UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended SeptemberJune 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 16 th 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]Yes ☒ NO [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X ]Yes ☒ 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 | |
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 | 58,886,153 |
Title of Class | Number of Shares Outstanding as of |
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES | ||
TABLE OF CONTENTS | ||
Part I: Financial Information | Page | |
Item 1. | Financial Statements | |
Consolidated balance sheets as of | 3 | |
Consolidated statements of income for the three and | 4 | |
Consolidated statements of comprehensive income for the three and | ||
Consolidated statements of cash flows for the | 6 | |
Consolidated statements of changes in | 7 | |
Notes to consolidated financial statements (unaudited) | 8 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 42 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 66 |
Item 4. | Controls and Procedures | 66 |
Part II: Other Information | ||
Item 1. | Legal Proceedings | 67 |
Item 1A. | Risk Factors | 67 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 67 |
Item 3. | Defaults Upon Senior Securities | 67 |
Item 4. | Mine Safety Disclosures | 67 |
Item 5. | Other Information | 67 |
Item 6. | Exhibits | 68 |
Signatures | 69 |
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 20172021 and December 31, 2016
(Dollars in thousands, except per share data)
June 30, 2021 (unaudited) | December 31, 2020 | |||||||
ASSETS | ||||||||
Cash and due from banks | $ | 16,371 | $ | 29,746 | ||||
Interest bearing deposits with banks | 750,328 | 745,554 | ||||||
Cash and cash equivalents | 766,699 | 775,300 | ||||||
Investment securities available for sale, at fair value | 764,736 | 528,508 | ||||||
Investment securities held to maturity, at amortized cost (fair value of $1,061,638 and $836,972, respectively) | 1,057,842 | 814,936 | ||||||
Equity securities | 9,241 | 9,039 | ||||||
Restricted stock, at cost | 3,510 | 3,039 | ||||||
Mortgage loans held for sale, at fair value | 11,971 | 50,387 | ||||||
Other loans held for sale | 2,437 | 2,983 | ||||||
Loans receivable (net of allowance for credit losses of $16,110 and $12,975, respectively) | 2,505,313 | 2,632,367 | ||||||
Premises and equipment, net | 123,675 | 123,170 | ||||||
Other real estate owned, net | 852 | 1,188 | ||||||
Accrued interest receivable | 14,644 | 16,120 | ||||||
Operating lease right-of-use asset | 78,174 | 72,946 | ||||||
Other assets | 38,344 | 35,752 | ||||||
Total Assets | $ | 5,377,438 | $ | 5,065,735 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Liabilities | ||||||||
Deposits | ||||||||
Demand – non-interest bearing | $ | 1,258,162 | $ | 1,006,876 | ||||
Demand – interest bearing | 1,945,833 | 1,776,995 | ||||||
Money market and savings | 1,168,516 | 1,043,519 | ||||||
Time deposits | 187,357 | 186,361 | ||||||
Total Deposits | 4,559,868 | 4,013,751 | ||||||
Other borrowings | 387,509 | 633,866 | ||||||
Accrued interest payable | 593 | 926 | ||||||
Other liabilities | 13,013 | 20,232 | ||||||
Operating lease liability | 84,740 | 77,576 | ||||||
Subordinated debt | 11,274 | 11,271 | ||||||
Total Liabilities | 5,056,997 | 4,757,622 | ||||||
Commitments and contingencies (see note 3) | - | - | ||||||
Shareholders’ Equity | ||||||||
Preferred stock, par value $0.01 per share; liquidation preference $25.00 per share; 10,000,000 shares authorized; share issued 2,000,000 as of June 30, 2021 and December 31, 2020; shares outstanding 2,000,000 as of June 30, 2021 and December 31, 2020 | 20 | 20 | ||||||
Common stock, par value $0.01 per share: 100,000,000 shares authorized; shares issued 59,414,998 as of June 30, 2021 and 59,388,623 as of December 31, 2020; shares outstanding 58,886,153 as of June 30, 2021 and 58,859,778 as of December 31, 2020 | 594 | 594 | ||||||
Additional paid in capital | 323,442 | 322,321 | ||||||
Retained earnings / accumulated deficit | 3,167 | (8,085 | ) | |||||
Treasury stock at cost (503,408 shares as of June 30, 2021 and December 31, 2020) | (3,725 | ) | (3,725 | ) | ||||
Stock held by deferred compensation plan (25,437 shares as of June 30, 2021 and December 31, 2020) | (183 | ) | (183 | ) | ||||
Accumulated other comprehensive loss | (2,874 | ) | (2,829 | ) | ||||
Total Shareholders’ Equity | 320,441 | 308,113 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 5,377,438 | $ | 5,065,735 |
September 30, 2017 | December 31, 2016 | |||||||
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 | ) | ||||
Stock held by deferred compensation plan (25,437 shares as of September 30, 2017 and December 31, 2016) | (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 |
(See notes to consolidated financial statements)
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
For the Three and NineSix Months Ended SeptemberJune 30, 20172021 and 2016
(Dollars in thousands, except per share data)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Interest income: | ||||||||||||||||
Interest and fees on taxable loans | $ | 28,033 | $ | 22,183 | $ | 57,500 | $ | 41,806 | ||||||||
Interest and fees on tax-exempt loans | 427 | 554 | 863 | 1,104 | ||||||||||||
Interest and dividends on taxable investment securities | 6,752 | 5,053 | 13,145 | 11,854 | ||||||||||||
Interest and dividends on tax-exempt investment securities | 78 | 19 | 153 | 39 | ||||||||||||
Interest on federal funds sold and other interest-earning assets | 64 | 50 | 113 | 339 | ||||||||||||
Total interest income | 35,354 | 27,859 | 71,774 | 55,142 | ||||||||||||
Interest expense: | ||||||||||||||||
Demand- interest bearing | 3,282 | 2,856 | 6,540 | 6,277 | ||||||||||||
Money market and savings | 932 | 1,431 | 2,050 | 3,214 | ||||||||||||
Time deposits | 427 | 1,033 | 966 | 2,254 | ||||||||||||
Other borrowings | 74 | 112 | 147 | 216 | ||||||||||||
Total interest expense | 4,715 | 5,432 | 9,703 | 11,961 | ||||||||||||
Net interest income | 30,639 | 22,427 | 62,071 | 43,181 | ||||||||||||
Provision for loan losses | 0 | 1,000 | 3,000 | 1,950 | ||||||||||||
Net interest income after provision for loan losses | 30,639 | 21,427 | 59,071 | 41,231 | ||||||||||||
Non-interest income: | ||||||||||||||||
Loan and servicing fees | 660 | 764 | 1,293 | 1,235 | ||||||||||||
Mortgage banking income | 2,908 | 3,389 | 7,472 | 5,847 | ||||||||||||
Gain on sales of SBA loans | 633 | 269 | 1,394 | 918 | ||||||||||||
Service fees on deposit accounts | 3,260 | 2,328 | 7,220 | 4,392 | ||||||||||||
Gain on sale of investment securities | 2 | 1,640 | 2 | 2,481 | ||||||||||||
Other non-interest income | 217 | 34 | 574 | 96 | ||||||||||||
Total non-interest income | 7,680 | 8,424 | 17,955 | 14,969 | ||||||||||||
Non-interest expenses: | ||||||||||||||||
Salaries and employee benefits | 14,855 | 13,177 | 29,576 | 26,558 | ||||||||||||
Occupancy | 3,831 | 3,312 | 7,608 | 6,734 | ||||||||||||
Depreciation and amortization | 2,015 | 2,242 | 4,309 | 4,117 | ||||||||||||
Legal | 294 | 253 | 511 | 549 | ||||||||||||
Other real estate owned expenses | 493 | 75 | 591 | 357 | ||||||||||||
Appraisal and other loan expenses | 545 | 539 | 1,259 | 961 | ||||||||||||
Advertising | 119 | 288 | 290 | 669 | ||||||||||||
Data processing | 1,762 | 1,567 | 3,519 | 3,141 | ||||||||||||
Insurance | 299 | 281 | 634 | 557 | ||||||||||||
Professional fees | 763 | 756 | 1,571 | 1,390 | ||||||||||||
Debit card processing | 798 | 899 | 1,784 | 1,724 | ||||||||||||
Regulatory assessments and costs | 881 | 675 | 1,607 | 1,305 | ||||||||||||
Taxes, other | 783 | 283 | 1,105 | 486 | ||||||||||||
Other operating expenses | 3,081 | 2,317 | 5,502 | 5,388 | ||||||||||||
Total non-interest expense | 30,519 | 26,664 | 59,866 | 53,936 | ||||||||||||
Income before provision for income taxes | 7,800 | 3,187 | 17,160 | 2,264 | ||||||||||||
Provision for income taxes | 1,866 | 675 | 4,158 | 345 | ||||||||||||
Net income | $ | 5,934 | $ | 2,512 | $ | 13,002 | $ | 1,919 | ||||||||
Preferred stock dividends | 875 | 0 | 1,750 | 0 | ||||||||||||
Net income available to common shareholders | $ | 5,059 | $ | 2,512 | $ | 11,252 | $ | 1,919 | ||||||||
Net income per share: | ||||||||||||||||
Basic earnings per common share | $ | 0.09 | $ | 0.04 | $ | 0.19 | $ | 0.03 | ||||||||
Diluted earnings per common share | $ | 0.08 | $ | 0.04 | $ | 0.17 | $ | 0.03 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Interest income: | ||||||||||||||||
Interest and fees on taxable loans | $ | 12,717 | $ | 10,446 | $ | 35,727 | $ | 30,259 | ||||||||
Interest and fees on tax-exempt loans | 272 | 261 | 791 | 702 | ||||||||||||
Interest and dividends on taxable investment securities | 4,653 | 2,591 | 14,163 | 7,805 | ||||||||||||
Interest and dividends on tax-exempt investment securities | 99 | 173 | 447 | 526 | ||||||||||||
Interest on federal funds sold and other interest-earning assets | 181 | 149 | 312 | 299 | ||||||||||||
Total interest income | 17,922 | 13,620 | 51,440 | 39,591 | ||||||||||||
Interest expense: | ||||||||||||||||
Demand- interest bearing | 772 | 553 | 2,075 | 1,471 | ||||||||||||
Money market and savings | 788 | 677 | 2,218 | 1,923 | ||||||||||||
Time deposits | 312 | 301 | 903 | 625 | ||||||||||||
Other borrowings | 338 | 303 | 1,046 | 898 | ||||||||||||
Total interest expense | 2,210 | 1,834 | 6,242 | 4,917 | ||||||||||||
Net interest income | 15,712 | 11,786 | 45,198 | 34,674 | ||||||||||||
Provision for loan losses | - | 607 | 500 | 1,557 | ||||||||||||
Net interest income after provision for loan losses | 15,712 | 11,179 | 44,698 | 33,117 | ||||||||||||
Non-interest income: | ||||||||||||||||
Loan and servicing fees | 677 | 328 | 1,330 | 1,128 | ||||||||||||
Mortgage banking income | 3,159 | 2,405 | 8,551 | 2,405 | ||||||||||||
Gain on sales of SBA loans | 831 | 1,630 | 2,315 | 4,212 | ||||||||||||
Service fees on deposit accounts | 1,067 | 686 | 2,820 | 1,910 | ||||||||||||
Gain (loss) on sale of investment securities | - | 2 | (61 | ) | 656 | |||||||||||
Net securities impairment recognized in earnings | - | (2 | ) | - | (7 | ) | ||||||||||
Other non-interest income | 44 | 93 | 130 | 281 | ||||||||||||
Total non-interest income | 5,778 | 5,142 | 15,085 | 10,585 | ||||||||||||
Non-interest expenses: | ||||||||||||||||
Salaries and employee benefits | 9,829 | 7,731 | 27,800 | 20,334 | ||||||||||||
Occupancy | 1,772 | 1,535 | 5,239 | 4,387 | ||||||||||||
Depreciation and amortization | 1,292 | 1,051 | 3,588 | 2,816 | ||||||||||||
Legal | 156 | 158 | 535 | 312 | ||||||||||||
Other real estate owned | 746 | 702 | 1,704 | 1,610 | ||||||||||||
Advertising | 394 | 218 | 861 | 537 | ||||||||||||
Data processing | 785 | 669 | 2,335 | 1,711 | ||||||||||||
Insurance | 277 | 262 | 750 | 656 | ||||||||||||
Professional fees | 454 | 352 | 1,389 | 1,167 | ||||||||||||
Regulatory assessments and costs | 355 | 296 | 1,008 | 1,011 | ||||||||||||
Taxes, other | 242 | 243 | 716 | 495 | ||||||||||||
Other operating expenses | 2,863 | 1,796 | 7,729 | 5,287 | ||||||||||||
Total non-interest expense | 19,165 | 15,013 | 53,654 | 40,323 | ||||||||||||
Income before benefit for income taxes | 2,325 | 1,308 | 6,129 | 3,379 | ||||||||||||
Provision (benefit) for income taxes | 4 | (32 | ) | (38 | ) | (69 | ) | |||||||||
Net income | $ | 2,321 | $ | 1,340 | $ | 6,167 | $ | 3,448 | ||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 0.04 | $ | 0.04 | $ | 0.11 | $ | 0.09 | ||||||||
Diluted | $ | 0.04 | $ | 0.03 | $ | 0.11 | $ | 0.09 |
(See notes to consolidated financial statements)
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
For the Three and NineSix Months Ended SeptemberJune 30, 20172021 and 2016
(Dollars in thousands)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net income | $ | 5,934 | $ | 2,512 | $ | 13,002 | $ | 1,919 | ||||||||
Other comprehensive income, net of tax | ||||||||||||||||
Unrealized gains (losses) on securities (pre-tax $7,949, $1,089, ($1,559), and $5,463, respectively) | 5,937 | 813 | (1,161 | ) | 4,077 | |||||||||||
Reclassification adjustment for securities gains (pre-tax ($2), ($1,640), ($2), and ($2,481), respectively) | (1 | ) | (1,224 | ) | (1 | ) | (1,852 | ) | ||||||||
Net unrealized gains (losses) on securities | 5,936 | (411 | ) | (1,162 | ) | 2,225 | ||||||||||
Amortization of net unrealized holding losses to income during the period (pre-tax $660, $646, $1,498, and $1,055 respectively) | 489 | 482 | 1,117 | 787 | ||||||||||||
Total other comprehensive income (loss) | 6,425 | 71 | (45 | ) | 3,012 | |||||||||||
Total comprehensive income | $ | 12,359 | $ | 2,583 | $ | 12,957 | $ | 4,931 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 2,321 | $ | 1,340 | $ | 6,167 | $ | 3,448 | ||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||||
Unrealized gain (loss) on securities (pre-tax $(7), $(1,082), $2,615, and $3,386, respectively) | (5 | ) | (693 | ) | 1,676 | 2,170 | ||||||||||
Reclassification adjustment for securities losses/(gains) (pre-tax $-, $(2), $61, and $(656), respectively) | - | (1 | ) | 39 | (420 | ) | ||||||||||
Reclassification adjustment for impairment charge (pre-tax $-, $2, $-, and $7, respectively) | - | 1 | - | 4 | ||||||||||||
Net unrealized gains (losses) on securities | (5 | ) | (693 | ) | 1,715 | 1,754 | ||||||||||
Net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity: | ||||||||||||||||
Amortization of net unrealized holding losses to income during the period (pre-tax $44, $38, $129, and $133, respectively) | 28 | 24 | 83 | 85 | ||||||||||||
Total other comprehensive income (loss) | 23 | (669 | ) | 1,798 | 1,839 | |||||||||||
Total comprehensive income | $ | 2,344 | $ | 671 | $ | 7,965 | $ | 5,287 |
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 | - |
(See notes to consolidated financial statements)
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
For the NineSix Months Ended SeptemberJune 30, 20172021 and 2016
(Dollars in thousands)
(unaudited)
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 13,002 | $ | 1,919 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan losses | 3,000 | 1,950 | ||||||
Writedown of other real estate owned | 350 | 0 | ||||||
Depreciation and amortization | 4,309 | 4,117 | ||||||
Stock based compensation | 1,029 | 1,056 | ||||||
Gain on sale of investment securities | (2 | ) | (2,481 | ) | ||||
Fair value adjustment on equity securities | (202 | ) | 0 | |||||
Amortization of premiums on investment securities | 4,291 | 3,610 | ||||||
Accretion of discounts on retained SBA loans | (455 | ) | (429 | ) | ||||
Fair value adjustments on SBA servicing assets | 298 | 158 | ||||||
Proceeds from sales of SBA loans originated for sale | 13,350 | 15,179 | ||||||
SBA loans originated for sale | (11,428 | ) | (12,639 | ) | ||||
Gains on sales of SBA loans originated for sale | (1,376 | ) | (918 | ) | ||||
Proceeds from sales of mortgage loans originated for sale | 276,657 | 148,131 | ||||||
Mortgage loans originated for sale | (232,663 | ) | (158,637 | ) | ||||
Fair value adjustment for mortgage loans originated for sale | 1,824 | (589 | ) | |||||
Gains on mortgage loans originated for sale | (7,661 | ) | (3,822 | ) | ||||
Amortization of debt issuance costs | 3 | 3 | ||||||
Non-cash expense related to leases | 204 | 255 | ||||||
Increase in accrued interest receivable and other assets | (443 | ) | (6,190 | ) | ||||
Net (decrease) increase in accrued interest payable and other liabilities | (6,519 | ) | 3,117 | |||||
Net cash provided by (used in) operating activities | 57,568 | (6,210 | ) | |||||
Cash flows from investing activities | ||||||||
Purchase of investment securities available for sale | (308,819 | ) | (16,906 | ) | ||||
Purchase of investment securities held to maturity | (378,895 | ) | 0 | |||||
Proceeds from the sale of securities available for sale | 0 | 92,804 | ||||||
Proceeds from the paydown, maturity, or call of securities available for sale | 68,905 | 84,036 | ||||||
Proceeds from the paydown, maturity, or call of securities held to maturity | 135,327 | 88,476 | ||||||
Net purchase of restricted stock | (471 | ) | (1,043 | ) | ||||
Net decrease (increase) in loans | 124,341 | (793,800 | ) | |||||
Net proceeds from sale of other real estate owned | 155 | 586 | ||||||
Premises and equipment expenditures | (4,814 | ) | (8,310 | ) | ||||
Net cash used in investing activities | (364,271 | ) | (554,157 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from exercise of stock options | 92 | 23 | ||||||
Increase in demand, money market and savings deposits | 545,121 | 657,924 | ||||||
Net increase (decrease) in time deposits | 996 | (13,133 | ) | |||||
Net (repayment) increase in other borrowings | (246,357 | ) | 438,478 | |||||
Preferred stock dividends paid | (1,750 | ) | 0 | |||||
Net cash provided by financing activities | 298,102 | 1,083,292 | ||||||
Net (decrease) increase in cash and cash equivalents | (8,601 | ) | 522,925 | |||||
Cash and cash equivalents, beginning of year | 775,300 | 168,319 | ||||||
Cash and cash equivalents, end of period | $ | 766,699 | $ | 691,244 | ||||
Supplemental disclosures | ||||||||
Interest paid | $ | 9,370 | $ | 11,734 | ||||
Income taxes paid | $ | 6,905 | $ | 0 | ||||
Addition to other real estate owned | $ | 168 | $ | 0 |
Common Stock | Additional Paid in Capital | Accumulated Deficit | Treasury Stock | Stock Held by Deferred Compensation Plan | Accumulated Other Comprehensive Loss | Total Shareholders' Equity | ||||||||||||||||||||||
Balance January 1, 2017 | $ | 573 | $ | 253,570 | $ | (27,888 | ) | $ | (3,725 | ) | $ | (183 | ) | $ | (7,294 | ) | $ | 215,053 | ||||||||||
Net income | 6,167 | 6,167 | ||||||||||||||||||||||||||
Other comprehensive income, net of tax | 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 | ||||||||||
(See notes to consolidated financial statements)
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
For the Three and Six Months Ended June 30, 2021 and 2020
(Dollars in thousands)
(unaudited)
Preferred Stock | Common Stock | Additional Paid in Capital | Retained Earnings / Accumulated Deficit | Treasury Stock | Stock Held by Deferred Compensation Plan | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||
Balance April 1, 2021 | $ | 20 | $ | 594 | $ | 322,861 | $ | (1,892 | ) | $ | (3,725 | ) | $ | (183 | ) | $ | (9,299 | ) | $ | 308,376 | ||||||||||||
Net income | 5,934 | 5,934 | ||||||||||||||||||||||||||||||
Preferred stock dividends paid (1) | (875 | ) | (875 | ) | ||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 6,425 | 6,425 | ||||||||||||||||||||||||||||||
Stock based compensation | 532 | 532 | ||||||||||||||||||||||||||||||
Options exercised (12,875 shares) | 49 | 49 | ||||||||||||||||||||||||||||||
Balance June 30, 2021 | $ | 20 | $ | 594 | $ | 323,442 | $ | 3,167 | $ | (3,725 | ) | $ | (183 | ) | $ | (2,874 | ) | $ | 320,441 | |||||||||||||
Balance January 1, 2021 | $ | 20 | $ | 594 | $ | 322,321 | $ | (8,085 | ) | $ | (3,725 | ) | $ | (183 | ) | $ | (2,829 | ) | $ | 308,113 | ||||||||||||
Net income | 13,002 | 13,002 | ||||||||||||||||||||||||||||||
Preferred stock dividends paid (2) | (1,750 | ) | (1,750 | ) | ||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | (45 | ) | (45 | ) | ||||||||||||||||||||||||||||
Stock based compensation | 1,029 | 1,029 | ||||||||||||||||||||||||||||||
Options exercised (26,375 shares) | 92 | 92 | ||||||||||||||||||||||||||||||
Balance June 30, 2021 | $ | 20 | $ | 594 | $ | 323,442 | $ | 3,167 | $ | (3,725 | ) | $ | (183 | ) | $ | (2,874 | ) | $ | 320,441 | |||||||||||||
Balance April 1, 2020 | $ | 0 | $ | 594 | $ | 272,639 | $ | (12,809 | ) | $ | (3,725 | ) | $ | (183 | ) | $ | (4,400 | ) | $ | 252,116 | ||||||||||||
Net income | 2,512 | 2,512 | ||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 71 | 71 | ||||||||||||||||||||||||||||||
Stock based compensation | 479 | 479 | ||||||||||||||||||||||||||||||
Balance June 30, 2020 | $ | 0 | $ | 594 | $ | 273,118 | $ | (10,297 | ) | $ | (3,725 | ) | $ | (183 | ) | $ | (4,329 | ) | $ | 255,178 | ||||||||||||
Balance January 1, 2020 | $ | 0 | $ | 594 | $ | 272,039 | $ | (12,216 | ) | $ | (3,725 | ) | $ | (183 | ) | $ | (7,341 | ) | $ | 249,168 | ||||||||||||
Net income | 1,919 | 1,919 | ||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 3,012 | 3,012 | ||||||||||||||||||||||||||||||
Stock based compensation | 1,056 | 1,056 | ||||||||||||||||||||||||||||||
Options exercised (8,000 shares) | 23 | 23 | ||||||||||||||||||||||||||||||
Balance June 30, 2020 | $ | 0 | $ | 594 | $ | 273,118 | $ | (10,297 | ) | $ | (3,725 | ) | $ | (183 | ) | $ | (4,329 | ) | $ | 255,178 |
(1) | Dividends per share of $0.44 were declared and paid on preferred stock for the three months ended June 30, 2021 |
(2) | Dividends per share of $0.88 were declared and paid on preferred stock for the six months ended June 30, 2021 |
(See notes to consolidated financial statements)
Republic First Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
Note 1: Basis of Presentation
Republic First Bancorp, Inc. (the "Company"“Company”) is a one-bankone-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.
The Company and Republic encounter vigorous competition for market share in the geographic areas they serve from bank holding companies, national, regional and other community banks, thrift institutions, credit unions and other non-bank financial organizations, such as mutual fund companies, insurance companies and brokerage companies.
The Company and Republic are subject to federal and state regulations governing virtually all aspects of their activities, including but not limited to, lines of business, liquidity, investments, the payment of dividends and others. Such regulations and the cost of adherence to such regulations can have a significant impact on earnings and financial condition.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Republic. The Company follows accounting standards set by the Financial Accounting Standards Board ("FASB"(“FASB”). The FASB sets accounting principles generally accepted in the United States of America ("(“US GAAP"GAAP”) that are followed to ensure consistent reporting of financial condition, results of operations, and cash flows.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to United States Securities and Exchange Commission ("SEC"(“SEC”) Form 10-Q10-Q and Article 10 of SEC Regulation S-X.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 ninesix month periodsperiod ended SeptemberJune 30, 2017 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2021.
Note 2: Summary of Significant Accounting Policies
Risks and Uncertainties
The earnings of the Company depend primarily on the earnings of Republic. The earnings of Republic are heavily dependent primarily upon the level of net interest income, which is the difference between interest earned on its interest-earning assets, such as loans and investments, and the interest paid on its interest-bearing liabilities, such as deposits and borrowings. Accordingly, the Company'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.
The coronavirus (“COVID-19”) outbreak and Mortgage Loans Heldthe public health response to contain it have resulted in unprecedented economic and financial market conditions. In response to these conditions, the Board of Governors of the Federal Reserve System (“Federal Reserve”) reduced the federal funds target range by 150 basis points to 0.00% to 0.25% in March 2020. The Federal Reserve has taken additional steps to bolster the economy by promoting liquidity in certain securities markets and providing funding sources for Sale
The fair value is determined on a recurring basis by utilizing quoted prices from dealers in such securities. Gains and losses on loan sales are recorded in non-interest income and direct loan origination costs are recognized when incurred and are included in non-interest expenseeconomic downturn that began in the statementsU.S. as a result of income.
