16. REVENUE FROM CONTRACTS WITH CUSTOMERS

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”). While this update modified guidance for recognizing revenue, it did not have a material impact on the timing or presentation of the Company’s revenue. The majority of Company’s revenue comes from interest income and other sources, including loans, leases, securities, and derivatives, which are not subject to ASC 606. The Company’s services that fall within the scope of ASC 606 are presented within noninterest income and are recognized as revenue as the Company satisfies its obligation to its client. The Company did elect a practical expedient permitted under this guidance which allows it to expense as-incurred incremental costs of obtaining a contract when the amortization period of those costs would be less than one year.

The following tables present the Company’s net revenue by reportable segment for the three months ended March 31, 2018 and 2017:


	Three Months Ended March 31, 2018
	Core Banking												Republic Processing Group ("RPG")
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income(1)	$	38,188		$	3,591		$	72		$	41,851		$	18,686		$	7,128		$	25,814		$	67,665

Noninterest income:
Service charges on deposit accounts		3,547			8			—			3,555			—			—			—			3,555
Net refund transfer fees		—			—			—			—			16,352			—			16,352			16,352
Mortgage banking income(1)		—			—			1,020			1,020			—			—			—			1,020
Interchange fee income		2,538			—			—			2,538			109			20			129			2,667
Program fees(1)		—			—			—			—			59			1,637			1,696			1,696
Increase in cash surrender value of BOLI(1)		371			—			—			371			—			—			—			371
Net gains (losses) on OREO		132			—			—			132			—			—			—			132
Other		414			—			38			452			1,001			299			1,300			1,752
Total noninterest income		7,002			8			1,058			8,068			17,521			1,956			19,477			27,545

Total net revenue	$	45,190		$	3,599		$	1,130		$	49,919		$	36,207		$	9,084		$	45,291		$	95,210

Net-revenue concentration(2)		47	%		4	%		1	%		52	%		38	%		10	%		48	%		100	%


	Three Months Ended March 31, 2017
	Core Banking												Republic Processing Group ("RPG")
										Total			Tax			Republic
	Traditional			Warehouse			Mortgage			Core			Refund			Credit			Total			Total
(dollars in thousands)	Banking			Lending			Banking			Banking			Solutions			Solutions			RPG			Company

Net interest income(1)	$	32,661		$	3,900		$	67		$	36,628		$	14,962		$	4,848		$	19,810		$	56,438

Noninterest income:
Service charges on deposit accounts		3,280			6			—			3,286			(39)			—			(39)			3,247
Net refund transfer fees		—			—			—			—			15,382			—			15,382			15,382
Mortgage banking income(1)		—			—			1,160			1,160			—			—			—			1,160
Interchange fee income		2,217			—			—			2,217			97			12			109			2,326
Program fees(1)		—			—			—			—			(17)			1,108			1,091			1,091
Increase in cash surrender value of BOLI(1)		391			—			—			391			—			—			—			391
Net gains (losses) on OREO		142			—			—			142			—			—			—			142
Other		489			—			12			501			10			673			683			1,184
Total noninterest income		6,519			6			1,172			7,697			15,433			1,793			17,226			24,923

Total net revenue	$	39,180		$	3,906		$	1,239		$	44,325		$	30,395		$	6,641		$	37,036		$	81,361

Net-revenue concentration(2)		48	%		5	%		2	%		55	%		37	%		8	%		45	%		100	%

(1)

This revenue is not subject to ASU 2014-09, Revenue from Contracts with Customers.

(2)

Net revenue represents net interest income plus total noninterest income. Net-revenue concentration equals segment-level net revenue divided by total Company net revenue.

The following represents information for significant revenue streams subject to ASC 606:

Service charges on deposits – The Company earns revenue for account-based and event-driven services on its retail and commercial deposit accounts. Contracts for these services are generally in the form of deposit agreements, which disclose fees for deposit services. Revenue for event-driven services is recognized in close proximity or simultaneously with service performance. Revenue for certain account-based services may be recognized at a point in time or over the period the service is rendered, typically no longer than a month. Examples of account-based and event-driven service charges on deposits include per item fees, paper-statement fees, check-cashing fees, and analysis fees.

