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 ended ~~March 31,~~September 30, 2020

☐ 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)


Tennessee			37-1641316
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1736 Carothers Parkway,
Suite 100,
Brentwood,
Tennessee			37027
(Address of principal executive offices)			(Zip Code)

615-221-2020

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value per share	RBNC	NASDAQ

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 Filer	☒
Non-Accelerated Filer	¨	Smaller Reporting Company	☒
Emerging growth company	☒

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 ~~May 7,~~November 3, 2020

was ~~16,618,298,~~16,297,676, excluding ~~887,485~~337,794 unexchanged shares in connection with acquisitions.

TABLE OF CONTENTS


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			3
PART I – FINANCIAL INFORMATION			5
Item 1.	Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6061
Item 4.	Controls and Procedures	6061

PART II – OTHER INFORMATION			6162
Item 1.	Legal Proceedings	6162
Item 1A.	Risk Factors	6162
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	6362
Item 4.	Mine Safety Disclosures	6362
Item 5.	Other Information	6362
Item 6.	Exhibits	64

SIGNATURES			65

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”) 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” ~~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.(1) the global health and economic crisis precipitated by the coronavirus (COVID-19) pandemic;

~~ii.~~(2) actions taken by governments, businesses and individuals in response to the coronavirus (COVID-19) pandemic;

~~iii.~~(3) the pace of recovery when the coronavirus (COVID-19) pandemic subsides;

~~iv.~~(4) the possible recurrence of the coronavirus (COVID-19);

v.(5) changes in political conditions or the legislative or regulatory environment, including governmental initiatives affecting the financial services industry ~~including,~~such as, but not limited to, the Coronavirus Aid, Relief, and Economic Security Act or(or the CARES ~~Act;~~Act);

~~vi.~~(6) the possibility that our asset quality could decline or that we experience greater loan losses than anticipated;

~~vii.~~(7) increased levels of other real estate, primarily as a result of foreclosures;

~~viii.~~(8) the impact of liquidity needs on our results of operations and financial condition;

~~ix.~~(9) competition from financial institutions and other financial service providers;

x.(10) the effect of interest rate increases on the cost of deposits;

~~xi.~~(11) unanticipated weakness in loan demand or loan pricing;

~~xii.~~(12) greater than anticipated adverse conditions in the national economy or local economies in which we operate, including Middle Tennessee;

~~xiii.~~(13) lack of strategic growth opportunities or our failure to execute on available opportunities;

~~xiv.~~(14) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses;

~~xv.~~(15) economic crises and associated credit issues in industries most impacted by the coronavirus (COVID-19) pandemic, including the restaurant, hospitality and retail sectors;

~~xvi.~~(16) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits;

~~xvii.~~(17) our ability to effectively manage problem credits;

~~xviii.~~(18) our ability to successfully implement efficiency initiatives on time and with the results projected;

~~xix.~~(19) our ability to successfully develop and market new products and technology;

~~xx.~~(20) the impact of negative developments in the financial industry and United States and global capital and credit markets;

~~xxi.~~(21) our ability to retain the services of key personnel;

~~xxii.~~(22) our ability to adapt to technological changes;

~~xxiii.~~(23) risks associated with litigation, including the applicability of insurance coverage;

~~xxiv.~~(24) the vulnerability of the computer and information technology systems and networks of Reliant ~~Bank’s~~Bank (the “Bank”) ~~network and online banking portals,~~, and the systems and networks of third parties with whom ~~the Company and~~Reliant Bancorp or 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.~~(25) changes in state and federal laws, rules, regulations, or policies applicable to banks or bank or financial holding companies, including regulatory or legislative developments;

~~xxvi.~~(26) 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.~~(27) the risk that expected cost savings and revenue synergies from (a) the merger of ~~the Company~~Reliant Bancorp and Tennessee Community Bank Holdings, Inc. (“TCB Holdings”) (the “TCB Holdings Transaction”) or (b) the merger of ~~the Company~~Reliant Bancorp 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.~~(28) the effect of the Transactions on our customer, supplier, or employee relationships and operating results (including without limitation difficulties in maintaining relationships with employees and customers), as well as on the market price of ~~the Company’s~~Reliant Bancorp’s common stock;

~~xxix.~~(29) the risk that the businesses and operations of TCB Holdings and its subsidiaries and of FABK and its subsidiaries cannot be successfully integrated with the business and operations of ~~the Company~~Reliant Bancorp and its subsidiaries or that integration will be more costly or difficult than expected;

~~xxx.~~(30) the amount of costs, fees, expenses, and charges related to the Transactions, including those arising as a result of unexpected factors or events;

~~xxxi.~~(31) reputational risk associated with and the reaction of our customers, suppliers, employees, or other business partners to the Transactions;

~~xxxii.~~(32) the risk associated with ~~Company~~Reliant Bancorp management’s attention being diverted away from the day-to-day business and operations of ~~the Company~~Reliant Bancorp to the integration of the Transactions; and

~~xxxiii.~~(33) 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~~coronavirus (COVID-19) pandemic on our business, financial condition, liquidity, ~~and~~or 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,~~other third parties, and us.

You should also consider carefully the risk factors discussed in Part I, Item 1A. "Risk Factors" of our most recent Annual Report on Form 10-K and in Part II, Item 1A. "Risk Factors" in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, 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~~otherwise listed may develop or, if currently extant, we may not have yet recognized them.

~~The forward-looking~~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.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

RELIANT BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

~~MARCH 31,~~SEPTEMBER 30, 2020 (UNAUDITED) AND DECEMBER 31, 2019 (AUDITED)

(Dollar amounts in thousands)


		March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	46,318	$	50,990	Cash and due from banks	$	14,050	$	7,953
Interest-bearing deposits in financial institutions						Interest-bearing deposits in financial institutions	61,349		43,644
Federal funds sold	Federal funds sold	1,714		52		Federal funds sold	12,273		52
Total cash and cash equivalents	Total cash and cash equivalents	48,032		51,042		Total cash and cash equivalents	87,672		51,649
Securities available for sale	Securities available for sale	256,928		260,293		Securities available for sale	273,893		260,293
Loans						Loans	2,357,898		1,409,952
Less allowance for loan losses						Less allowance for loan losses	(19,834)		(12,578)
Loans, net	Loans, net	1,604,582		1,397,374		Loans, net	2,338,064		1,397,374
Mortgage loans held for sale, net	Mortgage loans held for sale, net	70,352		37,476		Mortgage loans held for sale, net	99,587		37,476
Accrued interest receivable	Accrued interest receivable	7,289		7,111		Accrued interest receivable	14,615		7,188
Premises and equipment, net	Premises and equipment, net	27,609		21,376		Premises and equipment, net	33,319		21,064
Operating leases right of use assets	Operating leases right of use assets	11,473		—		Operating leases right of use assets	14,619		—
Restricted equity securities, at cost	Restricted equity securities, at cost	14,405		11,279		Restricted equity securities, at cost	17,367		11,279
Other real estate, net	Other real estate, net	—		750		Other real estate, net	1,326		750
Cash surrender value of life insurance contracts	Cash surrender value of life insurance contracts	52,556		46,632		Cash surrender value of life insurance contracts	68,109		46,632
Deferred tax assets, net	Deferred tax assets, net	5,426		3,933		Deferred tax assets, net	8,523		3,933
Goodwill	Goodwill	50,723		43,642		Goodwill	51,506		43,642
Core deposit intangibles	Core deposit intangibles	10,486		7,270		Core deposit intangibles	11,820		7,270
Other assets	Other assets	17,927		10,289		Other assets	24,092		13,292
TOTAL ASSETS	TOTAL ASSETS	$	2,177,788	$	1,898,467	TOTAL ASSETS	$	3,044,512	$	1,901,842
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY						LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	Deposits					Deposits
Noninterest-bearing demand	Noninterest-bearing demand	$	320,553	$	260,073	Noninterest-bearing demand	$	538,844	$	260,681
Interest-bearing demand	Interest-bearing demand	170,304		152,718		Interest-bearing demand	272,805		152,718
Savings and money market deposit accounts	Savings and money market deposit accounts	494,750		408,724		Savings and money market deposit accounts	813,001		408,724
Time	Time	736,841		762,274		Time	940,852		762,330
Total deposits	Total deposits	1,722,448		1,583,789		Total deposits	2,565,502		1,584,453
Accrued interest payable	Accrued interest payable	3,995		2,022		Accrued interest payable	3,744		2,022

Federal funds purchased						Federal funds purchased	5,000		0
Subordinated debentures	Subordinated debentures	70,391		70,883		Subordinated debentures	70,389		70,883
Federal Home Loan Bank advances	Federal Home Loan Bank advances	127,628		10,737		Federal Home Loan Bank advances	40,555		10,737
Dividends payable		9		76
Operating lease liabilities		11,761		—

Operating leases liabilities						Operating leases liabilities	15,756		—
Other liabilities	Other liabilities	6,884		7,207		Other liabilities	36,480		9,994
TOTAL LIABILITIES	TOTAL LIABILITIES	1,943,116		1,674,714		TOTAL LIABILITIES	2,737,426		1,678,089
Preferred stock, $1 par value; 10,000,000 shares authorized, 0 shares issued to date	Preferred stock, $1 par value; 10,000,000 shares authorized, 0 shares issued to date	—		—		Preferred stock, $1 par value; 10,000,000 shares authorized, 0 shares issued to date	0		0
Common stock, $1 par value; 30,000,000 shares authorized; 12,014,495 and 11,206,254 shares issued and outstanding at March 31, 2020, and December 31, 2019, respectively		12,014		11,206
Common stock, $1 par value; 30,000,000 shares authorized; 16,634,572 and 11,206,254 shares issued and outstanding at September 30, 2020, and December 31, 2019, respectively						Common stock, $1 par value; 30,000,000 shares authorized; 16,634,572 and 11,206,254 shares issued and outstanding at September 30, 2020, and December 31, 2019, respectively	16,635		11,206
Additional paid-in capital	Additional paid-in capital	184,523		167,006		Additional paid-in capital	232,738		167,006
Retained earnings	Retained earnings	39,150		40,472		Retained earnings	55,206		40,472
Accumulated other comprehensive income (loss)		(1,015)		5,069
TOTAL STOCKHOLDERS’ EQUITY		234,672		223,753
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	2,177,788	$	1,898,467
Accumulated other comprehensive income						Accumulated other comprehensive income	2,507		5,069
TOTAL SHAREHOLDERS’ EQUITY						TOTAL SHAREHOLDERS’ EQUITY	307,086		223,753
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY						TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,044,512	$	1,901,842

See accompanying notes to consolidated financial statements.

RELIANT BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Dollar amounts in thousands except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
INTEREST INCOME
Interest and fees on loans	$	32,895	$	17,502	$	86,987	$	50,631
Interest and fees on loans held for sale	1,037		263		2,412		614
Interest on investment securities, taxable	399		549		978		1,639
Interest on investment securities, nontaxable	1,186		1,576		3,874		4,944
Federal funds sold and other	250		321		738		918
TOTAL INTEREST INCOME	35,767		20,211		94,989		58,746
INTEREST EXPENSE
Deposits
Demand	236		81		554		278
Savings and money market deposit accounts	1,162		976		3,668		3,156
Time	2,736		4,825		9,577		12,850
Federal Home Loan Bank advances and other	104		66		613		534
Subordinated debentures	992		199		2,967		590
TOTAL INTEREST EXPENSE	5,230		6,147		17,379		17,408
NET INTEREST INCOME	30,537		14,064		77,610		41,338
PROVISION FOR LOAN LOSSES	1,500		606		7,400		806
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	29,037		13,458		70,210		40,532
NONINTEREST INCOME
Service charges on deposit accounts	1,583		976		4,172		2,796
Gains on mortgage loans sold, net	3,783		1,385		7,605		3,170
Gain on securities transactions, net	0		0		327		306


Other noninterest income	635		399		1,602		1,124
TOTAL NONINTEREST INCOME	6,001		2,760		13,706		7,396
NONINTEREST EXPENSE
Salaries and employee benefits	12,184		7,634		33,885		22,605
Occupancy	2,054		1,359		5,566		4,069
Data processing and software	2,240		1,553		6,085		4,538

Professional fees	775		404		1,933		1,836
Regulatory Fees	365		(17)		1,356		596

Merger expenses	78		299		6,895		302
Other operating expense	2,637		1,815		6,476		4,973
TOTAL NONINTEREST EXPENSE	20,333		13,047		62,196		38,919
INCOME BEFORE PROVISION FOR INCOME TAXES	14,705		3,171		21,720		9,009
INCOME TAX EXPENSE	2,800		557		3,524		1,430
CONSOLIDATED NET INCOME	11,905		2,614		18,196		7,579
NONCONTROLLING INTEREST IN NET (INCOME) LOSS OF SUBSIDIARY	(374)		1,386		990		4,484
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	11,531	$	4,000	$	19,186	$	12,063
Basic net income attributable to common shareholders, per share	$	0.70	$	0.36	$	1.27	$	1.07
Diluted net income attributable to common shareholders, per share	$	0.69	$	0.36	$	1.27	$	1.07

See accompanying notes to consolidated financial statements.

RELIANT BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~ - UNAUDITED

FOR THE THREE AND NINE MONTHS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019

(Dollar amounts in ~~thousands except per share amounts)~~thousands)

Three Months Ended
March 31,
2020 2019
INTEREST INCOME
Interest and fees on loans $ 20,645 $ 16,169
Interest and fees on loans held for sale 560 153
Interest on investment securities, taxable 451 503
Interest on investment securities, nontaxable 1,371 1,718
Federal funds sold and other 279 300
TOTAL INTEREST INCOME 23,306 18,843
INTEREST EXPENSE
Deposits
Demand 100 111
Savings and money market deposit accounts 975 1,130
Time 3,762 3,571
Federal Home Loan Bank advances and other 361 377
Subordinated debentures 993 193
TOTAL INTEREST EXPENSE 6,191 5,382
NET INTEREST INCOME 17,115 13,461
PROVISION FOR LOAN LOSSES 2,900 —
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 14,215 13,461
NONINTEREST INCOME
Service charges on deposit accounts 1,208 884
Gains on mortgage loans sold, net 1,573 560
Gain on securities transactions, net — 131
Gain on sale of other real estate 14 —
Gain on disposal of premises and equipment 9 —
Other 478 363
TOTAL NONINTEREST INCOME 3,282 1,938
NONINTEREST EXPENSE
Salaries and employee benefits 9,237 7,265
Occupancy 1,486 1,352
Information technology 1,819 1,410
Advertising and public relations 353 254
Audit, legal and consulting 478 796
Federal deposit insurance 336 195
Merger expenses 4,186 2
Other operating 1,703 1,472
TOTAL NONINTEREST EXPENSE 19,598 12,746
INCOME BEFORE PROVISION FOR INCOME TAXES (2,101) 2,653
INCOME TAX EXPENSE (BENEFIT) (910) 372
CONSOLIDATED NET INCOME (LOSS) (1,191) 2,281
NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY 976 1,543
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (215) $ 3,824
Basic net income (loss) attributable to common shareholders, per share $ (0.02) $ 0.34
Diluted net income (loss) attributable to common shareholders, per share $ (0.02) $ 0.33


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Consolidated net income	$	11,905	$	2,614	$	18,196	$	7,579
Other comprehensive income (loss)
Net unrealized gains on available-for-sale securities, net of tax of ($357) and ($973) for the three months ended September 30, 2020 and 2019, respectively, and ($864) and ($3,935) for the nine months ended September 30, 2020 and 2019, respectively	1,008		2,736		2,442		11,122
Net unrealized losses on interest rate swap derivatives net of tax of ($133) and $98 for the three months ended September 30, 2020 and 2019, respectively, and $1,685 and $569 for the nine months ended September 30, 2020 and 2019, respectively	375		(275)		(4,762)		(1,606)
Reclassification adjustment for gains included in net income, net of tax of $0 and $0 for the three months ended September 30, 2020 and 2019, respectively, and $85 and $80 for the nine months ended September 30, 2020 and 2019, respectively	0		0		(242)		(226)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)	1,383		2,461		(2,562)		9,290
TOTAL COMPREHENSIVE INCOME	$	13,288	$	5,075	$	15,634	$	16,869

See accompanying notes to consolidated financial statements.

