UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q



þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedSeptember 30, 2017March 31, 2019

OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______


Commission File Number:001-37391


COMMERCE Union Bancshares, Inc.

Reliant Bancorp, Inc.
(Exact name of registrant as specified in its charter)


Tennessee

37-1641316

Tennessee37-1641316
(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1736 Carothers Parkway,, Suite 100


Brentwood, Tennessee

37027

(Address of principal executive offices)

(Zip Code)

 

(615) 221-2020

(615) 221-2020

(Registrant’sRegistrant’s telephone number, including area code)


Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes ý Yes ☒ No

¨


Indicate by check mark whether the Registrantregistrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes ý Yes ☒ No

¨


Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-212b-2 of the Exchange Act:

Large Accelerated Filer ☐     ¨

Accelerated Filer

ý
Non-Accelerated Filer ¨

Smaller Reporting Company

ý
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 sectionSection 13(a) of the Exchange Act. [  ]¨


Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ No 

ý


The number of shares outstanding of the registrant’sregistrant’s common stock, par value $1.00 per share, as of November 8, 2017May 6, 2019 was 9,022,226.

DOCUMENTS INCORPORATED BY REFERENCE

None.



11,294,620.

Table of Contents



TABLE OF CONTENTS


Item 1.

Item 2.

41

Item 3.

62

Item 4.

62
   

62

Item 1.

62

Item 1A.

62

Item 2.

64

Item 3.

64

Item 4.

64

Item 5.

64

Item 6.

64
   

65


2

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q of Commerce Union Bancshares,


Reliant Bancorp, Inc. (“we,” “our,(Reliant Bancorp” or “us” on a consolidated basis) containsthe “Company”) may from time to time make written or oral statements, including statements contained in this report (including, without limitation, certain statements in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations)), that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934. Such1934, as amended (the “Exchange Act”). The words “believe,” “anticipate,” “expect,” “may,” “will,” “assume,” “should,” “predict,” “could,” “would,” “intend,” “targets,” “estimates,” “projects,” “plans,” and “potential,” and other similar words and expressions of the future, are intended to identify such forward-looking statements, include projections, predictions, expectations orbut other statements as to beliefs or future events or results or refer to other matters that are not based on historical facts. Forward-lookinginformation may also be considered forward-looking. All forward-looking statements are subject to known and unknown risks, uncertainties and other factors that couldmay cause the actual results, performance or achievements of Reliant Bancorp to differ materially from those contemplatedany results, performance or achievements expressed or implied by thesuch forward-looking statements. The forward-looking statements contained in this quarterly report are based on various factors and were derived using numerous assumptions. In some cases, you can identify these forward-looking statements by words like “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of those wordsSuch risks, uncertainties and other comparable words. You should be aware that those statements reflect only our predictions. If known or unknown risks or uncertainties should materialize, or if any one or more of our material underlying assumptions should prove inaccurate, actual results could differ materially from past results and those anticipated, estimated, or projected. You should bear this in mind when reading this quarterly report and not place undue reliance on these forward-looking statements. Commerce Union’s actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors. Factors that might cause such differencesfactors include, but are not limited to:

The possibility that our asset quality declines or that we experience greater loan losses than anticipated;among others:  

Increased levels of other real estate, primarily as a result of foreclosures;


(i)the possibility that our asset quality will decline or that we experience greater loan losses than anticipated;
(ii)increased levels of other real estate, primarily as a result of foreclosures;
(iii)the impact of liquidity needs on our results of operations and financial condition;
(iv)the effect of interest rate increases on the cost of deposits;
(v)unanticipated weakness in loan demand or loan pricing;
(vi)greater than anticipated adverse conditions in the national economy or local economies in which we operate, including Middle Tennessee;
(vii)lack of strategic growth opportunities or our failure to execute on those opportunities;
(viii)deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses;
(ix)the ability to grow and retain low-cost core deposits and retain large, uninsured deposits;
(x)the impact of competition with other financial institutions and financial services providers, including pricing pressures and the resulting impact on Reliant Bancorp’s results, including as a result of compression to net interest margin;
(xi)our ability to effectively manage problem credits;
(xii)our ability to successfully implement efficiency initiatives on time and in amounts projected;
(xiii)our ability to successfully develop and market new products and technology;
(xiv)the impact of negative developments in the financial industry and U.S. and global capital and credit markets;
(xv)our ability to retain the services of key personnel;
(xvi)our ability to adapt to technological changes;
(xvii)risks associated with litigation, including the applicability of insurance coverage;
(xviii)the vulnerability of Reliant Bank’s network and online banking portals, and the systems of parties with whom Reliant Bancorp and Reliant Bank contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches;
(xix)changes in state and federal laws, rules, regulations or policies applicable to banks or bank or financial holding companies, including regulatory or legislative developments;
(xx)adverse results (including costs, fines, reputational harm and/or other negative effects) from current or future litigation, regulatory examinations or other legal and/or regulatory actions; and
(xxi)general competitive, economic, political and market conditions, including economic conditions in the local markets where we operate.

The impact of liquidity needs on our results of operations and financial condition;

Competition from financial institutions and other financial service providers;

Economic conditions in the local markets where we operate;

The negative impact on profitability imposed on us by a compressed net interest margin on loans and other extensions of credit, which affects our ability to lend profitably and to price loans effectively in the face of competitive pressures;

A merger or acquisition, like our merger with Community First, Inc.

The effect of legislative or regulatory developments, including changes in laws concerning banking, securities, taxes, insurance, and other aspects of the financial services industry;

Our ability to attract, develop, and retain qualified banking professionals;

A significant number of our customers failing to perform under their loans and other terms of credit agreements;

The growing concern on the impact of a future rise in interest rates, affecting both our pricing of credit and our investments;

Failure to attract or retain stable deposits at reasonable cost that is competitive with the larger international, national, and regional financial service providers with which we compete;

International, national, and local disasters such as terrorist attacks, natural disasters, or the effects of pandemic flu, or other pandemic illness;

Incorrect responses to, or assumptions based on, experiences and circumstances, such as responses to known or perceived changes in the economy;

Volatility and disruption in financial, credit, and securities markets;

Difficulties encountered in our merger with Community First, Inc. with customers, employees or other business relationships;

Risk that integrating Community First, Inc. with and into Commerce Union could be delayed, or substantially more expensive than anticipated;

The dilution caused by our issuance of shares to investors in the private placement discussed herein;

Deterioration in the financial markets that may result in other-than-temporary impairment charges relating to securities owned by the Reliant Bank;

The effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board, the Securities and Exchange Commission (the “SEC”), the Public Company Accounting Oversight Board, and other regulatory agencies; and

The effect of fiscal and governmental policies of the United States federal government.

You should also consider carefully the risk factors discussed in Item 1A of Part II of this Form 10-Q referencing Item 1A of Part I of our most recent Annual Report on Form 10-K, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results, and financial condition. The risks discussed in this quarterly report are factors that, individually or in the aggregate, management believes could cause our actual results to differ materially from expected and historical results. You should understand that it is not possible to predict or identify all such factors.factors, many of which are beyond our ability to control or predict. Consequently, you should not consider such disclosures to be a complete discussion of all potential risks or uncertainties. Factors not here or there listed may develop or, if currently extant, we may not have yet recognized them.


The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.


3

Table of Contents

PART I – FINANCIAL INFORMATION


Item 1.    Consolidated Financial Statements (Unaudited).

COMMERCE UNION BANCSHARES,




RELIANT BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(Dollar amounts in thousands except per share amounts)

  

September 30,
2017

  

December 31,
2016

 

ASSETS

        

Cash and due from banks

 $18,277  $23,413 

Federal funds sold

  669   830 

Total cash and cash equivalents

  18,946   24,243 

Securities available for sale

  192,277   146,813 

Loans, net

  739,738   657,701 

Mortgage loans held for sale, net

  19,475   11,831 

Accrued interest receivable

  4,999   3,786 

Premises and equipment, net

  9,558   9,093 

Restricted equity securities, at cost

  7,163   7,133 

Cash surrender value of life insurance contracts

  29,422   24,827 

Deferred tax assets, net

  2,776   3,437 

Goodwill

  11,404   11,404 

Core deposit intangibles

  1,336   1,582 

Other assets

  4,086   10,134 
         

TOTAL ASSETS

 $1,041,180  $911,984 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

LIABILITIES

        

Deposits

        

Demand

 $132,058  $134,792 

Interest-bearing demand

  79,439   85,478 

Savings and money market deposit accounts

  197,521   183,788 

Time

  431,430   359,776 

Total deposits

  840,448   763,834 

Accrued interest payable

  220   107 

Federal funds purchased

  -   3,671 

Federal Home Loan Bank advances

  56,720   32,287 

Dividends payable

  541   1,711 

Other liabilities

  5,307   3,455 
         

TOTAL LIABILITIES

  903,236   805,065 
         

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; 9,022,098 and 7,778,309 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

  9,022   7,778 

Additional paid-in capital

  112,202   89,045 

Retained earnings

  16,821   12,212 

Accumulated other comprehensive loss

  (101)  (2,116)
         

TOTAL STOCKHOLDERS’ EQUITY

  137,944   106,919 
         

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 $1,041,180  $911,984 

 March 31,
2019
 December 31, 2018
 Unaudited Audited
ASSETS   
Cash and due from banks$34,796
 $34,807
Federal funds sold409
 371
Total cash and cash equivalents35,205
 35,178
Securities available for sale310,305
 296,323
Loans, net1,250,806
 1,220,184
Mortgage loans held for sale, net9,990
 15,823
Accrued interest receivable8,389
 8,214
Premises and equipment, net21,970
 22,033
Restricted equity securities, at cost11,499
 11,690
Other real estate, net1,000
 1,000
Cash surrender value of life insurance contracts45,791
 45,513
Deferred tax assets, net4,730
 7,428
Goodwill43,642
 43,642
Core deposit intangibles7,982
 8,219
Other assets10,617
 9,091
    
TOTAL ASSETS$1,761,926
 $1,724,338
LIABILITIES AND STOCKHOLDERS’ EQUITY   
LIABILITIES   
Deposits   
Demand$220,966
 $216,937
Interest-bearing demand144,166
 154,218
Savings and money market deposit accounts398,366
 401,308
Time747,823
 665,440
Total deposits1,511,321
 1,437,903
Accrued interest payable990
 1,063
Subordinated debentures11,624
 11,603
Federal Home Loan Bank advances15,309
 57,498
Dividends payable1,035
 1,036
Other liabilities6,528
 6,821
    
TOTAL LIABILITIES1,546,807
 1,515,924
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; 11,502,285 and 11,530,810 shares issued and outstanding at March 31, 2019, and December 31, 2018, respectively11,502
 11,531
Additional paid-in capital172,886
 173,238
Retained earnings30,119
 27,329
Accumulated other comprehensive gain (loss)612
 (3,684)
    
TOTAL STOCKHOLDERS’ EQUITY215,119
 208,414
    
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$1,761,926
 $1,724,338
See accompanying notes to consolidated financial statements


4

Table of ContentsRELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2019 AND 2016

2018

(Dollar amounts in thousands except per share amounts)

(Unaudited)

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2017

  

2016

  

2017

  

2016

 

INTEREST INCOME

                

Interest and fees on loans

 $9,078  $7,729  $25,193  $24,011 

Interest and fees on loans held for sale

  211   109   420   663 

Interest on investment securities, taxable

  179   137   514   589 

Interest on investment securities, nontaxable

  1,022   578   2,796   1,506 

Federal funds sold and other

  137   103   381   298 
                 

TOTAL INTEREST INCOME

  10,627   8,656   29,304   27,067 
                 

INTEREST EXPENSE

                

Deposits

                

Demand

  42   46   131   137 

Savings and money market deposit accounts

  207   151   557   480 

Time

  1,117   430   2,663   1,260 

Federal Home Loan Bank advances and other

  165   194   383   581 
                 

TOTAL INTEREST EXPENSE

  1,531   821   3,734   2,458 
                 

NET INTEREST INCOME

  9,096   7,835   25,570   24,609 
                 

PROVISION FOR LOAN LOSSES

  540   145   1,195   760 
                 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

  8,556   7,690   24,375   23,849 
                 

NONINTEREST INCOME

                

Service charges on deposit accounts

  309   320   936   926 

Gains on mortgage loans sold, net

  1,571   551   2,751   5,675 

Gain on securities transactions, net

  -   296   59   356 

Gain on sale of other real estate

  1   145   26   301 

Loss on disposal of premises and equipment

  (50)  -   (50)  - 

Other

  256   263   735   673 
                 

TOTAL NONINTEREST INCOME

  2,087   1,575   4,457   7,931 
                 

NONINTEREST EXPENSE

                

Salaries and employee benefits

  4,880   4,017   13,634   14,294 

Occupancy

  850   767   2,482   2,406 

Information technology

  732   586   1,924   1,849 

Advertising and public relations

  81   117   204   542 

Audit, legal and consulting

  1,046   328   1,647   993 

Federal deposit insurance

  100   109   320   349 

Provision for losses on other real estate

  -   17   -   70 

Other operating

  808   942   2,423   3,044 
                 

TOTAL NONINTEREST EXPENSE

  8,497   6,883   22,634   23,547 
                 

INCOME BEFORE PROVISION FOR INCOME TAXES

  2,146   2,382   6,198   8,233 
                 

INCOME TAX EXPENSE

  306   619   1,005   1,775 
                 

CONSOLIDATED NET INCOME

  1,840   1,763   5,193   6,458 
                 

NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY

  6   605   898   507 
                 

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

 $1,846  $2,368  $6,091  $6,965 
                 

Basic net income attributable to common shareholders, per share

 $0.23  $0.31  $0.77  $0.92 

Diluted net income attributable to common shareholders, per share

 $0.22  $0.30  $0.76  $0.91 


 Three Months Ended
March 31,
 2019 2018
INTEREST INCOME   
Interest and fees on loans$16,169
 $13,558
Interest and fees on loans held for sale153
 481
Interest on investment securities, taxable503
 507
Interest on investment securities, nontaxable1,718
 1,504
Federal funds sold and other300
 312
    
TOTAL INTEREST INCOME18,843
 16,362
    
INTEREST EXPENSE   
Deposits   
Demand111
 77
Savings and money market deposit accounts1,130
 478
Time3,571
 1,996
Federal Home Loan Bank advances and other377
 272
Subordinated debentures193
 157
    
TOTAL INTEREST EXPENSE5,382
 2,980
    
NET INTEREST INCOME13,461
 13,382
    
PROVISION FOR LOAN LOSSES
 137
    
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES13,461
 13,245
    
NONINTEREST INCOME   
Service charges on deposit accounts884
 771
Gains on mortgage loans sold, net560
 1,705
Gain on securities transactions, net131
 
Gain on sale of other real estate
 89
Other363
 426
    
TOTAL NONINTEREST INCOME1,938
 2,991
    
NONINTEREST EXPENSE   
Salaries and employee benefits7,265
 6,954
Occupancy1,352
 1,229
Information technology1,410
 1,349
Advertising and public relations254
 89
Audit, legal and consulting796
 623
Federal deposit insurance195
 196
Merger expenses2
 177
Other operating1,472
 1,545
    
TOTAL NONINTEREST EXPENSE12,746
 12,162
    
INCOME BEFORE PROVISION FOR INCOME TAXES2,653
 4,074
    
INCOME TAX EXPENSE372
 797
    
CONSOLIDATED NET INCOME2,281
 3,277
    
NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY1,543
 464
    
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS$3,824
 $3,741
    
Basic net income attributable to common shareholders, per share$0.34
 $0.33
Diluted net income attributable to common shareholders, per share$0.33
 $0.33

See accompanying notes to consolidated financial statements


5

Table of ContentsRELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2019 AND 2016

2018

(Dollar amounts in thousands except per share amounts)

(Unaudited)

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2017

  

2016

  

2017

  

2016

 
                 

Consolidated net income

 $1,840  $1,763  $5,193  $6,458 
                 

Other comprehensive income

                
                 

Net unrealized gains (losses) on available-for-sale securities, net of tax of $257 and $(122) for the three months ended September 30, 2017 and 2016, respectively, and $1,273 and $591 for the nine months ended September 30, 2017 and 2016, respectively

  412   (197)  2,051   952 
                 

Reclassification adjustment for gains included in net income, net of tax of $(113) for the three months ended September 30, 2016, respectively, and $(23) and $(136) for the nine months ended September 30, 2017 and 2016, respectively

  -   (183)  (36)  (220)
                 

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

  412   (380)  2,015   732 
                 

TOTAL COMPREHENSIVE INCOME

 $2,252  $1,383  $7,208  $7,190 


 Three Months Ended
March 31,
 2019 2018
Consolidated net income$2,281
 $3,277
Other comprehensive income (loss)   
Net unrealized gains (losses) on available-for-sale securities, net of tax of ($1,721) and $1,579 for the three months ended March 31, 2019 and 2018, respectively4,863
 (4,414)
Net unrealized losses on interest rate swap derivatives net of tax of $167 for the three months ended March 31, 2019(470) 
Reclassification adjustment for gains included in net income, net of tax of $34 for the three months ended March 31, 2019(97) 
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)4,296
 (4,414)
TOTAL COMPREHENSIVE INCOME (LOSS)$6,577
 $(1,137)

See accompanying notes to consolidated financial statements


6

Table of ContentsRELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERSSTOCKHOLDERS’ EQUITY
’ EQUITY

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2019 AND 2016

2018

(Dollar amounts in thousands except per share amounts)

(Unaudited)

                  

ACCUMULATED

         
          

ADDITIONAL

      

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

  -   -   168   -   -   -   168 
                             

Exercise of stock options

  461,931   462   4,154   -   -   -   4,616 
                             

Restricted stock awards

  23,800   23   (23)  -   -   -   - 
                             

Restricted stock forfeiture

  (2,000)  (2)  2   -   -   -   - 
                             

Noncontrolling interest contributions

  -   -   -   -   -   507   507 
                             

Net income (loss)

  -   -   -   6,965   -   (507)  6,458 
                             

Other comprehensive income

  -   -   -   -   732   -   732 
                             

BALANCE - SEPTEMBER 30, 2016

  7,763,351  $7,763  $88,821  $11,952  $696  $-  $109,232 
                             
                             

BALANCE - JANUARY 1, 2017

  7,778,309  $7,778  $89,045  $12,212  $(2,116) $-  $106,919 
                             

Stock based compensation expense

  -   -   412   -   -   -   412 
                             

Exercise of stock options

  59,739   60   633   -   -   -   693 
                             

Restricted stock awards

  50,050   50   (50)  -   -   -   - 
                             

Restricted stock forfeiture

  (3,000)  (3)  3   -   -   -   - 
                             

Common stock issuance

  1,137,000   1,137   23,877   -   -   -   25,014 
                             

Stock issuance costs

  -   -   (1,718)  -   -   -   (1,718)
                             

Noncontrolling interest contributions

  -   -   -   -   -   898   898 
                             

Cash dividend declared to common shareholders ($0.18 per share)

  -   -   -   (1,482)  -   -   (1,482)
                             

Net income (loss)

  -   -   -   6,091   -   (898)  5,193 
                             

Other comprehensive income

  -   -   -   -   2,015   -   2,015 
                             

BALANCE - SEPTEMBER 30, 2017

  9,022,098  $9,022  $112,202  $16,821  $(101) $-  $137,944 

 COMMON STOCK 
ADDITIONAL
PAID-IN
CAPITAL
 
RETAINED
EARNINGS
 
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
 
NONCONTROLLING
INTEREST
 TOTAL
 SHARES AMOUNT     
BALANCE - JANUARY 1, 20189,034,439
 $9,034
 $112,437
 $17,189
 $1,477
 $
 $140,137
              
Stock based compensation expense
 
 224
 
 
 
 224
              
Exercise of stock options25,225
 25
 315
 
 
 
 340
              
Restricted stock awards4,500
 5
 (5) 
 
 
 
              
Restricted stock forfeiture(1,000) (1) 1
 
 
 
 
              
Conversion shares issued to shareholders' of Community First, Inc.2,416,444
 2,417
 59,566
 
 
 
 61,983
              
Noncontrolling interest contributions
 
 
 
 
 464
 464
              
Cash dividend declared to common shareholders
 
 
 (1,060) 
 
 (1,060)
              
Net income (loss)
 
 
 3,741
 
 (464) 3,277
              
Other comprehensive loss
 
 
 
 (4,414) 
 (4,414)
              
BALANCE - MARCH 31, 201811,479,608
 $11,480
 $172,538
 $19,870
 $(2,937) $
 $200,951
              
 COMMON STOCK 
ADDITIONAL
PAID-IN
CAPITAL
 
RETAINED
EARNINGS
 
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
 
NONCONTROLLING
INTEREST
 TOTAL
 SHARES AMOUNT     
BALANCE - JANUARY 1, 201911,530,810
 $11,531
 $173,238
 $27,329
 $(3,684) $
 $208,414
              
Stock based compensation expense
 
 250
 
 
 
