthat time. The following table provides additional detail aboutDuring 2018, management received several inquiries regarding the availability of the remaining trust preferred securities heldCDO security and noted an increased level of trading in this type of security. As a result of the portfolio asincreased activity and the level of September 30, 2017.Class / Tranche Amortized Cost 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 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 were no proceeds frombids received, management elected to sell the remaining CDO security in December 2018.investment securities available for sale during the three months ended September 30, 2017.2019 were $11.5 million. The tax provision applicable to the net gains of $520,000 for the three months ended September 30, 2019 amounted to $132,000. Proceeds fromassociated with the sale of investment securities available for sale during the nine months ended September 30, 2017 was $21.22019 were $54.7 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 $22,000.17There 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$1.2 million and gross losses of $24,000$67,000 were realized on these sales. The tax provision applicable to the net gains of $1.1 million for the nine months ended September 30, 20162019 amounted to $280,000. $235,000.realized on the sale of investment securities for the nine months ended September 30, 2018.Company'sCompany’s gross loans by major categoriescategory as of September 30, 20172019 and December 31, 2016:2018: $ 570,327 $ 515,738 109,582 121,042 187,837 200,423 397,843 367,895 98,034 91,152 205,498 140,364 1,569,121 1,436,614 259 (16 ) (8,467 ) (8,615 ) $ 1,560,913 $ 1,427,983 (dollars in thousands) September 30, 2017 December 31, 2016 Commercial real estate $ 415,532 $ 378,519 Construction and land development 93,657 61,453 Commercial and industrial 163,085 174,744 Owner occupied real estate 297,880 276,986 Consumer and other 71,888 63,660 Residential mortgage 53,384 9,682 Total loans receivable 1,095,426 965,044 Deferred fees (21 ) (72 ) Allowance for loan losses (8,258 ) (9,155 ) Net loans receivable $ 1,087,147 $ 955,817 Company'sCompany’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.18 $ 2,673 $ 631 $ 875 $ 2,158 $ 562 $ 1,124 $ 33 $ 8,056 - - (72 ) - (29 ) - - (101 ) - - 59 1 2 - - 62 198 (10 ) (79 ) 31 36 205 69 450 $ 2,871 $ 621 $ 783 $ 2,190 $ 571 $ 1,329 $ 102 $ 8,467 $ 2,039 $ 772 $ 1,449 $ 1,856 $ 509 $ 638 $ 303 $ 7,566 - - - - (1 ) - - (1 ) 17 - 1 - 1 - - 19 202 34 193 156 38 103 (226 ) 500 $ 2,258 $ 806 $ 1,643 $ 2,012 $ 547 $ 741 $ 77 $ 8,084 20172019 and 2016:2018: $ 2,462 $ 777 $ 1,754 $ 2,033 $ 577 $ 894 $ 118 $ 8,615 - - (1,002 ) - (117 ) - - (1,119 ) - - 213 1 7 - - 221 409 (156 ) (182 ) 156 104 435 (16 ) 750 $ 2,871 $ 621 $ 783 $ 2,190 $ 571 $ 1,329 $ 102 $ 8,467 $ 3,774 $ 725 $ 1,317 $ 1,737 $ 573 $ 392 $ 81 $ 8,599 (1,535 ) - (151 ) (465 ) (213 ) - - (2,364 ) 50 - 77 20 2 - - 149 (31 ) 81 400 720 185 349 (4 ) 1,700 $ 2,258 $ 806 $ 1,643 $ 2,012 $ 547 $ 741 $ 77 $ 8,084 Construction and Land Development Owner Occupied Real Estate Three months ended September 30, 2017 Allowance for loan losses: Beginning balance: $ 3,171 $ 580 $ 2,496 $ 1,598 $ 544 $ 238 $ 827 $ 9,454 Charge-offs - - (1,195 ) (49 ) (4 ) - - (1,248 ) Recoveries 47 - 5 - - - - 52 Provisions (credits) 381 69 (85 ) 87 11 85 (548 ) - Ending balance $ 3,599 $ 649 $ 1,221 $ 1,636 $ 551 $ 323 $ 279 $ 8,258 Three months ended September 30, 2016 Allowance for loan losses: Beginning balance: $ 3,293 $ 365 $ 3,136 $ 1,366 $ 324 $ 11 $ 266 $ 8,761 Charge-offs - (3 ) - - - - - (3 ) Recoveries - - 88 - - - - 88 Provisions (credits) 9 137 (79 ) 251 16 31 242 607 Ending balance $ 3,302 $ 499 $ 3,145 $ 1,617 $ 340 $ 42 $ 508 $ 9,453 Construction and Land Development Owner Occupied Real Estate 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 1920172019 and December 31, 2016:2018: $ 262 $ - $ 35 $ 291 $ - $ - $ - $ 588 2,609 621 748 1,899 571 1,329 102 7,879 $ 2,871 $ 621 $ 783 $ 2,190 $ 571 $ 1,329 $ 102 $ 8,467 $ 11,257 $ - $ 3,608 $ 3,532 $ 961 $ 768 $ - $ 20,126 559,070 109,582 184,229 394,311 97,073 204,730 - 1,548,995 $ 570,327 $ 109,582 $ 187,837 $ 397,843 $ 98,034 $ 205,498 $ - $ 1,569,121 $ 295 $ - $ 867 $ 217 $ 94 $ - $ - $ 1,473 2,167 777 887 1,816 483 894 118 7,142 $ 2,462 $ 777 $ 1,754 $ 2,033 $ 577 $ 894 $ 118 $ 8,615 $ 10,947 $ - $ 3,662 $ 2,560 $ 861 $ - $ - $ 18,030 504,791 121,042 196,761 365,335 90,291 140,364 - 1,418,584 $ 515,738 $ 121,042 $ 200,423 $ 367,895 $ 91,152 $ 140,364 $ - $ 1,436,614 Construction and Land Development Commercial and Industrial Owner Occupied Real Estate September 30, 2017 Individually evaluated for impairment $ 1,834 $ - $ 337 $ 190 $ 218 $ - $ - $ 2,579 Collectively evaluated for impairment 1,765 649 884 1,446 333 323 279 5,679 Total allowance for loan losses $ 3,599 $ 649 $ 1,221 $ 1,636 $ 551 $ 323 $ 279 $ 8,258 Loans receivable: Loans evaluated individually $ 13,393 $ - $ 3,852 $ 3,490 $ 1,267 $ - $ - $ 22,002 Loans evaluated collectively 402,139 93,657 159,233 294,390 70,621 53,384 - 1,073,424 Total loans receivable $ 415,532 $ 93,657 $ 163,085 $ 297,880 $ 71,888 $ 53,384 $ - $ 1,095,426 Construction and Land Development Commercial and Industrial Owner Occupied Real Estate December 31, 2016 Individually evaluated for impairment $ 1,277 $ - $ 1,624 $ 274 $ 293 $ - $ - $ 3,468 Collectively evaluated for impairment 1,977 557 1,260 1,108 295 58 432 5,687 Total allowance for loan losses $ 3,254 $ 557 $ 2,884 $ 1,382 $ 588 $ 58 $ 432 $ 9,155 Loans receivable: Loans evaluated individually $ 19,245 $ - $ 5,180 $ 2,325 $ 1,290 $ 130 $ - $ 28,170 Loans evaluated collectively 359,274 61,453 169,564 274,661 62,370 9,552 - 936,874 Total loans receivable $ 378,519 $ 61,453 $ 174,744 $ 276,986 $ 63,660 $ 9,682 $ - $ 965,044 2020172019 and December 31, 2016:2018: $ 7,243 $ 7,248 $ - $ 6,332 $ 6,337 $ - - - - - - - 3,229 6,589 - 1,655 5,418 - 1,775 1,924 - 1,905 2,013 - 961 1,256 - 710 1,082 - 768 768 - - - - $ 13,976 $ 17,785 $ - $ 10,602 $ 14,850 $ - $ 4,014 $ 4,536 $ 262 $ 4,615 $ 5,498 $ 295 - - - - - - 379 394 35 2,007 2,195 867 1,757 1,757 291 655 704 217 - - - 151 158 94 - - - - - - $ 6,150 $ 6,687 $ 588 $ 7,428 $ 8,555 $ 1,473 $ 11,257 $ 11,784 $ 262 $ 10,947 $ 11,835 $ 295 - - - - - - 3,608 6,983 35 3,662 7,613 867 3,532 3,681 291 2,560 2,717 217 961 1,256 - 861 1,240 94 768 768 - - - - $ 20,126 $ 24,472 $ 588 $ 18,030 $ 23,405 $ 1,473 September 30, 2017 December 31, 2016 With no related allowance recorded: Commercial real estate $ 7,003 $ 7,007 $ - $ 12,347 $ 12,348 $ - Construction and land development - - - - - - Commercial and industrial 2,490 6,403 - 1,955 3,111 - Owner occupied real estate 2,471 2,633 - 621 733 - Consumer and other 920 1,236 - 687 976 - Residential mortgage - - - 130 130 - Total $ 12,884 $ 17,279 $ - $ 15,740 $ 17,298 $ - With an allowance recorded: Commercial real estate $ 6,389 $ 6,403 $ 1,834 $ 6,898 $ 6,912 $ 1,277 Construction and land development - - - - - - Commercial and industrial 1,363 1,380 337 3,225 5,892 1,624 Owner occupied real estate 1,019 1,019 190 1,704 1,704 274 Consumer and other 347 377 218 603 627 293 Residential mortgage - - - - - - Total $ 9,118 $ 9,179 $ 2,579 $ 12,430 $ 15,135 $ 3,468 Total: Commercial real estate $ 13,393 $ 13,410 $ 1,834 $ 19,245 $ 19,260 $ 1,277 Construction and land development - - - - - - Commercial and industrial 3,852 7,783 337 5,180 9,003 1,624 Owner occupied real estate 3,490 3,652 190 2,325 2,437 274 Consumer and other 1,267 1,613 218 1,290 1,603 293 Residential mortgage - - - 130 130 - Total $ 22,002 $ 26,458 $ 2,579 $ 28,170 $ 32,433 $ 3,468 21Company'sCompany’s impaired loans for the three months ended September 30, 20172019 and September 30, 2016:2018: $ 7,004 $ 80 $ 9,748 $ 72 - - - - 2,821 19 2,566 12 1,801 12 2,255 15 931 4 647 10 640 1 - - $ 13,197 $ 116 $ 15,216 $ 109 With an allowance recorded: $ 4,114 $ - $ 3,976 $ - - - - - 572 - 1,948 1 1,492 12 905 6 12 - 169 - - - - - $ 6,190 $ 12 $ 6,998 $ 7 Total: $ 11,118 $ 80 $ 13,724 $ 72 - - - - 3,393 19 4,514 13 3,293 24 3,160 21 943 4 816 10 640 1 - - $ 19,387 $ 128 $ 22,214 $ 116 Three Months Ended September 30, 2017 2016 Average Recorded Investment With no related allowance recorded: Commercial real estate $ 7,024 $ 106 $ 12,188 $ 65 Construction and land development - - 22 - Commercial and industrial 2,366 8 1,611 9 Owner occupied real estate 2,313 17 665 3 Consumer and other 923 9 1,027 5 Residential mortgage - - - - Total $ 12,626 $ 140 $ 15,513 $ 82 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 22Company'sCompany’s impaired loans for the nine months ended September 30, 20172019 and September 30, 2016:2018: $ 6,532 $ 220 $ 11,454 $ 216 - - - - 2,001 19 3,762 45 1,853 40 2,367 43 871 12 645 12 384 2 - - $ 11,641 $ 293 $ 18,228 $ 316 With an allowance recorded: $ 4,314 $ - $ 2,692 $ - - - - - 956 - 1,826 4 962 24 1,047 18 38 - 201 1 - - - - $ 6,270 $ 24 $ 5,766 $ 23 Total: $ 10,846 $ 220 $ 14,146 $ 216 - - - - 2,957 19 5,588 49 2,815 64 3,414 61 909 12 846 13 384 2 - - $ 17,911 $ 317 $ 23,994 $ 339 Nine Months Ended September 30, 2017 2016 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 2320172019 and December 31, 2016:2018: $ 93 $ - $ 4,269 $ 4,362 $ 565,965 $ 570,327 $ - - - - - 109,582 109,582 - - - 3,608 3,608 184,229 187,837 - - 28 2,317 2,345 395,498 397,843 - 83 9 1,090 1,182 96,852 98,034 129 - - 768 768 204,730 205,498 - $ 176 $ 37 $ 12,052 $ 12,265 $ 1,556,856 $ 1,569,121 $ 129 $ 339 $ 921 $ 4,631 $ 5,891 $ 509,847 $ 515,738 $ - - - - - 121,042 121,042 - 280 - 3,661 3,941 196,482 200,423 - - 653 1,188 1,841 366,054 367,895 - 214 - 861 1,075 90,077 91,152 - 302 - - 302 140,062 140,364 - $ 1,135 $ 1,574 $ 10,341 $ 13,050 $ 1,423,564 $ 1,436,614 $ - 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 At December 31, 2016 Commercial real estate $ - $ 9 $ 13,089 $ 13,098 $ 365,421 $ 378,519 $ - Construction and land development - - - - 61,453 61,453 - Commercial and industrial 568 - 3,151 3,719 171,025 174,744 - Owner occupied real estate 468 - 1,718 2,186 274,800 276,986 172 Consumer and other 24 22 808 854 62,806 63,660 - Residential mortgage - - 130 130 9,552 9,682 130 Total $ 1,060 $ 31 $ 18,896 $ 19,987 $ 945,057 $ 965,044 $ 302 Company'sCompany’s internal risk rating system as of September 30, 20172019 and December 31, 2016:2018: $ 565,187 $ 92 $ 5,048 $ - $ 570,327 109,582 - - - 109,582 184,229 - 3,328 280 187,837 392,245 2,066 3,532 - 397,843 97,073 - 961 - 98,034 204,608 122 768 - 205,498 $ 