16. SEGMENT INFORMATION

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

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

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

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


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

Core Banking:

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

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

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

Republic Processing Group:

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

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

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

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


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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

NM — Not Meaningful

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


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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

NM — Not Meaningful