UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ý☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20182020
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¨☐ | 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 001-37391
RELIANT BANCORP, INC.Reliant Bancorp, Inc.
(Exact name of registrant as specified in its charter)
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| Tennessee | 37-1641316 |
(State or other jurisdiction of
incorporation or organization)
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Identification No.)
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| 1736 Carothers Parkway, Suite 100 , Brentwood, Tennessee | 37027 |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (615) 221-2020
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Classeach class | Trading Symbol(s) | Name of Exchangeeach exchange on which Registeredregistered |
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common stock,Common Stock, $1.00 par value $1.00 per share | Nasdaq Capital MarketRBNC | NASDAQ |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ ☐Yes ý☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ ☐Yes ý ☒No
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. ý ☒Yes ¨ ☐No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ý☒ Yes ¨ ☐ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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 accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ¨☐ | Accelerated filer | ý☐ |
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| Non-accelerated filer | ¨
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| | Emerging growth company | ý☐ |
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 has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ ☐Yes ý ☒No
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference towas approximately $248,633,065 on June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, based on $16.29 per share, the last reported sales price at whichof the common equity was last sold as of June 29, 2018 was $300,518,107 (computedstock on the basis of $28.05 per share).The Nasdaq Capital Market on such date.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of the registrant’s common stock, par value $1.00 per share, as of March 7, 20198, 2021 was 11,503,492.16,387,941 excluding 266,474 unexchanged shares in connection with acquisitions.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 2021 Annual Meeting of Shareholders, which will be filed with the annual meetingSecurities and Exchange Commission within 120 days of shareholders, scheduled to be held May 23, 2019,December 31, 2020 are incorporated by reference into Part III of this Form 10-K.report for the year ended December 31, 2020.
TABLE OF CONTENTS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Reliant Bancorp, Inc. (“Reliant Bancorp”) may from time to time make written or oral statements, includingVarious statements contained in or incorporated by reference into this report (including, without limitation, certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7), that constituteAnnual Report on Form 10-K (this “Annual Report”) are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”“Exchange Act”). The words “believe,” “anticipate,” “expect,” “may,” “will,” “assume,” “should,” “predict,” “could,” “would,” “intend,” “targets,” “estimates,” “projects,” “plans,” and “potential”“potential,” and other similar words and expressions of the future, are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking.forward-looking, including statements about Reliant Bancorp, Inc.’s (the “Company”) future financial and operating results and the Company’s plans, objectives, and intentions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of Reliant Bancorpthe Company to differ materially from any results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others: (i)(1) the global health and economic crisis precipitated by the coronavirus (COVID-19) pandemic, (2) actions taken by governments, businesses and individuals in response to the coronavirus (COVID-19) pandemic, (3) the pace of recovery when the coronavirus (COVID-19) pandemic subsides, (4) the possible recurrence of the coronavirus (COVID-19), (5) changes in political conditions or the legislative or regulatory environment, including governmental initiatives affecting the financial services industry such as, but not limited to, the Coronavirus Aid, Relief, and Economic Security Act (or CARES) Act), (6) the possibility that our asset quality wouldcould decline or that we experience greater loan losses than anticipated, (ii)(7) increased levels of other real estate, primarily as a result of foreclosures, (iii)(8) the impact of liquidity needs on our results of operations and financial condition, (iv)(9) competition from financial institutions and other financial service providers, (v)(10) the effect of interest rate increases on the cost of deposits, (vi)(11) unanticipated weakness in loan demand or loan pricing, (vii)(12) greater than anticipated adverse conditions in the national economy or local economies in which we operate, including in Middle Tennessee, (13) lack of strategic growth opportunities or our failure to execute on thoseavailable opportunities, (viii)(14) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses, (ix)(15) economic crises and associated credit issues in industries most impacted by the coronavirus (COVID-19) pandemic, including the hotel and retail sectors, (16) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits, (x)(17) our ability to effectively manage problem credits, (xi)(18) our ability to successfully implement efficiency initiatives on time and in amountswith the results projected, (xii)(19) our ability to successfully develop and market new products and technology, (xiii)(20) the impact of negative developments in the financial industry and U.S.United States and global capital and credit markets, (xiv)(21) our ability to retain the services of key personnel, (xv)(22) our ability to adapt to technological changes, (xvi)(23) risks associated with litigation, including reputational and financial risks and the applicability of insurance coverage; (xvii)coverage, (24) the vulnerability of Reliant Bank’s networkcomputer and online banking portals,information technology systems and networks, and the systems and networks of third parties with whom Reliant Bancorp andthe Company or Reliant Bank contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches; (xviii)breaches and interruptions, (25) changes in state and federal laws, rules, regulations, or policies applicable to banks or bank or financial holding companies, including regulatory or legislative developments; (xix)developments, (26) adverse resultsimpacts (including costs, fines, reputational harm, and/or other negative effects) from current or future litigation, regulatory examinations, or other legal and/or regulatory actions;actions, (27) the risk that expected cost savings and (xx)revenue synergies from (a) the merger of the Company and Tennessee Community Bank Holdings, Inc. (“TCB Holdings”) (the “TCB Holdings Transaction”) or (b) the merger of the Company and First Advantage Bancorp (“FABK”) (the “FABK Transaction” and, together with the TCB Holdings Transaction, collectively, the “Transactions”), may not be realized or may take longer than anticipated to be realized, (28) the effect of the Transactions on our customer, supplier, or employee relationships and operating results (including without limitation difficulties in maintaining relationships with employees and customers), as well as on the market price of the Company’s common stock, (29) the risk that the businesses and operations of TCB Holdings and its subsidiaries and of FABK and its subsidiaries cannot be successfully integrated with the business and operations of the Company and its subsidiaries or that integration will be more costly or difficult than expected, (30) the amount of costs, fees, expenses, and charges related to the Transactions, including those arising as a result of unexpected factors or events, (31) reputational risk associated with and the reaction of our customers, suppliers, employees, or other business partners to the Transactions, (32) the risk associated with Company management’s attention being diverted away from the day-to-day business and operations of the Company to the integration of the Transactions, and (33) general competitive, economic, political, and market conditions, including economic conditions in the local markets where we operate. A more detailed description
These forward-looking statements involve a number of theserisks and other risks is containeduncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should therefore be considered in light of various factors, including those set forth in this Annual Report under “Item 1A. Risk Factors” below. ManyFactors,” and in “Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Annual Report. In light of such factors are beyond Reliant Bancorp’s ability to control or predict,risks and readers are cautioneduncertainties, we caution you not to putplace undue reliance on suchthese forward-looking statements. Reliant Bancorp doesThese forward-looking statements speak only as of the date of this Annual Report, or if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or reissuerevise any forward-looking statements contained in this report as a result of new information or other circumstances that may become known to Reliant Bancorp.unless required by applicable securities law.
PART I
Unless this Annual Report indicates otherwise or the context requires, the terms “Reliant Bancorp,” “our Company,” “the Company,” “us,” “we” and “our” and similar terms refer to Reliant Bancorp Inc. and its subsidiaries including Reliant Bank, which we sometimes refer to as “Reliant” or the “Bank”.
ITEM 1. BUSINESSSBUSINESS
OverviewOVERVIEW
Reliant Bancorp, Inc. (f/k/a Commerce Union Bancshares, Inc.) (the “Company” or “Reliant Bancorp”),is a Tennessee corporation was incorporated on March 4, 2011, to serve as aand the holding company for and the sole shareholder of Reliant Bank (f/k/a Commerce Union Bank). It became the holding company of Reliant Bank upon completion of Reliant Bank’s reorganization into a holding company structure on June 6, 2012.
Bank.Reliant Bancorp, Inc. is registered as a registered financial holding company under the Bank Holding Company Act of 1956, as amended and under the bank holding company laws of the State of Tennessee.(the "Bank Holding Company Act"). Reliant BankBancorp, Inc. was organized in April 17, 2006, as a state chartered bankincorporated under the laws of the State of Tennessee.Tennessee on March 4, 2011. Reliant Bancorp, Inc. became the holding company for, and sole shareholder of, Reliant Bank upon the completion of Reliant Bank’s reorganization into a holding company corporate structure on June 6, 2012. On July 7, 2015, Reliant Bancorp, Inc.’s common stock (“common stock”) began trading on The Nasdaq Capital Market (“Nasdaq”), where it trades today under the symbol “RBNC.” Until December 31, 2017, the Company operated under the name “Commerce Union Bancshares, Inc.”
Reliant Bank is a commercial bank chartered under Tennessee law and a member of the Federal Reserve System (the "Federal Reserve"). Reliant Bank opened for business on August 14, 2006.
Acquisitions
Commerce Union/Legacy Reliant Bank Merger
On April 1, 2015, the Company completed the acquisition of legacy Reliant Bank, a Tennessee banking corporation (“LegacyReliant Bank”). The Legacy Reliant Bank merger was accounted for as a reverse merger using the acquisition method of accounting, in accordance with the provisions of FASB ASC Topic 805-10 Business Combinations. As such, for accounting purposes, Legacy Reliant Bank was considered to be acquiring Reliant Bancorp in this transaction. As a result, the financial statements of the Company prior to the Legacy Reliant Bank merger are the historical financial statements of Legacy Reliant Bank. In periods following the Legacy Reliant Bank merger, the comparative historical financial statements of the Company are those of Legacy
Reliant Bank prior to the merger. These consolidated financial statements include the results attributable to the operations of the Company beginning on April 1, 2015.
Community First, Inc. Merger
On August 22, 2017, Reliant Bancorp entered into an Agreement and Plan of Merger with Community First, Inc. (“Community First”), Pioneer Merger Sub, Inc., a wholly owned subsidiary of Reliant Bancorp, Reliant Bank, and Community First Bank & Trust, a Tennessee-chartered commercial bank and wholly owned subsidiary of Community First (“Community First Bank”). On January 1, 2018, Reliant Bancorp completed the acquisition of Community First and Community First Bank and issued approximately 2,416,444 shares of Reliant Bancorp common stock valued at approximately $62.0 million to shareholders of Community First. All of Community First’s outstanding restricted share awards became fully vested and were cancelled and converted automatically into the right to receive the merger consideration.
Target Markets
Reliant Bancorp, through its subsidiary Reliant Bank, providesoffers a full range of traditional banking products and services to corporate and consumer clients throughout the Middle Tennessee RegionTennessee.
In addition to Reliant Bank, Reliant Bancorp, Inc. has a number of other direct and indirect subsidiaries:
•Reliant Risk Management, Inc.Reliant Risk Management, Inc. is a wholly-owned insurance captive subsidiary of Reliant Bancorp, Inc. that began operations on June 1, 2020. Reliant Risk Management, Inc. is a Tennessee-based captive insurance company which insures Reliant Bancorp and the Nashville-Davidson-Murfreesboro-Franklin, TN Metropolitan Statistical Area (the “Nashville MSA”)Bank against certain risks unique to their operations and for which insurance may not be currently available or economically practicable in today's insurance marketplace. Reliant Risk Management, Inc. pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.Reliant Risk Management, Inc. is subject to regulations of the State of Tennessee and undergoes periodic examinations by the Tennessee Department of Commerce and Insurance.
•Community First Trups Holding Company.Community First Trups Holding Company is a Tennessee corporation and wholly-owned subsidiary of Reliant Bancorp, Inc. Community First Trups Holding Company was chartered on December 19, 2016. The company holds $10 million of trust preferred securities originally issued by Community First, Inc., which Reliant Bancorp, Inc. acquired January 1, 2018.
•Community First Capital Trust I, Community First Capital Trust II, and Community First Capital Trust III. In October 2018,Each of Community First Capital Trust I, Community First Capital Trust II, and Community First Capital Trust III is a Delaware statutory trust wholly-owned by Reliant Bancorp, Inc. Each entity is one through which Community First,
Inc. issued trust preferred securities prior to Reliant Bancorp, Inc.’s acquisition of Community First, Inc. on January 1, 2018.
•Reliant Mortgage Ventures, LLC.Reliant Mortgage Ventures, LLC ("RMV") is a subsidiary of Reliant Bank. RMV was organized as a Tennessee limited liability company on November 15, 2011. RMV is a mortgage company joint venture between VHC Fund 1, LLC ("VHC") and Reliant Bank opened a full service branch office in Chattanooga, Tennessee. At the same time,that offer mortgage banking services to customers within Reliant Bank's market footprint. Reliant Bank closedholds 51% of the governance rights in RMV and 30% of the financial rights in RMV, subject to VHC’s right to first recover its Chattanooga commercial loancapital contributions.
•Reliant Investment Holdings, LLC. Reliant Investment Holdings, LLC is a Tennessee limited liability company and deposit production office and consolidated the operationswholly-owned subsidiary of this commercial loan and deposit production office into the new full service Chattanooga branch. Based on the deposit market share data published by the FDIC as of June 30, 2018, the latest available date, Reliant Bank ("Holdings"). Reliant Investment Holdings, LLC was organized on October 26, 2018, and offers investment services to Reliant Bank.
•First Financial Mortgage Corporation of Clarksville.First Financial Mortgage Corporation of Clarksville is ranked the 11th largest bank in the Nashville MSA.a Tennessee corporation and wholly-owned subsidiary of Reliant Bank. Reliant Bank primarily markets its services to small businesses and residents within its markets.acquired First Financial Mortgage Corporation of Clarksville when Reliant Bank operates its main officemerged with First Advantage Bank on April 1, 2020. The company currently is inactive and sixteen branches in Davidson, Hickman, Hamilton, Maury, Robertson, Rutherford, Sumner, and Williamson counties in Tennessee. Additionally, Reliant Bank operates mortgage production offices in Brentwood and Hendersonville, Tennessee.has no operations or assets.
Employees
As of December 31, 2020, the Company had grown to approximately $3.0 billion in assets, including approximately $2.3 billion of loans held for investment, and approximately $2.6 billion of deposits.
MERGERS AND ACQUISITIONS
The Company has grown significantly in recent years as a result of several mergers and acquisitions.
Combination of Reliant Bank and Legacy Reliant Bank
On April 1, 2015, Reliant Bank (then operating as Commerce Union Bank) and legacy “Reliant Bank,” a Tennessee state-chartered bank established in January 2006 and headquartered in Brentwood, Tennessee (“Legacy Reliant Bank”), completed a merger of equals. Upon completion of this transaction, the Company had approximately $790.8 million in total consolidated assets, gross loans of approximately $561.4 million, and total deposits of approximately $623.9 million. As a result of this transaction, Reliant Bank succeeded to Legacy Reliant Bank’s ownership interest in RMV.
Acquisition of Community First, Inc.
On January 1, 2018, Reliant Bancorp acquired Community First, Inc., the parent company for Community First Bank & Trust, a Tennessee state-chartered bank headquartered in Columbia, Tennessee. Upon completion of this transaction, the Company had approximately $1.6 billion in total consolidated assets, gross loans of approximately $1.1 billion, and total deposits of approximately $1.3 billion. In connection with this transaction, pursuant to supplemental indentures, each dated January 1, 2018, by and between the Company and Wilmington Trust Company, as trustee, the Company assumed all of Community First, Inc.’s obligations with respect to its $23.0 million of outstanding trust preferred securities.
Acquisition of Tennessee Community Bank Holdings, Inc.
On January 1, 2020, Reliant Bancorp acquired Tennessee Community Bank Holdings, Inc., the parent company for Community Bank & Trust, a Tennessee state-chartered bank headquartered in Ashland City, Tennessee. Upon completion of this transaction, the Company had 263approximately $2.2 billion in total consolidated assets, gross loans of approximately $1.6 billion, and total deposits of approximately $1.8 billion.
Acquisition of First Advantage Bancorp
On April 1, 2020, Reliant Bancorp acquired First Advantage Bancorp, the parent company for First Advantage Bank, a Tennessee state-chartered bank headquartered in Clarksville, Tennessee. Upon completion of this transaction, the Company had approximately $2.9 billion in total consolidated assets, gross loans of approximately $2.2 billion, and total deposits of approximately $2.3 billion.
HUMAN CAPITAL RESOURCES
In order to continue to deliver on our mission of financial inclusion for all, it is crucial that we attract and retain talent who desire to enable financial equality through delivery of capable solutions, thoughtful innovation and equitable consumer options in the markets that we serve. To facilitate talent attraction and retention, we strive to make the Company an inclusive, safe and healthy workplace, with opportunities for our employees to grow and develop in their careers, supported by strong compensation, benefits, health and welfare programs.
Employee Profile
As of December 31, 2020, we had approximately 428 employees on a full-time or part-time basis. basis in locations across Middle Tennessee. This represents an increase of 127 employees, or 42%, from December 31, 2019 due primarily to the TCB Holdings Transaction and FABK Transaction. As of December 31, 2020, the Company continued to employ 24 and 87 employees who joined the Company as part of the TCB Holdings Transaction and FABK Transaction, respectively.
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| December 31, 2020 | | December 31, 2019 |
| Male | | Female | | Total | | Male | | Female | | Total |
| Mortgage Division | 28 | | 47 | | 75 | | 29 | | 49 | | 78 |
| Bank Segment | 112 | | 241 | | 353 | | 66 | | 157 | | 223 |
| Total | 140 | | 288 | | 428 | | 95 | | 206 | | 301 |
Using the original hire dates of those employees hired in connection with acquisitions, average employee length of tenure was 5.95 years as of December 31, 2020 and December 31, 2019.
Total Rewards
As part of our compensation philosophy, we believe that we must offer and maintain market competitive total rewards programs for our employees in order to attract and retain superior talent. In addition to healthy base wages, additional programs include annual bonus opportunities, an Employee Stock Purchase Plan, a Company-matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, adoption assistance, and employee assistance programs.
Health and Safety
The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety and wellness of our employees. We provide our employees are not representedand their families with access to a variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health by providing tools and resources to help them improve or maintain their health status and that offer choices where possible so they can customize their benefits to meet their needs and the needs of their families. In response to the COVID-19 pandemic, we implemented significant operating environment changes that we determined were in the best interest of our employees, as well as the communities in which we operate. This includes having approximately 40% of our employees work from home, while implementing additional safety measures for employees continuing critical on-site work.
Talent
A core tenet of our talent system is to both develop talent from within and supplement with external hires. This approach has yielded loyalty and commitment in our employee base which in turn promotes business growth, product and service improvement, and customer growth and retention. We also believe that adding new employees and external ideas supports a collective bargaining unit. Reliant Bancorp believescontinuous improvement mindset and our goals of a diverse and inclusive workforce. We believe that its relationship with itsour average employee tenure - 5.95 years as of the end of the fiscal year 2020 - reflects the engagement of our employees is good. Reliantin this core talent system tenet. Additionally, the Company was named Best Small Bank employs seasoned banking professionals with experiencein Tennessee by Newsweek in its market areasfirst ranking of financial
institutions that best serve their customers' needs in today's challenging times. The Company was also recognized as a Top Workplace of 2020, an award based solely on employee feedback gathered through a third-party survey administered by research partner Energage. In particular, this award recognizes the Company as an employer that supports the needs of its workforce, offering career-advancement opportunities, great benefits and who are active incompetitive pay.
We encourage and support the growth and development of our associates and, wherever possible, seek to fill positions by promotion and transfer from within the organization. Continual learning and career development is advanced through quarterly performance and development conversations between associates and their communities.managers, internally-developed training programs, customized corporate training engagements and educational reimbursement programs.
Products and Services OverviewPRODUCTS AND SERVICES
Reliant Bank is a full-service community bank. ItsOur principal business is banking, consistingwhich consists of lending and deposit gathering from (asactivities as well as the offering of other banking-related products and services)services to businesses and individuals within the communities it serves,our market footprint.
Loan Products and the operational support to deliver, fund and manage such banking services. Reliant Bank providesServices
We offer a widefull range of lending products, including commercial, banking services for businesses and individuals, including checking, savings, and money market deposit accounts, certificates of depositreal estate, manufactured housing, and consumer commercial and real estate loans. Reliant Bank’sWe compete for these loans with other financial institutions or intermediaries who are also well established in our geographic markets.
Our profitability is dependent ondepends upon our responsible lending with strong focus on lending standardspractices, which are designed to help ensure long-term, balanced growth in assets loans,(including loans), deposits and net income in a manner consistent with safe, sound and prudent banking practices. To achieve this goal, Reliant Bank’s strategy is to: (1) expandincome. We strive to grow loans and deposits through organic market share growth and strategic acquisitions; (2) provide customers with a breadth of financial products and financial services; (3) employ, empower and motivate managementour employees to provide personalized customer service, consistent with the best traditions of community banking, while maximizing profits; and (4) maintain exceptional asset quality and control overhead expense.expenses.
Depository Products and Services
ReliantWe seek to establish and maintain a strong base of core deposits, including savings, noninterest-bearing checking, interest-bearing checking, money market and certificate of deposit accounts (including products offered through various Certificate of Deposit Account Registry Service ("CDARS") programs).
Our ability to gather deposits is enhanced by the comprehensive relationships our directors and bankers have built with the businesses and individuals who live and do business in our market footprint.Rates paid on deposits vary among banking markets and deposit categories due to different terms and conditions, individual deposit size, services rendered, and rates paid by competitors on similar deposit products. We act as a depository for a number of state and local governments and governmental agencies or municipalities. Such public fund deposits are often subject to competitive bidding processes and in many cases must be secured by pledging a portion of our investment securities or a letter of credit.
We also offer our commercial clients a comprehensive array of treasury management services, which include remote deposit capture, on-line wire origination, enhanced Automated Clearing House ("ACH") origination services, positive pay, zero balance and sweep accounts, automated bill pay services, electronic receivables processing, merchant card acceptance services, small business and commercial credit cards, and corporate purchasing cards.
Mortgage Banking Services
We originate mortgage loans throughout the Company's footprint as well as through purchases from correspondents. Mortgage loans are typically sold in the secondary market. Mortgage banking has provided the Bank provides a varietysource of loans, depositsnoninterest income and relatedreferrals for other banking services to its business customers. Such services include but are not limited to business checking,including home equity lines of credit and deposit products.
Other Banking Products and Services
We offer a broad array of convenience-centered products and services, business loans,including MoneyPass, a nationwide network of surcharge-free ATMs available to our clients, 24-hour telephone and lines of credit. Reliant Bank offers similar services to its consumer customers, including but not limited to personal loans, checking accounts, residential mortgage loansonline banking, mobile banking, debit and mortgage refinancing, safe deposit boxes, debitcredit cards, direct deposit and official bank checks.mobile deposit options.
CompetitionCOMPETITIVE ENVIRONMENT
Reliant Bank has substantial competition in attracting and retaining deposits and making loans to its customers in all of its principal markets. We face competition in all areasphases of our operations from a variety of different competitors, many of which are larger and have access to more financial resources than we do.us. Such competitors primarily include national, regional, and internet banks, in addition to other community banks, that seek to offer service levels similar to ours. We also face competition from many others types of financial institutions, including, without limitation,regional and national banks, internet banks, savings and loansloan associations, credit unions, finance companies, brokerage firms, insurance companies, and other financial intermediaries.
The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms, and insurance companies can operate as affiliates under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting), and merchant banking services. Also, Additionally, technology has lowered barriers to entry into the financial services industry and made it possible for nonbanksnon-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of our non-bank competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can. Finally, as a result of the passage of the Tax Cuts and Jobs Act, which was signed into law in late 2017, our competitors may choose to offer lower interest rates and pay higher deposit rates than we do.
We believe that we are able to successfully compete with larger banks and other community banksfinancial institutions in our target marketsmarket footprint by focusing on personal service and financialoffering products to meetsthat meet the needs of the businesses and consumers who work and live in those markets.
AVAILABLE INFORMATION
Intellectual Property
Reliant Bank holds the ownership rightsWe are required to two trademarks registeredfile annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the United States PatentSecurities and Trademark Office forExchange Commission (the “SEC”), which are available to the protectionpublic from commercial document retrieval services and at the SEC's website at http://www.sec.gov.
We also make available on our website (http://www.reliantbank.com) free of “RELIANT BANK” incharge all of the company’s respective colorsreports that we file with or furnish to the SEC, including related exhibits and fonts. Reliant Bank also utilizessupplemental schedules and amendments to those reports, pursuant to Section 13(a) or Section 15(d) of the website domain reliantbank.com. Reliant Bank also holds the rights to three trademarks registeredExchange Act, as soon as reasonably practicable after we electronically file such materials with the United States Patent and Trademark Office for the continued protection of “COMMERCE UNION BANK” in the former entity’s respective colors and fonts and one trademark registered with the United States Patent and Trademark Office for the continued protection of "COMMUNITY FIRST BANK & TRUST" .
AvailableSEC. Information
Our contained on our website address is www.reliantbank.com.not incorporated by reference into this Annual Report. Please note that our website address is provided as an inactive textual reference only.
We make available free of charge throughintend to disclose on our website any amendments or waivers to our Code of Ethics that are required to be disclosed pursuant to Item 5.05 of Form 8-K.
SUPERVISION AND REGULATION
General
We are subject to extensive regulation under both federal and state law. The laws and related regulations to which we are subject are generally intended to protect depositors and other customers, not shareholders. To the annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to these reports,extent that we file withthe following information describes laws, rules, or furnishregulations, it is qualified in its entirety by reference to the Securitiesparticular law, rule, or regulation. Changes in applicable laws, rules or regulations may have a material effect on our business, operations, and Exchange Commission (the “SEC”), as soon as reasonably practicable after we electronically file such material withprospects. We cannot accurately predict the nature or furnish such material toextent of the SEC. The information made available througheffects on our website is not part of this reportbusiness and is therefore not incorporated by reference, unless such information is otherwise specifically referenced elsewhereearnings that fiscal or monetary policies or new federal or state legislation or regulations may have in this report.the future.
Supervision andHolding Company Regulation
Reliant Bancorp Inc.
Reliant Bancorp owns 100% of the stock of Reliant Bank, and, therefore, we are consideredis registered as a bank holding company as that term is defined under the Bank Holding Company Act, of 1956, as amended (the “BankHolding Company Act”). Additionally,and we have elected under the Bank Holding Company Act to be treated as a financial holding company. In order to qualify to be a financial holding company, a bank holding company and each of its subsidiary depository institutions must be “well capitalized” and “well managed” and each subsidiary depository institution must have at least a “satisfactory” rating under The Community Reinvestment Act (which is discussed below).
As a financial holding company, we are primarily subject to the supervision of and to regulation and examination by and the reporting requirements of the Federal Reserve underand subject to the reporting and other requirements of the Bank Holding Company Act and the regulations promulgated thereunder.thereunder by the Federal Reserve. Moreover, as the holding company for a bank chartered in Tennessee, we also are subject to the Tennessee Banking Act, and as a Tennessee corporation, we are subject generally to the Tennessee Business Corporation Act.
As a financial holding company, Reliant Bancorp is required by law and Federal Reserve policy to act as a source of financial and managerial strength for its bank subsidiary, Reliant Bank, and to commit resources to support Reliant Bank. This support can be required at times when it would not be in the best interest of Reliant Bancorp’s shareholders or creditors to provide it.
The Bank Holding Company Act and the regulations thereunder place limitations on the activities in which a bank holding company may engage. Subject to certain exceptions, the Bank Holding Company Act and the regulations thereunder generally prohibitsprohibit a bank holding company from engaging in, or acquiring direct or indirect control of more than 5% of the voting stock of any company engaged in, non-bankingnon-
banking activities. An exception to this prohibition is for activities expressly found by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Financial holding companies, however, are allowed to engage without prior Federal Reserve approval in a broader range of banking and non-banking activities that are deemed to be financial in nature or incidental to a financial activity. These “financial in nature” activities include securities underwriting, dealing and market making; organizing, sponsoring and managing mutual funds; insurance underwriting and agency; merchant banking activities; and other activities that the Federal Reserve has determined to be closely related to banking. In order for a bank holding company to make a declaration to be considered a financial holding company,
Under the bank holding companyChange in Bank Control Act and its subsidiary depository institutions must be “well capitalized” and “well managed.”
As a bank holding company that has elected to be a financial holding company, Reliant Bancorp is required to file semi-annual reports with theassociated Federal Reserve together withregulations, generally, any additional information as the Federal Reserve may require. The Federal Reserve may, and does, also examine Reliant Bancorp.
Bank and financial holding companies are required to act as a source of financial strength to their subsidiary banks and to commit resources to support each such subsidiary. This support may be required at times when a holding company may not be able to provide such support. In the event of a loss suffered or anticipated by the FDIC-as a result of default of a banking subsidiary of Reliant Bancorp or related to FDIC assistance provided to a banking subsidiary in danger of default-the other banking subsidiaries of Reliant Bancorp, if any, may be assessed for the FDIC’s loss, subject to certain exceptions.
Regulation Y of the Rules and Regulations of the Federal Reserve Board of Governors requires persons actingperson that, directly or indirectly or in concert with one or more other persons, seeks to acquire control of a bank holding company or a Federal Reserve member bank (such as Reliant Bank) must give the Federal Reserve 60 days’ prior written notice before acquiring control of athe bank holding company or financial holding company.member bank. Under the regulation,applicable regulations, control is defined as the ownership of or control with theof or power to vote 25% or more of any class of voting securities of the bank holding company or financial holding company.member bank. The regulationregulations also providesprovide for a presumption of control if a person owns, controls,would own, control, or holdshold with the power to vote 10% or more (but less than 25%) of any class of voting securities of athe bank or financial holding company or member bank and either the companyinstitution has securities registered under Section 12 of the Exchange Act or no other person owns a greater percentage of that class of voting securities.
PaymentReliant Bancorp is subject to the registration, disclosure, reporting, and other requirements of the Securities Act and the Exchange Act, and the rules and regulations promulgated thereunder and administered by the SEC. Because the Company’s common stock is listed on Nasdaq, the Company is subject to Nasdaq’s rules for listed companies.
Bank Regulation
Reliant Bank is subject to extensive federal and state regulation that significantly affects its business and operations. As a Tennessee state-chartered bank that is a member of the Federal Reserve system, the Bank is primarily subject to supervision and regulation by the Federal Reserve and the Tennessee Department of Financial Institutions (the “TDFI”). The Bank is also subject to various regulations promulgated by the federal Consumer Financial Protection Bureau, an agency responsible for consumer protection in the financial sector.
The Federal Reserve and the TDFI regularly examine the Bank’s operations and have the authority to approve or disapprove of mergers to which the Bank is a party, the Bank’s establishment of new branches, and similar corporate actions. Both regulatory agencies have the power to take enforcement action to prevent or halt the continuance of unsafe or unsound banking practices or other violations of law. The FDIC, as the insurer of the Bank’s deposits, also has certain regulatory authority over and requires certain routine reporting by the Bank.
As a bank chartered under Tennessee law, Reliant Bank is subject to the provisions of the Tennessee Banking Act and, to the extent not inconsistent with the Tennessee Banking Act, the provisions of the Tennessee Business Corporation Act.
Dividends
Reliant Bancorp is a legal entity separate and distinct from Reliant Bank. Because Reliant Bancorp is a legal entity separate and distinct from Reliant Bank and does not conduct stand-alone operations, our ability to pay dividends depends on the ability of Reliant Bank to pay dividends to us, which is subject to regulatory restrictions. The principal source of Reliant Bancorp’s cash flow for operations, including cash flow to paythe payment of interest to the holders ofon its trust preferred securities and subordinated notes, the payment of other indebtedness, and the payment of dividends to holders of its common stock, is dividends that Reliant Bancorp receives from Reliant Bank.
Various federal and state laws, rules, and regulations limit the amount of dividends that a subsidiary bank can pay to its parent holding company without regulatory approval. Generally, the Bank payscannot pay dividends in any calendar year that exceed its net income for that year plus its retained net income for the prior two calendar years without prior regulatory approval. Additionally, the Bank is generally prohibited from paying dividends if the Bank is not adequately capitalized or if payment of the dividends would cause the Bank to become undercapitalized. Under applicable federal capital adequacy guidelines, banks are also subject to dividend limitations and restrictions if they fail to maintain an appropriate capital conservation buffer. Federal and state bank regulators also have the authority to prohibit the payment of dividends by banks if they determine the payment of dividends to be an unsafe and unsound banking practice.
There are also limitations on Reliant Bancorp asBancorp’s ability to pay dividends to its sole shareholder.shareholders. The Federal Reserve has issued a policy statement with regard to the payment of cash dividends by bank holding companies. This policy statement provides generally that a bank holding company should not pay, or should defer or significantly reduce, dividends if the bank holding company’s net income available to shareholders over the last four quarters (net of dividends paid during that period) is not sufficient to fully fund the dividends, if the bank holding company’s prospective rate of earnings retention is not consistent with the company’s capital needs and overall current and prospective financial condition, or if the bank holding company will not meet, or is in danger of not meeting, its minimum required regulatory capital ratios. A bank holding company subject to the federal capital adequacy regulations is also subject to dividend limitations and restrictions if it fails to maintain an appropriate capital conservation buffer. Under Tennessee law, Reliant Bancorp is not permitted to pay dividends if, after giving effect to the payment of the dividends, it would not be able to pay its debts as they becomecome due in the usual course of business or if its total assets would be less than the sum of its total liabilities plus any amounts neededthe amount necessary to satisfy the rights of preferred shareholders, if any, preferential rights if it were dissolving. In addition, in deciding whether or notupon dissolution. The Company may from time to declare a dividend of any particular size, Reliant Bancorp’s board of directors must considertime also be subject to contractual restrictions on its and Reliant Bank’s current and prospective capital, liquidity, and other needs.
Additionally, various federal and state statutory provisions limit the amount of dividends subsidiary banks canability to pay to their holding companies without regulatory approval. The payment of dividends by any bank also may be affected by numerous other factors, such as the maintenance of adequate capital for the bank. In addition to the foregoing restrictions, the Federal Reserve has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company experiencing earnings weaknesses should not pay cash dividends that exceed its net income or that could only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing. Furthermore, the Tennessee Department of Financial Institutions (the “TDFI”) also has authority to prohibit the payment of dividends by a Tennessee chartered bank when it determines such payment of dividends to be an unsafe and unsound banking practice. In the event an insured Federal Reserve-member bank controlled by a bank or financial holding company is “significantly undercapitalized” under the applicable federal bank capital ratios, or if the bank subsidiary is “undercapitalized” and has failed to submit an acceptable capital restoration plan or has materially failed to implement such a plan, the Federal Reserve may require prior approval for any capital distribution by the bank or financial holding company.its shareholders.
During the fiscal year ended December 31, 2018,2020, Reliant Bancorp declaredpaid dividends totaling $0.33$0.40 per share on outstanding shares of its common stock for a total of $3,945$6,227 in aggregate shareholder dividend declarationspayments for the year. The amount and timing of all future dividend payments, if any, is subject to our board’s discretion and our compliance with applicable laws, rules, regulations and regulatory guidance, and will depend on our earnings, capital position, financial condition and other factors, including new regulatory capital requirements, as they become known to us.
Other RestrictionsTransactions with Affiliates and Insiders
ATransactions between Reliant Bank and its affiliates are governed by Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve’s Regulation W, which generally:
•limit the extent to which a bank or financial holding company and its subsidiaries are also prohibited from acquiringmay engage in “covered transactions” with any voting shares of, or interest in, any banks located outsideone affiliate to an amount equal to 10.0% of the statebank’s capital stock and surplus;
•limit the extent to which a bank or its subsidiaries may engage in which the operations“covered transactions” with all affiliates to an amount equal to 20.0% of the bank holding company’s subsidiaries are located, unlessbank’s capital stock and surplus; and
•require that all such transactions be on terms substantially the same, or at least as favorable to the bank holding company and its subsidiaries are well-capitalized and well-managed. Further,or subsidiary, as those provided to a bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with the extension of credit or provision of any property or service. non-affiliate.
An affiliate of a bank holdinggenerally is any company maythat controls, is controlled by, or is under common control with the bank, but which is not extend credit, lease, sell property, or furnish any services or fix or vary the consideration for these items on the condition that (i) the customer must obtain or provide some additional credit, property or services from or to its bank holding company or subsidiaries thereof or (ii) the customer may not obtain some other credit, lease, property, or services from a competitor, except to the extent reasonable conditions are imposed to assure the soundnesssubsidiary of the credit extended.bank. The term “covered transaction” includes the making of loans to an affiliate, the purchase of assets from an affiliate, the issuance of a guarantee on behalf of an affiliate, the purchase of securities issued by an affiliate, and other similar types of transactions.
In approving acquisitions by bank or financial holding companies of banks and certain other non-bank companies, the Federal Reserve considers a number of factors, including expected benefits to the public such as greater convenience, increased competition, or gains in efficiency, as weighed against the risks of possible adverse effects such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. The Federal Reserve is also empoweredAct and the Federal Reserve’s Regulation O impose restrictions on Reliant Bank’s authority to differentiate between new activitiesextend credit to its executive officers, directors, and activities commenced throughgreater than 10% shareholders, as well as companies that such persons control. Among other things, these extensions of credit must be made on terms (including interest rates charged and collateral required) substantially the acquisitionsame as those offered to unaffiliated persons, or be made as part of a going concern.benefit or compensation program and on terms widely available to employees, and must not involve a greater than normal risk of repayment. In addition, the amount of loans Reliant Bank may make to these persons is based, in part, on the bank’s capital position, and specified approval procedures must be followed in making loans which exceed specified amounts.
The Attorney General of the United States may, within 30 days after approval by the Federal Reserve of an acquisition involving a bank or financial holding company, bring an action challenging such acquisition under the federal antitrust laws, in which case the effectiveness of such approval is stayed pending a final ruling by the courts. Failure of the Attorney General to challenge an acquisition does not, however, exempt the bank or financial holding company from complying with both state and federal antitrust laws after the acquisition is consummated or immunize the acquisition from future challenge under the anti-monopoly provisions of the Sherman Antitrust Act.
Capital GuidelinesAdequacy
Federal banking regulators have implemented risk-based capital adequacy guidelines for certain bank andor financial holding companies and insured depository institutions.
In July 2013, in response to the statutory requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”“Dodd-Frank Act”), federal banking regulators adopted regulations implementing the Basel Capital Adequacy
Accord (“Basel III”III”), which had been approved by the Basel member central bank governors in 2010 as an agreement among the countries’ central banks and bank regulators on the amount of capital banks must hold as a cushion against losses and insolvency. These regulations provide for the following minimum capital to risk-weighted assets requirements in order for an institution to be considered “adequately capitalized”: a common equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, and a total capital ratio of 8.0%. Additionally, to be considered “adequately capitalized,” an institution must have a leverage ratio (Tier 1 capital to total assets) of at least 4.0%. In order to be considered “well capitalized,” an institution must have a common equity Tier 1 capital ratio of 6.5%, a Tier 1 capital ratio of 8.0%, a total capital ratio of 10.0%, and a leverage ratio of 5.0%. The regulations also changed the definition of capital, mainly by adopting stricter eligibility criteria for regulatory capital instruments, and new constraints on the inclusion of minority interests, mortgage-servicing assets (“MSAs”), deferred tax assets (“DTAs”), and certain investments in the capital of unconsolidated financial institutions. In addition, the regulations require that most regulatory capital deductions be made from common equity Tier 1 capital.
Under Basel III, in order to avoid limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. The capital conservation buffer was phased in starting January 1, 2016, and it became fully phased in on January 1, 2019. A banking organization with a buffer greater than 2.5% is not subject to limitslimitations on capital distributions or discretionary bonus payments. A banking organization with a buffer of less than 2.5% is subject to increasingly stringent limitations as the buffer approaches zero. The regulation also prohibits a banking organization from making distributions or discretionary bonus payments during any quarter if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter. The eligible retained income of a banking organization is defined as its net income for the four calendar quarters preceding the current calendar quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income. The minimum risk-based capital requirements plus the capital conservation buffer exceed the current prompt corrective action (PCA) well-capitalized thresholds.thresholds (discussed below).
Under Basel III,
In July 2019, federal banking regulators issued a final rule intended to simplify certain DTAsaspects of the regulatory capital rules for banking organizations, such as Reliant Bank, that are not advanced approaches banking organizations. This final rule is intended to simplify the regulatory capital treatment for mortgage servicing assets, certain deferred tax assets arising from temporary differences, MSAs, and significant investments in the capital of unconsolidated financial institutions, inand the formcalculation of common stockminority interests. These changes were effective for Reliant Bank effective January 1, 2020.
Bank holding companies that qualify for the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (the “Small Bank Holding Company Policy Statement”) are each subjectexempt from consolidated capital requirements. The Small Bank Holding Company Policy Statement is generally applicable to an individual limitbank holding companies with consolidated assets of 10% of common equity Tier 1 capital elements and are subject to an aggregate limit of 15% of common equity Tier 1 capital elements. The amount of these items in excess of the 10% and 15% thresholds are to be deducted from common equity Tier 1 capital. Amounts of MSAs, DTAs, and significant investments in unconsolidated financial institutionsless than $3 billion that are not deducted dueengaged in significant nonbanking activities, either directly or through a nonbank subsidiary; do not conduct significant off-balance sheet activities, either directly or through a nonbank subsidiary; and do not have a material amount of debt or equity securities outstanding (other than trust preferred securities) that are registered with the SEC. Historically, the Company has qualified for the Small Bank Holding Company Policy Statement and, therefore, has not been subject to the aforementioned 10% and 15% thresholds must be assignedFederal Reserve’s capital adequacy guidelines on a 250% risk weight. Finally,consolidated basis at the regulations increasebank holding company level. As of the risk weights for past-due loans, certain commercial real estate loans, and some equity exposures, and make selected other changes in risk weights and credit conversion factors.end of the third quarter of 2020, however, the Company’s total consolidated assets exceeded $3 billion.
Basel III took effect on January 1, 2015, whereas the capital conservation buffer and the deductions from common equity Tier 1 capital were phased in over time. Similarly, non-qualifying capital instruments were phased out over time, except as described above. Most existing non-qualifying capital instruments issued by community banks before May 19, 2010, such as trust preferred securities and cumulative perpetual preferred stock, continue to count as regulatory capital.
The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Regulatory“Regulatory Relief Act”Act”), enacted on May 24, 2018, requiresprovided for the simplification of the regulatory capital rules for certain financial institutions and their holding companies with total consolidated assets of less than $10 billion. The Regulatory Relief Act required the federal banking agencies to develop a community bank leverage ratio (defined as the ratio of tangible equity capital to average total consolidated assets)(“CBLR”) for qualifying banks and holding companies with total consolidated assets of less than $10 billion and an appropriate risk profile. The required regulations must specifyRegulatory Relief Act mandated a minimum community bank leverage ratioCBLR of not less than 8% and not more than 10%, as well as procedures for treatment of a qualifying community bank that has a community bank leverage ratio that falls below the required minimum. Qualifying banks that exceed the minimum community bank leverage ratio will be exempt from Basel III capital rules and deemed to be in compliance with all other capital and leverage requirements.
On November 21, 2018, pursuant to the Regulatory Relief Act,. In October 2019, the federal banking agencies issued a notice of proposed rulemaking proposingfinal rule implementing the CBLR framework and setting the CBLR at 9%. Under the final rule, the CBLR is calculated, generally, as Tier 1 capital divided by average total consolidated assets (minus amounts deducted from Tier 1 capital). Under this final rule, which was effective January 1, 2020, a qualifying community bankbanking organization that has opted to use the CBLR framework is considered to have met the generally applicable risk-based and leverage capital requirements, the capital ratio requirements to be considered “well capitalized” under the prompt corrective action framework (discussed below), and any other capital or leverage requirements to which the qualifying community banking organization is subject, if it maintains a CBLR greater than 9% (which threshold has as discussed below been temporarily reduced). A qualifying community banking organization is a non-advanced approaches banking organization, such as Reliant, that has a leverage ratio of greater than 9%. The comment period (which threshold has as discussed below been temporarily reduced), total consolidated assets of less than $10 billion, total off-balance sheet exposures (excluding derivatives other than sold credit derivatives and unconditionally cancelable commitments) of 25% or less of total consolidated assets, and total trading assets and trading liabilities of 5% or less of total consolidated assets. Pursuant to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), a $2 trillion legislative package signed into law in March 2020 to combat the
economic downturn precipitated by the COVID-19 pandemic, the federal banking agencies in October 2020 adopted a final rule reducing the CBLR to 8% effective for the proposed rule has since closedsecond quarter of 2020 and 8.5% effective January 1, 2021. The CBLR is scheduled to return to 9% effective January 1, 2022. While we believe we qualify as a qualifying community banking organization, we have not opted into the CBLR framework.
Our failure to comply with applicable capital adequacy guidelines could lead to limitations on our business and operations, including limitations on our ability to engage in expansionary activities such as mergers and acquisitions and the regulationestablishment of new branch officers, as well as mandatory or discretionary actions by our regulators that could have a direct material effect on our financial condition and results of operations.
Federal Deposit Insurance Corporation Improvement Act of 1991
Federal law and regulations establish a capital-based regulatory framework designed to promote early intervention (or “prompt corrective action”) for troubled banks. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires federal banking regulators to take “prompt corrective action” with respect to FDIC-insured depository institutions that do not meet certain minimum capital requirements. FDICIA established five capital categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” Under currently applicable prompt corrective action regulations, an FDIC-insured depository institution is considered to be well capitalized if (i) it maintains a Tier 1 leverage capital ratio of no less than 5%, a common equity Tier 1 risk-based capital ratio of no less than 6.5%, a Tier 1 risk-based capital ratio of no less than 8%, and a total risk-based capital ratio of no less than 10% percent and (ii) it is not yet finalized. The final community bank ratio is not known at this time.
Failuresubject to any order or written directive to meet statutorily mandatedand maintain a specific capital guidelineslevel for any capital measure. An FDIC-insured depository institution generally is considered to be adequately capitalized if it maintains a Tier 1 leverage capital ratio of at least 4%, a common equity Tier 1 risk-based capital ratio of at least 4.5%, a Tier 1 risk-based capital ratio of at least 6%, and a total risk-based capital ratio of at least 8%. An FDIC-insured depository institution is considered to be undercapitalized if it has a Tier 1 leverage capital ratio of less than 4%, a common equity Tier 1 risk-based capital ratio of less than 4.5%, a Tier 1 risk-based capital ratio of less than 6%, or a total risk-based capital ratio of less than 8%. An FDIC-insured depository institution is defined to be significantly undercapitalized if it has a Tier 1 leverage capital ratio of less than 3%, a common equity Tier 1 risk-based capital ratio of less than 3%, a Tier 1 risk-based capital ratio of less than 4%, or a total risk-based capital ratio of less than 6%. An institution is considered critically undercapitalized if it fails to maintain tangible equity to total assets of greater than 2%. An insured depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating.
A qualifying community banking organization that has opted into the CBLR framework and maintains a CBLR in excess of the required CBLR (currently 8.5% until January 1, 2022 when it will increase to 9%) will generally be considered “well capitalized” under the prompt corrective action regulations. If a qualifying community banking organization that has opted into the CBLR framework subsequently fails to satisfy one or more restrictive ratios separately establishedof the CBLR criteria but continues to report a CBLR in excess of the required minimum CBLR (currently 7.5% until January 1, 2022 when it will increase to 8%), the organization can continue to use the CBLR framework and be deemed to meet the ‘‘well capitalized’’ capital ratio requirements for a financialgrace period of up to two quarters. An organization that is unable to restore compliance with all qualifying criteria during the two-quarter grace period (including coming into compliance with the required leverage ratio requirement) or that reports a leverage ratio not in excess of the required minimum ratio would be subject to the generally applicable prompt corrective action capital requirements. As mentioned above, we have not opted into the CBLR framework.
Federal banking regulators are required to take various mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to institutions in the three undercapitalized categories. The severity of the action taken depends upon the capital category in which an institution couldis placed.
FDICIA generally prohibits an FDIC-insured depository institution from making any capital distributions (including dividend payments) or paying any management fee to its holding company if the depository institution is or would thereafter be undercapitalized. Undercapitalized depository institutions are required to submit capital restoration plans guaranteed by their holding companies (as applicable), are subject the institutionto limitations on asset growth, and are subject to limitations on acquisitions, branching, and engaging in new lines of business. Significantly undercapitalized depository institutions (as well as undercapitalized institutions that fail to submit or implement an acceptable capital plan) are subject to a varietynumber of enforcement remedies availableincreasingly more stringent requirements and restrictions, including orders to state and federal regulatory authorities, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting or renewing brokered deposits,sell sufficient stock to become adequately capitalized, limitations on the interest rates paid on deposits, mandates to alter, reduce, or terminate activities determined to pose excessive risk, prohibitions on accepting deposits from correspondent depository institutions, and limitations on compensation paid to
senior executive officers (in addition to the requirements and restrictions applicable to undercapitalized institutions). Critically undercapitalized depository institutions are subject to the appointment of a receiver or conservator.
Additionally, an insured depository institution that is not adequately capitalized may not accept, renew, or roll over brokered deposits unless it has applied for and been granted a waiver and, even if granted a waived, the institution may not pay an effective yield on itsany such deposits and other restrictions on its business.which exceeds certain regulatory thresholds. An undercapitalized institution may not accept, renew, or roll over brokered deposits.
Tennessee Banking Act; Federal Deposit Insurance Act
Reliant Bank is incorporated under the laws of the State of Tennessee and is subject to the applicableThe capital-based prompt corrective action provisions of the laws of the State of Tennessee, including state corporateFDICIA and banking laws. Reliant Bank is subjecttheir implementing regulations apply to the supervision ofFDIC-insured depository institutions and regular examination by the TDFI. Reliant Bank is a member ofare not directly applicable to companies that control those institutions. However, the Federal Reserve has indicated that, in regulating bank and therefore, is subjectfinancial holding companies, it will take appropriate action at the holding company level based on an assessment of the effectiveness of supervisory actions imposed upon subsidiary depository institutions pursuant to these provisions and regulations.
Federal Reserve regulations and policies and is subject to regular examination by the Federal Reserve. Deposit Insurance
Reliant Bank’s deposits are insured up to prescribed statutory limits by the FDIC through the Deposit Insurance Fund (“DIF”), and Reliantof the FDIC. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category.
The Bank is therefore, subject to the provisions of the Federal Deposit Insurance Act (“FDIA”).
The FDIC has adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. Under the Dodd-Frank Act, the FDIC was required to adopt regulations that would base deposit insurance assessments onto maintain the Deposit Insurance Fund. In this regard, the Bank is required to remit quarterly deposit insurance premiums to the FDIC. Insurance premiums for each insured depository institution are determined based upon the institution’s capital level and supervisory rating provided to the FDIC by the institution’s primary federal regulator and other information the FDIC determines to be relevant to the risk posed to the Deposit Insurance Fund by the institution. The assessment rate determined by considering such information is then applied to the amount of the insured depository institution’s average consolidated total assets less capital rather than deposit liabilities andits average tangible equity during the assessment period to include off-balance sheet liabilities of institutions and their affiliates in risk-based assessments. The Emergency Economic Stabilization Act (“EESA”) provided for a temporarydetermine the insured depository institution’s insurance premiums. An increase in the basic limitBank’s assessment rate could have a material and adverse effect on federal deposit insurance coverage from $100,000 to $250,000 per depositor. This increased levelour earnings, depending on the amount of basic deposit insurance was made permanent by the Dodd-Frank Act. In addition, on October 14, 2008, theincrease. The FDIC instituted temporary unlimited FDIC coverage of non-interest-bearing deposit transaction accounts, but this extra coverage expired December 31, 2012. The Dodd-Frank Actmay also repealed the prohibition on paying interest on demand transaction accounts, but did not extend unlimited insurance protection for these accounts.impose special assessments in emergency situations.
The FDIC may terminate itsthe deposit insurance of depositsany insured depository institution if itthe FDIC finds that a financialthe institution has engaged in or is engaging in unsafe andor unsound practices, is in an unsafe or unsound condition, to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by a federal bankthe FDIC or any other regulatory agency.
Tennessee statutes and federal law regulate a variety The termination of the banking activities of Reliant Bank, including required reserves, investments, loans, mergersBank’s deposit insurance would have a material and acquisitions, issuances of securities, payments of dividends, and the establishment of branches. There are certain limitations under federal and Tennessee lawadverse effect on the payment of dividends by banks or bank or financial holding companies. A state bank, with the approval of the TDFI, may transfer funds from its surplus account to the undivided profits (retained earnings) account or any part of its paid-in-capital account. The payment of dividends by any bank is dependent upon its earnings andour financial condition and in addition to the limitations referred to above, is subject to the statutory powerresults of certain federal and state regulatory agencies to act to prevent what they deem unsafe or unsound banking practices. The payment of dividends by Reliant Bank could, depending upon the bank’s financial condition, be deemed to constitute such an unsafe or unsound practice. Also, without regulatory approval, a dividend only can be paid in one year to the extent of the net income of the bank for that year plus the net income of the prior two years. The FDIA prohibits a state bank, the deposits of which are insured by the FDIC, from paying dividends if it is in default in the payment of any assessments due the FDIC.operations.
State banks also are subject to regulation respecting the maintenance of certain minimum capital levels (described above), and Reliant Bank is required to provide certain periodic reports and such additional information as the Tennessee Banking Act and applicable federal laws, rules, and regulations require. Reliant Bank is also subject to certain restrictions on loan amounts, interest rates, “insider” loans to officers, directors and principal shareholders, tying arrangements, privacy, transactions with affiliates, and many other matters. Strict compliance at all times with state and federal banking laws is required.
Tennessee law contains limitations on the interest rates that may be charged by banks on various types of loans and restrictions on the nature and amount of loans that may be granted and on the types of investments that may be made by banks. The operations
of banks are also affected by various consumer laws and regulations, including those relating to equal credit opportunity and regulation of consumer lending practices. All Tennessee banks must become and remain insured banks under the FDIA.
Under Tennessee law, a state bank is prohibited from lending to any one person, firm, or corporation amounts more than 15% of its equity capital accounts, except (i) in the case of certain loans secured by negotiable title documents covering readily marketable nonperishable staples or (ii) that the bank may make a loan to one person, firm or corporation in an amount up to 25% of its equity capital accounts with the prior written approval of the bank’s board of directors.
Community Reinvestment Act
The Community Reinvestment Act of 1977, as amended (the “CRA”“CRA”), first enacted by Congress in 1977 and amended from timerequires depository institutions to time thereafter, requires that each depository institution’s record of helping meet the needs of its entire community be evaluated by the depository institution’s primary federal regulator. The CRA helps assure that banks and other financial institutions make credit available to low- and moderate-income borrowers, consistent with safe and sound operations. These regulations provide for a regular assessment of a bank’s recordassist in meeting the credit needs of its service area. Federaltheir market areas consistent with safe and sound banking agencies arepractices. Under the CRA, each depository institution is required to make public a ratinghelp meet the credit needs of aits market areas by, among other things, providing credit or other financial assistance to low-income and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings, which ratings are made publicly available by the federal banking agencies. A bank’s CRA performance under the CRA. Theis also considered by federal banking agencies consider a bank’s CRA rating when a bank submits an application to establish banking centers, merge, or acquire the assetsin evaluating applications seeking approval for things such as mergers, acquisitions, and assume the liabilities of another bank. In the case of an application by a bank or financial holding company for approval of a merger or acquisition, thenew branch facilities. Reliant Bank’s CRA performance record of all banks involved inis evaluated by the merger or acquisition are reviewed in connection with the application filing. An unsatisfactory record of CRA performance can substantially delay, block or result in the imposition of conditions in connection with expansionary activities. ReliantFederal Reserve. The Bank’s lastmost recent CRA performance evaluation was in October 2016, and Reliant Bank was assigned areceived an overall rating of “Satisfactory.” Reliant Bank’s failure to fulfill its obligations under the CRA could prohibit or delay us from engaging in expansionary activities or result in regulatory restrictions or conditions being imposed in connection with those activities.
Federal Deposit Insurance Corporation Improvement Act of 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) substantially revised the depository institution regulatory and funding provisions of the FDIA, and revised several other federal banking statutes. Among other things, FDICIA requires the federal banking regulators to take “prompt corrective action” in respect of FDIC-insured depository institutions that do not meet minimum capital requirements. FDICIA established five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” Under currently applicable prompt corrective action regulations, an FDIC-insured depository institution is defined to be well capitalized if (i) it maintains a Tier 1 leverage capital ratio of at least 5%, a common equity Tier 1 risk-based capital ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least 8%, and a total risk-based capital ratio of at least 10% and (ii) it is not subject to a directive, order, or written agreement to meet and maintain specific capital levels. An FDIC-insured depository institution is defined to be adequately capitalized if it maintains a Tier 1 leverage capital ratio of at least 4%, a common equity Tier 1 risk-based capital ratio of at least 4.5%, a Tier 1 risk-based capital ratio of at least 6%, and a total risk-based capital ratio of at least 8%. An-FDIC insured depository institution is defined to be undercapitalized if it has a Tier 1 leverage capital ratio of less than 4%, a common equity Tier 1 risk-based capital ratio of less than 4.5%, a Tier 1 risk-based capital ratio of less than 6%, or a total risk-based capital ratio of less than 8%. An-FDIC insured depository institution is defined to be significantly undercapitalized if it has a Tier 1 leverage capital ratio of less than 3%, a common equity Tier 1 risk-based capital ratio of less than 3%, a Tier 1 risk-based capital ratio of less than 4%, or a total risk-based capital ratio of less than 6%. An institution is considered critically undercapitalized if fails to maintain tangible equity to total assets of greater than 2%. An insured depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating.
The capital-based prompt corrective action provisions of FDICIA and their implementing regulations apply to FDIC-insured depository institutions and are not directly applicable to the holding companies that control those institutions. However, the Federal Reserve has indicated that, in regulating bank and financial holding companies, it will take appropriate action at the holding company level based on an assessment of the effectiveness of supervisory actions imposed upon subsidiary depository institutions pursuant to these provisions and regulations.
FDICIA generally prohibits an FDIC-insured depository institution from making any capital distribution (including payments of dividends) or paying any management fee to its holding company (if any) if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve. In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. A depository institution’s holding company must guarantee the capital plan, up to an amount equal to the lesser of 5% of the depository institution’s assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. If a depository institution fails to submit an acceptable capital plan, it is treated as if it is significantly undercapitalized.
These levels will differ for community banks such as Reliant Bank who qualify for and elect to use the new community bank leverage ratio pursuant to the requirements of the Regulatory Relief Act. The Regulatory Relief Act requires federal banking agencies to develop a community bank leverage ratio (defined as the ratio of tangible equity capital to average total consolidated assets) for banks and holding companies with total consolidated assets of less than $10 billion and an appropriate risk profile. The required regulations must specify a minimum community bank leverage ratio of not less than 8% and not more than 10%, as well as procedures for treatment of a qualifying community bank that has a community bank leverage ratio that falls below the required minimum. Qualifying banks that exceed the minimum community bank leverage ratio will be deemed to be in compliance with all other capital and leverage requirements.
On November 21, 2018, pursuant to the Regulatory Relief Act, the federal banking agencies issued a notice of proposed rulemaking proposing a community bank leverage ratio of 9% and corresponding capital adequacy levels. As proposed, a community bank with a community bank leverage ratio of greater than 9% would be considered “well capitalized;” a community bank with a community bank leverage ratio of 7.5% or greater would be considered “adequately capitalized;” a community bank with a community bank leverage ratio of less than 7.5% would be considered “undercapitalized;” and a community bank with a community bank leverage ratio of less than 6% would be considered “significantly undercapitalized” and would be required to provide its primary regulator with additional information in order to determine whether such organization would be classified as “critically undercapitalized.” The comment period for the proposed rule has since closed, but the regulation is not yet finalized.
Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator generally within 90 days of the date on which they became critically undercapitalized.
The FDIC has adopted regulations under FDICIA governing the receipt of brokered deposits and pass-through insurance. Under the regulations, a bank cannot accept, roll over or renew brokered deposits unless it is well-capitalized or it is adequately capitalized and receives a waiver from the FDIC. A bank that cannot receive brokered deposits also cannot offer “pass-through” insurance on certain employee benefit accounts. Whether or not it has obtained this waiver, an adequately capitalized bank may not pay an interest rate on any deposits in excess of 75 basis points over certain index prevailing market rates specified by regulation. There are no such restrictions on a bank that is well-capitalized.
FDICIA contains numerous other provisions, including accounting, audit and reporting requirements, termination of the “too big to fail” doctrine except in special cases, limitations on the FDIC’s payment of deposits at foreign branches, new regulatory standards in such areas as asset quality, earnings and compensation and revised regulatory standards for, among other things, powers of state banks, real estate lending and capital adequacy. FDICIA also requires that a depository institution provide 90 days prior notice of the closing of any branches.
Gramm-Leach-Bliley Act
In 1999, theThe Gramm-Leach-Bliley Act (“GLBA”GLBA”), enacted in 1999, expanded the universe of activities in which bank holding companies and affiliates of banks are permitted to engage. GLBA eliminated many historical barriers to affiliations among banks and securities firms, insurance companies, and other financial service providers. Under GLBA, a bank holding company which has elected to become a financial holding company, like Reliant Bancorp has done, is able to engage especially in an expanded range of activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity, subject in certain instances to prior Federal Reserve approval.
Additionally, pursuant to GLBA, federal banking regulators have adopted regulations limiting the areasability of securitiesbanks and insurance. This law also includes requirements regarding the privacy and protection of non-public customer information held by financial institutions, as well as many other providers of financial services. There are provisions providing for functional regulation of the various services provided by institutions among different regulators. GLBA codified the “safeguards rule” which requires financial institutions to developdisclose nonpublic consumer information to non-affiliated third parties. The regulations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to nonaffiliated third parties. Under GLBA and its implementing regulations, banks and other financial institutions are required to implement a writtencomprehensive information security planprogram that describes howincludes administrative, technical, and physical safeguards to ensure the company is prepared forsecurity and plansconfidentiality of customer records and information. Pursuant to continueGLBA and certain state laws, financial institutions are required to protect customers’ and consumers’ non-publicnotify customers of security breaches resulting in unauthorized access to their personal information. GLBA did not remove the restrictions in the Bank Holding Company Act that prevent non-financial companies from entering retail and/or commercial banking. Finally, among many other sections of this law, there is some relief for small banks from the regulatory burden of the Community Reinvestment Act.
Bank Secrecy Act and USA PATRIOT Act
The Currency and Foreign Transactions Reporting Act of 1970, better known as the Bank Secrecy Act (“BSA”(the “BSA”), requires all United States financial institutions to assist United States government agencies to detect and prevent money laundering. Specifically, the BSA requires financial institutions to (i) keep records of cash purchases of negotiable instruments; (ii) file reports of cash transactions exceeding a daily aggregate amount of $10,000; to(iii) report suspicious activity that might signify money laundering, tax evasion, or other criminal activities; and to(iv) obtain and retain information regarding the identify and verification of the beneficial owners of business customers.
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA“USA PATRIOT Act”Act”) substantially broadened existing anti-money laundering legislation and the extraterritorial jurisdiction
of the United States, imposed new compliance and due diligence obligations, defined new crimes and penalties, compelled the production of documents located both inside and outside the United States, including those of foreign institutions that have a correspondent relationship in the United States, and clarified the safe harbor from civil liability to customers. The U.S.United States Treasury Department has issued a number of regulations implementing the USA PATRIOT Act that apply certain of its requirements to financial institutions such as Reliant Bank. The regulations impose obligations on financial institutions to maintain appropriate policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing.
Under the USA PATRIOT Act, all “financial institutions” (as therein defined) must establish anti-money laundering compliance and due diligence programs. Such programs must include, among other things, adequate policies, the designation of a compliance officer, employee and director training programs, an independent audit function to review and test the program, and the ongoing due diligence and monitoring of customer relationships including the beneficial owners of business customers.
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
In July 2010, the Dodd-Frank Act was signed into law incorporatingbringing about numerous financial institution regulatory reforms. Many of these reforms were implemented between 2011 and 2014 through regulations promulgated by banking and securities regulators. The following discussion describes certain material elements of the regulatory framework. Many of the Dodd-Frank Act provisions are stated to only apply to larger financial institutions and do not directly impact community-based institutions like Reliant Bank. For instance, provisions that regulate derivative transactions and limit derivatives trading activity of federally-insured institutions, enhance supervision of “systemically significant” institutions, impose new regulatory authority over hedge funds, limit proprietary trading by banks, and phase-out the eligibility of trust preferred securities for Tier 1 capital are among the provisions that do not directly impact Reliant Bank either because of exemptions for institutions below a certain asset size or because of the nature of ourthe bank’s operations. Other provisions of the Dodd-Frank Act that impact Reliant Bank include provisions that:
Change
•Changed the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminateeliminated the ceiling for and increase the size ofincreased the floor of the DIF,Deposit Insurance Fund, and offset the impact of the increase in the minimum floor on institutions with less than $10 billion in assets.
Make•Made permanent the $250,000 limit for federal deposit insurance.
Repeal•Repealed the federal prohibition on payment of interest on demand deposits, thereby permitting depositingdepository institutions to pay interest on business transaction and other accounts.
•Centralized responsibility for consumer financial protection by creating a new agency, the Bureau of Consumer Financial Protection, also known as the Consumer Financial Protection Bureau (the “CFPB”“CFPB”), responsible for implementing federal consumer protection laws, although banks below $10 billion in assets continue to be examined and supervised for compliance with these laws by their primary federal bank regulator.
Restrict•Restricted the preemption of state law by federal law and disallowdisallowed national bank subsidiaries from availing themselves of such preemption.
Impose•Imposed new requirements for mortgage lending, including new minimum underwriting standards, prohibitions on certain yield-spread compensation to mortgage originators, special consumer protections for mortgage loans that do not meet certain provision qualifications, prohibitions and limitations on certain mortgage terms, and various new mandated disclosures to mortgage borrowers.
Apply•Made applicable to certain bank and financial holding companies (currently, generally, those with $3 billion or more in total consolidated assets) the same leverage and risk basedrisk-based capital requirements that apply to insured depository institutions to bank and financial holding companies.institutions.
•Permit national and state banks to establish de novo interstate branches at any location where a bank based in that state could establish a branch and require that bank and financial holding companies and banks be well-capitalized and well managed in order to acquire banks located outside their home state.
Impose•Imposed new limits on affiliated transactions and cause derivative transactions to be subject to lending limits.
Implement•Implemented corporate governance revisions, including with regard to executive compensation and proxy access to shareholders, that apply to all public companies, not just financial institutions.
The Dodd-Frank Act has increased the regulatory burdens,burden, compliance costs, and non-interestnoninterest expense for community banks. Of particular concern to many community banks is the depth and breadth of the powers of the CFPB, which has previously had and may in the future have significant impacts on consumer compliance regulation andresulting in increased regulatory compliance costs, particularly for smaller depository institutions.
Economic Growth, Regulatory Relief and Consumer Protection Act
The Regulatory Relief Act was enacted in 2018 to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act. While it maintainsmaintained the majority of the regulatory structure established by the Dodd-Frank Act, the Regulatory Relief Act amendsamended certain aspects for smallsmaller depository institutions with less than $10 billion in assets, such as Reliant Bank. Sections inPortions of the Regulatory Relief Act address access to mortgage credit; consumer access to credit; protections for veterans, consumers, and homeowners; rules for certain bank or financial holding companies; capital access; and protections for student borrowers. Reliant Bancorp and Reliant Bank have focused and will continue to focus on the implementing rules and guidance for the various provisions in each section of the Regulatory Relief Act that impact their operations and activities.
Among other items,
As discussed above, the Regulatory Relief Act simplifiesprovided for the simplification of the regulatory capital rules for most financial institutions and their holding companies with total consolidated assets of less than $10 billion. The Regulatory Relief Act requires federal banking agencies to develop abillion by establishing the community bank leverage ratio (defined as the ratio of tangible equity capital to average total consolidated assets) for banks and holding companies with total consolidated assets of less than $10 billion and an appropriate risk profile. The required regulations must specify a minimum community bank leverage ratio of not less than 8% and not more than 10%, as well as procedures for treatment of a qualifying community bank that has a community bank leverage ratio that falls below the required minimum. Qualifying banks that exceed the minimum community bank leverage ratio will be deemed to be in compliance with all other capital and leverage requirements.(CBLR) framework.
On November 21, 2018, pursuant to the Regulatory Relief Act, the federal banking agencies issued a notice of proposed rulemaking proposing a community bank leverage ratio of 9%. The comment period for the proposed rule has since closed, but the regulation is not yet finalized. The final community bank ratio is not known at this time.
The Regulatory Relief Act also expandsexpanded the universe of bank holding companies that are permitted to rely on the “SmallSmall Bank Holding Company and Savings and LoanPolicy Statement by increasing the size of qualifying bank holding companies that can rely on the Small Bank Holding Company Policy Statement.” The asset size of a qualifying holding company was increasedStatement from $1 billion in total consolidated assets to $3 billion on August 30, 2018, thus excludingin total consolidated assets. Bank holding companies in this categorythat qualify for the Small Bank Holding Company Policy Statement are exempt from consolidated capital requirements. However,requirements, even though their subsidiary depository institutions continue to be subject to minimum capital requirements.adequacy guidelines.
The Company historically has qualified for the Small Bank Holding Company Policy Statement. As of the end of the third quarter of 2020, however, the Company’s total consolidated assets exceeded $3 billion.
Further, the Regulatory Relief Act decreased the burden for community banks in regardsregard to call reports, the Volcker Rule (which generally restricts banks from engaging in certain investment activities and limits involvement with hedge funds and private equity firms), mortgage disclosures, and risk weights for some high-risk commercial real estate loans. On December 28, 2018, the federal banking agencies issued a final rule increasingimplementing Section 210 of the Regulatory Relief Act that increased the asset threshold to qualify for an 18-month examination cycle from $1 billion to $3 billion for qualifying institutions that are well capitalized, well managedwell-capitalized, well-managed and meet certain other requirements.
Any number of the provisions of the Regulatory Relief Act, or regulations issued thereunder, may have the effect of increasing our operating costs and expenses generally, decreasing our revenues, or changing the activities in which we chooseschoose to engage.
Developments Related to the COVID-19 Pandemic
The environmentUnited States Congress, the Federal Reserve, and other federal and state regulatory agencies have taken actions to mitigate disruptions to economic activity and financial stability resulting from the COVID-19 pandemic. The following summarize certain significant government actions taken in response to the COVID-19 pandemic.
CARES Act. The Coronavirus Aid, Relief and Economic Security Act was signed into law on March 27, 2020, and has subsequently been amended. Section 4013 of the CARES Act provides that financial institutions may elect to account for certain COVID-19-related loan modifications as not being troubled debt restructurings. Additionally, on April 7, 2020, federal banking regulators issued an Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus (Revised), which banking organizations operate,replaced a prior interagency statement predating the CARES Act. The revised interagency statement encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual payment obligations because of the effects of COVID-19. It also addresses loan modifications not meeting the criteria set forth in Section 4013 of the CARES Act or for which financial institutions elect not to apply Section 4013. With respect to these loan modifications, the revised interagency statement provides that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current on their contractual payments at the time of implementation of a modification program are not troubled debt restructurings. We have generally attempted to work within these parameters established by the CARES Act and this interagency guidance.
The CARES Act also provided for a special loan program administered through the United States Small Business Administration (“SBA”) commonly known as the “Paycheck Protection Program.” A primary purpose of the Paycheck Protection Program (“PPP”) is to promote economic stabilization and provide relief to severely distressed businesses by providing for forgivable loans to small businesses to be used for, among other things, payroll costs (including benefits), rent, mortgage interest, and utilities. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders, subject to numerous limitations and eligibility criteria.
The CARES Act also contained protections for homeowners and renters of properties with federally-backed mortgages, including a 60-day moratorium on the initiation of foreclosure proceedings and a 120-day moratorium on the initiation of eviction proceedings. Borrowers on federally-backed mortgages have the right under the CARES Act to request up to 360 days of forbearance on their mortgage payments if they experience financial hardship directly or indirectly due to the COVID-19 pandemic. The Federal Housing Administration, Fannie Mae and Freddie Mac have independently extended their moratorium on foreclosures and evictions for single-family federally backed mortgages as well.
In late December 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”) rebooted the PPP. The rebooted program has many of the same parameters as the first program, but there are some important differences. Notable changes include the ability for businesses that previously received a PPP loan to be eligible for a second-draw PPP loan, provided they meet certain criteria. The Economic Aid Act also opened up first-draw PPP loans to additional companies and set aside funds for new and smaller borrowers, low and moderate income borrowers and for community and small lenders. It also allowed additional costs to be eligible for loan forgiveness, and borrowers will have to spend no less than 60% of loan funds on payroll over a covered period.
Federal Reserve Actions. The Federal Reserve has taken a range of actions to support the flow of credit to households and businesses, including reducing the target federal funds rate and maintaining an accommodating stance on monetary policy. The
Federal Reserve also announced that it would increase its holdings of United States Treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. Further, the Federal Reserve has encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowings by 150 basis points while extending the term of such loans up to 90 days. Reserve requirements were reduced to zero as of March 26, 2020.
In addition, the Federal Reserve has established a range of facilities and programs to support the United States economy and United States marketplace participants in response to economic disruptions associated with COVID-19. Through these facilities and programs, the Federal Reserve has taken steps to directly or indirectly purchase assets from, or make loans to, United States companies, financial institutions, municipalities and other market participants. The Federal Reserve established the Payroll Protection Program Liquidity Facility under which banks can obtain financing for PPP loans by pledging them to the Federal Reserve. Banks also have the ability to increase their borrowing capacity at the Federal Home Loan Bank by pledging PPP loans.
Additional legislative and regulatory changes affecting capital, liquidity, supervision, permissible activities, corporate governanceaction may be proposed as a result of the COVID-19 pandemic, any of which may include requirements that could significantly impact our business practices and compensation, changes in fiscal policyoperations. The impact of these legislative and steps to eliminate government support for banking organizations, may have long-term effectsregulatory initiatives on us, the profitabilityeconomy and United States consumers will depend upon a wide variety of banking organizations thatfactors some of which cannot now be foreseen.
It is difficultdetermined at this time to determine the direct impact of the Regulatory Relief Act on Reliant Bancorp and Reliant Bank. Implementing rules and regulations are required and many have not yet been written or finalized.time.
Jumpstart Our Business Startups Act of 2012
The Jumpstart Our Business Startups Act (the “JOBS Act”) increased the threshold under which a bank or bank holding company may terminate registration of a security under the Securities Exchange Act of 1934, as amended, to 1,200 shareholders of record from 300. The JOBS Act also raised from 500 to 2,000 the number of “record” shareholders of a class of equity securities that triggers the requirements for an issuer to register that class of securities and become a public reporting company. Since the JOBS Act was signed, numerous banks and bank holding companies have filed to deregister their common stock.
Current Expected Credit Loss (CECL)
A
In June 2016, a new accounting standard changing the current method for providing for allowances for loan and lease losses has been adoptedwas introduced by the Financial Accounting Standards Board. This new standard is commonly referred to as the Current Expected Credit Loss (“standard, or “CECL”. Under CECL,”) financial institutions are required to determine periodic estimates of lifetime expected credit losses on loans and held to maturity securities and recognize the expected credit losses through provision for loan losses, which is a marked departure from the current method of provisioning for incurred loan and lease losses. In December 2018, federal banking agencies issued a joint final rule to revise the regulatory capital rules to, among other things, address the implementation of CECL and provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations may experience upon adopting CECL.
becomesCECL is currently scheduled to become effective for Reliant Bank in 2021.2023. The use of this standard will increase the types of data required to determine the appropriate level of theReliant Bank’s allowance for loan and lease losses.
The use of this standard may potentially increase Reliant Bank’s allowance for loan and lease losses. Any increase in Reliant Bank’s allowance for loan and lease losses or expenses incurred in order to make the determination for such allowance could have a material and adverse effect on Reliant Bank’s financial condition and results of operations. The direct effects of CECL on Reliant Bank are not yet known.
Other Laws and Regulations
InterestLoan interest and other charges that Reliant Bank collects or contracts for are subject to state usury laws and federal laws concerning interest rates. Reliant Bank’s loan operations are also subject to federal laws applicable to credit transactions, such as:
•The federal Truth-In-Lending Act, governingwhich governs disclosures of credit terms to consumer borrowers;
•The Home Mortgage Disclosure Act, requiringwhich requires financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligationobligations to help meet the housing needs of the communities it serves;
•The Equal Credit Opportunity Act, prohibitingwhich prohibits discrimination in extending credit on the basis of race, creedcolor, religion, national origin, sex, marital status, age, or other prohibited factors in extending credit;factors;
•The Fair Credit Reporting Act, governingwhich governs the use of consumer credit information and the provision of information to credit reporting agencies;
•The Fair Debt Collection Practices Act, governingwhich governs debt collection practices; and
•The rules and regulations of the various governmental agencies charged with the responsibility of implementing these federal laws.
In addition, Reliant Bank’s deposit operations are subject to the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.
FDIC Insurance Premiums
Reliant Bank is required to pay quarterly FDIC deposit insurance assessments to the DIF. The FDIC merged the Bank Insurance Fund and the Savings Association Insurance Fund to form the DIF on March 31, 2006, in accordance with the Federal Deposit Insurance Reform Act of 2005. The FDIC maintains the DIF by assessing depository institutions an insurance premium. The amount each institution is assessed is based on the institution’s average consolidated total assets less its average tangible equity during the assessment period as well as the degree of risk the institution poses to the insurance fund. The FDIC uses a risk-based premium system that assesses higher rates on those institutions that pose greater risks to the DIF.
The FDIC has a risk-based assessment system to adjust the risk-based calculation of an institution’s unsecured debt, secured liabilities and brokered deposits. On November 12, 2009, the FDIC announced a final rule to increase by 3 basis points the deposit assessment base rate, beginning January 1, 2011. Effective July 1, 2016, the initial base assessment rates for all insured institutions were reduced from 5 to 35 basis points to 3 to 30 basis points. Pursuant to the Regulatory Relief Act, the FDIC Board of Directors authorized the publication of a notice of proposed rulemaking proposing to apply the community bank leverage ratio framework to the deposit insurance assessment system. While an assessment estimator is available for use in determining the impact of the proposal on Reliant Bank, the regulation is not yet finalized and changes could be made.
Any future deposit insurance premium increases will adversely impact Reliant Bank’s earnings. Depending on any future losses that the FDIC insurance fund may suffer due to failed institutions, there can be no assurance that there will not be additional significant premium increases in order to replenish the fund.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by a federal bank regulatory agency.
Effects of Governmental Policies
Reliant Bank’s earnings are significantly affected by the difference between the interest earned by Reliant Bank on its loans and investments and the interest paid by Reliant Bank on its deposits or other borrowings. The yields on its assets and the rates paid on its liabilities are sensitive to changes in prevailing market rates of interest. Thus, the earnings and growth of Reliant Bank are influenced by general economic conditions, fiscal policies of the federal government, and the policies of regulatory agencies, particularly the Federal Reserve, which establishes national monetary policy. The nature and impact of any future changes in fiscal or monetary policies cannot be predicted.
Commercial banks such as Reliant Bank are affected by the credit policy of various regulatory authorities, including the Federal Reserve. An important function of the Federal Reserve is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Federal Reserve to implement theseits objectives are open market operations in U.S.United States Government securities, changes in reserve requirements onfor bank deposits, changes in the discount rate on bank borrowings and limitations on interest rates that banks may pay on time and savings deposits. The Federal Reserve uses these meansinstruments in varying combinations to influence the overall growth of bank loans, investments and deposits, and also to affect interest rates charged on loans, received on investments or paid for deposits.
The monetary and fiscal policies of regulatory authorities, including the Federal Reserve, also affect the banking industry. Through changes in the reserve requirements against bank deposits, open market operations in U.S.United States Government securities and changes in the discount rate on bank borrowings, the Federal Reserve influences the cost and availability of funds obtained for lending and investing. No prediction can be made with respect to possible future changes in interest rates, deposit levels or loan demand or with respect to the impact of such changes on the business, results of operations, and earnings of Reliant Bank.
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Future Legislation and Regulation
Various and significant legislation affecting financial institutions and the financial industry is from time to time introduced in the Tennessee General Assembly or the United States Congress, as evidenced by the sweeping reforms in the Dodd-Frank Act, and the subsequent rollback of portions of the Dodd-Frank Act that began in 2018. Many of the regulations mentioned above were adopted or amended pursuant to the Dodd-Frank Act. Additional legislation, is enacted which hasat both the effectstate and federal levels, may create new, or continue to change existing, banking statutes and regulations, and may alter the operating environment of increasing theReliant Bancorp and its subsidiaries, particularly Reliant Bank, in significant and unpredictable ways, and such legislation could significantly increase or decrease our cost of doing business, limitinglimit or expandingexpand the permissible activities in which we can engage, and/or affectingaffect the competitive balance between banks and otheramong financial institutions. With the enactments of EESA, the American RecoveryCurrent and Reinvestment Act, the Dodd-Frank Act, CECLfuture political and the significant number of regulations that have or will be promulgated under theseeconomic conditions and other laws affecting financial institutions,uncertainty makes the nature and extent of the future legislative and regulatory changes affecting financial institutions unpredictable.
Risk Factors Summary
You should carefully read and consider the risk factors set forth under Item 1A, “Risk Factors,” as well as all other information contained in this Annual Report. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect us. If any of these risks materialize, our business, financial position, results of operations, cash flows or prospects could be materially, adversely affected. While not an exhaustive list, our risk factors are generally designed to address the following factors:
Economic Risks
•Our operations are geographically concentrated in Middle Tennessee.
•Uncertain market conditions and economic trends could adversely affect our business, financial condition and results of operations.
•Reliant Bancorp may be adversely affected by the soundness of other financial institutions.
Credit and Interest Rate Risks
•Reliant Bank’s decisions regarding credit risk and provision for loan loss may materially and adversely affect its business.
•The amount of our nonperforming assets may increase significantly, resulting in additional losses and costs and expenses that will negatively affect our operations.
•Interest rate shifts could reduce net interest income and otherwise negatively impact our financial condition and results of operations.
•Reliant Bank’s focus on those institutionslending to small to mid-sized community-based businesses may increase Reliant Bank’s credit risk.
•If the underwriting quality supporting our mortgage loan originations is found to be deficient, our profitability could decrease and willwe may incur losses.
Strategic and Operational Risks
•We may be unpredictable. Bills are currently pendingunable to implement aspects of our growth strategy, which may have the effect of changing the way affect our ability to maintain historical earnings trends.
•Future growth may result in additional risks.
•We may face risks associated with future mergers and acquisitions and organic growth.
•Reliant Bancorp and/and Reliant Bank are dependent on retaining and recruiting key personnel.
•Our historical operating results may not be indicative of our future operating results.
•Reliant Bank faces strong competition for customers, which could prevent it from obtaining customers and may cause it to pay higher interest rates to attract customers.
•We may not be able to report financial results accurately and timely if we fail to maintain an effective system of disclosure controls and procedures and internal control over financial reporting.
•A failure in or breach of Reliant Bancorp’s or Reliant Bank’s computer or information technology systems or networks, or those of third parties, could disrupt our businesses and adversely impact our financial condition and results of operations, as well as cause us reputational harm.
•We may not be able to implement new technology to stay current with changes in the financial services industry.
•We may be adversely affected by technology or security breaches or failures on our part or that of a third party.
Liquidity Risks
•Liquidity risk could impair our ability to fund our operations and jeopardize our financial condition.
•Economic and other circumstances may require Reliant Bancorp to raise capital at times or in amounts that are unfavorable.
COVID-19 Pandemic Risks
•The COVID-19 pandemic has had and is likely to continue to have an adverse effect, which could be material, on our business, results of operations, and financial condition.
•Unpredictable future developments related to or resulting from the COVID-19 pandemic could materially and adversely affect our business and results of operations.
•The spread of COVID-19, or governmental responses to the same, may disrupt banking and other financial activity in the areas in which we operate and could potentially create business continuity issues for us.
•As a participating lender in the PPP, Reliant Bank conductsis subject to additional risks of litigation from its business.customers or other parties regarding Reliant Bank’s processing of loans for the PPP, regulatory risks, and risks that the SBA may not fund some or all PPP loan guaranties.
Statistical Information RequiredGeneral Risks
•The value of our goodwill and other intangible assets may decline in the future.
•We may be subject to environmental liabilities in connection with foreclosures on real estate assets securing our loan portfolio.
•We may experience increased credit losses and credit related expenses in the event of a major natural disaster, public health crisis (such as the COVID-19 pandemic), other catastrophic event or significant climate change effects.
Legal, Regulatory and Compliance Risks
•We are subject to extensive government regulation and supervision.
•Applicable capital requirements may prevent us from paying dividends or repurchasing shares or adversely impact our operating results.
•Reliant Bank’s FDIC deposit insurance premiums and assessments may increase.
•Laws and regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
•Anti-money laundering and anti-terrorism financing laws could have significant adverse consequences for us.
•Our financial condition and results of operations may be adversely affected by Guide 3changes in accounting standards and interpretations.
•We are subject to risks related to legal proceedings.
Risks Related to Our Common Stock
•The market price of our common stock may fluctuate causing investors to incur losses.
•Our common stock is less liquid than many other stocks quoted on a national securities exchange.
•Our ability to pay cash dividends is limited, and we may not be able to pay dividend in the future.
•Shares of Reliant Bancorp common stock are not FDIC insured.
ITEM 1A. RISK FACTORS
The statisticalInvesting in our common stock involves a high degree of risk. Before you decide to invest in our common stock, you should carefully consider the risks described below, together with all other information required to be displayed under Item 1 pursuant to Guide 3, “Statistical Disclosure by Bank Holding Companies,” of the Exchange Act Industry Guides is included in “Management’sthis Annual Report, including the disclosures in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included in Item 7.“Item 8. Financial Statements and Supplementary Data.” We believe the risks described below are the risks that are material to us as of the date of this Annual Report. If any of the following risks actually occur, our business, financial condition, results of operations and growth prospects could be materially and adversely affected. In that case, you could experience a partial or complete loss of your investment.
ITEM 1A. RISK FACTORS
Reliant Bancorp is geographically concentrated in Middle Tennessee, and changes in local economic conditions impact our profitability.
We currently operate primarily in the Nashville MSA and surrounding Middle Tennessee area, and most of our loan, deposit and other customers live or have operations in this area. Accordingly, our success significantly depends upon the growth in population, income levels, deposits, and housing starts in this market, along with the continued attraction of business ventures to the area, and our profitability is impacted by the changes in general economic conditions in this market. We cannot assure you that economic conditions, including loan demand, in our market will improve during 2021, or thereafter, and if economic conditions do not improve or worsen, we may not be able to grow our loan portfolio in line with our expectations, and the
ability of our customers to repay their loans to us may be negatively impacted and our financial condition and results of operations could be negatively impacted.
Compared to regional or national financial institutions, we are less able to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Moreover, we cannot give any assurance that we will benefit from any market growth or more favorable economic conditions in our primary market areas if they do occur.
Uncertain market conditions and economic trends could adversely affect our business, financial condition and results of operations.
We operate in an uncertain economic environment, including generally uncertain conditions nationally and locally in our industry and market. Financial institutions continue to be affected by volatility in the real estate market in some parts of the country and uncertain regulatory and interest rate conditions. We retain direct exposure to the residential and commercial real estate markets in Middle Tennessee, particularly in the Nashville MSA, and are affected by these events.
Our ability to assess the creditworthiness of customers and to estimate the losses inherent in our loan portfolio is made more complex by uncertain market and economic conditions. Global health concerns relating to the COVID-19 outbreak and related government actions taken to reduce the spread of the virus have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty and reduced economic activity. Unfavorable economic trends, sustained high unemployment, and declines in real estate values can cause a reduction in the availability of commercial credit and can negatively impact the credit performance of commercial and consumer loans, resulting in increased write-downs. These negative trends can cause economic pressure on consumers and businesses and diminish confidence in the financial markets, which may adversely affect our business, financial condition, results of operations and ability to access capital. A worsening of these conditions, such as a recession or economic slowdown, would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial services industry.
Our risk management practices, such as monitoring the concentration of our loans within specific industries and our credit approval practices, may not adequately reduce credit risk, and our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting customers and the quality of the loan portfolio. A national economic recession or deterioration of conditions in our market could drive losses beyond that which is provided for in our allowance for loan losses ("ALL") and result in one or more of the following consequences:
•increases in loan delinquencies;
•increases in nonperforming assets and foreclosures;
•decreases in demand for our products and services, which could adversely affect our liquidity position; and
•decreases in the value of the collateral securing our loans, especially real estate, which could reduce customers’ borrowing power and repayment ability.
Declines in real estate values, declines in volume of home sales and financial stress on borrowers as a result of the uncertain economic environment, including job losses, could have an adverse effect on our borrowers and/or their customers, which could adversely affect our business, financial condition and results of operations.
Reliant Bancorp may be adversely affected by the soundness of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose our Bank to credit risk in the event of a default by a counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by the Bank cannot be realized on or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure. Any such losses could have a material adverse effect on our financial condition and results of operations.
Negative public opinion surrounding Reliant Bancorp or the financial institutions industry generally could damage our reputation and adversely impact our earnings.
Reputation risk, or the risk to Reliant Bancorp’s business, earnings and capital from negative public opinion surrounding Reliant Bancorp or the financial institutions industry generally, is inherent in Reliant Bancorp’s business. Negative public opinion can result from Reliant Bancorp’s actual or alleged conduct in any number of areas, including lending practices, corporate governance and acquisitions, and from actions taken by government regulators and community organizations in response to that actual or alleged conduct. Negative public opinion can adversely affect Reliant Bancorp’s ability to keep and attract clients and employees and can expose it to litigation and regulatory action. Although Reliant Bancorp takes steps to minimize reputation risk in dealing with its clients and communities, this risk will always be present given the nature of Reliant Bancorp’s business.
Credit and Interest Rate Risks
The Bank’s decisions regarding credit risk and reservesprovision for loan lossesloss may materially and adversely affect its business.
Making loans and other extensions of credit is an essential element of Reliantthe Bank’s business. Although Reliantthe Bank seeks to mitigate risks inherent in lending by adhering to specific underwriting practices, its loans and other extensions of credit may not be repaid. The risk of nonpayment is affected by a number of factors, including:
•the duration of the credit;
•credit risks of a particular customer;
•changes in micromicroeconomic, macroeconomic, or macro economic and industry conditions; and
•in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral.collateral
Reliant
The Bank attempts to maintain an appropriate allowance for loan lossesALL to provide for potential losses in its loan portfolio. ReliantThe Bank periodically determines the amount of the allowanceALL based on consideration of several factors, including:
•an ongoing review of the quality, mix, and size of Reliant Bank’sthe Bank's overall loan portfolio;portfolio
Reliant Bank’s
•the Bank's historical loan loss experience;
•evaluation of micromicroeconomic and macro economicmacroeconomic conditions;
•regular reviews of loan delinquencies and loan portfolio quality; and
•the amount and quality of collateral, including guarantees, securing the loans.
There is no precise method of predicting credit losses; therefore, Reliantthe Bank faces the risk that charge-offs in future periods will exceed its allowance for loan lossesALL and that additional increases in the allowance for loan lossesALL will be required. Additions to the allowance for loan lossesALL would result in a decrease in Reliant Bancorp’s net income and possibly its capital.
Federal and state regulators periodically review Reliantthe Bank’s allowance for loan lossesALL and may require Reliantthe Bank to increase its provision for loan losses or recognize further loan charge-offs, based on judgments different than those of its management. Any increase in the amount of Reliantthe Bank’s provision or loans charged-off as required by these regulatory agencies could have a negative effect on its operating results.
The amount of our nonperforming assets may increase significantly, resulting in additional losses and costs and expenses that will negatively affect our operations.
At December 31, 2020, we had a total of approximately $11.2 million of nonperforming assets, which represented approximately 0.37% of total assets. Should the amount of nonperforming assets increase in the future, we may incur losses and the costs and expenses to maintain such assets likewise can be expected to increase and potentially negatively affect earnings. Any additional increase in losses due to such assets could have an adverse effect on our business, financial condition and results of operations. Such effects may be particularly pronounced in a market with reduced real estate values and excess inventory.
Interest rate shifts could reduce net interest income and otherwise negatively impact our financial condition and results of operations.
A large portion of our banking assets are monetary in nature and subject to risk from changes in interest rates. Like most financial institutions, our earnings and cash flows depend to a great extent upon the level of net interest income, or the difference between the interest income earned on loans, investments and other interest-earning assets, and the interest paid on interest-bearing liabilities, such as deposits and borrowings. Changes in interest rates can increase or decrease net interest income because different types of assets and liabilities may react differently, and at different times, to market interest rate changes. When interest-bearing liabilities mature or reprice more quickly or to a greater degree than interest-earning assets in a period, an increase in interest rates could reduce net interest income. Similarly, when interest-earning assets mature or reprice more quickly or to a greater degree than interest-bearing liabilities, falling interest rates could reduce net interest income.
An increase in interest rates may also, among other things, reduce the demand for loans and our ability to originate loans and decrease loan repayment rates. A decrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan portfolio and increased competition for deposits. Accordingly, changes in the level of market interest rates affect our net yield on interest-earning assets, loan origination volume, loan portfolio and overall results. Although our asset-liability management strategy is designed to control and mitigate exposure to the risks related to changes in market interest rates, those rates are affected by many factors outside of our control, including governmental monetary policies, inflation, deflation, economic recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial markets.
Additionally, interest rate increases often result in larger payment requirements for our borrowers, which increases the potential for default and could result in a decrease in the demand for loans. At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their loans at lower rates. In addition, in a low interest rate environment, loan customers often pursue long-term fixed rate credits, which could adversely affect our earnings and net interest margin if rates increase. Changes in interest rates also can affect the value of loans, securities and other assets. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows. Increases in interest rates may have a material adverse effect on our mortgage banking revenue and profitability. RMV may also be adversely affected by other economic factors within our markets such as negative changes in employment levels, job growth, and consumer confidence and availability of mortgage financing, one or all of which could result in reduced demand or price depression from current levels. RMV is also dependent upon the securitization market for mortgage-backed securities and could be materially adversely affected by any fluctuation or downturn in such market. In the event of disruptions within the secondary markets for mortgage loans, we could experience a material adverse effect with respect to sales of mortgage loans and the profitability of our mortgage banking business.
Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. At the same time, we continue to incur a cost to fund the loan, which is reflected as interest expense on deposits and borrowings, without any interest income to offset the associated funding expense. We would incur a higher cost of funds to retain these deposits and borrowings in a rising interest rate environment. Our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans and investment securities. Thus, an increase in the amount of nonperforming assets would have an adverse impact on our net interest income.
The Bank could incur significant costs and expenses related to RMV, and these costs and expenses could have a material adverse effect on our business, financial condition, and results of operations.
RMV provides mortgage banking services to the Bank customers. The Bank holds 51% of the governance rights in RMV and 30% of the financial rights in RMV. VHC is the other member of RMV and holds 49% of the governance rights in RMV and 70% of the financial rights in RMV. Under the terms of the RMV operating agreement, VHC is required to fund RMV’s losses via additional capital contributions to RMV. RMV incurred a net loss of $299.0 thousand for the year ended December 31, 2020 and has incurred cumulative net losses of $13.7 million since inception. Also, per the terms of the RMV operating agreement, VHC is to receive all distributions of cash flow from RMV until such time as VHC has recovered its capital contributions to RMV. After the return to VHC of its capital contributions, VHC is to receive 70% of RMV cash flow distributions and the Bank is to receive 30% of RMV cash flow distributions. There can be no assurance that RMV will ever generate sufficient income to return to VHC its aggregate capital contributions or that the Bank will ever receive cash flow distributions from RMV.