RELIANT BANCORP, INC.

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME (LOSS)~~CHANGES IN SHAREHOLDERS’ EQUITY - UNAUDITED

FOR THE ~~THREE~~NINE MONTHS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019

(Dollar amounts in thousands)

Three Months Ended
March 31,
2020 2019
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


	COMMON STOCK			ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		NONCONTROLLING INTEREST		TOTAL
	SHARES	AMOUNT
BALANCE - DECEMBER 31, 2019	11,206,254	$	11,206	$	167,006	$	40,472	$	5,069	$	0	$	223,753
Stock based compensation expense	—	—		349		—		—		—		349
Exercise of stock options	868	1		7		—		—		—		8

Restricted stock and dividend forfeiture	(3,837)	(4)		(69)		—		—		—		(73)
Conversion shares issued to shareholders of Tennessee Community Bank Holdings, 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, 2020	12,014,495	$	12,014	$	184,523	$	39,150	$	(1,015)	$	0	$	234,672
Stock based compensation expense	—	—		485		—		—		—		485
Exercise of stock options	1,021	1		14		—		—		—		15
Employee Stock Purchase Plan stock issuance	8,344	8		108		—		—		—		116
Restricted stock awards	3,022	3		(3)		—		—		—		0
Restricted stock and dividend forfeiture	(1,697)	(1)		1		—		—		—		0
Conversion shares issued to shareholders of First Advantage Bancorp	4,606,419	4,607		47,308		—		—		—		51,915
Noncontrolling interest contributions	—	—		—		—		—		388		388
Cash dividend declared to common shareholders ($0.10 per share)	—	—		—		(1,667)		—		—		(1,667)
Net income (loss)	—	—		—		7,868		—		(388)		7,480
Other comprehensive income	—	—		—		—		2,139		—		2,139
BALANCE - JUNE 30, 2020	16,631,604	$	16,632	$	232,436	$	45,351	$	1,124	$	0	$	295,543
Stock based compensation expense	—	—		349		—		—		—		349
Exercise of stock options	4,655	5		61		—		—		—		66
Restricted stock units vesting, net of taxes withheld	8,030	8		(14)		—		—		—		(6)
Restricted stock and dividend forfeiture	(9,717)	(10)		(94)		—		—		—		(103)
Noncontrolling interest contributions	—	—		—		—		—		(374)		(374)
Cash dividend declared to common shareholders ($0.10 per share)	—	—		—		(1,676)		—		—		(1,676)
Net income	—	—		—		11,531		—		374		11,905
Other comprehensive income	—	—		—		—		1,383		—		1,383
BALANCE - SEPTEMBER 30, 2020	16,634,572	$	16,635	$	232,738	$	55,206	$	2,507	$	0	$	307,086


	COMMON STOCK			ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		NONCONTROLLING INTEREST		TOTAL
	SHARES	AMOUNT
BALANCE - DECEMBER 31, 2018	11,530,810	$	11,531	$	173,238	$	27,329	$	(3,684)	$	0	$	208,414
Stock based compensation expense	—	—		250		—		—		—		250
Exercise of stock options	2,183	2		26		—		—		—		28
Restricted stock awards	3,000	3		(3)		—		—		—		0
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, 2019	11,502,285	$	11,502	$	172,886	$	30,119	$	612	$	0	$	215,119
Stock based compensation expense	—	—		280		—		—		—		280
Exercise of stock options	24,523	25		298		—		—		—		323
Employee Stock Purchase Plan stock issuance	4,728	5		85		—		—		—		90
Restricted stock awards	5,000	5		(5)		—		—		—		0
Restricted stock and dividend forfeiture	(4,000)	(4)		4		—		—		—		0
Common stock shares redeemed	(335,973)	(336)		(7,296)		—		—		—		(7,632)
Noncontrolling interest contributions	—	—		—		—		—		1,555		1,555
Cash dividends declared to common shareholders ($0.09 per share)	—	—		—		(1,009)		—		—		(1,009)
Net income (loss)	—	—		—		4,239		—		(1,555)		2,684
Other comprehensive income	—	—		—		—		2,533		—		2,533
BALANCE - JUNE 30, 2019	11,196,563	$	11,197	$	166,252	$	33,349	$	3,145	$	0	$	213,943
Stock based compensation expense	—	—		337		—		—		—		337
Exercise of stock options	600	1		8		—		—		—		9
Restricted stock awards	1,500	1		(1)		—		—		—		0
Restricted shares withheld for taxes	(3,601)	(4)		(84)		—		—		—		(88)
Noncontrolling interest contributions	—	—		—		—		—		1,386		1,386
Cash dividend declared to common shareholders ($0.09 per share)	—	—		—		(1,010)		—		—		(1,010)
Net income (loss)	—	—		—		4,000		—		(1,386)		2,614
Other comprehensive loss	—	—		—		—		2,461		—		2,461
BALANCE - SEPTEMBER 30, 2019	11,195,062	$	11,195	$	166,512	$	36,339	$	5,606	$	0	$	219,652

See accompanying notes to consolidated financial statements.

RELIANT BANCORP, INC.

CONSOLIDATED STATEMENTS OF ~~CHANGES IN STOCKHOLDERS’ EQUITY~~CASH FLOWS - UNAUDITED

FOR THE ~~THREE~~NINE MONTHS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019

(Dollar amounts in thousands)

COMMON STOCK ADDITIONAL
PAID-IN
CAPITAL RETAINED
EARNINGS ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS) NONCONTROLLING
INTEREST TOTAL
SHARES AMOUNT
BALANCE - JANUARY 1, 2020 11,206,254 $ 11,206 $ 167,006 $ 40,472 $ 5,069 $ — $ 223,753
Stock based compensation expense — — 349 — — — 349
Exercise of stock options 868 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, 2020 12,014,495 $ 12,014 $ 184,523 $ 39,150 $ (1,015) $ — $ 234,672

COMMON STOCK ADDITIONAL
PAID-IN
CAPITAL RETAINED
EARNINGS ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS) NONCONTROLLING
INTEREST TOTAL
SHARES AMOUNT
BALANCE - JANUARY 1, 2019 11,530,810 $ 11,531 $ 173,238 $ 27,329 $ (3,684) $ — $ 208,414
Stock based compensation expense — — 250 — — — 250
Exercise of stock options 2,183 2 26 — — — 28
Restricted stock awards 3,000 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, 2019 11,502,285 $ 11,502 $ 172,886 $ 30,119 $ 612 $ — $ 215,119


	Nine Months Ended September 30,
OPERATING ACTIVITIES	2020		2019
Consolidated net income	$	18,196	$	7,579
Adjustments to reconcile consolidated net income to net cash (used in) provided by operating activities
Provision for loan losses	7,400		806

Deferred income taxes	2,003		3,686
Gain on disposal of premises and equipment	(1)		0
Depreciation and amortization of premises and equipment	2,084		1,486
Net amortization of securities	1,980		2,302
Net realized gains on sales of securities	(327)		(306)
Gains on mortgage loans sold, net	(7,605)		(3,170)
Stock-based compensation expense	1,183		867
Gain on other real estate	(24)		0
Increase in cash surrender value of life insurance contracts	(1,073)		(838)
Mortgage loans originated for resale	(327,521)		(106,520)
Proceeds from sale of mortgage loans	278,893		108,756
Cash payments arising from operating leases	2,327		—
Other accretion, net of other amortization	(10,748)		(477)
Change in
Accrued interest receivable	(4,094)		726
Other assets	(4,535)		508
Accrued interest payable	(526)		547
Other liabilities	6,497		(6,392)
TOTAL ADJUSTMENTS	(54,087)		1,981
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	(35,891)		9,560
INVESTING ACTIVITIES
Cash used to convert shares, and redeem stock options and fractional shares, net of cash received	(8,500)		0
Activities in available for sale securities
Purchases	(31,179)		(47,870)
Sales	103,901		52,434
Maturities, prepayments and calls	10,370		8,587
(Purchases) redemptions of restricted equity securities	(1,867)		411
Net increase in loans	(146,777)		(118,758)
Purchase of premises and equipment	(2,709)		(843)
Proceeds from sale of premises and equipment	257		0
Proceeds from sale of other real estate	2,273		0


NET CASH USED IN INVESTING ACTIVITIES	(74,231)		(106,039)
FINANCING ACTIVITIES
Net change in deposits	163,839		172,741
Proceeds from Federal Home Loan Bank Advances	444,000		163,824
Payments on Federal Home Loan Bank Advances	(463,156)		(217,353)
Proceeds from Federal Funds Purchased	5,000		0
Issuance of common stock, net of repurchase of restricted shares	(177)		272
Issuance of common stock related to exercise of stock options and ESPP	199		90
Redemption of common stock	—		(8,291)
Noncontrolling interest contributions received	990		4,415
Cash dividends paid on common stock	(4,550)		(3,077)
NET CASH PROVIDED BY FINANCING ACTIVITIES	146,145		112,621
NET CHANGE IN CASH AND CASH EQUIVALENTS	36,023		16,142
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	51,649		35,178
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	87,672	$	51,320

See accompanying notes to consolidated financial statements.

RELIANT BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

FOR THE ~~THREE~~NINE MONTHS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019

(Dollar amounts in thousands)

Three Months Ended
March 31,
2020 2019
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 losses 2,900 —
Deferred income taxes (295) 1,179
Gain on disposal of premises and equipment (9) —
Depreciation and amortization of premises and equipment 598 497
Net amortization of securities 202 825
Net realized gains on sales of securities — (131)
Gains on mortgage loans sold, net (1,573) (560)
Stock-based compensation expense 349 250
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 loans 57,773 24,815
Other amortization (accretion) (1) (134)
Change in
Accrued interest receivable 770 (175)
Other assets (13,715) (1,433)
Accrued interest payable 455 (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)
Sales 56,336 10,558
Maturities, prepayments and calls 1,836 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 equipment 75 —
Proceeds from sale of other real estate 764 —
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 10,349 (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 Bank 103,821 (42,175)
Issuance of common stock, net of repurchase of restricted shares — 28
Issuance of common stock related to exercise of stock options 8 —
Redemption of common stock to settle tax liability on restricted stock (73) (659)
Noncontrolling interest contributions received 976 1,450
Cash dividends paid on common stock (1,274) (1,035)
NET CASH PROVIDED BY FINANCING ACTIVITIES 31,632 31,036
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,628) 27
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 51,042 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 CASH FLOWS - UNAUDITED~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019~~

~~(Dollar amounts in thousands)~~


		Three Months Ended March 31,							Nine Months Ended September 30,
		2020		2019			2020		2019

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for	Cash paid during the period for					Cash paid during the period for
Interest	Interest	$	4,218	$	5,455	Interest	$	20,508	$	16,861
Taxes	Taxes	$	—	$	4	Taxes	$	4,565	$	1,607

Non-cash investing and financing activities	Non-cash investing and financing activities					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	Change in due to/from noncontrolling interest	$	976	$	1,543	Change in due to/from noncontrolling interest	$	990	$	4,484

Acquired bank facilities no longer in use transferred to other real estate owned and foreclosed assets from premises and equipment						Acquired bank facilities no longer in use transferred to other real estate owned and foreclosed assets from premises and equipment	$	2,420	$	0
Loans foreclosed and transferred to other real estate owned and foreclosed assets						Loans foreclosed and transferred to other real estate owned and foreclosed assets	$	197	$	943

See accompanying notes to consolidated financial statements.

108

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RELIANT BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(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 Bancorp, Inc. is a Tennessee corporation and the holding company for and the sole shareholder of Reliant ~~Bank.~~Bank (the "Bank"), collectively, "the Company". Reliant Bancorp is registered as a financial holding company under the Bank Holding Company Act of 1956, as amended ("Bank Holding Company Act"). Reliant Bank is a commercial bank chartered under Tennessee law and a member of the Federal Reserve System (the "Federal Reserve"). ~~Reliant~~The Bank ~~Reliant Bancorp's wholly-owned subsidiary,~~ provides a full range of traditional banking products and services to ~~corporate~~business and consumer clients throughout Middle Tennessee.

Reliant Risk Management, Inc., a wholly-owned insurance captive subsidiary of Reliant Bancorp, that began operations on June 1, 2020, is a Tennessee-based captive insurance company which insures Reliant Bancorp and the Bank against certain risks unique to their operations and for which insurance may not be currently available or economically feasible in today's insurance marketplace. Reliant Risk Management, Inc. pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. Reliant Risk Management, Inc. is subject to regulations of the State of Tennessee and undergoes periodic examinations by the ~~Nashville-Davidson-Murfreesboro-Franklin, TN Metropolitan Statistical Area (the “Nashville MSA”)~~Tennessee Department of Commerce 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 Brentwood, Chattanooga, Hendersonville, and Memphis, Tennessee, as well as two in Little Rock and one in Crossett, Arkansas. On April 1, 2020, FABK, a community banking organization headquartered in Clarksville, Tennessee, was merged with and into the Company (See Note 15).Insurance.

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 accounting principles generally accepted in the United States of America ("U.S. ~~GAAP.~~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~~the Company's consolidated financial statements and related notes appearing in ~~Reliant Bancorp, Inc.’s~~the Company’s Annual Report on Form 10-K for the year ended December 31, 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,its wholly-owned direct and indirect subsidiaries 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 TCB Holdings merged effective on January 1, ~~2020. The accounting~~2020, and ~~reporting policies of the Company conform to U.S. GAAP~~Reliant Bancorp, Inc. and ~~general practices in the banking industry.~~FABK merged effective April 1, 2020.

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 ~~March 31,~~September 30, 2020, and for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, 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.

~~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 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)~~

The accompanying consolidated financial statements reflect all adjustments which, ~~are,~~ in the opinion of management, are 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

conform to the current period presentation. The results for the three and nine months ended ~~March 31,~~September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Recently Adopted 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for additional information related to previously issued accounting standards updates.

ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires 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 went into effect for the Company on January 1, 2020 and 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 effect of implementing this pronouncement resulted in right to use assets of $11,973 and a similar corresponding liability, as of January 1, 2020.

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 was early adopted as of January 1, 2020 and did not have a significant impact on the Company's consolidated financial statements as it simplifies the test of impairment of goodwill.