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 credit losses, carrying values of other real estate owned, assessment of other than temporary impairment (“OTTI”) of investment securities, fair value of financial instruments, and the realization of deferred income tax assets. Consideration is given to a variety of factors in establishing these estimates.
Mortgage Banking Activities and Mortgage Loans Held for Sale
Mortgage loans held for sale are originated and held until sold to permanent investors. Management elected to adopt the fair value option in accordance with FASB Accounting Standards Codification (“ASC”) 820,Fair Value Measurements and Disclosures, and record loans held for sale at fair value.
Mortgage loans held for sale originated on or subsequent to the election of the fair value option, are recorded on the balance sheet at fair value. The fair value is determined on a recurring basis by utilizing quoted prices from dealers in such securities. Changes in fair value are reflected in mortgage banking income in the statements of income. Direct loan origination costs are recognized when incurred and are included in non-interest expense in the statements of income.
Interest Rate Lock Commitments (“IRLCs”)
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 interest rate lock commitments (“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 12 Derivatives and Risk Management Activities for further detail of IRLCs.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates are made by management in determining the allowance for loan losses, carrying values of other real estate owned, assessment of other than temporary impairment ("OTTI"(“OTTI”) of investment securities, fair value of financial instruments, (see "Note 7" below), and the realization of deferred income tax assets. Consideration is given to a variety of factors in establishing these estimates.
In estimating the allowance for loan losses, management considers current economic conditions, past loss experience, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews and regulatory examinations, borrowers'borrowers’ perceived financial and managerial strengths, the adequacy of underlying collateral, if collateral dependent, or present value of future cash flows, and other relevant and qualitative risk factors. Subsequent to foreclosure, an estimate for the carrying value of other real estate owned is normally determined through valuations that are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less the cost to sell. Because the allowance for loan losses and carrying value of other real estate owned are dependent, to a great extent, on the general economy and other conditions that may be beyond the Company'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.
In estimating OTTI of investment securities, securities are evaluated on at least a quarterly basis and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline, the intent to hold the security and the likelihood of the Company not being required to sell the security prior to an anticipated recovery in the fair value. The term "other-than-temporary"“other-than-temporary” is not intended to indicate that the decline is permanent but indicates that the 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.
In evaluating the 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.
Stock-Based Compensation
The Company has a Stock Option and Restricted Stock Plan ("(“the 2005 Plan" Plan”), under which the Company granted options, restricted stock or stock appreciation rights to the Company'sCompany’s employees, directors, and certain consultants. The 2005 Plan became effective on November 14, 1995 and was amended and approved at the Company's Company’s 2005 annual meeting of shareholders. Under the terms of the 2005 Plan, 1.5 million shares of common stock, plus an annual increase equal to the number of shares needed to restore the maximum number of shares that could be available for grant under the 2005 Plan to 1.5 million shares, were available for such grants. As of SeptemberJune 30, 2017, 2021, 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.
On April 29, 2014 the 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. Compensation cost for all option awards is calculated and recognized over the vesting period of the option awards. If the service conditions are not met, the Company reverses previously recorded compensation expense upon forfeiture. The Company’s accounting policy election is to recognize forfeitures as they occur. At SeptemberJune 30, 2017, 2021, the maximum number of common shares issuable under the 2014 Plan was 5.96.4 million shares. During the ninesix months ended SeptemberJune 30, 2017, 906,500 options2021, 530,013 stock units were granted under the 2014 Plan with a fair value of $3,188,984.
On April 27, 2021 the Company’s shareholders approved the 2021 Equity Incentive Plan of Republic First Bancorp, Inc. (the “2021 Plan”), under which the Company may grant options, restricted stock, stock units, or stock appreciation rights to the Company’s employees, directors, independent contractors, and consultants. Under the terms of the 2021 Plan, the maximum number of shares which may be issued or awarded is 7.5 million shares of common stock. As of June 30, 2021, 0 shares have been granted under the 2021 Plan.
The Company utilizes the Black-Scholes option pricing model to calculate the estimated fair value of each stock option granted on the date of the grant. A summary of the assumptions used in the Black-Scholes option pricing model for 2017 and 2016 are as follows:
2017 | 2016 | ||||
Dividend yield(1) | 0.0% | 0.0% | |||
Expected volatility(2) | 45.46% to 50.09% | 46.38% to 52.54% | |||
Risk-free interest rate(3) | 1.89% to 2.26% | 1.23% to 1.82% | |||
Expected life(4) | 5.5 to 7.0 years | 5.5 to 7.0 years | |||
Assumed forfeiture rate | 6.0% | 10.0% |
During the ninesix months ended SeptemberJune 30, 2017 2021 and 2016, 526,624 options2020, 634,635 shares and 487,550 options907,790 shares vested, respectively. Expense is recognized ratably over the period required to vest. At SeptemberJune 30, 2017, 2021, the intrinsic value of the 3,038,4505,613,724 options outstanding was $12,954,271,$2.1 million, while the intrinsic value of the 1,379,8483,833,260 exercisable (vested) options was $7,764,313.$1.0 million. At June 30, 2020, the intrinsic value of the 5,997,450 options outstanding was $102,000, while the intrinsic value of the 3,403,375 exercisable (vested) options was $102,000. During the ninesix months ended SeptemberJune 30, 2017, 186,8502021, 26,375 options were exercised withresulting in cash receivedreceipts of $615,226$92,000 and 14,100259,326 options were forfeited with a weighted average grant date fair value of $53,246.$487,533. During the ninesix months ended SeptemberJune 30, 2016, 80,3752020, 8,000 options were exercised withresulting in cash receivedreceipts of $226,271$23,000 and 38,550179,625 options were forfeited with a weighted average grant date fair value of $55,920.
Information regarding stock based compensation for the ninesix months ended SeptemberJune 30, 2017 2021 and 20162020 is set forth below:
2021 | 2020 | |||||||
Stock based compensation expense recognized | $ | 785,724 | $ | 1,056,000 | ||||
Number of unvested stock options | 1,780,464 | 2,594,075 | ||||||
Fair value of unvested stock options | $ | 2,986,049 | $ | 4,900,923 | ||||
Amount remaining to be recognized as expense | $ | 2,353,785 | $ | 3,578,456 |
September 30, 2017 | September 30, 2016 | ||||||
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 |
The remaining unrecognized expense amount of $2,966,049$2,353,785 will be recognized ratably as expense through JulyMay 2024.
The Company granted stock units under the 2014 Plan during the six month period ended June 30, 2021.
The following table details the Stock Units for the three months ended June 30, 2021:
Number of Units | Weighted Average Grant Date Fair Value | |||||||
Beginning balance | 520,350 | $ | 3.34 | |||||
Granted | 9,663 | 3.82 | ||||||
Vested | 0 | 0 | ||||||
Forfeited | (5,150 | ) | 3.34 | |||||
Ending balance | 524,863 | $ | 3.35 |
Information regarding stock unit compensation for the six months ended June 30, 2021 and 2020 is set forth below:
2021 | 2020 | |||||||
Stock based compensation expense recognized | $ | 243,835 | $ | 0 | ||||
Number of unvested stock units | 524,863 | 0 | ||||||
Fair value of unvested stock units | $ | 1,757,692 | $ | 0 | ||||
Amount remaining to be recognized as expense | $ | 1,513,857 | $ | 0 |
The remaining unrecognized expense amount of $1,513,857 will be recognized ratably as expense through May 2025.
Earnings per Share
Earnings per share ("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 tocommon shares issuable through the trustconversion of the Company's preferred securities issued in 2008. Instock for 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 ninesix months ended SeptemberJune 30, 2017 2021 and 2016, the effect of CSEs (convertible securities related to the trust preferred securities only) and the related add back of after tax interest expense was considered anti-dilutive and therefore was not included in the EPS calculations.
The calculation of EPS for the three and ninesix months ended SeptemberJune 30, 2017 2021 and 20162020 is as follows (in thousands, except per share amounts):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
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 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net income attributable to basic common shareholders | $ | 5,059 | $ | 2,512 | $ | 11,252 | $ | 1,919 | ||||||||
Weighted average shares outstanding | 58,875 | 58,851 | 58,868 | 58,849 | ||||||||||||
Basic earnings per common share | $ | 0.09 | $ | 0.04 | $ | 0.19 | $ | 0.03 | ||||||||
Net income attributable to diluted common shareholders | $ | 5,934 | $ | 2,512 | $ | 13,002 | $ | 1,919 | ||||||||
Weighted average shares outstanding (including dilutive CSEs) | 76,167 | 58,883 | 75,984 | 58,911 | ||||||||||||
Diluted earnings per common share | $ | 0.08 | $ | 0.04 | $ | 0.17 | $ | 0.03 |
The following is a summary of securities that could potentially dilute basic earnings per common share in future 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.
(in thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
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 |
(in thousands) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Anti-dilutive securities | ||||||||||||||||
Share based compensation awards | 5,514 | 5,965 | 5,689 | 5,936 | ||||||||||||
Convertible preferred stock | 0 | 0 | 0 | 0 | ||||||||||||
Total anti-dilutive securities | 5,514 | 5,965 | 5,689 | 5,936 |
Recent Accounting Pronouncements
ASU 2014-09
In May 2014, June 2016, the FASB issued ASU 2014-09, "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,
ASU 2016-15
In August 2016, March 2020, the FASB issued ASU 2016-15, Statement2020-04,Reference Rate Reform (Topic 848): Facilitation of Cash Flows (Topic 230). the Effects of Reference Rate Reform on Financial Reporting. The ASU addresses classificationprovides optional guidance for a limited period of time to ease the potential burden in accounting for (or derecognizing the effects of) reference rate reform on financial reporting. Specifically, the amendments provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain cash receiptscriteria are met. These relate only to those contracts, hedging relationships, and cash payments inother transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU became effective March 12, 2020 and can be adopted anytime during the statementperiod of cash flows. The new guidance is effective on January 1, 2018, on2020 through December 31, 2022. The Company is currently evaluating the impact of this guidance. There is only one relationship that has LIBOR pricing with a retrospective basis, with early adoption permitted. This new accounting guidance will result in some changes in classification inmaturity date beyond December 31, 2022. The loan documentation for 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 relationship contains language for an alternative pricing index when LIBOR is no longer available.
ASU the Company has determined that the adoption of ASU 2016-15 will not have a material impact on the Company's financial statements.
In January 2017, 2021, the FASB issued ASU 2017-01, Business Combinations2021-01,Reference Rate Reform (Topic 805). 848): Scope. The ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the definitiondiscounting transition, including derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of a business in ASC 805. The FASB issued the ASU in response to stakeholder feedback that the definition of a business in ASC 805 is being applied too broadly. In addition, stakeholders said that analyzing transactions under the current definition is difficult and costly. Concerns about the definition of a business were among the primary issues raised in connection with the Financial Accounting Foundation's 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.reference rate reform. The ASU isbecame effective for public business entities in annual periods beginning after as of March 12, 2020 and can be adopted anytime during the period of January 1, 2020 through 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. 31, 2022. The Company has not yet determinedis currently evaluating the impact of this guidance. There is only one relationship that has LIBOR pricing with a maturity date beyond December 31, 2022. The loan documentation for the adoption of ASU 2017-01 will have on the consolidated financial statements.
Note 3: Commitments and any interim impairment tests for periods beginning after December 15, 2019. The Company has not yet determined the impact the adoption of ASU 2017-04 will have on the consolidated financial statements.
The Company and Republic are from time to time partiesa party (plaintiff or defendant) to lawsuits that are 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 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.
Note 5: Investment Securities
A summary of the amortized cost and market value of securities available for sale, and securities held to maturity, and equity securities at SeptemberJune 30, 2017 2021 and December 31, 2016 2020 is as follows:
At September 30, 2017 | ||||||||||||||||
(dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
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 | ||||||||||||||||
(dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
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 |
At June 30, 2021 | ||||||||||||||||
(dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Available for sale | ||||||||||||||||
U.S. Government agencies | $ | 29,341 | $ | 477 | $ | (953 | ) | $ | 28,865 | |||||||
Collateralized mortgage obligations | 302,361 | 2,910 | (1,930 | ) | 303,341 | |||||||||||
Agency mortgage-backed securities | 274,845 | 818 | (2,624 | ) | 273,039 | |||||||||||
Municipal securities | 7,926 | 420 | 0 | 8,346 | ||||||||||||
Corporate bonds | 150,502 | 1,426 | (783 | ) | 151,145 | |||||||||||
Investment securities available for sale | $ | 764,975 | $ | 6,051 | $ | (6,290 | ) | $ | 764,736 | |||||||
Held to maturity | ||||||||||||||||
U.S. Government agencies | $ | 75,102 | $ | 3,030 | $ | 0 | $ | 78,132 | ||||||||
Collateralized mortgage obligations | 405,773 | 8,447 | (6,275 | ) | 407,945 | |||||||||||
Agency mortgage-backed securities | 576,967 | 3,589 | (4,995 | ) | 575,561 | |||||||||||
Investment securities held to maturity | $ | 1,057,842 | $ | 15,066 | $ | (11,270 | ) | $ | 1,061,638 | |||||||
Equity securities (1) | $ | 9,241 |
(1) | Equity securities consist of investments in non-cumulative preferred stock. |
At December 31, 2020 | ||||||||||||||||
(dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Available for sale | ||||||||||||||||
U.S. Government agencies | $ | 32,312 | $ | 0 | $ | (426 | ) | $ | 31,886 | |||||||
Collateralized mortgage obligations | 218,232 | 3,584 | (270 | ) | 221,546 | |||||||||||
Agency mortgage-backed securities | 149,325 | 1,204 | (1 | ) | 150,528 | |||||||||||
Municipal securities | 8,201 | 24 | 0 | 8,225 | ||||||||||||
Corporate bonds | 119,118 | 595 | (3,390 | ) | 116,323 | |||||||||||
Investment securities available for sale | $ | 527,188 | $ | 5,407 | $ | (4,087 | ) | $ | 528,508 | |||||||
Held to maturity | ||||||||||||||||
U.S. Government agencies | $ | 82,093 | $ | 4,185 | $ | 0 | $ | 86,278 | ||||||||
Collateralized mortgage obligations | 363,363 | 12,687 | (231 | ) | 375,819 | |||||||||||
Agency mortgage-backed securities | 369,480 | 5,640 | (245 | ) | 374,875 | |||||||||||
Investment securities held to maturity | $ | 814,936 | $ | 22,512 | $ | (476 | ) | $ | 836,972 | |||||||
Equity securities (1) | $ | 9,039 |
(1) | Equity securities consist of investments in non-cumulative preferred stock. |
The following table presents investment securities by stated maturity at SeptemberJune 30, 2017. 2021. Collateralized mortgage obligations and agency mortgage-backed securities have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay with or without prepayment penalties and, therefore, these securities are classified separately with no specific maturity date.
Available for Sale | Held to Maturity | |||||||||||||||
(dollars in thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
Due in 1 year or less | $ | 1,154 | $ | 1,160 | $ | 1,000 | $ | 1,000 | ||||||||
After 1 year to 5 years | 10,603 | 10,675 | 6,038 | 6,046 | ||||||||||||
After 5 years to 10 years | 60,860 | 59,395 | 98,408 | 96,795 | ||||||||||||
After 10 years | 25,045 | 23,721 | - | - | ||||||||||||
Collateralized mortgage obligations | 244,170 | 240,004 | 179,928 | 178,027 | ||||||||||||
Agency mortgage-backed securities | 43,906 | 42,802 | 131,613 | 129,389 | ||||||||||||
Total | $ | 385,738 | $ | 377,757 | $ | 416,987 | $ | 411,257 |
Available for Sale | Held to Maturity | |||||||||||||||
(dollars in thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
Due in 1 year or less | $ | 13,702 | $ | 13,689 | $ | 407 | $ | 409 | ||||||||
After 1 year to 5 years | 80,532 | 81,480 | 67,361 | 70,054 | ||||||||||||
After 5 years to 10 years | 52,386 | 52,913 | 7,334 | 7,669 | ||||||||||||
After 10 years | 41,149 | 40,274 | 0 | 0 | ||||||||||||
Collateralized mortgage obligations | 302,361 | 303,341 | 405,773 | 407,945 | ||||||||||||
Agency mortgage-backed securities | 274,845 | 273,039 | 576,967 | 575,561 | ||||||||||||
Total | $ | 764,975 | $ | 764,736 | $ | 1,057,842 | $ | 1,061,638 |
The 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. Equity securities consist of investments in non-cumulative preferred stock. There were no private label mortgage-backed securities ("MBS"(“MBS”) or collateralized mortgage obligations ("CMO"(“CMO”) held in the investment securities portfolio as of SeptemberJune 30, 2017 2021 and December 31, 2016. 2020. There were also no MBS or CMO securities that were rated "Alt-A"“Alt-A” or "sub-prime"“sub-prime” as of those dates.
The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the available for sale portfolio are included in shareholders'shareholders’ equity as a component of accumulated other comprehensive income or loss, net of tax. Securities classified as held to maturity are carried at amortized cost. An unrealized loss exists when the current fair value of an individual security is less than the amortized cost basis.
The Company regularly evaluates investment securities that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, the current interest rate environment and the rating of each security. An other-than-temporary impairment ("OTTI")OTTI loss must be recognized for a debt security in an unrealized loss position if the Company intends to sell the security or it is more likely than not that it will be required to sell the security prior to recovery of the amortized cost basis. The amount of OTTI loss recognized is equal to the difference between the fair value and the amortized cost basis of the security that is attributed to credit deterioration. Accounting standards require the evaluation of the expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, that amount must be recognized against income in the current period. The portion of the unrealized loss related to other factors, such as liquidity conditions in the market or the current interest rate environment, is recorded in accumulated other comprehensive income (loss) for investment securities classified available for sale.
(dollars in thousands) | 2017 | 2016 | ||||||
Beginning Balance, January 1st | $ | 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 | ) | - | |||||
Ending Balance, September 30th | $ | 454 | $ | 937 |
The following tables show the fair value and gross unrealized losses associated with the investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position in the available for sale as of June 30, 2021 and held to maturity section:
At September 30, 2017 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
(dollars in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
Collateralized mortgage obligations | $ | 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 |
At September 30, 2017 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
(dollars in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
U.S. Government agencies | $ | 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 |
At December 31, 2016 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
(dollars in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
Collateralized mortgage obligations | $ | 192,308 | $ | 5,380 | $ | 7,579 | $ | 252 | $ | 199,887 | $ | 5,632 | ||||||||||||
Agency mortgage-backed securities | 29,916 | 1,260 | 3,199 | 35 | 33,115 | 1,295 | ||||||||||||||||||
Municipal securities | 15,414 | 429 | - | - | 15,414 | 429 | ||||||||||||||||||
Corporate bonds | 32,257 | 1,708 | 10,726 | 270 | 42,983 | 1,978 | ||||||||||||||||||
Asset backed securities | - | - | 15,149 | 416 | 15,149 | 416 | ||||||||||||||||||
Trust preferred securities | - | - | 1,820 | 1,243 | 1,820 | 1,243 | ||||||||||||||||||
Total Available for Sale | $ | 269,895 | $ | 8,777 | $ | 38,473 | $ | 2,216 | $ | 308,368 | $ | 10,993 |
At December 31, 2016 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
(dollars in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
U.S. Government agencies | $ | 67,725 | $ | 2,198 | $ | 3,586 | $ | 40 | $ | 71,311 | $ | 2,238 | ||||||||||||
Collateralized mortgage obligations | 108,974 | 2,469 | 8,572 | 84 | 117,546 | 2,553 | ||||||||||||||||||
Agency mortgage-backed securities | 97,725 | 3,327 | - | - | 97,725 | 3,327 | ||||||||||||||||||
Total Held to Maturity | $ | 274,424 | $ | 7,994 | $ | 12,158 | $ | 124 | $ | 286,582 | $ | 8,118 |
At June 30, 2021 | ||||||||||||||||||||||||
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 | $ | 37,672 | $ | 477 | $ | 28,866 | $ | 476 | $ | 66,538 | $ | 953 | ||||||||||||
Collateralized mortgage obligations | 132,556 | 1,930 | 0 | 0 | 132,556 | 1,930 | ||||||||||||||||||
Agency mortgage-backed securities | 181,253 | 2,624 | 0 | 0 | 181,253 | 2,624 | ||||||||||||||||||
Municipal securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate bonds | 13,069 | 84 | 32,301 | 699 | 45,370 | 783 | ||||||||||||||||||
Investment Securities Available for Sale | $ | 364,550 | $ | 5,115 | $ | 61,167 | $ | 1,175 | $ | 425,717 | $ | 6,290 |
At June 30, 2021 | ||||||||||||||||||||||||
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 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Collateralized mortgage obligations | 206,750 | 6,271 | 999 | 4 | 207,749 | 6,275 | ||||||||||||||||||
Agency mortgage-backed securities | 378,258 | 4,995 | 0 | 0 | 378,258 | 4,995 | ||||||||||||||||||
Investment Securities Held to Maturity | $ | 585,008 | $ | 11,266 | $ | 999 | $ | 4 | $ | 586,007 | $ | 11,270 |
At December 31, 2020 | ||||||||||||||||||||||||
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 | $ | 0 | $ | 0 | $ | 31,886 | $ | 426 | $ | 31,886 | $ | 426 | ||||||||||||
Collateralized mortgage obligations | 99,497 | 270 | 0 | 0 | 99,497 | 270 | ||||||||||||||||||
Agency mortgage-backed securities | 20,934 | 1 | 0 | 0 | 20,934 | 1 | ||||||||||||||||||
Municipal securities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Corporate bonds | 4,559 | 39 | 54,649 | 3,351 | 59,208 | 3,390 | ||||||||||||||||||
Investment Securities Available for Sale | $ | 124,990 | $ | 310 | $ | 86,535 | $ | 3,777 | $ | 211,525 | $ | 4,087 |
At December 31, 2020 | ||||||||||||||||||||||||
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 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Collateralized mortgage obligations | 62,603 | 231 | 0 | 0 | 62,603 | 231 | ||||||||||||||||||
Agency mortgage-backed securities | 54,537 | 245 | 0 | 0 | 54,537 | 245 | ||||||||||||||||||
Investment Securities Held to Maturity | $ | 117,140 | $ | 476 | $ | 0 | $ | 0 | $ | 117,140 | $ | 476 |
Unrealized losses on securities in the investment portfolio amounted to $14.7$17.6 million with a total fair value of $628.4 million$1.0 billion as of SeptemberJune 30, 2017 2021 compared to unrealized losses of $19.1$4.6 million with a total fair value of $595.0$328.7 million as of December 31, 2016. 2020. The Company believes the unrealized losses presented in the tables above are temporary in nature and primarily related to market interest rates or limited trading activity in particular type of security rather than the underlying credit quality of the issuers. The Company does not believe that these losses are other than temporary and does not currently intend to sell or believe it will be required to sell securities in an unrealized loss position prior to maturity or recovery of the amortized cost bases.
The Company held ninesix U.S. Government agency securities, fifty-seventwenty collateralized mortgage obligations and twenty-onetwenty-six agency mortgage-backed securities that were in an unrealized loss position at SeptemberJune 30, 2017. 2021. 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 SeptemberJune 30, 2017.2021.
All municipal securities held in the investment portfolio are reviewed on least a quarterly basis for impairment. Each bond carries an investment grade rating by either Moody'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 SeptemberJune 30, 2017, there were ten2021, 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.
At SeptemberJune 30, 2017, 2021, 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 sixseven 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.
(dollars in thousands) | Class / Tranche | Amortized Cost | Fair Value | Unrealized Losses | Lowest Credit Rating Assigned | Number of Banks Currently Performing | Deferrals / Defaults as % of Current Balance | Conditional Default Rates for 2018 and beyond | Cumulative OTTI Life to Date | ||||||||||||||||||||||||
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 no0 proceeds from the sale of investment securities during the three or six months ended SeptemberJune 30, 2017. 2021. Proceeds fromassociated with the sale of investment securities available for sale during the ninethree months ended SeptemberJune 30, 2017 was $21.22020 were $65.9 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.
Note 6: Loans Receivable and Allowance for Loan Losses
The following table sets forth the Company'sCompany’s gross loans by major categoriescategory as of SeptemberJune 30, 2017 2021 and December 31, 2016:
(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 |
(dollars in thousands) | June 30, 2021 | December 31, 2020 | ||||||
Commercial real estate | $ | 736,293 | $ | 705,748 | ||||
Construction and land development | 160,945 | 142,821 | ||||||
Commercial and industrial | 212,003 | 200,188 | ||||||
Owner occupied real estate | 478,548 | 475,206 | ||||||
Consumer and other | 94,119 | 102,368 | ||||||
Residential mortgage | 459,712 | 395,174 | ||||||
Paycheck protection program | 394,224 | 636,637 | ||||||
Total loans receivable | 2,535,844 | 2,658,142 | ||||||
Deferred fees (net) | (14,421 | ) | (12,800 | ) | ||||
Allowance for loan losses | (16,110 | ) | (12,975 | ) | ||||
Net loans receivable | $ | 2,505,313 | $ | 2,632,367 |
The Company disaggregates its loan portfolio into groups of loans with similar risk characteristics for purposes of estimating the allowance for loan losses. The Company'sCompany’s loan groups include commercial real estate, construction and land development, commercial and industrial, owner occupied real estate, consumer, residential mortgages, and residential mortgages.loans issued under the Paycheck Protection Program (“PPP”). PPP loans are fully guaranteed by the U.S. Government and as such have no allowance associated with them. The loan groups are also considered classes for purposes of monitoring and assessing credit quality based on certain risk characteristics.