To date, VHC has not failed to make a required contribution of additional capital to RMV to cover losses incurred by the company. In the event VHC fails to make a required contribution of additional capital to cover losses of RMV, the Bank has the right to cause the dissolution of RMV. However, in such event, the Bank could also be required to fund losses of RMV not funded by VHC, which losses could be significant. Additionally, in the event the Bank were to cause the dissolution of RMV, there would be costs and expenses associated with dissolving RMV and winding up the company’s operations or integrating them with those of the Bank, and those costs and expenses could be significant. Accordingly, VHC’s failure to make a required contribution of additional capital to cover losses of RMV and/or the Bank’s decision to cause the dissolution of RMV in the event of such a failure could have a material adverse effect on our business, financial condition, and results of operations.
The Bank may have higher loan losses than it has allowed for in its allowance for loan losses. OurALL. Additionally, certain segments of our loan portfolio includes a meaningful amount of construction and development, commercial mortgage, and other commercial loans, which have a greaterare traditionally considered to carry increased credit risk than residential mortgage loans.risk.
ReliantThe Bank’s actual loan losses could exceed its allowance for loan losses. ReliantALL. The Bank’s average loan size continues to increase, and reliance on its historic allowance for loan lossesALL may not be adequate. A large portion of Reliantthe Bank’s loan portfolio is composed of construction and development, commercial mortgage, and other commercial loans. Additionally, manufactured housing loans make up a meaningful percentage of the Bank’s overall loan portfolio. Repayment of such loans is generally considered more subject to market risk than that of other loan types such as residential mortgage loans. Industry experience shows that a portion of loans will become delinquent and a portion of loans will require partial or entire charge-off. Regardless of the underwriting criteria used, losses may be experienced as a result of various factors beyond Reliant Bank’sour control, including, among other things, changes in market conditions affecting the value of loan collateral and problems affecting the creditcreditworthiness of Reliantthe Bank’s borrowers.
A new accounting standardOur business may require Reliant Banksuffer if there are significant declines in the value of real estate.
The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. If the value of the real estate serving as collateral for our loan portfolio were to increase itsdecline materially, a significant part of our loan portfolio could become under-collateralized. If the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, we may not be able to realize the value of the security anticipated when we originated the loan, which in turn could have an adverse effect on our allowance and provision for loan and lease losses and our financial condition, results of operations and liquidity.
Most of our foreclosed assets are comprised of real estate properties. We carry these properties at their estimated fair values less estimated selling costs. While we believe the carrying values for such assets are reasonable and appropriately reflect current market conditions, there can be no assurance that the values of such assets will not further decline prior to sale or that the amount of proceeds realized upon disposition of foreclosed assets will approximate the carrying value of such assets. If the proceeds from any such dispositions are less than the carrying value of foreclosed assets, we will record a loss on the disposition of such assets, which in turn could have an adverse effect on our results of operations.
Compared to national financial institutions, we are less able to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Moreover, we cannot give any assurance that we will benefit from any market growth or return of more favorable economic conditions in our primary market areas if they do occur.
The Bank’s focus on lending to small to mid-sized community based businesses may increase Reliant Bancorp’s credit risk.
Most of the Bank’s commercial business and commercial real estate loans are made to small business or middle market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions. Small to medium-sized businesses frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which characteristics may impair a borrower’s ability to repay a loan. In addition, the success of a small or medium-sized business often depends on the management skills, talents and efforts of a small group of people, and the death, disability or resignation of one or more of these people could have a material adverse impact on the business and its ability to repay its loans. If general economic conditions in the markets in which the Bank operates negatively impact this important customer sector, Reliant Bancorp’s results of operations and financial condition and the value of its common stock may be adversely affected. Furthermore, the deterioration of the Bank’s borrowers’ businesses may hinder their ability to repay their loans with the Bank, which could have a material adverse effect on Reliant Bancorp’s financial condition and results of operations.
If the underwriting quality supporting our mortgage loan originations is found to be deficient, our profitability could decrease and we may incur losses.
We provide several different loan products to our customers to finance the purchases of their homes. We sell a large number of the mortgage loans we originate into the secondary mortgage market, and those loans are underwritten to the standards and specifications of the ultimate investor. Insofar as we underwrite our originated loans to those standards, we generally bear no increased concentration of credit risk from the issuance of loans, except in certain limited instances where early payment default occurs. In the event that a substantial number of the loans that we have originated fall into default and the investors to whom we sold the loans determine that we did not underwrite the loans in accordance with their requirements, we could be required to repurchase the loans from the investors or indemnify the investors for any losses incurred. This may result in losses that could have a material adverse effect on our profitability and results of operations.
Strategic and Operational Risks
We may be unable to implement aspects of our growth strategy, which may affect our ability to maintain historical earnings trends.
Our business has grown rapidly as the result of a strategy focused on organic growth supplemented by acquisitions. Financial institutions that grow rapidly can experience significant difficulties as a result. We may be unable to execute on aspects of our growth strategy to sustain our historical rate of growth or may be unable to grow at all. More specifically, we may be unable to generate sufficient new loans and deposits within acceptable risk and expense tolerances, obtain the personnel or funding necessary for additional growth or find suitable acquisition candidates. Various factors, such as economic conditions and competition, may impede or prohibit the growth of our operations, the opening of new branches and the consummation of acquisitions. Further, we may be unable to attract and retain experienced bankers, which could adversely affect our growth. The success of our strategy also depends on our ability to effectively manage growth, which is dependent upon a number of factors, including the ability to adapt existing credit, operational, technology and governance infrastructure to accommodate expanded operations. If we fail to build infrastructure sufficient to support rapid growth or fail to implement one or more aspects of our strategy, we may be unable to maintain historical earnings trends, which could have an adverse effect on our business, financial condition and results of operations.
The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for Reliant Bank beginning January 1, 2021. This standard, referred to as current expected credit loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses through provision for loan losses. This will change the current method of provisioning for loan losses that are probable, which may require Reliant Bank to increase its allowance for loan losses, and is likely to increase the types of data Reliant Bank would need to collect and review to determine the appropriate level of its allowance for loan losses. In addition, this change may result in more volatility in the level of Reliant Bank's allowance for loan losses. An increase, to the extent material, in Reliant Bank's allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses could have a material adverse effect on our capital levels, financial condition, and results of operations.
We are subject to extensive government regulation and supervision; compliance with new and existing legislation, regulations, and supervisory requirements and expectations could detrimentally affect our business.
Reliant Bancorp and Reliant Bank are subject to extensive federal and state regulation and supervision, the primary focus of which is to protect customers, depositors, the deposit insurance fund, and the safety and soundness of the banking system as a whole, and not shareholders. The quantity and scope of applicable federal and state regulations may place banks at a competitive disadvantage compared to less regulated competitors such as finance companies, credit unions, and leasing companies. Banking and consumer lending laws and regulations apply to almost every aspect of our business, including lending, capital, investments, deposits, other services, and products, risk management, dividends, and acquisitions.
Legislation and regulation with respect to our industry has increased in recent years, and we expect that federal and state supervision and regulation of our industry will continue to expand in scope and complexity. Congress and federal regulatory agencies continually review banking laws, rules, regulations and policies for possible changes. Changes to statutes, rules, regulations or regulatory policies, including changes in the interpretation or implementation of statutes, rule, regulations or policies, could affect us in substantial and unpredictable ways, and could subject us to additional costs, limits on the services and products we may offer, or limits on the pricing of banking services and products. In addition, establishing systems and processes to achieve compliance with laws, rules and regulations increases our costs and could limit our ability to pursue business opportunities.
If we receive less than satisfactory results on regulatory examinations, we could be subject to damage to our reputation, significant fines and penalties, requirements to increase compliance and risk management activities, and an increase in our deposit insurance assessment rate, in addition to related costs and restrictions on acquisitions, new locations, new lines of business, or continued growth. Future changes in federal and state banking laws and regulations could adversely affect our operating results and ability to continue to compete effectively. For example, the Dodd-Frank Act and related regulations subject us to additional restrictions, oversight and reporting obligations, which have significantly increased costs, although certain provisions of the Regulatory Relief Act may alleviate some of these burdens (however the impact of the Regulatory Relief Act is currently unknown because
implementing rules and regulations are required in some instances and many of these implementing rules and regulations have not yet been written or finalized). Also, over the last several years, state and federal regulators have focused on enhanced risk management practices, compliance with the Bank Secrecy Act and anti-money laundering laws, including the new beneficial ownership rule, data integrity and security, use of service providers, and fair lending and other consumer protection issues, which has increased our need to build additional processes and infrastructure. Government agencies charged with adopting and interpreting laws, rules and regulations may do so in an unforeseen manner, including in ways that potentially expand the reach of the laws, rules or regulations more than initially contemplated or currently anticipated. We cannot predict the substance or impact of pending or future legislation or regulation. Compliance with such current and potential legislation and regulation and increased regulatory scrutiny could significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital and limit our ability to pursue business opportunities in an efficient manner. Our success depends on our ability to maintain compliance with both existing and new laws, rules and regulations.
Ourrecent acquisition and growth and future expansion may result in additional risks.
OverIn 2020, we completed both the last three years, we have completedTCB Holdings Transaction and the acquisition of Community First and expanded into new markets via organic growth.FABK Transaction. We expect to continue to expand in our current markets and in other select markets through the establishment of additional branches and/or through additional acquisitions of all or part of other financial institutions. These types of expansionsexpansionary activities involve various risks, including the risks detailed below.
Growth. AsIn connection with or as a result of ourpotential future acquisition activity and organic growth, we may be unable to successfully:
•maintain acceptable loan quality in the context of significant loan growth;
obtain regulatory and other approvals;
•attract or retain sufficient deposits and capital to fund anticipated loan growth;
•maintain adequate common equity andlevels of regulatory capital;
•avoid diversion or disruption of our existing operations or management as well as those of any acquired institution;
•maintain adequate management personnel and systems to oversee and support such growth;
•maintain adequate internal audit, loan review and compliance functions; and
•implement additional policies, procedures and operating systems required to support such growth.
Results of Operations. There is no assurance that existingfuture Reliant Bank branch offices or future offices will maintain or achieve deposit levels, loan balances or other operating results necessary to avoid losses or produce profits. Our growth strategy necessarily entails growth in overhead expenses as we routinely add new offices and staff. Our historical results may not be indicative of future results or results that may be achieved as we continue to increase the number and concentration of our branch offices in our newer markets.
Development of Offices. There are considerable costs involved in opening branches, and new branches generally do not generate sufficient revenues to offset their costs until they have been in operation for at least a year or more. Accordingly, any new branches we establish can be expected to negatively impact our earnings for some period of time until they reach certain economies of scale. The same is true for our efforts to expand in current markets with the hiring of additional seasoned professionals with significant experience in those markets. Our expenses could be further increased if we encounter delays in opening new branches. We may be unable to accomplish future branch expansion plans due to a lack of available satisfactory sites, difficulties in acquiring such sites, failure to receive any required regulatory approvals, increased expenses or loss of potential sites due to complexities associated with zoning and permitting processes, higher than anticipated merger and acquisition costs or other factors. Finally, wethere can havebe no assurance any branch will be successful even after it has been established or acquired, as the case may be.
Regulatory and Economic Factors. Our growth and expansion plans may be adversely affected by a number of regulatory and economic developments or other events. Failure to obtain required regulatory approvals, changes in laws and regulations or other regulatory developments and changes in prevailing economic conditions or other unanticipated events may prevent or adversely affect our continued growth and expansion. Such factors may cause us to alter our growth and expansion plans or slow or halt the growth and expansion process, which may prevent us from entering into or expanding in our targeted markets or allow competitors to gain or retain market share in our existing markets.
Transaction Termination. With respect to potential future acquisitions, pending transactions carry the risk of not being completed and subjecting us to contractual termination fees as well as reputational risk.
Failure to successfully address these and other issues related to our expansionary activities could have a material adverse effect on our financial condition and results of operations and could adversely affect our ability to successfully implement our business strategy. Also, if our growth occurs more slowly than anticipated or declines, our results of operations and financial condition could be materially adversely affected.
Liquidity risk could impair our ability to fund our operations and jeopardize our financial condition.
Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds. Liquidity risk arises from the possibility that we may be unable to satisfy current or future funding requirements and needs.
The objective of managing liquidity risk is to ensure that our cash flow requirements resulting from depositor, borrower and other creditor demands as well as our operating cash needs are met, and that our cost of funding such requirements and needs is reasonable. We maintain an asset/liability and interest rate risk policy and a liquidity and funds management policy, including a contingency funding plan, that, among other things, include procedures for managing and monitoring liquidity risk. Generally, we rely on deposits, repayments of loans and leases and cash flows from our investment securities as our primary sources of funds. Our principal deposit sources include consumer, commercial and public funds customers in our markets. We have used these funds, together with federal funds purchased and other sources of short-term and long-term borrowings, to make loans and leases, acquire investment securities and other assets and to fund continuing operations.
An inability to maintain or raise funds in amounts necessary to meet our liquidity needs could have a substantial negative effect on Reliant Bank’s liquidity. Our access to funding sources in amounts adequate to finance our activities, or on terms attractive to us, could be impaired by factors that affect us specifically or the financial services industry in general. For example, factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us, a reduction in our credit rating, any damage to our reputation or any other decrease in depositor or investor confidence in our creditworthiness and business. Our access to liquidity could also be impaired by factors that are not specific to us, such as severe volatility or disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole. Any such event or failure to manage our liquidity effectively could affect our competitive position, increase our borrowing costs and the interest rates we pay on deposits, limit our access to the capital markets and have a material adverse effect on our results of operations or financial condition.
Deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, general economic and market conditions and other factors. Loan and lease repayments are a relatively stable source of funds but are subject to the borrowers’ and lessees’ ability to repay loans and leases, which can be adversely affected by a number of factors including changes in general economic conditions, adverse trends or events affecting business industry groups or specific businesses, declines in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and other factors. Furthermore, loans and leases generally are not readily convertible to cash. Accordingly, we may be required from time to time to rely on secondary sources of liquidity to meet growth in demand for loans and leases, deposit withdrawal demands or otherwise fund operations. Such secondary sources include FHLB advances, brokered deposits, secured and unsecured federal funds lines of credit from correspondent banks, Federal Reserve borrowings and/or accessing the equity or debt capital markets.
We anticipate we will continue to rely primarily on deposits, loan and lease repayments, and cash flows from our investment securities to provide liquidity. Additionally, where necessary, the secondary sources of borrowed funds described above will be used to augment our primary funding sources. If we are unable to access any of these secondary funding sources when needed, we might be unable to meet our customers’ or creditors’ needs, which would adversely affect our financial condition, results of operations, and liquidity.
We may face risks with respect to future mergers and acquisitions.
When we attempt to expand our business through mergers and acquisitions (as we have done over the last several years), we seek targetspartners that are culturally similar to us, have experienced management and possess either market presence or have
potential for improved profitability through economies of scale or expanded services. In addition to the general risks associated with our growth plans, which are highlighted above, in general, acquiring or merging with other banks and acquiring businesses or branches, particularly those in markets with which we are less familiar, involves various risks commonly associated with mergers and acquisitions, including, among other things:
•the time and costs associated with identifying and evaluating potential acquisition and merger targets;
•inaccuracies in the estimates and judgmentsjudgements used to evaluate credit, operations, management and market risks with respect to the target institution;businesses;
the time and costs associated with evaluating new markets, hiring experienced local management, including as a result of de novo expansion into a market, and opening new bank locations, and the time lags between these activities and the generation of sufficient assets and deposits to support the significant costs of the expansion that we may incur, particularly in the first 12 to 24 months of operations;
•our ability to finance an acquisition and possible dilution to our existing shareholders;
•the diversion of our management’smanagement's attention to the negotiation and completion of a transaction and integration of an acquired company’s operationscompany's operation with ours;
the incurrence of an impairment of goodwill associated with an acquisition and adverse effects on our results of operations;
•entry into new markets where we have limited or no direct prior experience;
•closing delays and increased costs and expenses related to the resolution of lawsuits filed by our shareholders or shareholders of companies we may seek to acquire;
•the inability to receive regulatory approvals timely or at all, including as a result of community objections, or such approvals being restrictively conditional; and
•risks associated with integrating the operations, technologies and personnel of an acquired business.
We expect to continue to evaluate merger and acquisition opportunities that are presented to us in our current markets as well as other markets throughout the region and conduct due diligence activities related to possible transactions with other financial institutions. As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving cash or equity securities and related capital raising transactions may occur at any time. Generally, acquisitions of financial institutions involve the payment of a premium over book and market values, and, therefore, some dilution of our book value and fully diluted earnings per share may occur in connection with any future transaction. Failure to realize the expected revenue increases, cost savings, increases in product presence and/or other projected benefits from ana merger or acquisition could have a material adverse effect on our financial condition and results of operations.
In addition, we may face significant competition from numerous other financial institutions, many of which may have greater financial resources than we do, when considering acquisition opportunities. Accordingly, attractive acquisition opportunities may not be available to us. There can be no assurance that we will be successful in identifying or completing any potential future acquisitions.
The value of our goodwill and other intangible assets may decline in the future.
As of December 31, 2018, we had $51.9 million of goodwill and other intangible assets. A significant decline in our financial condition, a significant adverse change in the business climate, slower growth rates, or a significant and sustained decline in the price of our common stock may necessitate taking charges in the future related to the impairment of our goodwill and other intangible assets. If we were to conclude that a future write-down of goodwill and other intangible assets is necessary, we would record the appropriate charge, which could have a material adverse effect on our financial condition and results of operations. Future acquisitions of other financial institutions could result in additional goodwill.
Reliant Bank’s focus on lending to small to mid-sized community based businesses may increase Reliant Bancorp’s credit risk.
Most of Reliant Bank’s commercial business and commercial real estate loans are made to small business or middle market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions. If general economic conditions in the markets in which Reliant Bank operates negatively impact this important customer sector, Reliant Bancorp’s results of operations and financial condition and the value of its common stock may be adversely affected. Furthermore, the deterioration of Reliant Bank’s borrowers’ businesses may hinder their ability to repay their loans with Reliant Bank, which could have a material adverse effect on Reliant Bancorp’s financial condition and results of operations.
Reliant Bancorp is geographically concentrated in Middle Tennessee and changes in local economic conditions impact our profitability.
We currently operate primarily in the Nashville MSA, and most of our loan, deposit and other customers live or have operations in this area. Accordingly, our success significantly depends upon the growth in population, income levels, deposits, and housing starts in this market, along with the continued attraction of business ventures to the areas, and our profitability is impacted by the changes in general economic conditions in this market. We cannot assure you that economic conditions, including loan demand, in our market will improve during 2019, or thereafter, and in that case, we may not be able to grow our loan portfolio in line with our expectations. In addition, the ability of our customers to repay their loans to us may be negatively impacted and our financial condition and results of operations could be negatively impacted.
Compared to regional or national financial institutions, we are less able to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Moreover, we cannot give any assurance that we will benefit from any market growth or more favorable economic conditions in our primary market areas if they do occur.
Reliant Bank faces strong competition for customers, which could prevent it from obtaining customers and may cause it to pay higher interest rates to attract customers.
The banking business is highly competitive, and Reliant Bank experiences competition in its markets from many other financial institutions. Reliant Bank competes with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national, and international financial institutions that operate offices in Reliant Bank’s primary market areas and elsewhere. Reliant Bank competes with these institutions both in attracting deposits and in making loans. In addition, Reliant Bank has to attract its customer base from other existing financial institutions and from new residents and businesses that have relocated to the Nashville MSA. Many of Reliant Bank’s competitors are well-established, larger financial institutions. These institutions offer some services, such as extensive and established branch networks, that Reliant Bank does not provide. There is a risk that Reliant Bank will not be able to compete successfully with other financial institutions in Reliant Bank’s markets, and that it may have to pay higher interest rates to attract deposits, resulting in reduced profitability. In addition, competitors that are not depository institutions are generally not subject to the extensive regulations that apply to Reliant Bank.
The financial services industry is undergoing rapid technological changes and we may not have the resources to implement new technology to stay current with these changes.
The financial services industry is undergoing rapid technological changes, with new technology-driven products and services being frequently introduced. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to provide secure electronic environments as we continue to grow and expand our market area. Many of our larger competitors have substantially greater resources to invest, and have invested significantly more than us, in technological improvements. As a result, they may be able to offer additional or more convenient products compared to those that we will be able to provide, which would put us at a competitive disadvantage. We may not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers, which could impair our growth and profitability.
Reliant Bank’s FDIC deposit insurance premiums and assessments may increase.
Deposits in Reliant Bank are insured by the FDIC up to legal limits and, as a result, we are subject to the payment of FDIC deposit insurance premiums and assessments. High levels of bank failures since the financial crisis and increases in the statutory deposit insurance limits have increased resolution costs to the FDIC and put significant pressure on the Deposit Insurance Fund. In order to maintain a strong funding position and restore the reserve ratios of the Deposit Insurance Fund following the financial crisis, the FDIC increased deposit insurance assessment rates and charged special assessments to all FDIC-insured financial institutions. Further increases in assessment rates or special assessments may occur in the future, especially if there are significant additional failures of financial institutions. Any future special assessments, increases in assessment rates, or required prepayments of FDIC insurance premiums could reduce our profitability or limit our ability to pursue certain business opportunities, which could have a material adverse effect on our business, financial condition, and results of operations.
Changes in prevailing interest rates may reduce Reliant Bancorp’s profitability.
Reliant Bancorp’s results of operations depend in large part upon the level of its net interest income, which is the difference between interest income from interest earning assets, such as loans and investment securities, and interest expense on interest bearing liabilities, such as deposits and other borrowings. Depending on the terms and maturities of Reliant Bancorp’s assets and liabilities, Reliant Bancorp believes it is more likely than not that a significant change in interest rates could have a material adverse effect on its net interest income and, therefore, its profitability. Many factors cause changes in interest rates, including governmental monetary policies and domestic and international economic and political conditions. While Reliant Bancorp intends to manage the effects of changes in interest rates by adjusting the terms, maturities, and pricing of its assets and liabilities, its efforts may not be effective and its financial condition and results of operations could suffer.
Reliant Bancorp and Reliantthe Bank are dependent on retaining and recruiting key individuals and the loss of one or more of these key individuals could curtail itsour growth and adversely affect itsour prospects.
Reliant Bancorp and Reliantthe Bank are materially dependent on the performance of theirour executive management teams,team, loan officers, and other support personnel. The loss of the services of any of these individuals could have a material adverse effect on the business of Reliant Bancorp and Reliantthe Bank and our results of operations and financial condition. Many of these key personnel have important customer relationships, which are instrumental to Reliantthe Bank’s operations. Changes in key personnel and their responsibilities may be disruptive to Reliant Bancorp's and Reliantthe Bank’s business and could have a material adverse effect on Reliant Bancorp's and Reliantthe Bank’s business, financial condition, and results of operations. Management believes that future
results also will depend in part upon attracting and retaining highly skilled and qualified management, especially in the new market areas into which Reliantthe Bank may enter, as well as sales and marketing personnel. The failure to attract or retain, including as a result of an untimely death or illness, key personnel, or to find suitable replacements for them, could have a negative effect on our operating results. Competition for such personnel is intense, and management cannot be sure that Reliantthe Bank will be successful in attracting or retaining such personnel.
Reliant Bancorp is an emerging growth company, and it cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make Reliant Bancorp’s common stock less attractive to investors.
Reliant Bancorp is subject to periodic reporting requirements under the Securities Exchange ActTable of 1934. Reliant Bancorp is an “emerging growth company,” as defined in the JOBS Act, however, and it may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, even if Reliant Bancorp chooses to comply with the reporting requirements applicable to public companies that are not emerging growth companies, Reliant Bancorp may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as Reliant Bancorp is an emerging growth company. Reliant Bancorp will remain an emerging growth company for up to five years, though it may cease to be an emerging growth company earlier under certain circumstances, including if, before the end of such five years, it is deemed to be a large accelerated filer under the rules of the SEC (which depends on, among other things, having a market value of common stock held by non-affiliates in excess of $700 million) or if Reliant Bancorp’s total annual gross revenues equal or exceed $1.07 billion in a fiscal year. Reliant Bancorp cannot predict if investors will find its common stock less attractive because it will rely on these exemptions. If some investors find Reliant Bancorp’s common stock less attractive as a result, there may be a less active trading market for Reliant Bancorp’s common stock and its stock price may be more volatile.ContentsFurther, the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. Reliant Bancorp has elected not to opt out of such an extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, Reliant Bancorp, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make Reliant Bancorp’s financial statements not comparable with those of another public company that is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period because of the potential differences in accounting standards used.
The short-term and long-term impact of the changing regulatory capital requirements and recently proposed capital rules is uncertain.
On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement to a strengthened set of capital requirements for internationally active banking organizations in the U.S. and around the world, known as Basel III. Basel III called for increases in the requirements for minimum common equity, minimum Tier 1 capital and minimum total capital for certain systemically important financial institutions, to be phased in over time until fully phased in by January 1, 2019. The final rules were adopted by the federal banking agencies in July 2013.
The Regulatory Relief Act requires federal banking agencies to develop a community bank leverage ratio (defined as the ratio of tangible equity capital to average total consolidated assets) for banks and holding companies with total consolidated assets of less than $10 billion and an appropriate risk profile. The required regulations must specify a minimum community bank leverage ratio of not less than 8% and not more than 10%, as well as procedures for treatment of a qualifying community bank that has a community bank leverage ratio that falls below the required minimum. Qualifying banks that exceed the minimum community bank leverage ratio will be deemed to be in compliance with all other capital and leverage requirements, thus being relieved from the requirements of Basel III.
On November 21, 2018, pursuant to the Regulatory Relief Act, the federal banking agencies issued a notice of proposed rulemaking proposing a community bank leverage ratio of 9% and corresponding capital adequacy levels. As proposed, a community bank with a community bank leverage ratio of 9% or greater would be considered “well capitalized;” a community bank with a community bank leverage ratio of 7.5% or greater would be considered “adequately capitalized;” a community bank with a community bank leverage ratio of less than 7.5% would be considered “undercapitalized;” and a community bank with a community bank leverage ratio of less than 6% would be considered “significantly undercapitalized” and would be
required to provide its primary regulator with additional information in order to determine whether such organization would be classified as “critically undercapitalized.” The comment period for the proposed rule has since closed, but the regulation is not yet finalized.
The application of more stringent capital requirements for Reliant Bancorp or Reliant Bank could, among other things, result in lower returns on invested capital, require the issuance of additional capital, and result in regulatory actions if Reliant Bancorp or Reliant Bank were to be unable to comply with such requirements.
Interest rate movements, inflation, and other economic factors can negatively impact our mortgage banking business.
Our mortgage banking business is subject to and affected by the risks generally incident to the broader mortgage banking business, including interest rate levels and the impact of government regulation on mortgage loan originations and servicing. Our mortgage banking business also is affected by interest rate fluctuations. During periods of higher and rising interest rates, the demand for mortgage loans and the level of refinancing activity generally tends to decline, which can lead to reduced loan volumes and lower revenues, which could negatively impact our earnings. Increases in interest rates may have a material adverse effect on our mortgage banking revenue and profitability. Our mortgage loan operations may also be adversely affected by other economic factors within our markets such as negative changes in employment levels, job growth, and consumer confidence and availability of mortgage financing, one or all of which could result in reduced demand or price depression from current levels. Our mortgage banking operations are also dependent upon the securitization market for mortgage-backed securities, and could be materially adversely affected by any fluctuation or downturn in such market. In the event that disruptions to the secondary markets tighten or eliminate the available liquidity within the secondary markets for mortgage loans, we could experience a material adverse effect with respect to sales of mortgage loans and the profitability of our mortgage banking business.
If the underwriting quality of our mortgage loan originations is found to be deficient, our profitability could decrease and we may incur losses.
We provide several different loan products to our customers to finance the purchases of their homes. We sell a large number of the mortgage loans we originate into the secondary mortgage market, and those loans are underwritten to the standards and specifications of the ultimate investor. Insofar as we underwrite our originated loans to those standards, we bear no increased concentration of credit risk from the issuance of loans, except in certain limited instances where early payment default occurs. In the event that a substantial number of the loans that we have originated fall into default and the investors to whom we sold the loans determine that we did not underwrite the loans in accordance with their requirements, we could be required to repurchase the loans from the investors or indemnify the investors for any losses incurred. This may result in losses that could have a material adverse effect on our profitability and results of operations.
Reliant Bank could incur significant costs and expenses related to Reliant Mortgage Ventures, LLC, and these costs and expenses could have a material adverse effect on our business, financial condition, and results of operations.
Reliant Bank is a member in Reliant Mortgage Ventures, LLC (“RMV”), a Tennessee limited liability company organized in 2011. RMV provides mortgage banking services to bank customers. Reliant Bank holds 51% of the governance rights in RMV and 30% of the financial rights in RMV. VHC Fund 1, LLC (“VHC”) is the other member of RMV and holds 49% of the governance rights in RMV and 70% of the financial rights in RMV. Under the terms of the RMV operating agreement, VHC is required to fund RMV’s losses via additional capital contributions to RMV. RMV incurred a net loss of $3.58 million for the year ended December 31, 2018, and has incurred cumulative net losses of $8.06 million since inception. Also, per the terms of the RMV operating agreement, VHC is to receive all distributions of cash flow from RMV until such time as VHC has recovered its capital contributions to RMV. After the return to VHC of its capital contributions, VHC is to receive 70% of RMV cash flow distributions and Reliant Bank is to receive 30% of RMV cash flow distributions. There can be no assurance that RMV will ever generate sufficient income to return to VHC its aggregate capital contributions or that Reliant Bank will ever receive cash flow distributions from RMV.
To date, VHC has not failed to make a required contribution of additional capital to RMV to cover losses incurred by the company. In the event VHC fails to make a required contribution of additional capital to cover losses of RMV, Reliant Bank has the right to cause the dissolution of RMV. However, in such event, Reliant Bank could also be required to fund losses of RMV not funded by VHC, which losses could be significant. Additionally, in the event Reliant Bank were to cause the dissolution of RMV, there would be costs and expenses associated with dissolving RMV and winding up the company’s operations or integrating them with those of Reliant Bank, and those costs and expenses could be significant. Accordingly, VHC’s failure to make a required contribution of additional capital to cover losses of RMV and/or Reliant Bank’s decision to cause the
dissolution of RMV in the event of such a failure could have a material adverse effect on our business, financial condition, and results of operations.
Laws and regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
We are subject to various privacy, information security and data protection laws, including requirements relating to security breach notification, and we could be negatively impacted by them. For example, we are subject to the Gramm-Leach-Bliley Act (“GLBA”) and related implementing regulations and guidance. Among other things, GLBA: (i) imposes certain limitations on the ability of financial institutions to share consumers’ nonpublic personal information with nonaffiliated third parties, (ii) requires that financial institutions provide certain disclosures to consumers about their information collection, sharing and security practices and affords consumers the right to “opt out” of the institution’s disclosure of their personal financial information to nonaffiliated third parties (with certain exceptions) and (iii) requires financial institutions to develop, implement and maintain a written comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial institution’s activities, and the sensitivity of customer information processed by the financial institution as well as plans for responding to data security breaches.
Moreover, various United States federal agencies, states and foreign jurisdictions have enacted data security breach notification requirements with varying levels of required individual, consumer, regulatory and/or law enforcement notification in certain circumstances in the event of a security breach. Many of these requirements not only apply to us but also apply broadly to our partners that accept payments from our customers. In many countries that have yet to impose data security breach notification requirements, regulators have increasingly used the threat of significant sanctions and penalties by data protection authorities to encourage voluntary notification and discourage data security breaches.
Furthermore, legislators and/or regulators in the United States are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer and/or employee information, and some of our current or planned business activities. This could also increase our costs of compliance and business operations and could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level, by the Federal Trade Commission, as well as at the state level, such as with regard to mobile applications.
Compliance with current or future privacy, data protection and information security laws (including those regarding security breach notification) affecting customer and/or employee data to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could materially and adversely affect our profitability. Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions and damage to our reputation and our brand.
Anti-money laundering and anti-terrorism financing laws could have significant adverse consequences for us.
We maintain an enterprise-wide program designed to enable us to comply with applicable anti-money laundering and anti-terrorism financing laws and regulations, including the Bank Secrecy Act and the USA PATRIOT Act. This program includes policies, procedures, processes and other internal controls designed to identify, monitor, manage and mitigate the risk of money laundering or terrorist financing posed by our products, services, customers and geographic locale. These controls include procedures and processes to detect and report suspicious transactions, perform customer due diligence, respond to requests from law enforcement, and meet all recordkeeping and reporting requirements related to particular transactions involving currency or monetary instruments. We cannot be sure our policies, procedures, processes and controls will be effective to ensure our compliance with all applicable anti-money laundering and anti-terrorism financing laws and regulations, and our failure to comply could subject us to significant sanctions, fines, penalties and reputational harm, all of which could have a material adverse effect on our business, results of operations and financial condition.
Reliant Bancorp’s historical operating results may not be indicative of its future operating results.
Reliant Bancorp may not be able to sustain its historical rate of growth, and, consequently, Reliant Bancorp’s historical results of operations will not necessarily be indicative of its future results of operations. Various factors, such as economic conditions, political, regulatory and legislative initiatives and considerations, and competition, may impede Reliant Bancorp’s ability to expand its market presence. If Reliant Bancorp experiences a significant decrease in its historical rate of growth, Reliant Bancorp’s results of operations and financial condition may be adversely affected because a high percentage of its operating costs are fixed expenses.
The Bank faces strong competition for customers, which could prevent it from obtaining customers and may cause it to pay higher interest rates to attract customers.
Reliant Bancorp may be adversely affected by
The banking business is highly competitive, and the soundness ofBank experiences competition in its markets from many other financial institutions.
Financial The Bank competes with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, some of which are super-regional, national, and international financial institutions that operate offices in the Bank’s primary market areas and elsewhere. The Bank competes with these institutions both in attracting deposits and in making loans. In addition, the Bank has to attract its customer base from other existing financial institutions and from new residents and businesses that have relocated to the Nashville MSA and Middle Tennessee. Many of the Bank’s competitors are well-established, larger financial institutions. These institutions offer some services, such as extensive and established branch networks, that the Bank does not provide. There is a risk that the Bank will not be able to compete successfully with other financial institutions in the Bank’s markets, and that it may have to pay higher interest rates to attract deposits, resulting in reduced profitability. In addition, competitors that are not depository institutions are interrelatedgenerally not subject to the extensive regulations that apply to the Bank.
We may not be able to report our financial results accurately and timely as a publicly listed company if we fail to maintain an effective system of disclosure controls and procedures and internal control over financial reporting.
As a publicly traded company, we are required to file periodic reports containing our consolidated financial statements with the SEC within a specified time following the completion of quarterly and annual periods. Maintaining effective disclosure controls and procedures is necessary to identify information we must disclose in our periodic reports, and maintaining effective internal control over financial reporting is necessary to produce reliable financial statements and to prevent fraud. If we fail to maintain effective disclosure controls and procedures or effective internal control over financial reporting, we may experience difficulty in satisfying our SEC reporting obligations. Any failure by us to file our periodic reports with the SEC in a timely manner could harm our reputation and cause investors and potential investors to lose confidence in us and reduce the market price of our common stock, and could result in Nasdaq suspending or delisting our common stock.
We incur significant costs, and our management is required to devote significant time to compliance-related matters, as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industriesbeing an Exchange Act-reporting company, and counterparties, and routinely execute transactions with counterparties in theadditional financial, services industry, including commercial banks, brokers and dealers, investment banks,managerial and other institutional clients. Manyresources would be required if we lose our "smaller reporting company" and "non-accelerated filer" status.
As an Exchange Act-reporting company, we incur significant legal, accounting and other expenses on an ongoing basis for compliance purposes. In addition, the rules of the SEC and Nasdaq have imposed various requirements on public companies, including requirements for the establishment and maintenance of effective disclosure controls and internal control over financial reporting. Our management and other personnel devote a substantial amount of time to these transactions exposecompliance initiatives.
We are currently a “smaller reporting company” and “non-accelerated filer” under applicable SEC rules. As such, we take advantage of exemptions from certain reporting requirements, including exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”), and reduced disclosure obligations regarding executive compensation in our bank to credit risk in the event of a default by a counterparty or client.periodic reports and proxy statements. Should we lose these statuses, we may no longer be exempt from these requirements and expect that compliance with these requirements would increase our legal and financial compliance costs and would make some activities more time consuming and costly. In addition, our credit risk may be exacerbated whenmanagement and other personnel would need to divert attention from operational and other business matters to devote substantial time to these additional public company requirements. In particular, we would expect to incur significant expenses and devote substantial
management effort toward ensuring compliance with the collateral held by the bank cannot be realized on or is liquidated at prices not sufficient to recover the full amountrequirements of Section 404(b) of the creditSarbanes-Oxley Act. We will continue to qualify as a “smaller reporting company” as long as (i) our public float is less than $250 million or derivative exposure. Any such(ii) we have less than $100 million in annual revenues and public float of less than $700 million, and, in general, we will continue as a “non-accelerated filer” as long as we have less than $100 million in annual revenues and public float of less than $700 million. We cannot discern if investors will find our common stock less attractive if we rely on the exemptions and reduced disclosure obligations afforded to smaller reporting companies and non-accelerated filers. For as long as we remain a “smaller reporting company” and “non-accelerated filer,” we intend to take advantage of certain exemptions from reporting requirements that are applicable to other public companies that do not qualify under these categories.
We are subject to certain operational risks, including but not limited to customer or employee fraud.
Employee errors and employee and customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect employee errors and misconduct may not be effective in all cases. Employee errors could also subject us to financial claims for negligence. We maintain a system of internal controls and insurance coverage to mitigate against these operational risks. If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition andor results of operations.
Reliant Bancorp’s ability to pay cash dividends is limited, and Reliant Bancorp may be unable to pay future dividends even if it desires to do so.
Even though our board of directors has approved the payment of cash dividends on Reliant Bancorp’s common stock in recent years, there can be no assurance as to whether or when we may pay dividends on our common stock in the future. Future dividends, if any, will be declared and paid at the discretion of Reliant Bancorp’s board of directors and will depend on a number of factors. Reliant Bancorp’s principal source of funds used to pay cash dividends on its common stock will be dividends that Reliant Bancorp receives from Reliant Bank. Although Reliant Bank’s asset quality, earnings performance, liquidity, and capital requirements will be taken into account before Reliant Bancorp declares or pays any future dividends on its common stock, our board of directors will also consider our liquidity and capital requirements, and our board of directors could determine to declare and pay dividends without relying on dividend payments from Reliant Bank.
Federal and state banking laws and regulations and state corporate laws restrict the amount of dividends we may declare and pay and that Reliant Bank may declare and pay to Reliant Bancorp. For example, Federal Reserve regulations implementing the capital rules required under Basel III do not permit dividends unless capital levels exceed certain higher levels applying capital conservation buffers that became fully phased in beginning January 1, 2019.
In addition, we rely heavily upon information supplied by third parties, including information contained in credit applications, property appraisals, title information, valuations and employment and income documentation, in deciding which loans we will originate as well as the terms of those loans. If any of the subordinated debentures Reliant Bancorp assumed in connection with our acquisitioninformation upon which we rely is misrepresented, either fraudulently or inadvertently, and the misrepresentation is not detected prior to asset funding, the value of Community First prohibit us from paying dividends on our common stock at times when we are not current with our payment obligations under the subordinated debentures. Reliant Bancorp may also from time to time enter into other contractual arrangements, including borrowing relationships with other financial institutions, that could limit the ability of Reliant Bancorp to pay dividends on its common stock in the future.
Reliant Bancorp’s stock price may fluctuate, which could result in losses to investors and litigation against Reliant Bancorp.
Reliant Bancorp’s common stock is listed on The Nasdaq Stock Market LLC. A number of factors could cause Reliant Bancorp’s stock price to fluctuate substantially in the future. These factors include but are not limited to: actual or anticipated variations in earnings, changes in analysts’ recommendations or projections, Reliant Bancorp’s announcement of developments related to its businesses, operations and stock performance of other companies deemed to be peers, new technology used or services offered by traditional and non-traditional competitors, news reports of trends, irrational exuberance on the part of investors, new federal banking laws, rules or regulations, and other matters related to the financial services industry. Reliant Bancorp’s stock price may fluctuate significantly in the future, and these fluctuationsasset may be unrelated to its performance. General market declinessignificantly lower than expected, or market volatility in the future, especially in the financial institutions sector, could adversely affect the price of Reliant Bancorp’s common stock, and the current market pricewe may fund a loan that we would not be indicative of future market prices. Stock price volatility may make it more difficult for Reliant Bancorp’s shareholders to resell their common stock when desired and at prices they find attractive. Moreover, in the past, securities class action lawsuits have been instituted against some companies following periods of volatility in the market price of their securities. Reliant Bancorp could in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources from Reliant Bancorp’s normal business.funded or on terms we would not have extended.
Economic and other circumstances may require Reliant Bancorp to raise capital at times or in amounts that are unfavorable to it. If Reliant Bancorp has to issue shares of common stock, the issuance will dilute the percentage ownership interest of existing shareholders and may dilute the book value per share of Reliant Bancorp’s common stock and adversely affect the terms on which Reliant Bancorp may obtain additional capital.
Reliant Bancorp may need to incur additional debt or equity financing in the future to make strategic acquisitions or investments or to strengthen its capital position. Reliant Bancorp’s ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and Reliant Bancorp’s financial performance and condition. Reliant Bancorp cannot provide assurance that such financing will be available to Reliant Bancorp on acceptable terms or at all, or if Reliant Bancorp does raise additional capital that it will not be dilutive to existing shareholders.
If Reliant Bancorp determines, for any reason, that it needs to raise capital, Reliant Bancorp’s board of directors generally has the authority, without action by or vote of Reliant Bancorp's shareholders, to issue all or part of any authorized but unissued shares of stock for any corporate purpose, including issuance of equity based incentives under or outside of Reliant Bancorp’s equity compensation plans, subject to certain Nasdaq rules. Additionally, Reliant Bancorp is not restricted from issuing additional common stock or preferred stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. The market price of Reliant Bancorp’s common stock could decline as a result of sales by Reliant Bancorp of a large number of shares of common stock or preferred stock or similar securities in the market or from the perception that such sales could occur. If Reliant Bancorp issues preferred stock that has a preference over its common stock with respect to the payment of dividends or upon liquidation, dissolution or winding-up, or if Reliant Bancorp issues preferred stock with voting rights that dilute the voting power of the common stock, the rights of holders of the common stock or the market price of Reliant Bancorp’s common stock could be adversely affected. Any issuance of additional shares of stock will dilute the percentage ownership interest of Reliant Bancorp’s shareholders and may dilute the book value per share of its common stock. Shares that Reliant Bancorp issues in connection with any such offering will increase the total number of shares outstanding and may dilute the economic and voting ownership interest of Reliant Bancorp’s existing shareholders.
A failure in or breach of Reliant Bancorp’s or Reliantthe Bank’s computer or information technology systems or networks, or those of third parties, could disrupt our businesses and adversely impact our financial condition and results of operations, as well as cause us reputational harm.
The potential for operational risk exposure exists throughout our organization and, as a result of our interactions with and reliance on third parties, is not limited to our own internal operating functions. Our computer and information technology systems and networks, as well as those of third parties, are integral to our business and performance. We rely on our employees and third parties, including vendors, in the course of our day-to-day operations, any of whom may, as a result of human error, misconduct, malfeasance, or a failure or breach of systems or networks, expose us to risk.risk, including the risk of a cyber-attack, which could disrupt the Bank’s operations and expose the Bank to future cyber-attacks. We have taken measures to implement backup systems and other safeguards to support our operations, but our ability to conduct business may be adversely affected by any significant disruptions in or to our computer or information technology systems or networks or those of third parties with whom we interact or upon whom we rely. Reliant Bancorp and the Bank have also prepared and annually test a business continuity plan that would be implemented in the event of a significant technological failure or if a current site become unavailable. In addition, our ability to implement backup systems and other safeguards with respect to third-party systems is more limited than with respect to our own systems. Our financial, accounting, data processing, backup, or other operating or security systems, or those of third parties with whom we interact or upon whom we rely, may fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our or such third parties’ control, which could adversely affect our ability to process transactions or provide services. There could be sudden increases in customer transaction volume; electrical, telecommunications, or other major physical infrastructure outages; newly identified vulnerabilities in key hardware or software; natural disasters such as earthquakes, tornadoes, hurricanes, and floods; disease pandemics; and events arising from local or larger scale political or social matters, including terrorist acts. In the event that backup systems are utilized, these systems may not process data as quickly as our primary systems and some data might not have been backed up. We continuously update the systems on which we rely to support our operations and to remain compliant with applicable laws, rules, and regulations. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones, including business interruptions. Operational risk exposures could materially and adversely impact our business, financial condition, and results of operations, as well as cause us reputational harm.
The financial services industry is undergoing rapid technological changes and we may not have the resources to implement new technology to stay current with these changes.
The financial services industry is undergoing rapid technological changes, with new technology-driven products and services being frequently introduced. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to provide secure electronic environments as we continue to grow and expand our market area. Many of our larger competitors have substantially greater resources to invest, and have invested significantly more than us, in technological improvements. As a result, they may be able to offer additional or more convenient products compared to those that we will be able to provide, which would put us at a competitive disadvantage. We may not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers, which could impair our growth and profitability.
A cyber-attack, information or security breach, or technology failure, on our part or that of a third party, could adversely affect our ability to conduct our business, result in the disclosure or misuse of confidential or proprietary information, or adversely impact our business, financial condition, and results of operations, as well as cause us reputational harm.
Our business is highly dependent on the security and integrity of our computer and information technology systems and networks, as well as those of third parties with whom we interact or on whom we rely. Our business is dependent on the secure processing, transmission, storage, and retrieval of confidential, proprietary, and other information in our computer and information technology systems and networks, and in the computer and information technology systems and networks of third parties. In addition, to access our networks, products, and services, our customers and other third parties may use personal mobile or computing devices that are outside of our network environment and are subject to their own unique cybersecurity risks.
We and our third-party service providers and customers have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denials of service or information, or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of confidential, proprietary, or other information of ours or of our employees or customers or third parties, as well as damages to our and third-party computer and information technology systems and networks and the disruption of our or our customers’ or other third parties’ systems, networks, or business. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any
information security vulnerabilities or incidents. Despite efforts to protect the integrity of our systems and networks and implement controls, processes, policies, and other protective measures, cyber threats are rapidly evolving, and we may not be able to anticipate or prevent cyber-attacks or security breaches.
Cybersecurity risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurityCybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime groups, hackers, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists, and other external parties. Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks are becoming more sophisticated and are extremely difficult to prevent. The techniques used by bad actors change frequently, may not be recognized until launched, and may not be recognized until well after a breach has occurred. Additionally, the occurrence of cyber-attacks or security breaches involving third parties with access to our data, such as vendors, may not be disclosed to us in a timely manner.
Although to date we have not experienced any material losses or other material consequences relating to technology failures, cyber-attacks, or other information or security breaches, whether directed at us or third parties, there can be no assurance that we will not suffer such losses or other consequences in the future. Our risks associated with these matters remains heightened because of, among other things, the evolving nature of these threats, our size and scale, our role in the financial services
industry, our plans to continue to implement our internet banking and mobile banking channel strategies and develop additional remote connectivity solutions to serve our customers when and how they want to be served, our continuous transmission of sensitive information to, and storage of such information by, third parties, the outsourcing of some of our business operations, threats of cyber terrorism, and system and customer account updates and conversions. As a result, cybersecurity and the continued development and enhancement of our controls, processes, policies, and other protective measures designed to protect our systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a priority.
We also face indirect technology, cybersecurity, and operational risks relating to the customers and other third parties with whom we do business or upon whom we rely to facilitate or enable our business activities, including financial counterparties; financial intermediaries such as clearing agents, exchanges, and clearing houses; vendors; regulators; providers of critical infrastructure such as internet access and electrical power; and retailers for whom we process transactions. As a result of increasing consolidation, interdependence, and complexity of financial entities and technology systems, a technology failure, cyber-attack, or other information or security breach that significantly degrades, deletes, or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us. This consolidation, interdependence, and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology failure, cyber-attack, or other information or security breach could, among other things, adversely affect our ability to effect transactions, service our customers, manage our exposure to risk, or operate or expand our businesses.business.
Cyber-attacks or other information or security breaches, whether directed at us or third parties, may result in us experiencing material losses or have other material adverse consequences.consequences on us. Furthermore, the public perception that a cyber-attack on our systems has been successful, whether or not this perception is correct, could damage our reputation with customers and third parties with whom we do business. A successful penetration or circumvention of the security of our computer or information technology systems or networks could cause us negative consequences, including loss of customers and business opportunities, disruption to our operations and business, misappropriation or destruction of our confidential information or that of our customers, or damage to our customers’ or other third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs, all of which could materially and adversely affect our business, financial condition, and results of operations.
Liquidity Risks
Liquidity risk could impair our ability to fund our operations and jeopardize our financial condition.
Liquidity represents a financial institution’s ability to provide funds to satisfy demands from depositors, borrowers and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds. Liquidity risk arises from the possibility that we may be unable to satisfy current or future funding requirements and needs.
The objective of managing liquidity risk is to ensure that our cash flow requirements resulting from depositor, borrower and other creditor demands as well as our operating cash needs are met, and that our cost of funding such requirements and needs is reasonable. We maintain an asset/liability and interest rate risk policy and a liquidity and funds management policy, including a contingency funding plan, that, among other things, include procedures for managing and monitoring liquidity risk. Generally, we rely on deposits, repayments of loans and leases and cash flows from our investment securities as our primary sources of funds. Our principal deposit sources include consumer, commercial and public funds customers in our markets. We have used these funds, together with federal funds purchased and other sources of short-term and long-term borrowings, to make loans and leases, acquire investment securities and other assets and to fund continuing operations.
An inability to maintain or raise funds in amounts necessary to meet our liquidity needs could have a substantial negative effect on the Bank’s liquidity. Our access to funding sources in amounts adequate to finance our activities, or on terms attractive to us, could be impaired by factors that affect us specifically or the financial services industry in general. For example, factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us, a reduction in our credit rating, any damage to our reputation or any other decrease in depositor or investor confidence in our creditworthiness and business. Our access to liquidity could also be impaired by factors that are not specific to us, such as severe volatility or disruption in the financial markets or negative views and expectations about the prospects for the financial services industry as a whole. Any such event or failure to manage our
liquidity effectively could affect our competitive position, increase our borrowing costs and the interest rates we pay on deposits, limit our access to the capital markets and have a material adverse effect on our results of operations or financial condition.
Deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, general economic and market conditions and other factors. Loan and lease repayments are a relatively stable source of funds but are subject to the borrowers’ and lessees’ ability to repay loans and leases, which can be adversely affected by a number of factors including changes in general economic conditions, adverse trends or events affecting business industry groups or specific businesses, declines in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and other factors. Furthermore, loans and leases generally are not readily convertible to cash. Accordingly, we may be required from time to time to rely on secondary sources of liquidity to meet growth in demand for loans and leases, deposit withdrawal demands or otherwise fund operations. Such secondary sources include FHLB advances, brokered deposits, secured and unsecured federal funds lines of credit from correspondent banks, Federal Reserve borrowings and/or accessing the equity or debt capital markets.
We anticipate we will continue to rely primarily on deposits, loan and lease repayments, and cash flows from our investment securities to provide liquidity. Additionally, where necessary, the secondary sources of borrowed funds described above will be used to augment our primary funding sources. If we are unable to access any of these secondary funding sources when needed, we might be unable to meet our customers’ or creditors’ needs, which would adversely affect our financial condition, results of operations, and liquidity.
Economic and other circumstances may require Reliant Bancorp to raise capital at times or in amounts that are unfavorable to it. If Reliant Bancorp has to issue shares of common stock, the issuance of the shares will dilute the percentage ownership interests of existing shareholders and may dilute the book value per share of Reliant Bancorp’s common stock and adversely affect the terms on which Reliant Bancorp may obtain additional capital.
We face significant capital and other regulatory requirements as a financial institution. We may need to raise additional capital in the future to provide sufficient capital resources and liquidity to meet our commitments and business needs, which could include financing acquisitions. In addition, we, on a consolidated basis, and the Bank, on a standalone basis, must meet certain regulatory capital requirements and maintain sufficient liquidity. Importantly, regulatory capital requirements could increase from current levels, which could require us to raise additional capital or reduce our operations. Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance.
Reliant Bancorp may need to incur additional debt or equity financing in the future to make strategic acquisitions or investments or to strengthen its capital position. Reliant Bancorp cannot provide assurance that such financing will be available to Reliant Bancorp on acceptable terms or at all, or if Reliant Bancorp does raise additional capital that it will not be dilutive to existing shareholders.
If Reliant Bancorp determines, for any reason, that it needs to raise capital, Reliant Bancorp’s board of directors generally has the authority, without action by or vote of Reliant Bancorp's shareholders, to issue all or part of any authorized but unissued shares of stock for any corporate purpose subject to certain Nasdaq rules. Additionally, Reliant Bancorp is not restricted from issuing additional common stock or preferred stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. The market price of Reliant Bancorp’s common stock could decline as a result of sales by Reliant Bancorp of a large number of shares of common stock or preferred stock or similar securities in the market or from the perception that such sales could occur. If Reliant Bancorp issues preferred stock that has a preference over its common stock with respect to the payment of dividends or upon liquidation, dissolution or winding-up, or if Reliant Bancorp issues preferred stock with voting rights that dilute the voting power of its common stock, the rights of holders of its common stock or the market price of Reliant Bancorp’s common stock could be adversely affected. Any issuance of additional shares of common stock will dilute the percentage ownership interests of Reliant Bancorp’s then current shareholders and may dilute the book value per share of its common stock.
The amount of interest payable on our subordinated notes will vary beginning on December 15, 2024.
On December 13, 2019, Reliant Bancorp issued and sold $60.0 million in aggregate principal amount of its 5.125% Fixed-to-Floating Rate Subordinated Notes due 2029 (the “Subordinated Notes”). The interest rate on the Subordinated Notes will vary beginning on December 15, 2024. The Subordinated Notes will bear interest at an initial rate of 5.125%, payable semi-annually until December 15, 2024, at which time the Subordinated Notes will bear interest at a floating rate equal to the three-month Secured Overnight Financing Rate (“SOFR”) (provided that, in the event three-month SOFR is less than zero, three-month SOFR will be deemed to be zero), plus a spread of 376.5 basis points. If interest rates rise, the cost of the Subordinated Notes may increase, thereby negatively affecting our net income.
COVID-19 Pandemic Risks
The COVID-19 pandemic has had and is likely to continue to have an adverse effect, which could be material, on our business, results of operations, and financial condition.
The COVID-19 pandemic has resulted in widespread economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our customers and other businesses in our market area. The full extent of the effect of the COVID-19 pandemic on our customers and market area, and the resulting impact on our business, financial condition, liquidity and results of operations, is unknown at this time, and will depend on a number of factors beyond our control, including without limitation:
•the duration and ultimate severity of the COVID-19 pandemic, and the timing of development and widespread availability of effective medical treatments and/or vaccines;
•the continued response of governmental authorities, which previously have significantly curtailed business and individual activities;
•the success of monetary, fiscal, and other economic policies and programs adopted or implemented by governmental authorities, such as economic stimulus payments and the Paycheck Protection Program (“PPP”), and designed to provide economic assistance to individuals and small businesses and otherwise mitigate the financial impact of the COVID-19 pandemic on businesses and individuals;
•compliance, operational or reputational risks related to our participation in governmental programs associated with the COVID-19 pandemic, including increased costs and the risk of litigation or regulatory action;
•negative trends in unemployment and consumer confidence; and
•customer demand for our products and services, or lack thereof.
Many of the risks described under Part I, Item 1A. "Risk Factors" in this Annual Report may be exacerbated, and the impact of such risks may be magnified, as a result of the COVID-19 pandemic. The following discussion highlights some areas where the negative impacts of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations could be most severe.
•Credit Quality. Approximately 15.0% of our loan portfolio is comprised of non-owner-occupied loans to borrowers in the hotel and retail industries. These industries have been more severely impacted by the COVID-19 pandemic and governmental responses, such as stay-at-home orders and social distancing requirements, than other industries, and may have a longer recovery period than other industries. Aside from the industries mentioned above, we have other borrowers whose ability to make loan payments is dependent on rental income from their tenants, some of whom are engaged in businesses significantly impacted by the COVID-19 pandemic. Poor economic conditions often result in an increase in tenants failing to make rental payments, and economic relief programs adopted in response to the COVID-19 pandemic may permit tenants to defer or reduce rent payments. As a result of actual or expected credit losses, we may downgrade loans, increase our allowance for credit losses as a result of increases in non-performing assets, and write-down or charge-off credit relationships, any of which will negatively impact our results of operations. In 2020, we offered payment deferrals to many of our customers, and may need to offer further concessions or modifications, which could negatively impact our credit quality. In addition, market upheaval may affect the value of
real estate and commercial assets. In the event of foreclosures, we may be unable to sell the foreclosed assets at a price that will allow us to recoup all or a significant portion of the delinquent loans.
•Increased Demands on Capital and Liquidity. We experienced an increased volume of loan originations, particularly SBA loans pursuant to the PPP. Certain of these SBA loans have mandated interest rates that are lower than our usual rates and may not be purchased by the SBA or other third parties (or, in the case of PPP loans, forgiven) within expected timeframes. In addition, during times of economic distress, borrowers may draw on existing lines of credit or seek additional loans to finance their businesses. These factors may result in reduced levels of capital and liquidity being available to originate more profitable loans, which could negatively impact our ability to serve our existing customers and our ability to attract new customers.
•Even following medical resolution of the COVID-19 pandemic and the loosening of restrictions on business and individual activities, the United States and local economies may not recover quickly and may experience a prolonged recession. Our business and operations would be adversely affected, possibly materially, by a slow economic recovery or a prolonged recession.
•Deposits. As a result of the COVID-19 pandemic, deposit customers may retain higher balances. While increased low-interest deposits could have a positive impact in the short-term, we would not expect these funds to be replenished as customers use deposit funds for liquidity for their business and individual needs. If deposit levels decline, our available liquidity would decline, and we could be forced to obtain liquidity from other sources on terms less favorable than current deposit terms, which would in turn compress margins and negatively impact our results of operations.
•Changes to Operations. We, along with many other third parties with whom we do business or upon whom we rely to facilitate or enable our business activities, have implemented a number of operational changes in response to the COVID-19 pandemic, including increased work-from-home arrangements, which may result in a loss of employee engagement and productivity for our employees as well as those employees of other third parties with whom we do business or upon whom we rely to facilitate or enable our business activities, which could impact financial results and the operations of the Bank as well as increase risks related to cyber security.
•Growth Strategy. The COVID-19 pandemic has impacted, and may for some time continue to impact, our ability to execute on our growth strategy. The continuation or worsening of the COVID-19 pandemic may limit our ability to grow organically and/or via mergers or acquisitions. Since the COVID-19 pandemic began in the United States, the level of financial institution merger and acquisition activity has significantly declined, and we cannot predict when or if such activity will rebound.
Unpredictable future developments related to or resulting from the COVID-19 pandemic could materially and adversely affect our business and results of operations.
Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not yet know the full extent of the COVID-19 pandemic’s effects on our business and operations or the global economy as a whole. Future COVID-19 developments are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work-from-home arrangements, third party providers’ ability to support our operations, and any actions taken by governmental authorities and other third parties in response to the pandemic.
We are continuing to monitor the COVID-19 pandemic and related risks, although the rapid development and fluidity of the situation precludes any specific prediction as to its continuing and ultimate impact on us. However, if the COVID-19 outbreak continues to spread or otherwise results in a continuation or worsening of the current economic and commercial environments, our business, financial condition, results of operations and cash flows as well as our regulatory capital and liquidity ratios could be materially adversely affected and many of the risks described in this Annual Report on Form 10-K may be heightened.
The spread of COVID-19, or governmental responses to the same, may disrupt banking and other financial activity in the areas in which we operate and could potentially create business continuity issues for us.
The spread of COVID-19 and federal, state, and local governmental responses to the same may result in disruption in the services we provide. We rely on our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with needed services or experience interruptions in their ability to provide us with needed services, it could negatively impact our ability to serve our customers. Further, the COVID-19
pandemic could negatively impact the ability of our employees and customers to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread issues for us. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to infection, quarantine, or other effects of or restrictions relating to COVID-19 outbreaks in our market areas. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.
As a participating lender in the PPP, the Bank is subject to certain operationaladditional risks including butof litigation from its customers or other parties regarding the Bank’s processing of loans for the PPP, regulatory risks, and risks that the SBA may not limitedfund some or all PPP loan guaranties.
The Bank is participating as an eligible lender under the PPP. Since the opening of the PPP, several financial institutions have been subject to customerlitigation regarding the processes and procedures used in processing applications for the PPP. The Bank may be exposed to the risk of similar litigation, from both customers and non-customers that approached the Bank regarding PPP loans, regarding its processes and procedures used in processing applications for the PPP. In addition to litigation, the Bank’s participation in the PPP exposes the Bank to the possibility of governmental investigations, enforcement actions and negative publicity. If any such litigation or employee fraud.
Employee errorsenforcement action is filed or initiated against the Bank and employee and customer misconduct could subject usis not resolved in a manner favorable to the Bank, it may result in significant financial lossesliability or regulatory sanctions and seriously harmadversely affect our reputation. MisconductIn addition, litigation and investigations can be costly, regardless of outcome. Any financial liability, litigation and investigation costs or reputational damage caused by our employeesPPP-related litigation could include hiding unauthorized activities from us, improperhave a material adverse impact on Reliant Bancorp’s business, financial condition and results of operations.
The Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or unauthorized activities on behalfserviced by the Bank, such as an issue with the eligibility of our customersa borrower to receive a PPP loan, which may or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effectiverelated to ambiguity in all cases. Employee errorsthe laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Bank.
General Risks
The value of our goodwill and other intangible assets may decline in the future.
As of December 31, 2020, we had $65.7 million of goodwill and other intangible assets. A significant decline in our financial condition, a significant adverse change in the business or economic climate, slower growth rates, or a significant and sustained decline in the price of our common stock may necessitate taking charges in the future related to the impairment of our goodwill and other intangible assets. If we were to conclude that a future write-down of goodwill and other intangible assets is necessary, we would record the appropriate charge, which could have a material adverse effect on our financial condition and results of operations. Future acquisitions of other financial institutions could result in additional goodwill.
We may be subject to environmental liabilities in connection with foreclosures or repossession of assets securing our loan portfolio.
Hazardous or toxic substances or other environmental hazards may be located on or otherwise affect the properties that secure our loans. If we acquire such properties as a result of foreclosure or otherwise, we could become subject to various environmental liabilities. For example, we could be held liable for the cost of cleaning up or otherwise addressing contamination at or from these properties. We could also be held liable to a governmental entity or third party for property damage, personal injury or other claims relating to any environmental contamination at or from these properties. In addition, we may own and operate certain properties that may be subject us to similar environmental liability risks during any given fiscal year. If we were to become subject to significant environmental liabilities, our business, financial claims for negligence. condition and results of operations could be adversely affected.
We maintainare exposed to increased credit losses and credit-related expenses in the event of a systemmajor natural disaster, public health crisis (such as the COVID-19 pandemic), other catastrophic event or significant climate change effects.
The occurrence of internal controlsa major natural or environmental disaster, public health crisis or similar catastrophic event, as well as significant climate change effects such as wildfires, especially in densely populated geographic areas, could increase our credit losses and insurance coveragecredit-related expenses. A natural disaster, public health crisis or catastrophic event or other significant climate change effect that either damages or destroys residential or multifamily real estate underlying mortgage loans or real estate collateral, or negatively affects the ability of borrowers to mitigate against these operational risks. Ifcontinue to make payments on loans, could increase our internal controls fail to prevent or detect an occurrence, or if any resultingdelinquency rates and average loan loss is not insured or exceeds applicable insurance limits, itseverity in the affected areas. Such events could also cause downturns in economic and market conditions generally, which could have a material adverse effect on our business and financial results. We may not have adequate insurance coverage for some of these natural, catastrophic, public health or climate change-related events.
Legal, Regulatory and Compliance Risks
We are subject to extensive government regulation and supervision.
Reliant Bancorp and its subsidiaries, particularly Reliant Bank, are subject to extensive federal and state regulation and to supervision by, among others, the Federal Reserve, the TDFI, and the SEC. The primary focus of much of this regulation and supervision is the protection of depositors and other customers, the deposit insurance fund and the safety and soundness of the banking system as a whole, and not shareholders. The quantity and scope of applicable federal and state regulations may now or in the future place banks at a competitive disadvantage compared to less regulated competitors such as fintech companies, finance companies, credit unions, mortgage banking companies and leasing companies. Federal and state regulations apply to almost every aspect of our business and affect our lending practices and procedures, capital structure, investment activities, deposit gathering activities, services and products, risk management practices, dividend policy and growth, including growth through acquisitions.
Legislation impacting, and the regulation of, our industry has increased in recent years, and we expect that legislation impacting and supervision and regulation of our industry will continue to expand in scope and complexity. Congress and federal regulatory agencies (and to a lesser extent state lawmakers and regulatory bodies) continually consider new laws, rules, regulations and policies impacting the banking industry, and they also frequently review existing laws, rules, regulations and policies for possible changes. New laws, rules, regulations and policies affecting the banking industry, as well as changes to existing laws, rules, regulations and policies and changes in the interpretation or implementation of applicable laws, rules, regulations and policies, could affect us in material and unpredictable ways and could, among other things, subject us to additional costs, restrict our growth, limit the services and products we may offer or limit the pricing of banking services and products. In addition, establishing systems and processes to achieve compliance with applicable laws, rules, regulations and policies increases our costs and could limit our ability to pursue business opportunities.
Also, if we receive less than satisfactory results on regulatory examinations, we could be subject to damage to our reputation, restrictions on our operations, significant fines and penalties, requirements to increase compliance and risk management activities and related costs and restrictions on acquisitions, new locations, new lines of business, or continued growth.
The future enactment of, or changes in federal or state banking laws, rules, regulations or policies could adversely affect our financial condition, operating results and ability to continue to compete effectively. For example, the Dodd-Frank Act and related regulations have subjected us to additional regulatory oversight and reporting obligations, some of which have materially increased costs. Also, over the last several years, state and federal regulators have focused on enhanced risk management practices, compliance with the BSA and anti-money laundering laws, data integrity and security, use of service providers, and fair lending and other consumer protection issues, which has increased our need to build out additional processes and infrastructure.
Legislative and regulatory bodies and agencies charged with adopting, implementing, and interpreting laws, rules, regulations, and policies may do so in an unforeseen manner, including in ways that potentially expand the reach of the laws, rules, regulations, or policies more than initially contemplated or currently anticipated. We cannot predict the substance of, or the impact on our business, financial condition or results of operations of, pending or future legislation or regulation. Additionally, we may be unable to accurately assess, or may be incorrect in our assessment of, the impact, which may be material, of existing
(including recently-passed or enacted) laws, rules, regulations or policies on our business, financial condition and results of operations.
Compliance with current and potential future laws, rules, regulations and policies, and regulatory scrutiny relative to the same, could significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital, limit our ability to pursue business opportunities and, generally, have a material adverse impact on our business, financial condition or results of operations. Our ability to maintain compliance with both existing and new laws, rules, regulations and policies will be critical to our future success.
We are subject to stringent capital requirements, which may prevent us from paying dividends or repurchasing shares or may adversely impact our operating results.
The Dodd-Frank Act required the federal banking agencies to establish stricter risk-based and leverage capital requirements to apply to banks and bank holding companies. In addition, we rely heavily upon information supplied by third parties, including information contained in credit applications, property appraisals, title information, valuations2013, the federal banking agencies adopted revised risk-based and employment and income documentation, in deciding which loans we will originateleverage capital requirements as well as a revised method for calculating risk-weighted assets. These capital requirements generally apply to all bank holding companies with $3 billion or more in consolidated assets and all banks regardless of size.
These revised capital rules subjected us to higher required capital levels beginning January 1, 2015, with a four-year phase-in period for certain provisions beginning in 2016. As of January 1, 2019, the terms of those loans.revised capital requirements were fully phased in. If any of the information upon which we rely is misrepresented, either fraudulently or inadvertently,are not able to maintain compliance with these requirements, we may have to raise additional capital and the misrepresentation is not detected prior to asset funding, the value of the asset may be significantly lower than expected,subject to regulatory actions or restrictions such as the inability to pay dividends or repurchase shares of our stock. Additionally, if we may fundbecome subject to more stringent capital requirements, this could, again, require us to raise additional capital and could also adversely impact our results of operations, possibly materially.
On October 29, 2019, pursuant to the Regulatory Relief Act, the federal banking agencies adopted a loanfinal rule to simplify the regulatory capital requirements for eligible community banks and holding companies that weopt-in to the CBLR framework. Under the final rule, which became effective on January 1, 2020, community banks and holding companies (which would not have funded or on terms we would not have extended.
Negative public opinion surroundinginclude Reliant Bancorp and Reliant Bank) that satisfy certain qualifying criteria, including having less than $10 billion in average total consolidated assets and a leverage ratio of greater than 9%, are eligible to opt-in to the CBLR framework. Pursuant to the CARES Act, the federal banking agencies in October 2020 adopted a final rule revising the leverage ratio threshold down to 8% effective for the second quarter of 2020 and 8.5% effective January 1, 2021, with the leverage ratio threshold to return to 9% effective January 1, 2022. Reliant Bancorp and Reliant Bank have not opted-in to, and presently do not intend to opt-in to, the CBLR framework.
Reliant Bank’s FDIC deposit insurance premiums and assessments may increase.
Our deposits are insured up to applicable limits by the Depositors Insurance Fund of the FDIC, and we are subject to deposit insurance assessments to maintain deposit insurance. As an FDIC-insured institution, we are required to pay quarterly deposit insurance premium assessments to the FDIC. Although we cannot predict what the insurance assessment rates will be in the future, either deterioration in our risk-based capital ratios or adjustments to the base assessment rates could have a material adverse impact on our business, financial condition, results of operations, and cash flows.
Laws and regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
We are subject to various privacy, information security and data protection laws, including requirements relating to security breach notification, and we could be negatively impacted by them. For example, we are subject to the GLBA and related implementing regulations and guidance. Among other things, GLBA: (i) imposes certain limitations on the ability of financial institutions to share consumers’ nonpublic personal information with nonaffiliated third parties, (ii) requires that financial institutions provide certain disclosures to consumers about their information collection, sharing and security practices and affords consumers the right to “opt out” of an institution’s disclosure of their personal financial information to nonaffiliated third parties (with certain exceptions) and (iii) requires financial institutions to develop, implement and maintain a written comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and
complexity, the nature and scope of the financial institution’s activities, and the sensitivity of customer information processed by the financial institution, as well as plans for responding to data security breaches.
Moreover, various United States federal agencies, states and foreign jurisdictions have enacted data security breach notification requirements with varying levels of required individual, consumer, regulatory and/or law enforcement notification in certain circumstances in the event of a security breach. Many of these requirements not only apply to us but also apply broadly to our partners that accept payments from our customers. In some countries that have yet to impose data security breach notification requirements, regulators have increasingly used the threat of significant sanctions and penalties by data protection authorities to encourage voluntary notification and discourage data security breaches.
Furthermore, lawmakers and regulators in the United States are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer and/or employee information, and some of our current or planned business activities. This could also increase our costs of compliance and business operations and could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level by the Federal Trade Commission, as well as at the state level, such as with regard to mobile applications.
Compliance with current or future privacy, data protection and information security laws (including those regarding security breach notification) affecting customer and/or employee data to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could materially and adversely affect our profitability. Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions and damage to our reputation and our brand.
Anti-money laundering and anti-terrorism financing laws could have significant adverse consequences for us.
We maintain an enterprise-wide program designed to enable us to comply with applicable anti-money laundering and anti-terrorism financing laws and regulations, including the BSA and the USA PATRIOT Act. This program includes policies, procedures, processes and other internal controls designed to identify, monitor, manage and mitigate the risk of money laundering or terrorist financing posed by our products, services, customers and geographic locale. These controls include procedures and processes to detect and report suspicious transactions, perform customer due diligence, respond to requests from law enforcement, and meet all recordkeeping and reporting requirements related to particular transactions involving currency or monetary instruments. We cannot be sure our policies, procedures, processes and controls will be effective to ensure our compliance with all applicable anti-money laundering and anti-terrorism financing laws and regulations, and our failure to comply could subject us to significant sanctions, fines, penalties and reputational harm, all of which could have a material adverse effect on our business, results of operations and financial condition.
Our financial condition and results of operations may be adversely affected by changes in accounting standards and interpretations.
The FASB and other bodies that establish accounting standards periodically change the financial accounting and reporting standards governing the preparation of our financial statements. Additionally, bodies that establish and interpret accounting and reporting standards (such as the FASB, the SEC and banking regulators) may change prior interpretations or positions regarding how these standards should be applied. Changes in these standards or interpretations thereof may result in material and possibly adverse impacts to our financial results and may require us to change how we process, analyze or report financial information or to change our financial reporting controls.
Of particular note, in June 2016, the FASB issued CECL. The FASB subsequently issued an update, and CECL is currently scheduled to become effective for us in January 2023. This standard amends prior guidance regarding the accounting for credit losses for certain assets, including loans held for investment and held to maturity debt securities. CECL requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses through provision for loan losses. This will change the current method of provisioning for incurred loan and lease losses, which may require Reliant Bank to increase its ALL, and is likely to increase the types of data Reliant Bank would need to collect and
review to determine the appropriate level of its ALL. In addition, this change may result in more volatility in the level of Reliant Bank's ALL. An increase, to the extent material, in Reliant Bank's ALL or expenses incurred to determine the appropriate level of the ALL could have a material adverse effect on our capital levels, financial condition, and results of operations.
We are subject to risks related to legal proceedings.
We are from time to time involved in legal proceedings in the ordinary course of our business. The outcome of these or other legal proceedings in which we may be involved cannot be guaranteed. As a result of legal proceedings in which we may be involved, we may incur or be required to pay monetary damages, fines, penalties, settlement costs, costs of litigation, and other charges, some of which could be significant, and we may also be required to take or refrain from taking certain actions. Further, we may suffer reputational harm as the result of our involvement in certain legal proceedings. While we insure against the risk of legal proceedings, our insurance may not cover all claims that may be asserted against us. Accordingly, these legal proceedings could have a material and adverse effect on our financial condition, results of operations and prospects.
Additionally, supervisory and enforcement actions by our regulators could involve fines, penalties, and other monetary obligations, capital directives, formal or informal agreements with our regulators, significant costs of compliance, and reputational harm, any of which could have a material and adverse effect on our financial condition, results of operations and prospects.
Risks Related to Our Common Stock
Reliant Bancorp’s stock price may fluctuate, which could result in losses to investors and litigation against Reliant Bancorp.
Reliant Bancorp’s common stock is listed on Nasdaq. A number of factors could cause Reliant Bancorp’s stock price to fluctuate substantially in the future. These factors include but are not limited to: actual or anticipated variations in earnings, changes in analysts’ recommendations or projections, Reliant Bancorp’s announcement of developments related to its businesses, operations and stock performance of other companies deemed to be peers, new technology used or services offered by traditional and non-traditional competitors, news reports of trends, irrational exuberance on the part of investors, new federal or state banking laws, rules or regulations, and other matters related to the financial services industry. Reliant Bancorp’s stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to its performance. General market declines or market volatility in the future, especially in the financial institutions industry generallysector, as well as natural disasters or public health issues, could damageadversely affect the price of Reliant Bancorp’s reputationcommon stock, and adversely impact its earnings.
Reputation risk, or the risk tocurrent market price may not be indicative of future market prices. Stock price volatility may make it more difficult for Reliant Bancorp’s business, earningsshareholders to resell their common stock when desired and capital from negative public opinion surroundingat prices they find attractive. Moreover, in the past, securities class action lawsuits have been instituted against some companies following periods of volatility in the market price of their securities. Reliant Bancorp orcould in the financial institutions industry generally, is inherentfuture be the target of similar litigation. Securities litigation could result in Reliant Bancorp’s business. Negative public opinion can resultsubstantial costs and divert management’s attention and resources from Reliant Bancorp’s actualnormal business.
Even though our common stock is currently traded on Nasdaq, it has less liquidity than many other stocks quoted on a national securities exchange.
The trading volume in our common stock on Nasdaq has been relatively low when compared with larger companies listed on Nasdaq or alleged conduct in anyother stock exchanges. Because of this, it may be more difficult for shareholders to sell a substantial number of activities, including lending practices, corporate governanceshares for the same price at which shareholders could sell a smaller number of shares.
We cannot predict the effect, if any, that future sales of our common stock in the market, or the availability of shares of common stock for sale in the market, will have on the market price of our common stock. We can give no assurance that sales of substantial amounts of common stock in the market, or the potential for large amounts of sales in the market, would not cause the price of our common stock to decline or impair our future ability to raise capital through sales of our common stock.
The market price of our common stock has fluctuated, and acquisitions, and from actions taken by government regulators and community organizationsmay fluctuate significantly in responsethe future. These fluctuations may be unrelated to those activities. Negative public opinion canour performance. General market or industry price declines or overall market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.
Reliant Bancorp’s ability to keeppay cash dividends is limited, and attract clients and employees and can expose it to litigation and regulatory action. Although Reliant Bancorp takes stepsmay be unable to minimize reputation riskpay future dividends even if it desires to do so.
Even though our board of directors has approved the payment of cash dividends on Reliant Bancorp’s common stock in dealing with its clientsrecent years, there can be no assurance as to whether or when we may pay dividends on our common stock in the future. Future dividends, if any, will be declared and communities, this risk will always be present givenpaid at the naturediscretion of Reliant Bancorp’s business.board of directors and will depend on a number of factors. Reliant Bancorp’s principal source of funds used to pay cash dividends on its common stock will be dividends that Reliant Bancorp receives from the Bank. The Bank’s asset quality, earnings performance, liquidity, and capital requirements generally will be taken into account before the Bank board of directors declares or pays future dividends to Reliant Bancorp. The Reliant Bancorp board of directors will also consider Reliant Bancorp’s liquidity and capital requirements when considering whether to declare and pay dividends on Reliant Bancorp’s common stock, and, to the extent there is available cash on hand, Reliant Bancorp’s board of directors could determine to declare and pay dividends without relying on dividend payments from the Bank.
Federal and state banking laws and regulations and state corporate laws restrict the amount of dividends we may declare and pay and that the Bank may declare and pay to Reliant Bancorp. For example, Federal Reserve regulations implementing the capital rules required under Basel III do not permit dividends unless capital levels exceed certain higher levels applying capital conservation buffers that became fully phased in beginning January 1, 2019.
In addition, Reliant Bancorp must make payments on its subordinated debentures (and the related trust preferred securities) and the Subordinated Notes before any dividends can be paid on its common stock. Reliant Bancorp may also from time to time enter into other contractual arrangements, including borrowing relationships with other financial institutions, that could limit the ability of Reliant Bancorp to pay dividends on its common stock in the future.
We may issue additional common stock or other equity securities in the future which could dilute the ownership interest of our existing shareholders.
In order to maintain our or Reliant Bank’s capital at desired or regulatory-required levels, we may issue additional shares of our common stock, or securities convertible into, exchangeable for or representing rights to acquire shares of common stock. We may sell these shares at prices below the current market price for shares of Reliant Bancorp common stock, and the sale of these shares may significantly dilute existing shareholder ownership. We could also issue additional shares of our common stock in connection with acquisitions of other financial institutions (as we did in connection with our acquisition of Community First)First, TCB Holdings, and FABK), which could also dilute existing shareholder ownership.
The rights of our common shareholders would likely be subordinate to the rights of the holders of any preferred stock that we may issue in the future.
Our charter authorizes our board of directors to issue an aggregate of up to ten million shares of preferred stock without any further action on the part of our shareholders. Our board of directors also has the power, without shareholder approval, to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up and other terms. Accordingly, you should assume that any shares of preferred stock that we may issue in the future will also be senior to our common stock. In the event that we issue preferred stock in the future that has preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of the holders of our common stock or the market price of our common stock could be adversely affected.
Holders ofoursubordinated debentures debt obligations have rights that are senior to those ofourshareholders.
In connection with the Community First acquisition, Reliant Bancorp assumed trust preferred securities and accompanying junior subordinated debentures totaling $23.0 million, of which $10.0 million was owned by a wholly-owned subsidiary of Community First prior to the acquisition and assumedwhich is now wholly-owned by Reliant Bancorp. On December 13, 2019, Reliant Bancorp issued and sold the Subordinated Notes. Payments of the principal and interest on the trust preferred securities are
conditionally guaranteed by Reliant Bancorp, and the accompanying subordinated debentures and the Subordinated Notes are senior to shares of Reliant Bancorp’s common stock. As a result, Reliant Bancorp must make payments on the subordinated debentures (and the related trust preferred securities) and the Subordinated Notes before any dividends can be paid on its common stock and, in the event of Reliant Bancorp’s bankruptcy, dissolution or liquidation, the holders of the subordinated debentures and the Subordinated Notes must be satisfied before any distributions can be made on Reliant Bancorp’s common stock.
Reliant Bancorp may from time to time issue additional subordinated indebtednessdebt securities that would have to be repaid before Reliant Bancorp’s common stock shareholders would be entitled to receive any of the assets of Reliant Bancorp or Reliantthe Bank.
If securities or industry analysts do not publish research or publish unfavorable research about our business,company, our stock price and trading volume could decline.
As a smaller company, it may be difficult for us to attract or retain the interest of equity research analysts. A lack of research coverage may adversely affect the liquidity of and market price of our common stock. We will not have any control over the equity research analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceasescease coverage of our company, or failsfail to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.
Shares of Reliant Bancorp common stock are not FDIC insured.
Shares of Reliant BancorpAn investment in our common stock areis not deposits with a bank deposit and, aretherefore, is not insured against loss or guaranteed by the FDIC.FDIC, any other deposit insurance fund or by any other public or private entity. An investment in our common stock is inherently risky for the reasons described herein. As a result, if you acquire our common stock, you could lose some or all of your investment.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2018,2020, the mainprincipal executive office of both Reliant Bancorp and Reliant Bank was located at 1736 Carothers Parkway, Suite 100, Brentwood, Tennessee 37027.37027, and Reliant Bancorp also has a corporate office located at 6100 Tower Circle, Suite 120, Franklin, Tennessee 37067. In addition, as of December 31, 2018,2020, we operated (i) 1627 full-service branch offices located in theMiddle Tennessee, counties of Davidson, Hickman, Hamilton, Maury, Robertson, Rutherford, Sumner, and Williamson and (ii) 7 mortgage production offices in WilliamsonTennessee and Sumner counties.Arkansas, and (iii) 1 loan production office in Knoxville, Tennessee.
All of these properties are leased by Reliant Bank except for nine branches in Maury, Hickman, Sumner, Robertson, and Williamson counties. Although the properties owned are generally considered adequate, we have a continuing program of modernization, expansion and, when necessary, occasional replacement of facilities.
The following table summarizes pertinent details of our retail bank branch locations and mortgage origination offices as of March 9, 2021.
| | | | | | | | | | | | | | | | | | | | |
| Property Description | | Owned/Leased | | Expiration Date | | Type of Office |
| 101 Creekstone Blvd, Franklin, TN | | Leased | | 4/1/2026 | | Retail Bank Branch |
| 101 Creekstone Blvd, Ste 100, Franklin, TN | | Leased | | 4/1/2026 | | Operations Center |
| 101 Creekstone Blvd, Ste 200, Franklin, TN | | Leased | | 1/31/2022 | | Operations Center |
| 101 W Kingston Springs Rd, Ste A, Kingston Springs, TN | | Leased | | 11/30/2021 | | Retail Bank Branch |
| 1024 Dr Martin L. King Jr. Blvd, Nashville, TN | | Leased | | 4/30/2029 | | Retail Bank Branch |
| 105 Public Sq, Mt Pleasant, TN | | Owned | | N/A | | Retail Bank Branch |
| 1204 Nashville Pike, Gallatin, TN | | Owned | | N/A | | Retail Bank Branch |
| | | | | | | | | | | | | | | | | | | | |
| Property Description | | Owned/Leased | | Expiration Date | | Type of Office |
| 1206 Hwy 48 Ste D, Clarksville, TN | | Leased | | 2/29/2024 | | Retail Bank Branch |
| 1398 Desoto Blvd, Ste C, Hot Springs Village, AR | | Leased | | 7/31/2021 | | Mortgage Operations |
| 1412 Trotwood Ave, Columbia, TN | | Leased | | 12/31/2022 | | Retail Bank Branch |
| 1430 Madison Street Clarksville, TN | | Owned | | N/A | | Retail Bank Branch |
| 170 C Market Pl Blvd, Knoxville, TN | | Leased | | 6/30/2025 | | Manufactured Housing |
| 1736 Carothers Pkwy #100 #200, Brentwood, TN | | Leased | | 2/28/2025 | | Principal Executive Office and Retail Bank Branch |
| 1800 Ft. Campbell Blvd., Clarksville, TN | | Owned | | N/A | | Retail Bank Branch |
| 1835 E Northfield Blvd, Murfreesboro, TN | | Leased | | 9/30/2027 | | Retail Bank Branch |
| 1929 Madison Street, Clarksville, TN | | Owned | | N/A | | Retail Bank Branch |
| 2070 Wilma Rudolph Blvd., Clarksville, TN | | Owned | | N/A | | Retail Bank Branch |
| 2566 Highway 49 East, Pleasant View, TN | | Owned | | N/A | | Retail Bank Branch |
| 308 Main St, Crossett, AR | | Leased | | 10/1/2022 | | Mortgage Operations |
| 314 N Public Sq, Centerville, TN | | Owned | | N/A | | Retail Bank Branch |
| 406 11th Ave N Ste 200, Nashville, TN | | Leased | | 3/31/2029 | | Corporate Office |
| 4108 Hillsboro Pike, Nashville, TN | | Leased | | 11/30/2021 | | Retail Bank Branch |
| 425 East Main Street, Gallatin, TN | | Owned | | N/A | | Retail Bank Branch |
| 4809 Columbia Pike, Thompsons Station, TN | | Owned | | N/A | | Retail Bank Branch |
| 501 S James M Campbell Blvd, Columbia, TN | | Owned | | N/A | | Retail Bank Branch |
| 5109 Peter Taylor Park Dr, Brentwood, TN | | Leased | | 7/31/2021 | | Retail Bank Branch |
| 5200 Highway 100, Lyles, TN | | Owned | | N/A | | Retail Bank Branch |
| 575 South Main Street, Ashland City, TN | | Owned | | N/A | | Retail Bank Branch |
| 6005 Nolensville Rd, Nashville, TN | | Leased | | 3/31/2028 | | Retail Bank Branch |
| 601 N Garden St, Columbia, TN | | Owned | | N/A | | Retail Bank Branch |
| 6100 Tower Cir, Ste 120, Franklin, TN | | Leased | | 12/31/2027 | | Corporate Office |
| 633 Chestnut St, Ste 100, Chattanooga, TN | | Leased | | 10/31/2028 | | Retail Bank Branch |
| 633 Chestnut St, Ste 630, Chattanooga, TN | | Leased | | 10/31/2023 | | Mortgage Operations |
| 701 S. Main Street, Springfield, TN | | Owned | | N/A | | Retail Bank Branch |
| 704 Highway 70, Pegram, TN | | Owned | | N/A | | Retail Bank Branch |
| 711 E Main St, Ste 105, Hendersonville, TN | | Leased | | 9/30/2021 | | Mortgage Operations |
| 761 Old Hickory Blvd, Brentwood, TN | | Leased | | 12/31/2021 | | Mortgage Operations |
| 9041 Executive Park Drive, Suite 104, Knoxville, TN | | Leased | | 6/30/2021 | | Mortgage Operations |
| 9101 N Rodney Parham Rd, Little Rock, AR | | Leased | | 2/28/2021 | | Mortgage Operations |
ITEM 3. LEGAL PROCEEDINGS
Reliant Bancorp or one or more of its subsidiaries are from time to time parties to ordinary routine legal proceedings in the ordinary course of business. ThereAs with all legal proceedings, no assurance can be provided as to the outcome of these matters. As of the date hereof, to the knowledge of our management, there are currently no material pending legal proceedings to which Reliant Bancorp or any of its subsidiaries is a party or of which any of the property of Reliant Bancorp or any of its subsidiaries is the subject.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Reliant Bancorp’s common stock is traded on theThe Nasdaq Capital Market under the symbol “RBNC.” As of March 7, 2019,9, 2021, there were 2,3881,743 holders of record of Reliant Bancorp common stock. This number does not include shareholders with shares in nominee name held by the Depository Trust Company or its nominee.
Dividends
Reliant Bancorp has paid a quarterly cash dividend on its common stock since the second quarter of 2017. We currently expect that comparable cash dividends will continue to be paid in the future. However, no assurances can be given that any dividends will be declared or paid on Reliant Bancorp’s common stock in the future, or, if declared and paid, the amount or frequency of those dividends. The ability of Reliant Bancorp and Reliant Bank to pay dividends is restricted by certain laws and regulations, and the payment of dividends by Reliant Bancorp and Reliant Bank is within the discretion of their respective boards of directors.
Securities Authorized for Issuance Under Equity Compensation Plans
See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for the information required by Item 201(d) of Regulation S-K.
Stock Performance Graph
The following chart, which is furnished not filed, compares the yearly percentage changes in the cumulative shareholder return on our common stock during the five fiscal years ended December 31, 2018,2020, with (i) the Russell 2000 Index and (ii) the SNL Southeast U.S. Bank Index. This comparison assumes $100 was invested on the last trading day of 2013,2015, in our common stock and the comparison indices, and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends. Price information from December 31, 20152016 to December 31, 2018,2020, was obtained by using the Nasdaq closing prices as of the last trading day of each year. From August 29, 2012 to July 7, 2015, our stock was traded on the over-the-counter market, and closing prices for 2014 have been obtained by using the closing prices reported on the last trading day through the over-the-counter system.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities for the period ended December 31, 2018.2020.
Issuer Purchases of Securities
There were no repurchasesThe following table contains information regarding shares of the Company’sour common stock forrepurchased by Reliant Bancorp during the three months ended December 31, 2020.
| | | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (2) (in thousands) |
| October 1, 2020 to October 31, 2020 | 1,102 | $15.74 | — | $15,000 |
| November 1, 2020 to November 30, 2020 | — | $— | — | $15,000 |
| December 1, 2020 to December 31, 2020 | — | $— | — | $15,000 |
| Total | 1,102 | $15.74 | — | $15,000 |
| | | | |
| | | | |
| | | | |
(1)During the quarter ended December 31, 2018.2020, 4,500 shares of restricted stock previously awarded to certain of the participants in our stock plans vested. We withheld 1,102 shares to satisfy tax withholding requirements associated with the vesting of these shares of restricted stock.
RELIANT BANCORP, INC.
SELECTED FINANCIAL DATA
(2)On March 10, 2020, Reliant Bancorp's board of directors authorized a stock repurchase plan allowing Reliant Bancorp to repurchase up to $15 million of outstanding Reliant Bancorp common stock (the "Repurchase Plan"). As of December 31, 2018, 2017, 2016, 2015 AND 20142020, Reliant Bancorp had not repurchased any shares of Reliant Bancorp common stock under the Repurchase Plan. The Repurchase Plan does not obligate Reliant Bancorp to repurchase any dollar amount or number of shares. On April 27, 2020, we announced that our board of directors suspended the Repurchase Plan to preserve our financial strength during this challenging economic environment. On December 31, 2020, the Repurchase Plan expired.
(Dollar amounts in thousands except per share amounts)
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
The following selected historical consolidated financial data, as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, is derived from the audited consolidated financial statements of Reliant Bancorp. The financial data presented for the Company prior to the Legacy Reliant Bank merger in 2015 is derived from the historical financial statements of Reliant Bank.
|
| | | | | | | | | | | | | | | | | | | | |
| | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| SUMMARY OF OPERATIONS: | | | | | | | | | | |
| Total interest income | | $ | 69,225 |
| | $ | 40,158 |
| | $ | 36,015 |
| | $ | 29,888 |
| | $ | 17,215 |
|
| Total interest expense | | 15,396 |
| | 5,671 |
| | 3,363 |
| | 2,718 |
| | 1,629 |
|
| Net interest income | | 53,829 |
| | 34,487 |
| | 32,652 |
| | 27,170 |
| | 15,586 |
|
| Provision for loan losses | | 1,035 |
| | 1,316 |
| | 968 |
| | (270 | ) | | (1,500 | ) |
| Net interest income after | | | | | | | | | | |
| provision for loan losses | | 52,794 |
| | 33,171 |
| | 31,684 |
| | 27,440 |
| | 17,806 |
|
| Noninterest income | | 9,646 |
| | 6,010 |
| | 8,800 |
| | 12,382 |
| | 4,608 |
|
| Noninterest expense | | 50,561 |
| | 31,076 |
| | 30,374 |
| | 31,569 |
| | 17,166 |
|
| Income before income taxes | | 11,879 |
| | 8,105 |
| | 10,110 |
| | 8,253 |
| | 4,258 |
|
| Income tax expense | | 1,372 |
| | 1,942 |
| | 2,213 |
| | 2,271 |
| | 1,816 |
|
| Consolidated net income | | 10,507 |
| | 6,163 |
| | 7,897 |
| | 5,982 |
| | 2,712 |
|
| Noncontrolling interest in net (income) loss of subsidiary | | 3,578 |
| | 1,083 |
| | 1,039 |
| | (407 | ) | | 1,184 |
|
| Net income attributable to common shareholders | | 14,085 |
| | 7,246 |
| | 8,936 |
| | 5,575 |
| | 3,896 |
|
| | | | | | | | | | | |
| | | | | | | | | | | |
| PER COMMON SHARE DATA: | | | | | | | | | | |
| Net income attributable to common | | | | | | | | | | |
| shareholders, per share | | | | | | | | | | |
| Basic | | $ | 1.24 |
| | $ | 0.89 |
| | $ | 1.18 |
| | $ | 0.88 |
| | $ | 0.98 |
|
| Diluted | | 1.23 |
| | 0.88 |
| | 1.16 |
| | 0.86 |
| | 0.96 |
|
| Book value per common share | | 18.07 |
| | 15.51 |
| | 13.75 |
| | 13.29 |
| | 11.13 |
|
| Tangible book value per common share | | 13.58 |
| | 14.11 |
| | 12.08 |
| | 11.46 |
| | 10.84 |
|
| Dividends per common share | | 0.33 |
| | 0.24 |
| | 0.22 |
| | 0.20 |
| | 0.20 |
|
| Preferred shares outstanding | | — |
| | — |
| | — |
| | — |
| | — |
|
| Basic weighted average common shares | | 11,389,122 |
| | 8,151,492 |
| | 7,586,993 |
| | 6,329,316 |
| | 3,993,206 |
|
| Diluted weighted average common shares | | 11,468,789 |
| | 8,239,301 |
| | 7,691,493 |
| | 6,478,952 |
| | 4,053,804 |
|
| Common shares outstanding at period end | | 11,530,810 |
| | 9,034,439 |
| | 7,778,309 |
| | 7,279,620 |
| | 3,910,191 |
|
| | | | | | | | | | | |
| BALANCE SHEET DATA: | | | | | | | | | | |
| Total assets | | 1,724,338 |
| | 1,125,034 | | 911,984 | | 876,404 | | 449,731 |
| Mortgage loans held for sale, net | | 15,823 |
| | 45,322 | | 11,831 | | 55,093 | | 26,640 |
| Total loans, net | | 1,220,184 |
| | 762,488 | | 657,701 | | 608,747 | | 309,497 |
| Allowance for loan losses | | 10,892 |
| | 9,731 | | 9,082 | | 7,823 | | 7,353 |
| Total securities | | 296,323 |
| | 220,201 | | 146,813 | | 133,825 | | 77,245 |
| Other real estate, net | | 1,000 |
| | — |
| | — |
| | 1,149 | | 1,204 |
| Goodwill and core deposit intangible | | 51,861 |
| | 12,684 | | 12,986 | | 13,342 | | 1,110 |
RELIANT BANCORP, INC.