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

Newly Issued not yet Effective Accounting Standards

ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available for sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is expected to be effective for the Company on January 1, 2023. We are currently evaluating the potential impact of ASU 2016-13 on the Company's financial statements by developing an implementation plan to include assessment of processes, portfolio segmentation, model development, system requirements and the identification of data and resource needs, among other things. The adoption of ASU 2016-13 could result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses for certain debt securities and other financial assets. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Financial Instruments - Credit Losses (ASC 326), Derivatives and Hedging (ASC 815), and Financial Instruments (ASC 825). The amendments in this ASU improve the codification by eliminating inconsistencies and providing clarifications. The amended guidance in this ASU related to credit losses is expected to be effective for the Company in conjunction with the adoption of the standard on January 1, 2023. The Company is currently evaluating the impact of these ASUs on the Company’s consolidated financial statements. While we are currently unable to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

reasonably estimate the impact of adopting these ASUs, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of the Company's loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.

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 ~~March 31,~~September 30, 2020 and December 31, 2019 were as follows:


		March 31, 2020															September 30, 2020
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U. S. Treasury and other U. S. government agencies	U. S. Treasury and other U. S. government agencies	$	56	$	1	$	—	$	57	U. S. Treasury and other U. S. government agencies	$	12,117	$	1	$	(1)	$	12,117
State and municipal	State and municipal	185,811		11,079		(436)		196,454		State and municipal	175,976		14,717		(70)		190,623
Corporate bonds	Corporate bonds	7,880		17		(62)		7,835		Corporate bonds	15,750		167		(108)		15,809
Mortgage backed securities		37,907		211		(2,217)		35,901
Asset backed securities		17,030		—		(349)		16,681
Mortgage-backed securities										Mortgage-backed securities	41,240		348		(1,212)		40,376
Asset-backed securities										Asset-backed securities	15,199		0		(231)		14,968

Total	Total	$	248,684	$	11,308	$	(3,064)	$	256,928	Total	$	260,282	$	15,233	$	(1,622)	$	273,893


		December 31, 2019															December 31, 2019
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U. S. Treasury and other U. S. government agencies	U. S. Treasury and other U. S. government agencies	$	59	$	—	$	—	$	59	U. S. Treasury and other U. S. government agencies	$	59	$	0	$	0	$	59
State and municipal	State and municipal	186,283		10,413		(36)		196,660		State and municipal	186,283		10,413		(36)		196,660
Corporate bonds	Corporate bonds	7,880		97		(132)		7,845		Corporate bonds	7,880		97		(132)		7,845
Mortgage backed securities		38,126		296		(661)		37,761
Asset backed securities		18,374		—		(406)		17,968
Mortgage-backed securities										Mortgage-backed securities	38,126		296		(661)		37,761
Asset-backed securities										Asset-backed securities	18,374		0		(406)		17,968

Total	Total	$	250,722	$	10,806	$	(1,235)	$	260,293	Total	$	250,722	$	10,806	$	(1,235)	$	260,293

Securities pledged at ~~March 31,~~September 30, 2020 and December 31, 2019 had a carrying amount of ~~$45,380~~$43,406 and $46,918, respectively, and were pledged to collateralize Federal Home Loan Bank ("FHLB") advances, Federal Reserve Bank ("FRB") advances and municipal deposits.

~~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 2 - SECURITIES (CONTINUED)~~

The fair values of available for sale debt securities at ~~March 31,~~September 30, 2020 by contractual maturity are provided below. Actual maturities may differ from contractual maturities for ~~mortgage~~mortgage- and ~~asset backed~~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 years 2,311 2,312
Due in five to ten years 10,330 10,725
Due after ten years 180,106 190,311
Mortgage backed securities 37,907 35,901
Asset backed securities 17,030 16,681
Total $ 248,684 $ 256,928

Results from sales of securities were as follows:


	Nine months ended
	September 30, 2020		September 30, 2019
Proceeds	$	103,901	$	52,434
Gross gains	810		475
Gross losses	(483)		(169)

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)


	Amortized Cost		Estimated Fair Value
Due within one year	$	12,567	$	12,565
Due in one to five years	2,175		2,186
Due in five to ten years	17,222		17,965
Due after ten years	171,879		185,833
Mortgage-backed securities	41,240		40,376
Asset-backed securities	15,199		14,968
Total	$	260,282	$	273,893

The following table shows available for sale securities with unrealized losses and their estimated fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively:


		Less than 12 months						12 months or more								Total					Less than 12 months				12 months or more		Total
		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
March 31, 2020

September 30, 2020														September 30, 2020
U. S. Treasury and other U. S. government agencies														U. S. Treasury and other U. S. government agencies	$	12,066	$	1	$	0	$	0	$	12,066	$	1
State and municipal	State and municipal	$	3,748	$	436	$	—	$	—	$	3,748	$	436	State and municipal	7,319		70		0		0		7,319		70
Corporate bonds	Corporate bonds	4,439		61		499		1		4,938		62		Corporate bonds	9,142		107		500		1		9,642		108
Mortgage backed securities		16,162		1,059		11,831		1,158		27,993		2,217
Asset backed securities		—		—		16,124		349		16,124		349
Mortgage-backed securities														Mortgage-backed securities	6,613		282		20,982		930		27,595		1,212
Asset-backed securities														Asset-backed securities	790		1		14,092		230		14,882		231
Total temporarily impaired	Total temporarily impaired	$	24,349	$	1,556	$	28,454	$	1,508	$	52,803	$	3,064	Total temporarily impaired	$	35,930	$	461	$	35,574	$	1,161	$	71,504	$	1,622


December 31, 2019	December 31, 2019													December 31, 2019

U. S. Treasury and other U. S. government agencies														U. S. Treasury and other U. S. government agencies	$	0	$	0	$	0	$	0	$	0	$	0
State and municipal	State and municipal	$	1,960	$	36	$	—	$	—	$	1,960	$	36	State and municipal	1,960		36		0		0		1,960		36
Corporate bonds	Corporate bonds	—		—		2,499		132		2,499		132		Corporate bonds	0		0		2,499		132		2,499		132
Mortgage backed securities		16,104		286		9,081		375		25,185		661
Asset backed securities		—		—		17,682		406		17,682		406
Mortgage-backed securities														Mortgage-backed securities	16,104		286		9,081		375		25,185		661
Asset-backed securities														Asset-backed securities	0		0		17,682		406		17,682		406
Total temporarily impaired	Total temporarily impaired	$	18,064	$	322	$	29,262	$	913	$	47,326	$	1,235	Total temporarily impaired	$	18,064	$	322	$	29,262	$	913	$	47,326	$	1,235

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~~As the fair value is expected to recover as the securities approach their maturity date and/or market rates ~~decline.~~decline, we do not consider these securities to be other-than-temporarily impaired at September 30, 2020. There were 4143 and 47 securities in an unrealized loss position as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively.

1312

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans at ~~March 31,~~September 30, 2020 and December 31, 2019 were comprised as follows:


		March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Commercial, Industrial and Agricultural	Commercial, Industrial and Agricultural	$	283,035	$	245,515	Commercial, Industrial and Agricultural	$	477,785	$	245,515
Real Estate	Real Estate					Real Estate
1-4 Family Residential	1-4 Family Residential	261,718		227,529		1-4 Family Residential	334,730		227,529
1-4 Family HELOC	1-4 Family HELOC	99,296		96,228		1-4 Family HELOC	101,492		96,228
Multi-family and Commercial	Multi-family and Commercial	635,650		536,845		Multi-family and Commercial	864,756		536,845
Construction, Land Development and Farmland	Construction, Land Development and Farmland	308,598		273,872		Construction, Land Development and Farmland	366,760		273,872
Consumer	Consumer	24,141		16,855		Consumer	209,071		16,855
Other	Other	7,456		13,180		Other	8,259		13,180
Total		1,619,894		1,410,024
Less
Deferred loan fees		191		72
Allowance for loan losses		15,121		12,578
Gross loans						Gross loans	2,362,853		1,410,024
Less: Deferred loan fees						Less: Deferred loan fees	4,955		72
Less: Allowance for loan losses						Less: Allowance for loan losses	19,834		12,578
Loans, net	Loans, net	$	1,604,582	$	1,397,374	Loans, net	$	2,338,064	$	1,397,374

Activity in the allowance for loan losses by portfolio segment was as follows for the three months ended ~~March 31,~~September 30, 2020 and ~~March 31,~~September 30, 2019, respectively:

Commercial Industrial and Agricultural Multi-family
and
Commercial
Real Estate Construction
Land
Development and Farmland 1-4 Family
Residential
Real Estate 1-4 Family HELOC Consumer Other Total
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)
Recoveries 61 3 — 11 1 6 — 82
Provision 1,555 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


Beginning balance at December 31, 2018		$	1,751	$	4,429	$	2,500	$	1,333	$	656	$	184	$	39	$	10,892
																			Commercial Industrial and Agricultural		Multi-family and Commercial Real Estate		Construction Land Development and Farmland		1-4 Family Residential Real Estate		1-4 Family HELOC		Consumer		Other		Total
Beginning balance at June 30, 2020																		Beginning balance at June 30, 2020	$	4,675	$	8,407	$	2,126	$	1,454	$	975	$	584	$	16	$	18,237
Charge-offs	Charge-offs	(6)		—		—		(17)		—		(11)		—		(34)		Charge-offs	0		0		0		(8)		0		(60)		0		(68)
Recoveries	Recoveries	240		34		—		212		—		10		—		496		Recoveries	88		9		4		22		12		30		0		165
Provision	Provision	(111)		130		150		(169)		14		(12)		(2)		—		Provision	249		(169)		(175)		821		498		272		4		1,500
Ending balance at March 31, 2019		$	1,874	$	4,593	$	2,650	$	1,359	$	670	$	171	$	37	$	11,354
Ending balance at September 30, 2020																		Ending balance at September 30, 2020	$	5,012	$	8,247	$	1,955	$	2,289	$	1,485	$	826	$	20	$	19,834


Beginning balance at June 30, 2019	$	1,881	$	4,713	$	2,707	$	1,455	$	686	$	188	$	36	$	11,666
Charge-offs	(2)		0		0		(12)		0		(16)		(21)		(51)
Recoveries	48		3		(201)		4		0		16		200		70
Provision	372		472		7		(64)		18		(18)		(181)		606
Ending balance at September 30, 2019	$	2,299	$	5,188	$	2,513	$	1,383	$	704	$	170	$	34	$	12,291

1413

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

~~NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)~~Activity in the allowance for loan losses by portfolio segment was as follows for the nine months ended September 30, 2020 and September 30, 2019, respectively:


	Commercial Industrial and Agricultural		Multi-family and Commercial Real Estate		Construction Land Development and Farmland		1-4 Family Residential Real Estate		1-4 Family HELOC		Consumer		Other		Total
Beginning balance at December 31, 2019	$	2,529	$	5,285	$	2,649	$	1,280	$	624	$	177	$	34	$	12,578
Charge-offs	(507)		0		(114)		(68)		(98)		(355)		0		(1,142)
Recoveries	126		20		8		769		15		60		0		998
Provision	2,864		2,942		(588)		308		944		944		(14)		7,400
Ending balance at September 30, 2020	$	5,012	$	8,247	$	1,955	$	2,289	$	1,485	$	826	$	20	$	19,834


Beginning balance at December 31, 2018	$	1,751	$	4,429	$	2,500	$	1,333	$	656	$	184	$	39	$	10,892
Charge-offs	(170)		0		0		(29)		0		(37)		(34)		(270)
Recoveries	342		62		0		220		11		28		200		863
Provision	376		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

The allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of ~~March 31,~~September 30, 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 HELOC		Consumer		Other		Total			Commercial Industrial and Agricultural		Multi-family and Commercial Real Estate		Construction Land Development and Farmland		1-4 Family Residential Real Estate		1-4 Family HELOC		Consumer		Other		Total
Allowance for loan losses	Allowance for loan losses																	Allowance for loan losses
Individually evaluated for impairment	Individually evaluated for impairment	$	679	$	—	$	—	$	—	$	—	$	4	$	—	$	683	Individually evaluated for impairment	$	764	$	0	$	0	$	0	$	0	$	0	$	0	$	764
Acquired with credit impairment	Acquired with credit impairment	—		—		—		—		—		—		—		—		Acquired with credit impairment	0		0		0		0		0		0		0		0
Collectively evaluated for impairment	Collectively evaluated for impairment	3,172		6,760		1,836		1,488		873		294		15		14,438		Collectively evaluated for impairment	4,248		8,247		1,955		2,289		1,485		826		20		19,070
Total	Total	$	3,851	$	6,760	$	1,836	$	1,488	$	873	$	298	$	15	$	15,121	Total	$	5,012	$	8,247	$	1,955	$	2,289	$	1,485	$	826	$	20	$	19,834
Loans	Loans																	Loans
Individually evaluated for impairment	Individually evaluated for impairment	$	936	$	2,375	$	1,095	$	1,206	$	418	$	4	$	—	$	6,034	Individually evaluated for impairment	$	1,084	$	2,537	$	1,777	$	1,687	$	316	$	592	$	0	$	7,993
Acquired with credit impairment	Acquired with credit impairment	—		233		1,032		1,141		14		15		—		2,435		Acquired with credit impairment	257		1,211		787		934		14		1,330		0		4,533
Collectively evaluated for impairment	Collectively evaluated for impairment	282,099		633,042		306,471		259,371		98,864		24,122		7,456		1,611,425		Collectively evaluated for impairment	476,444		861,008		364,196		332,109		101,162		207,149		8,259		2,350,327
Total	Total	$	283,035	$	635,650	$	308,598	$	261,718	$	99,296	$	24,141	$	7,456	$	1,619,894	Total	$	477,785	$	864,756	$	366,760	$	334,730	$	101,492	$	209,071	$	8,259	$	2,362,853

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

The allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2019 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 HELOC		Consumer		Other		Total			Commercial Industrial and Agricultural		Multi-family and Commercial Real Estate		Construction Land Development and Farmland		1-4 Family Residential Real Estate		1-4 Family HELOC		Consumer		Other		Total
Allowance for loan losses	Allowance for loan losses																	Allowance for loan losses
Individually evaluated for impairment	Individually evaluated for impairment	$	755	$	—	$	17	$	—	$	—	$	—	$	—	$	772	Individually evaluated for impairment	$	755	$	0	$	17	$	0	$	0	$	0	$	0	$	772
Acquired with credit impairment	Acquired with credit impairment	—		—		—		—		—		—		—		—		Acquired with credit impairment	0		0		0		0		0		0		0		0
Collectively evaluated for impairment	Collectively evaluated for impairment	1,774		5,285		2,632		1,280		624		177		34		11,806		Collectively evaluated for impairment	1,774		5,285		2,632		1,280		624		177		34		11,806
Total	Total	$	2,529	$	5,285	$	2,649	$	1,280	$	624	$	177	$	34	$	12,578	Total	$	2,529	$	5,285	$	2,649	$	1,280	$	624	$	177	$	34	$	12,578
Loans	Loans																	Loans
Individually evaluated for impairment	Individually evaluated for impairment	$	1,154	$	2,396	$	1,218	$	1,120	$	374	$	—	$	—	$	6,262	Individually evaluated for impairment	$	1,154	$	3,439	$	1,217	$	1,536	$	374	$	28	$	0	$	7,748
Acquired with credit impairment	Acquired with credit impairment	—		215		813		195		—		—		—		1,223		Acquired with credit impairment	0		215		813		195		0		0		0		1,223
Collectively evaluated for impairment	Collectively evaluated for impairment	244,361		534,234		271,841		226,214		95,854		16,855		13,180		1,402,539		Collectively evaluated for impairment	244,361		533,191		271,842		225,798		95,854		16,827		13,180		1,401,053
Total	Total	$	245,515	$	536,845	$	273,872	$	227,529	$	96,228	$	16,855	$	13,180	$	1,410,024	Total	$	245,515	$	536,845	$	273,872	$	227,529	$	96,228	$	16,855	$	13,180	$	1,410,024