1,552,924 $ 2,280 $ 13,637 $ 280 $ 1,569,121 $ 510,186 $ 921 $ 4,631 $ - $ 515,738 121,042 - - - 121,042 196,751 10 3,382 280 200,423 364,032 1,303 2,560 - 367,895 90,291 - 861 - 91,152 140,240 124 - - 140,364 $ 1,422,542 $ 2,358 $ 11,434 $ 280 $ 1,436,614 At September 30, 2017: Commercial real estate $ 407,787 $ 838 $ 6,907 $ - $ 415,532 Construction and land development 93,657 - - - 93,657 Commercial and industrial 158,304 929 3,572 280 163,085 Owner occupied real estate 294,390 - 3,490 - 297,880 Consumer and other 70,621 - 1,267 - 71,888 Residential mortgage 53,257 127 - - 53,384 Total $ 1,078,016 $ 1,894 $ 15,236 $ 280 $ 1,095,426 At December 31, 2016: Commercial real estate $ 364,066 $ 877 $ 13,576 $ - $ 378,519 Construction and land development 61,453 - - - 61,453 Commercial and industrial 168,958 606 3,751 1,429 174,744 Owner occupied real estate 274,150 511 2,325 - 276,986 Consumer and other 62,370 - 1,290 - 63,660 Residential mortgage 9,552 - 130 - 9,682 Total $ 940,549 $ 1,994 $ 21,072 $ 1,429 $ 965,044 2420172019 and December 31, 2016:2018: $ 4,269 $ 4,631 - - 3,608 3,661 2,317 1,188 961 861 768 - $ 11,923 $ 10,341 (dollars in thousands) Commercial real estate $ 6,437 $ 13,089 Construction and land development - - Commercial and industrial 2,100 3,151 Owner occupied real estate 1,624 1,546 Consumer and other 859 808 Residential mortgage - - Total $ 11,020 $ 18,594 $127,000$145,000 and $372,000$378,000 for the three and nine months ended September 30, 2017,2019, respectively, and $271,000$156,000 and $784,000$519,000 for the three and nine months ended September 30, 2016,2018, respectively.("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 balance ofinformation with regard to outstanding TDRstroubled debt restructurings at September 30, 20172019 and December 31, 2016:2018: 1 $ 6,209 $ - $ 6,209 - - - - - - - - - - - - - - - - - - - - 1 $ 6,209 $ - $ 6,209 1 $ 6,316 $ - $ 6,316 - - - - 3 - 1,224 1,224 1 - 242 242 - - - - - - - - 5 $ 6,316 $ 1,466 $ 7,782 Number of Loans Accrual Status Non-Accrual Status Total TDRs September 30, 2017 Commercial real estate 1 $ 6,486 $ - $ 6,486 Construction and land development - - - - Commercial and industrial 2 1,184 349 1,533 Owner occupied real estate 1 243 - 243 Consumer and other - - - - Residential mortgage - - - - Total 4 $ 7,913 $ 349 $ 8,262 December 31, 2016 Commercial real estate 1 $ 5,669 $ - $ 5,669 Construction and land development - - - - Commercial and industrial 2 228 349 577 Owner occupied real estate - - - - Consumer and other - - - - Residential mortgage - - - - Total 3 $ 5,897 $ 349 $ 6,246 25the Company'sour estimate of the allowance for loan losses. The level of any subsequent defaults will likely be affected by future economic conditions.The Company made no loan modifications during the three months ended September 30, 2017.The Company modified one commercial and industrial loan during the nine months ended September 30, 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 ended September 30, 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 ended September 30, 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 a performance period of six months, the loan was returned to accrual status in the third quarter of 2017.20162019 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, 2016.2017.2019. There were nothree TDRs that subsequently defaulted during the year ended December 31, 2016.2018.7:7: Fair Value of Financial InstrumentsCompany'sCompany’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 salesales 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.26liability'sliability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.27 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, 20172019 and December 31, 20162018 were as follows: $ 29,420 $ - $ 29,420 $ - 256,389 - 256,389 - 23,901 - 23,901 - 4,082 - 4,082 - 66,170 - 63,279 2,891 $ 379,962 $ - $ 377,071 $ 2,891 $ 18,734 $ - $ 18,734 $ - 4,504 - - 4,504 506 - 506 - 43 - 43 - 27 - 27 - 2 - 2 - 126 - 126 - 79 - 79 - $ 196,259 $ - $ 196,259 $ - 38,499 - 38,499 - 20,639 - 20,639 - 59,274 - 56,205 3,069 6,343 - 6,343 - $ 321,014 $ - $ 317,945 $ 3,069 $ 20,887 $ - $ 20,887 $ - 4,785 - - 4,785 410 - 410 - 5 - 5 - 10 - 10 - - - - - 138 - 138 - 230 - 230 - 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 - 28table presentstables present an analysis of the activity in the SBA servicing assets for the three and nine months ended September 30, 20172019 and 2016:2018: $ 4,593 $ 4,977 272 297 (361 ) (419 ) $ 4,504 $ 4,855 $ 4,785 $ 5,243 825 864 (1,106 ) (1,252 ) $ 4,504 $ 4,855 (dollars in thousands) 2017 2016 2017 2016 Beginning balance $ 5,194 $ 5,118 $ 5,352 $ 4,886 Additions 268 503 746 1,305 Fair value adjustments (75) (324) (711) (894) Ending balance $ 5,387 $ 5,297 $ 5,387 $ 5,297 advisory and servicing fees on the statement of income. Servicing fee income, not including fair value adjustments, totaled $468,000$498,000 and $458,000$486,000 for the three months ended September 30, 20172019 and 2016,2018, respectively. Servicing fee income, not including fair value adjustments, totaled $1.4 million and $1.3$1.5 million for the nine months ended September 30, 20172019 and 2016,2018, respectively.20172019 and 2016:2018: $ - $ 2,999 $ 547 $ 3,083 - (108 ) - 102 - - - - - - - - $ - $ 2,891 $ 547 $ 3,185 $ - $ 3,069 $ 489 $ 3,086 - (178 ) 58 99 - - - - - - - - $ - $ 2,891 $ 547 $ 3,185 Trust Preferred Securities Corporate Bonds Trust Preferred Securities Corporate Bonds $ 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 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 2920172019 and December 31, 20162018 were as follows: $ 5,823 $ - $ - $ 5,823 5,726 - - 5,726 $ 5,955 $ - $ - $ 5,955 1,114 - - 1,114 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 levelLevel 3 assets measured at fair value on a nonrecurring basis (dollars in thousands): $ 2,891 $ 4,504 Discount Rate (11.00%) $ 5,823 9% - 20% $ 5,726 7% - 25% Sales Price Liquidation expenses (2) (22%) (3) $ 3,069 $ 4,785 Discount Rate (11.50%) $ 5,955 11% - 24% $ 1,114 Quantitative Information about Level 3 Fair Value Measurements Asset Description Fair Value Valuation Technique Unobservable Input Range (Weighted Average) September 30, 2017 Corporate bonds $ 3,025 Discount Rate (5.57%) Trust preferred securities $ 1,108 Discount Rate 7.62% - 7.85% (7.71%) SBA servicing assets $ 5,387 Discount Rate (10.25%) Impaired loans $ 7,161 Appraised Value of Collateral (1) Liquidation expenses (2) 10% - 28% (14%) (3) Sales Price Liquidation expenses (2) 7% - 13% (13%) (3) December 31, 2016 Corporate bonds $ 2,971 Discount Rate (4.68%) Trust preferred securities $ 1,820 Discount Rate 8.85% - 9.35% (9.08%) SBA servicing assets $ 5,352 Discount Rate (10.00%) Impaired loans $ 9,110 Sales Price Liquidation expenses (2) (7%) (3) Sales Price Liquidation expenses (2) 7% - 8% (7%) (3) 30Company'sCompany’s actual sales of other real estate owned which are assessed annually.Company'sCompany’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'sCompany’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 CompanyCompany’s financial instruments at September 30, 20172019 and December 31, 2016.Cash and Cash Equivalents (Carried at Cost)The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values.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'smanagement’s best estimate is used. Management'sManagement’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.Company'sCompany’s U.S. government and agency securities, corporate bonds, asset backed securities, and municipal obligations.obligations held in the investment securities portfolio. 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.management'smanagement’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. TheRepublic has one Level 3 investment securities classified as available for sale are comprised of various issues of trust preferred securities andwhich is a single corporate bond.31trust preferred securities are pools of similar securities that are grouped into an asset structure commonly referred to as collateralized debt obligations ("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 has become inactive, and therefore these securities are classified as Level 3 securities. The fair value analysis does not reflect or represent the actual terms or prices at which any party could purchase the securities. There is currently a limited secondary market for the securities and there can be no assurance that any secondary market for the securities will expand.An independent, third party pricing service is used to estimate the current fair market value of each CDO held in the investment securities portfolio. The calculations used to determine fair value are based on the attributes of the trust preferred securities, the financial condition of the issuers of the trust preferred securities, and market based assumptions. The INTEX CDO Deal Model Library was utilized to obtain information regarding the attributes of each security and its specific collateral as of September 30, 2017 and December 31, 2016. 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 CDO was determined based on discounted cash flow analyses. The cash flows are primarily dependent on the estimated speeds at which the 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 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 of the Company's mezzanine tranches of CDOs are also affected by expected future interest rates. However, due to the structure of each 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 holdings are not quantifiably estimable.Alsocorporate bond included in Level 3 investment securities classified as available for sale is a corporate bondwas transferred from Level 2 in 2010 thatand 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'sissuer’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 and the year ended December 31, 2016.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$142,000 and $577,000$398,000 for three and nine months ended September 30, 2019, respectively, and $389,000 and $914,000 for the three and nine months ended September 30, 2017 ,2018, 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.3220172019 and December 31, 2016 (dollars2018. $ 18,734 $ 20,887 $ 18,203 $ 20,071 $ 531 $ 816 thousands):Mortgage loans held for sale 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 20172019 and December 31, 2016.