SELECTED FINANCIAL DATA
December 31, 2018, 2017, 2016, 2015 AND 2014
(Dollar amounts in thousands except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | |
| Total deposits | | 1,437,903 |
| | 883,519 | | 763,834 | | 640,008 | | 334,365 |
| Federal Home Loan Bank advances | | 57,498 |
| | 96,747 | | 32,287 | | 135,759 | | 63,500 |
| Dividends payable | | 1,036 |
| | 542 | | 1,711 | | 1,489 | | — |
|
| Stockholders' equity | | 208,414 |
| | 140,137 | | 106,919 | | 96,751 | | 43,516 |
| Average total assets | | 1,644,360 |
| | 995,436 | | 885,074 | | 733,651 | | 417,050 |
| Average gross loans, excluding loans held for sale | | 1,138,946 |
| | 714,982 | | 640,592 | | 517,148 | | 293,195 |
| Average interest earning assets | | 1,505,748 |
| | 939,947 | | 835,337 | | 694,135 | | 401,487 |
| Average deposits | | 1,337,860 |
| | 823,088 | | 664,844 | | 543,341 | | 323,466 |
| Average interest bearing deposits | | 1,118,993 |
| | 688,680 | | 537,225 | | 459,610 | | 278,363 |
| Average interest bearing liabilities | | 1,216,265 |
| | 739,410 | | 648,515 | | 565,234 | | 329,565 |
| Average total shareholders' equity | | 203,317 |
| | 117,780 | | 104,216 | | 80,122 | | 41,525 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| SELECTED FINANCIAL RATIOS: | | | | | | | | | | |
| Return on average assets | | 0.86 | % | | 0.73 | % | | 1.01 | % | | 0.76 | % | | 0.93 | % |
| Return on average equity | | 6.93 | % | | 6.15 | % | | 8.57 | % | | 6.96 | % | | 9.38 | % |
| Average equity to average total assets | | 12.36 | % | | 11.83 | % | | 11.77 | % | | 10.92 | % | | 9.96 | % |
| Dividend payouts | | 26.61 | % | | 26.97 | % | | 18.64 | % | | 22.73 | % | | 20.41 | % |
| Net interest margin(1) | | 3.78 | % | | 3.97 | % | | 4.15 | % | | 4.00 | % | | 3.96 | % |
| Net interest spread(2) | | 3.53 | % | | 3.81 | % | | 4.04 | % | | 3.91 | % | | 3.88 | % |
| | | | | | | | | | | |
| CAPITAL RATIOS(4) | | | | | | | | | | |
| Tier 1 leverage | | 10.38 | % | | 11.89 | % | | 10.86 | % | | 9.92 | % | | 9.71 | % |
| Common equity tier 1 | | 11.59 | % | | 13.90 | % | | 13.00 | % | | 12.02 | % | | 12.19 | % |
| Tier 1 risk-based capital | | 12.44 | % | | 13.90 | % | | 13.00 | % | | 12.02 | % | | 12.19 | % |
| Total risk-based capital | | 13.28 | % | | 14.97 | % | | 14.22 | % | | 13.13 | % | | 13.45 | % |
| | | | | | | | | | | |
| ASSET QUALITY RATIOS: | | | | | | | | | | |
| Net charge-offs (recoveries) to average loans | | (0.01 | )% | | 0.09 | % | | (0.05 | )% | | (0.14 | )% | | (0.11 | )% |
| Allowance to period end loans(3) | | 0.88 | % | | 1.26 | % | | 1.36 | % | | 1.27 | % | | 2.32 | % |
| Allowance for loan losses to non-performing loans | | 259.33 | % | | 132.74 | % | | 105.76 | % | | 116.59 | % | | 83.40 | % |
| Non-performing assets to total assets | | 0.44 | % | | 0.65 | % | | 0.94 | % | | 0.90 | % | | 2.23 | % |
| | | | | | | | | | | |
| OTHER DATA: | | | | | | | | | | |
| Banking locations | | 17 |
| | 8 |
| | 7 |
| | 9 |
| | 4 |
|
| Loan production offices | | 2 |
| | 2 |
| | 3 |
| | 8 |
| | 7 |
|
| Full-time equivalent employees | | 263 |
| | 167 |
| | 143 |
| | 226 |
| | 138 |
|
(1) Net interest margin is net interest income divided by total average earning assets.
(2) Net interest spread is the difference between the average yield on interest earning assets and the average yield on interest bearing liabilities.
(3) Period end loans excludedeferred fees and costs.
(4) Capital ratios calculated on consolidated financial statements for the Company.
ITEM7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Summary
The following is a summary of the Company’s financial highlights and significant events during the year ended December 31, 2018:
Acquired Community First, Inc. on January 1, 2018.
Net income available to common shareholders totaled $14.1 million, or $1.23 per diluted common share, during the year ending December 31, 2018 compared to $7.2 million, or $0.88 per diluted common share, during the same period in 2017.
Return on average assets was 0.86 percent for the year ended December 31, 2018, compared to 0.73 percent for the same period in 2017.
Net loan growth of $457.7 million for the year ended December 31, 2018.
Asset quality remains strong with nonperforming assets to total assets of just 0.44 percent.
In the following sections the termterms “Reliant Bancorp” means “ReliantBancorp,” the “Company,” “us,” “we,” “our,” or similar terms refer to Reliant Bancorp Inc.”, and its subsidiaries, including Reliant Bank, which we sometimes refer to as “Reliant” or the term “Bank” means “Reliant Bank”.“Bank.” The following discussion and analysis identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with Item 8 “FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA”“Item 8. Financial Statements and Supplementary Data” as well as other information included in this Form 10-K.Annual Report. Amounts in the narrative are shown in thousands, except for economic and demographic information, numbers of shares, per share amounts and as otherwise noted.
Executive Overview
The following is a summary of the Company’s financial highlights and significant events for the year December 31, 2020:
•Net income attributable to common shareholders totaled $31.4 million, or $2.02 per diluted common share, for the year ended December 31, 2020 compared to $16.2 million, or $1.44 per diluted common share, during the same period in 2019.
•Successfully closed the TCB Holdings and FABK transactions as well as conversions with Community Bank & Trust and First Advantage Bank.
•Total assets surpassed $3.0 billion.
•Loans increased $882.8 million for the year ended December 31, 2020, $180.3 million of which was from organic growth.
•Deposits increased $994.8 million for the year ended December 31, 2020, $223.7 million of which was from organic growth.
•Net interest margin increased to 4.35% for the year ended December 31, 2020 compared to 3.54% in 2019.
Coronavirus (COVID-19) Impact
During the current fiscal year, the COVID-19 pandemic had a significant impact on our customers, associates, and communities, which collectively impacts our shareholders. Below is a summary of those impacts and our responses related to COVID-19.
As part of our pandemic response, we have encouraged a significant portion of our employees to work from home. We have also extended virtual medical coverage to all employees as well as provided pay to employees who may have been exposed. We are encouraging virtual meetings and conference calls in place of in-person meetings. We are promoting social distancing, frequent hand washing, thorough disinfection of all surfaces, and the use of masks or nose and mouth coverings have been mandated in all of our locations. We have welcomed customers for lobby visits by appointment. Banking center drive-ups, ATMs and online/mobile banking services continue to operate. Infection rates in the communities we serve vary by region and we will make prudent decisions for the safety of our colleagues and our clients.
The Company had applied CARES Act modification guidance to approve initial payment deferral modifications in April and May 2020 for loans with aggregate principal balances of $530.7 million. The majority of these modifications involved extensions of up to three months of either interest-only periods or full payment deferrals. Through September 30, 2020 and December 31, 2020 further modifications were approved for $24.0 million and $23.0 million of the loans previously modified. See "Note 3 - Loans and Allowance for Loan Loss" in the notes to the financial statements for further information.
The Company is participating in the Paycheck Protection Program ("PPP") under the CARES Act, which is being administered by the SBA. As of December 31, 2020 the Bank had 843 PPP loans outstanding totaling $65.5 million with $17.8 million in PPP loans forgiven and repaid during the year. Participation in the PPP will likely have an impact on the Company's asset mix and net interest margin in 2021.
At December 31, 2020, our level of nonperforming assets was 0.37% of total assets and was not materially impacted by the economic pressures of COVID-19. We are closely monitoring credit risk and our exposure to increased loan losses resulting from the impact of COVID-19 on our commercial and other clients.
We are in regular communication with our customers to gain a better understanding of our highest risk exposures and probable defaults. In the year ended December 31, 2020 we recorded a provision expense of $8.4 million, which can be attributed to increased risk factors related to the COVID-19 pandemic as well as our loan growth. Our losses year-to-date remain low but we continue to build reserves as we anticipate future downgrades and defaults may eventually result in losses.
At this time, we do not believe there exists any impairment to our intangible assets, long-lived assets, right-of-use assets, or available-for-sale investment securities due to the COVID-19 pandemic. It is uncertain whether prolonged effects of the COVID-19 pandemic will result in future impairment charges related to any of the aforementioned assets.
As of December 31, 2020, the Bank's capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, our reported and regulatory capital ratios could be adversely impacted by future credit losses.
For additional related information, See "Regulation and Supervision" and "Risk Factors".
Critical Accounting Policies
The accounting and reporting policies of the Company are in accordance with accounting principlesthe generally accepted in the United States of America ("U.S. GAAP") and conform to general practices within the banking industry. To prepare financial statements in conformity with accounting principles generally accepted in the United States of America,a U.S. GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan lossesALL and fair value of financial instruments are particularly subject to change.
Our accounting policies are integral to understanding the results reported. Accounting policies are described in detail in Note"Note 1 - Summary of Significant Accounting Policies"of the notes to the consolidated financial statements included elsewhere in this report. The critical accounting policies require our judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established policies and control procedures that are intended to ensure valuation methods are well controlledwell-controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief summary of the more significant policies.
Principles of Consolidation
The consolidated financial statements as of and for the periods presented include the accounts of Reliant Bancorp, the Bank, Community First Trups Holding Company, which is wholly owned by Reliant Bancorp (“TRUPS”), Reliant Investment Holdings, LLC ("Holdings"), which is 100% wholly owned by the Bank, and Reliant Mortgage Ventures, LLC ("RMV"), of which the Bank controls 51% of the governance rights (Reliant Bancorp, the Bank, Holdings, TRUPS, and RMV are collectively referred to herein as the “Company”). As described in the notes to our annual consolidated financial statements, RMV is considered a variable interest entity for which the Bank is deemed to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. As described in Note 12, Reliant Bancorp and Community First, Inc. merged effective January 1, 2018. The accounting and reporting policies of the Company conform to U.S. GAAP and to general practices in the banking industry.
During 2011, the Bank and another entity organized RMV. Under the related operating agreement, the non-controlling member receives 70% of the profits of RMV, and the Bank receives 30% of the profits once the non-controlling member recovers its aggregate losses. The non-controlling member is responsible for 100% of the mortgage venture’s net losses. As of December 31, 2018, the cumulative losses to date totaled $8,058. RMV will have to generate net income of this amount before the Company will participate in future earnings.
Purchased Loans
The Company maintains an allowanceAllowance for loan losses on purchased loans based on credit deterioration subsequent to the acquisition date. In accordance with the accounting guidance for business combinations, because we recorded all acquired loans at fair value as of the date of the merger (discussed below), we did not establish an allowance for loan losses on any of the loans we purchased as of the acquisition date as any credit deterioration evident in the loans was included in the determination of the acquisition date fair values. For purchased credit-impaired loans accounted for under ASC 310-30, management establishes an allowance for loan losses subsequent to the date of acquisition by re-estimating expected cash flows on these loans on a quarterly basis, with any decline in expected cash flows due to a credit triggering impairment recorded as provision for loan losses. The allowance established is the excess of the loan’s carrying value over the present value of projected future cash flows, discounted at the current accounting yield of the loan or the fair value of collateral (less estimated costs to sell) for collateral dependent loans. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. While the determination of specific cash flows involves estimates, each estimate is unique to the individual loan, and none is individually significant. For non-purchased credit-impaired loans acquired in the merger and that are accounted for under ASC 310-20, the historical loss estimates are based on the historical losses experienced by Reliant Bank for loans with similar characteristics as those acquired other than purchased credit-impaired loans. We record an allowance for loan losses only when the calculated amount exceeds the remaining credit mark established at acquisition.
Allowance for Loan Losses
("ALL")
The allowance for loan lossesALL is a valuation allowance foran estimate of future probable incurred credit losses. Loan lossesLosses on loans held for investment are charged against the allowanceALL when management believes the uncollectibility of a loanremaining balance is confirmed.due has become uncollectible. Subsequent recoveries, if any, are credited to the allowance.ALL. Management estimates a general component to the allowance balance required usingALL based on historical loan loss experience and qualitative factors, which include 1) the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values,2) current economic conditions (national and local), and other factors such as3) changes in interest rates, 4) portfolio concentrations, 5) changes in the experience, ability, and depth of the lending function, and 6) levels of and trends in charged-off loans, recoveries, past-duepast due loans and volume and severity of classified loans. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The entire allowance is available for any loan that, in management’s judgment, should be charged off.
A specific ALL component is calculated for loans that meet the definition of impairment. A loan is considered impaired when full payment undermanagement believes that principal and interest due on that loan will not be collected in accordance with the terms and conditions of the loan terms is not expected. All classified loans and loans on non-accrual status are individually evaluated for impairment. Factors considered in determining ifagreement. Once a loan is deemed to be impaired, includemanagement must calculate the borrower’s abilitypotential loss for the specific loan based on one of three approved methodologies to repay amounts owed, collateral deficiencies,estimate the risk ratingexpected recovery from secondary payment sources, which is then deducted from the book value of the loan and economic conditions affectingasset to calculate the borrower’s industry, among other things. If a loan is impaired, a portionamount of specific reserve required: 1) fair value of collateral, less expected cost to sell, 2) discounted cash flows of the allowance is allocated so that theexpected future loan is reported, net, at the present value of estimated future cash flows using the loan’s existing ratepayments, or at the fair value (less estimated costs3) Expected sale proceeds if loan was sold to sell) of collateral if repayment is expected solely from the collateral. another lender.
Interest payments on impaired loans are typically applied to principal unless the principal amount is deemed fully collectible, in which case interest is recognized on a cash basis. When recognition of interest income on a cash basis is appropriate, the amount of income recognized is limited to what would have been accrued on the remaining principal balance at the contractual rate. Cash payments received over this limit, and not applied to reduce the loans remaining principal balance, are recorded as recoveries of prior charge-offs until these charge-offs have been fully recovered.
Business combinations and accounting for acquired loans with credit deterioration
Business combinations are accounted for by applying the acquisition method in accordance with ASC 805, “Business Combinations” (“ASC 805”). Under the acquisition method, identifiable assets acquired and liabilities assumed and any non-
controlling interest in the acquiree at the acquisition date are measured at their fair values as of that date. Any excess of the purchase price over fair value of net assets acquired is recorded as goodwill. To the extent the fair value of net assets acquired, including any other identifiable intangible assets, exceeds the purchase price, a bargain purchase gain is recognized. Results of operations of acquired entities are included in the Consolidated Statements of Income from the date of acquisition.
We record purchased loans at fair value as of the date of the acquisition; since any credit deterioration evident in the loans was included in the determination of the acquisition date fair values, no ALL is recorded for purchased loans because all loans are recorded at fair value at the merger date. Impaired purchased loans are accounted for under ASC 310-30, in which an ALL subsequent to the date of acquisition is established by re-estimating expected cash flows on these loans, with any decline in expected cash flows due to a credit triggering impairment recorded as purchased credit impairment (PCI). The impairment amount is the excess of the loan’s carrying value over the present value of projected future cash flows, discounted at the current accounting yield of the loan or the fair value of collateral (less estimated costs to sell) for collateral-dependent loans. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. While the determination of specific cash flows involves estimates, each estimate is unique to the individual loan, and none is individually significant. For non-PCI loans acquired in the merger and that are accounted for under ASC 310-20, the historical loss estimates are based on the historical losses experienced by Reliant Bank for loans with similar characteristics as those acquired other than purchased credit-impaired loans. We establish an ALL provision for these loans only when the calculated amount exceeds the remaining credit mark established at acquisition.
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note to the consolidated financial statements."Note 12 - Fair Value of Assets and Liabilities". Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
COMPARISON OF RESULTS OF OPERATIONS FOR THEYEARSENDEDDECEMBER 31, 2018,2017AND2016
Merger Between Reliant Bancorp, Inc.The following is a summary of our results of operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | 2020-2019 Percent Increase (Decrease) | | Year ended December 31, 2018 | | 2019-2018 Percent Increase (Decrease) |
| 2020 | | 2019 | | | |
| Interest income | $ | 130,271 | | | $ | 79,185 | | | 64.5 | % | | $ | 69,207 | | | 14.4 | % |
| Interest expense | 22,225 | | | 23,380 | | | (4.9) | % | | 15,396 | | | 51.9 | % |
| Net interest income | 108,046 | | | 55,805 | | | 93.6 | % | | 53,811 | | | 3.7 | % |
| Provision for loan losses | 8,350 | | | 1,211 | | | 589.5 | % | | 1,035 | | | 17.0 | % |
| Net interest income after provision for loan losses | 99,696 | | | 54,594 | | | 82.6 | % | | 52,776 | | | 3.4 | % |
| Noninterest income | 21,559 | | | 11,964 | | | 80.2 | % | | 9,664 | | | 23.8 | % |
| Noninterest expense | 83,207 | | | 53,892 | | | 54.4 | % | | 50,561 | | | 6.6 | % |
| Net income before income taxes | 38,048 | | | 12,666 | | | 200.4 | % | | 11,879 | | | 6.6 | % |
| Income tax expense | 6,935 | | | 2,129 | | | 225.7 | % | | 1,372 | | | 55.2 | % |
| Net income | 31,113 | | | 10,537 | | | 195.3 | % | | 10,507 | | | 0.3 | % |
| Noncontrolling interest in net loss of subsidiary | 299 | | | 5,659 | | | (94.7) | % | | 3,578 | | | 58.2 | % |
| Net income attributable to common shareholders | $ | 31,412 | | | $ | 16,196 | | | 93.9 | % | | $ | 14,085 | | | 15.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | 2020-2019 Percent Increase (Decrease) | | Year ended December 31, 2018 | | 2019-2018 Percent Increase (Decrease) |
| 2020 | | 2019 | | | |
| | | | | | | | | |
| Basic net income (loss) attributable to common shareholders, per share | $2.03 | | $1.44 | | 41.0 | % | | $1.24 | | 16.1 | % |
| Diluted net income (loss) attributable to common shareholders, per share | $2.02 | | $1.44 | | 40.3 | % | | $1.23 | | 17.1 | % |
| | | | | | | | | |
| Return on average assets | 1.13 | % | | 0.90 | % | | 25.6 | % | | 0.86 | % | | 4.7 | % |
| Return on average shareholders' equity | 10.93 | % | | 7.54 | % | | 45.0 | % | | 6.93 | % | | 8.8 | % |
| Dividend payout ratio | 19.70 | % | | 18.75 | % | | 5.1 | % | | 26.61 | % | | (29.5) | % |
| Equity-to-assets | 10.32 | % | | 11.95 | % | | (13.6) | % | | 12.36 | % | | (3.3) | % |
Our financial performance reflects the success of our growth strategies including both organic market expansion as well as our successful acquisitions of both TCB Holdings and Community First, Inc.FABK in 2020. The following sections provide a more detailed analysis of significant factors affecting our operating results.
On December 15, 2017, the shareholders of Reliant Bancorp approved Reliant Bancorp's issuance of common stock to shareholders of Community First, Inc. ("Community First") in connection with the merger of Reliant Bancorp and Community First, which merger became effective on January 1, 2018 (the "Merger”). Outstanding shares of Community First common stock, including restricted shares issued as equity incentive awards, were converted into the right to receive 0.481 shares of Reliant Bancorp common stock for each shares of Community First common stock. After the Merger was completed, legacy Reliant Bancorp’s shareholders
owned approximately 78.9% of the common stock of the combined company, and legacy Community First’s shareholders owned approximately 21.1% of the common stock of the combined company.
The assets and liabilities of Community First as of the effective date of the Merger were recorded at their respective estimated fair values and added to those of the Company. Any excess of purchase price over the net estimated fair values of the acquired assets and assumed liabilities of Community First was allocated to all identifiable intangibles assets. Any remaining excess was then allocated to goodwill.
As of December 31, 2017, Community First, including its wholly owned subsidiaries, had total assets of $480 million, total loans of $316 million and total deposits of $432 million. Community First held a loan portfolio that was primarily comprised of real estate loans.
As a result of the Merger on January 1, 2018, the Company:
grew consolidated total assets from $1,125.0 million to $1,636.0 million as of January 1, 2018 after giving effect to purchase accounting;
increased total loans from $762.5 million to $1,075.5 million as of January 1, 2018;
increased total deposits from $883.5 million to $1,316.9 million as of January 1, 2018; and
expanded its employee base from 167 full time equivalent employees to 272 full time equivalent employees as of January 1, 2018.
Earnings
Net income attributable to shareholders amounted to $14,085, or $1.24 per basic share, for the year ended December 31, 2018, compared to $7,246, or $0.89 per basic share, for the same period in 2017 and $8,936 or $1.18 per basic share for the same period in 2016. Diluted net income attributable to shareholders per share was $1.23, $0.88 and $1.16 per diluted share for the years ended December 31, 2018, 2017, and 2016, respectively. The largest component of the increase from the year ended December 31, 2017 to the year ended December 31, 2018 includes a 56.1% increase in net interest income due to the merger with Community First compared to the same period in 2017. The largest component of the decrease from the year ended December 31, 2016 to the year ended December 31, 2017 includes the merger expenses of $1.4 million compared to none in the same period in 2016.
Net Interest Income
The largest component of our net income is net interest income - the difference between the income earned on loans, investment securities and other interest earning assets and interest expense on deposit accounts and other interest-bearing liabilities. Net interest income calculated on a tax-equivalent basis divided by total average interest-earning assets represents our net interest margin. The major factors that affect net interest income and net interest margin are changes in volumes, the amountyield on interest-earning assets and the cost of interest-bearing liabilities. Our margin can also be affected by whicheconomic conditions, the competitive environment, loan demand and deposit flow. Our ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of the net interest earned on various earning assets exceedsmargin and our net interest paid on deposits and other interest-bearing liabilities and is the most significant component of our revenues. income.
The following tables set forth the amount of our average balances, interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for interest-earning assets and interest-bearing
liabilities, net interest spread and net interest margin for the years ended December 31, 2018, 2017,2020, 2019, and 20162018 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December, 31 |
| 2020 | | 2019 | | 2018 |
| Average Balances (1) | | Rates / Yields (%) | | Interest Income / Expense | | Average Balances (1) | | Rates / Yields (%) | | Interest Income / Expense | | Average Balances (1) | | Rates / Yields (%) | | Interest Income / Expense |
| Interest-earning assets | | | | | | | | | | | | | | | | | |
Loans (2) (3) | $ | 2,149,447 | | | 5.33 | | | $ | 111,870 | | | $ | 1,298,922 | | | 5.12 | | | $ | 65,168 | | | $ | 1,138,946 | | | 4.99 | | | $ | 55,496 | |
| Loan fees | — | | | 0.34 | | | 7,389 | | | — | | | 0.25 | | | 3,253 | | | — | | | 0.25 | | | 2,855 | |
| Loans with fees | 2,149,447 | | | 5.68 | | | 119,259 | | | 1,298,922 | | | 5.37 | | | 68,421 | | | 1,138,946 | | | 5.24 | | | 58,351 | |
| Mortgage loans held for sale | 91,544 | | | 3.77 | | | 3,450 | | | 18,212 | | | 5.28 | | | 961 | | | 24,882 | | | 5.14 | | | 1,278 | |
| Deposits with banks | 56,676 | | | 0.53 | | | 298 | | | 37,369 | | | 1.58 | | | 590 | | | 34,504 | | | 1.37 | | | 471 | |
| Investment securities - taxable | 71,303 | | | 2.13 | | | 1,517 | | | 74,220 | | | 2.83 | | | 2,099 | | | 70,170 | | | 2.62 | | | 1,836 | |
Investment securities - tax-exempt (4) | 191,045 | | | 3.41 | | | 5,068 | | | 221,249 | | | 3.71 | | | 6,452 | | | 225,592 | | | 3.72 | | | 6,605 | |
| Restricted equity securities | 16,287 | | | 4.00 | | | 652 | | | 11,449 | | | 5.52 | | | 632 | | | 10,965 | | | 5.93 | | | 650 | |
| Federal funds sold | 3,074 | | | 0.88 | | | 27 | | | 1,421 | | | 2.11 | | | 30 | | | 689 | | | 2.32 | | | 16 | |
| Total earning assets | 2,579,376 | | | 5.21 | | | 130,271 | | | 1,662,842 | | | 4.94 | | | 79,185 | | | 1,505,748 | | | 4.80 | | | 69,207 | |
| Nonearning assets | 206,876 | | | | | | | 136,160 | | | | | | | 138,612 | | | | | |
| Total assets | $ | 2,786,252 | | | | | | | $ | 1,799,002 | | | | | | | $ | 1,644,360 | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | | | | | |
| Interest-bearing demand | $ | 258,657 | | | 0.30 | | | 779 | | | $ | 146,518 | | | 0.26 | | | 384 | | | $ | 146,717 | | | 0.25 | | | 366 | |
| Savings and money market | 707,023 | | | 0.67 | | | 4,709 | | | 376,927 | | | 1.11 | | | 4,191 | | | 349,986 | | | 0.74 | | | 2,589 | |
| Time deposits - retail | 656,945 | | | 1.19 | | | 7,817 | | | 559,406 | | | 2.09 | | | 11,702 | | | 531,780 | | | 1.58 | | | 8,400 | |
| Time deposits - wholesale | 229,769 | | | 1.77 | | | 4,063 | | | 227,071 | | | 2.48 | | | 5,622 | | | 90,510 | | | 1.77 | | | 1,598 | |
| Total interest-bearing deposits | 1,852,394 | | | 0.94 | | | 17,368 | | | 1,309,922 | | | 1.67 | | | 21,899 | | | 1,118,993 | | | 1.16 | | | 12,953 | |
| Federal Home Loan Bank advances and other | 75,422 | | | 1.20 | | | 903 | | | 24,611 | | | 2.21 | | | 543 | | | 85,706 | | | 2.01 | | | 1,719 | |
| Subordinated debt | 70,446 | | | 5.61 | | | 3,954 | | | 14,729 | | | 6.37 | | | 938 | | | 11,566 | | | 6.26 | | | 724 | |
| Total borrowed funds | 145,868 | | | 3.33 | | | 4,857 | | | 39,340 | | | 3.76 | | | 1,481 | | | 97,272 | | | 2.51 | | | 2,443 | |
| Total interest-bearing liabilities | 1,998,262 | | | 1.11 | | | 22,225 | | | 1,349,262 | | | 1.73 | | | 23,380 | | | 1,216,265 | | | 1.27 | | | 15,396 | |
Net interest spread (5) | | | 4.10 | | | 108,046 | | | | 3.21 | | | 55,805 | | | | 3.53 | | | 53,811 |
| Noninterest-bearing deposits | 466,334 | | | (0.21) | | | | 226,855 | | | (0.25) | | | | 218,867 | | | (0.20) | | |
| Other noninterest-bearing liabilities | 34,207 | | | | | | | 7,988 | | | | | | | 5,911 | | | | | |
| Shareholders' equity | $ | 287,449 | | | | | | | $ | 214,897 | | | | | | | $ | 203,317 | | | | | |
| Total liabilities and shareholders' equity | $ | 2,786,252 | | | | | | | $ | 1,799,002 | | | | | | | $ | 1,644,360 | | | | | |
| Cost of funds | | | 0.90 | | | | | | | 1.48 | | | | | | | 1.07 | | | |
Net interest margin (6) | | | 4.35 | | | | | | 3.54 | | | | | | 3.78 | | |
Average Balances – Yields and Rates(1) Calculated using daily averages.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| | | Average Balances | | Rates / Yields (%) | | Interest Income / Expense | | Average Balances | | Rates / Yields (%) | | Interest Income / Expense | | Average Balances | | Rates / Yields (%) | | Interest Income / Expense |
| Interest earning assets | | | | | | | | | | | | | | | | | | |
| Loans | | $ | 1,138,946 |
| | 4.99 |
| | $ | 55,496 |
| | $ | 714,982 |
| | 4.59 |
| | $ | 32,164 |
| | $ | 640,592 |
| | 4.78 |
| | $ | 29,950 |
|
| Loan fees | | — |
| | 0.25 |
| | 2,855 |
| | — |
| | 0.28 |
| | 2,012 |
| | — |
| | 0.31 |
| | 1,955 |
|
| Loans with fees | | 1,138,946 |
| | 5.24 |
| | 58,351 |
| | 714,982 |
| | 4.87 |
| | 34,176 |
| | 640,592 |
| | 5.09 |
| | 31,905 |
|
| Mortgage loans held for sale | | 24,882 |
| | 5.14 |
| | 1,278 |
| | 19,016 |
| | 4.56 |
| | 868 |
| | 21,064 |
| | 3.67 |
| | 773 |
|
| Deposits with banks | | 34,504 |
| | 1.37 |
| | 471 |
| | 15,177 |
| | 0.71 |
| | 107 |
| | 20,240 |
| | 0.35 |
| | 70 |
|
| Investment securities - taxable | | 70,170 |
| | 2.62 |
| | 1,836 |
| | 31,557 |
| | 2.19 |
| | 691 |
| | 40,463 |
| | 1.79 |
| | 724 |
|
| Investment securities - tax-exempt | | 225,592 |
| | 3.72 |
| | 6,605 |
| | 151,446 |
| | 4.01 |
| | 3,904 |
| | 105,536 |
| | 3.39 |
| | 2,211 |
|
| Fed funds sold and other | | 11,654 |
| | 5.87 |
| | 684 |
| | 7,769 |
| | 5.30 |
| | 412 |
| | 7,442 |
| | 4.46 |
| | 332 |
|
| Total earning assets | | 1,505,748 |
| | 4.80 |
| | 69,225 |
| | 939,947 |
| | 4.58 |
| | 40,158 |
| | 835,337 |
| | 4.56 |
| | 36,015 |
|
| Nonearning assets | | 138,612 |
| | | | | | 55,489 |
| | | | | | 49,737 |
| | | | |
| Total assets | | $ | 1,644,360 |
| | | | | | $ | 995,436 |
| | | | | | $ | 885,074 |
| | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest bearing liabilities | | | | | | | | | | | | | | | | | | |
| Interest bearing demand | | $ | 146,717 |
| | 0.25 |
| | 366 |
| | $ | 84,171 |
| | 0.21 |
| | 173 |
| | $ | 88,775 |
| | 0.21 |
| | 182 |
|
| Savings and money market | | 349,986 |
| | 0.74 |
| | 2,589 |
| | 196,939 |
| | 0.38 |
| | 748 |
| | 186,473 |
| | 0.34 |
| | 632 |
|
| Time deposits - retail | | 531,780 |
| | 1.55 |
| | 8,264 |
| | 319,456 |
| | 0.98 |
| | 3,126 |
| | 159,351 |
| | 0.70 |
| | 1,116 |
|
| Time deposits - wholesale | | 90,510 |
| | 1.77 |
| | 1,598 |
| | 88,114 |
| | 1.10 |
| | 969 |
| | 102,626 |
| | 0.70 |
| | 719 |
|
| Total interest bearing deposits | | 1,118,993 |
| | 1.15 |
| | 12,817 |
| | 688,680 |
| | 0.73 |
| | 5,016 |
| | 537,225 |
| | 0.49 |
| | 2,649 |
|
| Federal Home Loan Bank advances | | 85,706 |
| | 2.16 |
| | 1,855 |
| | 50,730 |
| | 1.29 |
| | 655 |
| | 111,290 |
| | 0.64 |
| | 714 |
|
| Subordinated debt | | 11,566 |
| | 6.26 |
| | 724 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total borrowed funds | | 97,272 |
| | 2.65 |
| | 2,579 |
| | 50,730 |
| | 1.29 |
| | 655 |
| | 111,290 |
| | 0.64 |
| | 714 |
|
| Total interest-bearing liabilities | | 1,216,265 |
| | 1.27 |
| | 15,396 |
| | 739,410 |
| | 0.77 |
| | 5,671 |
| | 648,515 |
| | 0.52 |
| | 3,363 |
|
| Net interest rate spread (%) / Net interest income ($) | |
|
| | 3.53 |
| | 53,829 |
| |
|
| | 3.81 |
| | 34,487 |
| | | | 4.04 |
| | 32,652 |
|
| Non-interest bearing deposits | | 218,867 |
| | (0.20) |
| | | | 134,408 |
| | (0.11) |
| | | | 127,619 |
| | (0.09) |
| | |
| Other non-interest bearing liabilities | | 5,911 |
| | | | | | 3,838 |
| | | | | | 4,724 |
| | | | |
| Stockholder's equity | | $ | 203,317 |
| | | | | | $ | 117,780 |
| | | | | | $ | 104,216 |
| | | | |
| Total liabilities and stockholders' equity | | 1,644,360 |
| | | | | | 995,436 |
| | | | | | 885,074 |
| | | | |
| Cost of funds | | | | 1.07 |
| | | | | | 0.66 |
| | | | | | 0.43 |
| | |
| Net interest margin | | | | 3.78 |
| | | | | | 3.97 |
| | | | | | 4.15 |
| | |
Table Assumptions—(2) Average loan balances are inclusiveinclude nonaccrual loans.
(3) Yields on loans reflects state tax credits received on low or zero percent interest loans made to construct low income housing of nonperforming loans.$2,687, $1,265, and $1,268, for the years ended December 31, 2020, 2019, and 2018, respectively.
(4) Yields computed on tax-exempt instrumentssecurities are shown on a tax equivalenttax-equivalent basis.
(5) Net interest spread is calculated as the yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities.
(6) Net interest margin is the result of net interest income calculated on a tax-equivalent basis divided by average interest earning assets for the period. Changes in net interest income are attributed to either
The following table reflects, for the periods indicated, the changes in average balances (volume change) orour net income due to changes in average rates (rate change) for earningthe volume of interest-earning assets and sources of fundsinterest-bearing liabilities and the associated rates earned or paid on which interest is receivedthe assets or paid. Volume change is calculated as change in volume times the previous rate while rate change is change in rate times the previous volume. Changes not due solely to volume or rate changes have been allocated to volume change and rate change in proportion to the relationship of the absolute dollar amounts of the change in each category.liabilities.
Analysis of Changes in Interest Income and Expense
| | | | | | | | | | | | | | | | Change for Year Ended December 31, 2020 to 2019 | | Change for Year Ended December 31, 2019 to 2018 |
| | | Change for Year Ended December 31, 2018 to 2017 | | Change for Year Ended December 31, 2017 to 2016 | | Due to Volume | | Due to Rate | | Total | | Due to Volume | | Due to Rate | | Total |
| | | Due to Volume | | Due to Rate | | Total | | Due to Volume | | Due to Rate | | Total | |
| Interest earning assets | | | | | | | | | | | | | |
| Interest-earning assets | | Interest-earning assets | | | | | | | | | | | | |
| Loans | | $ | 20,342 |
| | $ | 2,990 |
| | $ | 23,332 |
| | $ | 3,463 |
| | $ | (1,249 | ) | | $ | 2,214 |
| Loans | | $ | 45,313 | | | $ | 2,839 | | | $ | 48,152 | | | $ | 8,156 | | | $ | 1,513 | | | $ | 9,669 | |
| Loan fees | | 843 |
| | — |
| | 843 |
| | 57 |
| | — |
| | 57 |
| Loan fees | | 4,136 | | | — | | | 4,136 | | | 398 | | | — | | | 398 | |
| Loans with fees | | 21,185 |
| | 2,990 |
| | 24,175 |
| | 3,520 |
| | (1,249 | ) | | 2,271 |
| Loans with fees | | 49,449 | | | 2,839 | | | 52,288 | | | 8,554 | | | 1,513 | | | 10,067 | |
| Mortgage loans held for sale | | 290 |
| | 120 |
| | 410 |
| | (80 | ) | | 175 |
| | 95 |
| Mortgage loans held for sale | | 2,837 | | | (348) | | | 2,489 | | | (351) | | | 34 | | | (317) | |
| Deposits with banks | | 210 |
| | 154 |
| | 364 |
| | (22 | ) | | 59 |
| | 37 |
| Deposits with banks | | 215 | | | (507) | | | (292) | | | 42 | | | 77 | | | 119 | |
| Investment securities - taxable | | 986 |
| | 159 |
| | 1,145 |
| | (177 | ) | | 144 |
| | (33 | ) | Investment securities - taxable | | (80) | | | (502) | | | (582) | | | 110 | | | 153 | | | 263 | |
| Investment securities - tax-exempt | | 3,119 |
| | (418 | ) | | 2,701 |
| | 1,186 |
| | 507 |
| | 1,693 |
| Investment securities - tax-exempt | | (1,059) | | | (628) | | | (1,687) | | | (170) | | | (24) | | | (194) | |
| Fed funds sold and other | | 224 |
| | 48 |
| | 272 |
| | 15 |
| | 65 |
| | 80 |
| |
| Restricted equity securities | | Restricted equity securities | | 223 | | | (203) | | | 20 | | | 28 | | | (46) | | | (18) | |
| Federal funds sold | | Federal funds sold | | 21 | | | (24) | | | (3) | | | 15 | | | (1) | | | 14 | |
| Total earning assets | | 26,014 |
| | 3,053 |
| | 29,067 |
| | 4,442 |
| | (299 | ) | | 4,143 |
| Total earning assets | | 51,606 | | | 627 | | | 52,232 | | | 8,228 | | | 1,706 | | | 9,934 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Interest bearing liabilities | | | | | | | | | | | | | |
| Interest bearing demand | | 153 |
| | 40 |
| | 193 |
| | (9 | ) | | — |
| | (9 | ) | |
| Interest-bearing liabilities | | Interest-bearing liabilities | |
| Interest-bearing demand | | Interest-bearing demand | | 329 | | | 66 | | | 395 | | | — | | | 18 | | | 18 | |
| Savings and money market | | 830 |
| | 1,011 |
| | 1,841 |
| | 38 |
| | 78 |
| | 116 |
| Savings and money market | | 2,640 | | | (2,122) | | | 518 | | | 213 | | | 1,389 | | | 1,602 | |
| Time deposits - retail | | 2,740 |
| | 2,398 |
| | 5,138 |
| | 1,438 |
| | 572 |
| | 2,010 |
| Time deposits - retail | | 1,783 | | | (5,668) | | | (3,885) | | | 457 | | | 2,845 | | | 3,302 | |
| Time deposits - wholesale | | 27 |
| | 602 |
| | 629 |
| | (114 | ) | | 364 |
| | 250 |
| Time deposits - wholesale | | 66 | | | (1,625) | | | (1,559) | | | 3,178 | | | 846 | | | 4,024 | |
| Total interest bearing deposits | | 3,750 |
| | 4,051 |
| | 7,801 |
| | 1,353 |
| | 1,014 |
| | 2,367 |
| |
| Federal Home Loan Bank advances | | 607 |
| | 593 |
| | 1,200 |
| | (526 | ) | | 467 |
| | (59 | ) | |
| Subordinated debt | | — |
| | 724 |
| | 724 |
| | — |
| | — |
| | — |
| |
| Total interest-bearing deposits | | Total interest-bearing deposits | | 4,818 | | | (9,349) | | | (4,531) | | | 3,848 | | | 5,098 | | | 8,946 | |
| Federal Home Loan Bank advances and other | | Federal Home Loan Bank advances and other | | 702 | | | (342) | | | 360 | | | (1,332) | | | 156 | | | (1,176) | |
| Subordinated Debt | | Subordinated Debt | | 3,141 | | | (125) | | | 3,016 | | | 201 | | | 13 | | | 214 | |
| Total borrowed funds | | 607 |
| | 1,317 |
| | 1,924 |
| | (526 | ) | | 467 |
| | (59 | ) | Total borrowed funds | | 3,843 | | | (467) | | | 3,376 | | | (1,131) | | | 169 | | | (962) | |
| Total interest-bearing liabilities | | $ | 4,357 |
| | $ | 5,368 |
| | $ | 9,725 |
| | $ | 827 |
| | $ | 1,481 |
| | $ | 2,308 |
| Total interest-bearing liabilities | | $ | 8,661 | | | $ | (9,816) | | | $ | (1,155) | | | $ | 2,717 | | | $ | 5,267 | | | $ | 7,984 | |
| Net interest rate spread (%) / Net interest income ($) | | $ | 21,657 |
| | $ | (2,315 | ) | | $ | 19,342 |
| | $ | 3,615 |
| | $ | (1,780 | ) | | $ | 1,835 |
| |
| Net interest rate spread | | Net interest rate spread | | $ | 42,944 | | | $ | 10,443 | | | $ | 53,387 | | | $ | 5,511 | | | $ | (3,561) | | | $ | 1,950 | |
Analysis—2020 compared to 2019
For the year ended December 31, 2018, we recorded2020, net interest income was approximately $112.2 million (including tax equivalent adjustments), a 96% increase from the year ended December 31, 2019 net interest income of approximately $53.8 million, which resulted$58.8 million. This increase is primarily due to increasing loan volumes and a decrease in arates related to interest-bearing liabilities. Our net interest margin (netwas 4.35% and 3.54% for 2020 and 2019, respectively.
For 2020 and 2019, average loan yields increased from 5.37% to 5.68%. The effects of the declining interest rate environment was offset by the realization of twelve and nine months of additional interest income dividedrelated to the acquisition of TCB Holdings and FABK, respectively, including additional interest income from accretion of purchase accounting adjustments increasing from 0.12% to 0.45%. Year-over-year average loan balances increased by 65.5%, largely driven by the two 2020 acquisitions. Additionally, our continued focus on serving our customers led to organic growth of 13%.
Cost of funds decreased 58 basis points from 2019 to 0.90% in 2020 as our team continues to focus on reducing more costly time deposits and retaining lower cost customer deposits. Average retail time deposits decreased 17.4% versus average total deposits increase of 50.9%. While our acquired deposits drive the majority of this increase, organic deposits increased 14.1%
year-over-year. The decrease in deposit rates was offset by an increase in interest expense related to subordinated debt as the average balance increased 378.3% with the issuance of interest earning assets)additional debt in December of 3.78%. 2019.
2019 compared to 2018
For the year ended December 31, 2017, we recorded2019, net interest income ofwas approximately $34.5$58.8 million which resulted in(including tax equivalent adjustments), a net interest margin (net interest income divided by the average balance of interest earning assets) of 3.97%. For the year ended December 31, 2016, we recorded net interest income of approximately $32.7 million, which resulted in a net interest margin of 4.15%. For the years ended December 31, 2018, 2017, and 2016, our net interest spread was 3.53%, 3.81% and 4.04%, respectively. During3% increase from the year ended December 31, 2018, a contributing factor to the increase in our net interest income of $56.9 million. Our net interest margin was the merger with Community First.3.54% and 3.78% for 2019 and 2018, respectively.
OurFor 2019 and 2018, average loan yields increased from 5.24% to 5.37% driven by year-over-year average loan volume increased by approximately 59.3% from 2017 to 2018increase of 12.3%. Our coupons and 11.6% from 2016 to 2017. Our combinedfees made up 5.15% and 4.96% of our total loan yield with the remainder being made up of purchase accounting accretion and loan fee yield increased from 4.87% to 5.24% for 2018 compared to 2017, respectively, and decreased from 5.09% to 4.87% for 2017 compared to 2016, respectively.tax credits.
Our tax equivalent yield on tax-exempt investments decreasedcost of funds increased 41 basis points from 1.07% to 3.72%1.48% for the year ended December 31, 2018 from 4.01% for the year ended December 31, 2017 and increased from 3.39% for the year ended December 31, 2016. This decrease when compared to 2017 was driven by the change in the federal tax rate. Our year-over-year average tax-exempt investment volume increased by approximately 49.0% for the year ended December 31, 20182019 compared to the same period in 2017 and increased 43.5% for the year ended December 31, 2017 when compared to the same period in 2016. Our year-over-year average taxable securities volume increased by 122.4% for the year ended December 31, 2018 compared to the same period in 2017 and decreased by 22.0% for the year ended December 31, 2017 when compared to the same period in 2016. During the first quarter of 2018, we completed a planned investment securities restructuring that began in the fourth quarter of 2017. As part of the restructuring, we sold $60.0
million of legacy Community First mortgage backed securities and purchased $79.0 million of investment grade securities including a combination of municipals, SBA floating securities, and collateralized mortgage obligations. No material changes to our investment portfolio were made during the fourth quarter of 2018.
Our cost of funds increased from 0.66% to 1.07% for 2018 compared to the same period in 2017 and from 0.43% to 0.66% for 2017 compared to the same period in 2016. Our cost of interest-bearing liabilities increased from 0.77% at December 31, 2017 to 1.27% at December 31, 2018 and from 0.52% at December 31, 2016 to 0.77% at December 31, 2017. All categories of interest-bearing liabilities contributed to the increase in our cost of funds due to rate increases by the Federal Reserve. SomeReserve as well as competition for core deposits and the use of the significant increases included changes of 87 basis points, 67 basis points, 57 basis points, and 36 basis points in FHLB advances, time deposits - wholesale time deposits - retail, and savings and money market, respectively.funding sources. Additionally, we assumed subordinated debt as part ofin the merger with Community First Inc.,acquisition and issued another $60 million in December 2019 with a combined cost of 6.26%6.37%. Due to the merger, we also experienced a 62.8% increase in our average non-interest bearing deposits from the year ended December 31, 2017 when compared to the year ended December 31, 2018. Our non-interest bearingnoninterest-bearing deposits decreased our cost of funds by 25 basis points for the year ended December 31, 2019 compared to 20 basis points for the year ended December 31, 2018 compared to 11 basis points and 9 basis points2018.
Provision for years ended December 31, 2017 and 2016, respectively.LoanLosses
Our balance sheet has some components that will benefit from rising interest rates, including variable rate loans at 37%Management considers a number of our portfolio, some variable rate investment securities and interest rate swaps. Conversely our interest bearing liabilities are negatively impacted with rising interest rates. Our wholesale fundings are particularly sensitive to changesfactors in interest rates mainly due to their short term nature. We added $30 million of pay-fixed receive-variable interest rate swaps in eachdetermining the required level of the secondallowance for loan losses and third quarters of 2018. We are always looking for opportunitiesthe provision required to increase our non-interest bearingachieve what is believed to be appropriate reserve level, including historical loss experience, loan growth, credit risk rating trends, nonperforming loan levels, delinquencies, loan portfolio concentrations and lower cost depositseconomic and have seen some success with a stronger focus on low cost deposits in all of our sales incentive plans. Additionally, we anticipate continued growth in our deposits from our new branches in Murfreesboro and Chattanooga, as well as deposit growth as our treasury management services grow. These efforts will continue as well as continuing to evaluate the benefits of fixing a greater portion of our funding costs through interest rate swaps.
Provision for LoanLosses
market trends. The provision for loan losses represents a charge to earningsmanagement’s determination of the amount necessary to establish anbe charged against the current period’s earnings to maintain the allowance for loan losses at a level that it considered adequate in management’s evaluation, should be adequaterelation to provide coverage for the inherent losses on outstanding loans. Based upon management’s assessment of the loan portfolio, we adjust our allowance for loan losses on a quarterly basis to an amount deemed appropriate to adequately cover probableestimated losses inherent in the loan portfolio.
Based upon our evaluation of the loan portfolio, we believe the allowanceThe provision for loan losses from continuing operations was $8,350 in 2020, an increase of $7,139, or 589.5% compared to be adequate2019, due to absorb our estimatean increase in loan volume as well as economic considerations due to the COVID-19 pandemic. Similarly, we recorded a provision of probable losses existing$1,211 in the2019, an increase of $176, or 17.0%, compared to 2018, due to an increase in loan portfoliovolume.
Credit quality remains strong with nonperforming loans at December 31, 2020 amounting to 0.26% of total loans as compared to 0.29% at December 31, 2019 and 0.34% at December 31, 2018. While policiesNet charge-offs (recoveries) compared to average loans remain low with 0.01%, (0.04)%, and procedures used to estimate the allowance for loan losses, as well as the resultant provision for loan losses charged to operations, are considered adequate by management, they are necessarily approximate and imprecise. There are factors beyond our control, such as conditions in the local and national economy, local real estate market, or particular industry or borrower-specific conditions, which may materially negatively impact our asset quality and the adequacy of our allowance for loan losses and, thus, the resulting provision for loan losses.
We recorded a provision for loan losses of $1,035, $1,316, and $968(0.01)% for the years ended December 31, 2020, December 31, 2019, and December 31, 2018, 2017,respectively. The allowance for loan loss to total loans at December 31, 2020 was 0.90% compared to 0.89% at December 31, 2019 and 2016,0.88% at December 31, 2018. When including purchase loan discounts, this rises to 1.62%, 1.10%, and 1.25% for the years ended December 31, 2020, December 31, 2019, and December 31, 2018, respectively. Our provision decrease in 2018 was due to the continued improvement
Non-InterestNoninterest Income
Our non-interestnoninterest income is composed of several components, some of which vary significantly between periods. The following is a summary of our non-interestnoninterest income for the years ended December 31, 2018, 2017,2020, 2019, and 20162018 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Percent Increase (Decrease) | | Year Ended December 31, 2018 | | | | Percent Increase (Decrease) |
| | 2020 | | 2019 | | | | | | | |
| Noninterest Income | | | | | | | | | | | | | | |
| Service charges and fees | | $ | 5,747 | | | $ | 3,746 | | | | | 53.4 | % | | $ | 3,419 | | | | | 9.6 | % |
| Securities (losses) gains, net | | (270) | | | 1,451 | | | | | (118.6) | % | | 43 | | | | | 3,274.4 | % |
| Gains on mortgage loans sold, net | | 12,239 | | | 4,905 | | | | | 149.5 | % | | 4,418 | | | | | 11.0 | % |
| Other noninterest income: | | | | | | | | | | | | | | |
| Gain on sale of other real estate | | 28 | | 166 | | | | (83) | % | | 259 | | | | (36) | % |
| Gain on disposal of assets | | 31 | | | — | | | | | 100.0 | % | | 13 | | | | | (100.0) | % |
| Bank-owned life insurance | | 2,759 | | | 1,119 | | | | | 146.6 | % | | 1,186 | | | | | (5.6) | % |
| Brokerage revenue | | 194 | | | 49 | | | | | 295.9 | % | | 99 | | | | | (50.5) | % |
| Miscellaneous noninterest income | | 831 | | | 528 | | | | | 57.4 | % | | 227 | | | | | 132.6 | % |
| Total other noninterest income | | 3,843 | | | 1,862 | | | | | 106.4 | % | | 1,784 | | | | | 4.4 | % |
| Total noninterest income | | $ | 21,559 | | | $ | 11,964 | | | | | 80.2 | % | | $ | 9,664 | | | | | 23.8 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended | | Dollar Increase (Decrease) | | Percent Increase (Decrease) | | | | Dollar Increase (Decrease) | | Percent Increase (Decrease) |
| | | December 31, | | | | | | December 31, | | | | |
| | | 2018 | | 2017 | | | | | | 2016 | | | | |
| Non-Interest Income | | | | | | | | | | | | | | |
| Service charges and fees | | $ | 3,419 |
| | $ | 1,251 |
| | $ | 2,168 |
| | 173.3 | % | | $ | 1,239 |
| | $ | 12 |
| | 1.0 | % |
| Securities gains, net | | 43 |
| | 59 |
| | (16 | ) | | (27.1 | )% | | 36 |
| | 23 |
| | 63.9 | % |
| Gains on mortgage loans sold, net | | 4,418 |
| | 3,675 |
| | 743 |
| | 20.2 | % | | 6,317 |
| | (2,642 | ) | | (41.8 | )% |
| Gain on sale of other real estate | | 259 |
| | 27 |
| | 232 |
| | 859.3 | % | | 301 |
| | (274 | ) | | (91.0 | )% |
| Gain (loss) on disposal of premises and equipment | | 13 |
| | (52 | ) | | 65 |
| | 125.0 | % | | — |
| | (52 | ) | | (100.0 | )% |
| Other noninterest income: | | | | | | | | | | | | | | |
| Bank-owned life insurance | | 1,185 |
| | 836 |
| | 349 |
| | 41.7 | % | | 750 |
| | 86 |
| | 11.5 | % |
| Brokerage revenue | | 99 |
| | 116 |
| | (17 | ) | | (14.7 | )% | | 89 |
| | 27 |
| | 30.3 | % |
| Miscellaneous noninterest income | | 210 |
| | 98 |
| | 112 |
| | 114.3 | % | | 68 |
| | 30 |
| | 44.1 | % |
| Total other non-interest income | | 1,494 |
| | 1,050 |
| | 444 |
| | 42.3 | % | | 907 |
| | 143 |
| | 15.8 | % |
| Total non-interest income | | $ | 9,646 |
| | $ | 6,010 |
| | $ | 3,636 |
| | 60.5 | % | | $ | 8,800 |
| | $ | (2,790 | ) | | (31.7 | )% |
The most significant reasonNoninterest income increased for the increase during the year ended December 31, 2018 when2020 compared to the same period in 2017, related to the increase in service charges, mainly due to the increased deposits from the merger with Community First, Inc. The decrease for the year ended December 31, 2017 when compared to the same period in 2016 was2019, primarily due to the decline in gains on mortgage loans sold, net. Following is a description of certain components of non-interest income and other reasons for fluctuations during the year ended December 31, 2018 compared to the same period in 2017 and the year ended December 31, 2017 compared to the same period in 2016.sold.
Service charges on deposit accounts generally reflect customer growth trends but also are impacted by changes in our fee pricing structure to help attract and retain customers. The increase in service charges and fees for 2020 was driven primarily by the incremental increase in transaction volume related to our acquisitions, as well as growth in the volume of our legacy deposit accounts.
Securities gains and losses will fluctuate from period to period and are often attributable to various balance sheet risk strategies. During the year ended December 31, 2018,2020, the Company sold securities classifiedtotaling $151,934 and recognized a loss of $270 as available for available for salepart of a strategy to restructure the investment portfolio which included the sales of those portfolios acquired as part of the FABK and TCB Holdings transactions. Comparatively, during the year ended December 31, 2019, the Company sold securities totaling $100,737$85,895 and recognized a gain of $43. During the year ended December 31, 2017, the Company sold securities classified as available for sale totaling $18,688 and recognized a net gain of $59. During the year ended December 31, 2016, the Company sold securities classified as available for sale and held to maturity totaling $31,782 and recognized a net gain of $36.$1,451.
Gains on mortgage loans sold, net, consists of fees from the origination and sale of mortgage loans. These mortgage fees are for loans originated throughout the U.S. and subsequently sold to third-party investors. All of these loan sales transfer servicing rights to the buyer. Generally,The mortgage related revenue increases in lowerbanking business is directly impacted by the interest rate environmentsenvironment, increased regulations, consumer demand, and more robust housing markets and decreaseeconomic conditions. Mortgage production, especially refinance activity, typically rises in risingdeclining interest rate environments and more challenging housing markets. Mortgage-related revenue will fluctuateenvironments. Mortgage loans originated for resale totaled $605,020 in 2020 as compared to $179,331 in 2019 as a result of the productive market conditions produced by the low interest rate environment changes andin 2020 as changes occur to our mortgage operations. Gains on mortgage loans sold, net, amounted to $4,418, $3,675 and $6,317, for the years ended December 31, 2018, 2017, and 2016, respectively. As discussed further in the notes to our consolidated financial statements, gains on mortgage loans sold are generally recognized at the time of a loan sale corresponding to the transfer of risk. We completed the transition of a majority of our out-of-market mortgage loan production offices during the quarter ended June 30, 2016 to better focus our marketing and other resources in our core Middle Tennessee markets. The decline in gains on mortgage loans sold during year ended December 31, 2018 and 2017 when compared to 2016 was directly attributable to the transition. We did noticewell as an increase in gains on mortgage loans sold during 2018 andcorrespondent bank transactions as the second half of 2017 was influenced by our first-lien HELOC program.
During the years ended December 31, 2018, 2017, and 2016, we recognized gains of $259, $27, and $301, respectively on sales of other real estate and on the recognition of a previously deferred gains from the payoffs of loans.Company began these activities mid-2019.
Noninterest income also includes appreciation in the cash surrender value ofincome from bank-owned life insurance (BOLI), which was $1,185, $836, and $750$2,759, for the yearsyear ended December 31, 2018, 2017,2020 and 2016, respectively. Primarily,includes $1,808 in death benefit proceeds. The remaining increase when compared to the increasesyear ended December 31, 2019 is driven by the additional policies acquired from the FABK and TCB Holdings transactions as well as additional purchases in earnings on these bank-owned life insurance policies resulted from an additional $10.7 million which was acquired in the Merger, and an additional $4.0 million of bank-owned life insurance which was purchased with terms similar to our existing policies during 2017.2020. The assets that support these policies are administered by the life insurance carriers and the income we receive (i.e., increases or decreases in the
cash surrender value of the policies) is dependent upon the returns the insurance carriers are able to earn on the underlying investments that support the policies. Earnings on these policies generally are not taxable.
Other noninterest income also includes gains (losses) on other real estate owned and other assets which experienced minimal activity in both 2020 and 2019. Our brokerage revenue is solely based on commissions received from established referral relationships and fluctuate based on related activity.
Non-Interest
2019 compared to 2018
Noninterest income increased for the year ended December 31, 2019 compared to the same period in 2018, primarily due to gains on mortgages sold offset by a decrease in gains realized on the sale of securities.
Gains on mortgage loans sold, net, amounted to $4,905 and $4,418 for the years ended December 31, 2019, and 2018, respectively. The industry began to experience rates decline during the first quarter of 2019 after rising through much of 2018. Mortgage loans originated for resale totaled $179,331 in 2019 as compared to $141,783 in 2018 as a result of the productive market conditions produced by the low interest rate environment.
Noninterest income also includes appreciation in the cash surrender value of bank-owned life insurance (BOLI), gains/(losses) from sales of other real estate owned and other assets as well as brokerage revenue which fluctuates based on volume and market conditions but did not experience significant change from 2018.
Noninterest Expense
The following is a summary of our non-interestnoninterest expense for the years ended December 31, 2018, 2017,2020, 2019, and 20162018 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended | | Dollar Increase (Decrease) | | Percent Increase (Decrease) | | Year Ended | | Dollar Increase (Decrease) | | Percent Increase (Decrease) |
| | | December 31, | | | | | | December 31, | | | | |
| | | 2018 | | 2017 | | | | | | 2016 | | | | |
| Non-Interest Expense | | | | | | | | | | | | | | |
| Salaries and employee benefits | | $ | 27,510 |
| | $ | 18,432 |
| | $ | 9,078 |
| | 49.3 | % | | $ | 18,256 |
| | $ | 176 |
| | 1.0 | % |
| Occupancy | | 4,949 |
| | 3,353 |
| | 1,596 |
| | 47.6 | % | | 3,174 |
| | 179 |
| | 5.6 | % |
| Information technology | | 5,333 |
| | 2,715 |
| | 2,618 |
| | 96.4 | % | | 2,486 |
| | 229 |
| | 9.2 | % |
| Advertising and public relations | | 600 |
| | 264 |
| | 336 |
| | 127.3 | % | | 702 |
| | (438 | ) | | (62.4 | )% |
| Audit, legal and consulting | | 2,976 |
| | 1,508 |
| | 1,468 |
| | 97.3 | % | | 1,287 |
| | 221 |
| | 17.2 | % |
| Federal deposit insurance | | 793 |
| | 399 |
| | 394 |
| | 98.7 | % | | 438 |
| | (39 | ) | | (8.9 | )% |
| Provision for losses on other real estate | | — |
| | — |
| | — |
| | — | % | | 70 |
| | (70 | ) | | (100.0 | )% |
| Merger expenses | | 2,774 |
| | 1,426 |
| | 1,348 |
| | 94.5 | % | | — |
| | 1,426 |
| | 100.0 | % |
| Other operating | | 5,626 |
| | 2,979 |
| | 2,647 |
| | 88.9 | % | | 3,961 |
| | (982 | ) | | (24.8 | )% |
| Total non-interest expense | | $ | 50,561 |
| | $ | 31,076 |
| | $ | 19,485 |
| | 62.7 | % | | $ | 30,374 |
| | $ | 702 |
| | 2.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Percent Increase (Decrease) | | Year Ended December 31, 2018 | | | | Percent Increase (Decrease) |
| | 2020 | | 2019 | | | | | | | |
| Noninterest Expense | | | | | | | | | | | | | | |
| Salaries and employee benefits | | $ | 46,332 | | | $ | 30,514 | | | | | 51.8 | % | | $ | 27,510 | | | | | 10.9 | % |
| Occupancy | | 7,756 | | | 5,423 | | | | | 43.0 | % | | 4,949 | | | | | 9.6 | % |
| Data processing and software | | 8,594 | | | 6,213 | | | | | 38.3 | % | | 5,333 | | | | | 16.5 | % |
| Professional fees | | 2,676 | | | 2,302 | | | | | 16.2 | % | | 2,848 | | | | | (19.2) | % |
| Regulatory fees | | 1,797 | | | 908 | | | | | 97.9 | % | | 1,077 | | | | | (15.7) | % |
| Merger expenses | | 6,895 | | | 1,603 | | | | | 330.1 | % | | 2,774 | | | | | (42.2) | % |
| Other operating expense | | 9,157 | | | 6,929 | | | | | 32.2 | % | | 6,070 | | | | | 14.2 | % |
| Total noninterest expense | | $ | 83,207 | | | $ | 53,892 | | | | | 54.4 | % | | $ | 50,561 | | | | | 6.6 | % |
The most significant reason for the changes during the years ended December 31, 2018 and 2017 relate to the Merger between Reliant Bancorp Inc. and Community First Inc. that was effective January 1, 2018 which lead to increased operating cost as well as one time merger expenses. Following is a description of certain components of non-interest expense and additional reasons for fluctuations during the years ended December 31, 2018, 2017, and 2016.
Salaries and employee benefits increased significantly for the year ended December 31, 20182020 compared to the same period in 2017 and2019
Noninterest expense increased slightly for the year ended December 31, 2017 compared to the same period in 2016. The primary reason for the changesignificantly during the year ended December 31, 2018 was2020 when compared to December 31, 2019 which is primarily driven by incremental costs incurred following the MergerTCB Holdings and FABK transactions as well as the merger expenses incurred.
The increase in salaries and employee benefits is related to the TCB Holdings and FABK transactions as well as our year over year growth and severance for three executive officers. The staffing levels have normalized during the third quarter but we experienced an overall increase in FTEs from 301 to 428.
The 43.0% increase in occupancy expense from December 31, 2020 to December 31, 2019 was largely attributable to increased depreciation and other facilities-related expenses associated with the TCB Holdings and FABK transactions as well as the expansion of RMV.
Data processing and software expense increased from December 31, 2020 to December 31, 2019 and is mainly attributable to an increased volume of accounts and transactions services as well as continued investments in information technology infrastructure. Both the new branchesvolume and location increases are primarily due to the TCB Holdings Transaction, the FABK Transaction, and the expansion of RMV.
Professional fees increased 16.2% in Murfreesboro and Chattanooga. The primary reason for the change during the year ended December 31, 20172020 as compared to the same period in 2016 was attributable to the staffing of the Green Hills branch, the Chattanooga loan and deposit production office, and other strategic hires.
Certain of our facilities are leased while there are others that we own. Occupancy costs increased during the year ended December 31, 2018 compared to2019 which is primarily driven by increased costs at the same periodCompany in 2017 mainly due toboth the Merger but also due to the depreciation for the new corporate office and the new branches in Murfreesboro and Chatanooga. Occupancy costs also increased during the year ended December 31, 2017 when compared to the same period in 2016. This increase is due to the depreciation for the Green Hills location, Chattanooga loan production office and deposit production office,Bank and Mortgage office in Brentwood. Additionally, the Chattanooga location and the Mortgage office in Brentwood were both new leases in 2017.segments as activity increased.
Information technology costs increased for the year ended December 31, 2018 and December 31, 2017 when comparing to the comparable periods in 2017 and 2016. This increase is mainly attributable to the Merger, increased IT support, and equipment costs associated with increased head counts (mainly due to the Merger), and to projects implemented in 2018 (credit workflow and enhanced IT security, as well as projects implemented in 2017.
Advertising and public relations costs increased $336 when comparing the year ended December 31, 2018 to the similar period in 2017. The increase was substantially attributable to the Merger and the openingRegulatory fees are largely made up of our new retail locations in Murfreesboro and Chattanooga . Advertising and public relations costs decreased when comparing the year ended December 31, 2017 to the similar period in 2016. The decrease was substantially attributable to a decline in our direct-mail, online, and print advertising and related professional consultation expenditures. The decrease was partially offset by a marketing campaign to increase core deposits.
Audit, legal and consulting costs increased $1,468 when comparing the year ended December 31, 2018 compared to the similar period in 2017. This increase is mainly attributable to the increase in legal fees and consulting fees incurred in connection with our mortgage venture. The increase from 2016 to 2017 of $221 was also attributable to the increase in legal fees and consulting fees incurred in connection with our mortgage venture.
Our FDIC expense isinsurance expenses based on our outstanding liabilitiesdeposits for the period multiplied by a factor determined by the FDIC, mainly driven by our most recent regulatory rating and certain financial performance factors. Our FDIC expense increased $394 forThe increase in the year ended December 31, 2020 is due to an increase in average liabilities following the TCB Holdings and FABK transactions as well as a $375 small bank assessment credit received in 2019.
Other noninterest expenses include advertising expenses, insurance expenses, core deposit intangibles (CDI) amortization, provision for losses on other real estate owned, and franchise taxes. The TCB and FABK transactions increased CDI amortization when comparing the year ended December 31, 2020 to December 31, 2019. These increases were partially offset by decreases in travel and entertainment expenses and advertising. Additionally, the Company recorded no provision or write-downs for other real estate owned in 2020 compared to $98 in 2019.
2019 compared to 2018
Noninterest expense increased significantly during the year ended December 31, 2019 when compared to 2018 which is primarily driven by the increase in salaries and employee benefits as the Company continues to grow the mortgage banking business through RMV, as well as our de novo Murfreesboro and Chattanooga branches.
Occupancy costs increased during the year ended December 31, 2019 compared to the same period in 20172018 mainly due to the commencement of Murfreesboro and decreased $39Chattanooga leases. Additionally, RMV established leases for mortgage production offices in Memphis and Chattanooga in Tennessee and in Little Rock, Arkansas in 2019.
Data processing and software expense increased for the year ended December 31, 20172019 when compared to 2018. This increase is mainly attributable to increasing volume of accounts and transactions due to the new de novo branch offices that served to increase data processing costs incrementally. Additionally, we have made investments in technology to improve our network performance, strengthen our cybersecurity infrastructure and enhance our ability to deliver digital products to our commercial and consumer clients.
Professional fees decreased $546 when comparing the year ended December 31, 2019 to the similar period in 2018. This decrease is mainly attributable to the higher legal fees and consulting fees incurred during 2018 by RMV which decreased $713 in 2019.
Regulatory fees decreased $169 for year ended December 31, 2019, compared to the same period in 2016.2018. This increase in 2018decrease was attributable to an approximately $375 credit received from the increase in average liabilities mainly driven by the Merger. This decrease in 2017 is primarily the result of a reduction in the applicable rate which was partiallyFDIC offset by thean increase in average liabilities.
Other noninterest expenses increased by $859 for the year ended December 31, 2019 compared to the same period in 2018 due to increased travel and entertainment costs and advertising expenses incurred by RMV. We recorded a provision for losses on other real estate of $70 during the year ended December 31, 2016 compared to none in 2018 and 2017. The provision recorded for 2016 related to a property held in our other real estate portfolio.
Other operating expenses increased by $2,647$98 for the year ended December 31, 20182019 compared to the same periodnone in 2017 due to increased operating cost2018. The provision in 2019 related to a property sold in January 2020.
Efficiency ratio
The efficiency ratio is one measure of productivity in the Mergerbanking industry. This ratio is calculated to measure the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense by the sum of net interest income and roughly $1,000 relatednoninterest income. For an adjusted efficiency ratio, we exclude certain gains, losses and expenses we do not consider core to our mortgage venture. Other operating expenses decreased by $982business.
Our efficiency ratio of our banking segment was 59.36% and 68.02% for the yearyears ended December 31, 2017 compared to2020 and 2019, respectively. Our adjusted efficiency ratio, on a tax-equivalent basis, was 51.40% and 64.00% for the same periodyears ended December 31, 2020 and 2019, respectively. See “Non-GAAP Financial Measures” in 2016 due to decreases in loan-related expenses such as processing costs relating to our mortgage operations as volume decreased and our transitioning of several of our out-of-market mortgage offices to another bank, and the reversalthis Report for a discussion of the loweradjusted efficiency ratio.
Income Taxes
2020 compared to 2019
During the years ended December 31, 2018, 2017,2020 and 20162019, we recorded consolidated income tax expense of $1,372, $1,942,$6,935 and $2,213,$2,129, respectively. The Company files separate Federalfederal tax returns for RMV and the operations of the mortgage banking and banking operations.bank segment. The taxable income or losses of the mortgage banking operations are included in the respective franchise and excise returns of the Bank and non-controlling membersmember for Federalfederal purposes.
Our incomeIncome tax expense for the year ended December 31, 2018,2020, reflects an effective income tax rate of 10.25%18.12% (exclusive of a tax benefit from our mortgage banking operations of $236$17 realized on RMV's pre-tax loss of $3,814)$316) compared to 21.70%13.47% (exclusive of a tax benefit from our mortgage banking operations of $66$393 on RMV's pre-tax loss of $1,149$6,052). Our effective tax rate differs from the statutory tax rate by our investments in municipal securities, bank-owned life insurance (BOLI), and inclusivestate tax credits, net of tax expense $620 related to the revaluationeffect of our deferred tax asset based oncertain non-deductible expenses and the change in the tax law) for the comparable periodrecognition of 2017. During the years ended December 31, 2018, 2017, and 2016, the Company recognized excess tax benefits of $110, $184, and $478 related to the exercise of stock options and vesting of restricted shares, respectively, thereby reducing ourcompensation. The effective tax rate. The Company recognized tax creditsrate in 2020 increased as compared to 2019 as the proportion of $1,268, $650, and $650 for the years ended December 31, 2018, 2017, and 2016 duetax-exempt income to interest-free loan agreements entered into by the Bank. Ourtotal income tax expense was also positively affected by our increase in income earned on tax-exempt securities in 2018, 2017, and 2016, and in 2018 our investment subsidiary formed in the fourth quarter. decreased as compared to 2019.
Our effective tax rate for 2020 and 2019 represents our blended federal and state rate of 26.135% for 2018 and 38.29% for 2017 and 201626.1% which is then reduced by the impact of anticipated favorable permanent differences between our book and taxable income such as bank-owned life insurance,BOLI, income earned on tax-exempt securities and certain federal and state tax credits. The non-deductibility of certain merger relatedmerger-related expenses also drives fluctuations in our effective tax rate.
2019 compared to 2018
Noncontrolling Interest in NetIncome (Loss)of Subsidiary
Our noncontrolling interest in net income (loss) of subsidiary is solely attributable to Reliant Mortgage Ventures, LLC. Reliant Bank has a 51% voting interest in this venture. Under the terms of the related operating agreement, the noncontrolling member receives 70% of the profits of the mortgage venture, and the Bank receives 30% of the profits. The noncontrolling member is responsible for 100% of the mortgage venture’s net losses. During the yearyears ended December 31, 2016, the Company transitioned most2019 and 2018, we recorded consolidated income tax expense of its out-of-market mortgage offices to another bank. The venture incurred a net loss of $3,578$2,129 and $1,372. Income tax expense for the year ended December 31, 2018, net2019 reflects an effective income tax rate of 13.47% (exclusive of a tax benefit of $393 realized on RMV's pre-tax loss of $1,083 for$6,052) compared to 10.25% (exclusive of a tax benefit of $236 on RMV's pre-tax loss of $3,814). The higher effective tax rate in 2019 is mainly the year ended December 31, 2017,result of higher excess tax benefits in 2018 related to exercise of stock options and restricted shares vesting which reduces the effective rate.
Noncontrolling Interest in NetIncome (Loss)of Subsidiary
RMV incurred a net loss of $1,039$299, $5,659, and $3,578 for the yearyears ended December 31, 2016.2020, 2019, and 2018, respectively. The net loss for the year ended December 31, 2018,2020 results in a cumulative net loss from the venture of $8,058.$13,655. These amounts are included in our consolidated results. However, RMV losses are 100% the responsibility of the noncontrolling interest and are not attributable to the Company's shareholders. See Note 20 for segment reporting in the consolidated financial statements included elsewhere herein."Note 17 - Segment Reporting".
Return on Equity and Assets
The following schedule details selected key ratios for the years ended December 31, 2018, 2017, and 2016:
|
| | | | | | | | | |
| | | 2018 | | 2017 | | 2016 |
| Return on assets | | 0.86 | % | | 0.73 | % | | 1.01 | % |
| (Net income divided by average total assets) | | | | | | |
| Return on equity | | 6.93 | % | | 6.15 | % | | 8.57 | % |
| (Net income divided by average equity) | | | | | | |
| Dividend payout ratio | | 26.61 | % | | 26.97 | % | | 18.64 | % |
| (Dividends declared per share divided by net income per share) | | | | | | |
| | | | | | | |
| Equity to assets ratio | | 12.36 | % | | 11.83 | % | | 11.77 | % |
| (Average equity divided by average total assets) | | | | | | |
| Leverage capital ratio - Bank | | 10.17 | % | | 11.68 | % | | 10.75 | % |
| (Equity divided by fourth quarter average total assets, excluding accumulated other comprehensive income) | | | | | | |
Under guidelines developed by regulatory agencies a “risk weight” is assigned to various categories of assets and commitments ranging from 0% to 100% based on the risk associated with the asset. The following schedule details the Bank’s risk-based capital at December 31, 2018 excluding the net unrealized gain on available-for-sale securities which is shown as an increase in shareholders’ equity in the consolidated financial statements:
|
| | | |
| | In Thousands, Except Percentages |
| Tier 1 capital | |
| Shareholders' equity, excluding accumulated other comprehensive income, disallowed goodwill, other disallowed intagible assets, and disallowed servicing assets | $ | 165,308 |
|
| Tier 2 capital | |
| Allowable allowance for loan losses (limited to 1.25% of gross risk-weighted assets) | 11,317 |
|
| | |
| Total risk-based capital | $ | 176,625 |
|
| | |
| Risk-weighted assets, gross | $ | 1,356,173 |
|
| Less: Excess allowance for loan and lease losses | — |
|
| | |
| Risk-weighted assets, net | $ | 1,356,173 |
|
| | |
| Risk-based capital ratios: | |
| Tier 1 risk-based capital ratio | 12.19 | % |
| | |
| Total risk-based capital ratio | 13.02 | % |
The minimum Tier 1 risk-based capital ratio required by the regulatory agencies is 4.00%, and the minimum total risk-based capital ratio required is 9.25%. At December 31, 2018, the Company was in compliance with these requirements.
COMPARISON OF BALANCE SHEETS ATDECEMBER 31, 2018ANDDECEMBER 31, 2017FINANCIAL CONDITION
Overview
The Company’s totalTotal assets were $1,724,338increased $1,124.7 million, or 59.1%, to $3,026.5 million at December 31, 2018 and $1,125,034 at December 31, 2017. Our assets increased by 53.3% from December 31, 20172020 compared to December 31, 2018. The2019. This increase in assets from December 31, 2017 to December 31, 2018, was substantially attributable to the Merger which lead to an increase in net loans held for investment of approximately $457.7$890.8 million, discussed further below; a net increase in our securities portfolio of $76.1 million, discussed further below; an increase of $32.2 million in goodwill; an increase of $14.5 million in cash and cash equivalents; an increase of $12.2 million in premises and equipment, net; and an increase of $11.9 million in bank-owned life insurance. These increases were offset by a decrease in mortgage loans held for sale of $29.5 million. The Company’s total$110.0 million, an increase of $43.4 million in cash and cash equivalents, and an increase of $31.4 million in the cash surrender value of life insurance contracts. Total liabilities were $1,515,924increased $1,026.5 million, or 61.2%, to $2,704.6 million at December 31, 2018 and $984,897 at December 31, 2017, an increase of 53.9%. The increase in total liabilities from December 31, 20172020 compared to December 31, 2018,2019. This increase was substantially attributable to the Merger with an increase in total deposits of $554.4 million and an increase of $11.6 million in subordinated debt and somewhat offset by a decrease of $39.2 million in Federal Home Loan Bank advances.$994.8 million. These and other components of our balance sheets are primarily attributable to the TCB and FABK Transactions and are discussed further below.
Investment Securities
The investment securities portfolio is intended to provide the Bank with liquidity, meet customer collateral needs, and provide flexible asset/liability management and a source of stable income. The portfolio consists of securities classified as available-for-sale. All available-for-sale securities are carried at fair value and may be used for liquidity purposes should management deem it to be in our best interest. Unrealized gains and losses are excluded from earnings, but are reported as other comprehensive income in a separate component of stockholders’ equity, net of income tax. Premium amortization and discount accretion are recognized as adjustments to interest income using the interest method. Realized gains or losses on sales are based on the net proceeds and the adjusted carrying value amount of the securities sold using the specific identification method.
Securities totaled $256,653 at December 31, 2020, a 1.4% decrease from the December 31, 2019 total of $260,293. During 2020, the Company restructured its investment portfolio which included selling those securities obtained in the FABK and TCB transactions. These proceeds were utilized to fund loan growth.
The following table summarizes the Company’s investment portfolio at amortized cost and fair value, aggregated by investment category for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 | | December 31, 2018 |
| | Amortized Cost | | Fair Value | | % of Total | | Amortized Cost | | Fair Value | | % of Total | | Amortized Cost | | Fair Value | | % of Total |
| U.S. Treasury and other U.S. government agencies | | $ | 47 | | | $ | 48 | | | 0.02 | % | | $ | 59 | | | $ | 59 | | | 0.02 | % | | $ | 568 | | | $ | 554 | | | 0.19 | % |
| State and municipal | | 184,102 | | | 200,988 | | | 78.31 | % | | 186,283 | | | 196,660 | | | 75.56 | % | | 232,589 | | | 229,298 | | | 77.38 | % |
| Corporate bonds | | 23,750 | | | 24,113 | | | 9.40 | % | | 7,880 | | | 7,845 | | | 3.01 | % | | 3,130 | | | 3,017 | | | 1.02 | % |
| Mortgage-backed securities | | 28,084 | | | 28,442 | | | 11.08 | % | | 38,126 | | | 37,761 | | | 14.51 | % | | 32,172 | | | 31,958 | | | 10.78 | % |
| Asset-backed securities | | 3,083 | | | 3,062 | | | 1.19 | % | | 18,374 | | | 17,968 | | | 6.90 | % | | 28,635 | | | 27,996 | | | 9.45 | % |
| Time deposits | | — | | | — | | | — | % | | — | | | — | | | — | % | | 3,500 | | | 3,500 | | | 1.18 | % |
| Total | | $ | 239,066 | | | $ | 256,653 | | | 100.00 | % | | $ | 250,722 | | | $ | 260,293 | | | 100.00 | % | | $ | 300,594 | | | $ | 296,323 | | | 100.00 | % |
The table below summarizes the maturities and tax-equivalent yield characteristics of available-for-sale securities portfolio as of December 31, 2020. This maturity schedule excludes security prepayment and call features.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | One year or less | | Over one year through five years | | Over five year through ten years | | Over ten years | | Total |
| | Fair Value | | Yield | | Fair Value | | Yield | | Fair Value | | Yield | | Fair Value | | Yield | | Fair Value | | Yield |
| U.S. Treasury and other U.S. government agencies | | $ | — | | | — | % | | $ | 48 | | | 2.03 | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | 48 | | | 2.03 | % |
| State and municipal | | — | | | — | % | | 85 | | | 5.54 | % | | 8,969 | | | 4.11 | % | | 191,934 | | | 3.77 | % | | 200,988 | | | 3.79 | % |
| Corporate bonds | | — | | | — | % | | 2,010 | | | 4.25 | % | | 21,103 | | | 4.81 | % | | 1,000 | | | 5.00 | % | | 24,113 | | | 4.77 | % |
| Mortgage-backed securities | | — | | | — | % | | 13,990 | | | 4.13 | % | | 8,867 | | | 3.06 | % | | 5,585 | | | 3.71 | % | | 28,442 | | | 3.72 | % |
| Asset-backed securities | | — | | | — | % | | 359 | | | 2.29 | % | | 729 | | | 1.71 | % | | 1,974 | | | 1.73 | % | | 3,062 | | | 1.79 | % |
| | | | | | | | | | | | | | | | | | | | |
| Total | | $ | — | | | — | % | | $ | 16,492 | | | 4.11 | % | | $ | 39,668 | | | 4.20 | % | | $ | 200,493 | | | 3.76 | % | | $ | 256,653 | | | 3.85 | % |
Loans
Held For Investment
Lending-related income is the most important component of our net interest income and is a major contributor to profitability. The loan portfolio is the largest component of earning assets, and it therefore generates the largest portion of revenues. The absolute volume of loans and the volume of loans as a percentage of earning assets is an important determinant of net interest margin as loans are expected to produce higher yields than securities and other earning assets. As previously discussed, the competition for quality loans in our markets has remained intense. Our goal is to steadily grow our loan portfolio, focusing on quality. This is not always possible for various factors, including but not limited to, scheduled maturities or early payoffs exceeding new loan volume. Early payoffs typically increase in lowering rate environments as customers identify advantageous opportunities for refinancing. We have been adding experienced lending officers to our staff to help with loan growth as the local market has continued to
improve. Total loans held for investment, net, at December 31, 2018,2020, and December 31, 2017,2019, were $1,220,184$2,280,147 and $762,488, respectively. This represented$1,397,374, respectively, an increase of 60.0% from December 31, 2017 to December 31, 2018.63.2%.
The table below provides a summary of the loan portfolio composition for the dates noted (including purchased credit-impaired (“PCI”)PCI loans).
| | | | | | | | | | | | | | | | December 31, |
| | | December 31, | | 2020 | | 2019 | | 2018 |
| | | 2018 | | 2017 | | 2016 | | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| | | Amount | | Percent | | Amount | | Percent | | Amount | | Percent | |
| Commercial, Industrial and Agricultural | | $ | 213,850 |
| | 17.4 | % | | $ | 138,706 |
| | 18.0 | % | | $ | 134,404 |
| | 20.1 | % | |
| Commerical, Industrial and Agricultural | | Commerical, Industrial and Agricultural | | $ | 459,739 | | | 19.9 | % | | $ | 245,515 | | | 17.4 | % | | $ | 213,850 | | | 17.4 | % |
| Real Estate: | | | | | | | | | | | | | Real Estate: | |
| 1-4 Family Residential | | 225,863 |
| | 18.3 | % | | 111,932 |
| | 14.4 | % | | 113,031 |
| | 16.9 | % | 1-4 Family Residential | | 323,473 | | | 14.0 | % | | 227,529 | | | 16.2 | % | | 225,863 | | | 18.3 | % |
| 1-4 Family HELOC | | 88,112 |
| | 7.2 | % | | 72,017 |
| | 9.3 | % | | 57,460 |
| | 8.6 | % | 1-4 Family HELOC | | 100,525 | | | 4.4 | % | | 96,228 | | | 6.8 | % | | 88,112 | | | 7.2 | % |
| Multifamily and Commercial | | 447,840 |
| | 36.4 | % | | 261,044 |
| | 33.8 | % | | 215,639 |
| | 32.3 | % | Multifamily and Commercial | | 834,000 | | | 36.2 | % | | 536,845 | | | 38.1 | % | | 447,840 | | | 36.4 | % |
| Construction, Land Development and Farmland | | 220,801 |
| | 17.9 | % | | 156,452 |
| | 20.3 | % | | 115,889 |
| | 17.4 | % | Construction, Land Development and Farmland | | 365,058 | | | 15.8 | % | | 273,872 | | | 19.4 | % | | 220,801 | | | 17.9 | % |
| Consumer | | 20,495 |
| | 1.7 | % | | 17,605 |
| | 2.3 | % | | 17,240 |
| | 2.6 | % | Consumer | | 213,863 | | | 9.3 | % | | 16,855 | | | 1.2 | % | | 20,495 | | | 1.7 | % |
| Other | | 14,106 |
| | 1.1 | % | | 14,694 |
| | 1.9 | % | | 13,745 |
| | 2.1 | % | Other | | 8,669 | | | 0.4 | % | | 13,180 | | | 0.9 | % | | 14,106 | | | 1.1 | % |
| | | 1,231,067 |
| | 100.0 | % | | 772,450 |
| | 100.0 | % | | 667,408 |
| | 100.0 | % | | 2,305,327 | | | 100.0 | % | | 1,410,024 | | | 100.0 | % | | 1,231,067 | | | 100.0 | % |
| Less: | | | | | | | | | | | | | Less: | |
| Deferred loan fees (cost) | | (9 | ) | | | | 231 |
| | | | 625 |
| | | Deferred loan fees (cost) | | 4,544 | | | 72 | | | (9) | | |
| Allowance for possible loan losses | | 10,892 |
| | | | 9,731 |
| | | | 9,082 |
| | | |
| ALL | | ALL | | 20,636 | | | 12,578 | | | 10,892 | | |
| | | | | | | | | | | | | | | | | | | | |
| Loans, net | | $ | 1,220,184 |
| | | | $ | 762,488 |
| | | | $ | 657,701 |
| | | Loans, net | | $ | 2,280,147 | | | $ | 1,397,374 | | | $ | 1,220,184 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2017 | | 2016 |
| | | Amount | | Percent | | Amount | | Percent |
| Commerical, Industrial and Agricultural | | $ | 138,706 | | | 18.0 | % | | $ | 134,404 | | | 20.1 | % |
| Real Estate: | | | | | | | | |
| 1-4 Family Residential | | 111,932 | | | 14.4 | % | | 113,031 | | | 16.9 | % |
| 1-4 Family HELOC | | 72,017 | | | 9.3 | % | | 57,460 | | | 8.6 | % |
| Multifamily and Commercial | | 261,044 | | | 33.8 | % | | 215,639 | | | 32.3 | % |
| Construction, Land Development and Farmland | | 156,452 | | | 20.3 | % | | 115,889 | | | 17.4 | % |
| Consumer | | 17,605 | | | 2.3 | % | | 17,240 | | | 2.6 | % |
| Other | | 14,694 | | | 1.9 | % | | 13,745 | | | 2.1 | % |
| | 772,450 | | | 100.0 | % | | 667,408 | | | 100.0 | % |
| Less: | | | | | | | | |
| Deferred loan fees (cost) | | 231 | | | | | 625 | | | |
| ALL | | 9,731 | | | | | 9,082 | | | |
| | | | | | | | |
| Loans, net | | $ | 762,488 | | | | | $ | 657,701 | | | |
|
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2015 | | 2014 |
| | | Amount | | Percent | | Amount | | Percent |
| Commercial, Industrial and Agricultural | | $ | 143,770 |
| | 23.3 | % | | $ | 80,817 |
| | 25.5 | % |
| Real Estate: | | | | | | | | |
| 1-4 Family Residential | | 110,736 |
| | 18.0 | % | | 41,297 |
| | 13.0 | % |
| 1-4 Family HELOC | | 49,665 |
| | 8.0 | % | | 33,108 |
| | 10.4 | % |
| Multifamily and Commercial | | 202,736 |
| | 32.8 | % | | 112,805 |
| | 35.6 | % |
| Construction, Land Development and Farmland | | 89,763 |
| | 14.5 | % | | 37,127 |
| | 11.7 | % |
| Consumer | | 15,271 |
| | 2.5 | % | | 11,771 |
| | 3.7 | % |
| Other | | 5,556 |
| | 0.9 | % | | 300 |
| | 0.1 | % |
| | | 617,497 |
| | 100.0 | % | | 317,225 |
| | 100.0 | % |
| Less: | | | | | | | | |
| Deferred loan fees (cost) | | 927 |
| | | | 375 |
| | |
| Allowance for possible loan losses | | 7,823 |
| | | | 7,353 |
| | |
| | | | | | | | | |
| Loans, net | | $ | 608,747 |
| | | | $ | 309,497 |
| | |
| | | | | | | | | |
The table below provides a summary of PCI loans held for investment as of December 31, 2018,2020, and December 31, 2017:2019:
| | | | | December 31, 2018 | | December 31, 2017 | | December 31, 2020 | | December 31, 2019 |
| Commercial, Industrial and Agricultural | | $ | 63 |
| | $ | 298 |
| Commercial, Industrial and Agricultural | $ | 919 | | | $ | — | |
| Real Estate: | | | | | Real Estate: | |
| 1-4 Family Residential | | 324 |
| | 47 |
| 1-4 Family Residential | 1,004 | | | 231 | |
| 1-4 Family HELOC | | — |
| | — |
| 1-4 Family HELOC | 19 | | | — | |
| Multifamily and Commercial | | 233 |
| | 1,217 |
| Multifamily and Commercial | 1,325 | | | 217 | |
| Construction, Land Development and Farmland | | 1,958 |
| | 1,508 |
| Construction, Land Development and Farmland | 992 | | | 1,021 | |
| Consumer | | 18 |
| | — |
| Consumer | 1,924 | | | — | |
| Other | | — |
| | — |
| |
| Total gross PCI loans | | 2,596 |
| | 3,070 |
| Total gross PCI loans | 6,183 | | | 1,469 | |
| Less: | | | | | Less: | |
| Remaining purchase discount | | 300 |
| | 156 |
| Remaining purchase discount | 2,596 | | | 246 | |
| Allowance for possible loan losses | | — |
| | 4 |
| Allowance for possible loan losses | — | | | — | |
| | | | | | | | | |
| Loans, net | | $ | 2,296 |
| | $ | 2,910 |
| Loans, net | $ | 3,587 | | | $ | 1,223 | |
Commercial loans above consist of commercial and industrial loans made to U.S. domiciledU.S.-domiciled customers. These include loans used for use in normal business operations to finance working capital needs, equipment purchases or other expansionary projects. Commercial loans held for investment of $213,850$459,739 at December 31, 2018,2020, increased 54.2%87.3% compared to $138,706$245,515 as of December 31, 2017. Agricultural loans represent 5.8% of the total commercial, industrial and agricultural portfolio, and 1.0% of gross loans at December 31, 2018.2019.
Real estate loans comprised 79.8%70% of the loanloans held for investment portfolio at December 31, 2018.2020. Residential loans included in this category consist mainly of closed-end loans secured by first and second liens that are not held for sale and revolving, open-end loans secured by 1-4 family residential properties extended under home equity lines of credit. The Company increased the residential portfolio 70.7%31.0% from December 31, 20172019 to December 31, 2018.2020. Commercial loans included in the real estate category above include (in typical order of prominence) loans secured by non- owner-occupiednon-owner-occupied nonfarm nonresidential properties, loans secured by owner-occupied nonfarm nonresidential properties, and loans secured by multi-family residential properties. Multi-family and commercial real estate loans of $447,840$834,000 at December 31, 2017,2020, increased 71.6%55.4% compared to $261,044$536,845 as of December 31, 2017.2019. Real estate construction loans consist of 1-4 family residential construction loans, other construction loans, land loans, and loans secured by farmland. Construction lending also increased 41.1%33.3% from December 31, 20172019 to December 31, 2018,2020, based on a strong local economy and the Merger.economy.
Consumer loans mainly consist of loans to individuals for household, family, and other personal expenditures under revolving credit plans and other consumer loans. We have a small but growing amount of credit card loans on our balance sheet due to the implementation of a new credit card program during the third quarter of 2017. We have a relatively small number of automobile loans. Our consumer loans held for investment experienced an increase from December 31, 20172019 to December 31, 2018,2020, of 16.4%1,168.8%.
Other loans consist mainly of loans to states and political subdivisions and loans to other depository institutions and experienced a 4.0%34.2% decrease from December 31, 20172019 to December 31, 2018.2020.
The repayment of loans is aLoan repayments are significant source of additional liquidity for us.the Bank. The following table sets forth the loans maturing within specific intervals at December 31, 2018,2020, excluding unearned net fees and costs.
| | | | | One Year or Less | | One to Five Years | | Over Five Years | | Total | | One Year or Less | | One to Five Years | | Over Five Years | | Total |
| Commercial, Industrial and Agricultural | | $ | 60,734 |
| | $ | 122,597 |
| | $ | 30,519 |
| | $ | 213,850 |
| Commercial, Industrial and Agricultural | | $ | 67,717 | | | $ | 287,168 | | | $ | 104,854 | | | $ | 459,739 | |
| Real Estate: | | | | | | | | | Real Estate: | |
| 1-4 Family Residential | | 28,189 |
| | 98,693 |
| | 98,981 |
| | 225,863 |
| 1-4 Family Residential | | 29,040 | | | 117,819 | | | 176,614 | | | 323,473 | |
| 1-4 Family HELOC | | 4,154 |
| | 15,452 |
| | 68,506 |
| | 88,112 |
| 1-4 Family HELOC | | 4,378 | | | 21,241 | | | 74,906 | | | 100,525 | |
| Multifamily and Commercial | | 27,029 |
| | 208,476 |
| | 212,335 |
| | 447,840 |
| Multifamily and Commercial | | 64,839 | | | 407,954 | | | 361,207 | | | 834,000 | |
| Construction, Land Development and Farmland | | 94,551 |
| | 79,491 |
| | 46,759 |
| | 220,801 |
| Construction, Land Development and Farmland | | 123,049 | | | 196,123 | | | 45,886 | | | 365,058 | |
| Consumer | | 11,626 |
| | 8,586 |
| | 283 |
| | 20,495 |
| Consumer | | 6,655 | | | 12,929 | | | 194,279 | | | 213,863 | |
| Other | | 3,134 |
| | 1,740 |
| | 9,232 |
| | 14,106 |
| Other | | 546 | | | 3,232 | | | 4,891 | | | 8,669 | |
| Total | | $ | 229,417 |
| | $ | 535,035 |
| | $ | 466,615 |
| | $ | 1,231,067 |
| Total | | $ | 296,224 | | | $ | 1,046,466 | | | $ | 962,637 | | | $ | 2,305,327 | |
| | | | | | | | | | | | | | | | | |
| Fixed interest rate | | $ | 91,374 |
| | $ | 450,380 |
| | $ | 249,110 |
| | $ | 790,864 |
| Fixed interest rate | | $ | 109,156 | | | $ | 842,023 | | | $ | 385,458 | | | $ | 1,336,637 | |
| Variable interest rate | | 138,043 |
| | 84,655 |
| | 217,505 |
| | 440,203 |
| Variable interest rate | | 187,068 | | | 204,443 | | | 577,179 | | | 968,690 | |
| Total | | $ | 229,417 |
| | $ | 535,035 |
| | $ | 466,615 |
| | $ | 1,231,067 |
| Total | | $ | 296,224 | | | $ | 1,046,466 | | | $ | 962,637 | | | $ | 2,305,327 | |
The information presented in the above table is based upon the contractual maturities of the individual loans including loansthose which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity. Consequently, we believe this treatment presents fairly the maturity and repricing structure of the loan portfolio.