Non-accrual loans by class of loan were as follows at September 30, 2020 and December 31, 2019:


	September 30, 2020		December 31, 2019
Commercial, Industrial and Agricultural	$	791	$	572
Multi-family and Commercial Real Estate	1,532		1,276
Construction, Land Development and Farmland	1,100		555
1-4 Family Residential Real Estate	1,591		1,344
1-4 Family HELOC	239		296
Consumer	1,485		28
Total	$	6,738	$	4,071

Performing non-accrual loans totaled $2,926 and $1,332 at September 30, 2020 and December 31, 2019, respectively.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

Individually impaired loans by class of loans were as follows at September 30, 2020:

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


	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	$	2,575	$	436	$	905	$	1,341	$	764
Multi-family and Commercial Real Estate	5,837		3,748		0		3,748		0
Construction, Land Development and Farmland	3,032		2,564		0		2,564		0
1-4 Family Residential Real Estate	3,322		2,621		0		2,621		0
1-4 Family HELOC	436		330		0		330		0
Consumer	3,819		1,922		0		1,922		0
Total	$	19,021	$	11,621	$	905	$	12,526	$	764

~~Risk characteristics relevant to each portfolio segment are~~Individually impaired loans by class of loans were as ~~follows:~~follows at December 31, 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	$	5	$	1,149	$	1,154	$	755
Multi-family and Commercial Real Estate	3,746		3,654		0		3,654		0
Construction, Land Development and Farmland	2,347		1,859		171		2,030		17
1-4 Family Residential Real Estate	1,852		1,731		0		1,731		0
1-4 Family HELOC	376		374		0		374		0
Consumer	31		28		0		28		0
Total	$	9,506	$	7,651	$	1,320	$	8,971	$	772

~~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.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(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.

~~Non-accrual loans by class of loan were as follows at March 31, 2020 and December 31, 2019:~~

March 31, 2020 December 31, 2019
Commercial, Industrial and Agricultural $ 355 $ 572
Multi-family and Commercial Real Estate 1,276 1,276
Construction, Land Development and Farmland 412 555
1-4 Family Residential Real Estate 1,535 1,344
1-4 Family HELOC 341 296
Consumer 30 28
Total $ 3,949 $ 4,071

~~Performing non-accrual loans totaled $931 and $1,332 at March 31, 2020 and December 31, 2019, respectively.~~

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

~~Individually impaired loans by class of loans were as follows at 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 Estate 4,216 2,608 — 2,608 —
Construction, Land Development and Farmland 3,780 2,127 — 2,127 —
1-4 Family Residential Real Estate 3,922 2,347 — 2,347 —
1-4 Family HELOC 512 433 — 433 —
Consumer 110 14 4 18 4
Total $ 14,247 $ 7,608 $ 861 $ 8,469 $ 683

~~Individually impaired loans by class of loans were as follows at December 31, 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 Estate 2,624 2,611 — 2,611 —
Construction, Land Development and Farmland 2,348 1,860 171 2,031 17
1-4 Family Residential Real Estate 1,419 1,315 — 1,315 —
1-4 Family HELOC 376 374 — 374 —
Total $ 7,921 $ 6,160 $ 1,325 $ 7,485 $ 772

The average balances of impaired loans and the interest income recognized for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 were as follows:

2020 2019
Commercial, Industrial and Agricultural $ 1,045 $ 736
Multi-family and Commercial Real Estate 2,610 2,202
Construction, Land Development and Farmland 2,079 3,173
1-4 Family Residential Real Estate 1,831 1,724
1-4 Family HELOC 404 —
Consumer 9 17
Total $ 7,978 $ 7,852

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


	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020			2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized	Average Recorded Investment		Interest Income Recognized
Impaired loans with an allowance
Commercial, Industrial and Agricultural	$	947	$6		$	2,435	$112		$	975	$32	$	1,384	$342
Multi-family and Commercial Real Estate	0		0		0		0		0		0	0		0
Construction, Land Development and Farmland	0		0		172		0		43		0	172		0
1-4 Family Residential Real Estate	0		0		0		0		0		0	0		0
1-4 Family HELOC	0		0		25		0		0		0	13		1
Consumer	0		0		0		0		1		0	0		0
Subtotal	947		6		2,631		112		1,019		32	1,568		343
Impaired loans with no allowance
Commercial, Industrial and Agricultural	594		42		672		9		356		56	537		33
Multi-family and Commercial Real Estate	4,375		63		3,474		46		4,138		278	2,838		141
Construction, Land Development and Farmland	2,949		28		1,797		21		2,471		115	2,399		168
1-4 Family Residential Real Estate	3,002		54		2,124		26		2,631		154	1,924		88
1-4 Family HELOC	331		0		296		0		367		0	148		4
Consumer	2,118		68		15		1		1,076		205	16		2
Subtotal	$	13,369	$255		$	8,378	$103		$	11,039	$808	$	7,862	$	436
Total	$	14,316	$	261	$	11,009	$	215	$	12,058	$840	$	9,430	$	779

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.

~~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

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigation.

~~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 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~~effected 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.

Loans not falling in the criteria above are considered to be pass-rated loans.

Non-commercial purpose loans are initially assigned a default loan grade of 99 (Pass) and are risk graded (Grade 6, 7, or 8) according to delinquency status when applicable.

Credit quality indicators by class of loan were as follows at ~~March 31,~~September 30, 2020:

Pass Special
Mention Substandard Total
Commercial, Industrial and Agricultural $ 280,963 $ 456 $ 1,616 $ 283,035
1-4 Family Residential Real Estate 258,828 277 2,613 261,718
1-4 Family HELOC 98,863 — 433 99,296
Multi-family and Commercial Real Estate 629,381 1,992 4,277 635,650
Construction, Land Development and Farmland 307,459 — 1,139 308,598
Consumer 23,885 24 232 24,141
Other 7,456 — — 7,456
Total $ 1,606,835 $ 2,749 $ 10,310 $ 1,619,894

~~Credit quality indicators by class of loan were as follows at December 31, 2019:~~


		Pass		Special Mention		Substandard		Total			Pass		Special Mention		Substandard		Total
Commercial, Industrial and Agricultural	Commercial, Industrial and Agricultural	$	241,089	$	2,382	$	2,044	$	245,515	Commercial, Industrial and Agricultural	$	474,199	$	1,534	$	2,052	$	477,785
1-4 Family Residential Real Estate	1-4 Family Residential Real Estate	225,809		—		1,720		227,529		1-4 Family Residential Real Estate	331,930		5		2,795		334,730
1-4 Family HELOC	1-4 Family HELOC	95,678		—		550		96,228		1-4 Family HELOC	101,176		0		316		101,492
Multi-family and Commercial Real Estate	Multi-family and Commercial Real Estate	531,055		1,519		4,271		536,845		Multi-family and Commercial Real Estate	859,739		663		4,354		864,756
Construction, Land Development and Farmland	Construction, Land Development and Farmland	272,440		—		1,432		273,872		Construction, Land Development and Farmland	365,135		0		1,625		366,760
Consumer	Consumer	16,634		—		221		16,855		Consumer	207,016		7		2,048		209,071
Other	Other	13,180		—		—		13,180		Other	6,739		1,520		0		8,259
Total	Total	$	1,395,885	$	3,901	$	10,238	$	1,410,024	Total	$	2,345,934	$	3,729	$	13,190	$	2,362,853

2018

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

~~NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)~~Credit quality indicators by class of loan were as follows at December 31, 2019:


	Pass		Special Mention		Substandard		Total
Commercial, Industrial and Agricultural	$	241,089	$	2,382	$	2,044	$	245,515
1-4 Family Residential Real Estate	225,809		0		1,720		227,529
1-4 Family HELOC	95,678		0		550		96,228
Multi-family and Commercial Real Estate	531,055		1,519		4,271		536,845
Construction, Land Development and Farmland	272,440		0		1,432		273,872
Consumer	16,634		0		221		16,855
Other	13,180		0		0		13,180
Total	$	1,395,885	$	3,901	$	10,238	$	1,410,024

None of the Company's loans had a risk rating of "Doubtful" or "Loss" as of September 30, 2020 or December 31, 2019.

Past due status by class of loan was as follows at ~~March 31,~~September 30, 2020:


		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Current		Total Loans			30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Current		Total Loans
Commercial, Industrial and Agricultural	Commercial, Industrial and Agricultural	$	603	$	25	$	432	$	1,060	$	281,975	$	283,035	Commercial, Industrial and Agricultural	$	219	$	0	$	412	$	631	$	477,154	$	477,785
1-4 Family Residential Real Estate	1-4 Family Residential Real Estate	424		413		469		1,306		260,412		261,718		1-4 Family Residential Real Estate	1,006		544		318		1,868		332,862		334,730
1-4 Family HELOC	1-4 Family HELOC	187		—		296		483		98,813		99,296		1-4 Family HELOC	0		0		198		198		101,294		101,492
Multi-family and Commercial Real Estate	Multi-family and Commercial Real Estate	220		—		1,049		1,269		634,381		635,650		Multi-family and Commercial Real Estate	0		0		1,023		1,023		863,733		864,756
Construction, Land Development and Farmland	Construction, Land Development and Farmland	342		—		225		567		308,031		308,598		Construction, Land Development and Farmland	0		684		205		889		365,871		366,760
Consumer	Consumer	23		11		16		50		24,091		24,141		Consumer	389		767		617		1,773		207,298		209,071
Other	Other	—		—		—		—		7,456		7,456		Other	0		0		0		0		8,259		8,259
Total	Total	$	1,799	$	449	$	2,487	$	4,735	$	1,615,159	$	1,619,894	Total	$	1,614	$	1,995	$	2,773	$	6,382	$	2,356,471	$	2,362,853

Past due status by class of loan was as follows at December 31, 2019:


		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Current		Total Loans			30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Current		Total Loans
Commercial, Industrial and Agricultural	Commercial, Industrial and Agricultural	$	79	$	4	$	572	$	655	$	244,860	$	245,515	Commercial, Industrial and Agricultural	$	79	$	4	$	572	$	655	$	244,860	$	245,515
1-4 Family Residential Real Estate	1-4 Family Residential Real Estate	501		236		229		966		226,563		227,529		1-4 Family Residential Real Estate	501		236		229		966		226,563		227,529
1-4 Family HELOC	1-4 Family HELOC	—		—		296		296		95,932		96,228		1-4 Family HELOC	0		0		296		296		95,932		96,228
Multi-family and Commercial Real Estate	Multi-family and Commercial Real Estate	485		—		558		1,043		535,802		536,845		Multi-family and Commercial Real Estate	485		0		558		1,043		535,802		536,845
Construction, Land Development and Farmland	Construction, Land Development and Farmland	255		—		339		594		273,278		273,872		Construction, Land Development and Farmland	255		0		339		594		273,278		273,872
Consumer	Consumer	38		26		64		128		16,727		16,855		Consumer	38		26		64		128		16,727		16,855
Other	Other	—		—		—		—		13,180		13,180		Other	0		0		0		0		13,180		13,180
Total	Total	$	1,358	$	266	$	2,058	$	3,682	$	1,406,342	$	1,410,024	Total	$	1,358	$	266	$	2,058	$	3,682	$	1,406,342	$	1,410,024

There was ~~one~~1 loan ~~totaling $78~~ past due 90 days or more and still accruing interest at ~~March 31, 2020. Additionally, credit card balances~~September 30, 2020 totaling ~~$16 were past due 90 days or more and still accruing interest.~~$38. At December 31, 2019, there was ~~one~~1 loan totaling $64 past due 90 days or more and still accruing interest.

~~During the three months ended March 31, 2020 and March 31, 2019, there were no loans that were modified as troubled debt restructurings("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 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.

2119

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

~~NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)~~The following table presents loans by class modified as troubled debt restructurings ("TDRs") during the first nine months of 2020. There were 0 modifications in the three months ending September 30, 2020. There were 0 loans that were modified as TDRs during the three or nine months ended September 30, 2019.


	Number of Contracts	Pre-Modification Outstanding Recorded Investments		Post-Modification Outstanding Recorded Investments
September 30, 2020
Commercial, Industrial and Agricultural	1	$	150	$	150
Multi-family and Commercial Real Estate	1	721		721
1-4 Family Residential	1	394		394
Total	3	$	1,265	$	1,265

~~Through March 31, 2020, the Company had applied this guidance~~The Coronavirus Aid, Relief, 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~~Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020, and subsequent regulatory guidance provide that financial institutions may elect to account for certain loan modifications due to COVID-19 as not TDRs. The Company had applied this guidance to approve initial modifications in April and May 2020 for loans with principal balances of $530.7 million. The majority of these modifications were for a period of up to three months and contained either interest-only periods or full payment deferrals. Through September 30, 2020, further modifications were approved for $21.8 million of the loans previously modified. Additional modifications of these loans are likely to be executed in the fourth quarter of 2020.

The CARES Act provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. TheThe CARES Act authorized the Small Business Administration (“SBA”) to administer new loan programs ~~that included,~~including, 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,~~12, we assumed their qualified SBA lender status.

~~An eligible business can apply for a PPP loan up~~ The Company originated 893 loans amounting to ~~the lesser of: (1) 2.5 times its average monthly “payroll costs;” or (2) $10.0 million.~~$83 million of PPP loans ~~will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity;~~in 2020 which are included in the commercial, industrial, and ~~(c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the~~agricultural segment. 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~~do not have a corresponding allowance as they are fully guaranteed by the ~~loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75%~~SBA. Fees range from 1% to 5% of the loan ~~proceeds~~and are ~~used for payroll expenses, with~~deferred and amortized over the ~~remaining 25%~~life of the loan. As PPP loans are forgiven, any deferred loan ~~proceeds used for other qualifying expenses.~~fee or cost is recognized related to each individual loan.