("IRLC"(“IRLC”)Republic'sIRLCs. Factors that affect pull-through rates include the origination channel, current mortgage interest rates in the market versus the interest rate incorporated in the IRLC, instruments are based uponthe purpose of the mortgage (purchase versus financing), the stage of completion of the underlying loans measured at fair value on a recurring basisapplication and underwriting process, and the probability of such commitments being exercised. Due to observable market data inputs used by Republic,time remaining until the IRLC expires. IRLCs 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.loan'sloan’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.3320172019 and December 31, 2016,2018, these assets are carried at current fair value and classified within Level 3 of the fair value hierarchy.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'sCompany’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'sCompany’s market-based discount ratio assumptions. In all cases, the Company'sCompany models expected payments for every loan for each quarterly period in order to create the most detailed cash flow stream possible.20172019 and December 31, 2016,2018, 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. $ 4,504 $ 4,785 2 % 2 % 98 % 98 % 100 % 100 % 13.28 % 10.31 % $ (175 ) $ (170 ) (338 ) (330 ) 11.00 % 11.50 % $ (160 ) $ (186 ) (309 ) (359 ) (dollars in thousands) SBA Servicing Asset Fair Value of SBA Servicing Asset $ 5,387 $ 5,352 Composition of SBA Loans Serviced for Others Fixed-rate SBA loans 2% 0% Adjustable-rate SBA loans 98% 100% Total 100% 100% Weighted Average Remaining Term 20.6 years 21.1 years Prepayment Speed 6.70% 6.12% Effect on fair value of a 10% increase $ (167) $ (161) Effect on fair value of a 20% increase (327) (316) Weighted Average Discount Rate 10.25% 10.00% Effect on fair value of a 10% increase $ (225) $ (226) Effect on fair value of a 20% increase (433) (435) 34Restricted 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.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.Company'sCompany’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.35Company'sCompany’s financial instruments were as follows at September 30, 2017.2019 were as follows. $ 201,477 $ 201,477 $ 201,477 $ - $ - 379,962 379,962 - 377,071 2,891 687,425 699,054 - 699,054 - 2,371 2,371 - 2,371 - 21,210 21,210 - 18,734 2,476 1,560,913 1,530,738 - - 1,530,738 4,504 4,504 - - 4,504 9,277 9,277 - 9,277 - 506 506 - 506 - 43 43 - 43 - 27 27 - 27 - $ 2,522,829 $ 2,522,829 $ - $ 2,522,829 $ - 217,203 217,325 - 217,325 - 11,263 8,109 - - 8,109 1,655 1,655 - 1,655 - 2 2 - 2 - 126 126 - 126 - 79 79 - 79 - - - - - - - - - - - Fair Value Measurements at September 30, 2017 Carrying Amount 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 - - - - - 36Company'sCompany’s financial instruments were as follows at December 31, 2016:2018 were as follows: (dollars in thousands) Balance Sheet Data Financial assets: $ 72,473 $ 72,473 $ 72,473 $ - $ - 321,014 321,014 - 317,945 3,069 761,563 747,323 - 747,323 - 5,754 5,754 - 5,754 - 26,291 26,291 - 20,887 5,404 1,427,983 1,410,945 - - 1,410,945 4,785 4,785 - - 4,785 9,025 9,025 - 9,025 - 410 410 - 410 - 5 5 - 5 - 10 10 - 10 - $ 2,238,610 $ 2,238,610 $ - $ 2,238,610 $ - 154,257 152,989 - 152,989 - 11,259 8,279 - - 8,279 558 558 - 558 - - - - - - 138 138 - 138 - 230 230 - 230 - - - - - - - - - - - Fair Value Measurements at December 31, 2016 Carrying Amount 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 - - - - - 37AccumulatedAccumulated Other Comprehensive Income (Loss) By Component (1)20172019 and 2016,2018, and the year ended December 31, 2016.2018. $ (4,736 ) $ (7,191 ) $ (11,927 ) 4,456 - 4,456 (894 ) 841 (53 ) 3,562 841 4,403 3,562 841 4,403 $ (1,174 ) $ (6,350 ) $ (7,524 ) $ (7,150 ) $ (359 ) $ (7,509 ) (1,562 ) (78 ) (1,640 ) (9,536 ) - (9,536 ) 1 83 84 (9,535 ) 83 (9,452 ) (11,097 ) 5 (11,092 ) $ (18,247 ) $ (354 ) $ (18,601 ) $ (7,150 ) $ (359 ) $ (7,509 ) (1,562 ) (78 ) (1,640 ) 3,927 - 3,927 - (6,855 ) (6,855 ) 49 101 150 3,976 (6,754 ) (2,778 ) 2,414 (6,832 ) (4,418 ) $ (4,736 ) $ (7,191 ) $ (11,927 ) Unrealized Holding Losses on Securities Transferred From Available-For-Sale To Held-To-Maturity (dollars in thousands) Balance January 1, 2017 $ (6,831 ) $ (463 ) $ (7,294 ) Unrealized gain on securities 1,676 - 1,676 Amounts reclassified from accumulated other comprehensive income to net income (2) 39 83 122 Net current-period other comprehensive income 1,715 83 1,798 Balance September 30, 2017 $ (5,116 ) $ (380 ) $ (5,496 ) Balance January 1, 2016 $ (2,562 ) $ (603 ) $ (3,165 ) Unrealized loss on securities 2,170 - 2,170 Amounts reclassified from accumulated other comprehensive income to net income (2) (416 ) 85 (331 ) Net current-period other comprehensive income (loss) 1,754 85 1,839 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 ) Note 9: Business CombinationOak Mortgage Company, LLCOn 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.38In 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 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) Total revenues $ 15,755 52,610 Net income $ 1,259 $ 4,462 3910:9: Goodwill and Other IntangiblesCompany'sCompany completed an annual impairment test for goodwill as of July 31, 2019. Future impairment testing will be conducted each year as of 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 nine months ended September 30, 2019 and 2018, 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. $ 5,011 $ 5,011 - - - - $ 5,011 $ 5,011 $ 5,011 $ 5,011 - - - - $ 5,011 $ 5,011 Amortization Amortization Period (in years) Goodwill $ 5,011 $ - $ - $ 5,011 Indefinite Non-compete agreements 61 - (61) - 1 Total $ 5,072 $ - $ (61) $ 5,011 11:10: Derivatives and Risk Management Activities2017.2019 and September 30, 2018. The following table summarizes the amounts recorded in Republic'sRepublic’s statement of financial condition for derivatives not designated as hedging instruments as of September 30, 20172019 and December 31, 20162018 (in thousands): $ 506 $ 29,205 43 10,622 27 6,948 $ 2 $ 810 126 19,393 79 11,132 $ 410 $ 16,966 5 1,639 10 865 $ - $ - 138 15,327 230 18,980 Asset derivatives: IRLC's Other Assets $ 635 $ 32,137 Best efforts forward loan sales commitments Other Assets 13 4,219 Mandatory forward loan sales commitments Other Assets 51 6,791 Liability derivatives: IRLC's Other Liabilities $ 1 $ 308 Best efforts forward loan sales commitments Other Liabilities 125 28,226 Mandatory forward loan sales commitments Other Liabilities 137 31,509 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 40summarizessummarize the amounts recorded in Republic'sRepublic’s statement of incomeoperations for derivative instruments not designated as hedging instruments for the three and nine months ended September 30, 20172019 and 2018 (in thousands): $ (201 ) $ 96 26 38 27 17 $ (2 ) $ (2 ) 81 12 148 151 $ (297 ) $ 54 7 3 13 - $ 3 $ 1 120 3 198 92 Gain/(Loss) Gain/(Loss) Asset derivatives: IRLC's Mortgage banking income $ (126) $ 196 Best efforts forward loan sales commitments Mortgage banking income (8) (90) Mandatory forward loan sales commitments Mortgage banking income 47 (178) Liability derivatives: IRLC's Mortgage banking income $ - $ 54 Best efforts forward loan sales commitments Mortgage banking income 38 - Mandatory forward loan sales commitments Mortgage banking income 12 (99) Gain/(Loss) Asset derivatives: IRLC's Mortgage banking income $ (454) Best efforts forward loan sales commitments Mortgage banking income (26) Mandatory forward loan sales commitments Mortgage banking income - Liability derivatives: IRLC's Mortgage banking income $ 14 Best efforts forward loan sales commitments Mortgage banking income 11 Mandatory forward loan sales commitments Mortgage banking income (294) Republic'sRepublic’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.41 $ 1,990 $ 1,386 46 29 2,036 1,415 4,518 3,716 $ 6,554 $ 5,131 $ 5,450 $ 3,887 175 107 5,625 3,994 12,900 11,440 $ 18,525 $ 15,434 $ 1,890 $ 4,920 (80 ) (241 ) $ 1,810 $ 4,679 $ 6,962 11,806 10,106 72,030 100,904 (31,258 ) $ 69,646 $ 1,706 $ 3,755 $ 101 $ 72,457 MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSmanagement'smanagement’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.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, 20162018 and other documents we file from time to time with the Securities and Exchange Commission. The words "would"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 LegislationThe Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") has and will continue to have 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 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. For information regarding our updated capital requirements, see "Regulatory Matters" below.42$217.6$332.6 million or 11.3%, to $2.1$3.09 billion at September 30, 2017,2019, compared to $1.9$2.75 billion at December 31, 2016 as a result of the continued branding success with "The Power of Red is Back" growth and expansion strategy. with banks comprise this category, which consists of our most liquid assets. The aggregate amount inof these threetwo categories increased by $64.2$129.0 million to $98.8$201.5 million at September 30, 2017 compared to $34.62019, from $72.5 million at December 31, 2016. The increase in cash was2018 primarily driven by theas a result of an increase in deposit balances during the period ended September 30, 2017.("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$2.5 million at September 30, 20172019 as compared to $4.2$5.4 million at December 31, 2016.2018. Residential mortgage loans held for sale totaled $41.4were $18.7 million at September 30, 20172019 compared to $23.9$20.9 million at December 31, 2016. The increase in the balance of residential mortgage loans held for sale was driven by an increase in the volume of loans originated along with the timing of closings which pushed a number of sales into the fourth quarter.2018. Loans held for sale, as a percentage of total Company assets, were 1.9%less than 1% at September 30, 2017.$27.0$34.4 million at September 30, 2017.2019. Loans made to one individual customer, even if secured by different collateral, are aggregated for purposes of the lending limit.receivable increased $130.4$132.9 million, or 13.5%9%, to $1.1$1.6 billion at September 30, 2017,2019, versus $965.0 million$1.4 billion at December 31, 2016.2018. This growth was the result of an increase in loan demand inacross our residential mortgage, commercial real estate, construction and development, owner occupied real estate, and consumer and other categories driven by the successful execution of our relationship banking strategy which focuses on delivering high levels of customer service.