 250
              
Exercise of stock options2,183
 2
 26
 
 
 
 28
              
Restricted stock awards3,000
 3
 (3) 
 
 
 
              
Restricted stock and dividend forfeiture(3,750) (4) 4
 1
 
 
 1
              
Common stock shares redeemed(29,958) (30) (629) 
 
 
 (659)
              
Noncontrolling interest contributions
 
 
 
 
 1,543
 1,543
              
Cash dividend declared to common shareholders
 
 
 (1,035) 
 
 (1,035)
              
Net income (loss)
 
 
 3,824
 
 (1,543) 2,281
              
Other comprehensive income
 
 
 
 4,296
 
 4,296
              
BALANCE - MARCH 31, 201911,502,285
 $11,502
 $172,886
 $30,119
 $612
 $
 $215,119

See accompanying notes to consolidated financial statements


7

Table of ContentsRELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2019 AND 2016

2018

(Dollar amounts in thousands except per share amounts)

(Unaudited)

  

2017

  

2016

 

OPERATING ACTIVITIES

        

Consolidated net income

 $5,193  $6,458 

Adjustments to reconcile consolidated net income to net cash provided by operating activities

        

Provision for loan losses

  1,195   760 

Deferred income tax benefit

  (589)  (36)

Loss on disposal of premises and equipment

  50   - 

Depreciation and amortization of premises and equipment

  762   728 

Net amortization of securities

  1,478   1,117 

Net realized gains on sales of securities

  (59)  (356)

Gains on mortgage loans sold, net

  (2,751)  (5,675)

Stock-based compensation expense

  412   168 

Realization of deferred gain on other real estate

  (26)  (301)

Provision for losses on other real estate

  -   70 

Increase in cash surrender value of life insurance contracts

  (595)  (556)

Mortgage loans originated for resale

  (99,485)  (137,667)

Proceeds from sale of mortgage loans

  94,592   183,786 

Amortization of core deposit intangible

  246   267 

Change in

        

Accrued interest receivable

  (1,213)  (403)

Other assets

  5,701   (736)

Accrued interest payable

  113   79 

Other liabilities

  1,525   2,610 
         

TOTAL ADJUSTMENTS

  1,356   43,855 
         

NET CASH PROVIDED BY OPERATING ACTIVITIES

  6,549   50,313 
         

INVESTING ACTIVITIES

        

Activities in available for sale securities

        

Purchases

  (68,010)  (47,391)

Sales

  18,688   20,036 

Maturities, prepayments and calls

  6,057   8,038 

Purchases of restricted equity securities

  (30)  (837)

Loan originations and payments, net

  (83,232)  (44,458)

Purchase of buildings, leasehold improvements, and equipment

  (1,277)  (496)

Proceeds from sale of other real estate

  -   1,314 

Improvement of other real estate

  -   (16)

Purchase of life insurance contracts

  (4,000)  (4,000)
         

NET CASH USED IN INVESTING ACTIVITIES

  (131,804)  (67,810)
         

FINANCING ACTIVITIES

        

Net change in deposits

  76,614   19,848 

Net change in federal funds purchased

  (3,671)  - 

Net change in Advances from Federal Home Loan Bank

  24,433   8,921 

Issuance of common stock

  23,989   4,616 

Noncontrolling interest contributions received

  1,245   - 

Cash dividends paid on common stock

  (2,652)  (1,489)
         

NET CASH PROVIDED BY FINANCING ACTIVITIES

  119,958   31,896 
         

NET CHANGE IN CASH AND CASH EQUIVALENTS

  (5,297)  14,399 

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD

  24,243   20,570 

CASH AND CASH EQUIVALENTS - END OF PERIOD

 $18,946  $34,969 


 2019 2018
OPERATING ACTIVITIES   
Consolidated net income$2,281
 $3,277
Adjustments to reconcile consolidated net income to net cash provided by operating activities   
Provision for loan losses
 137
Deferred income taxes (benefit)1,179
 (118)
Depreciation and amortization of premises and equipment497
 396
Net amortization of securities825
 731
Net realized gains on sales of securities(131) 
Gains on mortgage loans sold, net(560) (1,705)
Stock-based compensation expense250
 224
Realization of gain on other real estate
 (89)
Increase in cash surrender value of life insurance contracts(278) (303)
Mortgage loans originated for resale(18,422) (37,527)
Proceeds from sale of mortgage loans24,815
 60,495
Other accretion(134) (327)
Change in   
Accrued interest receivable(175) (208)
Other assets(1,433) 828
Accrued interest payable(73) 509
Other liabilities(1,432) (2,103)
    
TOTAL ADJUSTMENTS4,928
 20,940
    
NET CASH PROVIDED BY OPERATING ACTIVITIES7,209
 24,217
    
INVESTING ACTIVITIES   
Cash received from merger
 33,128
Activities in available for sale securities   
Purchases(20,571) (69,815)
Sales10,558
 82,187
Maturities, prepayments and calls2,291
 2,866
Purchases of restricted equity securities(9) 
Redemption of restricted equity securities200
 
Net increase in loans(30,253) (20,003)
Purchase of buildings, leasehold improvements, and equipment(434) (479)
    
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES(38,218) 27,884
 2019 2018
FINANCING ACTIVITIES   
Net change in deposits73,427
 33,389
Net change in advances from Federal Home Loan Bank(42,175) (54,672)
Issuance of common stock, net28
 340
Redemption of common stock(659) 
Noncontrolling interest contributions received1,450
 210
Cash dividends paid on common stock(1,035) (684)
    
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES31,036
 (21,417)
    
NET CHANGE IN CASH AND CASH EQUIVALENTS27
 30,684
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD35,178
 20,668
CASH AND CASH EQUIVALENTS - END OF PERIOD$35,205
 $51,352
    
    
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:   
Cash paid during the period for   
Interest$5,455
 $2,472
Taxes$4
 $1
    
Non-cash investing and financing activities   
Unrealized gain (loss) on securities available-for-sale$6,954
 $(6,607)
Unrealized gain (loss) on derivatives$(1,139) $614
Change in due to/from noncontrolling interest$1,543
 $464

See accompanying notes to consolidated financial statements


89

Table of Contents
RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND 2016

DECEMBER 31, 2018

(Dollar amounts in thousands except per share amounts)

(Unaudited)

  

2017

  

2016

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

        

Cash paid during the period for

        

Interest

 $3,621  $2,379 

Taxes

 $1,277  $2,537 
         

Non-cash investing and financing activities

        

Unrealized gain on securities available-for-sale

 $3,618  $2,435 

Unrealized loss on derivatives

 $(353) $(1,248)

Change in due to/from noncontrolling interest

 $898  $507 

See accompanying notes to consolidated financial statements


9


Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


The accounting and reporting policies of Commerce Union Bancshares,Reliant Bancorp, Inc. and Subsidiaries (“the Company”) conform 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.

Principles of Consolidation

The consolidated financial statements include the accounts of Commerce Union Bancshares, Inc., its wholly owned subsidiary, Reliant Bank (the “Bank”), the Bank’s wholly-owned subsidiaries, Commerce Union Mortgage Services, Inc. (inactive and terminated in September 2016) and Reliant Investments, LLC (inactive and terminated in September 2016), and the Bank’s majority controlled subsidiary, Reliant Mortgage Ventures, LLC, collectively (the “Company”). As described in the notes to our annual financial statements, Reliant Mortgage Ventures, LLC 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. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America ("U.S. GAAP") and to general practices inwithin the banking industry.

The following is a brief summary of the significant policies.


Nature of Operations

The Company


Reliant Bancorp, Inc. began its organizational activities in 2005. The CompanyReliant Bancorp, Inc. provides financial services through its offices in Williamson, Robertson, Davidson, Sumner, Rutherford, Maury, Hickman and Sumner Counties.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.These

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with U.S. GAAP.  All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included.  The accompanying unaudited consolidated financial statements should be read in conjunction with the Company's 2016 auditedReliant Bancorp, Inc.’s consolidated financial statements.

statements and related notes appearing in Reliant Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018.


The consolidated financial statements as of and for the periods presented include the accounts 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") of which is 100% wholly owned by Reliant Bank ("Bank"), and Reliant Mortgage Ventures, LLC ("RMV"), of which the Bank controls 51% of the governance rights. Reliant Bancorp Inc., Reliant Bank, TRUPS, Holdings and RMV, are collectively referred to herein as the “Company”. As described in the notes to our annual consolidated financial statements, all significant inter-company balances and transactions have been eliminated in consolidation. As described in Note 12, Reliant Bancorp, Inc. and Community First, Inc. merged effective January 1, 2018. The accounting and reporting policies of the Company conform to U.S. GAAP and 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 AmericaU.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.



10

Table of Contents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates (Continued)

The consolidatedconsolidated financial statements as of September 30, 2017,March 31, 2019, and for the three months ended March 31, 2019 and nine months ended September 30, 2017 and 2016,2018, included herein have not been audited. The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principlesGAAP and Article 108 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures made are adequate to make the information not misleading.


10

Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates (Continued)

These consolidated financial statements should be read in conjunction with the Company's 2016 audited consolidated financial statements. The accompanying consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented. Such adjustments are of a normal recurring nature. The Company evaluates subsequent events through the date of filing. Certain prior period amounts have been reclassified to conform to the current period presentation. The results for the ninethree months ended September 30, 2017March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

Proposed Merger with Community First, Inc.

On August 22, 2017, Commerce Union Bancshares, Inc. and Reliant Bank entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Community First, Inc. and Community First Bank & Trust, Columbia, Tennessee, that provides for the combination of the companies. Under the Merger Agreement, a wholly owned subsidiary of Commerce Union Bancshares, Inc. will merge with and into Community First, Inc. with Community First, Inc. to be the surviving corporation and becoming a wholly owned subsidiary of Commerce Union Bancshares, Inc. (the “Merger”). As soon as reasonably practicable following the Merger and as part of a single integrated transaction, Community First, Inc. will merge with and into Commerce Union Bancshares, Inc. (the “Second Step Merger” and, together with the Merger, collectively, the “Mergers”). The Merger Agreement also contemplates that, immediately following the completion of the Second Step Merger, Community First Bank & Trust, the wholly owned bank subsidiary of Community First, Inc., will merge with and into Reliant Bank, with Reliant Bank as the surviving bank (the “Bank Merger”).

Pursuant2019.


Reclassifications

Certain reclassifications were made to the terms of the Merger Agreement, upon consummation of the Merger, each share of Community First, Inc. common stock (except for specified shares of Community First, Inc. common stock held by Community First, Inc. or Commerce Union Bancshares, Inc. and any dissenting shares) will be converted into the rightMarch 31, 2018 financial statement presentation in order to receive 0.481 (the “Exchange Ratio”) shares of Commerce Union Bancshares, Inc. common stock. Although the Exchange Ratio is fixed, the market value of the merger consideration will fluctuate with the market price of Commerce Union Bancshares, Inc. common stock and will not be known until the Merger is consummated. As of the date of the Merger Agreement, Community First, Inc. had 5,025,883.87134 shares of common stock issued and outstanding (including shares of restricted stock) and 20,700 outstanding stock options, all of which are, or will be at or priorconform to the effective time of the Merger, fully vestedMarch 31, 2019 financial statement presentation. Total stockholders' equity and exercisable.

Commerce Union Bancshares, Inc. has filed a registration statement on Form S-4 with the Securities and Exchange Commission with respectnet income are unchanged due to the registration of the shares of Commerce Union Bancshares, Inc. common stock to be issued to Community First, Inc. shareholders in connection with the Merger.

these reclassifications.
11

Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Proposed Merger with Community First, Inc. (Continued)

The Mergers are subject to the satisfaction of customary closing conditions, including obtaining approvals from applicable federal and state banking regulators and the shareholders of Commerce Union Bancshares, Inc. and Community First, Inc. Additionally, the Merger Agreement contains certain termination provisions that may require Community First, Inc. to pay Commerce Union Bancshares, Inc. a termination fee of $2,100,000 under certain specified circumstances, including if Community First, Inc. terminates the Merger Agreement to enter into a definitive agreement for a transaction that its board of directors has determined is superior to the Merger. Commerce Union Bancshares Inc. may also have to pay a termination fee of $2,100,000 in certain circumstances, as set forth in the registration statement filed on Form S-4, and in the Merger Agreement thereto.

NOTE 2 - SECURITIES


The amortized cost and fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive lossgain (loss) at September 30, 2017March 31, 2019 and accumulated other comprehensive income at December 31, 20162018 were as follows:

  

September 30, 2017

 
      

Gross

  

Gross

  

Estimated

 
  

Amortized

  

Unrealized

  

Unrealized

  

Fair

 
  

Cost

  

Gains

  

Losses

  

Value

 

U. S. Treasury and other U. S. government agencies

 $591  $-  $(5) $586 

State and municipal

  164,968   1,989   (1,710)  165,247 

Corporate bonds

  1,500   8   (13)  1,495 

Mortgage backed securities

  21,456   70   (77)  21,449 

Time deposits

  3,500   -   -   3,500 
                 

Total

 $192,015  $2,067  $(1,805) $192,277 

  

December 31, 2016

 
      

Gross

  

Gross

  

Estimated

 
  

Amortized

  

Unrealized

  

Unrealized

  

Fair

 
  

Cost

  

Gains

  

Losses

  

Value

 

U. S. Treasury and other U. S. government agencies

 $1,909  $4  $(5) $1,908 

State and municipal

  122,813   446   (3,625)  119,634 

Corporate bonds

  2,000   8   (21)  1,987 

Mortgage backed securities

  20,197   11   (174)  20,034 

Time deposits

  3,250   -   -   3,250 
                 

Total

 $150,169  $469  $(3,825) $146,813 

12
 March 31, 2019
 Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Estimated
Fair
Value
U. S. Treasury and other U. S. government agencies$566
 $
 $(4) $562
State and municipal234,736
 4,395
 (786) 238,345
Corporate bonds3,130
 
 (112) 3,018
Mortgage backed securities34,642
 120
 (340) 34,422
Asset backed securities31,048
 
 (590) 30,458
Time deposits3,500
 
 
 3,500
Total$307,622
 $4,515
 $(1,832) $310,305
 December 31, 2018
 Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Estimated
Fair
Value
U. S. Treasury and other U. S. government agencies$568
 $
 $(14) $554
State and municipal232,589
 879
 (4,170) 229,298
Corporate bonds3,130
 
 (113) 3,017
Mortgage backed securities32,172
 34
 (248) 31,958
Asset backed securities28,635
 
 (639) 27,996
Time deposits3,500
 
 
 3,500
Total$300,594
 $913
 $(5,184) $296,323

11

Table of Contents
RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(Dollar amounts in thousands except per share amounts)



NOTE 2 - SECURITIES (CONTINUED)

Securities


Securities pledged at September 30, 2017March 31, 2019 and December 31, 20162018 had a carrying amount of $78,520$84,506 and $36,292,$70,097, respectively, and were pledged to collateralize Federal Home Loan Bank advances, Federal Reserve advances and municipal deposits.


At September 30, 2017March 31, 2019 and December 31, 2016,2018, there were no 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.


The fair value of available for sale debt securities at September 30, 2017March 31, 2019 by contractual maturity are provided below. Actual maturities may differ from contractual maturities for mortgage and asset backed securities since the underlying asset may be called or prepaid with or without penalty. Securities not due at a single maturity date primarily mortgage backed securities, are shown separately.

  

Amortized

  

Estimated

 
  

Cost

  

Fair Value

 

Due within one year

 $3,655  $3,657 

Due in one to five years

  13,488   13,584 

Due in five to ten years

  10,234   10,391 

Due after ten years

  143,182   143,196 

Mortgage backed securities

  21,456   21,449 
         

Total

 $192,015  $192,277 

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 have been in a continuous unrealized loss position as of September 30, 2017:

  

Less than 12 months

  

12 months or more

  

Total

 
  

Estimated

  

Unrealized

  

Estimated

  

Unrealized

  

Estimated

  

Unrealized

 
  

Fair Value

  

Loss

  

Fair Value

  

Loss

  

Fair Value

  

Loss

 

Description of Securities

                        

U. S. Treasury and other U. S. government agencies

 $493  $5  $-  $-  $493  $5 

State and municipal

  43,122   609   23,994   1,101   67,116   1,710 

Corporate bonds

  -   -   487   13   487   13 

Mortgage backed securities

  2,131   18   3,183   59   5,314   77 
                         

Total temporarily impaired

 $45,746  $632  $27,664  $1,173  $73,410  $1,805 


13

Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 2 - SECURITIES (CONTINUED)

 
Amortized
Cost
 
Estimated
Fair Value
Due within one year$2,755
 $2,757
Due in one to five years4,722
 4,711
Due in five to ten years11,301
 11,334
Due after ten years223,154
 226,623
Mortgage backed securities34,642
 34,422
Asset backed securities31,048
 30,458
Total$307,622
 $310,305

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 have been in a continuous unrealized loss position as of March 31, 2019:

 Less than 12 months 12 months or more Total
 
Estimated
Fair Value
 
Unrealized
Loss
 Estimated
Fair Value
 Unrealized
Loss
 Estimated
Fair Value
 Unrealized
Loss
Description of Securities           
U. S. Treasury and other
U. S. government agencies
$
 $
 $562
 $4
 $562
 $4
State and municipal
 
 49,357
 786
 49,357
 786
Corporate bonds500
 1
 2,518
 111
 3,018
 112
Mortgage backed securities12,655
 217
 8,356
 123
 21,011
 340
Asset backed securities11,526
 167
 16,702
 423
 28,228
 590
            
Total temporarily impaired$24,681
 $385
 $77,495
 $1,447
 $102,176
 $1,832


12

Table of Contents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(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 have been in a continuous unrealized loss position as of December 31, 2016:

  

Less than 12 months

  

12 months or more

  

Total

 
  

Estimated

  

Unrealized

  

Estimated

  

Unrealized

  

Estimated

  

Unrealized

 
  

Fair Value

  

Loss

  

Fair Value

  

Loss

  

Fair Value

  

Loss

 

Description of Securities

                        

U. S. Treasury and other U. S. government agencies

 $748  $5  $-  $-  $748  $5 

State and municipal

  83,637   3,597   1,115   28   84,752   3,625 

Corporate bonds

  496   4   983   17   1,479   21 

Mortgage backed securities

  17,599   129   1,255   45   18,854   174 
                         

Total temporarily impaired

 $102,480  $3,735  $3,353  $90  $105,833  $3,825 

2018:


 Less than 12 months 12 months or more Total
 Estimated
Fair Value
 Unrealized
Loss
 Estimated
Fair Value
 Unrealized
Loss
 Estimated
Fair Value
 Unrealized
Loss
Description of Securities           
U. S. Treasury and other
U. S. government agencies
$
 $
 $555
 $14
 $555
 $14
State and municipal118,580
 2,263
 47,223
 1,907
 165,803
 4,170
Corporate bonds2,526
 105
 492
 8
 3,018
 113
Mortgage backed securities17,015
 99
 5,397
 149
 22,412
 248
Asset backed securities20,351
 383
 7,255
 256
 27,606
 639
            
Total temporarily impaired$158,472
 $2,850
 $60,922
 $2,334
 $219,394
 $5,184

Management has the intent and ability to hold all securities in an unrealized loss position for the foreseeable future, and the decline in fair value is 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 117127 and 193242 securities in an unrealized loss position as of September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively.


NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES


Loans at September 30, 2017March 31, 2019 and December 31, 20162018 were comprised as follows:

  

September 30,
2017

  

December 31,

2016

 

Commerical, Industrial and Agricultural

 $138,648  $134,404 

Real Estate

        

1-4 Family Residential

  100,655   113,031 

1-4 Family HELOC

  79,195   57,460 

Multi-family and Commercial

  258,168   215,639 

Construction, Land Development and Farmland

  141,581   115,889 

Consumer

  16,386   17,240 

Other

  15,048   13,745 
   749,681   667,408 

Less

        

Deferred loan fees

  320   625 

Allowance for possible loan losses

  9,623   9,082 
         

Loans, net

 $739,738  $657,701 


14
 March 31, 2019 December 31, 2018
Commercial, Industrial and Agricultural$218,767
 $213,850
Real Estate   
    1-4 Family Residential230,124
 225,863
    1-4 Family HELOC90,944
 88,112
    Multi-family and Commercial469,468
 447,840
    Construction, Land Development and Farmland220,752
 220,801
Consumer17,926
 20,495
Other14,213
 14,106
Total1,262,194
 1,231,067
Less   
    Deferred loan fees (cost)34
 (9)
    Allowance for possible loan losses11,354
 10,892
    
Loans, net$1,250,806
 $1,220,184





13

Table of Contents
RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(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 nine months ended September 30, 2017:

  

Commercial Industrial and Agricultural

  

Multi-family

and

Commercial
Real Estate

  

Construction

Land

Development

and Farmland

  

1-4 Family

Residential

Real Estate

 

Beginning balance

 $2,438  $2,731  $1,786  $1,178 

Charge-offs

  (941)  -   -   (15)

Recoveries

  306   -   5   - 

Provision

  872   363   356   (296)

Ending balance

 $2,675  $3,094  $2,147  $867 

  

1-4 Family

HELOC

  

Consumer

  

Other

  

Total

 

Beginning balance

 $704  $208  $37  $9,082 

Charge-offs

  -   (30)  -   (986)

Recoveries

  19   2   -   332 

Provision

  (110)  9   1   1,195 

Ending balance

 $613  $189  $38  $9,623 

Activity in the allowance for loan losses by portfolio segment was as follows for the ninethree months ended September 30, 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

  250   3   5   66 

Provision

  (109)  84   816   (97)

Ending balance

 $2,255  $2,678  $1,715  $1,158 

  

1-4 Family

HELOC

  

Consumer

  

Other

  

Total

 

Beginning balance

 $699  $192  $35  $7,823 

Charge-offs

  -   -   (19)  (128)

Recoveries

  9   13   -   346 

Provision

  26   16   24   760 

Ending balance

 $734  $221  $40  $8,801 

March 31, 2019:

15
 Commercial Industrial and Agricultural 
Multi-family
and
Commercial
Real Estate
 
Construction
Land
Development
and Farmland
 
1-4 Family
Residential
Real Estate
Beginning balance$1,751
 $4,429
 $2,500
 $1,333
Charge-offs(6) 
 
 (17)
Recoveries240
 34
 
 212
Provision(111) 130
 150
 (169)
Ending balance$1,874
 $4,593
 $2,650
 $1,359

 
1-4 Family
HELOC
 Consumer Other Total
Beginning balance$656
 $184
 $39
 $10,892
Charge-offs
 (11) 
 (34)
Recoveries
 10
 
 496
Provision14
 (12) (2) 
Ending balance$670
 $171
 $37
 $11,354

Activity in the allowance for loan losses by portfolio segment was as follows for the three months ended March 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(308) 
 
 
Recoveries143
 2
 41
 8
Provision112
 101
 (329) 223
Ending balance$2,485
 $3,269
 $2,146
 $1,004

 
1-4 Family
HELOC
 Consumer Other Total
Beginning balance$595
 $183
 $42
 $9,731
Charge-offs(6) (16) (9) (339)
Recoveries2
 1
 5
 202
Provision41
 (12) 1
 137
Ending balance$632
 $156
 $39
 $9,731








14

Table of Contents
RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(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 September 30, 2017March 31, 2019 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

 $526  $-  $17  $26 

Acquired with credit impairment

  4   -   -   - 

Collectively evaluated for impairment

  2,145   3,094   2,130   841 

Total

 $2,675  $3,094  $2,147  $867 

Loans

                

Individually evaluated for impairment

 $4,643  $1,953  $3,268  $2,574 

Acquired with credit impairment

  281   1,161   1,432   47 

Collectively evaluated for impairment

  133,724   255,054   136,881   98,034 

Total

 $138,648  $258,168  $141,581  $100,655 

  

1-4 Family

HELOC

  

Consumer

  

Other

  

Total

 

Allowance for loan losses

                

Individually evaluated for impairment

 $-  $-  $-  $569 

Acquired with credit impairment

  -   -   -   4 

Collectively evaluated for impairment

  613   189   38   9,050 

Total

 $613  $189  $38  $9,623 

Loans

                

Individually evaluated for impairment

 $273  $-  $-  $12,711 

Acquired with credit impairment

  17   -   -   2,938 

Collectively evaluated for impairment

  78,905   16,386   15,048   734,032 

Total

 $79,195  $16,386  $15,048  $749,681 


16
 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$191
 $
 $17
 $
Acquired with credit impairment
 
 
 
Collectively evaluated for impairment1,683
 4,593
 2,633
 1,359
Total$1,874
 $4,593
 $2,650
 $1,359
Loans       
Individually evaluated for impairment$413
 $2,786
 $1,070
 $1,682
Acquired with credit impairment40
 227
 1,743
 257
Collectively evaluated for impairment218,314
 466,455
 217,939
 228,185
Total$218,767
 $469,468
 $220,752
 $230,124
 
1-4 Family
HELOC
 Consumer Other Total
Allowance for loan losses       
Individually evaluated for impairment$
 $
 $
 $208
Acquired with credit impairment
 
 
 
Collectively evaluated for impairment670
 171
 37
 11,146
Total$670
 $171
 $37
 $11,354
Loans       
Individually evaluated for impairment$
 $
 $
 $5,951
Acquired with credit impairment
 11
 
 2,278
Collectively evaluated for impairment90,944
 17,915
 14,213
 1,253,965
Total$90,944
 $17,926
 $14,213
 $1,262,194


15

Table of Contents
RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(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, 20162018 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

 $747  $-  $17  $27 

Acquired with credit impairment

  6   -   -   - 

Collectively evaluated for impairment

  1,685   2,731   1,769   1,151 

Total

 $2,438  $2,731  $1,786  $1,178 

Loans

                

Individually evaluated for impairment

 $5,375  $2,036  $2,544  $1,972 

Acquired with credit impairment

  329   2,852   1,481   89 

Collectively evaluated for impairment

  128,700   210,751   111,864   110,970 

Total

 $134,404  $215,639  $115,889  $113,031 

  

1-4 Family

HELOC

  

Consumer

  

Other

  

Total

 

Allowance for loan losses

                

Individually evaluated for impairment

 $62  $-  $-  $853 

Acquired with credit impairment

  -   -   -   6 

Collectively evaluated for impairment

  642   208   37   8,223 

Total

 $704  $208  $37  $9,082 

Loans

                

Individually evaluated for impairment

 $1,479  $-  $-  $13,406 

Acquired with credit impairment

  16   -   -   4,767 

Collectively evaluated for impairment

  55,965   17,240   13,745   649,235 

Total

 $57,460  $17,240  $13,745  $667,408 


17

Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

 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 impairment1,713
 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 impairment40
 232
 1,751
 262
Collectively evaluated for impairment212,832
 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 impairment656
 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 impairment88,112
 20,472
 14,106
 1,223,595
Total$88,112
 $20,495
 $14,106
 $1,231,067

Risk characteristics relevant to each portfolio segment are as follows:


Commercial,industrialand agricultural: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. In the case

16

Table 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 collectContents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts due from its customers.

in thousands except per share amounts)



NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

Multi-family and commercial real estate: Multi-family and commercial real estate and multi-family 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


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.


18

Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

Construction and land development: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 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 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 impact the depth of potential losses in this portfolio segment.


17

Table of Contents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

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 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.


19

Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

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 at September 30, 2017March 31, 2019 and December 31, 2016:

  

September 30,
2017

  

December 31,
2016

 

Commercial, Industrial and Agricultural

 $2,460  $3,062 

Multi-family and Commercial Real Estate

  -   636 

Construction, Land Development and Farmland

  1,898   730 

1-4 Family Residential Real Estate

  592   344 

1-4 Family HELOC

  -   862 

Total

 $4,950  $5,634 

2018:


 March 31, 2019 December 31, 2018
Commercial, Industrial and Agricultural$439
 $279
Multi-family and Commercial Real Estate
 
Construction, Land Development and Farmland1,294
 1,294
1-4 Family Residential Real Estate2,802
 2,556
1-4 Family HELOC
 
Consumer47
 65
Total$4,582
 $4,194

Performing non-accrualnon-accrual loans totaled $1,133$1,886 and $2,799$2,010 at September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively.

Individually impaired loans by class of loans were as follows at September 30, 2017:

  

Unpaid
Principal
Balance

  

Recorded

Investment

with no

Allowance

Recorded

  

Recorded

Investment

with

Allowance

Recorded

  

Total

Recorded
Investment

  

Related
Allowance

 
                     

Commercial, Industrial and Agricultural

 $5,438  $3,396  $1,529  $4,925  $530 

Multi-family and Commercial Real Estate

  3,479   3,114   -   3,114   - 

Construction, Land Development and Farmland

  4,788   4,463   236   4,699   17 

1-4 Family Residential Real Estate

  3,325   2,595   26   2,621   26 

1-4 Family HELOC

  309   290   -   290   - 
                     

Total

 $17,339  $13,858  $1,791  $15,649  $573 


2018

Table of Contents
RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(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 March 31, 2019:

 
Unpaid
Principal
Balance
 
Recorded
Investment
with no
Allowance
Recorded
 
Recorded
Investment
with
Allowance
Recorded
 
Total
Recorded
Investment
 
Related
Allowance
Commercial, Industrial and Agricultural$556
 $40
 $413
 $453
 $191
Multi-family and Commercial Real Estate3,289
 3,013
 
 3,013
 
Construction, Land Development and Farmland3,201
 2,642
 171
 2,813
 17
1-4 Family Residential Real Estate2,188
 1,939
 
 1,939
 
Consumer17
 11
 
 11
 
Total$9,251
 $7,645
 $584
 $8,229
 $208

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  $753 

Multi-family and Commercial Real Estate

  5,666   2,914   1,974   4,888   - 

Construction, Land Development and Farmland

  4,124   3,854   171   4,025   17 

1-4 Family Residential Real Estate

  2,422   2,034   27   2,061   27 

1-4 Family HELOC

  2,075   1,178   317   1,495   62 
                     

Total

 $20,670  $13,904  $4,269  $18,173  $859 

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 Estate1,670
 1,391
 
 1,391
 
Construction, Land Development and Farmland3,920
 3,360
 172
 3,532
 17
1-4 Family Residential Real Estate2,243
 1,508
 
 1,508
 
Consumer29
 23
 
 23
 
Total$9,109
 $7,047
 $425
 $7,472
 $55

The average balances of impaired loans for the ninethree months ended September 30, 2017March 31, 2019 and 2016 were2018 was as follows:

  

2017

  

2016

 

Commercial, Industrial and Agricultural

 $5,550  $6,143 

Multi-family and Commercial Real Estate

  4,403   6,074 

Construction, Land Development and Farmland

  4,319   3,047 

1-4 Family Residential Real Estate

  2,225   2,879 

1-4 Family HELOC

  957   1,944 

Total

 $17,454  $20,087 


 2019 2018
Commercial, Industrial and Agricultural$736
 $3,939
Multi-family and Commercial Real Estate2,202
 3,155
Construction, Land Development and Farmland3,173
 5,621
1-4 Family Residential Real Estate1,724
 2,821
1-4 Family HELOC
 90
Consumer17
 126
Total$7,852
 $15,752

19

Table of Contents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The Company utilizes a risk grading system to monitor the credit quality of the Company’s commercial loan portfolio which consists of commercial, industrial and agricultural, commercial real estate and construction loans. Loans are graded on a scale of 1 to 9. Grades 1 -to 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.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.


21

Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 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.flows. The borrower has verifiable liquid net worth providing above average asset protection. An identifiable market exists 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.liquidity. Borrowers are profitable and have a sustained record of servicing debt. An identifiable market exists 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.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.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.


2220

Table of Contents
RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(Dollar amounts in thousands except per share amounts)



NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)


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 substandard. Substandard assets have a high probability of payment default, or they have other well-defined weaknesses. They require more intensive supervision 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.


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.


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 March 31, 2019:

23
 Pass 
Special
Mention
 Substandard Doubtful Total
Commercial, Industrial and Agricultural$217,332
 $292
 $1,103
 $40
 $218,767
1-4 Family Residential Real Estate226,907
 
 3,217
 
 230,124
1-4 Family HELOC90,944
 
 
 
 90,944
Multi-family and Commercial Real Estate463,978
 1,565
 3,925
 
 469,468
Construction, Land Development and Farmland219,322
 456
 974
 
 220,752
Consumer17,669
 
 248
 9
 17,926
Other14,213
 
 
 
 14,213
Total$1,250,365
 $2,313
 $9,467
 $49
 $1,262,194

21

Table of Contents
RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(Dollar amounts in thousands except per share amounts)



NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)


Credit quality indicators by class of loan were as follows at September 30, 2017:

  

Pass

  

Special

Mention

  

Substandard

  

Total

 

Commercial, Industrial and Agricultural

 $134,802  $5  $3,841  $138,648 

1-4 Family Residential Real Estate

  96,681   1,400   2,574   100,655 

1-4 Family HELOC

  78,922   -   273   79,195 

Multi-family and Commercial Real Estate

  256,215   -   1,953   258,168 

Construction, Land Development and Farmland

  137,180   1,368   3,033   141,581 

Consumer

  16,386   -   -   16,386 

Other

  15,048   -   -   15,048 

Total

 $735,234  $2,773  $11,674  $749,681 

Credit quality indicators by class of loan were as follows at December 31, 2016:

  

Pass

  

Special

Mention

  

Substandard

  

Total

 

Commercial, Industrial and Agricultural

 $129,880  $-  $4,524  $134,404 

1-4 Family Residential Real Estate

  109,592   1,427   2,012   113,031 

1-4 Family HELOC

  55,981   -   1,479   57,460 

Multi-family and Commercial Real Estate

  211,938   -   3,701   215,639 

Construction, Land Development and Farmland

  111,663   1,767   2,459   115,889 

Consumer

  17,240   -   -   17,240 

Other

  13,745   -   -   13,745 

Total

 $650,039  $3,194  $14,175  $667,408 

2018:

24

Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

 Pass 
Special
Mention
 Substandard Total
Commercial, Industrial and Agricultural$212,761
 $
 $1,089
 $213,850
1-4 Family Residential Real Estate221,546
 1,125
 3,192
 225,863
1-4 Family HELOC88,112
 
 
 88,112
Multi-family and Commercial Real Estate442,127
 3,135
 2,578
 447,840
Construction, Land Development and Farmland218,053
 579
 2,169
 220,801
Consumer20,236
 
 259
 20,495
Other14,106
 
 
 14,106
Total$1,216,941
 $4,839
 $9,287
 $1,231,067

Past due status by class of loan was as follows at September 30, 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

 $71  $-  $1,859  $1,930  $136,718  $138,648 

1-4 Family Residential Real Estate

  688   -   257   945   99,710   100,655 

1-4 Family HELOC

  17   -   -   17   79,178   79,195 

Multi-family and Commercial Real Estate

  70   -   -   70   258,098   258,168 

Construction, Land Development and Farmland

  213   338   1,899   2,450   139,131   141,581 

Consumer

  21   -   -   21   16,365   16,386 

Other

  -   -   -   -   15,048   15,048 

Total

 $1,080  $338  $4,015  $5,433  $744,248  $749,681 

March 31, 2019:


 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90+ Days
Past Due
 
Total
Past Due
 Current Total Loans
Commercial, Industrial and Agricultural$167
 $85
 $1,001
 $1,253
 $217,514
 $218,767
1-4 Family Residential Real Estate2,129
 208
 2,073
 4,410
 225,714
 230,124
1-4 Family HELOC5
 
 
 5
 90,939
 90,944
Multi-family and Commercial Real Estate511
 19
 
 530
 468,938
 469,468
Construction, Land Development and Farmland6
 
 171
 177
 220,575
 220,752
Consumer33
 11
 17
 61
 17,865
 17,926
Other
 
 
 
 14,213
 14,213
Total$2,851
 $323
 $3,262
 $6,436
 $1,255,758
 $1,262,194

Past due status by class of loan was as follows at December 31, 2016:

  

30-59 Days
Past Due

  

60-89 Days
Past Due

  

90+ Days

Past Due

  

Total
Past Due

  

Current

  

Total Loans

 
                         

Commercial, Industrial and Agricultural

 $207  $1,586  $375  $2,168  $132,236  $134,404 

1-4 Family Residential Real Estate

  7   -   286   293   112,738   113,031 

1-4 Family HELOC

  -   -   -   -   57,460   57,460 

Multi-family and Commercial Real Estate

  -   -   -   -   215,639   215,639 

Construction, Land Development and Farmland

  58   -   730   788   115,101   115,889 

Consumer

  193   -   -   193   17,047   17,240 

Other

  -   -   -   -   13,745   13,745 

Total

 $465  $1,586  $1,391  $3,442  $663,966  $667,408 

2018:


 
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 Estate1,104
 335
 1,203
 2,642
 223,221
 225,863
1-4 Family HELOC50
 
 
 50
 88,062
 88,112
Multi-family and Commercial Real Estate
 104
 
 104
 447,736
 447,840
Construction, Land Development and Farmland214
 
 171
 385
 220,416
 220,801
Consumer11
 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


22

Table of Contents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

There was a loanwere two loans totaling $200$566 past due 90 days or more and still accruing interest at September 30, 2017.March 31, 2019. There were no loanswas a loan totaling $6 past due 90 days or more and still accruing interest at December 31, 2016.

During2018.


The following table presents loans by class modified as troubled debt restructurings that occurred during the ninefirst three months of 2019 and 2018:
  Number of Contracts  Pre-Modification Outstanding Recorded Investments  Post-Modification Outstanding Recorded Investments
March 31, 2019     
1-4 Family Residential
 $
 $
 Multi-family and Commercial Real Estate
 
 
Total
 $
 $
      
March 31, 2018     
1-4 Family Residential1
 $1,254
 $1,254
Total1
 $1,254
 $1,254

One modification that occurred during the three months ended September 30, 2017, two loans totaling $428 were modified in a troubled debt restructuring. One modificationMarch 31, 2018, consisted of a partial charge off, totaling $470, and aan interest only monthly payment restructure with the modification having no effect on interest income. The other modification consisted of a temporary reduction in required monthly payments and had no effect on the allowance for loan losses or interest income.


25

Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

TheThe Company has acquired loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The outstanding balance and carrying amount of the purchased credit impaired loans was as follows at September 30, 2017March 31, 2019 and December 31, 2016:

  

September 30,
2017

  

December 31,
2016

 

Commercial, Industrial and Agricultural

 $305  $385 

Multi-family and Commercial Real Estate

  1,232   3,321 

Construction, Land Development and Farmland

  1,510   1,569 

1-4 Family Residential Real Estate

  48   92 

1-4 Family HELOC

  36   36 

Total outstanding balance

  3,131   5,403 

Less remaining purchase discount

  193   635 

Allowance for loan losses

  4   6 

Carrying amount, net of allowance

 $2,934  $4,762 

During the three months ended September 30, 2017, there was a $2 reduction2018:


 March 31, 2019 December 31, 2018
Commercial, Industrial and Agricultural$63
 $63
Multi-family and Commercial Real Estate229
 233
Construction, Land Development and Farmland1,950
 1,958
1-4 Family Residential Real Estate319
 324
1-4 Family HELOC
 
Consumer17
 18
Total outstanding balance2,578
 2,596
Less remaining purchase discount300
 300
Allowance for loan losses
 
Carrying amount, net of allowance$2,278
 $2,296


23

RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in the allowance for loan losses related to purchased credit impaired loans. During the nine months ended September 30, 2017, there was no change in the allowance for loan losses related to purchased credit impaired loans.

thousands except per share amounts)



NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

Activity related to the accretable portion of the purchase discount on loans acquired with deteriorated credit quality is as follows for each quarterthe quarters and three months ended September 30, 2017:

Balance at January 1, 2017

 $87 

Accretion income

  (18)

Balance at March 31, 2017

  69 

Accretion income

  (17)

Balance at June 30, 2017

  52 

Accretion income

  (33)

Balance at September 30, 2017

 $19 

March 31, 2019 and 2018:

26

 2019 2018
Balance at January 1,$110
 $
New loans purchased
 260
Loan charge offs
 
Accretion income
 (38)
Balance at March 31,110
 222

Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 4 - OTHER REAL ESTATE

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 sell which totaled $1,650. Expenses related to other real estate totaled $6 and $3 for the quarters ended March 31, 2019 and 2018, respectively.

At March 31, 2019, there were two 1-4 Family Residential loans with related balances totaling $1,902 and a Commercial, Industrial and Agricultural loan, with a related balance of $160, in the process of foreclosure.


NOTE 5 - FAIR VALUESVALUES OF ASSETS AND LIABILITIES

Financial accounting standards relating to fair value measurements establish a framework for measuring fair value.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:

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.

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.







NOTE 5 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)

An asset’sasset’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 are determined based on discounted future cash flows.


27

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 4 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)

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 ForSale:The fair value of mortgage loans held for sale are valued at the lower of cost or market on an aggregate basis. When the aggregate fair value of mortgage loans held for sale is less than cost, an allowance is recorded. The Company utilizes a third party to value the mortgage loans held for sale portfolio using comparable sales data available with consideration of specific attributes of the loans. Such adjustments are typically not significant, and result in a Level 2 classification of the inputs for determining fair value.

There were no changes in valuation methodologies used during the nine months ended September 30, 2017.


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.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 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.items. Changes in assumptions or in market conditions could significantly affect the estimates.



