What are Republic Bancorp Inc's Business Segments?
(I) Traditional Banking segment
(II) Warehouse Lending segment
The Bank provides short-term, revolving credit facilities to mortgage bankers
across the United States through mortgage warehouse lines of credit. These credit
facilities are secured by single family, first lien residential real estate
loans. The credit facility enables the mortgage banking clients to close single
family, first lien residential real estate loans in their own name and temporarily
fund their inventory of these closed loans until the loans are sold to investors
approved by the Bank or purchased by the Bank through its Correspondent Lending
channel. Individual loans are expected to remain on the warehouse line for an
average of 15 to 30 days. Interest income and loan fees are accrued for each
individual loan during the time the loan remains on the warehouse line and collected
when the loan is sold. The Bank receives the sale proceeds of each loan directly
from the investor and applies the funds to pay off the warehouse advance and
related accrued interest and fees. The remaining proceeds are credited to the
mortgage banking client.
(III) Mortgage Banking segment
Mortgage Banking activities primarily include 15-, 20- and 30-year fixed-term
single family, first lien residential real estate loans that are sold into the
secondary market, primarily to the Federal Home Loan Mortgage Corporation (“FHLMC”
or “Freddie Mac”). The Bank typically retains servicing on loans
sold into the secondary market. Administration of loans with servicing retained
by the Bank includes collecting principal and interest payments, escrowing funds
for property taxes and property insurance and remitting payments to secondary
market investors. A fee is received by the Bank for performing these standard
servicing functions.
As part of the sale of loans with servicing retained, the Bank records MSRs.
MSRs represent an estimate of the present value of future cash servicing income,
net of estimated costs, which the Bank expects to receive on loans sold with
servicing retained by the Bank. MSRs are capitalized as separate assets. This
transaction is posted to net gain on sale of loans, a component of “Mortgage
Banking income” in the income statement. Management considers all relevant
factors, in addition to pricing considerations from other servicers, to estimate
the fair value of the MSRs to be recorded when the loans are initially sold
with servicing retained by the Bank. The carrying value of MSRs is initially
amortized in proportion to and over the estimated period of net servicing income
and subsequently adjusted quarterly based on the weighted average remaining
life of the underlying loans. The MSR amortization is recorded as a reduction
to net servicing income, a component of Mortgage Banking income.
With the assistance of an independent third party, the MSRs asset is reviewed
at least quarterly for impairment based on the fair value of the MSRs using
groupings of the underlying loans by interest rates. Any impairment of a grouping
is reported as a valuation allowance. A primary factor influencing the fair
value is the estimated life of the underlying loans serviced. The estimated
life of the loans serviced is significantly influenced by market interest rates.
During a period of declining interest rates, the fair value of the MSRs is expected
to decline due to increased anticipated prepayment speed assumptions within
the portfolio. Alternatively, during a period of rising interest rates, the
fair value of MSRs is expected to increase, as prepayment speed assumptions
on the underlying loans would be anticipated to decline.
(IV) Republic Processing Group segment
All divisions of the RPG segment operate through the Bank. Nationally, RPG facilitates
the receipt and payment of federal and state tax refund products under the TRS
division. The RPS division offers general purpose reloadable prepaid debit cards
through third party program managers. The RCS division offers short-term consumer
credit products.
|