(CMO)(“CMO”), agency mortgage-backed securities (MBS)(“MBS”), municipal securities, and corporate bonds, asset-backed securities (ABS), and pooled trust preferred securities (CDO).bonds. Available-for-sale securities totaled $377.8$380.0 million at September 30, 2017,2019, compared to $369.7$321.0 million at December 31, 2016.2018. The increase was primarily due to the purchase of securities totaling $53.1$150.7 million partially offset by proceeds from the salessale of securities totaling $53.6 million and paydowns of securities held in the portfolio totaling $46.8$41.6 million during the first nine months of 2017.2019. At September 30, 2017,2019, the portfolio had a net unrealized loss of $8.0$1.3 million compared to a net unrealized loss of $10.7$5.7 million at December 31, 2016.2018. The change in value of the investment portfolio was driven by a decrease in market interest rates which drove an increase in the fair value of the bonds heldsecurities classified as available-for-sale in our portfolio during the first nine months of 2017.43(SBIC)(“SBIC”) and Small Business Administration (SBA)SBA bonds, CMO'sCMOs and MBS's. TheMBSs. The fair value of securities held-to-maturity totaled $411.3$699.1 million and $425.2$747.3 million at September 30, 20172019 and December 31, 2016,2018, respectively. The decrease was primarily due to paydowns of securities totaling $73.9 million partially offset by an increase of $25.8 million in the receiptvalue of principal payments on CMO and MBS securities held in the portfolio totaling $36.6 million partially offset by the purchase of securities totaling $22.0 million during the first nine months of 2017., 2017 2019 and December 31, 2016.2018. 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”).20172019 and December 31, 2016,2018, the investment in FHLB of Pittsburgh capital stock totaled $1.5$2.2 million and $1.2$5.6 million, respectively. The increasedecrease was due to a higherlower required investment in FHLB stock during 2017.the first nine months of 2019. At both September 30, 20172019 and December 31, 2016,2018, ACBB capital stock totaled $143,000. Both the FHLB and ACBB have issued dividend payments in 2019.2017.decreased to $9.2was $6.7 million at September 30, 2017 from $10.22019 and $6.2 million at December 31, 2016, 2018. The increase was primarily due to additions of $1.1 million partially offset by sales and writedowns totaling $640,000.$777,000the lease liability obligation adjusted for any initial direct costs, prepaid or accrued rent, and sales totaling $357,000 on existing foreclosed properties during the nine months endedany lease incentives. At September 30, 2017.resulting fromis 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 acquisitioncarrying amount of Oak Mortgagegoodwill exceeds the reporting unit’s fair value.2016 amounted31, 2019, the Company elected to $5.0 million atperform a Step One analysis to review goodwill for impairment. The results of the Step One analysis indicated that the carrying value of the reporting unit did not exceed its fair value. Based on our quantitative assessment, we determined that there was no evidence of impairment on the balance of goodwill. As of September 30, 20172019 and December 31, 2016.Republic'sRepublic’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.$207.7$347.2 million or 12.4%, to $1.9$2.7 billion at September 30, 20172019 from $1.7$2.4 billion at December 31, 2016.2018. The increase was the result of significant growth in all deposit categories, led by strong growth 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 Power of Red is Back". Over the last three years, we have opened eleven 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 certificateswholesale deposits.deposit.44Shareholders'an aggressive expansion plan which we refer to as “The Power of Red is Back”. During 2018, we opened new stores in Gloucester Township, Evesboro, and Somers Point in NJ and Fairless Hills in PA. In the current year, we have opened stores in Lumberton, NJ, Feasterville, PA, and at 14th Street & 5th Avenue and 51st Street & 3rd Avenue in Manhattan. We have several more in various stages of construction and development including sites in New York City.shareholders'shareholders’ equity increased $10.1$5.7 million to $225.2$250.8 million at September 30, 20172019 compared to $215.1$245.2 million at December 31, 2016.2018. The increase was primarily due to net income of $6.2 million recognized during the first nine months of 2017, an increase of $2.22019 was primarily due to a $4.4 million related to the issuance of stock based compensation, stock option exercises and securities conversion, and the reductiondecrease in accumulated other comprehensive losses associated with an increase in the market value of the investment securities portfolio.portfolio, an adjustment for stock based compensation in the amount of $2.0 million, and stock option exercises of $261,000 partially offset by a net loss of $1.0 million. 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 in market interest rates which drove an increase in the fairmarket value of the securities held in our portfolio.20172019Compared to Three Months Ended September30, 20162017, compared to2018. The decrease in net income of $1.3$4.1 million or $0.03 per diluted share, for the three months ended September 30, 2016. The increase in net income was primarily driven by the growth in interest-earning assets along withnon-interest expense year over year. The increase in expense was driven by the addition of five new store locations over the last twelve months, including our first store located in New York City. The expansion into New York City has also required us to hire a residential mortgage lending division.2017 was $15.7 million2019 compared to $11.8$19.1 million for the three months ended September 30, 2016.2018. Interest income increased $4.3$2.7 million, or 32%11%, 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 millionan increase in average investment securities balancesloans receivable and a $149.8 million increase in average loan balances.federal funds sold and other interest earning assets. Interest expense increased $376,000$2.4 million, or 21%55%, 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 balances and the average rate paid on deposit balances.We did not record The net interest margin decreased by 32 basis points to 2.82% during the third quarter of 2019 compared to 3.14% during the third quarter of 2018. Compression in the net interest margin was driven by flattening of the yield curve resulting in a provision for loan losses forrapid increase in our cost of funds and a decline in the three months ended September 30, 2017. yield on interest earning assets.$607,000$450,000 for the three months ended September 30, 20162019 and a provision for loan losses in the amount of $500,000 for the three months ended September 30, 2018. This decrease was primarily due to an increasea decline in the allowance required for loans individually evaluated for impairment.$636,000$1.4 million to $5.8$6.6 million during the three months ended September 30, 20172019 compared to $5.1 million during the three months ended September 30, 2016.2018. The increase during the three months ended September 30, 20172019 was primarily due to increases in mortgage banking income, service fees on deposit accounts and loan advisory and service fees partially offset by a decrease ingains on the gain on sale of SBA loans.by $4.2$7.0 million to $19.2$27.8 million during the three months ended September 30, 20172019 compared to $15.0$20.8 million during the three months ended September 30, 2016.2018. This increase was primarily driven by higher salaries, employee benefits, and occupancy and 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",Back”. Annual merit increases contributed to the increase in salaries and employee benefit costs. We have also incurred costs related to our expansion into New York City as well as the addition of the Oak Mortgage residential mortgagewe hire a management and lending team and commence rent payments for our store locations. Our first store in New York City opened at 14th Street & 5th Avenue in Manhattan in July 2019. Construction was completed on a second store location at 51st Street & 3rd Avenue in November 2019.third quarteramount of 2016.0.45%(0.24%) and 4.11%(2.88%), respectively, during the three months ended September 30, 20172019 compared to 0.32%0.36% and 4.49%3.90%, respectively, for the three months ended September 30, 2016.4520172019 compared to September 30, 2016We reported net income of $6.2$6.5 million, or $0.11 per diluted share, for the nine months ended September 30, 2017 compared to2018. The decrease in net income of $3.4$7.5 million or $0.09 per diluted share, for the nine months ended September 30, 2016. The increase in net income was primarily driven by the growth in interest-earning assets along withnon-interest expense year over year. The increase in expense was driven by the addition of five new store locations over the last twelve months, including our first store located in New York City. The expansion into New York City has also required us to hire a residential mortgage lending division.2017 increased $10.5 million to $45.22019 was $57.9 million as compared to $34.7$55.9 million for the nine months ended September 30, 2016.2018. Interest income increased $11.8$11.2 million, or 30%17%, due primarily to increasesan increase in average investment securities balancesloans receivable and the average yield earned on loan balances. Interest expense increased $1.3$9.2 million, or 27%85%, primarily due to $6.2an increase in average deposit balances and the average rate paid on deposit balances. The net interest margin decreased by 26 basis points to 2.92% during nine months ended September 30, 2019 compared to 3.18% during the nine months ended September 30, 2018. Compression in the net interest margin was driven by flattening of the yield curve resulting in a more rapid increase in our cost of funds compared to the yield on interest earning assets.2017 compared to $4.9 million for the nine months ended September 30, 2016.2018. This increasedecrease was primarily due to an increase in average interest bearing deposits.We recorded a provision for loan losses of $500,000 for the nine months ended September 30, 2017 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 increasedecline in the allowance required for loans individually evaluated for impairment.by $4.5$3.1 million to $15.1$18.5 million during the nine months ended September 30, 2017 as2019 compared to $10.6$15.4 million during the nine months ended September 30, 2016.2018. The increase during the nine months ended September 30, 20172019 was primarily due to increases in mortgage banking income, service fees on deposit accounts and loan advisory and servicing fees partially offset by decreases in the gaingains on the salesales of SBA loans and the gain (loss) on the sale ofinvestment securities.