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 ~~March 31,~~September 30, 2020 and December 31, 2019:


		March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Commercial, Industrial and Agricultural	Commercial, Industrial and Agricultural	$	232	$	—	Commercial, Industrial and Agricultural	$	989	$	0
Multi-family and Commercial Real Estate	Multi-family and Commercial Real Estate	242		217		Multi-family and Commercial Real Estate	2,243		217
Construction, Land Development and Farmland	Construction, Land Development and Farmland	1,283		1,021		Construction, Land Development and Farmland	1,003		1,021
1-4 Family Residential Real Estate	1-4 Family Residential Real Estate	1,453		231		1-4 Family Residential Real Estate	1,211		231
1-4 Family HELOC	1-4 Family HELOC	19		—		1-4 Family HELOC	18		0
Consumer	Consumer	21		—		Consumer	2,105		0
Total outstanding balance	Total outstanding balance	3,250		1,469		Total outstanding balance	7,569		1,469
Less remaining purchase discount	Less remaining purchase discount	815		246		Less remaining purchase discount	3,036		246
Allowance for loan losses	Allowance for loan losses	—		—		Allowance for loan losses	0		0
Carrying amount, net of allowance for loan losses		$	2,435	$	1,223
Carrying amount, net of allowance for loan losses and remaining purchase discounts						Carrying amount, net of allowance for loan losses and remaining purchase discounts	$	4,533	$	1,223

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

Activity related to the accretable portion of the purchase discount on loans acquired with deteriorated credit quality is as follows for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019:


		2020		2019			2020		2019
Balance at January 1,	Balance at January 1,	$	98	$	110	Balance at January 1,	$	98	$	110
New loans purchased	New loans purchased	131		—		New loans purchased	870		0
Year-to-date settlements	Year-to-date settlements	(20)		—		Year-to-date settlements	(137)		(12)
Balance at March 31,		209		110
Balance at September 30,						Balance at September 30,	$	831	$	98

Year-to-date settlements include both loans that were charged-off as well as loans that were paid off.

NOTE 4 - LEASES

~~Table~~On January 1, 2020, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. Leases with initial terms of ~~Contents~~less than one year are not recorded on the balance sheet.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~MARCH 31, 2020~~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 ~~2019 (UNAUDITED) AND DECEMBER 31, 2019~~

~~(Dollar amounts~~the Company has included such extensions in ~~thousands except per share amounts)~~

~~NOTE 4 - OTHER REAL ESTATE~~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.

~~At March 31, 2020,~~The implementation of the ~~Company did not have any other real estate. During~~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 ~~three months ended March 31, 2020, the one parcel~~date of property held at December 31, 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 was $750 of one parcel of other real estate. During the three months ended March 31, 2019, $943 was added to other real estate. Expensesadoption, which is related to ~~other real estate totaled $6~~the Company’s lease of premises used in operations. The Company used a discount rate of 4.5% in determining the right-of-use asset and lease liability as of January 1, 2020.

Information related to the Company's operating leases is presented below:



	September 30, 2020
Operating leases right of use assets	$	14,619
Operating leases liabilities	$	15,756
Weighted average remaining lease term (in years)	6.14
Weighted average discount rate	4.34		%

The components of lease expense included in occupancy expenses for the three and nine months ended ~~March 31, 2019.~~September 30, 2020, were as follows:

~~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:


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Operating lease cost	$	851	$	2,333
Short-term lease cost	2		2
Variable lease cost	98		276
Total lease cost	$	951	$	2,611

~~Level 1 Inputs~~The Company does not separate lease and non-lease components and instead elects to ~~the valuation methodology are unadjusted quoted prices~~account for ~~identical assets or liabilities in active markets that the Company has the ability to access.~~them as a single lease component. Variable lease cost primarily represents variable payments such as common area maintenance, utilities, and property taxes.

~~Level 2 Inputs~~Lease expense for the three and nine months ended September 30, 2019, prior 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;~~adoption of ASU 2016-02, was $669 and

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

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

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

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

$2,039, respectively.

2321

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~MARCH 31,~~SEPTEMBER 30, 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)~~A maturity analysis of operating lease liabilities and a reconciliation of undiscounted cash flows to the total operating lease liability is as follows:

~~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.

~~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)~~

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 March 31, 2020 and December 31, 2019:

Fair Value Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
March 31, 2020
Assets
U. S. Treasury and other U. S. government agencies $ 57 $ — $ 57 $ —
State and municipal 196,454 — 196,454 —
Corporate bonds 7,835 — 7,835 —
Mortgage backed securities 35,901 — 35,901 —
Asset backed securities 16,681 — 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 municipal 196,660 — 196,660 —
Corporate bonds 7,845 — 7,845 —
Mortgage backed securities 37,761 — 37,761 —
Asset backed securities 17,968 — 17,968 —
Interest rate swaps 688 — 688 —
Liabilities
Interest rate swaps $ 3,396 $ — $ 3,396 $ —

~~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)~~

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 March 31, 2020 and December 31, 2019:

Fair Value Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
March 31, 2020
Assets
Impaired loans $ 178 $ — $ — $ 178
Other real estate owned — — — —
December 31, 2019
Assets
Impaired loans $ 553 $ — $ — $ 553
Other real estate owned 750 — — 750

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 March 31, 2020 and December 31, 2019:

Lease payments due on or before

September 30, 2020

September 30, 2021

3,155

September 30, 2022

2,755

September 30, 2023

2,716

September 30, 2024

2,703

September 30, 2025

2,372

Thereafter

4,289

Total undiscounted cash flows

17,990

Valuation
Techniques (1)Discount on cash flows

Significant
Unobservable Inputs(2,234)

Total lease liability

Range
(Weighted Average)

~~Impaired loans~~$

~~Appraisal~~15,756

~~Estimated costs to sell~~

~~10%~~

~~Other real estate owned~~

~~Appraisal~~

~~Estimated costs to sell~~

~~10%~~

~~(1)~~The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. Estimated cash flows change and appraised values of the assets or collateral underlying the loans will be sensitive to changes.

~~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)~~

~~Carrying amounts and estimated fair values of financial instruments not reported at fair value at March 31, 2020 and December 31, 2019 were as follows:~~

March 31, 2020 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 $ 46,318 $ 46,318 $ 46,318 $ — $ —
Federal funds sold 1,714 1,714 — 1,714 —
Loans, net 1,604,582 1,594,903 — — 1,594,903
Mortgage loans held for sale 70,352 70,352 — — 70,352
Accrued interest receivable 7,289 7,289 — 7,289 —
Restricted equity securities 14,405 14,405 — 14,405 —
Financial liabilities
Deposits $ 1,722,448 $ 1,728,071 $ — $ — $ 1,728,071
Accrued interest payable 3,995 3,995 — 3,995 —
Subordinate debentures 70,391 68,645 — — 68,645
Federal Home Loan Bank advances 127,628 127,965 — — 127,965

December 31, 2019
Financial assets
Cash and due from banks $ 50,990 $ 50,990 $ 50,990 $ — $ —
Federal funds sold 52 52 — 52 —
Loans, net 1,397,374 1,383,719 — — 1,383,719
Mortgage loans held for sale 37,476 38,379 — 38,379 —
Accrued interest receivable 7,111 7,111 — 7,111 —
Restricted equity securities 11,279 11,279 — 11,279 —
Financial liabilities
Deposits $ 1,583,789 $ 1,582,117 $ — $ — $ 1,582,117
Accrued interest payable 2,022 2,022 — 2,022 —
Subordinate debentures 70,883 71,454 — — 71,454
Federal Home Loan Bank advances 10,737 10,755 — — 10,755

~~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.

~~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 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 Reliant Bank, all outstanding stock options of Reliant 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 three months ended March 31, 2020 is as follows:~~

Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value
Outstanding at January 1, 2020 149,293 $ 18.81 6.68 years $ 553
Granted — $ —
Exercised (868) $ 8.49 1.73 years 11
Forfeited or expired — $ —
Outstanding at March 31, 2020 148,425 $ 18.87 6.62 years $ 22
Exercisable at March 31, 2020 73,825 $ 15.39 5.22 years $ 22

Shares Weighted Average
Grant-Date Fair Value
Non-vested options at January 1, 2020 74,600 $6.08
Granted — $—
Vested — $—
Forfeited — $—
Non-vested options at March 31, 2020 74,600 $6.08

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

~~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 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 three months ended March 31, 2020:~~

Restricted Stock Units Restricted Stock
Shares Weighted Average Grant-Date
Fair Value Shares Weighted Average Grant-Date
Fair Value
Non-vested shares at January 1, 2020 47,750 $ 23.30 90,960 $ 25.31
Granted — — — —
Vested — — (11,163) 21.89
Forfeited — — (3,837) 21.89
Non-vested shares at March 31, 2020 47,750 $ 23.30 75,960 $ 25.99

As of ~~March 31, 2020, there was $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 falls under the Small Bank Holding Company and 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, 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 March 31,September 30, 2020, the ~~Bank meets all capital adequacy requirements to which~~Company entered into a five year lease with a related party that commences January 1, 2021 and has a base annual rental of $211,000, with a 2.5% per year increase. This lease may be terminated December 31, 2021 with a 90-day notice. As the lease has not yet commenced, 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 March 31, 2020 and December 31, 2019,included in 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.

~~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 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 March 31, 2020 and December 31, 2019.~~

Actual
Regulatory
Capital Minimum Required
Capital Including
Capital Conservation
Buffer To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount Ratio Amount Ratio Amount Ratio
March 31, 2020
Company
Tier I leverage $ 183,873 8.91 % $ 82,547 4.00 % $ 103,184 5.00 %
Common equity tier 1 172,103 9.54 % 126,281 7.00 % 117,261 6.50 %
Tier I risk-based capital 183,873 10.19 % 153,378 8.50 % 144,356 8.00 %
Total risk-based capital 258,040 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 1 217,399 12.13 % 125,457 7.00 % 116,496 6.50 %
Tier I risk-based capital 217,399 12.13 % 152,341 8.50 % 143,379 8.00 %
Total risk-based capital 232,945 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 1 165,063 10.55 % 109,520 7.00 % 101,698 6.50 %
Tier I risk-based capital 176,748 11.30 % 132,952 8.50 % 125,131 8.00 %
Total risk-based capital 249,751 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 1 186,734 11.95 % 109,384 7.00 % 101,571 6.50 %
Tier I risk-based capital 186,734 11.95 % 132,823 8.50 % 125,010 8.00 %
Total risk-based capital 199,737 12.79 % 163,975 10.50 % 156,167 10.00 %
lease payments due above.

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,
2020 2019
Basic EPS Computation
Net income attributable to common shareholders $ (215) $ 3,824
Weighted average common shares outstanding 11,892,723 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 outstanding 11,892,723 11,405,438
Dilutive effect of stock options, restricted stock shares and units, and employee stock purchase plan 2,297 81,707
Adjusted weighted average common shares outstanding 11,895,020 11,487,145
Diluted earnings per common share $ (0.02) $ 0.33

~~NOTE 9 - SEGMENT REPORTING~~

The Company has 2 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.

~~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 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 Banking Residential
Mortgage
Banking Elimination
Entries Consolidated
Net interest income $ 16,782 $ 333 $ — $ 17,115
Provision for loan losses 2,900 — — 2,900
Noninterest income 1,709 1,565 8 3,282
Noninterest expense (excluding merger expense) 12,461 2,951 — 15,412
Merger expense 4,186 — — 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 Banking Residential Mortgage Banking Elimination Entries Consolidated
Net interest income $ 13,373 $ 88 $ — $ 13,461
Provision for loan losses — — — —
Noninterest income 1,378 575 (15) 1,938
Noninterest expense (excluding merger expense) 10,445 2,299 — 12,744
Merger expense 2 — — 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

~~NOTE 10~~5 - DERIVATIVES

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and other terms of the individual interest rate swap agreements.

Interest Rate Swaps Designated as Cash Flow Hedges

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

~~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 10 - DERIVATIVES (CONTINUED)~~

Summary information related to the interest rate swaps designated as cash flow hedges as of ~~March 31,~~September 30, 2020, is as follows:


Notional amounts	$	160,000
Weighted average pay rates	2.050		%
Weighted average receive rates	~~1.679~~0.390		%
Weighted average maturity	~~3.81~~3.35 years
Unrealized losses	$	~~7,947~~8,526

~~Cash Flow Hedges~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

The following table reflects the cash flow hedges included in the Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, respectively:


	September 30, 2020				December 31, 2019
	Notional Amount		Fair Value		Notional Amount		Fair Value



Included in other liabilities:
Interest rate swaps related to:
Subordinated debentures	$	10,000	$	(750)	$	10,000	$	(439)
Short-term interest-bearing liabilities	150,000		(7,776)		100,000		(1,639)
Total included in other liabilities	$	160,000	$	(8,526)	$	110,000	$	(2,078)

The following table presents the net gains (losses) recorded in accumulated other comprehensive income and the Consolidated Statements of Income, net of tax, relating to the cash flow derivative instruments for the three and nine months ended ~~March 31, 2020:~~

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)~~

~~March 31, 2020~~

~~Interest rate contracts~~

~~(4,335,000)~~

—

September 30, 2020 and 2019, respectively:

~~The following table reflects the cash flow hedges included in the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, respectively:~~

March 31, 2020 December 31, 2019
Notional Amount Fair Value Notional Amount Fair Value
Included in other liabilities:
Interest rate swaps related to:
Subordinate debentures $ 10,000 $ 830 $ 10,000 $ 439
Short-term interest bearing liabilities 150,000 7,117 100,000 1,639
Total included in other liabilities $ 160,000 $ 7,947 $ 110,000 $ 2,078


	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest rate swaps-subordinate debentures	$	51	$	(42)	$	(230)	$	(264)
Interest rate swaps-interest-bearing liabilities	324		(233)		(4,532)		(1,342)
	$	375	$	(275)	$	(4,762)	$	(1,606)

~~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 10 - DERIVATIVES (CONTINUED)~~

Fair Value Hedges

~~The following table reflects~~Summary information related to the fair value hedges ~~included in the Consolidated Statements~~as of ~~Income for the three months ended March 31,~~September 30, 2020, ~~and 2019, respectively:~~is as follows:

Interest rate contracts Location March 31, 2020 March 31, 2019
Change in fair value on interest rate swaps hedging investments Interest income $ (1,041) $ (501)


Notional amounts	$	19,345
Weighted average pay rates	3.51		%
Weighted average receive rates	1.21		%
Weighted average maturity	8.34 years
Unrealized losses	$	1,690

The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively:


		March 31, 2020						December 31, 2019							September 30, 2020				December 31, 2019
		Notional Amount		Fair Value		Notional Amount		Fair Value			Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other assets:
Interest rate swaps related to investments		$	—	$	—	$	—	$	—
Total included in other assets		$	—	$	—	$	—	$	—

Included in other liabilities:	Included in other liabilities:									Included in other liabilities:
Interest rate swaps related to investments	Interest rate swaps related to investments	19,605		1,671		19,605		630		Interest rate swaps related to investments	19,345		(1,690)		19,605		(630)
Total included in other liabilities	Total included in other liabilities	$	19,605	$	1,671	$	19,605	$	630	Total included in other liabilities	$	19,345	$	(1,690)	$	19,605	$	(630)

The following table reflects the fair value hedges and the underlying hedged items included in the Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019, respectively:


		Three Months Ended September 30,				Nine Months Ended September 30,
Item	Location	2020		2019		2020		2019
Interest rate swaps - securities	Interest on investment securities, nontaxable	$	(118)	$	(20)	$	(243)	$	(21)
Hedged item - securities	Interest on investment securities, nontaxable	$	118	$	20	$	243	$	21

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 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 Bank common stock to employees and organizers and authorized the issuance of Bank 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 Reliant Bancorp (then known as "Commerce Union Bancshares, Inc.") 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 Reliant Bancorp common stock in the form of stock options. As part of the merger of Commerce Union Bank and Reliant Bank in 2015, all outstanding stock options of Reliant Bank were converted to stock options of Reliant Bancorp (then known as "Commerce Union Bancshares, 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 Reliant Bancorp's common stock on the grant date.