Allowance for Loan LossesALL
We maintain an allowance for loan losses that we believe is adequate to absorb the probable incurred losses inherent in our loan portfolio. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using historical loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, current economic conditions (national and local), and other factors such as changes in interest rates, portfolio concentrations, changes in the experience, ability, and depth of the lending function, levels of and trends in charged-off loans, recoveries, past-due loans and volume and severity of classified loans. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The entire allowance is available for any loan that, in management’s judgment, should be charged off.
A loan is impaired when full payment under the loan terms is not expected. All classified loans and loans on non-accrual status are individually evaluated for impairment. Factors considered in determining if a loan is impaired include the borrower’s ability to repay amounts owed, collateral deficiencies, the risk rating of the loan and economic conditions affecting the borrower’s industry, among other things. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value (less estimated costs to sell) of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless the principal amount is deemed fully collectible, in which case interest is recognized on a cash basis. When recognition of interest income on a cash basis is appropriate, the amount of income recognized is limited to what would have been accrued on the remaining principal balance at the contractual rate. Cash payments received over this limit, and not applied to reduce the loans remaining principal balance, are recorded as recoveries of prior charge-offs until these charge-offs have been fully recovered.
At December 31, 2018,2020, the allowance for loan lossesALL was $10,892$20,636 compared to $9,731$12,578 at December 31, 2017.2019. The allowance for loan lossesALL as a percentage of total loans was 0.88%0.90% at December 31, 20182020 and 1.26%0.89% at December 31, 2016.2019. The allowanceALL was adjusted upward from December 31, 20172019 to December 31, 2018. This increase in our allowance for2020, due to loan losses is directly attributablegrowth and economic concerns over the COVID-19 pandemic. Loan charge-offs continue to our loan growth. Charge-off and general economic activity has continued to improve for our area and our customers.be minimal.
The following table sets forth the activity in the allowance for loan lossesALL for the years presented.
Analysis of Changes in Allowance for Loan Losses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Beginning Balance, January 1 | $ | 12,578 | | | $ | 10,892 | | | $ | 9,731 | | | $ | 9,082 | | | $ | 7,823 | |
| Loans charged off: | | | | | | | | | |
| Commercial, Industrial and Agricultural | (521) | | | (396) | | | (381) | | | (976) | | | (84) | |
| Real Estate: | | | | | | | | | |
| 1-4 Family Residential | (86) | | | (29) | | | (36) | | | (14) | | | (25) | |
| 1-4 Family HELOC | (98) | | | — | | | (6) | | | — | | | — | |
| Multifamily and Commercial | — | | | — | | | (76) | | | — | | | — | |
| Construction, Land Development and Farmland | (114) | | | (60) | | | (215) | | | (45) | | | — | |
| Consumer | (705) | | | (50) | | | (26) | | | (36) | | | — | |
| Other | — | | | (35) | | | (47) | | | — | | | (36) | |
| Total loans charged off | (1,524) | | | (570) | | | (787) | | | (1,071) | | | (145) | |
| Recoveries on loans previously charged off: | | | | | | | | | |
| Commercial, Industrial and Agricultural | 187 | | | 393 | | | 590 | | | 378 | | | 323 | |
| Real estate: | | | | | | | | | |
| 1-4 Family Residential | 774 | | | 225 | | | 12 | | | — | | | 66 | |
| 1-4 Family HELOC | 20 | | | 12 | | | 10 | | | 19 | | | 11 | |
| Multifamily and Commercial | 29 | | | 65 | | | 221 | | | — | | | 18 | |
| Construction, Land Development and Farmland | 56 | | | — | | | 44 | | | 5 | | | 6 | |
| Consumer | 166 | | | 51 | | | 34 | | | 2 | | | 12 | |
| Other | — | | | 299 | | | 2 | | | — | | | — | |
| Total loan recoveries | 1,232 | | | 1,045 | | | 913 | | | 404 | | | 436 | |
| Net (charge-offs) recoveries | (292) | | | 475 | | | 126 | | | (667) | | | 291 | |
| Provision for loan losses | 8,350 | | | 1,211 | | | 1,035 | | | 1,316 | | | 968 | |
| Total allowance at end of period | $ | 20,636 | | | $ | 12,578 | | | $ | 10,892 | | | $ | 9,731 | | | $ | 9,082 | |
| Gross loans at end of period (1) | $ | 2,305,327 | | $ | 1,410,024 | | $ | 1,231,067 | | $ | 772,450 | | $ | 667,408 |
| Average gross loans (1) | $ | 2,149,447 | | $ | 1,298,922 | | $ | 1,138,946 | | $ | 714,982 | | $ | 640,592 |
| Allowance to total loans | 0.90 | % | | 0.89 | % | | 0.88 | % | | 1.26 | % | | 1.36 | % |
| Net charge-offs (recoveries) to average gross loans | 0.01 | % | | (0.04) | % | | (0.01) | % | | 0.09 | % | | (0.05) | % |
|
| | | | | | | | | | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Beginning Balance, January 1 | $ | 9,731 |
| | $ | 9,082 |
| | $ | 7,823 |
| | $ | 7,353 |
| | $ | 8,530 |
|
| Loans charged off: | | | | | | | | | |
| Commercial, Industrial and Agricultural | (381 | ) | | (976 | ) | | (84 | ) | | — |
| | (9 | ) |
| Real Estate: | | | | | | | | | |
| 1-4 Family Residential | (36 | ) | | (14 | ) | | (25 | ) | | — |
| | — |
|
| 1-4 Family HELOC | (6 | ) | | — |
| | — |
| | (6 | ) | | — |
|
| Multifamily and Commercial | (76 | ) | | — |
| | — |
| | — |
| | — |
|
| Construction, Land Development and Farmland | (215 | ) | | (45 | ) | | — |
| | — |
| | — |
|
| Consumer | (26 | ) | | (36 | ) | | — |
| | (35 | ) | | (120 | ) |
| Other | (47 | ) | | — |
| | (36 | ) | | — |
| | (11 | ) |
| Total loans charged off | (787 | ) | | (1,071 | ) | | (145 | ) | | (41 | ) | | (140 | ) |
| Recoveries on loans previously charged off: | | | | | | | | | |
| Commercial, Industrial and Agricultural | 590 |
| | 378 |
| | 323 |
| | 346 |
| | 178 |
|
| Real estate: | | | | | | | | | |
| 1-4 Family Residential | 12 |
| | — |
| | 66 |
| | 15 |
| | 100 |
|
| 1-4 Family HELOC | 10 |
| | 19 |
| | 11 |
| | 25 |
| | 25 |
|
| Multifamily and Commercial | 221 |
| | — |
| | 18 |
| | 388 |
| | 49 |
|
| Construction, Land Development and Farmland | 44 |
| | 5 |
| | 6 |
| | 7 |
| | 111 |
|
| Consumer | 34 |
| | 2 |
| | 12 |
| | — |
| | — |
|
| Other | 2 |
| | — |
| | — |
| | — |
| | — |
|
| Total loan recoveries | 913 |
| | 404 |
| | 436 |
| | 781 |
| | 463 |
|
| Net recoveries (charge-offs) | 126 |
| | (667 | ) | | 291 |
| | 740 |
| | 323 |
|
| Provision for loan losses | 1,035 |
| | 1,316 |
| | 968 |
| | (270 | ) | | (1,500 | ) |
| Total allowance at end of period | $ | 10,892 |
| | $ | 9,731 |
| | $ | 9,082 |
| | $ | 7,823 |
| | $ | 7,353 |
|
| Gross loans at end of period (1) | $ | 1,231,067 |
| | $ | 772,450 |
| | $ | 667,408 |
| | $ | 617,497 |
| | $ | 317,225 |
|
| Average gross loans (1) | $ | 1,138,946 |
| | $ | 714,982 |
| | $ | 640,592 |
| | $ | 517,148 |
| | $ | 293,195 |
|
| Allowance to total loans | 0.88 | % | | 1.26 | % | | 1.36 | % | | 1.27 | % | | 2.32 | % |
| Net charge-offs (recoveries) to average loans (annualized) | (0.01 | )% | | 0.09 | % | | (0.05 | )% | | (0.14 | )% | | (0.11 | )% |
(1) Loan balances exclude loans held for sale.
The following table summarizes our allocation of allowance for loan lossesthe ALL by loan category and loans held for investment in each category as a percentage of total loans, for the years presented.
| | | | | December 31, 2018 | | December 31, 2017 | | December 31, 2016 | | December 31, 2020 | | December 31, 2019 | | December 31, 2018 |
| | | Amount | | % of Allowance To Total | | % of Loan Type to Total Loans | | Amount | | % of Allowance To Total | | % of Loan Type to Total Loans | | Amount | | % of Allowance To Total | | % of Loan Type to Total Loans | | Amount | | % of
Allowance
To Total | | % of Loan
Type to
Total Loans | | Amount | | % of
Allowance
To Total | | % of Loan
Type to
Total Loans | | Amount | | % of
Allowance
To Total | | % of Loan
Type to
Total Loans |
| Commercial, Industrial and Agricultural | | $ | 1,751 |
| | 16.1 | % | | 17.4 | % | | $ | 2,538 |
| | 26.1 | % | | 18.0 | % | | $ | 2,432 |
| | 26.8 | % | | 20.1 | % | Commercial, Industrial and Agricultural | $ | 5,441 | | | 26.4 | % | | 19.9 | % | | $ | 2,529 | | | 20.1 | % | | 17.4 | % | | $ | 1,751 | | | 16.1 | % | | 17.4 | % |
| Real Estate: | | | | | | | | | | | | | | | | | | | Real Estate: | |
| 1-4 Family Residential | | 1,333 |
| | 12.2 | % | | 18.3 | % | | 773 |
| | 7.9 | % | | 14.4 | % | | 1,178 |
| | 13.0 | % | | 16.9 | % | 1-4 Family Residential | 2,445 | | | 11.8 | % | | 14.0 | % | | 1,280 | | | 10.2 | % | | 16.2 | % | | 1,333 | | | 12.2 | % | | 18.3 | % |
| 1-4 Family HELOC | | 656 |
| | 6.0 | % | | 7.2 | % | | 595 |
| | 6.1 | % | | 9.3 | % | | 704 |
| | 7.8 | % | | 8.6 | % | 1-4 Family HELOC | 1,416 | | | 6.9 | % | | 4.4 | % | | 624 | | | 5.0 | % | | 6.8 | % | | 656 | | | 6.0 | % | | 7.2 | % |
| Multifamily and Commercial | | 4,429 |
| | 40.6 | % | | 36.4 | % | | 3,166 |
| | 32.6 | % | | 33.8 | % | | 2,737 |
| | 30.1 | % | | 32.3 | % | Multifamily and Commercial | 8,535 | | | 41.4 | % | | 36.2 | % | | 5,285 | | | 42.0 | % | | 38.1 | % | | 4,429 | | | 40.6 | % | | 36.4 | % |
| Construction, Land Development and Farmland | | 2,500 |
| | 23.0 | % | | 17.9 | % | | 2,434 |
| | 25.0 | % | | 20.3 | % | | 1,786 |
| | 19.7 | % | | 17.4 | % | Construction, Land Development and Farmland | 1,841 | | | 8.9 | % | | 15.8 | % | | 2,649 | | | 21.0 | % | | 19.4 | % | | 2,500 | | | 23.0 | % | | 17.9 | % |
| Consumer | | 184 |
| | 1.7 | % | | 1.7 | % | | 183 |
| | 1.9 | % | | 2.3 | % | | 208 |
| | 2.3 | % | | 2.6 | % | Consumer | 928 | | | 4.5 | % | | 9.3 | % | | 177 | | | 1.4 | % | | 1.2 | % | | 184 | | | 1.7 | % | | 1.7 | % |
| Other | | 39 |
| | 0.4 | % | | 1.1 | % | | 42 |
| | 0.4 | % | | 1.9 | % | | 37 |
| | 0.3 | % | | 2.1 | % | Other | 30 | | | 0.1 | % | | 0.4 | % | | 34 | | | 0.3 | % | | 0.9 | % | | 39 | | | 0.4 | % | | 1.1 | % |
| Unallocated | | — |
| | — | % | | — | % | | — |
| | — | % | | — | % | | — |
| | — | % | | — | % | |
| | | $ | 10,892 |
| | 100.0 | % | | 100.0 | % | | $ | 9,731 |
| | 100.0 | % | | 100.0 | % | | $ | 9,082 |
| | 100.0 | % | | 100.0 | % | | $ | 20,636 | | | 100.0 | % | | 100.0 | % | | $ | 12,578 | | | 100.0 | % | | 100.0 | % | | $ | 10,892 | | | 100.0 | % | | 100.0 | % |
| | | | | December 31, 2015 | | December 31, 2014 | | December 31, 2017 | | December 31, 2016 |
| | | Amount | | % of Allowance To Total | | % of Loan Type to Total Loans | | Amount | | % of Allowance To Total | | % of Loan Type to Total Loans | | Amount | | % of
Allowance
To Total | | % of Loan
Type to
Total Loans | | Amount | | % of
Allowance
To Total | | % of Loan
Type to
Total Loans |
| Commercial, Industrial and Agricultural | | $ | 2,198 |
| | 28.1 | % | | 23.3 | % | | $ | 2,184 |
| | 29.7 | % | | 25.5 | % | Commercial, Industrial and Agricultural | $ | 2,538 | | | 26.1 | % | | 18.0 | % | | $ | 2,432 | | | 26.8 | % | | 20.1 | % |
| Real Estate: | | | | | | | | | | | | | Real Estate: | |
| 1-4 Family Residential | | 1,214 |
| | 15.5 | % | | 18.0 | % | | 642 |
| | 8.7 | % | | 13.0 | % | 1-4 Family Residential | 773 | | | 7.9 | % | | 14.4 | % | | 1,178 | | | 13.0 | % | | 16.9 | % |
| 1-4 Family HELOC | | 699 |
| | 8.9 | % | | 8.0 | % | | 854 |
| | 11.6 | % | | 10.4 | % | 1-4 Family HELOC | 595 | | | 6.1 | % | | 9.3 | % | | 704 | | | 7.8 | % | | 8.6 | % |
| Multifamily and Commercial | | 2,591 |
| | 33.1 | % | | 32.8 | % | | 2,070 |
| | 28.2 | % | | 35.6 | % | Multifamily and Commercial | 3,166 | | | 32.5 | % | | 33.8 | % | | 2,737 | | | 30.1 | % | | 32.3 | % |
| Construction, Land Development and Farmland | | 894 |
| | 11.4 | % | | 14.5 | % | | 742 |
| | 10.1 | % | | 11.7 | % | Construction, Land Development and Farmland | 2,434 | | | 25.0 | % | | 20.3 | % | | 1,786 | | | 19.7 | % | | 17.4 | % |
| Consumer | | 192 |
| | 2.5 | % | | 2.5 | % | | 181 |
| | 2.5 | % | | 3.7 | % | Consumer | 183 | | | 1.9 | % | | 2.3 | % | | 208 | | | 2.3 | % | | 2.6 | % |
| Other | | 35 |
| | 0.5 | % | | 0.9 | % | | 2 |
| | — | % | | 0.1 | % | Other | 42 | | | 0.5 | % | | 1.9 | % | | 37 | | | 0.3 | % | | 2.1 | % |
| Unallocated | | — |
| | — | % | | — | % | | 678 |
| | 9.2 | % | | — | % | |
| | | $ | 7,823 |
| | 100.0 | % | | 100.0 | % | | $ | 7,353 |
| | 100.0 | % | | 100.0 | % | | $ | 9,731 | | | 100.0 | % | | 100.0 | % | | $ | 9,082 | | | 100.0 | % | | 100.0 | % |
Nonperforming Assets
Non-performingNonperforming assets consist of non-performingnonperforming loans plus real estate acquired through foreclosure or deed in lieu of foreclosure. Non-performingforeclosure as well as any retired branches and repossessed collateral. Nonperforming loans by definition consist of non-accrualnonaccrual loans and loans past due 90 days or more and still accruing interest. When we place a loan on non-accrualnonaccrual status, interest accruals cease, and uncollected interest is reversed and charged against current income. The interest on these loans is accounted for on the cash-basis, or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The following table provides information with respect to the Company’s non-performingnonperforming assets.
|
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | December 31, 2017 | | December 31, 2016 | | December 31, 2015 | | December 31, 2014 |
| Non-accrual loans | | $ | 4,194 |
| | $ | 5,161 |
| | $ | 5,634 |
| | $ | 5,004 |
| | $ | 2,625 |
|
| Past due loans 90 days or more and still accruing interest | | 6 |
| | — |
| | — |
| | — |
| | — |
|
| Restructured loans | | 2,469 |
| | 2,170 |
| | 2,953 |
| | 1,706 |
| | 6,192 |
|
| Total non-performing loans | | 6,669 |
| | 7,331 |
| | 8,587 |
| | 6,710 |
| | 8,817 |
|
| Foreclosed real estate ("OREO") | | 1,000 |
| | — |
| | — |
| | 1,149 |
| | 1,204 |
|
| Total non-performing assets | | $ | 7,669 |
| | $ | 7,331 |
| | $ | 8,587 |
| | $ | 7,859 |
| | $ | 10,021 |
|
| Total non-performing loans as a percentage of total loans | | 0.54 | % | | 0.95 | % | | 1.29 | % | | 1.09 | % | | 2.78 | % |
| Total non-performing assets as a percentage of total assets | | 0.44 | % | | 0.65 | % | | 0.94 | % | | 0.90 | % | | 2.23 | % |
| Allowance for loan losses as a percentage of non-performing loans | | 163.32 | % | | 132.74 | % | | 105.76 | % | | 116.59 | % | | 83.40 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 | | December 31, 2018 | | December 31, 2017 | | December 31, 2016 | | |
| Nonaccrual loans | | $ | 5,986 | | | $ | 4,071 | | | $ | 4,194 | | | $ | 5,161 | | | $ | 5,634 | | | |
| Past due loans 90 days or more and still accruing interest | | 1 | | | 64 | | | 6 | | | — | | | — | | | |
| Troubled Debt Restructurings ("TDRs") | | 2,588 | | | 1,799 | | | 2,469 | | | 2,170 | | | 2,953 | | | |
| Total nonperforming loans | | 8,575 | | | 5,934 | | | 6,669 | | | 7,331 | | | 8,587 | | | |
| Other real estate ("OREO") | | 1,246 | | | 750 | | | 1,000 | | | — | | | — | | | |
| Repossessed Collateral | | 1,424 | | | — | | | — | | | — | | | — | | | |
| Total nonperforming assets | | $ | 11,244 | | | $ | 6,684 | | | $ | 7,669 | | | $ | 7,331 | | | $ | 8,587 | | | |
| Total nonperforming loans as a percentage of total loans | | 0.37 | % | | 0.42 | % | | 0.54 | % | | 0.95 | % | | 1.29 | % | | |
| Total nonperforming assets as a percentage of total assets | | 0.37 | % | | 0.35 | % | | 0.44 | % | | 0.65 | % | | 0.94 | % | | |
| Allowance for loan losses as a percentage of nonperforming loans | | 240.66 | % | | 211.96 | % | | 163.32 | % | | 132.74 | % | | 105.76 | % | | |
Investment Securities
Premises and Other Earning AssetsEquipment
The investment securities portfolio is intended to provide the Company with adequate liquidity, meet customer collateral needs, provide flexible asset/liability managementPremises and a source of stable income. The portfolio is structured with minimal credit exposure to the Company and consists of securities classified as available-for-sale. All available-for-sale securities are carried at fair value and may be used for liquidity purposes should management deem it to be in our best interest. Unrealized gains and losses on this portfolio are excluded from earnings, but are reported as other comprehensive income in a separate component of stockholders’ equity,equipment, net, of income tax. Premium amortization and discount accretion are recognized as adjustments to interest income using the interest method. Realized gains or losses on sales are based on the net proceeds and the adjusted carrying value amount of the securities sold using the specific identification method.
Securities are a component of the Company’s earning assets. Securities totaled $296,323$31,462 at December 31, 2018. This represents a 34.6% increase from the2020 compared to $21,064 at December 31, 2017 total2019, a net increase of $220,201. The increase is mainly attributable$10,398 or 49.4%. Asset purchases amounted to the Merger and somewhat offset by sales of $100,737 and paydowns and maturities of $12,987 which were partially offset by purchases $106,893 securities available for saleapproximately $2,873 during the year ended December 31, 2018.
Restricted equity securities totaled $11,690 at December 31, 2018. This represents a 50.4% increase from the December 31, 2017 total of $7,774 and is mainly attributable to the Merger. Restricted securities consist of Federal Reserve Bank and Federal Home Loan Bank stock.
The following table shows the Company’s investments’ amortized cost and fair value, aggregated by investment category for the periods presented:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | December 31, 2017 | | December 31, 2016 |
| | | Amortized Cost | | Fair Value | | % of Total | | Amortized Cost | | Fair Value | | % of Total | | Amortized Cost | | Fair Value | | % of Total |
| U.S.Treasury and other U.S. government agencies | | $ | 568 |
| | 554 |
| | 0.19 | % | | $ | 586 |
| | 578 |
| | 0.26 | % | | $ | 1,909 |
| | 1,908 |
| | 1.30 | % |
| State and municipal | | 232,589 |
| | 229,298 |
| | 77.38 | % | | 189,576 |
| | 191,752 |
| | 87.08 | % | | 122,813 |
| | 119,634 |
| | 81.49 | % |
| Corporate bonds | | 3,130 |
| | 3,017 |
| | 1.02 | % | | 1,500 |
| | 1,492 |
| | 0.68 | % | | 2,000 |
| | 1,987 |
| | 1.35 | % |
| Mortgage backed securities | | 32,172 |
| | 31,958 |
| | 10.78 | % | | 6,262 |
| | 6,169 |
| | 2.80 | % | | 20,197 |
| | 20,034 |
| | 13.65 | % |
| Asset backed securities | | 28,635 |
| | 27,996 |
| | 9.45 | % | | 16,753 |
| | 16,710 |
| | 7.59 | % | | — |
| | — |
| | — | % |
| Time deposits | | 3,500 |
| | 3,500 |
| | 1.18 | % | | 3,500 |
| | 3,500 |
| | 1.59 | % | | 3,250 |
| | 3,250 |
| | 2.21 | % |
| Total | | $ | 300,594 |
| | 296,323 |
| | 100.00 | % | | $ | 218,177 |
| | 220,201 |
| | 100.00 | % | | $ | 150,169 |
| | 146,813 |
| | 100.00 | % |
The table below summarizes the maturities and yield characteristics of the Company’s available-for-sale securities as of December 31, 2018. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | One year or less | | Over one year through five years | | Over five year through ten years | | Over ten years | | Total |
| | | Fair Value | | Yield | | Fair Value | | Yield | | Fair Value | | Yield | | Fair Value | | Yield | | Fair Value | | Yield |
| U.S.Treasury and other U.S. government agencies | | $ | — |
| | — |
| | $ | 555 |
| | 2.21 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 555 |
| | 2.21 | % |
| State and municipal | | 345 |
| | 1.71 | % | | 1,977 |
| | 2.68 | % | | 11,341 |
| | 3.47 | % | | 215,650 |
| | 3.84 | % | | 229,313 |
| | 3.81 | % |
| Corporate bonds | | — |
| | — | % | | 982 |
| | 3.16 | % | | 2,035 |
| | — |
| | — |
| | — |
| | 3,017 |
| | 1.52 | % |
| Mortgage backed securities | | 11 |
| | 1.54 | % | | 3,658 |
| | 2.84 | % | | 1,273 |
| | 1.88 | % | | 27,016 |
| | 3.25 | % | | 31,958 |
| | 3.14 | % |
| Asset backed securities | | — |
| | — |
| | — |
| | — | % | | 1,413 |
| | 2.63 | % | | 26,567 |
| | 3.11 | % | | 27,980 |
| | 3.10 | % |
| Time deposits | | 2,250 |
| | 2.16 | % | | 1,250 |
| | 2.24 | % | | — |
| | — |
| | — |
| | — |
| | 3,500 |
| | 2.19 | % |
| Total | | $ | 2,606 |
| | 2.09 | % | | $ | 8,422 |
| | 2.71 | % | | $ | 16,062 |
| | 2.93 | % | | $ | 269,233 |
| | 3.71 | % | | $ | 296,323 |
| | 3.62 | % |
Securities pledged at December 31, 2018 and 2017 had a carrying amount of $70,097 and $78,220 and were pledged to secure public deposits and repurchase agreements.
At December 31, 2018 and 2017, there were no holdings of securities of any one issuer in an amount greater than 10% of stockholders’ equity.
Premises and Equipment
Premises and equipment, net, totaled $22,033 at December 31, 2018 compared to $9,790 at December 31, 2017, a net increase of $12,243 or 125.1% due in part to the Merger. Asset purchases amounted to approximately $4,342 during the year ended December 31, 20182020 while related depreciation expense amounted to $1,697. $2,867. Please refer to" Item 2, Properties" for additional information.
Deposits
At December 31, 2018, we operated from seventeen retail banking locations, as well as two stand-alone mortgage loan production offices. Two2020, total deposits were $2,579 million, an increase of our bank branch locations, including our main office, are in Brentwood, Tennessee. Of our other fifteen bank branch locations three are in Columbia, the remaining are in Franklin, Springfield, Gallatin, Nashville, Murfreesboro, Mt. Pleasant, Thompson Station, Centerville, Lyles, and Chattanooga, Tennessee. As of$995 million, or 62.8%, compared to $1,584 million at December 31, 2018, our mortgage loan production offices were located in Hendersonville and Brentwood, Tennessee. During the third quarter of 2018 we opened the Murfreesboro branch and during the fourth quarter we opened the Chattanooga branch.2019. During the year ended December 31, 2016, the Company transitioned most of it out-of-market mortgage loan production offices to another bank.
Deposits
Deposits represent the Company’s largest source of funds. The Company competes with other bank and nonbank institutions for deposits, as well as with a growing number of non-deposit investment alternatives available to depositors such as money market funds and other brokerage investment products. Challenges to deposit growth include price changes on deposit products given movements in the interest rate environment and other competitive pricing pressures, and customer preferences regarding higher-costing deposit products or non-deposit investment alternatives.
At December 31, 2018, total deposits were $1,437,903, an increase of $554,384, or 62.7%, compared to $883,519 at December 31, 2017. This increase was primarily driven by the Merger. During the year ended December 31, 2018,2020, we increased non-interest bearingnoninterest-bearing deposits by $84.9$315 million interest bearingor 120.7%, interest-bearing demand deposits increased by $66.0$198 million, or 74.8%129.4%, increased savings and money market deposits increased by $196.1$448 million, or 95.5%109.7% and increased time deposits increased by $207.4$34 million, or 45.3%4.5%. While a majority of our deposit growth is driven by our acquisition activity, we did increase total deposits $224 million, or 14%, through organic measures. We are continuing to focus on growth of our non-interest bearingnoninterest-bearing deposits and using alternative sources of funds to better manage our cost of funds. As of December 31, 2018, non-interest bearing2020, noninterest-bearing deposits represent 15.1%22% of total deposits.
The average amounts for deposits for 2018, 20172020, 2019 and 20162018 are detailed in the following schedule (in thousands, except for percentages).
| | | | | | | | | | | | | | | | 2020 | | 2019 | | 2018 |
| | | 2018 | | 2017 | | 2016 | | Average Balance | | Average Rate | | Average Balance | | Average Rate | | Average Balance | | Average Rate |
| | | Average Balance | | Average Rate | | Average Balance | | Average Rate | | Average Balance | | Average Rate | |
| Non-interest-bearing deposits | | $ | 218,867 |
| | — | % | | $ | 134,408 |
| | — | % | | $ | 127,619 |
| | — | % | |
| Interest bearing demand | | 146,717 |
| | 0.25 | % | | 84,171 |
| | 0.21 | % | | 88,775 |
| | 0.21 | % | |
| Noninterest-bearing deposits | | Noninterest-bearing deposits | | $ | 466,334 | | | — | % | | $ | 226,855 | | | — | % | | $ | 218,867 | | | — | % |
| Interest-bearing demand | | Interest-bearing demand | | 258,657 | | | 0.30 | % | | 146,518 | | | 0.26 | % | | 146,717 | | | 0.25 | % |
| Savings and money market | | 349,986 |
| | 0.74 | % | | 196,939 |
| | 0.38 | % | | 186,473 |
| | 0.34 | % | Savings and money market | | 707,023 | | | 0.67 | % | | 376,927 | | | 1.11 | % | | 349,986 | | | 0.74 | % |
| Time deposits-retail | | 531,780 |
| | 1.55 | % | | 319,456 |
| | 0.98 | % | | 159,351 |
| | 0.70 | % | Time deposits-retail | | 656,945 | | | 1.19 | % | | 559,406 | | | 2.09 | % | | 531,780 | | | 1.58 | % |
| Time deposits-wholesale | | 90,510 |
| | 1.77 | % | | 88,114 |
| | 1.10 | % | | 102,626 |
| | 0.70 | % | Time deposits-wholesale | | 229,769 | | | 1.77 | % | | 227,071 | | | 2.48 | % | | 90,510 | | | 1.77 | % |
| Total deposits | | $ | 1,337,860 |
| | 0.96 | % | | $ | 823,088 |
| | 0.61 | % | | $ | 664,844 |
| | 0.40 | % | Total deposits | | $ | 2,318,728 | | | 0.73 | % | | $ | 1,536,777 | | | 1.42 | % | | $ | 1,337,860 | | | 0.96 | % |
The following table shows maturity of time deposits of $250,000 or moresegmented by category based on time remaining until maturity.months to maturity and deposit amounts:
| | | | | | December 31, 2020 |
| | December 31, 2018 | | Time deposits of $100 and greater | | Time deposits of less than $100 | | Total |
| Three months or less | $ | 203,745 |
| Three months or less | $ | 226,770 | | | $ | 38,961 | | | $ | 265,731 | |
| Over three months through six months | 67,234 |
| Over three months through six months | 120,828 | | | 31,290 | | | 152,118 | |
| Over six months through 12 months | 41,045 |
| Over six months through 12 months | 209,470 | | | 57,869 | | | 267,339 | |
| Over one year through three years | 14,548 |
| Over one year through three years | 68,833 | | | 24,401 | | | 93,234 | |
| Over three years through five years | 4,164 |
| Over three years through five years | 12,056 | | | 5,863 | | | 17,919 | |
| Over five years | — |
| Over five years | — | | | 3 | | | 3 | |
| Total | $ | 330,736 |
| Total | $ | 637,957 | | | $ | 158,387 | | | $ | 796,344 | |
Market and Liquidity Risk Management
Our objective is to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing, and capital policies. Our Asset Liability Management Committee (ALCO) is charged with the responsibility of monitoring these policies, which are designed to ensure acceptable composition of asset/liability mix. Two critical areas of focus for ALCO are interest rate sensitivity and liquidity risk management.
Interest Rate Sensitivity—Interest rate sensitivity refers to the responsiveness of interest-earning assets and interest-bearing liabilities to changes in market interest rates. In the normal course of business, we are exposed to market risk arising from fluctuations in interest rates. ALCO measures and evaluates the interest rate risk so that we can meet customer demands for various types of loans and deposits. ALCO determines the most appropriate amounts of on-balance sheet and off-balance sheet items to maximize long-term earnings and mitigate interest rate risk. Measurements we use to help us manage interest rate sensitivity include a gap analysis, an earnings simulation model and an economic value of equity model. These measurements are used in conjunction with competitive pricing analysis and are further described below.
Interest Rate Sensitivity Gap Analysis—The rate sensitive position, or gap, is the difference in the volume of rate-sensitive assets and liabilities, at a given time interval, including both floating rate instruments and instruments which are approaching maturity. The measurement of our interest rate sensitivity, or gap, is one of the three principal techniques we use in our asset/liability management effort.
Our policy is to have 12 and 24-month cumulative repricing gaps that do not exceed 15% of assets. We were in compliance with our policy as of December 31, 2018. Although we do monitor our gap on a periodic basis, we recognize the potential shortcomings of such a model. The static nature of the gap schedule makes it difficult to incorporate changes in behavior that are caused by changes in interest rates. Also, although the periods of estimated and contractual repricing are identified in the analysis, the extent of repricing is not modeled in the gap schedule (i.e. whether repricing is expected to move on a one-to-one or other basis in relationship to the market changes simulated). For these and other shortcomings, we rely more heavily on the earnings simulation model and the economic value of equity model discussed further below.
Earnings Simulation Model—We believe interest rate risk is effectively measured by our earnings simulation modeling. Earning assets, interest-bearing liabilities and off-balance sheet financial instruments are combined with simulated forecasts of interest rates for the next 12 months and 24 months. To limit interest rate risk, we have guidelines for our earnings at risk which seek to limit the variance of net interest income in instantaneous changes to interest rates. We also periodically monitor simulations based on various rate scenarios such as non-parallel shifts in market interest rates over time. For changes up or down in rates from a flat
interest rate forecast over the next 12 and 24 months, our estimated change in net interest income as well as our policy limits are as follows:
| | | Instantaneous, Parallel Change in Prevailing Interest Rates Equal to | | Estimated Change in Net Interest Income and Policy of Maximum Percentage Decline in Net Interest Income | Instantaneous, Parallel Change in Prevailing Interest Rates Equal to | | Estimated Change in Net Interest Income and Policy of Maximum Percentage Decline in Net Interest Income |
| | | Next 12 | | Next 24 | | | Next 12 | | Next 24 |
| | | Months | | Months | | Months | | Months |
| | | Estimate | | Policy | | Estimate | | Policy | | Estimate | | Policy | | Estimate | | Policy |
| -200 bp | | (0.5)% | | (15)% | | (4.3)% | | (15)% | -200 bp | | (1.8)% | | (15)% | | (3.7)% | | (15)% |
| -100 bp | | 0.7% | | (10)% | | (0.2)% | | (10)% | -100 bp | | (1.6)% | | (10)% | | (3.1)% | | (10)% |
| +100 bp | | —% | | (10)% | | 0.2% | | (10)% | +100 bp | | 1.8% | | (10)% | | 4.7% | | (10)% |
| +200 bp | | 0.5% | | (15)% | | 0.8% | | (15)% | +200 bp | | 4.2% | | (15)% | | 9.2% | | (15)% |
| +300 bp | | 0.4% | | (20)% | | 1.0% | | (20)% | +300 bp | | 7.0% | | (20)% | | 14.0% | | (20)% |
| +400 bp | | —% | | (25)% | | 0.9% | | (25)% | +400 bp | | 9.9% | | (25)% | | 19.0% | | (25)% |
We were in compliance with the earnings simulation model policies monitored by the Bank as of December 31, 2018,2020, indicating what we believe to be a fairly neutral profile.
Economic value of equity—Our economic value of equity model measures the extent that estimated economic values of our assets, liabilities and off-balance sheet items will change as a result of interest rate changes. Economic values are determined by discounting expected cash flows from assets, liabilities and off-balance sheet items, which establishes a base case economic value of equity.
To help monitor our related risk, we’vewe have established the following policy limits regarding simulated changes in our economic value of equity:
|
| | | | | | | |
| Instantaneous, Parallel Change in Prevailing Interest Rates Equal to | | Maximum Percentage Decline in Economic Value of Equity from the Economic Value of Equity at Currently Prevailing Interest Rates |
| -200 bp | | 25% |
| -100 bp | | 15% |
| +100 bp | | 15% |
| +200 bp | | 25% |
| +300 bp | | 30% |
| +400 bp | | 35% |
| Non-parallel shifts | | 35% |
At December 31, 2018,2020, our model results indicated that we were within these policy limits.
Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as interest rate caps and floors) which limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates. Our ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing, and capital policies.
Interest Rate Sensitivity
The following schedule details the Company’s interest rate sensitivity at December 31, 2018:
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | Repricing Within |
| | | Total | | 1-90 days | | 3 months to 12 months | | 1 to 5 years | | Over 5 years |
| Earning assets: | | | | | | | | | |
| | Loans, net of unearned income (1) | $ | 1,226,882 |
| | $ | 351,500 |
| | $ | 67,945 |
| | $ | 505,735 |
| | $ | 301,702 |
|
| | Available for sale securities | 296,323 |
| | 43,503 |
| | 2,606 |
| | 9,474 |
| | 240,740 |
|
| | Mortgage loans held for sale | 15,823 |
| | 6,567 |
| | — |
| | — |
| | 9,256 |
|
| | Deposits with banks | 27,468 |
| | 27,468 |
| | — |
| | — |
| | — |
|
| | Federal funds sold and other | 371 |
| | 371 |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | |
| | Total earning assets | 1,566,867 |
| | 429,409 |
| | 70,551 |
| | 515,209 |
| | 551,698 |
|
| | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | |
| | Interest-bearing demand accounts | 154,218 |
| | 154,218 |
| | — |
| | — |
| | — |
|
| | Savings and money market accounts | 401,308 |
| | 401,308 |
| | — |
| | — |
| | — |
|
| | Time deposits | 665,440 |
| | 302,946 |
| | 282,798 |
| | 79,696 |
| | — |
|
| | Federal funds purchased | — |
| | — |
| | — |
| | — |
| | — |
|
| | Subordinated debt | 11,603 |
| | 1,603 |
| | — |
| | 10,000 |
| | — |
|
| | Federal Home Loan Bank advances (2) | 57,498 |
| | 3,000 |
| | — |
| | 53,826 |
| | 672 |
|
| | | | | | | | | | | |
| | Total interest-bearing liabilities | 1,290,067 |
| | 863,075 |
| | 282,798 |
| | 143,522 |
| | 672 |
|
| | | | | | | | | | | |
| | Interest-sensitivity gap | $ | 276,800 |
| | $ | (433,666 | ) | | $ | (212,247 | ) | | $ | 371,687 |
| | $ | 551,026 |
|
| | | | | | | | | | | |
| | Cumulative gap | | | $ | (433,666 | ) | | $ | (645,913 | ) | | $ | (274,226 | ) | | $ | 276,800 |
|
| | | | | | | | | | | |
| | Interest -sensitivity gap as % of total average assets | | | (26.37 | )% | | (12.91 | )% | | 22.60 | % | | 33.51 | % |
| | | | | | | | | | | |
| | Cumulative gap as % of total average assets | | | (26.37 | )% | | (39.28 | )% | | (16.68 | )% | | 16.83 | % |
| |
(1) | Loans, net of unearned income excludes non-accrual loans |
| |
(2) | We moved $50,000 of Federal Home Loan Bank advances from the 1-90 days to the 1-5 years due to the swap maturity. |
Liquidity Risk Management—The purpose of liquidity risk management is to ensure that there are sufficient cash flows to satisfy loan demand, deposit withdrawals, and our other needs. Traditional sources of liquidity for a bank include asset maturities and growth in core deposits. A bank may achieve its desired liquidity objectives from the management of its assets and liabilities and by internally generated funding through its operations. Funds invested in marketable instruments that can be readily sold and the continuous maturing of other earning assets are sources of liquidity from an asset perspective. The liability base provides sources of liquidity through attraction of increased deposits and borrowing funds from various other institutions.
Changes in interest rates also affect our liquidity position. We currently price deposits in response to market rates and our management intends to continue this policy. If deposits are not priced in response to market rates, a loss of deposits could occur which would negatively affect our liquidity position.
Scheduled loan payments are a relatively stable source of funds, but loan payoffs and deposit flows fluctuate significantly, being influenced by interest rates, general economic conditions and competition. Additionally, debt security investments are subject to prepayment and call provisions that could accelerate their payoff prior to stated maturity. We attempt to price our deposit products to meet our asset/liability objectives consistent with local market conditions. Our ALCO is responsible for monitoring our ongoing liquidity needs. Our regulators also monitor our liquidity and capital resources on a periodic basis.
The Company has established a line of credit with the Federal Home BankFHLB of Cincinnati which is secured by a blanket pledge of cash deposits, 1-4 family residential mortgages, multi-family residential, home equity loans, and available-for-sale securities.
At December 31, 2018, Federal Home Loan Bank advances totaled $57,498 compared to $96,747 as
At December 31, 2018,2020, FHLB advances totaled $10,000 compared to $10,737 as of December 31, 2019.
At December 31, 2020, the scheduled maturities of these advances and interest rates were as follows (scheduled maturities will differ from scheduled repayments):
| | | | | | | | | | | | | | |
| Scheduled Maturities | | Amount | | Weighted Average Rates |
| 2021 | | $ | 10,000 | | | 0.19% |
| 2022 | | — | | | —% |
| 2023 | | — | | | —% |
| 2024 | | — | | | —% |
| 2025 | | — | | | —% |
| Thereafter | | — | | | —% |
| | $ | 10,000 | | | 0.19% |
|
| | | | | | |
| Scheduled Maturities | | Amount | | Weighted Average Rates |
| 2019 | | $ | 53,000 |
| | 2.46% |
| 2020 | | — |
| | —% |
| 2021 | | 367 |
| | 2.73% |
| 2022 | | 762 |
| | 1.22% |
| 2023 | | 2,697 |
| | 1.94% |
| Thereafter | | 672 |
| | 2.46% |
| | | | | |
| | | $ | 57,498 |
| | 2.42% |
Capital
Stockholders’Shareholders’ equity was $208,414$321,973 at December 31, 2018,2020, an increase of $68,277,$98,220, or 48.7%43.9%, from $140,137$223,753 at December 31, 2017.2019. During the third quarter of 2017, the company issued 1,137,000 shares of common stock in a private offering raising $23.2 million net of expenses of which $20.0 million was pushed-down to the Bank. Additionally, the Company raised $398 of capital through the exercise of Company stock options and issued $61,983 as consideration in the Merger during the yeartwelve months ended December 31, 2018. The subordinated debentures assumed2020, the Company completed the TCB Holdings Transaction which increased shareholders' equity $18,041 and the FABK Transaction which increased shareholders' equity $51,915. Net income of $31,412 and other comprehensive income of $1,162 also contributed to the increase. This increase was primarily offset by dividends declared of $6,227. Contributions from the noncontrolling interest of $299 were recognized in the Merger and the additional capital for the stock option exercises was pushed-down to the Bank and when combined with the accretion of earnings to capital but offsettwelve months ended December 31, 2020. The increase in shareholders' equity mitigated by the declared dividends andgrowth in the increase inBank's assets led to a decreasean increase in the Bank’s December 31, 20182020 Tier 1 leverage ratio to 10.17%10.64% compared with 11.68%10.30% at December 31, 2017 (see2019. See other ratios discussed further below).below. Additionally, the subordinated debentures qualify as Tier 1 and Total risk-based capital for the Company. Common dividendsCompany due to asset size at the time of $3,451 (of which $542 were declared in the prior year) were paid during the year ended December 31, 2018, and common dividends of $1,036 were declared in the fourth quarter of 2018 and were paid subsequent to year end.issuance.
On December 4, 2018, the Company announced that its board of directors has authorized a stock repurchase plan pursuant to which the Company may purchase up to $12 million of shares of the Company’s outstanding common stock, par value $1.00 per share. Stock repurchases under the plan will be made from time to time in the open market or privately negotiated transactions, or otherwise, at the discretion of management of the Company and in accordance with applicable legal requirements. The timing and amountAs part of share repurchasesthis plan, the Company purchased 365,931 shares for $8,291 during 2019.
On March 10, 2020, the Company announced that its board of directors has authorized the Repurchase Plan. As of December 31, 2020, Reliant Bancorp had not repurchased any shares of Reliant Bancorp common stock under the plan will dependRepurchase Plan. On April 27, 2020, we announced that our board of directors suspended the Repurchase Plan to preserve our financial strength during this challenging economic environment. The Repurchase Plan expired on a number of factors, including the Company’s stock price performance, ongoing capital planning considerations, general market conditions, and applicable legal requirements. The Company currently anticipates the stock repurchase plan will remain in effect through December 31, 2019, unless the entire authorized amount of shares is sooner repurchased. The stock repurchase plan does not obligate the Company to repurchase any dollar amount or number of shares, and the plan may be extended, modified, amended, suspended, or discontinued at any time.2020.
On July 14, 2017,August 24, 2020, the Company filed a Registration Statement on Form S-3 registration statement to offer, issue and sell from time to time in one or more offerings any combination of (i) common stock, (ii) preferred stock, (iii) debt securities, (iv) depositarydepository shares, (v) warrants, and (vi) units, (vii) purchase contracts, and (viii) rights, up to a maximum aggregate offering price of $75,000,000.$100,000. The net proceeds from any offering will be used for general corporate purposes including acquisitions,repayment of debt or payment of interest thereon, capital expenditures, acquisitions, investments, and the repayment, redemption, or refinancing of any indebtedness or other securities.purposes that we may specify in any prospectus supplement. Until allocated to such purposes, it is expected that we will invest any proceeds in short-term, interest-bearing instruments or other investment-grade securities.securities
Banks as regulated institutions are required to meetmaintain certain levels of capital. The Federal Reserve Board of Governors, the primary federal regulator for the Bank, has adopted minimum capital regulations or guidelines that categorize capital components and the level of risk associated with various types of assets. Financial institutions are expected to maintain a level of capital commensurate with the risk profile assigned to their assets in accordance with theapplicable regulations and guidelines. We regularly review our capital adequacy to ensure
compliance with these regulations and guidelines and to help ensure that sufficient capital is available for current and future needs. It is management’s intent to maintain an optimal capital and leverage mix for growth and for shareholder return.returns.
Prompt corrective action regulations provide five bank capital classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2018,2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since thatthese notifications that management believes have changed the institution’s category. There are no conditions or events since that notification that management believes have changed the institution’s category.
Actual and required capital amounts and ratios are presented below as of December 31, 20182020 and December 31, 20172019 for Reliant Bancorp and the Bank.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual
Regulatory
Capital | | Minimal Capital Adequacy | | Minimum Required
Capital Including
Capital Conservation
Buffer | | To Be Well
Capitalized Under
Prompt Corrective
Action Provisions |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| December 31, 2020 | | | | | | | | | | | | | | | |
| Company | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 262,282 | | | 8.91 | % | | $ | 117,747 | | | 4.00 | % | | $ | 117,747 | | | 4.000 | % | | $ | 147,184 | | | 5.00 | % |
| Common equity Tier 1 | 250,513 | | | 10.22 | % | | 110,304 | | | 4.50 | % | | 171,584 | | | 7.000 | % | | 159,328 | | | 6.50 | % |
| Tier I risk-based capital | 262,282 | | | 10.70 | % | | 147,074 | | | 6.00 | % | | 208,355 | | | 8.500 | % | | 196,099 | | | 8.00 | % |
| Total risk-based capital | 342,246 | | | 13.96 | % | | 196,130 | | | 8.00 | % | | 257,420 | | | 10.500 | % | | 245,162 | | | 10.00 | % |
| Bank | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 313,633 | | | 10.64 | % | | $ | 117,907 | | | 4.00 | % | | $ | 117,907 | | | 4.000 | % | | $ | 147,384 | | | 5.00 | % |
| Common equity Tier 1 | 313,633 | | | 12.83 | % | | 110,004 | | | 4.50 | % | | 171,117 | | | 7.000 | % | | 158,894 | | | 6.50 | % |
| Tier I risk-based capital | 313,633 | | | 12.83 | % | | 146,672 | | | 6.00 | % | | 207,785 | | | 8.500 | % | | 195,562 | | | 8.00 | % |
| Total risk-based capital | 334,919 | | | 13.71 | % | | 195,430 | | | 8.00 | % | | 256,503 | | | 10.500 | % | | 244,288 | | | 10.00 | % |
| | | | | | | | | | | | | | | |
| December 31, 2019 | | | | | | | | | | | | | | | |
| Company | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 176,748 | | | 9.74 | % | | N/A | | — | % | | $ | 72,586 | | | 4.000 | % | | $ | 90,733 | | | 5.00 | % |
| Common equity Tier 1 | 165,063 | | | 10.55 | % | | N/A | | — | % | | 109,520 | | | 7.000 | % | | 101,698 | | | 6.50 | % |
| Tier I risk-based capital | 176,748 | | | 11.30 | % | | N/A | | — | % | | 132,952 | | | 8.500 | % | | 125,131 | | | 8.00 | % |
| Total risk-based capital | 249,751 | | | 15.97 | % | | N/A | | — | % | | 164,207 | | | 10.500 | % | | 156,388 | | | 10.00 | % |
| Bank | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 186,734 | | | 10.30 | % | | N/A | | — | % | | $ | 72,518 | | | 4.000 | % | | $ | 90,648 | | | 5.00 | % |
| Common equity Tier 1 | 186,734 | | | 11.95 | % | | N/A | | — | % | | 109,384 | | | 7.000 | % | | 101,571 | | | 6.50 | % |
| Tier I risk-based capital | 186,734 | | | 11.95 | % | | N/A | | — | % | | 132,823 | | | 8.500 | % | | 125,010 | | | 8.00 | % |
| Total risk-based capital | 199,737 | | | 12.79 | % | | N/A | | — | % | | 163,975 | | | 10.500 | % | | 156,167 | | | 10.00 | % |
Non-GAAP Financial Measures
This Annual Report contains certain financial measures that are considered "non-GAAP financial measures" and should be read along with the accompanying tables. Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position, or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Management believes that non-GAAP financial measures provide a greater understanding of ongoing performance and operations and enhance comparability across periods. Non-GAAP financial measures should not, however, be considered as an alternative to any measure of performance or financial condition as determined in accordance with U.S. GAAP, and readers should consider the
Company’s performance and financial condition as reported under U.S. GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical tools, and readers should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under U.S. GAAP. Non-GAAP financial measures presented by the Company may not be comparable to non-GAAP financial measures (even those with the same or similar names) presented by other companies.
Company management uses, and Bank.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Actual Regulatory Capital | | Minimal Capital Adequacy | | Minimum Required Capital Including Capital Conservation Buffer | | To Be Well Capitalized Under Prompt Corrective Action Provisions |
| | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| December 31, 2018 | | | | | | | | | | | | | | | | |
| Company | | | | | | | | | | | | | | | | |
| Tier I leverage | | $ | 168,876 |
| | 10.38 | % | | $ | 65,077 |
| | 4.00 | % | | $ | 65,077 |
| | 4.000 | % | | $ | 81,347 |
| | 5.00 | % |
| Common equity Tier 1 | | 157,273 |
| | 11.59 | % | | 61,064 |
| | 4.50 | % | | 86,507 |
| | 6.375 | % | | 88,203 |
| | 6.50 | % |
| Tier I risk-based capital | | 168,876 |
| | 12.44 | % | | 81,451 |
| | 6.00 | % | | 106,905 |
| | 7.875 | % | | 108,602 |
| | 8.00 | % |
| Total risk-based capital | | 180,193 |
| | 13.28 | % | | 108,550 |
| | 8.00 | % | | 133,991 |
| | 9.875 | % | | 135,688 |
| | 10.00 | % |
| | | | | | | | | | | | | | | | | |
| Bank | | | | | | | | | | | | | | | | |
| Tier I leverage | | $ | 165,308 |
| | 10.17 | % | | $ | 65,018 |
| | 4.00 | % | | $ | 65,018 |
| | 4.000 | % | | $ | 81,272 |
| | 5.00 | % |
| Common equity Tier 1 | | 165,308 |
| | 12.19 | % | | 61,024 |
| | 4.50 | % | | 86,451 |
| | 6.375 | % | | 88,146 |
| | 6.50 | % |
| Tier I risk-based capital | | 165,308 |
| | 12.19 | % | | 81,366 |
| | 6.00 | % | | 106,792 |
| | 7.875 | % | | 108,488 |
| | 8.00 | % |
| Total risk-based capital | | 176,625 |
| | 13.02 | % | | 108,525 |
| | 8.00 | % | | 133,961 |
| | 9.875 | % | | 135,657 |
| | 10.00 | % |
| | | | | | | | | | | | | | | | | |
| December 31, 2017 | | | | | | | | | | | | | | | | |
| Company | | | | | | | | | | | | | | | | |
| Tier I leverage | | $ | 126,234 |
| | 11.89 | % | | $ | 42,467 |
| | 4.00 | % | | $ | 42,467 |
| | 4.000 | % | | $ | 53,084 |
| | 5.00 | % |
| Common equity Tier 1 | | 126,234 |
| | 13.90 | % | | 40,867 |
| | 4.50 | % | | 52,219 |
| | 5.750 | % | | 59,030 |
| | 6.50 | % |
| Tier I risk-based capital | | 126,234 |
| | 13.90 | % | | 54,489 |
| | 6.00 | % | | 65,841 |
| | 7.250 | % | | 72,653 |
| | 8.00 | % |
| Total risk-based capital | | 135,965 |
| | 14.97 | % | | 72,660 |
| | 8.00 | % | | 84,013 |
| | 9.250 | % | | 90,825 |
| | 10.00 | % |
| | | | | | | | | | | | | | | | | |
| Bank | | | | | | | | | | | | | | | | |
| Tier I leverage | | $ | 123,862 |
| | 11.68 | % | | $ | 42,418 |
| | 4.00 | % | | $ | 42,418 |
| | 4.000 | % | | $ | 53,023 |
| | 5.00 | % |
| Common equity Tier 1 | | 123,862 |
| | 13.67 | % | | 40,774 |
| | 4.50 | % | | 52,100 |
| | 5.750 | % | | 58,896 |
| | 6.50 | % |
| Tier I risk-based capital | | 123,862 |
| | 13.67 | % | | 54,365 |
| | 6.00 | % | | 65,691 |
| | 7.250 | % | | 72,487 |
| | 8.00 | % |
| Total risk-based capital | | 133,593 |
| | 14.74 | % | | 72,506 |
| | 8.00 | % | | 83,835 |
| | 9.250 | % | | 90,633 |
| | 10.00 | % |
Contractual Obligations
Thebelieves that investors benefit from referring to, the following non-GAAP financial measures, among others, to assess the Company's operating results and trends: (i) tax-equivalent net interest income; (ii) adjusted net interest income; (iii) adjusted net interest margin; (iv) adjusted net income attributable to common shareholders; (v) adjusted net income attributable to common shareholders, per diluted share; (vi) adjusted return on average assets; (vii) adjusted return on average shareholders' equity; (viii) average tangible shareholders' equity; (ix) return on average tangible common equity (ROATCE); (x) adjusted ROATCE; and (xi) adjusted efficiency ratio. In the following table, summarizes our contractual obligationsthe Company has provided a reconciliation of these non-GAAP financial measures to their most comparable U.S. GAAP financial measures.
| | | | | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended |
| | | | December 31, 2020 | | December 31, 2019 | | December 31,
2018 |
| NON-GAAP FINANCIAL MEASURES | | | | | | | | |
Adjusted net interest margin (1)(3) | | | | | | | | |
| Net interest income | | | | $ | 108,046 | | | $ | 55,805 | | | $ | 53,811 | |
| Fully tax-equivalent adjustments: | | | | | | | | |
| Loans | | | | $ | 2,728 | | | $ | 1,278 | | | $ | 1,281 | |
| Tax-exempt investment securities | | | | $ | 1,444 | | | $ | 1,747 | | | $ | 1,788 | |
Tax-equivalent net interest income (1)(2) | | | | $ | 112,218 | | | $ | 58,831 | | | $ | 56,880 | |
| Purchase accounting adjustments | | | | (12,545) | | | (1,673) | | | (1,993) | |
| | | | | | | | |
Adjusted net interest income (1) | | | | $ | 99,673 | | | $ | 57,158 | | | $ | 54,887 | |
| | | | | | | | |
| Net interest margin (tax-equivalent basis) | | | | 4.35 | % | | 3.54 | % | | 3.78 | % |
| Adjusted net interest margin | | | | 3.86 | % | | 3.44 | % | | 3.65 | % |
| | | | | | | | |
Adjusted net income attributable to common shareholders and related impact (1) | | | | | | | | |
| Net income attributable to common shareholders | | | | $ | 31,412 | | | $ | 16,196 | | | $ | 14,085 | |
| Merger expenses | | | | 6,895 | | | 1,603 | | | 2,774 | |
| | | | | | | | |
| Tax effect of adjustments to net income | | | | (1,607) | | | (200) | | | (725) | |
| After tax adjustments to net income | | | | 5,288 | | | 1,403 | | | 2,049 | |
| Adjusted net income attributable to common shareholders | | | | 36,700 | | | 17,599 | | | 16,134 | |
| | | | | | | | |
| Net income attributable to common shareholders, per diluted share | | | | $ | 2.02 | | | $ | 1.44 | | | $ | 1.23 | |
Adjusted net income attributable to common shareholders, per diluted share (1) | | | | $ | 2.36 | | | $ | 1.56 | | | $ | 1.41 | |
| | | | | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended |
| | | | December 31, 2020 | | December 31, 2019 | | December 31,
2018 |
| | | | | | | | |
| Return on average: | | | | | | | | |
| Return on average assets | | | | 1.13 | % | | 0.90 | % | | 0.86 | % |
Adjusted return on average assets (1) | | | | 1.32 | % | | 0.98 | % | | 0.98 | % |
| Return on average shareholders' equity | | | | 10.93 | % | | 7.54 | % | | 6.93 | % |
Adjusted return on average shareholders' equity (1) | | | | 12.77 | % | | 8.19 | % | | 7.94 | % |
| | | | | | | | |
Average tangible shareholders' equity: (1) | | | | | | | | |
| Average shareholders' equity | | | | $ | 287,449 | | | $ | 214,897 | | | $ | 203,317 | |
| Less: average goodwill | | | | 52,092 | | | 43,642 | | | 43,552 | |
| Less: average core deposit intangibles | | | | 11,753 | | | 7,715 | | | 8,667 | |
| Average tangible shareholders' equity | | | | $ | 223,604 | | | $ | 163,541 | | | $ | 151,098 | |
| | | | | | | | |
Return on average tangible common equity (ROATCE) (1) | | | | 14.05 | % | | 9.90 | % | | 9.32 | % |
Adjusted ROATCE (1) | | | | 16.41 | % | | 10.76 | % | | 10.68 | % |
| | | | | | | | |
| Adjusted Efficiency Ratio - Bank Segment | | | | | | | | |
| Operating Expense | | | | | | | | |
| Noninterest expense | | | | $ | 68,234 | | | $ | 42,382 | | | $ | 41,512 | |
| Less: Merger expenses | | | | (6,895) | | | (1,603) | | | (2,774) | |
| Operating Expense | | | | $ | 61,339 | | | $ | 40,779 | | | $ | 38,738 | |
| | | | | | | | |
| Operating Revenue | | | | | | | | |
Tax Equiv Net interest income (2) | | | | $ | 109,800 | | | $ | 58,278 | | | $ | 56,059 | |
| | | | | | | | |
| | | | | | | | |
| Total noninterest income | | | | 9,320 | | | 7,059 | | | 5,250 | |
| Less: Loss (Gain) on sale of securities available for sale | | | | 270 | | | (1,451) | | | (43) | |
| Less: (Gain) Loss on sale of other real estate owned | | | | (28) | | | (166) | | | (259) | |
| Less: (Gain) Loss on disposal of premises and equipment | | | | (31) | | | — | | | (13) | |
| Operating Revenue | | | | $ | 119,331 | | | $ | 63,720 | | | $ | 60,994 | |
| | | | | | | | |
| Bank Segment Efficiency Ratio | | | | 62.1 | % | | 72.7 | % | | 74.1 | % |
Adjusted Efficiency Ratio (1)(2) | | | | 51.4 | % | | 64.0 | % | | 63.5 | % |
(1) Not a recognized measure under U.S. GAAP.
(2) Amount includes tax equivalent adjustment to quantify the tax equivalent net interest income.
(3) Prior calculation of this ratio removed tax credits related to certain tax-preference-qualified loans and other commitments to make future paymentstax-exempt securities. The Company views these credits as normal course of December 31, 2018:business and as such removal is unnecessary.
|
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | Total | | Due in one year or less | | Due over one year and less than three years | | Due over three years and less than five years | | Due over five years |
| Deposits with maturities | | $ | 665,440 |
| | $ | 585,744 |
| | $ | 60,713 |
| | $ | 18,983 |
| | $ | — |
|
| Federal Home Loan Bank advances | | 57,498 |
| | 53,000 |
| | 1,129 |
| | 2,697 |
| | 672 |
|
| Operating lease obligations | | 14,397 |
| | 2,216 |
| | 4,197 |
| | 3,334 |
| | 4,650 |
|
| Total | | $ | 737,335 |
| | $ | 640,960 |
| | $ | 66,039 |
| | $ | 25,014 |
| | $ | 5,322 |
|
Off Balance Sheet Arrangements
Off-balance sheet arrangements generally consist of unused lines of credit and standby letters of credit. Such commitments were as follows (dollars in thousands):
|
| | | |
| | December 31, 2018 |
| Unused lines of credit | $ | 253,952 |
|
| Standby letters of credit | 16,544 |
|
| Total commitments | $ | 270,496 |
|
Emerging Growth Company Status
The Company isOn December 31, 2020, our status as an “emerging growth company,”company”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and may taketerminated. As an “emerging growth company,” we took advantage of certain exemptions from various reportingsome reduced disclosure and other requirements that arewere otherwise applicable generally to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if the Company chooses to comply with the reporting requirements of public companies that are not emerging growth companies, the Company may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as the Company is an emerging growth company. The Company will remain an emerging growth company for an initial five year period, though it may cease to be an emerging growth company earlier under certain circumstances, including if, before the end of such five years, it is deemed to be a large accelerated filer under the rules of the SEC (which depends on, among other things, having a market value of common stock held by non-affiliates in excess of $700 million) or if total annual gross revenues equal or exceed $1.07 billion in a fiscal year. Management cannot predict if investors will find the Company’s common stock less attractive because it will rely on these exemptions. If some investors find the Company’s common stock less attractive as a result, there may be a less active trading market for its common stock and the Company’s stock price may be more volatile.
Further, the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected to take advantage of the extended transition period that allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies, which means that the financial statements included in this filing, as well as the financial statements we will file in the future, will be subject to all new or revised accounting standards generally applicable to private companies. As a result, the information that we will comply with new or revised accounting standardsprovided to our shareholders prior to this report may be different from the same extent that complianceinformation provided by other public reporting companies. With the filing of this report, we began providing the information required from “non-accelerated filers” and “smaller reporting companies” as each term is defined in Rule 12b-2 under the Exchange Act in periodic reports required for non-public companies.under the Exchange Act.
Effects of Inflation and Changing Prices
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles,U.S. GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on the performance of a financial institution than the effects of general levels of inflation. Although interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services, increases in inflation generally have resulted in increased interest rates. In addition, inflation affects financial institutions’ cost of goods and services purchased, the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Commercial and other loan originations and refinancings tend to slow as interest rates increase and can reduce our earnings from such activities.
Impact of Recent Accounting Guidance
Please see Note"Note 1 - Summary of the consolidated financial statementsSignificant Accounting Policies" where we discuss the impact of recent accounting guidance.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is included in “Management's Discussion and Analysis of Financial Condition and Results of Operations.” Please see headings: “Market and Liquidity Risk Management,” “Interest Rate Sensitivity” and “Effect of Inflation and Changing Prices.Prices” under “Management's Discussion and Analysis of Financial Condition and Results of Operations.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are included as a separate section of this report commencing on page F-1.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Reliant Bancorp maintains disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act, which are designed to ensure that information required to be disclosed by it in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to Reliant Bancorp’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Reliant Bancorp carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of December 31, 2018.2020. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2018,2020, Reliant Bancorp’s disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
The report of Reliant Bancorp’s management on internal control over financial reporting is set forth on page F-1 of this Annual Report on Form 10-K. This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Controls
There were no changes in Reliant Bancorp’s internal control over financial reporting during Reliant Bancorp’s fiscal quarter ended December 31, 20182020 that have materially affected, or are reasonably likely to materially affect, Reliant Bancorp’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information called for by this item is set forth in our definitive proxy statement relating to the 2021 annual meeting of shareholders (the “2021 Proxy Statement”), to be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2020, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is set forth in our 2021 Proxy Statement, and is incorporated herein by reference.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The response to this itemItem regarding security ownership of certain beneficial owners and management will be included in, and is incorporated by reference to, the Company’s proxy statement for the 2019 annual meeting of Company shareholders (the "2021 Proxy Statement,"), under the captions “Proposal One - Election of Directors,” “Information About the Directors,” “Information About the Executive Officers,” “Corporate Governance and the Board of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance.”
ITEM 11. EXECUTIVE COMPENSATION
The response to this item will be included in, and is incorporated by reference to, the Proxy Statement, under the captions “Compensation of Directors and Executive Officers” and “Director Compensation.”
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The response to this item will be included in, and is incorporated by reference to, the Proxy Statement , under the caption “Security Ownership of Certain Beneficial Owners and Management.”
The following table summarizes the Company’s equity compensation plan information as of December 31, 2018:2020:
| | | Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | Plan category | | Number of securities
to be issued upon
exercise of outstanding
options, warrants and rights | | Weighted average
exercise price of
outstanding options, warrants and rights | | Number of securities
remaining available
for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| | | (a) | | (b) | | (c) | | | (a) | | (b) | | (c) |
| Equity compensation plans approved by security holders | | 159,260 | | 16.72 | | 1,070,536 (1) | Equity compensation plans approved by security holders | | 249,271 | | $18.97 | | 935,945 |
| Equity compensation plans not approved by security holders | | — | | — | | — | Equity compensation plans not approved by security holders | | — | | — | | — |
| Total | | 159,260 | | 16.72 | | 1,070,536 | Total | | 249,271 | | $18.97 | | 935,945 |
| |
(1) | This number includes 434,186 securities available to be issued under the Commerce Union Bancshares, Inc. Amended and Restated Stock Option Plan. Although this plan will remain in effect until March 23, 2021, the Company has no intentions to issue new awards under the plan. Future awards are intended to be issued under the Commerce Union Bancshares, Inc. 2015 Equity Incentive Plan, under which the number of securities remaining available for future issuance is 636,350. |
(a)Includes shares of common stock to be issued upon the exercise of outstanding restricted stock units.
(b)Excludes restricted stock units which do not have an exercise price. (c)This number includes 434,186 securities available to be issued under the Commerce Union Bancshares, Inc. Amended and Restated Stock Option Plan. Although this plan will remain in effect until March 23, 2021, the Company has no intentions to issue new awards under the plan. Future awards are intended to be issued under the Commerce Union Bancshares, Inc. 2015 Equity Incentive Plan, under which the number of securities remaining available for future issuance is 501,759.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The response toinformation called for by this item will be includedis set forth in our 2021 Proxy Statement and is incorporated herein by reference to, the Proxy Statement, under the captions “Proposal One - Electionreference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The response toinformation called for by this item will be includedis set forth in our 2021 Proxy Statement, and is incorporated herein by reference to, the Proxy Statement, under the caption “Proposal Two - Ratification of Independent Registered Public Accountants.” reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| |
(a) | Documents filed as a part of this Annual Report on Form 10-K |
(a) Documents filed as a part of this Annual Report on Form 10-K
(1) Financial statements
The following consolidated financial statements of the Company are incorporated in this Item 15 by reference from Part II - Item 8 of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 20182020 and 20172019
Consolidated Statements of Operations for the years ended December 31, 2018, 20172020, 2019 and 20162018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 20172020, 2019 and 20162018
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2018, 20172020, 2019 and 20162018
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 20172020, 2019 and 20162018
Notes to Consolidated Financial Statements
| |
(2) | Financial statement schedules |
(2) Financial statement schedules
All schedules for which provision is made in Regulation S-Xhave been omitted because they are either not applicable, not required to be included herein under the related instructions or are inapplicable, or the related information is includedcalled for therein appears in the footnotes to the applicableconsolidated financial statements and therefore have been omitted.or notes thereto.
(3) Exhibits
See Item 15(b) of this Annual Report on Form 10-K
(b) Exhibits
Incorporated by reference (File No. 001-37391, unless otherwise indicated)
|
| | | |
Exhibit
No.
| Description | | Location |
2.1 | |
| 2.1* | | | Incorporated (incorporated by reference herein to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 23, 20172017). |
3.12.2* | |
| | | | | |
Exhibit
No. | Description |
| 2.3* | |
| 3.1 | | | Incorporated (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 6, 20182018). |
| 3.2 | | | Incorporatedas amended (Restated for SEC filing purposes) (incorporated by reference to Exhibit 3.13.2 to the Company’s Quarterly Report on Form 8-K10-Q filed June 21, 2018with the SEC on August 7, 2020). |
| 4.1 | | | Incorporated (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-8 (File No. 333-228889) filed with the SEC on December 19, 20182018).
|
4.24.2† | |
| 4.3 | The rights of securities holders are defined in the Charter and Bylaws provided in Exhibits 3.1 and 3.2 | | |
10.1**4.4 | | | IncorporatedDecember 13, 2019, by and between Reliant Bancorp, Inc. and UMB Bank, N.A., as trustee (incorporated herein by reference to Exhibit 10.14 4.1 to the Company’s Current Report on Form S-48-K filed July 3, 2014with the SEC on December 13, 2019). |
10.2**4.5 | | | Incorporated5.125% Fixed-to-Floating Rate Subordinated Note due 2029 of Reliant Bancorp, Inc. (incorporated herein by reference to Exhibit 10.15 4.2 to the Company’s Current Report on Form S-48-K filed July 3, 2014with the SEC on December 13, 2019). |
10.3**10.1# | | | Incorporated by reference to Exhibit 10.16 to Form S-4 filed July 3, 2014 |
10.4** | | | Incorporated by reference to Exhibit 10.11 to Form S-4 filed July 3, 2014 |
10.5** | | | Incorporated by reference to Exhibit 10.12 to Form S-4 filed July 3, 2014 |
|
| | | |
Exhibit
No.
| Description | | Location |
10.6** | | | Incorporated by reference to Exhibit 10.13 to Form S-4 filed July 3, 2014 |
10.7** | | | Incorporated (incorporated by reference to Exhibit 10.17Appendix E to the Company’s Registration Statement on Form S-4 (File No. 333-197248) filed with the SEC on July 3, 20142014). |
10.810.2# | | | IncorporatedCommerce Union Bancshares, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.1Appendix A to Form 8-Kthe Company’s definitive proxy statement on Schedule 14A filed January 22, 2016with the SEC on May 14, 2015). |
10.910.3†# | | | Incorporated by reference to Exhibit 10.2 to Form 8-K filed January 22, 2016 |
10.1010.4# | | | Incorporated by reference to Exhibit 10.3 to Form 8-K filed January 22, 2016 |
10.11 | | | Incorporated by reference to Exhibit 10.4 to Form 8-K filed January 22, 2016 |
10.12 | | | Incorporated by reference to Exhibit 10.5 to Form 8-K filed January 22, 2016 |
10.13 | | | Incorporated by reference to Exhibit 10.6 to Form 8-K filed January 22, 2016 |
10.14** | | | Incorporated(incorporated by reference to Exhibit 10.24 to Exhibit 10.24 to the Company’s Annual Report on Form 10-K filedwith the SEC on March 28, 20162016). |
10.15**10.5# | | | Incorporated by reference to Exhibit 10.1 to Form 8-K filed January 5, 2018 |
10.16** | | | Incorporated (incorporated by reference to Exhibit 10.1 tothe Company’s Current Report on Form 8-K filed with the SEC on April 20, 2018). |
| 10.6# | |
| 10.7# | |
| 10.8# | |
10.17**10.9# | |
| 10.10# | |
| 10.11# | |
| 10.12# | | | Incorporated by reference to Exhibit 10.210.1 to the Company’s Current Report on Form 8-K filed April 20, 2018with the SEC on June 1, 2020). |
101.INS XBRL Instance Document *†
101.SCH XBRL Taxonomy Extension Schema Document *†
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *†
101.DEF XBRL Taxonomy Extension Definition Linkbase Document *†
101.LAB XBRL Taxonomy Extension Label Linkbase Document *†
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document †
* The registrant has omitted schedules to the subject agreement pursuant to Item 601(a)(5) of Regulation S-K. The registrant will furnish a copy of any omitted schedule to the SEC upon request.
| |
* | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities and Exchange Act of 1934, as amended and otherwise are not subject to liability under those sections. |
† Filed herewith
| |
** | Indicates management contract or compensatory plan or arrangement |
| |
(c) | Financial Statement Schedules |
See Item 15(a)(2)** Furnished herewith
# Indicates management contract or compensatory plan or arrangement
(c) Schedules to the consolidated financial statements are omitted, as the required information is not applicable.
ITEM 16. FORM 10-K SUMMARY
None.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT BY REGISTRANTS THAT HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE EXCHANGE ACT.
As
SIGNATURES
In accordance withPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.authorized.
|
| | | | | | | | | | |
| | RELIANT BANCORP, INC. | |
Date: March 8, 20199, 2021 | By: | /s/ DeVan D. Ard, Jr. | |
| | DeVan D. Ard, Jr. | |
| | Chairman andChief Executive Officer and President | |
| | (Principal Executive Officer) | |
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints DeVan Ard, Jr. and Jerry Cooksey, each of whom may act without joinder of the other, as their true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for such person and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | |
| Signature | Title | Date |
| | |
| /s/ DeVan D. Ard, Jr. | Chairman and Chief Executive Officer | March 9, 2021 |
| DeVan D. Ard, Jr. | (Principal Executive Officer) | |
| | |
/s/ Homayoun Aminmadani Jerry Cooksey | Chief Financial Officer | March 8, 20199, 2021 |
Homayoun Aminmadani,
Director
Jerry Cooksey | (Principal Financial Officer) | |
| | |
/s/ DeVan D. Ard | | March 8, 2019 |
|
| | |
DeVan D. Ard,
Chairman, President, and /s/ Mark Seaton
| Chief ExecutiveAccounting Officer(Principal Executive Officer)
| | March 9, 2021 |
| Mark Seaton | (Principal Accounting Officer) | |
| | |
| /s/ Homayoun Aminmadani | Director | March 9, 2021 |
Homayoun Aminmadani
| | |
| | |
| /s/ Charles Trimble Beasley | Director | March 8, 20199, 2021 |
Charles Trimble (Trim) Beasley Director
| | |
| | |
/s/ John Lewis BourneRobert E. Daniel | Director | March 8, 20199, 2021 |
John Lewis (Buddy) Bourne,
Director
Robert E. Daniel | | |
| | |
| | | | | | | | |
| Signature | Title | Date |
| /s/ William R. DeBerry | Director | March 8, 20199, 2021 |
William R. DeBerry Director
| | |
| | |
/s/ J. Dan Dellinger | | March 8, 2019 |
J. Dan Dellinger,
Chief Financial Officer
| | |
| | |
| /s/ Sharon H. Edwards | Director | March 8, 20199, 2021 |
Sharon H. Edwards Director
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| /s/ Darrell S. Freeman, Sr. | Director | March 8, 20199, 2021 |
Darrell S. Freeman, Sr., Director
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| /s/ James Gilbert Hodges | Director | March 8, 20199, 2021 |
James Gilbert Hodges Director
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/s/ Louis E. Holloway William Lawson Mabry | Director | March 8, 20199, 2021 |
Louis E. Holloway,
Directorand Chief Operating Officer
William L Mabry | | |
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/s/ James R. Kelley Connie S. McGee | Director | March 8, 20199, 2021 |
James R. Kelley,
Director
Connie S. McGee | | |
| | |
/s/ Don R. SloanLinda E. Rebrovick | Director | March 8, 20199, 2021 |
Don Richard Sloan
Director
Linda E. Rebrovick | | |
| | |
/s/ Robert E. Daniel | | March 8, 2019 |
Robert E. Daniel
Director
| | |
| | |
/s/ Rustin A. Vest | | March 8, 2019 |
Ruskin A. Vest
Director | Director | March 9, 2021 |
| Ruskin A. Vest | | |
| | |
| /s/ Michael E. Wallace | Director | March 9, 2021 |
| Michael E. Wallace | | |
CONSOLIDATED
FINANCIAL STATEMENTS,
DECEMBER31, 2018 SUPPLEMENTARY DATA, AND 2017 AND
FOR THE THREE PERIOD ENDED DECEMBER 31, 2018FINANCIAL STATEMENT SCHEDULES
TABLE OF CONTENTS
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| CONSOLIDATED FINANCIAL STATEMENTS | |
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Management Report On Internal Control OverFinancial Reporting
The management of Reliant Bancorp, Inc. and its subsidiaries (collectively referred to as “the Company”) is responsible for the preparation, integrity and fair presentation of published financial statements and all other information presented in this annual report. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and, as such, include amounts based on informed judgments and estimates made by management.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for financial presentations in conformity with GAAP. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and included those policies and procedures that:
•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company.
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and Directors of the Company; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, or that the degree of compliance with the policies and procedures include in such controls may deteriorate.
Management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 20182020 based on the control criteria established in a report entitled Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, we have concluded that Reliant Bancorp, Inc.’s internal control over financial reporting is effective as of December 31, 2018.2020.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Report of Independent Registered Public Accounting Firm
TheTo the Shareholders and the Board of Directors and Stockholders of
Reliant Bancorp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Reliant Bancorp, Inc. (the “Company”)Company) as of December 31, 20182020 and 2017,2019, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018,2020, and the related notes (collectively referred to as the “financial statements”)consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as ofat December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, in conformity with accounting principlesU.S. generally accepted in the United States of America.accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audits matter communicated below are matters arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the account or disclosures to which they relate.
Allowance for Loan Losses
Description of the Matter
The Company’s loan portfolio totaled $2.3 billion as of December 31, 2020 and the associated allowance for loan losses (ALL) was $20.6 million. As discussed in Notes 1 and 3 to the consolidated financial statements, the ALL is established to absorb inherent losses that have been incurred within the existing portfolio of loans. Management’s estimate of inherent losses within the loan portfolio is established using quantitative, as well as qualitative, considerations. The Company’s methodology to determine the ALL considers quantitative calculations including: specific valuation allowances determined in accordance with ASC Topic 310 based on probable losses on specific loans, historical valuation allowances determined in accordance with ASC Topic 450 based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions, and general valuation allowances determined in accordance with ASC Topic 450 based on various risk factors that are internal to the Company. The Company’s ALL methodology also includes qualitative amounts that include valuation allowances based on general economic conditions and other risk factors to the Company.
Management’s estimate of the ALL involves significant estimates and subjective assumptions, which require a high degree of judgment. The level of the allowance is based upon management's evaluation of the loan portfolio, loan loss experience, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay the loan (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Changes in these assumptions could have a material effect on the Company’s financial results.
How We Addressed the Matter in Our Audit
We obtained an understanding of the Company’s process for establishing the ALL, including the qualitative valuation allowances of the ALL. To test the reasonableness of the qualitative valuation allowances, we performed audit procedures that included, among others, testing the appropriateness of the methodologies used by the Company to estimate the ALL, testing the completeness and accuracy of data and information used by the Company in estimating the components of the ALL, evaluating the appropriateness of assumptions used in estimating the qualitative valuation allowances, analyzing the changes in assumptions and various components of the ALL relative to changes in the Company’s loan portfolio and the economy and evaluating the appropriateness and level of the qualitative valuation allowances. For example, specific to the qualitative valuation allowances, we (1) analyzed the changes, assumptions, and adjustments made to the qualitative valuation allowances; and (2) evaluated the appropriateness and completeness of risk factors used in determining the amount of the qualitative valuation allowances. We also evaluated the data and information utilized by management to estimate the qualitative valuation allowances by independently obtaining internal and external data and information to assess the appropriateness of the data and information used by management. In addition, we evaluated the overall ALL amount, inclusive of the adjustments for the qualitative valuation allowances, and whether the amount appropriately reflects losses incurred in the loan portfolio as of the consolidated balance sheet date by comparing the overall ALL to those established by similar banking institutions with similar loan portfolios. We also reviewed subsequent events and transactions and considered whether they corroborate or contradict the Company’s conclusion.
Valuation of Acquired Loans
Description of the Matter
The Company’s strategy includes growth by acquisition. Acquisitions represent a significant component of the Company’s asset growth through the addition of new loan and deposit accounts. During 2020 the Company completed two acquisitions for net consideration of $100.6 million. As discussed in Notes 1 and 15 to the consolidated financial statements, the Company accounted for its acquisitions in accordance with ASC Topic 805 - Business Combinations, which requires the acquired assets and liabilities assumed to be marked to fair market value at the date of acquisition.
More specifically in conjunction with the acquisitions, acquired loans were recorded at a fair value of $793.9 million. To determine the fair value of acquired loans, management engaged a third-party specialist who used a discounted cash flow methodology that considered factors such as loan characteristics, discount rates, probability of default, loss given default, and prepayment assumptions. The principal considerations for our determination that performing procedures relating to the valuation of certain acquired loans is a critical audit matter are (1) there was significant judgment by management to determine the fair value of acquired loans, which led to a high degree of auditor judgment and subjectivity in performing procedures relating to discount rates, probability of default, loss given default, and prepayment assumptions and (2) significant audit effort was necessary to evaluate the evidence obtained relating to these assumptions.
How We Addressed the Matter in Our Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (1) the development of independent assumptions for discount rates, probability of default, loss given default, and prepayment assumptions, (2) comparison of management’s estimate to the independently developed ranges, (3) testing the completeness and accuracy of the underlying loan data provided by management that was used to develop these assumptions, and (4) assessing the Company engaged specialist’s knowledge, skill, and ability as well as the relationship between the Company and the specialist.
/s/ Maggart & Associates, P.C.
We have served as the Company’s auditor since 2015.