$13.3$15.3 million to $53.7$77.0 million during the nine months ended September 30, 20172019 as compared to $40.3$61.7 million during the nine months ended September 30, 2016. The2018. This increase was primarily driven by higher salaries, employee benefits, and occupancy and 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",Back”. Annual merit increases contributed to the increase in salaries and employee benefit costs. We have incurred costs related to our expansion into New York City as well as, the addition of the Oak Mortgage residential mortgagewe hire a management and lending team and commence rent payments for our store locations. Our first store in New York City opened at 14th Street & 5th Avenue in Manhattan in July 2019. Construction was completed on a second store location at 51st Street & 3rd Avenue in November 2019.third quarteramount of 2016.0.41%(0.05%) and 3.74%(0.55%), respectively, during the nine months ended September 30, 20172019 compared to 0.30%0.35% and 3.93%3.73%, respectively, for the nine months ended September 30, 2016.46Republic'sRepublic’s net interest income, which is the difference between interest earned on interest‑earninginterest-earning assets and interest paid on interest‑bearinginterest-bearing liabilities. Net interest income is affected by changes in the mix of the volume and rates of interest‑earninginterest-earning assets and interest‑bearinginterest-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‑earninginterest-earning assets and interest expense on interest‑bearinginterest-bearing liabilities, (iii) annualized average yields earned on interest‑earninginterest-earning assets and average rates on interest‑bearinginterest-bearing liabilities, and (iv) Republic's annualizedRepublic’s net interest margin (net interest income as a percentage of average total interest‑earninginterest-earning assets). Averages are computed based on daily balances. Non-accrual loans are included in average loans receivable. All yieldsYields are adjusted for tax equivalency, a non-GAAP measure. Average Balance Interest Average Balance Interest 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 $ 15,912 $ 12,021 Net interest spread 3.10 % 2.96 % 3.26 % 3.07 % $ 146,446 $ 777 2.10 $ 29,163 $ 153 2.08 1,055,154 6,743 2.56 1,018,910 6,676 2.62 1,540,834 18,816 4.84 1,390,894 16,873 4.81 2,742,434 26,336 3.81 2,438,967 23,702 3.86 247,682 135,139 $ 2,990,116 $ 2,574,106 $ 563,691 $ 513,292 1,168,404 3,752 1.27 861,607 1,948 0.90 702,547 1,814 1.02 699,081 1,308 0.74 208,624 1,123 2.14 126,378 386 1.21 2,643,266 6,689 1.00 2,200,358 3,642 0.66 2,079,575 6,689 1.28 1,687,066 3,642 0.86 14,037 137 3.87 127,150 770 2.40 2,093,612 6,826 1.29 1,814,216 4,412 0.96 2,657,303 6,826 1.02 2,327,508 4,412 0.75 81,872 10,363 250,941 236,235 $ 2,990,116 $ 2,574,106 Net interest income (2) $ 19,510 $ 19,290 Net interest spread 2.52 % 2.90 % Net interest margin (2) 2.82 % 3.14 % non-GAAPNon-GAAP measure. Net interest income has been increased over the financial statement amount by $200$128 and $235$144 for the three months ended September 30, 20172019 and 2016,2018, 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.47 Average Balance Interest Average Balance Interest Interest-earning assets: Federal funds sold and other interest-earning assets $ 36,431 $ 312 1.15 % $ 78,094 $ 299 0.51 % Investment securities and restricted stock 785,121 14,850 2.52 % 458,496 8,615 2.51 % Loans receivable 1,063,581 36,944 4.64 % 925,110 31,339 4.53 % Total interest-earning assets 1,885,133 52,106 3.70 % 1,461,700 40,253 3.68 % Other assets 112,018 95,054 Total assets $ 1,997,151 $ 1,556,754 Interest-earning liabilities: Demand – non-interest bearing $ 355,432 $ 270,503 Demand – interest bearing 657,722 2,075 0.42 % 476,134 1,471 0.41 % Money market & savings 607,822 2,218 0.49 % 572,347 1,923 0.45 % Time deposits 107,881 903 1.12 % 82,738 625 1.01 % Total deposits 1,728,857 5,196 0.40 % 1,401,722 4,019 0.38 % Total interest-bearing deposits 1,373,425 5,196 0.51 % 1,131,219 4,019 0.47 % Other borrowings 39,408 1,046 3.55 % 29,947 898 4.01 % Total interest-bearing liabilities 1,412,833 6,242 0.59 % 1,161,166 4,917 0.57 % Total deposits and other borrowings 1,768,265 6,242 0.47 % 1,431,669 4,917 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 $ 45,864 $ 35,336 Net interest spread 3.11 % 3.11 % 3.25 % 3.23 % $ 96,245 $ 1,631 2.27 $ 27,625 $ 388 1.88 1,069,304 21,347 2.66 1,027,614 20,001 2.60 1,506,482 55,408 4.92 1,310,750 46,795 4.77 2,672,031 78,386 3.92 2,365,989 67,184 3.80 218,947 130,344 $ 2,890,978 $ 2,496,333 $ 533,922 $ 475,659 1,142,515 11,896 1.39 866,397 4,754 0.73 691,876 4,894 0.95 695,386 3,454 0.66 179,936 2,608 1.94 127,281 1,121 1.18 2,548,249 19,398 1.02 2,164,723 9,329 0.58 2,014,327 19,398 1.29 1,689,064 9,329 0.74 26,836 681 3.39 90,160 1,528 2.27 2,041,163 20,079 1.32 1,779,224 10,857 0.82 2,575,085 20,079 1.04 2,254,883 10,857 0.64 67,182 9,534 248,711 231,916 $ 2,890,978 $ 2,496,333 $ 58,307 $ 56,327 2.60 2.98 2.92 3.18 non-GAAPNon-GAAP measure. Net interest income has been increased over the financial statement amount by $666$414 and $662$403 for the nine months ended September 30, 20172019 and 2016,2018, 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.482017,2019, as compared to the three and nine months ended September 30, 2016.2018. For purposes of this table, changes in interest income and expense are allocated to volume and rate categories based upon the respective changes in average balances and average rates. Changes due to: Changes due to: (dollars in thousands) Average Volume Interest earned: Federal funds sold and other interest-earning assets $ (191 ) $ 223 $ 32 $ (358 ) $ 371 $ 13 Securities 1,804 143 1,947 6,178 57 6,235 Loans 1,652 636 2,288 4,651 954 5,605 Total interest-earning assets 3,265 1,002 4,267 10,471 1,382 11,853 Interest expense: Deposits Interest-bearing demand deposits 181 38 219 573 31 604 Money market and savings 32 79 111 115 180 295 Time deposits 16 (5 ) 11 211 67 278 Total deposit interest expense 229 112 341 899 278 1,177 Other borrowings (4 ) 39 35 43 105 148 Total interest expense 225 151 376 942 383 1,325 Net interest income $ 3,040 $ 851 $ 3,891 $ 9,529 $ 999 $ 10,528 $ 633 $ (9 ) $ 624 $ 1,163 $ 80 $ 1,243 229 (162 ) 67 832 514 1,346 1,696 247 1,943 6,873 1,740 8,613 2,558 76 2,634 8,868 2,334 11,202 996 808 1,804 2,875 4,267 7,142 (9 ) 515 506 (60 ) 1,500 1,440 425 312 737 763 724 1,487 1,412 1,635 3,047 3,578 6,491 10,069 (765 ) 132 (633 ) (1,317 ) 470 (847 ) 647 1,767 2,414 2,261 6,961 9,222 $ 1,911 $ (1,691 ) $ 220 $ 6,607 $ (4,627 ) $ 1,980 20172019 increased by $3.9 million,$220,000, or 32%1%, over the same period in 2016.2018. Interest income on a fully tax-equivalent basis, on interest-earning assets totaled $18.1$26.3 million and $13.9$23.7 million for the three months ended September 30, 20172019 and 2016,2018, respectively. The increase in interest income earned was primarily the result of a $288.1 millionan increase in the average investment securities balances of loans receivable and a $149.8 million increase in average loan balances for the three months ended September 30, 2017 as compared to September 30, 2016.federal funds sold and other interest-bearing deposits. Total interest expense for the three months ended September 30, 20172019 increased $376,000,by $2.4 million, or 21%55%, to $2.2$6.8 million from $1.8$4.4 million overfor the same period in 2016.2018. Interest expense on deposits increased by $3.0 million, or 84%, for the three months ended September 30, 2017 increased by $341,000, or 23%, over2019 versus the same period in 2016.20172019 increased by $10.5$2.0 million, or 30%4%, over the same period in 2016.2018. Interest income on a fully tax-equivalent basis, on interest-earning assets totaled $52.1$78.4 million and $40.3$67.2 million for the nine months ended September 30, 20172019 and 2016,2018, respectively. The increase in interest income earned was primarily the result of a $326.6 millionan increase in the average investment securities balances of loans receivable and a $138.5 million increase inthe average yield earned on loan balances for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.balances. Total interest expense for the nine months ended September 30, 20172019 increased $1.3by $9.2 million, or 27%85%, to $6.2$20.1 million from $4.9$10.9 million overfor the same period in 2016.2018. Interest expense on deposits increased by $10.1 million, or 108%, for the nine months ended September 30, 2017 increased by $1.2 million, or 29%, over2019 versus the same period in 2016.493.10%2.52% during the three months ended September 30, 20172019 compared to 2.96%2.90% during the same period in 2016three months ended September 30, 2018 and was 3.11%2.60% during both the nine months ended September 30, 2017 and the2019 compared to 2.98% during nine months ended September 30, 2016.2018. 