On June 18, 2015, the shareholders of Reliant Bancorp (then known as "Commerce Union Bancshares, Inc.") approved the Commerce Union Bancshares, Inc. 2015 Equity Incentive Plan, which reserves up to 900,000 shares of Reliant Bancorp common stock to be subject to awards under the plan, including awards in the form of stock options, restricted stock grants, performance-based awards, and other awards denominated or payable by reference to or based on or related to Reliant Bancorp common stock.

The Company has recognized stock-based compensation expense, within salaries and employee benefits for employees, and within other non-interest expense for directors, in the consolidated statement of income as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Stock-based compensation expense before income taxes	$	349	$	337	$	1,183	$	867
Less: deferred tax benefit	(91)		(88)		(309)		(227)
Reduction of net income	$	258	$	249	$	874	$	640

Common Stock Options

A summary of stock option activity for the nine months ended September 30, 2020 is as follows:


	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2020	149,293	$	18.81	6.68 years	$	553
Granted	0	$	0
Exercised	(6,544)	$	12.03		26
Forfeited or expired	(20,007)	$	21.02
Outstanding at September 30, 2020	122,742	$	18.81	5.95 years	$	73
Exercisable at September 30, 2020	83,042	$	16.43	5.03 years	$	73

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)


	Shares	Weighted Average Grant-Date Fair Value
Non-vested options at January 1, 2020	74,600	$6.08
Granted	0	$0
Vested	(23,400)	$5.23
Forfeited	(11,500)	$6.37
Non-vested options at September 30, 2020	39,700	$6.56

As of September 30, 2020, there was $235 of unrecognized future compensation expense to be recognized related to stock options. The cost is expected to be recognized over a weighted-average period of 3.08 years.

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 nine months ended September 30, 2020:


	Restricted Stock Units			Restricted Stock
	Underlying Shares	Weighted Average Grant-Date Fair Value		Shares	Weighted Average Grant-Date Fair Value
Non-vested units/shares at January 1, 2020	47,750	$	23.30	90,960	$	25.31
Granted	102,400	14.02		0	0
Vested	(12,500)	22.57		(48,550)	23.99
Forfeited	(2,000)	10.25		0
Non-vested units/shares at September 30, 2020	135,650	$	16.55	42,410	$	26.82

As of September 30, 2020, there was $2,096 of unrecognized compensation cost related to non-vested restricted stock and restricted stock unit awards. The cost is expected to be recognized over a weighted-average period of 2.11 years. The total fair value of shares vested during the nine months ended September 30, 2020 was $970.

NOTE 7 - REGULATORY CAPITAL REQUIREMENTS

The Company and the Bank are subject to regulatory capital requirements administered by the federal and state banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action or affect the amount of dividends the Company and the Bank may distribute. Management believes that as of September 30, 2020, the Company and the Bank met all capital adequacy requirements to which they were subject.

Capital amounts and ratios for Reliant Bancorp and the Bank (required) are presented below as of September 30, 2020 and December 31, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)


	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, 2020
Reliant Bancorp
Tier I leverage	$	253,534	8.72	%	$	116,300	4.00	%	$	145,375	5.00	%
Common equity tier I	241,786		9.77	%	173,235		7.00	%	160,861		6.50	%
Tier I risk-based capital	253,534		10.25	%	210,248		8.50	%	197,880		8.00	%
Total risk-based capital	332,434		13.44	%	259,714		10.50	%	247,347		10.00	%
Bank
Tier I leverage	$	304,376	10.48	%	$	116,174	4.00	%	$	145,218	5.00	%
Common equity tier I	304,376		12.33	%	172,801		7.00	%	160,458		6.50	%
Tier I risk-based capital	304,376		12.33	%	209,829		8.50	%	197,486		8.00	%
Total risk-based capital	324,635		13.15	%	259,214		10.50	%	246,871		10.00	%

December 31, 2019
Reliant Bancorp
Tier I leverage	$	176,748	9.74	%	$	72,586	4.00	%	$	90,733	5.00	%
Common equity tier I	165,063		10.55	%	109,520		7.00	%	101,698		6.50	%
Tier I risk-based capital	176,748		11.30	%	132,952		8.50	%	125,131		8.00	%
Total risk-based capital	249,751		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 I	186,734		11.95	%	109,384		7.00	%	101,571		6.50	%
Tier I risk-based capital	186,734		11.95	%	132,823		8.50	%	125,010		8.00	%
Total risk-based capital	199,737		12.79	%	163,975		10.50	%	156,167		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				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Basic EPS Computation
Net income attributable to common shareholders	$	11,531	$	4,000	$	19,186	$	12,063
Weighted average common shares outstanding	16,587,274		11,104,918		15,053,087		11,247,921
Basic earnings per common share	$	0.70	$	0.36	$	1.27	$	1.07
Diluted EPS Computation
Net income attributable to common shareholders	$	11,531	$	4,000	$	19,186	$	12,063
Weighted average common shares outstanding	16,587,274		11,104,918		15,053,087		11,247,921
Dilutive effect of stock options, restricted stock shares and units, and employee stock purchase plan	62,399		72,449		67,616		66,445
Adjusted weighted average common shares outstanding	16,649,673		11,177,367		15,120,703		11,314,366
Diluted earnings per common share	$	0.69	$	0.36	$	1.27	$	1.07

NOTE 9 - FAIR VALUES OF ASSETS AND LIABILITIES

Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

Level 2 Inputs to the valuation methodology include:

•Quoted prices for similar assets or liabilities in active markets;

•Quoted prices for identical or similar assets or liabilities in inactive markets;

•Inputs other than quoted prices that are observable for the asset or liability; and

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

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

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

Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis:

Securities available for sale: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Company obtains fair value measurements for securities available for sale from an independent pricing service. The fair value measurements consider observable data that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, cash flows and reference data, including market research publications, among other things.

Interest rate swaps: The fair values of interest rate swaps and fair value hedges are determined based on discounted future cash flows.

Impaired Loans: The fair value of an impaired loan with specific allocations of the allowance for loan losses is generally based on the present value of expected payments using the loan’s effective rate as the discount rate or recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

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.


	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, 2020
Assets
U. S. Treasury and other U. S. government agencies	$	12,117	$	0	$	12,117	$	0
State and municipal	190,623		0		190,623		0
Corporate bonds	15,809		0		15,809		0
Mortgage backed securities	40,376		0		40,376		0
Asset backed securities	14,968		0		14,968		0

Liabilities
Derivative liabilities	$	10,216	$	0	$	10,216	$	0
December 31, 2019
Assets
U. S. Treasury and other U. S. government agencies	$	59	$	0	$	59	$	0
State and municipal	196,660		0		196,660		0
Corporate bonds	7,845		0		7,845		0
Mortgage backed securities	37,761		0		37,761		0
Asset backed securities	17,968		0		17,968		0

Derivative assets	688		0		688		0
Liabilities
Derivative liabilities	$	3,396	$	0	$	3,396	$	0

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 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, 2020
Assets
Impaired loans	$	141	$	0	$	0	$	141
Other real estate	1,326		0		0		1,326
Other repossessions	1,603		0		0		1,603
December 31, 2019
Assets
Impaired loans	$	553	$	0	$	0	$	553
Other real estate	750		0		0		750
Other repossessions	0		0		0		0

Valuation
Techniques (1)

Significant
Unobservable Inputs

Range
(Weighted Average)

Impaired loans

Appraisal

Estimated costs to sell

10%

Other real estate

Appraisal

Estimated costs to sell

10%

Other repossessions

Third-party guidelines

Estimated costs to sell

10%

(1)The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. Estimated cash flows change and appraised values of the assets or collateral underlying the loans will be sensitive to changes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

Carrying amounts and estimated fair values of financial instruments not reported at fair value at September 30, 2020 and December 31, 2019 were as follows:


September 30, 2020	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	$	14,050	$	14,050	$	14,050	$	0	$	0
Federal funds sold	12,273		12,273		0		12,273		0
Loans, net	2,338,064		2,336,300		0		0		2,336,300
Mortgage loans held for sale	99,587		99,587		0		99,587		0
Accrued interest receivable	14,615		14,615		0		14,615		0
Restricted equity securities	17,367		17,367		0		17,367		0
Financial liabilities
Deposits	$	2,565,502	$	2,571,305	$	0	$	0	$	2,571,305
Accrued interest payable	3,744		3,744		0		3,744		0
Subordinate debentures	70,389		69,237		0		0		69,237
Federal Home Loan Bank advances	40,555		40,887		0		0		40,887


December 31, 2019
Financial assets
Cash and due from banks	$	7,953	$	7,953	$	7,953	$	0	$	0
Federal funds sold	52		52		0		52		0
Loans, net	1,397,374		1,383,719		0		0		1,383,719
Mortgage loans held for sale	37,476		38,379		0		38,379		0
Accrued interest receivable	7,188		7,188		0		7,188		0
Restricted equity securities	11,279		11,279		0		11,279		0
Financial liabilities
Deposits	$	1,584,453	$	1,582,781	$	0	$	0	$	1,582,781
Accrued interest payable	2,022		2,022		0		2,022		0
Subordinate debentures	70,883		71,454		0		0		71,454
Federal Home Loan Bank advances	10,737		10,755		0		0		10,755

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

NOTE 10 - SEGMENT REPORTING

The Company has 2 reportable business segments: commercial banking and residential mortgage banking. Segment information is derived from the internal reporting system utilized by management. Revenues and expenses for segments reflect 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.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

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

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

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

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


	Three Months Ended September 30, 2020
	Commercial Banking		Residential Mortgage Banking		Elimination Entries		Consolidated
Net interest income	$	29,729	$	808	$	0	$	30,537
Provision for loan losses	1,500		0		0		1,500
Noninterest income	2,218		3,797		(14)		6,001
Noninterest expense (excluding merger expense)	16,065		4,190		0		20,255
Merger expense	78		0		0		78
Income tax expense (benefit)	2,773		27		0		2,800
Net income (loss)	11,531		388		(14)		11,905
Noncontrolling interest in net income of subsidiary	0		(388)		14		(374)
Net income attributable to common shareholders	$	11,531	$	0	$	0	$	11,531


	Three Months Ended September 30, 2019
	Commercial Banking		Residential Mortgage Banking		Elimination Entries		Consolidated
Net interest income	$	13,910	$	154	$	0	$	14,064
Provision for loan losses	606		0		0		606
Noninterest income	1,375		1,377		8		2,760
Noninterest expense (excluding merger expense)	9,726		3,022		0		12,748
Merger expense	299		0		0		299
Income tax expense (benefit)	654		(97)		0		557
Net income (loss)	4,000		(1,394)		8		2,614
Noncontrolling interest in net loss of subsidiary	0		1,394		(8)		1,386
Net income attributable to common shareholders	$	4,000	$	0	$	0	$	4,000

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)


	Nine Months Ended September 30, 2020
	Commercial Banking		Residential Mortgage Banking		Elimination Entries		Consolidated
Net interest income	$	75,933	$	1,677	$	0	$	77,610
Provision for loan losses	7,400		0		0		7,400
Noninterest income	6,102		7,601		3		13,706
Noninterest expense (excluding merger expense)	44,961		10,340		0		55,301
Merger expense	6,895		0		0		6,895
Income tax expense (benefit)	3,593		(69)		0		3,524
Net income (loss)	19,186		(993)		3		18,196
Noncontrolling interest in net loss of subsidiary	0		993		(3)		990
Net income attributable to common shareholders	$	19,186	$	0	$	0	$	19,186


	Nine Months Ended September 30, 2019
	Commercial Banking		Residential Mortgage Banking		Elimination Entries		Consolidated
Net interest income	$	40,986	$	352	$	0	$	41,338
Provision for loan losses	806		0		0		806
Noninterest income	4,226		3,187		(17)		7,396
Noninterest expense (excluding merger expense)	30,300		8,317		0		38,617
Merger expense	302		0		0		302
Income tax expense (benefit)	1,741		(311)		0		1,430
Net income (loss)	12,063		(4,467)		(17)		7,579
Noncontrolling interest in net loss of subsidiary	0		4,467		17		4,484
Net income attributable to common shareholders	$	12,063	$	0	$	0	$	12,063

NOTE 11 – INCOME TAXES

Income tax expense ~~(benefit)~~ for the three and nine months ended ~~March 31,~~September 30, 2020 totaled ~~$(910)~~$2,800 and $3,524, respectively, compared to ~~$372~~$557 and $1,430, respectively, for the three and nine months ended ~~March 31,~~September 30, 2019. The effective tax rate for the three and nine months ended ~~March 31,~~September 30, 2020 was ~~43.3%~~19.0% and 16.2%, respectively, compared to ~~14.0%~~17.6% and 15.9%, respectively, for the three and nine months ended ~~March 31,~~September 30, 2019. ~~During the quarter ended March 31, 2020, merger expenses and the provision expense had the impact of reducing taxable income and increasing the proportion of tax-exempt income to total income.~~

NOTE 12 - BUSINESS ~~COMBINATION~~COMBINATIONS

Tennessee Community Bank Holdings, Inc.

Effective January 1, 2020, ~~the Company~~Reliant Bancorp completed the acquisition of TCB Holdings pursuant to the Agreement and Plan of Merger, dated September 16, 2019 (the “TCB Holdings Agreement”), by and among ~~the Company,~~Reliant Bancorp, TCB Holdings, and Community Bank & Trust, a Tennessee-chartered commercial bank and wholly owned subsidiary of TCB Holdings (“CBT”). On the terms and subject to the conditions set forth in the ~~Merger~~TCB Holdings Agreement, TCB Holdings merged with and into ~~the Company~~Reliant Bancorp (the “TCB Holdings Transaction”), with ~~the Company~~Reliant Bancorp as the surviving corporation. Immediately following the TCB Holdings Transaction, CBT merged with and into ~~Reliant,~~the Bank, with ~~Reliant~~the Bank continuing as the surviving banking corporation. Pursuant to the TCB Holdings Agreement, at the effective time of the TCB Holdings Transaction, ~~(the “Effective Time”),~~ each outstanding share of TCB Holdings common stock, par value $1.00 per share (other than certain excluded shares), was converted into and canceled in exchange for the right to receive (i) $17.13 in cash, without interest, and (ii) 0.769 shares of the ~~Company’s~~Reliant Bancorp’s common stock, par value $1.00 per share (“~~Company~~Reliant Bancorp Common Stock”). The ~~Company issued 811,210 shares~~aggregate consideration payable by Reliant

Table of ~~Company Common Stock and paid approximately $18,073~~Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in ~~cash,~~thousands except per share amounts)

Bancorp in respect of shares of TCB Holdings common stock as consideration for the TCB Holdings ~~Transaction. The Company~~Transaction was 811,210 shares of Reliant Bancorp Common Stock and approximately $18,073 in cash. Reliant Bancorp did not issue fractional shares of ~~Company~~Reliant Bancorp Common Stock in connection with the TCB Holdings Transaction, but paid cash in lieu of fractional shares based on the volume weighted average closing price per share of the ~~Company~~Reliant Bancorp Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including December 30, 2019 (calculated as $22.36). At the effective time of the TCB Holdings Transaction, each outstanding option to purchase TCB Holdings common stock was canceled in exchange for a cash payment in an amount equal to the product of (i) $34.25 minus the per share exercise price of the option multiplied by (ii) the number of shares of TCB Holdings common stock subject to the option (to the extent not previously exercised). ~~The Company~~Reliant Bancorp paid aggregate consideration to holders of unexercised options of approximately $430. All shares of ~~Company’s~~Reliant Bancorp’s common stock outstanding immediately prior to the TCB ~~Merger~~Holdings Transaction were unaffected by the TCB ~~Merger.~~Holdings Transaction.