Net refund transfer fees – A Refund Transfer (“RT”) is a fee-based product offered by the Bank through third-party tax preparers located throughout the United States, as well as tax-preparation software providers (collectively, the “Tax Providers”), with the Bank acting as an independent contractor of the Tax Providers. An RT allows a taxpayer to pay any applicable tax preparation and filing related fees directly from his federal or state government tax refund, with the remainder of the tax refund disbursed directly to the taxpayer. RT fees and all applicable tax preparation, transmitter, audit, and any other taxpayer authorized amounts are deducted from the tax refund by either the Bank or the Bank’s service provider and automatically forwarded to the appropriate party as authorized by the taxpayer. RT fees generally receive first priority when applying fees against the taxpayer’s refund, with the Bank’s share of RT fees generally superior to the claims of other third-party service providers, including the Tax Providers. The remainder of the refund is disbursed to the taxpayer by a Bank check printed at a tax office, direct deposit to the taxpayer’s personal bank account, loaded to a NetSpend Visa® Prepaid Card or Walmart Direct2Cash.

The Company executes contracts with individual Tax Providers to offer RTs to their taxpayer customers. RT revenue is recognized by the Bank immediately after the taxpayer’s refund is disbursed in accordance with the RT contract with the taxpayer customer. The fee paid by the taxpayer for the RT is shared between the Bank and the Tax Providers based on contracts executed between the parties.

The Company presents RT revenue net of any amounts shared with the Tax Providers. The Bank’s share of RT revenue is generally based on the obligations undertaken by the Tax Provider for each individual RT program, with more obligations generally corresponding to higher RT revenue share. The significant majority of net RT revenue is recognized and obligations under RT contracts fulfilled by the Bank during the first half of each year. Incremental expenses associated with the fulfilment of RT contracts are generally expensed during the first half of the year.

Interchange fee income – As an “issuing bank” for card transactions, the Company earns interchange fee income on transactions executed by its cardholders with various third-party merchants. Through third-party intermediaries, merchants compensate the Company for each transaction for the ability to efficiently settle the transaction and for the Company’s willingness to accept certain risks inherent in the transaction. There is no written contract between the merchant and the Company, but a contract is implied between the two parties by customary business practices. Interchange fee income is recognized almost simultaneously by the Company upon the completion of a related card transaction.

The Company compensates its cardholders by way of cash or other “rewards” for generating card transactions. These rewards are disclosed in cardholder agreements between the Company and its cardholders. Reward costs are accrued over time based on card transactions generated by the cardholder. Interchange fee income is presented net of reward costs within noninterest income.

Net gains/(losses) on other real estate – The Company routinely sells other real estate (“OREO”) it has acquired through loan foreclosure. Net gains/(losses) on OREO reflect both 1) the gain or loss recognized upon an executed deed and 2) mark-to-market writedowns the Company takes on its OREO inventory.

The Company generally recognizes gains or losses on OREO at the time of an executed deed, although gains may be recognized over a financing period if the Company finances the sale. For financed OREO sales, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on sale, the Company adjusts the transaction price and related gain/(loss) on sale if a significant financing component is present.

Mark-to-market writedowns taken by the Company during the property’s holding period are generally at least 10% per year but may be higher based on updated real estate appraisals or BPOs. Incremental expenditures to bring OREO to salable condition are generally expensed as-incurred.

Capital commitment fee – The Company received and recorded a $1.0 million nonrefundable capital commitment fee during the first quarter of 2018. The fee was paid by a third party upon the Company’s completion of its contractual obligations to build the infrastructure and disburse funds for a new collaborative credit product offered to the third party’s customers through the Bank. The completion of the infrastructure and the first disbursement of funds were made for this new credit product during the first quarter of 2018. Incremental expenses incurred by the Company to fulfil its obligation under this contract were expensed as-incurred.