UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2019March 31, 2020
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

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

Tennessee37-1641316
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
Tennessee37-1641316
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1736 Carothers Parkway,
Suite 100,
Brentwood,
Tennessee37027
(Address of principal executive offices)(Zip Code)
615-221-2020
(Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $1.00 par value per shareRBNCThe Nasdaq Capital MarketNASDAQ


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


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files): Yes ☒ No ☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer¨Accelerated Filerý☒
Non-Accelerated Filer¨Smaller Reporting Companyý☒
Emerging growth companyý☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


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


The number of shares outstanding of the registrant’s common stock, par value $1.00 per share, as of November 4, 2019 May 7, 2020
was 11,195,164.
16,618,298, excluding 887,485 unexchanged shares in connection with acquisitions.


TABLE OF CONTENTS


TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS3
5
Item 1.
5
Item 2.
3440
Item 3.
5360
Item 4.
5360
5461
Item 1.
5461
Item 1A.Risk Factors
Risk Factors61
54
Item 2.
5562
Item 3.
5563
Item 4.
5563
Item 5.
5563
Item 6.
5664
5765








CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS


Various statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q (this "Quarterly Report"“Quarterly Report”) are 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, 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, but other statements not based on historical information may also be considered forward-looking. All forward-looking statements are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of Reliant Bancorp, Inc. ("(“Reliant Bancorp"Bancorp” or "the Company") to differ materially from any results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, among others:

(i)the possibility that our asset quality could 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;
(xxi)the risk that expected cost savings and revenue synergies from the pending acquisitions of Tennessee Community Bank Holdings, Inc. (“TCB Holdings”) (the “TCB Holdings Transaction”) and First Advantage Bancorp (“First Advantage”) (the “First Advantage Transaction” and, together with the TCB Holdings Transaction, the “Transactions”) may not be realized or take longer than anticipated to be realized;
(xxii)the ability to meet expectations regarding the timing and completion and accounting and tax treatment of the Transactions;
(xxiii)the effect of the announcement and pendency of the Transactions on customer, supplier, or employee relationships and operating results (including without limitation difficulties in maintaining relationships with employees and customers), as well as on the market price of Reliant Bancorp’s common stock;
(xxiv)the risk that the businesses and operations of First Advantage and its subsidiaries and of TCB Holdings and its subsidiaries cannot be successfully integrated with the business and operations of Reliant Bancorp and its subsidiaries or that integration will be more costly or difficult than expected;
(xxv)
the occurrence of any event, change, or other circumstances that could give rise to the termination of the definitive merger agreement for the TCB Holdings Transaction or the First Advantage Transaction;
(xxvi)the amount of costs, fees, expenses, and charges related to the Transactions, including those arising as a result of unexpected factors or events;
(xxvii)the ability to obtain the shareholder and governmental approvals required for the Transactions;
(xxviii)reputational risk associated with and the reaction of the parties’ customers, suppliers, employees, or other business partners to the Transactions;



i.the global health and economic crisis precipitated by the coronavirus (COVID-19) pandemic;
(xxix)the failure of any of the conditions to the closing of the Transactions to be satisfied, or any unexpected delay in closing the Transactions;
(xxx)
the dilution caused by Reliant Bancorp’s issuance of additional shares of its common stock in the Transactions;
(xxxi)
Reliant Bancorp’s ability to simultaneously execute on two separate business combination transactions;
(xxxii)the risk associated with Reliant Bancorp management’s attention being diverted away from the day-to-day business and operations of Reliant Bancorp to the completion of the Transactions; and
(xxxiii)general competitive, economic, political, and market conditions, including economic conditions in the local markets where we operate.

ii.actions taken by governments, businesses and individuals in response to the coronavirus (COVID-19) pandemic;
iii.the pace of recovery when the coronavirus (COVID-19) pandemic subsides;
iv.possible recurrence of the coronavirus (COVID-19);
v.changes in political conditions or the legislative or regulatory environment, including governmental initiatives affecting the financial services industry, including, but not limited to, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act;
vi.the possibility that our asset quality could decline or that we experience greater loan losses than anticipated;
vii.increased levels of other real estate, primarily as a result of foreclosures;
viii.the impact of liquidity needs on our results of operations and financial condition;
ix.competition from financial institutions and other financial service providers;
x.the effect of interest rate increases on the cost of deposits;
xi.unanticipated weakness in loan demand or loan pricing;
xii.greater than anticipated adverse conditions in the national economy or local economies in which we operate, including Middle Tennessee;
xiii.lack of strategic growth opportunities or our failure to execute on available opportunities;
xiv.deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses;
xv.economic crises and associated credit issues in industries most impacted by the coronavirus (COVID-19) pandemic, including the restaurant, hospitality and retail sectors;
xvi.the ability to grow and retain low-cost core deposits and retain large, uninsured deposits;
xvii.our ability to effectively manage problem credits;
xviii.our ability to successfully implement efficiency initiatives on time and with the results projected;
xix.our ability to successfully develop and market new products and technology;
xx.the impact of negative developments in the financial industry and United States and global capital and credit markets;
xxi.our ability to retain the services of key personnel;
xxii.our ability to adapt to technological changes;
xxiii.risks associated with litigation, including the applicability of insurance coverage;
xxiv.the vulnerability of Reliant Bank’s (the “Bank”) network and online banking portals, and the systems of parties with whom the Company and the Bank contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches and interruptions;
xxv.changes in state and federal laws, rules, regulations, or policies applicable to banks or bank or financial holding companies, including regulatory or legislative developments;
xxvi.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;
xxvii.the risk that expected cost savings and revenue synergies from (a) the merger of the Company and Tennessee Community Bank Holdings, Inc. (“TCB Holdings”) (the “TCB Holdings Transaction”) or (b) the merger of the Company and First Advantage Bancorp (“FABK”) (the “FABK Transaction” and, together with the TCB Holdings Transaction, collectively, the “Transactions”), may not be realized or may take longer than anticipated to be realized;
xxviii.the effect of the Transactions on our customer, supplier, or employee relationships and operating results (including without limitation difficulties in maintaining relationships with employees and customers), as well as on the market price of the Company’s common stock;
xxix.the risk that the businesses and operations of TCB Holdings and its subsidiaries and of FABK and its subsidiaries cannot be successfully integrated with the business and operations of the Company and its subsidiaries or that integration will be more costly or difficult than expected;
xxx.the amount of costs, fees, expenses, and charges related to the Transactions, including those arising as a result of unexpected factors or events;
3

xxxi.reputational risk associated with and the reaction of our customers, suppliers, employees, or other business partners to the Transactions;
xxxii.the risk associated with Company management’s attention being diverted away from the day-to-day business and operations of the Company to the integration of the Transactions; and
xxxiii.general competitive, economic, political, and market conditions, including economic conditions in the local markets where we operate.

Further, statements about the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, clients, third parties, and us.

You should also consider carefully the risk factors discussed in 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, 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.

4
Table of Contents

PART I – FINANCIAL INFORMATION


Item 1. Consolidated Financial Statements (Unaudited)


RELIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2019MARCH 31, 2020 (UNAUDITED) AND DECEMBER 31, 20182019 (AUDITED)
(Dollar amounts in thousands)
September 30,
2019		 December 31, 2018March 31, 2020December 31, 2019
ASSETS   ASSETS
Cash and due from banks$51,247
 $34,807
Cash and due from banks$46,318  $50,990  
Federal funds sold73
 371
Federal funds sold1,714  52  
Total cash and cash equivalents51,320
 35,178
Total cash and cash equivalents48,032  51,042  
Securities available for sale297,310
 296,323
Securities available for sale256,928  260,293  
Loans, net1,338,392
 1,220,184
Loans, net1,604,582  1,397,374  
Mortgage loans held for sale, net16,757
 15,823
Mortgage loans held for sale, net70,352  37,476  
Accrued interest receivable7,488
 8,214
Accrued interest receivable7,289  7,111  
Premises and equipment, net21,390
 22,033
Premises and equipment, net27,609  21,376  
Operating leases right of use assetsOperating leases right of use assets11,473  —  
Restricted equity securities, at cost11,279
 11,690
Restricted equity securities, at cost14,405  11,279  
Other real estate, net1,943
 1,000
Other real estate, net—  750  
Cash surrender value of life insurance contracts46,351
 45,513
Cash surrender value of life insurance contracts52,556  46,632  
Deferred tax assets, net456
 7,428
Deferred tax assets, net5,426  3,933  
Goodwill43,642
 43,642
Goodwill50,723  43,642  
Core deposit intangibles7,507
 8,219
Core deposit intangibles10,486  7,270  
Other assets8,652
 9,091
Other assets17,927  10,289  
TOTAL ASSETS$1,852,487
 $1,724,338
TOTAL ASSETS$2,177,788  $1,898,467  
LIABILITIES AND STOCKHOLDERS’ EQUITY   LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits   Deposits
Noninterest-bearing demand$237,917
 $216,937
Noninterest-bearing demand$320,553  $260,073  
Interest-bearing demand149,442
 154,218
Interest-bearing demand170,304  152,718  
Savings and money market deposit accounts397,243
 401,308
Savings and money market deposit accounts494,750  408,724  
Time826,031
 665,440
Time736,841  762,274  
Total deposits1,610,633
 1,437,903
Total deposits1,722,448  1,583,789  
Accrued interest payable1,610
 1,063
Accrued interest payable3,995  2,022  
Subordinated debentures11,665
 11,603
Subordinated debentures70,391  70,883  
Federal Home Loan Bank advances3,928
 57,498
Federal Home Loan Bank advances127,628  10,737  
Dividends payable1,012
 1,036
Dividends payable9  76  
Operating lease liabilitiesOperating lease liabilities11,761  —  
Other liabilities3,987
 6,821
Other liabilities6,884  7,207  
TOTAL LIABILITIES1,632,835
 1,515,924
TOTAL LIABILITIES1,943,116  1,674,714  
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; 11,195,062 and 11,530,810 shares issued and outstanding at Sept. 30, 2019, and Dec. 31, 2018, respectively11,195
 11,531
Preferred stock, $1 par value; 10,000,000 shares authorized, 0 shares issued to datePreferred stock, $1 par value; 10,000,000 shares authorized, 0 shares issued to date—  —  
Common stock, $1 par value; 30,000,000 shares authorized; 12,014,495 and 11,206,254 shares issued and outstanding at March 31, 2020, and December 31, 2019, respectivelyCommon stock, $1 par value; 30,000,000 shares authorized; 12,014,495 and 11,206,254 shares issued and outstanding at March 31, 2020, and December 31, 2019, respectively12,014  11,206  
Additional paid-in capital166,512
 173,238
Additional paid-in capital184,523  167,006  
Retained earnings36,339
 27,329
Retained earnings  39,150  40,472  
Accumulated other comprehensive income (loss)5,606
 (3,684)Accumulated other comprehensive income (loss)(1,015) 5,069  
TOTAL STOCKHOLDERS’ EQUITY219,652
 208,414
TOTAL STOCKHOLDERS’ EQUITY234,672  223,753  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$1,852,487
 $1,724,338
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,177,788  $1,898,467  
See accompanying notes to consolidated financial statements.

5


RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) - UNAUDITED
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2020 AND 2019 AND 2018
(Dollar amounts in thousands except per share amounts)
Three Months Ended
September 30,		 Nine Months Ended
September 30,		Three Months Ended
March 31,
2019 2018 2019 201820202019
INTEREST INCOME       INTEREST INCOME
Interest and fees on loans$17,502
 $14,873
 $50,631
 $42,497
Interest and fees on loans$20,645  $16,169  
Interest and fees on loans held for sale263
 294
 614
 1,101
Interest and fees on loans held for sale560  153  
Interest on investment securities, taxable549
 414
 1,639
 1,374
Interest on investment securities, taxable451  503  
Interest on investment securities, nontaxable1,576
 1,709
 4,944
 4,921
Interest on investment securities, nontaxable1,371  1,718  
Federal funds sold and other321
 280
 918
 869
Federal funds sold and other279  300  
TOTAL INTEREST INCOME20,211
 17,570
 58,746
 50,762
TOTAL INTEREST INCOME23,306  18,843  
INTEREST EXPENSE       INTEREST EXPENSE
Deposits       Deposits
Demand81
 102
 278
 263
Demand100  111  
Savings and money market deposit accounts973
 657
 3,154
 1,709
Savings and money market deposit accounts975  1,130  
Time4,828
 2,542
 12,852
 6,737
Time3,762  3,571  
Federal Home Loan Bank advances and other66
 606
 534
 1,275
Federal Home Loan Bank advances and other361  377  
Subordinated debentures199
 197
 590
 526
Subordinated debentures993  193  
TOTAL INTEREST EXPENSE6,147
 4,104
 17,408
 10,510
TOTAL INTEREST EXPENSE6,191  5,382  
NET INTEREST INCOME14,064
 13,466
 41,338
 40,252
NET INTEREST INCOME17,115  13,461  
PROVISION FOR LOAN LOSSES606
 322
 806
 759
PROVISION FOR LOAN LOSSES2,900  —  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES13,458
 13,144
 40,532
 39,493
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES14,215  13,461  
NONINTEREST INCOME       NONINTEREST INCOME
Service charges on deposit accounts976
 833
 2,796
 2,504
Service charges on deposit accounts1,208  884  
Gains on mortgage loans sold, net1,385
 1,399
 3,170
 4,061
Gains on mortgage loans sold, net1,573  560  
Gain on securities transactions, net—
 18
 306
 43
Gain on securities transactions, net—  131  
Gain on sale of other real estate—
 150
 —
 259
Gain on sale of other real estate14  —  
Gain (loss) on disposal of premises and equipment—
 16
 —
 16
Gain on disposal of premises and equipmentGain on disposal of premises and equipment9  —  
Other399
 361
 1,124
 1,139
Other478  363  
TOTAL NONINTEREST INCOME2,760
 2,777
 7,396
 8,022
TOTAL NONINTEREST INCOME3,282  1,938  
NONINTEREST EXPENSE       NONINTEREST EXPENSE
Salaries and employee benefits7,634
 6,913
 22,605
 20,480
Salaries and employee benefits9,237  7,265  
Occupancy1,359
 1,234
 4,069
 3,673
Occupancy1,486  1,352  
Information technology1,553
 1,315
 4,538
 3,913
Information technology1,819  1,410  
Advertising and public relations387
 183
 916
 413
Advertising and public relations353  254  
Audit, legal and consulting350
 588
 1,836
 2,027
Audit, legal and consulting478  796  
Federal deposit insurance(96) 210
 348
 630
Federal deposit insurance336  195  
Merger expenses299
 82
 302
 2,742
Merger expenses4,186  2  
Other operating1,561
 1,637
 4,305
 4,487
Other operating1,703  1,472  
TOTAL NONINTEREST EXPENSE13,047
 12,162
 38,919
 38,365
TOTAL NONINTEREST EXPENSE19,598  12,746  
INCOME BEFORE PROVISION FOR INCOME TAXES3,171
 3,759
 9,009
—
9,150
INCOME BEFORE PROVISION FOR INCOME TAXES(2,101) 2,653  
INCOME TAX EXPENSE557
 519
 1,430
 1,431
CONSOLIDATED NET INCOME2,614
 3,240
 7,579
 7,719
INCOME TAX EXPENSE (BENEFIT)INCOME TAX EXPENSE (BENEFIT)(910) 372  
CONSOLIDATED NET INCOME (LOSS)CONSOLIDATED NET INCOME (LOSS)(1,191) 2,281  
NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY1,386
 842
 4,484
 2,243
NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY976  1,543  
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS$4,000
 $4,082
 $12,063
 $9,962
Basic net income attributable to common shareholders, per share$0.36
 $0.36
 $1.07
 $0.88
Diluted net income attributable to common shareholders, per share$0.36
 $0.36
 $1.07
 $0.87
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERSNET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS$(215) $3,824  
Basic net income (loss) attributable to common shareholders, per shareBasic net income (loss) attributable to common shareholders, per share$(0.02) $0.34  
Diluted net income (loss) attributable to common shareholders, per shareDiluted net income (loss) attributable to common shareholders, per share$(0.02) $0.33  
See accompanying notes to consolidated financial statements.

6


RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2020 AND 2019 AND 2018
(Dollar amounts in thousands)
Three Months Ended
March 31,
20202019
Consolidated net income (loss)$(1,191) $2,281  
Other comprehensive income (loss)
Net unrealized gains (losses) on available-for-sale securities, net of tax of $619 and $(1,721) or the three months ended March 31, 2020 and 2019, respectively(1,749) 4,863  
Net unrealized losses on interest rate swap derivatives net of tax of $1,535 and $167 for the three months ended March 31, 2020 and March 31, 2019, respectively(4,335) (470) 
Reclassification adjustment for gains included in net income, net of tax of $34 for the three months ended March 31, 2019—  (97) 
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)(6,084) 4,296  
TOTAL COMPREHENSIVE INCOME (LOSS)$(7,275) $6,577  
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
Consolidated net income$2,614
 $3,240
 $7,579
 $7,719
Other comprehensive income (loss)       
Net unrealized gains (losses) on available-for-sale securities, net of tax of $973 and $712 for the three months ended September 30, 2019 and 2018, respectively, and $3,935 and $2,260 for the nine months ended September 30, 2019 and 2018, respectively2,736
 (2,023) 11,122
 (6,401)
Net unrealized losses on interest rate swap derivatives net of tax of $98 for the three months ended September 30, 2019 and $569 for the nine months ended September 30, 2019(275) —
 (1,606) —
Reclassification adjustment for gains included in net income, net of tax of $4 for the three months ended September 30, 2018 and $80 and $11 for the nine months ended September 30, 2019 and 2018, respectively—
 (14) (226) (32)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)2,461
 (2,037) 9,290
 (6,433)
TOTAL COMPREHENSIVE INCOME$5,075
 $1,203
 $16,869
 $1,286


See accompanying notes to consolidated financial statements.

7


RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - UNAUDITED
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2020 AND 2019 AND 2018
(Dollar amounts in thousands)
COMMON STOCKADDITIONAL
PAID-IN
CAPITAL		RETAINED
EARNINGS		ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)		NONCONTROLLING
INTEREST		TOTAL
SHARESAMOUNT
BALANCE - JANUARY 1, 202011,206,254  $11,206  $167,006  $40,472  $5,069  $—  $223,753  
Stock based compensation expense—  —  349  —  —  —  349  
Exercise of stock options868  1  7  —  —  —  8  
Restricted stock awards—  —  —  —  —  —  —  
Restricted stock and dividend forfeiture(3,837) (4) (69) —  —  —  (73) 
Conversion shares issued to shareholders of Tennessee Community Bancorp, Inc.811,210  811  17,230  —  —  —  18,041  
Noncontrolling interest contributions—  —  —  —  —  976  976  
Cash dividend declared to common shareholders ($0.10 per share)—  —  —  (1,207) —  —  (1,207) 
Cumulative effect of lease standard adoption—  —  —  100  —  —  100  
Net loss—  —  —  (215) —  (976) (1,191) 
Other comprehensive loss—  —  —  —  (6,084) —  (6,084) 
BALANCE - MARCH 31, 202012,014,495  $12,014  $184,523  $39,150  $(1,015) $—  $234,672  

COMMON STOCKADDITIONAL
PAID-IN
CAPITAL		RETAINED
EARNINGS		ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)		NONCONTROLLING
INTEREST		TOTAL
SHARESAMOUNT
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 forfeiture(3,750) (4) 4  1  —  —  1  
Common stock shares redeemed(29,958) (30) (629) —  —  —  (659) 
Noncontrolling interest contributions—  —  —  —  —  1,543  1,543  
Cash dividends declared to common shareholders ($0.09 per share)—  —  —  (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.
8
 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
Stock based compensation expense—
 —
 280
 —
 —
 —
 280
Exercise of stock options24,523
 25
 298
 —
 —
 —
 323
Employee Stock Purchase Plan stock issuance4,728
 5
 85
 —
 —
 —
 90
Restricted stock awards5,000
 5
 (5) —
 —
 —
 —
Restricted stock and dividend forfeiture(4,000) (4) 4
 —
 —
 —
 —
Common stock shares redeemed(335,973) (336) (7,296) —
 —
 —
 (7,632)
Noncontrolling interest contributions—
 —
 —
 —
 —
 1,555
 1,555
Cash dividend declared to common shareholders—
 —
 —
 (1,009) —
 —
 (1,009)
Net income (loss)—
 —
 —
 4,239
 —
 (1,555) 2,684
Other comprehensive income—
 —
 —
 —
 2,533
 —
 2,533
BALANCE - JUNE 30, 201911,196,563
 $11,197
 $166,252
 $33,349
 $3,145
 $—
 $213,943
Stock based compensation expense—
 —
 337
 —
 —
 —
 337
Exercise of stock options600
 1
 8
 —
 —
 —
 9
Restricted stock awards1,500
 1
 (1) —
 —
 —
 —
Restricted shares withheld for taxes(3,601) (4) (84) —
 —
 —
 (88)
Noncontrolling interest contributions—
 —
 —
 —
 —
 1,386
 1,386
Cash dividend declared to common shareholders—
 —
 —
 (1,010) —
 —
 (1,010)
Net income (loss)—
 —
 —
 4,000
 —
 (1,386) 2,614
Other comprehensive income—
 —
 —
 —
 2,461
 —
 2,461
BALANCE - SEPTEMBER 30, 201911,195,062
 $11,195
 $166,512
 $36,339
 $5,606
 $—
 $219,652


RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(Dollar amounts in thousands)
Three Months Ended
March 31,
20202019
OPERATING ACTIVITIES
Consolidated net income (loss)$(1,191) $2,281  
Adjustments to reconcile consolidated net income (loss) to net cash provided (used) by operating activities
Provision for loan losses2,900  —  
Deferred income taxes(295) 1,179  
Gain on disposal of premises and equipment(9) —  
Depreciation and amortization of premises and equipment598  497  
Net amortization of securities202  825  
Net realized gains on sales of securities—  (131) 
Gains on mortgage loans sold, net(1,573) (560) 
Stock-based compensation expense349  250  
Gain on other real estate(14) —  
Increase in cash surrender value of life insurance contracts(295) (278) 
Mortgage loans originated for resale(89,076) (18,422) 
Proceeds from sale of mortgage loans57,773  24,815  
Other amortization (accretion)(1) (134) 
Change in
Accrued interest receivable770  (175) 
Other assets(13,715) (1,433) 
Accrued interest payable455  (73) 
Other liabilities(2,487) (1,432) 
TOTAL ADJUSTMENTS(44,418) 4,928  
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES(45,609) 7,209  
INVESTING ACTIVITIES
Cash used to convert shares, and redeem stock options and fractional shares, net of cash received(7,480) —  
Activities in available for sale securities
Purchases—  (20,571) 
Sales56,336  10,558  
Maturities, prepayments and calls1,836  2,291  
Purchases of restricted equity securities(2,217) (9) 
Redemption of restricted equity securities—  200  
Net increase in loans(38,508) (30,253) 
Purchase of buildings, leasehold improvements, and equipment(457) (434) 
Proceeds from sale of premises and equipment75  —  
Proceeds from sale of other real estate764  —  
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES10,349  (38,218) 
FINANCING ACTIVITIES
Net change in deposits(71,768) 73,427  
Net change in other borrowings acquired from merger(58) —  
Net change in advances from Federal Home Loan Bank103,821  (42,175) 
Issuance of common stock, net of repurchase of restricted shares—  28  
Issuance of common stock related to exercise of stock options8  —  
Redemption of common stock to settle tax liability on restricted stock(73) (659) 
Noncontrolling interest contributions received976  1,450  
Cash dividends paid on common stock(1,274) (1,035) 
NET CASH PROVIDED BY FINANCING ACTIVITIES31,632  31,036  
NET CHANGE IN CASH AND CASH EQUIVALENTS(3,628) 27  
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD51,042  35,178  
CASH AND CASH EQUIVALENTS - END OF PERIOD$47,414  $35,205  
See accompanying notes to consolidated financial statements.
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYCASH FLOWS - UNAUDITED - CONTINUED
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2020 AND 2019 AND 2018
(Dollar amounts in thousands)
Three Months Ended
March 31,
20202019
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for
Interest$4,218  $5,455  
Taxes$—  $4  
Non-cash investing and financing activities
Unrealized gain (loss) on securities available-for-sale$(1,327) $6,954  
Unrealized loss on derivatives$(6,910) $(1,139) 
Change in due to/from noncontrolling interest$976  $1,543  
 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 dividends 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
Stock based compensation expense—
 —
 148
 —
 —
 —
 148
Exercise of stock options357
 —
 3
 —
 —
 —
 3
Restricted stock awards3,000
 3
 (3) —
 —
 —
 —
Noncontrolling interest contributions—
 —
 —
 —
 —
 937
 937
Cash dividend declared to common shareholders—
 —
 —
 (919) —
 —
 (919)
Net income (loss)—
 —
 —
 2,139
 —
 (937) 1,202
Other comprehensive income—
 —
 —
 —
 18
 —
 18
BALANCE - JUNE 30, 201811,482,965
 $11,483
 $172,686
 $21,090
 $(2,919) $—
 $202,340
Stock based compensation expense—
 —
 237
 —
 —
 —
 237
Exercise of stock options4,419
 5
 50
 —
 —
 —
 55
Restricted stock awards43,710
 43
 (43) —
 —
 —
 —
Noncontrolling interest contributions—
 —
 —
 —
 —
 842
 842
Cash dividend declared to common shareholders—
 —
 —
 (926) —
 —
 (926)
Net income (loss)—
 —
 —
 4,082
 —
 (842) 3,240
Other comprehensive loss—
 —
 —
 —
 (2,037) —
 (2,037)
BALANCE - SEPTEMBER 30, 201811,531,094
 $11,531
 $172,930
 $24,246
 $(4,956) $—
 $203,751
See accompanying notes to consolidated financial statements.


RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Dollar amounts in thousands)
 Nine Months Ended
September 30,
 2019 2018
OPERATING ACTIVITIES   
Consolidated net income$7,579
 $7,719
Adjustments to reconcile consolidated net income to net cash provided by operating activities   
Provision for loan losses806
 759
Provision to reflect market value of mortgage loans held for sale—
 196
Deferred income taxes (benefit)3,686
 (959)
Loss on disposal of premises and equipment—
 (16)
Depreciation and amortization of premises and equipment1,486
 1,235
Net amortization of securities2,302
 2,374
Net realized gains on sales of securities(306) (43)
Gains on mortgage loans sold, net(3,170) (4,061)
Stock-based compensation expense867
 609
Realization of gain on other real estate—
 (259)
Increase in cash surrender value of life insurance contracts(838) (893)
Mortgage loans originated for resale(106,520) (113,481)
Proceeds from sale of mortgage loans108,756
 150,866
Other accretion(477) (615)
Change in: Accrued interest receivable726
 (1,123)
Other assets508
 (2,852)
Accrued interest payable547
 845
Other liabilities(6,392) 778
TOTAL ADJUSTMENTS1,981
 33,360
NET CASH PROVIDED BY OPERATING ACTIVITIES9,560
 41,079
INVESTING ACTIVITIES   
Cash received from merger—
 33,128
Activities in available for sale securities   
Purchases(47,870) (103,375)
Sales52,434
 100,737
Maturities, prepayments and calls8,587
 10,125
Purchases of restricted equity securities—
 (2,181)
Redemption of restricted equity securities411
 —
Net increase in loans(118,758) (108,431)
Purchase of buildings, leasehold improvements, and equipment(843) (4,000)
Proceeds from sale of other real estate—
 1,947
NET CASH USED IN INVESTING ACTIVITIES(106,039) (72,050)
FINANCING ACTIVITIES   
Net change in deposits172,741
 79,588
Net change in advances from Federal Home Loan Bank(53,529) (34,020)
Issuance of common stock, net of repurchase of restricted shares272
 398
Issuance of common stock from Employee Stock Purchase Plan90
 —
Redemption of common stock(8,291) —
Noncontrolling interest contributions received4,415
 1,305
Cash dividends paid on common stock(3,077) (2,525)
NET CASH PROVIDED BY FINANCING ACTIVITIES112,621
 44,746
NET CHANGE IN CASH AND CASH EQUIVALENTS16,142
 13,775
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD35,178
 20,668
CASH AND CASH EQUIVALENTS - END OF PERIOD$51,320
 $34,443

RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Dollar amounts in thousands)
 Nine Months Ended
September 30,
 2019 2018
    
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:   
Cash paid during the period for   
Interest$16,861
 $9,655
Taxes$1,607
 $2,170
    
Non-cash investing and financing activities   
Unrealized gain (loss) on securities available-for-sale$16,134
 $(9,742)
Unrealized gain (loss) on derivatives$(3,558) $1,038
Change in due to/from noncontrolling interest$4,484
 $2,243
Loans foreclosed and transferred to other real estate owned and foreclosed assets$943
 $1,060


See accompanying notes to consolidated financial statements.

10
9
Table of Contents
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(Dollar amounts in thousands except per share amounts)





NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


The accounting and reporting policies of Reliant Bancorp, Inc. conform to accounting principles generally accepted in the United States of America ("U.S. GAAP") and to general practices within the banking industry. The following is a brief summary of the significant policies.


Nature of Operations


Reliant Bank began organizational activities in 2005. Reliant Bancorp, Inc. providesis a Tennessee corporation and the holding company for and the sole shareholder of Reliant Bank. Reliant Bancorp is registered as a financial services through its wholly owned bank subsidiary,holding company under the Bank Holding Company Act of 1956 as amended ("Bank Holding Company Act"). Reliant Bank which hasis a commercial bank chartered under Tennessee law and a member of the Federal Reserve System (the "Federal Reserve"). Reliant Bank, Reliant Bancorp's wholly-owned subsidiary, provides a full range of traditional banking products and services to corporate and consumer clients throughout Middle Tennessee and the Nashville-Davidson-Murfreesboro-Franklin, TN Metropolitan Statistical Area (the “Nashville MSA”) and Chattanooga, Tennessee. Reliant Bank operates banking centers in Cheatham, Davidson, Hamilton, Hickman, Maury, Montgomery, Robertson, Rutherford, Sumner, and Williamson counties, Tennessee. Additionally, Reliant Bank operates mortgage offices in Williamson, Robertson, Davidson, Sumner, Rutherford, Maury, HickmanBrentwood, Chattanooga, Hendersonville, and Hamilton CountiesMemphis, Tennessee, as well as two in Tennessee. Its primary deposit products are checking, savings,Little Rock 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. Additionally, on September 16, 2019, Reliant Bancorp, Inc. entered intoone in Crossett, Arkansas. On April 1, 2020, FABK, a definitive agreement to acquire the parent company of Community Bank & Trustcommunity banking organization headquartered in Ashland City, Tennessee.Clarksville, Tennessee, was merged with and into the Company (See Note 15).


Basis of Presentation


The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Quarterly Report on 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 Reliant Bancorp, Inc.’s consolidated financial statements and related notes appearing in Reliant Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018.2019.


The consolidated financial statements as of and for the periods presented include the accounts of Reliant Bancorp Inc., Reliant Bank (the "Bank"), Community First Trups Holding Company ("TRUPS"), which is wholly owned by Reliant Bancorp Inc., Reliant Investment Holdings, LLC ("Holdings"), which is wholly owned by the Bank, and Reliant Mortgage Ventures, LLC ("RMV"), of which the Bank controls 51% of the governance rights. Reliant Bancorp Inc., the Bank, TRUPS, Holdings and RMV, are, collectively, referred to herein as the “Company”. All significant inter-company balances and transactions have been eliminated in consolidation. As described in Note 12 to these unaudited consolidated financial statements, Reliant Bancorp, Inc. and Community First, Inc. ("Community First")TCB merged effective on January 1, 2018.2020. 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 U.S. GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for loan losses, the valuation of other real estate, the valuation of debt and equity securities, the valuation of deferred tax assets and fair values of financial instruments.


The consolidated financial statements as of September 30, 2019,March 31, 2020, and for the three and nine months ended September 30,March 31, 2020 and 2019, and 2018, included herein have not been audited. The accounting and reporting policies of the Company conform to U.S. GAAP and Article 8 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.

11
Table of Contents






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(Dollar amounts in thousands except per share amounts)





NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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 three and nine months ended September 30, 2019March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.2020.


Reclassifications

Certain reclassifications were made to the September 30, 2018 financial statement presentation in order to conform to the September 30, 2019 financial statement presentation. Total stockholders' equity and net income are unchanged due to these reclassifications.

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 income at September 30, 2019March 31, 2020 and December 31, 20182019 were as follows:
March 31, 2020
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value
U. S. Treasury and other U. S. government agencies$56  $1  $—  $57  
State and municipal185,811  11,079  (436) 196,454  
Corporate bonds7,880  17  (62) 7,835  
Mortgage backed securities37,907  211  (2,217) 35,901  
Asset backed securities17,030  —  (349) 16,681
Total$248,684  $11,308  $(3,064) $256,928  
 September 30, 2019
 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Estimated
Fair
Value
U. S. Treasury and other U. S. government agencies$310
 $—
 $—
 $310
State and municipal210,537
 12,479
 —
 223,016
Corporate bonds7,880
 64
 (122) 7,822
Mortgage backed securities39,143
 379
 (404) 39,118
Asset backed securities27,577
 11
 (544) 27,044
Total$285,447
 $12,933
 $(1,070) $297,310


December 31, 2019
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value
U. S. Treasury and other U. S. government agencies$59  $—  $—  $59  
State and municipal186,283  10,413  (36) 196,660  
Corporate bonds7,880  97  (132) 7,845  
Mortgage backed securities38,126  296  (661) 37,761  
Asset backed securities18,374  —  (406) 17,968  
Total$250,722  $10,806  $(1,235) $260,293  
 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


Securities pledged at September 30, 2019March 31, 2020 and December 31, 20182019 had a carrying amount of $58,341$45,380 and $70,097,$46,918, respectively, and were pledged to collateralize Federal Home Loan Bank ("FHLB") advances, Federal Reserve Bank ("FRB") advances and municipal deposits.


At September 30, 2019 and December 31, 2018, there were no holdings
12
Table of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(Dollar amounts in thousands except per share amounts)





NOTE 2 - SECURITIES (CONTINUED)
        
The fair values of available for sale debt securities at September 30, 2019March 31, 2020 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 are shown separately.
Amortized
Cost		Estimated
Fair Value
Due within one year$1,000  $998  
Due in one to five years2,311  2,312  
Due in five to ten years10,330  10,725  
Due after ten years180,106  190,311  
Mortgage backed securities37,907  35,901  
Asset backed securities17,030  16,681  
Total$248,684  $256,928  
 
Amortized
Cost
 
Estimated
Fair Value
Due within one year$500
 $499
Due in one to five years1,035
 1,035
Due in five to ten years12,076
 12,447
Due after ten years205,116
 217,167
Mortgage backed securities39,143
 39,118
Asset backed securities27,577
 27,044
Total$285,447
 $297,310


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, 2019March 31, 2020 and December 31, 2018,2019, respectively:
Less than 12 months12 months or moreTotal
Estimated
Fair Value		Unrealized
Loss		Estimated
Fair Value		Unrealized
Loss		Estimated
Fair Value		Unrealized
Loss
March 31, 2020
State and municipal$3,748  $436  $—  $—  $3,748  $436  
Corporate bonds4,439  61  499  1  4,938  62  
Mortgage backed securities16,162  1,059  11,831  1,158  27,993  2,217  
Asset backed securities—  —  16,124  349  16,124  349  
Total temporarily impaired$24,349  $1,556  $28,454  $1,508  $52,803  $3,064  
 Less than 12 months 12 months or more Total
 
Estimated
Fair Value
 
Unrealized
Loss
 Estimated
Fair Value		 Unrealized
Loss		 Estimated
Fair Value		 Unrealized
Loss
At September 30, 2019           
U. S. Treasury and other
U. S. government agencies
$—
 $—
 $—
 $—
 $—
 $—
State and municipal—
 —
 —
 —
 —
 —
Corporate bonds499
 1
 2,509
 121
 3,008
 122
Mortgage backed securities16,070
 224
 8,296
 180
 24,366
 404
Asset backed securities1,990
 11
 23,056
 533
 25,046
 544
Total temporarily impaired$18,559
 $236
 $33,861
 $834
 $52,420
 $1,070

December 31, 2019
State and municipal$1,960  $36  $—  $—  $1,960  $36  
Corporate bonds—  —  2,499  132  2,499  132  
Mortgage backed securities16,104  286  9,081  375  25,185  661  
Asset backed securities—  —  17,682  406  17,682  406  
Total temporarily impaired$18,064  $322  $29,262  $913  $47,326  $1,235  
At December 31, 2018           
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 5641 and 24247 securities in an unrealized loss position as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.





13
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(Dollar amounts in thousands except per share amounts)



NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES


Loans at September 30, 2019March 31, 2020 and December 31, 20182019 were comprised as follows:
March 31, 2020December 31, 2019
Commercial, Industrial and Agricultural$283,035  $245,515  
Real Estate
    1-4 Family Residential261,718  227,529  
    1-4 Family HELOC99,296  96,228  
    Multi-family and Commercial635,650  536,845  
    Construction, Land Development and Farmland308,598  273,872  
Consumer24,141  16,855  
Other7,456  13,180  
Total1,619,894  1,410,024  
Less
    Deferred loan fees191  72  
    Allowance for loan losses15,121  12,578  
Loans, net$1,604,582  $1,397,374  
 September 30, 2019 December 31, 2018
Commercial, Industrial and Agricultural$231,935
 $213,850
Real Estate   
    1-4 Family Residential236,332
 225,863
    1-4 Family HELOC93,176
 88,112
    Multi-family and Commercial520,297
 447,840
    Construction, Land Development and Farmland238,082
 220,801
Consumer17,448
 20,495
Other13,252
 14,106
Total1,350,522
 1,231,067
Less   
    Deferred loan fees (cost)(161) (9)
    Allowance for possible loan losses12,291
 10,892
Loans, net$1,338,392
 $1,220,184


Activity in the allowance for loan losses by portfolio segment was as follows for the ninethree months ended September 30,March 31, 2020 and March 31, 2019, and September 30, 2018, respectively:
Commercial Industrial and AgriculturalMulti-family
and
Commercial
Real Estate		Construction
Land
Development and Farmland		1-4 Family
Residential
Real Estate		1-4 Family HELOCConsumerOtherTotal
Beginning balance at December 31, 2019$2,529  $5,285  $2,649  $1,280  $624  $177  $34  $12,578  
Charge-offs(294) —  (114) —  —  (31) —  (439) 
Recoveries61  3  —  11  1  6  —  82  
Provision1,555  1,472  (699) 197  248  146  (19) 2,900  
Ending balance at
March 31, 2020		$3,851  $6,760  $1,836  $1,488  $873  $298  $15  $15,121  
 Commercial Industrial and AgriculturalMulti-family
and
Commercial
Real Estate		Construction
Land
Development and Farmland		1-4 Family
Residential
Real Estate		1-4 Family HELOCConsumerOtherTotal
Beginning balance at December 31, 2018$1,751
$4,429
$2,500
$1,333
$656
$184
$39
$10,892
Charge-offs(170)—
—
(29)—
(37)(34)(270)
Recoveries342
62
—
220
11
28
200
863
Provision376
697
13
(141)37
(5)(171)806
Ending balance at September 30, 2019$2,299
$5,188
$2,513
$1,383
$704
$170
$34
$12,291

Beginning balance at December 31, 2018$1,751  $4,429  $2,500  $1,333  $656  $184  $39  $10,892  
Charge-offs(6) —  —  (17) —  (11) —  (34) 
Recoveries240  34  —  212  —  10  —  496  
Provision(111) 130  150  (169) 14  (12) (2) —  
Ending balance at
March 31, 2019		$1,874  $4,593  $2,650  $1,359  $670  $171  $37  $11,354  


14
Beginning balance at December 31, 2017$2,538
$3,166
$2,434
$773
$595
$183
$42
$9,731
Charge-offs(308)(76)(144)(36)(6)(24)(37)(631)
Recoveries530
215
44
11
7
29
3
839
Provision(734)813
56
573
24
(2)29
759
Ending balance at September 30, 2018$2,026
$4,118
$2,390
$1,321
$620
$186
$37
$10,698
Table of Contents




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(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, 2019March 31, 2020 were as follows:
Commercial Industrial and Agricultural
Multi-family
and
Commercial
Real Estate
Construction
Land
Development and Farmland
1-4 Family
Residential
Real Estate
1-4 Family HELOCConsumerOtherTotalCommercial Industrial and AgriculturalMulti-family
and
Commercial
Real Estate		Construction
Land
Development and Farmland		1-4 Family
Residential
Real Estate		1-4 Family HELOCConsumerOtherTotal
Allowance for loan losses Allowance for loan losses
Individually evaluated for impairment$580
$—
$17
$—
$50
$—
$—
$647
Individually evaluated for impairment$679  $—  $—  $—  $—  $4  $—  $683  
Acquired with credit impairment—
—
—
—
—
—
—
—
Acquired with credit impairment—  —  —  —  —  —  —  —  
Collectively evaluated for impairment1,719
5,188
2,496
1,383
654
17034
11,644
Collectively evaluated for impairment3,172  6,760  1,836  1,488  873  29415  14,438  
Total$2,299
$5,188
$2,513
$1,383
$704
$170
$34
$12,291
Total$3,851  $6,760  $1,836  $1,488  $873  $298  $15  $15,121  
Loans Loans
Individually evaluated for impairment$5,309
$2,428
$1,217
$1,997
$346
$—
$—
$11,297
Individually evaluated for impairment$936  $2,375  $1,095  $1,206  $418  $4  $—  $6,034  
Acquired with credit impairment—
218
822
201
—
—
—
1,241
Acquired with credit impairment—  233  1,032  1,141  14  15  —  2,435  
Collectively evaluated for impairment226,626
517,651
236,043
234,134
92,830
17,44813,252
1,337,984
Collectively evaluated for impairment282,099  633,042  306,471  259,371  98,864  24,1227,456  1,611,425  
Total$231,935
$520,297
$238,082
$236,332
$93,176
$17,448
$13,252
$1,350,522
Total$283,035  $635,650  $308,598  $261,718  $99,296  $24,141  $7,456  $1,619,894  
 
The allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 20182019 were as follows:
Commercial Industrial and AgriculturalMulti-family
and
Commercial
Real Estate		Construction
Land
Development and Farmland		1-4 Family
Residential
Real Estate		1-4 Family HELOCConsumerOtherTotal
Allowance for loan losses
Individually evaluated for impairment$755  $—  $17  $—  $—  $—  $—  $772  
Acquired with credit impairment—  —  —  —  —  —  —  —  
Collectively evaluated for impairment1,774  5,285  2,632  1,280  624  177  34  11,806  
Total$2,529  $5,285  $2,649  $1,280  $624  $177  $34  $12,578  
Loans
Individually evaluated for impairment$1,154  $2,396  $1,218  $1,120  $374  $—  $—  $6,262  
Acquired with credit impairment—  215  813  195  —  —  —  1,223  
Collectively evaluated for impairment244,361  534,234  271,841  226,214  95,854  16,855  13,180  1,402,539  
Total$245,515  $536,845  $273,872  $227,529  $96,228  $16,855  $13,180  $1,410,024  

15
 Commercial Industrial and Agricultural
Multi-family
and
Commercial
Real Estate
Construction
Land
Development and Farmland
1-4 Family
Residential
Real Estate
1-4 Family HELOCConsumerOtherTotal
Allowance for loan losses        
Individually evaluated for impairment$38
$—
$17
$—
$—
$—
$—
$55
Acquired with credit impairment—
—
—
—
—
—
—
—
Collectively evaluated for impairment1,713
4,429
2,483
1,333
656
184
39
10,837
Total$1,751
$4,429
$2,500
$1,333
$656
$184
$39
$10,892
Loans        
Individually evaluated for impairment$978
$1,160
$1,780
$1,246
$—
$12
$—
$5,176
Acquired with credit impairment40
232
1,751
262
—
11
—
2,296
Collectively evaluated for impairment212,832
446,448
217,270
224,355
88,112
20,472
14,106
1,223,595
Total$213,850
$447,840
$220,801
$225,863
$88,112
$20,495
$14,106
$1,231,067
Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(Dollar amounts in thousands except per share amounts)





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


Risk characteristics relevant to each portfolio segment are as follows:


Commercial,industrialand agricultural: The commercial, industrial and agricultural loan portfolio segment includes loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations. Commercial, industrial and agricultural loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis.


Multi-family and commercial real estate: Multi-family and commercial real estate loans are subject to underwriting standards and processes similar to commercial, industrial and agricultural loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.


Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties comprising the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting the market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. Non-owner occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property.


These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or an affiliate of the party, who owns the property.


Construction and land development: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Company also finances construction loans for owner-occupied properties. A portion of the Company’s construction and land development portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). With respect to construction loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.


        

16
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(Dollar amounts in thousands except per share amounts)





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


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.


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.


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.


NonaccrualNon-accrual loans by class of loan were as follows at September 30, 2019March 31, 2020 and December 31, 2018:2019:
March 31, 2020December 31, 2019
Commercial, Industrial and Agricultural$355  $572  
Multi-family and Commercial Real Estate1,276  1,276  
Construction, Land Development and Farmland412  555  
1-4 Family Residential Real Estate1,535  1,344  
1-4 Family HELOC341  296  
Consumer30  28  
Total$3,949  $4,071  
 September 30, 2019 December 31, 2018
Commercial, Industrial and Agricultural$601
 $279
Multi-family and Commercial Real Estate1,310
 —
Construction, Land Development and Farmland555
 1,294
1-4 Family Residential Real Estate1,538
 2,556
1-4 Family HELOC346
 —
Consumer30
 65
Total$4,380
 $4,194


Performing nonaccrualnon-accrual loans totaled $1,076$931 and $2,010$1,332 at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.