The following table details the financial impact of the ~~business combination,~~TCB Holdings Transaction, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:

~~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)~~


Calculation of Purchase Price
Shares of Tennessee Community Bank Holdings, Inc. common stock outstanding as of January 1, 2020	1,055,041
Exchange ratio for Reliant Bancorp, Inc. common stock	0.769
Reliant Bancorp, Inc. common stock shares issued	811,210
Reliant Bancorp, Inc. share price at January 1, 2020	$	22.24
Estimated value of Reliant Bancorp, Inc. shares issued	18,041
Cash settlement for Tennessee Community Bank Holdings, Inc. common stock ($17.13 per share)	18,073
Cash settlement for Tennessee Community Bank Holdings, Inc.'s 26,450 outstanding stock options ($34.25 settlement price less weighted average exercise price of $18.00)	430
Cash settlement for Reliant Bancorp, Inc. fractional shares ($22.36 per pro rata fractional share)	3
Estimated fair value of Tennessee Community Bank Holdings, Inc.	$	36,547


~~Allocation of Purchase Price~~
~~Total consideration above~~	$	~~36,547~~
~~Fair value of assets acquired and liabilities assumed~~
~~Cash and cash equivalents~~	~~11,026~~

~~Investment securities available for sale~~	~~56,336~~
~~Loans, net of unearned income~~	~~171,445~~

~~Accrued interest receivable~~	~~948~~
~~Premises and equipment~~	~~6,440~~

~~Cash surrender value of life insurance contracts~~	~~5,629~~
~~Restricted equity securities~~	~~909~~

~~Core deposit intangible~~	~~3,617~~
~~Other assets~~	~~833~~
~~Deposits~~	~~(210,538)~~
~~Deferred tax liability~~	~~(337)~~
~~Borrowings~~	~~(58)~~
~~FHLB advances~~	~~(13,102)~~
~~Other liabilities~~	~~(3,682)~~
~~Total fair value of net assets acquired~~	~~29,466~~
~~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)~~

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 the three months ended March 31, 2020 and 2019, the Company recognized $707 and $687 of lease expense, respectively.~~

~~NOTE 14 - 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, 2019 for additional information related to previously issued accounting standards updates.

~~ASU 2014-09, “Revenue from Contracts with Customers (Topic~~ ~~606~~)” implements a common revenue standard that clarifies the 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 $11,973 and a similar corresponding liability, using the remaining contractual lease periods.

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

~~NOTE 14 - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)~~


Allocation of Purchase Price
Total consideration above	$	36,547
Fair value of assets acquired and liabilities assumed
Cash and cash equivalents	11,026

Investment securities available for sale	56,336
Loans, net of unearned income	171,445

Accrued interest receivable	948
Premises and equipment	6,401

Cash surrender value of life insurance contracts	5,629
Restricted equity securities	909

Core deposit intangible	3,617
Other assets	833
Deposits	(210,538)
Deferred tax liability	(337)
Borrowings	(58)
FHLB advances	(13,102)
Other liabilities	(3,682)
Total fair value of net assets acquired	29,427
Goodwill	$	7,120

~~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,~~CBT was a Tennessee-based full-service community bank with operations in Ashland City, Kingston Springs, Pegram, Pleasant View, 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 ASUsSpringfield, Tennessee. These communities lie on the ~~Company’s consolidated financial statements. While we are currently unable to reasonably estimate the impact~~northwest perimeter of adopting 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.Nashville, Tennessee.

~~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.First Advantage Bancorp

Effective April 1, 2020, Reliant Bancorp completed the acquisition of FABK pursuant to the Agreement and Plan of Merger, dated October 22, 2019 (the “FABK Agreement”), by and among Reliant Bancorp, FABK, and PG Merger Sub, Inc., a Tennessee corporation and wholly owned subsidiary of Reliant Bancorp ("Merger Sub"). On the terms and subject to the conditions set forth in the FABK Agreement, Merger Sub merged with and into FABK (the "FABK Transaction"), with FABK as the surviving corporation, followed immediately by the merger of FABK with and into Reliant Bancorp, with Reliant Bancorp as the surviving corporation. Immediately following the merger of FABK into Reliant Bancorp, First Advantage Bank, a Tennessee-chartered commercial bank and wholly owned subsidiary of FABK ("FAB"), merged with and into the Bank, with the Bank continuing as the surviving banking corporation. Pursuant to the FABK Agreement, at the effective time of the FABK Transaction, each outstanding share of FABK common stock, par value $0.01 per share (the “FABK Common Stock”), other than certain excluded shares, was converted into the right to receive (i) 1.17 shares of Reliant Bancorp Common Stock and (ii) $3.00 in cash, without interest. In lieu of the issuance of fractional shares of Reliant Bancorp Common Stock, Reliant Bancorp agreed to pay cash in lieu of fractional shares based on the volume-weighted average closing price per share of Reliant Bancorp Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including March 30, 2020 (calculated as $11.74). Based on the April 1, 2020 opening price for Reliant Bancorp Common Stock of $11.27 per share and 3,935,165 shares of FABK Common Stock outstanding on April 1, 2020, the ~~FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - "Facilitation~~consideration for the FABK Transaction was approximately $64,094, in the aggregate, or $16.28 per share of FABK Common Stock.

The following table details 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~~FABK Transaction, including the ~~Company’s consolidated financial statements.~~

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,~~SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

~~NOTE 15 - SUBSEQUENT EVENTS~~


Calculation of Purchase Price
Shares of First Advantage Bancorp common stock outstanding as of April 1, 2020	3,935,165
Conversion of restricted stock units to shares of common stock of First Advantage Bancorp as of April 1, 2020	2,000
Total First Advantage Bancorp common stock outstanding as of April 1, 2020	3,937,165
Exchange ratio for Reliant Bancorp, Inc. common stock	1.17
Reliant Bancorp, Inc. common stock shares issued	4,606,483
Remove fractional shares	(64)
Reliant Bancorp, Inc. common stock shares issued	4,606,419
Reliant Bancorp, Inc. share price at April 1, 2020	$	11.27
Estimated value of Reliant Bancorp, Inc. shares issued	51,914
Cash settlement for Reliant Bancorp, Inc. fractional shares ($11.74 per pro rata fractional share)	1
Cash settlement for First Advantage Bancorp common stock ($3.00 per share)	11,805
Cash settlement for First Advantage Bancorp restricted stock units ($3.00 per share)	6
Cash settlement for First Advantage Bancorp's 34,800 outstanding stock options ($30.00 settlement price less weighted average exercise price of $19.44)	368
Estimated fair value of First Advantage Bancorp	$	64,094

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 March 31, 2020 through the date of the issued financial statements.


Allocation of Purchase Price
Total consideration above	$	64,094
Fair value of assets acquired and liabilities assumed
Cash and cash equivalents	11,159

Investment securities available for sale	35,970
Loans, net of unearned income	622,423
Mortgage loans held for sale, net	5,878

Premises and equipment	7,905
Deferred tax asset	6,024
Cash surrender value of life insurance contracts	14,776
Other real estate and repossessed assets	1,259
Core deposit intangible	2,280
Operating lease right-of-use assets	6,536
Other assets	10,934
Deposits	(608,690)
Borrowings	(35,962)
Operating lease liabilities	(6,536)
Other liabilities	(10,606)
Total fair value of net assets acquired	63,350
Goodwill	$	744

On October 22, 2019, the Company, PG Merger Sub, Inc. ("Merger sub'), a 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 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”), with 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 the 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 Company Common Stock of $11.27 per share and 4,012,365 shares of FABK Common Stock outstanding on March 31, 2020, the consideration for the FABK Merger was approximately $65,314, in the aggregate, or $16.28 per share of FABK Common Stock.

~~FABK is~~ a Tennessee-based full-service community ~~banking organization~~bank headquartered in Clarksville, Tennessee. FAB operated branch offices in Montgomery, Davidson and Williamson counties, Tennessee and operated a loan production office in Knoxville, Tennessee primarily originating manufactured housing loans.

~~Former FABK board members William Lawson Mabry and Michael E. Wallace joined Reliant Bancorp, Inc.'s and Reliant Bank's boards of directors 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,~~SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019

(Dollar amounts in thousands except per share amounts)

~~NOTE 15 - SUBSEQUENT EVENTS (CONTINUED)~~Supplemental Pro Forma Combined Condensed Statements of Income

~~The CARES Act included an allocation of $349 billion~~Pro forma data for ~~loans to be issued by financial institutions through~~ the ~~SBA. This program is known~~three and nine months ended September 30, 2020 and 2019 in the table below presents information as ~~the PPP. Loans issued under the PPP program are forgivable, in whole or in part,~~ if the ~~proceeds~~TCB Holdings Transaction and FABK Transaction occurred on January 1, 2019. These results combine the historical results of TCB Holdings and FABK into the Company's consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments, they are ~~used~~not indicative of what would have occurred had the acquisitions taken place on the indicated date nor are they intended to represent or be indicative of future results of operations. In particular, no adjustments have been made to eliminate the amount of TCB Holdings' or FABK's provision for 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 deferredcredit losses for the first ~~six~~three and nine months of 2019 that may not have been necessary had the ~~loan. The~~acquired 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~~been recorded at fair value as of the ~~loan.~~beginning of 2019. Additionally, these financials were not adjusted for non-recurring expenses, such as merger-related charges incurred by either the Company, TCB Holdings or FABK. The ~~SBA began accepting submissions for these PPP loans on Friday, April 3, 2020. Through April 16, 2020,~~Company expects to achieve operating cost savings and other business synergies as a result of 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~~acquisitions which are also not reflected 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.pro forma amounts.

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenue(1)	$	35,881	$	29,478	$	106,771	$	86,217
Net interest income	$	29,880	$	25,232	$	85,741	$	74,835
Net income attributable to common shareholders	$	11,117	$	9,182	$	17,715	$	28,545


(1) Net interest income plus noninterest income

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

The following is a summary of the Company’s financial highlights and significant events for the ~~three~~nine months ended ~~March 31,~~September 30, 2020:

•Net income ~~(loss)~~ attributable to common shareholders totaled ~~$(0.2)~~$19.2 million, or ~~$(0.02)~~$1.27 per diluted common share, for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 compared to ~~$3.8~~$12.1 million, or ~~$0.33~~$1.07 per diluted common share, during the same period in 2019.

•Merger expenses for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 totaled ~~$4.2~~$6.9 million.

•Loans increased ~~$209.9~~$940.7 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

•Deposits increased ~~$138.7~~$981.0 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

•Asset quality remained strong with nonperforming assets to total assets of ~~0.27~~0.32 percent.

•Successfully closed the TCB Holdings ~~Transaction~~ and ~~conversion~~FABK transactions as well as conversions with Community Bank & Trust and ~~Trust.~~First Advantage Bank.

The following discussion and analysis is intended to assist in the understanding and assessment of significant changes and trends related to our financial position and operating results. This discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere herein along with ~~our~~Reliant Bancorp's Annual Report on Form 10-K for the year ended December 31, 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.

Acquisition of parent company of CBT

Effective January 1, 2020, ~~the Company~~Reliant Bancorp completed the acquisition of TCB ~~Holdings,~~ 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~~TCB Holdings Agreement, TCB Holdings merged with and into ~~the Company,~~Reliant Bancorp, with ~~the Company~~Reliant Bancorp 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~~TCB Holdings Agreement, at the ~~Effective Time~~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~~Reliant Bancorp's common stock. The ~~Company issued 811,210 shares of Company Common Stock and paid approximately $18,073 in cash,~~aggregate consideration payable by Reliant Bancorp in respect of shares of TCB Holdings common stock as consideration for the TCB Holdings ~~Transaction. The Company~~Transaction was 811,210 shares of Reliant Bancorp Common Stock and approximately $18,073 in cash. Reliant Bancorp did not issue fractional shares of ~~Company~~Reliant Bancorp Common Stock in connection with the TCB Holdings Transaction, but instead paid cash in lieu of fractional shares based on the volume weighted average closing price per share of the ~~Company~~Reliant Bancorp Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including December 30, 2019 (calculated as $22.36). At the ~~Effective Time,~~effective time of the TCB Holdings Transaction, each outstanding option to purchase TCB Holdings common stock was canceled in exchange for a cash payment in an amount equal to the product of (i) $34.25 minus the per share exercise price of the option multiplied by (ii) the number of shares of TCB Holdings common stock subject to the option (to the extent not previously exercised). ~~The Company~~Reliant Bancorp 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,~~Effective April 1, 2020, Reliant Bancorp, completed the ~~Company, Merger Sub, and FABK entered into the FABK agreement providing for the Company to acquire FABK and FAB. The Company completed its~~ acquisition of FABK and ~~FAB effective April 1, 2020.~~

FAB. In accordance with the terms of the FABK Agreement, ~~on April 1, 2020,~~ (i) Merger Sub merged with and into FABK, with FABK being the surviving corporation and becoming a wholly-owned subsidiary of Reliant Bancorp, and (ii) immediately following the merger of FABK and Merger Sub, FABK merged with and into Reliant Bancorp, with Reliant Bancorp being the surviving corporation. Additionally, immediately following the ~~Second Step Merger,~~merger of Reliant Bancorp and FABK, FAB merged with and into Reliant Bank, with Reliant Bank being the surviving bank.

~~Table of Contents~~

As consideration for the FABK Transaction, each outstanding share of FABK Common Stock, other than certain excluded shares, at the effective time of the FABK Transaction converted into the right to receive (i) 1.17 shares of ~~Company~~Reliant Bancorp 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, 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~~Reliant Bancorp Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including March 30, 2020 (calculated as $11.74). Reliant Bancorp paid aggregate consideration to holders of unexercised options of approximately $368. Based on the March 31, 2020 closing price for ~~Company~~Reliant Bancorp Common Stock of $11.27 per

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share and 43,937,165 shares of FABK Common Stock outstanding on March 31, 2020, the consideration for the FABK ~~Merger~~Transaction was approximately ~~$65,314,~~$64,094, in the aggregate, or $16.28 per share of FABK Common Stock.

~~The accounting principles we follow and our methods~~Formation of applying these principles conform to U.S. 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.Reliant Risk Management, Inc.

~~Recent Events – COVID-19 Pandemic~~

~~In December 2019,~~Reliant Risk Management, Inc. is a ~~novel strain~~wholly-owned insurance captive subsidiary of ~~coronavirus (COVID-19) was reported to have surfaced in China, and has since spread to~~Reliant Bancorp, Inc. that began operations on June 1, 2020 as a ~~number of other countries, including the United States. In March 2020, the World Health Organization declared COVID-19 a global pandemic~~Tennessee-based captive insurance company which insures Reliant Bancorp and the ~~United States declared~~Bank against certain risks unique to their operations and for which insurance may not be currently available or economically feasible in today's insurance marketplace. It pools resources with several other similar insurance company subsidiaries of financial institutions to spread a ~~National Public Health Emergency. The COVID-19 pandemic has severely restricted the level~~limited amount of ~~economic activity in our markets. In response~~risk among themselves. Reliant Risk Management, Inc. is subject to ~~the COVID-19 pandemic,~~regulations of the State of Tennessee and ~~most other states, have taken preventative or protective actions, such as imposing restrictions on travel~~undergoes periodic examinations by the Tennessee Department of Commerce 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.~~Insurance.