The following tables provide the activity in and ending balances of the allowance for loan losses by loan portfolio class at and for the three and nine months ended SeptemberJune 30, 2017 2021 and 2016:2020:
(dollars in thousands) | Commercial Real Estate | Construction and Land Development | Commercial and Industrial | Owner Occupied Real Estate | Consumer and Other | Residential Mortgage | Paycheck Protection Program | Unallocated | Total | |||||||||||||||||||||||||||
Three months ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Beginning balance: | $ | 5,640 | $ | 1,081 | $ | 1,736 | $ | 2,429 | $ | 745 | $ | 3,956 | $ | 0 | $ | 504 | $ | 16,091 | ||||||||||||||||||
Charge-offs | 0 | 0 | (61 | ) | 0 | (12 | ) | 0 | 0 | 0 | (73 | ) | ||||||||||||||||||||||||
Recoveries | 0 | 0 | 43 | 0 | 49 | 0 | 0 | 0 | 92 | |||||||||||||||||||||||||||
Provisions (credits) | 279 | 52 | (215 | ) | 11 | (65 | ) | 314 | 0 | (376 | ) | 0 | ||||||||||||||||||||||||
Ending balance | $ | 5,919 | $ | 1,133 | $ | 1,503 | $ | 2,440 | $ | 717 | $ | 4,270 | $ | 0 | $ | 128 | $ | 16,110 | ||||||||||||||||||
Three months ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Beginning balance: | $ | 3,402 | $ | 834 | $ | 1,442 | $ | 1,859 | $ | 634 | $ | 1,912 | $ | 0 | $ | 134 | $ | 10,217 | ||||||||||||||||||
Charge-offs | 0 | 0 | (51 | ) | (48 | ) | (43 | ) | (50 | ) | 0 | 0 | (192 | ) | ||||||||||||||||||||||
Recoveries | 0 | 2 | 10 | 1 | 2 | 0 | 0 | 0 | 15 | |||||||||||||||||||||||||||
Provisions (credits) | 330 | 116 | 30 | 183 | 82 | 393 | 0 | (134 | ) | 1,000 | ||||||||||||||||||||||||||
Ending balance | $ | 3,732 | $ | 952 | $ | 1,431 | $ | 1,995 | $ | 675 | $ | 2,255 | $ | 0 | $ | 0 | $ | 11,040 |
The following tables provide the activity in and ending balances of the allowance for loan losses by loan portfolio class at and for the six months ended June 30, 2021 and 2020:
(dollars in thousands) | Commercial Real Estate | Construction and Land Development | Commercial and Industrial | Owner Occupied Real Estate | Consumer and Other | Residential Mortgage | Paycheck Protection Program | Unallocated | Total | |||||||||||||||||||||||||||
Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Beginning balance: | $ | 4,394 | $ | 948 | $ | 1,367 | $ | 2,374 | $ | 723 | $ | 3,025 | $ | 0 | $ | 144 | $ | 12,975 | ||||||||||||||||||
Charge-offs | 0 | 0 | (60 | ) | 0 | (47 | ) | 0 | 0 | 0 | (107 | ) | ||||||||||||||||||||||||
Recoveries | 0 | 0 | 150 | 40 | 52 | 0 | 0 | 0 | 242 | |||||||||||||||||||||||||||
Provisions (credits) | 1,525 | 185 | 46 | 26 | (11 | ) | 1,245 | 0 | (16 | ) | 3,000 | |||||||||||||||||||||||||
Ending balance | $ | 5,919 | $ | 1,133 | $ | 1,503 | $ | 2,440 | $ | 717 | $ | 4,270 | $ | 0 | $ | 128 | $ | 16,110 | ||||||||||||||||||
Six months ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Beginning balance: | $ | 3,043 | $ | 688 | $ | 931 | $ | 2,292 | $ | 590 | $ | 1,705 | $ | 0 | $ | 17 | $ | 9,266 | ||||||||||||||||||
Charge-offs | 0 | 0 | (51 | ) | (48 | ) | (65 | ) | (50 | ) | 0 | 0 | (214 | ) | ||||||||||||||||||||||
Recoveries | 0 | 2 | 27 | 1 | 8 | 0 | 0 | 0 | 38 | |||||||||||||||||||||||||||
Provisions (credits) | 689 | 262 | 524 | (250 | ) | 142 | 600 | 0 | (17 | ) | 1,950 | |||||||||||||||||||||||||
Ending balance | $ | 3,732 | $ | 952 | $ | 1,431 | $ | 1,995 | $ | 675 | $ | 2,255 | $ | 0 | $ | 0 | $ | 11,040 |
(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, 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 | ||||||||||||||||
(dollars in thousands) | Commercial Real Estate | Construction and Land Development | Commercial and Industrial | Owner Occupied Real Estate | Consumer and Other | Residential Mortgage | Unallocated | Total | ||||||||||||||||||||||||
Nine months ended September 30, 2017 | ||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||
Beginning balance: | $ | 3,254 | $ | 557 | $ | 2,884 | $ | 1,382 | $ | 588 | $ | 58 | $ | 432 | $ | 9,155 | ||||||||||||||||
Charge-offs | - | - | (1,347 | ) | (157 | ) | (12 | ) | - | - | (1,516 | ) | ||||||||||||||||||||
Recoveries | 54 | - | 64 | - | 1 | - | - | 119 | ||||||||||||||||||||||||
Provisions (credits) | 291 | 92 | (380 | ) | 411 | (26 | ) | 265 | (153 | ) | 500 | |||||||||||||||||||||
Ending balance | $ | 3,599 | $ | 649 | $ | 1,221 | $ | 1,636 | $ | 551 | $ | 323 | $ | 279 | $ | 8,258 | ||||||||||||||||
Nine months ended September 30, 2016 | ||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||
Beginning Balance: | $ | 2,393 | $ | 338 | $ | 2,932 | $ | 2,030 | $ | 295 | $ | 14 | $ | 701 | $ | 8,703 | ||||||||||||||||
Charge-offs | - | (3 | ) | (18 | ) | (954 | ) | - | - | - | (975 | ) | ||||||||||||||||||||
Recoveries | 6 | - | 162 | - | - | - | - | 168 | ||||||||||||||||||||||||
Provisions (credits) | 903 | 164 | 69 | 541 | 45 | 28 | (193 | ) | 1,557 | |||||||||||||||||||||||
Ending balance | $ | 3,302 | $ | 499 | $ | 3,145 | $ | 1,617 | $ | 340 | $ | 42 | $ | 508 | $ | 9,453 |
The following tables provide a summary of the allowance for loan losses and balance of loans receivable by loan class and by impairment method as of SeptemberJune 30, 2017 2021 and December 31, 2016:
(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, 2017 | ||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||
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 |
(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, 2016 | ||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||
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 |
(dollars in thousands) | Commercial Real Estate | Construction and Land Development | Commercial and Industrial | Owner Occupied Real Estate | Consumer and Other | Residential Mortgage | Paycheck Protection Program | Unallocated | Total | |||||||||||||||||||||||||||
June 30, 2021 | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,071 | $ | 0 | $ | 53 | $ | 230 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 1,354 | ||||||||||||||||||
Collectively evaluated for impairment | 4,848 | 1,133 | 1,450 | 2,210 | 717 | 4,270 | 0 | 128 | 14,756 | |||||||||||||||||||||||||||
Total allowance for loan losses | $ | 5,919 | $ | 1,133 | $ | 1,503 | $ | 2,440 | $ | 717 | $ | 4,270 | $ | 0 | $ | 128 | $ | 16,110 | ||||||||||||||||||
Loans receivable: | ||||||||||||||||||||||||||||||||||||
Loans evaluated individually | $ | 4,335 | 0 | $ | 2,560 | $ | 4,066 | $ | 1,224 | $ | 749 | $ | 0 | $ | 0 | $ | 12,934 | |||||||||||||||||||
Loans evaluated collectively | 731,958 | 160,945 | 209,443 | 474,482 | 92,895 | 458,963 | 394,224 | 0 | 2,522,910 | |||||||||||||||||||||||||||
Total loans receivable | $ | 736,293 | $ | 160,945 | $ | 212,003 | $ | 478,548 | $ | 94,119 | $ | 459,712 | $ | 394,224 | $ | 0 | $ | 2,535,844 |
(dollars in thousands) | Commercial Real Estate | Construction and Land Development | Commercial and Industrial | Owner Occupied Real Estate | Consumer and Other | Residential Mortgage | Paycheck Protection Program | Unallocated | Total | |||||||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 418 | $ | 0 | $ | 51 | $ | 122 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 591 | ||||||||||||||||||
Collectively evaluated for impairment | 3,976 | 948 | 1,316 | 2,252 | 723 | 3,025 | 0 | 144 | 12,384 | |||||||||||||||||||||||||||
Total allowance for loan losses | $ | 4,394 | $ | 948 | $ | 1,367 | $ | 2,374 | $ | 723 | $ | 3,025 | $ | 0 | $ | 144 | $ | 12,975 | ||||||||||||||||||
Loans receivable: | ||||||||||||||||||||||||||||||||||||
Loans evaluated individually | $ | 9,048 | 0 | $ | 2,963 | $ | 3,955 | $ | 1,302 | $ | 701 | $ | 0 | $ | 0 | $ | 17,969 | |||||||||||||||||||
Loans evaluated collectively | 696,700 | 142,821 | 197,225 | 471,251 | 101,066 | 394,473 | 636,637 | 0 | 2,640,173 | |||||||||||||||||||||||||||
Total loans receivable | $ | 705,748 | $ | 142,821 | $ | 200,188 | $ | 475,206 | $ | 102,368 | $ | 395,174 | $ | 636,637 | $ | 0 | $ | 2,658,142 |
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 SeptemberJune 30, 2017 2021 and December 31, 2016:
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
(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 | $ | 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 |
June 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
(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 | $ | 321 | $ | 323 | $ | - | $ | 5,033 | $ | 5,040 | $ | - | ||||||||||||
Construction and land development | 0 | 0 | - | 0 | 0 | - | ||||||||||||||||||
Commercial and industrial | 2,297 | 2,297 | - | 2,608 | 2,794 | - | ||||||||||||||||||
Owner occupied real estate | 3,003 | 3,152 | - | 3,198 | 3,407 | - | ||||||||||||||||||
Consumer and other | 1,224 | 1,476 | - | 1,302 | 1,556 | - | ||||||||||||||||||
Residential mortgage | 749 | 816 | - | 701 | 768 | - | ||||||||||||||||||
Paycheck protection program | 0 | 0 | - | 0 | 0 | - | ||||||||||||||||||
Total | $ | 7,594 | $ | 8,064 | $ | - | $ | 12,842 | $ | 13,565 | $ | - | ||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||
Commercial real estate | $ | 4,014 | $ | 4,535 | $ | 1,071 | $ | 4,015 | $ | 4,536 | $ | 418 | ||||||||||||
Construction and land development | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Commercial and industrial | 263 | 402 | 53 | 355 | 371 | 51 | ||||||||||||||||||
Owner occupied real estate | 1,063 | 1,082 | 230 | 757 | 775 | 122 | ||||||||||||||||||
Consumer and other | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Residential mortgage | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Paycheck protection program | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Total | $ | 5,340 | $ | 6,019 | $ | 1,354 | $ | 5,127 | $ | 5,682 | $ | 591 | ||||||||||||
Total: | ||||||||||||||||||||||||
Commercial real estate | $ | 4,335 | $ | 4,858 | $ | 1,071 | $ | 9,048 | $ | 9,576 | $ | 418 | ||||||||||||
Construction and land development | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Commercial and industrial | 2,560 | 2,699 | 53 | 2,963 | 3,165 | 51 | ||||||||||||||||||
Owner occupied real estate | 4,066 | 4,234 | 230 | 3,955 | 4,182 | 122 | ||||||||||||||||||
Consumer and other | 1,224 | 1,476 | 0 | 1,302 | 1,556 | 0 | ||||||||||||||||||
Residential mortgage | 749 | 816 | 0 | 701 | 768 | 0 | ||||||||||||||||||
Paycheck protection program | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Total | $ | 12,934 | $ | 14,083 | $ | 1,354 | $ | 17,969 | $ | 19,247 | $ | 591 |
The following table presents additional information regarding the Company'sCompany’s impaired loans for the `the three months ended SeptemberJune 30, 2017 2021 and SeptemberJune 30, 2016:2020:
Three Months Ended June 30, | ||||||||||||||||
2021 | 2020 | |||||||||||||||
(dollars in thousands) | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | ||||||||||||
With no related allowance recorded: | ||||||||||||||||
Commercial real estate | $ | 322 | $ | 0 | $ | 6,546 | $ | 68 | ||||||||
Construction and land development | 0 | 0 | 0 | 0 | ||||||||||||
Commercial and industrial | 2,297 | 0 | 2,479 | 0 | ||||||||||||
Owner occupied real estate | 3,009 | 8 | 2,982 | 6 | ||||||||||||
Consumer and other | 1,239 | 5 | 1,149 | 5 | ||||||||||||
Residential mortgage | 725 | 0 | 812 | 1 | ||||||||||||
Paycheck protection program | 0 | 0 | 0 | 0 | ||||||||||||
Total | $ | 7,592 | $ | 13 | $ | 13,968 | $ | 80 | ||||||||
With an allowance recorded: | ||||||||||||||||
Commercial real estate | $ | 4,015 | $ | 0 | $ | 4,147 | $ | 0 | ||||||||
Construction and land development | 0 | 0 | 0 | 0 | ||||||||||||
Commercial and industrial | 263 | 0 | 614 | 0 | ||||||||||||
Owner occupied real estate | 1,065 | 0 | 1,191 | 10 | ||||||||||||
Consumer and other | 0 | 0 | 0 | 0 | ||||||||||||
Residential mortgage | 0 | 0 | 20 | 1 | ||||||||||||
Paycheck protection program | 0 | 0 | 0 | 0 | ||||||||||||
Total | $ | 5,343 | $ | 0 | $ | 5,972 | $ | 11 | ||||||||
Total: | ||||||||||||||||
Commercial real estate | $ | 4,337 | $ | 0 | $ | 10,693 | $ | 68 | ||||||||
Construction and land development | 0 | 0 | 0 | 0 | ||||||||||||
Commercial and industrial | 2,560 | 0 | 3,093 | 0 | ||||||||||||
Owner occupied real estate | 4,074 | 8 | 4,173 | 16 | ||||||||||||
Consumer and other | 1,239 | 5 | 1,149 | 5 | ||||||||||||
Residential mortgage | 725 | 0 | 832 | 2 | ||||||||||||
Paycheck protection program | 0 | 0 | 0 | 0 | ||||||||||||
Total | $ | 12,935 | $ | 13 | $ | 19,940 | $ | 91 |
Three Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
(dollars in thousands) | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | ||||||||||||
With no related allowance recorded: | ||||||||||||||||
Commercial real estate | $ | 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 |
The following table presents additional information regarding the Company'sCompany’s impaired loans for the ninesix months ended SeptemberJune 30, 2017 2021 and SeptemberJune 30, 2016:2020:
Six Months Ended June 30, | ||||||||||||||||
2021 | 2020 | |||||||||||||||
(dollars in thousands) | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | ||||||||||||
With no related allowance recorded: | ||||||||||||||||
Commercial real estate | $ | 494 | $ | 2 | $ | 6,459 | $ | 138 | ||||||||
Construction and land development | 0 | 0 | 0 | 0 | ||||||||||||
Commercial and industrial | 2,298 | 0 | 2,603 | 1 | ||||||||||||
Owner occupied real estate | 2,882 | 31 | 2,831 | 8 | ||||||||||||
Consumer and other | 1,180 | 13 | 1,177 | 7 | ||||||||||||
Residential mortgage | 714 | 0 | 790 | 1 | ||||||||||||
Paycheck protection program | 0 | 0 | 0 | 0 | ||||||||||||
Total | $ | 7,568 | $ | 46 | $ | 13,860 | $ | 155 | ||||||||
With an allowance recorded: | ||||||||||||||||
Commercial real estate | $ | 4,014 | $ | 0 | $ | 4,146 | $ | 0 | ||||||||
Construction and land development | 0 | 0 | 0 | 0 | ||||||||||||
Commercial and industrial | 266 | 0 | 520 | 0 | ||||||||||||
Owner occupied real estate | 1,070 | 0 | 1,500 | 16 | ||||||||||||
Consumer and other | 0 | 0 | 0 | 0 | ||||||||||||
Residential mortgage | 0 | 0 | 40 | 1 | ||||||||||||
Paycheck protection program | 0 | 0 | 0 | 0 | ||||||||||||
Total | $ | 5,350 | $ | 0 | $ | 6,206 | $ | 17 | ||||||||
Total: | ||||||||||||||||
Commercial real estate | $ | 4,508 | $ | 2 | $ | 10,605 | $ | 138 | ||||||||
Construction and land development | 0 | 0 | 0 | 0 | ||||||||||||
Commercial and industrial | 2,564 | 0 | 3,123 | 1 | ||||||||||||
Owner occupied real estate | 3,952 | 31 | 4,331 | 24 | ||||||||||||
Consumer and other | 1,180 | 13 | 1,177 | 7 | ||||||||||||
Residential mortgage | 714 | 0 | 830 | 2 | ||||||||||||
Paycheck protection program | 0 | 0 | 0 | 0 | ||||||||||||
Total | $ | 12,918 | $ | 46 | $ | 20,066 | $ | 172 |
Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
(dollars in thousands) | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | ||||||||||||
With no related allowance recorded: | ||||||||||||||||
Commercial real estate | $ | 9,657 | $ | 271 | $ | 11,954 | $ | 197 | ||||||||
Construction and land development | - | - | 72 | - | ||||||||||||
Commercial and industrial | 2,149 | 26 | 1,797 | 30 | ||||||||||||
Owner occupied real estate | 1,719 | 46 | 647 | 6 | ||||||||||||
Consumer and other | 837 | 17 | 901 | 11 | ||||||||||||
Residential mortgage | 33 | 1 | - | - | ||||||||||||
Total | $ | 14,395 | $ | 361 | $ | 15,371 | $ | 244 |
With an allowance recorded: | ||||||||||||||||
Commercial real estate | $ | 6,575 | $ | 13 | $ | 3,844 | $ | 43 | ||||||||
Construction and land development | - | - | 15 | - | ||||||||||||
Commercial and industrial | 2,710 | 50 | 3,389 | 56 | ||||||||||||
Owner occupied real estate | 1,437 | 22 | 2,205 | 23 | ||||||||||||
Consumer and other | 438 | 8 | 252 | 7 | ||||||||||||
Residential mortgage | - | - | - | - | ||||||||||||
Total | $ | 11,160 | $ | 93 | $ | 9,705 | $ | 129 |
Total: | ||||||||||||||||
Commercial real estate | $ | 16,232 | $ | 284 | $ | 15,798 | $ | 240 | ||||||||
Construction and land development | - | - | 87 | - | ||||||||||||
Commercial and industrial | 4,859 | 76 | 5,186 | 86 | ||||||||||||
Owner occupied real estate | 3,156 | 68 | 2,852 | 29 | ||||||||||||
Consumer and other | 1,275 | 25 | 1,153 | 18 | ||||||||||||
Residential mortgage | 33 | 1 | - | - | ||||||||||||
Total | $ | 25,555 | $ | 454 | $ | 25,076 | $ | 373 |
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of SeptemberJune 30, 2017 2021 and December 31, 2016:
(dollars in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days | Total Past Due | Current | Total Loans Receivable | Loans Receivable > 90 Days and Accruing | |||||||||||||||||||||
At September 30, 2017 | ||||||||||||||||||||||||||||
Commercial real estate | $ | 129 | $ | - | $ | 8,975 | $ | 9,104 | $ | 406,428 | $ | 415,532 | $ | 2,538 | ||||||||||||||
Construction and land development | - | - | - | - | 93,657 | 93,657 | - | |||||||||||||||||||||
Commercial and industrial | 767 | - | 2,100 | 2,867 | 160,218 | 163,085 | - | |||||||||||||||||||||
Owner occupied real estate | 451 | - | 1,816 | 2,267 | 295,613 | 297,880 | 192 | |||||||||||||||||||||
Consumer and other | 149 | 35 | 859 | 1,043 | 70,845 | 71,888 | - | |||||||||||||||||||||
Residential mortgage | - | - | - | - | 53,384 | 53,384 | - | |||||||||||||||||||||
Total | $ | 1,496 | $ | 35 | $ | 13,750 | $ | 15,281 | $ | 1,080,145 | $ | 1,095,426 | $ | 2,730 |
(dollars in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days | Total Past Due | Current | Total Loans Receivable | Loans Receivable > 90 Days and Accruing | |||||||||||||||||||||
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 |
(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 June 30, 2021 | ||||||||||||||||||||||||||||
Commercial real estate | $ | 56 | $ | 0 | $ | 4,383 | $ | 4,439 | $ | 731,854 | $ | 736,293 | $ | 0 | ||||||||||||||
Construction and land development | 0 | 0 | 0 | 0 | 160,945 | 160,945 | 0 | |||||||||||||||||||||
Commercial and industrial | 0 | 0 | 2,560 | 2,560 | 209,443 | 212,003 | 0 | |||||||||||||||||||||
Owner occupied real estate | 0 | 2,921 | 3,186 | 6,107 | 472,441 | 478,548 | 3 | |||||||||||||||||||||
Consumer and other | 1 | 2 | 1,237 | 1,240 | 92,879 | 94,119 | 13 | |||||||||||||||||||||
Residential mortgage | 0 | 0 | 1,681 | 1,681 | 458,031 | 459,712 | 980 | |||||||||||||||||||||
Paycheck protection program | 0 | 0 | 0 | 0 | 394,224 | 394,224 | 0 | |||||||||||||||||||||
Total | $ | 57 | $ | 2,923 | $ | 13,047 | $ | 16,027 | $ | 2,519,817 | $ | 2,535,844 | $ | 996 |
(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, 2020 | ||||||||||||||||||||||||||||
Commercial real estate | $ | 0 | $ | 97 | $ | 4,421 | $ | 4,518 | $ | 701,230 | $ | 705,748 | $ | 0 | ||||||||||||||
Construction and land development | 0 | 0 | 0 | 0 | 142,821 | 142,821 | 0 | |||||||||||||||||||||
Commercial and industrial | 1,648 | 0 | 2,963 | 4,611 | 195,577 | 200,188 | 0 | |||||||||||||||||||||
Owner occupied real estate | 581 | 813 | 2,859 | 4,253 | 470,953 | 475,206 | 0 | |||||||||||||||||||||
Consumer and other | 92 | 28 | 1,302 | 1,422 | 100,946 | 102,368 | 0 | |||||||||||||||||||||
Residential mortgage | 0 | 0 | 1,313 | 1,313 | 393,861 | 395,174 | 612 | |||||||||||||||||||||
Paycheck protection program | 0 | 0 | 0 | 0 | 636,637 | 636,637 | 0 | |||||||||||||||||||||
Total | $ | 2,321 | $ | 938 | $ | 12,858 | $ | 16,117 | $ | 2,642,025 | $ | 2,658,142 | $ | 612 |
The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company'sCompany’s internal risk rating system as of SeptemberJune 30, 2017 2021 and December 31, 2016:2020:
(dollars in thousands) | Pass | Special Mention | Substandard | Doubtful | Total | |||||||||||||||
At June 30, 2021: | ||||||||||||||||||||
Commercial real estate | $ | 731,910 | $ | 0 | $ | 4,383 | $ | 0 | $ | 736,293 | ||||||||||
Construction and land development | 160,945 | 0 | 0 | 0 | 160,945 | |||||||||||||||
Commercial and industrial | 209,443 | 0 | 2,560 | 0 | 212,003 | |||||||||||||||
Owner occupied real estate | 474,242 | 240 | 4,066 | 0 | 478,548 | |||||||||||||||
Consumer and other | 92,895 | 0 | 1,224 | 0 | 94,119 | |||||||||||||||
Residential mortgage | 459,011 | 0 | 701 | 0 | 459,712 | |||||||||||||||
Paycheck protection program | 394,224 | 0 | 0 | 0 | 394,224 | |||||||||||||||
Total | $ | 2,522,670 | $ | 240 | $ | 12,934 | $ | 0 | $ | 2,535,844 |
(dollars in thousands) | Pass | Special Mention | Substandard | Doubtful | Total | |||||||||||||||
At December 31, 2020: | ||||||||||||||||||||
Commercial real estate | $ | 701,151 | $ | 80 | $ | 4,517 | $ | 0 | $ | 705,748 | ||||||||||
Construction and land development | 142,821 | 0 | 0 | 0 | 142,821 | |||||||||||||||
Commercial and industrial | 197,225 | 0 | 2,963 | 0 | 200,188 | |||||||||||||||
Owner occupied real estate | 470,732 | 519 | 3,955 | 0 | 475,206 | |||||||||||||||
Consumer and other | 101,066 | 0 | 1,302 | 0 | 102,368 | |||||||||||||||
Residential mortgage | 394,473 | 0 | 701 | 0 | 395,174 | |||||||||||||||
Paycheck protection program | 636,637 | 0 | 0 | 0 | 636,637 | |||||||||||||||
Total | $ | 2,644,105 | $ | 599 | $ | 13,438 | $ | 0 | $ | 2,658,142 |
(dollars in thousands) | Pass | Special Mention | Substandard | Doubtful | Total | |||||||||||||||
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 |
(dollars in thousands) | Pass | Special Mention | Substandard | Doubtful | Total | |||||||||||||||
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 |
The following table shows non-accrual loans by class as of SeptemberJune 30, 2017 2021 and December 31, 2016:
(dollars in thousands) | September 30, 2017 | December 31, 2016 | ||||||
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 |
(dollars in thousands) | June 30, 2021 | December 31, 2020 | ||||||
Commercial real estate | $ | 4,383 | $ | 4,421 | ||||
Construction and land development | 0 | 0 | ||||||
Commercial and industrial | 2,560 | 2,963 | ||||||
Owner occupied real estate | 3,183 | 2,859 | ||||||
Consumer and other | 1,224 | 1,302 | ||||||
Residential mortgage | 701 | 701 | ||||||
Paycheck protection program | 0 | 0 | ||||||
Total | $ | 12,051 | $ | 12,246 |
If these loans were performing under their original contractual rate, interest income on such loans would have increased approximately $127,000$166,000 and $372,000$355,000 for the three and ninesix months ended SeptemberJune 30, 2017, 2021, respectively, and $271,000$173,000 and $784,000$397,000 for the ninethree and six months ended SeptemberJune 30, 2016, 2020, respectively.