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. TheFor the three months ended September 30, 2019 and September 30, 2018, the fully tax-equivalent net interest margin increased to 3.26%was 2.82% and 3.14%, respectively. The net interest margin for the three months ended September 30, 2017 from 3.07% for the same period2019 decreased primarily due to a rate increase of 27 basis points in 2016 primarily astotal deposits and other borrowings compared to a resultdecrease of an increase5 basis points in the yield on loans outstanding.total interest earning assets. For the nine months ended September 30, 2017,2019 and September 30, 2018, the fully tax-equivalent net interest margin increasedwas 2.92% and 3.18%, respectively. The net interest margin for the nine months ended September 30, 2019 decreased primarily due to 3.25% from 3.23% during the same perioda rate increase of 40 basis points in 2016 primarily as a resulttotal deposits and other borrowings offset by an increase of an increase12 basis points in the yield on loans outstanding.The provision for loan losses is charged to operations in an amount necessary to bring the total allowance for loan losses tolevel that management believes is adequate to absorb inherent losses in the loan portfolio. We did not record a$450,000 provision for loan losses for the three months ended September 30, 2017.We recorded a2019 as compared to $500,000 provision for the nine month periodthree months ended September 30, 2017. During2018. We recorded a $750,000 provision for loan losses for the nine month periodmonths ended September 30, 2017, an increase2019 as compared to $1.7 million for the nine months ended September 30, 2018. During the three and nine months ended September 30, 2019, there was a decrease in the allowance required for loans collectivelyindividually evaluated for impairment was driven by an increase in total loans outstanding. We recorded a $607,000 provisionimpairment.month periodmonths ended September 30, 2016 and a $1.62019 increased $1.4 million, provision foror 28%, compared to the nine month periodthree months 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.Nonperforming assets at September 30, 20172018. Service fees on deposit accounts 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 IncomeTotal non-interest income increased by $636,000, or 12%, to $5.8$2.0 million for the three months ended September 30, 2016, 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 acquired in the third quarter of 2016. Service fees on deposit accounts totaled $1.1 million for the three months ended September 30, 2017,2019 which represents an increase of $381,000$604,000 over the three months ended September 30, 2016.same period in 2018. This increase was due to the growth in the number of customer accounts and transaction volume. Gains of $520,000 were recognized on the sale of investment securities during the three months ended September 30, 2019 compared to no gains on the sale of investment securities during the three months ended September 30, 2018. Mortgage banking income totaled $2.8 million during the three months ended September 30, 2019 which represents an increase of $217,000 from the same period in 2018. Gains on the sale of SBA loans sold totaled $831,000$944,000 for the three months ended September 30, 20172019, an increase of $128,000, compared to $1.6 million$816,000 for the same period in 2018. Loan advisory and servicing fees totaled $257,000 for the three months ended September 30, 2016. The2019 which represents a decrease of $799,000 in gains on the sale of SBA loans was driven by a decrease in SBA loans sold during the three months ended September 30, 2017 as a result of lower origination volume. Loan advisory and servicing fees totaled $677,000 for the three months ended September 30, 2017 which represents an increase of $349,000$63,000 from the same period in 2016 due to higher loan volumes.2018.by $4.5$3.1 million, or 43%20%, compared to $15.1the nine months ended September 30, 2018. Service fees on deposit accounts totaled $5.5 million for the nine 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 to 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, 20172019 which represents an increase of $910,000$1.6 million over the same period in 2016.2018. This increase was due to the growth in the number of customer accounts and transaction volume. Gains of $1.1 million were recognized 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 months ended September 30, 2017 as2019 compared to gainsa $1,000 loss on the sale of $656,000investment securities during the nine months ended September 30, 2016.2018. Loan advisory and serviceservicing fees totaled $1.3$1.2 million for the nine months ended September 30, 20172019 which represents an increase of $202,000$317,000 from the same period in 2016.50Non-interest ExpensesThree Months Ended2018. Mortgage banking income totaled $8.0 million for the nine months ended September 30, 20172019, an increase of $100,000, compared to Three Months Ended$7.9 million during the nine months ended September 30, 2016$4.2$3.1 million, or 28%, for the three months ended September 30, 20172019 compared to the same period in 2016. A detailed explanation of the most significant variances in non-interest expenses for the three months ended September 30, 2017 and September 30, 2016 is presented in the following paragraphs.Salary and employee benefits expenses,2018 which represent the largest component of non-interest expenses, increased by $2.1 million, or 27%, for the three months ended September 30, 2017 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 strategy of adding and expansion strategy,relocating stores, which we refer to as "The“The Power of Red is Back"Back”. Two newThere were twenty-eight stores were opened during the three month period endedopen as of September 30, 2017. Salaries2019 compared to twenty-three stores at September 30, 2018. Our first store in New York City opened in July 2019.employee benefits also increased as a result of the acquisition of Oak Mortgage in the third quarter of 2016. Occupancyamortization expenses, increased by $237,000,$1.5 million, or 15%, and depreciation and amortization expense increased by $241,000, or 23%45%, for the three months ended September 30, 20172019 compared to the same period last year, also as a result of our continuing growth and relocationexpansion strategy.owned expenses totaled $746,000$799,000 during the three months ended September 30, 2019, an increase of $421,000, or 111%, compared to the same period in 2018. This increase was a result of higher costs to carry foreclosed properties and higher writedowns on foreclosed assets in the current period.2017, an increase of $44,000, or 6%,2019 compared to the same period in 2016. This increase was a result of higher writedowns on foreclosed assets held in other real estate owned in the current period. All other non-interest expenses increased $1.5 million, or 38%, during the three 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 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 2016.51 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.last year. Increases in data processing, expense, advertising, legal, professional fees, legalinsurance, other taxes, automated teller machine expenses, and other expenses resulting from our expansion strategy also contributed to the growth in other operating expenses.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 ended September 30, 2017,2019, this ratio equaled 2.58%was 2.82% compared to 2.36%2.42% for the three months ended September 30, 2016.2018. For the nine months ended September 30, 2017,2019, the ratio equaled 2.58%was 2.70% compared to 2.55%2.48% for the nine month periodmonths ended September 30, 2016, respectively, reflecting higher net non-interest expenses related2018, respectively. The increase in this ratio was mainly due to our growth and expansion strategy which drives the addition of adding and relocatingnew stores.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, 2017,2019, the operating efficiency ratio was 89.2%,107.3% compared to 88.7%85.8% for the three months ended September 30, 2016.2018. The efficiency ratio equaled 89.1%was 100.8% for both the nine months ended September 30, 20172019 compared to 86.4% for the nine months ended September 30, 2018. The increase in this ratio for three and nine months ended September 30, 2019 was due to non-interest expenses increasing at a faster rate than net interest income and non-interest income.same period in 2016. The decreaseamount of $516,000 for the three months ended September 30, 2017 versus September 30, 2016 was due2019, compared to both net interest income and non-interest income increasing at a slower rate than non-interest expenses.Provision (Benefit) for Federal Income Taxes We recorded a$622,000 provision for income taxes of $4,000 for the three months ended September 30, 2017, compared to a $32,000 benefit for the three months ended September 30, 2016.2018. For the nine months ended September 30, 2017,2019, we recorded a benefit for income taxes of $38,000$319,000 compared to a $69,000 benefit$1.5 million provision for the nine months ended September 30, 2016. The $38,000 benefit recorded during the first nine months 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 by an adjustment to the deferred tax asset valuation allowance in the amount of $1.8 million.2018. The effective tax rates for the three-month periodsthree months ended September 30, 20172019 and 20162018 were 30%(22%) and 25%21%, respectively, and forrespectively. For the nine month periodsmonths ended September 30, 20172019 and 20162018, the effective tax rates were 29%(24%) and 24%19%, respectively, excluding an adjustment to the deferred tax asset valuation allowance.Financial Accounting Standards Board (FASB)FASB Accounting Standards Codification Topic 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'smanagement’s evaluation of both positive and negative evidence.52institutionsinstitution and theirthe 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.years, for NOLs created prior to January 1, 2018. Federal NOLs generated after December 31, 2017 can be carried forward indefinitely. In order to realize our deferred tax assets, we must generate sufficient taxable income in such future years.Positive Based on the guidance provided in ASC 740, we believed that the positive evidence evaluated when consideringconsidered at September 30, 2019 and December 31, 2018 outweighed the need fornegative 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:·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 evidence evaluated when considering the need for a valuation allowance included:·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.53Based 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.before consideration of a valuation allowance was $18.6$11.7 million as of September 30, 20172019 and $21.4$12.3 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. 