2824

RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(Dollar amounts in thousands except per share amounts)



NOTE 45 - 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 recurring basis, by level within the fair value hierarchy, as of September 30, 2017March 31, 2019 and December 31, 2016:

      

Quoted Prices in

  

Significant

     
      

Active Markets

  

Other

  

Significant

 
      

for Identical

  

Observable

  

Unobservable

 
      

Assets

  

Inputs

  

Inputs

 
  

Fair Value

  

(Level 1)

  

(Level 2)

  

(Level 3)

 

September 30, 2017

                

Assets

                

U. S. Treasury and other U. S. government agencies

 $586  $-  $586  $- 

State and municipal

  165,247   -   165,247   - 

Corporate bonds

  1,495   -   1,495   - 

Mortgage backed securities

  21,449   -   21,449   - 

Time deposits

  3,500   3,500   -   - 

Interest rate swap

  23   -   23   - 
                 

Liabilities

                

Interest rate swap

 $448  $-  $448  $- 
                 

December 31, 2016

                

Assets

                

U. S. Treasury and other U. S. government agencies

 $1,908  $-  $1,908  $- 

State and municipal

  119,634   -   119,634   - 

Corporate bonds

  1,987   -   1,987   - 

Mortgage backed securities

  20,034   -   20,034   - 

Time deposits

  3,250   3,250   -   - 

Interest rate swap

  195   -   195   - 
                 

Liabilities

                

Interest rate swap

 $267  $-  $267  $- 

2018:

29
 Fair Value 
Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
March 31, 2019       
Assets       
U. S. Treasury and other U. S. government agencies$562
 $
 $562
 $
State and municipal238,345
 
 238,345
 
Corporate bonds3,018
 
 3,018
 
Mortgage backed securities34,422
 
 34,422
 
Asset backed securities30,458
 
 30,458
 
Time deposits3,500
 3,500
 
 
Interest rate swaps101
 
 101
 
        
Liabilities       
Interest rate swaps$1,955
 $
 $1,955
 $
        
December 31, 2018       
Assets       
U. S. Treasury and other U. S. government agencies$554
 $
 $554
 $
State and municipal229,298
 
 229,298
 
Corporate bonds3,017
 
 3,017
 
Mortgage backed securities31,958
 
 31,958
 
Asset backed securities27,996
 
 27,996
 
Time deposits3,500
 3,500
 
 
Interest rate swaps467
 
 467
 
        
Liabilities       
Interest rate swaps$1,183
 $
 $1,183
 $


25

RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(Dollar amounts in thousands except per share amounts)



NOTE 45 - 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 September 30, 2017March 31, 2019 and December 31, 2016:

      

Quoted Prices in

  

Significant

     
      

Active Markets

  

Other

  

Significant

 
      

for Identical

  

Observable

  

Unobservable

 
      

Assets

  

Inputs

  

Inputs

 
  

Fair Value

  

(Level 1)

  

(Level 2)

  

(Level 3)

 

September 30, 2017

                

Assets

                

Impaired loans

 $1,218  $-  $-  $1,218 
                 

December 31, 2016

                

Assets

                

Impaired loans

 $3,410  $-  $-  $3,410 

Mortgage loans held for sale

  11,831   -   11,831   - 

2018:


 Fair Value Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)
 Significant
Other
Observable
Inputs
(Level 2)
 Significant
Unobservable
Inputs (Level 3)
March 31, 2019       
Assets       
Impaired loans$376
 $
 $
 $376
Other real estate owned1,000
 
 
 1,000
        
December 31, 2018       
Assets       
Impaired loans$370
 $
 $
 $370
Other real estate owned1,000 
 
 1,000

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 September 30, 2017March 31, 2019 and December 31, 2016:

2018:

Valuation

Significant

Range

 

Valuation
Techniques (1)

 

Significant
Unobservable Inputs

 

Range
(Weighted Average)

Impaired loans

Appraisal 

Appraisal

Estimated costs to sell

 10%

Mortgage loans held for sale

Other real estate owned
Appraisal 

Pricing Model

Estimated costs to sell
 

Not applicable

Not applicable

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.



3026

RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(Dollar amounts in thousands except per share amounts)



NOTE 45 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)


Carrying amountsamounts and estimated fair values of financial instruments not reported at fair value at September 30, 2017March 31, 2019 were as follows:

          

Quoted Prices in

  

Significant

     
          

Active Markets

  

Other

  

Significant

 
      

Estimated

  

for Identical

  

Observable

  

Unobservable

 
  

Carrying

  

Fair

  

Assets

  

Inputs

  

Inputs

 
  

Amount

  

Value

  

(Level 1)

  

(Level 2)

  

(Level 3)

 

Financial assets

                    

Cash and due from banks

 $18,277  $18,277  $18,277  $-  $- 

Federal funds sold

  669   669   -   669   - 

Loans, net

  739,738   739,783   -   -   739,783 

Mortgage loans held for sale

  19,475   19,479   -   19,479   - 

Accrued interest receivable

  4,999   4,999   -   4,999   - 

Restricted equity securities

  7,163   7,163   -   7,163   - 

Financial liabilities

                    

Deposits

  840,448   840,055   -   -   840,055 

Accrued interest payable

  220   220   -   220   - 

Federal Home Loan Bank advances

  56,720   56,792   -   56,792   - 

 
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$34,796
 $34,796
 $34,796
 $
 $
Federal funds sold409
 409
 
 409
 
Loans, net1,250,806
 1,235,864
 
 
 1,235,864
Mortgage loans held for sale9,990
 10,066
 
 10,066
 
Accrued interest receivable8,389
 8,389
 
 8,389
 
Restricted equity securities11,499
 11,499
 
 11,499
 
Financial liabilities         
Deposits$1,511,321
 $1,509,732
 $
 $
 $1,509,732
Accrued interest payable990
 990
 
 990
 
Subordinate debentures11,624
 11,993
 
 
 11,993
Federal Home Loan Bank advances15,309
 15,277
 
 
 15,277

Carrying amounts and estimated fair valuesvalues of financial instruments not reported at fair value at December 31, 20162018 were as follows:

          

Quoted Prices in

  

Significant

     
          

Active Markets

  

Other

  

Significant

 
      

Estimated

  

for Identical

  

Observable

  

Unobservable

 
  

Carrying

  

Fair

  

Assets

  

Inputs

  

Inputs

 
  

Amount

  

Value

  

(Level 1)

  

(Level 2)

  

(Level 3)

 

Financial assets

                    

Cash and due from banks

 $23,413  $23,413  $23,413  $-  $- 

Federal funds sold

  830   830   -   830   - 

Loans, net

  657,701   658,130   -   -   658,130 

Accrued interest receivable

  3,786   3,786   -   3,786   - 

Restricted equity securities

  7,133   7,133   -   7,133   - 

Financial liabilities

                    

Deposits

  763,834   763,174   -   -   763,174 

Accrued interest payable

  107   107   -   107   - 

Federal funds purchased

  3,671   3,671   -   3,671   - 

Federal Home Loan Bank advances

  32,287   32,444   -   32,444   - 

 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 sold371
 371
 
 371
 
Loans, net1,220,184
 1,206,574
 
 
 1,206,574
Mortgage loans held for sale15,823
 15,871
 
 15,871
 
Accrued interest receivable8,214
 8,214
 
 8,214
 
Restricted equity securities11,690
 11,690
 
 11,690
 
Financial liabilities         
Deposits$1,437,903
 $1,434,652
 $
 $
 $1,434,652
Accrued interest payable1,063
 1,063
 
 1,063
 
Federal Home Loan Bank advances57,498
 57,434
 
 
 57,434

27

RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 5 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)

The methodsmethods 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.


31

Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 5 - STOCK-BASED COMPENSATION (CONTINUED)

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 a 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 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.

A summary of the activity in the stock option plans for the nine months ended September 30, 2017 is as follows:

          

Weighted

     
      

Weighted

  

Average

     
      

Average

  

Remaining

  

Aggregate

 
      

Exercise

  

Contractual

  

Intrinsic

 
  

Shares

  

Price

  

Term

  

Value

 

Outstanding at January 1, 2017

  241,541  $12.96         

Granted

  15,500   24.24         

Exercised

  (59,739)  11.60         

Forfeited or expired

  (11,800)  13.75         

Outstanding at September 30, 2017

  185,502   14.29   5.85  $1,673 

Exercisable at September 30, 2017

  107,802   12.68   3.92  $1,132 

      

Weighted Average

 
  

Shares

  

Grant-Date Fair Value

 

Non-vested options at January 1, 2017

  96,600  $3.36 

Granted

  15,500   6.66 

Vested

  (22,600)  3.12 

Forfeited

  (11,800)  3.02 

Non-vested options at September 30, 2017

  77,700   4.14 

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 56 - STOCK-BASED COMPENSATION

At September 30, 2017,


Stock Option Plan
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.

A summary of the activity in the stock option plan for the three months ended March 31, 2019 as follows:
 Shares 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
Outstanding at January 1, 2019159,260
 $16.72
 6.04 $1,146
Granted1,000
 $22.67
 10.00 
Exercised(2,183)
 $12.37
 5.69 
Forfeited or expired(2,600)
 $19.90
 7.95 
Outstanding at March 31, 2019155,477
 $16.75
 5.79 $1,023
Exercisable at March 31, 201987,877
 $13.49
 4.10 $780
 Shares 
Weighted Average
Grant-Date Fair Value
Non-vested options at January 1, 201971,200
 $5.28
Granted1,000
 $6.57
Vested(2,000) $3.55
Forfeited(2,600) $5.03
Non-vested options at March 31, 201967,600
 $5.36




28

RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 6 - STOCK-BASED COMPENSATION (CONTINUED)

Stock Option Plan, Continued
As of March 31, 2019, there was $283 of unrecognized future compensation expense to be recognized related to stock options.

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.

The following table shows the activity related to non-vested restricted stock for the three months ended March 31, 2019:

 Shares Weighted Average Grant-Date
Fair Value
Non-vested shares at January 1, 2019110,660
 $24.28
Granted3,000
 21.77
Vested
 
Forfeited(3,750) 23.31
Non-vested shares at March 31, 2019109,910
 $24.25

The restricted shares vest over periods ranging from one to three years. As of March 31, 2019, there was $1,472 of unrecognized compensation totals $1,569.

cost related to non-vested restricted share awards.


NOTE 67 - REGULATORY CAPITAL REQUIREMENTS


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 as of September 30, 2017,March 31, 2019, the Company and the Bank meet 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.condition. If only 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 September 30, 2017March 31, 2019 and December 31, 2016,2018, 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 institution’s category.


In July 2013, the FDIC approved final rules that substantially amend the regulatory risk-based capital rulesrules applicable to the Company and the Bank. The final rules implement the regulatory capital reforms of the Basel Committee on Banking Supervision reflected in “Basel III: A Global Framework for More Resilient Banks and Banking Systems” (Basel III) and changes required by the Dodd-Frank Act.


Under these rules, the leverage and risk-based capital ratios of bank holding companies may not be lower than the leverage and risk-based capital ratios for insured depository institutions.institutions. The final rules implementing Basel III became effective on January 1, 2015, and include new minimum risk-based capital and leverage ratios and a new common equity tier 1 ratio. In addition, these rules refine the definition of what constitutes capital for purposes of calculating those ratios, including the definitions of Tier 1 capital and Tier 2 capital.


3329

RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(Dollar amounts in thousands except per share amounts)



NOTE 67 - REGULATORY CAPITAL REQUIREMENTS (CONTINUED)


Basel III establishes a “capital conservation buffer” of 2.5% which began phasing in on January 1, 2016, at a rate of .625%0.625% per year. The buffer becomesbecame fully phased in on January 1, 2019. An institution is subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer.


Actual and required capital amounts and ratios are presentedpresented below as of September 30, 2017March 31, 2019 and December 31, 2016.

          

Minimum Required

  

To Be Well

 
  

Actual

  

Capital Including

  

Capitalized Under

 
  

Regulatory

  

Capital Conservation

  

Prompt Corrective

 
  

Capital

  

Buffer

  

Action Provisions

 
  

Amount

  

Ratio

  

Amount

  

Ratio

  

Amount

  

Ratio

 

September 30, 2017

                        

Company

                        

Tier I leverage

 $125,572   12.58% $39,928   4.000% $49,909   5.00%

Common equity tier 1

  125,572   14.72%  49,052   5.750%  55,450   6.50%

Tier I risk-based capital

  125,572   14.72%  61,848   7.250%  68,246   8.00%

Total risk-based capital

  135,195   15.85%  78,899   9.250%  85,297   10.00%
                         

Bank

                        

Tier I leverage

 $121,715   12.20% $39,907   4.000% $49,883   5.00%

Common equity tier 1

  121,715   14.29%  48,976   5.750%  55,364   6.50%

Tier I risk-based capital

  121,715   14.29%  61,752   7.250%  68,140   8.00%

Total risk-based capital

  131,338   15.42%  78,786   9.250%  85,174   10.00%
                         

December 31, 2016

                        

Company

                        

Tier I leverage

 $96,682   10.86% $35,610   4.000%  N/A   N/A 

Common equity tier 1

  96,682   13.00%  38,115   5.125%  N/A   N/A 

Tier I risk-based capital

  96,682   13.00%  49,271   6.625%  N/A   N/A 

Total risk-based capital

  105,764   14.22%  64,150   8.625%  N/A   N/A 
                         

Bank

                        

Tier I leverage

 $95,637   10.75% $35,586   4.000% $44,482   5.00%

Common equity tier 1

  95,637   12.88%  38,054   5.125%  48,264   6.50%

Tier I risk-based capital

  95,637   12.88%  49,192   6.625%  59,402   8.00%

Total risk-based capital

  104,719   14.10%  64,057   8.625%  74,269   10.00%

2018.

34

 
Actual
Regulatory
Capital
 
Minimum Required
Capital Including
Capital Conservation
Buffer
 
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
 Amount Ratio Amount Ratio Amount Ratio
March 31, 2019           
Company           
Tier I leverage$171,606
 10.23% $67,099
 4.000% $83,874
 5.000%
Common equity tier 1159,982
 11.50% 97,380
 7.000% 90,425
 6.500%
Tier I risk-based capital171,606
 12.34% 118,205
 8.500% 111,252
 8.000%
Total risk-based capital183,385
 13.19% 145,985
 10.500% 139,033
 10.000%
            
Bank           
Tier I leverage$167,447
 9.99% $67,046
 4.000% $83,807
 5.000%
Common equity tier 1167,447
 12.07% 97,111
 7.000% 90,174
 6.500%
Tier I risk-based capital167,447
 12.07% 117,920
 8.500% 110,984
 8.000%
Total risk-based capital179,226
 12.92% 145,656
 10.500% 138,720
 10.000%
            
December 31, 2018           
Company           
Tier I leverage$168,876
 10.38% $65,077
 4.000% $81,347
 5.000%
Common equity tier 1157,273
 11.59% 86,507
 6.375% 88,203
 6.500%
Tier I risk-based capital168,876
 12.44% 106,905
 7.875% 108,602
 8.000%
Total risk-based capital180,193
 13.28% 133,991
 9.875% 135,688
 10.000%
            
Bank           
Tier I leverage$165,308
 10.17% $65,018
 4.000% $81,272
 5.000%
Common equity tier 1165,308
 12.19% 86,451
 6.375% 88,146
 6.500%
Tier I risk-based capital165,308
 12.19% 106,792
 7.875% 108,488
 8.000%
Total risk-based capital176,625
 13.02% 133,961
 9.875% 135,657
 10.000%
Table of Contents

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 78 - EARNINGS PER SHARE


The following is a summary of the components comprising basic and diluted earningsearnings per common share of stock (EPS):

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2017

  

2016

  

2017

  

2016

 

Basic EPS Computation

                

Net income attributable to common shareholders

 $1,846  $2,368  $6,091  $6,965 

Weighted average common shares outstanding

  8,174,973   7,651,549   7,878,760   7,542,573 

Basic earnings per common share

 $0.23  $0.31  $0.77  $0.92 

Diluted EPS Computation

                

Net income attributable to common shareholders

 $1,846  $2,368  $6,091  $6,965 

Weighted average common shares outstanding

  8,174,973   7,651,549   7,878,760   7,542,573 

Dilutive effect of stock options and restricted shares

  105,885   117,243   95,587   97,674 

Adjusted weighted average common shares outstanding

  8,280,858   7,768,792   7,974,347   7,640,247 

Diluted earnings per common share

 $0.22  $0.30  $0.76  $0.91 


 Three Months Ended
March 31,
 2019 2018
Basic EPS Computation   
Net income attributable to common shareholders$3,824
 $3,741
Weighted average common shares outstanding11,405,438
 11,385,323
Basic earnings per common share$0.34
 $0.33
Diluted EPS Computation   
Net income attributable to common shareholders$3,824
 $3,741
Weighted average common shares outstanding11,405,438
 11,385,323
Dilutive effect of stock options, restricted shares and employee stock purchase plan81,707
 92,611
Adjusted weighted average common shares outstanding11,487,145
 11,477,934
Diluted earnings per common share$0.33
 $0.33

NOTE 89 - SEGMENT REPORTING


The Company has two reportable business segments: retail banking and residential mortgage banking. Segment information is derived from the internal reportingreporting 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 Bankingprovides 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 Bankingoriginates traditional first lien residential mortgage loans and first lien home equity lines of credit throughout the United States. The loans are amortizingtraditional first mortgage loans and home equity line of credit loans (HELOC). The amortizing firstlien residential mortgage loans are typically underwritten to government agency standards and sold to third party secondary market mortgage investors. SomeThe home equity lines of the HELOC loanscredit are retained in the retail banking operation’s loan portfolio while others are soldtypically underwritten to third party investors.participating banks or other investor group standards.


3530

RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(Dollar amounts in thousands except per share amounts)



NOTE 89 - SEGMENT REPORTING (CONTINUED)


The following presents summarized results of operations for the Company’sCompany’s business segments for the periods indicated:

  

Three Months Ended

 
  

September 30, 2017

 
  

Retail Banking

  

Residential

Mortgage

Banking

  

Elimination

Entries

  

Consolidated

 

Net interest income

 $8,924  $172  $-  $9,096 

Provision for loan losses

  540   -   -   540 

Noninterest income

  516   1,584   (13)  2,087 

Noninterest expense

  6,748   1,749   -   8,497 

Income tax expense (benefit)

  306   -   -   306 

Net income (loss)

  1,846   7   (13)  1,840 

Noncontrolling interest in net loss of subsidiary

  -   (7)  13   6 

Net income attributable to common shareholders

 $1,846  $-  $-  $1,846 

  

Three Months Ended

 
  

September 30, 2016

 
  

Retail Banking

  

Residential Mortgage Banking

  

Elimination Entries

  

Consolidated

 

Net interest income

 $7,750  $85  $-  $7,835 

Provision for loan losses

  145   -   -   145 

Noninterest income

  1,024   551   -   1,575 

Noninterest expense

  5,600   1,283   -   6,883 

Income tax expense (benefit)

  661   (42)  -   619 

Net income (loss)

  2,368   (605)  -   1,763 

Noncontrolling interest in net loss of subsidiary

  -   605   -   605 

Net income attributable to common shareholders

 $2,368  $-  $-  $2,368 


36
 Three Months Ended
March 31, 2019
 Retail Banking 
Residential
Mortgage
Banking
 
Elimination
Entries
 Consolidated
Net interest income$13,373
 $88
 $
 $13,461
Provision for loan losses
 
 
 
Noninterest income1,378
 575
 (15) 1,938
Noninterest expense (excluding merger expense)10,445
 2,299
 
 12,744
Merger expense2
 
 
 2
Income tax expense (benefit)480
 (108) 
 372
Net income (loss)3,824
 (1,528) (15) 2,281
Noncontrolling interest in net loss of subsidiary
 1,528
 15
 1,543
Net income attributable to common shareholders$3,824
 $
 $
 $3,824

 Three Months Ended
March 31, 2018
 Retail Banking Residential Mortgage Banking Elimination Entries Consolidated
Net interest income$13,044
 $338
 $
 $13,382
Provision for loan losses137
 
 
 137
Noninterest income1,288
 1,748
 (45) 2,991
Noninterest expense (excluding merger expense)9,451
 2,534
 
 11,985
Merger expense177
 
 
 177
Income tax expense (benefit)826
 (29) 
 797
Net income (loss)3,741
 (419) (45) 3,277
Noncontrolling interest in net loss of subsidiary
 419
 45
 464
Net income attributable to common shareholders$3,741
 $
 $
 $3,741


NOTE 10 - 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.