Nashville, Tennessee
March 8, 2019
9, 2021
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1201 DEMONBREUN STREET ▪ SUITE 1220 ▪ NASHVILLE, TENNESSEE 3720.-3140 ▪ (615) 252-6100 ▪ Fax ▪ (615) 252-6105
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RELIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per share amounts)
DECEMBER | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| ASSETS | | | |
| Cash and due from banks | $ | 13,717 | | | $ | 7,953 | |
| Interest-bearing deposits in financial institutions | 79,756 | | | 43,644 | |
| Federal funds sold | 1,572 | | | 52 | |
| Total cash and cash equivalents | 95,045 | | | 51,649 | |
| Securities available for sale | 256,653 | | | 260,293 | |
| Loans | 2,300,783 | | | 1,409,952 | |
| Less allowance for loan losses | (20,636) | | | (12,578) | |
| Loans, net | 2,280,147 | | | 1,397,374 | |
| Mortgage loans held for sale, net | 147,524 | | | 37,476 | |
| Accrued interest receivable | 14,889 | | | 7,188 | |
| Premises and equipment, net | 31,462 | | | 21,064 | |
| Operating leases right of use assets | 13,103 | | | — | |
| Restricted equity securities, at cost | 16,551 | | | 11,279 | |
| Other real estate, net | 1,246 | | | 750 | |
| Cash surrender value of life insurance contracts | 77,988 | | | 46,632 | |
| Deferred tax assets, net | 7,121 | | | 3,933 | |
| Goodwill | 54,396 | | | 43,642 | |
| Core deposit intangibles | 11,347 | | | 7,270 | |
| Other assets | 19,063 | | | 13,292 | |
| TOTAL ASSETS | $ | 3,026,535 | | | $ | 1,901,842 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| LIABILITIES | | | |
| Deposits | | | |
| Noninterest-bearing demand | $ | 575,289 | | | $ | 260,681 | |
| Interest-bearing demand | 350,392 | | | 152,718 | |
| Savings and money market deposit accounts | 857,210 | | | 408,724 | |
| Time | 796,344 | | | 762,330 | |
| Total deposits | 2,579,235 | | | 1,584,453 | |
| Accrued interest payable | 2,571 | | | 2,022 | |
| Federal funds purchased | — | | | 0 | |
| Subordinated debentures | 70,446 | | | 70,883 | |
| Federal Home Loan Bank advances | 10,000 | | | 10,737 | |
| Operating leases liabilities | 14,231 | | | — | |
| Other liabilities | 28,079 | | | 9,994 | |
| TOTAL LIABILITIES | 2,704,562 | | | 1,678,089 | |
| STOCKHOLDERS’ EQUITY | | | |
| Preferred stock, $1 par value; 10,000,000 shares authorized; 0 shares issued to date | $ | 0 | | | $ | 0 | |
| Common stock, $1 par value; 30,000,000 shares authorized; 16,654,409 and 11,206,254 shares issued and outstanding at December 31, 2020 and 2019, respectively | 16,654 | | | 11,206 | |
| Additional paid-in capital | 233,331 | | | 167,006 | |
| Retained earnings | 65,757 | | | 40,472 | |
| Accumulated other comprehensive income | 6,231 | | | 5,069 | |
| TOTAL STOCKHOLDERS’ EQUITY | 321,973 | | | 223,753 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,026,535 | | | $ | 1,901,842 | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| INTEREST INCOME | | | | | |
| Interest and fees on loans | $ | 119,259 | | | $ | 68,421 | | | $ | 58,351 | |
| Interest and fees on loans held for sale | 3,450 | | | 961 | | | 1,278 | |
| Interest on investment securities, taxable | 1,517 | | | 2,099 | | | 1,836 | |
| Interest on investment securities, nontaxable | 5,068 | | | 6,452 | | | 6,605 | |
| Federal funds sold and other | 977 | | | 1,252 | | | 1,137 | |
| TOTAL INTEREST INCOME | 130,271 | | | 79,185 | | | 69,207 | |
| INTEREST EXPENSE | | | | | |
| Deposits | | | | | |
| Demand | 779 | | | 384 | | | 366 | |
| Savings and money market deposit accounts | 4,709 | | | 4,191 | | | 2,589 | |
| Time | 11,880 | | | 17,324 | | | 9,998 | |
| Federal Home Loan Bank advances and other borrowings | 903 | | | 543 | | | 1,719 | |
| Subordinated debentures | 3,954 | | | 938 | | | 724 | |
| TOTAL INTEREST EXPENSE | 22,225 | | | 23,380 | | | 15,396 | |
| NET INTEREST INCOME | 108,046 | | | 55,805 | | | 53,811 | |
| PROVISION FOR LOAN LOSSES | 8,350 | | | 1,211 | | | 1,035 | |
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 99,696 | | | 54,594 | | | 52,776 | |
| NONINTEREST INCOME | | | | | |
| Service charges on deposit accounts | 5,747 | | | 3,746 | | | 3,419 | |
| Gains on mortgage loans sold, net | 12,239 | | | 4,905 | | | 4,418 | |
| (Loss) gain on securities transactions, net | (270) | | | 1,451 | | | 43 | |
| | | | | |
| | | | | |
| | | | | |
| Other noninterest income | 3,843 | | | 1,862 | | | 1,784 | |
| TOTAL NONINTEREST INCOME | 21,559 | | | 11,964 | | | 9,664 | |
| NONINTEREST EXPENSE | | | | | |
| Salaries and employee benefits | $ | 46,332 | | | $ | 30,514 | | | $ | 27,510 | |
| Occupancy | 7,756 | | | 5,423 | | | 4,949 | |
| Data processing and software | 8,594 | | | 6,213 | | | 5,333 | |
| | | | | |
| Professional fees | 2,676 | | | 2,302 | | | 2,848 | |
| Regulatory fees | 1,797 | | | 908 | | | 1,077 | |
| | | | | |
| Merger expenses | 6,895 | | | 1,603 | | | 2,774 | |
| Other operating expense | 9,157 | | | 6,929 | | | 6,070 | |
| TOTAL NONINTEREST EXPENSE | 83,207 | | | 53,892 | | | 50,561 | |
| INCOME BEFORE PROVISION FOR INCOME TAXES | 38,048 | | | 12,666 | | | 11,879 | |
| INCOME TAX EXPENSE | 6,935 | | | 2,129 | | | 1,372 | |
| CONSOLIDATED NET INCOME | 31,113 | | | 10,537 | | | 10,507 | |
| NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY | 299 | | | 5,659 | | | 3,578 | |
| NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 31,412 | | | $ | 16,196 | | | $ | 14,085 | |
| Basic net income attributable to common shareholders, per share | $ | 2.03 | | | $ | 1.44 | | | $ | 1.24 | |
| Diluted net income attributable to common shareholders, per share | $ | 2.02 | | | $ | 1.44 | | | $ | 1.23 | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Net Income | | $ | 31,113 | | | $ | 10,537 | | | $ | 10,507 | |
| Other comprehensive (loss) income : | | | | | | |
| Unrealized gains (losses) on securities available for sale: | | | | | | |
| Unrealized holdings gains (losses) arising during the period | | 6,881 | | | 14,228 | | | (5,791) | |
| Reclassification adjustment for losses (gains) included in net income | | 270 | | | (1,451) | | | (43) | |
| Tax effect | | (1,869) | | | (3,341) | | | 1,525 | |
| Net of tax | | 5,282 | | 9,436 | | (4,309) | |
| Unrealized (losses) gains on cash flow hedges | | | | | | |
| Unrealized holdings (losses) gains arising during the period | | (5,578) | | | (926) | | | (1,153) | |
| Reclassification adjustment for losses (gains) included in net income | | 0 | | | 0 | | | 0 | |
| Tax effect | | 1,458 | | 243 | | 301 |
| Net of tax | | (4,120) | | | (683) | | | (852) | |
| Other comprehensive income (loss) | | 1,162 | | | 8,753 | | | (5,161) | |
| Comprehensive income | | $ | 32,275 | | | $ | 19,290 | | | $ | 5,346 | |
| Comprehensive loss attributable to noncontrolling interest | | 299 | | | 5,659 | | | 3,578 | |
| Comprehensive income attributable to the controlling interest | | $ | 32,574 | | | $ | 24,949 | | | $ | 8,924 | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED December 31, 2020, 2019 AND 2018
(Dollar amounts in thousands except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | ADDITIONAL | | | | ACCUMULATED
OTHER | | | | |
| | | COMMON STOCK | | PAID-IN | | RETAINED | | COMPREHENSIVE | | NONCONTROLLING | | |
| | | SHARES | | AMOUNT | | CAPITAL | | EARNINGS | | INCOME (LOSS) | | INTEREST | | TOTAL |
| BALANCE- DECEMBER 31, 2017 | | 9,034,439 | | | $ | 9,034 | | | $ | 112,437 | | | $ | 17,189 | | | $ | 1,477 | | | $ | 0 | | | $ | 140,137 | |
| Stock based compensation expense | | — | | | — | | | 923 | | | — | | | — | | | — | | | 923 | |
| Exercise of stock options | | 30,001 | | | 30 | | | 368 | | | — | | | — | | | — | | | 398 | |
| Restricted stock awards, net of taxes withheld and stock and dividend forfeitures | | 50,160 | | | 50 | | | (50) | | | — | | | — | | | — | | | 0 | |
| Conversion shares issued to shareholders of Community First, Inc. | | 2,416,444 | | | 2,417 | | | 59,566 | | | — | | | — | | | — | | | 61,983 | |
| Shares acquired from dissenting shareholder | | (234) | | | — | | | (6) | | | — | | | — | | | — | | | (6) | |
| Noncontrolling interest contributions | | — | | | — | | | — | | | — | | | — | | | 3,578 | | | 3,578 | |
| Cash dividend declared to common shareholders ($0.33 per share) | | — | | | — | | | — | | | (3,945) | | | — | | | — | | | (3,945) | |
| Net income (loss) | | — | | | — | | | — | | | 14,085 | | | — | | | (3,578) | | | 10,507 | |
| Other comprehensive loss | | — | | | — | | | — | | | 0 | | | (5,161) | | | — | | | (5,161) | |
| BALANCE- DECEMBER 31, 2018 | | 11,530,810 | | | $ | 11,531 | | | $ | 173,238 | | | $ | 27,329 | | | $ | (3,684) | | | $ | 0 | | | $ | 208,414 | |
| Stock based compensation expense | | — | | | — | | | 1,222 | | | — | | | — | | | — | | | 1,222 | |
| Exercise of stock options | | 34,714 | | | 34 | | | 405 | | | — | | | — | | | — | | | 439 | |
| Employee Stock Purchase Plan stock issuance | | 8,512 | | | 9 | | | 152 | | | — | | | — | | | — | | | 161 | |
| Restricted stock awards, net of shares withheld for taxes and stock and dividend forfeitures | | (1,851) | | | (2) | | | (86) | | | — | | | — | | | — | | | (88) | |
| Common stock shares redeemed | | (365,931) | | | (366) | | | (7,925) | | | — | | | — | | | — | | | (8,291) | |
| Noncontrolling interest contributions | | — | | | — | | | — | | | — | | | — | | | 5,659 | | | 5,659 | |
| Cash dividends declared to common shareholders ($0.27 per share) | | — | | | — | | | — | | | (3,053) | | | — | | | — | | | (3,053) | |
| Net income (loss) | | — | | | — | | | — | | | 16,196 | | | — | | | (5,659) | | | 10,537 | |
| Other comprehensive income | | — | | | — | | | — | | | 0 | | | 8,753 | | | — | | | 8,753 | |
| BALANCE - DECEMBER 31, 2019 | | 11,206,254 | | | $ | 11,206 | | | $ | 167,006 | | | $ | 40,472 | | | $ | 5,069 | | | $ | 0 | | | $ | 223,753 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | ADDITIONAL | | | | ACCUMULATED
OTHER | | | | |
| | | COMMON STOCK | | PAID-IN | | RETAINED | | COMPREHENSIVE | | NONCONTROLLING | | |
| | | SHARES | | AMOUNT | | CAPITAL | | EARNINGS | | INCOME (LOSS) | | INTEREST | | TOTAL |
| Conversion shares issued to shareholders of Tennessee Community Bank Holdings, Inc. | | 811,210 | | | 811 | | | 17,230 | | | — | | | — | | | — | | | 18,041 | |
| Conversion shares issued to shareholders of First Advantage Bancorp | | 4,606,419 | | | 4,607 | | | 47,308 | | | — | | | — | | | — | | | 51,915 | |
| Cumulative effect of lease standard adoption | | — | | | — | | | — | | | 100 | | | — | | | — | | | 100 | |
| Stock based compensation expense | | — | | | — | | | 1,578 | | | — | | | — | | | — | | | 1,578 | |
| Exercise of stock options | | 10,865 | | | 10 | | | 132 | | | — | | | — | | | — | | | 142 | |
| Employee Stock Purchase Plan stock issuance | | 21,962 | | | 21 | | | 275 | | | — | | | — | | | — | | | 296 | |
| Restricted stock units vesting, net of taxes withheld and stock and dividend forfeitures | | (2,301) | | | (1) | | | (198) | | | | | | | | | (199) | |
| Noncontrolling interest contributions | | — | | | — | | | — | | | — | | | — | | | 299 | | | 299 | |
| Cash dividend declared to common shareholders ($0.40 per share) | | — | | | — | | | — | | | (6,227) | | | — | | | — | | | (6,227) | |
| Net income (loss) | | — | | | — | | | — | | | 31,412 | | | — | | | (299) | | | 31,113 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | 1,162 | | | — | | | 1,162 | |
| BALANCE - DECEMBER 31, 2020 | | 16,654,409 | | | $ | 16,654 | | | $ | 233,331 | | | $ | 65,757 | | | $ | 6,231 | | | $ | 0 | | | $ | 321,973 | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED December 31, 2020, 2019 AND 2018
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| OPERATING ACTIVITIES | | | | | |
| Consolidated net income | $ | 31,113 | | | $ | 10,537 | | | $ | 10,507 | |
| Adjustments to reconcile consolidated net income to net cash (used in) provided by operating activities | | | | | |
| Provision for loan losses | 8,350 | | | 1,211 | | | 1,035 | |
| | | | | |
| Deferred income taxes | 2,060 | | | 398 | | | 380 | |
| Loss (gain) on disposal of premises and equipment | 31 | | | 0 | | | (13) | |
| Depreciation of premises and equipment | 2,867 | | | 1,875 | | | 1,586 | |
| Net amortization of securities | 2,370 | | | 3,051 | | | 3,182 | |
| Net realized losses (gains) on sales of securities | 270 | | | (1,451) | | | (43) | |
| Gains on mortgage loans sold, net | (12,239) | | | (4,905) | | | (4,418) | |
| Stock-based compensation expense | 1,578 | | | 1,222 | | | 923 | |
| Gain on other real estate | (28) | | | (166) | | | (259) | |
| Provision for losses on other real estate | 0 | | | 98 | | | 0 | |
| Earnings on bank-owned life insurance | (2,759) | | | (1,119) | | | (1,186) | |
| Mortgage loans originated for resale | (605,020) | | | (179,331) | | | (141,783) | |
| Proceeds from sale of mortgage loans | 513,089 | | | 162,583 | | | 176,610 | |
| Right of use asset amortization | 2,596 | | | — | | | — | |
| Other accretion, net of other amortization | (11,010) | | | 2,530 | | | (645) | |
| Change in | | | | | |
| Accrued interest receivable | (4,368) | | | 1,026 | | | (1,305) | |
| Other assets | 993 | | | (1,477) | | | (372) | |
| Accrued interest payable | (699) | | | 959 | | | 326 | |
| Other liabilities | (4,124) | | | (1,230) | | | (2,260) | |
| TOTAL ADJUSTMENTS | (106,042) | | | (14,726) | | | 31,758 | |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | (74,929) | | | (4,189) | | | 42,265 | |
| INVESTING ACTIVITIES | | | | | |
| Cash (used in) received from acquisitions, net | (8,500) | | | 0 | | | 33,128 | |
| Activities in available for sale securities | | | | | |
| Purchases | (61,783) | | | (50,430) | | | (106,893) | |
| Sales | 151,934 | | | 85,895 | | | 100,737 | |
| Maturities, prepayments and calls | 11,171 | | | 12,807 | | | 12,987 | |
| (Purchases) redemptions of restricted equity securities | (1,051) | | | 411 | | | (2,190) | |
| Net increase in loans | (87,767) | | | (180,787) | | | (145,090) | |
| Purchase of premises and equipment | (2,873) | | | (1,339) | | | (4,342) | |
| Proceeds from sale of premises and equipment | 135 | | | 0 | | | 0 | |
| Proceeds from sale of other real estate | 2,357 | | | 1,261 | | | 1,947 | |
| Purchase of life insurance contracts | (10,000) | | | 0 | | | 0 |
| Proceeds from BOLI death benefit | 1,808 | | | 0 | | | 0 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| NET CASH USED IN INVESTING ACTIVITIES | (4,569) | | | (132,182) | | | (109,716) | |
| FINANCING ACTIVITIES | | | | | |
| Net change in deposits | 178,245 | | | 146,484 | | | 121,960 | |
| Proceeds from Federal Home Loan Bank advances | 559,000 | | | 200,824 | | | 168,525 | |
| Payments on Federal Home Loan Bank advances | (608,663) | | | (247,531) | | | (207,720) | |
| | | | | |
| Issuance of subordinate debentures, net of issuance costs | 0 | | | 59,198 | | | 0 | |
| Issuance of ESPP shares and exercise of common stock options and warrants, net of repurchase of restricted shares | 239 | | | (7,779) | | | 392 | |
| Noncontrolling interest contributions received | 299 | | | 5,659 | | | 2,255 | |
| Cash dividends paid on common stock | (6,227) | | | (4,013) | | | (3,451) | |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 122,893 | | | 152,842 | | | 81,961 | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 43,395 | | | 16,471 | | | 14,510 | |
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 51,649 | | | 35,178 | | | 20,668 | |
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 95,045 | | | $ | 51,649 | | | $ | 35,178 | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED December 31, 2020, 2019 AND 20172018
(Dollar amounts in thousands except per share amounts)
|
| | | | | | | |
| | 2018 | | 2017 |
| ASSETS | | | |
| Cash and due from banks | $ | 34,807 |
| | $ | 20,497 |
|
| Federal funds sold | 371 |
| | 171 |
|
| Total cash and cash equivalents | 35,178 |
| | 20,668 |
|
| Securities available for sale | 296,323 |
| | 220,201 |
|
| Loans, net | 1,220,184 |
| | 762,488 |
|
| Mortgage loans held for sale, net | 15,823 |
| | 45,322 |
|
| Accrued interest receivable | 8,214 |
| | 5,744 |
|
| Premises and equipment, net | 22,033 |
| | 9,790 |
|
| Restricted equity securities, at cost | 11,690 |
| | 7,774 |
|
| Other real estate, net | 1,000 |
| | — |
|
| Cash surrender value of life insurance contracts | 45,513 |
| | 33,663 |
|
| Deferred tax assets, net | 7,428 |
| | 1,099 |
|
| Goodwill | 43,642 |
| | 11,404 |
|
| Core deposit intangibles | 8,219 |
| | 1,280 |
|
| Other assets | 9,091 |
| | 5,601 |
|
| | | | |
| TOTAL ASSETS | $ | 1,724,338 |
| | $ | 1,125,034 |
|
| | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| LIABILITIES | | | |
| Deposits | | | |
| Demand | $ | 216,937 |
| | $ | 131,996 |
|
| Interest-bearing demand | 154,218 |
| | 88,230 |
|
| Savings and money market deposit accounts | 401,308 |
| | 205,230 |
|
| Time | 665,440 |
| | 458,063 |
|
| Total deposits | 1,437,903 |
| | 883,519 |
|
| Accrued interest payable | 1,063 |
| | 305 |
|
| Subordinated debentures | 11,603 |
| | — |
|
| Federal Home Loan Bank advances | 57,498 |
| | 96,747 |
|
| Dividends payable | 1,036 |
| | 542 |
|
| Other liabilities | 6,821 |
| | 3,784 |
|
| | | | |
| TOTAL LIABILITIES | 1,515,924 |
| | 984,897 |
|
| | | | |
| STOCKHOLDERS’ EQUITY | | | |
| Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued to date | — |
| | — |
|
|
| | | | | | | |
| Common stock, $1 par value; 30,000,000 shares authorized; 11,530,810 and 9,034,439 shares issued and outstanding at December 31, 2018 and 2017, respectively | 11,531 |
| | 9,034 |
|
| Additional paid-in capital | 173,238 |
| | 112,437 |
|
| Retained earnings | 27,329 |
| | 17,189 |
|
| Accumulated other comprehensive income (loss) | (3,684 | ) | | 1,477 |
|
| | | | |
| TOTAL STOCKHOLDERS’ EQUITY | 208,414 |
| | 140,137 |
|
| | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,724,338 |
| | $ | 1,125,034 |
|
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | |
| Cash paid during the year for | | | | | |
| Interest | $ | 26,190 | | | $ | 22,421 | | | $ | 14,638 | |
| Taxes | 4,402 | | | 1,303 | | | 1,400 | |
| | | | | |
| Non-cash investing and financing activities | | | | | |
| | | | | |
| | | | | |
| Change in due to/from noncontrolling interest | 299 | | | 5,659 | | | 3,578 | |
| Loans foreclosed and transferred to other real estate | 197 | | | 943 | | | 1,060 | |
| Acquired bank facilities no longer in use transferred to other real estate from premises and equipment | 2,420 | | | | |
| Dividends declared, not paid | 0 | | | 76 | | | 1,036 | |
| Right of use assets obtained in exchange for operating lease liabilities | 11,973 | | | — | | | — | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
(Dollar(Dollar amounts in thousands except per share amounts)
|
| | | | | | | | | | | |
| | Year Ended
December 31, |
| | 2018 | | 2017 | | 2016 |
| INTEREST INCOME | | | | | |
| Interest and fees on loans | $ | 58,351 |
| | $ | 34,176 |
| | $ | 31,905 |
|
| Interest and fees on loans held for sale | 1,278 |
| | 868 |
| | 773 |
|
| Interest on investment securities, taxable | 1,836 |
| | 691 |
| | 724 |
|
| Interest on investment securities, nontaxable | 6,605 |
| | 3,904 |
| | 2,211 |
|
| Federal funds sold and other | 1,155 |
| | 519 |
| | 402 |
|
| | | | | | |
| TOTAL INTEREST INCOME | 69,225 |
| | 40,158 |
| | 36,015 |
|
| | | | | | |
| INTEREST EXPENSE | | | | | |
| Deposits | | | | | |
| Demand | 366 |
| | 173 |
| | 182 |
|
| Savings and money market deposit accounts | 2,589 |
| | 748 |
| | 632 |
|
| Time | 9,862 |
| | 4,095 |
| | 1,835 |
|
| Federal Home Loan Bank advances and other | 1,855 |
| | 655 |
| | 714 |
|
| Subordinated debentures | 724 |
| | — |
| | — |
|
| | | | | | |
| TOTAL INTEREST EXPENSE | 15,396 |
| | 5,671 |
| | 3,363 |
|
| | | | | | |
| NET INTEREST INCOME | 53,829 |
| | 34,487 |
| | 32,652 |
|
| | | | | | |
| PROVISION FOR LOAN LOSSES | 1,035 |
| | 1,316 |
| | 968 |
|
| | | | | | |
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 52,794 |
| | 33,171 |
| | 31,684 |
|
| | | | | | |
| NONINTEREST INCOME | | | | | |
| Service charges on deposit accounts | 3,419 |
| | 1,251 |
| | 1,239 |
|
| Gains on mortgage loans sold, net | 4,418 |
| | 3,675 |
| | 6,317 |
|
| Gain on securities transactions, net | 43 |
| | 59 |
| | 36 |
|
| Gain on sale of other real estate | 259 |
| | 27 |
| | 301 |
|
| Gain (loss) on disposal of premises and equipment | 13 |
| | (52 | ) | | — |
|
| Other | 1,494 |
| | 1,050 |
| | 907 |
|
| | | | | | |
| TOTAL NONINTEREST INCOME | 9,646 |
| | 6,010 |
| | 8,800 |
|
| | | | | | |
| NONINTEREST EXPENSE | | | | | |
| Salaries and employee benefits | 27,510 |
| | 18,432 |
| | 18,256 |
|
|
| | | | | | | | | | | |
| Occupancy | 4,949 |
| | 3,353 |
| | 3,174 |
|
| Information technology | 5,333 |
| | 2,715 |
| | 2,486 |
|
| Advertising and public relations | 600 |
| | 264 |
| | 702 |
|
| Audit, legal and consulting | 2,976 |
| | 1,508 |
| | 1,287 |
|
| Federal deposit insurance | 793 |
| | 399 |
| | 438 |
|
| Provision for losses on other real estate | — |
| | — |
| | 70 |
|
| Merger expenses | 2,774 |
| | 1,426 |
| | — |
|
| Other operating | 5,626 |
| | 2,979 |
| | 3,961 |
|
| | | | | | |
| TOTAL NONINTEREST EXPENSE | 50,561 |
| | 31,076 |
| | 30,374 |
|
| | | | | | |
| INCOME BEFORE PROVISION FOR INCOME TAXES | 11,879 |
| | 8,105 |
| | 10,110 |
|
| | | | | | |
| INCOME TAX EXPENSE | 1,372 |
| | 1,942 |
| | 2,213 |
|
| | | | | | |
| CONSOLIDATED NET INCOME | 10,507 |
| | 6,163 |
| | 7,897 |
|
| | | | | | |
| NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY | 3,578 |
| | 1,083 |
| | 1,039 |
|
| | | | | | |
| NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 14,085 |
| | $ | 7,246 |
| | $ | 8,936 |
|
| | | | | | |
| Basic net income attributable to common shareholders, per share | $ | 1.24 |
| | $ | 0.89 |
| | $ | 1.18 |
|
| Diluted net income attributable to common shareholders, per share | $ | 1.23 |
| | $ | 0.88 |
| | $ | 1.16 |
|
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
|
| | | | | | | | | | | | |
| | | 2018 | | 2017 | | 2016 |
| Consolidated net income | | $ | 10,507 |
| | $ | 6,163 |
| | $ | 7,897 |
|
| | | | | | | |
| Other comprehensive income (loss) | | | | | | |
| Net unrealized gains (losses) on available-for-sale securities, net of tax of $1,513, $(2,102) and $1,275 for the years ended December 31, 2018, 2017 and 2016, respectively | | (4,277 | ) | | 3,384 |
| | (2,058 | ) |
| | | | | | | |
| Net unrealized losses on interest rate swap derivatives, net of tax of $301 for the year ended December 31, 2018 | | (852 | ) | | — |
| | — |
|
| | | | | | | |
| Reclassification adjustment for gains included in net income, net of tax of $11, $23 and $14 for the years ended December 31, 2018, 2017 and 2016, respectively | | (32 | ) | | (36 | ) | | (22 | ) |
| | | | | | | |
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS) | | (5,161 | ) | | 3,348 |
| | (2,080 | ) |
| | | | | | | |
| TOTAL COMPREHENSIVE INCOME | | $ | 5,346 |
| | $ | 9,511 |
| | $ | 5,817 |
|
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | ADDITIONAL | | | | ACCUMULATED OTHER | | | | |
| | | COMMON STOCK | | PAID-IN | | RETAINED | | COMPREHENSIVE | | NONCONTROLLING | | |
| | | SHARES | | AMOUNT | | CAPITAL | | EARNINGS | | INCOME (LOSS) | | INTEREST | | TOTAL |
| BALANCE- JANUARY 1, 2016 | | 7,279,620 |
| | $ | 7,280 |
| | $ | 84,520 |
| | $ | 4,987 |
| | $ | (36 | ) | | $ | — |
| | $ | 96,751 |
|
| Stock based compensation expense | | — |
| | — |
| | 251 |
| | — |
| | — |
| | — |
| | 251 |
|
| Exercise of stock options | | 476,889 |
| | 477 |
| | 4,295 |
| | — |
| | — |
| | — |
| | 4,772 |
|
| Restricted stock awards | | 23,800 |
| | 23 |
| | (23 | ) | | — |
| | — |
| | — |
| | — |
|
| Restricted stock forfeiture | | (2,000 | ) | | (2 | ) | | 2 |
| | — |
| | — |
| | — |
| | — |
|
| Noncontrolling interest contributions | | — |
| | — |
| | — |
| | — |
| | — |
| | 1,039 |
| | 1,039 |
|
| Cash dividend declared to common shareholders ($0.22 per share) | | — |
| | — |
| | — |
| | (1,711 | ) | | — |
| | — |
| | (1,711 | ) |
| Net income (loss) | | — |
| | — |
| | — |
| | 8,936 |
| | — |
| | (1,039 | ) | | 7,897 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | (2,080 | ) | | — |
| | (2,080 | ) |
| BALANCE- DECEMBER 31, 2016 | | 7,778,309 |
| | 7,778 |
| | 89,045 |
| | 12,212 |
| | (2,116 | ) | | — |
| | 106,919 |
|
| Stock based compensation expense | | — |
| | — |
| | 616 |
| | — |
| | — |
| | — |
| | 616 |
|
| Exercise of stock options | | 72,080 |
| | 72 |
| | 751 |
| | — |
| | — |
| | — |
| | 823 |
|
| Restricted stock awards | | 50,050 |
| | 50 |
| | (50 | ) | | — |
| | — |
| | — |
| | — |
|
| Restricted stock forfeiture | | (3,000 | ) | | (3 | ) | | 3 |
| | — |
| | — |
| | — |
| | — |
|
| Common stock net of issuance cost of $1,805 | | 1,137,000 |
| | 1,137 |
| | 22,072 |
| | — |
| | — |
| | — |
| | 23,209 |
|
| Noncontrolling interest contributions | | — |
| | — |
| | — |
| | — |
| | — |
| | 1,083 |
| | 1,083 |
|
| Cash dividend declared to common shareholders ($0.24 per share) | | — |
| | — |
| | — |
| | (2,024 | ) | | — |
| | — |
| | (2,024 | ) |
| Net income (loss) | | — |
| | — |
| | — |
| | 7,246 |
| | — |
| | (1,083 | ) | | 6,163 |
|
| Reclassification of federal income tax rate change | | — |
| | — |
| | — |
| | (245 | ) | | 245 |
| | — |
| | — |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | 3,348 |
| | — |
| | 3,348 |
|
| BALANCE- DECEMBER 31, 2017 | | 9,034,439 |
| | 9,034 |
| | 112,437 |
| | 17,189 |
| | 1,477 |
| | — |
| | 140,137 |
|
| Stock based compensation expense | | — |
| | — |
| | 923 |
| | — |
| | — |
| | — |
| | 923 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Exercise of stock options | | 30,001 |
| | 30 |
| | 368 |
| | — |
| | — |
| | — |
| | 398 |
|
| Restricted stock awards | | 51,710 |
| | 52 |
| | (52 | ) | | — |
| | — |
| | — |
| | — |
|
| Restricted stock forfeiture | | (1,550 | ) | | (2 | ) | | 2 |
| | — |
| | — |
| | — |
| | — |
|
| Conversion shares issued to shareholders' of Community First, Inc. | | 2,416,444 |
| | 2,417 |
| | 59,566 |
| | — |
| | — |
| | — |
| | 61,983 |
|
| Shares acquired from dissenting shareholder | | (234 | ) | | — |
| | (6 | ) | | — |
| | — |
| | — |
| | (6 | ) |
| Noncontrolling interest contributions | | — |
| | — |
| | — |
| | — |
| | — |
| | 3,578 |
| | 3,578 |
|
| Cash dividend declared to common shareholders ($0.33 per share) | | — |
| | — |
| | — |
| | (3,945 | ) | | — |
| | — |
| | (3,945 | ) |
| Net income (loss) | | — |
| | — |
| | — |
| | 14,085 |
| | — |
| | (3,578 | ) | | 10,507 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | (5,161 | ) | | — |
| | (5,161 | ) |
| BALANCE - DECEMBER 31, 2018 | | 11,530,810 |
| | $ | 11,531 |
| | $ | 173,238 |
| — |
| $ | 27,329 |
| — |
| $ | (3,684 | ) | — |
| $ | — |
| | $ | 208,414 |
|
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| OPERATING ACTIVITIES | | | | | |
| Consolidated net income | $ | 10,507 |
| | $ | 6,163 |
| | $ | 7,897 |
|
| Reclassification of federal income tax rate change | — |
| | (245 | ) | | — |
|
| Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities | | | | | |
| Provision for loan losses | 1,035 |
| | 1,316 |
| | 968 |
|
| Provision to reflect lower of cost or market value of mortgage loans held for sale | — |
| | (160 | ) | | 160 |
|
| Deferred income taxes | 380 |
| | 504 |
| | 235 |
|
| Gain (loss) on disposal of premises and equipment | (13 | ) | | 52 |
| | — |
|
| Depreciation and amortization of premises and equipment | 1,697 |
| | 1,017 |
| | 976 |
|
| Net amortization of securities | 3,182 |
| | 2,030 |
| | 1,551 |
|
| Net realized gains on sales of securities | (43 | ) | | (59 | ) | | (36 | ) |
| Gains on mortgage loans sold, net | (4,418 | ) | | (3,675 | ) | | (6,317 | ) |
| Stock-based compensation expense | 923 |
| | 616 |
| | 251 |
|
| Realization of gain on other real estate | (259 | ) | | (27 | ) | | (301 | ) |
| Provision for losses on other real estate | — |
| | — |
| | 70 |
|
| Increase in cash surrender value of life insurance contracts | (1,186 | ) | | (836 | ) | | (750 | ) |
| Mortgage loans originated for resale | (141,783 | ) | | (157,220 | ) | | (158,617 | ) |
| Proceeds from sale of mortgage loans | 176,610 |
| | 127,564 |
| | 208,036 |
|
| Other accretion, net | (756 | ) | | (377 | ) | | (1,331 | ) |
| Change in | | | | | |
| Accrued interest receivable | (1,305 | ) | | (1,958 | ) | | (690 | ) |
| Other assets | (372 | ) | | 4,371 |
| | (6,580 | ) |
| Accrued interest payable | 326 |
| | 198 |
| | 52 |
|
| Other liabilities | (2,260 | ) | | 403 |
| | 1,501 |
|
| | | | | | |
| TOTAL ADJUSTMENTS | 31,758 |
| | (26,241 | ) | | 39,178 |
|
| | | | | | |
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 42,265 |
| | (20,323 | ) | | 47,075 |
|
| | | | | | |
| INVESTING ACTIVITIES | | | | | |
| Cash received from merger | 33,128 |
| | — |
| | — |
|
| Activities in available for sale securities | | | | | |
| Purchases | (106,893 | ) | | (95,430 | ) | | (59,332 | ) |
| Sales | 100,737 |
| | 18,688 |
| | 31,782 |
|
| Maturities, prepayments and calls | 12,987 |
| | 6,763 |
| | 9,255 |
|
| Purchases of restricted equity securities | (2,190 | ) | | (641 | ) | | (889 | ) |
| Loan originations and payments, net | (145,090 | ) | | (105,478 | ) | | (48,469 | ) |
| Purchase of buildings, leasehold improvements, and equipment | (4,342 | ) | | (1,766 | ) | | (873 | ) |
|
| | | | | | | | | | | |
| Proceeds from sale of other real estate | 1,947 |
| | — |
| | 1,313 |
|
| Improvement of other real estate | — |
| | — |
| | (16 | ) |
| Purchase of life insurance contracts | — |
| | (8,000 | ) | | (4,000 | ) |
| | | | | | |
| NET CASH USED IN INVESTING ACTIVITIES | (109,716 | ) | | (185,864 | ) | | (71,229 | ) |
| | | | | | |
| FINANCING ACTIVITIES | | | | | |
| Net change in deposits | 121,960 |
| | 119,685 |
| | 124,006 |
|
| Net change in federal funds purchased | — |
| | (3,671 | ) | | 3,671 |
|
| Net change in advances from Federal Home Loan Bank | (39,195 | ) | | 64,514 |
| | (103,418 | ) |
| Issuance of common stock | 398 |
| | 24,032 |
| | 4,772 |
|
| Shares acquired from dissenting shareholder | (6 | ) | | — |
| | — |
|
| Noncontrolling interest contributions received | 2,255 |
| | 1,245 |
| | 285 |
|
| Cash dividends paid on common stock | (3,451 | ) | | (3,193 | ) | | (1,489 | ) |
| | | | | | |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 81,961 |
| | 202,612 |
| | 27,827 |
|
| | | | | | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 14,510 |
| | (3,575 | ) | | 3,673 |
|
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 20,668 |
| | 24,243 |
| | 20,570 |
|
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 35,178 |
| | $ | 20,668 |
| | $ | 24,243 |
|
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | |
| Cash paid during the period for | | | | | |
| Interest | $ | 14,638 |
| | $ | 5,473 |
| | $ | 3,311 |
|
| Taxes | 1,400 |
| | 1,750 |
| | 3,091 |
|
| | | | | | |
| Non-cash investing and financing activities | | | | | |
| Unrealized gain (loss) on securities available-for-sale | $ | (6,295 | ) | | $ | 5,380 |
| | $ | (3,792 | ) |
| Unrealized gain (loss) on derivatives | (690 | ) | | 47 |
| | 423 |
|
| Change in due to/from noncontrolling interest | 3,578 |
| | 1,083 |
| | 754 |
|
| Foreclosures transferred from loans to other real estate | 1,060 |
| | — |
| | — |
|
| Dividends declared, not paid | 1,036 |
| | 542 |
| | 1,711 |
|
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESAllowance for Loan Losses
NatureDescription of Operationsthe Matter
Reliant Bancorp, Inc. began organizational activities in 2005. The Company provides financial services through its offices in Williamson, Robertson, Davidson, Sumner, Rutherford, Maury, Hickman and Hamilton Counties in Tennessee. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are commercial and residential construction loans, commercial loans, installment loans and lines secured by home equity. Substantially all loans are secured by specific items of collateral including commercial and residential real estate, business assets, and consumer assets. Commercial loans are expected to be repaid from cash flow from operations of businesses. On January 1, 2018, Community First, Inc. a community banking organization headquartered in Columbia, Tennessee was merged with and into the Company. See Note 22.
Basis of Presentation
The accountingCompany’s loan portfolio totaled $2.3 billion as of December 31, 2020 and reporting policies of Reliant Bancorp, Inc. conformthe associated allowance for loan losses (ALL) was $20.6 million. As discussed in Notes 1 and 3 to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The following is a brief summary of the significant policies.
The consolidated financial statements, the ALL is established to absorb inherent losses that have been incurred within the existing portfolio of loans. Management’s estimate of inherent losses within the loan portfolio is established using quantitative, as well as qualitative, considerations. The Company’s methodology to determine the ALL considers quantitative calculations including: specific valuation allowances determined in accordance with ASC Topic 310 based on probable losses on specific loans, historical valuation allowances determined in accordance with ASC Topic 450 based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions, and general valuation allowances determined in accordance with ASC Topic 450 based on various risk factors that are internal to the Company. The Company’s ALL methodology also includes qualitative amounts that include valuation allowances based on general economic conditions and other risk factors to the Company.
Management’s estimate of the ALL involves significant estimates and subjective assumptions, which require a high degree of judgment. The level of the allowance is based upon management's evaluation of the loan portfolio, loan loss experience, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay the loan (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Changes in these assumptions could have a material effect on the Company’s financial results.
How We Addressed the Matter in Our Audit
We obtained an understanding of the Company’s process for establishing the ALL, including the qualitative valuation allowances of the ALL. To test the reasonableness of the qualitative valuation allowances, we performed audit procedures that included, among others, testing the appropriateness of the methodologies used by the Company to estimate the ALL, testing the completeness and accuracy of data and information used by the Company in estimating the components of the ALL, evaluating the appropriateness of assumptions used in estimating the qualitative valuation allowances, analyzing the changes in assumptions and various components of the ALL relative to changes in the Company’s loan portfolio and the economy and evaluating the appropriateness and level of the qualitative valuation allowances. For example, specific to the qualitative valuation allowances, we (1) analyzed the changes, assumptions, and adjustments made to the qualitative valuation allowances; and (2) evaluated the appropriateness and completeness of risk factors used in determining the amount of the qualitative valuation allowances. We also evaluated the data and information utilized by management to estimate the qualitative valuation allowances by independently obtaining internal and external data and information to assess the appropriateness of the data and information used by management. In addition, we evaluated the overall ALL amount, inclusive of the adjustments for the qualitative valuation allowances, and whether the amount appropriately reflects losses incurred in the loan portfolio as of the consolidated balance sheet date by comparing the overall ALL to those established by similar banking institutions with similar loan portfolios. We also reviewed subsequent events and fortransactions and considered whether they corroborate or contradict the periods presented include the accountsCompany’s conclusion.
Valuation of Reliant Bancorp Inc., Reliant Bank, Community First TRUPS Holding Company, which is wholly owned by Reliant Bancorp Inc., (“TRUPS”), Reliant Investment Holdings, LLC ("Holdings") which is 100% wholly owned by Reliant Bank, and Reliant Mortgage Ventures, LLC ("RMV"), of which Reliant Bank controls 51%Acquired Loans
Description of the governance rights. Reliant Bancorp Inc., Reliant Bank, TRUPS, HoldingsMatter
The Company’s strategy includes growth by acquisition. Acquisitions represent a significant component of the Company’s asset growth through the addition of new loan and RMV, are collectively referreddeposit accounts. During 2020 the Company completed two acquisitions for net consideration of $100.6 million. As discussed in Notes 1 and 15 to herein as the “Company”. As described in the notes to our annual consolidated financial statements, all significant intercompany balances and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company conform to accounting principles generally acceptedaccounted for its acquisitions in accordance with ASC Topic 805 - Business Combinations, which requires the United States of America ("U.S. GAAP") and to general practices in the banking industry.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the reported amounts ofacquired assets and liabilities and disclosure of contingent assets and liabilitiesassumed to be marked to fair market value at the date of acquisition.
More specifically in conjunction with the acquisitions, acquired loans were recorded at a fair value of $793.9 million. To determine the fair value of acquired loans, management engaged a third-party specialist who used a discounted cash flow methodology that considered factors such as loan characteristics, discount rates, probability of default, loss given default, and prepayment assumptions. The principal considerations for our determination that performing procedures relating to the valuation of certain acquired loans is a critical audit matter are (1) there was significant judgment by management to determine the fair value of acquired loans, which led to a high degree of auditor judgment and subjectivity in performing procedures relating to discount rates, probability of default, loss given default, and prepayment assumptions and (2) significant audit effort was necessary to evaluate the evidence obtained relating to these assumptions.
How We Addressed the Matter in Our Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statementsstatements. These procedures included, among others, (1) the development of independent assumptions for discount rates, probability of default, loss given default, and prepayment assumptions, (2) comparison of management’s estimate to the independently developed ranges, (3) testing the completeness and accuracy of the underlying loan data provided by management that was used to develop these assumptions, and (4) assessing the Company engaged specialist’s knowledge, skill, and ability as well as the relationship between the Company and the reported amounts of revenues and expenses duringspecialist.
/s/ Maggart & Associates, P.C.
We have served as the reporting period.Company’s auditor since 2015.
Nashville, Tennessee
Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for loan losses, the valuation of other real estate, the valuation of debt and equity securities, the valuation of deferred tax assets and fair values of financial instruments.March 9, 2021
Concentrations
At December 31, 2018, the Company had significant credit exposures to borrowers in real estate. If this industry experiences another economic slowdown and, as a result, the borrowers in this industry are unable to meet the obligations of their existing loan agreements, earnings could be negatively impacted. The Company is concentrated in the Tennessee regional market and the operating results are impacted by the economic conditions of that area.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016BALANCE SHEETS
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| ASSETS | | | |
| Cash and due from banks | $ | 13,717 | | | $ | 7,953 | |
| Interest-bearing deposits in financial institutions | 79,756 | | | 43,644 | |
| Federal funds sold | 1,572 | | | 52 | |
| Total cash and cash equivalents | 95,045 | | | 51,649 | |
| Securities available for sale | 256,653 | | | 260,293 | |
| Loans | 2,300,783 | | | 1,409,952 | |
| Less allowance for loan losses | (20,636) | | | (12,578) | |
| Loans, net | 2,280,147 | | | 1,397,374 | |
| Mortgage loans held for sale, net | 147,524 | | | 37,476 | |
| Accrued interest receivable | 14,889 | | | 7,188 | |
| Premises and equipment, net | 31,462 | | | 21,064 | |
| Operating leases right of use assets | 13,103 | | | — | |
| Restricted equity securities, at cost | 16,551 | | | 11,279 | |
| Other real estate, net | 1,246 | | | 750 | |
| Cash surrender value of life insurance contracts | 77,988 | | | 46,632 | |
| Deferred tax assets, net | 7,121 | | | 3,933 | |
| Goodwill | 54,396 | | | 43,642 | |
| Core deposit intangibles | 11,347 | | | 7,270 | |
| Other assets | 19,063 | | | 13,292 | |
| TOTAL ASSETS | $ | 3,026,535 | | | $ | 1,901,842 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| LIABILITIES | | | |
| Deposits | | | |
| Noninterest-bearing demand | $ | 575,289 | | | $ | 260,681 | |
| Interest-bearing demand | 350,392 | | | 152,718 | |
| Savings and money market deposit accounts | 857,210 | | | 408,724 | |
| Time | 796,344 | | | 762,330 | |
| Total deposits | 2,579,235 | | | 1,584,453 | |
| Accrued interest payable | 2,571 | | | 2,022 | |
| Federal funds purchased | — | | | 0 | |
| Subordinated debentures | 70,446 | | | 70,883 | |
| Federal Home Loan Bank advances | 10,000 | | | 10,737 | |
| Operating leases liabilities | 14,231 | | | — | |
| Other liabilities | 28,079 | | | 9,994 | |
| TOTAL LIABILITIES | 2,704,562 | | | 1,678,089 | |
| STOCKHOLDERS’ EQUITY | | | |
| Preferred stock, $1 par value; 10,000,000 shares authorized; 0 shares issued to date | $ | 0 | | | $ | 0 | |
| Common stock, $1 par value; 30,000,000 shares authorized; 16,654,409 and 11,206,254 shares issued and outstanding at December 31, 2020 and 2019, respectively | 16,654 | | | 11,206 | |
| Additional paid-in capital | 233,331 | | | 167,006 | |
| Retained earnings | 65,757 | | | 40,472 | |
| Accumulated other comprehensive income | 6,231 | | | 5,069 | |
| TOTAL STOCKHOLDERS’ EQUITY | 321,973 | | | 223,753 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,026,535 | | | $ | 1,901,842 | |
See accompanying notes to consolidated financial statements
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, deposits with other financial institutions with maturities less than 90 days, and federal funds sold. Generally, federal funds sold are purchased and sold for one-day periods. Net cash flows are reported for customer loan and deposit transactions, federal funds sold, and short-term Federal Home Loan Bank borrowings.
The Company maintains deposits in excess of the federal insurance amounts with other financial institutions. Management makes deposits only with financial institutions it considers financially sound.
Federal funds sold of $371 and $171 at December 31, 2018 and 2017, respectively, were invested in one financial institution. Such funds were unsecured and matured the next business day.
Securities
The Company classifies its securities in one of two categories: held to maturity and available for sale. Held to maturity securities are those securities for which the Company has the ability and intent to hold until maturity. Securities are classified as available for sale when they might be sold before maturity. The Company had no held to maturity securities at December 31, 2018 and 2017, or in the three year period ended December 31, 2018.
Interest income includes purchase premiums and discounts amortized or accreted over the life of the related security as an adjustment to the yield without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
When the fair value of a debt security has declined below the amortized cost at the measurement date, if an entity intends to sell a security or is more likely than not to sell the security before the recovery of the security’s cost basis, the entity must recognize the other-than-temporary impairment (“OTTI”) in earnings. For a debt security with a fair value below the amortized cost at the measurement date where it is more likely than not that an entity will not sell the security before the recovery of its cost basis, but an entity does not expect to recover the entire cost basis of the security, the security is classified as OTTI.
The related OTTI loss on the debt security will be recognized in earnings to the extent of the credit losses, with the remaining impairment loss recognized in accumulated other comprehensive income. In estimating OTTI losses, management considers: the length of time and extent that fair value of the security has been less than the cost of the security, the financial condition and near term prospects of the issuer, cash flow, stress testing analysis on securities, when applicable, and the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016OF OPERATIONS
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| INTEREST INCOME | | | | | |
| Interest and fees on loans | $ | 119,259 | | | $ | 68,421 | | | $ | 58,351 | |
| Interest and fees on loans held for sale | 3,450 | | | 961 | | | 1,278 | |
| Interest on investment securities, taxable | 1,517 | | | 2,099 | | | 1,836 | |
| Interest on investment securities, nontaxable | 5,068 | | | 6,452 | | | 6,605 | |
| Federal funds sold and other | 977 | | | 1,252 | | | 1,137 | |
| TOTAL INTEREST INCOME | 130,271 | | | 79,185 | | | 69,207 | |
| INTEREST EXPENSE | | | | | |
| Deposits | | | | | |
| Demand | 779 | | | 384 | | | 366 | |
| Savings and money market deposit accounts | 4,709 | | | 4,191 | | | 2,589 | |
| Time | 11,880 | | | 17,324 | | | 9,998 | |
| Federal Home Loan Bank advances and other borrowings | 903 | | | 543 | | | 1,719 | |
| Subordinated debentures | 3,954 | | | 938 | | | 724 | |
| TOTAL INTEREST EXPENSE | 22,225 | | | 23,380 | | | 15,396 | |
| NET INTEREST INCOME | 108,046 | | | 55,805 | | | 53,811 | |
| PROVISION FOR LOAN LOSSES | 8,350 | | | 1,211 | | | 1,035 | |
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 99,696 | | | 54,594 | | | 52,776 | |
| NONINTEREST INCOME | | | | | |
| Service charges on deposit accounts | 5,747 | | | 3,746 | | | 3,419 | |
| Gains on mortgage loans sold, net | 12,239 | | | 4,905 | | | 4,418 | |
| (Loss) gain on securities transactions, net | (270) | | | 1,451 | | | 43 | |
| | | | | |
| | | | | |
| | | | | |
| Other noninterest income | 3,843 | | | 1,862 | | | 1,784 | |
| TOTAL NONINTEREST INCOME | 21,559 | | | 11,964 | | | 9,664 | |
| NONINTEREST EXPENSE | | | | | |
| Salaries and employee benefits | $ | 46,332 | | | $ | 30,514 | | | $ | 27,510 | |
| Occupancy | 7,756 | | | 5,423 | | | 4,949 | |
| Data processing and software | 8,594 | | | 6,213 | | | 5,333 | |
| | | | | |
| Professional fees | 2,676 | | | 2,302 | | | 2,848 | |
| Regulatory fees | 1,797 | | | 908 | | | 1,077 | |
| | | | | |
| Merger expenses | 6,895 | | | 1,603 | | | 2,774 | |
| Other operating expense | 9,157 | | | 6,929 | | | 6,070 | |
| TOTAL NONINTEREST EXPENSE | 83,207 | | | 53,892 | | | 50,561 | |
| INCOME BEFORE PROVISION FOR INCOME TAXES | 38,048 | | | 12,666 | | | 11,879 | |
| INCOME TAX EXPENSE | 6,935 | | | 2,129 | | | 1,372 | |
| CONSOLIDATED NET INCOME | 31,113 | | | 10,537 | | | 10,507 | |
| NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY | 299 | | | 5,659 | | | 3,578 | |
| NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 31,412 | | | $ | 16,196 | | | $ | 14,085 | |
| Basic net income attributable to common shareholders, per share | $ | 2.03 | | | $ | 1.44 | | | $ | 1.24 | |
| Diluted net income attributable to common shareholders, per share | $ | 2.02 | | | $ | 1.44 | | | $ | 1.23 | |
See accompanying notes to consolidated financial statements
NOTE 1 - SUMMARY
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)COMPREHENSIVE INCOME
Loans(Dollar amounts in thousands)
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using a straight-line method without anticipating prepayments. This treatment does not materially differ from the level interest yield method. Past due status is determined based on the contractual terms of the note.
The accrual of interest is discontinued when a loan becomes 90 days past due according to the contractual terms of the note unless it is well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. When a loan is placed on non-accrual status, previously accrued and uncollected interest is charged against interest income on loans. When full collection of the remaining book balance is uncertain, interest payments received are applied to the principal balance outstanding. In some cases, when the remaining book balance of the loan is deemed fully collectible, payments are treated as interest income on a cash basis. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Net Income | | $ | 31,113 | | | $ | 10,537 | | | $ | 10,507 | |
| Other comprehensive (loss) income : | | | | | | |
| Unrealized gains (losses) on securities available for sale: | | | | | | |
| Unrealized holdings gains (losses) arising during the period | | 6,881 | | | 14,228 | | | (5,791) | |
| Reclassification adjustment for losses (gains) included in net income | | 270 | | | (1,451) | | | (43) | |
| Tax effect | | (1,869) | | | (3,341) | | | 1,525 | |
| Net of tax | | 5,282 | | 9,436 | | (4,309) | |
| Unrealized (losses) gains on cash flow hedges | | | | | | |
| Unrealized holdings (losses) gains arising during the period | | (5,578) | | | (926) | | | (1,153) | |
| Reclassification adjustment for losses (gains) included in net income | | 0 | | | 0 | | | 0 | |
| Tax effect | | 1,458 | | 243 | | 301 |
| Net of tax | | (4,120) | | | (683) | | | (852) | |
| Other comprehensive income (loss) | | 1,162 | | | 8,753 | | | (5,161) | |
| Comprehensive income | | $ | 32,275 | | | $ | 19,290 | | | $ | 5,346 | |
| Comprehensive loss attributable to noncontrolling interest | | 299 | | | 5,659 | | | 3,578 | |
| Comprehensive income attributable to the controlling interest | | $ | 32,574 | | | $ | 24,949 | | | $ | 8,924 | |
The restructuring of a loan is considered a “troubled debt restructuring” if the borrower is experiencingSee accompanying notes to consolidated financial difficulties and the Company has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intendedstatements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED December 31, 2020, 2019 AND 2018
(Dollar amounts in thousands except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | ADDITIONAL | | | | ACCUMULATED
OTHER | | | | |
| | | COMMON STOCK | | PAID-IN | | RETAINED | | COMPREHENSIVE | | NONCONTROLLING | | |
| | | SHARES | | AMOUNT | | CAPITAL | | EARNINGS | | INCOME (LOSS) | | INTEREST | | TOTAL |
| BALANCE- DECEMBER 31, 2017 | | 9,034,439 | | | $ | 9,034 | | | $ | 112,437 | | | $ | 17,189 | | | $ | 1,477 | | | $ | 0 | | | $ | 140,137 | |
| Stock based compensation expense | | — | | | — | | | 923 | | | — | | | — | | | — | | | 923 | |
| Exercise of stock options | | 30,001 | | | 30 | | | 368 | | | — | | | — | | | — | | | 398 | |
| Restricted stock awards, net of taxes withheld and stock and dividend forfeitures | | 50,160 | | | 50 | | | (50) | | | — | | | — | | | — | | | 0 | |
| Conversion shares issued to shareholders of Community First, Inc. | | 2,416,444 | | | 2,417 | | | 59,566 | | | — | | | — | | | — | | | 61,983 | |
| Shares acquired from dissenting shareholder | | (234) | | | — | | | (6) | | | — | | | — | | | — | | | (6) | |
| Noncontrolling interest contributions | | — | | | — | | | — | | | — | | | — | | | 3,578 | | | 3,578 | |
| Cash dividend declared to common shareholders ($0.33 per share) | | — | | | — | | | — | | | (3,945) | | | — | | | — | | | (3,945) | |
| Net income (loss) | | — | | | — | | | — | | | 14,085 | | | — | | | (3,578) | | | 10,507 | |
| Other comprehensive loss | | — | | | — | | | — | | | 0 | | | (5,161) | | | — | | | (5,161) | |
| BALANCE- DECEMBER 31, 2018 | | 11,530,810 | | | $ | 11,531 | | | $ | 173,238 | | | $ | 27,329 | | | $ | (3,684) | | | $ | 0 | | | $ | 208,414 | |
| Stock based compensation expense | | — | | | — | | | 1,222 | | | — | | | — | | | — | | | 1,222 | |
| Exercise of stock options | | 34,714 | | | 34 | | | 405 | | | — | | | — | | | — | | | 439 | |
| Employee Stock Purchase Plan stock issuance | | 8,512 | | | 9 | | | 152 | | | — | | | — | | | — | | | 161 | |
| Restricted stock awards, net of shares withheld for taxes and stock and dividend forfeitures | | (1,851) | | | (2) | | | (86) | | | — | | | — | | | — | | | (88) | |
| Common stock shares redeemed | | (365,931) | | | (366) | | | (7,925) | | | — | | | — | | | — | | | (8,291) | |
| Noncontrolling interest contributions | | — | | | — | | | — | | | — | | | — | | | 5,659 | | | 5,659 | |
| Cash dividends declared to common shareholders ($0.27 per share) | | — | | | — | | | — | | | (3,053) | | | — | | | — | | | (3,053) | |
| Net income (loss) | | — | | | — | | | — | | | 16,196 | | | — | | | (5,659) | | | 10,537 | |
| Other comprehensive income | | — | | | — | | | — | | | 0 | | | 8,753 | | | — | | | 8,753 | |
| BALANCE - DECEMBER 31, 2019 | | 11,206,254 | | | $ | 11,206 | | | $ | 167,006 | | | $ | 40,472 | | | $ | 5,069 | | | $ | 0 | | | $ | 223,753 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | ADDITIONAL | | | | ACCUMULATED
OTHER | | | | |
| | | COMMON STOCK | | PAID-IN | | RETAINED | | COMPREHENSIVE | | NONCONTROLLING | | |
| | | SHARES | | AMOUNT | | CAPITAL | | EARNINGS | | INCOME (LOSS) | | INTEREST | | TOTAL |
| Conversion shares issued to shareholders of Tennessee Community Bank Holdings, Inc. | | 811,210 | | | 811 | | | 17,230 | | | — | | | — | | | — | | | 18,041 | |
| Conversion shares issued to shareholders of First Advantage Bancorp | | 4,606,419 | | | 4,607 | | | 47,308 | | | — | | | — | | | — | | | 51,915 | |
| Cumulative effect of lease standard adoption | | — | | | — | | | — | | | 100 | | | — | | | — | | | 100 | |
| Stock based compensation expense | | — | | | — | | | 1,578 | | | — | | | — | | | — | | | 1,578 | |
| Exercise of stock options | | 10,865 | | | 10 | | | 132 | | | — | | | — | | | — | | | 142 | |
| Employee Stock Purchase Plan stock issuance | | 21,962 | | | 21 | | | 275 | | | — | | | — | | | — | | | 296 | |
| Restricted stock units vesting, net of taxes withheld and stock and dividend forfeitures | | (2,301) | | | (1) | | | (198) | | | | | | | | | (199) | |
| Noncontrolling interest contributions | | — | | | — | | | — | | | — | | | — | | | 299 | | | 299 | |
| Cash dividend declared to common shareholders ($0.40 per share) | | — | | | — | | | — | | | (6,227) | | | — | | | — | | | (6,227) | |
| Net income (loss) | | — | | | — | | | — | | | 31,412 | | | — | | | (299) | | | 31,113 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | 1,162 | | | — | | | 1,162 | |
| BALANCE - DECEMBER 31, 2020 | | 16,654,409 | | | $ | 16,654 | | | $ | 233,331 | | | $ | 65,757 | | | $ | 6,231 | | | $ | 0 | | | $ | 321,973 | |
See accompanying notes to minimize potential losses.consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED December 31, 2020, 2019 AND 2018
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| OPERATING ACTIVITIES | | | | | |
| Consolidated net income | $ | 31,113 | | | $ | 10,537 | | | $ | 10,507 | |
| Adjustments to reconcile consolidated net income to net cash (used in) provided by operating activities | | | | | |
| Provision for loan losses | 8,350 | | | 1,211 | | | 1,035 | |
| | | | | |
| Deferred income taxes | 2,060 | | | 398 | | | 380 | |
| Loss (gain) on disposal of premises and equipment | 31 | | | 0 | | | (13) | |
| Depreciation of premises and equipment | 2,867 | | | 1,875 | | | 1,586 | |
| Net amortization of securities | 2,370 | | | 3,051 | | | 3,182 | |
| Net realized losses (gains) on sales of securities | 270 | | | (1,451) | | | (43) | |
| Gains on mortgage loans sold, net | (12,239) | | | (4,905) | | | (4,418) | |
| Stock-based compensation expense | 1,578 | | | 1,222 | | | 923 | |
| Gain on other real estate | (28) | | | (166) | | | (259) | |
| Provision for losses on other real estate | 0 | | | 98 | | | 0 | |
| Earnings on bank-owned life insurance | (2,759) | | | (1,119) | | | (1,186) | |
| Mortgage loans originated for resale | (605,020) | | | (179,331) | | | (141,783) | |
| Proceeds from sale of mortgage loans | 513,089 | | | 162,583 | | | 176,610 | |
| Right of use asset amortization | 2,596 | | | — | | | — | |
| Other accretion, net of other amortization | (11,010) | | | 2,530 | | | (645) | |
| Change in | | | | | |
| Accrued interest receivable | (4,368) | | | 1,026 | | | (1,305) | |
| Other assets | 993 | | | (1,477) | | | (372) | |
| Accrued interest payable | (699) | | | 959 | | | 326 | |
| Other liabilities | (4,124) | | | (1,230) | | | (2,260) | |
| TOTAL ADJUSTMENTS | (106,042) | | | (14,726) | | | 31,758 | |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | (74,929) | | | (4,189) | | | 42,265 | |
| INVESTING ACTIVITIES | | | | | |
| Cash (used in) received from acquisitions, net | (8,500) | | | 0 | | | 33,128 | |
| Activities in available for sale securities | | | | | |
| Purchases | (61,783) | | | (50,430) | | | (106,893) | |
| Sales | 151,934 | | | 85,895 | | | 100,737 | |
| Maturities, prepayments and calls | 11,171 | | | 12,807 | | | 12,987 | |
| (Purchases) redemptions of restricted equity securities | (1,051) | | | 411 | | | (2,190) | |
| Net increase in loans | (87,767) | | | (180,787) | | | (145,090) | |
| Purchase of premises and equipment | (2,873) | | | (1,339) | | | (4,342) | |
| Proceeds from sale of premises and equipment | 135 | | | 0 | | | 0 | |
| Proceeds from sale of other real estate | 2,357 | | | 1,261 | | | 1,947 | |
| Purchase of life insurance contracts | (10,000) | | | 0 | | | 0 |
| Proceeds from BOLI death benefit | 1,808 | | | 0 | | | 0 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| NET CASH USED IN INVESTING ACTIVITIES | (4,569) | | | (132,182) | | | (109,716) | |
| FINANCING ACTIVITIES | | | | | |
| Net change in deposits | 178,245 | | | 146,484 | | | 121,960 | |
| Proceeds from Federal Home Loan Bank advances | 559,000 | | | 200,824 | | | 168,525 | |
| Payments on Federal Home Loan Bank advances | (608,663) | | | (247,531) | | | (207,720) | |
| | | | | |
| Issuance of subordinate debentures, net of issuance costs | 0 | | | 59,198 | | | 0 | |
| Issuance of ESPP shares and exercise of common stock options and warrants, net of repurchase of restricted shares | 239 | | | (7,779) | | | 392 | |
| Noncontrolling interest contributions received | 299 | | | 5,659 | | | 2,255 | |
| Cash dividends paid on common stock | (6,227) | | | (4,013) | | | (3,451) | |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 122,893 | | | 152,842 | | | 81,961 | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 43,395 | | | 16,471 | | | 14,510 | |
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 51,649 | | | 35,178 | | | 20,668 | |
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 95,045 | | | $ | 51,649 | | | $ | 35,178 | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED December 31, 2020, 2019 AND 2018
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | |
| Cash paid during the year for | | | | | |
| Interest | $ | 26,190 | | | $ | 22,421 | | | $ | 14,638 | |
| Taxes | 4,402 | | | 1,303 | | | 1,400 | |
| | | | | |
| Non-cash investing and financing activities | | | | | |
| | | | | |
| | | | | |
| Change in due to/from noncontrolling interest | 299 | | | 5,659 | | | 3,578 | |
| Loans foreclosed and transferred to other real estate | 197 | | | 943 | | | 1,060 | |
| Acquired bank facilities no longer in use transferred to other real estate from premises and equipment | 2,420 | | | | |
| Dividends declared, not paid | 0 | | | 76 | | | 1,036 | |
| Right of use assets obtained in exchange for operating lease liabilities | 11,973 | | | — | | | — | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Allowance for Loan Losses
Description of the Matter
The Company’s loan portfolio totaled $2.3 billion as of December 31, 2020 and the associated allowance for loan losses (ALL) was $20.6 million. As discussed in Notes 1 and 3 to the consolidated financial statements, the ALL is established to absorb inherent losses that have been incurred within the existing portfolio of loans. Management’s estimate of inherent losses within the loan portfolio is established using quantitative, as well as qualitative, considerations. The Company’s methodology to determine the ALL considers quantitative calculations including: specific valuation allowances determined in accordance with ASC Topic 310 based on probable losses on specific loans, historical valuation allowances determined in accordance with ASC Topic 450 based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions, and general valuation allowances determined in accordance with ASC Topic 450 based on various risk factors that are internal to the Company. The Company’s ALL methodology also includes qualitative amounts that include valuation allowances based on general economic conditions and other risk factors to the Company.
Management’s estimate of the ALL involves significant estimates and subjective assumptions, which require a high degree of judgment. The level of the allowance is based upon management's evaluation of the loan portfolio, loan loss experience, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay the loan (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Changes in these assumptions could have a material effect on the Company’s financial results.
How We Addressed the Matter in Our Audit
We obtained an understanding of the Company’s process for establishing the ALL, including the qualitative valuation allowances of the ALL. To test the reasonableness of the qualitative valuation allowances, we performed audit procedures that included, among others, testing the appropriateness of the methodologies used by the Company to estimate the ALL, testing the completeness and accuracy of data and information used by the Company in estimating the components of the ALL, evaluating the appropriateness of assumptions used in estimating the qualitative valuation allowances, analyzing the changes in assumptions and various components of the ALL relative to changes in the Company’s loan portfolio and the economy and evaluating the appropriateness and level of the qualitative valuation allowances. For example, specific to the qualitative valuation allowances, we (1) analyzed the changes, assumptions, and adjustments made to the qualitative valuation allowances; and (2) evaluated the appropriateness and completeness of risk factors used in determining the amount of the qualitative valuation allowances. We also evaluated the data and information utilized by management to estimate the qualitative valuation allowances by independently obtaining internal and external data and information to assess the appropriateness of the data and information used by management. In addition, we evaluated the overall ALL amount, inclusive of the adjustments for the qualitative valuation allowances, and whether the amount appropriately reflects losses incurred in the loan portfolio as of the consolidated balance sheet date by comparing the overall ALL to those established by similar banking institutions with similar loan portfolios. We also reviewed subsequent events and transactions and considered whether they corroborate or contradict the Company’s conclusion.
Valuation of Acquired Loans
Description of the Matter
The Company’s strategy includes growth by acquisition. Acquisitions represent a significant component of the Company’s asset growth through the addition of new loan and deposit accounts. During 2020 the Company completed two acquisitions for net consideration of $100.6 million. As discussed in Notes 1 and 15 to the consolidated financial statements, the Company accounted for its acquisitions in accordance with ASC Topic 805 - Business Combinations, which requires the acquired assets and liabilities assumed to be marked to fair market value at the date of acquisition.
More specifically in conjunction with the acquisitions, acquired loans were recorded at a fair value of $793.9 million. To determine the fair value of acquired loans, management engaged a third-party specialist who used a discounted cash flow methodology that considered factors such as loan characteristics, discount rates, probability of default, loss given default, and prepayment assumptions. The principal considerations for our determination that performing procedures relating to the valuation of certain acquired loans is a critical audit matter are (1) there was significant judgment by management to determine the fair value of acquired loans, which led to a high degree of auditor judgment and subjectivity in performing procedures relating to discount rates, probability of default, loss given default, and prepayment assumptions and (2) significant audit effort was necessary to evaluate the evidence obtained relating to these assumptions.
How We Addressed the Matter in Our Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (1) the development of independent assumptions for discount rates, probability of default, loss given default, and prepayment assumptions, (2) comparison of management’s estimate to the independently developed ranges, (3) testing the completeness and accuracy of the underlying loan data provided by management that was used to develop these assumptions, and (4) assessing the Company engaged specialist’s knowledge, skill, and ability as well as the relationship between the Company and the specialist.
/s/ Maggart & Associates, P.C.
We have served as the Company’s auditor since 2015.
Nashville, Tennessee
March 9, 2021
RELIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| ASSETS | | | |
| Cash and due from banks | $ | 13,717 | | | $ | 7,953 | |
| Interest-bearing deposits in financial institutions | 79,756 | | | 43,644 | |
| Federal funds sold | 1,572 | | | 52 | |
| Total cash and cash equivalents | 95,045 | | | 51,649 | |
| Securities available for sale | 256,653 | | | 260,293 | |
| Loans | 2,300,783 | | | 1,409,952 | |
| Less allowance for loan losses | (20,636) | | | (12,578) | |
| Loans, net | 2,280,147 | | | 1,397,374 | |
| Mortgage loans held for sale, net | 147,524 | | | 37,476 | |
| Accrued interest receivable | 14,889 | | | 7,188 | |
| Premises and equipment, net | 31,462 | | | 21,064 | |
| Operating leases right of use assets | 13,103 | | | — | |
| Restricted equity securities, at cost | 16,551 | | | 11,279 | |
| Other real estate, net | 1,246 | | | 750 | |
| Cash surrender value of life insurance contracts | 77,988 | | | 46,632 | |
| Deferred tax assets, net | 7,121 | | | 3,933 | |
| Goodwill | 54,396 | | | 43,642 | |
| Core deposit intangibles | 11,347 | | | 7,270 | |
| Other assets | 19,063 | | | 13,292 | |
| TOTAL ASSETS | $ | 3,026,535 | | | $ | 1,901,842 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| LIABILITIES | | | |
| Deposits | | | |
| Noninterest-bearing demand | $ | 575,289 | | | $ | 260,681 | |
| Interest-bearing demand | 350,392 | | | 152,718 | |
| Savings and money market deposit accounts | 857,210 | | | 408,724 | |
| Time | 796,344 | | | 762,330 | |
| Total deposits | 2,579,235 | | | 1,584,453 | |
| Accrued interest payable | 2,571 | | | 2,022 | |
| Federal funds purchased | — | | | 0 | |
| Subordinated debentures | 70,446 | | | 70,883 | |
| Federal Home Loan Bank advances | 10,000 | | | 10,737 | |
| Operating leases liabilities | 14,231 | | | — | |
| Other liabilities | 28,079 | | | 9,994 | |
| TOTAL LIABILITIES | 2,704,562 | | | 1,678,089 | |
| STOCKHOLDERS’ EQUITY | | | |
| Preferred stock, $1 par value; 10,000,000 shares authorized; 0 shares issued to date | $ | 0 | | | $ | 0 | |
| Common stock, $1 par value; 30,000,000 shares authorized; 16,654,409 and 11,206,254 shares issued and outstanding at December 31, 2020 and 2019, respectively | 16,654 | | | 11,206 | |
| Additional paid-in capital | 233,331 | | | 167,006 | |
| Retained earnings | 65,757 | | | 40,472 | |
| Accumulated other comprehensive income | 6,231 | | | 5,069 | |
| TOTAL STOCKHOLDERS’ EQUITY | 321,973 | | | 223,753 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,026,535 | | | $ | 1,901,842 | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| INTEREST INCOME | | | | | |
| Interest and fees on loans | $ | 119,259 | | | $ | 68,421 | | | $ | 58,351 | |
| Interest and fees on loans held for sale | 3,450 | | | 961 | | | 1,278 | |
| Interest on investment securities, taxable | 1,517 | | | 2,099 | | | 1,836 | |
| Interest on investment securities, nontaxable | 5,068 | | | 6,452 | | | 6,605 | |
| Federal funds sold and other | 977 | | | 1,252 | | | 1,137 | |
| TOTAL INTEREST INCOME | 130,271 | | | 79,185 | | | 69,207 | |
| INTEREST EXPENSE | | | | | |
| Deposits | | | | | |
| Demand | 779 | | | 384 | | | 366 | |
| Savings and money market deposit accounts | 4,709 | | | 4,191 | | | 2,589 | |
| Time | 11,880 | | | 17,324 | | | 9,998 | |
| Federal Home Loan Bank advances and other borrowings | 903 | | | 543 | | | 1,719 | |
| Subordinated debentures | 3,954 | | | 938 | | | 724 | |
| TOTAL INTEREST EXPENSE | 22,225 | | | 23,380 | | | 15,396 | |
| NET INTEREST INCOME | 108,046 | | | 55,805 | | | 53,811 | |
| PROVISION FOR LOAN LOSSES | 8,350 | | | 1,211 | | | 1,035 | |
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 99,696 | | | 54,594 | | | 52,776 | |
| NONINTEREST INCOME | | | | | |
| Service charges on deposit accounts | 5,747 | | | 3,746 | | | 3,419 | |
| Gains on mortgage loans sold, net | 12,239 | | | 4,905 | | | 4,418 | |
| (Loss) gain on securities transactions, net | (270) | | | 1,451 | | | 43 | |
| | | | | |
| | | | | |
| | | | | |
| Other noninterest income | 3,843 | | | 1,862 | | | 1,784 | |
| TOTAL NONINTEREST INCOME | 21,559 | | | 11,964 | | | 9,664 | |
| NONINTEREST EXPENSE | | | | | |
| Salaries and employee benefits | $ | 46,332 | | | $ | 30,514 | | | $ | 27,510 | |
| Occupancy | 7,756 | | | 5,423 | | | 4,949 | |
| Data processing and software | 8,594 | | | 6,213 | | | 5,333 | |
| | | | | |
| Professional fees | 2,676 | | | 2,302 | | | 2,848 | |
| Regulatory fees | 1,797 | | | 908 | | | 1,077 | |
| | | | | |
| Merger expenses | 6,895 | | | 1,603 | | | 2,774 | |
| Other operating expense | 9,157 | | | 6,929 | | | 6,070 | |
| TOTAL NONINTEREST EXPENSE | 83,207 | | | 53,892 | | | 50,561 | |
| INCOME BEFORE PROVISION FOR INCOME TAXES | 38,048 | | | 12,666 | | | 11,879 | |
| INCOME TAX EXPENSE | 6,935 | | | 2,129 | | | 1,372 | |
| CONSOLIDATED NET INCOME | 31,113 | | | 10,537 | | | 10,507 | |
| NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY | 299 | | | 5,659 | | | 3,578 | |
| NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 31,412 | | | $ | 16,196 | | | $ | 14,085 | |
| Basic net income attributable to common shareholders, per share | $ | 2.03 | | | $ | 1.44 | | | $ | 1.24 | |
| Diluted net income attributable to common shareholders, per share | $ | 2.02 | | | $ | 1.44 | | | $ | 1.23 | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Net Income | | $ | 31,113 | | | $ | 10,537 | | | $ | 10,507 | |
| Other comprehensive (loss) income : | | | | | | |
| Unrealized gains (losses) on securities available for sale: | | | | | | |
| Unrealized holdings gains (losses) arising during the period | | 6,881 | | | 14,228 | | | (5,791) | |
| Reclassification adjustment for losses (gains) included in net income | | 270 | | | (1,451) | | | (43) | |
| Tax effect | | (1,869) | | | (3,341) | | | 1,525 | |
| Net of tax | | 5,282 | | 9,436 | | (4,309) | |
| Unrealized (losses) gains on cash flow hedges | | | | | | |
| Unrealized holdings (losses) gains arising during the period | | (5,578) | | | (926) | | | (1,153) | |
| Reclassification adjustment for losses (gains) included in net income | | 0 | | | 0 | | | 0 | |
| Tax effect | | 1,458 | | 243 | | 301 |
| Net of tax | | (4,120) | | | (683) | | | (852) | |
| Other comprehensive income (loss) | | 1,162 | | | 8,753 | | | (5,161) | |
| Comprehensive income | | $ | 32,275 | | | $ | 19,290 | | | $ | 5,346 | |
| Comprehensive loss attributable to noncontrolling interest | | 299 | | | 5,659 | | | 3,578 | |
| Comprehensive income attributable to the controlling interest | | $ | 32,574 | | | $ | 24,949 | | | $ | 8,924 | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED December 31, 2020, 2019 AND 2018
(Dollar amounts in thousands except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | ADDITIONAL | | | | ACCUMULATED
OTHER | | | | |
| | | COMMON STOCK | | PAID-IN | | RETAINED | | COMPREHENSIVE | | NONCONTROLLING | | |
| | | SHARES | | AMOUNT | | CAPITAL | | EARNINGS | | INCOME (LOSS) | | INTEREST | | TOTAL |
| BALANCE- DECEMBER 31, 2017 | | 9,034,439 | | | $ | 9,034 | | | $ | 112,437 | | | $ | 17,189 | | | $ | 1,477 | | | $ | 0 | | | $ | 140,137 | |
| Stock based compensation expense | | — | | | — | | | 923 | | | — | | | — | | | — | | | 923 | |
| Exercise of stock options | | 30,001 | | | 30 | | | 368 | | | — | | | — | | | — | | | 398 | |
| Restricted stock awards, net of taxes withheld and stock and dividend forfeitures | | 50,160 | | | 50 | | | (50) | | | — | | | — | | | — | | | 0 | |
| Conversion shares issued to shareholders of Community First, Inc. | | 2,416,444 | | | 2,417 | | | 59,566 | | | — | | | — | | | — | | | 61,983 | |
| Shares acquired from dissenting shareholder | | (234) | | | — | | | (6) | | | — | | | — | | | — | | | (6) | |
| Noncontrolling interest contributions | | — | | | — | | | — | | | — | | | — | | | 3,578 | | | 3,578 | |
| Cash dividend declared to common shareholders ($0.33 per share) | | — | | | — | | | — | | | (3,945) | | | — | | | — | | | (3,945) | |
| Net income (loss) | | — | | | — | | | — | | | 14,085 | | | — | | | (3,578) | | | 10,507 | |
| Other comprehensive loss | | — | | | — | | | — | | | 0 | | | (5,161) | | | — | | | (5,161) | |
| BALANCE- DECEMBER 31, 2018 | | 11,530,810 | | | $ | 11,531 | | | $ | 173,238 | | | $ | 27,329 | | | $ | (3,684) | | | $ | 0 | | | $ | 208,414 | |
| Stock based compensation expense | | — | | | — | | | 1,222 | | | — | | | — | | | — | | | 1,222 | |
| Exercise of stock options | | 34,714 | | | 34 | | | 405 | | | — | | | — | | | — | | | 439 | |
| Employee Stock Purchase Plan stock issuance | | 8,512 | | | 9 | | | 152 | | | — | | | — | | | — | | | 161 | |
| Restricted stock awards, net of shares withheld for taxes and stock and dividend forfeitures | | (1,851) | | | (2) | | | (86) | | | — | | | — | | | — | | | (88) | |
| Common stock shares redeemed | | (365,931) | | | (366) | | | (7,925) | | | — | | | — | | | — | | | (8,291) | |
| Noncontrolling interest contributions | | — | | | — | | | — | | | — | | | — | | | 5,659 | | | 5,659 | |
| Cash dividends declared to common shareholders ($0.27 per share) | | — | | | — | | | — | | | (3,053) | | | — | | | — | | | (3,053) | |
| Net income (loss) | | — | | | — | | | — | | | 16,196 | | | — | | | (5,659) | | | 10,537 | |
| Other comprehensive income | | — | | | — | | | — | | | 0 | | | 8,753 | | | — | | | 8,753 | |
| BALANCE - DECEMBER 31, 2019 | | 11,206,254 | | | $ | 11,206 | | | $ | 167,006 | | | $ | 40,472 | | | $ | 5,069 | | | $ | 0 | | | $ | 223,753 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | ADDITIONAL | | | | ACCUMULATED
OTHER | | | | |
| | | COMMON STOCK | | PAID-IN | | RETAINED | | COMPREHENSIVE | | NONCONTROLLING | | |
| | | SHARES | | AMOUNT | | CAPITAL | | EARNINGS | | INCOME (LOSS) | | INTEREST | | TOTAL |
| Conversion shares issued to shareholders of Tennessee Community Bank Holdings, Inc. | | 811,210 | | | 811 | | | 17,230 | | | — | | | — | | | — | | | 18,041 | |
| Conversion shares issued to shareholders of First Advantage Bancorp | | 4,606,419 | | | 4,607 | | | 47,308 | | | — | | | — | | | — | | | 51,915 | |
| Cumulative effect of lease standard adoption | | — | | | — | | | — | | | 100 | | | — | | | — | | | 100 | |
| Stock based compensation expense | | — | | | — | | | 1,578 | | | — | | | — | | | — | | | 1,578 | |
| Exercise of stock options | | 10,865 | | | 10 | | | 132 | | | — | | | — | | | — | | | 142 | |
| Employee Stock Purchase Plan stock issuance | | 21,962 | | | 21 | | | 275 | | | — | | | — | | | — | | | 296 | |
| Restricted stock units vesting, net of taxes withheld and stock and dividend forfeitures | | (2,301) | | | (1) | | | (198) | | | | | | | | | (199) | |
| Noncontrolling interest contributions | | — | | | — | | | — | | | — | | | — | | | 299 | | | 299 | |
| Cash dividend declared to common shareholders ($0.40 per share) | | — | | | — | | | — | | | (6,227) | | | — | | | — | | | (6,227) | |
| Net income (loss) | | — | | | — | | | — | | | 31,412 | | | — | | | (299) | | | 31,113 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | 1,162 | | | — | | | 1,162 | |
| BALANCE - DECEMBER 31, 2020 | | 16,654,409 | | | $ | 16,654 | | | $ | 233,331 | | | $ | 65,757 | | | $ | 6,231 | | | $ | 0 | | | $ | 321,973 | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED December 31, 2020, 2019 AND 2018
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| OPERATING ACTIVITIES | | | | | |
| Consolidated net income | $ | 31,113 | | | $ | 10,537 | | | $ | 10,507 | |
| Adjustments to reconcile consolidated net income to net cash (used in) provided by operating activities | | | | | |
| Provision for loan losses | 8,350 | | | 1,211 | | | 1,035 | |
| | | | | |
| Deferred income taxes | 2,060 | | | 398 | | | 380 | |
| Loss (gain) on disposal of premises and equipment | 31 | | | 0 | | | (13) | |
| Depreciation of premises and equipment | 2,867 | | | 1,875 | | | 1,586 | |
| Net amortization of securities | 2,370 | | | 3,051 | | | 3,182 | |
| Net realized losses (gains) on sales of securities | 270 | | | (1,451) | | | (43) | |
| Gains on mortgage loans sold, net | (12,239) | | | (4,905) | | | (4,418) | |
| Stock-based compensation expense | 1,578 | | | 1,222 | | | 923 | |
| Gain on other real estate | (28) | | | (166) | | | (259) | |
| Provision for losses on other real estate | 0 | | | 98 | | | 0 | |
| Earnings on bank-owned life insurance | (2,759) | | | (1,119) | | | (1,186) | |
| Mortgage loans originated for resale | (605,020) | | | (179,331) | | | (141,783) | |
| Proceeds from sale of mortgage loans | 513,089 | | | 162,583 | | | 176,610 | |
| Right of use asset amortization | 2,596 | | | — | | | — | |
| Other accretion, net of other amortization | (11,010) | | | 2,530 | | | (645) | |
| Change in | | | | | |
| Accrued interest receivable | (4,368) | | | 1,026 | | | (1,305) | |
| Other assets | 993 | | | (1,477) | | | (372) | |
| Accrued interest payable | (699) | | | 959 | | | 326 | |
| Other liabilities | (4,124) | | | (1,230) | | | (2,260) | |
| TOTAL ADJUSTMENTS | (106,042) | | | (14,726) | | | 31,758 | |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | (74,929) | | | (4,189) | | | 42,265 | |
| INVESTING ACTIVITIES | | | | | |
| Cash (used in) received from acquisitions, net | (8,500) | | | 0 | | | 33,128 | |
| Activities in available for sale securities | | | | | |
| Purchases | (61,783) | | | (50,430) | | | (106,893) | |
| Sales | 151,934 | | | 85,895 | | | 100,737 | |
| Maturities, prepayments and calls | 11,171 | | | 12,807 | | | 12,987 | |
| (Purchases) redemptions of restricted equity securities | (1,051) | | | 411 | | | (2,190) | |
| Net increase in loans | (87,767) | | | (180,787) | | | (145,090) | |
| Purchase of premises and equipment | (2,873) | | | (1,339) | | | (4,342) | |
| Proceeds from sale of premises and equipment | 135 | | | 0 | | | 0 | |
| Proceeds from sale of other real estate | 2,357 | | | 1,261 | | | 1,947 | |
| Purchase of life insurance contracts | (10,000) | | | 0 | | | 0 |
| Proceeds from BOLI death benefit | 1,808 | | | 0 | | | 0 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| NET CASH USED IN INVESTING ACTIVITIES | (4,569) | | | (132,182) | | | (109,716) | |
| FINANCING ACTIVITIES | | | | | |
| Net change in deposits | 178,245 | | | 146,484 | | | 121,960 | |
| Proceeds from Federal Home Loan Bank advances | 559,000 | | | 200,824 | | | 168,525 | |
| Payments on Federal Home Loan Bank advances | (608,663) | | | (247,531) | | | (207,720) | |
| | | | | |
| Issuance of subordinate debentures, net of issuance costs | 0 | | | 59,198 | | | 0 | |
| Issuance of ESPP shares and exercise of common stock options and warrants, net of repurchase of restricted shares | 239 | | | (7,779) | | | 392 | |
| Noncontrolling interest contributions received | 299 | | | 5,659 | | | 2,255 | |
| Cash dividends paid on common stock | (6,227) | | | (4,013) | | | (3,451) | |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 122,893 | | | 152,842 | | | 81,961 | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 43,395 | | | 16,471 | | | 14,510 | |
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 51,649 | | | 35,178 | | | 20,668 | |
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 95,045 | | | $ | 51,649 | | | $ | 35,178 | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED December 31, 2020, 2019 AND 2018
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | |
| Cash paid during the year for | | | | | |
| Interest | $ | 26,190 | | | $ | 22,421 | | | $ | 14,638 | |
| Taxes | 4,402 | | | 1,303 | | | 1,400 | |
| | | | | |
| Non-cash investing and financing activities | | | | | |
| | | | | |
| | | | | |
| Change in due to/from noncontrolling interest | 299 | | | 5,659 | | | 3,578 | |
| Loans foreclosed and transferred to other real estate | 197 | | | 943 | | | 1,060 | |
| Acquired bank facilities no longer in use transferred to other real estate from premises and equipment | 2,420 | | | | |
| Dividends declared, not paid | 0 | | | 76 | | | 1,036 | |
| Right of use assets obtained in exchange for operating lease liabilities | 11,973 | | | — | | | — | |
See accompanying notes to consolidated financial statements
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Reliant Bancorp, Inc. is a Tennessee corporation and the holding company for and the sole shareholder of Reliant Bank (the "Bank"), collectively, "the Company." Reliant Bancorp is registered as a financial holding company under the Bank Holding Company Act of 1956, as amended ("Bank Holding Company Act"). Reliant Bank is a commercial bank chartered under Tennessee law and a member of the Federal Reserve System (the "Federal Reserve"). The Bank provides a full range of traditional banking products and services to business and consumer clients throughout Middle Tennessee.
Reliant Risk Management, Inc., a wholly-owned insurance captive subsidiary of Reliant Bancorp, began operations on June 1, 2020, is a Tennessee-based captive insurance company which insures Reliant Bancorp and the Bank against certain risks unique to their operations and for which insurance may not be currently available or economically feasible in today's insurance marketplace. Reliant Risk Management, Inc. pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. Reliant Risk Management, Inc. is subject to regulations of the State of Tennessee and undergoes periodic examinations by the Tennessee Department of Commerce and Insurance.
Basis of Presentation
The Company's consolidated financial statements as of and for the periods presented include the accounts of Reliant Bancorp, the Bank, Community First Trups Holding Company (a wholly-owned subsidiary of Reliant Bancorp), Reliant Risk Management, Inc., Reliant Investment Holdings, LLC (a wholly-owned subsidiary of the Bank), and RMV. All significant intercompany balances and transactions have been eliminated in consolidation. As described previously, effective January 1, 2020, Reliant Bancorp and TCB Holdings merged and effective April 1, 2020, Reliant Bancorp and First Advantage Bancorp merged.
The accounting and reporting policies of Reliant Bancorp, Inc. conform to U.S. GAAP and to general practices within the banking industry. The following is a brief summary of the significant policies.
The accompanying consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary to present a fair statement of the results. Such adjustments are of a normal recurring nature. Certain prior period amounts have been reclassified to conform to the current period presentation.
The Company has evaluated subsequent events for recognition and disclosure through March 9, 2021, which is the date the financial statements were available to be issued.
During 2011, the Bank and another entity organized RMV. Under the related operating agreement, the non-controlling member receives 70% of the profits of RMV, and the Bank receives 30% of the profits once the non-controlling member recovers its aggregate losses. The non-controlling member is responsible for 100% of RMV’s net losses. As of December 31, 2020, the cumulative losses to date totaled $13,655. RMV will have to generate net income of this amount before the Company will participate in future earnings.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure 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. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for loan losses, the valuation of other real estate, the valuation of debt and equity securities, the valuation of deferred tax assets and fair values of financial instruments.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting. The accounts of an acquired entity are included as of the date of acquisition, and any excess of purchase price over the fair value of the net assets acquired is capitalized as goodwill. Under this method, all identifiable assets acquired, including purchased loans, and liabilities assumed are recorded at fair value.
The Company typically issues common stock and/or pays cash for an acquisition, depending on the terms of the acquisition agreement. The value of shares of common stock issued is determined based on the market price of the stock as of the closing of the acquisition.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits in financial intuitions, and federal funds sold. Generally, federal funds sold are purchased and sold for one-day periods. The Company maintains deposits in excess of the federal insurance amounts with other financial institutions. Management makes deposits only with financial institutions it considers financially sound.
Regulation D of the Federal Reserve Act requires that banks maintain reserve balances with their applicable Federal Reserve Bank based principally on the type and amount of their deposits. The Bank was not required to have a reserve balance at December 31, 2020, 2019, and 2018, respectively.
Securities
The Company classifies its debt securities in one of two categories: held to maturity ("HTM") and available for sale ("AFS"). HTM securities are those securities for which the Company has the ability and intent to hold until maturity. Securities are classified as AFS when they might be sold before maturity. The Company did 0t have held to maturity securities at December 31, 2020 and 2019, or in the three-year period ended December 31, 2020.
Interest income includes purchase premiums and discounts amortized or accreted over the life of the related security as an adjustment to the yield without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method including reclassification from other comprehensive income.
When the fair value of a debt security has declined below the amortized cost at the measurement date, if an entity intends to sell a security or is more likely than not to sell the security before the recovery of the security’s cost basis, the entity must recognize the other-than-temporary impairment (“OTTI”) in earnings and classify the security as OTTI.
The related OTTI loss on the debt security will be recognized in earnings to the extent that the loss is due to the declining credit quality of the issuer, with the remaining impairment loss recognized in accumulated other comprehensive income. In estimating OTTI losses, management considers: the length of time and extent that fair value of the security has been less than the cost of the security, the financial condition and near term prospects of the issuer, cash flow, stress testing analysis on securities, when applicable, and the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value. The Company evaluates available-for-sale securities for OTTI at least on a quarterly basis, and more frequently when economic or market concerns warrant such an evaluation. No such impairment charges were recorded in the three-year period ended December 31, 2020.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees, and an allowance for loan losses (ALL). Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level yield method without anticipating prepayments.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The Company has six classes of loans for financial reporting purposes determined based on underlying collateral utilized to secure each loan. Risk characteristics relevant to each portfolio segment are as follows:
Commercial,industrialand agricultural: The commercial, industrial and agricultural loan portfolio segment includes loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations. Commercial, industrial and agricultural loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. This class also includes PPP loans originated during the year.
Multi-family and commercial real estate: Multi-family and commercial real estate loans are subject to underwriting standards and processes similar to commercial, industrial and agricultural loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.
Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties comprising the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting the market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. Non-owner occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated rental income) or the proceeds of the sale, refinancing, or permanent financing of the property.
These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or an affiliate of the party, who owns the property.
Construction and land development: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Company also finances construction loans for owner-occupied properties. A portion of the Company’s construction and land development portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). With respect to construction loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
1-4family residential real estate: Residential real estate loans, which include related manufactured homes with real estate, represent loans to consumers or investors to finance a residence. These loans are typically financed on 15- to 30-year amortization terms, but generally with shorter maturities of 5 to 15 years. Many of these loans are extended to borrowers to
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
finance their primary or secondary residence. Loans to an investor secured by a 1-4 family residence will be repaid from either the rental income from the property or from the sale of the property. This loan segment also includes closed-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home. Loans in this portfolio segment are underwritten and approved based on a number of credit quality criteria including limits on maximum Loan-to-Value ("LTV"), minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these market values impact the depth of potential losses in this portfolio segment.
1-4 family HELOC: This loan segment includes open-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home utilizing a revolving line of credit. These loans are underwritten and approved based on a number of credit quality criteria including limits on maximum LTV, minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these market values impact the depth of potential losses in this portfolio segment. Because of the revolving nature of these loans as well as the fact that many represent second mortgages, this portfolio segment can contain more risk than the amortizing 1-4 family residential real estate loans.
Consumer: The consumer loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures as well as manufactured homes without real estate. Consumer loans may be secured or unsecured and are usually structured with short or medium term maturities. These loans are underwritten and approved based on a number of consumer credit quality criteria including limits on maximum LTV on secured consumer loans, minimum credit scores, and maximum debt to income. Many traditional forms of consumer installment credit have standard monthly payments and fixed repayment schedules of one to five years. These loans are made with either fixed or variable interest rates that are based on specific indices. Loans to finance manufactured homes that are not secured by real estate are classified as consumer loans and have standard monthly payments and fixed repayment schedules of 15 to 23 years. Installment loans fill a variety of needs, such as financing the purchase of an automobile, a boat, a recreational vehicle, or other large personal items, or for consolidating debt. These loans may be unsecured or secured by an assignment of title, as in an automobile loan, or by money in a bank account. In addition to consumer installment loans, this portfolio segment also includes secured and unsecured personal lines of credit as well as overdraft protection lines. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.
The accrual of interest is discontinued when a loan becomes 90 days past due according to the contractual terms of the note unless it is well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is charged against interest income on loans. Amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status. When full collection of the remaining book balance is uncertain, interest payments received are applied to the principal balance outstanding. In some cases, when the remaining book balance of the loan is deemed fully collectible, payments are treated as interest income on a cash basis. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans can also be returned to accrual status when they become well secured and in the process of collection.
Acquired Loans
Acquired loans are accounted for under the acquisition method of accounting. The acquired loans are recorded at their estimated fair values as of the acquisition date. Fair value of acquired loans is determined using a discounted cash flow model based on assumptions regarding the amount and timing of principal and interest payments, estimated prepayments, estimated default rates, estimated loss severity in the event of defaults, and current market rates. Estimated credit losses are included in the determination of fair value; therefore, an allowance for loan losses is not recorded on the acquisition date.
An acquired loan is considered purchased credit impaired when there is evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will be unable to collect all contractually required payments.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Loans acquired in connection with a business combination are recorded at fair value, since any credit deterioration evident in the loans is included in the determination of the acquisition date fair values. No initial ALL is recorded for such acquired loans because all loans are recorded at fair value at merger date. Impaired purchased loans are accounted for under ASC 310-30, in which an ALL subsequent to the date of acquisition is established by re-estimating expected cash flows on these loans, with any decline in expected cash flows due to a credit triggering impairment recorded as purchased credit impairment (PCI). The amount is the excess of the loan’s carrying value over the present value of projected future cash flows, discounted at the current accounting yield of the loan or the fair value of collateral (less estimated costs to sell) for collateral dependent loans. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. While the determination of specific cash flows involves estimates, each estimate is unique to the individual loan, and none is individually significant. For non-purchased credit-impaired loans acquired in a merger and that are accounted for under ASC 310-20, the historical loss estimates are based on the historical losses experienced by Reliant Bank for loans with similar characteristics as those acquired other than purchased credit-impaired loans. We establish an ALL provision for these loans only when the calculated amount exceeds the remaining credit mark established at acquisition.
Concentrations
At December 31, 2020 and 2019, the Company had significant credit exposures to borrowers in real estate. If this industry experiences another economic slowdown and, as a result, the borrowers in this industry are unable to meet the obligations of their existing loan agreements, earnings could be negatively impacted. The Company is concentrated in the middle Tennessee regional market and the operating results are impacted by the economic conditions of that area.
Allowance for Loan Loss
The allowance for loan lossesloss ("ALL") is a valuation allowance foran estimate of future probable incurred credit losses. Loan lossesLosses on loans are charged against the allowanceALL when management believes the uncollectibility of a loanremaining balance is confirmed.due has become uncollectible. Subsequent recoveries, if any, are credited to the allowance. Management estimatesALL.
General Component: The general component of the allowance balance required usingfor loan losses covers loans that are collectively evaluated for impairment. Large groups of homogeneous loans are collectively evaluated for impairment, and accordingly, they are not included in the separately identified impairment disclosures. The general allowance component also includes loans that are individually identified for impairment evaluation but are not considered impaired. The general component is based on historical loan loss experience adjusted for current factors such as 1) the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values,2) current economic conditions (national and local), and other factors such as3) changes in interest rates, 4) portfolio concentrations, 5) changes in the experience, ability, and depth of the lending function, and 6) levels of and trends in charged-off loans, recoveries, past duepast-due loans and volume and severity of classified loans. The allowance consists of specific and general components.
Specific Component: The specific component relates to loans that are individually determined to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired.
Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The general component covers non-impaired loansManagement determines the significance of payment delays and is basedpayment shortfalls on historical loss experience adjusted for current factors. The entire allowance is available for any loan that, in management’s judgment, should be charged-off.
A loan is impaired when full payment undera case-by-case basis, taking into consideration all of the circumstances surrounding the loan terms is not expected.and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. All classified loans and loans on non-accrualnonaccrual status are individually evaluated for impairment. Factors considered in determining if a loan is impaired include the borrower’s ability to repay amounts owed, collateral deficiencies, the risk rating of the loan and economic conditions affecting the borrower’s industry, among other things.
If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, atbased on the present value of estimated future cash flows using the loan’s existing rate or at the fair value (less estimatedof collateral less costs to sell) of collateralsell if repayment is expected solely from the collateral. Interest payments on impaired loans are typically appliedChanges to principal unless the principal amount is deemed fully collectible, in which case interest is recognized on a cash basis. When recognition of interest income on a cash basis is appropriate, the amount of income recognized is limited to what would have been accrued on the remaining principal balance at the contractual rate. Cash payments received over this limit, and not applied to reduce the loans remaining principal balance,valuation allowance are recorded as recoveriesa component of prior charge-offs until these charge-offs have been fully recovered.the provision for loan losses.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
TDRs are individually evaluated for impairment and included in the separately identified impairment disclosures. TDRs are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral less costs to sell.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Mortgage Loans Held for Sale
Mortgage loans originated with the intent to sell to third party investors are classified as held for sale.sale (LHFS). Such loans are carried at the lower of aggregate cost or market value, as determined by pricing on an individual loan basis. These loans are typically marketed to potential investors prior to closing the loan with the borrower. Net unrealized losses, if any, are recorded through a valuation allowance and charged to operations. The valuation allowance was $0 as of $160 established in the year ended December 31, 2016 was removed in the year ended December, 31, 2017.2020 and 2019. The Company does not retain servicing rights to mortgage loans following sale.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.
Premisesand Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets or the terms of the related lease for leasehold improvements. The range of estimated useful lives for buildings is 30 to 40 years, for leasehold improvements is 3 to 25 years, which correlates with the applicable lease term, and for furniture, fixtures and equipment is 3 to 7 years. Gain or loss on items retired and otherwise disposed of is credited or charged to operations and the cost and related accumulated depreciation are removed from the asset and accumulated depreciation accounts.
Expenditures and improvements of premises and equipment are capitalized and those for maintenance and repairs are charged to earnings as incurred.
These assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Leases
The Company leases certain banking, mortgage and operations locations. Effective January 1, 2020, the Company records leases on the balance sheet in the form of a lease liability for the present value of future minimum payments under the lease terms and a right-of-use asset equal to the lease liability adjusted for items such as deferred or prepaid rent, incentive liabilities, leasehold intangibles and any impairment of the right-of-use asset. In determining whether a contract contains a lease, management conducts an analysis at lease inception to ensure an asset was specifically identified and the Company has control of use of the asset. For contracts determined to be leases entered into after January 1, 2020, the Company performs additional analysis to determine whether the lease should be classified as a finance or operating lease. The Company considers a lease to be a finance lease if future minimum lease payments amount to greater than 90% of the asset's fair value or if the lease term is equal to or greater than 75% of the asset's estimated economic useful life. As of December 31, 2020, the Company did not have any leases that were determined to be finance leases. The Company does not record leases on the consolidated balance sheets that are classified as short term (less than one year). Additionally, the Company has not recorded equipment leases or leases in which the Company is the lessor on the consolidated balance sheets as these are not material to the Company.
At lease inception, the Company determines the lease term by adding together the minimum lease term and all optional renewal periods that it is reasonably certain to renew. This determination is at management's full discretion and is made through consideration of the asset, market conditions, competition and entity based economic conditions, among other factors. The lease term is used in the economic life test and also to calculate straight-line rent expense. The depreciable life of leasehold improvements is limited by the estimated lease term, including renewals.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Operating leases are expensed on a straight-line basis over the life of the lease beginning when the lease commences. Rent expense and variable lease expense are included in occupancy expense on the Company's Consolidated statements of Operations. The Company's variable lease expense include rent escalators that are based on the Consumer Price Index or market conditions and include items such as common area maintenance, utilities, parking, property taxes, insurance and other costs associated with the lease.
There are no residual value guarantees or restrictions or covenants imposed by leases that will impact the Company's ability to pay dividends or cause the Company to incur additional expenses. The discount rate used in determining the lease liability is based upon incremental borrowing rates the Company could obtain for similar loans as of the date of commencement or renewal.
Restricted Equity Securities
Each member of the Federal Reserve is required to subscribe to Federal Reserve Bank (“FRB”) stock.
The Bank is a member of the Federal Home Loan Bank (“FHLB”) system. Members aresystem and the Federal Reserve system and is required to own a certain amount ofhold stock based on the level of borrowings and other factors, and may invest in additional amounts.
both entities. These stocksinvestments are carried at cost, classified as restricted equity securities, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as interest income.
Other Real Estate
Real estate acquired in the settlement of loans is initially recorded at estimated fair value, less estimated cost to sell, if less than the carrying value of the loan when acquired. BasedFair value is based on periodic evaluations by management, the carrying valuesindependent appraisals and other relevant factors. Valuation adjustments required at foreclosure are reduced by a direct charge to earnings when they exceed net realizable value. Costs relatingcharged to the development and improvement ofallowance for loan losses. Subsequent to foreclosure, additional losses resulting from the property are capitalized up to fair value less cost to sell, while holding costsperiodic revaluation of the property are charged to expenseother real estate expense. Costs of operating and maintaining the properties and any gains or losses recognized on disposition are also included in other real estate expense. Improvements made to properties are capitalized if the period incurred.expenditures are expected to be recovered upon the sale of the properties. At December 31, 2020, retired bank facilities of $1,198 were also included in other real estate.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Surrender Value of Life Insurance Contracts
The Company is the owner and beneficiary of various life insurance policies on certain key employees. These policies are recorded at their cash surrender values.
Impairment ofLong-Term Assets
Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are written down to fair value, with a corresponding charge to earnings.
Goodwill and Other Intangible Assets
Goodwill represents thatresulting from business combinations is generally determined as the excess of the purchase pricefair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a 2018purchase business acquisition (see Note 22) , 2015 business acquisitioncombination and a 2009 business acquisition. Goodwill is evaluateddetermined to have an indefinite useful life are not amortized, but tested for impairment at least annually andor more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. The Company has selected September 30th as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset might be impaired.with an indefinite life on the balance sheet.
Loan CommitmentsOther intangible assets consist of core deposit intangible assets arising from whole bank acquisitions and Relatedare amortized on an accelerated method over their estimated useful lives, which range from eight years to eleven years.
Off-Balance Sheet Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Derivatives
At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company's intentions and belief as to the likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value hedge"), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"), or (3) an instrument with no hedging designation ("stand-alone derivative"). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings.
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interestnoninterest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivatives, (Continued)
The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivatederivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is notno longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interestnoninterest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.
Stock BasedStock-Based Compensation
Compensation cost recognized for stock options and restricted stock and restricted stock unit awards issued to employees is based on the fair value of these awards at the date of grant.grant, reduced for forfeitures. A binomial model is utilized to estimate the fair value of stock options. Compensation cost is recognized over the required service period, generally defined as the vesting period.
Additionally, during 2016, the Company elected to adopt the provisions of ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” in advance of the required application date of January 1, 2017. Our financial statements for 2016 are presented as if we adopted ASU 2016-09 on January 1, 2016 on a prospective basis and prior periods have not been restated. ASU 2016-09 requires that all income tax effects related to settlements of share-based payment awards be reported in earnings as an increase (or decrease) to income tax expense. Previously, income tax benefits at settlement of an award were reported as an increase (or decrease) to additional paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits recognized in earnings during the award's vesting period. The requirement to report those income tax effects in earnings has been applied to settlements occurring on or after January 1, 2016 and the impact of applying that guidance reduced reported income tax expense by $478, or approximately $0.06 per diluted common share for 2016.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Income tax expense or benefit is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized.
Management performs an evaluation of all income tax positions taken or expected to be taken in the course of preparing the Company’s income tax returns to determine whether the income tax positions meet a “more likely than not” standard of being sustained under examination by the applicable taxing authorities. Management has performed its evaluation of all income tax
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
positions taken on all open income tax returns and has determined that there were no positions taken that do not meet the “more likely than not” standard. Penalties and interest relating to income taxes are recognized in income tax expense.
The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company’s federal and states income tax returns for years prior to fiscal year 20152018 are no longer open to examination. Certain returns from years in which net operating losses have occurred are still open for examination by the tax authorities.
Earnings Per Share
Earnings per share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding plus shares representing the dilutive effect of stock options, restricted stock awards and units, and employee stock purchase plan shares outstanding.
Retirement PlanThe following is a summary of the components comprising basic and diluted earnings per common share of stock (EPS) for the years ended December 31, 2020, 2019 and 2018:
The Company has a 401(k) retirement plan covering all employees who elect to participate, subject to certain eligibility requirements. The Plan allows employees to defer up to 100% of their salary, subject to regulatory limitations with the Company matching 100% of the first 6% contributed by the employee. The Company recognizes as expense the amount of matching contributions related to the 401(k) plan. Vesting within the plan is immediate | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended |
| | | 2020 | | 2019 | | 2018 |
| Basic EPS Computation | | | | | | |
| Net income attributable to common shareholders | | $ | 31,412 | | | $ | 16,196 | | | $ | 14,085 | |
| Weighted average common shares outstanding | | 15,444,504 | | | 11,212,127 | | | 11,389,122 | |
| Basic earnings per common share | | $ | 2.03 | | | $ | 1.44 | | | $ | 1.24 | |
| Diluted EPS Computation | | | | | | |
| Net income attributable to common shareholders | | $ | 31,412 | | | $ | 16,196 | | | $ | 14,085 | |
| Weighted average common shares outstanding | | 15,444,504 | | | 11,212,127 | | | 11,389,122 | |
| Dilutive effect of stock options, restricted stock shares and units, and employee stock purchase plan | | 77,513 | | | 69,135 | | | 79,667 | |
| Adjusted weighted average common shares outstanding | | 15,522,017 | | | 11,281,262 | | | 11,468,789 | |
| Diluted earnings per common share | | $ | 2.02 | | | $ | 1.44 | | | $ | 1.23 | |
Stock options for 100% of deferralcommon stock totaling 55,600, 60,500 and employer contributions.62,910 were not considered in computing diluted earnings per common share for 2020, 2019 and 2018, respectively, because they were antidilutive.
Comprehensive Income
Comprehensive income consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on AFS securities available for sale and derivatives.derivatives, net of taxes. These gains and losses are recognized as a separate component of stockholders’ equity.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the consolidated financial statements.