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 income20172019 was $2.3$1.8 million, an increasea decrease of $981,000,$4.1 million, compared to $1.3net income of $2.3 million recorded for the three months ended September 30, 2016. Net2018. The decrease in net income for the three months ended September 30, 2019 was due to non-interest expense driven by our expansion strategy and limited growth in net interest income caused by the flattening of the yield curve.20172019 was $6.2$1.0 million, an increasea decrease of $2.7$7.5 million, compared to $3.4net income of $6.5 million recorded for the nine months ended September 30, 2016.2018. The increasedecrease in net income for the nine months ended September 30, 20172019 was due to a $10.5 million increasenon-interest expense driven by our expansion strategy and limited growth in net interest income a $4.5 million increasecaused by the flattening of the yield curve.non-interestinterest income and interest expense were primarily caused by a $1.1 million decreasedecline in the provisionnet interest margin for loan losses, partially offset bythe three and nine months ended September 30, 2019. We have experienced a $13.3 millionflat and at times an inverted yield curve which has caused the interest rates paid on deposit balances to increase inmore rapidly than rates on interest earning assets. In addition, non-interest expenses.2017,2019, basic and fully-diluted net incomeloss per common share was $0.04 compared to $0.04 for the three months ended September 30, 2016($0.03) 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, 2016,2018, basic and fully-diluted net income per common share was $0.11 compared to $0.09$0.04. For the nine month period ended September 30, 2019, basic and fully-diluted net loss per common share was ($0.02) and for the nine monthsmonth period ended September 30, 2016.Our annualizedThe ROA for the three months ended September 30, 20172019 was 0.45%(0.24%), compared to 0.32%0.36% for the three months ended September 30, 2016.2018. The ROA for the nine months ended September 30, 20172019 and 20162018 was 0.41%(0.05%) and 0.30%0.35%, respectively. Return on average equity (ROE) indicates how effectively we can generate net income on the capital invested by our stockholders.shareholders. ROE is calculated by dividing annualized net income by average stockholders' equity. The ROE was 4.11%(2.88%) for the three months September 30, 2019, compared to 3.90% for the three months ended September 30, 2017, compared to 4.49% for the three months ended September 30, 2016.2018. The ROE for the nine months ended September 30, 20172019 and 20162018 was 3.74%(0.55%) and 3.93%3.73%, respectively.54whosewith contract amounts representrepresenting potential credit risk were commitments to extend credit of approximately $266.1$316.8 million and $215.9$286.4 million, and standby letters of credit of approximately $11.9$14.6 million and $5.7$13.9 million, at September 30, 20172019 and December 31, 2016,2018, respectively. These financial instruments constitute off-balance sheet arrangements. Commitments often expire without being drawn upon. Substantially all of the $266.1$316.8 million of commitments to extend credit at September 30, 20172019 were committed as variable rate credit facilities.customer'scustomer’s creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management'smanagement’s credit evaluation of the customer. Collateral held varies but may include real estate, marketable securities, pledged deposits, equipment and accounts receivable.management'smanagement’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, 20172019 and December 31, 20162018 for guarantees under standby letters of credit issued is not material."risk-based"“risk-based” capital adequacy guidelines issued by the FRB and the FDIC.bank regulatory agencies. 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,federal bank regulatory agencies adopted revisions to the 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 minimumrisk-based capital requirements, added a newratios are calculated by dividing common equity tierTier 1, Tier 1, and total risk-based capital, requirement,respectively, by risk-weighted assets. Assets and established criteria that instruments must meetoff-balance sheet credit equivalents are assigned to be considered common equity tier 1 capital, additional tier 1 capital or tier 2 capital. the finalapplicable capital rules, that became effective on January 1, 2015, there wasRepublic is required to maintain a requirement for aminimum 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 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 othercommon equity Tier 1 capital above its minimum risk-based capital standardsrequirements 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. Institutions0.625% level and was phased in over a three year period (increasing by that do not maintain this requiredamount on each January 1, until it reached 2.5% on January 1, 2019). Implementation of the deductions and other adjustments to common equity Tier 1 capital buffer will become subject to progressively more stringent limitationsbegan on the percentage of earnings that can be paid out in dividends or used for stock repurchasesJanuary 1, 2015 and on the payment of discretionary bonuses to senior executive management.55 2016 2017 2018 2019 Common equity tier 1 capital (CET1) 5.125% 5.750% 6.375% 7.000% 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% Tier 1 capital (to average assets, leverage) 4.000% 4.000% 4.000% 6.500% 5.125 % 5.750 % 6.375 % 7.000 % 6.625 % 7.250 % 7.875 % 8.500 % 8.625 % 9.250 % 9.875 % 10.500 % bank'sbank’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'sbank’s capital adequacy, regulators also consider other factors such as interest rate risk exposure; liquidity, funding and market risks; quality and level or earnings; concentrations of credit, quality of loans and investments; risks of any nontraditional activities; effectiveness of bank policies; and management'smanagement’s overall ability to monitor and control risks.20172019 and December 31, 2016,2018, all capital adequacy requirementsRepublic'sRepublic’s category.Republic'sRepublic’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'sRepublic’s loan customers and Republic'sRepublic’s ability to manage its interest rate risk, growth and other operating expenses.562017,2019, and December 31, 20162018 (dollars in thousands):(dollars in thousands) Minimum Capital Adequacy To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio Amount Ratio At September 30, 2017: Total risk based capital Republic $ 184,514 13.01 % $ 113,449 8.00 % $ 131,175 9.25 % $ 141,811 10.00 % Company 251,194 17.64 % 113,895 8.00 % 131,691 9.25 % - - % Tier one risk based capital Republic 176,256 12.43 % 85,087 6.00 % 102,813 7.25 % 113,449 8.00 % Company 242,936 17.06 % 85,421 6.00 % 103,217 7.25 % - - % CET 1 risk based capital Republic 176,256 12.43 % 63,815 4.50 % 81,541 5.75 % 92,177 6.50 % Company 221,376 15.55 % 64,066 4.50 % 81,862 5.75 % - - % Tier one leveraged capital Republic 176,256 8.59 % 82,093 4.00 % 92,355 4.50 % 102,617 5.00 % Company 242,936 11.80 % 82,394 4.00 % 92,625 4.50 % - - % At December 31, 2016: Total risk based capital Republic $ 179,057 13.93 % $ 102,811 8.00 % $ 110,843 8.625 % $ 128,514 10.00 % Company 245,043 18.99 % 103,226 8.00 % 111,290 8.625 % - - % Tier one risk based capital Republic 169,902 13.22 % 77,108 6.00 % 85,140 6.625 % 102,811 8.00 % Company 235,888 18.28 % 77,419 6.00 % 85,484 6.625 % - - % Republic 169,902 13.22 % 57,831 4.50 % 65,863 5.125 % 83,534 6.50 % Company 214,088 16.59 % 58,064 4.50 % 66,129 5.125 % - - % Tier one leveraged capital Republic 169,902 9.20 % 73,843 4.00 % 73,843 4.50 % 92,304 5.00 % Company 235,888 12.74 % 74,073 4.00 % 74,073 4.50 % - - % $ 253,326 12.98 $ 156,113 8.00 $ 204,898 10.50 $ 195,141 10.00 264,626 13.53 156,472 8.00 205,369 10.50 - - 244,859 12.55 117,085 6.00 165,870 8.50 156,113 8.00 256,159 13.10 117,354 6.00 166,251 8.50 - - 244,859 12.55 87,813 4.50 136,599 7.00 126,842 6.50 245,159 12.53 88,015 4.50 136,913 7.00 - - 246,850 8.23 118,946 4.00 118,946 4.00 148,683 5.00 250,843 8.60 119,134 4.00 119,134 4.00 - - At December 31, 2018: Total risk-based capital $ 231,610 13.26 $ 139,722 8.00 $ 172,489 9.875 $ 174,652 10.00 262,964 15.03 140,009 8.00 172,824 9.875 - - 222,995 12.77 104,791 6.00 137,539 7.875 139,722 8.00 254,349 14.53 105,007 6.00 137,821 7.875 - - 222,995 12.77 78,594 4.50 111,341 6.375 113,524 6.50 243,349 13.90 78,755 4.50 111,570 6.375 - - 222,995 8.21 108,685 4.00 108,685 4.00 135,857 5.00 254,349 9.35 108,800 4.00 108,800 4.00 - - stock during 2017, nor do westock. We have anyno plans to pay cash dividends in 2017.2019. 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.57and amounts due from banks.Republic'sRepublic’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'scommittee’s primary objective is to maximize net interest income while configuring Republic'sRepublic’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.$98.8$201.5 million at September 30, 2017,2019, compared to $34.6$72.5 million at December 31, 2016.2018. Loan maturities and repayments are another source of asset liquidity. At September 30, 2017,2019, Republic estimated that more than $90.0$105.0 million of loans would mature or repay in the six-month period ending March 31, 2018.2020. 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, 2017,2019, we had outstanding commitments (including unused lines of credit and letters of credit) of $278.0$316.8 million. Certificates of deposit scheduled to mature in one year totaled $73.5$152.0 million at September 30, 2017.2019. We anticipate that we will have sufficient funds available to meet all current commitments.