31

RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(Dollar amounts in thousands except per share amounts)



NOTE 810 - SEGMENT REPORTINGDERIVATIVES (CONTINUED)

Interest Rate Swaps Designated as Cash Flow Hedges

  

Nine Months Ended

 
  

September 30, 2017

 
  

Retail Banking

  

Residential

Mortgage

Banking

  

Elimination

Entries

  

Consolidated

 

Net interest income

 $25,224  $346  $-  $25,570 

Provision for loan losses

  1,195   -   -   1,195 

Noninterest income

  1,704   2,851   (98)  4,457 

Noninterest expense

  18,581   4,053   -   22,634 

Income tax expense

  1,061   (56)  -   1,005 

Net income (loss)

  6,091   (800)  (98)  5,193 

Noncontrolling interest in net loss of subsidiary

  -   800   98   898 

Net income attributable to common shareholders

 $6,091  $-  $-  $6,091 

  

Nine Months Ended

 
  

September 30, 2016

 
  

Retail Banking

  

Residential

Mortgage

Banking

  

Elimination

Entries

  

Consolidated

 

Net interest income

 $24,082  $527  $-  $24,609 

Provision for loan losses

  760   -   -   760 

Noninterest income

  2,253   5,678   -   7,931 

Noninterest expense

  16,800   6,747   -   23,547 

Income tax expense

  1,810   (35)  -   1,775 

Net income

  6,965   (507)  -   6,458 

Noncontrolling interest in net income of subsidiary

  -   507   -   507 

Net income attributable to common shareholders

 $6,965  $-  $-  $6,965 

Interest rate swaps with notional amounts totaling $60,000 as of March 31, 2019 , were designated as cash flow hedges of certain certificates of deposits 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.

Summary information related to the interest rate swaps designated as cash flow hedges as of March 31, 2019, is as follows:

37
Notional amounts$60,000
Weighted average pay rates3.338%
Weighted average receive rates3.060%
Weighted average maturity4.22 years
Unrealized losses$1,790

Cash Flow Hedges
The following table presents the net gains (losses) recorded in accumulated other comprehensive income and the Consolidated Statements of Income relating to the cash flow derivative instruments for the period ended:

 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)
March 31, 2019     
Interest rate contracts$(637) $
 $

The following table reflects the cash flow hedges included in the Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018, respectively:

 March 31, 2019 December 31, 2018
 Notional Amount Fair Value Notional Amount Fair Value
Included in other liabilities:       
Interest rate swaps related to       
subordinate debentures$10,000
 $284
 $10,000
 $174
        
Interest rate swaps related to       
Certificates of deposits50,000
 1,506
 
 
Federal Home Loan Bank borrowings
 
 50,000
 979
Total included in other liabilities$60,000
 $1,790
 $60,000
 $1,153

32

RELIANT BANCORP, INC.

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2016

2018

(Dollar amounts in thousands except per share amounts)



NOTE 910 - DERIVATIVES (CONTINUED)

Fair Value Hedges

The Company has swap agreements that were executed uponfollowing table reflects the purchase of investment grade municipal securities effectively converting the fixed municipal yields to floating rates. These fair value hedges are intended to reduceincluded in the interest rate risk associated withConsolidated Statements of Income for the underlying hedged item by mitigatingthree months ended March 31, 2019 and 2018, respectively:

Interest rate contractsLocation March 31, 2019 December 31, 2018
Change in fair value on interest     
rate swaps hedging investmentsInterest income $(501) $614

The following table reflects the changes in fair value based on fluctuationshedges included in interest rates.

The total notional amountthe Consolidated Balance Sheets as of swap agreements was $21,505 at September 30, 2017March 31, 2019 and December 31, 2016. At September 30,2018, respectively:


 March 31, 2019 December 31, 2018
 Notional Amount Fair Value Notional Amount Fair Value
Included in other assets:       
Interest rate swaps related to investments$10,668
 $101
 $16,902
 $467
        
Total included in other assets$10,668
 $101
 $16,902
 $467
        
Included in other liabilities:       
Interest rate swaps related to investments10,437
 165
 4,203
 30
        
Total included in other liabilities$10,437
 $165
 $4,203
 $30


NOTE 11 – INCOME TAXES

Income tax expense for the three months ended March 31, 2019 and 2018 was $372 and $797. The decline is attributable to; a lower income before tax level, an increased level of tax-exempt income in 2019, increased utilization of state tax credit lending programs, and there were no non-deductible merger expenses in 2019. The effective tax rate for the three months ended March 31, 2019 and 2018 was 14% and 20%, respectively.



33

RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 12 - BUSINESS COMBINATION

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 contracts hadReliant 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 totaling $23 recordedof net assets assumed and goodwill recognized:

Calculation of Purchase Price  
   
Shares of Community First 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
   
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

34

RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 12 - BUSINESS COMBINATION (CONTINUED)

During 2018, as part of the system integration of Community First, the Company determined minor adjustments were appropriate to reduce other assets by $93 and $448 recordedincrease payables and other liabilities by $85 effective as of the acquisition date.

NOTE 13 - RECENT ACCOUNTING PRONOUNCEMENTS

Information about certain issued accounting standards updates is presented below. Also refer to Note 1 - Summary of Significant Accounting Policies “Recent Authoritative Accounting Guidance” in other liabilities. At December 31, 2016,our 2018 Form 10-K for additional information related to previously issued accounting standards updates.

ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” implements a common revenue standard that clarifies the contracts had fair values totaling $195 recordedprinciples 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 otheran 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 $267 recorded in other liabilities.

financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. The derivative instruments held by the Company are designated and qualify as fair value hedges. Accordingly, the gain or loss on the derivatives as well as the offsetting gain or loss on the available-for-sale securities attributable to the hedged risk are recognized in current earnings. At September 30, 2017, the Company’s fair value hedges are effective and areadoption of this standard did not expected to have a significant impact on net income over the next twelve months.Company.

NOTE


10 – INCOME TAXESASU 2016-01, “

Income tax expense totaled $306 and $1,005 for the three and nine months ended September 30, 2017 as compared to $619 and $1,775 in the comparative periods in 2016. The tax rate was favorably impacted by an increase in income from tax-exempt securities, excess tax benefits recognized relating to the exercise of stock options and the addition of certain state tax credits on interest-free loans.

NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS

ASU 2016-01, “FinancialFinancial Instruments – Overall (Subtopic 825-10)825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” 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.available-for-sale securities. ASU 2016-1 will be2016-01 became effective for the Company beginningus on January 1, 20182019 and isdid not expected to have a significant impact on our consolidated financial statements.

ASU 2016-02, “

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amounts in thousands except per share amounts)

NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

ASU 2016-02,“Leases (Topic 842)842).requiresASU 2016-02 will require lessees to recognize a lease liability, which is a lessee‘s lessee's

obligation to make lease payments arising from a lease, measured on a discounted 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 does not significantly change lease accounting requirements applicable to lessors. ASU 2016-1 will be effective for the Companyus on January 1, 20192020 and will require transition using a modified retrospective approach which requires application of the new guidancefor leases existing at, or entered into after, the beginning of the earliest comparative period presented in the yearconsolidated financial statements. We estimate that the effect of adoption.implementing this pronouncement will result in right to use assets of $13,804 and a corresponding liability, using the remaining contractual lease periods. We also estimate the impact on regulatory capital to be a reduction of eight basis points to the Tier 1 leverage capital ratio. Management is presently evaluating the impactplanned renewals of existing leases. If management determines to utilize the update onrenewals of leases then the Company’s consolidated financial statements.

ASU 2016-09,“Compensationright to use assets and corresponding liability will increase.


35

RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 13 - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accountingrequires that all excess tax benefits and tax deficiencies related to share-based payment awards be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such excess tax benefits were recorded as additional paid-in capital, and tax deficiencies were charged to additional paid in capital to the extent of prior excess tax benefits. 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 or account for forfeitures when they occur. ASU 2016-09 became effective on January 1, 2017 with early adoption permitted. The Company elected early adoption of this update and as a result recognized in income tax expense an excess tax benefit of $82 and $181 related to the exercise of stock options during the three months and nine months ended September 30, 2017, respectively and $106 and $531 for the corresponding periods in 2016.

RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)


ASU 2016-13,, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” 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-saleavailable for sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective beginning on January 1, 2020. Management is2021. 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 pronouncement onimpact of adoption will be significantly influenced by the consolidated financial statements.

composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.


ASU 2017-04, Intangibles - Goodwill and Other (Topic 350)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 beginningfor the Company on January 1, 2020,2021, with earlyearlier adoption permitted for interim or annual impairment tests beginning in 2017. ASU 2017-04and is not currently expected to have a significant impact on the consolidated financial statements.


39

COMMERCE UNION BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

(Dollar amountsASU 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 thousands except per share amounts)

NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

ASU 2017-05, “Other Income - Gains and Losses fromTopic 820. The amendments in this update remove disclosures that no longer are considered cost beneficial, modify/clarify the Derecognition of Nonfinancial Assets (Subtopic 610-20) - Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”clarifies the scope of Subtopic 610-20 and adds guidance for partial sales of nonfinancial assets, including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether the transferspecific requirements of certain assets qualified for sale treatment.disclosures, and add disclosure requirements identified as relevant. ASU 2017-05 reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. ASU 2017-052018-13 will be effective for the Company on January 1, 2018 and is not expected to have a significant impact on our consolidated financial statements.

ASU 2017-08 “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities shortens the amortization period for certain callable debt securities held at a premium to require such premiums to be amortized to the earliest call date unless applicable guidance related to certain pools of securities is applied to consider estimated prepayments. Under prior guidance, entities were generally required to amortize premiums on individual, non-pooled callable debt securities as a yield adjustment over the contractual life of the security. ASU 2017-08 does not change the accounting for callable debt securities held at a discount. ASU 2017-08 will be effective for the Company on January 1, 2019,2021, with early adoption permitted, and is not expected to have a significant impact on our consolidated financial statements.

ASU 2017-09, “Compensation



NOTE 14 - Stock Compensation (Topic 718) - ScopeSUBSEQUENT EVENT

On May 3, 2019, in connection with the Company's stock repurchase plan, 200,000 shares were acquired at a total cost of Modification Accounting.” ASU 2017-09 clarifies when changes to the terms or conditions$4,598.


Item2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
The following is 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 allsummary of the following are the same immediately beforeCompany’s financial highlights 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 will be effectivesignificant events for the Company on January 1, 2018 and is not expectedthree months ended March 31, 2019:

Net income available to have a significant impact on the consolidated financial statements.

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 be effectivecommon shareholders totaled $3.8 million, or $0.33 per diluted common share, for the Company on January 1,three months ended March 31, 2019 and is not expectedcompared to have a significant impact on$3.7 million, or $0.33 per diluted common share, during same period in 2018.

Loans, net of unearned income increased $31.1 million for the consolidated financial statements.

three months ended March 31, 2019.
Deposits increased $73.4 million for the three months ended March 31, 2019.
40


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In the following section the term “Company”“Company” means “Commerce Union Bancshares,“Reliant Bancorp, Inc. and all of its subsidiaries” and the term “Bank” means “Reliant Bank.” The following discussion and analysis is intended to assist in the understanding and assessment of significant changes and trends related to our financial position and operating results. This discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere herein along with our 10-K filed March 14, 2017.8, 2019. Amounts in the narrative are shown in thousands, except for economic and demographic information, numbers of shares, per share amounts and as otherwise noted.


Critical Accounting Policies


The accounting principles we follow and our methods of applying these principles conform with to accounting principles generally accepted in the United States of America ("U.S. GAAPGAAP") and with general practices within the banking industry. There have been no significant changes to our critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2016. 2018. 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 Commerce Union Bancshares, Inc., its wholly-owned subsidiary, Reliant Bancorp, the Bank, (the “Bank”Community First Trups Holding Company, which is wholly owned by Reliant Bancorp (“TRUPS), andReliant Investment Holdings, LLC ("Holdings"), which is 100% wholly owned by the Bank’s 51% controlled subsidiary,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 (thereferred 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 accountsbalances 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 Reliant Mortgage Ventures.RMV. Under the related operating agreement, the non-controlling member receives 70% of the profitscash flow distributions of the mortgage venture,RMV, and the Bank receives 30% of the profitscash flow distributions, once the non-controlling member recovers its aggregate losses.capital contributions to RMV. The non-controlling member is responsible for 100% of the mortgage venture’s net losses.required to fund RMV’s losses via additional capital contributions to RMV. As of September 30, 2017, theMarch 31, 2019, RMV's cumulative losses to date totaled $4,197 prior to intercompany eliminations. Reliant Mortgage Ventures, LLC$9,601. RMV will have to generate net income of this amount before the Company will participate in future earnings.

cash flow distributions.

















Purchased Loans


The Company maintains an allowance 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 reverse 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 reverse 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.


41

Allowance for Loan Losses


The allowance for loan losses is a valuation allowance for probable incurred credit losses. 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-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 loan is impaired when full payment under the loan terms is not expected. All classified loans and loans on non-accrual status or 90+ days past due still accruing 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.


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. 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 THETHREE MONTHSENDEDMARCH 31, 2019AND NINE MONTHSENDED SEPTEMBER302018
Merger Between Reliant Bancorp, Inc. and Community First, Inc.
On December 15, 2017, the shareholders of Reliant Bancorp approved a merger with Community First, Inc. ("Community First"), which became effective on January 1, 2018 (the "Merger”). Each outstanding share of Community First common stock converted into the right to receive .481 shares of Reliant Bancorp 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,AND 2016

Community First, including its wholly owned subsidiaries, had total assets of $480 million, total loans of $316 million and total deposits of $433 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 common shareholders amounted to $1,846 and $6,091,$3,824, or $0.23 and $0.77$0.34 per basic share, for the three and nine months ended September 30, 2017, respectively,March 31, 2019, compared to $2,368 and $6,965,$3,741, or $0.31 and $0.92$0.33 per basic share, for the same periodsperiod in 2016.2018. Diluted net income attributable to common shareholders per share was $0.22 and $0.30$0.33 per share and $0.76 and $0.91 per diluted share for the three and nine months ended September 30, 2017, compared to 2016, respectively.March 31, 2019 and March 31, 2018. The major components contributing to the decline in income per share from the prior-year discussed further below include the private offeringincrease of 1,137,000 shares, the increase in audit, legal and consulting expenses relating to the merger with Community First Inc., the increase in provision for loan loss and somewhat offset by an increase0.6% in net interest income and a decline in income taxes. Our earnings per share declined withfor the change in earnings and the greater number of average shares outstanding duethree months ended March 31, 2019 compared to the exercisesame period in 2018 accounts for all of Company stock optionsthe increase in net income attributable to common shareholders. This and the private offering.

42

Tableother components of Contentsearnings are discussed further below.


Net Interest Income


Net interest incomeincome represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of our revenues. The following table sets 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 three and nine months ended September 30, 2017,March 31, 2019, and 20162018 (dollars in thousands):

  

Three Months Ended

September 30, 2017

  

Three Months Ended

September 30, 2016

  

Change

 
  

Average Balances

  

Rates / Yields (%)

  

Interest Income / Expense

  

Average Balances

  

Rates / Yields (%)

  

Interest Income / Expense

  

Due to Volume

  

Due to Rate

  

Total

 

Interest earning assets

                                    

Loans

 $727,453   4.78  $8,588  $649,778   4.57  $7,277  $947  $364  $1,311 

Loan fees

  -   0.27   490   -   0.28   452   38   -   38 

Loans with fees

  727,453   5.05   9,078   649,778   4.85   7,729   985   364   1,349 

Mortgage loans held for sale

  18,333   4.57   211   12,804   3.39   109   56   46   102 

Deposits with banks

  14,451   0.88   32   20,439   0.37   19   (34)  47   13 

Investment securities - taxable

  30,212   2.35   179   33,512   1.63   137   (81)  123   42 

Investment securities - tax-exempt

  157,718   3.99   1,022   111,448   3.33   578   300   144   444 

Fed funds sold and other

  7,557   5.51   105   8,506   3.93   84   (53)  74   21 

Total earning assets

  955,724   4.72   10,627   836,487   4.37   8,656   1,173   798   1,971 

Nonearning assets

  54,812           48,640                     

Total Assets

 $1,010,536          $885,127                     

Interest bearing liabilities

                                    

Interest bearing demand

  81,629   0.20   42   89,572   0.20   46   (4)  -   (4)

Savings and money market

  205,463   0.40   207   179,816   0.33   151   23   33   56 

Time deposits - retail

  329,203   1.02   845   143,344   0.73   262   446   137   583 

Time deposits - wholesale

  90,222   1.20   272   94,239   0.71   168   (48)  152   104 

Total interest bearing deposits

  706,517   0.77   1,366   506,971   0.49   627   417   322   739 

Federal Home Loan Bank advances

  46,910   1.40   165   132,876   0.58   194   (694)  665   (29)

Total interest-bearing liabilities

  753,427   0.81   1,531   639,847   0.51   821   (277)  987   710 

Net interest rate spread (%) / Net Interest Income ($)

      3.91  $9,096       3.86  $7,835  $1,450  $(189) $1,261 

Non-interest bearing deposits

  133,108   (0.13)      134,343   (0.09)                

Other non-interest bearing liabilities

  4,574           4,159                     

Stockholder's equity

  119,427           106,778                     

Total liabilities and stockholders' equity

 $1,010,536          $885,127                     

Cost of funds

      0.68           0.42                 

Net interest margin

      4.08           3.98                 

  

Nine Months Ended

September 30, 2017

  

Nine Months Ended

September 30, 2016

  

Change

 
  

Average Balances

  

Rates / Yields (%)

  

Interest Income / Expense

  

Average Balances

  

Rates / Yields (%)

  

Interest Income / Expense

  

Due to Volume

  

Due to Rate

  

Total

 

Interest earning assets

                                    

Loans

 $701,362   4.61  $23,652  $635,055   4.87  $22,603  $2,879  $(1,830) $1,049 

Loan fees

  -   0.29   1,541   -   0.30   1,408   133   -   133 

Loans with fees

  701,362   4.90   25,193   635,055   5.17   24,011   3,012   (1,830)  1,182 

Mortgage loans held for sale

  13,310   4.22   420   24,351   3.64   663   (389)  146   (243)

Deposits with banks

  15,177   0.71   81   20,646   0.35   54   (25)  52   27 

Investment securities - taxable

  32,355   2.12   514   43,840   1.79   589   (214)  139   (75)

Investment securities - tax-exempt

  145,412   4.01   2,796   98,560   3.33   1,506   902   388   1,290 

Fed funds sold and other

  7,787   5.15   300   7,447   4.38   244   12   44   56 

Total earning assets

  915,403   4.58   29,304   829,899   4.60   27,067   3,298   (1,061)  2,237 

Nonearning assets

  54,240           49,350                     

Total Assets

 $969,643          $879,249                     

Interest bearing liabilities

                                    

Interest bearing demand

  84,307   0.21   131   89,604   0.20   137   (13)  7   (6)

Savings and money market

  200,304   0.37   557   188,387   0.34   480   32   45   77 

Time deposits - retail

  308,911   0.86   1,994   142,602   0.70   747   1,043   204   1,247 

Time deposits - wholesale

  87,105   1.03   669   105,188   0.65   513   (147)  303   156 

Total interest bearing deposits

  680,627   0.66   3,351   525,781   0.48   1,877   915   559   1,474 

Federal Home Loan Bank advances and other

  41,132   1.24   383   121,999   0.64   581   (689)  491   (198)

Total interest-bearing liabilities

  721,759   0.69   3,734   647,780   0.51   2,458   226   1,050   1,276 

Net interest rate spread (%) / Net Interest Income ($)

      3.89  $25,570       4.09  $24,609  $3,072  $(2,111) $961 

Non-interest bearing deposits

  132,406   (0.11)      123,526   (0.08)                

Other non-interest bearing liabilities

  3,548           4,846                     

Stockholder's equity

  111,930           103,097                     

Total liabilities and stockholders' equity

 $969,643          $879,249                     

Cost of funds

      0.58           0.43                 

Net interest margin

      4.04           4.20                 

 Three Months Ended March 31, 2019 Three Months Ended March 31, 2018 Change
 Average BalancesRates / Yields (%)Interest Income / Expense Average BalancesRates / Yields (%)Interest Income / Expense Due to VolumeDue to RateTotal
Interest earning assets           
Loans$1,238,341
5.16
$15,463
 $1,088,166
4.81
$12,872
 $1,697
$895
$2,591
Loan fees
0.23
706
 
0.26
686
 20

20
Loans with fees1,238,341
5.39
16,169
 1,088,166
5.07
13,558
 1,716
895
2,611
Mortgage loans held for sale10,747
5.77
153
 39,235
4.97
481
 (782)454
(328)
Deposits with banks27,643
1.73
118
 50,206
1.34
166
 (267)219
(48)
Investment securities - taxable72,464
2.82
503
 72,678
2.83
507
 (2)(2)(4)
Investment securities - tax-exempt228,497
3.86
1,718
 218,246
3.57
1,504
 78
136
214
Federal funds sold and other12,650
5.83
182
 9,934
5.96
146
 57
(21)36
Total earning assets1,590,342
5.00
18,843
 1,478,465
4.61
16,362
 801
1,680
2,481
Nonearning assets140,835
   134,621
      
Total assets$1,731,177
   $1,613,086
      
Interest bearing liabilities           
Interest bearing demand148,649
0.30
111
 154,318
0.20
77
 (19)53
34
Savings and money market400,328
1.14
1,130
 344,641
0.56
478
 88
564
652
Time deposits - retail577,270
2.05
2,921
 516,424
1.31
1,664
 217
1,040
1,257
Time deposits - wholesale106,625
2.47
650
 95,743
1.41
332
 42
276
318
Total interest bearing deposits1,232,872
1.58
4,812
 1,111,126
0.93
2,551
 328
1,933
2,261
Federal Home Loan Bank advances56,718
2.70
377
 70,172
1.57
272
 (312)417
105
Subordinated debt11,613
6.74
193
 11,536
5.52
157
 1
35
36
Total borrowed funds68,331
3.38
570
 81,708
2.13
429
 (310)451
141
Total interest-bearing liabilities1,301,203
1.68
5,382
 1,192,834
1.01
2,980
 17
2,385
2,402
Net interest rate spread (%) / Net interest income ($) 3.32
$13,461
  3.60
$13,382
 $784
$(705)$79
Non-interest bearing deposits211,122
(0.24)  212,614
(0.15)     
Other non-interest bearing liabilities9,391
   6,205
      
Stockholder's equity209,461
   201,433
      
Total liabilities and stockholders' equity$1,731,177
   $1,613,086
      
Cost of funds 1.44
   0.86
     
Net interest margin 3.63
   3.79
     

Table AssumptionsAverage loan balances are inclusive of nonperforming loans. Yields computed on tax-exempt instruments are on a tax equivalent basis.basis including a state tax credit included in loan yields of $300 and $25 for the three months ended March 31, 2019 and 2018, respectively. Net interest spread is calculated as the yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities. 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 changes in average balances (volume change) or changes in average rates (rate change) for earning assets and sources of funds on which interest is received 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.