        



17
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(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 September 30, 2019:March 31, 2020:
Unpaid
Principal
Balance		Recorded
Investment
with no
Allowance for Loan Losses
Recorded		Recorded
Investment
with
Allowance for Loan Losses
Recorded		Total
Recorded
Investment		Related
Allowance for Loan Losses
Commercial, Industrial and Agricultural$1,707  $79  $857  $936  $679  
Multi-family and Commercial Real Estate4,216  2,608  —  2,608  —  
Construction, Land Development and Farmland3,780  2,127  —  2,127  —  
1-4 Family Residential Real Estate3,922  2,347  —  2,347  —  
1-4 Family HELOC512  433  —  433  —  
Consumer110  14  4  18  4  
Total$14,247  $7,608  $861  $8,469  $683  
 
Unpaid
Principal
Balance
 
Recorded
Investment
with no
Allowance
Recorded
 
Recorded
Investment
with
Allowance
Recorded
 
Total
Recorded
Investment
 
Related
Allowance
Commercial, Industrial and Agricultural$5,309
 $754
 $4,555
 $5,309
 $580
Multi-family and Commercial Real Estate2,655
 2,646
 —
 2,646
 —
Construction, Land Development and Farmland2,356
 1,868
 171
 2,039
 17
1-4 Family Residential Real Estate2,286
 2,198
 —
 2,198
 —
1-4 Family HELOC348
 296
 50
 346
 50
Total$12,954
 $7,762
 $4,776
 $12,538
 $647


Individually impaired loans by class of loans were as follows at December 31, 2018:2019:
Unpaid
Principal
Balance		Recorded
Investment
with no
Allowance for Loan Losses
Recorded		Recorded
Investment
with
Allowance for Loan Losses
Recorded		Total
Recorded
Investment		Related
Allowance for Loan Losses
Commercial, Industrial and Agricultural$1,154  $—  $1,154  $1,154  $755  
Multi-family and Commercial Real Estate2,624  2,611  —  2,611  —  
Construction, Land Development and Farmland2,348  1,860  171  2,031  17  
1-4 Family Residential Real Estate1,419  1,315  —  1,315  —  
1-4 Family HELOC376  374  —  374  —  
Total$7,921  $6,160  $1,325  $7,485  $772  
 
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
 1,392
 —
 1,392
 —
Construction, Land Development and Farmland3,920
 3,359
 172
 3,531
 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,March 31, 2020 and 2019 and 2018 were as follows:
20202019
Commercial, Industrial and Agricultural$1,045  $736  
Multi-family and Commercial Real Estate2,610  2,202  
Construction, Land Development and Farmland2,079  3,173  
1-4 Family Residential Real Estate1,831  1,724  
1-4 Family HELOC404  —  
Consumer9  17  
Total$7,978  $7,852  


18
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)

 2019 2018
Commercial, Industrial and Agricultural$1,921
 $2,661
Multi-family and Commercial Real Estate2,573
 2,610
Construction, Land Development and Farmland2,570
 4,831
1-4 Family Residential Real Estate1,779
 2,708
1-4 Family HELOC161
 90
Consumer9
 72
Total$9,013
 $12,972
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. 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.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


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

Grade 2 - High Quality (Pass)

This grade includes loans to borrowers with a strong financial condition reflecting dependable net profits and cash flows. The borrower has verifiable liquid net worth providing above average asset protection. An identifiable market 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. 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. The borrower has verifiable net worth, providing over time, average asset protection. The borrower's cash flows are sufficient to satisfy debt service requirements. Risk of loss is below average.


Grade 5 - Acceptable (Management Attention) (Pass)

This grade includes loans to borrowers whose loans are performing, but sources of repayment are not documented by the current credit analysis. There are some declining trends in margins, ratios and/or cash flow. Guarantor(s) have strong net worth(s), but assets may be concentrated in real estate or other illiquid investments. Risk of loss is average.


Grade 6 - Special Mention

Special mention assets have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s position at some future date. These assets pose elevated risk, but their weakness does not yet justify a substandard classification. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. The special mention rating is designed to identify a specific level of risk and concern about asset quality. Although a special mention asset has a higher probability of default than a pass asset, its default is not imminent.


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.

19
Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(Dollar amounts in thousands except per share amounts)



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


Grade 8 - Doubtful

An extension of credit classified ‘‘doubtful’’ has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage of and strengthen the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceedings, capital injection, perfecting liens on additional collateral, or refinancing plans. Generally, the doubtful classification should not extend for a long period of time because in most cases the pending factors or events that warranted the doubtful classification should be resolved either positively or negatively in a reasonable period of time.


Grade 9 - Loss

Extensions of credit classified ‘‘loss’’ are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. Amounts classified loss should be promptly charged off. The Company will not attempt long term recoveries while the credit remains on the Company’s books. Losses should be taken in the period in which they surface as uncollectible. With loss assets, the underlying borrowers are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Once an asset is classified loss, there is little prospect of collecting either its principal or interest.


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 September 30, 2019:March 31, 2020:
PassSpecial
Mention		SubstandardTotal
Commercial, Industrial and Agricultural$280,963  $456  $1,616  $283,035  
1-4 Family Residential Real Estate258,828  277  2,613  261,718  
1-4 Family HELOC98,863  —  433  99,296  
Multi-family and Commercial Real Estate629,381  1,992  4,277  635,650  
Construction, Land Development and Farmland307,459  —  1,139  308,598  
Consumer23,885  24  232  24,141  
Other7,456  —  —  7,456  
Total$1,606,835  $2,749  $10,310  $1,619,894  
 Pass 
Special
Mention
 Substandard Total
Commercial, Industrial and Agricultural$225,542
 $442
 $5,951
 $231,935
1-4 Family Residential Real Estate233,559
 —
 2,773
 236,332
1-4 Family HELOC92,574
 —
 602
 93,176
Multi-family and Commercial Real Estate515,570
 —
 4,727
 520,297
Construction, Land Development and Farmland237,171
 —
 911
 238,082
Consumer17,217
 —
 231
 17,448
Other13,252
 —
 —
 13,252
Total$1,334,885
 $442
 $15,195
 $1,350,522


Credit quality indicators by class of loan were as follows at December 31, 2018:2019:
PassSpecial
Mention		SubstandardTotal
Commercial, Industrial and Agricultural$241,089  $2,382  $2,044  $245,515  
1-4 Family Residential Real Estate225,809  —  1,720  227,529  
1-4 Family HELOC95,678  —  550  96,228  
Multi-family and Commercial Real Estate531,055  1,519  4,271  536,845  
Construction, Land Development and Farmland272,440  —  1,432  273,872  
Consumer16,634  —  221  16,855  
Other13,180  —  —  13,180  
Total$1,395,885  $3,901  $10,238  $1,410,024  

20
 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
Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(Dollar amounts in thousands except per share amounts)



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


Past due status by class of loan was as follows at September 30, 2019:March 31, 2020:
30-59 Days
Past Due		60-89 Days
Past Due		90+ Days
Past Due		Total
Past Due		CurrentTotal Loans
Commercial, Industrial and Agricultural$603  $25  $432  $1,060  $281,975  $283,035  
1-4 Family Residential Real Estate424  413  469  1,306  260,412  261,718  
1-4 Family HELOC187  —  296  483  98,813  99,296  
Multi-family and Commercial Real Estate220  —  1,049  1,269  634,381  635,650  
Construction, Land Development and Farmland342  —  225  567  308,031  308,598  
Consumer23  11  16  50  24,091  24,141  
Other—  —  —  —  7,456  7,456  
Total$1,799  $449  $2,487  $4,735  $1,615,159  $1,619,894  
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90+ Days
Past Due
 
Total
Past Due
 Current Total Loans
Commercial, Industrial and Agricultural$5
 $133
 $579
 $717
 $231,218
 $231,935
1-4 Family Residential Real Estate539
 514
 426
 1,479
 234,853
 236,332
1-4 Family HELOC42
 —
 346
 388
 92,788
 93,176
Multi-family and Commercial Real Estate—
 505
 558
 1,063
 519,234
 520,297
Construction, Land Development and Farmland136
 —
 171
 307
 237,775
 238,082
Consumer20
 29
 10
 59
 17,389
 17,448
Other—
 —
 —
 —
 13,252
 13,252
Total$742
 $1,181
 $2,090
 $4,013
 $1,346,509
 $1,350,522


Past due status by class of loan was as follows at December 31, 2018:2019:
30-59 Days
Past Due		60-89 Days
Past Due		90+ Days
Past Due		Total
Past Due		CurrentTotal Loans
Commercial, Industrial and Agricultural$79  $4  $572  $655  $244,860  $245,515  
1-4 Family Residential Real Estate501  236  229  966  226,563  227,529  
1-4 Family HELOC—  —  296  296  95,932  96,228  
Multi-family and Commercial Real Estate485  —  558  1,043  535,802  536,845  
Construction, Land Development and Farmland255  —  339  594  273,278  273,872  
Consumer38  26  64  128  16,727  16,855  
Other—  —  —  —  13,180  13,180  
Total$1,358  $266  $2,058  $3,682  $1,406,342  $1,410,024  
 
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


There was one loan totaling $111$78 past due 90 days or more and still accruing interest at September 30, 2019.March 31, 2020. Additionally, credit card balances totaling $10$16 were past due 90 days or more and still accruing interest. ThereAt December 31, 2019, there was one loan totaling $6$64 past due 90 days or more and still accruing interest at December 31, 2018.interest.


During the ninethree months ended September 30,March 31, 2020 and March 31, 2019, there were no loans that were modified to troubled debt restructurings. One previously disclosed troubled debt restructuring with a principal balance of $69 was paid in full during the nine months ended September 30, 2019.

The following table presents loans by class modified as troubled debt restructuringsrestructurings("TDRs").

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. Section 4013 of the CARES Act provides that occurred during the nine months ended September 30, 2018:
  Number of Contracts  Pre-Modification Outstanding Recorded Investments  Post-Modification Outstanding Recorded Investments
September 30, 2018     
1-4 Family Residential1
 $1,254
 $1,254
Multi-family and Commercial Real Estate1
 $661
 $585
Total2
 $1,915
 $1,839

One modification that occurred during the nine months ended September 30, 2018, consisted of an interest only monthly payment restructure and had no effect on the allowancefinancial institutions may elect to account for loan lossesmodifications occurring between March 1, 2020, and the earlier of December 31, 2020 and the 60th day after the end of the COVID-19 national emergency declared by President Trump, which are due to COVID-19 and where the borrower was current on contractual payments as of December 31, 2019, as not TDRs. Additionally, on April 7, 2020, federal banking regulators issued an Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus (Revised), which replaced a prior interagency statement predating the CARES Act. The revised interagency statement encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual payment obligations because of the effects of COVID-19. It also addresses loan modifications not meeting the criteria set forth in Section 4013 of the CARES Act or interest income. The otherfor which financial institutions elect not to apply Section 4013. With respect to these loan modifications, the revised interagency statement provides that short-term (e.g. six month) modifications made on a good faith basis in response to COVID-19 to borrowers who were current on their contractual payments at the time of implementation of a modification was a restructureprogram are not TDRs.



21
Table of five loans, including purchased credit impaired loans, in which a charge off occurred of $76, resulting in one remaining loan of $585.Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(Dollar amounts in thousands except per share amounts)



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


Through March 31, 2020, the Company had applied this guidance and modified loans with aggregate principal balances totaling $319.0 million. More of these types of modifications are likely to be executed in the second quarter of 2020. The majority of these modifications involved three-month extensions of either interest-only periods or full payment deferrals. Of these modified loans the primary categories were $153.9 million commercial real estate loans, $80.2 million of hospitality-based loans, $39.2 million of restaurant-related loans, $16.1 million of commercial and industrial loans, $14.8 million of multifamily loans, and the remainder being church, medical and consumer loans.

The CARES Act was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (“SBA”) to administer new loan programs that included, but were not limited to, the guarantee of loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”).

Upon completion of the FABK Transaction as disclosed in Note 15, we assumed their qualified SBA lender status.

An eligible business can apply for a PPP loan up to the lesser of: (1) 2.5 times its average monthly “payroll costs;” or (2) $10.0 million. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses.

The 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 were as follows at September 30, 2019March 31, 2020 and December 31, 2018:2019:

September 30, 2019 December 31, 2018March 31, 2020December 31, 2019
Commercial, Industrial and Agricultural$—
 $63
Commercial, Industrial and Agricultural$232  $—  
Multi-family and Commercial Real Estate220
 233
Multi-family and Commercial Real Estate242  217  
Construction, Land Development and Farmland1,030
 1,958
Construction, Land Development and Farmland1,283  1,021  
1-4 Family Residential Real Estate237
 324
1-4 Family Residential Real Estate1,453  231  
1-4 Family HELOC1-4 Family HELOC19  —  
Consumer—
 18
Consumer21  —  
Total outstanding balance1,487
 2,596
Total outstanding balance3,250  1,469  
Less remaining purchase discount246
 300
Less remaining purchase discount815  246  
Allowance for loan losses—
 —
Allowance for loan losses—  —  
Carrying amount, net of allowance$1,241
 $2,296
Carrying amount, net of allowance for loan lossesCarrying amount, net of allowance for loan losses$2,435  $1,223  


Activity related to the accretable portion of the purchase discount on loans acquired with deteriorated credit quality is as follows for the ninethree months ended September 30,March 31, 2020 and 2019:
20202019
Balance at January 1,$98  $110  
New loans purchased131  —  
Year-to-date settlements(20) —  
Balance at March 31,209  110  



22
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020 and 2019 and 2018:(UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)

 2019 2018
Balance at January 1,$171
 $61
New loans purchased—
 261
Year-to-date settlements(7) (151)
Balance at March 31,164
 171

NOTE 4 - OTHER REAL ESTATE


At September 30, 2019 andMarch 31, 2020, the Company did not have any other real estate. During the three months ended March 31, 2020, the one parcel of property held at December 31, 2018,2019 with a value of $750 was sold for $764. Additionally, at March 31, 2020, there were three real estate loans to two borrowers with related balances totaling $906 in the process of foreclosure. At December 31, 2019, the balance of other real estate owned includes $1,943 and $1,000, respectively,was $750 of foreclosed residentialone parcel of other real estate properties recorded as a result of obtaining physical possession of the properties.estate. During the three and nine months ended September 30,March 31, 2019, $95 and $943 respectively, werewas added to other real estate owned. Additionally, at September 30, 2019, there were five real estate loans to four borrowers with related balances totaling $961, in the process of foreclosure.

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. As of September 30, 2019, only one parcel remains with a related book value of $1,000.

estate. Expenses related to other real estate totaled $15 and $30$6 for the three and nine months ended September 30, 2019, respectively, compared to $25 and $38 for the three and nine months ended September 30, 2018, respectively.March 31, 2019.


NOTE 5 - FAIR VALUES OF ASSETS AND LIABILITIES
 
Financial accounting standards relating to fair value measurements establish a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1Inputs 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 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


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


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; and
•Inputs that are derived principally from or corroborated by the observable market data by correlation   or
other means.


If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.


Level 3Inputs 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.

Level 3 Inputs to the valuation methodology are unobservable and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.



















23
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)




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

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.


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.


Other Real Estate: The fair value of other real estate is generally based on recent real estate appraisals less estimated disposition cost. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in Level 3 classification of the inputs for determining fair value.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company’s valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.


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.



24
Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(Dollar amounts in thousands except per share amounts)







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


The following table sets forth the Company’s major categories of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of September 30, 2019March 31, 2020 and December 31, 2018:2019:
Fair ValueQuoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
March 31, 2020
Assets
U. S. Treasury and other U. S. government agencies$57  $—  $57  $—  
State and municipal196,454  —  196,454  —  
Corporate bonds7,835  —  7,835  —  
Mortgage backed securities35,901  —  35,901  —  
Asset backed securities16,681  —  16,681  —  
Liabilities
Interest rate swaps$9,618  $—  $9,618  $—  
December 31, 2019
Assets
U. S. Treasury and other U. S. government agencies$59  $—  $59  $—  
State and municipal196,660  —  196,660  —  
Corporate bonds7,845  —  7,845  —  
Mortgage backed securities37,761  —  37,761  —  
Asset backed securities17,968  —  17,968  —  
Interest rate swaps688  —  688  —  
Liabilities
Interest rate swaps$3,396  $—  $3,396  $—  

25
Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)




 Fair Value 
Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
September 30, 2019       
Assets       
U. S. Treasury and other U. S. government agencies$310
 $—
 $310
 $—
State and municipal223,016
 —
 223,016
 —
Corporate bonds7,822
 —
 7,822
 —
Mortgage backed securities39,118
 —
 39,118
 —
Asset backed securities27,044
 —
 27,044
 —
Interest rate swaps—
 —
 —
 —
        
Liabilities       
Interest rate swaps$4,273
 $—
 $4,273
 $—
        
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
 $—
NOTE 5 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)


The following table sets forth the Company’s major categories of assets and liabilities measured at fair value on a nonrecurring basis, by level within the fair value hierarchy, as of September 30, 2019March 31, 2020 and December 31, 2018:2019:

Fair ValueQuoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)
Fair Value Quoted Prices in Active Markets for Identical Assets
(Level 1)		 Significant Other Observable Inputs
(Level 2)		 
Significant Unobservable Inputs
(Level 3)
September 30, 2019       
March 31, 2020March 31, 2020    
Assets       Assets    
Impaired loans$4,129
 $—
 $—
 $4,129
Impaired loans$178  $—  $—  $178  
Other real estate owned1,943
 —
 —
 1,943
Other real estate owned—  —  —  —  
       
December 31, 2018       
December 31, 2019December 31, 2019    
Assets       Assets    
Impaired loans$370
 $—
 $—
 $370
Impaired loans$553  $—  $—  $553  
Other real estate owned1,000 —
 —
 1,000
Other real estate owned750—  —  750  




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


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


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, 2019March 31, 2020 and December 31, 2018:
2019:
Valuation

Techniques (1)
Significant

Unobservable Inputs
Range

(Weighted Average)
Impaired loansAppraisalEstimated costs to sell10%
Other real estate ownedAppraisalEstimated costs to sell10%
(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.

(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.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)




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

Carrying amounts and estimated fair values of financial instruments not reported at fair value at September 30, 2019March 31, 2020 and December 31, 20182019 were as follows:
March 31, 2020Carrying
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$46,318  $46,318  $46,318  $—  $—  
Federal funds sold1,714  1,714  —  1,714  —  
Loans, net1,604,582  1,594,903  —  —  1,594,903  
Mortgage loans held for sale70,352  70,352  —  —  70,352  
Accrued interest receivable7,289  7,289  —  7,289  —  
Restricted equity securities14,405  14,405  —  14,405  —  
Financial liabilities
Deposits$1,722,448  $1,728,071  $—  $—  $1,728,071  
Accrued interest payable3,995  3,995  —  3,995  —  
Subordinate debentures70,391  68,645  —  —  68,645  
Federal Home Loan Bank advances127,628  127,965  —  —  127,965  
September 30, 2019
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$51,247
 $51,247
 $51,247
 $—
 $—
Federal funds sold73
 73
 —
 73
 —
Loans, net1,338,392
 1,326,932
 —
 —
 1,326,932
Mortgage loans held for sale16,757
 17,052
 —
 17,052
 —
Accrued interest receivable7,488
 7,488
 —
 7,488
 —
Restricted equity securities11,279
 11,279
 —
 11,279
 —
Financial liabilities         
Deposits$1,610,633
 $1,612,749
 $—
 $—
 $1,612,749
Accrued interest payable1,610
 1,610
 —
 1,610
 —
Subordinate debentures11,665
 12,357
 —
 —
 12,357
Federal Home Loan Bank advances3,928
 3,954
 —
 —
 3,954

December 31, 2019
Financial assets
Cash and due from banks$50,990  $50,990  $50,990  $—  $—  
Federal funds sold52  52  —  52  —  
Loans, net1,397,374  1,383,719  —  —  1,383,719  
Mortgage loans held for sale37,476  38,379  —  38,379  —  
Accrued interest receivable7,111  7,111  —  7,111  —  
Restricted equity securities11,279  11,279  —  11,279  —  
Financial liabilities
Deposits$1,583,789  $1,582,117  $—  $—  $1,582,117  
Accrued interest payable2,022  2,022  —  2,022  —  
Subordinate debentures70,883  71,454  —  —  71,454  
Federal Home Loan Bank advances10,737  10,755  —  —  10,755  
December 31, 2018         
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
 —
Subordinate debentures11,603
 11,522
 —
 —
 11,522
Federal Home Loan Bank advances57,498
 57,434
 —
 —
 57,434






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


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


The methods and assumptions used to estimate fair value are described as follows:


Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, restricted equity securities, 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.


Due to COVID- 19 disruption of the market for sales of mortgage loans at March 31, 2020, the Company migrated the fair value for mortgage loans held for sale from Level 2 to Level 3. It is management's estimate that as of that date the fair value of those loans approximated the carrying value.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)




NOTE 6 - STOCK-BASED COMPENSATION


In 2006, the Board of Directors and shareholders of the Bank (then known as "Commerce Union Bank") approved the Commerce Union Bank Stock Option Plan (the “Plan”). The Plan provided for the granting of stock options, for up to 625,000 shares of common stock to employees and organizers, and authorized the issuance of common stock upon the exercise of such options. As part of the Bank's reorganization into a holding company corporate structure in 2012, all Bank options were replaced with Commerce Union Bancshares, Inc. (now known as "Reliant Bancorp, 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 (the “A&R Plan”), which permits the grant of awards with respect to up to 1,250,000 shares of Company common stock in the form of stock options. As part of the merger of Commerce Union Bank and theReliant Bank, all outstanding stock options of theReliant Bank were converted to stock options of Commerce Union Bancshares, Inc. (now known as "Reliant Bancorp, Inc.") under the A&R Plan. Under the A&R 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 10 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 Bancshares, Inc. (now known as "Reliant Bancorp, Inc.") approved the Commerce Union Bancshares, Inc. 2015 Equity Incentive Plan, which reserves up to 900,000 shares of common stock to be subject to awards under the plan, including awards in the form of stock options, restricted stock grants, performance-based awards, and other awards denominated or payable by reference to or based on or related to common stock.


Common Stock Options
        
A summary of stock option activity for the ninethree months ended September 30, 2019March 31, 2020 is as follows:
SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding at January 1, 2020149,293$18.81  6.68 years$553  
Granted—  $—  
Exercised(868)$8.49  1.73 years11
Forfeited or expired—$—  
Outstanding at March 31, 2020148,425$18.87  6.62 years$22  
Exercisable at March 31, 202073,825$15.39  5.22 years$22  
 Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value
Outstanding at January 1, 2019159,260
 $16.72
 6.04 years $1,146
Granted27,500
 $23.28
 
 
Exercised(27,306)
 $13.15
 
 
Forfeited or expired(2,753)
 $19.34
 
 
Outstanding at September 30, 2019156,701
 $18.44
 6.62 years $970
Exercisable at September 30, 201981,701
 $14.89
 4.97 years $764


SharesWeighted Average
Grant-Date Fair Value
Shares 
Weighted Average
Grant-Date Fair Value
Non-vested options at January 1, 201971,200
 $5.28
Non-vested options at January 1, 2020Non-vested options at January 1, 202074,600  $6.08
Granted27,500
 $6.97Granted—  $—
Vested(20,947) $4.69Vested—  $—
Forfeited(2,753) $4.89Forfeited—  $—
Non-vested options at September 30, 201975,000
 $6.08
Non-vested options at March 31, 2020Non-vested options at March 31, 202074,600  $6.08
        

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 6 - STOCK-BASED COMPENSATION (CONTINUED)

As of September 30, 2019,March 31, 2020, there was $413$346 of unrecognized future compensation expense to be recognized related to stock options.