Advertising Costs
Advertising costs are expensed as incurred and totaled $988, $1,293 and $600 for the years ended December 31, 2020, 2019 and 2018, respectively.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
Segment Reporting
NOTE 1
The Company’s Mortgage division represents a distinct reportable segment which differs from the Company’s primary business of Banking. Accordingly, a reconciliation of reportable segment revenues, expenses and profit to the Company’s consolidated total has been presented in "Note 17 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Restrictions on Cash
Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements. The Company did not have a reserve balance to maintain at December 31, 2018. At December 31, 2017, the Company's reserve requirement was $2,636.
Preferred Shares
Preferred shares have rights that can be set when issued as determined by the Board of Directors.
Dividend Restriction
Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Company to shareholders.
Advertising Costs
Advertising costs are expensed as incurred and totaled $559, $264 and $684 for the years ended December 31, 2018, 2017 and 2016, respectively Segment Reporting".
Fair Value Measurements
Financial accounting standards relating to fair value measurements establish a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques 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 are described below:
| |
Level 1 | Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. |
| |
Level 2 | Inputs to the valuation methodology include: |
Quoted prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets or liabilities in inactive markets;
Inputs other than quoted prices that are observable for the asset or liability;
Inputs that are derived principally from or corroborated by the observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
| |
Level 3 | Inputs to the valuation methodology are unobservable and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. |
An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value Measurements (Continued)
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis:
Securitiesavailable for sale: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
The Company obtains fair value measurements for securities available for sale from an independent pricing service. The fair value measurements consider observable data that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, cash flows and reference data, including market research publications, among other things.
Interest rate swaps: The fair values of interest rate swaps are determined based on discounted future cash flows.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis include the following:
Impaired loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on the present value of expected payments using the loan’s effective rate as the discount rate or recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
Mortgage loans held for sale: Bid quotes are presently used for the fair value estimate of mortgage loans held for sale, while previously the Company used a model as developed and performed by an independent entity to value such loans.
Other real estate owned: The fair value of other real estate owned is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company’s valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 5.a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect thethese estimates.
RELIANT BANCORP, INC.
Recently Adopted Accounting Principles
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications
Certain reclassifications have been made in the 2017 and 2016 consolidated financial statements to conform to the 2018 presentation. These reclassifications had no effect on total assets, total liabilities or the results of operations previously reported.
Recent Authoritative Accounting Guidance
The following discusses new authoritative accounting guidance and the related impact on the Company.
ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” implements a common revenue standard that clarifies the principles for recognizing revenue. The principle element of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was originally going to be effective for the Company on January 1, 2018; however, the FASB recently issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date" which deferred the effective date of ASU 2014-09 by one year to January 1, 2019. Revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. The Company does not expect these changes to have a significant impact on the consolidated financial statements. The Company continues to evaluate the impact of ASU 2014-09 on other components of non-interest income.
ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. ASU 2016-01 will be effective for us on January 1, 2019 and will not have a significant impact on our financial statements.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Authoritative Accounting Guidance, (Continued)
ASU 2016-02, “Leases(Topic (Topic 842).” ASU 2016-02 will requirerequires lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis;basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 will be effectivewent into effect for usthe Company on January 1, 2020 and will require transition using a modified retrospectivethe Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. The Company also elected certain practical expedients within the standard and consistent with such elections did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. We estimate that theleases, and did not reassess any initial direct costs for existing leases. The effect of implementing this pronouncement will resultresulted in right to use assets of $13,583$11,973 and a similar corresponding liability, using the remaining contractual lease periods. We also estimate the impact on regulatory capital to be a reduction of eight basis points. Management is presently evaluating the planned renewals of existing leases. If management determines to utilize the renewals of leases then the right to use assets and corresponding liability will increase.
ASU 2016-05, “Derivatives and Hedging (Topic 815) Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” ASU 2016-05 clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under ASC Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-05 became effective for the Company on January 1, 2018 and did not have a significant impact on the consolidated financial statements.
ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under ASU 2016-09, all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share excludes the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-9 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. The Company elected to adopt the provisions of ASU 2016-09 in 2016 in advance of the required application date of January 1, 2017. The adoption of this standard reduced reported income tax expense by $478, or approximately $0.06 per diluted common share, for 2016. The Company did not apply the provisions of this pronouncement retrospectively.2020.
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available for sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective on January 1, 2021. We are currently evaluating the potential impact of ASU 2016-13 on our financial statements. We are currently developing an implementation plan to include assessment of processes, portfolio segmentation, model development, system requirements and the identification of data and resource needs, among other things. We are also in the process of implementing a third-party vendor solution to assist us in the application of the ASU 2016-13. The adoption of the ASU 2016-13 could result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses for certain debt securities and other financial assets. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Authoritative Accounting Guidance, (Continued)
ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 will be effective for the Company onwas early adopted as of January 1, 2021, with earlier adoption permitted and is not currently expected to have a significant impact on the consolidated financial statements.
ASU 2017-09, “Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting.” ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the award's fair value, (ii) the award's vesting conditions and (iii) the award's classification as an equity or liability instrument. ASU 2017-09 became effective for the Company on January 1, 20182020 and did not have a significant impact on the Company's consolidated financial statements.statements as it simplifies the test of impairment of goodwill.
ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." In March 2020, the FASB issued Topic 848 amendments to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company has evaluated the effect of the pronouncement on the consolidated financial statements, noting no significant impact.
ASU 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. ASU 2017-12 will bewas adopted on January 1, 2020 and did not have a significant impact on our consolidated financial statements.
ASU 2018-16, “Derivatives and Hedging (Topic 815) - Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.” The amendments in this update permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct U.S. Treasury obligations, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. ASU 2018-16 was effective for us on January 1, 2020 and isdid not expected to have a significant impact on theour consolidated financial statements.
ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification
Effects from Accumulated Other Comprehensive Income.” Under ASU 2018-02, entities may elect to reclassify certainRELIANT BANCORP, INC.
income tax effects related to the changeNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in the U.S. statutory federal income tax rate under the Tax Cuts and Jobs Act,thousands except per share amounts)
which was enacted on December 22, 2017, from accumulated other comprehensive income to retained earnings. ASU 2018-02 also requires certain accounting policy disclosures. The Company elected to adopt this change in accounting principle in the fourth quarter of 2017, which resulted in a decrease to retained earnings and an increase to accumulated other comprehensive income of $245 in 2017 on the Company’s consolidated statement of changes in stockholders’ equity.
ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in this update remove disclosures that no longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU 2018-13 was adopted on January 1, 2020, and did not have a significant impact on our consolidated financial statements.
Newly Issued not yet Adopted Accounting Standards
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available for sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is expected to be effective for the Company on January 1, 2023. We are currently evaluating the potential impact of ASU 2016-13 on the Company's financial statements by developing an implementation plan to include assessment of processes, portfolio segmentation, model development, system requirements and the identification of data and resource needs, among other things. The adoption of ASU 2016-13 could result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses for certain debt securities and other financial assets. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Financial Instruments - Credit Losses (ASC 326), Derivatives and Hedging (ASC 815), and Financial Instruments (ASC 825). The amendments in this ASU improve the codification by eliminating inconsistencies and providing clarifications. The amended guidance in this ASU related to credit losses is expected to be effective for the Company in conjunction with the adoption of the standard on January 1, 2023. The Company is currently evaluating the impact of these ASUs on the Company’s consolidated financial statements. While we are currently unable to reasonably estimate the impact of adopting these ASUs, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of the Company's loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.
ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.” The guidance issued in this update simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 will be effective for us on January 1, 2021, with early adoption permitted, and is not expected to have a significant impact on our consolidated financial statements.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 2 - SECURITIES
The amortized cost and fair value of available for saleAFS securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) at December 31, 20182020 and 20172019 were as follows:
| | | | | December 31, 2018 | | | December 31, 2020 |
| | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Estimated
Fair
Value |
| U. S. Treasury and other U. S. government agencies | | $ | 568 |
| | $ | — |
| | $ | (14 | ) | | $ | 554 |
| U. S. Treasury and other U. S. government agencies | | $ | 47 | | | $ | 1 | | | $ | 0 | | | $ | 48 | |
| State and municipal | | 232,589 | | 879 |
| | (4,170 | ) | | 229,298 | State and municipal | | 184,102 | | | 16,963 | | | (77) | | | 200,988 | |
| Corporate bonds | | 3,130 | | — |
| | (113 | ) | | 3,017 | Corporate bonds | | 23,750 | | | 397 | | | (34) | | | 24,113 | |
| Mortgage backed securities | | 32,172 | | 34 | | (248 | ) | | 31,958 | |
| Asset backed securities | | 28,635 | | — |
| | (639 | ) | | 27,996 | |
| Time deposits | | 3,500 |
| | — |
| | — |
| | 3,500 |
| |
| Mortgage-backed securities - Residential | | Mortgage-backed securities - Residential | | 28,084 | | | 360 | | | (2) | | | 28,442 | |
| Asset-backed securities | | Asset-backed securities | | 3,083 | | | 1 | | | (22) | | | 3,062 | |
| | | | | | | | | | |
| Total | | $ | 300,594 |
| | $ | 913 |
| | $ | (5,184 | ) | | $ | 296,323 |
| Total | | $ | 239,066 | | | $ | 17,722 | | | $ | (135) | | | $ | 256,653 | |
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2017 |
| | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| U. S. Treasury and other U. S. government agencies | | $ | 586 |
| | $ | — |
| | $ | (8 | ) | | $ | 578 |
|
| State and municipal | | 189,576 | | 3,081 |
| | (905 | ) | | 191,752 |
| Corporate bonds | | 1,500 | | 5 |
| | (13 | ) | | 1,492 |
| Mortgage backed securities | | 6,262 | | 3 | | (96 | ) | | 6,169 |
| Asset backed securities | | 16,753 | | 45 |
| | (88 | ) | | 16,710 |
| Time deposits | | 3,500 |
| | — |
| | — |
| | 3,500 |
|
| | | | | | | | | |
| Total | | $ | 218,177 |
| | $ | 3,134 |
| | $ | (1,110 | ) | | $ | 220,201 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 2 - SECURITIES (CONTINUED) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Estimated
Fair
Value |
| U. S. Treasury and other U. S. government agencies | | $ | 59 | | | $ | 0 | | | $ | 0 | | | $ | 59 | |
| State and municipal | | 186,283 | | | 10,413 | | | (36) | | | 196,660 | |
| Corporate bonds | | 7,880 | | | 97 | | | (132) | | | 7,845 | |
| Mortgage-backed securities - Residential | | 38,126 | | | 296 | | | (661) | | | 37,761 | |
| Asset-backed securities | | 18,374 | | | 0 | | | (406) | | | 17,968 | |
| | | | | | | | |
| Total | | $ | 250,722 | | | $ | 10,806 | | | $ | (1,235) | | | $ | 260,293 | |
There were no held to maturity0 HTM securities as of December 31, 20182020 and 2017.2019.
The amortized cost and estimated fair value of available for saleAFS securities at December 31, 20182020 are presented below by contractual maturity. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
| | | | | | | | December 31, 2020 | | December 31, 2019 |
| | | Amortized Cost | | Estimated Fair Value | | Amortized
Cost | | Estimated
Fair Value | | Amortized
Cost | | Estimated
Fair Value |
| Due within one year | | $ | 3,358 |
| | $ | 3,360 |
| Due within one year | | $ | 0 | | | $ | 0 | | | $ | 999 | | | $ | 1,000 | |
| Due in one to five years | | 4,807 |
| | 4,763 |
| Due in one to five years | | 2,132 | | | 2,143 | | | 2,414 | | | 2,285 | |
| Due in five to ten years | | 13,576 |
| | 13,376 |
| Due in five to ten years | | 28,737 | | | 30,072 | | | 10,301 | | | 10,834 | |
| Due after ten years | | 218,046 |
| | 214,870 |
| Due after ten years | | 177,030 | | | 192,934 | | | 180,508 | | | 190,445 | |
| Mortgage backed securities | | 32,172 |
| | 31,958 |
| |
| Asset backed securities | | 28,635 |
| | 27,996 |
| |
| | | | | | |
| Mortgage-backed securities | | Mortgage-backed securities | | 28,084 | | | 28,442 | | | 38,126 | | | 37,761 | |
| Asset-backed securities | | Asset-backed securities | | 3,083 | | | 3,062 | | | 18,374 | | | 17,968 | |
| Total | | $ | 300,594 |
| | $ | 296,323 |
| Total | | $ | 239,066 | | | $ | 256,653 | | | $ | 250,722 | | | $ | 260,293 | |
Results from sales of securities were as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31 |
| 2020 | | 2019 | | 2018 |
| Proceeds | $ | 151,934 | | | $ | 85,895 | | | $ | 100,737 | |
| Gross gains | 843 | | | 1,810 | | | 82 | |
| Gross losses | (1,113) | | | (359) | | | (39) | |
The table above does not include activity from maturities, prepayments, or calls on debt and equity securities.
Securities pledged at December 31, 2020 and 2019 had a market value of $30,491 and $46,918, respectively, and were pledged to collateralize FHLB advances, Federal Reserve advances and municipal deposits.
At December 31, 2020 and 2019, there were 0 holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The following table shows available for saleAFS securities with unrealized losses and their estimated fair value aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position as of December 31, 2018:2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | Total |
| December 31, 2020 | Estimated
Fair Value | | Unrealized
Loss | | Estimated
Fair Value | | Unrealized
Loss | | Estimated
Fair Value | | Unrealized
Loss |
| | | | | | | | | | | |
| State and municipal | $ | 9,475 | | | $ | 77 | | | $ | 0 | | | $ | 0 | | | $ | 9,475 | | | $ | 77 | |
| Corporate bonds | 5,716 | | | 34 | | | 0 | | | 0 | | | 5,716 | | | 34 | |
| Mortgage-backed securities - Residential | 5,024 | | | 1 | | | 92 | | | 1 | | | 5,116 | | | 2 | |
| Asset-backed securities | 729 | | | 2 | | | 2,013 | | | 20 | | | 2,742 | | | 22 | |
| Total temporarily impaired | $ | 20,944 | | | $ | 114 | | | $ | 2,105 | | | $ | 21 | | | $ | 23,049 | | | $ | 135 | |
| December 31, 2019 | | | | | | | | | | | |
| | | | | | | | | | | |
| State and municipal | $ | 1,960 | | | $ | 36 | | | $ | 0 | | | $ | 0 | | | $ | 1,960 | | | $ | 36 | |
| Corporate bonds | 0 | | | 0 | | | 2,499 | | | 132 | | | 2,499 | | | 132 | |
| Mortgage-backed securities - Residential | 16,104 | | | 286 | | | 9,081 | | | 375 | | | 25,185 | | | 661 | |
| Asset-backed securities | 0 | | | 0 | | | 17,682 | | | 406 | | | 17,682 | | | 406 | |
| Total temporarily impaired | $ | 18,064 | | | $ | 322 | | | 29,262 | | | 913 | | | $ | 47,326 | | | $ | 1,235 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Less than 12 months | | 12 months or more | | Total |
| | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
| | | | | | | | | | | | | |
| U. S. Treasury and other U. S. government agencies | | $ | — |
| | $ | — |
| | $ | 555 |
| | $ | 14 |
| | $ | 555 |
| | $ | 14 |
|
| State and municipal | | 118,580 | | 2,263 | | 47,223 | | 1,907 | | 165,803 | | 4,170 |
| Corporate bonds | | 2,526 | | 105 | | 492 | | 8 | | 3,018 | | 113 |
| Mortgage backed securities | | 17,015 | | 99 | | 5,397 | | 149 | | 22,412 | | 248 |
| Asset backed securities | | 20,351 |
| | 383 |
| | 7,255 |
| | 256 |
| | 27,606 |
| | 639 |
|
| | | | | | | | | | | | | |
| Total temporarily impaired | | $ | 158,472 |
| | $ | 2,850 |
| | $ | 60,922 |
| | $ | 2,334 |
| | $ | 219,394 |
| | $ | 5,184 |
|
There were 22 and 47 securities in an unrealized loss position as of December 31, 2020 and 2019, respectively. Declines in the fair value of securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment of available for sale securities related to other factors is recognized in other comprehensive income (loss). In estimating other-than-temporary impairment losses, management considers, among other things, the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer and the intent and ability of the Company to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. The unrealized losses shown above are primarily due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. Because the Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost bases, which may be maturity, the Company does not consider these securities to be other than temporarily impaired at December 31, 2020. There were no other-than-temporary impairments for the years ended December 31, 2020, 2019 or 2018.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 2 - SECURITIES (CONTINUED)
The following table shows available for sale securities with unrealized losses and their estimated fair value aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position as of December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Less than 12 months | | 12 months or more | | Total |
| | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
| | | | | | | | | | | | |
| U. S. Treasury and other U.S. government agencies | | $ | 86 |
| | $ | 1 |
| | $ | 491 |
| | $ | 7 |
| | $ | 577 |
| | $ | 8 |
|
| State and municipal | | 19,899 | | 128 | | 34,946 | | 777 | | 54,845 | | 905 |
| Corporate bonds | | — |
| | — |
| | 487 | | 13 | | 487 | | 13 |
| Mortgage backed securities | | 2,412 | | 14 | | 3,349 | | 82 | | 5,761 | | 96 |
| Asset backed securities | | 8,971 |
| | 73 |
| | 854 |
| | 15 |
| | 9,825 |
| | 88 |
|
| | | | | | | | | | | | | |
| Total temporarily impaired | | $ | 31,368 |
| | $ | 216 |
| | 40,127 |
| | 894 |
| | $ | 71,495 |
| | $ | 1,110 |
|
At December 31, 2018, management had the intent and ability to hold all securities in a loss position for the foreseeable future, and the decline in fair value was largely due to changes in interest rates. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline. There were 242 and 120 securities in an unrealized loss position as of December 31, 2018 and 2017, respectively.
During the years ended December 31, 2018, 2017 and 2016, gross realized gains on sales of securities were $82, $97 and $359, respectively, and gross realized losses were $39, $38 and $323, respectively.
Securities pledged at December 31, 2018 and 2017 had a market value of $70,097 and $78,220, respectively, and were pledged to collateralize Federal Home Loan Bank advances, Federal Reserve advances and municipal deposits.
At December 31, 2018 and 2017, there were no holdings of securities of any one issuer, other than the U.S. government and it's agencies, in an amount greater than 10% of stockholders’ equity.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSESLOSS
Loans at December 31, 20182020 and 20172019 were comprised as follows:
| | | | | December 31, 2018 | | December 31, 2017 | | December 31, 2020 | | December 31, 2019 |
| Commercial, Industrial and Agricultural | | $ | 213,850 |
| | $ | 138,706 |
| Commercial, Industrial and Agricultural | $ | 459,739 | | | $ | 245,515 | |
| Real Estate | | | | | Real Estate | |
| 1-4 Family Residential | | 225,863 | | 111,932 | 1-4 Family Residential | 323,473 | | 227,529 |
| 1-4 Family HELOC | | 88,112 | | 72,017 | 1-4 Family HELOC | 100,525 | | 96,228 |
| Multi-family and Commercial | | 447,840 | | 261,044 | Multi-family and Commercial | 834,000 | | 536,845 |
| Construction, Land Development and Farmland | | 220,801 | | 156,452 | Construction, Land Development and Farmland | 365,058 | | 273,872 |
| Consumer | | 20,495 | | 17,605 | Consumer | 213,863 | | 16,855 |
| Other | | 14,106 | | 14,694 | Other | 8,669 | | 13,180 |
| Total | | 1,231,067 | | 772,450 | |
| Less | | | | | |
| Deferred loan fees (costs) | | (9 | ) | | 231 | |
| Allowance for possible loan losses | | 10,892 |
| | 9,731 | |
| | | | | | |
| Gross loans | | Gross loans | 2,305,327 | | 1,410,024 |
| Less: Deferred loan fees | | Less: Deferred loan fees | 4,544 | | | 72 |
| Less: Allowance for loan losses | | Less: Allowance for loan losses | 20,636 | | | 12,578 |
| Loans, net | | $ | 1,220,184 |
| | $ | 762,488 |
| Loans, net | $ | 2,280,147 | | | $ | 1,397,374 | |
The Company pledged loans to the FHLB at December 31, 2020 and 2019 of $646,498 and $429,489.
At December 31, 20182020 and 2017,2019, loans are recorded net of purchase discounts of $4,525$16,634 and $272,$2,909, respectively.
Activity in the allowance for loan losses by portfolio segment was as follows for the year ended December 31, 2018:
|
| | | | | | | | | | | | | | | | |
| | | Commercial Industrial and Agricultural | | Multi-family and Commercial
Real Estate | | Construction Land Development and Farmland | | 1-4 Family Residential Real Estate |
| Beginning balance | | $ | 2,538 |
| | $ | 3,166 |
| | $ | 2,434 |
| | $ | 773 |
|
| Charge-offs | | (381 | ) | | (76 | ) | | (215 | ) | | (36 | ) |
| Recoveries | | 590 |
| | 221 |
| | 44 |
| | 12 |
|
| Provision | | (996 | ) | | 1,118 |
| | 237 |
| | 584 |
|
| Ending balance | | $ | 1,751 |
| | $ | 4,429 |
| | $ | 2,500 |
| | $ | 1,333 |
|
|
| | | | | | | | | | | | | | | | |
| | | 1-4 Family HELOC | | Consumer | | Other | | Total |
| Beginning balance | | $ | 595 |
| | $ | 183 |
| | $ | 42 |
| | $ | 9,731 |
|
| Charge-offs | | (6 | ) | | (26 | ) | | (47 | ) | | (787 | ) |
| Recoveries | | 10 |
| | 34 |
| | 2 |
| | 913 |
|
| Provision | | 57 |
| | (7 | ) | | 42 |
| | 1,035 |
|
| Ending balance | | $ | 656 |
| | $ | 184 |
| | $ | 39 |
| | $ | 10,892 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Activity in the allowance for loan losses by portfolio segment was as follows for the year ended December 31, 2017:
|
| | | | | | | | | | | | | | | | |
| | | Commercial Industrial and Agricultural | | Multi-family and Commercial
Real Estate | | Construction Land Development and Farmland | | 1-4 Family Residential Real Estate |
| Beginning balance | | $ | 2,432 |
| | $ | 2,737 |
| | $ | 1,786 |
| | $ | 1,178 |
|
| Charge-offs | | (976 | ) | | — |
| | (45 | ) | | (14 | ) |
| Recoveries | | 378 |
| | — |
| | 5 |
| | — |
|
| Provision | | 704 |
| | 429 |
| | 688 |
| | (391 | ) |
| Ending balance | | $ | 2,538 |
| | $ | 3,166 |
| | $ | 2,434 |
| | $ | 773 |
|
|
| | | | | | | | | | | | | | | | |
| | | 1-4 Family HELOC | | Consumer | | Other | | Total |
| Beginning balance | | $ | 704 |
| | $ | 208 |
| | $ | 37 |
| | $ | 9,082 |
|
| Charge-offs | | — |
| | (36 | ) | | — |
| | (1,071 | ) |
| Recoveries | | 19 |
| | 2 |
| | — |
| | 404 |
|
| Provision | | (128 | ) | | 9 |
| | 5 |
| | 1,316 |
|
| Ending balance | | $ | 595 |
| | $ | 183 |
| | $ | 42 |
| | $ | 9,731 |
|
Activity in the allowance for loan losses by portfolio segment was as follows for the year ended December 31, 2016:
|
| | | | | | | | | | | | | | | | |
| | | Commercial Industrial and Agricultural | | Multi-family and Commercial
Real Estate | | Construction Land Development and Farmland | | 1-4 Family Residential Real Estate |
| Beginning balance | | $ | 2,198 |
| | $ | 2,591 |
| | $ | 894 |
| | $ | 1,214 |
|
| Charge-offs | | (84 | ) | | — |
| | — |
| | (25 | ) |
| Recoveries | | 323 |
| | 18 |
| | 6 |
| | 66 |
|
| Provision | | (5 | ) | | 128 |
| | 886 |
| | (77 | ) |
| Ending balance | | $ | 2,432 |
| | $ | 2,737 |
| | $ | 1,786 |
| | $ | 1,178 |
|
|
| | | | | | | | | | | | | | | | |
| | | 1-4 Family HELOC | | Consumer | | Other | | Total |
| Beginning balance | | $ | 699 |
| | $ | 192 |
| | $ | 35 |
| | $ | 7,823 |
|
| Charge-offs | | — |
| | — |
| | (36 | ) | | (145 | ) |
| Recoveries | | 11 |
| | 12 |
| | — |
| | 436 |
|
| Provision | | (6 | ) | | 4 |
| | 38 |
| | 968 |
|
| Ending balance | | $ | 704 |
| | $ | 208 |
| | $ | 37 |
| | $ | 9,082 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2018 was as follows:
|
| | | | | | | | | | | | | | | | |
| | | Commercial Industrial and Agricultural | | Multi-family and Commercial
Real Estate | | Construction Land Development and Farmland | | 1-4 Family Residential Real Estate |
| Allowance for loan losses | | | | | | | | |
| Individually evaluated for impairment | | $ | 38 |
| | $ | — |
| | $ | 17 |
| | $ | — |
|
| Acquired with credit impairment | | — |
| | — |
| | — |
| | — |
|
| Collectively evaluated for impairment | | 1,713 | | 4,429 | | 2,483 | | 1,333 |
| Total | | $ | 1,751 |
| | $ | 4,429 |
| | $ | 2,500 |
| | $ | 1,333 |
|
| Loans | | | | | | | | |
| Individually evaluated for impairment | | $ | 978 |
| | $ | 1,160 |
| | $ | 1,780 |
| | $ | 1,246 |
|
| Acquired with credit impairment | | 40 |
| | 232 |
| | 1,751 |
| | 262 |
|
| Collectively evaluated for impairment | | 212,832 | | 446,448 | | 217,270 | | 224,355 |
| Total | | $ | 213,850 |
| | $ | 447,840 |
| | $ | 220,801 |
| | $ | 225,863 |
|
|
| | | | | | | | | | | | | | | | |
| | | 1-4 Family HELOC | | Consumer | | Other | | Total |
| Allowance for loan losses | | | | | | | | |
| Individually evaluated for impairment | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 55 |
|
| Acquired with credit impairment | | — |
| | — |
| | — |
| | — |
|
| Collectively evaluated for impairment | | 656 | | 184 | | 39 | | 10,837 |
| Total | | $ | 656 |
| | $ | 184 |
| | $ | 39 |
| | $ | 10,892 |
|
| Loans | | | | | | | | |
| Individually evaluated for impairment | | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | 5,176 |
|
| Acquired with credit impairment | | — |
| | 11 |
| | — |
| | 2,296 |
|
| Collectively evaluated for impairment | | 88,112 | | 20,472 | | 14,106 | | 1,223,595 |
| Total | | $ | 88,112 |
| | $ | 20,495 |
| | $ | 14,106 |
| | $ | 1,231,067 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2017 was as follows:
|
| | | | | | | | | | | | | | | | |
| | | Commercial Industrial and Agricultural | | Multi-family and Commercial
Real Estate | | Construction Land Development and Farmland | | 1-4 Family Residential Real Estate |
| Allowance for loan losses | | | | | | | | |
| Individually evaluated for impairment | | $ | 606 |
| | $ | — |
| | $ | 57 |
| | $ | — |
|
| Acquired with credit impairment | | 2 |
| | — |
| | 2 |
| | — |
|
| Collectively evaluated for impairment | | 1,930 | | 3,166 | | 2,375 | | 773 |
| Total | | $ | 2,538 |
| | $ | 3,166 |
| | $ | 2,434 |
| | $ | 773 |
|
| Loans | | | | | | | | |
| Individually evaluated for impairment | | $ | 3,649 |
| | $ | 1,921 |
| | $ | 3,800 |
| | $ | 2,114 |
|
| Acquired with credit impairment | | 276 |
| | 1,157 |
| | 1,436 |
| | 45 |
|
| Collectively evaluated for impairment | | 134,781 | | 257,966 | | 151,216 | | 109,773 |
| Total | | $ | 138,706 |
| | $ | 261,044 |
| | $ | 156,452 |
| | $ | 111,932 |
|
|
| | | | | | | | | | | | | | | | |
| | | 1-4 Family HELOC | | Consumer | | Other | | Total |
| Allowance for loan losses | | | | | | | | |
| Individually evaluated for impairment | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 663 |
|
| Acquired with credit impairment | | — |
| | — |
| | — |
| | 4 |
|
| Collectively evaluated for impairment | | 595 | | 183 | | 42 | | 9,064 |
| Total | | $ | 595 |
| | $ | 183 |
| | $ | 42 |
| | $ | 9,731 |
|
| Loans | | | | | | | | |
| Individually evaluated for impairment | | $ | 90 |
| | $ | — |
| | $ | — |
| | $ | 11,574 |
|
| Acquired with credit impairment | | — |
| | — |
| | — |
| | 2,914 |
|
| Collectively evaluated for impairment | | 71,927 | | 17,605 | | 14,694 | | 757,962 |
| Total | | $ | 72,017 |
| | $ | 17,605 |
| | $ | 14,694 |
| | $ | 772,450 |
|
Risk characteristics relevant to each portfolio segment are as follows:
Commercial and industrial: The commercial and industrial loan portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Multi-family and commercial real estate: Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.
Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting the market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. Non-owner occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or affiliate of the party, who owns the property.
At December 31, 2018, approximately 27% of the outstanding principal balance of the Company’s commercial real estate loan portfolio was secured by owner-occupied properties.
Construction and land development: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Company also finances construction loans for owner-occupied properties. A portion of the Company’s construction and land portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). With respect to construction loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners.
Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
1-4 family residential real estate: Residential real estate loans represent loans to consumers or investors to finance a residence. These loans are typically financed on 15 to 30 year amortization terms, but generally with shorter maturities of 5 to 15 years. Many of these loans are extended to borrowers to finance their primary or secondary residence. Loans to an investor secured by a 1-4 family residence will be repaid from either the rental income from the property or from the sale of the property. This loan segment also includes closed-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home. Loans in this portfolio segment are underwritten and approved based on a number of credit quality criteria including limits on maximum Loan-to-Value (LTV), minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values influence the depth of potential losses in this portfolio segment.
1-4 family HELOC: This loan segment includes open-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home utilizing a revolving line of credit. These loans are underwritten and approved based on a number of credit quality criteria including limits on maximum LTV, minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values influence the depth of potential losses in this portfolio segment. Because of the revolving nature of these loans as well as the fact that many represent second mortgages, this portfolio segment can contain more risk than the amortizing 1-4 family residential real estate loans.
Consumer: The consumer loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures. Consumer loans may be secured or unsecured and are usually structured with short or medium term maturities. These loans are underwritten and approved based on a number of consumer credit quality criteria including limits on maximum LTV on secured consumer loans, minimum credit scores, and maximum debt to income. Many traditional forms of consumer installment credit have standard monthly payments and fixed repayment schedules of one to five years. These loans are made with either fixed or variable interest rates that are based on specific indices. Installment loans fill a variety of needs, such as financing the purchase of an automobile, a boat, a recreational vehicle, or other large personal items, or for consolidating debt. These loans may be unsecured or secured by an assignment of title, as in an automobile loan, or by money in a bank account. In addition to consumer installment loans, this portfolio segment also includes secured and unsecured personal lines of credit as well as overdraft protection lines. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.
Non-accrual loans by class of loan were as follows:
|
| | | | | | | | |
| | | December 31, 2018 | | December 31, 2017 |
| Commercial, Industrial and Agricultural | | $ | 279 |
| | $ | 2,110 |
|
| Multi-family and Commercial Real Estate | | — |
| | — |
|
| Construction, Land Development and Farmland | | 1,294 |
| | 2,518 |
|
| 1-4 Family Residential Real Estate | | 2,556 |
| | 533 |
|
| 1-4 Family HELOC | | — |
| | — |
|
| Consumer | | 65 |
| | — |
|
| | | | | |
| Total | | $ | 4,194 |
| | $ | 5,161 |
|
Performing non-accrual loans totaled $2,010 and $1,096 at December 31, 2018 and 2017, respectively.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Individually impaired loans by class of loans were as follows at December 31, 2018:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Unpaid
Principal
Balance | | Recorded Investment with no Allowance Recorded | | Recorded Investment with Allowance Recorded | | Total Recorded
Investment | | Related
Allowance |
| Commercial, Industrial and Agricultural | | $ | 1,247 |
| | $ | 765 |
| | $ | 253 |
| | $ | 1,018 |
| | $ | 38 |
|
| Multi-family and Commercial Real Estate | | 1,670 |
| | 1,392 |
| | — |
| | 1,392 |
| | — |
|
| Construction, Land Development and Farmland | | 3,920 |
| | 3,359 |
| | 172 |
| | 3,531 |
| | 17 |
|
| 1-4 Family Residential Real Estate | | 2,243 |
| | 1,508 |
| | — |
| | 1,508 |
| | — |
|
| 1-4 Family HELOC | | — |
| | — |
| | — |
| | — |
| | — |
|
| Consumer | | 29 |
| | 23 |
| | — |
| | 23 |
| | — |
|
| | | | | | | | | | | |
| Total | | $ | 9,109 |
| | $ | 7,047 |
| | $ | 425 |
| | $ | 7,472 |
| | $ | 55 |
|
Individually impaired loans by class of loans were as follows at December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Unpaid
Principal
Balance | | Recorded Investment with no Allowance Recorded | | Recorded Investment with Allowance Recorded | | Total Recorded
Investment | | Related
Allowance |
| Commercial, Industrial and Agricultural | | $ | 4,398 |
| | $ | 2,959 |
| | $ | 966 |
| | $ | 3,925 |
| | $ | 608 |
|
| Multi-family and Commercial Real Estate | | 3,427 |
| | 3,078 |
| | — |
| | 3,078 |
| | — |
|
| Construction, Land Development and Farmland | | 5,317 |
| | 3,249 |
| | 1,987 |
| | 5,236 |
| | 59 |
|
| 1-4 Family Residential Real Estate | | 2,857 |
| | 2,159 |
| | — |
| | 2,159 |
| | — |
|
| 1-4 Family HELOC | | 90 |
| | 90 |
| | — |
| | 90 |
| | — |
|
| | | | | | | | | | | |
| Total | | $ | 16,089 |
| | $ | 11,535 |
| | $ | 2,953 |
| | $ | 14,488 |
| | $ | 667 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Individually impaired loans by class of loans were as follows at December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Unpaid
Principal
Balance | | Recorded Investment with no Allowance Recorded | | Recorded Investment with Allowance Recorded | | Total Recorded
Investment | | Related
Allowance |
| Commercial, Industrial and Agricultural | | $ | 6,383 |
| | $ | 3,924 |
| | $ | 1,780 |
| | $ | 5,704 |
| | $ | 747 |
|
| Multi-family and Commercial Real Estate | | 5,666 |
| | 2,914 |
| | 1,974 |
| | 4,888 |
| | 6 |
|
| Construction, Land Development and Farmland | | 4,124 |
| | 3,854 |
| | 171 |
| | 4,025 |
| | 17 |
|
| 1-4 Family Residential Real Estate | | 2,422 |
| | 2,035 |
| | 27 |
| | 2,062 |
| | 27 |
|
| 1-4 Family HELOC | | 2,075 |
| | 1,178 |
| | 317 |
| | 1,495 |
| | 62 |
|
| | | | | | | | | | | |
| Total | | $ | 20,670 |
| | $ | 13,905 |
| | $ | 4,269 |
| | $ | 18,174 |
| | $ | 859 |
|
Interest income recognized on impaired loans totaled $583, $703 and $848 for the years ended December 31, 2018, 2017 and 2016, respectively.
The average recorded investment in impaired loans for the years ended December 31, 2018, 2017 and 2016, was as follows:
|
| | | | | | | | | | | | |
| | | 2018 | | 2017 | | 2016 |
| Commercial, Industrial and Agricultural | | $ | 2,333 |
| | $ | 5,225 |
| | $ | 6,055 |
|
| Multi-family and Commercial Real Estate | | 2,366 |
| | 4,138 |
| | 5,837 |
|
| Construction, Land Development and Farmland | | 4,571 |
| | 4,502 |
| | 3,243 |
|
| 1-4 Family Residential Real Estate | | 2,468 |
| | 2,212 |
| | 2,715 |
|
| 1-4 Family HELOC | | 72 |
| | 784 |
| | 1,854 |
|
| Consumer | | 62 |
| | — |
| | — |
|
| Total | | $ | 11,872 |
| | $ | 16,861 |
| | $ | 19,704 |
|
The Company utilizes a risk grading system to monitor the credit quality of the Company’s commercial loan portfolio which consists of commercial and industrial, commercial real estate and construction loans. Loans are graded on a scale of 1 to 9. Grades 1 - 5 are pass credits, grade 6 is special mention, grade 7 is substandard, grade 8 is doubtful and grade 9 is loss. A description of the risk grades are as follows:
Grade 1 - Minimal Risk (Pass)
This grade includes loans to borrowers with a strong financial position and history of profits and cash flows sufficient to service the debt. These borrowers have well defined sources of primary/secondary repayment, conservatively leveraged balance sheets and the ability to access a wide range of financing alternatives. Collateral securing these loans is negotiable, of sufficient value and in possession of the Company. Risk of loss is unlikely.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Grade 2 - High Quality (Pass)
This grade includes loans to borrowers with a strong financial condition reflecting dependable net profits and cash flows. The borrower has verifiable liquid net worth providing above average asset protection. An identifiable market exits for the collateral. Risk of loss is unlikely.
Grade 3 - Above Average (Pass)
This grade includes loans to borrowers with a balance sheet that reflects a comfortable degree of leverage and liquidity. Borrowers are profitable and have a sustained record of servicing debt. An identifiable market exits for the collateral, but liquidation could take up to one year. Risk of loss is unlikely.
Grade 4 - Average (Pass)
This grade includes loans to borrowers with a financial condition that is satisfactory and comparable to industry standards. The borrower has verifiable net worth, providing over time, average asset protection. Borrower cash flows are sufficient to satisfy debt service requirements. Risk of loss is below average.
Grade 5 - Acceptable (Management Attention) (Pass)
This grade includes loans to borrowers whose loans are performing, but sources of repayment are not documented by the current credit analysis. There are some declining trends in margins, ratios and/or cash flow. Guarantor(s) have strong net worth(s), but assets may be concentrated in real estate or other illiquid investments. Risk of loss is average.
Grade 6 - Special Mention
Special mention assets have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s position at some future date. These assets pose elevated risk, but their weakness does not yet justify a substandard classification. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. The special mention rating is designed to identify a specific level of risk and concern about asset quality. Although a special mention asset has a higher probability of default than a pass asset, its default is not imminent.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Grade 7 - Substandard
A ‘‘substandard’’ extension of credit is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit so classified should have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard credits, does not have to exist in individual extensions of credit classified as substandard. Substandard assets have a high probability of payment default, or they have other well-defined weaknesses. They require supervision that is more intensive by Company management. Substandard assets are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigation.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Grade 8 - Doubtful
An extension of credit classified ‘‘doubtful’’ has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage of and strengthen the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceedings, capital injection, perfecting liens on additional collateral, or refinancing plans. Generally, the doubtful classification should not extend for a long period of time because in most cases the pending factors or events that warranted the doubtful classification should be resolved either positively or negatively in a reasonable period of time.
Grade 9 - Loss
Extensions of credit classified ‘‘loss’’ are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. Amounts classified loss should be promptly charged off. The Company will not attempt long term recoveries while the credit remains on the Company’s books. Losses should be taken in the period in which they surface as uncollectible. With loss assets, the underlying borrowers are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Once an asset is classified loss, there is little prospect of collecting either its principal or interest.
ConsumerLoans not falling in the criteria above are considered to be pass-rated loans.
Non-commercial purpose loans are initially assigned a default loan grade of 99 (Pass) and are risk graded (Grade 6, 7, or 8) according to delinquency status when applicable.
Credit quality indicators by class of loan were as follows at December 31, 2018:
|
| | | | | | | | | | | | | | | | |
| | | Pass | | Special Mention | | Substandard | | Total |
| Commercial, Industrial and Agricultural | | $ | 212,761 |
| | $ | — |
| | $ | 1,089 |
| | $ | 213,850 |
|
| 1-4 Family Residential Real Estate | | 221,546 |
| | 1,125 |
| | 3,192 |
| | 225,863 |
|
| 1-4 Family HELOC | | 88,112 |
| | — |
| | — |
| | 88,112 |
|
| Multi-family and Commercial Real Estate | | 442,127 |
| | 3,135 |
| | 2,578 |
| | 447,840 |
|
| Construction, Land Development and Farmland | | 218,053 |
| | 579 |
| | 2,169 |
| | 220,801 |
|
| Consumer | | 20,236 |
| | — |
| | 259 |
| | 20,495 |
|
| Other | | 14,106 |
| | — |
| | — |
| | 14,106 |
|
| Total | | $ | 1,216,941 |
| | $ | 4,839 |
| | $ | 9,287 |
| | $ | 1,231,067 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Credit quality indicatorsThe following table provides the risk category of loans by applicable class of loan wereloans as follows atof December 31, 2017:2020 and 2019:
|
| | | | | | | | | | | | | | | | |
| | | Pass | | Special Mention | | Substandard | | Total |
| Commercial, Industrial and Agricultural | | $ | 135,833 |
| | $ | 5 |
| | $ | 2,868 |
| | $ | 138,706 |
|
| 1-4 Family Residential Real Estate | | 108,426 |
| | 1,392 |
| | 2,114 |
| | 111,932 |
|
| 1-4 Family HELOC | | 71,927 |
| | — |
| | 90 |
| | 72,017 |
|
| Multi-family and Commercial Real Estate | | 259,123 |
| | — |
| | 1,921 |
| | 261,044 |
|
| Construction, Land Development and Farmland | | 149,886 |
| | 2,998 |
| | 3,568 |
| | 156,452 |
|
| Consumer | | 17,605 |
| | — |
| | — |
| | 17,605 |
|
| Other | | 14,694 |
| | — |
| | — |
| | 14,694 |
|
| Total | | $ | 757,494 |
| | $ | 4,395 |
| | $ | 10,561 |
| | $ | 772,450 |
|
Past due loan balances by class of loan were as follows at December 31, 2018:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pass | | Special
Mention | | Substandard | | Total |
| December 31, 2020 | | | | | | | |
| Loans excluding PCI | | | | | | | |
| Commercial, Industrial and Agricultural | $ | 456,170 | | | $ | 1,519 | | | $ | 1,863 | | | $ | 459,552 | |
| 1-4 Family Residential Real Estate | 320,555 | | | 5 | | | 2,165 | | | 322,725 | |
| 1-4 Family HELOC | 100,391 | | | 0 | | | 120 | | | 100,511 | |
| Multi-family and Commercial Real Estate | 829,353 | | | 653 | | | 3,337 | | | 833,343 | |
| Construction, Land Development and Farmland | 358,606 | | | 0 | | | 5,676 | | | 364,282 | |
| Consumer | 211,305 | | | 7 | | | 1,346 | | | 212,658 | |
| Other | 7,150 | | | 1,519 | | | 0 | | | 8,669 | |
| Total | $ | 2,283,530 | | | $ | 3,703 | | | $ | 14,507 | | | $ | 2,301,740 | |
| PCI Loans | | | | | | | |
| Commercial, Industrial and Agricultural | 0 | | | 0 | | | 187 | | | 187 | |
| 1-4 Family Residential Real Estate | 105 | | | 0 | | | 643 | | | 748 | |
| 1-4 Family HELOC | 14 | | | 0 | | | 0 | | | 14 | |
| Multi-family and Commercial Real Estate | 215 | | | — | | | 442 | | | 657 | |
| Construction, Land Development and Farmland | 589 | | | 0 | | | 187 | | | 776 | |
| Consumer | 75 | | | 0 | | | 1,130 | | | 1,205 | |
| Other | 0 | | | 0 | | | 0 | | | 0 | |
| Total | $ | 998 | | | $ | 0 | | | $ | 2,589 | | | $ | 3,587 | |
| | | | | | | |
| December 31, 2019 | | | | | | | |
| Loans excluding PCI | | | | | | | |
| Commercial, Industrial and Agricultural | $ | 241,089 | | | $ | 2,382 | | | $ | 2,044 | | | $ | 245,515 | |
| 1-4 Family Residential Real Estate | 225,614 | | | 0 | | | 1,720 | | | 227,334 | |
| 1-4 Family HELOC | 95,678 | | | 0 | | | 550 | | | 96,228 | |
| Multi-family and Commercial Real Estate | 530,840 | | | 1,519 | | | 4,271 | | | 536,630 | |
| Construction, Land Development and Farmland | 271,842 | | | 0 | | | 1,217 | | | 273,059 | |
| Consumer | 16,634 | | | 0 | | | 221 | | | 16,855 | |
| Other | 13,180 | | | 0 | | | 0 | | | 13,180 | |
| Total | $ | 1,394,877 | | | $ | 3,901 | | | $ | 10,023 | | | $ | 1,408,801 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90+ Days Past Due | | Total Past Due | | Current | | Total Loans |
| Commercial, Industrial and Agricultural | | $ | 22 |
| | $ | 153 |
| | $ | 279 |
| | $ | 454 |
| | $ | 213,396 |
| | $ | 213,850 |
|
| 1-4 Family Residential Real Estate | | 1,104 |
| | 335 |
| | 1,203 |
| | 2,642 |
| | 223,221 |
| | 225,863 |
|
| 1-4 Family HELOC | | 50 |
| | — |
| | — |
| | 50 |
| | 88,062 |
| | 88,112 |
|
| Multi-family and Commercial Real Estate | | — |
| | 104 |
| | — |
| | 104 |
| | 447,736 |
| | 447,840 |
|
| Construction, Land Development and Farmland | | 214 |
| | — |
| | 171 |
| | 385 |
| | 220,416 |
| | 220,801 |
|
| Consumer | | 11 |
| | 30 |
| | 46 |
| | 87 |
| | 20,408 |
| | 20,495 |
|
| Other | | — |
| | — |
| | — |
| | — |
| | 14,106 |
| | 14,106 |
|
| Total | | $ | 1,401 |
| | $ | 622 |
| | $ | 1,699 |
| | $ | 3,722 |
| | $ | 1,227,345 |
| | $ | 1,231,067 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pass | | Special
Mention | | Substandard | | Total |
| PCI Loans | | | | | | | |
| Commercial, Industrial and Agricultural | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| 1-4 Family Residential Real Estate | 195 | | | 0 | | | 0 | | | 195 | |
| 1-4 Family HELOC | 0 | | | 0 | | | 0 | | | 0 | |
| Multi-family and Commercial Real Estate | 215 | | | 0 | | | 0 | | | 215 | |
| Construction, Land Development and Farmland | 598 | | | 0 | | | 215 | | | 813 | |
| Consumer | 0 | | | 0 | | | 0 | | | 0 | |
| Other | 0 | | | 0 | | | 0 | | | 0 | |
| Total | $ | 1,008 | | | $ | 0 | | | $ | 215 | | | $ | 1,223 | |
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Past due loan balancesActivity in the ALL by class of loan wereportfolio segment was as follows at December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 30-59 Days Past Due | | 60-89 Days Past Due | | 90+ Days Past Due | | Total Past Due | | Current | | Total Loans |
| Commercial, Industrial and Agricultural | | $ | 7 |
| | $ | — |
| | $ | 1,548 |
| | $ | 1,555 |
| | $ | 137,151 |
| | $ | 138,706 |
|
| 1-4 Family Residential Real Estate | | 617 |
| | — |
| | — |
| | 617 |
| | 111,315 |
| | 111,932 |
|
| 1-4 Family HELOC | | — |
| | 7 |
| | — |
| | 7 |
| | 72,010 |
| | 72,017 |
|
| Multi-family and Commercial Real Estate | | 1,254 |
| | — |
| | — |
| | 1,254 |
| | 259,790 |
| | 261,044 |
|
| Construction, Land Development and Farmland | | 265 |
| | 444 |
| | 2,073 |
| | 2,782 |
| | 153,670 |
| | 156,452 |
|
| Consumer | | 14 |
| | — |
| | — |
| | 14 |
| | 17,591 |
| | 17,605 |
|
| Other | | — |
| | — |
| | — |
| | — |
| | 14,694 |
| | 14,694 |
|
| Total | | $ | 2,157 |
| | $ | 451 |
| | $ | 3,621 |
| | $ | 6,229 |
| | $ | 766,221 |
| | $ | 772,450 |
|
At December 31, 2018, there were loans of $6 past due 90 days or more and still accruing interest. There were no loans past due 90 days or more and still accruing interest at December 31, 2017.
Troubled debt restructurings occurring duringfor the year ended December 31, 2018 by class of loan were as follows:2020, 2019 and 2018:
|
| | | | | | | | | | | |
| | | Number of Contracts | | Pre-Modification Oustanding Recorded Investments | | Post-Modification Oustanding Recorded Investments |
| 1-4 Family Residential Estate | | 1 |
| | $ | 1,254 |
| | $ | 1,254 |
|
| Multi-family and Commercial Real Estate | | 1 |
| | 661 |
| | 585 |
|
| Total | | 2 |
| | $ | 1,915 |
| | $ | 1,839 |
|
Troubled debt restructurings occurring during the year ended December 31, 2017 by class of loan were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial Industrial and Agricultural | 1-4 Family Residential Real Estate | 1-4 Family HELOC | Multi-family and Commercial
Real Estate | Construction Land Development and Farmland | Consumer | Other | Total |
| Beginning balance at December 31, 2019 | $ | 2,529 | | $ | 1,280 | | $ | 624 | | $ | 5,285 | | $ | 2,649 | | $ | 177 | | $ | 34 | | $ | 12,578 | |
| Charge-offs | (521) | | (86) | | (98) | | 0 | | (114) | | (705) | | 0 | | (1,524) | |
| Recoveries | 187 | | 774 | | 20 | | 29 | | 56 | | 166 | | 0 | | 1,232 | |
| Provision | 3,246 | | 477 | | 870 | | 3,221 | | (750) | | 1,290 | | (4) | | 8,350 | |
| Ending balance at December 31, 2020 | $ | 5,441 | | $ | 2,445 | | $ | 1,416 | | $ | 8,535 | | $ | 1,841 | | $ | 928 | | $ | 30 | | $ | 20,636 | |
| | | | | | | | |
| Beginning balance at December 31, 2018 | $ | 1,751 | | $ | 1,333 | | $ | 656 | | $ | 4,429 | | $ | 2,500 | | $ | 184 | | $ | 39 | | $ | 10,892 | |
| Charge-offs | (396) | | (29) | | 0 | | 0 | | (60) | | (50) | | (35) | | (570) | |
| Recoveries | 393 | | 225 | | 12 | | 65 | | 0 | | 51 | | 299 | | 1,045 | |
| Provision | 781 | | (249) | | (44) | | 791 | | 209 | | (8) | | (269) | | 1,211 | |
| Ending balance at December 31, 2019 | $ | 2,529 | | $ | 1,280 | | $ | 624 | | $ | 5,285 | | $ | 2,649 | | $ | 177 | | $ | 34 | | $ | 12,578 | |
| | | | | | | | |
|
| | | | | | | | | | | |
| | | Number of Contracts | | Pre-Modification Oustanding Recorded Investments | | Post-Modification Oustanding Recorded Investments |
| Construction, Land Development and Farmland | | 2 |
| | $ | 2,110 |
| | $ | 1,640 |
|
| Total | | 2 |
| | $ | 2,110 |
| | $ | 1,640 |
|
|
| | | | | | | | | | | |
| | | Number of Contracts | | Pre-Modification Oustanding Recorded Investments | | Post-Modification Oustanding Recorded Investments |
| 1-4 Family Residential Estate | | 1 |
| | $ | 1,712 |
| | $ | 1,712 |
|
| Total | | 1 |
| | $ | 1,712 |
| | $ | 1,712 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial Industrial and Agricultural | 1-4 Family Residential Real Estate | 1-4 Family HELOC | Multi-family and Commercial
Real Estate | Construction Land Development and Farmland | Consumer | Other | Total |
| Beginning balance at December 31, 2017 | $ | 2,538 | | $ | 773 | | $ | 595 | | $ | 3,166 | | $ | 2,434 | | $ | 183 | | $ | 42 | | $ | 9,731 | |
| Charge-offs | (381) | | (36) | | (6) | | (76) | | (215) | | (26) | | (47) | | (787) | |
| Recoveries | 590 | | 12 | | 10 | | 221 | | 44 | | 34 | | 2 | | 913 | |
| Provision | (996) | | 584 | | 57 | | 1,118 | | 237 | | (7) | | 42 | | 1,035 | |
| Ending balance at December 31, 2018 | $ | 1,751 | | $ | 1,333 | | $ | 656 | | $ | 4,429 | | $ | 2,500 | | $ | 184 | | $ | 39 | | $ | 10,892 | |
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
DuringThe ALL and the year ended December 31, 2018, one modification occurredrecorded investment in loans by portfolio segment and based on impairment method as of was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial Industrial and Agricultural | 1-4 Family Residential Real Estate | 1-4 Family HELOC | Multi-family and Commercial
Real Estate | Construction Land Development and Farmland | Consumer | Other | Total |
| December 31, 2020 | | | | | | | | |
| Allowance for loan losses | | | | | | | | |
| Individually evaluated for impairment | $ | 717 | | $ | 18 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 13 | | $ | 0 | | $ | 748 | |
| Acquired with credit impairment | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Collectively evaluated for impairment | 4,724 | | 2,427 | | 1,416 | | 8,535 | | 1,841 | | 915 | 30 | | 19,888 | |
| Total | $ | 5,441 | | $ | 2,445 | | $ | 1,416 | | $ | 8,535 | | $ | 1,841 | | $ | 928 | | $ | 30 | | $ | 20,636 | |
| Loans | | | | | | | | |
| Individually evaluated for impairment | $ | 1,027 | | $ | 1,829 | | $ | 110 | | $ | 2,504 | | $ | 5,676 | | $ | 1,177 | | $ | 0 | | $ | 12,323 | |
| Acquired with credit impairment | 187 | | 748 | | 14 | | 657 | | 776 | | 1,205 | | 0 | | 3,587 | |
| Collectively evaluated for impairment | 458,525 | | 320,896 | | 100,401 | | 830,839 | | 358,606 | | 211,481 | 8,669 | | 2,289,417 | |
| Total | $ | 459,739 | | $ | 323,473 | | $ | 100,525 | | $ | 834,000 | | $ | 365,058 | | $ | 213,863 | | $ | 8,669 | | $ | 2,305,327 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial Industrial and Agricultural | 1-4 Family Residential Real Estate | 1-4 Family HELOC | Multi-family and Commercial
Real Estate | Construction Land Development and Farmland | Consumer | Other | Total |
| December 31 2019 | | | | | | | | |
| Allowance for loan losses | | | | | | | | |
| Individually evaluated for impairment | $ | 755 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 17 | | $ | 0 | | $ | 0 | | $ | 772 | |
| Acquired with credit impairment | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Collectively evaluated for impairment | 1,774 | | 1,280 | | 624 | | 5,285 | | 2,632 | | 177 | 34 | | 11,806 | |
| Total | $ | 2,529 | | $ | 1,280 | | $ | 624 | | $ | 5,285 | | $ | 2,649 | | $ | 177 | | $ | 34 | | $ | 12,578 | |
| Loans | | | | | | | | |
| Individually evaluated for impairment | $ | 1,154 | | $ | 1,536 | | $ | 374 | | $ | 3,439 | | $ | 1,217 | | $ | 28 | | $ | 0 | | $ | 7,748 | |
| Acquired with credit impairment | 0 | | 195 | | 0 | | 215 | | 813 | | 0 | | 0 | | 1,223 | |
| Collectively evaluated for impairment | 244,361 | | 225,798 | | 95,854 | | 533,191 | | 271,842 | | 16,827 | 13,180 | | 1,401,053 | |
| Total | $ | 245,515 | | $ | 227,529 | | $ | 96,228 | | $ | 536,845 | | $ | 273,872 | | $ | 16,855 | | $ | 13,180 | | $ | 1,410,024 | |
The following tables provide the period-end amounts of loans that consisted of anare past due thirty to eighty-nine days, past due ninety or more days and still accruing interest, only monthly payment restructure and had no effect on the allowance for loan losses or interested income. The other modification was a restructure of five loans includingnot accruing interest, purchased credit impaired loans, in which a charge off occurred of $76. The 1-4 Family Residential loan with a related balance of $1,254 was paid during 2018. During the year ended December 31, 2017, twoand loans were modified in a troubled debt restructuring. One modification consisted of a partial charge off totaling $470, and a payment restructure with the modification having no effectcurrent on payments accruing interest income for the remaining balance of $308by category at December 31, 2017. The other modification consisted2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Current and Accruing | | | | | | 30-89 Days Past Due | | 90+ Days
Past Due and Accruing Interest | | | | Nonaccrual loans | | Purchased Credit Impaired Loans | | Total Loans |
| December 31, 2020 | | | | | | | | | | | | | | | | | |
| Commercial, Industrial and Agricultural | $ | 458,759 | | | | | | | $ | 126 | | | $ | 0 | | | | | $ | 667 | | | $ | 187 | | | $ | 459,739 | |
| 1-4 Family Residential Real Estate | 319,068 | | | | | | | 2,071 | | | 0 | | | | | 1,586 | | | 748 | | | 323,473 | |
| 1-4 Family HELOC | 100,501 | | | | | | | 10 | | | 0 | | | | | 0 | | | 14 | | | 100,525 | |
| Multi-family and Commercial Real Estate | 832,223 | | | | | | | 150 | | | 0 | | | | | 970 | | | 657 | | | 834,000 | |
| Construction, Land Development and Farmland | 363,189 | | | | | | | 0 | | | 0 | | | | | 1,093 | | | 776 | | | 365,058 | |
| Consumer | 209,574 | | | | | | | 1,413 | | | 1 | | | | | 1,670 | | | 1,205 | | | 213,863 | |
| Other | 8,669 | | | | | | | 0 | | | 0 | | | | | 0 | | 0 | | | 8,669 | |
| Total | $ | 2,291,983 | | | | | | | $ | 3,770 | | | $ | 1 | | | | | $ | 5,986 | | | $ | 3,587 | | | $ | 2,305,327 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Current and Accruing | | | | | | 30-89 Days Past Due | | 90+ Days
Past Due and Accruing Interest | | | | Nonaccrual loans | | Purchased Credit Impaired Loans | | Total Loans |
| December 31, 2019 | | | | | | | | | | | | | | | | | |
| Commercial, Industrial and Agricultural | $ | 244,860 | | | | | | | $ | 83 | | | $ | 0 | | | | | $ | 572 | | | $ | 0 | | | $ | 245,515 | |
| 1-4 Family Residential Real Estate | 225,396 | | | | | | | 662 | | | 0 | | | | | 1,276 | | | 195 | | | 227,529 | |
| 1-4 Family HELOC | 95,889 | | | | | | | 0 | | | 0 | | | | | 339 | | | 0 | | | 96,228 | |
| Multi-family and Commercial Real Estate | 535,286 | | | | | | | 0 | | | 0 | | | | | 1,344 | | | 215 | | | 536,845 | |
| Construction, Land Development and Farmland | 272,508 | | | | | | | 255 | | | 0 | | | | | 296 | | | 813 | | | 273,872 | |
| Consumer | 16,699 | | | | | | | 64 | | | 64 | | | | | 28 | | | 0 | | | 16,855 | |
| Other | 13,180 | | | | | | | 0 | | | 0 | | | | | 0 | | | 0 | | | 13,180 | |
| Total | $ | 1,403,818 | | | | | | | $ | 1,064 | | | $ | 64 | | | | | $ | 3,855 | | | $ | 1,223 | | | $ | 1,410,024 | |
Approximately $2,438 and $1,117 of required monthly paymentsnonaccrual loans as of a loan with a balance of $108 at December 31, 20172020 and had no effect on the allowance for loan losses or interest income. There2019, respectively, were no charge offs resulting from the modification during the year ended December 31, 2016. The modification consistedperforming pursuant to their contractual terms at those dates.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in the amortization terms of the loans and payment modifications. The modification had no effect on the allowance for loan losses and interest income was not significantly affected.thousands except per share amounts)
Purchased Credit Impaired Loans
There were no subsequent defaults on loans modified in troubled debt restructurings during the years ended December 31, 2018, 2017 and 2016.
The Company has acquiredpurchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable,probably, at acquisition that not all contractually required payments would not be collected. The carrying amount of those loans wasis as followsfollows:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Commercial, Industrial and Agricultural | $ | 919 | | | $ | 0 | |
| 1-4 Family Residential Real Estate | 1,004 | | | 231 | |
| 1-4 Family HELOC | 19 | | | 0 | |
| Multi-family and Commercial Real Estate | 1,325 | | | 217 | |
| Construction, Land Development and Farmland | 992 | | | 1,021 | |
| Consumer | 1,924 | | | 0 | |
| Total outstanding balance | 6,183 | | | 1,469 | |
| Less remaining purchase discount | 2,596 | | | 246 | |
| Allowance for loan losses | 0 | | | 0 | |
| Carrying amount, net of allowance for loan losses and remaining purchase discounts | $ | 3,587 | | | $ | 1,223 | |
Accretable yield, or income expected to be collected on PCI loans, is as follows:
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Balance at January 1, | $ | 98 | | | $ | 110 | | | $ | 0 | |
| New loans purchased | 870 | | | 0 | | | 260 | |
| Accretion income | (388) | | | (12) | | | (150) | |
| Balance at December 31, | $ | 580 | | | $ | 98 | | | $ | 110 | |
On January 1, 2020 and April 1, 2020, the Company completed the TCB and FABK Transactions, respectively (see Note 15 for more information). As a result of the acquisition, the Company recorded loans with a fair value of $170.0 million and $625.8 million, respectfully. Of those loans, $1,688 and $4,668 were considered to be purchased credit impaired (“PCI”) loans, which are loans for which it is probable at December 31, 2018the acquisition date that all contractually required payments will not be collected. The remaining loans are considered to be purchased non-impaired loans and 2017, respectively:their related fair value discount or premium is recognized as an adjustment to yield over the remaining life of each loan.
|
| | | | | | | | |
| | | 2018 | | 2017 |
| Commercial, Industrial and Agricultural | | $ | 63 |
| | $ | 298 |
|
| Multi-family and Commercial Real Estate | | 233 |
| | 1,217 |
|
| Construction, Land Development and Farmland | | 1,958 |
| | 1,508 |
|
| 1-4 Family Residential Real Estate | | 324 |
| | 47 |
|
| 1-4 Family HELOC | | — |
| | — |
|
| Consumer | | 18 |
| | — |
|
| Total outstanding balance | | 2,596 |
| | 3,070 |
|
| Less remaining purchase discount | | 300 |
| | 156 |
|
| Allowance for loan losses | | — |
| | 4 |
|
| Carrying amount, net of allowance | | $ | 2,296 |
| | $ | 2,910 |
|
Activity related to the accretable portion of the purchase discount on loans acquired with deteriorated credit quality is as follows for the years ended December 31, 2018, 2017 and 2016:
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Balance at January 1, | $ | — |
| | $ | 87 |
| | $ | 233 |
|
| New loans purchased | 260 |
| | — |
| | — |
|
| Loan charge offs | (104 | ) | | — |
| | — |
|
| Accretion income | (46 | ) | | (87 | ) | | (146 | ) |
| Balance at December 31, | $ | 110 |
| | $ | — |
| | $ | 87 |
|
Contents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
PCI loans purchased during the year ended December 31, 2020, for which it was probable at acquisition that all contractually required payments would not be collected are as follows:
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
| | | | | | | | | | | |
| Tennessee Community Bank Holdings, Inc. acquisition on January 1, 2020 | | First Advantage Bank acquisition on April 1, 2020 |
| Contractually required payments receivable of loans purchased during the year: | $ | 2,799 | | | $ | 7,540 | |
| Nonaccretable difference | (980) | | | (2,133) | |
| Cash flows expected to be collected at acquisition | $ | 1,819 | | | $ | 5,407 | |
| Accretable yield | (131) | | | (739) | |
| Fair value of acquired loans at acquisition | $ | 1,688 | | | $ | 4,668 | |
The Company decreased the allowance for loan losses on purchased credit
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Individually impaired loans by $4, $2class of loans were as follows at December 31, 2020 and $2412019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | Unpaid
Principal
Balance | | Recorded Investment | | Related
Allowance | | Unpaid
Principal
Balance | | Recorded Investment | | Related
Allowance |
| With no related allowance recorded | | | | | | | | | | | |
| Commercial, Industrial and Agricultural | $ | 1,400 | | | $ | 367 | | | $ | — | | | $ | 0 | | | $ | 0 | | | $ | — | |
| 1-4 Family Residential Real Estate | 3,034 | | | 2,473 | | | — | | | 1,852 | | | 1,731 | | | — | |
| 1-4 Family HELOC | 130 | | | 124 | | | — | | | 376 | | | 374 | | | — | |
| Multi-family and Commercial Real Estate | 4,549 | | | 3,161 | | | — | | | 3,746 | | | 3,654 | | | — | |
| Construction, Land Development and Farmland | 6,809 | | | 6,452 | | | — | | | 2,176 | | | 1,859 | | | — | |
| Consumer | 3,590 | | | 2,348 | | | — | | | 31 | | | 28 | | | — | |
| Subtotal | $ | 19,512 | | | $ | 14,925 | | | $ | — | | | $ | 8,181 | | | $ | 7,646 | | | $ | — | |
| With an allowance recorded | | | | | | | | | | | |
| Commercial, Industrial and Agricultural | $ | 859 | | | $ | 847 | | | $ | 717 | | | $ | 1,154 | | | $ | 1,154 | | | $ | 755 | |
| 1-4 Family Residential Real Estate | 104 | | | 104 | | | 18 | | | 0 | | | 0 | | | 0 | |
| 1-4 Family HELOC | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Multi-family and Commercial Real Estate | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Construction, Land Development and Farmland | 0 | | | 0 | | | 0 | | | 171 | | | 171 | | | 17 | |
| Consumer | 34 | | | 34 | | | 13 | | | 0 | | | 0 | | | 0 | |
| Subtotal | 997 | | | 985 | | | 748 | | | 1,325 | | | 1,325 | | | 772 | |
| Total | $ | 20,509 | | | $ | 15,910 | | | $ | 748 | | | $ | 9,506 | | | $ | 8,971 | | | $ | 772 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The average recorded investment in impaired loans for the years ended December 31, 2020, 2019 and 2018, was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 | | December 31, 2018 |
| Average recorded investment | | Interest income recognized | | Average recorded investment | | Interest income recognized | | Average recorded investment | | Interest income recognized |
| With no allowance | | | | | | | | | | | |
| Commercial, Industrial and Agricultural | $ | 357 | | | $ | 69 | | | $ | 430 | | | $ | 57 | | | $ | 1,815 | | | $ | 89 | |
| 1-4 Family Residential Real Estate | 2,599 | | | 194 | | | 1,885 | | | 91 | | | 2,436 | | | 120 | |
| 1-4 Family HELOC | 319 | | | 12 | | | 193 | | | 12 | | | 72 | | | 4 | |
| Multi-family and Commercial Real Estate | 3,942 | | | 332 | | | 3,001 | | | 154 | | | 2,325 | | | 114 | |
| Construction, Land Development and Farmland | 3,267 | | | 375 | | | 2,291 | | | 122 | | | 3,769 | | | 185 | |
| Consumer | 1,330 | | | 316 | | | 18 | | | 1 | | | 62 | | | 3 | |
| Subtotal | $ | 11,814 | | | $ | 1,298 | | | $ | 7,819 | | | $ | 437 | | | $ | 10,479 | | | $ | 515 | |
| With an allowance recorded | | | | | | | | | | | |
| Commercial, Industrial and Agricultural | $ | 950 | | | $ | 38 | | | $ | 1,338 | | | $ | 45 | | | $ | 518 | | | $ | 25 | |
| 1-4 Family Residential Real Estate | 21 | | | 5 | | | 0 | | | 0 | | | 32 | | | 2 | |
| 1-4 Family HELOC | 0 | | | 0 | | | 10 | | | 0 | | | 0 | | | 0 | |
| Multi-family and Commercial Real Estate | 0 | | | 0 | | | 0 | | | 0 | | | 41 | | | 2 | |
| Construction, Land Development and Farmland | 34 | | | 0 | | | 171 | | | 8 | | | 802 | | | 39 | |
| Consumer | 8 | | | 2 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Subtotal | $ | 1,013 | | | $ | 45 | | | $ | 1,519 | | | $ | 53 | | | $ | 1,393 | | | $ | 68 | |
| Total | $ | 12,827 | | | $ | 1,343 | | | $ | 9,338 | | | $ | 490 | | | $ | 11,872 | | | $ | 583 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
As of December 31, 2020 and 2019 the Company had recorded investments in TDRs of $4,236 and $2,014, respectively. The Company did not allocate a specific allowance for those loans at December 31, 2020 and 2019 and there were no commitments to lend additional amounts. Loans accounted for as TDR include modifications from original terms such as those due to bankruptcy proceedings, certain modifications of amortization periods or extended suspension of principal payments due to customer financial difficulties. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. Loans accounted for as TDR are individually evaluated for impairment.
The following table presents loans by class modified as TDR occurring during the year ended December 31, 2020 and 2018. There were 0 troubled debt restructurings occurring during the year ended December 31, 2019.
| | | | | | | | | | | | | | | | | |
| Number of Contracts | | Pre-Modification Outstanding Recorded Investments | | Post-Modification Outstanding Recorded Investments |
| December 31, 2020 | | | | | |
| Commercial, Industrial and Agricultural | 1 | | | $ | 150 | | | $ | 150 | |
| 1-4 Family Residential | 1 | | | 394 | | | 394 | |
| Multi-family and Commercial Real Estate | 1 | | | 721 | | | 721 | |
| Total | 3 | | | $ | 1,265 | | | $ | 1,265 | |
| December 31, 2018 | | | | | |
| 1-4 Family Residential Estate | 1 | | | $ | 1,254 | | | $ | 1,254 | |
| Multi-family and Commercial Real Estate | 1 | | | 661 | | | 585 | |
| Total | 2 | | | $ | 1,915 | | | $ | 1,839 | |
Modifications made in 2020 related to a single borrower and all 3 loans were put on nonaccrual due to lack of payments in the third quarter of 2020. There were 0 subsequent defaults on loans modified in troubled debt restructurings during the years ended December 31, 2018, 20172019 and 2016, respectively.2018. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.
In the normal course of business, the Company will enter into various credit arrangements with its executive officers, directors and their affiliates. These arrangements generally take the form of commercial lines of credit, personal lines of credit, mortgage loans, term loans or revolving arrangements secured by personal residences. An analysis of the activity with respect to loans to related parties for the years ended December 31, 2018, 20172020, 2019 and 2016,2018. is as follows:
| | | | | 2018 | | 2017 | | 2016 | | | 2020 | | 2019 | | 2018 |
| Balance - January 1, | | $ | 8,581 |
| | $ | 11,935 |
| | $ | 10,484 |
| Balance - January 1, | | $ | 7,539 | | | $ | 7,394 | | | $ | 8,581 | |
| New loans during the year | | 919 |
| | 4,356 |
| | 4,442 |
| New loans during the year | | 30,737 | | | 3,281 | | | 919 | |
| Repayments during the year | | (2,106 | ) | | (7,710 | ) | | (2,991 | ) | Repayments during the year | | (4,141) | | | (3,136) | | | (2,106) | |
| | | | | | | | |
| Balance - December 31, | | $ | 7,394 |
| | $ | 8,581 |
| | $ | 11,935 |
| Balance - December 31, | | $ | 34,135 | | | $ | 7,539 | | | $ | 7,394 | |
During the three year period ended December 31, 2018, none
Contents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 4 - OTHER REAL ESTATE
Other real estate activity forDuring the yearsthree-year period ended December 31, 2018, 20172020, NaN of these loans were restructured or charged off.
Additionally, the Company is working with borrowers impacted by COVID-19 and 2016, wasproviding modifications to include interest only deferral or principal and interest deferral These modifications are excluded from troubled debt restructuring classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators.
The Company had applied this guidance to approve initial modifications in April and May 2020 for loans with aggregate principal balances of $530.7 million. The majority of these modifications were for a period of up to three months and contained either interest-only periods or full payment deferrals. Through December 31, 2020, further modifications were approved for $47.0 million of the loans previously modified. Modifications still in effect as follows:of December 31, 2020 amounted to $23.0 million.
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Beginning balance | $ | — |
| | $ | — |
| | $ | 1,149 |
|
| Loans acquired in merger | 1,650 |
| | — |
| | — |
|
| Loans transferred to other real estate | 1,060 |
| | — |
| | — |
|
| Allowance to lower of cost or market | — |
| | — |
| | (70 | ) |
| Sales of other real estate | (1,710 | ) | | — |
| | (1,079 | ) |
| End of year | $ | 1,000 |
| | $ | — |
| | $ | — |
|
ActivityThe CARES Act provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (“SBA”) to administer new loan programs including, but not limited to, the guarantee of loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). As of December 31, 2020, the Company had 843 PPP loans outstanding amounting to $65.5 million which are included in the valuationcommercial, industrial, and agricultural segment. PPP loans do not have a corresponding allowance foras they are fully guaranteed by the years endedSBA. Fees range from 1% to 5% of the loan and are deferred and amortized over the life of the loan. As PPP loans are forgiven, any deferred loan fee or cost is recognized related to each individual loan. As of December 31, 2018, 20172020 $17.8 million in PPP loans had been forgiven and 2016, was as follows:
$413 in fees recognized in earnings.
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Beginning balance | $ | — |
| | $ | — |
| | $ | — |
|
| Provisions/(recoveries) charged/(credited) to expense | — |
| | — |
| | 70 |
|
| Reductions from sales of other real estate | — |
| | — |
| | (70 | ) |
| Direct write-downs | — |
| | — |
| | — |
|
| End of year | $ | — |
| | $ | — |
| | $ | — |
|
Expenses related to foreclosed assets for the years ended December 31, 2018, 2017 and 2016, include:
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Net gain on sales | $ | (259 | ) | | $ | (27 | ) | | $ | (301 | ) |
| Provision for unrealized losses | — |
| | — |
| | 70 |
|
| Operating expenses, net of rental income | 50 |
| | 7 |
| | 22 |
|
| Total | $ | (209 | ) | | $ | (20 | ) | | $ | (209 | ) |
In connection with the merger with Community First, the Company acquired three real estate parcels. The Company valued the properties at their estimated fair values less costs to sale which totaled $1,650.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 5 - FAIR VALUES OF ASSETS AND LIABILITIES
The following table sets forth the Company’s major categories of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of December 31, 2018 and 2017:
|
| | | | | | | | | | | | | | | | |
| | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| December 31, 2018 | | | | | | | | |
| Assets | | | | | | | | |
| U. S. Treasury and other U. S. government agencies | | $ | 554 |
| | $ | — |
| | $ | 554 |
| | $ | — |
|
| State and municipal | | 229,298 |
| | — |
| | 229,298 |
| | — |
|
| Corporate bonds | | 3,017 |
| | — |
| | 3,017 |
| | — |
|
| Mortgage backed securities | | 31,958 |
| | — |
| | 31,958 |
| | — |
|
| Asset backed securities | | 27,996 |
| | — |
| | 27,996 |
| | — |
|
| Time deposits | | 3,500 |
| | 3,500 |
| | — |
| | — |
|
| Interest rate swap | | 467 |
| | — |
| | 467 |
| | — |
|
| | | | | | | | | |
| Liabilities | | | | | | | | |
| Interest rate swap | | $ | 1,183 |
| | $ | — |
| | $ | 1,183 |
| | $ | — |
|
| | | | | | | | | |
| December 31, 2017 | | | | | | | | |
| Assets | | | | | | | | |
| U. S. Treasury and other U. S. government agencies | | $ | 578 |
| | $ | — |
| | $ | 578 |
| | $ | — |
|
| State and municipal | | 191,752 |
| | — |
| | 191,752 |
| | — |
|
| Corporate bonds | | 1,492 |
| | — |
| | 1,492 |
| | — |
|
| Mortgage backed securities | | 6,169 |
| | — |
| | 6,169 |
| | — |
|
| Asset backed securities | | 16,710 |
| | — |
| | 16,710 |
| | — |
|
| Time deposits | | 3,500 |
| | 3,500 |
| | — |
| | — |
|
| Interest rate swap | | 155 |
| | — |
| | 155 |
| | — |
|
| | | | | | | | | |
| Liabilities | | | | | | | | |
| Interest rate swap | | $ | 180 |
| | $ | — |
| | $ | 180 |
| | $ | — |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 5 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
The following table sets forth the Company’s major categories of assets and liabilities measured at fair value on a nonrecurring basis, by level within the fair value hierarchy, as of December 31, 2018 and 2017:
|
| | | | | | | | | | | | | | | | |
| | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| December 31, 2018 | | | | | | | | |
| Assets | | | | | | | | |
| Impaired loans | | $ | 370 |
| | $ | — |
| | $ | — |
| | $ | 370 |
|
| Other real estate owned | | 1,000 |
| | — |
| | — |
| | 1,000 |
|
| | | | | | | | | |
| December 31, 2017 | | | | | | | | |
| Assets | | | | | | | | |
| Impaired loans | | $ | 2,286 |
| | $ | — |
| | $ | — |
| | $ | 2,286 |
|
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at December 31, 2018 and 2017:
|
| | | |
| Valuation
Techniques (1)
| Significant Unobservable Inputs | Range
(Weighted Average)
|
Impaired loans | Appraisal | Estimated costs to sell | 10% |
Other real estate owned | Appraisal | Estimated costs to sell | 10% |
| |
(1) | The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. Estimated cash flows change and appraised values of the assets or collateral underlying the loans will be sensitive to changes. |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 5 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
Carrying amounts and estimated fair values of financial instruments, by level within the fair value hierarchy, at December 31, 2018 were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Carrying Amount | | Estimated Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Financial assets | | | | | | | | | | |
| Cash and due from banks | | $ | 34,807 |
| | $ | 34,807 |
| | $ | 34,807 |
| | $ | — |
| | $ | — |
|
| Federal funds sold | | 371 |
| | 371 |
| | — |
| | 371 |
| | — |
|
| Loans, net | | 1,220,184 |
| | 1,206,574 |
| | — |
| | — |
| | 1,206,574 |
|
| Mortgage loans held for sale | | 15,823 |
| | 15,871 |
| | — |
| | 15,871 |
| | — |
|
| Accrued interest receivable | | 8,214 |
| | 8,214 |
| | — |
| | 8,214 |
| | — |
|
| Restricted equity securities | | 11,690 |
| | 11,690 |
| | — |
| | 11,690 |
| | — |
|
| Financial liabilities | | | | | | | | | | |
| Deposits | | $ | 1,437,903 |
| | $ | 1,434,652 |
| | $ | — |
| | $ | — |
| | $ | 1,434,652 |
|
| Accrued interest payable | | 1,063 |
| | 1,063 |
| | — |
| | 1,063 |
| | — |
|
| Subordinate debentures | | 11,603 |
| | 11,522 |
| | — |
| | — |
| | 11,522 |
|
| Federal Home Loan Bank advances | | 57,498 |
| | 57,434 |
| | — |
| | — |
| | 57,434 |
|
Carrying amounts and estimated fair values of financial instruments, by level within the fair value hierarchy, at December 31, 2017 were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Carrying Amount | | Estimated Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Financial assets | | | | | | | | | | |
| Cash and due from banks | | $ | 20,497 |
| | $ | 20,497 |
| | $ | 20,497 |
| | $ | — |
| | $ | — |
|
| Federal funds sold | | 171 |
| | 171 |
| | — |
| | 171 |
| | — |
|
| Loans, net | | 762,488 |
| | 762,574 |
| | — |
| | — |
| | 762,574 |
|
| Mortgage loans held for sale | | 45,322 |
| | 46,467 |
| | — |
| | 46,467 |
| | — |
|
| Accrued interest receivable | | 5,744 |
| | 5,744 |
| | — |
| | 5,744 |
| | — |
|
| Restricted equity securities | | 7,774 |
| | 7,774 |
| | — |
| | 7,774 |
| | — |
|
| Financial liabilities | | | | | | | | | | |
| Deposits | | $ | 883,519 |
| | $ | 882,533 |
| | $ | — |
| | $ | — |
| | $ | 882,533 |
|
| Accrued interest payable | | 305 |
| | 305 |
| | — |
| | 305 |
| | — |
|
| Federal Home Loan Bank advances | | 96,747 |
| | 96,754 |
| | — |
| | — |
| | 96,754 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 5 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
The methods and assumptions used to estimate fair value are described as follows:
Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, restricted equity securities, demand deposits, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items is not considered material.
NOTE 64 - PREMISES AND EQUIPMENT
The detail of premises and equipment at December 31, 20182020 and 20172019 is as follows:
| | | | | 2018 | | 2017 | | | 2020 | | 2019 |
| Land | | $ | 6,049 |
| | $ | 1,211 |
| Land | | $ | 9,480 | | | $ | 6,058 | |
| Buildings | | 8,951 |
| | 4,717 |
| Buildings | | 13,495 | | | 9,020 | |
| Construction in progress | | — |
| | 284 |
| Construction in progress | | 35 | | | 371 |
| Leasehold improvements | | 7,551 |
| | 4,727 |
| Leasehold improvements | | 9,566 | | | 7,891 | |
| Furniture, fixtures and equipment | | 10,311 |
| | 8,145 |
| Furniture, fixtures and equipment | | 13,463 | | | 9,393 | |
| | | 32,862 |
| | 19,084 |
| | 46,039 | | 32,732 |
| Less: accumulated depreciation | | (10,829 | ) | | (9,294 | ) | Less: accumulated depreciation | | (14,577) | | | (11,668) | |
| | | | | | | $ | 31,462 | | | $ | 21,064 | |
| | | $ | 22,033 |
| | $ | 9,790 |
| |
Depreciation and amortization expense was $1,697, $1,017$2,867, $1,875 and $976$1,586 for the years ended December 31, 2018, 20172020, 2019 and 2016, respectively.2018.
NOTE 75 - RESTRICTED EQUITY SECURITIESLEASES
On January 1, 2020, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. Leases with initial terms of less than one year are not recorded on the balance sheet.
The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company ownedhas included such extensions in its calculation of the following restricted equity securitieslease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
The implementation of the new standard resulted in recognition of a right-of-use asset of $12.0 million and a lease liability of $11.9 million at the date of adoption, which is related to the Company’s lease of premises used in operations. The Company used a discount rate of 4.5% in determining the right-of-use asset and lease liability as of January 1, 2020.
Information related to the Company's operating leases is presented below:
| | | | | |
| |
| December 31, 2020 |
| Operating leases right of use assets | $ | 13,103 | |
| Operating leases liabilities | $ | 14,231 | |
| Weighted average remaining lease term (in years) | 6.33 |
| Weighted average discount rate | 4.34 | % |
The components of lease expense included in occupancy expenses for the year ended December 31, 2018 and 2017:2020, were as follows:
| | | | | | | | | |
| | | Year Ended December 31, 2020 |
| Operating lease cost | | | $ | 3,137 | |
| Short-term lease cost | | | 40 | |
| Variable lease cost | | | 364 | |
| Total lease cost | | | $ | 3,541 | |
|
| | | | | | | | |
| | | 2018 | | 2017 |
| Federal Reserve Bank | | $ | 5,735 |
| | $ | 3,546 |
|
| Federal Home Loan Bank | | 5,955 |
| | 4,228 |
|
| | | | | |
| Total | | $ | 11,690 |
| | $ | 7,774 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
The Company does not separate lease and non-lease components and instead elects to account for them as a single lease component. Variable lease cost primarily represents variable payments such as common area maintenance, utilities, and property taxes.
Lease expense for the year ended December 31, 2019, prior to the adoption of ASU 2016-02, was $2,718.
A maturity analysis of operating lease liabilities and a reconciliation of undiscounted cash flows to the total operating lease liability is as follows:
| | | | | | | | |
| Lease payments due on or before | | December 31, 2020 |
| December 31, 2021 | | $ | 3,023 | |
| December 31, 2022 | | 2,701 | |
| December 31, 2023 | | 2,717 | |
| December 31, 2024 | | 2,701 | |
| December 31, 2025 | | 2,211 | |
| Thereafter | | 3,774 | |
| Total undiscounted cash flows | | 17,127 | |
| | |
| Discount on cash flows | | (2,896) | |
| Total lease liability | | $ | 14,231 | |
During the third quarter of 2020, the Company entered into a five-year lease with a related party that commences January 1, 2021 and has a base annual rental of $211,000, with a 2.5% per year increase. This lease may be terminated December 31, 2021 with a 90-day notice and is included in the lease payments above.
NOTE 86 - OTHER REAL ESTATE
Other real estate activity for the years ended December 31, 2020, 2019 and 2018, was as follows:
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Beginning balance | $ | 750 | | | $ | 1,000 | | | $ | 0 | |
| Loans acquired in merger | 208 | | | 0 | | | 1,650 | |
| Loans transferred to other real estate | 197 | | | 943 | | | 1,060 | |
| Bank owned properties transferred to other real estate | 2,420 | | | 0 | | | 0 | |
| Allowance to lower of cost or market | 0 | | | (98) | | | 0 | |
| Sales of other real estate | (2,329) | | | (1,095) | | | (1,710) | |
| End of year | $ | 1,246 | | | $ | 750 | | | $ | 1,000 | |
Activity in the valuation allowance for the years ended December 31, 2020, 2019 and 2018, was as follows:
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Beginning balance | $ | 98 | | | $ | 0 | | | $ | 0 | |
| Provisions/(recoveries) charged/(credited) to expense | 0 | | | 98 | | | 0 | |
| Reductions from sales of other real estate | (98) | | | 0 | | | 0 | |
| Direct write-downs | 0 | | | 0 | | | 0 | |
| End of year | $ | 0 | | | $ | 98 | | | $ | 0 | |
Expenses related to foreclosed assets for the years ended December 31, 2020, 2019 and 2018, include:
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Net gain on sales | $ | (28) | | | $ | (166) | | | $ | (259) | |
| Provision for unrealized losses | 0 | | | 98 | | | 0 | |
| Operating expenses, net of rental income | 28 | | | 44 | | | 50 | |
| Total | $ | 0 | | | $ | (24) | | | $ | (209) | |
NOTE 7 - GOODWILL AND CORE DEPOSIT INTANGIBLES
The following presentschange in goodwill during the balances as ofyears ended December 31, 2018,2020 and 2017, of2019, was as follows:
| | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| Beginning of year | | $ | 43,642 | | | $ | 43,642 | |
| Acquired goodwill | | 10,754 | | | 0 | |
| Impairment | | 0 | | | 0 | |
| End of year | | $ | 54,396 | | | $ | 43,642 | |
Amortizable intangible assets acquired in business acquisitions:at December 31, 2020 and 2019 were as follows:
| | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| Core deposit intangibles | | $ | 16,731 | | | $ | 10,834 | |
| Less accumulated amortization | | (5,384) | | | (3,564) | |
| Net core deposit intangibles | | $ | 11,347 | | | $ | 7,270 | |
|
| | | | | | | | |
| | | 2018 | | 2017 |
| Goodwill | | $ | 43,642 |
| | $ | 11,404 |
|
| | | | | |
| Amortized intangible assets: | | | | |
| Core deposit intangibles | | $ | 10,111 |
| | $ | 2,946 |
|
| Less accumulated amortization | | (1,892 | ) | | (1,666 | ) |
| | | $ | 8,219 |
| | $ | 1,280 |
|
Amortization expense was $1,820, $949 $302 and $356$949 for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively.
Estimated future amortization expense by year as of December 31, 20182020 is as follows:
| | | 2019 | $ | 949 |
| |
| 2020 | 949 |
| |
| 2021 | 949 |
| 2021 | $ | 1,826 | |
| 2022 | 949 |
| 2022 | 1,761 | |
| 2023 | 865 |
| 2023 | 1,610 | |
| 2024 | | 2024 | 1,375 | |
| 2025 | | 2025 | 1,309 | |
| Thereafter | 3,558 |
| Thereafter | 3,466 | |
| Total | $ | 8,219 |
| Total | $ | 11,347 | |
NOTE 98 - DEPOSITS
Contractual maturities of time deposit accounts for the next five years at December 31, 20182020 are as follows:
| |
| | |
| 2019 | $ | 588,815 |
| |
| 2020 | 49,259 |
| |
| 2021 | 9,934 |
| 2021 | $ | 679,819 | |
| 2022 | 8,174 |
| 2022 | 78,608 | |
| 2023 | 9,258 |
| 2023 | 19,995 | |
| 2024 | | 2024 | 11,774 | |
| 2025 | | 2025 | 6,148 | |
| Total | $ | 665,440 |
| Total | $ | 796,344 | |
The aggregate amount of overdrafts reclassified to loans receivable was $400$546 and $118$381 at December 31, 20182020 and 2017,2019, respectively.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
AtThe aggregate amount of time deposits with a minimum denomination greater than $250 was $233,848 and $236,750 at December 31, 20182020 and 2017, time deposits in excess of $250 totaled $330,736 and $264,8142019, respectively.
Deposits from principal officers, directors, and their affiliates at December 31, 20182020 and 20172019 were $8,376$19,742 and $14,280,$14,600, respectively.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 109 - FEDERAL HOME LOAN BANK ADVANCES
AtThe Company had outstanding borrowings totaling $10,000 and $10,737 at December 31, 2020 and 2019, respectively, via various advances. These advances are non-callable; interest payments are due monthly, with principal due at maturity. The Company's additional borrowing capacity was $349,138 and $159,379 at December 31, 2020 and 2019, respectively. The Company paid $253 thousand in penalties from theprepayment of $16.5 million in Federal Home Loan Bank were as follows: advances during 2020.
|
| | | | | | | | |
| | | 2018 | | 2017 |
| Maturities January 2019 through March 2024, fixed rates ranging from 1.22% to 2.86% ($54,000 is due in the year ending December 31, 2019) | | $ | 57,498 |
| | $ | 96,747 |
|
Each advanceThe following is payable at its maturity date, with a prepayment penalty for fixed rate advances. At December 31, 2018, there was $4,407 of advances amortizing on a monthly basis. The weighted average ratesummary of the total borrowings at December 31, 2018contractual maturities and 2017 was 2.42% and 1.54%, respectively. The weighted average interest rateeffective rates of the short-term borrowings outstanding at December 31, 2018 and 2017 was 2.46% and 1.43%, respectively. The advances were collateralized by $597,646 and $380,111 of real estate loans at December 31, 2018 and 2017, respectively. The Company’s additional borrowing capacity was $96,082 and $5,924 at December 31, 2018 and 2017, respectively.advances:
Required future principal payments on Federal Home Loan Bank borrowings are as follows:
| | | | | | December 31, 2020 | | December 31, 2019 |
| 2019 | $ | 53,857 |
| |
| Scheduled Maturities | | Scheduled Maturities | | Amount | | Weighted Average Rates | | Amount | | Weighted Average Rates |
| 2020 | 721 |
| 2020 | | 0 | | 0 | | $ | 7,000 | | | 1.65 | % |
| 2021 | 963 |
| 2021 | | $ | 10,000 | | | 0.19 | % | | 323 | | | 2.73 | % |
| 2022 | 612 |
| 2022 | | 0 | | | 0 | % | | 557 | | | 1.22 | % |
| 2023 | 1,117 |
| 2023 | | 0 | | | 0 | % | | 2,342 | | | 1.94 | % |
| 2024 | | 2024 | | 0 | | | 0 | % | | 515 | | | 2.49 | % |
| Thereafter | 228 |
| Thereafter | | 0 | | | 0 | % | | 0 | | | 0 | % |
| Total | $ | 57,498 |
| |
| | | $ | 10,000 | | | 0.19 | % | | $ | 10,737 | | | 1.76 | % |
NOTE 1110 - SUBORDINATED DEBENTURES
In 2002, Community First, Inc. issued $3,000 of floating rate mandatory redeemable subordinated debentures were issued through a special purpose entity as part of a private offering of trust preferred securities. The securities mature on December 31, 2032; however, the Company can currently repay the securities at any time without penalty, subject to approval from the Federal Reserve Bank ("FRB"). The subordinated debentures bear interest at a floating rate equal to the New York Prime rate plus fifty50 basis points.Thepoints. The interest rate on the subordinated debentures as of December 31, 20182020 was 6.00%3.75%. The Company has the right from time to time, without causing an event of default, to defer payments of interest on the debentures for up to twenty20 consecutive quarterly periods. These debentures are presented in liabilities on the balance sheet but count as Tier 1 capital (with certain limitations applicable) for regulatory capital purposes.
In 2005, Community First, Inc.issued $5,000 of floating rate mandatory redeemable subordinated debentures were issued through a special purpose entity as part of a pool offering of trust preferred securities. These securities mature on September 15, 2035, however, the Company can currently repay the securities at any time without penalty, subject to approval from the FRB. The subordinated debentures bear interest at a floating rate equal to the three monththree-month London Interbank Offered Rate, ("LIBOR") plus 1.50%. The interest rate on the subordinated debentures as of December 31, 20182020 was 4.288%1.72%. The Company has the right from time to time, without causing an event of default, to defer payments of interest on the debentures for up to twenty20 consecutive quarterly periods. These debentures are presented in liabilities on the balance sheet but count as Tier 1 capital for regulatory purposes.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 11 - SUBORDINATED DEBENTURES (CONTINUED)
In 2007, Community First, Inc. issued $15,000 of redeemable subordinated debentures were issued through a special purpose entity as part of a pooled offering of trust preferred securities. These subordinated debentures mature in 2037; however, the Company can currently repay the securities at any time without penalty, subject to approval from the FRB. The interest rate on the subordinated debentures was 7.96% until December 15, 2012, and thereafter the subordinated debentures bear interest at a floating rate equal to the three monththree-month LIBOR plus 3.0%. At December 31, 2018,2020 the interest rate was 5.788%3.22%. The Company has the right from time to
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
time, without causing an event of default, to defer payments of interest on the junior debentures for up to twenty20 consecutive quarterly periods. These debentures are presented in liabilities on the balance sheet. On December 20, 2016, TRUPS acquired $10,000 in face amount of trust preferred capital securities issued by Community First Statutory Trust II. These capital securities were purchased from an unaffiliated investor and remain outstanding; however, the securities and the underlying subordinated debentures are eliminated in the Company's consolidated financial statements,statements.
In 2019, the Company issued $60,000 of subordinated notes, which mature in 2029. The Company may, at its option, redeem the subordinated notes (i) in whole or in part, on any interest payment date on or after December 15, 2024 and (ii) in whole but not in part, at any time upon the occurrence of a Tier 2 capital event, tax event or an investment company event. The interest rate on the subordinated debentures is 5.125% until December 15, 2024, and thereafter the subordinated debentures bear interest at a floating rate equal to the three-month SOFR plus 3.765%.
The portion of the subordinated debentures qualifying as Tier 1 capital is limited to 25% of total Tier 1 capital. Subordinated
debentures in excess of the Tier 1 capital limitation generally qualify as Tier 2 capital. Under the Dodd-Frank Act and the federal regulations issued implementing Basel III, these subordinated debentures will, subject to the limitations described in the preceding sentence, continue to qualify as Tier 1 capital. Distributions on the subordinated debentures are payable quarterly. As of December 31, 2018,2020, the Company was current in the payment of all interest payments due on its subordinated debentures.
NOTE 11 - DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and other terms of the individual interest rate swap agreements.