AnalysisFor the three and nine months ended September 30, 2017,March 31, 2019, we recorded net interest income of approximately $9.1$13.5 million and $25.6 million, respectively, which resulted in a net interest margin (net interest income divided by the average balance of interest earning assets) of 4.08% and 4.04% respectively.3.63%. For the three and nine months ended September 30, 2016,March 31, 2018, we recorded net interest income of approximately $7.8$13.4 million, and $24.6 million, respectively, which resulted in a net interest margin of 3.98% and 4.20%, respectively. For the three months ended September 30, 2017 and 2016, our net interest spread was 3.91% and 3.86%, respectively. For the nine months ended September 30, 2017 and 2016, our net interest spread was 3.89% and 4.09%, respectively.3.79%. The main factor contributing to the slight increase in our net interest income was our earning asset growth outpacingincrease in our interest-bearing liability growth forloans and the periods presented. Additionally, net interest income for the three and nine months ended September 30, 2017related yield. It was impactedpartially offset by the recognitionincrease in our cost of income from the remaining purchase discount of $354 on a purchase-credit impaired loan that paid in full during the third quarter of 2017 compared to a similar $619 recognition of income for the nine months ended September 30, 2016.funds.


44

Our year-over-year average loan volume increased by approximately 10.4% from13.8% for the first ninethree months of 20162019 compared to the first ninethree months of 2017.2018. Our combined loan and loan fee yield decreased from 5.17% to 4.90% for the first nine months of 2016 compared to 2017, respectively, while our combined loan and loan fee yield increased from 4.85%5.07% to 5.05%5.39% for the first three months ended September 30, 2016of 2019 compared to 2017, respectively.2018. The increased yield for the three months ended September 30, 2017March 31, 2019 is attributable to the recognition of income from the remaininga 34 basis points increase in contractual loan yields, a nine basis points increase in state tax credits, and partially offset by an eight basis points decrease in purchase discount of $354 onaccounting accretion and a purchase-credit impairedthree basis points decrease in loan that paid in full during the third quarter of 2017.

fees.


Our tax equivalent yield on tax-exempt investments increasedincreased to 3.99% and 4.01%, respectively,3.86% for the three and nine months ended September 30, 2017,March 31, 2019, from 3.33%3.57% for the same periodsperiod in 2016.2018. This increase was driven by investment restructurings in the first quarter of 2018. Our year-over-year average tax-exempt investment volume increased by approximately 41.5% and 47.5% from4.7% for the first three and nine months of 20162019 compared to the same periodsperiod in 2017.2018. Our year-over-year average taxable securities volume decreased by 9.9% and 26.2% from0.3% for the first three and nine months of 2016 compared to the same periods in 2017. We have continued to add volume to our investment portfolio. A portion of the earnings growth in the tax-exempt investment portfolio related to the completion of a municipal bond replacement strategy that was implemented late in the fourth quarter of 2016 and completed in the first quarter 2017 and additional strategies that were implemented in 2017 that are expected to provide better yielding securities that are relatively less sensitive to rising interest rates and potential declines in corporate tax rates.

Our cost of funds increased from 0.43% to 0.58% for the nine months ended September 30, 20162019 compared to the same period in 2017. 2018. No material changes to our investment portfolio were made during the first quarter of 2019.


Our cost of funds increased to 1.44% from 0.42% to 0.68%0.86% for the three months ended September 30, 2016March 31, 2019 compared to the same period in 2017.2018. The increase in our cost of funds was driven mainly by higher rates being paid on time deposits, FHLB advances, and FHLB advances.subordinated debt. We experienced a 7.2% increase and a 0.9%0.7% decrease in our average non-interest bearing deposits from the nine and three months ended September 30, 2016, respectively.

We continue to deploy various assetMarch 31, 2018.


Our balance sheet has some components that will benefit from rising interest rates, including variable rate loans, some variable rate investment securities and liability management strategies to manage our risk relating to interest rate fluctuations. We believe margin expansion over both the short and the long term will be challenging primarilyswaps.  Conversely our interest bearing liabilities are negatively impacted with rising interest rates. Our wholesale fundings are particularly sensitive to changes in interest rates mainly due to continued pressuretheir short term nature. We added $30 million of pay-fixed receive-variable interest rate swaps in each of the second and third quarters of 2018. We are always looking for opportunities to increase our non-interest bearing and lower cost deposits and have seen some success with a stronger focus on loan yieldslow cost deposits in all of our competitive marketssales incentive plans.  These efforts will continue as well as recent and anticipated increases in short term interest rates. Any increases in short-term market interest rates would be expectedcontinuing to increaseevaluate the benefits of fixing a greater portion of our interest income on variable-rate loans, certain investments andfunding costs through interest rate swaps but may be offset by an increase in our cost of funds that is somewhat dependent on short-term interest rates.

swaps.


Provision for Loan Losses


The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in management’smanagement’s evaluation, should be adequate 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 probable losses inherent in the loan portfolio.


Based upon our evaluation of the loan portfolio, we believe the allowance for loan losses to be adequate to absorb our estimate of probable losses existing in the loan portfolio at September 30, 2017.March 31, 2019. While policies 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 ano provision for loan losses of $540 and $1,195, for the three and nine months ended September 30, 2017, respectively,March 31, 2019 compared to $145 and $760,$137 for loan losses recorded for the three and nine months ended September 30, 2016, respectively.March 31, 2018. Our provision for loan losses was impacted by the level of loan growth, the credit quality of the loan portfolio, and the amount of net charge-offs and recoveries.

recoveries for the three months ended March 31, 2019.

45Non-Interest Income

Non-Interest Income

Our non-interest income is composed of several components, some of which vary significantly between periods. The following is a summary of our non-interest income for the three and nine months ended September 30, 2017,March 31, 2019, and 20162018 (dollars in thousands):

  

Three Months Ended

  

Dollar

  

Percent

 
  

September 30,

  Increase  Increase 
  

2017

  

2016

  (Decrease)  (Decrease) 

Non-Interest Income

                

Service charges and fees

 $309  $320  $(11)  -3.4%

Securities gains (losses), net

  -   296   (296)  -100.0%

Gains on mortgage loans sold, net

  1,571   551   1,020   185.1%

Gain (loss) on sale of other real estate

  1   145   (144)  -99.3%

Loss on disposal of premises and equipment

  (50)  -   (50)  -100.0%

Other noninterest income:

                

Bank-owned life insurance

  219   194   25   12.9%

Brokerage revenue

  16   40   (24)  -60.0%

Miscellaneous noninterest income (expense), net

  21   29   (8)  -27.6%

Total other non-interest income

  256   263   (7)  -2.7%

Total non-interest income

 $2,087  $1,575  $512   32.5%

  

Nine Months Ended

  

Dollar

  

Percent

 
  

September 30,

  Increase  Increase 
  

2017

  

2016

  (Decrease)  (Decrease) 

Non-Interest Income

                

Service charges and fees

 $936  $926  $10   1.1%

Securities gains (losses), net

  59   356   (297)  -83.4%

Gains on mortgage loans sold, net

  2,751   5,675   (2,924)  -51.5%

Gain (loss) on sale of other real estate

  26   301   (275)  -91.4%

Loss on disposal of premises and equipment

  (50)  -   (50)  -100.0%

Other noninterest income:

                

Bank-owned life insurance

  595   557   38   6.8%

Brokerage revenue

  70   67   3   4.5%

Rental income

  -   2   (2)  -100.0%

Miscellaneous noninterest income (expense), net

  70   47   23   48.9%

Total other non-interest income

  735   673   62   9.2%

Total non-interest income

 $4,457  $7,931  $(3,474)  -43.8%



 Three Months Ended March 31,
Dollar
Increase
Percent
Increase
 20192018(Decrease)(Decrease)
Non-Interest Income    
Service charges and fees$884
$771
$113
14.7 %
Securities gains, net131

131
100.0 %
Gains on mortgage loans sold, net560
1,705
(1,145)(67.2)%
Gain on sale of other real estate
89
(89)(100.0)%
Other noninterest income:    
   Bank-owned life insurance279
302
(23)(7.6)%
   Brokerage revenue11
75
(64)(85.3)%
   Miscellaneous noninterest income73
49
24
49.0 %
Total other non-interest income363
426
(63)(14.8)%
Total non-interest income$1,938
$2,991
$(1,053)(35.2)%

The most significant reasonreasons for the changes in total non-interest income during the three and nine months ended September 30, 2017March 31, 2019 compared to the same periods in 2016 is2018 are the fluctuation in gains on mortgage loans sold, net. Thisnet, the increase in service charges, and the gains on securities transactions. These and other factors impacting non-interest income are discussed further below.


Service charges on deposit accounts have remained generally flatincreased and mainly reflect customer growth trends but have also been impacted by changes in our fee structures.

The majority of the 14.7% increase for the three months ended March 31, 2019 was driven by the changes in our fee structures.


Securities gains and losses often fluctuate from period to period and can sometimes be attributable to various balance sheet risk strategies. During the ninethree months ended September 30, 2017,March 31, 2019, the Company sold securities classified as available for sale totaling $18,688 for gains$10,558 with a gain of $59.$131. During the ninethree months ended September 30, 2016,March 31, 2018, the Company sold securities classified as available for sale totaling $20,036, including $18,978 sold during the third quarter of 2016. The Company recognized a gain on sales of securities classified as available for sale of $296 and $356 for the three and nine months ended September 30, 2016, respectively.

$82,187 with no gain.

46

Gains on mortgage loans sold, net, consists of fees from the origination and sale of mortgage loans.loans and first-lien HELOCs. These mortgage fees are for loans originated and subsequently sold to third-party investors. All of these loan sales transfer servicing rights to the buyer. Generally, mortgage related revenue increases in lower interest rate environments and more robust housing markets and decreasedecreases in rising interest rate environments and more challenging housing markets. Mortgage-related revenue will fluctuate from quarter to quarter as the rate environment changes and as changes occur with our mortgage operations including but not limited to the number of loan originators employed and the channels available for loan sales of the venture’s products in the secondary markets. Gains on mortgage loans sold, net, amounted to $1,571 and $2,751$560 for the three and nine months ended September 30, 2017,March 31, 2019, compared to $551 and $5,675$1,705 for the same periodsperiod in the prior year. 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. The timing of this revenue recognition varies from the time a loan is originated with a customer. We completed the transition to dispose 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 the nine months ended September 30, 2017 was impacted by the transition. The increase in gains on mortgage loans sold during


During the three months ended September 30, 2017March 31, 2019, there was influenced by our new first-lien HELOC program.

During the three and nine months ended September 30, 2017, we recognized ano gain of $1 and $26, respectively,or loss due to the recognitionsale of a previously deferred gain from a payoff of a loanother real estate compared to a gain of $145 and $301$89 in the same periodsperiod in 2016 for similar transactions.

Non-interest2018.


Non-interest income also includes appreciation in the cash surrender value of bank-owned life insurance which was $219 and $595$279 for the three and nine months ended September 30, 2017,March 31, 2019, compared to $194 and $557$302 for the same periodsperiod in 2016.2018. The decrease relates to the introductory rate ending from our last purchase.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. An additional $4.0 million of bank-owned life insurance was purchased with terms similarexpected to our existing policies in June 2017.

Ourbe taxable.


Our brokerage revenue is solely based on commissions received from established referral relationships and fluctuate based on related activity.

Rental income relates to rent received on foreclosed properties and is minimal for the periods presented. There were no foreclosed properties on our balance sheet or rent received during the three or nine months ended September 30, 2017.

assets under management.


Non-Interest Expense


The following is a summary of our non-interestnon-interest expense for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 (dollars in thousands):

  

Three Months Ended

  

Dollar

  

Percent

 
  

September 30,

  Increase  Increase 
  

2017

  

2016

  (Decrease)  (Decrease) 

Non-Interest Expense

                

Salaries and employee benefits

 $4,880  $4,017  $863   21.5%

Occupancy

  850   767   83   10.8%

Information technology

  732   586   146   24.9%

Advertising and public relations

  81   117   (36)  -30.8%

Audit, legal and consulting

  1,046   328   718   218.9%

Federal deposit insurance

  100   109   (9)  -8.3%

Provision for losses on other real estate

  -   17   (17)  -100.0%

Other operating

  808   942   (134)  -14.2%

Total non-interest expense

 $8,497  $6,883  $1,614   23.4%



  

Nine Months Ended

  

Dollar

  

Percent

 
  

September 30,

  Increase  Increase 
  

2017

  

2016

  (Decrease)  (Decrease) 

Non-Interest Expense

                

Salaries and employee benefits

 $13,634  $14,294  $(660)  -4.6%

Occupancy

  2,482   2,406   76   3.2%

Information technology

  1,924   1,849   75   4.1%

Advertising and public relations

  204   542   (338)  -62.4%

Audit, legal and consulting

  1,647   993   654   65.9%

Federal deposit insurance

  320   349   (29)  -8.3%

Provision for losses on other real estate

  -   70   (70)  -100.0%

Other operating

  2,423   3,044   (621)  -20.4%

Total non-interest expense

 $22,634  $23,547  $(913)  -3.9%

 Three Months Ended March 31,
Dollar
Increase
Percent
Increase
 20192018(Decrease)(Decrease)
Non-Interest Expense    
Salaries and employee benefits$7,265
$6,954
$311
4.5 %
Occupancy1,352
1,229
123
10.0 %
Information technology1,410
1,349
61
4.5 %
Advertising and public relations254
89
165
185.4 %
Audit, legal and consulting796
623
173
27.8 %
Federal deposit insurance195
196
(1)(0.5)%
Merger expenses2
177
(175)(98.9)%
Other operating1,472
1,545
(73)(4.7)%
Total non-interest expense$12,746
$12,162
$584
4.8 %

The most significant reasonsreason for the increase in total non-interest expense of $1,614$584 or 23.4%4.8% for the three months ended September 30, 2017March 31, 2019 is due to the increaseadditional staffing for our mortgage venture and opening our new branches in audit, legalMurfreesboro and consulting expenses and the increaseChattanooga as well as our investment in salaries and employee benefits. The most significant reason for the decline in total non-interest expense of $913 or 3.9% for the nine months ended September 30, 2017 is due to the decrease in salary and employee benefits when compared to the same period in 2016.revenue producers. These and other factors impacting non-interest expense are discussed further below.


Salaries and employee benefits increased by $863$311 or 21.5%4.5% for the three months ended September 30, 2017March 31, 2019 compared to the same period in 2016.2018. This increase is attributable mainly to the increased staff for our mortgage venture as well as our staffing of the Green Hills branch, theour new branches in Murfreesboro and Chattanooga loan and deposit production office, and other strategic hires. For the nine months ended September 30, 2017 compared to the same periodinvestments in 2016, salaries and employee benefits decreased by $660 or 4.6%. The decline is mainly attributable to the decrease in employee related expenses of the mortgage operations resulting from the transition of a majority of our out-of-market mortgage loan production offices during the second quarter of 2016 and was partially offset by staffing previously mentioned.

revenue producers.


Certain of our facilities are leased while there are others that we own. Primarily, occupancy costs increased $83 and $76$123 or 10.0% during the three and nine months ended September 30, 2017March 31, 2019 when compared to the same period in 20162018 due to the full quarter of depreciationlease for oura new Green Hills location and a full quarter of depreciation and lease expense for our new Chattanooga location that opened in the first quarter of 2017 and the related depreciation for our new Mortgageexecutive office in Brentwood which opened in the second quarter of 2017.

2018, the lease for the Murfreesboro branch which opened in the third quarter of 2018, and the lease for the Chattanooga branch which opened in the fourth quarter of 2018.


Information technology costs increased by $146 and $75$61 or 24.9% and 4.1%4.5% when comparing the three and nine months ended September 30, 2017March 31, 2019 to the comparable periodsperiod in 2016. These fluctuations are2018. This increase is mainly attributable to increased costs due to increasing the timingvolume of project related activities.

accounts and transactions as well as our continued investment in information security and other technology.


Advertising and public relations costs decreasedincreased by $165 or 185.4% when comparing the three and nine months ended September 30, 2017March 31, 2019 to the same periodsperiod in 2016, by $36 and $338, respectively.2018. The decreaseincrease was substantially attributable to an increase in advertising for our mortgage venture as well as cost associated with a declinebrand initiative campaign and an increase in our direct-mail advertisingdonations and related consultation expenditures and partially offset by the recently completed marketing campaign to increase core deposits. Additional customer acquisition strategies are being evaluated by the Company.

sponsorships.


Audit, legal and consulting costs increased by $718 and $654, respectively,$173 or 218.9% and 65.9%27.8% when comparing the three and nine months ended September 30, 2017March 31, 2019 to the same periodsperiod in 2016.2018. This increase is mainly attributable to the $562 of merger related expensesincrease in the third quarter of 2017.

legal fees and consulting fees incurred in connection with our mortgage venture.


Our FDICFederal Deposit Insurance Corporation (FDIC) expense is based on our outstanding liabilities 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 decreased by $9 and $29, respectively$1 for the three and nine months ended September 30, 2017,March 31, 2019, compared to the same periodsperiod in 2016.2018. This slight decrease is primarily the result of a reduction indecrease of the applicable raterates charged by the FDIC which was partially offset by theour increase in average liabilities.

deposits.

48

We recorded a provision for losses on other real estate of $17 and $70 during the three and nine months ended September 30, 2016, respectively comparedMerger related expenses decreased by 98.9% to no provision during the three and nine months ended September 30, 2017. As of September 30, 2017, the Company has no properties held in the other real estate portfolio.

Other operating expenses decreased$2 for the three and nine months ended September 30, 2017,March 31, 2019 when compared to the same periodsperiod in 20162018. These costs are considered one time expenses associated with the Merger, and most of these expected expenses have been incurred at this point.


Other operating expenses decreased by $73 or 4.7% for the three months ended March 31, 2019, compared to the same period in 2018 mainly due to decreasesthe decrease in loan-related expenses such as processing costs relating to our mortgage operations asbased on volume decreased and our transitioning of several of our out-of-market mortgage offices to another bank, andfor the reversal of the lower of cost or market adjustment for loans held for sale during the ninethree months ended September 30, 2017.

March 31, 2019.


Income Taxes


During the three and nine months ended September 30, 2017,March 31, 2019, we recorded consolidated income tax expense of $306 and $1,005, respectively,$372 compared to $619 and $1,775, respectively,$797 for the three and nine months ended September 30, 2016.March 31, 2018. The Company files separate federal tax returns 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 Bank and non-controlling members for federal purposes.


Our income tax expense attributable to Bank shareholders for the three and nine months ended September 30, 2017,March 31, 2019, reflects an effective income tax rate of 14.2% and 14.8%, respectively,11.2% (exclusive of a tax benefit from our mortgage banking operations of $0 and $56 on pre-tax gains (losses) of $7 and $(856) prior to intercompany eliminations), compared to 21.8% and 20.6% (exclusive of tax benefit of $42 and $35$108 on pre-tax losses of $647 and $542$1,651), compared to 18.1% (exclusive of a tax benefit of $29 on pre-tax losses of $493 from our mortgage banking operations for the comparable periodsperiod of 2016)2018). Our tax rate for the three and nine months ended September 30, 2017,March 31, 2019, was favorably influenced by tax credits related to interest-free loans originated in the second quarter of 2016, an increase in income earned on tax-exempt investment securities, certain federal and state tax credits and benefits relating to the exercise of Company stock options.