Troubled Debt Restructurings
A modification to the contractual terms of a loan which results in a concession to a borrower that is experiencing financial difficulty is classified as a troubled debt restructuring ("TDR"(“TDR”). The concessions made in a TDR are those that would not otherwise be considered for a borrower or collateral with similar risk characteristics. A TDR is typically the result of efforts to minimize potential losses that may be incurred during loan workouts, foreclosure, or repossession of collateral at a time when collateral values are declining. Concessions include a reduction in interest rate below current market rates, a material extension of time to the loan term or amortization period, partial forgiveness of the outstanding principal balance, acceptance of interest only payments for a period of time, or a combination of any of these conditions.
Pursuant to the CARES Act, loan modifications made between March 1, 2020 and the earlier of i) December 30, 2020 or ii) 60 days after the President declares a termination of the COVID-19 national emergency are not classified as TDRs if the related loans were not more than 30 days past due as of December 31, 2019. In December 2020, the Economic Aid Act was signed into law which amended certain sections of the CARES Act. This amendment extended the period to suspend the requirements under TDR accounting guidance to the earlier of i) January 1, 2022 or ii) 60 days after the President declares a termination of the national emergency related to the COVID-19 pandemic. As of June 30, 2021, deferrals declined to one customer relationship with an outstanding balance of $2.1 million, or less than 0.1% of total loans outstanding. At December 31, 2020, twenty-one customers with outstanding balance of $16 million, were deferring loan payments. As of June 30, 2021, there were 0 deferral requests that were for deferment of principal balances only compared to approximately $4 million at December 31, 2020. The one remaining deferral request was to defer both principal and interest payments. As of June 30, 2021, the 1 deferral was a fourth deferral with outstanding balances of $2.1 million. At December 31, 2020, deferrals were comprised of the following categories: 90 day deferrals amounted to eight customers with outstanding balances of $3 million and second deferrals amounted to 13 customers with outstanding balances of $13 million.
The following table summarizes the balance ofinformation with regard to outstanding TDRs Septembertroubled debt restructurings at June 30, 2017 2021 and December 31, 2016:
(dollars in thousands) | 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 |
(dollars in thousands) | Number of Loans | Accrual Status | Non-Accrual Status | Total TDRs | ||||||||||||
June 30, 2021 | ||||||||||||||||
Commercial real estate | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||
Construction and land development | 0 | 0 | 0 | 0 | ||||||||||||
Commercial and industrial | 0 | 0 | 0 | 0 | ||||||||||||
Owner occupied real estate | 0 | 0 | 0 | 0 | ||||||||||||
Consumer and other | 0 | 0 | 0 | 0 | ||||||||||||
Residential mortgage | 0 | 0 | 0 | 0 | ||||||||||||
Paycheck protection program | 0 | 0 | 0 | 0 | ||||||||||||
Total | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||
December 31, 2020 | ||||||||||||||||
Commercial real estate | 1 | $ | 4,530 | $ | 0 | $ | 4,530 | |||||||||
Construction and land development | 0 | 0 | 0 | 0 | ||||||||||||
Commercial and industrial | 0 | 0 | 0 | 0 | ||||||||||||
Owner occupied real estate | 0 | 0 | 0 | 0 | ||||||||||||
Consumer and other | 0 | 0 | 0 | 0 | ||||||||||||
Residential mortgage | 0 | 0 | 0 | 0 | ||||||||||||
Paycheck protection program | 0 | 0 | 0 | 0 | ||||||||||||
Total | 1 | $ | 4,530 | $ | 0 | $ | 4,530 |
All TDRs are considered impaired and are therefore individually evaluated for impairment in the calculation of the allowance for loan losses. Some TDRs may not ultimately result in the full collection of principal and interest as restructured and could lead to potential incremental losses. These potential incremental losses would be factored into the Company'sCompany’s estimate of the allowance for loan losses. The level of any subsequent defaults will likely be affected by future economic conditions.
There were 0 loan modifications made during the three and six months ended SeptemberJune 30, 2017.
After a loan is determined to be a TDR, the Company continues to track its performance under the most recent restructured terms. There were no0 TDRs that subsequently defaulted during the three and ninesix months ended SeptemberJune 30, 2017. 2021. There were no0 TDRs that subsequently defaulted during the year ended December 31, 2016.2020. The loan classified as a TDR at December 31, 2020 was repaid in full during the second quarter of 2021.
There was one residential mortgage in the process of foreclosure as of June 30, 2021 and December 31, 2020. There was no other real estate owned relating to residential real estate at June 30, 2021 and December 31, 2020.
Note 7: Other Borrowings
The following is a summary of other borrowings by type.
June 30, 2021 | December 31, 2020 | |||||||||||||||
(dollars in thousands) | Balance at End of Period | Weighted Average Interest Rate at End of Period | Balance at End of Period | Weighted Average Interest Rate at End of Period | ||||||||||||
Other borrowings | ||||||||||||||||
Paycheck Protection Program | ||||||||||||||||
Liquidity Facility borrowings | $ | 387,509 | 0.35% | $ | 633,866 | 0.35% |
As part of the CARES Act, the Federal Reserve Bank of Philadelphia offered secured discounted borrowings to banks that originated PPP loans through the Paycheck Protection Program Liquidity Facility or PPPLF program. At June 30, 2021, the Company pledged $388 million of PPP loans to the Federal Reserve Bank of Philadelphia to borrow $388 million of funds at a rate of 0.35%. The Company pledged $634 million of PPP loans to the Federal Reserve Bank of Philadelphia to borrow $634 million of funds at a rate of 0.35% at December 31, 2020.
Note 8: Fair Value of Financial Instruments
Management uses its best judgment in estimating the fair value of the Company'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.
The Company follows the guidance issued under ASC 820,Fair Value Measurement, which defines fair value, establishes a framework for measuring fair value under GAAP, and identifies required disclosures on fair value measurements.
ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are as follows:
Level 1
: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.Level 2
: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.Level 3
: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).An asset or liability'sliability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at SeptemberJune 30, 2017 2021 and December 31, 2016 2020 were as follows:
(dollars in thousands) | Total | (Level 1) Quoted Prices in Active Markets for Identical Assets | (Level 2) Significant Other Observable Inputs | (Level 3) Significant Unobservable Inputs | ||||||||||||
June 30, 2021 | ||||||||||||||||
Assets: | ||||||||||||||||
U.S. Government agencies | $ | 28,865 | $ | 0 | $ | 28,865 | $ | 0 | ||||||||
Collateralized mortgage obligations | 303,341 | 0 | 303,341 | 0 | ||||||||||||
Agency mortgage-backed securities | 273,039 | 0 | 273,039 | 0 | ||||||||||||
Municipal securities | 8,346 | 0 | 8,346 | 0 | ||||||||||||
Corporate bonds | 151,145 | 0 | 148,542 | 2,603 | ||||||||||||
Investment securities available for sale | $ | 764,736 | 0 | $ | 762,133 | $ | 2,603 | |||||||||
Equity securities | 9,241 | 9,241 | 0 | 0 | ||||||||||||
Mortgage Loans Held for Sale | $ | 11,971 | $ | 0 | $ | 11,971 | $ | 0 | ||||||||
SBA Servicing Assets | 4,641 | 0 | 0 | 4,641 | ||||||||||||
Interest Rate Lock Commitments | 804 | 0 | 804 | 0 | ||||||||||||
Best Efforts Forward Loan Sales Commitments | 2 | 0 | 2 | 0 | ||||||||||||
Mandatory Forward Loan Sales Commitments | 2 | 0 | 2 | 0 | ||||||||||||
Liabilities: | ||||||||||||||||
Interest Rate Lock Commitments | 0 | 0 | 0 | 0 | ||||||||||||
Best Efforts Forward Loan Sales Commitments | 267 | 0 | 267 | 0 | ||||||||||||
Mandatory Forward Loan Sales Commitments | 112 | 0 | 112 | 0 | ||||||||||||
December 31, 2020 | ||||||||||||||||
Assets: | ||||||||||||||||
U.S. Government agencies | $ | 31,886 | $ | 0 | $ | 31,886 | $ | 0 | ||||||||
Collateralized mortgage obligations | 221,546 | 0 | 221,546 | 0 | ||||||||||||
Agency mortgage-backed securities | 150,528 | 0 | 150,528 | 0 | ||||||||||||
Municipal securities | 8,225 | 0 | 8,225 | 0 | ||||||||||||
Corporate bonds | 116,323 | 0 | 113,692 | 2,631 | ||||||||||||
Investment securities available for sale | $ | 528,508 | 0 | $ | 525,877 | $ | 2,631 | |||||||||
Equity securities | 9,039 | 9,039 | 0 | 0 | ||||||||||||
Mortgage Loans Held for Sale | $ | 50,387 | $ | 0 | $ | 50,387 | $ | 0 | ||||||||
SBA Servicing Assets | 4,626 | 0 | 0 | 4,626 | ||||||||||||
Interest Rate Lock Commitments | 1,580 | 0 | 1,580 | 0 | ||||||||||||
Best Efforts Forward Loan Sales Commitments | 2 | 0 | 2 | 0 | ||||||||||||
Mandatory Forward Loan Sales Commitments | 0 | 0 | 0 | 0 | ||||||||||||
Liabilities: | ||||||||||||||||
Interest Rate Lock Commitments | 0 | 0 | 0 | 0 | ||||||||||||
Best Efforts Forward Loan Sales Commitments | 612 | 0 | 612 | 0 | ||||||||||||
Mandatory Forward Loan Sales Commitments | 800 | 0 | 800 | 0 |
(dollars in thousands) | Total | (Level 1) Quoted Prices in Active Markets for Identical Assets | (Level 2) Significant Other Observable Inputs | (Level 3) Significant Unobservable Inputs | ||||||||||||
September 30, 2017 | ||||||||||||||||
Assets: | ||||||||||||||||
Collateralized mortgage obligations | $ | 240,004 | $ | - | $ | 240,004 | $ | - | ||||||||
Agency mortgage-backed securities | 42,802 | - | 42,802 | - | ||||||||||||
Municipal securities | 15,659 | - | 15,659 | - | ||||||||||||
Corporate bonds | 64,329 | - | 61,304 | 3,025 | ||||||||||||
Asset-backed securities | 13,855 | - | 13,855 | - | ||||||||||||
Trust Preferred Securities | 1,108 | - | - | 1,108 | ||||||||||||
Securities Available for Sale | $ | 377,757 | $ | - | $ | 373,624 | $ | 4,133 | ||||||||
Mortgage Loans Held for Sale | $ | 41,411 | $ | - | $ | 41,411 | $ | - | ||||||||
SBA Servicing Assets | 5,387 | - | - | 5,387 | ||||||||||||
Interest Rate Lock Commitments | 635 | - | 635 | - | ||||||||||||
Best Efforts Forward Loan Sales Commitments | 13 | - | 13 | - | ||||||||||||
Mandatory Forward Loan Sales Commitments | 51 | - | 51 | - | ||||||||||||
Liabilities: | ||||||||||||||||
Interest Rate Lock Commitments | 1 | - | 1 | - | ||||||||||||
Best Efforts Forward Loan Sales Commitments | 125 | - | 125 | - | ||||||||||||
Mandatory Forward Loan Sales Commitments | 137 | - | 137 | - | ||||||||||||
December 31, 2016 | ||||||||||||||||
Assets: | ||||||||||||||||
Collateralized mortgage obligations | $ | 224,765 | $ | - | $ | 224,765 | $ | - | ||||||||
Agency mortgage-backed securities | 36,710 | - | 36,710 | - | ||||||||||||
Municipal securities | 26,547 | - | 26,547 | - | ||||||||||||
Corporate bonds | 64,748 | - | 61,777 | 2,971 | ||||||||||||
Asset-backed securities | 15,149 | - | 15,149 | - | ||||||||||||
Trust Preferred Securities | 1,820 | - | - | 1,820 | ||||||||||||
Securities Available for Sale | $ | 369,739 | $ | - | $ | 364,948 | $ | 4,791 | ||||||||
Mortgage Loans Held for Sale | $ | 23,911 | $ | - | $ | 23,911 | $ | - | ||||||||
SBA Servicing Assets | 5,352 | - | - | 5,352 | ||||||||||||
Interest Rate Lock Commitments | 439 | - | 439 | - | ||||||||||||
Best Efforts Forward Loan Sales Commitments | 103 | - | 103 | - | ||||||||||||
Mandatory Forward Loan Sales Commitments | 229 | - | 229 | - | ||||||||||||
Liabilities: | ||||||||||||||||
Interest Rate Lock Commitments | 55 | - | 55 | - | ||||||||||||
Best Efforts Forward Loan Sales Commitments | 125 | - | 125 | - | ||||||||||||
Mandatory Forward Loan Sales Commitments | 38 | - | 38 | - |
The following table presentstables present an analysis of the activity inrelated to the SBA servicing assetsasset balance for the three and ninesix months ended SeptemberJune 30, 2017 2021 and 2016:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(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 |
Three Months Ended June 30, | ||||||||
(dollars in thousands) | 2021 | 2020 | ||||||
Beginning balance, April 1st | $ | 4,617 | $ | 4,644 | ||||
Additions | 134 | 77 | ||||||
Fair value adjustments | (110 | ) | (117 | ) | ||||
Ending balance, June 30th | $ | 4,641 | $ | 4,604 |
Six Months Ended June 30, | ||||||||
(dollars in thousands) | 2021 | 2020 | ||||||
Beginning balance, January 1st | $ | 4,626 | $ | 4,447 | ||||
Additions | 313 | 315 | ||||||
Fair value adjustments | (298 | ) | (158 | ) | ||||
Ending balance, June 30th | $ | 4,641 | $ | 4,604 |
Fair value adjustments are recorded as loan advisory and servicing fees on the statement of income. Servicing fee income, not including fair value adjustments, totaled $468,000$574,000 and $458,000$482,000 for the three months ended SeptemberJune 30, 2017 2021 and 2016,2020, respectively. Servicing fee income, not including fair value adjustments, totaled $1.4$1.1 million and $1.3 million$912,000 for the ninesix months ended SeptemberJune 30, 2017 2021 and 2016,2020, respectively.
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)3) for the three and ninesix months ended SeptemberJune 30, 2017 2021 and 2016:
Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | |||||||||||||||
Level 3 Investments Only (dollars in thousands) | Trust Preferred Securities | Corporate Bonds | Trust Preferred Securities | Corporate Bonds | ||||||||||||
Balance, July 1st | $ | 968 | $ | 3,079 | $ | 1,755 | $ | 2,870 | ||||||||
Unrealized gains (losses) | 140 | (54 | ) | (62 | ) | 63 | ||||||||||
Paydowns | - | - | - | - | ||||||||||||
Proceeds from sales | - | - | - | - | ||||||||||||
Realized losses | - | - | - | - | ||||||||||||
Impairment charges on Level 3 | - | - | (2 | ) | - | |||||||||||
Balance, September 30th | $ | 1,108 | $ | 3,025 | $ | 1,691 | $ | 2,933 |
Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||||
Level 3 Investments Only (dollars in thousands) | Trust Preferred Securities | Corporate Bonds | Trust Preferred Securities | Corporate Bonds | ||||||||||||
Balance, January 1st | $ | 1,820 | $ | 2,971 | $ | 1,883 | $ | 2,834 | ||||||||
Unrealized gains (losses) | 806 | 54 | (185 | ) | 99 | |||||||||||
Paydowns | - | - | - | - | ||||||||||||
Proceeds from sales | (970 | ) | - | - | - | |||||||||||
Realized losses | (548 | ) | - | - | - | |||||||||||
Impairment charges on Level 3 | - | - | (7 | ) | - | |||||||||||
Balance, September 30th | $ | 1,108 | $ | 3,025 | $ | 1,691 | $ | 2,933 |
Three Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Level 3 Investments Only (dollars in thousands) | Corporate Bonds | Corporate Bonds | ||||||
Balance, April 1st | $ | 2,620 | $ | 2,649 | ||||
Unrealized gains (losses) | (17 | ) | 16 | |||||
Proceeds from sales | 0 | 0 | ||||||
Realized losses | 0 | 0 | ||||||
Balance, June 30th | $ | 2,603 | $ | 2,665 |
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Level 3 Investments Only (dollars in thousands) | Corporate Bonds | Corporate Bonds | ||||||
Balance, January 1st | $ | 2,631 | $ | 2,819 | ||||
Unrealized gains (losses) | (28 | ) | (154 | ) | ||||
Proceeds from sales | 0 | 0 | ||||||
Realized losses | 0 | 0 | ||||||
Balance, June 30th | $ | 2,603 | $ | 2,665 |
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at SeptemberJune 30, 2017 2021 and December 31, 2016 2020 were as follows:
(dollars in thousands) | Total | (Level 1) Quoted Prices in Active Markets for Identical Assets | (Level 2) Significant Other Observable Inputs | (Level 3) Significant Unobservable Inputs | |||||||
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 |
(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 | ||||||||||||
June 30, 2021 | ||||||||||||||||
Impaired loans | $ | 4,130 | $ | 0 | $ | 0 | $ | 4,130 | ||||||||
Other real estate owned | 488 | 0 | 0 | 488 | ||||||||||||
December 31, 2020 | ||||||||||||||||
Impaired loans | $ | 5,678 | $ | 0 | $ | 0 | $ | 5,678 | ||||||||
Other real estate owned | 364 | 0 | 0 | 364 |
The table below presents additional quantitative information about level 3 assets measured at fair value on a nonrecurring basis (dollars in thousands):
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 | Discounted Cash Flows | Discount Rate | (5.57%) | ||||
Trust preferred securities | $ | 1,108 | Discounted Cash Flows | Discount Rate | 7.62% - 7.85% (7.71%) | ||||
SBA servicing assets | $ | 5,387 | Discounted Cash Flows | Conditional Prepayment Rate | (6.70%) | ||||
Discount Rate | (10.25%) | ||||||||
Impaired loans | $ | 7,161 | Appraised Value of Collateral (1) | Liquidation expenses (2) | 10% - 28% (14%) (3) | ||||
Other real estate owned | $ | 7,468 | Appraised Value of Collateral (1) | Liquidation expenses (2) | 14% - 22% (15%) (3) | ||||
Sales Price | Liquidation expenses (2) | 7% - 13% (13%) (3) | |||||||
December 31, 2016 | |||||||||
Corporate bonds | $ | 2,971 | Discounted Cash Flows | Discount Rate | (4.68%) | ||||
Trust preferred securities | $ | 1,820 | Discounted Cash Flows | Discount Rate | 8.85% - 9.35% (9.08%) | ||||
SBA servicing assets | $ | 5,352 | Discounted Cash Flows | Conditional Prepayment Rate | (6.12%) | ||||
Discount Rate | (10.00%) | ||||||||
Impaired loans | $ | 9,110 | Appraised Value of Collateral (1) | Liquidation expenses (2) | 7% - 20% (11%) (3) | ||||
Sales Price | Liquidation expenses (2) | (7%) (3) | |||||||
Other real estate owned | $ | 8,563 | Appraised Value of Collateral (1) | Liquidation expenses (2) | 5% - 76% (17%) (3) | ||||
Sales Price | Liquidation expenses (2) | 7% - 8% (7%) (3) |
Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||||
Asset Description | Fair Value | Valuation Technique | Unobservable Input | Range (Weighted Average) | ||||||||||
June 30, 2021 | ||||||||||||||
Corporate bonds | $ | 2,603 | Discounted Cash Flows | Discount Rate | (3.38%) | |||||||||
SBA servicing assets | $ | 4,641 | Discounted Cash Flows | Conditional Prepayment Rate | (14.14%) | |||||||||
Discount Rate | (10.00%) | |||||||||||||
Impaired loans | $ | 4,130 | Appraised Value of Collateral (1) | Liquidation expenses (2) | 1% | - | 20% | (19%) | (3) | |||||
Other real estate owned | $ | 488 | Appraised Value of Collateral (1) | Liquidation expenses (2) | 2% | - | 6% | (6%) | (3) | |||||
December 31, 2020 | ||||||||||||||
Corporate bonds | $ | 2,631 | Discounted Cash Flows | Discount Rate | (3.48%) | |||||||||
SBA servicing assets | $ | 4,626 | Discounted Cash Flows | Conditional Prepayment Rate | (13.22%) | |||||||||
Discount Rate | (10.00%) | |||||||||||||
Impaired loans | $ | 5,678 | Appraised Value of Collateral (1) | Liquidation expenses (2) | 0% | - | 23% | (12%) | (3) | |||||
Other real estate owned | $ | 364 | Appraised Value of Collateral (1) | Liquidation expenses (2) | 7% | - | 16% | (13%) | (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 Company'sCompany’s actual sales of other real estate owned which are assessed annually.
Fair Value Assumptions
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company'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 the Company’s financial instruments at June 30, 2021 and liabilities of the Company at September 30, 2017 and December 31, 2016.
Investment Securities
The fair value of investment 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)1), or matrix pricing (Level 2)2), which is a mathematical technique used widely in the industry to value debtinvestment securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities'securities’ relationship to other benchmark quoted prices. For certain securities, which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3)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.
The types of instruments valued based on matrix pricing in active markets include all of the 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 820-10,820-10, the Company does not adjust the matrix pricing for such instruments.
Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, and may be adjusted to reflect illiquidity and/or non-transferability, with such adjustment generally based on available market evidence. In the absence of such evidence, management'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-partythird-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.
The trust 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.
Mortgage Loans Held for Sale (Carried at Fair Value)
The fair value of mortgage loans held for sale is determined by obtaining prices at which they could be sold in the principal market at the measurement date and are classified within Level 2 of the fair value hierarchy. In 2016, Republic elected to adopt the fair value option for its mortgage loans held for sale portfolio in order to more accurately reflect their economic value. All mortgage loans held for sale originated subsequent to the election date are carried at fair value. All loans held for sale originated prior to the election date were sold prior to December 31, 2016. Interest income on loans held for sale, which totaled $277,000$281,000 and $577,000$194,000 for three and six months ended June 30, 2021, respectively, and $166,000 and $249,000 for the three and ninesix months ended SeptemberJune 30, 2017 , 2020, respectively, and $89,000 for the three and nine months ended September 30, 2016, are included in interest and fees in the statements of income.
The following table reflects the difference between the carrying amount of mortgage loans held for sale, measured at fair value and the aggregate unpaid principal amount that Republic is contractually entitled to receive at maturity as of SeptemberJune 30, 2017 2021 and December 31, 2016 (dollars2020.
Carrying Amount | Aggregate Unpaid Principal Balance | Excess Carrying Amount Over Aggregate Unpaid Principal Balance | ||||||||||
June 30, 2021 | $ | 11,971 | $ | 11,518 | $ | 453 | ||||||
December 31, 2020 | $ | 50,387 | $ | 48,109 | $ | 2,278 |
Changes in thousands):
Mortgage loans held for sale | Carrying Amount | Aggregate Unpaid Principal Balance | Excess Carrying Amount Over Aggregate Unpaid Principal Balance | |||||
September 30, 2017 | $ | 41,411 | $ | 40,212 | $ | 1,199 | ||
December 31, 2016 | $ | 23,911 | $ | 23,428 | $ | 483 |
Interest Rate Lock Commitments ("IRLC"(“IRLC”)
The Company determines the value of IRLC’s 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 Republic'sIRLC’s. 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.
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 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.
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 SeptemberJune 30, 2017 2021 and December 31, 2016, 2020, these assets are carried at current fair value and classified within Level 3 of the fair value hierarchy.
SBA Servicing Asset (Carried at Fair Value)
The SBA servicing asset is initially recorded when loans are sold and the servicing rights are retained and recorded on the balance sheet. An updated fair value is obtained from an independent third party on a quarterly basis and adjustments are presented as loan advisory and servicing fees on the statement of operations.income. The valuation begins with the projection of future cash flows for each asset based on their unique characteristics, the Company'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.
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 SeptemberJune 30, 2017 2021 and December 31, 2016, 2020, the sensitivity of the current fair value of the SBA loan servicing rights to immediate 10% and 20% adverse changes in key assumptions are included in the accompanying table.