$542.4$815.1 million at September 30, 2017.2019. At September 30, 20172019 and December 31, 2016,2018, we had no outstanding term borrowings with the FHLB. At September 30, 2017 and December 31, 2016,2019, we had no overnight borrowings with the FHLB and at December 31, 2018, we had outstanding short-termovernight borrowings of $91.4 million with the FHLB. As of September 30, 2017,2019 and December 31, 2018, FHLB had issued letters of credit, on Republic'sRepublic’s behalf, totaling $75.0$100.0 million against our available credit line. We also established a contingency line of credit of $10.0 million with ACBB and a Fed Funds line of credit with Zions Bank in the amount of $15.0 million to assist in managing our liquidity position. We had no amounts outstanding against the ACBB line of credit or the Zions Fed Funds line at both September 30, 20172019 and December 31, 2016.2017,2019, 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 saleavailable-for-sale and are intended to increase the flexibility of our asset/liability management. Our investment securities classified as available-for-saleavailable for sale consist primarily of U.S. Government agency securities, CMOs, MBSs, municipal securities, and corporate bonds, ABSs, and CDOs. Available-for-salebonds. Available for sale securities totaled $377.8$380.0 million and $369.7$321.0 million as of September 30, 20172019 and December 31, 2016,2018, respectively. At September 30, 2017, the portfolio2019, securities classified as available for sale had a net unrealized loss of $8.0$1.3 million and a net unrealized loss of $10.7$5.7 million at December 31, 2016.58Republic'sRepublic’s commercial loans typically range between $250,000 and $5.0 million, but customers may borrow significantly larger amounts up to Republic'sRepublic’s legal lending limit of approximately $27.0$34.4 million at September 30, 2017. Republic'swell‑securedwell-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.non‑performingnon-performing assets as of the dates indicated (dollars in thousands): 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 assets as a percentage of total assets 1.07% 1.51% $ 129 $ - 11,923 10,341 12,052 10,341 6,653 6,223 $ 18,705 $ 16,564 0.77 % 0.72 % 0.61 % 0.60 % decreasedincreased by $6.2$2.1 million to $22.9$18.7 million as of September 30, 20172019 from $29.1$16.6 million at December 31, 2016. Non-accrual loans decreased $7.6 million to $11.0 million at September 30, 2017, from $18.6 million at December 31, 2016. The decrease in non-accrual loans was primarily driven by one loan relationship that was returned to accrual status during the third quarter of 2017. This loan was restructured earlier in the year as a result of a reduction in tenant vacancies in the property held as collateral.2018. Loans accruing, but past due 90 days or more, increased to $2.7 milliontotaled $129,000 at September 30, 2017 from $302,0002019. There were no loans accruing, but past due 90 days or more at December 31, 2016.2018. At September 30, 20172019 and December 31, 2016,2018, all identified impaired loans are internally classified and individually evaluated for impairment in accordance with the guidance under ASC 310.5920172019 and December 31, 2016. (dollars in thousands) September 30, December 31, 2017 2016 30 to 59 days past due $ 1,496 $ 1,060 60 to 89 days past due 35 31 Total loans 30 to 89 days past due $ 1,531 $ 1,091 $ 176 $ 1,135 37 1,574 $ 213 $ 2,709 decreased to $9.2was $6.7 million at September 30, 2017 from $10.22019 and $6.2 million at December 31, 2016.2018. The following table presents a reconciliation of other real estate owned for the threenine months ended September 30, 20172019 and the year ended December 31, 2016:(dollars in thousands) December 31, $ 10,174 $ 11,313 Additions 129 616 Valuation adjustments (777 ) (355 ) Dispositions (357 ) (1,400 ) Ending Balance $ 9,169 $ 10,174 $ 6,223 $ 6,966 1,071 315 (240 ) (563 ) (401 ) (495 ) $ 6,653 $ 6,223 2017,2019, we had no credit exposure to "highly“highly leveraged transactions"transactions” as defined by the FDIC.management'smanagement’s estimation process.606120172019 and 2016,2018, and the twelve months ended December 31, 20162018 is as follows:(dollars in thousands) Balance at beginning of period $ 9,155 $ 8,703 $ 8,703 Charge‑offs: Commercial real estate - - - Construction and land development - 60 3 Commercial and industrial 1,347 143 18 Owner occupied real estate 157 1,052 954 Consumer and other 12 11 - Residential mortgage - 10 - Total charge‑offs 1,516 1,276 975 Recoveries: Commercial real estate 54 6 6 Construction and land development - - - Commercial and industrial 64 163 162 Owner occupied real estate - - - Consumer and other 1 2 - Residential mortgage - - - Total recoveries 119 171 168 Net charge‑offs 1,397 1,105 807 Provision for loan losses 500 1,557 1,557 Balance at end of period $ 8,258 $ 9,155 $ 9,453 $ 1,063,581 $ 936,492 $ 925,110 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 % (1)Includes non-accruing loans. $ 8,615 $ 8,599 $ 8,599 - 1,603 1,535 - - - 1,002 151 151 - 465 465 117 219 213 - - - 1,119 2,438 2,364 - 50 50 - - - 213 81 77 1 20 20 7 3 2 - - - 221 154 149 898 2,284 2,215 750 2,300 1,700 $ 8,467 $ 8,615 $ 8,084 $ 1,506,482 $ 1,340,117 $ 1,310,750 0.08 % 0.17 % 0.23 % 0.07 % 0.17 % 0.17 % 0.56 % 0.64 % 0.62 % 0.54 % 0.60 % 0.59 % 70.25 % 83.31 % 59.97 % did not recordrecorded a provision for loan losses duringof $450,000 for the three month period ended September 30, 2017. A provision in the amount of $500,000 was recorded2019 and $750,000 for the nine month periodmonths ended September 30, 2017.2019. We recorded a provision for loan losses of $607,000$500,000 for the three month period ended September 30, 20162018 and $1.6$1.7 million for the nine month periodmonths ended September 30, 2016.2018. During the first nine months of 2017,2019, there was a decrease in the allowance required for loans individually evaluated for impairment partially offset by an increase in the allowance required for loans collectively evaluated for impairment that was driven by an increase in total loans outstanding. During the first nine months of 2016, there was an increase in the allowance required for loans individually evaluated for impairment primarily driven by a single loan relationship that transferred to non-performing status during the second quarter of 2016. A decrease in the appraised value of the collateral supporting this loan relationship drove the need for an increase in the loan loss provision.60.06%70.3% at September 30, 2017,2019, compared to 48.45%83.3% at December 31, 20162018 and 48.50%60.0% at September 30, 2016. The increase in this ratio at September 30, 2017 was primarily driven by the reduction in non-performing loan balances during the third quarter of 2017.2018. Total non-performing loans were $13.8$12.1 million, $18.9$10.3 million, and $19.5$13.5 million at September 30, 2017,2019, December 31, 20162018 and September 30, 2016,2018, respectively.62generally accepted accounting principles (GAAP)GAAP on impaired loans to determine if a deficiency exists. Our credit monitoring process assesses the ultimate collectability of an outstanding loan balance from all potential sources. When a loan is determined to be uncollectible it is charged-off against the allowance for loan losses. Unsecured commercial loans and all consumer loans are charged-off immediately upon reaching the 90-day delinquency mark unless they are well securedwell-secured and in the process of collection. The timing on charge-offs of all other loan types is subjective and will be recognized when management determines that full repayment, either from the cash flow of the borrower, collateral sources, and/or guarantors, will not be sufficient and that repayment is unlikely. A full or partial charge-off is recognized equal to the amount of the estimated deficiency calculation.borrower'sborrower’s financial condition areis also assessed when considering a charge-off. We recorded net charge-offs of $1.4 million during the nine month period ended September 30, 2017, compared to net charge-offs of $807,000 during the nine month period ended September 30, 2016. The increase in charge-offs in 2017 was primarily due to a single loan relationship which initially defaulted in 2010 and has resulted in a significant charge-off in the third quarter of 2017. The provision for loan losses associated with this loan was recorded in a prior period.$1.4$3.9 million at September 30, 20172019 and $2.4 $4.4 million at December 31, 2016.loans at September 30, 2017 and December 31, 2016.(dollars in thousands) Total nonperforming loans $ 13,750 $ 18,896 Nonperforming and impaired loans with partial charge-offs 1,432 2,394 Ratio of nonperforming loans with partial charge-offs to total loans 0.13 % 0.25 % Ratio of nonperforming loans with partial charge-offs to total nonperforming loans 10.41 % 12.67 % Coverage ratio net of nonperforming loans with partial charge-offs 576.68 % 382.41 % $ 12,052 $ 10,341 3,927 4,387 0.25 0.31 32.58 42.42 215.61 196.38 2017,2019, there were no changes made to this policy.63Company'sCompany’s assessment of its sensitivity to market risk since its presentation in the Annual Report on Form 10-K for the fiscal year ended December 31, 20162018 filed with the SEC on March 10, 2017.Commission'sCommission’s rules and forms and accumulated and communicated to the Company'sCompany’s management, including the Company'sCompany’s principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.Company'sCompany’s management, with the participation of the principal executive officer and the principal financial officer, conducted an evaluation, as of the end of the period covered by this report, of the effectiveness of the Company'sCompany’s disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e). Based on this evaluation, the principal executive officer and the principal financial officer have concluded that, as of the end of the period covered by this report, the Company'sCompany’s disclosure controls and procedures, as defined in Rule 13a-15(e), were effective at the reasonable assurance level.Company'sCompany’s internal control over financial reporting ("(“Internal Control"Control”) to determine whether any changes in Internal Control occurred during the quarter ended September 30, 20172019 that have materially affected or which are reasonably likely to materially affect Internal Control. Based on that evaluation, there has been no such change during the quarter ended September 30, 2017.64Company'sCompany’s business, financial condition and results of operation. Risk factors discussing these risks can be found in Part I, "Item“Item 1A. Risk Factors"Factors” in the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 20162018 and Form 10-Q for the quarter ended June 30, 2017.2019. The risk factors in the Company'sCompany’s Annual Report on Form 10-K have not materially changed. You should carefully consider these risk factors. The risks described in the Company'sCompany’s Form 10-K and Form 10-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.None.65S‑KS-K for quarterly reports on Form 10‑Q)10-Q). Company'sCompany’s Quarterly Report on Form 10-Q for the quarter ended September 30,, 2017, 2019, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of September 30,, 2017 2019 and December 31, 2016,2018, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30,, 2017 2019 and 2016, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017 and 2016,2018, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30,, 2017 2019 and 2016,2018, (v) Consolidated Statements of Changes in Shareholders'Shareholders’ Equity for the three and nine months ended September 30,, 2017 2019 and 2016,2018, and (vi) Notes to Consolidated Financial Statements. 66 3, 201712, 2019 3, 201712, 2019 67