No$275.


ncontrollingNoncontrolling Interest in NetIncome (Loss)of Subsidiary


Our noncontrollingnon-controlling interest in net income (loss)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 noncontrollingnon-controlling member receives 70% of the profitscash flow distributions of the mortgage venture, and the Bank receives 30% of any profits.cash flow distributions, after the non-controlling member recovers its capital contributions to the venture. The noncontrollingnon-controlling member is responsible for 100% ofrequired to fund the mortgage venture’s net losses.venture's losses via additional capital contributions to the mortgage venture. The venture had a net income of $7 and a net loss of $800, respectively prior to intercompany eliminations, for the three and nine months ended September 30, 2017 compared to net loss of $605 and $507, for the same periods in 2016. The increase in income$1,543 for the three months ended September 30, 2017March 31, 2019 compared to a net loss of $464 for the same period in 2018. The increase in loss for the three months ended March 31, 2019 when compared to the same period in 2016 results from their increased production volume from our first-lien HELOC program. The decrease in income for the nine months ended September 30, 2017 when compared2018 is mainly attributable to the same periodincrease in 2016 results fromsalaries and benefits due to the transition of most of its out-of-market mortgage offices to another bank.increased staff as well as legal fees and consulting fees previously mentioned. These amounts are included in our consolidated results. Also, see Note 89 for segment reporting in the consolidated financial statements included elsewhere herein.

49


C

OMPARISONCOMPARISON OF BALANCE SHEETS ATSEPTEMBER 30, 2017AND DECEMBERATMARCH 31, 20162019

ANDDECEMBER 31, 2018


Overview


The Company’s total assets were $1,041,180$1,761,926 at September 30, 2017March 31, 2019 and $911,984$1,724,338 at December 31, 2016.2018. Our assets increased by 14.2%2.2% from December 31, 20162018 to September 30, 2017.March 31, 2019. The increase was substantially attributable to the growth in net loans and investments during the period of $82.0$30.6 million or 12.5%2.5% and $45.5$14.0 million or 31.0%4.7%, respectively, discussed further below. Other increases include mortgage loans held for sale of $7.6 million or 64.6% and cash surrender value of life insurance contracts of $4.6 million or 18.5%. These increases were partially offset by the decline of cash and cash equivalentsmortgage loans held for sale by $5.3$5.8 million or 21.8%36.9%. The Company’s total liabilities were $903,236$1,546,807 at September 30, 2017March 31, 2019 and $805,065$1,515,924 at December 31, 2016,2018, an increase of 12.2%2.0%. The increase in liabilities from December 31, 20162018 to September 30, 2017,March 31, 2019, was substantially attributable to anthe increase in deposits and Federal Home Loan Bank advances of $76.6$73.4 million or 10.0%5.1% and $24.4 million or 75.7%, respectively, during the period. This increase was partially offset by athe decrease in federal funds purchasedFederal Home Loan Bank (FHLB) advances of $3.7 million.$42 million or 73.4% during the period. These and other components of our balance sheets are discussed further below.


Loans


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 strong. Our goal is to steadily grow our loan portfolio, focusing on quality. This is not always possible for various factors,reasons, 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. In the first quarter of 2017 we expanded outside Middle Tennessee into Chattanooga, one of the state’s fastest growing metropolitan markets. Our Chattanooga team as well asmarkets, and with the lending staff inMerger we have expanded our new full-service branch in Green Hills opened in the first quarter of 2017 are expected to help us towards our goal of obtaining quality loan growth.Middle Tennessee footprint into Maury and Hickman Counties. Total loans, net, at September 30, 2017,March 31, 2019, and December 31, 2016,2018, were $739,738$1,250,806 and $657,701,$1,220,184, respectively. This represented an increase of 12.5%2.5% from December 31, 20162018 to September 30, 2017.

March 31, 2019.


The table below provides a summary of the loan portfolio composition for the dates noted (including purchased credit-impaired (PCI) loans).

  

September 30,

  

December 31,

 
  

2017

  

2016

 
  

Amount

  

Percent

  

Amount

  

Percent

 
                 

Commerical, Industrial and Agricultural

 $138,648   18.5% $134,404   20.1%

Real estate:

                

1-4 Family Residential

  100,655   13.4%  113,031   16.9%

1-4 Family HELOC

  79,195   10.6%  57,460   8.6%

Multifamily and Commercial

  258,168   34.4%  215,639   32.3%

Construction, Land Development and Farmland

  141,581   18.9%  115,889   17.4%

Consumer

  16,386   2.2%  17,240   2.6%

Other

  15,048   2.0%  13,745   2.1%
   749,681   100.0%  667,408   100.0%

Less:

                

Deferred loan fees

  320       625     

Allowance for possible loan losses

  9,623       9,082     
                 

Loans, net

 $739,738      $657,701     



 March 31, December 31,
 2019 2018
 Amount Percent Amount Percent
Commerical, Industrial and Agricultural$218,767
 17.3% $213,850
 17.4%
Real estate:       
1-4 Family Residential230,124
 18.2% 225,863
 18.3%
1-4 Family HELOC90,944
 7.2% 88,112
 7.2%
Multifamily and Commercial469,468
 37.2% 447,840
 36.4%
Construction, Land Development and Farmland220,752
 17.5% 220,801
 17.9%
Consumer17,926
 1.4% 20,495
 1.7%
Other14,213
 1.2% 14,106
 1.1%
 1,262,194
 100.0% 1,231,067
 100.0%
Less:       
Deferred loan fees (costs)34
   (9)  
Allowance for possible loan losses11,354
   10,892
  
        
Loans, net$1,250,806
   $1,220,184
  

The table below provides a summary of PCI loans as of September 30, 2017:

  

September 30,

 
  

2017

 
     

Commerical, Industrial and Agricultural

 $305 

Real estate:

    

1-4 Family Residential

  48 

1-4 Family HELOC

  36 

Multifamily and Commercial

  1,232 

Construction, Land Development and Farmland

  1,510 

Consumer

  - 

Other

  - 

Total gross PCI loans

  3,131 

Less:

    

Remaining purchase discount

  193 

Allowance for possible loan losses

  4 
     

Loans, net

 $2,934 

March 31, 2019:


 March 31, 2019
  
Commerical, Industrial and Agricultural$63
Real estate: 
1-4 Family Residential319
1-4 Family HELOC
Multifamily and Commercial229
Construction, Land Development and Farmland1,950
Consumer17
Other
Total gross PCI loans2,578
Less: 
Remaining purchase discount300
Allowance for possible loan losses
  
Loans, net$2,278

Commercial,, industrial and agricultural loans above consist solely of loans made to U.S. domiciled customers. These include loans for use in normal business operations to finance working capital needs, equipment purchases, or other expansionary projects. Commercial, industrial, and agricultural loans of $138,648$218,767 at September 30, 2017,March 31, 2019, increased 3.2%2.3% compared to $134,404$213,850 at December 31, 2016.

2018.


Real estate loans comprised 77.3%80.1% of the loan portfolio at September 30, 2017.March 31, 2019. 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 decreasedincreased the residential portfolio 2.3% from December 31, 20162018 to September 30, 2017.March 31, 2019. Multi-family and commercial loans included in the real estate category above include (in typical order of prominence) loans secured by non-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 $258,168$469,468 at September 30, 2017,March 31, 2019, increased 19.7%4.8% compared to the $215,639$447,840 held as of December 31, 2016.2018. Real

estate construction loans consist of 1-4 family residential construction loans, other construction loans, land loans, and loans secured by farmland. Construction lending has increased duringsince 2016 and into the first nine months of 2017, based on a strong local 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 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 experienced a decrease from December 31, 2016,2018, to September 30, 2017,March 31, 2019, of 5.0%12.5%.

Other


Other loans consist mainly of loans to states and political subdivisions and loans to other depository institutions and were minimal for the periods presented. Our other loans experienced an increase of 9.5%0.8% from December 31, 20162018 to September 30, 2017.

March 31, 2019.

51

The repayment of loans is a source of additional liquidity for us. The following table sets forth the loans repricing or maturing within specific intervals at September 30, 2017,March 31, 2019, excluding unearned net fees and costs.

  

One Year or

Less

  

One to Five

Years

  

Over Five

Years

  

Total

 
                 

Gross loans

 $284,604  $267,591  $197,486  $749,681 
                 

Fixed interest rate

             $509,603 

Variable interest rate

              240,078 

Total

             $749,681 


 
One Year or
Less
 
One to Five
Years
 
Over Five
Years
 Total
Gross loans$414,547
 $552,364
 $295,283
 $1,262,194
        
Fixed interest rate      $768,000
Variable interest rate      494,194
Total      $1,262,194

The information presented in the above table is based upon the contractual maturities or next repricing date of the individual loans, including loans 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 Losses


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-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 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’sborrower’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 September 30, 2017,March 31, 2019, the allowance for loan losses was $9,623$11,354 compared to $9,082$10,892 at December 31, 2016.2018. The allowance for loan losses as a percentage of total loans was 1.28%0.90% at September 30, 2017March 31, 2019 compared to 1.36%0.88% at December 31, 2016. The allowance was adjusted downward as a percent of total loans from December 31, 2016 to September 30, 2017. The increase in our allowance for loan losses is directly attributable to our loan growth and offset by our net charge offs and recoveries.

2018.

52



The following table sets forth the activity in the allowance for loan losses for the periods presented.

Analysis


Analysis of Changes in Allowance for Loan Losses

  

September 30,

  

September 30,

 
  

2017

  

2016

 
         

Beginning Balance, January 1

 $9,082  $7,823 

Loans charged off:

        

Commerical, Industrial and Agricultural

  (941)  (84)

Real estate:

        

1-4 Family Residential

  (15)  (25)

1-4 Family HELOC

  -   - 

Multifamily and Commercial

  -   - 

Construction, Land Development and Farmland

  -   - 

Consumer

  (30)  - 

Other

  -   (19)

Total loans charged off

  (986)  (128)

Recoveries on loans previously charged off:

        

Commerical, Industrial and Agricultural

  306   250 

Real estate:

        

1-4 Family Residential

  -   66 

1-4 Family HELOC

  19   9 

Multifamily and Commercial

  -   3 

Construction, Land Development and Farmland

  5   5 

Consumer

  2   13 

Other

  -   - 

Total loan recoveries

  332   346 

Net recoveries (charge-offs)

  (654)  218 

Provision for loan losses

  1,195   760 

Total allowance at end of period

 $9,623  $8,801 

Gross loans at end of period (1)

 $749,681  $662,079 

Average gross loans (1)

 $701,362  $635,055 

Allowance to total loans

  1.28%  1.33%

Net charge offs to average loans (annualized)

  0.12%  -0.05%


 March 31, 2019 March 31, 2018
Beginning Balance, January 1$10,892
 $9,731
Loans charged off:   
Commerical, Industrial and Agricultural(6) (308)
Real estate:   
1-4 Family Residential(17) 
1-4 Family HELOC
 (6)
Multifamily and Commercial
 
Construction, Land Development and Farmland
 
Consumer(11) (16)
Other
 (9)
Total loans charged off(34) (339)
Recoveries on loans previously charged off:   
Commerical, Industrial and Agricultural240
 143
Real estate:   
1-4 Family Residential212
 8
1-4 Family HELOC
 2
Multifamily and Commercial34
 2
Construction, Land Development and Farmland
 41
Consumer10
 1
Other
 5
Total loan recoveries496
 202
Net recoveries (charge-offs)462
 (137)
Provision for loan losses
 137
Total allowance at end of period$11,354
 $9,731
Gross loans at end of period (1)
$1,262,194
 $1,105,799
Average gross loans (1)
$1,238,341
 $1,088,166
Allowance to total loans0.90% 0.88 %
Net recoveries (charge-offs) to average loans (annualized)0.15% (0.05)%

(1)

(1)
Loan balances exclude loans held for sale

sale.


53

While no portion of the allowance is in any way restricted to any individual loan or group of loans, and the entire allowance is available to absorb losses from any and all loans, the following table summarizes our allocation of allowance for loan losses by loan category and loans in each category as a percentage of total loans, for the periods presented.

  

September 30,

  

December 31,

 
  

2017

  

2016

 
      

% of

  

% of Loan

      

% of

  

% of Loan

 
      

Allowance

  

Type to

      

Allowance

  

Type to

 
  

Amount

  

To Total

  

Total Loans

  

Amount

  

To Total

  

Total Loans

 
                         

Commerical, Industrial and Agricultural

 $2,675   27.8%  18.5% $2,438   26.8%  20.1%

Real estate:

                        

1-4 Family Residential

  867   9.0%  13.4%  1,178   13.0%  16.9%

1-4 Family HELOC

  613   6.4%  10.6%  704   7.8%  8.6%

Multifamily and Commercial

  3,094   32.2%  34.4%  2,731   30.1%  32.3%

Construction, Land Development and Farmland

  2,147   22.3%  18.9%  1,786   19.7%  17.4%

Consumer

  189   2.0%  2.2%  208   2.3%  2.6%

Other

  38   0.3%  2.0%  37   0.5%  2.1%
  $9,623   100.0%  100.0% $9,082   100.0%  100.0%



 March 31, 2019 March 31, 2018
 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$1,874
 16.5% 17.3% $2,485
 25.5% 15.1%
Real estate:           
1-4 Family Residential1,359
 12.0% 18.2% 1,004
 10.3% 19.7%
1-4 Family HELOC670
 5.9% 7.2% 632
 6.5% 7.6%
Multifamily and Commercial4,593
 40.5% 37.2% 3,269
 33.6% 36.6%
Construction, Land Development and Farmland2,650
 23.3% 17.5% 2,146
 22.1% 17.8%
Consumer171
 1.5% 1.4% 156
 1.6% 1.9%
Other37
 0.3% 1.2% 39
 0.4% 1.3%
 $11,354
 100.0% 100.0% $9,731
 100.0% 100.0%

Nonperforming Assets


Non-performing assets consist of non-performing loans plus real estate acquired through foreclosure or deed in lieu of foreclosure. Non-performing loans by definition consist of non-accrual loans and loans past due 90 days or more and still accruing interest. When we place a loan on non-accrual 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.

assured, which generally includes a minimum performance of six months.


The following table provides information with respect to Company’s non-performing assets.

  

September 30,

  

December 31,

 
  

2017

  

2016

 
         

Non-accrual loans

 $4,950  $5,634 

Past due loans 90 days or more and still accruing interest

  200   - 

Restructured loans

  2,204   2,953 

Total non-performing loans

  7,354   8,587 

Foreclosed real estate ("OREO")

  -   - 

Total non-performing assets

 $7,354  $8,587 

Total non-performing loans as a percentage of total loans

  0.98%  1.29%

Total non-performing assets as a percentage of total assets

  0.71%  0.94%

Allowance for loan losses as a percentage of non-performing loans

  130.85%  105.76%


 March 31, 2019 December 31, 2018
Non-accrual loans$4,582
 $4,194
Past due loans 90 days or more and still accruing interest566
 6
Restructured loans1,748
 2,469
Total non-performing loans6,896
 6,669
Foreclosed real estate ("OREO")1,000
 1,000
Total non-performing assets$7,896
 $7,669
Total non-performing loans as a percentage of total loans0.55% 0.54%
Total non-performing assets as a percentage of total assets0.45% 0.44%
Allowance for loan losses as a percentage of non-performing loans164.65% 163.32%

Investment Securities and Other Earning Assets


The investment securities portfolio is intended to provide the CompanyBank with adequate liquidity, flexible asset/liability management 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, net of income taxes. 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 significant component of the Company’s earning assets. Securities totaled $192,277$310,305 at September 30, 2017.March 31, 2019. This represents a 31.0%4.7% increase from the December 31, 20162018 total of $146,813.$296,323. Our growth is attributable to the Merger and the planned investment securities restructuring, mentioned previously, that began in the fourth quarter of 2017. The increase is attributable to purchasing $68,010$20,571 securities available for sale during the ninethree months ended September 30 2017,March 31, 2019, offset by sales of $18,688,$10,558, and principal paydowns and maturities of $6,057$2,291 during the same period. A portion of our year-to-date growth in the investment portfolio is related to the completion of a municipal bond replacement strategy that was implemented late in the fourth quarter of 2016 and completed in the first quarter 2017 and additional strategies that were implemented in 2017 that are expected to provide better yielding securities that are relatively less sensitive to rising interest rates and potential declines in corporate tax rates.


Restricted equity securities totaled $7,163$11,499 and 7,133$11,690 at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively, and 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:

  

September 30, 2017

  

December 31, 2016

 
  

Amortized

Cost

  

Fair Value

  

% of Total

  

Amortized

Cost

  

Fair Value

  

% of Total

 

U.S.Treasury and other U.S. government agencies

 $591   586   0.30% $1,909   1,908   1.30%

State and municipal

  164,968   165,247   85.94%  122,813   119,634   81.49%

Corporate bonds

  1,500   1,495   0.78%  2,000   1,987   1.35%

Mortgage backed securities

  21,456   21,449   11.16%  20,197   20,034   13.65%

Time deposits

  3,500   3,500   1.82%  3,250   3,250   2.21%

Total

 $192,015   192,277   100.00% $150,169   146,813   100.00%


 March 31, 2019 December 31, 2018
 
Amortized
Cost
 Fair Value % of Total 
Amortized
Cost
 Fair Value % of Total
U.S.Treasury and other U.S. government agencies$566
 562
 0.18% $568
 554
 0.19%
State and municipal234,736
 238,345
 76.81% 232,589
 229,298
 77.38%
Corporate bonds3,130
 3,018
 0.97% 3,130
 3,017
 1.02%
Mortgage backed securities34,642
 34,422
 11.09% 32,172
 31,958
 10.78%
Asset backed securities31,048
 30,458
 9.82% 28,635
 27,996
 9.45%
Time deposits3,500
 3,500
 1.13% 3,500
 3,500
 1.18%
Total$307,622
 310,305
 100.00% $300,594
 296,323
 100.00%

The table below summarizes the contractual maturities of securities available for sale at September 30, 2017:

  

Amortized

Cost

  

Estimated

Fair Value

 
         

Due within one year

 $3,655  $3,657 

Due in one to five years

  13,488   13,584 

Due in five to ten years

  10,234   10,391 

Due after ten years

  143,182   143,196 

Mortgage backed securities

  21,456   21,449 

Total

 $192,015  $192,277 

March 31, 2019:

 
Amortized
Cost
 
Estimated
Fair Value
Due within one year$2,755
 $2,757
Due in one to five years4,722
 4,711
Due in five to ten years11,301
 11,334
Due after ten years223,154
 226,623
Mortgage backed securities34,642
 34,422
Asset backed securities31,048
 30,458
Total$307,622
 $310,305

Premises and Equipment


Premises and equipment, net, totaled $9,558$21,970 at September 30, 2017March 31, 2019 compared to $9,093$22,033 at December 31, 2016,2018, a net increasedecrease of $465$63 or 5.1%0.3%. Premises and equipment purchases amounted to approximately $1,277$434 during the first ninethree months of 20172019 and were mainly incurred for additional leasehold improvements related tofor our branches and new Green Hills branch and improvements to our IT infrastructure for disaster recovery planningmortgage locations while depreciation expense amounted to $762.$497. At September 30, 2017,March 31, 2019, we operated from eightseventeen retail banking locations as well as twosix stand-alone mortgage loan production offices and two commercial loan and deposit production offices. Two of our bank branch locations, including our main office, are in Brentwood, Tennessee. OurOf our other sixfifteen bank branch locations three are in Columbia, the remaining are in Franklin, Springfield, Gallatin, and Nashville, Tennessee. Our commercial loan and deposit production offices are in Murfreesboro, Mt. Pleasant, Thompson Station, Centerville, Lyles, and Chattanooga, Tennessee. As of September 30, 2017March 31, 2019, our mortgage loan production offices were located Brentwood, Hendersonville, and Brentwood,Chattanooga, Tennessee as well as two in Little Rock, Arkansas and one in Timonium, Maryland. During the three months ended March 31, 2016, the Company began transitioning most of its out-of-market branches to another bank. We own three branch and office facilities located in Robertson and Sumner counties of Tennessee while the remainder of our locations are leased.







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 September 30, 2017,March 31, 2019, total deposits were $840,448,$1,511,321, an increase of $76,614,$73,418, or 10.0%5.1%, compared to $763,834$1,437,903 at December 31, 2016.2018. During the first ninethree months of 2017,2019, non-interest bearing demand deposits increased by $4.0 million, interest-bearing demand deposits decreased by $10.1 million, savings and money market deposits increaseddecreased by $13.7$2.9 million, and time deposits increased by $71.7 million, while non-interest bearing demand and interest-bearing demand deposits decreased by $2.7 and $6.0 million, respectively.$82.4 million. A substantial portion of the increase in the time deposits is attributable to time deposits with the state of Tennessee as part of our marketing campaign in August.

strategy to lower our funding costs.


The following table shows maturity or repricing of time deposits of $250 or more by category based on time remaining until maturity at September 30, 2017.

  

September 30,

 
  

2017

 

Twelve months or less

 $232,064 

Over twelve months through three years

  13,669 

Over three years

  4,589 

Total

 $250,322 

March 31, 2019.


 March 31, 2019
Twelve months or less$371,657
Over twelve months through three years14,140
Over three years4,227
Total$390,024

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.