(dollars in thousands) | September 30, 2017 | December 31, 2016 | |||
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) |
(dollars in thousands) | June 30, 2021 | December 31, 2020 | ||||||
SBA Servicing Asset | ||||||||
Fair Value of SBA Servicing Asset | $ | 4,641 | $ | 4,626 | ||||
Composition of SBA Loans Serviced for Others | ||||||||
Fixed-rate SBA loans | 1 | % | 2 | % | ||||
Adjustable-rate SBA loans | 99 | % | 98 | % | ||||
Total | 100 | % | 100 | % | ||||
Weighted Average Remaining Term (in years) |
| 20.0 |
| 20.0 | ||||
Prepayment Speed | 14.14 | % | 13.22 | % | ||||
Effect on fair value of a 10% increase | $ | (175 | ) | $ | (170 | ) | ||
Effect on fair value of a 20% increase | (339 | ) | (329 | ) | ||||
Weighted Average Discount Rate | 10.00 | % | 10.00 | % | ||||
Effect on fair value of a 10% increase | $ | (148 | ) | $ | (152 | ) | ||
Effect on fair value of a 20% increase | (288 | ) | (295 | ) |
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 Company'sCompany’s financial instruments at June 30, 2021 were as follows at September 30, 2017.follows.
Fair Value Measurements at June 30, 2021 | ||||||||||||||||||||
(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 | $ | 766,699 | $ | 766,699 | $ | 766,699 | $ | 0 | $ | 0 | ||||||||||
Investment securities available for sale | 764,736 | 764,736 | 0 | 762,133 | 2,603 | |||||||||||||||
Investment securities held to maturity | 1,057,842 | 1,061,638 | 0 | 1,061,638 | 0 | |||||||||||||||
Equity securities | 9,241 | 9,241 | 9,241 | 0 | 0 | |||||||||||||||
Restricted stock | 3,510 | 3,510 | 0 | 3,510 | 0 | |||||||||||||||
Loans held for sale | 14,408 | 14,408 | 0 | 11,971 | 2,437 | |||||||||||||||
Loans receivable, net | 2,505,313 | 2,504,844 | 0 | 0 | 2,504,844 | |||||||||||||||
SBA servicing assets | 4,641 | 4,641 | 0 | 0 | 4,641 | |||||||||||||||
Accrued interest receivable | 14,644 | 14,644 | 0 | 14,644 | 0 | |||||||||||||||
Interest rate lock commitments | 804 | 804 | 0 | 804 | 0 | |||||||||||||||
Best efforts forward loan sales commitments | 2 | 2 | 0 | 2 | 0 | |||||||||||||||
Mandatory forward loan sales commitments | 2 | 2 | 0 | 2 | 0 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | ||||||||||||||||||||
Demand, savings and money market | $ | 4,372,511 | $ | 4,372,511 | $ | 0 | $ | 4,372,511 | $ | 0 | ||||||||||
Time | 187,357 | 188,006 | 0 | 188,006 | 0 | |||||||||||||||
Subordinated debt | 11,274 | 8,506 | 0 | 0 | 8,506 | |||||||||||||||
Other borrowings | 387,509 | 387,509 | 0 | 387,509 | 0 | |||||||||||||||
Accrued interest payable | 593 | 593 | 0 | 593 | 0 | |||||||||||||||
Interest rate lock commitments | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Best efforts forward loan sales commitments | 267 | 267 | 0 | 267 | 0 | |||||||||||||||
Mandatory forward loan sales commitments | 112 | 112 | 0 | 112 | 0 | |||||||||||||||
Off-Balance Sheet Data | ||||||||||||||||||||
Commitments to extend credit | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Standby letters-of-credit | 0 | 0 | 0 | 0 | 0 |
Fair Value Measurements at September 30, 2017 | ||||||||||||||||||||
(dollars in thousands) | Carrying Amount | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 98,782 | $ | 98,782 | $ | 98,782 | $ | - | $ | - | ||||||||||
Investment securities available for sale | 377,757 | 377,757 | - | 373,624 | 4,133 | |||||||||||||||
Investment securities held to maturity | 416,987 | 411,257 | - | 411,257 | - | |||||||||||||||
Restricted stock | 1,678 | 1,678 | - | 1,678 | - | |||||||||||||||
Loans held for sale | 41,711 | 41,711 | - | 41,411 | 300 | |||||||||||||||
Loans receivable, net | 1,087,147 | 1,056,761 | - | - | 1,056,761 | |||||||||||||||
SBA servicing assets | 5,387 | 5,387 | - | - | 5,387 | |||||||||||||||
Accrued interest receivable | 6,340 | 6,340 | - | 6,340 | - | |||||||||||||||
Interest rate lock commitments | 635 | 635 | - | 635 | - | |||||||||||||||
Best efforts forward loan sales commitments | 13 | 13 | - | 13 | - | |||||||||||||||
Mandatory forward loan sales commitments | 51 | 51 | - | 51 | - | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | ||||||||||||||||||||
Demand, savings and money market | $ | 1,763,937 | $ | 1,763,937 | $ | - | $ | 1,763,937 | $ | - | ||||||||||
Time | 121,468 | 120,968 | - | 120,968 | - | |||||||||||||||
Subordinated debt | 21,663 | 18,191 | - | - | 18,191 | |||||||||||||||
Accrued interest payable | 577 | 577 | - | 577 | - | |||||||||||||||
Interest rate lock commitments | 1 | 1 | - | 1 | - | |||||||||||||||
Best efforts forward loan sales commitments | 125 | 125 | - | 125 | - | |||||||||||||||
Mandatory forward loan sales commitments | 137 | 137 | - | 137 | - | |||||||||||||||
Off-Balance Sheet Data | ||||||||||||||||||||
Commitments to extend credit | - | - | - | - | - | |||||||||||||||
Standby letters-of-credit | - | - | - | - | - |
The estimated fair values of the Company'sCompany’s financial instruments at December 31, 2020 were as follows at December 31, 2016:follows:
Fair Value Measurements at December 31, 2020 | ||||||||||||||||||||
(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 | $ | 775,300 | $ | 775,300 | $ | 775,300 | $ | 0 | $ | 0 | ||||||||||
Investment securities available for sale | 528,508 | 528,508 | 0 | 525,877 | 2,631 | |||||||||||||||
Investment securities held to maturity | 814,936 | 836,972 | 0 | 836,972 | 0 | |||||||||||||||
Equity securities | 9,039 | 9,039 | 9,039 | 0 | 0 | |||||||||||||||
Restricted stock | 3,039 | 3,039 | 0 | 3,039 | 0 | |||||||||||||||
Loans held for sale | 53,370 | 53,370 | 0 | 50,387 | 2,983 | |||||||||||||||
Loans receivable, net | 2,632,367 | 2,618,104 | 0 | 0 | 2,618,104 | |||||||||||||||
SBA servicing assets | 4,626 | 4,626 | 0 | 0 | 4,626 | |||||||||||||||
Accrued interest receivable | 16,120 | 16,120 | 0 | 16,120 | 0 | |||||||||||||||
Interest rate lock commitments | 1,580 | 1,580 | 0 | 1,580 | 0 | |||||||||||||||
Best efforts forward loan sales commitments | 2 | 2 | 0 | 2 | 0 | |||||||||||||||
Mandatory forward loan sales commitments | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | ||||||||||||||||||||
Demand, savings and money market | $ | 3,827,390 | $ | 3,827,390 | $ | 0 | $ | 3,827,390 | $ | 0 | ||||||||||
Time | 186,361 | 187,292 | 0 | 187,292 | 0 | |||||||||||||||
Subordinated debt | 11,271 | 8,026 | 0 | 0 | 8,026 | |||||||||||||||
Other borrowings | 633,866 | 633,866 | 0 | 633,866 | 0 | |||||||||||||||
Accrued interest payable | 926 | 926 | 0 | 926 | 0 | |||||||||||||||
Interest rate lock commitments | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Best efforts forward loan sales commitments | 612 | 612 | 0 | 612 | 0 | |||||||||||||||
Mandatory forward loan sales commitments | 800 | 800 | 0 | 800 | 0 | |||||||||||||||
Off-Balance Sheet Data | ||||||||||||||||||||
Commitments to extend credit | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Standby letters-of-credit | 0 | 0 | 0 | 0 | 0 |
Fair Value Measurements at December 31, 2016 | ||||||||||||||||||||
(dollars in thousands) | Carrying Amount | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 34,554 | $ | 34,554 | $ | 34,554 | $ | - | $ | - | ||||||||||
Investment securities available for sale | 369,739 | 369,739 | - | 364,948 | 4,791 | |||||||||||||||
Investment securities held to maturity | 432,499 | 425,183 | - | 425,183 | - | |||||||||||||||
Restricted stock | 1,366 | 1,366 | - | 1,366 | - | |||||||||||||||
Loans held for sale | 28,065 | 28,267 | - | 23,911 | 4,356 | |||||||||||||||
Loans receivable, net | 955,817 | 937,944 | - | - | 937,944 | |||||||||||||||
SBA servicing assets | 5,352 | 5,352 | - | - | 5,352 | |||||||||||||||
Accrued interest receivable | 5,497 | 5,497 | - | 5,497 | - | |||||||||||||||
Interest rate lock commitments | 439 | 439 | - | 439 | - | |||||||||||||||
Best efforts forward loan sales commitments | 103 | 103 | - | 103 | - | |||||||||||||||
Mandatory forward loan sales commitments | 229 | 229 | - | 229 | - | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | ||||||||||||||||||||
Demand, savings and money market | $ | 1,566,506 | $ | 1,566,506 | $ | - | $ | 1,566,506 | $ | - | ||||||||||
Time | 111,164 | 110,988 | - | 110,988 | - | |||||||||||||||
Subordinated debt | 21,881 | 16,286 | - | - | 16,286 | |||||||||||||||
Accrued interest payable | 444 | 444 | - | 444 | - | |||||||||||||||
Interest rate lock commitments | 55 | 55 | - | 55 | - | |||||||||||||||
Best efforts forward loan sales commitments | 125 | 125 | - | 125 | - | |||||||||||||||
Mandatory forward loan sales commitments | 38 | 38 | - | 38 | - | |||||||||||||||
Off-Balance Sheet Data | ||||||||||||||||||||
Commitments to extend credit | - | - | - | - | - | |||||||||||||||
Standby letters-of-credit | - | - | - | - | - |
Note 8:9: Changes in Accumulated Other Comprehensive LossIncome (Loss) By Component (1)
The following table presents the changes in accumulated other comprehensive loss by component for the ninesix months ended SeptemberJune 30, 2017 2021 and 2016,2020, and the year ended December 31, 2016.
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, 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 | ) |
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, 2021 | $ | 985 | $ | (3,814 | ) | $ | (2,829 | ) | ||||
Unrealized gain on securities | (1,161 | ) | 0 | (1,161 | ) | |||||||
Amounts reclassified from accumulated other comprehensive income to net income (2) | (1 | ) | 1,117 | 1,116 | ||||||||
Net current-period other comprehensive income | (1,162 | ) | 1,117 | (45 | ) | |||||||
Total change in accumulated other comprehensive income | (1,162 | ) | 1,117 | (45 | ) | |||||||
Balance June 30, 2021 | $ | (177 | ) | $ | (2,697 | ) | $ | (2,874 | ) | |||
Balance January 1, 2020 | $ | (1,275 | ) | $ | (6,066 | ) | $ | (7,341 | ) | |||
Unrealized gain on securities | 4,077 | 0 | 4,077 | |||||||||
Amounts reclassified from accumulated other comprehensive income to net income (2) | (1,852 | ) | 787 | (1,065 | ) | |||||||
Net current-period other comprehensive income | 2,225 | 787 | 3,012 | |||||||||
Total change in accumulated other comprehensive income | 2,225 | 787 | 3,012 | |||||||||
Balance June 30, 2020 | $ | 950 | $ | (5,279 | ) | $ | (4,329 | ) | ||||
Balance January 1, 2020 | $ | (1,275 | ) | $ | (6,066 | ) | $ | (7,341 | ) | |||
Unrealized gain on securities | 4,320 | 0 | 4,320 | |||||||||
Amounts reclassified from accumulated other comprehensive income to net income (2) | (2,060 | ) | 2,252 | 192 | ||||||||
Net current-period other comprehensive income | 2,260 | 2,252 | 4,512 | |||||||||
Total change in accumulated other comprehensive income | 2,260 | 2,252 | 4,512 | |||||||||
Balance December 31, 2020 | $ | 985 | $ | (3,814 | ) | $ | (2,829 | ) |
(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 |
Note 9: Business Combination
On August 26, 2020, the Company LLCcompleted an offering of 2,000,000 shares of 7.00% Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share (the “Series A Preferred Stock”), at a price of $25.00 per share. The Company received net proceeds of $48.3 million from the offering, after deducting offering costs. The Company will pay dividends on the Series A Preferred Stock when and if declared by its board of directors or an authorized committee thereof. If declared, dividends will be due and payable at a rate of 7.00% per annum, payable quarterly in arrears on March 1, June 1, September 1, and December 1 of each year. During the three month and six month period ended June 30, 2021, $875,000 and $1.8 million were declared and paid on preferred stock compared to $923,000 during the three month period ended December 31, 2020.
Holders of shares of Series A Preferred Stock may convert such shares at any time and from time to time into shares of the Company’s common stock at a conversion price of $3.00 per share of our common stock, subject to adjustment upon certain events. At any time after August 26, 2025, the Company may cause the outstanding shares of Series A Preferred Stock to convert into shares of common stock if the price of the common stock exceeds 125% of the Conversion Price then applicable to the Series A Preferred Stock for at least 20 trading days in a period of 30 consecutive trading days.
Note 11: Goodwill and Other Intangibles
In connection with the review of our financial condition in light of the COVID-19 pandemic, we evaluated our assets, including goodwill and other intangibles for potential impairment on an interim basis at the end of each quarter during 2020. Goodwill was written off as a result of an interim test completed as of September 30, 2020. This was a complete write-off of all goodwill on the balance sheet.
In 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.
Consideration paid: | Original Estimates | Adjustments to Estimates | Final Valuation | |||||||||
Cash | $ | 7,136 | $ | - | $ | 7,136 | ||||||
Equity instruments | 202 | - | 202 | |||||||||
Deferred additional purchase price | 500 | - | 500 | |||||||||
Value of consideration | $ | 7,838 | $ | - | $ | 7,838 | ||||||
Assets acquired: | ||||||||||||
Cash and cash equivalents | $ | 1,223 | $ | - | $ | 1,223 | ||||||
Loans held for sale | 20,871 | - | 20,871 | |||||||||
Loans receivable | 1,132 | - | 1,132 | |||||||||
Premises and equipment | 103 | - | 103 | |||||||||
Derivative assets | 1,508 | - | 1,508 | |||||||||
Intangible assets – non compete agreements | 104 | - | 104 | |||||||||
Other assets | 125 | - | 125 | |||||||||
Total assets | 25,066 | - | 25,066 | |||||||||
Liabilities assumed: | ||||||||||||
Warehouse lines of credit | 19,666 | - | 19,666 | |||||||||
Derivative liabilities | 412 | - | 412 | |||||||||
Other liabilities | 2,042 | 119 | 2,161 | |||||||||
Total liabilities | 22,120 | 119 | 22,239 | |||||||||
Net assets acquired | 2,946 | (119 | ) | 2,827 | ||||||||
Goodwill resulting from acquisition of Oak Mortgage | $ | 4,892 | $ | 119 | $ | 5,011 |
(dollars in thousands) | Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | ||||||
Total revenues | $ | 15,755 | $ | 52,610 | ||||
Net income | $ | 1,259 | $ | 4,462 |
Three Months Ended June 30, | ||||||||
(dollars in thousands) | 2021 | 2020 | ||||||
Balance, April 1st | $ | 0 | $ | 5,011 | ||||
Additions/Adjustments | 0 | 0 | ||||||
Amortization | 0 | 0 | ||||||
Balance, June 30th | $ | 0 | $ | 5,011 | ||||
Amortization Period (in years) | N/A | Indefinite |
Six Months Ended June 30, | ||||||||
(dollars in thousands) | 2021 | 2020 | ||||||
Balance, January 1st | $ | 0 | $ | 5,011 | ||||
Additions/Adjustments | 0 | 0 | ||||||
Amortization | 0 | 0 | ||||||
Balance, June 30th | $ | 0 | $ | 5,011 | ||||
Amortization Period (in years) | N/A | Indefinite |
(dollars in thousands) | Balance December 31, 2016 | Additions/ Adjustments | Amortization | Balance September 30, 2017 | Amortization Period (in years) | ||||||||
Goodwill | $ | 5,011 | $ | - | $ | - | $ | 5,011 | Indefinite | ||||
Non-compete agreements | 61 | - | (61) | - | 1 | ||||||||
Total | $ | 5,072 | $ | - | $ | (61) | $ | 5,011 |
Note 11:12: Derivatives and Risk Management Activities
Republic did not have any derivative instruments designated as hedging instruments, or subject to master netting and collateral agreements for the ninesix months ended SeptemberJune 30, 2017. 2021 and the six months ended June 30, 2020. The following table summarizes the amounts recorded in Republic'sRepublic’s statement of financial condition for derivatives not designated as hedging instruments as of SeptemberJune 30, 2017 2021 and December 31, 2016 (in2020 (in thousands):
June 30, 2021 | Balance Sheet Presentation | Fair Value | Notional Amount | ||||||
Asset derivatives: | |||||||||
IRLC’s | Other Assets | $ | 804 | $ | 28,327 | ||||
Best efforts forward loan sales commitments | Other Assets | 2 | 1,086 | ||||||
Mandatory forward loan sales commitments | Other Assets | 2 | 499 | ||||||
Liability derivatives: | |||||||||
IRLC’s | Other Liabilities | $ | 0 | $ | 0 | ||||
Best efforts forward loan sales commitments | Other Liabilities | 267 | 27,241 | ||||||
Mandatory forward loan sales commitments | Other Liabilities | 112 | 11,378 |
December 31, 2020 | Balance Sheet Presentation | Fair Value | Notional Amount | ||||||
Asset derivatives: | |||||||||
IRLC’s | Other Assets | $ | 1,580 | $ | 48,223 | ||||
Best efforts forward loan sales commitments | Other Assets | 2 | 2,069 | ||||||
Mandatory forward loan sales commitments | Other Assets | 0 | 0 | ||||||
Liability derivatives: | |||||||||
IRLC’s | Other Liabilities | $ | 0 | $ | 0 | ||||
Best efforts forward loan sales commitments | Other Liabilities | 612 | 46,154 | ||||||
Mandatory forward loan sales commitments | Other Liabilities | 800 | 48,373 |
September 30, 2017 | Balance Sheet Presentation | Fair Value | Notional Amount | |||||||
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 |
December 31, 2016 | Balance Sheet Presentation | Fair Value | Notional Amount | |||||||
Asset derivatives: | ||||||||||
IRLC's | Other Assets | $ | 439 | $ | 20,792 | |||||
Best efforts forward loan sales commitments | Other Assets | 103 | 8,586 | |||||||
Mandatory forward loan sales commitments | Other Assets | 229 | 18,373 | |||||||
Liability derivatives: | ||||||||||
IRLC's | Other Liabilities | $ | 55 | $ | 6,757 | |||||
Best efforts forward loan sales commitments | Other Liabilities | 125 | 18,963 | |||||||
Mandatory forward loan sales commitments | Other Liabilities | 38 | 5,024 |
The following tables summarizessummarize the amounts recorded in Republic'sRepublic’s statement of income for derivative instruments not designated as hedging instruments for the three and ninesix months ended SeptemberJune 30, 20172021 and 2020 (in thousands):
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | ||||||
Income Statement Presentation | 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) |
Three and Nine Months Ended September 30, 2016 | Income Statement Presentation | 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) |
Income Statement Presentation | Three Months Ended June 30, 2021 Gain/(Loss) | Six Months Ended June 30, 2021 Gain/(Loss) | |||||||
Asset derivatives: | |||||||||
IRLCs | Mortgage banking income | $ | (42 | ) | $ | (776 | ) | ||
Best efforts forward loan sales commitments | Mortgage banking income | (237 | ) | 0 | |||||
Mandatory forward loan sales commitments | Mortgage banking income | (384 | ) | 2 | |||||
Liability derivatives: | |||||||||
IRLCs | Mortgage banking income | $ | 14 | $ | 0 | ||||
Best efforts forward loan sales commitments | Mortgage banking income | (89 | ) | 345 | |||||
Mandatory forward loan sales commitments | Mortgage banking income | (73 | ) | 688 |
Income Statement Presentation | Three Months Ended June 30, 2020 Gain/(Loss) | Six Months Ended June 30, 2020 Gain/(Loss) | |||||||
Asset derivatives: | |||||||||
IRLCs | Mortgage banking income | $ | 1,114 | $ | 1,280 | ||||
Best efforts forward loan sales commitments | Mortgage banking income | (1,049 | ) | 4 | |||||
Mandatory forward loan sales commitments | Mortgage banking income | (271 | ) | (2 | ) | ||||
Liability derivatives: | |||||||||
IRLCs | Mortgage banking income | $ | 718 | $ | 0 | ||||
Best efforts forward loan sales commitments | Mortgage banking income | (596 | ) | (521 | ) | ||||
Mandatory forward loan sales commitments | Mortgage banking income | (297 | ) | (243 | ) |
The fair value of 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)(1) estimated costs to complete and originate the loan, and (2)(2) the estimated percentage of IRLCs that will result in a closed mortgage loan. The valuation of the IRLCs issued by Republic includes the value of the servicing released premium. Republic sells loans servicing released, and the servicing released premium is included in the market price.
Note 13: Revenue Recognition
The following table presents non-interest income, segregated by revenue streams that are in-scope and out-of-scope of ASC 606, “Revenue from Contracts with Customers”, for the three and six months ended June 30, 2021 and 2020.
Three Months Ended June 30, | ||||||||
(dollars in thousands) | 2021 | 2020 | ||||||
Non-interest income | ||||||||
In-scope of Topic 606 | ||||||||
Service charges on deposit accounts | $ | 3,260 | $ | 2,328 | ||||
Other non-interest income | 217 | 34 | ||||||
Non-interest income (in-scope of Topic 606) | 3,477 | 2,362 | ||||||
Non-interest income (out-of-scope of Topic 606) | 4,203 | 6,062 | ||||||
Total non-interest income | $ | 7,680 | $ | 8,424 |
Six Months Ended June 30, | ||||||||
(dollars in thousands) | 2021 | 2020 | ||||||
Non-interest income | ||||||||
In-scope of Topic 606 | ||||||||
Service charges on deposit accounts | $ | 7,220 | $ | 4,392 | ||||
Other non-interest income | 574 | 96 | ||||||
Non-interest income (in-scope of Topic 606) | 7,794 | 4,488 | ||||||
Non-interest income (out-of-scope of Topic 606) | 10,161 | 10,481 | ||||||
Total non-interest income | $ | 17,955 | $ | 14,969 |
Note 14: Leases
We have operating lease agreements for certain land, buildings, and equipment. In some instances, a lease may contain renewal options to extend the term of the lease. We do not have any short-term leases in the calculation of the right-of-use assets and lease liability obligations. The most significant assumption related to the Company’s lease application of ASC 842 was the discount rate assumption. Since most of the lease agreements do not provide an implicit interest rate, 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.
At June 30, 2021, the Company had forty-four operating lease agreements, which include operating leases for twenty branch locations, seven offices that are used for general office space, and seventeen operating leases for equipment. Two of the real property operating leases did not include one or more options to extend the lease term. Eight of the operating leases for branch locations are land leases where the Company is responsible for the construction of the building on the property. The forty-four operating leases have maturity dates ranging from December 2021 to August 2059 most of which include options for multiple five and ten year extensions which the Company is reasonably certain to exercise. No operating leases include variable lease payments that are based on an index or rate, such as the CPI. The weighted average remaining operating lease term for these leases is 19.1 years as of June 30, 2021. The weighted average operating lease discount rate was 3.34% at June 30, 2021.
At June 30, 2020, the Company had forty operating lease agreements, which include operating leases for eighteen branch locations, seven offices that are used for general office space, and fifteen operating leases for equipment. Two of the real property operating leases did not include one or more options to extend the lease term. Five of the operating leases for branch locations are land leases where the Company is responsible for the construction of the building on the property. The forty operating leases have maturity dates ranging from December 2020 to August 2059 most of which include options for multiple five and ten year extensions which the Company is reasonably certain to exercise. No operating leases include variable lease payments that are based on an index or rate, such as the CPI. The weighted average remaining operating lease term for these leases is 19.7 years as of June 30, 2020. The weighted average operating lease discount rate was 3.58% at June 30, 2020.
The following tables presents operating lease costs net of sublease income for the three and six months ended June 30, 2021 and 2020.
Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |||||||
(dollars in thousands) | ||||||||
Operating lease cost | $ | 2,137 | $ | 1,917 | ||||
Sublease income | 0 | 0 | ||||||
Total lease cost | $ | 2,137 | $ | 1,917 |
Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |||||||
(dollars in thousands) | ||||||||
Operating lease cost | $ | 4,274 | $ | 3,834 | ||||
Sublease income | 0 | 0 | ||||||
Total lease cost | $ | 4,274 | $ | 3,834 |
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 June 30, 2021 and 2020.
June 30, 2021 | June 30, 2020 | |||||||
(dollars in thousands) | ||||||||
Operating lease payments due: | ||||||||
Within one year | $ | 8,207 | $ | 6,675 | ||||
One to three years | 15,264 | 11,571 | ||||||
Three to five years | 14,931 | 10,110 | ||||||
More than five years | 81,629 | 72,394 | ||||||
Total undiscounted cash flows | 120,031 | 100,750 | ||||||
Discount on cash flows | (35,291 | ) | (31,704 | ) | ||||
Total operating lease liability obligations | $ | 84,740 | $ | 69,046 |
The following tables presents cash and non-cash activities for the three and six months ended June 30, 2021 and 2020.
Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |||||||
(dollars in thousands) | ||||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||
Operating cash flows from operating leases | $ | 2,041 | $ | 1,835 | ||||
Non-cash investing and financing activities | ||||||||
Additions to Operating leases – right of use asset | ||||||||
New operating lease liability obligation | $ | 8 | $ | 49 |
Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |||||||
(dollars in thousands) | ||||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||
Operating cash flows from operating leases | $ | 4,070 | $ | 3,579 | ||||
Non-cash investing and financing activities | ||||||||
Additions to Operating leases – right of use asset | ||||||||
New operating lease liability obligation | $ | 8,122 | $ | 189 |
ITEM 2: MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management'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.
We may from time to time make written or oral "forward-looking statements", including statements contained in this presentation.quarterly report. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For example, risks and uncertainties can arise with changes in: general economic conditions, including turmoil in the financial markets and related efforts of government agencies to stabilize the financial system; the adequacy of our allowance for loan losses and our methodology for determining such allowance; adverse changes in our loan portfolio and credit risk-related losses and expenses; concentrations within our loan portfolio, including our exposure to commercial real estate loans, and to our primary service area; changes in interest rates; our ability to identify, negotiate, secure and develop new store locations and renew, modify, or terminate leases or dispose of properties for existing store locations effectively; business conditions in the financial services industry, including competitive pressure among financial services companies, new service and product offerings by competitors, price pressures and similar items; deposit flows; loan demand; the regulatory environment, including evolving banking industry standards, changes in legislation or regulation; impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act; our securities portfolio and the valuation of our securities; accounting principles, policies and guidelines as well as estimates and assumptions used in the preparation of our financial statements; rapidly changing technology; litigation liabilities, including costs, expenses, settlements and judgments; and other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services. You should carefully review the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 20162020 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.
Executive Summary
Republic First Bancorp, Inc. was organized and Legislation
As of June 30, 2021, we serve our customers through 32 store locations, in addition to 4 loan offices that specialize in commercial, small business and residential mortgage lending. Our stores are open 7 days a broad impactweek, 361 days a year, with extended lobby and drive-thru hours providing customers with some of the most convenient hours compared to any bank in the markets which we operate. We offer free checking, free coin counting, and ATM/Debit cards issued on the financial services industry, including significant regulatoryspot. We also provide access to more than 55,000 surcharge free ATM machines worldwide through the Allpoint network to our customers. Our commitment to deliver best in class customer service not only applies to our store locations, but includes by phone, online and compliance changes including, among other things, (i) enhanced resolution authority of troubledmobile options as well. Our business model is built on customer loyalty and failing banksengagement, understanding customer needs 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,offering the financial products and services sector. Additionally,to help them achieve their goals and objectives.
Current Economic Environment
The coronavirus (“COVID-19”) outbreak and the Dodd-Frank Act establishes a new framework for systemic risk oversight withinpublic health response to contain it have resulted in unprecedented economic and financial market conditions over the financial systemlast eighteen months. In response to be distributed among new and existing federal regulatory agencies, includingthese conditions, the Financial Stability Oversight Council, the Consumer Financial Protection Bureau,Board of Governors of the Federal Reserve System (“Federal Reserve”) reduced the Office offederal funds target range by 150 basis points to 0.00% to 0.25% in March 2020. It has remained at that level through the Comptroller ofperiod ended June 30, 2021. The Federal Reserve has taken additional steps to bolster the Currency,economy by promoting liquidity in certain securities markets and providing funding sources for small and mid-sized businesses, as well as, state and local governments as they work through the FDIC. A summary of certain provisions ofcash flow stresses caused by the Dodd-Frank Act is set forthCOVID-19 pandemic.
The economic downturn that began 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.
In a period of economic contraction, elevated levels of loan losses and lost interest income may occur. The Company continues to accrue interest on loans modified in accordance with the CARES Act. To the extent those borrowers are unable to resume normal contractual payments, the Company could experience additional losses of principal and interest. The extent to which the COVID-19 pandemic has a further impact the Company's business, results of operations, and financial condition, as well as the Company's regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.
COVID-19 Response Efforts
Republic is committed to providing the financial resources necessary to support the economic recovery in our market. We took an active role in participating in the first round of the (“PPP”). We quickly developed a process to accept PPP loan applications not only from our valued small business customers, but from non-customers throughout our community as well. During the first round of the PPP program, we processed and obtained SBA approval for nearly 5,000 PPP loan applications resulting in more than $680 million in loans. We are now assisting the recipients of those loans through the application process for forgiveness of the outstanding loan balance with the SBA. In addition, we processed applications for the second round of the PPP program which was authorized by the Economic Aid Act in December 2020. In the first and second quarter of 2021 we originated nearly $270 million in additional PPP loans and received approval from the SBA on more than 2,500 applications in this second round.
Since the pandemic started, we also took a number of steps to mitigate the potential spread of the coronavirus and to assist our customers, employees and other members of the community during this crisis. During this time, we have:
● | Put procedures and supplies in place at all of our store locations such as plastic shields, public notices, hand sanitizer, etc., in accordance with CDC guidelines. While temporarily closed for a period of time, all of our store lobbies have been re-opened for all transactions including new account openings. |
● | Encouraged customers to utilize our online, mobile and telephone banking systems. In addition, we continue to offer more than 55,000 surcharge free ATM machines to all of our customers. |
● | Directed our commercial lenders to maintain contact with their customers to discuss the impact of the current economic conditions on their business and to develop a plan for assistance if required. |
● | Implemented a work from home policy for all employees whose primary responsibilities can be completed in this manner. |
● | Initiated additional preventative measures by providing guidance and proper supplies to all employees to support appropriate hygiene and social distancing. |
Loss Mitigation and Loan Portfolio Analysis
We took a proactive approach to analyze and prepare for the potential challenges to be faced as the effects of the COVID-19 pandemic continue to impact our customers. A detailed analysis of loan concentrations and segments that may present the areas of highest risk was prepared and continues to be closely monitored. Our commercial lending team initiated contact with a majority of our loan customers to discuss the impact that this pandemic crisis had on their businesses to date and the expected ramifications that could be felt in the future. We executed loan modifications and initiated payment deferrals for all customers that had an immediate need for assistance.
Pursuant to the CARES Act, loan modifications made between March 1, 2020 and the earlier of i) December 30, 2020 or ii) 60 days after the President declares a termination of the COVID-19 national emergency are not classified as TDRs if the related loans were not more than 30 days past due as of December 31, 2019. In December 2020, the Economic Aid Act was signed into law which amended certain sections of the CARES Act. This amendment extended the period to suspend the requirements under TDR accounting guidance to the earlier of i) January 1, 2022 or ii) 60 days after the President declares a termination of the national emergency related to the COVID-19 pandemic. As of June 30, 2021, deferrals declined to one customer relationship with an outstanding balance of $2.1 million, or less than 0.1% of total loans outstanding. At December 31, 2020, twenty-one customers with outstanding balances of $16 million, were deferring loan payments. As of June 30, 2021, there were no deferral requests that were for deferment of principal balances only compared to approximately $4 million at December 31, 2020. The one remaining deferral request was to defer both principal and interest payments. As of June 30, 2021, the one deferral was a fourth deferral request with outstanding balances of $2.1 million. At December 31, 2020, deferrals were comprised of the following categories: 90 day deferrals amounted to eight customers with outstanding balances of $3 million and second deferrals amounted to thirteen customers with outstanding balances of $13 million.
As a result of the recent changes in economic conditions, we have increased the qualitative factors for certain components of our allowance for loan loss calculation. We have also taken into consideration the probable impact that the various stimulus initiatives provided through the CARES Act, along with other government programs, may have to assist borrowers during this period of economic stress. We believe the combination of ongoing communication with our customers, loan to values on underlying collateral, loan payment deferrals, increased focus on risk management practices, and access to government programs such as the PPP should help mitigate potential future period losses. We will closely monitor all key economic indicators and our internal asset quality metrics as the effects of the coronavirus pandemic continue to impact our customer base. Based on the incurred loss methodology currently utilized by Republic, the provision for loan losses and charge-offs may be impacted in future periods, but more time is needed to fully understand the magnitude and severity of the economic downturn and the full impact on our loan portfolio.
CARES Act and Related Recent Legislation
The CARES Act. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted to address the economic effects of the COVID-19 pandemic. Among other things, the CARES Act provides for the following:
• | Paycheck Protection Program (“PPP”). The CARES Act appropriated $349 billion for “paycheck protection loans” through the PPP. The amount appropriated was subsequently increased to $659 billion. Loans under the PPP that meet U.S. Small Business Administration (“SBA”) requirements may be forgiven in certain circumstances, and are 100% guaranteed by the SBA. In conjunction with the PPP, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) has created a lending facility for qualified financial institutions. The Paycheck Protection Program Liquidity Facility (“PPPLF”) will extend credit to depository institutions with a term equal to the term of the pledged loans at an interest rate of 0.35%. Only loans issued under the PPP can be pledged as collateral to access the facility. The Company participated in both the PPP loan program and the PPPLF in 2020 and 2021. |
• | Troubled Debt Restructuring Relief. From March 1, 2020 through the earlier of December 31, 2020 or 60 days after the termination date of the national emergency declared by the President on March 13, 2020 concerning the COVID–19 outbreak (the “national emergency”), a financial institution may elect to suspend the requirements under accounting principles generally accepted in the U.S. for loan modifications related to the COVID–19 pandemic that would otherwise be categorized as a troubled debt restructured (“TDR”), including impairment accounting. This TDR relief is applicable for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. Financial institutions are required to maintain records of the volume of loans involved in modifications to which TDR relief is applicable. The Company elected to exclude modifications meeting these requirements from TDR classification. |
• | CECL Delay. Banks, savings associations, credit unions, bank holding companies and their affiliates are not required to comply with the Financial Accounting Standards Board Accounting Standards Update No. 2016–13 (“Measurement of Credit Losses on Financial Instruments”), including the current expected credit losses methodology for estimating allowances for credit losses (“CECL”), from the date of the law’s enactment until the earlier of the end of the national emergency or December 31, 2020. On March 27, 2020, the Federal Reserve, the Federal Deposit Insurance Corporation (the “FDIC”), and the Office of the Comptroller of the Currency issued an interim final rule that allows banking organizations that are required to adopt CECL this year to mitigate the estimated cumulative regulatory capital effects for up to two years. The relief afforded by the CARES Act and interim final rule is in addition to the three-year transition period already in place. The Company has elected to delay the adoption of CECL. |
• | Forbearance. The CARES Act codified in part guidance from state and federal regulators and government-sponsored enterprises, including the 60-day suspension of foreclosures on federally-backed mortgages and requirements that servicers grant forbearance to borrowers affected by COVID-19. |
The Economic Aid Act. On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Non-profits and Venues Act (the “Economic Aid Act”) became law. The Economic Aid Act reauthorized lending by the U.S. Small Business Administration under the Paycheck Protection Program of the CARES Act to eligible first-time borrowers and also to certain borrowers that previously received first draw PPP loans. The Economic Aid Act allocated an additional $286 billion for PPP loans. The Act also amended or revised certain PPP requirements, including borrower eligibility criteria, expanded permitted uses of PPP loans, and revised loan forgiveness procedures. Under the Economic Aid Act, the SBA had authority to make PPP loans until March 31, 2021; that application deadline was extended to May 31, 2021 as a result of passage of the Paycheck Protection Extension Act on March 25, 2021, and the SBA was also provided with an additional 60 days to complete processing of applications received by May 31, 2021. The Economic Aid Act also extended the provisions of the CARES Act described above (i) permitting financial institutions to suspend TDR assessment and reporting requirements under generally accepted accounting principles until the earlier of 60 days after the date that the President terminates the COVID-19 national emergency or January 1, 2022 and (ii) exempting insured depository institutions, bank holding companies, and any of their affiliates from compliance with CECL, until the earlier of the first day of an eligible financial institution’s fiscal year that begins after the COVID-19 national emergency is terminated or January 1, 2022.
Financial Condition
Assets
Total assets increased by $312 million to $5.4 billion at June 30, 2021, compared to $5.1 billion at December 31, 2020. The ongoing success with "The Powerour expansion strategy has resulted in a significant increase in new business relationships and account openings during the first six months of Red is Back" growth2021. Total assets increased primarily due to a $479 million increase in investment securities partially offset by a $127 million decrease in loans receivable which was driven by the forgiveness and expansion strategy.
Cash and Cash Equivalents
Cash and due from banks and interest bearing deposits with banks comprise this category, which consists of our most liquid assets. The aggregate amount inof these threetwo categories increaseddecreased by $64.2$8.6 million to $98.8$767 million at SeptemberJune 30, 2017 compared to $34.62021, from $775 million at December 31, 2016. The increase in cash was primarily driven by the increase in deposit balances during the period ended September 30, 2017.
Loans Held for Sale
Loans held for sale are comprised of loans guaranteed by the U.S. Small Business Administration ("SBA"(“SBA”) which we usually originate with the intention of selling in the future and residential mortgage loans originated by Republic's subsidiary, Oak Mortgage Company, which we also intend to sell in the future. Total SBA loans held for sale were $300,000$2.4 million at SeptemberJune 30, 20172021 as compared to $4.2$3.0 million at December 31, 2016.2020. Residential mortgage loans held for sale totaled $41.4were $12.0 million at SeptemberJune 30, 20172021 compared to $23.9$50.4 million at December 31, 2016.2020. The increasereduction in the balance of residential mortgage loans held for sale was driven by an increase in the volumea result of loans originated along with the timing of loan closings which pushed a numberand subsequent sales as of sales into the fourth quarter.June 30, 2021. Loans held for sale, as a percentage of total Company assets, were 1.9%less than 1% at SeptemberJune 30, 2017.2021.
Loans Receivable
The loan portfolio represents our largest asset category and is our most significant source of interest income. Our lending strategy is focused on small and medium sized businesses and professionals that seek highly personalized banking services. The loan portfolio consists of secured and unsecured commercial loans including commercial real estate, construction loans, residential mortgages, home improvement loans, home equity loans and lines of credit, overdraft lines of credit, and others. Commercial loans typically range between $250,000 and $5,000,000 but customers may borrow significantly larger amounts up to our legal lending limit to a customer, which was approximately $27.0$45.0 million at SeptemberJune 30, 2017.2021. Loans made to one individual customer, even if secured by different collateral, are aggregated for purposes of the lending limit.
Loans receivable increased $130.4decreased $127 million, or 13.5%5%, to $1.1$2.5 billion at SeptemberJune 30, 2017,2021, versus $965.0$2.6 billion at December 31, 2020. Due to our proactive approach in assisting PPP loan customers with the submission of forgiveness applications, PPP loans decreased $242 million to $394 million at June 30, 2021 compared to $637 million at December 31, 2016.2020. Total loans excluding PPP loans increased by $115 million at June 30, 2021 compared to December 31, 2020. This growth was primarily the result of an increase in loan demand in residential mortgage, commercial real estate, construction and development, owner occupied real estate, and consumer categories driven by the successful execution of our relationship banking strategymodel which focuses on customer service.
Investment Securities
Investment securities considered available-for-sale are investments that may be sold in response to changing market and interest rate conditions, and for liquidity and other purposes. Our investment securities classified as available-for-sale consist primarily of SBA bonds, U.S. Government agency collateralized mortgage obligations (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$764.7 million at SeptemberJune 30, 2017,2021, compared to $369.7$528.5 million at December 31, 2016.2020. The increase was primarily due to the purchase of securities totaling $53.1$308.8 million partially offset by the sales and paydownspaydown, maturity, or call, of securities held in the portfolio totaling $46.8$68.9 million during the first ninesix months of 2017.2021. At SeptemberJune 30, 2017,2021, the portfolio had a net unrealized loss of $8.0 million$239,000 compared to a net unrealized lossgain of $10.7$1.3 million at December 31, 2016.2020. The change in value of the investment portfolio was driven by a decreasean increase in market interest rates which drove an increaseresulted in a decrease in the fair value of the bonds heldsecurities available-for-sale in our portfolio during the first ninesix months of 2017.
Investment securities held-to-maturity are investments for which there is the intent and ability to hold the investment to maturity. These investments are carried at amortized cost. The held-to-maturity portfolio consists primarily of
U.S.Equity securities consist of investments in the preferred stock of domestic banks. Equity securities are held at fair value. The fair value of equity securities totaled $9.2 million at June 30, 2021 compared to $9.0 million at December 31, 2020.
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 SeptemberJune 30,
At SeptemberJune 30, 20172021 and December 31, 2016,2020, the investment in FHLB of Pittsburgh capital stock totaled $1.5$3.4 million and $1.2$2.9 million, respectively. The increase was due to a higher required investment in FHLB stock during 2017. At both SeptemberJune 30, 20172021 and December 31, 2016,2020, ACBB capital stock totaled $143,000. Both the FHLB and ACBB issued dividend payments during the ninesecond quarter of 2021.
Premises and Equipment
The balance of premises and equipment increased to $123.7 million at June 30, 2021 from $123.2 million at December 31, 2020. The increase was primarily due to premises and equipment expenditures of $4.8 million less depreciation and amortization expenses of $4.3 million during the first six months of 2017.
Other Real Estate Owned
At June 30, 2021 and December 31, 2020, the balance of other real estate owned decreased to $9.2was $852,000 and $1.2 million, at September 30, 2017 from $10.2 million at December 31, 2016, primarily due to writedowns inrespectively.
Operating Leases – Right of Use Asset
Under ASC 842, the right-of-use asset is valued as the initial amount of $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 ended Septemberany lease incentives. At June 30, 2017.
Deposits
Deposits, which include non-interest and interest-bearing demand deposits, money market, savings, and time deposits, are 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.
Other Borrowings
At June 30, 2021 and December 31, 2020, we borrowed $387.5 million and $633.9 million, respectively, through the Paycheck Protection Program Liquidity Facility (“PPPLF”) provided by the Federal Reserve Bank at a rate of 35 basis points. The borrowings were repaid in full during the first week following each quarter end.
Operating Lease Liability Obligation
Under ASC 842, 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 June 30, 2021 and December 31, 2020, the balance of the operating lease liability obligation was $84.7 million and $77.6 million, respectively.
Shareholders’ Equity
Total shareholders'shareholders’ equity increased $10.1$12.3 million to $225.2$320.4 million at September 30, 2017March 31, 2021 compared to $215.1$308.1 million at December 31, 2016.2020. The increase was primarily due to net income of $6.2$11.3 million recognized during the first ninesix months of 2017, an increase of $2.2 million related to the issuance of stock based compensation, stock option exercises and securities conversion, and the reduction in accumulated other comprehensive losses associated with an increase in the market value of the investment securities portfolio. The shift in market value of the securities portfolio resulting in accumulated other comprehensive losses of $5.5 million at September 30, 2017 compared to accumulated other comprehensive losses of $7.3 million at December 31, 2016 was primarily driven by a decrease in market interest rates which drove an increase in the fair value of the securities held in our portfolio.
Results of Operations
Three Months Ended
We reported net income available to common shareholders of $2.3$5.1 million, or $0.08 per diluted share, for the three months ended June 30, 2021, compared to net income of $2.5 million or $0.04 per diluted share, for the three months ended SeptemberJune 30, 2017, compared to net income of $1.3 million or $0.03 per diluted share, for the three months ended September 30, 2016. The increase2020. Earnings in 2021 were positively impacted by our growth in net interest income was primarily driven by growth in interest-earning assets along with the addition of a residential mortgage lending division.
Net interest income was $30.6 million for the three month period ended SeptemberJune 30, 2017 was $15.7 million2021 compared to $11.8$22.4 million for the three months ended SeptemberJune 30, 2016.2020. Interest income increased $4.3$7.5 million, or 32%27%, to $17.9 million for the three months ended September 30, 2017 compared to $13.6 million for the three months ended September 30, 2016 primarily as a result of a $288.1 million increase in average investment securities balances and a $149.8 million increase in average loan balances. Interest expense increased $376,000 or 21%, 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 loans receivable and average investment securities balances. Interest expense decreased $717,000, or 13.2%, primarily due to a decrease in the average rate paid on deposit balances.
We did not record a provision for loan losses for the three months ended SeptemberJune 30, 2017. We recorded a provision for loan losses in the amount of $607,0002021 compared to $1.0 million for the three months ended SeptemberJune 30, 2016 primarily due2020. The provision recorded is charged to operations in an increaseamount necessary to bring the total allowance for loan losses to a level that management believes is adequate to absorb inherent losses in the allowance required for loans individually evaluated for impairment.
Non-interest income increaseddecreased by $636,000$744,000 to $5.8$7.7 million during the three months ended SeptemberJune 30, 20172021 compared to $5.1$8.4 million during the three months ended SeptemberJune 30, 2016.2020. The increasedecrease during the three months ended SeptemberJune 30, 20172021 was primarily due increases in mortgage banking income, service fees on deposit accounts, and loan advisory and service fees partially offset by a decrease in the gain on sale of SBA loans.
Non-interest expenses increased by $4.2$3.9 million to $19.2$30.5 million during the three months ended SeptemberJune 30, 20172021 compared to $15.0$26.7 million during the three months ended SeptemberJune 30, 2016.2020. This increase was a result of growth in salaries and employee benefit costs, in addition to occupancy and equipment expense. Salary expense increased primarily driven by higher salaries, employeeas a result of merit increases. The cost for medical and dental benefits occupancy expenses associated withhave also returned to normal levels after a significant decline during the addition of new stores related to our expansion strategy which we refer to as "The Power of Red is Back", as well as the additionearly stages of the Oak Mortgage residential mortgage lending teampandemic in 2020.
We recorded a provision for income taxes in the third quarteramount of 2016.
Return on average assets and average equity from continuing operations was 0.45%0.48% and 4.11%7.56%, respectively, during the three months ended SeptemberJune 30, 20172021 compared to 0.32%0.26% and 4.49%3.98%, respectively, for the three months ended SeptemberJune 30, 2016.2019.
Six Months Ended SeptemberJune 30, 2017 compared2021 Compared to SeptemberSix Months Ended June 30, 2016
We reported net income available to common shareholders of $6.2$11.3 million, or $0.11$0.17 per diluted share, for the ninesix months ended SeptemberJune 30, 20172021 compared to net income of $3.4$1.9 million, or $0.09$0.03 per diluted share, for the ninesix months ended SeptemberJune 30, 2016.2020. The increase in net incomeearnings year over year was primarily driven by growth in interest-earning assetsrevenue along with the addition ofcost control measures implemented by management. We continue to focus on growing revenue at a residential mortgage lending division.
Net interest income for the ninesix months ended SeptemberJune 30, 2017 increased $10.5 million to $45.22021 was $62.1 million as compared to $34.7$43.2 million for the ninesix months ended SeptemberJune 30, 2016.2020. Interest income increased $11.8$16.6 million, or 30%, due primarily to increases in average investment securities balances and average loan balances. Interest expense increased $1.3 million or 27%, to $6.2 million for the nine months ended September 30, 2017 compared to $4.9 million for the nine months ended September 30, 2016. This increase was primarily due to an increase in average loans receivable and investment securities balances. We also continue to recognize the origination fees associated with PPP loans through interest bearing deposits.
We recorded a provision for loan losses of $500,000$3.0 million for the ninesix months ended SeptemberJune 30, 2017 due2021 compared to a provision for loan losses of $2.0 million for the six months ended June 30, 2020. The provision recorded is charged to operations in an amount necessary to bring the total allowance for loan losses to a level that management believes is adequate to absorb inherent losses in the loan portfolio. The increase in the provision year over year was a result of an increase in both the allowance required for loans collectively and individually evaluated for impairment. The increase related to the allowance for loans collectively evaluated for impairment drivenwas largely associated with assumptions and estimates related to the uncertainty surrounding the economic environment caused by anthe impact of the COVID-19 pandemic.
Non-interest income increased $3.0 million to $18.0 million during the six months ended June 30, 2021 compared to $15.0 million during the six months ended June 30, 2020. The increase during the six months ended June 30, 2021 was primarily due to growth in service fees on deposit accounts which increased by $2.8 million as a result of the significant growth in deposit balances and new account relationships. The recognition of revenue associated with the conversion of all ATM and debit cards to the VISA platform also contributed to the growth in service fees on deposit accounts. Mortgage banking income increased $1.6 million primarily due to the increase in total loans outstanding. residential mortgage loan originations.
Non-interest expenses increased $5.9 million to $59.9 million during the six months ended June 30, 2021 as compared to $53.9 million during the six months ended June 30, 2020. This increase was a result of growth in salaries and employee benefit costs, in addition to higher occupancy and equipment expense. The main cause for the increase in salary expense was merit increases. The cost for medical and dental benefits have also returned to normal levels after a significant decline during the early stages of the pandemic in 2020. Cost control measures implemented by management have had a positive effect in limiting expense growth.
We recorded a provision for loan losses of $1.6 million for the nine months ended September 30, 2016 primarily due to an increaseincome taxes in the allowance required for loans individually evaluated for impairment.
Return on average assets and average equity from continuing operations were 0.41%0.55% and 3.74%8.38%, respectively, during the ninesix months ended SeptemberJune 30, 20172021 compared to 0.30%0.11% and 3.93%1.53%%, respectively, for the ninesix months ended SeptemberJune 30, 2016.2020.