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)




NOTE 6 - STOCK-BASED COMPENSATION (CONTINUED)

Restricted Stock and Restricted Stock Unit Awards


The following table shows the activity related to non-vested restricted stock and restricted stock unit awards for the ninethree months ended September 30, 2019:March 31, 2020:
Restricted Stock UnitsRestricted Stock
SharesWeighted Average Grant-Date
Fair Value		SharesWeighted Average Grant-Date
Fair Value
Non-vested shares at January 1, 202047,750  $23.30  90,960  $25.31  
Granted—  —  —  —  
Vested—  —  (11,163) 21.89  
Forfeited—  —  (3,837) 21.89
Non-vested shares at March 31, 202047,750  $23.30  75,960  $25.99  
 Shares Weighted Average Grant-Date
Fair Value
Non-vested shares at January 1, 2019110,660
 $24.28
Granted9,500
 22.01
Vested(21,450) 19.31
Forfeited(7,750) 23.25
Non-vested shares at September 30, 201990,960
 $25.31

The non-vested restricted stock awards vest over periods ranging from one to three years.

Restricted Stock Units

On July 23, 2019, 41,250 stock-settled restricted stock units were awarded to certain employees of Reliant Bancorp, Inc. and/or the Bank. Subject to certain special vesting and forfeiture rules set forth in the underlying award agreements, these restricted stock units generally will vest on the third anniversary of the award date and will be settled promptly after vesting. Also, on July 23, 2019, 6,500 stock-settled restricted stock units were awarded to members of the board of directors of Reliant Bancorp. Subject to certain special vesting and forfeiture rules set forth in the underlying award agreements, these restricted stock units generally will vest on the first anniversary of the award date and will be settled promptly after vesting. None of these employee or director restricted stock units have been forfeited or vested during the nine months ended September 30, 2019.
As of September 30, 2019,March 31, 2020, there was $2,066$2,323 of unrecognized compensation cost related to non-vested restricted stock and restricted stock unit awards.


NOTE 7 - REGULATORY CAPITAL REQUIREMENTS


The Bank is subject to regulatory capital requirements administered by the federal and state banking agencies. The Company meetsfalls under the Small Bank Holding Company regulatory exemption limit presently set at threeand Savings and Loan Holding Company Policy Statement (the “Small Bank Holding Company Policy Statement”), which is generally applicable to bank holding companies with consolidated assets of less than $3 billion, in total assets.and is, therefore, not subject to consolidated capital requirements. 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, 2019,March 31, 2020, the Bank meets all capital adequacy requirements to which it is subject.


Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If 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, 2019March 31, 2020 and December 31, 2018,2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.


In July 2013, the Federal Deposit Insurance Corporation (FDIC) approved final rules that substantially amended the regulatory risk-based capital rules 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 Wall Street Reform and Consumer Protection Act.










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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(Dollar amounts in thousands except per share amounts)







NOTE 7 - REGULATORY CAPITAL REQUIREMENTS (CONTINUED)


Under these rules, the leverage and risk-based capital ratios of bank holding companies (other than bank holding companies that
fall under the Small Bank Holding Company Policy Statement and are not subject to consolidated capital requirements) may not be lower than the leverage and risk-based capital ratios for insured depository 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.


Basel III establishes a “capital conservation buffer” of 2.5% which began phasing in on January 1, 2016, at a rate of 0.625% per year. The buffer became 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.


Capital amounts and ratios for the Company and the Bank (required) are presented below as of September 30, 2019March 31, 2020 and December 31, 2018.2019.
Actual
Regulatory
Capital		Minimum Required
Capital Including
Capital Conservation
Buffer		To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
AmountRatioAmountRatioAmountRatio
March 31, 2020
Company
Tier I leverage$183,873  8.91 %$82,547  4.00 %$103,184  5.00 %
Common equity tier 1172,103  9.54 %126,281  7.00 %117,261  6.50 %
Tier I risk-based capital183,873  10.19 %153,378  8.50 %144,356  8.00 %
Total risk-based capital258,040  14.30 %189,452  10.50 %180,430  10.00 %
Bank
Tier I leverage$217,399  10.58 %$82,192  4.00 %$102,741  5.00 %
Common equity tier 1217,399  12.13 %125,457  7.00 %116,496  6.50 %
Tier I risk-based capital217,399  12.13 %152,341  8.50 %143,379  8.00 %
Total risk-based capital232,945  13.00 %188,148  10.50 %179,188  10.00 %
December 31, 2019
Company
Tier I leverage$176,748  9.74 %$72,586  4.00 %$90,733  5.00 %
Common equity tier 1165,063  10.55 %109,520  7.00 %101,698  6.50 %
Tier I risk-based capital176,748  11.30 %132,952  8.50 %125,131  8.00 %
Total risk-based capital249,751  15.97 %164,207  10.50 %156,388  10.00 %
Bank
Tier I leverage$186,734  10.30 %$72,518  4.00 %$90,648  5.00 %
Common equity tier 1186,734  11.95 %109,384  7.00 %101,571  6.50 %
Tier I risk-based capital186,734  11.95 %132,823  8.50 %125,010  8.00 %
Total risk-based capital199,737  12.79 %163,975  10.50 %156,167  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
September 30, 2019           
Company           
Tier I leverage$171,789
 9.85% $69,762
 4.00% $87,203
 5.00%
Common equity tier 1160,124
 10.85% 103,306
 7.00% 95,927
 6.50%
Tier I risk-based capital171,789
 11.64% 125,447
 8.50% 118,068
 8.00%
Total risk-based capital184,505
 12.51% 154,860
 10.50% 147,486
 10.00%
            
Bank           
Tier I leverage$166,265
 9.55% $69,654
 4.00% $87,067
 5.00%
Common equity tier 1166,265
 11.29% 103,082
 7.00% 95,719
 6.50%
Tier I risk-based capital166,265
 11.29% 125,171
 8.50% 117,808
 8.00%
Total risk-based capital178,981
 12.15% 154,623
 10.50% 147,260
 10.00%
            
December 31, 2018           
Company           
Tier I leverage$168,876
 10.38% $65,077
 4.00% $81,347
 5.00%
Common equity tier 1157,273
 11.59% 86,507
 6.38% 88,203
 6.50%
Tier I risk-based capital168,876
 12.44% 106,905
 7.88% 108,602
 8.00%
Total risk-based capital180,193
 13.28% 133,991
 9.88% 135,688
 10.00%
            
Bank           
Tier I leverage$165,308
 10.17% $65,018
 4.00% $81,272
 5.00%
Common equity tier 1165,308
 12.19% 86,451
 6.38% 88,146
 6.50%
Tier I risk-based capital165,308
 12.19% 106,792
 7.88% 108,488
 8.00%
Total risk-based capital176,625
 13.02% 133,961
 9.88% 135,657
 10.00%


NOTE 8 - EARNINGS PER SHARE


The following is a summary of the components comprising basic and diluted earnings per common share of stock ("EPS"):
Three Months Ended
March 31,
20202019
Basic EPS Computation
Net income attributable to common shareholders$(215) $3,824  
Weighted average common shares outstanding11,892,723  11,405,438  
Basic earnings per common share$(0.02) $0.34  
Diluted EPS Computation
Net income attributable to common shareholders$(215) $3,824  
Weighted average common shares outstanding11,892,723  11,405,438  
Dilutive effect of stock options, restricted stock shares and units, and employee stock purchase plan2,297  81,707  
Adjusted weighted average common shares outstanding11,895,020  11,487,145  
Diluted earnings per common share$(0.02) $0.33  

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
Basic EPS Computation       
Net income attributable to common shareholders$4,000
 $4,082
 $12,063
 $9,962
Weighted average common shares outstanding11,104,918
 11,406,753
 11,247,921
 11,378,755
Basic earnings per common share$0.36
 $0.36
 $1.07
 $0.88
Diluted EPS Computation       
Net income attributable to common shareholders$4,000
 $4,082
 $12,063
 $9,962
Weighted average common shares outstanding11,104,918
 11,406,753
 11,247,921
 11,378,755
Dilutive effect of stock options, restricted shares and employee stock purchase plan72,449
 91,426
 66,445
 83,944
Adjusted weighted average common shares outstanding11,177,367
 11,498,179
 11,314,366
 11,462,699
Diluted earnings per common share$0.36
 $0.36
 $1.07
 $0.87

NOTE 9 - SEGMENT REPORTING


The Company has two2 reportable business segments: retail banking and residential mortgage banking. Segment information is derived from the internal reporting system utilized by management. Revenues and expenses for segments reflect those which can be specifically identified and have been assigned based on internally developed allocation methods. Financial results have been presented, to the extent practicable, as if each segment operated on a stand-alone basis.


Retail Banking provides deposit and lending services to consumer and business customers within our primary geographic markets. Our customers are serviced through branch locations, ATMs, online banking, and mobile banking.


Residential Mortgage Banking originates traditional first lien residential mortgage loans and first lien home equity lines of credit throughout the United States. The traditional first lien residential mortgage loans are typically underwritten to government agency standards and sold to third-party secondary market mortgage investors. The home equity lines of credit are typically sold to participating banks or other investor groups and are underwritten to their standards.


During the second quarter of 2019, RMV began acquiring loans from approved correspondent lenders and reselling them in the secondary market. These loans are not FNMA or FHLMC qualified loans, and are of higher risk, such as, jumbo loans or senior position home equity lines of credit.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 20182019
(Dollar amounts in thousands except per share amounts)






NOTE 9 - SEGMENT REPORTING (CONTINUED)


The following presents summarized results of operations for the Company’s business segments for the periods indicated:
Three Months Ended
March 31, 2020
Retail BankingResidential
Mortgage
Banking		Elimination
Entries		Consolidated
Net interest income$16,782  $333  $—  $17,115  
Provision for loan losses2,900  —  —  2,900  
Noninterest income1,709  1,565  8  3,282  
Noninterest expense (excluding merger expense)12,461  2,951  —  15,412  
Merger expense4,186  —  —  4,186  
Income tax expense (benefit)(841) (69) —  (910) 
Net income (loss)(215) (984) 8  (1,191) 
Noncontrolling interest in net loss of subsidiary—  984  (8) 976  
Net income attributable to common shareholders$(215) $—  $—  $(215) 

 Three Months Ended
March 31, 2019
 Retail BankingResidential Mortgage BankingElimination EntriesConsolidated
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
September 30, 2019
 Retail Banking 
Residential
Mortgage
Banking
 
Elimination
Entries
 Consolidated
Net interest income$13,910
 $154
 $—
 $14,064
Provision for loan losses606
 —
 —
 606
Noninterest income1,375
 1,377
 8
 2,760
Noninterest expense (excluding merger expense)9,726
 3,022
 —
 12,748
Merger expense299
 —
 —
 299
Income tax expense (benefit)654
 (97) —
 557
Net income (loss)4,000
 (1,394) 8
 2,614
Noncontrolling interest in net loss of subsidiary—
 1,394
 (8) 1,386
Net income attributable to common shareholders$4,000
 $—
 $—
 $4,000
 Three Months Ended
September 30, 2018
 Retail Banking Residential Mortgage Banking Elimination Entries Consolidated
Net interest income$13,295
 $171
 $—
 $13,466
Provision for loan losses322
 —
 —
 322
Noninterest income1,379
 1,449
 (51) 2,777
Noninterest expense (excluding merger expense)9,614
 2,466
 —
 12,080
Merger expense82
 —
 —
 82
Income tax expense (benefit)574
 (55) —
 519
Net income (loss)4,082
 (791) (51) 3,240
Noncontrolling interest in net loss of subsidiary—
 791
 51
 842
Net income attributable to common shareholders$4,082
 $—
 $—
 $4,082
 Nine Months Ended
September 30, 2019
 Retail Banking Residential Mortgage Banking Elimination Entries Consolidated
Net interest income$40,986
 $352
 $—
 $41,338
Provision for loan losses806
 —
 —
 806
Noninterest income4,226
 3,187
 (17) 7,396
Noninterest expense (excluding merger expense)30,300
 8,317
 —
 38,617
Merger expense302
 —
 —
 302
Income tax expense (benefit)1,741
 (311) —
 1,430
Net income (loss)12,063
 (4,467) (17) 7,579
Noncontrolling interest in net loss of subsidiary—
 4,467
 17
 4,484
Net income attributable to common shareholders$12,063
 $—
 $—
 $12,063

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 9 - SEGMENT REPORTING (CONTINUED)
 Nine Months Ended
September 30, 2018
 Retail Banking Residential Mortgage Banking Elimination Entries Consolidated
Net interest income$39,529
 $723
 $—
 $40,252
Provision for loan losses759
 —
 —
 759
Noninterest income3,966
 4,190
 (134) 8,022
Noninterest expense (excluding merger expense)28,454
 7,169
 —
 35,623
Merger expense2,742
 —
 —
 2,742
Income tax expense (benefit)1,578
 (147) —
 1,431
Net income9,962
 (2,109) (134) 7,719
Noncontrolling interest in net income of subsidiary—
 2,109
 134
 2,243
Net income attributable to common shareholders$9,962
 $—
 $—
 $9,962


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.


Interest Rate Swaps Designated as Cash Flow Hedges


Interest rate swaps with notional amounts totaling $60,000$160,000 as of September 30, 2019March 31, 2020 were designated as cash flow hedges of certain short-term interest bearinginterest-bearing liabilities and subordinated debentures, which are fully effective. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swap agreements.




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)




NOTE 10 - DERIVATIVES (CONTINUED)

Summary information related to the interest rate swaps designated as cash flow hedges as of September 30, 2019,March 31, 2020, is as follows:
Notional amounts$160,000 
Weighted average pay rates2.050 %
Weighted average receive rates1.679 %
Weighted average maturity3.81 years
Unrealized losses$7,947 
Notional amounts$60,000
Weighted average pay rates3.338%
Weighted average receive rates2.460%
Weighted average maturity3.75 years
Unrealized losses$3,328


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 ninethree months ended September 30, 2019:March 31, 2020:
Amount of Gain (Loss) Recognized in OCI
(Effective Portion)		Amount of Gain (Loss) Reclassified from OCI to Interest IncomeAmount of Gain (Loss) Recognized in Other Noninterest Income (Ineffective Portion)
March 31, 2020
Interest rate contracts$(4,335,000)$— $— 
 Amount of Gain (Loss) Recognized in OCI
(Effective Portion)		 Amount of Gain (Loss) Reclassified from OCI to Interest Income Amount of Gain (Loss) Recognized in Other Noninterest Income (Ineffective Portion)
September 30, 2019     
Interest rate contracts$(2,175) $—
 $—

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 10 - DERIVATIVES (CONTINUED)


The following table reflects the cash flow hedges included in the Consolidated Balance Sheets as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively:
March 31, 2020December 31, 2019
Notional AmountFair ValueNotional AmountFair Value
Included in other liabilities:
Interest rate swaps related to:
Subordinate debentures$10,000  $830  $10,000  $439  
Short-term interest bearing liabilities150,000  7,117  100,000  1,639  
Total included in other liabilities$160,000  $7,947  $110,000  $2,078  























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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)




 September 30, 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
 $532
 $10,000
 $174
Short-term interest bearing liabilities50,000
 2,796
 50,000
 979
Total included in other liabilities$60,000
 $3,328
 $60,000
 $1,153
NOTE 10 - DERIVATIVES (CONTINUED)


Fair Value Hedges


The following table reflects the fair value hedges included in the Consolidated Statements of Income for the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively:
Interest rate contractsLocationMarch 31, 2020March 31, 2019
Change in fair value on interest rate swaps hedging investmentsInterest income$(1,041) $(501) 
Interest rate contractsLocation September 30, 2019 September 30, 2018
Change in fair value on interest rate swaps hedging investmentsInterest income $(1,382) $950


The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively:
March 31, 2020December 31, 2019
Notional AmountFair ValueNotional AmountFair Value
Included in other assets:
Interest rate swaps related to investments$—  $—  $—  $—  
Total included in other assets$—  $—  $—  $—  
Included in other liabilities:
Interest rate swaps related to investments19,605  1,671  19,605  630  
Total included in other liabilities$19,605  $1,671  $19,605  $630  

 September 30, 2019 December 31, 2018
 Notional Amount Fair Value Notional Amount Fair Value
Included in other assets:       
Interest rate swaps related to investments$—
 $—
 $16,902
 $467
Total included in other assets$—
 $—
 $16,902
 $467
        
Included in other liabilities:       
Interest rate swaps related to investments19,605
 945
 4,203
 30
Total included in other liabilities$19,605
 $945
 $4,203
 $30


NOTE 11 – INCOME TAXES


Income tax expense (benefit) for the three and nine months ended September 30, 2019March 31, 2020 totaled $557 and $1,430, respectively,$(910) compared to $519 and $1,431, respectively,$372 for the three and nine months ended September 30, 2018.March 31, 2019. The effective tax rate for the three and nine months ended September 30, 2019March 31, 2020 was 17.6% and 15.9%, respectively,43.3% compared to 13.8% and 15.6%, respectively,14.0% for the three and nine months ended September 30, 2018. MergerMarch 31, 2019. During the quarter ended March 31, 2020, merger expenses duringand the nine months ended September 30, 2018,provision expense had the impact of reducing taxable income and increasing the proportion of tax exempttax-exempt income to total income.

NOTE 12 - BUSINESS COMBINATION


Effective January 1, 2018, Pioneer2020, the Company completed the acquisition of TCB Holdings pursuant to the Agreement and Plan of Merger, Sub, Inc.dated September 16, 2019 (the “TCB Holdings Agreement”), by and among the Company, TCB Holdings, and Community Bank & Trust, a Tennessee-chartered commercial bank and wholly owned subsidiary of Reliant Bancorp, Inc.,TCB Holdings (“CBT”). On the terms and subject to the conditions set forth in the Merger Agreement, TCB Holdings merged with and into Community First,the Company (the “TCB Holdings Transaction”), with Community First continuingthe Company as the surviving corporation, and immediately thereafter Community Firstcorporation. Immediately following the TCB Holdings Transaction, CBT merged with and into Reliant, Bancorp, Inc., with Reliant Bancorp, Inc. continuing as the surviving banking corporation.

Pursuant to the merger agreement,TCB Holdings Agreement, at the effective time of the TCB Holdings Transaction (the “Effective Time”), each outstanding share of Community FirstTCB Holdings common stock, (except forpar value $1.00 per share (other than certain excluded shares and dissenting shares), was converted into and canceled in exchange for the right to receive 0.481(i) $17.13 in cash, without interest, and (ii) 0.769 shares of Reliant Bancorp, Inc.the Company’s common stock, togetherpar value $1.00 per share (“Company Common Stock”). The Company issued 811,210 shares of Company Common Stock and paid approximately $18,073 in cash, in respect of shares of TCB Holdings common stock as consideration for the TCB Holdings Transaction. The Company did not issue fractional shares of Company Common Stock in connection with the TCB Holdings Transaction, but paid cash in lieu of any fractional shares. This business combination expandedshares based on the volume weighted average closing price per share of the Company Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and further diversified the Company's market area.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBERincluding December 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts(calculated as $22.36). At the effective time of the TCB Holdings Transaction, each outstanding option to purchase TCB Holdings common stock was canceled in thousands exceptexchange for a cash payment in an amount equal to the product of (i) $34.25 minus the per share amounts)exercise price of the option multiplied by (ii) the number of shares of TCB Holdings common stock subject to the option (to the extent not previously exercised). The Company paid aggregate consideration to holders of unexercised options of approximately $430. All shares of Company’s common stock outstanding prior to the TCB Merger were unaffected by the TCB Merger.


NOTE 12 - BUSINESS COMBINATION (CONTINUED)


The following table details the financial impact of the business combination, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)




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
Calculation of Purchase Price
Shares of Tennessee Community Bank Holdings, Inc. common stock outstanding as of January 1, 20201,055,041 
Exchange ratio for Reliant Bancorp, Inc. common stock0.769 
Reliant Bancorp, Inc. common stock shares issued811,210 
Reliant Bancorp, Inc. share price at January 1, 2020$22.24 
Estimated value of Reliant Bancorp, Inc. shares issued18,041
Cash settlement for Tennessee Community Bank Holdings, Inc. common stock ($17.13 per share)18,073 
Cash settlement for Tennessee Community Bank Holdings, Inc.'s 26,450 outstanding stock options ($34.25 settlement price less weighted average exercise price of $18.00)430 
Cash settlement for Reliant Bancorp, Inc. fractional shares ($22.36 per pro rata fractional share)3 
Estimated fair value of Tennessee Community Bank Holdings, Inc.$36,547 


Allocation of Purchase Price
Total consideration above$36,547 
Fair value of assets acquired and liabilities assumed
Cash and cash equivalents11,026 
Investment securities available for sale56,336 
Loans, net of unearned income171,445 
Accrued interest receivable948 
Premises and equipment6,440 
Cash surrender value of life insurance contracts5,629 
Restricted equity securities909 
Core deposit intangible3,617 
Other assets833 
Deposits(210,538)
Deferred tax liability(337)
Borrowings(58)
FHLB advances(13,102)
Other liabilities(3,682)
Total fair value of net assets acquired29,466 
Goodwill$7,081 

CBT was a Tennessee based full-service community bank organization with operations in Ashland City, Kingston Springs, Pegram, Pleasant View, and Springfield, Tennessee. These communities lie on the northwest perimeter of Nashville, Tennessee.

NOTE 13 - LEASES

On January 1, 2020, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. The Company also elected certain practical expedients within the standard and consistent with such elections did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases, and did not reassess any initial direct costs for existing leases. The implementation of the new standard resulted in recognition of a right-of-use asset of $12.0 million and a lease liability of $11.9 million at the date of adoption, which is related to the Company’s lease of premises used in operations. The Company used a discount rate of 4.5% in determining the right-of-use asset and lease liability. The Company elected not to restate comparative periods prior to adoption.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)




Allocation of Purchase Price  
Total consideration above $61,983
Fair value of assets acquired and liabilities assumed  
Cash and cash equivalents (33,128)
Time deposits in other financial institutions (23,309)
Investment securities available for sale (69,078)
Loans, net of unearned income (313,040)
Mortgage loans held for sale, net (910)
Accrued interest receivable (1,165)
Premises and equipment (9,585)
Restricted equity securities (1,726)
Cash surrender value of life insurance contracts (10,664)
Other real estate owned (1,650)
Deferred tax asset, net (4,885)
Core deposit intangible (7,888)
Other assets (1,795)
Deposits—noninterest-bearing 80,395
Deposits—interest-bearing 352,100
Other borrowings 11,522
Payables and other liabilities 5,061
Net liabilities assumed (net assets acquired) (29,745)
Goodwill $32,238
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.


The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

During 2018, as part of the system integration of Community First,three months ended March 31, 2020 and 2019, the Company determined minor adjustments were appropriate to reduce other assets by $93recognized $707 and increase payables and other liabilities by $85 effective as$687 of the acquisition date.lease expense, respectively.

NOTE 1314 - 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 our Annual Report on Form 10-K for the year ended December 31, 20182019 for additional information related to previously issued accounting standards updates.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 13 - RECENT ACCOUNTING PRONOUNCEMENTS

ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” implements a common revenue standard that clarifies the principles for recognizing revenue. The principle element of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was originally going to be effective for the Company on January 1, 2018; however, the FASB recently issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date" which deferred the effective date of ASU 2014-09 by one year to January 1, 2019. Revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and noninterest income. The adoption of this standard did not have a significant impact on the Company.


ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. ASU 2016-01 became effective for us on January 1, 2019 and did not have a significant impact on our financial statements.


ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 will require lessees to recognize a lease liability, which is a lessee's
obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 will be effective for us on January 1, 2020 and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. We estimate that the effect of implementing this pronouncement will result in right to use assets of $9,821$11,973 and a similar corresponding liability, using the remaining contractual lease periods. We also estimate the impact on regulatory capital


36
Table of the Company to be a reduction of seven basis points to the Tier 1 leverage capital ratio. Management is presently evaluating the planned renewals of existing leases. If management determines to utilize the renewals of leases then the right to use assets and corresponding liability will increase.Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)





NOTE 14 - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available for sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is expected to be effective on January 1, 2023. 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. 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. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Financial Instruments - Credit Losses (ASC 326), Derivatives and Hedging (ASC 815), and Financial Instruments (ASC 825). The amendments in the ASU improve the Codification by eliminating inconsistencies and providing clarifications. The amended guidance in this ASU related to the credit losses will be effective for the Company for fiscal years and interim periods beginning after December 15, 2022. The Company is currently evaluating the impact of these ASUs on the Company’s consolidated financial statements. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13,these ASUs, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018
(Dollar amounts in thousands except per share amounts)


NOTE 13 - RECENT ACCOUNTING PRONOUNCEMENTS

ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 will be effective for the Company on January 1, 2021, with earlier adoption permitted and is not currently expected to have a significant impact on our consolidated financial statements as it simplifies the test of impairment of goodwill.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - "Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of the reference rate reform on the Company’s consolidated financial statements.















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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)





NOTE 1415 - SUBSEQUENT EVENTS


ASC 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Reliant Bancorp, Inc. evaluated all events or transactions that occurred after September 30, 2019March 31, 2020 through the date of the issued financial statements.

On October 7, 2019, Reliant Bancorp, Inc. entered into two additional interest rate swap transactions with a notional amount of $50,000 designated as cash flow hedges. These derivatives are intended to protect against the effects of changing interest rates on short-term funding.


On October 22, 2019, Reliant Bancorp,the Company, PG Merger Sub, Inc. entered into("Merger sub'), a definitive agreement to acquire First Advantage Bancorp (“FABK”),Tennessee corporation and a wholly-owned subsidiary of the Company, and FABK, a Tennessee corporation and the parent company of FAB. a Tennessee-chartered commercial bank, entered into an Agreement and Plan of Merger (the “FABK Agreement”) providing for First Advantage Bank (“FAB”Reliant Bancorp to acquire FABK and FAB. Reliant Bancorp completed its acquisition of FABK and FAB effective April 1, 2020.

In accordance with the terms of the FABK Agreement, on April 1, 2020, (i) Merger Sub merged with and into FABK (the “FABK Merger”), located in Clarksville, Tennessee. The agreement provideswith FABK being the surviving corporation and becoming a wholly-owned subsidiary of Reliant Bancorp, and (ii) immediately following the FABK Merger, FABK merged with and into Reliant Bancorp (the “Second Step Merger”), with Reliant Bancorp being the surviving corporation. Additionally, immediately following the Second Step Merger, FAB merged with and into Reliant Bank, with Reliant Bank being the surviving bank.

As consideration for a cash and stock transaction valued at approximately $123,400, or $30.67 perthe FABK Merger, each outstanding share of FABK common stock, par value $0.01 per share (the “FABK Common Stock”), other than certain excluded shares, was at the effective time of the FABK Merger converted into the right to receive (i) 1.17 shares of Company Common Stock and (ii) $3.00 in cash, without interest. In lieu of the issuance of fractional shares of Company Common Stock, Reliant Bancorp agreed to pay cash in lieu of fractional shares based on the volume-weighted average closing price per share of Company Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including March 30, 2020 (calculated as $11.74). Based on the March 31, 2020 closing price for Reliant Bancorp, Inc. common stockCompany Common Stock of $23.65$11.27 per share and 4,012,365 shares of FABK Common Stock outstanding on October 22, 2019.

The definitive agreement providesMarch 31, 2020, the consideration for the merger of PGFABK Merger Sub, Inc., with and into FABK with FABK to be the surviving company, followed by the merger of FABK with and into Reliant Bancorp, Inc. with Reliant Bancorp, Inc. to be the surviving company. Under the terms of the definitive agreement, shareholders of FABK will receive 1.17 shares of Reliant Bancorp, Inc. common stock and $3.00 cash (subject to adjustment under certain circumstances provided forwas approximately $65,314, in the definitive agreement) in exchange for eachaggregate, or $16.28 per share of FABK common stock. The definitive agreement has been approved by the boards of directors of both Reliant Bancorp, Inc.Common Stock.

FABK is a Tennessee-based full-service community banking organization headquartered in Clarksville, Tennessee. FAB operated branch offices in Montgomery, Davidson and FABK. The parties currently expect to consummate the transactionWilliamson Tennessee and operated a loan production office in the second quarter of 2020, subject to the receipt of required regulatory and shareholder approvals, as well as the satisfaction of certain other customary closing conditions. The Bank and FAB have entered into a separate bank merger agreement providing for the merger of FAB with and into the Bank following the merger of Reliant Bancorp, Inc. and FABK. The combined bank will operate as the Bank. CurrentKnoxville, Tennessee primarily originating manufactured housing loans.

Former FABK board members William Lawson Mabry and Michael E. Wallace are expected to joinjoined Reliant Bancorp, Inc.'s Boardand Reliant Bank's boards of Directorsdirectors upon completion of the transaction.


The Company is currently determining the initial accounting for this business combination including completing valuations of loans, premises and equipment, intangible assets, deposits, debt, and other liabilities.

In December 2019, news began to surface regarding a pandemic in China, known as the novel coronavirus, or COVID-19. In January 2020, the United States restricted entry to anyone traveling from China. In February 2020, the pandemic spread broadly and swiftly throughout Europe and the Middle East, particularly in Italy and Iran. Cases began to surface in the United States in February 2020 and accelerated in early March 2020. The Federal Reserve reduced the overnight federal funds rate by 50 basis points on March 3, 2020 and by another 100 basis points on March 15, 2020 and announced the resumption of quantitative easing. During the week of March 9, 2020, individual states began implementing restrictions and promoting “social distancing”. These restrictions included closure of schools, restrictions on the number of public gatherings, encouragement of work at home arrangements and other courses of action. Congress began passing a number of measures in late March 2020 and are continuing to approve similar legislation, designed to infuse cash into the economy to offset the negative impacts of business closings and restrictions. The COVID-19 pandemic is a highly unusual, unprecedented and evolving public health and economic crisis and may have a negative material impact on the Company’s financial condition and results of operations. Additionally, the negative consequences of the unprecedented economic shutdown nationally and in Tennessee and bordering states is likely to result in a higher level of delinquencies and loan losses and require additional provisions for loan losses, which will have a negative impact on our results of operations.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)





NOTE 15 - SUBSEQUENT EVENTS (CONTINUED)

The CARES Act included an allocation of $349 billion for loans to be issued by financial institutions through the SBA. This program is known as the PPP. Loans issued under the PPP program are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. Payments are deferred for the first six months of the loan. The loans are 100% guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan. The SBA began accepting submissions for these PPP loans on Friday, April 3, 2020. Through April 16, 2020, the date the SBA reached the limit of funds available to disburse under this program, we had received SBA authorizations for PPP loans totaling $35,600 and related fees of $1,200. Participation in the PPP will likely have an impact on our asset mix and net interest margin for the remainder of 2020. Subsequent to March 31, 2020 and in connection with the second tranche of PPP funds, the Company has approvals for $53,704 in such loans and related fees of $2,202. At March 31, 2020, we had $181,300 in federal funds lines available and $359,400 of available borrowing capacity from our correspondent banks. In addition, the Federal Reserve has implemented a liquidity facility available to financial institutions participating in the PPP. As such, the Company believes it has sufficient liquidity sources to fund all pending PPP loans and to continue to provide this important service to local businesses as additional funds are appropriated for the PPP.

Other than what is noted above, no other events meeting the requirements of disclosure arose during the time period from September 30, 2019March 31, 2020 through the date of the issued financial statements.



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Item2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
The following is a summary of the Company’s (as defined below) financial highlights and significant events for the ninethree months ended September 30, 2019:March 31, 2020:


•Net income (loss) attributable to common shareholders totaled $12.1$(0.2) million, or $1.07$(0.02) per diluted common share, for the ninethree months ended September 30, 2019March 31, 2020 compared to $10.0$3.8 million, or $0.87$0.33 per diluted common share, during same period in 2018.2019.
•Merger expenses for the three months ended March 31, 2020 totaled $4.2 million.
•Loans increased $119.5$209.9 million for the ninethree months ended September 30, 2019.March 31, 2020.
•Deposits increased $172.7$138.7 million for the ninethree months ended September 30, 2019.March 31, 2020.
•Asset quality remained strong with nonperforming assets to total assets of just 0.450.27 percent.
•Successfully closed the TCB Holdings Transaction and conversion with Community Bank and Trust.
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 Annual Report on Form 10-K for the year ended December 31, 2018.2019. Amounts in the narrative are shown in thousands, except for economic and demographic information, numbers of shares, per share amounts and as otherwise noted.
Definitive Agreement to acquire theAcquisition of parent company of First AdvantageCBT
Effective January 1, 2020, the Company completed the acquisition of TCB Holdings, pursuant to the TCB Holdings Agreement, by and among the Company, TCB Holdings, and CBT. On the terms and subject to the conditions set forth in the Merger Agreement, TCB Holdings merged with and into the Company, with the Company as the surviving corporation. Immediately following the TCB Holdings Transaction, CBT merged with and into Reliant Bank, with Reliant Bank continuing as the surviving banking corporation. Pursuant to the Merger Agreement, at the Effective Time of the TCB Holdings Transaction, each outstanding share of TCB Holdings common stock, par value $1.00 per share (other than certain excluded shares), was converted into and canceled in exchange for the right to receive (i) $17.13 in cash, without interest, and (ii) 0.769 shares of Company's common stock. The Company issued 811,210 shares of Company Common Stock and paid approximately $18,073 in cash, in respect of shares of TCB Holdings common stock as consideration for the TCB Holdings Transaction. The Company did not issue fractional shares of Company Common Stock in connection with the TCB Holdings Transaction, but paid cash in lieu of fractional shares based on the volume weighted average closing price per share of the Company Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including December 30, 2019 (calculated as $22.36). At the Effective Time, each outstanding option to purchase TCB Holdings common stock was canceled in exchange for a cash payment in an amount equal to the product of (i) $34.25 minus the per share exercise price of the option multiplied by (ii) the number of shares of TCB Holdings common stock subject to the option (to the extent not previously exercised). The Company paid aggregate consideration payable to holders of unexercised options of approximately $430. All shares of Company’s common stock outstanding prior to the merger were unaffected by the TCB Holdings Transaction.
Acquisition of parent company of FAB
On October 22, 2019, Reliant Bancorp, Inc. ("Reliant Bancorp"), the parent company for Reliant Bank (the "Bank"),Company, Merger Sub, and FABK entered into a definitivethe FABK agreement providing for the Company to acquire First Advantage Bancorp (“FABK”), the parent company for First Advantage Bank (“FAB”), located in Clarksville, Tennessee.FABK and FAB. The agreement provides for a cash and stock transaction valued at approximately $123.4 million, or $30.67 per shareCompany completed its acquisition of FABK common stock, basedand FAB effective April 1, 2020.

In accordance with the terms of the FABK Agreement, on the closing price for Reliant Bancorp common stock of $23.65 per share on October 22, 2019.
The definitive agreement provides for the merger of PGApril 1, 2020, (i) Merger Sub Inc.,merged with and into FABK, with FABK to bebeing the surviving company, followed bycorporation and becoming a wholly-owned subsidiary of Reliant Bancorp, and (ii) immediately following the merger of FABK Merger, FABK merged with and into Reliant Bancorp, with Reliant Bancorp to bebeing the surviving company. Under the terms of the definitive agreement, shareholders of FABK will receive 1.17 shares of Reliant Bancorp common stock and $3.00 cash (subject to adjustment under certain circumstances provided for in the definitive agreement) in exchange for each share of FABK common stock. The definitive agreement has been approved by the boards of directors of both Reliant Bancorp and FABK. The parties currently expect to consummate the transaction in the second quarter of 2020, subject to the receipt of required regulatory and shareholder approvals, as well as the satisfaction of certain other customary closing conditions. The Bank and FAB have entered into a separate bank merger agreement providing for the merger of FAB with and into the Bankcorporation. Additionally, immediately following the merger of Reliant Bancorp and FABK. The combined bank will operate as the Bank. Current FABK board members William Lawson Mabry and Michael E. Wallace are expected to join Reliant Bancorp’s Board of Directors upon completion of the transaction.
Definitive Agreement to acquire the parent company of Community Bank and Trust
On September 16, 2019, Reliant Bancorp entered into a definitive agreement to acquire Tennessee Community Bank Holdings, Inc. (“TCB Holdings”), the parent company for Community Bank & Trust (“CB&T”) located in Ashland City, Tennessee, in an approximately 50% stock and 50% cash transaction.
The definitive agreement provides for the merger of TCB HoldingsSecond Step Merger, FAB merged with and into Reliant Bancorp,Bank, with Reliant Bancorp to beBank being the surviving company. Underbank.





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As consideration for the termsFABK Transaction, each outstanding share of FABK Common Stock, other than certain excluded shares, at the effective time of the definitive agreement, shareholders of TCB Holdings willFABK Transaction converted into the right to receive 0.769(i) 1.17 shares of Company Common Stock and (ii) $3.00 in cash, without interest. In lieu of the issuance of fractional shares of Company common stock, Reliant Bancorp common stock (subjectagreed to adjustment under certain circumstances provided for in the definitive agreement) and $17.13 inpay cash in exchange for each sharelieu of TCB Holdings common stock. The 24,450 outstanding options to acquire TCB Holdings common stock are to be cashed out, which equates to additional consideration of approximately $0.40 million. Basedfractional shares based on Reliant Bancorp's 20-daythe volume-weighted average closing price per share of Company common stock on September 16, 2019,The Nasdaq Capital Market for the 10 consecutive trading days ending on and including March 30, 2020 (calculated as $11.74). Based on the March 31, 2020 closing price for Company Common Stock of $23.06, this represents a total transaction value$11.27 per share and 4 shares of FABK Common Stock outstanding on March 31, 2020, the consideration for the FABK Merger was approximately $37.2 million. The transaction value is likely to change due to fluctuations$65,314, in the priceaggregate, or $16.28 per share of Reliant Bancorp's common stock, and the consideration payable to TCB Holdings shareholders is also subject to adjustment under certain circumstances provided for the Company's in the definitive agreement. The definitive agreement has been approved by the boards of directors of Reliant Bancorp, TCB Holdings, and CB&T. The parties currently expect to consummate the transaction in the first quarter of 2020, subject to the receipt of necessary regulatory approvals and the approval of the shareholders of TCB Holdings, as well as other customary closing conditions.FABK Common Stock.

The Bank and CB&T have entered into a separate bank merger agreement providing for the merger of CB&T with and into the Bank following the merger of Reliant Bancorp and TCB Holdings. The combined bank will operate under the Reliant Bank name.

Critical Accounting Policies


The accounting principles we follow and our methods of applying these principles conform to accounting principles generally accepted in the United States of America ("U.S. GAAP")GAAP 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, 2018.2019. The following is a brief summary of the more significant policies.


Recent Events – COVID-19 Pandemic

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in China, and has since spread to a number of other countries, including the United States. In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a National Public Health Emergency. The COVID-19 pandemic has severely restricted the level of economic activity in our markets. In response to the COVID-19 pandemic, the State of Tennessee, and most other states, have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential.

The impact of the COVID-19 pandemic is fluid and continues to evolve, adversely affecting many of the Bank’s clients. The COVID-19 pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity, lower equity market valuations and significant volatility and disruption in financial markets, and has had an adverse effect on our business, financial condition and results of operations. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory and private sector responses to the pandemic, and the associated impacts on the economy, financial markets and our customers, employees and vendors.

Our business, financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans, the value of collateral underlying our secured loans, and demand for loans and other products and services we offer, which are highly dependent on the business environment in our primary markets where we operate and in the United States as a whole. The COVID-19 pandemic has begun to have a significant impact on our business and operations. As part of our efforts to exercise social distancing, in March 2020, we closed all of our banking lobbies and are conducting most of our business at this time through drive-thru tellers and through electronic and online means. To support the health and well-being of our employees, a significant percentage of our workforce is working from home. We are focused on servicing the financial needs of our commercial and consumer clients.

We are an SBA-approved lender and have begun processing customer applications under the PPP, established under the CARES Act.

At March 31, 2020, our non-performing assets were not materially impacted by the economic pressures of COVID-19. We are closely monitoring credit risk and our exposure to increased loan losses resulting from the impact of COVID-19 on our commercial and other clients.

We are also monitoring the impact of the COVID-19 pandemic on the operations and value of our investments. Because of changing economic and market conditions affecting issuers, we may be required to recognize further impairments on the securities we hold as well as reductions in other comprehensive income. We cannot currently determine the ultimate impact of the pandemic on the long-term value of our portfolio.

The market for the sale of mortgage loans has been impacted by the COVID-19 pandemic on the operations and value of our investments. Because of changing economic and market conditions affecting the sale of these types of loans, we may be required to recognize an impairment on mortgage loans held for sale.

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As of March 31, 2020, all of our capital ratios, and our subsidiary bank’s capital ratios, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, our reported and regulatory capital ratios could be adversely impacted by future credit losses.

Critical Accounting Policies

The accounting principles we follow and our methods of applying these principles conform to GAAP 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, 2019. The following is a brief summary of the more significant policies.

Principles of Consolidation


The consolidated financial statements as of and for the periods presented include the accounts of Reliant Bancorp, the Bank, Community First Trups Holding Company, which is wholly owned by Reliant Bancorp (“TRUPS”), Reliant Investment Holdings, LLC ("Holdings"), which is wholly owned by the Bank, and Reliant Mortgage Ventures, LLC ("RMV"), of which the Bank controls 51% of the governance rights (Reliant Bancorp, the Bank, TRUPS, Holdings, and RMV are, collectively, referred to herein as the “Company”). As described in the notes to our consolidated financial statements, RMV is considered a variable interest entity for which the Bank is deemed to be the primary beneficiary.RMV. All significant intercompany balances and transactions have been eliminated in consolidation. As described in Note 12 to our consolidated financial statements, effective on January 1, 2018,2020, Reliant Bancorp and Community First, Inc.TCB Holdings merged.


During 2011, the Bank and another entity organized RMV. Under the RMV operating agreement, the non-controlling member receives 70% of the cash flow distributions of RMV, and the Bank receives 30% of the cash flow distributions, once the non-controlling member recovers its capital contributions to RMV. The non-controlling member is required to fund RMV’s losses in arrears via additional capital contributions to RMV. As of September 30, 2019,March 31, 2020, RMV's cumulative losses to date totaled $12,542.$14,399. RMV will have to generate net income of at least this amount before the Bank will participate in future income 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 Merger (as defined below),TCB Holdings Transaction with the Company, 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 is required to establish 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 for loan losses 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 MergerTCB Holdings Transaction and that are accounted for under ASC 310-20, the historical loss estimates are based on the historical losses experienced by the Bank for loans with similar characteristics as those acquired other than purchased credit-impaired loans. The Bank records an allowance for loan losses only when the calculated amount exceeds the remaining credit mark established at acquisition.


Allowance for Loan Losses


The allowance for loan losses ("allowance") 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-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.




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A loan is impaired when full payment under the loan terms is not expected. All classified loans and loans on nonaccrual status are individually evaluated for impairment. Factors considered in determining if a loan is impaired include the borrower’s ability to repay amounts owed, collateral deficiencies, the risk rating of the loan and economic conditions affecting the borrower’s industry, among other things. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value (less estimated costs to sell) of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless the principal amount is deemed fully collectible, in which case interest is recognized on a cash basis. When recognition of interest income on a cash basis is appropriate, the amount of income recognized is limited to what would have been accrued on the remaining principal balance at the contractual rate. Cash payments received over this limit, and not applied to reduce the loan's 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 our 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 MONTHSENDED MARCH 31, 2020AND NINE MONTHSENDED SEPTEMBER 30, 2019AND 2018
Merger Between Reliant Bancorp, Inc. and Community First, Inc.
Effective January 1, 2018, Pioneer Merger Sub, Inc., a wholly owned subsidiary of2020, Reliant Bancorp merged withcompleted the acquisition of TCB Holdings. For more information on the acquisition of TCB Holdings, please see “Part I, Item 2. Management’s Discussion and into Community First, Inc. (“Community First”), with Community First continuing as the surviving corporation,Analysis of Financial Condition and immediately thereafter Community First merged with and into Reliant Bancorp, with Reliant Bancorp continuing as the surviving corporation (such transactions collectively, the “Merger”). In connection with the Merger, each outstanding shareResults of Community First common stock converted into the right to receive 0.481 sharesOperations - Acquisition of Reliant Bancorp common stock. After the Merger was completed, legacy Reliant Bancorp shareholders and legacy Community First shareholders owned approximately 78.9% and 21.1%, respectively,parent company of the common stock of the combined company.
The assets and liabilities of Community First, as of the effective date of the Merger, were recorded at their respective estimated fair values and added to those of the Company. Any excess of purchase price over the net estimated fair values of the acquired assets and assumed liabilities of Community First was allocated to all identifiable intangibles assets. Any remaining excess was then allocated to goodwill.
As of December 31, 2017, Community First, including its wholly owned subsidiaries, had total assets of approximately $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.CBT.”
As a result of the MergerTCB Transaction on January 1, 2018,2020, the Company:
grew
•increased consolidated total assets from $1,125.0$1,898.5 million to $1,636.0 million after giving effect to purchase accounting;$2,157.1 million;
•increased total loans from $762.5$1,410.0 million to $1,075.5$1,581.5 million;
•increased total deposits from $883.5$1,583.8 million to $1,316.9$1,794.3 million; and
•expanded its employee base from 167300 to 272321 full time equivalent employees.


Earnings


Net income (loss) attributable to common shareholders amounted to $4,000 and $12,063,$(215), or $0.36 and $1.07$(0.02) per basic share, for the three and nine months ended September 30, 2019, respectively,March 31, 2020 compared to $4,082 and $9,962,$3,824, or $0.36 and $0.88$0.34 per basic share, for the same periodsperiod in 2018.2019. Diluted net income (loss) attributable to common shareholders was $0.36 and $1.07$(0.02) per share for the three and nine months ended September 30, 2019, respectively,March 31, 2020 compared to $0.36 and $0.87$0.33 per share for the three and nine months ended September 30, 2018, respectively.March 31, 2019. The major components contributing to the change when compared to the prior year are an increase of 7.3% and 1.4%53.8% in noninterest expense (mainly driven by merger expenses) for the three and nine months ended September 30, 2019, respectively,March 31, 2020, and an increase of 4.4% and 2.7%$2,900 in net interest incomeprovision for loan losses for the three and nine months ended September 30, 2019, respectively,March 31, 2020, compared to the same periodsperiod in 2018.2019. These and other components of earnings are discussed further below.





