Interest Rate Swaps Designated as Cash Flow Hedges
Interest rate swaps with notional amounts totaling $160,000 as of December 31, 2020 were designated as cash flow hedges of certain short-term interest-bearing liabilities and subordinated debentures, which are fully effective. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swap agreements. NaN gains or losses were reclassified from accumulated other comprehensive income into net income during the periods presented.
Summary information related to the interest rate swaps designated as cash flow hedges as of December 31, is as follows:
| | | | | | | | | | | |
| 2020 | | 2019 |
| Notional amounts | $ | 160,000 | | | $ | 110,000 | |
| Weighted average pay rates | 2.05 | % | | 2.43 | % |
| Weighted average receive rates | 0.39 | % | | 2.11 | % |
| Weighted average maturity | 3.10 years | | 3.84 years |
| Unrealized losses | $ | 7,657 | | | $ | 2,078 | |
The following table reflects the cash flow hedges included in the Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019, respectively:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Included in other liabilities: | | | | | | | |
| Interest rate swaps related to: | | | | | | | |
| Subordinated debentures | $ | 10,000 | | | $ | (690) | | | $ | 10,000 | | | $ | (439) | |
| Short-term interest-bearing liabilities | 150,000 | | | (6,967) | | | 100,000 | | | (1,639) | |
| Total included in other liabilities | $ | 160,000 | | | $ | (7,657) | | | $ | 110,000 | | | $ | (2,078) | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The following table presents the net gains (losses) recorded in accumulated other comprehensive income and the Consolidated Statements of Income, net of tax, relating to the cash flow derivative instruments years ended December 31, 2020, 2019, and 2018, respectively:
| | | | | | | | | | | | | | | | | |
| Amount of (Loss) Gain Recognized in Other Comprehensive Income (Loss) |
| 2020 | | 2019 | | 2018 |
| Interest rate swaps-subordinate debentures | $ | (185) | | | $ | (196) | | | $ | (129) | |
| Interest rate swaps-interest-bearing liabilities | (3,935) | | | (487) | | | (723) | |
| $ | (4,120) | | | $ | (683) | | | $ | (852) | |
Fair Value Hedges
Summary information related to the fair value hedges as of December 31, is as follows:
| | | | | | | | | | | |
| 2020 | | 2019 |
| Notional amounts | $ | 18,525 | | | $ | 19,605 | |
| Weighted average pay rates | 3.68 | % | | 3.66 | % |
| Weighted average receive rates | 1.21 | % | | 2.87 | % |
| Weighted average maturity | 7.82 years | | 9.25 years |
| Unrealized losses | $ | 1,495 | | | $ | 630 | |
The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019, respectively:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Included in other liabilities: | | | | | | | |
| Interest rate swaps related to investments | $ | 18,525 | | | $ | (1,495) | | | $ | 19,605 | | | $ | (630) | |
| Total included in other liabilities | $ | 18,525 | | | $ | (1,495) | | | $ | 19,605 | | | $ | (630) | |
The following table reflects the fair value hedges included in the Consolidated Statements of Operations as of December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| Item | Location | | 2020 | | 2019 | | 2018 |
| Interest rate swaps - securities | Interest on investment securities, nontaxable | | $ | (363) | | | $ | (56) | | | $ | (121) | |
| Hedged item - securities | Interest on investment securities, nontaxable | | $ | 363 | | | $ | 56 | | | $ | 121 | |
NOTE 12 - FAIR VALUES OF ASSETS AND LIABILITIES
Financial accounting standards relating to fair value measurements establish a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques 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 are described below:
Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2 Inputs to the valuation methodology include:
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
•Quoted prices for similar assets or liabilities in active markets;
•Quoted prices for identical or similar assets or liabilities in inactive markets;
•Inputs other than quoted prices that are observable for the asset or liability; and
•Inputs that are derived principally from or corroborated by the observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 Inputs to the valuation methodology are unobservable and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis:
Securities available for sale: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Company obtains fair value measurements for securities available for sale from an independent pricing service. The fair value measurements consider observable data that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, cash flows and reference data, including market research publications, among other things.
Interest rate swaps: The fair values of interest rate swaps and fair value hedges are determined based on discounted future cash flows.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis include the following:
Impaired Loans: The fair value of an impaired loan with specific allocations of the allowance for loan losses is generally based on the present value of expected payments using the loan’s effective rate as the discount rate or recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
Other Real Estate: The fair value of other real estate is generally based on recent real estate appraisals less estimated disposition cost. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in Level 3 classification of the inputs for determining fair value.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company’s valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.The following table sets forth the Company’s major categories of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| December 31, 2020 | | | | | | | |
| Assets | | | | | | | |
| U. S. Treasury and other U. S. government agencies | $ | 48 | | | $ | 0 | | | $ | 48 | | | $ | 0 | |
| State and municipal | 200,988 | | | 0 | | | 200,988 | | | 0 | |
| Corporate bonds | 24,113 | | | 0 | | | 24,113 | | | 0 | |
| Mortgage backed securities | 28,442 | | | 0 | | | 28,442 | | | 0 | |
| Asset backed securities | 3,062 | | | 0 | | | 3,062 | | | 0 | |
| | | | | | | |
| Derivative assets | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | |
| Liabilities | | | | | | | |
| Derivative liabilities | $ | 9,152 | | | $ | 0 | | | $ | 9,152 | | | $ | 0 | |
| | | | | | | |
| December 31, 2019 | | | | | | | |
| Assets | | | | | | | |
| U. S. Treasury and other U. S. government agencies | $ | 59 | | | $ | 0 | | | $ | 59 | | | $ | 0 | |
| State and municipal | 196,660 | | | 0 | | | 196,660 | | | 0 | |
| Corporate bonds | 7,845 | | | 0 | | | 7,845 | | | 0 | |
| Mortgage backed securities | 37,761 | | | 0 | | | 37,761 | | | 0 | |
| Asset backed securities | 17,968 | | | 0 | | | 17,968 | | | 0 | |
| Time deposits | 0 | | | 0 | | | 0 | | | 0 | |
| Derivative assets | 688 | | | 0 | | | 688 | | | 0 | |
| | | | | | | |
| Liabilities | | | | | | | |
| Derivative liabilities | $ | 3,396 | | | $ | 0 | | | $ | 3,396 | | | $ | 0 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The following table sets forth the Company’s major categories of assets and liabilities measured at fair value on a nonrecurring basis, by level within the fair value hierarchy, as of December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| December 31, 2020 | | | | | | | |
| Assets | | | | | | | |
| Impaired loans | $ | 15,162 | | | $ | 0 | | | $ | 0 | | | $ | 15,162 | |
| Other real estate | 1,246 | | | 0 | | | 0 | | | 1,246 | |
| Other repossessions | 1,424 | | | 0 | | | 0 | | | 1,424 | |
| | | | | | | |
| December 31, 2019 | | | | | | | |
| Assets | | | | | | | |
| Impaired loans | $ | 8,199 | | | $ | 0 | | | $ | 0 | | | $ | 8,199 | |
| Other real estate | 750 | | | 0 | | | 0 | | | 750 | |
| Other repossessions | 0 | | | 0 | | | 0 | | | 0 | |
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| Valuation
Techniques (1) | | Significant
Unobservable Inputs | | Range
(Weighted Average) |
| Impaired loans | Appraisal | | Estimated costs to sell | | 10% |
| Other real estate | Appraisal | | Estimated costs to sell | | 10% |
| Other repossessions | Third-party guidelines | | Estimated costs to sell | | 10% |
(1)The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. Estimated cash flows change and appraised values of the assets or collateral underlying the loans will be sensitive to changes.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Carrying amounts and estimated fair values of financial instruments, by level within the fair value hierarchy, at December 31, 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying
Amount | | Estimated
Fair
Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Financial assets | | | | | | | | | | |
| Cash and due from banks | | $ | 13,717 | | | $ | 13,717 | | | $ | 13,717 | | | $ | 0 | | | $ | 0 | |
| Interest-bearing deposits in financial institutions | | 79,756 | | | 79,756 | | | 79,756 | | | 0 | | | 0 | |
| Federal funds sold | | 1,572 | | | 1,572 | | | 0 | | | 1,572 | | | 0 | |
| Loans, net | | 2,280,147 | | | 2,293,723 | | | 0 | | | 0 | | | 2,293,723 | |
| Mortgage loans held for sale | | 147,524 | | | 149,342 | | | 0 | | | 149,342 | | | 0 | |
| Accrued interest receivable | | 14,889 | | | 14,889 | | | 0 | | | 14,889 | | | 0 | |
| Restricted equity securities | | 16,551 | | | 16,551 | | | 0 | | | 16,551 | | | 0 | |
| Financial liabilities | | | | | | | | | | |
| Deposits | | $ | 2,579,235 | | | $ | 2,583,525 | | | $ | 0 | | | $ | 0 | | | $ | 2,583,525 | |
| Accrued interest payable | | 2,571 | | | 2,571 | | | 0 | | | 2,571 | | | 0 | |
| Subordinate debentures | | 70,446 | | | 71,750 | | | 0 | | | 0 | | | 71,750 | |
| Federal Home Loan Bank advances | | 10,000 | | | 10,000 | | | 0 | | | 0 | | | 10,000 | |
Carrying amounts and estimated fair values of financial instruments, by level within the fair value hierarchy, at December 31, 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying
Amount | | Estimated
Fair
Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Financial assets | | | | | | | | | | |
| Cash and due from banks | | $ | 7,953 | | | $ | 7,953 | | | $ | 7,953 | | | $ | 0 | | | $ | 0 | |
| Interest-bearing deposits in financial institutions | | 43,644 | | | 43,644 | | | 43,644 | | | 0 | | | 0 | |
| Federal funds sold | | 52 | | | 52 | | | 0 | | | 52 | | | 0 | |
| Loans, net | | 1,397,374 | | | 1,383,719 | | | 0 | | | 0 | | | 1,383,719 | |
| Mortgage loans held for sale | | 37,476 | | | 38,379 | | | 0 | | | 38,379 | | | 0 | |
| Accrued interest receivable | | 7,188 | | | 7,188 | | | 0 | | | 7,188 | | | 0 | |
| Restricted equity securities | | 11,279 | | | 11,279 | | | 0 | | | 11,279 | | | 0 | |
| Financial liabilities | | | | | | | | | | |
| Deposits | | $ | 1,584,453 | | | $ | 1,582,781 | | | $ | 0 | | | $ | 0 | | | $ | 1,582,781 | |
| Accrued interest payable | | 2,022 | | | 2,022 | | | 0 | | | 2,022 | | | 0 | |
| Subordinate debentures | | 70,883 | | | 71,454 | | | 0 | | | 0 | | | 71,454 | |
| Federal Home Loan Bank advances | | 10,737 | | | 10,755 | | | 0 | | | 0 | | | 10,755 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The methods and assumptions used to estimate fair value are described as follows:
Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, restricted equity securities, federal funds sold or purchased, demand deposits, and variable rate loans or deposits that re-price frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of debt is based on discounted cash flows using current rates for similar financing.
NOTE 13 - INCOME TAXES
The income tax expense consists of the following for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 |
| Income tax expense | | | | | | |
| Current | | $ | 4,875 | | | $ | 1,731 | | | $ | 992 | |
| Deferred | | 2,060 | | | 398 | | | 380 | |
| Total provision for income tax expense | | $ | 6,935 | | | $ | 2,129 | | | $ | 1,372 | |
A reconciliation of the income tax expense for the years ended December 31, 2020, 2019 and 2018 from the "expected" tax expense computed by applying the statutory federal income tax rate of 21 percent to Income before income taxes is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 |
| Computed "expected" tax expense | | $ | 7,882 | | | 21 | % | | $ | 2,660 | | | 21 | % | | $ | 2,495 | | | 21 | % |
| | | | | | | | | | | | |
| State income tax, net of federal tax effect | | 1,770 | | | 5 | % | | 637 | | | 5 | % | | 551 | | | 5 | % |
| Tax-exempt interest income, net of disallowed interest | | (1,172) | | | (3) | % | | (1,373) | | | (11) | % | | (1,132) | | | (10) | % |
| Stock compensation | | 119 | | | 0 | % | | (14) | | | 0 | % | | (69) | | | (1) | % |
| Cash surrender value of life insurance contracts | | (579) | | | (2) | % | | (235) | | | (2) | % | | (249) | | | (2) | % |
| Nondeductible merger expenses | | 48 | | | 0 | % | | 155 | | | 1 | % | | 47 | | | 0 | % |
| Federal and state tax credits | | (1,393) | | | (4) | % | | (999) | | | (8) | % | | (1,102) | | | (9) | % |
| Subsidiary disregarded for federal taxes | | 63 | | | 0 | % | | 1,189 | | | 9 | % | | 763 | | | 6 | % |
| Others as a group | | 196 | | | 1 | % | | 109 | | | 1 | % | | 68 | | | 1 | % |
| Total income tax expense | | $ | 6,935 | | | 18 | % | | $ | 2,129 | | | 16 | % | | $ | 1,372 | | | 11 | % |
The Company files a separate Federal tax return for the operations of the mortgage banking and banking operations. The taxable income or losses of the mortgage banking operations are included in the respective returns of the Company and non-controlling members for Federal purposes.
The Company's income tax filings from the years ending December 31, 2017 to present remain open to examinations by tax jurisdictions.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Significant components of deferred tax assets as of December 31, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| Deferred tax assets: | | | | |
| Organizational and start-up costs | | $ | 8 | | | $ | 38 | |
| Acquisition fair value adjustments | | 4,023 | | | 414 | |
| Allowance for loan losses | | 4,469 | | | 2,993 | |
| Other Real estate | | 56 | | | 26 | |
| Unrealized loss on derivatives | | 2,392 | | | 708 | |
| Nonaccrual loans | | 388 | | | 271 | |
| Acquired net operating losses | | 2,462 | | | 2,711 | |
| Acquired tax credits net of tax basis adjustments | | 660 | | | 1,005 | |
| Deferred Compensation | | 493 | | | 310 | |
| Loan fees (costs) | | 1,188 | | | 0 | |
| Other | | 760 | | | 482 | |
| Total deferred tax assets | | $ | 16,899 | | | $ | 8,958 | |
| | | | |
| Deferred tax liabilities: | | | | |
| Core deposit intangible | | $ | 2,900 | | | $ | 1,817 | |
| Loan fees (costs) | | 0 | | | 19 | |
| Premises and equipment | | 1,432 | | | 627 | |
| Unrealized (gain) loss on available for sale securities | | 4,597 | | | 2,501 | |
| FHLB stock dividends | | 736 | | | 61 | |
| Other | | 113 | | | 0 | |
| Total deferred tax liabilities | | $ | 9,778 | | | $ | 5,025 | |
| Net deferred tax asset (liability) | | $ | 7,121 | | | $ | 3,933 | |
In assessing the future realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management determined that as of December 31, 2020, it was more likely than not that all deferred tax assets would be realized.
At December 31, 2020, related to the merger with Community First, Inc., the Company had $11,696 of federal net operating loss carryovers subject to the annual limitation under Internal Revenue Code Section 382. The carryovers begin to expire in 2031 and are expected to be fully realized.
The Company had 0 unrecognized tax benefits at December 31, 2020, 2019 and 2018.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
The Company has federal funds lines at other financial institutions with availability totaling $98,200 and $88,200 at December 31, 2020, and 2019, respectively. At December 31, 2020 and 2019, the Company did 0t have outstanding balances for these federal funds lines. The Company also has an unsecured line of credit at CDC Deposits Network with availability of $20,000. The Company did 0t have a balance outstanding related to this line at December 31, 2020 or 2019. The Company also may access borrowings utilizing the Federal Reserve bank discount window of $5,927 and $5,780 at 2020 and 2019, respectively. There were 0 funds advanced from the discount window at December 31, 2020 or 2019.
At December 31, 2020 and 2019, the Company has $299,754 and $285,654 in standby letters of credit with the Federal Home Loan Bank pledged to secure municipal deposits.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection lines, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.
Off-balance sheet arrangements generally consist of unused lines of credit and standby letters of credit. Such commitments were as follows:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Unused lines of credit | $ | 559,874 | | | $ | 335,755 | |
| Standby letters of credit | 22,045 | | | 17,132 | |
| Total commitments | $ | 581,919 | | | $ | 352,887 | |
At December 31, 2020, the Company has employment agreements with certain executive officers. Upon the occurrence of an “Event of Termination” as defined by the agreements, the Company has an obligation to pay each of the executive officers as defined in the agreements.
Reliant Bancorp or one or more of its subsidiaries are from time to time parties to ordinary routine legal proceedings in the ordinary course of business. As with all legal proceedings, no assurance can be provided as to the outcome of these matters. As of the date hereof, to the knowledge of our management, there are currently no material pending legal proceedings to which Reliant Bancorp or any of its subsidiaries is a party or of which any of the property of Reliant Bancorp or any of its subsidiaries is the subject.
NOTE 15 - BUSINESS COMBINATIONS
Community First, Inc.
On January 1, 2018, pursuant to the Agreement and Plan of Merger, dated August 22, 2017, by and among Reliant Bancorp, Inc., Community First Inc., Pioneer Merger Sub, Inc., and Community First Bank & Trust, Community First, Inc. merged with and into the Reliant Bancorp, Inc. Immediately following the merger, Community First Bank & Trust merged with and into Reliant Bank, with Reliant Bank surviving. Pioneer Merger Sub, Inc. was formed to effect the merger and no longer exists.
Pursuant to the merger agreement, each outstanding share of Community First, Inc. common stock (except for excluded shares and dissenting shares) was converted into and cancelled in exchange for the right to receive 0.481 shares of Reliant Bancorp, Inc. common stock, together with cash in lieu of any fractional shares. This business combination results in expanded and more diversified market area for the Company.
The following table details the financial impact of the merger, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:
| | | | | |
| Calculation of Purchase Price | |
| |
| Shares of Community First, Inc. common stock outstanding as of January 1, 2018 | 5,025,884 | |
| Exchange ratio for Reliant Bancorp, Inc. common stock | 0.481 | |
| Share conversion | 2,417,450 | |
| Reliant Bancorp, Inc. common stock shares issued | 2,416,444 | |
| Reliant Bancorp, Inc. share price at December 29, 2017 | $ | 25.64 | |
| Value of Reliant Bancorp, Inc. common stock shares issued | $ | 61,958 | |
| Value of fractional shares | $ | 25 | |
| Estimated fair value of Community First, Inc. | $ | 61,983 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
| | | | | |
| Allocation of Purchase Price | |
| |
| Total consideration above | $ | 61,983 | |
| |
| Fair value of assets acquired and liabilities assumed | |
| Cash and cash equivalents | 33,128 | |
| Time deposits in other financial institutions | 23,309 | |
| Investment securities available for sale | 69,078 | |
| Loans, net of unearned income | 313,040 | |
| Mortgage loans held for sale, net | 910 | |
| Accrued interest receivable | 1,165 | |
| Premises and equipment | 9,585 | |
| Restricted equity securities | 1,726 | |
| Cash surrender value of life insurance contracts | 10,664 | |
| Other real estate owned | 1,650 | |
| Deferred tax asset, net | 4,885 | |
| Core deposit intangible | 7,888 | |
| Other assets | 1,795 | |
| Deposits—noninterest-bearing | (80,395) | |
| Deposits—interest-bearing | (352,100) | |
| Other borrowings | (11,522) | |
| Payables and other liabilities | (5,061) | |
| Total fair value of net assets acquired | 29,745 | |
| Goodwill | $ | 32,238 | |
During 2018, as part of the system integration of Community First, Inc., the Company determined minor adjustments were appropriate to reduce other assets by $93 and increase payables and other liabilities by $85 effective as of the acquisition date.
Tennessee Community Bank Holdings, Inc.
Effective January 1, 2020, Reliant Bancorp completed the acquisition of TCB Holdings pursuant to the Agreement and Plan of Merger, dated September 16, 2019 (the “TCB Holdings Agreement”), by and among Reliant Bancorp, TCB Holdings, and Community Bank & Trust, a Tennessee-chartered commercial bank and wholly-owned subsidiary of TCB Holdings (“CBT”). On the terms and subject to the conditions set forth in the TCB Holdings Agreement, TCB Holdings merged with and into Reliant Bancorp (the “TCB Holdings Transaction”), with Reliant Bancorp as the surviving corporation. Immediately following the TCB Holdings Transaction, CBT merged with and into the Bank, with the Bank continuing as the surviving banking corporation. Pursuant to the TCB Holdings Agreement, at the effective time of the TCB Holdings Transaction, each outstanding share of TCB Holdings common stock, par value $1.00 per share (other than certain excluded shares), was converted into and canceled in exchange for the right to receive (i) $17.13 in cash, without interest, and (ii) 0.769 shares of the Reliant Bancorp’s common stock, par value $1.00 per share (“Reliant Bancorp Common Stock”). The aggregate consideration payable by Reliant Bancorp in respect of shares of TCB Holdings common stock as consideration for the TCB Holdings Transaction was 811,210 shares of Reliant Bancorp Common Stock and approximately $18,073 in cash. Reliant Bancorp did not issue fractional shares of Reliant Bancorp Common Stock in connection with the TCB Holdings Transaction, but paid cash in lieu of fractional shares based on the volume weighted average closing price per share of the Reliant Bancorp Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including December 30, 2019 (calculated as $22.36). At the effective time of the TCB Holdings Transaction, each outstanding option to purchase TCB Holdings common stock was canceled in exchange for a cash payment in an amount equal to the product of (i) $34.25 minus the per share exercise price of the option
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
multiplied by (ii) the number of shares of TCB Holdings common stock subject to the option (to the extent not previously exercised). Reliant Bancorp paid aggregate consideration to holders of unexercised options of approximately $430. All shares of Reliant Bancorp’s common stock outstanding immediately prior to the TCB Holdings Transaction were unaffected by the TCB Holdings Transaction.
The following table details the financial impact of the TCB Holdings Transaction, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:
| | | | | | | | |
| Calculation of Purchase Price | | |
| Shares of Tennessee Community Bank Holdings, Inc. common stock outstanding as of January 1, 2020 | | 1,055,041 | |
| Exchange ratio for Reliant Bancorp, Inc. common stock | | 0.769 | |
| Reliant Bancorp, Inc. common stock shares issued | | 811,210 | |
| Reliant Bancorp, Inc. share price at January 1, 2020 | | $ | 22.24 | |
| Estimated value of Reliant Bancorp, Inc. shares issued | | 18,041 |
| Cash settlement for Tennessee Community Bank Holdings, Inc. common stock ($17.13 per share) | | 18,073 | |
| Cash settlement for Tennessee Community Bank Holdings, Inc.'s 26,450 outstanding stock options ($34.25 settlement price less weighted average exercise price of $18.00) | | 430 | |
| Cash settlement for Reliant Bancorp, Inc. fractional shares ($22.36 per pro rata fractional share) | | 3 | |
| Estimated fair value of Tennessee Community Bank Holdings, Inc. | | $ | 36,547 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
| | | | | |
| Allocation of Purchase Price | |
| Total consideration above | $ | 36,547 | |
| Fair value of assets acquired and liabilities assumed | |
| Cash and cash equivalents | 11,026 | |
| |
| Investment securities available for sale | 56,336 | |
| Loans, net of unearned income | 171,445 | |
| |
| Accrued interest receivable | 948 | |
| Premises and equipment | 5,221 | |
| |
| Cash surrender value of life insurance contracts | 5,629 | |
| Restricted equity securities | 909 | |
| |
| Core deposit intangible | 3,617 | |
| Other assets | 833 | |
| Deposits | (210,538) | |
| Deferred tax liability | (157) | |
| Borrowings | (58) | |
| FHLB advances | (13,102) | |
| Other liabilities | (4,337) | |
| Total fair value of net assets acquired | 27,772 | |
| Goodwill | $ | 8,775 | |
CBT was a Tennessee-based full-service community bank with operations in Ashland City, Kingston Springs, Pegram, Pleasant View, and Springfield, Tennessee. These communities lie on the northwest perimeter of Nashville, Tennessee.
During 2020, the Company determined minor adjustments were appropriate to decrease premises and equipment by $1,219, decrease deferred tax liabilities by $168, and increase payables and other liabilities by $643 effective as of the acquisition date. These adjustments result in an increase to goodwill of $1,694.
First Advantage Bancorp
Effective April 1, 2020, Reliant Bancorp completed the acquisition of FABK pursuant to the Agreement and Plan of Merger, dated October 22, 2019 (the “FABK Agreement”), by and among Reliant Bancorp, FABK, and PG Merger Sub, Inc., a Tennessee corporation and wholly-owned subsidiary of Reliant Bancorp ("Merger Sub"). On the terms and subject to the conditions set forth in the FABK Agreement, Merger Sub merged with and into FABK (the "FABK Transaction"), with FABK as the surviving corporation, followed immediately by the merger of FABK with and into Reliant Bancorp, with Reliant Bancorp as the surviving corporation. Immediately following the merger of FABK into Reliant Bancorp, First Advantage Bank, a Tennessee-chartered commercial bank and wholly-owned subsidiary of FABK ("FAB"), merged with and into the Bank, with the Bank continuing as the surviving banking corporation. Pursuant to the FABK Agreement, at the effective time of the FABK Transaction, each outstanding share of FABK common stock, par value $0.01 per share (the “FABK Common Stock”), other than certain excluded shares, was converted into the right to receive (i) 1.17 shares of Reliant Bancorp Common Stock and (ii) $3.00 in cash, without interest. In lieu of the issuance of fractional shares of Reliant Bancorp Common Stock, Reliant Bancorp agreed to pay cash in lieu of fractional shares based on the volume-weighted average closing price per share of Reliant Bancorp Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including March 30, 2020 (calculated as $11.74). Based on the April 1, 2020 opening price for Reliant Bancorp Common Stock of $11.27 per share and 3,935,165 shares of FABK Common Stock outstanding on April 1, 2020, the consideration for the FABK Transaction was approximately $64,094, in the aggregate, or $16.28 per share of FABK Common Stock.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The following table details the financial impact of the FABK Transaction, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:
| | | | | |
| Calculation of Purchase Price | |
| Shares of First Advantage Bancorp common stock outstanding as of April 1, 2020 | 3,935,165 | |
| Conversion of restricted stock units to shares of common stock of First Advantage Bancorp as of April 1, 2020 | 2,000 | |
| Total First Advantage Bancorp common stock outstanding as of April 1, 2020 | 3,937,165 | |
| Exchange ratio for Reliant Bancorp, Inc. common stock | 1.17 |
| Reliant Bancorp, Inc. common stock shares issued | 4,606,483 | |
| Remove fractional shares | (64) | |
| Reliant Bancorp, Inc. common stock shares issued | 4,606,419 |
| Reliant Bancorp, Inc. share price at April 1, 2020 | $ | 11.27 | |
| Estimated value of Reliant Bancorp, Inc. shares issued | 51,914 | |
| Cash settlement for Reliant Bancorp, Inc. fractional shares ($11.74 per pro rata fractional share) | 1 |
| Cash settlement for First Advantage Bancorp common stock ($3.00 per share) | 11,805 |
| Cash settlement for First Advantage Bancorp restricted stock units ($3.00 per share) | 6 |
| Cash settlement for First Advantage Bancorp's 34,800 outstanding stock options ($30.00 settlement price less weighted average exercise price of $19.44) | 368 |
| Estimated fair value of First Advantage Bancorp | $ | 64,094 | |
| | | | | |
| Allocation of Purchase Price | |
| Total consideration above | $ | 64,094 | |
| Fair value of assets acquired and liabilities assumed | |
| Cash and cash equivalents | 11,159 | |
| |
| Investment securities available for sale | 35,970 | |
| Loans, net of unearned income | 622,423 | |
| Mortgage loans held for sale, net | 5,878 | |
| |
| Premises and equipment | 7,757 | |
| Deferred tax asset | 4,937 | |
| Cash surrender value of life insurance contracts | 14,776 | |
| Other real estate and repossessed assets | 1,259 | |
| Core deposit intangible | 2,280 | |
| Operating lease right-of-use assets | 5,846 | |
| Other assets | 11,624 | |
| Deposits | (608,690) | |
| Borrowings | (35,962) | |
| Operating lease liabilities | (6,536) | |
| Other liabilities | (10,606) | |
| Total fair value of net assets acquired | 62,115 | |
| Goodwill | $ | 1,979 | |
FAB was a Tennessee-based full-service community bank headquartered in Clarksville, Tennessee. FAB operated branch offices in Montgomery, Davidson and Williamson counties, Tennessee and operated a loan production office in Knoxville, Tennessee primarily originating manufactured housing loans.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
During 2020, the Company determined minor adjustments in fair value were appropriate to reduce premises and equipment by $202, to reduce deferred tax assets by $1,854, and increase other assets by $405 effective as of the acquisition date. The adjustments result in an increase in goodwill of $1,651.
Supplemental Pro Forma Combined Condensed Statements of Income
Pro forma data for the twelve months ended months ended December 31, 2020 and 2019 in the table below presents information as if the TCB Holdings Transaction and FABK Transaction occurred on January 1, 2019. These results combine the historical results of TCB Holdings and FABK into the Company's consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments, they are not indicative of what would have occurred had the acquisitions taken place on the indicated date nor are they intended to represent or be indicative of future results of operations. In particular, no adjustments have been made to eliminate the amount of TCB Holdings' or FABK's provision for credit losses for the first twelve months ended months of 2019 that may not have been necessary had the acquired loans been recorded at fair value as of the beginning of 2019. Additionally, these financials were not adjusted for non-recurring expenses, such as merger-related charges incurred by either the Company, TCB Holdings or FABK. The Company expects to achieve operating cost savings and other business synergies as a result of the acquisitions which are also not reflected in the pro forma amounts.
| | | | | | | | | | | | | | |
| | Twelve Months Ended |
| | December 31, |
| | | | 2020 | | 2019 |
Revenue(1) | | | | $ | 149,652 | | | $ | 117,496 | |
| Net interest income | | | | $ | 120,769 | | | $ | 100,070 | |
| Net income attributable to common shareholders | | | | $ | 34,126 | | | $ | 33,719 | |
| | | | | | |
| | | | | | |
(1) Net interest income plus noninterest income | | | | | | |
NOTE 16 - MORTGAGE OPERATIONS
Reliant Mortgage Ventures, LLC ("RMV") was organized on November 15, 2011 as a joint venture between VHC Fund 1, LLC (VHC) and Legacy Reliant Bank to offer mortgage banking services within the Legacy Reliant Bank's market footprint. The Bank controls 51% of RMV's governance rights and 30% of RMV's income rights.
VHC Fund 1, LLC was controlled by an immediate family member of a previous member of the Company’s board of directors through March 2019. Under the related operating agreement, the non-controlling member receives 70% of the profits of RMV, and the Company receives 30% of the profits once the non-controlling member recovers its cumulative losses. The noncontrolling member is responsible for 100% of the mortgage venture’s operational and credit losses. The income and loss is included in the consolidated results of operations. The portion of the income and loss attributable to the non-controlling member (100% for 2020, 2019, and 2018) are included in non-controlling interest in net loss of subsidiary on the accompanying consolidated statements of operations. At December 31, 2020 and 2019, RMV had a receivable balance from the Company of $404 and payable to the Company of $1,484, respectively.
Direct costs incurred by the Company attributable to the mortgage operations are allocated to RMV as well as rent, personnel and core processing. As of December 31, 2020, the cumulative losses to date of RMV totaled $13,655. RMV will have to generate net income of this amount before the Company will participate in future earnings.
NOTE 17 - SEGMENT REPORTING
The Company has 2 reportable business segments: commercial banking and residential mortgage banking. Segment information is derived from the internal reporting system utilized by management. Revenues and expenses for segments reflect
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
those which can be specifically identified and have been assigned based on internally developed allocation methods. Financial results have been presented, to the extent practicable, as if each segment operated on a stand-alone basis.
Commercial Banking provides deposit and lending services to consumer and business customers within our primary geographic markets. Our customers are serviced through branch locations, ATMs, online banking, and mobile banking.
Residential Mortgage Banking originates traditional first lien residential mortgage loans and first lien home equity lines of credit throughout the United States. The traditional first lien residential mortgage loans are typically underwritten to government agency standards and sold to third-party secondary market mortgage investors. The home equity lines of credit are typically sold to participating banks or other investor groups and are underwritten to their standards.
During the second quarter of 2019, RMV began acquiring loans from approved correspondent lenders and reselling them in the secondary market. These loans are not government agency-qualified loans and are of higher risk, such as jumbo loans or senior position home equity lines of credit.
The following presents summarized results of operations for the Company’s business segments for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 |
| | | Commercial Banking | | Residential Mortgage Banking | | Elimination Entries | | Consolidated |
| Net interest income | | $ | 105,628 | | | $ | 2,418 | | | $ | 0 | | | $ | 108,046 | |
| Provision for loan losses | | 8,350 | | | 0 | | | 0 | | | 8,350 | |
| Noninterest income | | 9,320 | | | 12,293 | | | (54) | | | 21,559 | |
| Noninterest expense (excluding merger expense) | | 61,339 | | | 14,973 | | | 0 | | | 76,312 | |
| Merger expense | | 6,895 | | | 0 | | | 0 | | | 6,895 | |
| Income tax expense (benefit) | | 6,952 | | | (17) | | | 0 | | | 6,935 | |
| Net income (loss) | | 31,412 | | | (245) | | | (54) | | | 31,113 | |
| Noncontrolling interest in net loss of subsidiary | | 0 | | | 245 | | | 54 | | | 299 | |
| Net income attributable to common shareholders | | $ | 31,412 | | | $ | 0 | | | $ | 0 | | | $ | 31,412 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| | | Commercial Banking | | Residential Mortgage Banking | | Elimination Entries | | Consolidated |
| Net interest income | | $ | 55,252 | | | $ | 553 | | | $ | 0 | | | $ | 55,805 | |
| Provision for loan losses | | 1,211 | | | 0 | | | 0 | | | 1,211 | |
| Noninterest income | | 7,059 | | | 5,086 | | | (181) | | | 11,964 | |
| Noninterest expense (excluding merger expense) | | 40,779 | | | 11,510 | | | 0 | | | 52,289 | |
| Merger expense | | 1,603 | | | 0 | | | 0 | | | 1,603 | |
| Income tax expense (benefit) | | 2,522 | | | (393) | | | 0 | | | 2,129 | |
| Net income | | 16,196 | | | (5,478) | | | (181) | | | 10,537 | |
| Noncontrolling interest in net income of subsidiary | | 0 | | | 5,478 | | | 181 | | | 5,659 | |
| Net income attributable to common shareholders | | $ | 16,196 | | | $ | 0 | | | $ | 0 | | | $ | 16,196 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | Commercial Banking | | Residential Mortgage Banking | | Elimination Entries | | Consolidated |
| Net interest income | | $ | 52,990 | | | $ | 821 | | | $ | 0 | | | $ | 53,811 | |
| Provision for loan losses | | 1,035 | | | 0 | | | 0 | | | 1,035 | |
| Noninterest income | | 5,250 | | | 4,595 | | | (181) | | | 9,664 | |
| Noninterest expense (excluding merger expense) | | 38,738 | | | 9,049 | | | 0 | | | 47,787 | |
| Merger expense | | 2,774 | | | 0 | | | 0 | | | 2,774 | |
| Income tax expense (benefit) | | 1,608 | | | (236) | | | 0 | | | 1,372 | |
| Net income | | 14,085 | | | (3,397) | | | (181) | | | 10,507 | |
| Noncontrolling interest in net income of subsidiary | | 0 | | | 3,397 | | | 181 | | | 3,578 | |
| Net income attributable to common shareholders | | $ | 14,085 | | | $ | 0 | | | $ | 0 | | | $ | 14,085 | |
NOTE 18 - CAPITAL
The Company and the Bank are subject to regulatory capital requirements administered by the federal and state banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes that as of December 31, 2020 and 2019 the Company and the Bank met all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2020 and 2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the category.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Actual and required capital amounts and ratios are presented below as of December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual
Regulatory
Capital | | Minimal Capital Adequacy | | Minimum Required
Capital Including
Capital Conservation
Buffer | | To Be Well
Capitalized Under
Prompt Corrective
Action Provisions |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| December 31, 2020 | | | | | | | | | | | | | | | |
| Company | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 262,282 | | | 8.91 | % | | $ | 117,747 | | | 4.00 | % | | $ | 117,747 | | | 4.000 | % | | $ | 147,184 | | | 5.00 | % |
| Common equity Tier 1 | 250,513 | | | 10.22 | % | | 110,304 | | | 4.50 | % | | 171,584 | | | 7.000 | % | | 159,328 | | | 6.50 | % |
| Tier I risk-based capital | 262,282 | | | 10.70 | % | | 147,074 | | | 6.00 | % | | 208,355 | | | 8.500 | % | | 196,099 | | | 8.00 | % |
| Total risk-based capital | 342,246 | | | 13.96 | % | | 196,130 | | | 8.00 | % | | 257,420 | | | 10.500 | % | | 245,162 | | | 10.00 | % |
| Bank | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 313,633 | | | 10.64 | % | | $ | 117,907 | | | 4.00 | % | | $ | 117,907 | | | 4.000 | % | | $ | 147,384 | | | 5.00 | % |
| Common equity Tier 1 | 313,633 | | | 12.83 | % | | 110,004 | | | 4.50 | % | | 171,117 | | | 7.000 | % | | 158,894 | | | 6.50 | % |
| Tier I risk-based capital | 313,633 | | | 12.83 | % | | 146,672 | | | 6.00 | % | | 207,785 | | | 8.500 | % | | 195,562 | | | 8.00 | % |
| Total risk-based capital | 334,919 | | | 13.71 | % | | 195,430 | | | 8.00 | % | | 256,503 | | | 10.500 | % | | 244,288 | | | 10.00 | % |
| | | | | | | | | | | | | | | |
| December 31, 2019 | | | | | | | | | | | | | | | |
| Company | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 176,748 | | | 9.74 | % | | N/A | | 0 | % | | $ | 72,586 | | | 4.000 | % | | $ | 90,733 | | | 5.00 | % |
| Common equity Tier 1 | 165,063 | | | 10.55 | % | | N/A | | 0 | % | | 109,520 | | | 7.000 | % | | 101,698 | | | 6.50 | % |
| Tier I risk-based capital | 176,748 | | | 11.30 | % | | N/A | | 0 | % | | 132,952 | | | 8.500 | % | | 125,131 | | | 8.00 | % |
| Total risk-based capital | 249,751 | | | 15.97 | % | | N/A | | 0 | % | | 164,207 | | | 10.500 | % | | 156,388 | | | 10.00 | % |
| Bank | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 186,734 | | | 10.30 | % | | N/A | | 0 | % | | $ | 72,518 | | | 4.000 | % | | $ | 90,648 | | | 5.00 | % |
| Common equity Tier 1 | 186,734 | | | 11.95 | % | | N/A | | 0 | % | | 109,384 | | | 7.000 | % | | 101,571 | | | 6.50 | % |
| Tier I risk-based capital | 186,734 | | | 11.95 | % | | N/A | | 0 | % | | 132,823 | | | 8.500 | % | | 125,010 | | | 8.00 | % |
| Total risk-based capital | 199,737 | | | 12.79 | % | | N/A | | 0 | % | | 163,975 | | | 10.500 | % | | 156,167 | | | 10.00 | % |
In July 2013, the Bank’s regulators adopted revised regulatory capital requirements known as “Basel III”, which became effective January 1, 2015. Required capital ratios applicable to the Bank under these guidelines are presented in the preceding table. The new requirements also established a "capital conservation buffer" of 2.5% that was phased in over four years. If capital levels fall below the minimum requirement, the Bank will be subject to restrictions related dividend payments, share repurchases, and certain employee bonuses.
On December 4, 2018, the Company authorized a stock repurchase plan pursuant to which the Company could purchase up to $12 million of shares of the Company’s outstanding common stock, par value $1.00 per share. The plan ran through December 31, 2019. Stock repurchases under the plan could be made from time to time in the open market or privately negotiated transactions, or otherwise, at the discretion of management of the Company and in accordance with applicable legal requirements. The timing and amount of share repurchases under the plan depended on a number of factors, including the Company’s stock price performance, ongoing capital planning considerations, general market conditions, and applicable legal requirements. In 2019, the Company repurchased $8,291 of Company shares. The stock repurchase plan did not obligate the Company to repurchase any dollar amount or number of shares, and the plan could be extended, modified, amended, suspended, or discontinued at any time.
On March 10, 2020, the Company announced that its board of directors has authorized a stock repurchase plan pursuant to which the Company may purchase up to $15 million of shares of the Company’s outstanding common stock, par value $1.00
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
per share. As of December 31, 2020, Reliant Bancorp had 0t repurchased any shares of Reliant Bancorp common stock under the Repurchase Plan. On April 27, 2020, we announced that our board of directors suspended the Repurchase Plan to preserve our financial strength during this challenging economic environment. The Plan expired on December 31, 2020.
NOTE 19 - STOCK-BASED COMPENSATION
In 2006, the Board of Directors and shareholders of the Bank approved the Commerce Union Bank Stock Option Plan (the “Plan”). The Plan provides for the granting of stock options and authorizes the issuance of common stock upon the exercise of such options, for up to 625,000 shares of common stock to employees and organizers of the Company. As part of reorganization, all Commerce Union Bank options were replaced with Commerce Union Bancshares, Inc. options with no change in terms. On March 10, 2015, the shareholders of the Company approved the Commerce Union Bancshares, Inc. Amended and Restated Stock Option Plan that permits the grant of awards of up to 1,250,000 shares of the Company common stock in the form of stock options. As part of the merger with Reliant Bank, all outstanding stock options of Reliant Bank were converted to stock options of Commerce Union Bancshares, Inc. under this plan.
Under the Stock Option Plan, stock option awards may be granted in the form of incentive stock options or non-statutory stock options, and are generally exercisable for up to ten years following the date such option awards are granted. Exercise prices of incentive stock options must be equal to or greater than the fair market value of the common stock on the grant date.
On June 18, 2015, the shareholders of Reliant Bancorp (then known as "Commerce Union Bancshares, Inc.") approved the Commerce Union Bancshares, Inc. 2015 Equity Incentive Plan, which reserves up to 900,000 shares of Reliant Bancorp common stock to be subject to awards under the plan, including awards in the form of stock options, restricted stock grants, performance-based awards, and other awards denominated or payable by reference to or based on or related to Reliant Bancorp common stock.
The Company has recognized stock-based compensation expense, within salaries and employee benefits for employees, and within other noninterest expense for directors, in the consolidated statement of income as follows:
| | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Stock-based compensation expense before income taxes | $ | 1,578 | | | $ | 1,222 | | | $ | 923 | |
| Less: deferred tax benefit | (412) | | | (319) | | | (241) | |
| Reduction of net income | $ | 1,166 | | | $ | 903 | | | $ | 682 | |
Common Stock Options
A summary of the activity in the stock option plan for the periods ended December 31, 2020, 2019 and 2018, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Outstanding at January 1, 2018 | 170,761 | | | $ | 14.48 | | | 5.73 years | | $ | 1,905 | |
| Granted | 25,500 | | | 28.00 | | | | |
| Exercised | (30,001) | | | 13.27 | | | | |
| Forfeited or expired | (7,000) | | | 18.20 | | | | |
| Outstanding at December 31, 2018 | 159,260 | | | 16.72 | | 6.04 years | | 1,146 |
| Exercisable at December 31, 2018 | 88,060 | | 13.45 | | | 4.32 years | | 847 |
| Vested and anticipated vesting shares as of December 31, 2018 | 157,124 | | 16.67 | | 6.01 years | | 1,002 |
| Granted | 27,500 | | | 23.28 | | | | | |
| Exercised | (34,714) | | | 12.79 | | | | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Forfeited or expired | (2,753) | | | 19.35 | | | | | |
| Outstanding at December 31, 2019 | 149,293 | | | 18.81 | | 6.68 years | | 700 | |
| Exercisable at December 31, 2019 | 74,693 | | 15.31 | | | 5.18 years | | 553 |
| Vested and anticipated vesting shares as of December 31, 2019 | 149,293 | | 18.76 | | 6.64 years | | 891 |
| Granted | 0 | | | 0 | | | | | |
| Exercised | (10,865) | | | 12.20 | | | | | |
| Forfeited or expired | (21,807) | | | 21.26 | | | | | |
| Outstanding at December 31, 2020 | 116,621 | | | 18.97 | | | 5.87 years | | 304 | |
| Exercisable at December 31, 2020 | 78,921 | | 16.66 | | | 5.02 years | | 290 | |
Information related to the stock option plan during each year follows and assumes a 3% forfeiture rate:
| | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 | | |
| Intrinsic value of options exercised | | $ | 51 | | | $ | 320 | | | $ | 344 | | | |
| Cash received from option exercises | | 142 | | | 439 | | | 398 | | | |
| Tax benefit realized from option exercises | | 15 | | | 13 | | | 88 | | | |
| Weighted average fair value of options granted | | 0 | | | 6.97 | | | 7.10 | | | |
As of December 31, 2020, there was $204 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.87 years. The total fair value of shares vested during the years ended December 31, 2020, 2019, and 2018, was $114, $96, and $61, respectively.
The fair value of options granted during 2019 and 2018 was determined using the following assumptions as of the grant date, resulting in an estimated fair value per option of $6.97 and $6.89, respectively. NaN options were granted in 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2019 | | 2018 | | |
| Risk-free interest rate | | | | | | | 2.08% | | — | | 2.39% | | | | 2.95% | | | | | | | | |
| Expected term (in years) | | | 6.5 years | | 6.5 years | | |
| Expected stock price volatility | | | | | | | 31.10% | | — | | 32.80% | | | | 23.50% | | | | | | | | |
| Dividend yield | | | | | | | 1.55% | | — | | 1.59% | | | | 1.14% | | | | | | | | |
Equity Incentive Plan
On June 18, 2015, the shareholders of Commerce Union approved the Commerce Union Bancshares, Inc. 2015 Equity Incentive Plan, which provides for the issuance of up to 900,000 shares of common stock in the form of stock options, restricted stock grants or grants for performance-based compensation units.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The following table shows the activity related to non-vested restricted stock and restricted stock units for the years ended December 2020, 2019 and 2018:
| | | | | | | | | | | | | | | | | | | | | | | |
| Restricted Stock Units | | Restricted Stock |
| | Units | | Weighted Average Grant-Date
Fair Value | | Shares | | Weighted Average Grant-Date
Fair Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Outstanding at December 31, 2017 | 0 | | | 0 | | | 82,499 | | | 20.03 |
| Granted | 0 | | | 0 | | | 51,710 | | | 27.55 |
| Vested | 0 | | | 0 | | | (21,999) | | | 15.95 |
| Forfeited | 0 | | | 0 | | | (1,550) | | | 25.17 |
| Outstanding at December 31, 2018 | 0 | | | 0 | | | 110,660 | | | 24.28 |
| Granted | 47,750 | | | 23.30 | | | 9,500 | | | 22.01 |
| Vested | 0 | | | 0 | | | (21,450) | | | 19.31 |
| Forfeited | 0 | | | 0 | | | (7,750) | | | 23.25 |
| Outstanding at December 31, 2019 | 47,750 | | | $ | 23.30 | | | 90,960 | | | $ | 25.31 | |
| Granted | 102,400 | | | 14.55 | | | 0 | | | 0 | |
| Vested | (15,500) | | | 21.66 | | | (50,050) | | | 24.08 | |
| Forfeited | (2,000) | | | 10.25 | | | 0 | | | 0 | |
| Outstanding at December 31, 2020 | 132,650 | | | $ | 16.93 | | | 40,910 | | | $ | 26.82 | |
The shares vest over periods ranging from one month to three years. As of December 31, 2020, there was $1,559 and $220 of unrecognized compensation cost related to non-vested restricted share units and awards, respectively. The cost is expected to be charged over a weighted-average period of 2.11 years for the restricted stock units and 0.74 years for the restricted stock share awards. In 2020, 2019 and 2018, the fair value of share awards vested totaled $1,032, $605 and $439.
NOTE 20 - BENEFIT PLANS
401(k) Plan
The Company has a 401(k) benefit plan that allows employee contributions up to 100% of their compensation, subject to regulatory limitations. The Company matches 100% of the first 6% contributed by the employee. The Company recognized an expense for the years ended December 31, 2020, 2019 and 2018 2017of $1,496, $1,033, and 2016 of $805, $450, and $467, respectively.
Employee Stock Purchase PlanInterest Rate Swaps Designated as Cash Flow Hedges
In 2018, the Company adopted an employee stock purchase plan (“ESPP”) under which employees, through payroll deductions, are able to purchase shares of Company common stock. The purchase price is 85% of the lesser of the closing price of the common stock on the first trading date of the relevant offering period or the last trading day of the relevant offering period. The maximum number of shares issuable during any offering period is 200,000 shares and a participant may not purchase more than 2,500 shares during any offering period (and, in any event, no more than $25,000 worth of common stock in any calendar year). In 2018, there were no shares of common stock issued under the ESPP. As
Interest rate swaps with notional amounts totaling $160,000 as of December 31, 2018, there2020 were 200,000 shares available for issuance underdesignated as cash flow hedges of certain short-term interest-bearing liabilities and subordinated debentures, which are fully effective. As such, no amount of ineffectiveness has been included in net income. Therefore, the ESPP.aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swap agreements. NaN gains or losses were reclassified from accumulated other comprehensive income into net income during the periods presented.
Summary information related to the interest rate swaps designated as cash flow hedges as of December 31, is as follows: NOTE 13 - INCOME TAXES | | | | | | | | | | | |
| 2020 | | 2019 |
| Notional amounts | $ | 160,000 | | | $ | 110,000 | |
| Weighted average pay rates | 2.05 | % | | 2.43 | % |
| Weighted average receive rates | 0.39 | % | | 2.11 | % |
| Weighted average maturity | 3.10 years | | 3.84 years |
| Unrealized losses | $ | 7,657 | | | $ | 2,078 | |
On December 22, 2017, comprehensive tax reform legislation known as the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The Tax Reform Act amends the Internal Revenue Code to reduce U.S. tax rates and modify policies, credits and deductions for individuals and businesses.
The Tax Reform Act permanently reducesfollowing table reflects the U.S. federal corporate income tax rate from 35% to 21%, effective for tax years beginning after 2017. GAAP requires an adjustment to deferred taxes as a result of a changecash flow hedges included in the corporate tax rate in the period that the change is enacted, with the change recorded to the current year tax provision. Accordingly, the Company has remeasured its deferred tax assets and liabilities at the new tax rate and recorded a one-time noncash tax expenseConsolidated Balance Sheets as of $620 to deferred income taxes for the year ended December 31, 2017 . This expense resulted in the Company’s higher effective tax rate for that year. 2020 and December 31, 2019, respectively:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Included in other liabilities: | | | | | | | |
| Interest rate swaps related to: | | | | | | | |
| Subordinated debentures | $ | 10,000 | | | $ | (690) | | | $ | 10,000 | | | $ | (439) | |
| Short-term interest-bearing liabilities | 150,000 | | | (6,967) | | | 100,000 | | | (1,639) | |
| Total included in other liabilities | $ | 160,000 | | | $ | (7,657) | | | $ | 110,000 | | | $ | (2,078) | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
The following table presents the net gains (losses) recorded in accumulated other comprehensive income and the Consolidated Statements of Income, net of tax, relating to the cash flow derivative instruments years ended December 31, 2020, 2019, and 2018, respectively:
| | | | | | | | | | | | | | | | | |
| Amount of (Loss) Gain Recognized in Other Comprehensive Income (Loss) |
| 2020 | | 2019 | | 2018 |
| Interest rate swaps-subordinate debentures | $ | (185) | | | $ | (196) | | | $ | (129) | |
| Interest rate swaps-interest-bearing liabilities | (3,935) | | | (487) | | | (723) | |
| $ | (4,120) | | | $ | (683) | | | $ | (852) | |
Fair Value Hedges
Summary information related to the fair value hedges as of December 31, is as follows:
| | | | | | | | | | | |
| 2020 | | 2019 |
| Notional amounts | $ | 18,525 | | | $ | 19,605 | |
| Weighted average pay rates | 3.68 | % | | 3.66 | % |
| Weighted average receive rates | 1.21 | % | | 2.87 | % |
| Weighted average maturity | 7.82 years | | 9.25 years |
| Unrealized losses | $ | 1,495 | | | $ | 630 | |
The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019, respectively:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Included in other liabilities: | | | | | | | |
| Interest rate swaps related to investments | $ | 18,525 | | | $ | (1,495) | | | $ | 19,605 | | | $ | (630) | |
| Total included in other liabilities | $ | 18,525 | | | $ | (1,495) | | | $ | 19,605 | | | $ | (630) | |
The following table reflects the fair value hedges included in the Consolidated Statements of Operations as of December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| Item | Location | | 2020 | | 2019 | | 2018 |
| Interest rate swaps - securities | Interest on investment securities, nontaxable | | $ | (363) | | | $ | (56) | | | $ | (121) | |
| Hedged item - securities | Interest on investment securities, nontaxable | | $ | 363 | | | $ | 56 | | | $ | 121 | |
NOTE 12 - FAIR VALUES OF ASSETS AND LIABILITIES
Financial accounting standards relating to fair value measurements establish a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques 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 are described below:
Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2 Inputs to the valuation methodology include:
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
•Quoted prices for similar assets or liabilities in active markets;
•Quoted prices for identical or similar assets or liabilities in inactive markets;
•Inputs other than quoted prices that are observable for the asset or liability; and
•Inputs that are derived principally from or corroborated by the observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 Inputs to the valuation methodology are unobservable and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis:
Securities available for sale: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Company obtains fair value measurements for securities available for sale from an independent pricing service. The fair value measurements consider observable data that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, cash flows and reference data, including market research publications, among other things.
Interest rate swaps: The fair values of interest rate swaps and fair value hedges are determined based on discounted future cash flows.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis include the following:
Impaired Loans: The fair value of an impaired loan with specific allocations of the allowance for loan losses is generally based on the present value of expected payments using the loan’s effective rate as the discount rate or recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
Other Real Estate: The fair value of other real estate is generally based on recent real estate appraisals less estimated disposition cost. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in Level 3 classification of the inputs for determining fair value.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company’s valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.The following table sets forth the Company’s major categories of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| December 31, 2020 | | | | | | | |
| Assets | | | | | | | |
| U. S. Treasury and other U. S. government agencies | $ | 48 | | | $ | 0 | | | $ | 48 | | | $ | 0 | |
| State and municipal | 200,988 | | | 0 | | | 200,988 | | | 0 | |
| Corporate bonds | 24,113 | | | 0 | | | 24,113 | | | 0 | |
| Mortgage backed securities | 28,442 | | | 0 | | | 28,442 | | | 0 | |
| Asset backed securities | 3,062 | | | 0 | | | 3,062 | | | 0 | |
| | | | | | | |
| Derivative assets | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | |
| Liabilities | | | | | | | |
| Derivative liabilities | $ | 9,152 | | | $ | 0 | | | $ | 9,152 | | | $ | 0 | |
| | | | | | | |
| December 31, 2019 | | | | | | | |
| Assets | | | | | | | |
| U. S. Treasury and other U. S. government agencies | $ | 59 | | | $ | 0 | | | $ | 59 | | | $ | 0 | |
| State and municipal | 196,660 | | | 0 | | | 196,660 | | | 0 | |
| Corporate bonds | 7,845 | | | 0 | | | 7,845 | | | 0 | |
| Mortgage backed securities | 37,761 | | | 0 | | | 37,761 | | | 0 | |
| Asset backed securities | 17,968 | | | 0 | | | 17,968 | | | 0 | |
| Time deposits | 0 | | | 0 | | | 0 | | | 0 | |
| Derivative assets | 688 | | | 0 | | | 688 | | | 0 | |
| | | | | | | |
| Liabilities | | | | | | | |
| Derivative liabilities | $ | 3,396 | | | $ | 0 | | | $ | 3,396 | | | $ | 0 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The following table sets forth the Company’s major categories of assets and liabilities measured at fair value on a nonrecurring basis, by level within the fair value hierarchy, as of December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| December 31, 2020 | | | | | | | |
| Assets | | | | | | | |
| Impaired loans | $ | 15,162 | | | $ | 0 | | | $ | 0 | | | $ | 15,162 | |
| Other real estate | 1,246 | | | 0 | | | 0 | | | 1,246 | |
| Other repossessions | 1,424 | | | 0 | | | 0 | | | 1,424 | |
| | | | | | | |
| December 31, 2019 | | | | | | | |
| Assets | | | | | | | |
| Impaired loans | $ | 8,199 | | | $ | 0 | | | $ | 0 | | | $ | 8,199 | |
| Other real estate | 750 | | | 0 | | | 0 | | | 750 | |
| Other repossessions | 0 | | | 0 | | | 0 | | | 0 | |
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| Valuation
Techniques (1) | | Significant
Unobservable Inputs | | Range
(Weighted Average) |
| Impaired loans | Appraisal | | Estimated costs to sell | | 10% |
| Other real estate | Appraisal | | Estimated costs to sell | | 10% |
| Other repossessions | Third-party guidelines | | Estimated costs to sell | | 10% |
(1)The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. Estimated cash flows change and appraised values of the assets or collateral underlying the loans will be sensitive to changes.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Carrying amounts and estimated fair values of financial instruments, by level within the fair value hierarchy, at December 31, 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying
Amount | | Estimated
Fair
Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Financial assets | | | | | | | | | | |
| Cash and due from banks | | $ | 13,717 | | | $ | 13,717 | | | $ | 13,717 | | | $ | 0 | | | $ | 0 | |
| Interest-bearing deposits in financial institutions | | 79,756 | | | 79,756 | | | 79,756 | | | 0 | | | 0 | |
| Federal funds sold | | 1,572 | | | 1,572 | | | 0 | | | 1,572 | | | 0 | |
| Loans, net | | 2,280,147 | | | 2,293,723 | | | 0 | | | 0 | | | 2,293,723 | |
| Mortgage loans held for sale | | 147,524 | | | 149,342 | | | 0 | | | 149,342 | | | 0 | |
| Accrued interest receivable | | 14,889 | | | 14,889 | | | 0 | | | 14,889 | | | 0 | |
| Restricted equity securities | | 16,551 | | | 16,551 | | | 0 | | | 16,551 | | | 0 | |
| Financial liabilities | | | | | | | | | | |
| Deposits | | $ | 2,579,235 | | | $ | 2,583,525 | | | $ | 0 | | | $ | 0 | | | $ | 2,583,525 | |
| Accrued interest payable | | 2,571 | | | 2,571 | | | 0 | | | 2,571 | | | 0 | |
| Subordinate debentures | | 70,446 | | | 71,750 | | | 0 | | | 0 | | | 71,750 | |
| Federal Home Loan Bank advances | | 10,000 | | | 10,000 | | | 0 | | | 0 | | | 10,000 | |
Carrying amounts and estimated fair values of financial instruments, by level within the fair value hierarchy, at December 31, 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying
Amount | | Estimated
Fair
Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Financial assets | | | | | | | | | | |
| Cash and due from banks | | $ | 7,953 | | | $ | 7,953 | | | $ | 7,953 | | | $ | 0 | | | $ | 0 | |
| Interest-bearing deposits in financial institutions | | 43,644 | | | 43,644 | | | 43,644 | | | 0 | | | 0 | |
| Federal funds sold | | 52 | | | 52 | | | 0 | | | 52 | | | 0 | |
| Loans, net | | 1,397,374 | | | 1,383,719 | | | 0 | | | 0 | | | 1,383,719 | |
| Mortgage loans held for sale | | 37,476 | | | 38,379 | | | 0 | | | 38,379 | | | 0 | |
| Accrued interest receivable | | 7,188 | | | 7,188 | | | 0 | | | 7,188 | | | 0 | |
| Restricted equity securities | | 11,279 | | | 11,279 | | | 0 | | | 11,279 | | | 0 | |
| Financial liabilities | | | | | | | | | | |
| Deposits | | $ | 1,584,453 | | | $ | 1,582,781 | | | $ | 0 | | | $ | 0 | | | $ | 1,582,781 | |
| Accrued interest payable | | 2,022 | | | 2,022 | | | 0 | | | 2,022 | | | 0 | |
| Subordinate debentures | | 70,883 | | | 71,454 | | | 0 | | | 0 | | | 71,454 | |
| Federal Home Loan Bank advances | | 10,737 | | | 10,755 | | | 0 | | | 0 | | | 10,755 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The methods and assumptions used to estimate fair value are described as follows:
Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, restricted equity securities, federal funds sold or purchased, demand deposits, and variable rate loans or deposits that re-price frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of debt is based on discounted cash flows using current rates for similar financing.
NOTE 13 - INCOME TAXES (CONTINUED)
The income tax expense consists of the following for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 |
| Income tax expense | | | | | | |
| Current | | $ | 4,875 | | | $ | 1,731 | | | $ | 992 | |
| Deferred | | 2,060 | | | 398 | | | 380 | |
| Total provision for income tax expense | | $ | 6,935 | | | $ | 2,129 | | | $ | 1,372 | |
|
| | | | | | | | | | | | |
| | | 2018 | | 2017 | | 2016 |
| Income tax expense | | | | | | |
| Current | | $ | 992 |
| | $ | 1,438 |
| | $ | 1,978 |
|
| Deferred | | 380 |
| | 504 |
| | 235 |
|
| Total provision for income tax expense | | $ | 1,372 |
| | $ | 1,942 |
| | $ | 2,213 |
|
A reconciliation of the income tax expense for the years ended December 31, 2018, 20172020, 2019 and 20162018 from the “expected”"expected" tax expense computed by applying the statutory federal income tax rate of 21 percent for 2018 and 34 percent for 2017 and 2016 to incomeIncome before income taxes is as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | | 2018 | | 2017 | | 2016 |
| Computed “expected” tax expense | | $ | 2,495 |
| | 21 | % | | $ | 2,756 |
| | 34 | % | | $ | 3,437 |
| | 34 | % |
| | | | | | | | | | | | | |
| Increase (decrease) in tax expense resulting from: | | | | | | | | | | | | |
| Federal income tax rate change | | — |
| | — | % | | 620 |
| | 8 | % | | — |
| | — | % |
| State tax expense, net of federal tax effect | | 551 |
| | 5 | % | | 331 |
| | 4 | % | | 404 |
| | 4 | % |
| Tax exempt interest | | (1,422 | ) | | (12 | )% | | (1,452 | ) | | (18 | )% | | (923 | ) | | (9 | )% |
| Disallowed interest expense | | 290 |
| | 2 | % | | 193 |
| | 2 | % | | 56 |
| | 1 | % |
| Incentive stock options | | 19 |
| | — | % | | 33 |
| | — | % | | 22 |
| | — | % |
| Cash surrender value of life insurance contracts | | (249 | ) | | (2 | )% | | (285 | ) | | (4 | )% | | (255 | ) | | (3 | )% |
| Officers life insurance expense | | — |
| | — | % | | — |
| | — | % | | 7 |
| | — | % |
| Excess tax benefit from stock compensation | | (88 | ) | | (1 | )% | | (184 | ) | | (2 | )% | | (478 | ) | | (5 | )% |
| Nondeductible merger expenses | | 12 |
| | — | % | | 173 |
| | 2 | % | | — |
| | — | % |
| Federal and state tax credits | | (1,102 | ) | | (9 | )% | | (667 | ) | | (8 | )% | | (499 | ) | | (5 | )% |
| Benefit of subsidiary net loss | | — |
| | — | % | | — |
| | — | % | | — |
| | — | % |
| Subsidiary disregarded for federal taxes | | 763 |
| | 6 | % | | 347 |
| | 4 | % | | 378 |
| | 4 | % |
| Others as a group | | 103 |
| | 1 | % | | 77 |
| | 1 | % | | 64 |
| | 1 | % |
| Total income tax expense | | $ | 1,372 |
| | 11 | % | | $ | 1,942 |
| | 23 | % | | $ | 2,213 |
| | 22 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 |
| Computed "expected" tax expense | | $ | 7,882 | | | 21 | % | | $ | 2,660 | | | 21 | % | | $ | 2,495 | | | 21 | % |
| | | | | | | | | | | | |
| State income tax, net of federal tax effect | | 1,770 | | | 5 | % | | 637 | | | 5 | % | | 551 | | | 5 | % |
| Tax-exempt interest income, net of disallowed interest | | (1,172) | | | (3) | % | | (1,373) | | | (11) | % | | (1,132) | | | (10) | % |
| Stock compensation | | 119 | | | 0 | % | | (14) | | | 0 | % | | (69) | | | (1) | % |
| Cash surrender value of life insurance contracts | | (579) | | | (2) | % | | (235) | | | (2) | % | | (249) | | | (2) | % |
| Nondeductible merger expenses | | 48 | | | 0 | % | | 155 | | | 1 | % | | 47 | | | 0 | % |
| Federal and state tax credits | | (1,393) | | | (4) | % | | (999) | | | (8) | % | | (1,102) | | | (9) | % |
| Subsidiary disregarded for federal taxes | | 63 | | | 0 | % | | 1,189 | | | 9 | % | | 763 | | | 6 | % |
| Others as a group | | 196 | | | 1 | % | | 109 | | | 1 | % | | 68 | | | 1 | % |
| Total income tax expense | | $ | 6,935 | | | 18 | % | | $ | 2,129 | | | 16 | % | | $ | 1,372 | | | 11 | % |
The Company files a separate Federal tax return for the operations of the mortgage banking and banking operations. The taxable income or losses of the mortgage banking operations are included in the respective returns of the Company and non-controlling members for Federal purposes.
The Company’sCompany's income tax filings from the years ending December 31, 20152017 to present remain open to examinationexaminations by tax jurisdictions.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 13 - INCOME TAXES (CONTINUED)
Significant components of deferred tax assets as of December 31, 20182020 and 20172019 are as follows:
| | | | | | | | | 2020 | | 2019 |
| | | 2018 | | 2017 | |
| Deferred tax assets: | | Deferred tax assets: | | | | |
| Organizational and start-up costs | | $ | 68 |
| | $ | 98 |
| Organizational and start-up costs | | $ | 8 | | | $ | 38 | |
| Core deposit intangible | | (2,046 | ) | | (215 | ) | |
| Acquisition fair value adjustments | | 817 |
| | 30 |
| Acquisition fair value adjustments | | 4,023 | | | 414 | |
| Allowance for loan losses | | 2,577 |
| | 1,876 |
| Allowance for loan losses | | 4,469 | | | 2,993 | |
| Other Real estate | | Other Real estate | | 56 | | | 26 | |
| Unrealized loss on derivatives | | Unrealized loss on derivatives | | 2,392 | | | 708 | |
| Nonaccrual loans | | Nonaccrual loans | | 388 | | | 271 | |
| Acquired net operating losses | | Acquired net operating losses | | 2,462 | | | 2,711 | |
| Acquired tax credits net of tax basis adjustments | | Acquired tax credits net of tax basis adjustments | | 660 | | | 1,005 | |
| Deferred Compensation | | Deferred Compensation | | 493 | | | 310 | |
| Loan fees (costs) | | (1 | ) | | 60 |
| Loan fees (costs) | | 1,188 | | | 0 | |
| Other real estate | | 577 |
| | — |
| |
| Other | | Other | | 760 | | | 482 | |
| Total deferred tax assets | | Total deferred tax assets | | $ | 16,899 | | | $ | 8,958 | |
| | Deferred tax liabilities: | | Deferred tax liabilities: | |
| Core deposit intangible | | Core deposit intangible | | $ | 2,900 | | | $ | 1,817 | |
| Loan fees (costs) | | Loan fees (costs) | | 0 | | | 19 | |
| Premises and equipment | | (791 | ) | | (427 | ) | Premises and equipment | | 1,432 | | | 627 | |
| Unrealized (gain) loss on available for sale securities | | 1,115 |
| | (528 | ) | Unrealized (gain) loss on available for sale securities | | 4,597 | | | 2,501 | |
| Unrealized loss on derivatives | | 187 |
| | 7 |
| |
| Non-accrual loans | | 280 |
| | 170 |
| |
| Acquired net operating losses | | 2,966 |
| | — |
| |
| Acquired tax credits net of basis adjustments | | 1,005 |
| | — |
| |
| Deferred compensation | | 443 |
| | — |
| |
| FHLB stock dividends | | FHLB stock dividends | | 736 | | | 61 | |
| Other | | 231 |
| | 28 |
| Other | | 113 | | | 0 | |
| Total | | $ | 7,428 |
| | $ | 1,099 |
| |
| | | | | | |
| State | | $ | 688 |
| | $ | 114 |
| |
| Federal | | 6,740 |
| | 985 |
| |
| Net deferred tax asset | | $ | 7,428 |
| | $ | 1,099 |
| |
| Total deferred tax liabilities | | Total deferred tax liabilities | | $ | 9,778 | | | $ | 5,025 | |
| Net deferred tax asset (liability) | | Net deferred tax asset (liability) | | $ | 7,121 | | | $ | 3,933 | |
In assessing the future realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management determined that as of December 31, 2018,2020, it was more likely than not that all deferred tax assets would be realized.
At December 31, 2018,2020, related to the merger with Community First, Inc., the Company has ahad $11,696 of federal net operating loss carryforward of $14,126, which begins expiringcarryovers subject to the annual limitation under Internal Revenue Code Section 382. The carryovers begin to expire in 2031and2031 and are expected to be fully realized.
The Company had 0 unrecognized tax benefits at December 31, 2020, 2019 and 2018.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
The Company has federal funds lines at other financial institutions with availability totaling $98,200 and $88,200 at December 31, 2020, and 2019, respectively. At December 31, 2020 and 2019, the Company is limiteddid 0t have outstanding balances for these federal funds lines. The Company also has an unsecured line of credit at CDC Deposits Network with availability of $20,000. The Company did 0t have a balance outstanding related to this line at December 31, 2020 or 2019. The Company also may access borrowings utilizing $1,215 annually.the Federal Reserve bank discount window of $5,927 and $5,780 at 2020 and 2019, respectively. There were 0 funds advanced from the discount window at December 31, 2020 or 2019.
The SecuritiesAt December 31, 2020 and Exchange Commission issued Staff Accounting Bulletin No. 118 on December 22, 2017, which provides for a one-year measurement period that allows businesses time2019, the Company has $299,754 and $285,654 in standby letters of credit with the Federal Home Loan Bank pledged to evaluate the financial statement implicationssecure municipal deposits.
Contents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection lines, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.
Off-balance sheet arrangements generally consist of unused lines of credit and standby letters of credit. Such commitments were as follows:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Unused lines of credit | $ | 559,874 | | | $ | 335,755 | |
| Standby letters of credit | 22,045 | | | 17,132 | |
| Total commitments | $ | 581,919 | | | $ | 352,887 | |
At December 31, 2020, the Company has employment agreements with certain executive officers. Upon the occurrence of an “Event of Termination” as defined by the agreements, the Company has an obligation to pay each of the executive officers as defined in the agreements.
Reliant Bancorp or one or more of its subsidiaries are from time to time parties to ordinary routine legal proceedings in the ordinary course of business. As with all legal proceedings, no assurance can be provided as to the outcome of these matters. As of the date hereof, to the knowledge of our management, there are currently no material pending legal proceedings to which Reliant Bancorp or any of its subsidiaries is a party or of which any of the property of Reliant Bancorp or any of its subsidiaries is the subject.
NOTE 1415 - STOCK-BASED COMPENSATIONBUSINESS COMBINATIONS
Community First, Inc.
On January 1, 2018, pursuant to the Agreement and Plan of Merger, dated August 22, 2017, by and among Reliant Bancorp, Inc., Community First Inc., Pioneer Merger Sub, Inc., and Community First Bank & Trust, Community First, Inc. merged with and into the Reliant Bancorp, Inc. Immediately following the merger, Community First Bank & Trust merged with and into Reliant Bank, with Reliant Bank surviving. Pioneer Merger Sub, Inc. was formed to effect the merger and no longer exists.
Pursuant to the merger agreement, each outstanding share of Community First, Inc. common stock (except for excluded shares and dissenting shares) was converted into and cancelled in exchange for the right to receive 0.481 shares of Reliant Bancorp, Inc. common stock, together with cash in lieu of any fractional shares. This business combination results in expanded and more diversified market area for the Company.
The following table details the financial impact of the merger, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:
| | | | | |
| Calculation of Purchase Price | |
| |
| Shares of Community First, Inc. common stock outstanding as of January 1, 2018 | 5,025,884 | |
| Exchange ratio for Reliant Bancorp, Inc. common stock | 0.481 | |
| Share conversion | 2,417,450 | |
| Reliant Bancorp, Inc. common stock shares issued | 2,416,444 | |
| Reliant Bancorp, Inc. share price at December 29, 2017 | $ | 25.64 | |
| Value of Reliant Bancorp, Inc. common stock shares issued | $ | 61,958 | |
| Value of fractional shares | $ | 25 | |
| Estimated fair value of Community First, Inc. | $ | 61,983 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
| | | | | |
| Allocation of Purchase Price | |
| |
| Total consideration above | $ | 61,983 | |
| |
| Fair value of assets acquired and liabilities assumed | |
| Cash and cash equivalents | 33,128 | |
| Time deposits in other financial institutions | 23,309 | |
| Investment securities available for sale | 69,078 | |
| Loans, net of unearned income | 313,040 | |
| Mortgage loans held for sale, net | 910 | |
| Accrued interest receivable | 1,165 | |
| Premises and equipment | 9,585 | |
| Restricted equity securities | 1,726 | |
| Cash surrender value of life insurance contracts | 10,664 | |
| Other real estate owned | 1,650 | |
| Deferred tax asset, net | 4,885 | |
| Core deposit intangible | 7,888 | |
| Other assets | 1,795 | |
| Deposits—noninterest-bearing | (80,395) | |
| Deposits—interest-bearing | (352,100) | |
| Other borrowings | (11,522) | |
| Payables and other liabilities | (5,061) | |
| Total fair value of net assets acquired | 29,745 | |
| Goodwill | $ | 32,238 | |
During 2018, as part of the system integration of Community First, Inc., the Company determined minor adjustments were appropriate to reduce other assets by $93 and increase payables and other liabilities by $85 effective as of the acquisition date.
Tennessee Community Bank Holdings, Inc.
Effective January 1, 2020, Reliant Bancorp completed the acquisition of TCB Holdings pursuant to the Agreement and Plan of Merger, dated September 16, 2019 (the “TCB Holdings Agreement”), by and among Reliant Bancorp, TCB Holdings, and Community Bank & Trust, a Tennessee-chartered commercial bank and wholly-owned subsidiary of TCB Holdings (“CBT”). On the terms and subject to the conditions set forth in the TCB Holdings Agreement, TCB Holdings merged with and into Reliant Bancorp (the “TCB Holdings Transaction”), with Reliant Bancorp as the surviving corporation. Immediately following the TCB Holdings Transaction, CBT merged with and into the Bank, with the Bank continuing as the surviving banking corporation. Pursuant to the TCB Holdings Agreement, at the effective time of the TCB Holdings Transaction, each outstanding share of TCB Holdings common stock, par value $1.00 per share (other than certain excluded shares), was converted into and canceled in exchange for the right to receive (i) $17.13 in cash, without interest, and (ii) 0.769 shares of the Reliant Bancorp’s common stock, par value $1.00 per share (“Reliant Bancorp Common Stock”). The aggregate consideration payable by Reliant Bancorp in respect of shares of TCB Holdings common stock as consideration for the TCB Holdings Transaction was 811,210 shares of Reliant Bancorp Common Stock and approximately $18,073 in cash. Reliant Bancorp did not issue fractional shares of Reliant Bancorp Common Stock in connection with the TCB Holdings Transaction, but paid cash in lieu of fractional shares based on the volume weighted average closing price per share of the Reliant Bancorp Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including December 30, 2019 (calculated as $22.36). At the effective time of the TCB Holdings Transaction, each outstanding option to purchase TCB Holdings common stock was canceled in exchange for a cash payment in an amount equal to the product of (i) $34.25 minus the per share exercise price of the option
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
multiplied by (ii) the number of shares of TCB Holdings common stock subject to the option (to the extent not previously exercised). Reliant Bancorp paid aggregate consideration to holders of unexercised options of approximately $430. All shares of Reliant Bancorp’s common stock outstanding immediately prior to the TCB Holdings Transaction were unaffected by the TCB Holdings Transaction.
The following table details the financial impact of the TCB Holdings Transaction, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:
| | | | | | | | |
| Calculation of Purchase Price | | |
| Shares of Tennessee Community Bank Holdings, Inc. common stock outstanding as of January 1, 2020 | | 1,055,041 | |
| Exchange ratio for Reliant Bancorp, Inc. common stock | | 0.769 | |
| Reliant Bancorp, Inc. common stock shares issued | | 811,210 | |
| Reliant Bancorp, Inc. share price at January 1, 2020 | | $ | 22.24 | |
| Estimated value of Reliant Bancorp, Inc. shares issued | | 18,041 |
| Cash settlement for Tennessee Community Bank Holdings, Inc. common stock ($17.13 per share) | | 18,073 | |
| Cash settlement for Tennessee Community Bank Holdings, Inc.'s 26,450 outstanding stock options ($34.25 settlement price less weighted average exercise price of $18.00) | | 430 | |
| Cash settlement for Reliant Bancorp, Inc. fractional shares ($22.36 per pro rata fractional share) | | 3 | |
| Estimated fair value of Tennessee Community Bank Holdings, Inc. | | $ | 36,547 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
| | | | | |
| Allocation of Purchase Price | |
| Total consideration above | $ | 36,547 | |
| Fair value of assets acquired and liabilities assumed | |
| Cash and cash equivalents | 11,026 | |
| |
| Investment securities available for sale | 56,336 | |
| Loans, net of unearned income | 171,445 | |
| |
| Accrued interest receivable | 948 | |
| Premises and equipment | 5,221 | |
| |
| Cash surrender value of life insurance contracts | 5,629 | |
| Restricted equity securities | 909 | |
| |
| Core deposit intangible | 3,617 | |
| Other assets | 833 | |
| Deposits | (210,538) | |
| Deferred tax liability | (157) | |
| Borrowings | (58) | |
| FHLB advances | (13,102) | |
| Other liabilities | (4,337) | |
| Total fair value of net assets acquired | 27,772 | |
| Goodwill | $ | 8,775 | |
CBT was a Tennessee-based full-service community bank with operations in Ashland City, Kingston Springs, Pegram, Pleasant View, and Springfield, Tennessee. These communities lie on the northwest perimeter of Nashville, Tennessee.
During 2020, the Company determined minor adjustments were appropriate to decrease premises and equipment by $1,219, decrease deferred tax liabilities by $168, and increase payables and other liabilities by $643 effective as of the acquisition date. These adjustments result in an increase to goodwill of $1,694.
First Advantage Bancorp
Effective April 1, 2020, Reliant Bancorp completed the acquisition of FABK pursuant to the Agreement and Plan of Merger, dated October 22, 2019 (the “FABK Agreement”), by and among Reliant Bancorp, FABK, and PG Merger Sub, Inc., a Tennessee corporation and wholly-owned subsidiary of Reliant Bancorp ("Merger Sub"). On the terms and subject to the conditions set forth in the FABK Agreement, Merger Sub merged with and into FABK (the "FABK Transaction"), with FABK as the surviving corporation, followed immediately by the merger of FABK with and into Reliant Bancorp, with Reliant Bancorp as the surviving corporation. Immediately following the merger of FABK into Reliant Bancorp, First Advantage Bank, a Tennessee-chartered commercial bank and wholly-owned subsidiary of FABK ("FAB"), merged with and into the Bank, with the Bank continuing as the surviving banking corporation. Pursuant to the FABK Agreement, at the effective time of the FABK Transaction, each outstanding share of FABK common stock, par value $0.01 per share (the “FABK Common Stock”), other than certain excluded shares, was converted into the right to receive (i) 1.17 shares of Reliant Bancorp Common Stock and (ii) $3.00 in cash, without interest. In lieu of the issuance of fractional shares of Reliant Bancorp Common Stock, Reliant Bancorp agreed to pay cash in lieu of fractional shares based on the volume-weighted average closing price per share of Reliant Bancorp Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including March 30, 2020 (calculated as $11.74). Based on the April 1, 2020 opening price for Reliant Bancorp Common Stock of $11.27 per share and 3,935,165 shares of FABK Common Stock outstanding on April 1, 2020, the consideration for the FABK Transaction was approximately $64,094, in the aggregate, or $16.28 per share of FABK Common Stock.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The following table details the financial impact of the FABK Transaction, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:
| | | | | |
| Calculation of Purchase Price | |
| Shares of First Advantage Bancorp common stock outstanding as of April 1, 2020 | 3,935,165 | |
| Conversion of restricted stock units to shares of common stock of First Advantage Bancorp as of April 1, 2020 | 2,000 | |
| Total First Advantage Bancorp common stock outstanding as of April 1, 2020 | 3,937,165 | |
| Exchange ratio for Reliant Bancorp, Inc. common stock | 1.17 |
| Reliant Bancorp, Inc. common stock shares issued | 4,606,483 | |
| Remove fractional shares | (64) | |
| Reliant Bancorp, Inc. common stock shares issued | 4,606,419 |
| Reliant Bancorp, Inc. share price at April 1, 2020 | $ | 11.27 | |
| Estimated value of Reliant Bancorp, Inc. shares issued | 51,914 | |
| Cash settlement for Reliant Bancorp, Inc. fractional shares ($11.74 per pro rata fractional share) | 1 |
| Cash settlement for First Advantage Bancorp common stock ($3.00 per share) | 11,805 |
| Cash settlement for First Advantage Bancorp restricted stock units ($3.00 per share) | 6 |
| Cash settlement for First Advantage Bancorp's 34,800 outstanding stock options ($30.00 settlement price less weighted average exercise price of $19.44) | 368 |
| Estimated fair value of First Advantage Bancorp | $ | 64,094 | |
| | | | | |
| Allocation of Purchase Price | |
| Total consideration above | $ | 64,094 | |
| Fair value of assets acquired and liabilities assumed | |
| Cash and cash equivalents | 11,159 | |
| |
| Investment securities available for sale | 35,970 | |
| Loans, net of unearned income | 622,423 | |
| Mortgage loans held for sale, net | 5,878 | |
| |
| Premises and equipment | 7,757 | |
| Deferred tax asset | 4,937 | |
| Cash surrender value of life insurance contracts | 14,776 | |
| Other real estate and repossessed assets | 1,259 | |
| Core deposit intangible | 2,280 | |
| Operating lease right-of-use assets | 5,846 | |
| Other assets | 11,624 | |
| Deposits | (608,690) | |
| Borrowings | (35,962) | |
| Operating lease liabilities | (6,536) | |
| Other liabilities | (10,606) | |
| Total fair value of net assets acquired | 62,115 | |
| Goodwill | $ | 1,979 | |
FAB was a Tennessee-based full-service community bank headquartered in Clarksville, Tennessee. FAB operated branch offices in Montgomery, Davidson and Williamson counties, Tennessee and operated a loan production office in Knoxville, Tennessee primarily originating manufactured housing loans.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
During 2020, the Company determined minor adjustments in fair value were appropriate to reduce premises and equipment by $202, to reduce deferred tax assets by $1,854, and increase other assets by $405 effective as of the acquisition date. The adjustments result in an increase in goodwill of $1,651.
Supplemental Pro Forma Combined Condensed Statements of Income
Pro forma data for the twelve months ended months ended December 31, 2020 and 2019 in the table below presents information as if the TCB Holdings Transaction and FABK Transaction occurred on January 1, 2019. These results combine the historical results of TCB Holdings and FABK into the Company's consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments, they are not indicative of what would have occurred had the acquisitions taken place on the indicated date nor are they intended to represent or be indicative of future results of operations. In particular, no adjustments have been made to eliminate the amount of TCB Holdings' or FABK's provision for credit losses for the first twelve months ended months of 2019 that may not have been necessary had the acquired loans been recorded at fair value as of the beginning of 2019. Additionally, these financials were not adjusted for non-recurring expenses, such as merger-related charges incurred by either the Company, TCB Holdings or FABK. The Company expects to achieve operating cost savings and other business synergies as a result of the acquisitions which are also not reflected in the pro forma amounts.
| | | | | | | | | | | | | | |
| | Twelve Months Ended |
| | December 31, |
| | | | 2020 | | 2019 |
Revenue(1) | | | | $ | 149,652 | | | $ | 117,496 | |
| Net interest income | | | | $ | 120,769 | | | $ | 100,070 | |
| Net income attributable to common shareholders | | | | $ | 34,126 | | | $ | 33,719 | |
| | | | | | |
| | | | | | |
(1) Net interest income plus noninterest income | | | | | | |
NOTE 16 - MORTGAGE OPERATIONS
Reliant Mortgage Ventures, LLC ("RMV") was organized on November 15, 2011 as a joint venture between VHC Fund 1, LLC (VHC) and Legacy Reliant Bank to offer mortgage banking services within the Legacy Reliant Bank's market footprint. The Bank controls 51% of RMV's governance rights and 30% of RMV's income rights.
VHC Fund 1, LLC was controlled by an immediate family member of a previous member of the Company’s board of directors through March 2019. Under the related operating agreement, the non-controlling member receives 70% of the profits of RMV, and the Company receives 30% of the profits once the non-controlling member recovers its cumulative losses. The noncontrolling member is responsible for 100% of the mortgage venture’s operational and credit losses. The income and loss is included in the consolidated results of operations. The portion of the income and loss attributable to the non-controlling member (100% for 2020, 2019, and 2018) are included in non-controlling interest in net loss of subsidiary on the accompanying consolidated statements of operations. At December 31, 2020 and 2019, RMV had a receivable balance from the Company of $404 and payable to the Company of $1,484, respectively.
Direct costs incurred by the Company attributable to the mortgage operations are allocated to RMV as well as rent, personnel and core processing. As of December 31, 2020, the cumulative losses to date of RMV totaled $13,655. RMV will have to generate net income of this amount before the Company will participate in future earnings.
NOTE 17 - SEGMENT REPORTING
The Company has 2 reportable business segments: commercial banking and residential mortgage banking. Segment information is derived from the internal reporting system utilized by management. Revenues and expenses for segments reflect
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
those which can be specifically identified and have been assigned based on internally developed allocation methods. Financial results have been presented, to the extent practicable, as if each segment operated on a stand-alone basis.
Commercial Banking provides deposit and lending services to consumer and business customers within our primary geographic markets. Our customers are serviced through branch locations, ATMs, online banking, and mobile banking.
Residential Mortgage Banking originates traditional first lien residential mortgage loans and first lien home equity lines of credit throughout the United States. The traditional first lien residential mortgage loans are typically underwritten to government agency standards and sold to third-party secondary market mortgage investors. The home equity lines of credit are typically sold to participating banks or other investor groups and are underwritten to their standards.
During the second quarter of 2019, RMV began acquiring loans from approved correspondent lenders and reselling them in the secondary market. These loans are not government agency-qualified loans and are of higher risk, such as jumbo loans or senior position home equity lines of credit.
The following presents summarized results of operations for the Company’s business segments for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 |
| | | Commercial Banking | | Residential Mortgage Banking | | Elimination Entries | | Consolidated |
| Net interest income | | $ | 105,628 | | | $ | 2,418 | | | $ | 0 | | | $ | 108,046 | |
| Provision for loan losses | | 8,350 | | | 0 | | | 0 | | | 8,350 | |
| Noninterest income | | 9,320 | | | 12,293 | | | (54) | | | 21,559 | |
| Noninterest expense (excluding merger expense) | | 61,339 | | | 14,973 | | | 0 | | | 76,312 | |
| Merger expense | | 6,895 | | | 0 | | | 0 | | | 6,895 | |
| Income tax expense (benefit) | | 6,952 | | | (17) | | | 0 | | | 6,935 | |
| Net income (loss) | | 31,412 | | | (245) | | | (54) | | | 31,113 | |
| Noncontrolling interest in net loss of subsidiary | | 0 | | | 245 | | | 54 | | | 299 | |
| Net income attributable to common shareholders | | $ | 31,412 | | | $ | 0 | | | $ | 0 | | | $ | 31,412 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| | | Commercial Banking | | Residential Mortgage Banking | | Elimination Entries | | Consolidated |
| Net interest income | | $ | 55,252 | | | $ | 553 | | | $ | 0 | | | $ | 55,805 | |
| Provision for loan losses | | 1,211 | | | 0 | | | 0 | | | 1,211 | |
| Noninterest income | | 7,059 | | | 5,086 | | | (181) | | | 11,964 | |
| Noninterest expense (excluding merger expense) | | 40,779 | | | 11,510 | | | 0 | | | 52,289 | |
| Merger expense | | 1,603 | | | 0 | | | 0 | | | 1,603 | |
| Income tax expense (benefit) | | 2,522 | | | (393) | | | 0 | | | 2,129 | |
| Net income | | 16,196 | | | (5,478) | | | (181) | | | 10,537 | |
| Noncontrolling interest in net income of subsidiary | | 0 | | | 5,478 | | | 181 | | | 5,659 | |
| Net income attributable to common shareholders | | $ | 16,196 | | | $ | 0 | | | $ | 0 | | | $ | 16,196 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | Commercial Banking | | Residential Mortgage Banking | | Elimination Entries | | Consolidated |
| Net interest income | | $ | 52,990 | | | $ | 821 | | | $ | 0 | | | $ | 53,811 | |
| Provision for loan losses | | 1,035 | | | 0 | | | 0 | | | 1,035 | |
| Noninterest income | | 5,250 | | | 4,595 | | | (181) | | | 9,664 | |
| Noninterest expense (excluding merger expense) | | 38,738 | | | 9,049 | | | 0 | | | 47,787 | |
| Merger expense | | 2,774 | | | 0 | | | 0 | | | 2,774 | |
| Income tax expense (benefit) | | 1,608 | | | (236) | | | 0 | | | 1,372 | |
| Net income | | 14,085 | | | (3,397) | | | (181) | | | 10,507 | |
| Noncontrolling interest in net income of subsidiary | | 0 | | | 3,397 | | | 181 | | | 3,578 | |
| Net income attributable to common shareholders | | $ | 14,085 | | | $ | 0 | | | $ | 0 | | | $ | 14,085 | |
NOTE 18 - CAPITAL
The Company and the Bank are subject to regulatory capital requirements administered by the federal and state banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes that as of December 31, 2020 and 2019 the Company and the Bank met all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2020 and 2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the category.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Actual and required capital amounts and ratios are presented below as of December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual
Regulatory
Capital | | Minimal Capital Adequacy | | Minimum Required
Capital Including
Capital Conservation
Buffer | | To Be Well
Capitalized Under
Prompt Corrective
Action Provisions |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| December 31, 2020 | | | | | | | | | | | | | | | |
| Company | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 262,282 | | | 8.91 | % | | $ | 117,747 | | | 4.00 | % | | $ | 117,747 | | | 4.000 | % | | $ | 147,184 | | | 5.00 | % |
| Common equity Tier 1 | 250,513 | | | 10.22 | % | | 110,304 | | | 4.50 | % | | 171,584 | | | 7.000 | % | | 159,328 | | | 6.50 | % |
| Tier I risk-based capital | 262,282 | | | 10.70 | % | | 147,074 | | | 6.00 | % | | 208,355 | | | 8.500 | % | | 196,099 | | | 8.00 | % |
| Total risk-based capital | 342,246 | | | 13.96 | % | | 196,130 | | | 8.00 | % | | 257,420 | | | 10.500 | % | | 245,162 | | | 10.00 | % |
| Bank | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 313,633 | | | 10.64 | % | | $ | 117,907 | | | 4.00 | % | | $ | 117,907 | | | 4.000 | % | | $ | 147,384 | | | 5.00 | % |
| Common equity Tier 1 | 313,633 | | | 12.83 | % | | 110,004 | | | 4.50 | % | | 171,117 | | | 7.000 | % | | 158,894 | | | 6.50 | % |
| Tier I risk-based capital | 313,633 | | | 12.83 | % | | 146,672 | | | 6.00 | % | | 207,785 | | | 8.500 | % | | 195,562 | | | 8.00 | % |
| Total risk-based capital | 334,919 | | | 13.71 | % | | 195,430 | | | 8.00 | % | | 256,503 | | | 10.500 | % | | 244,288 | | | 10.00 | % |
| | | | | | | | | | | | | | | |
| December 31, 2019 | | | | | | | | | | | | | | | |
| Company | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 176,748 | | | 9.74 | % | | N/A | | 0 | % | | $ | 72,586 | | | 4.000 | % | | $ | 90,733 | | | 5.00 | % |
| Common equity Tier 1 | 165,063 | | | 10.55 | % | | N/A | | 0 | % | | 109,520 | | | 7.000 | % | | 101,698 | | | 6.50 | % |
| Tier I risk-based capital | 176,748 | | | 11.30 | % | | N/A | | 0 | % | | 132,952 | | | 8.500 | % | | 125,131 | | | 8.00 | % |
| Total risk-based capital | 249,751 | | | 15.97 | % | | N/A | | 0 | % | | 164,207 | | | 10.500 | % | | 156,388 | | | 10.00 | % |
| Bank | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 186,734 | | | 10.30 | % | | N/A | | 0 | % | | $ | 72,518 | | | 4.000 | % | | $ | 90,648 | | | 5.00 | % |
| Common equity Tier 1 | 186,734 | | | 11.95 | % | | N/A | | 0 | % | | 109,384 | | | 7.000 | % | | 101,571 | | | 6.50 | % |
| Tier I risk-based capital | 186,734 | | | 11.95 | % | | N/A | | 0 | % | | 132,823 | | | 8.500 | % | | 125,010 | | | 8.00 | % |
| Total risk-based capital | 199,737 | | | 12.79 | % | | N/A | | 0 | % | | 163,975 | | | 10.500 | % | | 156,167 | | | 10.00 | % |
In July 2013, the Bank’s regulators adopted revised regulatory capital requirements known as “Basel III”, which became effective January 1, 2015. Required capital ratios applicable to the Bank under these guidelines are presented in the preceding table. The new requirements also established a "capital conservation buffer" of 2.5% that was phased in over four years. If capital levels fall below the minimum requirement, the Bank will be subject to restrictions related dividend payments, share repurchases, and certain employee bonuses.
On December 4, 2018, the Company authorized a stock repurchase plan pursuant to which the Company could purchase up to $12 million of shares of the Company’s outstanding common stock, par value $1.00 per share. The plan ran through December 31, 2019. Stock repurchases under the plan could be made from time to time in the open market or privately negotiated transactions, or otherwise, at the discretion of management of the Company and in accordance with applicable legal requirements. The timing and amount of share repurchases under the plan depended on a number of factors, including the Company’s stock price performance, ongoing capital planning considerations, general market conditions, and applicable legal requirements. In 2019, the Company repurchased $8,291 of Company shares. The stock repurchase plan did not obligate the Company to repurchase any dollar amount or number of shares, and the plan could be extended, modified, amended, suspended, or discontinued at any time.
On March 10, 2020, the Company announced that its board of directors has twoauthorized a stock repurchase plan pursuant to which the Company may purchase up to $15 million of shares of the Company’s outstanding common stock, par value $1.00
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share based compensation plans as described below. Total compensation costamounts)
per share. As of December 31, 2020, Reliant Bancorp had 0t repurchased any shares of Reliant Bancorp common stock under the Repurchase Plan. On April 27, 2020, we announced that has been charged against income for those plans was $923, $616 and $251 for 2018, 2017 and 2016, respectively.our board of directors suspended the Repurchase Plan to preserve our financial strength during this challenging economic environment. The excess income tax benefit was $88, $184 and $478 for 2018, 2017 and 2016, respectively.Plan expired on December 31, 2020.