Analysis of Net Interest Income
Historically, our earnings have depended primarily upon Republic'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 Balances and Net Interest Income
For the three months ended September 30, 2017 | For the three months ended September 30, 2016 | |||||||||||||||||||||||
(dollars in thousands) | Average Balance | Interest | Yield/ Rate(1) | Average Balance | Interest | Yield/ Rate(1) | ||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Federal funds sold and other interest-earning assets | $ | 56,316 | $ | 181 | 1.28 | % | $ | 114,260 | $ | 149 | 0.52 | % | ||||||||||||
Investment securities and restricted stock | 765,678 | 4,805 | 2.51 | % | 477,601 | 2,858 | 2.39 | % | ||||||||||||||||
Loans receivable | 1,115,920 | 13,136 | 4.67 | % | 966,106 | 10,848 | 4.47 | % | ||||||||||||||||
Total interest-earning assets | 1,937,914 | 18,122 | 3.71 | % | 1,557,967 | 13,855 | 3.54 | % | ||||||||||||||||
Other assets | 122,513 | 103,826 | ||||||||||||||||||||||
Total assets | $ | 2,060,427 | $ | 1,661,793 | ||||||||||||||||||||
Interest-earning liabilities: | ||||||||||||||||||||||||
Demand – non-interest bearing | $ | 381,380 | $ | 282,571 | ||||||||||||||||||||
Demand – interest bearing | 692,423 | 772 | 0.44 | % | 533,222 | 553 | 0.41 | % | ||||||||||||||||
Money market & savings | 613,506 | 788 | 0.51 | % | 583,256 | 677 | 0.46 | % | ||||||||||||||||
Time deposits | 109,878 | 312 | 1.13 | % | 104,701 | 301 | 1.14 | % | ||||||||||||||||
Total deposits | 1,797,187 | 1,872 | 0.41 | % | 1,503,750 | 1,531 | 0.41 | % | ||||||||||||||||
Total interest-bearing deposits | 1,415,807 | 1,872 | 0.52 | % | 1,221,179 | 1,531 | 0.50 | % | ||||||||||||||||
Other borrowings | 30,220 | 338 | 4.44 | % | 29,938 | 303 | 4.03 | % | ||||||||||||||||
Total interest-bearing liabilities | 1,446,027 | 2,210 | 0.61 | % | 1,251,117 | 1,834 | 0.58 | % | ||||||||||||||||
Total deposits and other borrowings | 1,827,407 | 2,210 | 0.48 | % | 1,533,688 | 1,834 | 0.48 | % | ||||||||||||||||
Non-interest-bearing other liabilities | 9,179 | 9,247 | ||||||||||||||||||||||
Shareholders' equity | 223,841 | 118,858 | ||||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 2,060,427 | $ | 1,661,793 | ||||||||||||||||||||
Net interest income (2) | $ | 15,912 | $ | 12,021 | ||||||||||||||||||||
Net interest spread | 3.10 | % | 2.96 | % | ||||||||||||||||||||
Net interest margin (2) | 3.26 | % | 3.07 | % |
For the three months ended June 30, 2021 | For the three months ended June 30, 2020 | |||||||||||||||||||||||
(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 | $ | 306,222 | $ | 63 | 0.08 | % | $ | 198,345 | $ | 50 | 0.10 | % | ||||||||||||
Investment securities and restricted stock (2) | 1,688,807 | 6,851 | 1.63 | % | 1,033,560 | 5,077 | 1.96 | % | ||||||||||||||||
Loans receivable (2) | 2,658,540 | 28,574 | 4.31 | % | 2,335,500 | 22,884 | 3.94 | % | ||||||||||||||||
Total interest-earning assets | 4,653,569 | 35,488 | 3.06 | % | 3,567,405 | 28,011 | 3.16 | % | ||||||||||||||||
Other assets | 262,404 | 266,178 | ||||||||||||||||||||||
Total assets | $ | 4,915,973 | $ | 3,833,583 | ||||||||||||||||||||
Interest-earning liabilities: | ||||||||||||||||||||||||
Demand – non-interest bearing | $ | 1,230,690 | $ | 984,771 | ||||||||||||||||||||
Demand – interest bearing | 1,963,848 | 3,283 | 0.67 | % | 1,397,790 | 2,856 | 0.82 | % | ||||||||||||||||
Money market & savings | 1,098,340 | 933 | 0.34 | % | 858,782 | 1,431 | 0.67 | % | ||||||||||||||||
Time deposits | 187,093 | 424 | 0.91 | % | 208,838 | 1,033 | 1.99 | % | ||||||||||||||||
Total deposits | 4,479,971 | 4,640 | 0.42 | % | 3,450,181 | 5,320 | 0.62 | % | ||||||||||||||||
Total interest-bearing deposits | 3,249,281 | 4,640 | 0.57 | % | 2,465,410 | 5,320 | 0.87 | % | ||||||||||||||||
Other borrowings | 21,104 | 75 | 1.43 | % | 45,474 | 112 | 0.99 | % | ||||||||||||||||
Total interest-bearing liabilities | 3,270,385 | 4,715 | 0.58 | % | 2,510,884 | 5,432 | 0.87 | % | ||||||||||||||||
Total deposits and other borrowings | 4,501,075 | 4,715 | 0.42 | % | 3,495,655 | 5,432 | 0.62 | % | ||||||||||||||||
Non-interest bearing other liabilities | 100,272 | 83,884 | ||||||||||||||||||||||
Shareholders’ equity | 314,626 | 254,044 | ||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 4,915,973 | $ | 3,833,583 | ||||||||||||||||||||
Net interest income (2) | $ | 30,773 | $ | 22,579 | ||||||||||||||||||||
Net interest spread | 2.48 | % | 2.29 | % | ||||||||||||||||||||
Net interest margin (2) | 2.65 | % | 2.55 | % |
(1)Yields on investments are calculated based on amortized cost.
(2)Net interest income and net interest margin are presented on a tax equivalent basis, a non-GAAP measure. Net interest income has been increased over the financial statement amount by $200$134 and $235$152 for the three months ended SeptemberJune 30, 20172021 and 2016,2020, 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.
Average Balances and Net Interest Income
For the nine months ended September 30, 2017 | For the nine months ended September 30, 2016 | |||||||||||||||||||||||
(dollars in thousands) | Average Balance | Interest | Yield/ Rate(1) | Average Balance | Interest | Yield/ Rate(1) | ||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Federal funds sold and other interest-earning assets | $ | 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 | ||||||||||||||||||||
Net interest income (2) | $ | 45,864 | $ | 35,336 | ||||||||||||||||||||
Net interest spread | 3.11 | % | 3.11 | % | ||||||||||||||||||||
Net interest margin (2) | 3.25 | % | 3.23 | % |
For the six months ended June 30, 2021 | For the six months ended June 30, 2020 | |||||||||||||||||||||||
(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 | $ | 257,580 | $ | 112 | 0.09 | % | $ | 139,842 | $ | 339 | 0.49 | % | ||||||||||||
Investment securities and restricted stock (2) | 1,560,543 | 13,339 | 1.72 | % | 1,095,032 | 11,903 | 2.17 | % | ||||||||||||||||
Loans receivable (2) | 2,667,572 | 58,593 | 4.43 | % | 2,071,941 | 43,203 | 4.19 | % | ||||||||||||||||
Total interest-earning assets | 4,485,695 | 72,044 | 3.24 | % | 3,306,815 | 55,445 | 3.37 | % | ||||||||||||||||
Other assets | 269,645 | 263,504 | ||||||||||||||||||||||
Total assets | $ | 4,755,340 | $ | 3,570,319 | ||||||||||||||||||||
Interest-earning liabilities: | ||||||||||||||||||||||||
Demand – non-interest bearing | $ | 1,159,267 | $ | 814,686 | ||||||||||||||||||||
Demand – interest bearing | 1,905,731 | 6,541 | 0.69 | % | 1,367,718 | 6,277 | 0.92 | % | ||||||||||||||||
Money market & savings | 1,056,042 | 2,051 | 0.39 | % | 805,646 | 3,214 | 0.80 | % | ||||||||||||||||
Time deposits | 185,968 | 963 | 1.04 | % | 217,512 | 2,254 | 2.08 | % | ||||||||||||||||
Total deposits | 4,307,008 | 9,555 | 0.45 | % | 3,205,562 | 11,745 | 0.74 | % | ||||||||||||||||
Total interest-bearing deposits | 3,147,741 | 9,555 | 0.61 | % | 2,390,876 | 11,745 | 0.99 | % | ||||||||||||||||
Other borrowings | 33,513 | 148 | 0.89 | % | 28,713 | 216 | 1.51 | % | ||||||||||||||||
Total interest-bearing liabilities | 3,181,254 | 9,703 | 0.62 | % | 2,419,589 | 11,961 | 0.99 | % | ||||||||||||||||
Total deposits and other borrowings | 4,340,521 | 9,703 | 0.45 | % | 3,234,275 | 11,961 | 0.74 | % | ||||||||||||||||
Non-interest bearing other liabilities | 102,017 | 84,050 | ||||||||||||||||||||||
Shareholders’ equity | 312,802 | 251,994 | ||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 4,755,340 | $ | 3,570,319 | ||||||||||||||||||||
Net interest income (2) | $ | 62,341 | $ | 43,484 | ||||||||||||||||||||
Net interest spread | 2.62 | % | 2.38 | % | ||||||||||||||||||||
Net interest margin (2) | 2.80 | % | 2.64 | % |
(1)Yields on investments are calculated based on amortized cost.
(2)Net interest income and net interest margin are presented on a tax equivalent basis, a non-GAAP measure. Net interest income has been increased over the financial statement amount by $666$270 and $662$303 for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, 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.
Rate/Volume Analysis of Changes in Net Interest Income
Net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. The following table sets forth an analysis of volume and rate changes in net interest income for the three and nine months ended September 30, 2017, as compared to the three and nine months ended September 30, 2016.periods indicated. For purposes of this table, changes in interest income and expense are allocated to volume and rate categories based upon the respective changes in average balances and average rates.
For the three months ended September 30, 2017 vs. 2016 | For the nine months ended September 30, 2017 vs. 2016 | |||||||||||||||||||||||
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 | $ | (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 |
For the three months ended June 30, 2021 vs. 2020 | For the six months ended June 30, 2021 vs. 2020 | |||||||||||||||||||||||
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 | $ | 21 | $ | (8 | ) | $ | 13 | $ | 51 | $ | (278 | ) | $ | (227 | ) | |||||||||
Securities | 2,735 | (961 | ) | 1,774 | 3,979 | (2,543 | ) | 1,436 | ||||||||||||||||
Loans | 3,067 | 2,623 | 5,690 | 12,874 | 2,516 | 15,390 | ||||||||||||||||||
Total interest-earning assets | 5,823 | 1,654 | 7,477 | 16,904 | (305 | ) | 16,599 | |||||||||||||||||
Interest expense: | ||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||
Interest-bearing demand deposits | 948 | (521 | ) | 427 | 1,847 | (1,583 | ) | 264 | ||||||||||||||||
Money market and savings | 179 | (677 | ) | (498 | ) | 448 | (1,611 | ) | (1,163 | ) | ||||||||||||||
Time deposits | (43 | ) | (566 | ) | (609 | ) | (163 | ) | (1,128 | ) | (1,291 | ) | ||||||||||||
Total deposit interest expense | 1,084 | (1,764 | ) | (680 | ) | 2,132 | (4,322 | ) | (2,190 | ) | ||||||||||||||
Other borrowings | (10 | ) | (27 | ) | (37 | ) | 8 | (76 | ) | (68 | ) | |||||||||||||
Total interest expense | 1,074 | (1,791 | ) | (717 | ) | 2,140 | (4,398 | ) | (2,258 | ) | ||||||||||||||
Net interest income | $ | 4,749 | $ | 3,445 | $ | 8,194 | $ | 14,764 | $ | 4,093 | $ | 18,857 |
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 SeptemberJune 30, 20172021 increased by $3.9$8.2 million, or 32%36%, over the same period in 2016.2020. Interest income on a fully tax-equivalent basis, on interest-earning assets totaled $18.1 million and $13.9$35.5 million for the three months ended SeptemberJune 30, 2017 and 2016, respectively.2021, an increase of $7.5 million, compared to $28.0 million for the three months ended June 30, 2020. The increase in interest income earned was primarily the result of a $288.1 millionan increase in the average balance of investment securities balances and a $149.8loans receivable. In addition, $4.7 million increase in average loan balances fororigination fees related to PPP loans were recognized during the three months ended SeptemberJune 30, 2017 as2021 compared to September$1.5 million during the three months ended June 30, 2016.2020. Total interest expense for the three months ended SeptemberJune 30, 2017 increased $376,000,2021 decreased by $717,000, or 21%, to $2.2 million from $1.8 million over the same period in 2016. Interest expense on deposits for the three months ended September 30, 2017 increased by $341,000, or 23%13%, over the same period in 2016.
Net interest income, on a fully tax-equivalent basis, a non-GAAP measure, for the ninesix months ended SeptemberJune 30, 20172021 increased by $10.5$18.9 million, or 30%43%, over the same period in 2016.2020. Interest income on a fully tax-equivalent basis, on interest-earning assets totaled $52.1 million and $40.3$72.0 million for the ninesix months ended SeptemberJune 30, 2017 and 2016, respectively.2021, an increase of $16.6 million, compared to $55.4 million for the six months ended June 30, 2020. The increase in interest income earned was primarily the result of a $326.6 millionan increase in the average balance of loans receivable and investment securities balances and a $138.5securities. In addition, $12 million increase in average loan balances fororigination fees related to PPP loans were recognized during the ninesix months ended SeptemberJune 30, 20172021 compared to $1.5 million during the ninesix months ended SeptemberJune 30, 2016.2020. Total interest expense for the ninesix months ended SeptemberJune 30, 2017 increased $1.32021 decreased by $2.3 million, or 27%19%, to $6.2 million from $4.9 million overfor the same period in 2016.2020. Interest expense on deposits decreased by $2.2 million, or 19%, for the ninesix months ended SeptemberJune 30, 2017 increased by $1.2 million, or 29%, over2021 versus the same period in 2016.
Changes in net interest income are frequently measured by two statistics: net interest rate spread and net interest margin. Net interest rate spread is the difference between the average rate earned on interest-earning assets and the average rate incurred on interest-bearing liabilities. Our net interest rate spread on a fully tax-equivalent basis was 3.10%2.48% during the three months ended SeptemberJune 30, 20172021 compared to 2.96%2.29% during the same period in 2016three months ended June 30, 2020 and was 3.11%2.62% during both the ninesix months ended SeptemberJune 30, 2017 and the nine2021 compared to 2.38% during six months ended SeptemberJune 30, 2016.2020. Net interest margin represents the difference between interest income, including net loan fees earned, and interest expense, reflected as a percentage of average interest-earning assets. The fully tax-equivalent net interest margin increased to 3.26% forFor the three months ended SeptemberJune 30, 2017 from 3.07% for the same period in 2016 primarily as a result of an increase in the yield on loans outstanding. For the nine months ended September2021 and June 30, 2017,2020, the fully tax-equivalent net interest margin increasedwas 2.65% and 2.55%, respectively. For the six months ended June 30, 2021 and June 30, 2020, the fully tax-equivalent net interest margin was 2.80% and 2.64%, respectively.
Provision for Loan Losses
We did not record a provision for loan losses for the three months ended June 30, 2021 compared to 3.25% from 3.23% duringa $1.0 million provision for the same periodthree months ended June 30, 2020. An increase in 2016 primarilythe allowance for loans collectively evaluated for impairment driven by loan growth was offset by a reduction in the allowance necessary for loans individually evaluated for impairment as a result of an increaseupdated appraisals and reduced reserve requirements which resulted in no provision for the yield on loans outstanding.
As a result of the changes in economic conditions caused by the pandemic, we have increased the qualitative factors for certain components included in the allowance for loan loss calculation. We didhave also taken into consideration the probable impact that the various stimulus initiatives provided through the CARES Act and Economic Aid Act, along with other government programs, may have to assist borrowers during this period of economic stress. We believe the combination of ongoing communication with our customers, loan payment deferrals, increased focus on risk management practices, and access to government programs such as the PPP Program should help mitigate potential future period losses. Although the economy has begun to demonstrate signs of recovery, many key economic indicators have not recordreturned to pre-pandemic levels and the potential for a resurgence of COVID infection rates remains a possibility. Based on the incurred loss methodology currently utilized by the Bank, the provision for loan losses and charge-offs may be impacted in future periods, but more time is needed to fully understand the magnitude and severity of the economic downturn caused by the COVID pandemic and the corresponding impact on our loan portfolio.
We have elected to defer the adoption of ASU` 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as permitted by the Economic Aid Act approved in December 2020 until January 1, 2022.
Non‑Interest Income
Total non-interest income for the three months ended SeptemberJune 30, 2017.We recorded a $500,000 provision for the nine month period ended September 30, 2017. During the nine month period ended September 30, 2017, an increase in the allowance required for loans collectively evaluated for impairment was driven2021 decreased by an increase in total loans outstanding. We recorded a $607,000 provision for$744,000, or 9%, compared to the three month periodmonths ended SeptemberJune 30, 2016 and a2020. Gains on the sale of investments securities decreased by $1.6 million provision for the nine month period ended September 30, 2016. During the nine month period ended September 30, 2016, there was an increase in the allowance for loans individually evaluated for impairment primarily as a result of a single loan relationship that moved to non-accrual status during the second quarter of 2016.
Total non-interest income for the six months ended June 30, 2021 increased by $4.5$3.0 million, or 43%20%, compared to $15.1 million for the ninesix months ended SeptemberJune 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 2016.2020. Service fees on deposit accounts totaled $2.8$7.2 million for the ninesix months ended SeptemberJune 30, 20172021 which represents an increase of $910,000$2.8 million over the same period in 2016.2020. This increase was due to the growth in the number of customer accounts and transaction volume. Gains onRevenue related to the saletransition of SBA loans sold were $2.3all ATM and debit cards to the VISA platform also drove the increase in service fees. Mortgage banking income increased $1.6 million to $7.5 million during the ninesix months ended SeptemberJune 30, 20172021 compared to $4.2$5.8 million in the same period of 2016 as a result of a decrease in SBA loans sold during the ninesix months ended SeptemberJune 30, 2017 as a result of lower origination volume. There were recognized losses2020. The increase in mortgage banking income for the amount of $61,000 on sales of investment securities during the ninesix months ended SeptemberJune 30, 2017 as2021 compared to gains of $656,000 during the ninesix months ended SeptemberJune 30, 2016.2020 was due to an increase in residential mortgage loan originations year over year. Loan advisory and serviceservicing fees totaled $1.3 million for the ninesix months ended SeptemberJune 30, 20172021 which represents an increase of $202,000$58,000 from the same period in 2016.
Non‑Interest Expenses
Three Months Ended SeptemberJune 30, 2017 compared2021 Compared to Three Months Ended SeptemberJune 30, 2016
Non-interest expenses increased by $4.2$3.9 million or 28%14%, to $30.5 million for the three months ended June 30, 2021 compared to $26.7 million for the three months ended June 30, 2020. An explanation of changes in non-interest expenses for certain categories is presented in the following paragraphs.
Salaries and employee benefits increased by $1.7 million, or 13%, for the three months ended SeptemberJune 30, 20172021 compared to the same period in 2016.2020 primarily as a result of merit increases and an increase in medical and dental expenses related to our employee health plans. A detailed explanation of the most significant variancesnew store in non-interest expenses for theDeptford, NJ was opened during three months ended SeptemberJune 30, 20172021 driving an increase in employee headcount.
Occupancy expense, including depreciation and September 30, 2016 is presented in the following paragraphs.
Other real estate owned expenses totaled $746,000 for$493,000 during the three months ended SeptemberJune 30, 2017,2021, an increase of $44,000,$418,000, or 6%557%, compared to the same period in 2016. This2020. The increase wasis primarily related to a resultwritedown of higher writedowns on foreclosed assets held in other real estate owned inof $350,000 and higher costs on foreclosed assets during the current period.
All other non-interest expenses increased by $1.5 million, or 38%19%, duringfor the three months ended SeptemberJune 30, 2017,2021 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 advertising,other tax expenses, regulatory assessments and costs, data processing, expense,insurance, professional fees, and other expenses resulting from our expansion strategy also contributed to the growth in other operating expenses.
Six Months Ended SeptemberJune 30, 20172021 Compared to Six Months Ended June 30, 2020
Non-interest expenses increased $5.9 million, or 11%, to $59.9 million for the six months ended June 30, 2021 compared to Nine Months Ended September$53.9 million for the six months end June 30, 2016
Salaries and employee benefits which represent the largest component of non-interest expenses, were $27.8increased by $3.0 million, or 11%, for the ninesix months ended SeptemberJune 30, 2017, an increase of $7.5 million, or 37%,2021 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 increased2020 as a result of the acquisition of Oak Mortgagemerit increases and an increase in the third quarter of 2016.
Occupancy expense, including depreciation and amortization expenses, increased by $852,000,$1.1 million, or 19%, and depreciation and amortization expense increased by $772,000, or 27%10%, for the ninesix months ended SeptemberJune 30, 2017 versus2021 compared to the same period in 2016 alsolast year, as a result of our continuing growth and relocation strategy
Other real estate owned expenses totaled $1.7 million for$591,000 during the ninesix months ended SeptemberJune 30, 2017,2021, an increase of $94,000,$234,000, or 6%66%, 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 by $1.6 million, or 10%, for the six months ended June 30, 2021 compared to the addition of expenses related to the residential mortgage loan operation of Oak Mortgage.same period last year. Cost control measures implemented by management have had a positive effect in limiting expense growth. Increases in other tax expense, regulatory assessments and costs, appraisal and other loan expenses, data processing, expense, advertising, professional fees, legal expenses,insurance, debit card processing, and other expenses resulting from our expansion strategy also contributed to the growth in other operating expenses.
One key measure that management utilizes to monitor progress in controlling overhead expenses is the ratio of annualized net non-interest expenses to average assets.assets, a non-GAAP measure. For the purposes of this calculation, net non-interest expenses equal non-interest expenses less non-interest income and nonrecurring expense.income. For the three months ended SeptemberJune 30, 2017,2021, this ratio equaled 2.58%was 1.86% compared to 2.36%1.91% for the three months ended SeptemberJune 30, 2016.2020. For the ninesix months ended SeptemberJune 30, 2017,2021, the ratio equaled 2.58%was 1.78% compared to 2.55%2.19% for the nine month periodsix months ended SeptemberJune 30, 2016, respectively, reflecting higher net non-interest expenses
Another productivity measure utilized by management is the operating efficiency ratio.ratio, a non-GAAP measure. This ratio expresses the relationship of non-interest expenses to net interest income plus non-interest income. For the three months ended SeptemberJune 30, 2017,2021, the operating efficiency ratio was 89.2%,79.6% compared to 88.7%86.4% for the three months ended SeptemberJune 30, 2016.2020. The efficiency ratio equaled 89.1%was 74.8% for both the ninesix months ended SeptemberJune 30, 2017 and2021 compared to 92.8% for the same period in 2016.six months ended June 30, 2020. The decrease for the three and six months ended SeptemberJune 30, 20172021 versus SeptemberJune 30, 20162020 was due to both net interest income and non-interest income increasing at a slowerfaster rate than non-interest expenses.
Provision (Benefit) for Federal Income Taxes
We recorded a provision for income taxes in the amount of $4,000$1.9 million for the three months ended SeptemberJune 30, 2017,2021, compared to a $32,000 benefit$675,000 provision for income taxes for the three months ended SeptemberJune 30, 2016.2020. For the ninesix months ended SeptemberJune 30, 2017,2021, we recorded a benefitprovision for income taxes of $38,000$4.2 million compared to a $69,000 benefitprovision for income taxes of $345,000 for the ninesix months ended SeptemberJune 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.2020. The effective tax rates for the three-month periodsthree months ended SeptemberJune 30, 20172021 and 20162020 were 30%24% and 25%21%, respectively,respectively. For the six months ended June 30, 2021 and 2020, the effective tax rates were 24% and 15%, respectively. The difference in effective tax rates for both the ninethree and six month periodsperiod ended SeptemberJune 30, 20172020 was a result of the impact of temporary and 2016 were 29% and 24%, respectively, excluding an adjustment topermanent differences included in the deferred tax asset valuation allowance.
We evaluate the carrying amount of our deferred tax assets on a quarterly basis or more frequently, if necessary, in accordance with the guidance provided in Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 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.
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 Company is in a three year cumulative profit position factoring in pre-tax GAAP income and permanent book/tax differences. Growth in interest-earning assets is expected to continue and is supported by the capital raise completed during 2020. The ratio of non-performing assets to total assets along with other credit quality metrics continue to improve. A number of cost control measures have been implemented to offset the challenges faced in growing revenue as a result of compression in the net interest margin. The Company has added fourteen store locations in the past four years and since the inception of the growth and expansion strategy in 2014, almost every new store location has met or exceeded expectations. The success of the expansion strategy, combined with the stabilization of interest rates and continued loan growth are expected to continue to support improvement in profitability going forward. As of December 31, 2020, the Company has no federal NOLs to carry forward which would have potentially been at risk of expiring in the future.
Conversely, the effects of the COVID-19 pandemic to the local and global economy may result in a significant increase in future loan loss provisions and charge-offs. Rising interest rates and a downturn in the economy could significantly decrease the volume of mortgage loan originations.
Based on the guidance provided in ASC 740, we believed that the positive evidence evaluated when consideringconsidered at June 30, 2021 and December 31, 2020 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 net deferred tax asset balance before consideration of a valuation allowance was $18.6$11.0 million as of SeptemberJune 30, 20172021 and $21.4$12.0 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.