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Net Interest Income


Net interest income 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,March 31, 2020, and 2019 and 2018 (dollars in thousands):

Three Months Ended
September 30, 2019		 Three Months Ended
September 30, 2018		 ChangeThree Months Ended
March 31, 2020		Three Months Ended
March 31, 2019		Change
Average BalancesRates / Yields (%)Interest Income / Expense Average BalancesRates / Yields (%)Interest Income / Expense Due to VolumeDue to RateTotalAverage BalancesRates / Yields (%)Interest Income / ExpenseAverage BalancesRates / Yields (%)Interest Income / ExpenseDue to VolumeDue to RateTotal
Interest earning assets         Interest earning assets
Loans$1,312,153
5.12
$16,934
 $1,144,307
5.01
$14,445
 $2,165
$324
$2,489
Loans$1,613,033  5.01  $20,077  $1,238,341  5.16  $15,766  $7,323  $(3,012) $4,311  
Loan fees—
0.26
870
 —
0.27
781
 89
—
89
Loan fees—  0.22  890  —  0.23  706  184  —  184  
Loans with fees1,312,153
5.38
17,804
 1,144,307
5.28
15,226
 2,254
324
2,578
Loans with fees1,613,033  5.23  20,967  1,238,341  5.39  16,472  7,507  (3,012) 4,495  
Mortgage loans held for sale18,271
5.71
263
 22,464
5.19
294
 (172)141
(31)Mortgage loans held for sale47,685  4.72  560  10,747  5.77  153  601  (194) 407  
Deposits with banks33,410
1.96
165
 24,570
1.53
95
 39
31
70
Deposits with banks36,062  1.38  124  27,643  1.73  118  120  (114) 6  
Investment securities - taxable73,115
2.98
549
 70,389
2.33
414
 16
119
135
Investment securities - taxable74,688  2.43  451  72,464  2.82  503  93  (145) (52) 
Investment securities - tax-exempt220,233
3.60
1,999
 229,934
3.74
2,168
 (89)(79)(169)Investment securities - tax-exempt197,241  3.56  1,748  228,497  3.86  2,175  (272) (155) (427) 
Federal funds sold and other12,300
5.03
156
 12,760
5.75
185
 (6)(23)(29)Federal funds sold and other16,323  3.82  155  12,650  5.83  182  220  (247) (27) 
Total earning assets1,669,482
4.98
20,937
 1,504,424
4.85
18,382
 2,042
513
2,555
Total earning assets1,985,032  4.86  24,005  1,590,342  5.00  19,603  8,269  (3,866) 4,403  
Nonearning assets136,973
   139,972
    Nonearning assets193,386  140,835  
Total assets$1,806,455
   $1,644,396
    Total assets$2,178,418  $1,731,177  
Interest bearing liabilities         Interest bearing liabilities
Interest bearing demand142,702
0.23
81
 143,057
0.28
102
 —
(21)(21)Interest bearing demand186,236  0.22  100  148,649  0.30  111  110  (121) (11) 
Savings and money market350,440
1.10
973
 339,487
0.77
657
 22
294
316
Savings and money market459,756  0.85  975  400,328  1.14  1,130  799  (954) (155) 
Time deposits - retail540,688
2.17
2,956
 527,930
1.60
2,128
 53
775
828
Time deposits - retail541,545  1.85  2,496  577,270  2.05  2,921  (165) (260) (425) 
Time deposits - wholesale294,750
2.52
1,872
 87,262
1.88
414
 1,275
183
1,458
Time deposits - wholesale229,820  2.22  1,266  106,625  2.47  650  1,057  (441) 616  
Total interest bearing deposits1,328,580
1.76
5,882
 1,097,736
1.19
3,301
 1,350
1,231
2,581
Total interest bearing deposits1,417,357  1.37  4,837  1,232,872  1.58  4,812  1,801  (1,776) 25  
Federal Home Loan Bank advances14,216
1.84
66
 102,731
2.34
606
 (433)(107)(540)Federal Home Loan Bank advances109,349  1.33  361  56,718  2.70  377  994  (1,010) (16) 
Subordinated debt11,655
6.77
199
 11,577
6.75
197
 1
1
2
Subordinated debt70,607  5.66  993  11,613  6.74  193  1,019  (219) 800  
Total borrowed funds25,871
4.06
265
 114,308
2.79
803
 (431)(107)(538)Total borrowed funds179,956  3.03  1,354  68,331  3.38  570  2,013  (1,229) 784  
Total interest-bearing liabilities1,354,451
1.80
6,147
 1,212,044
1.34
4,104
 919
1,124
2,043
Total interest-bearing liabilities1,597,313  1.56  6,191  1,301,203  1.68  5,382  3,814  (3,005) 809  
Net interest rate spread (%) / Net interest income ($) 3.18
$14,790
  3.51
$14,278
 $1,123
$(612)$512
Net interest rate spread (%) / Net interest income ($)3.30  $17,814  3.32  $14,221  $4,455  $(862) $3,594  
Noninterest bearing deposits227,502
(0.26)  221,107
(0.20)   Noninterest bearing deposits312,137  (0.26) 211,122  (0.24) 
Other noninterest bearing liabilities7,415
   7,344
    Other noninterest bearing liabilities27,069  9,391  
Stockholder's equity217,087
   203,901
    Stockholder's equity241,899  209,461  
Total liabilities and stockholders' equity$1,806,455
   $1,644,396
    Total liabilities and stockholders' equity$2,178,418  $1,731,177  
Cost of funds 1.54
   1.14
   Cost of funds1.30  1.44  
Net interest margin 3.51
   3.77
   Net interest margin3.61  3.63  





 Nine Months Ended
September 30, 2019		 Nine Months Ended
September 30, 2018		 Change
 Average BalancesRates / Yields (%)Interest Income / Expense Average BalancesRates / Yields (%)Interest Income / Expense Due to VolumeDue to RateTotal
Interest earning assets           
Loans$1,275,834
5.15
$49,181
 $1,117,743
4.88
$40,770
 $6,045
$2,365
$8,410
Loan fees—
0.25
2,358
 —
0.26
2,137
 221
—
221
Loans with fees1,275,834
5.40
51,539
 1,117,743
5.14
42,907
 6,266
2,365
8,631
Mortgage loans held for sale14,534
5.65
614
 28,636
5.14
1,101
 (648)161
(487)
Deposits with banks30,487
1.75
399
 36,837
1.35
371
 (98)126
28
Investment securities - taxable74,330
2.95
1,639
 70,276
2.61
1,374
 81
184
265
Investment securities - tax-exempt223,596
3.75
6,264
 226,601
3.69
6,258
 (120)126
6
Federal funds sold and other12,751
5.44
519
 11,389
5.85
498
 72
(51)21
Total earning assets1,631,532
5.00
60,974
 1,491,482
4.71
52,509
 5,554
2,911
8,465
Nonearning assets138,926
   137,606
      
Total assets$1,770,458
   $1,629,088
      
Interest bearing liabilities           
Interest bearing demand144,427
0.26
278
 147,022
0.24
263
 (7)22
15
Savings and money market374,876
1.12
3,154
 347,184
0.66
1,709
 149
1,296
1,445
Time deposits - retail576,568
2.12
9,139
 520,717
1.45
5,640
 659
2,840
3,499
Time deposits - wholesale191,133
2.60
3,713
 91,466
1.60
1,097
 1,662
954
2,616
Total interest bearing deposits1,287,004
1.69
16,284
 1,106,389
1.05
8,709
 2,463
5,112
7,575
Federal Home Loan Bank advances and other31,378
2.28
534
 84,176
2.03
1,275
 (971)230
(741)
Subordinated debt11,634
6.78
590
 11,556
6.09
526
 4
60
64
Total borrowed funds43,012
3.49
1,124
 95,732
2.52
1,801
 (967)290
(677)
Total interest-bearing liabilities1,330,016
1.75
17,408
 1,202,121
1.17
10,510
 1,496
5,402
6,898
Net interest rate spread (%) / Net interest income ($) 3.25
$43,566
  3.54
$41,999
 $4,058
$(2,491)$1,567
Noninterest bearing deposits219,106
(0.25)  217,957
(0.18)     
Other noninterest bearing liabilities8,229
   6,464
      
Stockholder's equity213,107
   202,546
      
Total liabilities and stockholders' equity$1,770,458
   $1,629,088
      
Cost of funds 1.50
   0.99
     
Net interest margin 3.57
   3.76
     

Table Assumptions—Average loan balances are inclusive of nonperforming loans. Interest income and yields computed on tax-exempt instruments are on a tax equivalent basis including a state tax credit included in loan yields of $300 and $900$304 for the three and nine months ended September 30, 2019, respectively,March 31, 2020 and $350 and $400$300 for the same periodsperiod in 2018.2019. 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.



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Table of Contents
Analysis—For the three and nine months ended September 30, 2019,March 31, 2020, we recorded net interest income on a tax equivalenttax-equivalent basis of approximately $14,790 and $43,566, respectively,$17,814, which resulted in a net interest margin (net interest income divided by the average balance of interest earning assets) of 3.51% and 3.57%, respectively.3.61%. For the three and nine months ended September 30, 2018,March 31, 2019, we recorded net interest income on a tax equivalent basis of approximately $14,278 and $41,999, respectively,$14,221, which resulted in a net interest margin of 3.77% and 3.76%, respectively. The main factor contributing to the slight increase in our net interest income was an increase in our loans and the related yield. Our net interest income increase was partially offset by the increase in our cost of funds.3.63%.



Our year-over-year average loan volume increased by approximately 14.1%30.3% for the ninethree months ended September 30, 2019March 31, 2020 compared to the ninethree months ended September 30, 2018.March 31, 2019 and was mainly driven by the merger with CBT. Our combined loan and loan fee yield increaseddecreased from 5.14%5.39% to 5.40%5.23% for the ninethree months ended September 30, 2019March 31, 2020 compared to the same period in 2018.2019. The increaseddecreased yield for the ninethree months ended September 30, 2019March 31, 2020 is primarily attributable to a 2313 basis points increasedecrease in contractual loan yields including adjustment for purchase accounting accretion, and a four basis points increase in state tax credits, and partially offset by a one basis point decrease in loan fees. For the three months ended September 30, 2019, our combined loan and loan fee yield increased from 5.28% to 5.38% compared to the same period in 2018. The increased yield for the three months ended September 30, 2019 is primarily attributable to a 14 basis points increase in contractual loan yields including purchase accounting accretion, partially offset by a threetwo basis points decrease in state tax credits, and a one basis point decrease in loan fees.


Our tax equivalenttax-equivalent yield on tax-exempt investments was 3.60% and 3.75% for the three and nine months ended September 30, 2019, respectively, compared to 3.74% and 3.69% for the same periods in 2018, respectively. The year-over-year change was primarily driven by the restructuring of our investment portfolio in the first half of 2019 while the reduction of interest income3.56% for the three months ended September 30, 2019 is associated with our variable rate securities.March 31, 2020 compared to 3.86% and for the same period in 2019. Our year-over-year average tax-exempt investment volume remained relatively flatdecreased by 13.7% for the ninethree months ended September 30, 2019March 31, 2020 compared to the same period in 2018.2019 due to investment sales in the fourth quarter of 2019. Our year-over-year average taxable securities volume increased by 5.8%3.1% for the ninethree months ended September 30, 2019March 31, 2020 compared to the same period in 2018.2019.


Our cost of funds increaseddecreased to 1.54% and 1.50%1.30% from 1.14% and 0.99%1.44% for the three and nine months ended September 30, 2019, respectively,March 31, 2020 compared to the same periodsperiod in 2018.2019. The increasedecrease in our cost of funds was primarily driven by an across the board increasedecrease in the cost of our interest bearing deposits and other interest bearinginterest-bearing liabilities as well as an increasedue to the recent decrease in average wholesale deposits from 6.9% of our average total deposit portfolio at September 30, 2018 to 12.7% at September 30, 2019.rates by the Federal Reserve. We experienced a 2.9% and 0.5%47.8% increase in our average noninterest bearing deposits for the three and nine months ended September 30, 2019, respectively,March 31, 2020 when compared to the same periodsperiod in 2018.2019 which is mainly attributable to the merger with CBT.


The Bank strives to maintain a strong net interest margin that is insulated from changes in market interest rates. Our net interest margin, while generally considered fairly neutral, is currently subject to slightly contract in a rising rate environment and slightly expand in a falling rate environment.  In the lowering interest rate environment that we anticipate, the shorter durations of our non-core funding sources are expected to contribute to interest expense savings that are expected to be slightly higher than (i) the anticipated loss of interest income that likely to be driven by certain variable rate loans and investments repricing and (ii) the increased expenses to be incurred on our interest rate swaps. The Company has interest rate floors on certain loans and those floors will mitigate further declines in interest rates.


Provision for Loan Losses

The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net recoveries have been added bringing the allowance to a level which, in management’s best estimate, is necessary to absorb inherent losses within the existing loan portfolio.

Based upon our evaluation of the loan portfolio, we believe at September 30, 2019 the allowance for loan losses to be adequate to absorb our estimate of probable losses existing in the loan portfolio. 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 and negatively impact our asset quality and the adequacy of our allowance for loan losses and, thus, the resulting provision for loan losses.


We recorded a provision of $606 and $806$2,900 for loan losses for the three and nine months ended September 30, 2019, respectively,March 31, 2020 compared to $322 and $759$0 for the three and nine months ended September 30, 2018, respectively.March 31, 2019. The increase in provision expense for the three months and nine months ended September 30, 2019March 31, 2020 can be primarily attributed to the recent downturn in the economy due to COVID-19 while a portion is due to the growing loan portfolio. Also, a portion of the provision expense for the three months ended September 30, 2019 was used to establish a specific reserve, primarily, for one $5,000 lending relationship that experienced credit deterioration and was determined by management to be impaired. Management believes an adequate reserve has been established for the impaired credit. The Company has experienced a net recovery five of the previous six quarters that have positively impacted provision expense during the first nine months of 2019. See “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Balance Sheets at September 30, 2019March 31, 2020 and December 31, 20182019 - Allowance for Loan Losses” included herein for further analysis of the provision for loan losses.



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Table of Contents
Noninterest Income


Our noninterest income is composed of several components, some of which vary significantly between periods. The following is a summary of our noninterest income for the three and nine months ended September 30,March 31, 2020, and 2019 and 2018 (dollars in thousands):
Three Months Ended March 31,Percent
Increase
20202019(Decrease)
Noninterest Income
Service charges and fees on deposits$1,208  $884  36.7 %
Gains on mortgage loans sold, net1,573  560  180.9 %
Securities gains, net—  131  (100.0)%
Gain on sale of other real estate14  —  100.0 %
Gain on disposal of premises and equipment9  —  — %
Other noninterest income:
   Bank-owned life insurance295  279  5.7 %
   Brokerage revenue32  11  190.9 %
   Miscellaneous noninterest income151  73  106.8 %
Total other noninterest income478  363  31.7 %
Total noninterest income$3,282  $1,938  69.3 %
 Three Months Ended September 30,
Percent
Increase
Nine Months Ended September 30,Percent
Increase
 20192018(Decrease)20192018(Decrease)
Noninterest Income      
Service charges and fees$976
$833
17.2 %$2,796
$2,504
11.7 %
Gains on mortgage loans sold, net1,385
1,399
(1.0)%3,170
4,061
(21.9)%
Securities gains, net—
18
(100.0)%306
43
611.6 %
Gain on sale of other real estate—
150
(100.0)%—
259
(100.0)%
Gain (loss) on disposal of premises and equipment—
16
(100.0)%—
16
(100.0)%
Other noninterest income:      
   Bank-owned life insurance283
293
(3.4)%838
893
(6.2)%
   Brokerage revenue13
7
85.7 %33
91
(63.7)%
   Miscellaneous noninterest income103
61
68.9 %253
155
63.2 %
Total other noninterest income399
361
10.5 %1,124
1,139
(1.3)%
Total noninterest income$2,760
$2,777
(0.6)%$7,396
$8,022
(7.8)%


The most significant reasons for the changes in total noninterest income during the three and nine months ended September 30, 2019March 31, 2020 compared to the same periodsperiod in 20182019 are the fluctuation in gains on mortgage loans sold, net gains on sale of other real estate, and the gains on securities transactions.increase in service charges. These and other factors impacting noninterest income are discussed further below.


Service charges and fees on deposit accounts have increased due to the TCB Holdings Transaction and mainly reflect customer growth trends but have also been impacted by changesthe concentrated effort in our fee structures. Theattracting noninterest-bearing deposits, with the majority of the 17.2% and 11.7%36.7% increase for the three and nine months ended September 30, 2019, respectively, was driven byderiving from an increase in our debit card fees.


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,March 31, 2020, the Company sold securities acquired from the TCB Holdings Transaction totaling $56,336 at no gain. During the three months ended March 31, 2019, the Company sold securities classified as available for sale totaling $52,434$10,558 with a gain of $306. During the nine months ended September 30, 2018, the Company sold securities classified as available for sale totaling $100,737 with a gain of $43.$131.


Gains on mortgage loans sold, net, consists of fees from the origination and sale of mortgage loans and first-lien HELOCs. These 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 relatedmortgage-related revenue increases in lower interest rate environments and more robust housing markets and decreases 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 RMV’s products in the secondary markets. Gains on mortgage loans sold, net, amounted to $1,385 and $3,170, respectively,$1,573 for the three and nine months ended September 30, 2019March 31, 2020 compared to $1,399 and $4,061, respectively,$560 for the same periodsperiod in the prior year. The decreaseincrease in gains for the ninethree months ended September 30, 2019March 31, 2020 when compared to 20182019 is primarily driven by an initial bulk sale of first lien HELOCs upon signing an agreement with an investor, which included several months of production, that netted more than $600the increase in gains.volume in the RMV's correspondent lending channel. 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 secondary market for the sale of non-qualified mortgage loans experienced a disruption related to the COVID-19 pandemic at March 31, 2020. As a result, the Company's held-for-sale portfolio increased by $32.9 million from December 31, 2019. Management expects this market to recover. Also, as of March 31, 2020, purchases of loans from correspondents have been halted until additional secondary market data is available.


During the three and nine months ended September 30, 2019,March 31, 2020, there was noa gain or lossof $14 due to the sale of other real estate compared to ano gain of $150 and $259, respectively, in the same periodsperiod in 2018.2019.


Noninterest income also includes appreciation in the cash surrender value of bank-owned life insurance, which was $283 and $838, respectively,$295 for the three and nine months ended September 30, 2019March 31, 2020 compared to $293 and $893, respectively,$279 for the same periodsperiod in 2018. The decrease relates to the introductory rate ending from our last purchase.2019. 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 expected to be taxable.



46
Table of Contents




Noninterest Expense


The following is a summary of our noninterest expense for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 (dollars in thousands):
Three Months Ended March 31,Percent
Increase
20202019(Decrease)
Noninterest Expense
Salaries and employee benefits$9,237  $7,265  27.1 %
Occupancy1,486  1,352  9.9 %
Information technology1,819  1,410  29.0 %
Advertising and public relations353  254  39.0 %
Audit, legal and consulting478  796  (39.9)%
Federal deposit insurance336  195  72.3 %
Merger expenses4,186  2  209200.0 %
Other operating1,703  1,472  15.7 %
Total noninterest expense$19,598  $12,746  53.8 %
 Three Months Ended September 30,
Percent
Increase
Nine Months Ended
September 30,		Percent
Increase
 20192018(Decrease)20192018(Decrease)
Noninterest Expense      
Salaries and employee benefits$7,634
$6,913
10.4 %$22,605
$20,480
10.4 %
Occupancy1,359
1,234
10.1 %4,069
3,673
10.8 %
Information technology1,553
1,315
18.1 %4,538
3,913
16.0 %
Advertising and public relations387
183
111.5 %916
413
121.8 %
Audit, legal and consulting350
588
(40.5)%1,836
2,027
(9.4)%
Federal deposit insurance(96)210
(145.7)%348
630
(44.8)%
Merger expenses299
82
264.6 %302
2,742
(89.0)%
Other operating1,561
1,637
(4.6)%4,305
4,487
(4.1)%
Total noninterest expense$13,047
$12,162
7.3 %$38,919
$38,365
1.4 %


Noninterest expense increased by $885,$6,852, or 7.3%53.8%, for the three months ended September 30, 2019March 31, 2020 due in large part to an increase in merger expenses and salaries and employee benefits offset in part by declines in audit, legal and consulting fees as well as FDIC deposit insurance costs during the period. Noninterest expense for the nine monthsbenefits. The three-month period ended September 30, 2019 had an increase of $554, or 1.4%, and is similarly due in large part to an increase in salaries and employee benefits thatMarch 31, 2020 has been partially offset by a $2,440 decrease in merger expenses. Both the three and nine month periods ended September 30, 2019 have been impacted by RMV's build out of a correspondent mortgage line-of-businessthe TCB Holdings Transaction that has resulted in adds to staff, additional vendor relationships and investments in technology. These and other factors impacting noninterest expense are discussed further below.


Salaries and employee benefits increased by $721 and $2,125$1,972 or 27.1% for the three and nine months ended September 30, 2019, respectively, or 10.4%, for both of these periodsMarch 31, 2020 compared to the same periodsperiod in 2018.2019. This increase is primarily attributable mainly to the increased staff for RMV, dueTCB Holdings Transaction, and year over year growth causing an increase in part, to their build outfull-time equivalent by 41. We believe the staffing level normalized by the end of a correspondent mortgage line-of-business, as well as our staffing of our de novo branches in Murfreesboro during the thirdfirst quarter of 2018 and Chattanoogabut will increase again in the fourthsecond quarter of 2018 and other investments in revenue producers.as we close another merger.


Occupancy costs increased $125 and $396,$134 or 10.1% and 10.8%9.9%, during the three and nine months ended September 30, 2019, respectively, whenMarch 31, 2020 compared to the same periodsperiod in 20182019 mainly due to the commencement of leases duringTCB Holdings Transaction, as well as, the period. During the third and fourth quarters of 2018, respectively, we opened the Murfreesboro and Chattanooga branches. Additionally, we addedadditional leases for mortgage production offices in Memphis and Chattanooga, Tennessee and two offices in Little Rock, Arkansas.Arkansas, two in Hot Springs Arkansas, and one in Crossett, Arkansas which opened during August 2019 and with one of the Hot Springs Arkansas offices subsequently closing in March 2020.


Information technology costs increased by $238 and $625,$409 or 18.1% and 16.0%, respectively,29.0% when comparing the three and nine months ended September 30, 2019March 31, 2020 to the comparable periodsperiod in 2018.2019. This increase is mainly attributable to increased costs due to increasing volume of accounts and transactions as well as our continued investment in information security and other technology, and our increase in locations mentioned in the previous paragraph. Both the volume and location increases are primarily due to the TCB Holdings Transaction and the expansion of RMV.


Advertising and public relations costs increased by $204 and $503,$99 or 111.5% and 121.8%, respectively,39.0% when comparing the three and nine months ended September 30, 2019March 31, 2020 to the same periodsperiod in 2018.2019. Increased costs were primarily attributable to increased promotional expenses and advertising for RMV, additional donation and sponsorship commitments, and expenses associated with the launch of a branding initiative.RMV.


Audit, legal and consulting costs decreased by $238 and $191,$318 or 40.5% and 9.4%39.9%, respectively, when comparing to the three and nine months ended September 30, 2019March 31, 2020 to the same periodsperiod in 2018. These fluctuations are2019. This fluctuation is mainly attributable to the fluctuationdecrease of legal and consulting fees incurred by RMV.RMV and partially offset by increased fees related to special projects by the Company.