56

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 25% of assets. We were in compliance with our policy as of September 30, 2017.March 31, 2019. 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 ModeModell—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

 
  

Next 12

  

Next 24

 
  

Months

  

Months

 
  

Estimate

  

Policy

  

Estimate

  

Policy

 

-200 bp

  -2.3%   -15%   -6.6%   -15% 

-100 bp

  0.8%   -10%   -0.3%   -10% 

+100 bp

  0.0%   -10%   -0.5%   -10% 

+200 bp

  0.2%   -15%   -0.7%   -15% 

+300 bp

  0.8%   -20%   -0.8%   -20% 

+400 bp

  1.0%   -25%   -1.2%   -25% 


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
  Months Months
  Estimate Policy Estimate Policy
-200 bp 2.1% (15)% (2.3)% (15)%
-100 bp 1.7% (10)% 0.4% (10)%
+100 bp (1.0)% (10)% (0.4)% (10)%
+200 bp (1.7)% (15)% (0.3)% (15)%
+300 bp (2.4)% (20)% (0.4)% (20)%
+400 bp (3.5)% (25)% (0.9)% (25)%

We were in compliance with our earnings simulation model policies as of September 30, 2017,March 31, 2019, indicating what we believe to be a fairly neutral interest-rate risk profile.


Economic value of equityOur 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’ve 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

+100 bp

 15%

+200 bp

 25%

+300 bp

 30%

+400 bp

 35%

Non-parallel shifts

 35%


At September 30, 2017,March 31, 2019, 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.


Liquidity Risk ManagementThe 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 and sources.


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, competition, and the actions of our customers. 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 Loan Bank of CincinnatiFHLB which is secured by a blanket pledge of 1-4 family residential mortgages, multi-family residential, Commercial Real Estate, and home equity loans, and available-for-sale securities. At September 30, 2017,March 31, 2019, advances totaled $56,720$15,309 compared to $32,287$57,498 as of December 31, 2016.2018. The increasedecrease in FHLB advances generally is attributable to our increase in deposits, mainly our increase in time deposits from the state of Tennessee, and the decrease in our mortgage loans held for sale and securities andsomewhat offset by our increase in deposits.

loans and securities.

58

At September 30, 2017,March 31, 2019, the scheduled maturities of our FHLB advances and interest rates were as follows (scheduled maturities will differ from scheduled repayments):

Scheduled Maturities

 

Amount

  

Weighted

Average

Rates

 
         

2017

 $45,000   1.18% 

2018

  6,000   2.74% 

2019

  -   0.00% 

2020

  -   0.00% 

2021

  483   2.73% 

Thereafter

  5,237   1.87% 
         
  $56,720   1.42% 


Scheduled Maturities Amount 
Weighted
Average
Rates
2019 $11,000
 2.52%
2020 
 —%
2021 356
 2.73%
2022 711
 1.22%
2023 2,600
 1.94%
Thereafter 642
 2.47%
  $15,309
 2.36%

The Company has issued $23.0 million of subordinated debentures in connection with TRUPS issued by trusts that are affiliates of the Company, $10.0 million of which is owned by a wholly owned subsidiary of the Company.  The Company has timely made its scheduled interest payments on these subordinated debentures since assumed in the first quarter of 2018.  As of March 31, 2019, the Company was current on all interest payments due related to its subordinated debentures.  The Company has the right to defer the payment of interest on the subordinated debentures at any time, for a period not to exceed 20 consecutive quarters.  During the period in which it is deferring the payment of interest on its subordinated debentures, the indentures governing the subordinated debentures provide that the Company cannot pay any dividends on its common stock or preferred stock. 










Capital

Stockholders


Stockholders’ equity was $137,944$215,119 at September 30, 2017,March 31, 2019, an increase of $31,025,$6,705, or 29.0%3.2%, from $106,919$208,414 at December 31, 2016.2018. During the third quarter of 2017, the company issued 1,137,000 shares of common stock in a private offering raising $23.3 million net of expenses of which $20.0 million was pushed-down to the Bank. Additionally, during the ninethree months ended September 30, 2017,March 31, 2019, the Company raised $693$28 of capital through the exercise of Company stock options.options and purchased $659 of its common stock as part of its previously announced share repurchase program. The additional capital for the stock option exercises and a portion of the proceeds from the private placement was pushed-down to the Bank and when combined with the accretion of earnings to capital partiallywhich was offset by the declared dividends, net stock purchase, and the increase in assets led to a increasedecrease in the Bank’s September 30, 2017March 31, 2019 Tier 1 leverage ratio to 12.20%9.99% compared with 10.75%10.17% at December 31, 20162018 (see other ratios discussed further below). Additionally, the subordinated debentures qualify as Tier 1 and Total risk-based capital for the Company. Common dividends of $1,711 (declared during the fourth quarter of 2016) and $941 (declared$1,036 (of which $1,036 were declared in the second quarter of 2017)prior year) were paid during the ninethree months ended September 30, 2017,March 31, 2019, and common dividends of $541$1,035 were declared in the secondfirst quarter of 20172019 and were paid subsequent to quarter end.


On July 14, 2017, the Company filed a 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) depositary shares, (v) warrants, and (vi) units, up to a maximum aggregate offering price of $75,000,000. The net proceeds from any offering will be used for general corporate purposes including acquisitions, capital expenditures, investments, and the repayment, redemption, or refinancing of any indebtedness or other securities. 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.


Banks as regulated institutions are required to meet certain levels of capital. The Federal Reserve BoardBoard of Governors, the primary federal regulator for the Bank, has adopted minimum capital regulations or guidelines that categorize 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 the guidelines. We regularly review our capital adequacy to ensure compliance with these 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.


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Prompt corrective action regulations provide five 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 September 30, 2017,March 31, 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 thatthese notifications that management believes have changed the institution’s category. Actual and required capital amounts and ratios are presented below as of September 30, 2017March 31, 2019 and December 31, 20162018 for the Company and Bank.

  

Actual Regulatory Capital

  

Minimum Required Capital

Including Capital

Conservation Buffer

  

To Be Well Capitalized

Under Prompt Corrective

Action Provisions

 
  

Amount

  

Ratio

  

Amount

  

Ratio

  

Amount

  

Ratio

 

September 30, 2017

                        

Company

                        

Tier I leverage

 $125,572   12.58% $39,928   4.000% $49,909   5.00%

Common equity Tier 1

  125,572   14.72%  49,052   5.750%  55,450   6.50%

Tier I risk-based capital

  125,572   14.72%  61,848   7.250%  68,246   8.00%

Total risk-based capital

  135,195   15.85%  78,899   9.250%  85,297   10.00%
                         

Bank

                        

Tier I leverage

 $121,715   12.20% $39,907   4.000% $49,883   5.00%

Common equity Tier 1

  121,715   14.29%  48,976   5.750%  55,364   6.50%

Tier I risk-based capital

  121,715   14.29%  61,752   7.250%  68,140   8.00%

Total risk-based capital

  131,338   15.42%  78,786   9.250%  85,174   10.00%
                         

December 31, 2016

                        

Company

                        

Tier I leverage

 $96,682   10.86% $35,610   4.000%  N/A   N/A 

Common equity Tier 1

  96,682   13.00%  38,115   5.125%  N/A   N/A 

Tier I risk-based capital

  96,682   13.00%  49,271   6.625%  N/A   N/A 

Total risk-based capital

  105,764   14.22%  64,150   8.625%  N/A   N/A 
                         

Bank

                        

Tier I leverage

 $95,637   10.75% $35,586   4.000% $44,482   5.00%

Common equity Tier 1

  95,637   12.88%  38,054   5.125%  48,264   6.50%

Tier I risk-based capital

  95,637   12.88%  49,192   6.625%  59,402   8.00%

Total risk-based capital

  104,719   14.10%  64,057   8.625%  74,269   10.00%



 Actual Regulatory Capital 
Minimum Required Capital
Including Capital
Conservation Buffer
 
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
 Amount Ratio Amount Ratio Amount Ratio
March 31, 2019           
Company           
Tier I leverage$171,606
 10.23% $67,099
 4.000% $83,874
 5.00%
Common equity Tier 1159,982
 11.50% 97,380
 7.000% 90,425
 6.50%
Tier I risk-based capital171,606
 12.34% 118,205
 8.500% 111,252
 8.00%
Total risk-based capital183,385
 13.19% 145,985
 10.500% 139,033
 10.00%
            
Bank           
Tier I leverage$167,447
 9.99% $67,046
 4.000% $83,807
 5.00%
Common equity Tier 1167,447
 12.07% 97,111
 7.000% 90,174
 6.50%
Tier I risk-based capital167,447
 12.07% 117,920
 8.500% 110,984
 8.00%
Total risk-based capital179,226
 12.92% 145,656
 10.500% 138,720
 10.00%
            
December 31, 2018           
Company           
Tier I leverage$168,876
 10.38% $65,077
 4.000% $81,347
 5.00%
Common equity Tier 1157,273
 11.59% 86,507
 6.375% 88,203
 6.50%
Tier I risk-based capital168,876
 12.44% 106,905
 7.875% 108,602
 8.00%
Total risk-based capital180,193
 13.28% 133,991
 9.875% 135,688
 10.00%
            
Bank           
Tier I leverage$165,308
 10.17% $65,018
 4.000% $81,272
 5.00%
Common equity Tier 1165,308
 12.19% 86,451
 6.375% 88,146
 6.50%
Tier I risk-based capital165,308
 12.19% 106,792
 7.875% 108,488
 8.00%
Total risk-based capital176,625
 13.02% 133,961
 9.875% 135,657
 10.00%


Effects of Inflation and Changing Prices


The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles, 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 institutionsinstitutions’ increased 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.


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Off Balance Sheet Lending Arrangements

Off-balance


Off-balance sheet arrangements generally consist of unused lines of credit and standby letters of credit. Such commitments were as follows:

  

September 30,

 
  

2017

 
     

Unused lines of credit

 $179,462 

Standby letters of credit

  12,358 

Total commitments

 $191,820 

follows at March 31, 2019:


 March 31, 2019
Unused lines of credit$261,188
Standby letters of credit18,056
Total commitments$279,244

Other Off Balance Sheet Arrangements

The total notional amount of swap agreements was $81,505 at March 31, 2019 and December 31, 2018. At March 31, 2019, the contracts had negative fair values totaling $1,854 recorded. At December 31, 2018, the contracts had negative fair values totaling $542 recorded.


Emerging Growth Company Status


The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and 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 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 complieschooses to comply with the greater obligationsreporting 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, we will comply with new or revised accounting standards to the same extent that compliance is required for non-public companies.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

The information required by this


This Item 3 is discussed in Part 1 – Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Market and Liquidity Risk.”

not applicable to smaller reporting companies.

Item 4.    Controls and Procedures.


Evaluation of Disclosure Controls and Procedures


Management, including our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our President and Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file andor submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our President and Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.


Changes in Internal Control over Financial Reporting


There has been no change in our internal control over financial reporting during the three months ended September 30, 2017,March 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II – OTHER INFORMATION




Item 1.        Legal Proceedings.

Commerce Union


Reliant Bancorp and its wholly-owned subsidiary, Reliant Bank, are periodically involved as a plaintiff or defendant in various legal actions in the ordinary course of its business. Neither Commerce UnionReliant Bancorp nor Reliant Bank is involved in any litigation that is expected to have a material impact on our financial position or results of operations. Management believes that any claims pending against Commerce UnionReliant Bancorp or its subsidiaries are without merit or that the ultimate liability, if any, resulting from them will not materially affect Reliant Bank’s financial condition or Commerce Union’sReliant Bancorp’s consolidated financial position.


Item 1A.      Risk Factors.

Except as set forth below there have been no material changes to the risk factors included in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

The merger of Commerce Union and Community First may not be completed, which could have a material adverse effect on our business, future operations, and stock price.

Completion of the merger is subject to certain closing conditions, including the receipt of all required regulatory approvals, in each case without the imposition of a materially burdensome condition. If we are not successful in obtaining the required regulatory approvals, the merger will not be completed. Even if the regulatory approvals are received, the timing of the regulatory approvals and any conditions imposed by the regulatory approvals could result in certain closing conditions of the merger not being satisfied.

Consummation of the merger is also conditioned upon other customary closing conditions, including (1) the approval of the merger agreement by Community First’s shareholders and the approval by our shareholders of the issuance of stock by Commerce Union in connection with the merger, (2) the absence of any order, decree, injunction, or law enjoining or prohibiting the merger, (3) the effectiveness of a registration statement on Form S-4 for the shares of common stock to be issued by Commerce Union in connection with the merger, and (4) the authorization for listing on the Nasdaq Capital Market of the shares to be issued by Commerce Union in connection with the merger. Each party’s obligation to complete the merger is also subject to certain additional customary conditions. Additionally, Commerce Union’s obligation to complete the merger is subject to holders of not more than 7.5% of the outstanding shares of Community First’s common stock perfecting their rights to dissent from the merger. If a condition to either party’s obligation to consummate the merger is not satisfied, that party may be able to terminate the merger agreement and, in such case, the transaction would not be consummated.

If the merger is not completed, our ongoing business and financial results may be adversely affected and we will be subject to several risks, including the following:

the price of our common stock may decline to the extent that its current market prices reflect a market assumption that the merger will be completed;

having to pay significant costs relating to the merger without receiving any benefits arising from the merger;

negative reactions from customers, shareholders and market analysts; and

the diversion of the focus of our management to the merger instead of on pursuing other opportunities that could have been beneficial to our business.

If the merger is not completed, our business may be adversely affected by the failure to pursue other beneficial opportunities due to the focus of our management team on the merger, without realizing any of the anticipated benefits of completing the merger. If the merger agreement is terminated under certain circumstances, we may be required to pay a termination fee of $2.1 million to Community First.

Integrating Community First Bank into Reliant Bank’s operations may be more difficult, costly, or time-consuming than we expect.

Reliant Bank and Community First Bank have operated and, until the bank merger is completed, will continue to operate, independently. Accordingly, the process of integrating Community First Bank’s operations into Reliant Bank’s operations could result in the disruption of operations or the loss of Community First Bank customers and employees, and could make it more difficult to achieve the intended benefits of the merger. Inconsistencies between the standards, controls, procedures, and policies of Reliant Bank and those of Community First Bank could adversely affect Reliant Bank’s ability to maintain relationships with current customers and employees of Community First Bank if and when the bank merger is completed.

As with any merger of banking institutions, business disruptions may occur that may cause Reliant Bank to lose customers or may cause Community First Bank’s customers to withdraw their deposits from Community First Bank prior to the merger’s consummation and from Reliant Bank thereafter. The realization of the anticipated benefits of the merger may depend in large part on our ability to integrate Community First Bank’s operations into Reliant Bank’s operations, and to address differences in business models and cultures. If we are unable to integrate the operations of Community First and Community First Bank into our and Reliant Bank’s operations successfully and on a timely basis, some or all of the expected benefits of the acquisition may not be realized. Difficulties encountered with respect to such matters could result in an adverse effect on the financial condition, results of operations, capital, liquidity, or cash flows of Reliant Bank and our company.

We may fail to realize the cost savings anticipated from the merger.

Although we anticipate that we would realize certain cost savings as to the operations of Community First and Community First Bank and otherwise from the merger if and when the operations of Community First and Community First Bank are fully integrated into our and Reliant Bank’s operations, it is possible that we may not realize all of the cost savings that we have estimated we can realize from the merger. For example, we may be required to continue to operate or maintain functions that are currently expected to be combined or reduced as a result of the merger. Our realization of the estimated cost savings also will depend on our ability to combine the operations of our company and Reliant Bank with the operations of Community First and Community First Bank in a manner that permits those costs savings to be realized. If we are not able to integrate the operations of Community First and Community First Bank into our and Reliant Bank’s operations successfully and to reduce the combined costs of conducting the integrated operations of the two banks, the anticipated cost savings may not be fully realized, if at all, or may take longer to realize than expected. Our failure to realize those cost savings could materially adversely affect our financial condition, results of operations, capital, liquidity, or cash flows.

The issuance of the stock consideration to Community First’s shareholders and the issuance of the shares in the private placement may decrease the market price of our common stock.

We issued 1,137,000 shares of our common stock in connection with the private placement of our shares, and as consideration for the merger, we will issue approximately 2,417,450 additional shares of our common stock to Community First’s shareholders. These two transactions together will result in our shareholders’ existing share ownership being diluted by an aggregate of approximately 3,554,450 new shares, which represents 45.3% of our outstanding common stock immediately prior to the closing of the private placement. The dilution associated with the issuance of new shares of common stock in the private placement and/or the merger may result in fluctuations in the market price of our common stock, including a stock price decrease, and could materially impair our earnings per share and other per share financial metrics.

The combined company will incur significant transaction and merger-related costs in connection with the merger.

We expect to incur significant costs associated with combining the operations of Community First with our operations. We recently began collecting information in order to formulate detailed integration plans to deliver anticipated cost savings. Additional unanticipated costs may be incurred in the integration of our business with the business of Community First. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.

Whether or not the merger is consummated, each of Commerce Union and Community First will incur substantial expenses, such as legal, accounting, and financial advisory fees, in pursuing the merger which will adversely impact its earnings.

We will be subject to business uncertainties and contractual restrictions while the merger is pending, which could adversely affect our business and operations.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Reliant Bank. Uncertainties surrounding the merger may impair the ability of one or more of Commerce Union, Reliant Bank, Community First, and/or Community First Bank to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with either of the banks to seek to change their existing business relationships with such bank.

Under the terms of the merger agreement, Commerce Union is subject to certain restrictions on its business prior to completing the merger, which may adversely affect our ability to execute certain of our business strategies. In addition, the merger agreement restricts Community First and Community First Bank from taking other specified actions until the merger occurs without our consent, such as acquiring or disposing of assets, incurring indebtedness, or incurring capital expenditures. These restrictions may prevent Community First and Community First Bank from pursuing attractive business opportunities that may arise prior to the completion of the merger. Such limitations could negatively impact Community First’s or Commerce Union’s businesses and operations prior to the completion of the merger.

Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds.

Commerce Union completed a private placement


The following table contains information regarding shares of our common stock inrepurchased by Reliant Bancorp during the quarterthree months ended September 30, 2017, as reported on our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 23, 2017.

March 31, 2019.
PeriodTotal Number of Shares Purchased (1)Average Price Paid Per ShareTotal 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)
January 1, 2019 to January 31, 2019 $21.7711,497$11,750
February 1, 2019 to February 28, 2019 $21.8611,538$11,498
March 1, 2019 to March 31, 2019 $22.596,923$11,341
Total $21.9929,958$11,341

(1)During the quarter ended March 31, 2019, no shares of common stock were purchased other than through a publicly announced plan or program of Reliant Bancorp.

(2)On December 4, 2018, Reliant Bancorp announced a stock repurchase plan pursuant to which we may purchase, in the aggregate, up to $12 million of our common stock. This 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 Reliant Bancorp to repurchase any dollar amount or number of shares, and the plan may be extended, modified, amended, suspended, or discontinued at any time.


Item 3. Defaults Upon Senior Securities.


Not applicable.



Item 4. Mine Safety Disclosures.


Not applicable.



Item 5. Other Information.


None.


Item 6. Exhibits.

EXHIBIT INDEX

2.1

Exhibit
No.
DescriptionLocation
3.1Incorporated by reference to Exhibit 3.1 to Form 10-Q filed November 6, 2018
3.2Incorporated by reference to Exhibit 3.1 to Form 8-K filed June 21, 2018
4.1Incorporated by reference to Exhibit 4.4 to Form S-8 filed December 19, 2018
4.2The rights of securities holders are defined in the Charter and Bylaws provided in Exhibits 3.1 and 3.2
10.1Incorporated by reference to Exhibit 2.110.1 to our Form 8-K filed on 08/23/17).

March 29, 2019

31.1

31.1Filed herewith.

31.2

31.2Filed herewith.

32.1

32.1

32.2

Certification pursuant to 18 USC Section 1350 – Sarbanes-Oxley Act of 2002

101

Interactive Data Files*

Furnished herewith.
  
 

*      The documents formatted in eXtensible Business Reporting Language (XBRL) and attached as Exhibit

101 to this report are deemed not filed as part of a registration statement or prospectus for purposes of Section 12 of the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act and otherwise not subject to liability under these sections.

Interactive Data FilesFiled herewith.


64

SIGNATURES

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 COMMERCE UNION BANCSHARES, INC. RELIANT BANCORP, INC.
    

November 9, 2017

May 7, 2019
 /s/ DeVan D. Ard, Jr.
 DeVan D. Ard, Jr.
 

DeVan D. Ard, Jr.

 
President andChief Executive Officer
 President and Chief(Principal Executive OfficerOfficer)
 (Principal Executive Officer)
    
    

November 9, 2017

May 7, 2019
 /s/ J. Daniel Dellinger
  J. Daniel Dellinger
 J. Daniel Dellinger Chief Financial Officer
 Chief Financial Officer 
 (Principal Financial Officer)

65


59