Stock Option Plan
NOTE 19 - STOCK-BASED COMPENSATION
In 2006, the Board of Directors and shareholders of the Bank approved the Commerce Union Bank Stock Option Plan (the “Plan”). The Plan provides for the granting of stock options and authorizes the issuance of common stock upon the exercise of such options, for up to 625,000 shares of common stock to employees and organizers of the Company. As part of reorganization, all Commerce Union Bank options were replaced with Commerce Union Bancshares, Inc. options with no change in terms. On March 10, 2015, the shareholders of the Company approved the Commerce Union Bancshares, Inc. Amended and Restated Stock Option Plan that permits the grant of awards of up to 1,250,000 shares of the Company common stock in the form of stock options. As part of the merger with Reliant Bank, all outstanding stock options of Reliant Bank were converted to stock options of Commerce Union Bancshares, Inc. under this plan.
Under the Stock Option Plan, stock option awards may be granted in the form of incentive stock options or non-statutory stock options, and are generally exercisable for up to ten years following the date such option awards are granted. Exercise prices of incentive stock options must be equal to or greater than the fair market value of the common stock on the grant date.
On June 18, 2015, the shareholders of Reliant Bancorp (then known as "Commerce Union Bancshares, Inc.") approved the Commerce Union Bancshares, Inc. 2015 Equity Incentive Plan, which reserves up to 900,000 shares of Reliant Bancorp common stock to be subject to awards under the plan, including awards in the form of stock options, restricted stock grants, performance-based awards, and other awards denominated or payable by reference to or based on or related to Reliant Bancorp common stock.
The Company has recognized stock-based compensation expense, within salaries and employee benefits for employees, and within other noninterest expense for directors, in the consolidated statement of income as follows:
| | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Stock-based compensation expense before income taxes | $ | 1,578 | | | $ | 1,222 | | | $ | 923 | |
| Less: deferred tax benefit | (412) | | | (319) | | | (241) | |
| Reduction of net income | $ | 1,166 | | | $ | 903 | | | $ | 682 | |
Common Stock Options
A summary of the activity in the stock option plan for the periods ended December 31, 2018, 20172020, 2019 and 2016,2018, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Outstanding at January 1, 2018 | 170,761 | | | $ | 14.48 | | | 5.73 years | | $ | 1,905 | |
| Granted | 25,500 | | | 28.00 | | | | |
| Exercised | (30,001) | | | 13.27 | | | | |
| Forfeited or expired | (7,000) | | | 18.20 | | | | |
| Outstanding at December 31, 2018 | 159,260 | | | 16.72 | | 6.04 years | | 1,146 |
| Exercisable at December 31, 2018 | 88,060 | | 13.45 | | | 4.32 years | | 847 |
| Vested and anticipated vesting shares as of December 31, 2018 | 157,124 | | 16.67 | | 6.01 years | | 1,002 |
| Granted | 27,500 | | | 23.28 | | | | | |
| Exercised | (34,714) | | | 12.79 | | | | |
|
| | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Outstanding at January 1, 2016 | 708,921 | | $ | 10.73 |
| |
| |
|
| Granted | 41,500 |
| | 15.57 | |
| |
|
| Exercised | (476,889 | ) | | 10.03 | |
| |
|
| Forfeited or expired | (31,991 | ) | | 10.61 | |
| |
|
| Outstanding at December 31, 2016 | 241,541 |
| | 12.96 | | 5.41 years | | $ | 2,065 |
|
| Exercisable at December 31, 2016 | 144,941 | | 12.11 | | 3.25 years | | 1,363 |
| Vested and anticipated vesting shares as of December 31, 2016 | 238,643 | | 12.89 | | 5.41 years | | 2,003 |
| Granted | 15,500 |
| | 23.55 | |
| |
|
| Exercised | (72,080 | ) | | 11.42 | |
| |
|
| Forfeited or expired | (14,200 | ) | | 14.06 | |
| |
|
| Outstanding at December 31, 2017 | 170,761 |
| | 14.48 | | 5.73 years | | 1,905 |
|
| Exercisable at December 31, 2017 | 95,861 | | 13.00 |
| | 3.75 years | | 1,212 |
| Vested and anticipated vesting shares as of December 31, 2017 | 168,514 | | 14.45 | | 5.73 years | | 1,848 |
| Granted | 25,500 |
| | 28.00 |
| | 9.58 years | |
|
| Exercised | (30,001 | ) | | 13.27 |
| | 3.63 years | |
|
| Forfeited or expired | (7,000 | ) | | 18.20 |
| | 8.40 years | |
|
| Outstanding at December 31, 2018 | 159,260 | | 16.72 |
| | 6.04 years | | 1,146 |
|
| Exercisable at December 31, 2018 | 88,060 | | 13.45 |
| | 4.32 years | | 847 |
|
| Vested and anticipated vesting shares as of December 31, 2018 | 157,124 |
| | $ | 16.67 |
| | 6.01 years | | $ | 1,002 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Forfeited or expired | (2,753) | | | 19.35 | | | | | |
| Outstanding at December 31, 2019 | 149,293 | | | 18.81 | | 6.68 years | | 700 | |
| Exercisable at December 31, 2019 | 74,693 | | 15.31 | | | 5.18 years | | 553 |
| Vested and anticipated vesting shares as of December 31, 2019 | 149,293 | | 18.76 | | 6.64 years | | 891 |
| Granted | 0 | | | 0 | | | | | |
| Exercised | (10,865) | | | 12.20 | | | | | |
| Forfeited or expired | (21,807) | | | 21.26 | | | | | |
| Outstanding at December 31, 2020 | 116,621 | | | 18.97 | | | 5.87 years | | 304 | |
| Exercisable at December 31, 2020 | 78,921 | | 16.66 | | | 5.02 years | | 290 | |
A summary of changes in the Company's non-vested options for the years ended December 31, 2018, 2017 and 2016 are as follows:
|
| | | | | | | |
| | | Shares | | Weighted Average Grant-Date Fair Value |
| Non-vested options at January 1, 2016 | | 84,160 |
| | $ | 2.90 |
|
| Granted | | 41,500 |
| | 3.89 |
|
| Vested | | (24,260 | ) | | 2.76 |
|
| Forfeited | | (4,800 | ) | | 2.92 |
|
| Non-vested options at December 31, 2016 | | 96,600 |
| | 3.36 |
|
| Granted | | 15,500 |
| | 6.66 |
|
| Vested | | (23,000 | ) | | 6.95 |
|
| Forfeited | | (14,200 | ) | | 3.18 |
|
| Non-vested options at December 31, 2017 | | 74,900 |
| | 4.14 |
|
| Granted | | 25,500 |
| | 7.10 |
|
| Vested | | (22,200 | ) | | 6.69 |
|
| Forfeited | | (7,000 | ) | | 4.77 |
|
| Non-vested options at December 31, 2018 | | 71,200 |
| | $ | 5.28 |
|
Information related to the stock option plan during each year follows and assumes a 3% forfeiture rate:
| | | | | 2018 | | 2017 | | 2016 | | | 2020 | | 2019 | | 2018 | |
| Intrinsic value of options exercised | | $ | 344 |
| | $ | 827 |
| | $ | 2,272 |
| Intrinsic value of options exercised | | $ | 51 | | | $ | 320 | | | $ | 344 | | |
| Cash received from option exercises | | 398 |
| | 823 |
| | 4,772 |
| Cash received from option exercises | | 142 | | | 439 | | | 398 | | |
| Tax benefit realized from option exercises | | 88 |
| | 184 |
| | 478 |
| Tax benefit realized from option exercises | | 15 | | | 13 | | | 88 | | |
| Weighted average fair value of options granted | | 7.10 |
| | 6.66 |
| | 3.89 |
| Weighted average fair value of options granted | | 0 | | | 6.97 | | | 7.10 | | |
As of December 31, 2018,2020, there was $310$204 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.372.87 years. The total fair value of shares vested during the years ended December 31, 2020, 2019, and 2018, was $114, $96, and $61, respectively.
The fair value of options granted during 20182019 and 20172018 was determined using the following assumptions as of the grant date, resulting in an estimated fair value per option of $6.97 and $6.89, and $6.46, respectively. NaN options were granted in 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2019 | | 2018 | | |
| Risk-free interest rate | | | | | | | 2.08% | | — | | 2.39% | | | | 2.95% | | | | | | | | |
| Expected term (in years) | | | 6.5 years | | 6.5 years | | |
| Expected stock price volatility | | | | | | | 31.10% | | — | | 32.80% | | | | 23.50% | | | | | | | | |
| Dividend yield | | | | | | | 1.55% | | — | | 1.59% | | | | 1.14% | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Risk-free interest rate |
| | 2.95% | |
| | 2.30% | | — | | 2.45% | | 1.33% | | — | | 2.45% |
| Expected term (in years) | 6.5 years | | 6.5 years | | 6.5 | | — | | 10 years |
| Expected stock price volatility |
| | 23.50% | |
| | 24% | | — | | 29.90% | | 21% | | — | | 24.00% |
| Dividend yield |
| | 1.14% | |
| | 0.98% | | — | | 1.02% | | 1.02% | | — | | 1.57% |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 14 - STOCK-BASED COMPENSATION (CONTINUED)
Equity Incentive Plan
On June 18, 2015, the shareholders of Commerce Union approved the Commerce Union Bancshares, Inc. 2015 Equity Incentive Plan, which provides for the issuance of up to 900,000 shares of common stock in the form of stock options, restricted stock grants or grants for performance-based compensation.compensation units.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The following table shows the activity related to non-vested restricted stock and restricted stock units for the periodsyears ended December 2018, 20172020, 2019 and 2016:2018:
| | | | | | | | Restricted Stock Units | | Restricted Stock |
| | | Shares | | Weighted Average Grant-Date
Fair Value | | Units | | Weighted Average Grant-Date
Fair Value | | Shares | | Weighted Average Grant-Date
Fair Value |
| Non-vested shares at January 1, 2016 | | 30,500 |
| | $ | 13.65 |
| |
| | Outstanding at December 31, 2017 | | Outstanding at December 31, 2017 | 0 | | | 0 | | | 82,499 | | | 20.03 |
| Granted | | 23,800 |
| | 15.24 | Granted | 0 | | | 0 | | | 51,710 | | | 27.55 |
| Vested | | (3,835 | ) | | 14.54 | Vested | 0 | | | 0 | | | (21,999) | | | 15.95 |
| Forfeited | | (2,000 | ) | | 13.65 | Forfeited | 0 | | | 0 | | | (1,550) | | | 25.17 |
| Non-vested shares at December 31, 2016 | | 48,465 |
| | 14.36 | |
| Outstanding at December 31, 2018 | | Outstanding at December 31, 2018 | 0 | | | 0 | | | 110,660 | | | 24.28 |
| Granted | | 50,050 |
| | 23.65 | Granted | 47,750 | | | 23.30 | | | 9,500 | | | 22.01 |
| Vested | | (13,016 | ) | | 14.21 | Vested | 0 | | | 0 | | | (21,450) | | | 19.31 |
| Forfeited | | (3,000 | ) | | 14.18 | Forfeited | 0 | | | 0 | | | (7,750) | | | 23.25 |
| Non-vested shares at December 31, 2017 | | 82,499 |
| | 20.03 | |
| Outstanding at December 31, 2019 | | Outstanding at December 31, 2019 | 47,750 | | | $ | 23.30 | | | 90,960 | | | $ | 25.31 | |
| Granted | | 51,710 |
| | 27.55 | Granted | 102,400 | | | 14.55 | | | 0 | | | 0 | |
| Vested | | (21,999 | ) | | 15.95 | Vested | (15,500) | | | 21.66 | | | (50,050) | | | 24.08 | |
| Forfeited | | (1,550 | ) | | 25.17 | Forfeited | (2,000) | | | 10.25 | | | 0 | | | 0 | |
| Non-vested shares at December 31, 2018 | | 110,660 |
| | $ | 24.28 |
| |
| Outstanding at December 31, 2020 | | Outstanding at December 31, 2020 | 132,650 | | | $ | 16.93 | | | 40,910 | | | $ | 26.82 | |
The shares issued had a average market value of $25.14 per share in 2018, $23.65 per share in 2017 and $15.24 in 2016. The shares vest over periods ranging from one month to three years. As of December 31, 2018,2020, there was $1,704$1,559 and $220 of unrecognized compensation cost related to non-vested restricted share awards.units and awards, respectively. The cost is expected to be charged over a weighted-average period of 1.6 years.2.11 years for the restricted stock units and 0.74 years for the restricted stock share awards. In 2018, 20172020, 2019 and 2016 ,2018, the fair value of share awards vested totaled $439, $368$1,032, $605 and $60.$439.
NOTE 20 - BENEFIT PLANS
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 15 - CAPITAL
The Company and the Bank are subject to regulatory capital requirements administered by the federal and state banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes that as of December 31, 2018 and 2017 the Company and the Bank met all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2018 and 2017, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the category.
Actual and required capital amounts and ratios are presented below as of December 31, 2018 and 2017.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Actual Regulatory Capital | | Minimal Capital Adequacy | | Minimum Required Capital Including Capital Conservation Buffer | | To Be Well Capitalized Under Prompt Corrective Action Provisions |
| | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| December 31, 2018 | | | | | | | | | | | | | | | | |
| Company | | | | | | | | | | | | | | | | |
| Tier I leverage | | $ | 168,876 |
| | 10.38 | % | | $ | 65,077 |
| | 4.00 | % | | $ | 65,077 |
| | 4.000 | % | | $ | 81,347 |
| | 5.00 | % |
| Common equity Tier 1 | | 157,273 |
| | 11.59 | % | | 61,064 |
| | 4.50 | % | | 86,507 |
| | 6.375 | % | | 88,203 |
| | 6.50 | % |
| Tier I risk-based capital | | 168,876 |
| | 12.44 | % | | 81,451 |
| | 6.00 | % | | 106,905 |
| | 7.875 | % | | 108,602 |
| | 8.00 | % |
| Total risk-based capital | | 180,193 |
| | 13.28 | % | | 108,550 |
| | 8.00 | % | | 133,991 |
| | 9.875 | % | | 135,688 |
| | 10.00 | % |
| Bank | | | | | | | | | | | | | | | | |
| Tier I leverage | | $ | 165,308 |
| | 10.17 | % | | $ | 65,018 |
| | 4.00 | % | | $ | 65,018 |
| | 4.000 | % | | $ | 81,272 |
| | 5.00 | % |
| Common equity Tier 1 | | 165,308 |
| | 12.19 | % | | 61,024 |
| | 4.50 | % | | 86,451 |
| | 6.375 | % | | 88,146 |
| | 6.50 | % |
| Tier I risk-based capital | | 165,308 |
| | 12.19 | % | | 81,366 |
| | 6.00 | % | | 106,792 |
| | 7.875 | % | | 108,488 |
| | 8.00 | % |
| Total risk-based capital | | 176,625 |
| | 13.02 | % | | 108,525 |
| | 8.00 | % | | 133,961 |
| | 9.875 | % | | 135,657 |
| | 10.00 | % |
| | | | | | | | | | | | | | | | | |
| December 31, 2017 | | | | | | | | | | | | | | | | |
| Company | | | | | | | | | | | | | | | | |
| Tier I leverage | | $ | 126,234 |
| | 11.89 | % | | $ | 42,467 |
| | 4.00 | % | | $ | 42,467 |
| | 4.000 | % | | $ | 53,084 |
| | 5.00 | % |
| Common equity Tier 1 | | 126,234 |
| | 13.90 | % | | 40,867 |
| | 4.50 | % | | 52,219 |
| | 5.750 | % | | 59,030 |
| | 6.50 | % |
| Tier I risk-based capital | | 126,234 |
| | 13.90 | % | | 54,489 |
| | 6.00 | % | | 65,841 |
| | 7.250 | % | | 72,653 |
| | 8.00 | % |
| Total risk-based capital | | 135,965 |
| | 14.97 | % | | 72,660 |
| | 8.00 | % | | 84,013 |
| | 9.250 | % | | 90,825 |
| | 10.00 | % |
| Bank | | | | | | | | | | | | | | | | |
| Tier I leverage | | $ | 123,862 |
| | 11.68 | % | | $ | 42,418 |
| | 4.00 | % | | $ | 42,418 |
| | 4.000 | % | | $ | 53,023 |
| | 5.00 | % |
| Common equity Tier 1 | | 123,862 |
| | 13.67 | % | | 40,774 |
| | 4.50 | % | | 52,100 |
| | 5.750 | % | | 58,896 |
| | 6.50 | % |
| Tier I risk-based capital | | 123,862 |
| | 13.67 | % | | 54,365 |
| | 6.00 | % | | 65,691 |
| | 7.250 | % | | 72,487 |
| | 8.00 | % |
| Total risk-based capital | | 133,593 |
| | 14.74 | % | | 72,506 |
| | 8.00 | % | | 83,835 |
| | 9.250 | % | | 90,633 |
| | 10.00 | % |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 15 - CAPITAL (CONTINUED)
In July 2013, the Bank’s regulators adopted revised regulatory capital requirements known as “Basel III”, which became effective January 1, 2015. Required capital ratios applicable to the Bank under these guidelines are presented in the preceding table. The new requirements also establish a "capital conservation buffer" of 2.5% that will be phased in over four years. If capital levels fall below the minimum requirement plus the capital conservation buffer, the Bank will be subject to restrictions related dividend payments, share repurchases, and certain employee bonuses.
On December 4, 2018, the Company authorized a stock repurchase plan pursuant to which the Company may purchase up to $12 million of shares of the Company’s outstanding common stock, par value $1.00 per share. Stock repurchases under the plan will be made from time to time in the open market or privately negotiated transactions, or otherwise, at the discretion of management of the Company and in accordance with applicable legal requirements. The timing and amount of share repurchases under the plan will depend on a number of factors, including the Company’s stock price performance, ongoing capital planning considerations, general market conditions, and applicable legal requirements. The Company currently anticipates the stock repurchase plan will remain in effect through December 31, 2019, unless the entire authorized amount of shares is sooner repurchased. The stock repurchase plan does not obligate the Company to repurchase any dollar amount or number of shares, and the plan may be extended, modified, amended, suspended, or discontinued at any time.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
401(k) Plan
The Company has federal funds lines at other financial institutions with availability totaling $78,200 at December 31, 2018, and 2017. At December 31, 2018 and 2017, the Company did not have outstanding balances for these federal funds lines.a 401(k) benefit plan that allows employee contributions up to 100% of their compensation, subject to regulatory limitations. The Company also has an unsecured linematches 100% of credit at CDC Deposits Network with availability of $20,000.the first 6% contributed by the employee. The Company did not have a balance outstanding related to this line at December 31, 2018. The Company had a balance outstanding under this line at December 31, 2017 of $2,000.The Company also may access borrowings utilizing the Federal Reserve bank discount window of $11,166 and $12,900 at December 31, 2018 and 2017, respectively. There were no funds advanced from the discount window at December 31, 2018 or 2017.
At December 31, 2018 and 2017, the Company has $310,454 and $208,829 in standby letters of credit with the Federal Home Loan Bank pledged to secure municipal deposits.
At December 31, 2018, the Company has employment agreements with certain executive officers. Upon the occurrence ofrecognized an “Event of Termination” as defined by the agreements, the Company has an obligation to pay each of the executive officers as defined in the agreements.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 17 - LEASES
A summary of the Company’s leased facilities (other than month-to-month agreements) follows:
|
| | | | | | |
| | Base Lease | | Renewal | | Escalation |
Property Description (In Tennesee unless noted) | | Expiration Date | | Terms | | Clause |
1736 Carothers Parkway, Brentwood | | February 28, 2025 | | 15 years | | 3% annually |
6005 Nolensville Road, Nashville | | September 30, 2018 | | — | | 3% annually |
5109 Peter Taylor Park Drive, Brentwood | | July 31, 2016 | | 10 years | | 3% annually |
101 Creekstone Boulevard, Franklin | | March 31, 2020 | | 10 years | | 2% annually |
105 Continental Place, Brentwood | | December 31, 2020 | | — | | 3% annually |
633 Chestnut St., Chattanooga | | October 31, 2028 | | 10 years | | 2% annually |
6100 Tower Circle, Franklin | | December 31, 2027 | | — | | 2.5% annually |
1835 E. Northfield Blvd. Murfreesboro | | September 30, 2027 | | 5 years | | 3% annually |
1412 Trotwood Ave., Columbia | | December 31, 2021 | | — | | None |
4108 Hillsboro Pike, Nashville | | October 31, 2021 | | — | | 10% after 5th year of initial term and 12% thereafterexpense for renewals |
The Company has classified all leases as operating lease agreements for office space, copiers, and an automobile. Future minimum rental payments required under the terms of the non-cancellable leases are as follows:
|
| | | | |
| Year Ending | | |
| December 31, | | |
| 2019 | | $ | 2,216 |
|
| 2020 | | 2,254 |
|
| 2021 | | 1,943 |
|
| 2022 | | 1,649 |
|
| 2023 | | 1,685 |
|
| Thereafter | | 4,650 |
|
| Total | | $ | 14,397 |
|
Total rent expense under the leases amounted to $2,536, $2,055 and $1,954, respectively, during the years ended December 31, 2020, 2019 and 2018 2017of $1,496, $1,033, and 2016.$805, respectively.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection lines, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.
The contractual amounts of financial instruments with off-balance-sheet risk at December 31, 2018 and 2017 were as follows:
|
| | | | | | | | |
| | | 2018 | | 2017 |
| Unused lines of credit | | | | |
| Fixed | | $ | 44,053 |
| | $ | 49,637 |
|
| Variable | | 209,898 |
| | 135,951 |
|
| Standby letters of credit | | 16,544 |
| | 13,176 |
|
| Total | | $ | 270,496 |
| | $ | 198,764 |
|
NOTE 19 - DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and other terms of the individual interest rate swap agreements.
Interest Rate Swaps Designated as Cash Flow Hedges
Interest rate swaps with notional amounts totaling $60,000$160,000 as of December 31, 2018,2020 were designated as cash flow hedges of certain Federal Home Loan Bank borrowingsshort-term interest-bearing liabilities and subordinated debentures, which are fully effective. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swap agreements. NaN gains or losses were reclassified from accumulated other comprehensive income into net income during the periods presented.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 19 - DERIVATIVES (CONTINUED)
Interest Rate Swaps Designated as Cash Flow Hedges, (Continued)
Summary information related to the interest rate swaps designated as cash flow hedges for the year endedas of December 31, 2018 is as follows:
| | | | | | | | | | | |
| 2020 | | 2019 |
| Notional amounts | $ | 160,000 | | | $ | 110,000 | |
| Weighted average pay rates | 2.05 | % | | 2.43 | % |
| Weighted average receive rates | 0.39 | % | | 2.11 | % |
| Weighted average maturity | 3.10 years | | 3.84 years |
| Unrealized losses | $ | 7,657 | | | $ | 2,078 | |
The following table reflects the cash flow hedges included in the Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019, respectively:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Included in other liabilities: | | | | | | | |
| Interest rate swaps related to: | | | | | | | |
| Subordinated debentures | $ | 10,000 | | | $ | (690) | | | $ | 10,000 | | | $ | (439) | |
| Short-term interest-bearing liabilities | 150,000 | | | (6,967) | | | 100,000 | | | (1,639) | |
| Total included in other liabilities | $ | 160,000 | | | $ | (7,657) | | | $ | 110,000 | | | $ | (2,078) | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
|
| | | |
|
|
| Notional amounts | $ | 60,000 |
|
| Weighted average pay rates | 3.338 | % |
| Weighted average receive rates | 2.856 | % |
| Weighted average maturity | 4.47 years |
|
| Unrealized losses | $ | 1,153 |
|
Cash Flow Hedges
The following table presents the net gains (losses) recorded in accumulated other comprehensive income and the Consolidated Statements of OperationsIncome, net of tax, relating to the cash flow derivative instruments foryears ended December 31, 2020, 2019, and 2018, respectively:
| | | | | | | | | | | | | | | | | |
| Amount of (Loss) Gain Recognized in Other Comprehensive Income (Loss) |
| 2020 | | 2019 | | 2018 |
| Interest rate swaps-subordinate debentures | $ | (185) | | | $ | (196) | | | $ | (129) | |
| Interest rate swaps-interest-bearing liabilities | (3,935) | | | (487) | | | (723) | |
| $ | (4,120) | | | $ | (683) | | | $ | (852) | |
Fair Value Hedges
Summary information related to the years ended:fair value hedges as of December 31, is as follows:
| | | | | | | | | | | |
| 2020 | | 2019 |
| Notional amounts | $ | 18,525 | | | $ | 19,605 | |
| Weighted average pay rates | 3.68 | % | | 3.66 | % |
| Weighted average receive rates | 1.21 | % | | 2.87 | % |
| Weighted average maturity | 7.82 years | | 9.25 years |
| Unrealized losses | $ | 1,495 | | | $ | 630 | |
|
| | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized in OCI
(Effective Portion) |
| Amount of Gain (Loss) Reclassified from OCI to Interest Income |
| Amount of Gain (Loss) Recognized in Other Non-Interest Income (Ineffective Portion) |
| December 31, 2016 |
|
|
|
|
|
| Interest rate contracts | $ | — |
|
| $ | — |
|
| $ | — |
|
| December 31, 2017 |
|
|
|
|
|
| Interest rate contracts | — |
|
| — |
|
| — |
|
| December 31, 2018 |
|
|
|
|
|
| Interest rate contracts | $ | (1,153 | ) |
| $ | — |
|
| $ | — |
|
The following table reflects the cash flowfair value hedges included in the Consolidated Balance Sheets as of December 31, 20182020 and 2017:December 31, 2019, respectively:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Included in other liabilities: | | | | | | | |
| Interest rate swaps related to investments | $ | 18,525 | | | $ | (1,495) | | | $ | 19,605 | | | $ | (630) | |
| Total included in other liabilities | $ | 18,525 | | | $ | (1,495) | | | $ | 19,605 | | | $ | (630) | |
|
| | | | | | | | | | | | | | | |
| 2018 |
| 2017 |
| Notional Amount |
| Fair Value |
| Notional Amount |
| Fair Value |
| Included in other assets: |
|
|
|
|
|
|
|
| Total included in other assets | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
| Included in other liabilities: |
|
|
|
|
|
|
|
| Interest rate swaps related to |
|
|
|
|
|
|
|
| subordinate debentures | $ | 10,000 |
|
| $ | 174 |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
| Interest rate swaps related to |
|
|
|
|
|
|
|
| Federal Home Loan Bank borrowings | 50,000 |
|
| 979 |
|
| — |
|
| — |
|
| Total included in other liabilities | $ | 60,000 |
|
| $ | 1,153 |
|
| $ | — |
|
| $ | — |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 19 - DERIVATIVES (CONTINUED)
Fair Value Hedges
The following table reflects the fair value hedges included in the Consolidated Statements of Operations as of December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| Item | Location | | 2020 | | 2019 | | 2018 |
| Interest rate swaps - securities | Interest on investment securities, nontaxable | | $ | (363) | | | $ | (56) | | | $ | (121) | |
| Hedged item - securities | Interest on investment securities, nontaxable | | $ | 363 | | | $ | 56 | | | $ | 121 | |
NOTE 12 - FAIR VALUES OF ASSETS AND LIABILITIES
|
| | | | | | | | | | | | | |
| Interest rate contracts | Location |
| 2018 |
| 2017 |
| 2016 |
| Change in fair value on interest |
|
|
|
|
|
|
|
| rate swaps hedging investments | Interest income |
| $ | 462 |
|
| $ | 47 |
|
| $ | 422 |
|
Financial accounting standards relating to fair value measurements establish a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The following table reflectshierarchy 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 hedges includedhierarchy are described below:
Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Consolidated Balance Sheets as of December 31:Company has the ability to access.
Level 2 Inputs to the valuation methodology include:
|
| | | | | | | | | | | | | | | |
| | 2018 | | 2017 |
| | Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
| Included in other assets: | | | | | | | |
| Interest rate swaps related to investments | $ | 16,902 |
| | $ | 467 |
| | $ | 9,882 |
| | $ | 155 |
|
| | | | | | | | |
| Total included in other assets | $ | 16,902 |
| | $ | 467 |
| | $ | 9,882 |
| | $ | 155 |
|
| | | | | | | | |
| Included in other liabilities: | | | | | | | |
| Interest rate swaps related to investments | $ | 4,203 |
| | $ | 30 |
| | $ | 11,623 |
| | $ | 180 |
|
| | | | | | | | |
| Total included in other liabilities | $ | 4,203 |
| | $ | 30 |
| | $ | 11,623 |
| | $ | 180 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
•Quoted prices for similar assets or liabilities in active markets;
•Quoted prices for identical or similar assets or liabilities in inactive markets; NOTE 20 - EARNINGS PER SHARE•Inputs other than quoted prices that are observable for the asset or liability; and
•Inputs that are derived principally from or corroborated by the observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 Inputs to the valuation methodology are unobservable and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis:
Securities available for sale: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Company obtains fair value measurements for securities available for sale from an independent pricing service. The fair value measurements consider observable data that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, cash flows and reference data, including market research publications, among other things.
Interest rate swaps: The fair values of interest rate swaps and fair value hedges are determined based on discounted future cash flows.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis include the following:
Impaired Loans: The fair value of an impaired loan with specific allocations of the allowance for loan losses is generally based on the present value of expected payments using the loan’s effective rate as the discount rate or recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
Other Real Estate: The fair value of other real estate is generally based on recent real estate appraisals less estimated disposition cost. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in Level 3 classification of the inputs for determining fair value.
The following ismethods described above may produce a summaryfair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the components comprising basicCompany’s valuation methods are appropriate and diluted earnings per common shareconsistent with other market participants, the use of stock (EPS) fordifferent methodologies or assumptions to determine the years ended December 31,:fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
|
| | | | | | | | | | | | |
| | | Year Ended |
| | | 2018 | | 2017 | | 2016 |
| Basic EPS Computation | | | | | | |
| Net income attributable to common shareholders | | $ | 14,085 |
| | $ | 7,246 |
| | $ | 8,936 |
|
| Weighted average common shares outstanding | | 11,389,122 |
| | 8,151,492 |
| | 7,586,993 |
|
| Basic earnings per common share | | $ | 1.24 |
| | $ | 0.89 |
| | $ | 1.18 |
|
| Diluted EPS Computation | | | | | | |
| Net income attributable to common shareholders | | $ | 14,085 |
| | $ | 7,246 |
| | $ | 8,936 |
|
| Weighted average common shares outstanding | �� | 11,389,122 |
| | 8,151,492 |
| | 7,586,993 |
|
| Dilutive effect of stock options and restricted shares | | 79,667 |
| | 87,809 |
| | 104,500 |
|
| Adjusted weighted average common shares outstanding | | 11,468,789 |
| | 8,239,301 |
| | 7,691,493 |
|
| Diluted earnings per common share | | $ | 1.23 |
| | $ | 0.88 |
| | $ | 1.16 |
|
Stock options for common stock and restricted shares totaling 62,910, 10,500 and 2,500 were not considered in computing diluted earnings per common share for 2018, 2017 and 2016, respectively, because they were antidilutive.
NOTE 21 - SEGMENT REPORTING
The Company has two reportable business segments: retail banking and residential mortgage banking. Segment information is derived from the internal reporting system utilized by management. Revenues and expenses for segments reflect those, which can be specifically identified and have been assigned based on internally developed allocation methods. Financial results have been presented, to the extent practicable, as if each segment operated on a stand-alone basis.
Retail Banking provides deposit and lending services to consumer and business customers within our primary geographic markets. Our customers are serviced through branch locations, ATMs, online banking, and mobile banking.
Residential Mortgage Banking originates traditional first lien residential mortgage loans and first lien home equity linesTable of credit throughout the United States. The traditional first lien residential mortgage loans are typically underwritten to government agency standards and sold to third party secondary market mortgage investors. The home equity lines of credit are typically underwritten to participating banks or other investor group standards.Contents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 21 - SEGMENT REPORTING (CONTINUED)Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.The following table sets forth the Company’s major categories of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of December 31, 2020 and 2019:
The following tables present summarized results | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| December 31, 2020 | | | | | | | |
| Assets | | | | | | | |
| U. S. Treasury and other U. S. government agencies | $ | 48 | | | $ | 0 | | | $ | 48 | | | $ | 0 | |
| State and municipal | 200,988 | | | 0 | | | 200,988 | | | 0 | |
| Corporate bonds | 24,113 | | | 0 | | | 24,113 | | | 0 | |
| Mortgage backed securities | 28,442 | | | 0 | | | 28,442 | | | 0 | |
| Asset backed securities | 3,062 | | | 0 | | | 3,062 | | | 0 | |
| | | | | | | |
| Derivative assets | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | |
| Liabilities | | | | | | | |
| Derivative liabilities | $ | 9,152 | | | $ | 0 | | | $ | 9,152 | | | $ | 0 | |
| | | | | | | |
| December 31, 2019 | | | | | | | |
| Assets | | | | | | | |
| U. S. Treasury and other U. S. government agencies | $ | 59 | | | $ | 0 | | | $ | 59 | | | $ | 0 | |
| State and municipal | 196,660 | | | 0 | | | 196,660 | | | 0 | |
| Corporate bonds | 7,845 | | | 0 | | | 7,845 | | | 0 | |
| Mortgage backed securities | 37,761 | | | 0 | | | 37,761 | | | 0 | |
| Asset backed securities | 17,968 | | | 0 | | | 17,968 | | | 0 | |
| Time deposits | 0 | | | 0 | | | 0 | | | 0 | |
| Derivative assets | 688 | | | 0 | | | 688 | | | 0 | |
| | | | | | | |
| Liabilities | | | | | | | |
| Derivative liabilities | $ | 3,396 | | | $ | 0 | | | $ | 3,396 | | | $ | 0 | |
|
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2018 |
| | | Retail Banking | | Residential Mortgage Banking | | Elimination Entries | | Consolidated |
| Net interest income | | $ | 53,008 |
| | $ | 821 |
| | $ | — |
| | $ | 53,829 |
|
| Provision for loan losses | | 1,035 |
| | — |
| | — |
| | 1,035 |
|
| Noninterest income | | 5,232 |
| | 4,595 |
| | (181 | ) | | 9,646 |
|
| Noninterest expense | | 41,512 |
| | 9,049 |
| | — |
| | 50,561 |
|
| Income tax expense (benefit) | | 1,608 |
| | (236 | ) | | — |
| | 1,372 |
|
| Net income (loss) | | 14,085 |
| | (3,397 | ) | | (181 | ) | | 10,507 |
|
| Noncontrolling interest in net loss of subsidiary | | — |
| | 3,397 |
| | 181 |
| | 3,578 |
|
| Net income attributable to common shareholders | | $ | 14,085 |
| | $ | — |
| | $ | — |
| | $ | 14,085 |
|
|
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2017 |
| | | Retail Banking | | Residential Mortgage Banking | | Elimination Entries | | Consolidated |
| Net interest income | | $ | 33,761 |
| | $ | 726 |
| | $ | — |
| | $ | 34,487 |
|
| Provision for loan losses | | 1,316 |
| | — |
| | — |
| | 1,316 |
|
| Noninterest income | | 2,333 |
| | 3,805 |
| | (128 | ) | | 6,010 |
|
| Noninterest expense | | 25,524 |
| | 5,552 |
| | — |
| | 31,076 |
|
| Income tax expense (benefit) | | 2,008 |
| | (66 | ) | | — |
| | 1,942 |
|
| Net income | | 7,246 |
| | (955 | ) | | (128 | ) | | 6,163 |
|
| Noncontrolling interest in net income of subsidiary | | — |
| | 955 |
| | 128 |
| | 1,083 |
|
| Net income attributable to common shareholders | | $ | 7,246 |
| | $ | — |
| | $ | — |
| | $ | 7,246 |
|
|
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2016 |
| | | Retail Banking | | Residential Mortgage Banking | | Elimination Entries | | Consolidated |
| Net interest income | | $ | 32,035 |
| | $ | 617 |
| | $ | — |
| | $ | 32,652 |
|
| Provision for loan losses | | 968 |
| | — |
| | — |
| | 968 |
|
| Noninterest income | | 2,481 |
| | 6,319 |
| | — |
| | 8,800 |
|
| Noninterest expense | | 22,327 |
| | 8,047 |
| | — |
| | 30,374 |
|
| Income tax expense (benefit) | | 2,285 |
| | (72 | ) | | — |
| | 2,213 |
|
| Net income | | 8,936 |
| | (1,039 | ) | | — |
| | 7,897 |
|
| Noncontrolling interest in net income of subsidiary | | — |
| | 1,039 |
| | — |
| | 1,039 |
|
| Net income attributable to common shareholders | | $ | 8,936 |
| | $ | — |
| | $ | — |
| | $ | 8,936 |
|
Contents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
The following table sets forth the Company’s major categories of assets and liabilities measured at fair value on a nonrecurring basis, by level within the fair value hierarchy, as of December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| December 31, 2020 | | | | | | | |
| Assets | | | | | | | |
| Impaired loans | $ | 15,162 | | | $ | 0 | | | $ | 0 | | | $ | 15,162 | |
| Other real estate | 1,246 | | | 0 | | | 0 | | | 1,246 | |
| Other repossessions | 1,424 | | | 0 | | | 0 | | | 1,424 | |
| | | | | | | |
| December 31, 2019 | | | | | | | |
| Assets | | | | | | | |
| Impaired loans | $ | 8,199 | | | $ | 0 | | | $ | 0 | | | $ | 8,199 | |
| Other real estate | 750 | | | 0 | | | 0 | | | 750 | |
| Other repossessions | 0 | | | 0 | | | 0 | | | 0 | |
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| Valuation
Techniques (1) | | Significant
Unobservable Inputs | | Range
(Weighted Average) |
| Impaired loans | Appraisal | | Estimated costs to sell | | 10% |
| Other real estate | Appraisal | | Estimated costs to sell | | 10% |
| Other repossessions | Third-party guidelines | | Estimated costs to sell | | 10% |
(1)The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. Estimated cash flows change and appraised values of the assets or collateral underlying the loans will be sensitive to changes.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Carrying amounts and estimated fair values of financial instruments, by level within the fair value hierarchy, at December 31, 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying
Amount | | Estimated
Fair
Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Financial assets | | | | | | | | | | |
| Cash and due from banks | | $ | 13,717 | | | $ | 13,717 | | | $ | 13,717 | | | $ | 0 | | | $ | 0 | |
| Interest-bearing deposits in financial institutions | | 79,756 | | | 79,756 | | | 79,756 | | | 0 | | | 0 | |
| Federal funds sold | | 1,572 | | | 1,572 | | | 0 | | | 1,572 | | | 0 | |
| Loans, net | | 2,280,147 | | | 2,293,723 | | | 0 | | | 0 | | | 2,293,723 | |
| Mortgage loans held for sale | | 147,524 | | | 149,342 | | | 0 | | | 149,342 | | | 0 | |
| Accrued interest receivable | | 14,889 | | | 14,889 | | | 0 | | | 14,889 | | | 0 | |
| Restricted equity securities | | 16,551 | | | 16,551 | | | 0 | | | 16,551 | | | 0 | |
| Financial liabilities | | | | | | | | | | |
| Deposits | | $ | 2,579,235 | | | $ | 2,583,525 | | | $ | 0 | | | $ | 0 | | | $ | 2,583,525 | |
| Accrued interest payable | | 2,571 | | | 2,571 | | | 0 | | | 2,571 | | | 0 | |
| Subordinate debentures | | 70,446 | | | 71,750 | | | 0 | | | 0 | | | 71,750 | |
| Federal Home Loan Bank advances | | 10,000 | | | 10,000 | | | 0 | | | 0 | | | 10,000 | |
Carrying amounts and estimated fair values of financial instruments, by level within the fair value hierarchy, at December 31, 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying
Amount | | Estimated
Fair
Value | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Financial assets | | | | | | | | | | |
| Cash and due from banks | | $ | 7,953 | | | $ | 7,953 | | | $ | 7,953 | | | $ | 0 | | | $ | 0 | |
| Interest-bearing deposits in financial institutions | | 43,644 | | | 43,644 | | | 43,644 | | | 0 | | | 0 | |
| Federal funds sold | | 52 | | | 52 | | | 0 | | | 52 | | | 0 | |
| Loans, net | | 1,397,374 | | | 1,383,719 | | | 0 | | | 0 | | | 1,383,719 | |
| Mortgage loans held for sale | | 37,476 | | | 38,379 | | | 0 | | | 38,379 | | | 0 | |
| Accrued interest receivable | | 7,188 | | | 7,188 | | | 0 | | | 7,188 | | | 0 | |
| Restricted equity securities | | 11,279 | | | 11,279 | | | 0 | | | 11,279 | | | 0 | |
| Financial liabilities | | | | | | | | | | |
| Deposits | | $ | 1,584,453 | | | $ | 1,582,781 | | | $ | 0 | | | $ | 0 | | | $ | 1,582,781 | |
| Accrued interest payable | | 2,022 | | | 2,022 | | | 0 | | | 2,022 | | | 0 | |
| Subordinate debentures | | 70,883 | | | 71,454 | | | 0 | | | 0 | | | 71,454 | |
| Federal Home Loan Bank advances | | 10,737 | | | 10,755 | | | 0 | | | 0 | | | 10,755 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The methods and assumptions used to estimate fair value are described as follows:
Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, restricted equity securities, federal funds sold or purchased, demand deposits, and variable rate loans or deposits that re-price frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of debt is based on discounted cash flows using current rates for similar financing.
NOTE 2213 - INCOME TAXES
The income tax expense consists of the following for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 |
| Income tax expense | | | | | | |
| Current | | $ | 4,875 | | | $ | 1,731 | | | $ | 992 | |
| Deferred | | 2,060 | | | 398 | | | 380 | |
| Total provision for income tax expense | | $ | 6,935 | | | $ | 2,129 | | | $ | 1,372 | |
A reconciliation of the income tax expense for the years ended December 31, 2020, 2019 and 2018 from the "expected" tax expense computed by applying the statutory federal income tax rate of 21 percent to Income before income taxes is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 |
| Computed "expected" tax expense | | $ | 7,882 | | | 21 | % | | $ | 2,660 | | | 21 | % | | $ | 2,495 | | | 21 | % |
| | | | | | | | | | | | |
| State income tax, net of federal tax effect | | 1,770 | | | 5 | % | | 637 | | | 5 | % | | 551 | | | 5 | % |
| Tax-exempt interest income, net of disallowed interest | | (1,172) | | | (3) | % | | (1,373) | | | (11) | % | | (1,132) | | | (10) | % |
| Stock compensation | | 119 | | | 0 | % | | (14) | | | 0 | % | | (69) | | | (1) | % |
| Cash surrender value of life insurance contracts | | (579) | | | (2) | % | | (235) | | | (2) | % | | (249) | | | (2) | % |
| Nondeductible merger expenses | | 48 | | | 0 | % | | 155 | | | 1 | % | | 47 | | | 0 | % |
| Federal and state tax credits | | (1,393) | | | (4) | % | | (999) | | | (8) | % | | (1,102) | | | (9) | % |
| Subsidiary disregarded for federal taxes | | 63 | | | 0 | % | | 1,189 | | | 9 | % | | 763 | | | 6 | % |
| Others as a group | | 196 | | | 1 | % | | 109 | | | 1 | % | | 68 | | | 1 | % |
| Total income tax expense | | $ | 6,935 | | | 18 | % | | $ | 2,129 | | | 16 | % | | $ | 1,372 | | | 11 | % |
The Company files a separate Federal tax return for the operations of the mortgage banking and banking operations. The taxable income or losses of the mortgage banking operations are included in the respective returns of the Company and non-controlling members for Federal purposes.
The Company's income tax filings from the years ending December 31, 2017 to present remain open to examinations by tax jurisdictions.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Significant components of deferred tax assets as of December 31, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | |
| | | 2020 | | 2019 |
| Deferred tax assets: | | | | |
| Organizational and start-up costs | | $ | 8 | | | $ | 38 | |
| Acquisition fair value adjustments | | 4,023 | | | 414 | |
| Allowance for loan losses | | 4,469 | | | 2,993 | |
| Other Real estate | | 56 | | | 26 | |
| Unrealized loss on derivatives | | 2,392 | | | 708 | |
| Nonaccrual loans | | 388 | | | 271 | |
| Acquired net operating losses | | 2,462 | | | 2,711 | |
| Acquired tax credits net of tax basis adjustments | | 660 | | | 1,005 | |
| Deferred Compensation | | 493 | | | 310 | |
| Loan fees (costs) | | 1,188 | | | 0 | |
| Other | | 760 | | | 482 | |
| Total deferred tax assets | | $ | 16,899 | | | $ | 8,958 | |
| | | | |
| Deferred tax liabilities: | | | | |
| Core deposit intangible | | $ | 2,900 | | | $ | 1,817 | |
| Loan fees (costs) | | 0 | | | 19 | |
| Premises and equipment | | 1,432 | | | 627 | |
| Unrealized (gain) loss on available for sale securities | | 4,597 | | | 2,501 | |
| FHLB stock dividends | | 736 | | | 61 | |
| Other | | 113 | | | 0 | |
| Total deferred tax liabilities | | $ | 9,778 | | | $ | 5,025 | |
| Net deferred tax asset (liability) | | $ | 7,121 | | | $ | 3,933 | |
In assessing the future realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management determined that as of December 31, 2020, it was more likely than not that all deferred tax assets would be realized.
At December 31, 2020, related to the merger with Community First, Inc., the Company had $11,696 of federal net operating loss carryovers subject to the annual limitation under Internal Revenue Code Section 382. The carryovers begin to expire in 2031 and are expected to be fully realized.
The Company had 0 unrecognized tax benefits at December 31, 2020, 2019 and 2018.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
The Company has federal funds lines at other financial institutions with availability totaling $98,200 and $88,200 at December 31, 2020, and 2019, respectively. At December 31, 2020 and 2019, the Company did 0t have outstanding balances for these federal funds lines. The Company also has an unsecured line of credit at CDC Deposits Network with availability of $20,000. The Company did 0t have a balance outstanding related to this line at December 31, 2020 or 2019. The Company also may access borrowings utilizing the Federal Reserve bank discount window of $5,927 and $5,780 at 2020 and 2019, respectively. There were 0 funds advanced from the discount window at December 31, 2020 or 2019.
At December 31, 2020 and 2019, the Company has $299,754 and $285,654 in standby letters of credit with the Federal Home Loan Bank pledged to secure municipal deposits.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection lines, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.
Off-balance sheet arrangements generally consist of unused lines of credit and standby letters of credit. Such commitments were as follows:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Unused lines of credit | $ | 559,874 | | | $ | 335,755 | |
| Standby letters of credit | 22,045 | | | 17,132 | |
| Total commitments | $ | 581,919 | | | $ | 352,887 | |
At December 31, 2020, the Company has employment agreements with certain executive officers. Upon the occurrence of an “Event of Termination” as defined by the agreements, the Company has an obligation to pay each of the executive officers as defined in the agreements.
Reliant Bancorp or one or more of its subsidiaries are from time to time parties to ordinary routine legal proceedings in the ordinary course of business. As with all legal proceedings, no assurance can be provided as to the outcome of these matters. As of the date hereof, to the knowledge of our management, there are currently no material pending legal proceedings to which Reliant Bancorp or any of its subsidiaries is a party or of which any of the property of Reliant Bancorp or any of its subsidiaries is the subject.
NOTE 15 - BUSINESS COMBINATIONCOMBINATIONS
Community First, Inc.
On January 1, 2018, pursuant to the Agreement and Plan of Merger, dated August 22, 2017, by and among Reliant Bancorp, Inc., Community First Inc., Pioneer Merger Sub, Inc., and Community First Bank & Trust, Community First, Inc. merged with and into the Reliant Bancorp, Inc. Immediately following the merger, Community First Bank & Trust merged with and into Reliant Bank, with Reliant Bank surviving. Pioneer Merger Sub, Inc. was formed to effect the merger and no longer exists.
Pursuant to the merger agreement, each outstanding share of Community First, Inc. common stock (except for excluded shares and dissenting shares) was converted into and cancelled in exchange for the right to receive 0.481 shares of Reliant Bancorp, Inc. common stock, together with cash in lieu of any fractional shares. This business combination results in expanded and more diversified market area for the Company.
The following table details the financial impact of the merger, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:
| | | | | |
| Calculation of Purchase Price | |
| |
| Shares of Community First, Inc. common stock outstanding as of January 1, 2018 | 5,025,884 | |
| Exchange ratio for Reliant Bancorp, Inc. common stock | 0.481 | |
| Share conversion | 2,417,450 | |
| Reliant Bancorp, Inc. common stock shares issued | 2,416,444 | |
| Reliant Bancorp, Inc. share price at December 29, 2017 | $ | 25.64 | |
| Value of Reliant Bancorp, Inc. common stock shares issued | $ | 61,958 | |
| Value of fractional shares | $ | 25 | |
| Estimated fair value of Community First, Inc. | $ | 61,983 | |
|
| | | |
| Calculation of Purchase Price | |
| | |
| Shares of Community First, Inc. common stock outstanding as of December 31, 2017 | 5,025,884 |
|
| Exchange ratio for Reliant Bancorp, Inc. common stock | 0.481 |
|
| Share conversion | 2,417,450 |
|
| Reliant Bancorp, Inc. common stock shares issued | 2,416,444 |
|
| Reliant Bancorp, Inc. share price at December 29, 2017 | $ | 25.64 |
|
| Value of Reliant Bancorp, Inc. common stock shares issued | $ | 61,958 |
|
| Value of fractional shares | $ | 25 |
|
| Estimated fair value of Community First, Inc. | $ | 61,983 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 22 - BUSINESS COMBINATION (CONTINUED) | | | | | |
| Allocation of Purchase Price | |
| |
| Total consideration above | $ | 61,983 | |
| |
| Fair value of assets acquired and liabilities assumed | |
| Cash and cash equivalents | 33,128 | |
| Time deposits in other financial institutions | 23,309 | |
| Investment securities available for sale | 69,078 | |
| Loans, net of unearned income | 313,040 | |
| Mortgage loans held for sale, net | 910 | |
| Accrued interest receivable | 1,165 | |
| Premises and equipment | 9,585 | |
| Restricted equity securities | 1,726 | |
| Cash surrender value of life insurance contracts | 10,664 | |
| Other real estate owned | 1,650 | |
| Deferred tax asset, net | 4,885 | |
| Core deposit intangible | 7,888 | |
| Other assets | 1,795 | |
| Deposits—noninterest-bearing | (80,395) | |
| Deposits—interest-bearing | (352,100) | |
| Other borrowings | (11,522) | |
| Payables and other liabilities | (5,061) | |
| Total fair value of net assets acquired | 29,745 | |
| Goodwill | $ | 32,238 | |
|
| | | |
| Allocation of Purchase Price | |
| | |
| Total consideration above | $ | 61,983 |
|
| | |
| Fair value of assets acquired and liabilities assumed | |
| Cash and cash equivalents | (33,128 | ) |
| Time deposits in other financial institutions | (23,309 | ) |
| Investment securities available for sale | (69,078 | ) |
| Loans, net of unearned income | (313,040 | ) |
| Mortgage loans held for sale, net | (910 | ) |
| Accrued interest receivable | (1,165 | ) |
| Premises and equipment | (9,585 | ) |
| Restricted equity securities | (1,726 | ) |
| Cash surrender value of life insurance contracts | (10,664 | ) |
| Other real estate owned | (1,650 | ) |
| Deferred tax asset, net | (4,885 | ) |
| Core deposit intangible | (7,888 | ) |
| Other assets | (1,795 | ) |
| Deposits—noninterest-bearing | 80,395 |
|
| Deposits—interest-bearing | 352,100 |
|
| Other borrowings | 11,522 |
|
| Payables and other liabilities | 5,061 |
|
| Net liabilities assumed (net assets acquired) | (29,745 | ) |
| | |
| Goodwill | $ | 32,238 |
|
During 2018, as part of the system integration of Community First, Inc., the Company determined minor adjustments were appropriate to reduce other assets by $93 and increase payables and other liabilities by $85 effective as of the acquisition date.
Pro forma data
Tennessee Community Bank Holdings, Inc.
Effective January 1, 2020, Reliant Bancorp completed the acquisition of TCB Holdings pursuant to the Agreement and Plan of Merger, dated September 16, 2019 (the “TCB Holdings Agreement”), by and among Reliant Bancorp, TCB Holdings, and Community Bank & Trust, a Tennessee-chartered commercial bank and wholly-owned subsidiary of TCB Holdings (“CBT”). On the terms and subject to the conditions set forth in the TCB Holdings Agreement, TCB Holdings merged with and into Reliant Bancorp (the “TCB Holdings Transaction”), with Reliant Bancorp as the surviving corporation. Immediately following the TCB Holdings Transaction, CBT merged with and into the Bank, with the Bank continuing as the surviving banking corporation. Pursuant to the TCB Holdings Agreement, at the effective time of the TCB Holdings Transaction, each outstanding share of TCB Holdings common stock, par value $1.00 per share (other than certain excluded shares), was converted into and canceled in exchange for the years ended December 31, 2017right to receive (i) $17.13 in cash, without interest, and 2016,(ii) 0.769 shares of the Reliant Bancorp’s common stock, par value $1.00 per share (“Reliant Bancorp Common Stock”). The aggregate consideration payable by Reliant Bancorp in the table below presents informationrespect of shares of TCB Holdings common stock as if the merger occurred at the beginning of each year.
|
| | | | | | | |
| | 2017 | | 2016 |
| Net interest income | $ | 51,031 |
| | $ | 48,724 |
|
| Net income attributable to common shareholders | $ | 6,387 |
| | $ | 17,660 |
|
| | | | |
| Earnings per share - basic | $ | 0.60 |
| | $ | 1.84 |
|
| Earnings per share - diluted | $ | 0.60 |
| | $ | 1.82 |
|
Supplemental pro forma earnings in the table above includes, net of tax, $564 in pro forma adjustments for both years ended December 31, 2018 and 2017. Supplemental pro forma earnings in the above tableconsideration for the year ended December 31, 2017 includes $5,478TCB Holdings Transaction was 811,210 shares of nonrecurring costsReliant Bancorp Common Stock and approximately $18,073 in cash. Reliant Bancorp did not issue fractional shares of Reliant Bancorp Common Stock in connection with a related tax benefitthe TCB Holdings Transaction, but paid cash in lieu of $536 from prior historical results. Supplemental pro forma earnings infractional shares based on the above tablevolume weighted average closing price per share of the Reliant Bancorp Common Stock on The Nasdaq Capital Market for the year ended10 consecutive trading days ending on and including December 31, 2016 includes $4,16830, 2019 (calculated as $22.36). At the effective time of nonrecurring income from prior historical results.the TCB Holdings Transaction, each outstanding option to purchase TCB Holdings common stock was canceled in exchange for a cash payment in an amount equal to the product of (i) $34.25 minus the per share exercise price of the option
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
multiplied by (ii) the number of shares of TCB Holdings common stock subject to the option (to the extent not previously exercised). Reliant Bancorp paid aggregate consideration to holders of unexercised options of approximately $430. All shares of Reliant Bancorp’s common stock outstanding immediately prior to the TCB Holdings Transaction were unaffected by the TCB Holdings Transaction.
NOTE 23 - QUARTERLY FINANCIAL RESULTS (UNAUDITED)
The following is a summarytable details the financial impact of consolidated quarterly financial results for the year ended December 31, 2018:TCB Holdings Transaction, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:
| | | | | | | | |
| Calculation of Purchase Price | | |
| Shares of Tennessee Community Bank Holdings, Inc. common stock outstanding as of January 1, 2020 | | 1,055,041 | |
| Exchange ratio for Reliant Bancorp, Inc. common stock | | 0.769 | |
| Reliant Bancorp, Inc. common stock shares issued | | 811,210 | |
| Reliant Bancorp, Inc. share price at January 1, 2020 | | $ | 22.24 | |
| Estimated value of Reliant Bancorp, Inc. shares issued | | 18,041 |
| Cash settlement for Tennessee Community Bank Holdings, Inc. common stock ($17.13 per share) | | 18,073 | |
| Cash settlement for Tennessee Community Bank Holdings, Inc.'s 26,450 outstanding stock options ($34.25 settlement price less weighted average exercise price of $18.00) | | 430 | |
| Cash settlement for Reliant Bancorp, Inc. fractional shares ($22.36 per pro rata fractional share) | | 3 | |
| Estimated fair value of Tennessee Community Bank Holdings, Inc. | | $ | 36,547 | |
|
| | | | | | | | | | | | | | | | |
| | | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter |
| Interest income | | $ | 16,362 |
| | $ | 16,830 |
| | $ | 17,570 |
| | $ | 18,463 |
|
| Net interest income | | 13,382 |
| | 13,404 |
| | 13,466 |
| | 13,577 |
|
| Consolidated net income | | 3,277 |
| | 1,202 |
| | 3,240 |
| | 2,788 |
|
| Noncontrolling interest in net loss of subsidiary | | 464 |
| | 937 |
| | 842 |
| | 1,335 |
|
| Net income attributable to common shareholders | | 3,741 |
| | 2,139 |
| | 4,082 |
| | 4,123 |
|
| Basic earnings per share | | $ | 0.33 |
| | $ | 0.19 |
| | $ | 0.36 |
| | $ | 0.36 |
|
| Diluted earnings per share | | $ | 0.33 |
| | $ | 0.19 |
| | $ | 0.36 |
| | $ | 0.36 |
|
|
| | | | | | | | | | | | | | | | |
| | | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter |
| Interest income | | $ | 8,973 |
| | $ | 9,704 |
| | $ | 10,627 |
| | $ | 10,854 |
|
| Net interest income | | 7,971 |
| | 8,503 |
| | 9,096 |
| | 8,917 |
|
| Consolidated net income | | 1,559 |
| | 1,794 |
| | 1,840 |
| | 970 |
|
| Noncontrolling interest in net loss of subsidiary | | 499 |
| | 393 |
| | 6 |
| | 185 |
|
| Net income attributable to common shareholders | | 2,058 |
| | 2,187 |
| | 1,846 |
| | 1,155 |
|
| Basic earnings per share | | $ | 0.27 |
| | $ | 0.28 |
| | $ | 0.23 |
| | $ | 0.13 |
|
| Diluted earnings per share | | $ | 0.26 |
| | $ | 0.28 |
| | $ | 0.22 |
| | $ | 0.13 |
|
The following is a summary of consolidated quarterly financial results for the year ended December 31, 2016:
|
| | | | | | | | | | | | | | | | |
| | | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter |
| Interest income | | $ | 8,914 |
| | $ | 9,497 |
| | $ | 8,656 |
| | $ | 8,948 |
|
| Net interest income | | 8,082 |
| | 8,692 |
| | 7,835 |
| | 8,043 |
|
| Consolidated net income | | 2,558 |
| | 2,137 |
| | 1,763 |
| | 1,439 |
|
| Noncontrolling interest in net (income) loss of subsidiary | | (321 | ) | | 223 |
| | 605 |
| | 532 |
|
| Net income attributable to common shareholders | | 2,237 |
| | 2,360 |
| | 2,368 |
| | 1,971 |
|
| Basic earnings per share | | $ | 0.30 |
| | $ | 0.31 |
| | $ | 0.31 |
| | $ | 0.26 |
|
| Diluted earnings per share | | $ | 0.30 |
| | $ | 0.31 |
| | $ | 0.30 |
| | $ | 0.25 |
|
Contents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
| | | | | |
| Allocation of Purchase Price | |
| Total consideration above | $ | 36,547 | |
| Fair value of assets acquired and liabilities assumed | |
| Cash and cash equivalents | 11,026 | |
| |
| Investment securities available for sale | 56,336 | |
| Loans, net of unearned income | 171,445 | |
| |
| Accrued interest receivable | 948 | |
| Premises and equipment | 5,221 | |
| |
| Cash surrender value of life insurance contracts | 5,629 | |
| Restricted equity securities | 909 | |
| |
| Core deposit intangible | 3,617 | |
| Other assets | 833 | |
| Deposits | (210,538) | |
| Deferred tax liability | (157) | |
| Borrowings | (58) | |
| FHLB advances | (13,102) | |
| Other liabilities | (4,337) | |
| Total fair value of net assets acquired | 27,772 | |
| Goodwill | $ | 8,775 | |
CBT was a Tennessee-based full-service community bank with operations in Ashland City, Kingston Springs, Pegram, Pleasant View, and Springfield, Tennessee. These communities lie on the northwest perimeter of Nashville, Tennessee.
During 2020, the Company determined minor adjustments were appropriate to decrease premises and equipment by $1,219, decrease deferred tax liabilities by $168, and increase payables and other liabilities by $643 effective as of the acquisition date. These adjustments result in an increase to goodwill of $1,694.
First Advantage Bancorp
Effective April 1, 2020, Reliant Bancorp completed the acquisition of FABK pursuant to the Agreement and Plan of Merger, dated October 22, 2019 (the “FABK Agreement”), by and among Reliant Bancorp, FABK, and PG Merger Sub, Inc., a Tennessee corporation and wholly-owned subsidiary of Reliant Bancorp ("Merger Sub"). On the terms and subject to the conditions set forth in the FABK Agreement, Merger Sub merged with and into FABK (the "FABK Transaction"), with FABK as the surviving corporation, followed immediately by the merger of FABK with and into Reliant Bancorp, with Reliant Bancorp as the surviving corporation. Immediately following the merger of FABK into Reliant Bancorp, First Advantage Bank, a Tennessee-chartered commercial bank and wholly-owned subsidiary of FABK ("FAB"), merged with and into the Bank, with the Bank continuing as the surviving banking corporation. Pursuant to the FABK Agreement, at the effective time of the FABK Transaction, each outstanding share of FABK common stock, par value $0.01 per share (the “FABK Common Stock”), other than certain excluded shares, was converted into the right to receive (i) 1.17 shares of Reliant Bancorp Common Stock and (ii) $3.00 in cash, without interest. In lieu of the issuance of fractional shares of Reliant Bancorp Common Stock, Reliant Bancorp agreed to pay cash in lieu of fractional shares based on the volume-weighted average closing price per share of Reliant Bancorp Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including March 30, 2020 (calculated as $11.74). Based on the April 1, 2020 opening price for Reliant Bancorp Common Stock of $11.27 per share and 3,935,165 shares of FABK Common Stock outstanding on April 1, 2020, the consideration for the FABK Transaction was approximately $64,094, in the aggregate, or $16.28 per share of FABK Common Stock.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The following table details the financial impact of the FABK Transaction, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:
| | | | | |
| Calculation of Purchase Price | |
| Shares of First Advantage Bancorp common stock outstanding as of April 1, 2020 | 3,935,165 | |
| Conversion of restricted stock units to shares of common stock of First Advantage Bancorp as of April 1, 2020 | 2,000 | |
| Total First Advantage Bancorp common stock outstanding as of April 1, 2020 | 3,937,165 | |
| Exchange ratio for Reliant Bancorp, Inc. common stock | 1.17 |
| Reliant Bancorp, Inc. common stock shares issued | 4,606,483 | |
| Remove fractional shares | (64) | |
| Reliant Bancorp, Inc. common stock shares issued | 4,606,419 |
| Reliant Bancorp, Inc. share price at April 1, 2020 | $ | 11.27 | |
| Estimated value of Reliant Bancorp, Inc. shares issued | 51,914 | |
| Cash settlement for Reliant Bancorp, Inc. fractional shares ($11.74 per pro rata fractional share) | 1 |
| Cash settlement for First Advantage Bancorp common stock ($3.00 per share) | 11,805 |
| Cash settlement for First Advantage Bancorp restricted stock units ($3.00 per share) | 6 |
| Cash settlement for First Advantage Bancorp's 34,800 outstanding stock options ($30.00 settlement price less weighted average exercise price of $19.44) | 368 |
| Estimated fair value of First Advantage Bancorp | $ | 64,094 | |
| | | | | |
| Allocation of Purchase Price | |
| Total consideration above | $ | 64,094 | |
| Fair value of assets acquired and liabilities assumed | |
| Cash and cash equivalents | 11,159 | |
| |
| Investment securities available for sale | 35,970 | |
| Loans, net of unearned income | 622,423 | |
| Mortgage loans held for sale, net | 5,878 | |
| |
| Premises and equipment | 7,757 | |
| Deferred tax asset | 4,937 | |
| Cash surrender value of life insurance contracts | 14,776 | |
| Other real estate and repossessed assets | 1,259 | |
| Core deposit intangible | 2,280 | |
| Operating lease right-of-use assets | 5,846 | |
| Other assets | 11,624 | |
| Deposits | (608,690) | |
| Borrowings | (35,962) | |
| Operating lease liabilities | (6,536) | |
| Other liabilities | (10,606) | |
| Total fair value of net assets acquired | 62,115 | |
| Goodwill | $ | 1,979 | |
FAB was a Tennessee-based full-service community bank headquartered in Clarksville, Tennessee. FAB operated branch offices in Montgomery, Davidson and Williamson counties, Tennessee and operated a loan production office in Knoxville, Tennessee primarily originating manufactured housing loans.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
During 2020, the Company determined minor adjustments in fair value were appropriate to reduce premises and equipment by $202, to reduce deferred tax assets by $1,854, and increase other assets by $405 effective as of the acquisition date. The adjustments result in an increase in goodwill of $1,651.
Supplemental Pro Forma Combined Condensed Statements of Income
Pro forma data for the twelve months ended months ended December 31, 2020 and 2019 in the table below presents information as if the TCB Holdings Transaction and FABK Transaction occurred on January 1, 2019. These results combine the historical results of TCB Holdings and FABK into the Company's consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments, they are not indicative of what would have occurred had the acquisitions taken place on the indicated date nor are they intended to represent or be indicative of future results of operations. In particular, no adjustments have been made to eliminate the amount of TCB Holdings' or FABK's provision for credit losses for the first twelve months ended months of 2019 that may not have been necessary had the acquired loans been recorded at fair value as of the beginning of 2019. Additionally, these financials were not adjusted for non-recurring expenses, such as merger-related charges incurred by either the Company, TCB Holdings or FABK. The Company expects to achieve operating cost savings and other business synergies as a result of the acquisitions which are also not reflected in the pro forma amounts.
| | | | | | | | | | | | | | |
| | Twelve Months Ended |
| | December 31, |
| | | | 2020 | | 2019 |
Revenue(1) | | | | $ | 149,652 | | | $ | 117,496 | |
| Net interest income | | | | $ | 120,769 | | | $ | 100,070 | |
| Net income attributable to common shareholders | | | | $ | 34,126 | | | $ | 33,719 | |
| | | | | | |
| | | | | | |
(1) Net interest income plus noninterest income | | | | | | |
NOTE 2416 - MORTGAGE OPERATIONS
DuringReliant Mortgage Ventures, LLC ("RMV") was organized on November 15, 2011 the Company andas a joint venture between VHC Fund 1, LLC organized(VHC) and Legacy Reliant Mortgage Ventures, LLC (the “Venture”) forBank to offer mortgage banking services within the purpose of improving the Company’s mortgage operations.Legacy Reliant Bank's market footprint. The Company holdsBank controls 51% of theRMV's governance rights of the Venture (and therefore consolidates the results of its operations) and 30% of the Venture’s financial rights to net profits. RMV's income rights.
VHC Fund 1, LLC holds 49% of the governance rights of the Venture and 70% of the related financial rights. VHC Fund 1, LLC iswas controlled by an immediate family member of a previous member of the Company’s board of directors.directors through March 2019. Under the related operating agreement, the non-controlling member receives 70% of the profits of the Venture,RMV, and the Company receives 30% of the profits once the non-controlling member recovers its cumulative losses. The non-controllingnoncontrolling member is responsible for 100% of the mortgage venture’s operational and credit losses. The income and loss is included in the consolidated results of operations. The portion of the income and loss attributable to the non-controlling member (100% for 2018, 20172020, 2019, and 2016)2018) are included in non-controlling interest in net loss of subsidiary on the accompanying consolidated statements of operations. At December 31, 20182020 and 2017, the Venture2019, RMV had a receivable balance from the Company of $404 and payable balance to the Company of $1,484, and $342, respectively.
Direct costs incurred by the Company attributable to the mortgage operations are allocated to the VentureRMV as well as rent, personnel and core processing. As of December 31, 2018,2020, the cumulative losses to date of the VentureRMV totaled $8,058. The Venture$13,655. RMV will have to generate net income of this amount before the Company will participate in future earnings.
NOTE 2517 - SEGMENT REPORTING
The Company has 2 reportable business segments: commercial banking and residential mortgage banking. Segment information is derived from the internal reporting system utilized by management. Revenues and expenses for segments reflect
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
those which can be specifically identified and have been assigned based on internally developed allocation methods. Financial results have been presented, to the extent practicable, as if each segment operated on a stand-alone basis.
Commercial Banking provides deposit and lending services to consumer and business customers within our primary geographic markets. Our customers are serviced through branch locations, ATMs, online banking, and mobile banking.
Residential Mortgage Banking originates traditional first lien residential mortgage loans and first lien home equity lines of credit throughout the United States. The traditional first lien residential mortgage loans are typically underwritten to government agency standards and sold to third-party secondary market mortgage investors. The home equity lines of credit are typically sold to participating banks or other investor groups and are underwritten to their standards.
During the second quarter of 2019, RMV began acquiring loans from approved correspondent lenders and reselling them in the secondary market. These loans are not government agency-qualified loans and are of higher risk, such as jumbo loans or senior position home equity lines of credit.
The following presents summarized results of operations for the Company’s business segments for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 |
| | | Commercial Banking | | Residential Mortgage Banking | | Elimination Entries | | Consolidated |
| Net interest income | | $ | 105,628 | | | $ | 2,418 | | | $ | 0 | | | $ | 108,046 | |
| Provision for loan losses | | 8,350 | | | 0 | | | 0 | | | 8,350 | |
| Noninterest income | | 9,320 | | | 12,293 | | | (54) | | | 21,559 | |
| Noninterest expense (excluding merger expense) | | 61,339 | | | 14,973 | | | 0 | | | 76,312 | |
| Merger expense | | 6,895 | | | 0 | | | 0 | | | 6,895 | |
| Income tax expense (benefit) | | 6,952 | | | (17) | | | 0 | | | 6,935 | |
| Net income (loss) | | 31,412 | | | (245) | | | (54) | | | 31,113 | |
| Noncontrolling interest in net loss of subsidiary | | 0 | | | 245 | | | 54 | | | 299 | |
| Net income attributable to common shareholders | | $ | 31,412 | | | $ | 0 | | | $ | 0 | | | $ | 31,412 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| | | Commercial Banking | | Residential Mortgage Banking | | Elimination Entries | | Consolidated |
| Net interest income | | $ | 55,252 | | | $ | 553 | | | $ | 0 | | | $ | 55,805 | |
| Provision for loan losses | | 1,211 | | | 0 | | | 0 | | | 1,211 | |
| Noninterest income | | 7,059 | | | 5,086 | | | (181) | | | 11,964 | |
| Noninterest expense (excluding merger expense) | | 40,779 | | | 11,510 | | | 0 | | | 52,289 | |
| Merger expense | | 1,603 | | | 0 | | | 0 | | | 1,603 | |
| Income tax expense (benefit) | | 2,522 | | | (393) | | | 0 | | | 2,129 | |
| Net income | | 16,196 | | | (5,478) | | | (181) | | | 10,537 | |
| Noncontrolling interest in net income of subsidiary | | 0 | | | 5,478 | | | 181 | | | 5,659 | |
| Net income attributable to common shareholders | | $ | 16,196 | | | $ | 0 | | | $ | 0 | | | $ | 16,196 | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | Commercial Banking | | Residential Mortgage Banking | | Elimination Entries | | Consolidated |
| Net interest income | | $ | 52,990 | | | $ | 821 | | | $ | 0 | | | $ | 53,811 | |
| Provision for loan losses | | 1,035 | | | 0 | | | 0 | | | 1,035 | |
| Noninterest income | | 5,250 | | | 4,595 | | | (181) | | | 9,664 | |
| Noninterest expense (excluding merger expense) | | 38,738 | | | 9,049 | | | 0 | | | 47,787 | |
| Merger expense | | 2,774 | | | 0 | | | 0 | | | 2,774 | |
| Income tax expense (benefit) | | 1,608 | | | (236) | | | 0 | | | 1,372 | |
| Net income | | 14,085 | | | (3,397) | | | (181) | | | 10,507 | |
| Noncontrolling interest in net income of subsidiary | | 0 | | | 3,397 | | | 181 | | | 3,578 | |
| Net income attributable to common shareholders | | $ | 14,085 | | | $ | 0 | | | $ | 0 | | | $ | 14,085 | |
NOTE 18 - CAPITAL
The Company and the Bank are subject to regulatory capital requirements administered by the federal and state banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes that as of December 31, 2020 and 2019 the Company and the Bank met all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2020 and 2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the category.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Actual and required capital amounts and ratios are presented below as of December 31, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual
Regulatory
Capital | | Minimal Capital Adequacy | | Minimum Required
Capital Including
Capital Conservation
Buffer | | To Be Well
Capitalized Under
Prompt Corrective
Action Provisions |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| December 31, 2020 | | | | | | | | | | | | | | | |
| Company | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 262,282 | | | 8.91 | % | | $ | 117,747 | | | 4.00 | % | | $ | 117,747 | | | 4.000 | % | | $ | 147,184 | | | 5.00 | % |
| Common equity Tier 1 | 250,513 | | | 10.22 | % | | 110,304 | | | 4.50 | % | | 171,584 | | | 7.000 | % | | 159,328 | | | 6.50 | % |
| Tier I risk-based capital | 262,282 | | | 10.70 | % | | 147,074 | | | 6.00 | % | | 208,355 | | | 8.500 | % | | 196,099 | | | 8.00 | % |
| Total risk-based capital | 342,246 | | | 13.96 | % | | 196,130 | | | 8.00 | % | | 257,420 | | | 10.500 | % | | 245,162 | | | 10.00 | % |
| Bank | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 313,633 | | | 10.64 | % | | $ | 117,907 | | | 4.00 | % | | $ | 117,907 | | | 4.000 | % | | $ | 147,384 | | | 5.00 | % |
| Common equity Tier 1 | 313,633 | | | 12.83 | % | | 110,004 | | | 4.50 | % | | 171,117 | | | 7.000 | % | | 158,894 | | | 6.50 | % |
| Tier I risk-based capital | 313,633 | | | 12.83 | % | | 146,672 | | | 6.00 | % | | 207,785 | | | 8.500 | % | | 195,562 | | | 8.00 | % |
| Total risk-based capital | 334,919 | | | 13.71 | % | | 195,430 | | | 8.00 | % | | 256,503 | | | 10.500 | % | | 244,288 | | | 10.00 | % |
| | | | | | | | | | | | | | | |
| December 31, 2019 | | | | | | | | | | | | | | | |
| Company | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 176,748 | | | 9.74 | % | | N/A | | 0 | % | | $ | 72,586 | | | 4.000 | % | | $ | 90,733 | | | 5.00 | % |
| Common equity Tier 1 | 165,063 | | | 10.55 | % | | N/A | | 0 | % | | 109,520 | | | 7.000 | % | | 101,698 | | | 6.50 | % |
| Tier I risk-based capital | 176,748 | | | 11.30 | % | | N/A | | 0 | % | | 132,952 | | | 8.500 | % | | 125,131 | | | 8.00 | % |
| Total risk-based capital | 249,751 | | | 15.97 | % | | N/A | | 0 | % | | 164,207 | | | 10.500 | % | | 156,388 | | | 10.00 | % |
| Bank | | | | | | | | | | | | | | | |
| Tier I leverage | $ | 186,734 | | | 10.30 | % | | N/A | | 0 | % | | $ | 72,518 | | | 4.000 | % | | $ | 90,648 | | | 5.00 | % |
| Common equity Tier 1 | 186,734 | | | 11.95 | % | | N/A | | 0 | % | | 109,384 | | | 7.000 | % | | 101,571 | | | 6.50 | % |
| Tier I risk-based capital | 186,734 | | | 11.95 | % | | N/A | | 0 | % | | 132,823 | | | 8.500 | % | | 125,010 | | | 8.00 | % |
| Total risk-based capital | 199,737 | | | 12.79 | % | | N/A | | 0 | % | | 163,975 | | | 10.500 | % | | 156,167 | | | 10.00 | % |
In July 2013, the Bank’s regulators adopted revised regulatory capital requirements known as “Basel III”, which became effective January 1, 2015. Required capital ratios applicable to the Bank under these guidelines are presented in the preceding table. The new requirements also established a "capital conservation buffer" of 2.5% that was phased in over four years. If capital levels fall below the minimum requirement, the Bank will be subject to restrictions related dividend payments, share repurchases, and certain employee bonuses.
On December 4, 2018, the Company authorized a stock repurchase plan pursuant to which the Company could purchase up to $12 million of shares of the Company’s outstanding common stock, par value $1.00 per share. The plan ran through December 31, 2019. Stock repurchases under the plan could be made from time to time in the open market or privately negotiated transactions, or otherwise, at the discretion of management of the Company and in accordance with applicable legal requirements. The timing and amount of share repurchases under the plan depended on a number of factors, including the Company’s stock price performance, ongoing capital planning considerations, general market conditions, and applicable legal requirements. In 2019, the Company repurchased $8,291 of Company shares. The stock repurchase plan did not obligate the Company to repurchase any dollar amount or number of shares, and the plan could be extended, modified, amended, suspended, or discontinued at any time.
On March 10, 2020, the Company announced that its board of directors has authorized a stock repurchase plan pursuant to which the Company may purchase up to $15 million of shares of the Company’s outstanding common stock, par value $1.00
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
per share. As of December 31, 2020, Reliant Bancorp had 0t repurchased any shares of Reliant Bancorp common stock under the Repurchase Plan. On April 27, 2020, we announced that our board of directors suspended the Repurchase Plan to preserve our financial strength during this challenging economic environment. The Plan expired on December 31, 2020.
NOTE 19 - STOCK-BASED COMPENSATION
In 2006, the Board of Directors and shareholders of the Bank approved the Commerce Union Bank Stock Option Plan (the “Plan”). The Plan provides for the granting of stock options and authorizes the issuance of common stock upon the exercise of such options, for up to 625,000 shares of common stock to employees and organizers of the Company. As part of reorganization, all Commerce Union Bank options were replaced with Commerce Union Bancshares, Inc. options with no change in terms. On March 10, 2015, the shareholders of the Company approved the Commerce Union Bancshares, Inc. Amended and Restated Stock Option Plan that permits the grant of awards of up to 1,250,000 shares of the Company common stock in the form of stock options. As part of the merger with Reliant Bank, all outstanding stock options of Reliant Bank were converted to stock options of Commerce Union Bancshares, Inc. under this plan.
Under the Stock Option Plan, stock option awards may be granted in the form of incentive stock options or non-statutory stock options, and are generally exercisable for up to ten years following the date such option awards are granted. Exercise prices of incentive stock options must be equal to or greater than the fair market value of the common stock on the grant date.
On June 18, 2015, the shareholders of Reliant Bancorp (then known as "Commerce Union Bancshares, Inc.") approved the Commerce Union Bancshares, Inc. 2015 Equity Incentive Plan, which reserves up to 900,000 shares of Reliant Bancorp common stock to be subject to awards under the plan, including awards in the form of stock options, restricted stock grants, performance-based awards, and other awards denominated or payable by reference to or based on or related to Reliant Bancorp common stock.
The Company has recognized stock-based compensation expense, within salaries and employee benefits for employees, and within other noninterest expense for directors, in the consolidated statement of income as follows:
| | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Stock-based compensation expense before income taxes | $ | 1,578 | | | $ | 1,222 | | | $ | 923 | |
| Less: deferred tax benefit | (412) | | | (319) | | | (241) | |
| Reduction of net income | $ | 1,166 | | | $ | 903 | | | $ | 682 | |
Common Stock Options
A summary of the activity in the stock option plan for the periods ended December 31, 2020, 2019 and 2018, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Outstanding at January 1, 2018 | 170,761 | | | $ | 14.48 | | | 5.73 years | | $ | 1,905 | |
| Granted | 25,500 | | | 28.00 | | | | |
| Exercised | (30,001) | | | 13.27 | | | | |
| Forfeited or expired | (7,000) | | | 18.20 | | | | |
| Outstanding at December 31, 2018 | 159,260 | | | 16.72 | | 6.04 years | | 1,146 |
| Exercisable at December 31, 2018 | 88,060 | | 13.45 | | | 4.32 years | | 847 |
| Vested and anticipated vesting shares as of December 31, 2018 | 157,124 | | 16.67 | | 6.01 years | | 1,002 |
| Granted | 27,500 | | | 23.28 | | | | | |
| Exercised | (34,714) | | | 12.79 | | | | |
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Forfeited or expired | (2,753) | | | 19.35 | | | | | |
| Outstanding at December 31, 2019 | 149,293 | | | 18.81 | | 6.68 years | | 700 | |
| Exercisable at December 31, 2019 | 74,693 | | 15.31 | | | 5.18 years | | 553 |
| Vested and anticipated vesting shares as of December 31, 2019 | 149,293 | | 18.76 | | 6.64 years | | 891 |
| Granted | 0 | | | 0 | | | | | |
| Exercised | (10,865) | | | 12.20 | | | | | |
| Forfeited or expired | (21,807) | | | 21.26 | | | | | |
| Outstanding at December 31, 2020 | 116,621 | | | 18.97 | | | 5.87 years | | 304 | |
| Exercisable at December 31, 2020 | 78,921 | | 16.66 | | | 5.02 years | | 290 | |
Information related to the stock option plan during each year follows and assumes a 3% forfeiture rate:
| | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | 2018 | | |
| Intrinsic value of options exercised | | $ | 51 | | | $ | 320 | | | $ | 344 | | | |
| Cash received from option exercises | | 142 | | | 439 | | | 398 | | | |
| Tax benefit realized from option exercises | | 15 | | | 13 | | | 88 | | | |
| Weighted average fair value of options granted | | 0 | | | 6.97 | | | 7.10 | | | |
As of December 31, 2020, there was $204 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.87 years. The total fair value of shares vested during the years ended December 31, 2020, 2019, and 2018, was $114, $96, and $61, respectively.
The fair value of options granted during 2019 and 2018 was determined using the following assumptions as of the grant date, resulting in an estimated fair value per option of $6.97 and $6.89, respectively. NaN options were granted in 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2019 | | 2018 | | |
| Risk-free interest rate | | | | | | | 2.08% | | — | | 2.39% | | | | 2.95% | | | | | | | | |
| Expected term (in years) | | | 6.5 years | | 6.5 years | | |
| Expected stock price volatility | | | | | | | 31.10% | | — | | 32.80% | | | | 23.50% | | | | | | | | |
| Dividend yield | | | | | | | 1.55% | | — | | 1.59% | | | | 1.14% | | | | | | | | |
Equity Incentive Plan
On June 18, 2015, the shareholders of Commerce Union approved the Commerce Union Bancshares, Inc. 2015 Equity Incentive Plan, which provides for the issuance of up to 900,000 shares of common stock in the form of stock options, restricted stock grants or grants for performance-based compensation units.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
The following table shows the activity related to non-vested restricted stock and restricted stock units for the years ended December 2020, 2019 and 2018:
| | | | | | | | | | | | | | | | | | | | | | | |
| Restricted Stock Units | | Restricted Stock |
| | Units | | Weighted Average Grant-Date
Fair Value | | Shares | | Weighted Average Grant-Date
Fair Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Outstanding at December 31, 2017 | 0 | | | 0 | | | 82,499 | | | 20.03 |
| Granted | 0 | | | 0 | | | 51,710 | | | 27.55 |
| Vested | 0 | | | 0 | | | (21,999) | | | 15.95 |
| Forfeited | 0 | | | 0 | | | (1,550) | | | 25.17 |
| Outstanding at December 31, 2018 | 0 | | | 0 | | | 110,660 | | | 24.28 |
| Granted | 47,750 | | | 23.30 | | | 9,500 | | | 22.01 |
| Vested | 0 | | | 0 | | | (21,450) | | | 19.31 |
| Forfeited | 0 | | | 0 | | | (7,750) | | | 23.25 |
| Outstanding at December 31, 2019 | 47,750 | | | $ | 23.30 | | | 90,960 | | | $ | 25.31 | |
| Granted | 102,400 | | | 14.55 | | | 0 | | | 0 | |
| Vested | (15,500) | | | 21.66 | | | (50,050) | | | 24.08 | |
| Forfeited | (2,000) | | | 10.25 | | | 0 | | | 0 | |
| Outstanding at December 31, 2020 | 132,650 | | | $ | 16.93 | | | 40,910 | | | $ | 26.82 | |
The shares vest over periods ranging from one month to three years. As of December 31, 2020, there was $1,559 and $220 of unrecognized compensation cost related to non-vested restricted share units and awards, respectively. The cost is expected to be charged over a weighted-average period of 2.11 years for the restricted stock units and 0.74 years for the restricted stock share awards. In 2020, 2019 and 2018, the fair value of share awards vested totaled $1,032, $605 and $439.
NOTE 20 - BENEFIT PLANS
401(k) Plan
The Company has a 401(k) benefit plan that allows employee contributions up to 100% of their compensation, subject to regulatory limitations. The Company matches 100% of the first 6% contributed by the employee. The Company recognized an expense for the years ended December 31, 2020, 2019 and 2018 of $1,496, $1,033, and $805, respectively.
Employee Stock Purchase Plan
In 2018, the Company adopted an employee stock purchase plan (“ESPP”) under which employees, through payroll deductions, are able to purchase shares of Company common stock. The purchase price is 85% of the lesser of the closing price of the common stock on the first trading date of the relevant offering period or the last trading day of the relevant offering period. The maximum number of shares issuable is 200,000 shares and a participant may not purchase more than 2,500 shares during any offering period (and, in any event, no more than $25 worth of common stock in any calendar year). For the year ended December 31, 2020, 21,962 shares were issued related to the ESPP. In 2019, there were 8,512 shares of common stock issued under the ESPP. As of December 31, 2020, there were 169,526 shares available for issuance under the ESPP.
NOTE 21 - CONTRACT REVENUE
The Company does not consider revenue from its contracts subject to ASC 606 to be significant due to the scope exceptions of the standard.
The revenue of the Company from contracts with customers that is within the scope of ASC 606 is presented in noninterest income and includes the following:
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share amounts)
Credit card interchange fees arise from card holder transactions and are a percentage of each transaction. These fees are earned and recognized concurrently with the transaction processing. During the years ending December 31, 2020, 2019 and 2018, the Company recognized credit card interchange fees of $212, $136, and $65, respectively.
Investment brokerage fees arise from a contract with an independent third-party service provider. The Company receives monthly commissions from the third party service provider based on mutual customer activity. The Company is only in the role of an agent in arranging the relationship between the mutual customer and the third- party service provider. During the years ending December 31, 2020, 2019 and 2018, the Company recognized investment brokerage fees of $194, $49, and $99, respectively.
NOTE 22 - PARENT COMPANY CONDENSED FINANCIAL INFORMATION
The following tables present parent company condensed financial statements for Reliant Bancorp, Inc.:
| | | | | | | | | | | | | | |
| CONDENSED BALANCE SHEET |
| DECEMBER 31, |
| | | 2020 | | 2019 |
| ASSETS | | | | |
| Cash and cash equivalents | | $ | 2,092 | | | $ | 46,997 | |
| Investment in subsidiaries | | 396,314 | | | 255,049 | |
| Other assets | | 6,464 | | | 2,851 | |
| Total assets | | $ | 404,870 | | | $ | 304,897 | |
| | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | |
| Dividend payable | | $ | 0 | | | $ | 76 | |
| Accrued expenses and other liabilities | | 2,971 | | | 735 | |
| Subordinate debentures | | 79,926 | | | 80,333 | |
| Shareholders' equity | | 321,973 | | | 223,753 | |
| Total liabilities and shareholders' equity | | $ | 404,870 | | | $ | 304,897 | |
|
| | | | | | | | |
| CONDENSED BALANCE SHEET |
| DECEMBER 31, |
| | | 2018 | | 2017 |
| ASSETS | | | | |
| Cash and cash equivalents | | $ | 1,985 |
| | $ | 1,709 |
|
| Investment in subsidiaries | | 225,446 |
| | 137,765 |
|
| Other assets | | 3,447 |
| | 1,841 |
|
| Total assets | | $ | 230,878 |
| | $ | 141,315 |
|
| | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | |
| Dividend payable | | $ | 1,036 |
| | $ | 542 |
|
| Accrued expenses and other liabilities | | 406 |
| | 636 |
|
| Subordinate debentures | | 21,022 |
| | — |
|
| Shareholders' equity | | 208,414 |
| | 140,137 |
|
| Total liabilities and shareholders' equity | | $ | 230,878 |
| | $ | 141,315 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
NOTE 25 - PARENT COMPANY CONDENSED FINANCIAL INFORMATION (CONTINUED)
The following tables present parent company condensed financial statements for Reliant Bancorp, Inc.:
| | | | | | | | | | | | | | | | | | | | |
| CONDENSED STATEMENT OF OPERATIONS |
| YEARS ENDED DECEMBER 31, |
| | | 2020 | | 2019 | | 2018 |
| Dividends from subsidiaries | | $ | 4,000 | | | $ | 6,800 | | | $ | 7,521 | |
| Interest expense | | 4,363 | | | 1,520 | | | 1,277 | |
| Other expense | | 10,377 | | | 3,619 | | | 4,775 | |
| Income before income tax and undistributed income from subsidiaries | | (10,740) | | | 1,661 | | | 1,469 | |
| Income tax (benefit) expense | | (3,656) | | | (1,123) | | | (1,537) | |
| Equity in undistributed income from subsidiaries | | 38,496 | | | 13,412 | | | 11,079 | |
| Net income attributable to common shareholders | | $ | 31,412 | | | $ | 16,196 | | | $ | 14,085 | |
|
| | | | | | | | | | | | |
| CONDENSED STATEMENT OF INCOME |
| YEARS ENDED DECEMBER 31, |
| | | 2018 | | 2017 | | 2016 |
| Dividends from subsidiaries | | $ | 7,521 |
| | $ | 2,141 |
| | $ | 3,161 |
|
| Interest expense | | 1,277 |
| | — |
| | — |
|
| Other expense | | 4,775 |
| | 2,920 |
| | 1,326 |
|
| Income before income tax and undistributed income from subsidiaries | | 1,469 |
| | (779 | ) | | 1,835 |
|
| Income tax expense (benefit) | | (1,537 | ) | | (922 | ) | | (508 | ) |
| Equity in undistributed income from subsidiaries | | 11,079 |
| | 7,103 |
| | 6,593 |
|
| Net income attributable to common shareholders | | $ | 14,085 |
| | $ | 7,246 |
| | $ | 8,936 |
|
|
| | | | | | | | | | | | |
| CONDENSED STATEMENT OF CASH FLOWS | | | | |
| YEARS ENDED DECEMBER 31, | | | | |
| | | 2018 | | 2017 | | 2016 |
| Cash flows from operating activities | | | | | | |
| Net income attributable to common shareholders | | $ | 14,085 |
| | $ | 7,246 |
| | $ | 8,936 |
|
| Reclassification of federal income tax rate change | | — |
| | (245 | ) | | — |
|
| Adjustments: | | | | | | |
| Equity in undistributed income from subsidiaries | | (11,079 | ) | | (7,103 | ) | | (6,593 | ) |
| Accretion related to subordinated debentures | | 969 |
| | — |
| | — |
|
| Change in other assets | | (1,333 | ) | | 790 |
| | (219 | ) |
| Change in other liabilities | | (230 | ) | | 595 |
| | (582 | ) |
| Net cash from operating activities | | 2,412 |
| | 1,283 |
| | 1,542 |
|
| | | | | | | |
| Cash flows from investing activities | | | | | | |
| Investment in subsidiary | | — |
| | (21,195 | ) | | (4,772 | ) |
| Net cash used in investing activities | | — |
| | (21,195 | ) | | (4,772 | ) |
| | | | | | | |
| Cash flows from financing activities | | | | | | |
| Dividends paid | | (3,451 | ) | | (3,193 | ) | | (1,489 | ) |
| Redemption of common stock | | (6 | ) | | — |
| | — |
|
| Proceeds from equity issuances, net | | 1,321 |
| | 24,648 |
| | 4,772 |
|
| Net cash from (used in) financing activities | | (2,136 | ) | | 21,455 |
| | 3,283 |
|
| | | | | | | |
| Net change in cash and cash equivalents | | 276 |
| | 1,543 |
| | 53 |
|
| Beginning cash and cash equivalents | | 1,709 |
| | 166 |
| | 113 |
|
| Ending cash and cash equivalents | | $ | 1,985 |
| | $ | 1,709 |
| | $ | 166 |
|
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2018, 2017 AND 2016
(Dollar amounts in thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | |
| CONDENSED STATEMENT OF CASH FLOWS |
| YEARS ENDED DECEMBER 31, |
| | | 2020 | | 2019 | | 2018 |
| Cash flows from operating activities | | | | | | |
| Net income attributable to common shareholders | | $ | 31,412 | | | $ | 16,196 | | | $ | 14,085 | |
| | | | | | |
| Adjustments: | | | | | | |
| Equity in undistributed income from subsidiaries | | (38,496) | | | (13,412) | | | (11,079) | |
| Accretion related to subordinated debentures net of issuance cost amortization | | 259 | | | 113 | | | 969 | |
| Change in other assets | | (3,287) | | | 596 | | | (1,333) | |
| Change in other liabilities | | 2,184 | | | 130 | | | (230) | |
| Net cash from operating activities | | (7,928) | | | 3,623 | | | 2,412 | |
| | | | | | |
| Cash flows from investing activities | | | | | | |
| Cash (used in) received from acquisitions, net | | (30,664) | | | (6,017) | | | 0 | |
| Cash contributed to Risk subsidiary | | (325) | | | 0 | | | 0 | |
| Net cash used in investing activities | | (30,989) | | | (6,017) | | | 0 | |
| | | | | | |
| Cash flows from financing activities | | | | | | |
| Issuance of subordinated debentures, net of issuance costs | | 0 | | | 59,198 | | | 0 | |
| Dividends paid | | (6,227) | | | (4,013) | | | (3,451) | |
| Exercise of common stock options and warrants, net of repurchase of restricted shares | | 239 | | | (7,779) | | | 1,315 | |
| Net cash from (used in) financing activities | | (5,988) | | | 47,406 | | | (2,136) | |
| | | | | | |
| Net change in cash and cash equivalents | | (44,905) | | | 45,012 | | | 276 | |
| Beginning cash and cash equivalents | | 46,997 | | | 1,985 | | | 1,709 | |
| Ending cash and cash equivalents | | $ | 2,092 | | | $ | 46,997 | | | $ | 1,985 | |
NOTE 2623 - SUBSEQUENT EVENTEVENTS
RMV entered intoOn January 25, 2021, the Company declared a lease agreement forquarterly cash dividend of $0.12 per share payable on February 19, 2021 to shareholders of record as of the close of business on February 8, 2021.
Effective January 26, 2021, the Company authorized a facility located in Arkansas subsequent to December 31, 2018. This represents a new market locationstock repurchase plan for the Company with termsto reacquire up to $10,000 of the two year lease being $6 each month.Company's outstanding common stock. The repurchase plan is anticipated to remain effective until December 31, 2021, unless the authorized amount of share repurchase is reached at an earlier date. The Company may extend, modify, amend, suspend, or discontinue the plan at any time.