Our FDIC deposit insurance 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 decreasedincreased by $306 and $282, respectively,$141 for the three and nine months ended September 30, 2019,March 31, 2020, compared to the same periodsperiod in 2018.2019. This decreaseincrease is primarily the result of our small bank assessment credit receivedincrease in deposits due to the third quarterTCB Holdings Transaction.
47
Table of 2019.Contents


Merger relatedMerger-related expenses increased by 264.6% and decreased by 89.0%, respectively, to $299 and $302$4,184 for the three and nine months ended September 30, 2019March 31, 2020 when compared to the same periodsperiod in 2018.2019. These costs are considered one timeone-time expenses which for 20192020 are associated with the definitive agreement to acquire TCB Holdings Transaction and for 2018 are associated with the Merger. All of the costs associated with the Merger have been incurred at this point.FABK Transaction. We expect merger expenses to increase incontinue to be incurred until the fourth quarter of 2019 as compared to the third quarter of 2019 due to our entering into definitive agreements to acquire TCB Holdingstwo mergers and FABK during the third and fourth quarters of 2019, respectively.conversion are complete.


Other operating expenses decreasedincreased by $76 and $182,$231 or 4.6% and 4.1%, respectively,15.7% for the three and nine months ended September 30, 2019,March 31, 2020, compared to the same periodsperiod in 20182019 mainly due to a $196 lower of cost or market adjustment for mortgage loans held for sale in 2018 compared to none in 2019 and partially offset by thean increase in travel and entertainment expense in connection with RMV.amortization of core deposit intangibles due to the TCB Holdings Transaction.


Income Taxes


During the three and nine months ended September 30, 2019,March 31, 2020, we recorded consolidated income tax expense (benefit) of $557 and $1,430, respectively,$(910) compared to $519 and $1,431, respectively,$372 for the three and nine months ended September 30, 2018.March 31, 2019. The Company files separate federal tax returns for RMV and the mortgage banking segment and bank segment. The taxable income or losses of the mortgage banking operations are included in the respective returns of the Bank and non-controlling member for federal purposes.


Our income tax expense (benefit) attributable to shareholders for the three and nine months ended September 30, 2019,March 31, 2020, reflects an effective income tax rate of 14.1% and 12.6%, respectively79.6% (exclusive of a tax benefit from our mortgage banking operations of $97 and $311$69 for the three and nine months ended September 30, 2019, respectively,March 31, 2020, on pre-tax losses of $1,483 and $4,795$1,045 for the three and nine months ended September 30, 2019, respectively)March 31, 2020), compared to 12.3% and 13.7%, respectively,11.2% for the same period in 20182019 (exclusive of a tax benefit of $55 and $147, respectively,$108 on pre-tax losses of $897 and $2,390, respectively,$1,651, from our mortgage banking operations for the comparable periods of 2018)period in 2019). Additionally, our effective tax rate for the three months ended September 30, 2019March 31, 2020 is higher than the same period in 2018 primarily due to a state tax credit for a loan booked in the third quarter of 2018 from the Community Investment Tax Credit Program as well as a decrease in the proportion of our tax-exempt income to total income. Our effective tax rate for the nine months ended September 30, 2019 was lower than the same period in 2018 primarily due to the large amount of merger expenses in 2018,2020 and the increase in provision, which reduced taxable income to a loss for the quarter and increased the proportion of tax-exempt income to net loss. The Company's tax exempt income from securities, loans and earnings from bank-owned life insurance contracts as well as state tax credits related to total income.loans to encourage economic development impact the effective tax rate.


NoncontrollingNon-controlling Interest in NetLossof Subsidiary


Our non-controlling interest in net loss of subsidiary is solely attributable to RMV.the minority interest. The Bank has a 51% voting interest in this venture, but under the terms of the related operating agreement, the non-controlling member receives 70% of the distributioncash flow distributions of RMV and the Bank receives 30% of any distribution, after the non-controlling member recovers its aggregate capital contributions. The non-controlling member is required to fund RMV's losses, in arrears, via additional capital contributions. The ventureRMV had a net loss of $1,386 and $4,484, respectively,$976 for the three and nine months ended September 30, 2019March 31, 2020 compared to a net loss of $842 and $2,243, respectively,$1,543 for the same periodsperiod in 2018.2019. The increaseddecreased loss for the three and nine months ended September 30, 2019March 31, 2020 when compared to the same periodsperiod in 20182019 is mainly attributable to the increase in salaries and benefits due to increased staffing levels, increased occupancy costs due to the openingcorrespondent line of new locations, expenses associated with launching the correspondent mortgage group and consulting and advertising fees previously mentioned. These expenses are included in our consolidated results.business. Also, see Note 9 to our consolidated financial statements for segment reporting.


COMPARISON OF BALANCE SHEETS ATSEPTEMBER 30, 2019MARCH 31, 2020ANDDECEMBER 31, 20182019


Overview


The Company’s total assets were $1,852,487$2,177,788 at September 30, 2019March 31, 2020 and $1,724,338$1,898,467 at December 31, 2018.2019. Assets increased by 7.4%14.7% from December 31, 20182019 to September 30, 2019,March 31, 2020, primarily due to loan growth of $118,208,$207,208, or 9.7%14.8%. Total liabilities were $1,632,835$1,943,116 at September 30, 2019March 31, 2020 and $1,515,924$1,674,714 at December 31, 2018,2019, an increase of 7.7%16.0%. The increase in liabilities from December 31, 20182019 to September 30, 2019,March 31, 2020, was substantially attributable to the increase in deposits of $172,730,$138,659, or 12.0% ,and8.8%, and an increase in FHLB advances of $116,891 during the increase was partially offsetperiod. These changes were materially impacted by the decrease in Federal Home Loan Bank ("FHLB") advances of $53,570, or 93.2%, during the period.TCB Holdings Transaction. These and other components of our consolidated balance sheets are discussed further below.


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Loans


Lending-related income is the largest 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 described, 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 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. We have expanded our Middle Tennessee footprint into Maury and Hickman CountiesCheatham County with the Merger, and in the third and fourth quarter of 2018, we opened full service branches in Murfreesboro and Chattanooga where we previously had only loan production offices.TCB Holdings Transaction. Total loans, net, at September 30, 2019,March 31, 2020, and December 31, 2018,2019, were $1,338,392$1,604,582 and $1,220,184,$1,397,374, respectively. This represented an increase of 9.7%14.8% from December 31, 20182019 to September 30, 2019.March 31, 2020. As part of the increase in loans, $171,445, were acquired in connection with the TCB Holdings Transaction.


The table below provides a summary of the loan portfolio composition for the dates noted (including purchased credit-impaired ("PCI") loans).
March 31, 2020December 31, 2019
AmountPercentAmountPercent
Commercial, Industrial and Agricultural$283,035  17.4 %$245,515  17.5 %
Real estate:
1-4 Family Residential261,718  16.2 %227,529  16.1 %
1-4 Family HELOC99,296  6.1 %96,228  6.8 %
Multifamily and Commercial635,650  39.2 %536,845  38.1 %
Construction, Land Development and Farmland308,598  19.1 %273,872  19.4 %
Consumer24,141  1.5 %16,855  1.2 %
Other7,456  0.5 %13,180  0.9 %
1,619,894  100.0 %1,410,024  100.0 %
Less:
Deferred loan fees (costs)191  72  
Allowance for loan losses15,121  12,578  
Loans, net$1,604,582  $1,397,374  
 September 30, 2019 December 31, 2018
 Amount Percent Amount Percent
Commercial, Industrial and Agricultural$231,935
 17.2% $213,850
 17.4%
Real estate:       
1-4 Family Residential236,332
 17.5% 225,863
 18.3%
1-4 Family HELOC93,176
 6.9% 88,112
 7.2%
Multifamily and Commercial520,297
 38.5% 447,840
 36.4%
Construction, Land Development and Farmland238,082
 17.6% 220,801
 17.9%
Consumer17,448
 1.3% 20,495
 1.7%
Other13,252
 1.0% 14,106
 1.1%
 1,350,522
 100.0% 1,231,067
 100.0%
Less:       
Deferred loan fees (costs)(161)   (9)  
Allowance for possible loan losses12,291
   10,892
  
Loans, net$1,338,392
   $1,220,184
  


The table below provides a summary of PCI loans as of September 30, 2019:March 31, 2020:
March 31, 2020
Commercial, Industrial and Agricultural$232 
Real estate:
1-4 Family Residential1,453 
1-4 Family HELOC19 
Multifamily and Commercial242 
Construction, Land Development and Farmland1,283 
Consumer21 
Other— 
Total gross PCI loans3,250 
Less:
Remaining purchase discount815 
Allowance for loan losses— 
Loans, net$2,435 



49
 September 30, 2019
  
Commercial, Industrial and Agricultural$—
Real estate: 
1-4 Family Residential237
1-4 Family HELOC—
Multifamily and Commercial220
Construction, Land Development and Farmland1,030
Consumer—
Other—
Total gross PCI loans1,487
Less: 
Remaining purchase discount246
Allowance for possible loan losses—
Loans, net$1,241
Table of Contents

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 $231,935$283,035 at September 30, 2019,March 31, 2020, increased 8.5%by 15.3% compared to $213,850$245,515 at December 31, 2018.2019.


Real estate loans comprised 80.5%80.6% of the loan portfolio at September 30, 2019.March 31, 2020. Residential loans included in this category consist mainly of closed-end loans secured by first and second liens that are not held for sale and revolving, open-end loans secured by 1-4 family residential properties extended under home equity lines of credit. The Company increased the residential portfolio 4.9%11.5% from December 31, 20182019 to September 30, 2019.March 31, 2020. 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 $520,297$635,650 at September 30, 2019,March 31, 2020, increased 16.2%18.4% compared to the $447,840$536,845 held as of December 31, 2018.2019. Real estate construction loans consist of 1-4 family residential construction loans, other construction loans, land loans, and loans secured by farmland. Construction lending has increased since 2016 primarilycontinued to increase based on a strong local economy.market demand.


Consumer loans mainly consist of loans to individuals for household, family, and other personal expenditures under revolving credit plans, credit cards, automobile and other consumer loans. Our consumer loans experienced a decreasean increase from December 31, 2018,2019, to September 30, 2019,March 31, 2020, of 14.9%43.2%.


Other loans consist mainly of loans to states and political subdivisions and loans to other depository institutions and experienced a decrease of 6.1%43.4% from December 31, 20182019 to September 30, 2019.March 31, 2020.


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, 2019,March 31, 2020, excluding unearned net fees and costs.
One Year or
Less		One to Five
Years		Over Five
Years		Total
Gross loans$487,657  $771,007  $361,230  $1,619,894  
Fixed interest rate$874,394  
Variable interest rate745,500  
Total$1,619,894  
 
One Year or
Less
 
One to Five
Years
 
Over Five
Years
 Total
Gross loans$436,644
 $581,508
 $332,370
 $1,350,522
        
Fixed interest rate      $770,407
Variable interest rate      580,115
Total      $1,350,522


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-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 nonaccrual status are individually evaluated for impairment. Factors considered in determining if a loan is impaired include the borrower’s ability to repay amounts owed, collateral deficiencies, the risk rating of the loan and economic conditions affecting the borrower’s industry, among other things. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value (less estimated costs to sell) of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless the principal amount is deemed fully collectible, in which case interest is recognized on a cash basis. When recognition of interest income on a cash basis is appropriate, the amount of income recognized is limited to what would have been accrued on the remaining principal balance at the contractual rate. Cash payments received over this limit, and not applied to reduce the loan's remaining principal balance, are recorded as recoveries of prior charge-offs until these charge-offs have been fully recovered.


At September 30, 2019,March 31, 2020, the allowance for loan losses was $12,291$15,121 compared to $10,892$12,578 at December 31, 2018.2019. The allowance for loan losses as a percentage of total loans was 0.91%0.93% at September 30, 2019March 31, 2020 compared to 0.88%0.89% at December 31, 2018.2019.

















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


Analysis of Changes in Allowance for Loan Losses
March 31, 2020March 31, 2019
Beginning Balance, January 1, 2020 and 2019$12,578  $10,892  
Loans charged off:
Commercial, Industrial and Agricultural(294) (6) 
Real estate:
1-4 Family Residential—  (17) 
1-4 Family HELOC—  —  
Multifamily and Commercial—  —  
Construction, Land Development and Farmland(114) —  
Consumer(31) (11) 
Other—  —  
Total loans charged off(439) (34) 
Recoveries on loans previously charged off:
Commercial, Industrial and Agricultural61  240  
Real estate:
1-4 Family Residential11  212  
1-4 Family HELOC1  —  
Multifamily and Commercial3  34  
Construction, Land Development and Farmland—  —  
Consumer6  10  
Other—  —  
Total loan recoveries82  496  
Net recoveries (charge-offs)(357) 462  
Provision for loan losses2,900  —  
Total allowance for loan losses at end of period$15,121  $11,354  
Gross loans at end of period (1)
$1,619,894  $1,261,194  
Average gross loans (1)
$1,613,033  $1,238,341  
Allowance for loan losses to total loans0.93 %0.90 %
Net recoveries (charge-offs) to average loans (annualized)(0.09)%0.15 %
(1)Loan balances exclude loans held for sale.


















51
 September 30, 2019 September 30, 2018
Beginning Balance, January 1, 2019 and 2018$10,892
 $9,731
Loans charged off:   
Commercial, Industrial and Agricultural(170) (308)
Real estate:   
1-4 Family Residential(29) (36)
1-4 Family HELOC—
 (6)
Multifamily and Commercial—
 (76)
Construction, Land Development and Farmland—
 (144)
Consumer(37) (24)
Other(34) (37)
Total loans charged off(270) (631)
Recoveries on loans previously charged off:   
Commercial, Industrial and Agricultural342
 530
Real estate:   
1-4 Family Residential220
 11
1-4 Family HELOC11
 7
Multifamily and Commercial62
 215
Construction, Land Development and Farmland—
 44
Consumer28
 29
Other200
 3
Total loan recoveries863
 839
Net recoveries (charge-offs)593
 208
Provision for loan losses806
 759
Total allowance at end of period$12,291
 $10,698
Gross loans at end of period (1)
$1,350,522
 $1,194,198
Average gross loans (1)
$1,275,834
 $1,117,743
Allowance to total loans0.91% 0.90%
Net recoveries (charge-offs) to average loans (annualized)0.06% 0.02%
Table of Contents
(1)
Loan balances exclude loans held for sale.

While no portion of the allowance for loan losses is in any way restricted to any individual loan or group of loans, and the entire allowance for loan losses 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.

March 31, 2020March 31, 2019
Amount% of Allowance to Allowance% of Loan Type to Total LoansAmount% of Allowance to Allowance% of Loan Type to Total Loans
Commercial, Industrial and Agricultural$3,851  25.5 %17.4 %$1,874  16.5 %17.6 %
Real estate:
1-4 Family Residential1,488  9.8 %16.2 %1,359  12.0 %19.1 %
1-4 Family HELOC873  5.8 %6.1 %670  5.9 %7.3 %
Multifamily and Commercial6,760  44.7 %39.2 %4,593  40.5 %36.3 %
Construction, Land Development and Farmland1,836  12.1 %19.1 %2,650  23.3 %16.7 %
Consumer298  2.0 %1.5 %171  1.5 %1.8 %
Other15  0.1 %0.5 %37  0.3 %1.2 %
$15,121  100.0 %100.0 %$11,354  100.0 %100.0 %

 September 30, 2019 September 30, 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$2,299
 18.7% 17.2% $2,026
 18.9% 17.6%
Real estate:           
1-4 Family Residential1,383
 11.3% 17.5% 1,321
 12.3% 19.1%
1-4 Family HELOC704
 5.7% 6.9% 620
 5.8% 7.3%
Multifamily and Commercial5,188
 42.2% 38.5% 4,118
 38.7% 36.3%
Construction, Land Development and Farmland2,513
 20.4% 17.6% 2,390
 22.3% 16.7%
Consumer170
 1.4% 1.3% 186
 1.7% 1.8%
Other34
 0.3% 1.0% 37
 0.3% 1.2%
 $12,291
 100.0% 100.0% $10,698
 100.0% 100.0%
Section 4013 of the CARES Act, which was signed into law on March 27, 2020, provides that financial institutions may elect to account for loan modifications occurring between March 1, 2020, and the earlier of December 31, 2020 and the 60th day after the end of the COVID-19 national emergency declared by President Trump, which are due to COVID-19 and where the borrower was current on contractual payments as of December 31, 2019, as not TDRs. Additionally, on April 7, 2020, federal banking regulators issued an Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus (Revised), which replaced a prior interagency statement predating the CARES Act. The revised interagency statement encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual payment obligations because of the effects of COVID-19. It also addresses loan modifications not meeting the criteria set forth in Section 4013 of the CARES Act or for which financial institutions elect not to apply Section 4013. With respect to these loan modifications, the revised interagency statement provides that short-term (e.g. six month) modifications made on a good faith basis in response to COVID-19 to borrowers who were current on their contractual payments at the time of implementation of a modification program are not TDRs.


Through March 31, 2020, the Company had applied this guidance and modified loans with aggregate principal balances totaling $319.0 million. More of these types of modifications are likely to be executed in the second quarter of 2020. The modifications generally involved three-month extensions of interest-only periods or full payment deferrals. Of these modified loans the primary categories were $153.9 million of commercial real estate loans, $80.2 million of hospitality based loans, $39.2 million of restaurant related loans, $16.1 million of commercial and industrial loans, $14.8 million of multifamily loans, and the remainder being church, medical and consumer loans. The deferral of payment is to be collected at the end of the loan term.

Nonperforming Assets


Nonperforming assets consistconsists of nonperforming loans plus real estate acquired through foreclosure or deed in lieu of foreclosure. Nonperforming loans by definition consistconsists of nonaccrual loans and loans past due 90 days or more and still accruing interest. When we place a loan on nonaccrual 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, which generally includes a minimum performance of six months.










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Table of Contents


The following table provides information with respect to the Company’s nonperforming assets.
March 31, 2020December 31, 2019
Nonaccrual loans$3,949  $4,071  
Past due loans 90 days or more and still accruing interest94  64  
Restructured loans1,785  1,799  
Total nonperforming loans5,828  5,934  
Foreclosed real estate ("OREO")—  750  
Total nonperforming assets$5,828  $6,684  
Total nonperforming loans as a percentage of total loans0.36 %0.42 %
Total nonperforming assets as a percentage of total assets0.27 %0.35 %
Allowance for loan losses as a percentage of nonperforming loans259.45 %211.96 %
 September 30, 2019 December 31, 2018
Nonaccrual loans$4,380
 $4,194
Past due loans 90 days or more and still accruing interest121
 6
Restructured loans1,812
 2,469
Total nonperforming loans6,313
 6,669
Foreclosed real estate ("OREO")1,943
 1,000
Total nonperforming assets$8,256
 $7,669
Total nonperforming loans as a percentage of total loans0.47% 0.54%
Total nonperforming assets as a percentage of total assets0.45% 0.44%
Allowance for loan losses as a percentage of nonperforming loans194.69% 163.32%


Investment Securities and Other Earning Assets


The investment securities portfolio is intended to provide the Bank with adequate liquidity, flexible asset/liability management and a source of stable income. The portfolio is structured with minimal credit exposureinvestment grade holdings 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 totaled $297,310$256,928 at September 30, 2019,March 31, 2020, which was relatively flat in comparison to the $296,323$260,293 in securities balances at December 31, 2018.2019. Activity during the ninethree months ended September 30, 2019March 31, 2020 includes the sale of $52,434$56,336 of securities as well as $8,587$1,836 of principal paydowns, calls, and maturities, offset by purchasing $47,870 of securities duringmaturities. In connection with the same period.TCB Holdings Transaction, management determined that it would be beneficial to liquidate that portfolio and utilize those funds for loan demand and other uses.


Restricted equity securities totaled $14,405 and $11,279 and $11,690 at September 30, 2019,March 31, 2020, and December 31, 2018,2019, respectively, and consist of FRB and FHLB stock.



The following table shows the Company’s investments’ amortized cost and fair value, aggregated by investment category for the periods presented:
March 31, 2020December 31, 2019
Amortized
Cost		Fair Value% of TotalAmortized
Cost		Fair Value% of Total
U.S. Treasury and other U.S. government agencies$56  57  0.02 %$59  59  0.02 %
State and municipal185,811  196,454  76.47 %186,283  196,660  75.56 %
Corporate bonds7,880  7,835  3.05 %7,880  7,845  3.01 %
Mortgage backed securities37,907  35,901  13.97 %38,126  37,761  14.51 %
Asset backed securities17,030  16,681  6.49 %18,374  17,968  6.90 %
Total$248,684  256,928  100.00 %$250,722  260,293  100.00 %










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 September 30, 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$310
 310
 0.10% $568
 554
 0.19%
State and municipal210,537
 223,016
 75.01% 232,589
 229,298
 77.38%
Corporate bonds7,880
 7,822
 2.63% 3,130
 3,017
 1.02%
Mortgage backed securities39,143
 39,118
 13.16% 32,172
 31,958
 10.78%
Asset backed securities27,577
 27,044
 9.10% 28,635
 27,996
 9.45%
Time deposits—
 —
 —% 3,500
 3,500
 1.18%
Total$285,447
 297,310
 100.00% $300,594
 296,323
 100.00%



The table below summarizes the contractual maturities of securities available for sale at September 30, 2019:March 31, 2020:
Amortized
Cost		Estimated
Fair Value
Due within one year$1,000  $998  
Due in one to five years2,311  2,312  
Due in five to ten years10,330  10,725  
Due after ten years180,106  190,311  
Mortgage backed securities37,907  35,901  
Asset backed securities17,030  16,681  
Total$248,684  $256,928  
 
Amortized
Cost
 
Estimated
Fair Value
Due within one year$500
 $499
Due in one to five years1,035
 1,035
Due in five to ten years12,076
 12,447
Due after ten years205,116
 217,167
Mortgage backed securities39,143
 39,118
Asset backed securities27,577
 27,044
Total$285,447
 $297,310


Premises and Equipment


Premises and equipment, net, totaled $21,390$27,609 at September 30, 2019March 31, 2020 compared to $22,033$21,376 at December 31, 2018,2019, a net decreaseincrease of $643,$6,233, or 2.9%29.2%. Premises and equipment purchases amounted to approximately $843$457 during the ninethree months ended September 30, 2019March 31, 2020 and were mainly incurred for additional leasehold improvements for our branches and new mortgage locations while depreciation expense amounted to $1,486.$598. As part of the TCB Holdings Transaction, $6,440 of premises and equipment were acquired effective January 1. 2020. At September 30, 2019,March 31, 2020, we operated from 1721 retail banking locations as well as five stand-alone mortgage loan production offices. Two ofAt March 31, 2020, our bank branch locations, including our main office, arebranches were located in Brentwood, Tennessee. Of our other 15 branch locations three areCheatham, Davidson, Hamilton, Hickman, Maury, Robertson, Rutherford, Sumner and Williamson counties in Columbia, and the remaining are in Franklin, Springfield, Gallatin, Nashville, Murfreesboro, Mt. Pleasant, Thompson's Station, Centerville, Lyles, and Chattanooga, Tennessee. As of September 30, 2019,March 31, 2020, our mortgage loan production offices were located in Brentwood, Chattanooga, Hendersonville, and Memphis, Tennessee as well as two in Little Rock, Arkansas and one in Crosset, Arkansas.