Net Income and Net Income per Common Share
Net income available to common shareholders for the three months ended SeptemberJune 30, 20172021 was $2.3$5.1 million, an increase of $981,000,$2.5 million, compared to $1.3$2.5 million recorded for the three months ended SeptemberJune 30, 2016.
Net income available to common shareholders for the six months ended June 30, 2021 was $11.3 million, an increase of $9.3 million, compared to $1.9 million recorded for the six months ended June 30, 2020. The increase in earnings year over year was primarily driven by a 43.7% increase in net interest income. In addition, the net interest margin increased to 2.80% for the six month period ended June 30, 2021 compared to 2.64% for the six month period ended June 30, 2020.
For the three month periods ended June 30, 2021 and June 30, 2020, basic net income per common share was $0.09 and $0.04 compared to $0.04 for the three months ended September 30, 2016 and fully-dilutedwhile 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.$0.08 and $0.04. For the nine monthssix month periods ended SeptemberJune 30, 2016,2021 and June 30, 2020, basic and fully-diluted net income per common share was $0.11 compared to $0.09 for the nine months ended September 30, 2016.$0.19 and $0.03 while diluted net income per common share was $0.17 and $0.03.
Return on Average Assets and Average Equity
Return on average assets (ROA)(“ROA”) measures our net income in relation to our total average assets. Our annualizedThe ROA for the three months ended SeptemberJune 30, 20172021 was 0.45%0.48%, compared to 0.32%0.26% for the three months ended SeptemberJune 30, 2016.2020. The ROA for the ninesix months ended SeptemberJune 30, 20172021 and 20162020 was 0.41%0.55% and 0.30%0.11%, respectively. Return on average equity (ROE)(“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%7.56% for the three months ended SeptemberJune 30, 2017,2021, compared to 4.49%3.98% for the three months ended SeptemberJune 30, 2016.2020. The ROE for the ninesix months ended SeptemberJune 30, 20172021 and 20162020 was 3.74%8.38% and 3.93%1.53%, respectively.
Commitments, Contingencies and Concentrations
Financial instruments whosewith contract amounts representrepresenting potential credit risk were commitments to extend credit of approximately $266.1$436.7 million and $215.9$428.9 million, and standby letters of credit of approximately $11.9$25.6 million and $5.7$16.6 million, at SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively. These financial instruments constitute off-balance sheet arrangements. Commitments often expire without being drawn upon. Substantially all of the $266.1$462.3 million of commitments to extend credit at SeptemberJune 30, 20172021 were committed as variable rate credit facilities.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and many require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluateThe Company evaluates each 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.
Standby letters of credit are conditional commitments issued that guarantee the performance of a customer to a third party. The credit risk and collateral policy involved in issuing letters of credit is essentially the same as that involved in extending loan commitments. The amount of collateral obtained is based on management'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 SeptemberJune 30, 20172021 and December 31, 20162020 for guarantees under standby letters of credit issued is not material.
Regulatory Matters
We are required to comply with certain "risk-based"“risk-based” capital adequacy guidelines issued by the FRB and the FDIC. The risk-based capital guidelines assign varying risk weights to the individual assets held by a bank. The guidelines also assign weights to the "credit-equivalent"“credit-equivalent” amounts of certain off-balance sheet items, such as letters of credit and interest rate and currency swap contracts.
Under the 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.
Basel III Community Banks Minimum Capital Ratio Requirements | |||||||
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% |
Management believes that the Company and Republic met, as of SeptemberJune 30, 20172021 and December 31, 2016,2020, all applicable capital adequacy requirements
The Company and 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.
The following table presents theour regulatory capital regulatory ratios for both Republic and the Company as of Septemberat June 30, 2017,2021, and December 31, 2016 (dollars2020.
(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 June 30, 2021: | ||||||||||||||||||||||||||||||||
Total risk-based capital | ||||||||||||||||||||||||||||||||
Republic | $ | 330,703 | 12.77 | % | $ | 207,102 | 8.00 | % | $ | 271,822 | 10.50 | % | $ | 258,878 | 10.00 | % | ||||||||||||||||
Company | 345,783 | 13.31 | % | 207,874 | 8.00 | % | 272,835 | 10.50 | % | - | - | % | ||||||||||||||||||||
Tier 1 risk-based capital | ||||||||||||||||||||||||||||||||
Republic | 314,593 | 12.15 | % | 155,327 | 6.00 | % | 220,046 | 8.50 | % | 207,102 | 8.00 | % | ||||||||||||||||||||
Company | 329,673 | 12.69 | % | 155,906 | 6.00 | % | 220,866 | 8.50 | % | - | - | % | ||||||||||||||||||||
CET 1 risk-based capital | ||||||||||||||||||||||||||||||||
Republic | 314,593 | 12.15 | % | 116,495 | 4.50 | % | 181,214 | 7.00 | % | 168,271 | 6.50 | % | ||||||||||||||||||||
Company | 270,348 | 10.40 | % | 116,929 | 4.50 | % | 181,890 | 7.00 | % | - | - | % | ||||||||||||||||||||
Tier 1 leveraged capital | ||||||||||||||||||||||||||||||||
Republic | 316,360 | 6.96 | % | 180,765 | 4.00 | % | 180,765 | 4.00 | % | 225,956 | 5.00 | % | ||||||||||||||||||||
Company | 320,440 | 7.28 | % | 181,159 | 4.00 | % | 181,159 | 4.00 | % | - | - | % | ||||||||||||||||||||
At December 31, 2020: | ||||||||||||||||||||||||||||||||
Total risk-based capital | ||||||||||||||||||||||||||||||||
Republic | $ | 298,291 | 12.36 | % | $ | 193,062 | 8.00 | % | $ | 253,394 | 10.50 | % | $ | 241,327 | 10.00 | % | ||||||||||||||||
Company | 326,554 | 13.50 | % | 193,498 | 8.00 | % | 253,967 | 10.50 | % | - | - | % | ||||||||||||||||||||
Tier 1 risk-based capital | ||||||||||||||||||||||||||||||||
Republic | 285,316 | 11.82 | % | 144,796 | 6.00 | % | 205,128 | 8.50 | % | 193,062 | 8.00 | % | ||||||||||||||||||||
Company | 313,579 | 12.96 | % | 145,124 | 6.00 | % | 205,592 | 8.50 | % | - | - | % | ||||||||||||||||||||
CET 1 risk-based capital | ||||||||||||||||||||||||||||||||
Republic | 285,316 | 11.82 | % | 108,597 | 4.50 | % | 168,929 | 7.00 | % | 156,863 | 6.50 | % | ||||||||||||||||||||
Company | 254,254 | 10.51 | % | 108,843 | 4.50 | % | 169,311 | 7.00 | % | - | - | % | ||||||||||||||||||||
Tier 1 leveraged capital | ||||||||||||||||||||||||||||||||
Republic | 287,114 | 7.44 | % | 153,414 | 4.00 | % | 153,414 | 4.00 | % | 191,767 | 5.00 | % | ||||||||||||||||||||
Company | 308,113 | 8.17 | % | 153,621 | 4.00 | % | 153,621 | 4.00 | % | - | - | % |
Dividend Policy
On August 26, 2020, the Company completed an offering of 2,000,000 shares of 7.00% Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share (the “Series A Preferred Stock”), at a price of $25.00 per share. The Company received net proceeds of $48.3 million from the offering, after deducting offering costs. The Company will pay dividends on the Series A Preferred Stock when and if declared by its board of directors or an authorized committee thereof. If declared, dividends will be due and payable at a rate of 7.00% per annum, payable quarterly in thousands):arrears on March 1, June 1, September 1, and December 1 of each year. During the three month and six month period ended June 30, 2021, dividends of $875,000 and $1.8 million were declared and paid on preferred stock compared to $923,000 during the three month period ended December 31, 2020.
(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, 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 | % | - | - | % | |||||||||||||||||||||
CET 1 risk based capital | |||||||||||||||||||||||||||||||||
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 | % | - | - | % |
We have not paid any cash dividends on our common stock during 2017, nor do westock. We have anyno plans to pay cash dividends on common stock in 2017.2021. Our ability to pay dividends depends primarily on receipt of dividends from our subsidiary, Republic. Dividend payments from Republic are subject to legal and regulatory limitations. The ability of Republic to pay dividends is also subject to profitability, financial condition, capital expenditures and other cash flow requirements.
Liquidity
A financial institution must maintain and manage liquidity to ensure it has the ability to meet its financial obligations. These obligations include the payment of deposits on demand or at their contractual maturity; the repayment of borrowings as they mature; the payment of lease obligations as they become due; the ability to fund new and existing loans and other funding commitments; and the ability to take advantage of new business opportunities. Liquidity needs can be met by either reducing assets or increasing liabilities. Our most liquid assets consist of cash, and amounts due from banks.
Regulatory authorities require us to maintain certain liquidity ratios in order for funds to be available to satisfy commitments to borrowers and the demands of depositors. In response to these requirements, we have formed an asset/liability committee (ALCO), comprised of certain members of 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.
Our target and actual liquidity levels are determined by comparisons of the estimated repayment and marketability of interest-earning assets with projected future outflows of deposits and other liabilities. Our most liquid assets, comprised of cash and cash equivalents on the balance sheet, totaled $98.8$766.7 million at SeptemberJune 30, 2017,2021, compared to $34.6$775.3 million at December 31, 2016.2020. Loan maturities and repayments are another source of asset liquidity. At SeptemberJune 30, 2017,2021, Republic estimated that more than $90.0$125.0 million of loans would mature or repay in the six-month period ending MarchDecember 31, 2018.2021. 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 SeptemberJune 30, 2017,2021, we had outstanding commitments (including unused lines of credit and letters of credit) of $278.0$462.3 million. Certificates of deposit scheduled to mature in one year totaled $73.5$145.3 million at SeptemberJune 30, 2017.2021. We anticipate that we will have sufficient funds available to meet all current commitments.
Daily funding requirements have historically been satisfied by generating core deposits and certificates of deposit with competitive rates, buying federal funds, or utilizing the credit facilities of the FHLB. We have established a line of credit with the FHLB of Pittsburgh. Our maximum borrowing capacity with the FHLB was $542.4 million$1.2 billion at SeptemberJune 30, 2017.2021. At SeptemberJune 30, 20172021 and December 31, 2016,2020, we had no outstanding term borrowings with the FHLB. At September 30, 2017 and December 31, 2016, we had no outstanding short-termovernight borrowings with the FHLB. As of SeptemberJune 30, 2017,2021 and December 31, 2020, FHLB had issued letters of credit, on Republic'sRepublic’s behalf, totaling $75.0$150.0 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 SeptemberJune 30, 20172021 and December 31, 2016.2020. As part of the CARES Act, the Federal Reserve Bank of Philadelphia offered secured discounted borrowing capacity to banks that originated PPP loans through the Paycheck Protection Program Liquidity Facility or PPPLF program. At June 30, 2021, the Company pledged $388 million of PPP loans to the Federal Reserve Bank of Philadelphia to borrow $388 million of funds at a rate of 0.35%. At December 31, 2020, the Company pledged $634 million of PPP loans to the Federal Reserve Bank of Philadelphia to borrow $634 million of funds at a rate of 0.35%.
Investment Securities Portfolio
At SeptemberJune 30, 2017,2021, 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 SBAs, CMOs, MBSs, municipal securities, and corporate bonds, ABSs, and CDOs. Available-for-salebonds. Available for sale securities totaled $377.8$764.7 million and $369.7$528.5 million as of SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively. At SeptemberJune 30, 2017, the portfolio2021, securities classified as available for sale had a net unrealized loss of $8.0 million$239,000 and a net unrealized lossgain of $10.7$1.3 million at December 31, 2016.
Loan Portfolio
Our loan portfolio consists of secured and unsecured commercial loans including commercial real estate loans, construction and land development loans, commercial and industrial loans, owner occupied real estate loans, consumer and other loans, and residential mortgages. Commercial loans are primarily secured term loans made to small to medium-sized businesses and professionals for working capital, asset acquisition and other purposes. Commercial loans are originated as either fixed or variable rate loans with typical terms of 1 to 5 years. Republic'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$45.0 million at SeptemberJune 30, 2017.
Credit Quality
Republic’s written lending policies require specifiedspecific underwriting, loan documentation and credit analysis standards to be met prior to funding, with independent credit department approval for the majority of new loan balances. A committee consisting of senior management and certain members of the Board of Directors oversees the loan approval process to monitor that proper standards are maintained, while approving the majority of commercial loans.
Loans, including impaired loans, are generally classified as non-accrual if they are past due as to maturity or payment of interest or principal for a period of more than 90 days, unless such loans are well‑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 in full is in doubt. Loans may be returned to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower, in accordance with the contractual terms.
While a loan is classified as non-accrual, any collections of interest and principal are generally applied as a reduction to principal outstanding. When the future collectability of the recorded loan balance is expected, interest income may be recognized on a cash basis. For non-accrual loans, which have been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Cash interest receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered.
The following table shows information concerning loan delinquency and non‑performing assets as of the dates indicated (dollars in thousands):
September 30, 2017 | December 31, 2016 | ||||
Loans accruing, but past due 90 days or more | $ | 2,730 | $ | 302 | |
Non-accrual loans | 11,020 | 18,594 | |||
Total non-performing loans | 13,750 | 18,896 | |||
Other real estate owned | 9,169 | 10,174 | |||
Total non-performing assets | $ | 22,919 | $ | 29,070 | |
Non-performing loans as a percentage of total loans, net of unearned income(1) | 1.26% | 1.96% | |||
Non-performing assets as a percentage of total assets | 1.07% | 1.51% |
June 30, 2021 | December 31, 2020 | |||||||
Loans accruing, but past due 90 days or more | $ | 996 | $ | 612 | ||||
Non-accrual loans | 12,051 | 12,246 | ||||||
Total non-performing loans | 13,047 | 12,858 | ||||||
Other real estate owned | 852 | 1,188 | ||||||
Total non-performing assets | $ | 13,899 | $ | 14,046 | ||||
Non-performing loans as a percentage of total loans, net of unearned income | 0.64 | % | 0.49 | % | ||||
Non-performing assets as a percentage of total assets | 0.26 | % | 0.28 | % |
Non-performing asset balances decreased by $6.2 million$147,000 to $22.9$13.9 million as of SeptemberJune 30, 20172021 from $29.1$14.0 million at December 31, 2016.2020. Non-accrual loans decreased $7.6 million$195,000 to $11.0$12.0 million at SeptemberJune 30, 2017,2021, from $18.6$12.2 million at December 31, 2016. The decrease2020 due primarily to $1.3 million in non-accrual loans was primarily driventransfers offset by one loan relationship that was returned to accrual statuspayments of $1.5 million during the third quarter of 2017. This loan was restructured earliersix months ended June 30, 2021. There were $996,000 in the year as a result of a reduction in tenant vacancies in the property held as collateral. Loansloans accruing, but past due 90 days or more increasedat June 30, 2021 compared to $2.7 million at September 30, 2017 from $302,000$612,000 at December 31, 2016.2020. At SeptemberJune 30, 20172021 and December 31, 2016,2020, all identified impaired loans are internally classified and individually evaluated for impairment in accordance with the guidance under ASC 310.
The following table presents our 30 to 89 days past due loans at SeptemberJune 30, 20172021 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 |
(dollars in thousands) | June 30, | December 31, | ||||||
2021 | 2020 | |||||||
30 to 59 days past due | $ | 57 | $ | 2,321 | ||||
60 to 89 days past due | 2,923 | 938 | ||||||
Total loans 30 to 89 days past due | $ | 2,980 | $ | 3,259 |
Loans with payments 30 to 59 days past due decreased to $57 thousand at June 30, 2021. This decrease was driven primarily by $2.25 million in loans that are now current. Loans with payments 60 to 89 days past due increased to $2.9 million at June 30, 2021 due to the addition of a loan in the amount of $2.9 million offset by $900 thousand in loans that are now current.
Other Real Estate Owned
The balance of other real estate owned decreased to $9.2 millionwas $852 thousand at SeptemberJune 30, 2017 from $10.2 million at2021 and December 31, 2016.2020. The following table presents a reconciliation of other real estate owned for the threesix months ended SeptemberJune 30, 20172021 and the year ended December 31, 2016:
(dollars in thousands) | September 30, 2017 | December 31, 2016 | ||||||
Beginning Balance, January 1st | $ | 10,174 | $ | 11,313 | ||||
Additions | 129 | 616 | ||||||
Valuation adjustments | (777 | ) | (355 | ) | ||||
Dispositions | (357 | ) | (1,400 | ) | ||||
Ending Balance | $ | 9,169 | $ | 10,174 |
(dollars in thousands) | June 30, 2021 | December 31, 2020 | ||||||
Beginning Balance, January 1st | $ | 1,188 | $ | 1,730 | ||||
Additions | 168 | 233 | ||||||
Valuation adjustments | (350 | ) | (31 | ) | ||||
Dispositions | (154 | ) | (744 | ) | ||||
Ending Balance | $ | 852 | $ | 1,188 |
At SeptemberJune 30, 2017,2021, we had no credit exposure to "highly“highly leveraged transactions"transactions” as defined by the FDIC.
Allowance for Loan Losses
We have elected to defer the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as permitted by the Economic Aid Act approved in December 2020 until January 1, 2022.
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.impaired pursuant to ASC 310-10 (“non-impaired loans”). This component is calculated for all non-impaired loans on a collective basis in accordance with ASC 450 Contingencies. The third component is an unallocated allowance to account for a level of imprecision in management'smanagement’s estimation process.
We evaluate loans for impairment and potential charge-off on a quarterly basis. Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any loan relationships have deteriorated. Any loan rated as substandard or lower will have an individual collateral evaluation analysis prepared to determine if a deficiency exists. We first evaluate the primary repayment source. If the primary repayment source is determined to be insufficient and unlikely to repay the debt, we then look to the secondary repayment sources. Secondary sources are conservatively reviewed for liquidation values. Updated appraisals and financial data are obtained to substantiate current values. If the reviewed sources are deemed to be inadequate to cover the outstanding principal and any costs associated with the resolution of thea 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 ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, and the twelve months ended December 31, 20162020 is as follows:
(dollars in thousands) | For the nine months ended September 30, 2017 | For the twelve months ended December 31, 2016 | For the nine months ended September 30, 2016 | |||||||||
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 | ||||||
Average loans outstanding(1) | $ | 1,063,581 | $ | 936,492 | $ | 925,110 | ||||||
As a percent of average loans:(1) | ||||||||||||
Net charge‑offs (annualized) | 0.18 | % | 0.12 | % | 0.12 | % | ||||||
Provision for loan losses (annualized) | 0.06 | % | 0.17 | % | 0.22 | % | ||||||
Allowance for loan losses | 0.78 | % | 0.98 | % | 1.02 | % | ||||||
Allowance for loan losses to: | ||||||||||||
Total loans, net of unearned income | 0.75 | % | 0.95 | % | 1.00 | % | ||||||
Total non‑performing loans | 60.06 | % | 48.45 | % | 48.50 | % |
(dollars in thousands) | For the six months ended June 30, 2021 | For the twelve months ended December 31, 2020 | For the six months ended June 30, 2020 | |||||||||
Balance at beginning of period | $ | 12,975 | $ | 9,266 | $ | 9,266 | ||||||
Charge‑offs: | ||||||||||||
Commercial real estate | - | - | - | |||||||||
Construction and land development | - | - | - | |||||||||
Commercial and industrial | 60 | 333 | 51 | |||||||||
Owner occupied real estate | - | 48 | 48 | |||||||||
Consumer and other | 47 | 107 | 65 | |||||||||
Residential mortgage | - | 67 | 50 | |||||||||
Paycheck protection program | - | - | - | |||||||||
Total charge‑offs | 107 | 555 | 214 | |||||||||
Recoveries: | ||||||||||||
Commercial real estate | - | - | - | |||||||||
Construction and land development | - | 3 | 2 | |||||||||
Commercial and industrial | 150 | 48 | 27 | |||||||||
Owner occupied real estate | 40 | 1 | 1 | |||||||||
Consumer and other | 52 | 12 | 8 | |||||||||
Residential mortgage | - | - | - | |||||||||
Paycheck protection program | - | - | - | |||||||||
Total recoveries | 242 | 64 | 38 | |||||||||
Net charge‑offs/(recoveries) | (135 | ) | 491 | 176 | ||||||||
Provision for loan losses | 3,000 | 4,200 | 1,950 | |||||||||
Balance at end of period | $ | 16,110 | $ | 12,975 | $ | 11,040 | ||||||
Average loans outstanding(1) | $ | 2,667,572 | $ | 2,359,169 | $ | 2,071,941 | ||||||
As a percent of average loans:(1) | ||||||||||||
Net charge‑offs (annualized) | (0.01 | %) | 0.02 | % | 0.02 | % | ||||||
Provision for loan losses (annualized) | 0.23 | % | 0.18 | % | 0.19 | % | ||||||
Allowance for loan losses | 0.61 | % | 0.55 | % | 0.53 | % | ||||||
Allowance for loan losses to: | ||||||||||||
Total loans, net of unearned income | 0.64 | % | 0.49 | % | 0.43 | % | ||||||
Total non‑performing loans | 123.48 | % | 100.91 | % | 86.81 | % |
(1)Includes non-accruing loans.
We did not record a provision for loan losses during for the three month period ended SeptemberJune 30, 2017. A2021 and a $3.0 million provision in the amount of $500,000 was recorded for the nine month periodsix months ended SeptemberJune 30, 2017.2021. We recorded a provision for loan losses of $607,000$1.0 million for the three month period ended SeptemberJune 30, 20162020 and $1.6$2.0 million for the nine month periodsix months ended SeptemberJune 30, 2016. During2020. The provision recorded is charged to operations in an amount necessary to bring the first nine monthstotal allowance for loan losses to a level that management believes is adequate to absorb inherent losses in the loan portfolio.
As a result of 2017, there was an increasethe changes in economic conditions caused by the pandemic, we have increased the qualitative factors for certain components included in the allowance required for loans collectively evaluatedloan loss calculation. We have also taken into consideration the probable impact that the various stimulus initiatives provided through the CARES Act and Economic Aid Act, along with other government programs, may have to assist borrowers during this period of economic stress. We believe the combination of ongoing communication with our customers, loan payment deferrals, increased focus on risk management practices, and access to government programs such as the PPP Program should help mitigate potential future period losses. Although the economy has begun to demonstrate signs of recovery, many key economic indicators have not returned to pre-pandemic levels and the potential for impairment that was drivena resurgence in COVID infections remains a possibility. Based on the incurred loss methodology currently utilized by an increasethe Bank, the provision for loan losses and charge-offs may be impacted in total loans outstanding. Duringfuture periods, but more time is needed to fully understand 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 valuemagnitude and severity of the collateral supporting thiseconomic downturn caused by the COVID pandemic and the corresponding impact on our loan relationship drove the need for an increase in the loan loss provision.portfolio.
The allowance for loan losses as a percentage of non-performing loans (coverage ratio) was 60.06%123.5% at SeptemberJune 30, 2017,2021, compared to 48.45%100.9% at December 31, 20162020 and 48.50%86.8% at SeptemberJune 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 2017.2020. Total non-performing loans were $13.8$13.0 million, $18.9$12.9 million, and $19.5$12.7 million at SeptemberJune 30, 2017,2021, December 31, 20162020 and SeptemberJune 30, 2016,2020, respectively.
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 generally 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.
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 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.
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 $1.4$4.3 million at SeptemberJune 30, 20172021 and $2.4 $1.1 million at December 31, 2016.
The following table provides additional analysis of partially charged-off loans at September 30, 2017 and December 31, 2016.loans.
(dollars in thousands) | June 30, 2021 | December 31, 2020 | ||||||
Total nonperforming loans | $ | 13,047 | $ | 12,858 | ||||
Nonperforming and impaired loans with partial charge-offs | 4,288 | 4,398 | ||||||
Ratio of nonperforming loans with partial charge-offs to total loans | 0.17 | % | 0.17 | % | ||||
Ratio of nonperforming loans with partial charge-offs to total nonperforming loans | 32.87 | % | 34.20 | % | ||||
Coverage ratio net of nonperforming loans with partial charge-offs | 375.70 | % | 295.02 | % |
(dollars in thousands) | September 30, 2017 | December 31, 2016 | ||||
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 | % |
Our charge-off policy is reviewed on an annual basis and updated as necessary. During the ninesix month period ended SeptemberJune 30, 2017,2021, there were no changes made to this policy.
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 Company'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, 20162020 filed with the SEC on March 10, 2017.
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 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.
The 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.
Changes in Internal Controls
The principal executive officer and principal financial officer also conducted an evaluation of the Company'sCompany’s internal control over financial reporting ("(“Internal Control"Control”) to determine whether any changes in Internal Control occurred during the quarter ended SeptemberJune 30, 20172021 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 SeptemberJune 30, 2017.
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 Company'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, 2016 and Form 10-Q for the quarter ended June 30, 2017. The risk factors in the Company's Annual Report on Form 10-K have not materially changed.2020. 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.
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 S‑K for quarterly reports on Form 10‑Q).
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 | |||
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 | Section 1350 Certification of | |||
32.2 | ||||
101 | The following materials from the | |||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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: | By: | /s/ |
Vernon W. Hill, II | ||
Chief Executive Officer (principal executive officer) | ||
Date: | By: | /s/ Frank A. Cavallaro |
Frank A. Cavallaro | ||
Executive Vice President and Chief Financial Officer (principal financial and accounting officer) | ||