Deposits


Deposits represent the Company’s largest source of funds. The Company competes with other bank and non-bank 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, 2019,March 31, 2020, total deposits were $1,610,633,$1,722,448, an increase of $172,730,$138,659, or 12.0%8.8%, compared to $1,437,903$1,583,789 at December 31, 2018.2019. During the ninethree months ended September 30, 2019,March 31, 2020, noninterest bearing demand deposits increased by $20,980,$60,480, interest-bearing demand deposits decreasedincreased by $4,776,$17,586, savings and money market deposits decreasedincreased by $4,065,$86,026, and time deposits increaseddecreased by $160,591. A substantial portion$25,433. The primary factor for of the increase in deposits is attributable to the increased use of a variety of wholesale deposit products as part of our strategydeposits acquired related to lower our funding costs.TCB Holdings Transaction which totaled $210,528. During the quarter ending March 31, 2020, management shifted from using brokered time deposits to transactional deposits and to using FHLB advances.



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, 2019.March 31, 2020.

March 31, 2020
Twelve months or less$222,166 
Over twelve months through three years26,918 
Over three years3,713 
Total$252,797 







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 September 30, 2019
Twelve months or less$258,872
Over twelve months through three years18,053
Over three years5,169
Total$282,094
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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 off-balance sheet items to maximize long-term earnings and mitigate interest rate risk. Measurements we use to help us manage interest rate sensitivity include a gap analysis, an earnings simulation model and an economic value of equity model. These measurements are used in conjunction with competitive pricing analysis and are further described below.


Interest Rate Sensitivity Gap Analysis—The rate sensitive position, or gap, is the difference in the volume of rate-sensitive assets and liabilities, at a given time interval, including both floating rate instruments and instruments which are approaching maturity. The measurement of our interest rate sensitivity, or gap, is one of the three principal techniques we use in our asset/liability management effort.


Our policy is to have 12 and 24-month cumulative repricing gaps that do not exceed 25% of assets. We were in compliance withslightly exceeded our policy as of September 30, 2019.March 31, 2020 for the 12-month cumulative repricing gap. 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 reasons and as a result of other model shortcomings, we rely more heavily on the earnings simulation model and the economic value of equity model discussed further below.


Earnings Simulation Model—We believe interest rate risk is effectively measured by our earnings simulation modeling. Earning assets, interest-bearing liabilities and off-balance sheet financial instruments are combined with simulated forecasts of interest rates for the next 12 months and 24 months. To limit interest rate risk, we have guidelines for our earnings at risk which seek to limit the negative variances of net interest income in instantaneous changes to interest rates. We also periodically monitor simulations based on various rate scenarios such as non-parallel shifts in market interest rates over time. For changes up or down in rates from a flat interest rate forecast over the next 12 and 24 months, our estimated change in net interest income as well as our policy limits are as follows:

Instantaneous, Parallel Change in Prevailing Interest Rates Equal to 
Estimated Change in Net Interest Income and Policy of Maximum
Percentage Decline in Net Interest Income
Instantaneous, Parallel Change in Prevailing Interest Rates Equal toEstimated Change in Net Interest Income and Policy of Maximum
Percentage Decline in Net Interest Income
 Next 12 Next 24Next 12Next 24
 Months MonthsMonthsMonths
 Estimate Policy Estimate PolicyEstimatePolicyEstimatePolicy
-200 bp 1.0% (15)% (2.5)% (15)%-200 bp(1.4)%(15)%(3.5)%(15)%
-100 bp 1.1% (10)% (0.8)% (10)%-100 bp(0.6)%(10)%(2.4)%(10)%
+100 bp (0.3)% (10)% (0.1)% (10)%+100 bp(0.7)%(10)%1.8%(10)%
+200 bp 0.2% (15)% 0.5% (15)%+200 bp(0.2)%(15)%4.2%(15)%
+300 bp 0.8% (20)% 1.1% (20)%+300 bp0.8%(20)%6.6%(20)%
+400 bp 1.0% (25)% 1.3% (25)%+400 bp1.7%(25)%8.9%(25)%


We were in compliance with our earnings simulation model policies as of September 30, 2019,March 31, 2020, indicating what we believe to be a fairly neutral interest-rate risk profile.


Economic Value of Equity—Our economic value of equity model measures the extent that estimated economic values of our assets, liabilities and off-balance sheet items will change as a result of interest rate changes. Economic values are determined by
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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 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 bp15%
+200 bp25%
+300 bp30%
+400 bp35%
Non-parallel shifts35%


At September 30, 2019,March 31, 2020, our model results indicated that we were within these policy limits.


Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate 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 Management—The purpose of liquidity risk management is to ensure that there are sufficient cash flows to satisfy loan demand, deposit withdrawals, and our other needs. Traditional sources of liquidity for a bank include asset maturities and growth in core deposits. A bank may achieve its desired liquidity objectives from the management of its assets and liabilities and by internally generated funding through its operations. Funds invested in marketable instruments that can be readily sold and the continuous maturing of other earning assets are sources of liquidity from an asset perspective. The liability base provides sources of liquidity through attraction of increased deposits and borrowing funds from various other institutions 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 FHLB, 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, 2019,March 31, 2020, FHLB advances totaled $3,928$127,628 compared to $57,498$10,737 as of December 31, 2018.2019. The decreaseincrease in FHLB advances generally is attributablein conjunction with the decrease in time deposits to our increase in deposits, mainly our increase in lessdecrease more expensive brokered deposits.






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At September 30, 2019,March 31, 2020, the scheduled maturities of our FHLB advances and interest rates were as follows (scheduled maturities will differ from scheduled repayments):
Scheduled MaturitiesAmountWeighted
Average
Rates
2020$115,000  0.24%
20217,312  2.33%
2022506  1.22%
20234,205  2.36%
2024605  2.50%
$127,628  0.44%
Scheduled Maturities Amount 
Weighted
Average
Rates
2019 $—
 —%
2020 —
 —%
2021 334
 2.73%
2022 609
 1.22%
2023 2,403
 1.94%
Thereafter 582
 2.48%
  $3,928
 1.97%

The Company has outstanding $23,000 of subordinated debentures associated with trust preferred securities issued by trusts that are affiliates of Reliant Bancorp, $10,000 of which is owned by a wholly owned subsidiary of Reliant Bancorp. Reliant Bancorp has timely made its scheduled interest payments on these subordinated debentures since assumed in the first quarter of 2018.  As of September 30, 2019,March 31, 2020, Reliant Bancorp was current on all interest payments due related to its subordinated debentures. Reliant Bancorp 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 Reliant Bancorp cannot pay any dividends on its common stock or preferred stock. 


On December 13, 2019, Reliant Bancorp issued and sold $60.0 million in aggregate principal amount of its 5.125% Fixed-to-Floating Rate Subordinated Notes due 2029 (the “Subordinated Notes”). The Subordinated Notes will bear interest at an initial rate of 5.125%, payable semi-annually until December 15, 2024, at which time the Subordinated Notes will bear interest at a floating rate equal to the three-month Secured Overnight Financing Rate (“SOFR”) (provided, that in the event the three-month SOFR is less than zero, the three-month SOFR will be deemed to be zero), plus a spread of 376.5 basis points. If the three-month SOFR rises during the floating interest period, the cost of the Subordinated Notes will increase, thereby negatively affecting our net income.

Capital


Stockholders’ equity was $219,652$234,672 at September 30, 2019,March 31, 2020, an increase of $11,238,$10,919, or 5.4%4.9%, from $208,414$223,753 at December 31, 2018.2019. During the ninethree months ended September 30, 2019,March 31, 2020, the Company raised $360completed the TCB Holdings Transaction which increased stockholders' equity $18,041. This increase was primarily offset during the quarter by dividends declared of capital through$1,207, a net loss of $1,191, and an other comprehensive loss of $6,084. Contributions from the exercisenoncontrolling interest of Company stock options and purchased $8,291 of its common stock as part of its previously announced share repurchase program.$976 were recognized in the quarter. The accretion of earnings to capital which was offsetincrease in stockholders' equity mitigated by the declared dividends, net stock purchases, andgrowth in the increase inBank's assets led to a decreasean increase in the Bank’s September 30, 2019March 31, 2020 Tier 1 leverage ratio to 9.55%10.58% compared with 10.17%10.30% at December 31, 20182019 (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 $3,077$1,274 (of which $1,036$76 were declared in the prior year) were paid during the nine months ended September 30, 2019, and common dividends of $1,012 were declared during the three months ended September 30, 2019 and paid on October 18, 2019 to shareholders of record on October 8, 2019.March 31, 2020.


On July 14, 2017, the Company filed a Registration Statement on Form S-3 to offer, issue and sell from time to time in one or more offerings any combination of (i) common stock, (ii) preferred stock, (iii) debt securities, (iv) depositarydepository shares, (v) warrants, and (vi) units, 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. The Securities and Exchange Commission declared the Registration Statement on Form S-3 effective on August 17, 2017, and the Registration Statement on Form S-3 will expire on August 17, 2020.


Banks as regulated institutions are required to maintain certain levels of capital. The Federal Reserve Board of Governors, the primary federal regulator for the Bank, has adopted minimum capital regulations or guidelines that categorize components and the level of risk associated with various types of assets. Financial institutions are expected to maintain a level of capital
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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 regulations and guidelines and to help ensure that sufficient capital is available for current and future needs. It is management’s intent to maintain an optimal capital and leverage mix for growth and for shareholder return.returns.


Prompt corrective action regulations provide five 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, 2019,March 31, 2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since these notifications that management believes have changed the institution’s category. Actual and required capital amounts and ratios are presented below as of September 30, 2019March 31, 2020 and December 31, 20182019 for the Company and Bank.


Actual Regulatory CapitalMinimum Required Capital
Including Capital
Conservation Buffer		To Be Well Capitalized
Under Prompt Corrective
Action Provisions
AmountRatioAmountRatioAmountRatio
March 31, 2020
Company
Tier I leverage$183,873  8.91 %$82,547  4.00 %$103,184  5.00 %
Common equity Tier 1172,103  9.54 %126,281  7.00 %117,261  6.50 %
Tier I risk-based capital183,873  10.19 %153,378  8.50 %144,356  8.00 %
Total risk-based capital258,040  14.30 %189,452  10.50 %180,430  10.00 %
Bank
Tier I leverage$217,399  10.58 %$82,192  4.00 %$102,741  5.00 %
Common equity Tier 1217,399  12.13 %125,457  7.00 %116,496  6.50 %
Tier I risk-based capital217,399  12.13 %152,341  8.50 %143,379  8.00 %
Total risk-based capital232,945  13.00 %188,148  10.50 %179,188  10.00 %
December 31, 2019
Company
Tier I leverage$176,748  9.74 %$72,586  4.00 %$90,733  5.00 %
Common equity Tier 1165,063  10.55 %109,520  7.00 %101,698  6.50 %
Tier I risk-based capital176,748  11.30 %132,952  8.50 %125,131  8.00 %
Total risk-based capital249,751  15.97 %164,207  10.50 %156,388  10.00 %
Bank
Tier I leverage$186,734  10.30 %$72,518  4.00 %$90,648  5.00 %
Common equity Tier 1186,734  11.95 %109,384  7.00 %101,571  6.50 %
Tier I risk-based capital186,734  11.95 %132,823  8.50 %125,010  8.00 %
Total risk-based capital199,737  12.79 %163,975  10.50 %156,167  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
September 30, 2019           
Company           
Tier I leverage$171,789
 9.85% $69,762
 4.00% $87,203
 5.00%
Common equity Tier 1160,124
 10.85% 103,306
 7.00% 95,927
 6.50%
Tier I risk-based capital171,789
 11.64% 125,447
 8.50% 118,068
 8.00%
Total risk-based capital184,505
 12.51% 154,860
 10.50% 147,486
 10.00%
            
Bank           
Tier I leverage$166,265
 9.55% $69,654
 4.00% $87,067
 5.00%
Common equity Tier 1166,265
 11.29% 103,082
 7.00% 95,719
 6.50%
Tier I risk-based capital166,265
 11.29% 125,171
 8.50% 117,808
 8.00%
Total risk-based capital178,981
 12.15% 154,623
 10.50% 147,260
 10.00%
            
December 31, 2018           
Company           
Tier I leverage$168,876
 10.38% $65,077
 4.00% $81,347
 5.00%
Common equity Tier 1157,273
 11.59% 86,507
 6.38% 88,203
 6.50%
Tier I risk-based capital168,876
 12.44% 106,905
 7.88% 108,602
 8.00%
Total risk-based capital180,193
 13.28% 133,991
 9.88% 135,688
 10.00%
            
Bank           
Tier I leverage$165,308
 10.17% $65,018
 4.00% $81,272
 5.00%
Common equity Tier 1165,308
 12.19% 86,451
 6.38% 88,146
 6.50%
Tier I risk-based capital165,308
 12.19% 106,792
 7.88% 108,488
 8.00%
Total risk-based capital176,625
 13.02% 133,961
 9.88% 135,657
 10.00%


Effects of Inflation and Changing Prices


The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP, which require the measurement of financial positions and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on the performance of a financial institution than the effects of general levels of inflation. Although interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services, increases in inflation generally have resulted in increased interest rates. In addition, inflation affects financial institutions’ cost of goods and services purchased, the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and
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shareholders’ equity. Commercial and other loan originations and refinancingsrefinancing tend to slow as interest rates increase, and can reduce our earnings from such activities.


Off-Balance Sheet Lending Arrangements


Off-balance sheet arrangements generally consist of unused lines of credit and standby letters of credit. Such commitments were as follows at September 30, 2019:March 31, 2020:
March 31, 2020
Unused lines of credit$365,838 
Standby letters of credit17,027 
Total commitments$382,865 
 September 30, 2019
Unused lines of credit$291,134
Standby letters of credit17,896
Total commitments$309,030



Other Off-Balance Sheet Arrangements


The Company utilizes interest rate swaps to mitigate interest rate risk. The total notional amount of swap agreements was $79,605$179,605 and $81,505,$129,605 respectively, at September 30, 2019March 31, 2020 and December 31, 2018.2019. At September 30, 2019March 31, 2020 and December 31, 2018,2019, the contracts had negative fair values totaling $4,273$9,618 and $716,$2,708, respectively.


Emerging Growth Company Status


Reliant Bancorp is presently 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 Reliant Bancorp chooses to comply with the reporting requirements of public companies that are not emerging growth companies, Reliant Bancorp may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as Reliant Bancorp is an emerging growth company. Reliant Bancorp will remain an emerging growth company through fiscal year ended December 31, 2020, or until such earlier time that we have more than $1.07 billion in total annual gross revenues, have more than $700 million in market value of our common shares held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. Management cannot predict if investors will find Reliant Bancorp’s common stock less attractive because it will rely on these exemptions. If some investors find Reliant Bancorp’s common stock less attractive as a result, there may be a less active trading market for its common stock and Reliant Bancorp’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. Reliant Bancorp 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.


This item is 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 or 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 quarter ended September 30, 2019,March 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION






Item 1.Legal Proceedings.


Reliant Bancorp and its wholly-owned subsidiary, the Bank, are periodically involved as a plaintiff or defendant in various legal actions in the ordinary course of business. Neither Reliant Bancorp nor the 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 Reliant Bancorp or its subsidiaries are without merit or that the ultimate liability, if any, resulting from them will not materially affect the Bank’s financial condition or Reliant Bancorp’s consolidated financial position.


Item 1A. Risk Factors.


There are no material changes from the risk factors set forth under Part I, Item 1A. "Risk Factors" in Reliant Bancorp's Annual Report on Form 10-K for the year ended December 31, 2018,2019 except as described below.


We may not be able to successfully integrate the businesses we recently entered into definitive agreements to acquireacquired or to realize the anticipated benefits of the acquisitions.


Upon consummation of the Transactions, we will beginWe have begun the process of integrating TCB Holdings and First Advantage.FABK. A successful integration of these businesses with ours will depend substantially on our ability to consolidate operations, corporate cultures, systems and procedures and to eliminate redundancies and costs. We may not be able to combine our business with these businesses we recently entered into definitive agreements to acquireacquired without encountering difficulties, such as:


•the loss of key employees;
•the disruption of operations and business;
•inability to maintain and increase competitive presence;
•loan and deposit attrition, customer loss and revenue loss;
•possible inconsistencies in standards, control procedures and policies;
•unexpected problems with costs, operations, personnel, technology and credit; and/or
•problems with the assimilation of new operations, sites or personnel, which could divert resources from regular banking operations.


Additionally, general market and economic conditions or governmental actions affecting the financial industry generally may inhibit our successful integration of TCB Holdings and First Advantage.FABK. Further, we have entered into definitive agreements to acquire TCB Holdings and First AdvantageFABK with the expectation that these acquisitions will result in various benefits including, among other things, benefits relating to enhanced revenues, a strengthened market position for the combined company, cross selling opportunities, technological efficiencies, cost savings and operating efficiencies. Achieving the anticipated benefits of these acquisitions is subject to a number of uncertainties, including whether we integrate TCB Holdings and First AdvantageFABK in an efficient and effective manner, and general competitive factors in the marketplace. Failure to achieve these anticipated benefits on the anticipated timeframes, or at all, could result in a reduction in the price of our shares as well as in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy and could materially and adversely affect our business, financial condition and operating results. Finally, any cost savings that are realized may be offset by losses in revenues or other charges to earnings.


The combined company following the consummation of the TransactionsWe have incurred and will continue to incur significant transaction and merger-related costs in connection with the recently completed acquisitions.
 
We have incurred and expect to continue to incur significant costs associated with combining the operations of TCB Holdings and First AdvantageFABK with our operations. Unanticipated costs may be incurred in the integration of our business with the businesses of TCB Holdings and First Advantage.FABK. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of thethese 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.
 

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Whether or not the Transactions are consummated, we will incur substantial expenses, such as legal, accounting and financial advisory fees, in pursuing the Transactions which will adversely


The economic impact our earnings. Completion of the TransactionsCOVID-19 pandemic could adversely affect our financial condition and results of operations.

In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented suspension of "non-essential" economic activity and a related increase in unemployment. Since the COVID-19 outbreak, record weekly claims for unemployment have occurred and stock markets have declined in value with bank stocks in particular, having significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are conditioned upon customary closing conditions,requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the receipttravel and hospitality industry, the restaurant industry and the retail industry. The spread of the COVID- 19 has caused us to modify our business practices, including face-to-face customer interactions, employee travel, employee work locations, and deploying virtual meetings, events and conferences. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business or that of our customers. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened.

As a participating lender in the PPP, the Company is subject to additional risk of litigation from the Bank’s clients or other parties regarding the Bank’s processing of loans for the PPP and the risks that the SBA may not fund some or all required governmental authorizations, consents, ordersPPP loan guarantees.

On March 27, 2020, President Trump signed into law the CARES Act, which included a $349 billion loan program administered through the SBA referred to as the “Paycheck Protection Program.” Under the PPP, small businesses and approvals, including approval by certain federalother entities and state banking regulators. Weindividuals can apply for loans from existing SBA lenders and TCB Holdingsother approved regulated lenders that enroll in the program, subject to numerous limitations and First Advantage intendeligibility criteria. The Bank is participating as a lender in the PPP. The PPP opened on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to pursue all required approvals in accordancerisks relating to noncompliance with the respective definitive agreements. However, therePPP. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. Congress approved additional funding for the PPP and President Trump signed the new legislation on April 24, 2020. Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. The Company may be exposed to the risk of litigation, from both clients and non-clients that approached the Bank regarding PPP loans, regarding its process and procedures used in processing applications for the PPP. If any such litigation is filed against the Company and is not resolved in a manner favorable to the Company, it may result in significant financial liability or adversely affect the Company’s reputation. In addition, litigation can be no assurance that such approvals will be obtained on the anticipated timeframe,costly, regardless of outcome. Any financial liability, litigation costs or at all.

Failure to complete the Transactionsreputational damage caused by PPP-related litigation could have a material adverse effectimpact on our business, future operations,financial condition and stock price.
Ifresults of operations. The Bank also has credit risk on PPP loans if a determination is made by the Transactions areSBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may 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 declinerelated to the extentambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Company, the SBA may deny its current market prices reflect a market assumption thatliability under the Transactions will be completed;
having to pay significant costs relatingguaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the Transactions without receiving any benefits arisingdeficiency from the Transactions;Company.
negative reactions from customers, shareholders and market analysts; and
the diversion of the focus of our management to the Transactions instead of on pursuing other opportunities that could have been beneficial to our business.

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


The following table contains information regarding shares of our common stock repurchased by Reliant Bancorp during the three months ended September 30, 2019.March 31, 2020.
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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)
July 1, 2019 to July 31, 20193,601$24.15—$3,709
August 1, 2019 to August 31, 2019—$——$3,709
September 1, 2019 to September 30, 2019—$——$3,709
Total3,601$24.15—$3,709
(1)During the quarter ended September 30, 2019, 21,450 shares of restricted stock previously awarded to certain of the participants in our stock plans vested. We withheld 3,601 shares to satisfy tax withholding requirements associated with the vesting of these restricted shares.

(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.

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, 2020 to January 31, 2020—$——$—
February 1, 2020 to February 29, 20202,505$21.75—$—
March 1, 2020 to March 31, 20201,332$13.74—$15,000
January 1 2020 to March 31, 20203,837$18.97—$15,000
(1)During the quarter ended March 31, 2020, 15,000 shares of restricted stock previously awarded to certain of the participants in our stock plans vested. We withheld 3,837 shares to satisfy tax withholding requirements associated with the vesting of these shares of restricted stock.

(2)On March 10, 2020, the Company's board of directors authorized a stock repurchase plan allowing the Company to repurchase up to $15 million of outstanding Company common stock (the "Repurchase Plan"). As of March 31, 2020, the Company had not repurchased any shares of the Company's common stock under the Repurchase Plan. The Repurchase Plan does not obligate the Company to repurchase any dollar amount or number of shares. The Repurchase Plan may be extended, modified, amended, suspended, or discontinued at any time. On April 27, 2020, we announced that our board of directors suspended the Repurchase Plan to preserve our financial strength during this challenging economic environment.

Item 3. Defaults Upon Senior Securities.


Not applicable.



Item 4. Mine Safety Disclosures.


Not applicable.


Item 5. Other Information.


None.

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Item 6. Exhibits.
EXHIBIT INDEX
Exhibit
No.
Description
3.1
Amended and Restated Charter of Reliant Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of Reliant Bancorp's Quarterly Report on Form 10-Q filed on November 6, 2018).
31.1*
Certification pursuant to Rule 13a-14(a)/15d-14(a).
Certification pursuant to Rule 13a-14(a)/15d-14(a).
Certification pursuant to 18 USC Section 1350 - Sarbanes-Oxley Act of 2002.
101.INS*XBRL Instance Document.
101.SCH*XBRL Schema Documents.
101.CAL*XBRL Calculation Linkbase Document.
101.LAB*XBRL Label Linkbase Document.
101.PRE*XBRL Presentation Linkbase Document.
101.DEF*XBRL Definition Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


* Filed herewith.
** Furnished herewith.

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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.
RELIANT BANCORP, INC.
May 8, 2020RELIANT BANCORP, INC.
November 5, 2019/s/ DeVan D. Ard, Jr.
DeVan D. Ard, Jr.
President andChief Executive Officer
(Principal Executive Officer)
November 5, 2019May 8, 2020/s/ J. Daniel Dellinger
 J. Daniel Dellinger
Chief Financial Officer
(Principal Financial Officer)


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