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 U.S. 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 Company's consolidated financial statements as of and for the periods presented include the accounts of Reliant Bancorp, the Bank, ~~TRUPS,~~Community First Trups Holding Company (a wholly owned subsidiary of Reliant Bancorp), Reliant Risk Management, Inc., Reliant Investment Holdings, LLC (a wholly owned subsidiary of the Bank), and RMV. All significant intercompany balances and transactions have been eliminated in consolidation. As described ~~in Note 12 to our consolidated financial statements,~~previously, effective on January 1, 2020, Reliant Bancorp and TCB Holdings merged and effective April 1, 2020, Reliant Bancorp and First Advantage Bancorp 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 ~~March 31,~~September 30, 2020, RMV's cumulative losses to date totaled ~~$14,399.~~$14,707. RMV will have to generate net income of at least this amount before the Bank will participate in future ~~income~~cash flow distributions.

Purchased Loans

The Company maintains an allowance for loan losses on purchased loans based on credit deterioration subsequent to the acquisition date. In accordance with the accounting guidance for business combinations, because we recorded all loans acquired ~~loans~~from TCB Holdings and FABK at fair value as of the ~~date~~dates of the TCB Holdings Transaction ~~with~~and the ~~Company,~~FABK Transaction, respectively, 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~~dates 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~~purchased non-credit-impaired loans acquired in the TCB Holdings Transaction and the FABK Transaction 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

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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.~~off as uncollectible.

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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.

Coronavirus (COVID-19) Impact

The following is a description of certain impacts the novel coronavirus (COVID-19) pandemic is having on our financial condition and results of operations and certain risks to our business that the pandemic creates or exacerbates.

Operational Impact

As part of our pandemic response, we have encouraged a significant portion of our employees to work from home. We have also extended virtual medical coverage to all employees as well as provided pay to employees who may have been exposed as they quarantine at home. We are encouraging virtual meetings and conference calls in place of in-person meetings, including our earnings call and investor meetings which were held virtually this quarter. We are promoting social distancing, frequent hand washing, thorough disinfection of all surfaces, and the use of masks or nose and mouth coverings have been mandated in all of our locations. We have reopened all branches for normal business hours. Banking center drive-ups, ATMs and online/mobile banking services continue to operate. Infection rates in the communities we serve vary by region and we will make prudent decisions for the safety of our colleagues and our clients.

Loan Modifications

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.

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Through September 30, 2020, the Company had applied this guidance to approve initial modifications in April and May 2020 for loans with principal balances of $530.7 million. The majority of these modifications involved extensions of up to three months of either interest-only periods or full payment deferrals. Through September 30, 2020, further modifications were approved for $21.8 million of the loans previously modified. Additional modifications are likely to be executed in the fourth quarter of 2020.


	Initial Modification Requests through May 31, 2020		Subsequent Modification Requests through September 30, 2020
Commercial RE	$	291,232	$	6,179
Hospitality	96,047		14,211
Restaurant	54,067		—
C&I	34,851		1,448
Multifamily	14,757		—
Manufactured Housing	14,887		—
Church/Consumer/Medical	24,809		—
Total Modification Requests	$	530,650	$21,838

Paycheck Protection Program (PPP) and Liquidity

The CARES Act provided for over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the SBA to administer new loan programs, including, but not limited to, the guarantee of loans under a new 7(a) loan program called the "Paycheck Protection Program".

An eligible business could apply for a PPP loan in an amount up to the lesser of: (1) 2.5 times its average monthly “payroll costs” or (2) $10.0 million. PPP loans have: (a) an interest rate of 1.0%; (b) a two-year loan term to maturity for loans made prior to June 5, 2020, or a five-year loan term to maturity for loans made on or after June 5, 2020; and (c) principal and interest payments deferred for 10 months after the end of the borrower's loan forgiveness covered period. 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 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses.

Through September 30, 2020, we had received SBA authorizations for 893 PPP loans totaling $83,290 and related fees of $3,296. Participation in the PPP will likely have an impact on the Company's asset mix and net interest margin for the remainder of 2020. At September 30, 2020, we had $93,000 in federal funds lines available and $337,000 of available borrowing capacity from 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 continue to provide this important service to local businesses if and as additional funds are appropriated for the PPP.

As of September 30, 2020, the Bank's capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, our reported and regulatory capital ratios could be adversely impacted by future credit losses.

Asset Impairment

At September 30, 2020, our level of non-performing assets was not materially impacted by the economic pressures of COVID-19. We are closely monitoring credit risk and our exposure to increased loan losses resulting from the impact of COVID-19 on our commercial and other clients.

At this time, we do not believe there exists any impairment to our intangible assets, long-lived assets, right of use assets, or available-for-sale investment securities due to the COVID-19 pandemic. It is uncertain whether prolonged effects of the COVID-19 pandemic will result in future impairment charges related to any of the aforementioned assets.

Risks

See Part II , Item 1A. "Risk Factors" for more information.

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Allowance for Loan Loss

We are in regular communication with our customers to gain a better understanding of our highest risk exposures and probable defaults. In the third quarter of 2020 we recorded a provision expense of $1.5 million, which can be attributed to increased risk factors related to the COVID-19 pandemic as well as our loan growth. Our losses year-to-date remain low but we continue to build reserves as we anticipate future downgrades and defaults may eventually result in losses.

See Note 3 to the Company's financial statements included in Part I, Item 1. "Consolidated Financial Statements (Unaudited)" and Part I, Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations -Comparison of Balance Sheets at September 30, 2020 and December 31, 2019 - Allowance for Loan Losses” for more information.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2020 AND 2019

Effect of Mergers

Effective January 1, 2020, Reliant Bancorp completed the acquisition of TCB Holdings. For more information on the acquisition of TCB Holdings, please see “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Acquisition of parent company of CBT.”

As a result of the TCB Holdings Transaction, on January 1, 2020, the Company:

•~~increased consolidated~~acquired total assets ~~from $1,898.5 million to $2,157.1~~of $257 million;

•~~increased~~acquired total loans ~~from $1,410.0 million to $1,581.5 million;~~

•~~increased total deposits from $1,583.8 million to $1,794.3~~of $171 million; and

•~~expanded its employee base from 300 to 321 full time equivalent employees.~~acquired total deposits of $211 million.

Effective April 1, 2020, Reliant Bancorp completed the acquisition of FABK.

As a result of the FABK Transaction, on April 1, 2020, the Company:

•acquired total assets of $725 million;

•acquired total loans of $622 million; and

•acquired total deposits of $609 million.

Earnings

Net income ~~(loss)~~ attributable to common shareholders amounted to ~~$(215),~~$11,531, or ~~$(0.02)~~$0.70 per basic share, and $19,186, or $1.27 per basic share, for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, compared to ~~$3,824,~~$4,000, or ~~$0.34~~$0.36 per basic share, and $12,063, or $1.07 per basic share, for the same ~~period~~periods in ~~2019.~~2019, respectively. Diluted net income ~~(loss)~~ attributable to common shareholders was ~~$(0.02)~~$0.69 and $1.27 per share for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, compared to ~~$0.33~~$0.36 and $1.07 per share for the three and nine months ended ~~March 31, 2019.~~September 30, 2019, respectively. The major components contributing to the change when compared to the prior year periods are an increase of ~~53.8%~~117.1% and 87.7% in net interest income for the three and nine months ended September 30, 2020, respectively, and an increase of 117.4% and 85.3% in noninterest income for the three and nine months ended September 30, 2020, respectively, and partially offset by an increase of 55.8% and 59.8% in noninterest expense (mainly driven by ~~merger expenses)~~salaries and employee benefits) for the three and nine months ended ~~March 31,~~September 30, 2020, and an increase of ~~$2,900~~$894 and $6,594 in provision for loan losses for the three and nine months ended ~~March 31,~~September 30, 2020, compared to the same ~~period~~periods in 2019. These and other components of earnings are discussed further below.

Non-GAAP Financial Measures

This Quarterly Report contains certain financial measures that are considered "non-GAAP financial measures" and should be read along with the accompanying tables. Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position, or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Management believes that non-GAAP financial measures provide a greater understanding of ongoing performance and operations and enhance comparability across periods. Non-GAAP financial measures should not, however, be considered as an alternative to any measure of performance or financial condition as determined in accordance with U.S. GAAP, and readers should consider the Company’s performance and financial condition as reported under U.S. GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical

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tools, and readers should not consider them in isolation or as a substitute for analysis of the Company's results or financial condition as reported under U.S. GAAP. Non-GAAP financial measures presented by the Company may not be comparable to non-GAAP financial measures (even those with the same or similar names) presented by other companies.

Company management uses, and believes that investors benefit from referring to, the following non-GAAP financial measures, among others, to assess the Company's operating results and trends: (i) tax-equivalent net interest income; (ii) adjusted net interest income; (iii) adjusted net interest margin; (iv) adjusted net income attributable to common shareholders; (v) adjusted net income attributable to common shareholders, per diluted share; (vi) adjusted return on average assets; (vii) adjusted return on average shareholders' equity; (viii) average tangible shareholders' equity; (ix) return on average tangible common equity (ROATCE); and (x) adjusted return on average tangible common equity. In the following table, the Company has provided a reconciliation of these non-GAAP financial measures to their most comparable U.S. GAAP financial measures.


	Three Months Ended						Nine Months Ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
NON-GAAP FINANCIAL MEASURES
Adjusted net interest margin (1)(4)
Net interest income	$	30,537		$	14,064		$	77,610		$	41,338
Fully tax-equivalent adjustments:
Loans	$	760		$	302		$	1,865		$	908
Tax-exempt investment securities	$	347		$	424		$	1,095		$	1,320
Tax-equivalent net interest income (1)(2)	$	31,643		$	14,787		$	80,570		$	43,566
Purchase accounting adjustments	(3,868)			(383)			(9,773)			(1,163)

Adjusted net interest income (1)	$	27,775		$	14,404		$	70,797		$	42,403

Net interest margin (tax-equivalent basis)	4.54		%	3.51		%	4.30		%	3.57		%
Adjusted net interest margin	3.98		%	3.42		%	3.78		%	3.47		%

Adjusted net income attributable to common shareholders and related impact (1)
Net income attributable to common shareholders	$	11,531		$	4,000		$	19,186		$	12,063
Merger expenses	78			299			6,895			302

Tax effect of adjustments to net income	(20)			(27)			(1,617)			(79)
After tax adjustments to net income	58			272			5,278			223
Adjusted net income attributable to common shareholders	11,589			4,272			24,464			12,286

Net income attributable to common shareholders, per diluted share	$	0.69		$	0.36		$	1.27		$	1.07
Adjusted net income attributable to common shareholders, per diluted share	$	0.70		$	0.38		$	1.62		$	1.09

Return on average:
Return on average assets(3)	1.54		%	0.88		%	0.95		%	0.91		%
Adjusted return on average assets (1)(3)	1.55		%	0.94		%	1.21		%	0.93		%
Return on average shareholders' equity(3)	15.32		%	7.31		%	9.26		%	7.57		%
Adjusted return on average shareholders' equity (1)(3)	15.40		%	7.81		%	11.80		%	7.71		%

Average tangible shareholders' equity: (1)
Average shareholders' equity	299,435			217,087			276,846			213,107
Less: average goodwill	51,108			43,642			52,241			43,642
Less: average core deposit intangibles	12,104			7,598			11,801			7,863
Average tangible shareholders' equity	236,223			165,847			212,804			161,602

Return on average tangible common equity (ROATCE) (1)(3)	19.42		%	9.57		%	12.04		%	9.98		%
Adjusted ROATCE (1) (3)	19.52		%	10.22		%	15.36		%	10.16		%

(1) Not a recognized measure under U.S. GAAP.

(2) Amount includes tax equivalent adjustment to quantify the tax equivalent net interest income.

(3) Data has been annualized.

(4) Prior calculation of this ratio removed tax credits related to certain tax-preference-qualified loans and tax-exempt securities. The Company views these credits as normal course of business and as such removal is unnecessary.

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Net Interest Income

Net interest income represents the amount by which interest earned on various earning assets exceeds interest ~~paid~~accrued 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 rate spread and net interest margin for the three and nine months ended ~~March 31,~~September 30, 2020, and 2019 (dollars in thousands):


		Three Months Ended March 31, 2020								Three Months Ended March 31, 2019										Change							Three Months Ended September 30, 2020						Three Months Ended September 30, 2019		Change
		Average Balances		Rates / Yields (%)	Interest Income / Expense		Average Balances		Rates / Yields (%)	Interest Income / Expense		Due to Volume		Due to Rate		Total			Average Balances		Rates / Yields (%)	Interest Income / Expense		Average Balances		Rates / Yields (%)	Interest Income / Expense		Due to Volume		Due to Rate		Total
Interest earning assets	Interest earning assets																	Interest earning assets
Loans	Loans	$	1,613,033	5.01	$	20,077	$	1,238,341	5.16	$	15,766	$	7,323	$	(3,012)	$	4,311	Loans	$	2,337,958	5.34	$	30,640	$	1,312,153	5.12	$	16,632	$	13,712	$	754	$	14,466
Loan fees	Loan fees	—		0.22	890		—		0.23	706		184		—		184		Loan fees	—		0.38	2,255		—		0.26	870		1,385		—		1,385
Loans with fees	Loans with fees	1,613,033		5.23	20,967		1,238,341		5.39	16,472		7,507		(3,012)		4,495		Loans with fees	2,337,958		5.73	32,895		1,312,153		5.38	17,502		15,097		754		15,850
Mortgage loans held for sale	Mortgage loans held for sale	47,685		4.72	560		10,747		5.77	153		601		(194)		407		Mortgage loans held for sale	103,729		3.98	1,037		18,271		5.71	263		828		(54)		774
Deposits with banks	Deposits with banks	36,062		1.38	124		27,643		1.73	118		120		(114)		6		Deposits with banks	57,909		0.47	68		33,410		1.96	165		2,642		(2,739)		(97)
Investment securities - taxable	Investment securities - taxable	74,688		2.43	451		72,464		2.82	503		93		(145)		(52)		Investment securities - taxable	67,569		2.35	399		73,115		2.98	549		(40)		(110)		(150)
Investment securities - tax-exempt	Investment securities - tax-exempt	197,241		3.56	1,748		228,497		3.86	2,175		(272)		(155)		(427)		Investment securities - tax-exempt	185,058		3.29	1,186		220,233		3.60	1,576		(303)		(164)		(467)
Federal funds sold and other	Federal funds sold and other	16,323		3.82	155		12,650		5.83	182		220		(247)		(27)		Federal funds sold and other	19,694		3.68	182		12,300		5.03	156		47		(21)		26
Total earning assets	Total earning assets	1,985,032		4.86	24,005		1,590,342		5.00	19,603		8,269		(3,866)		4,403		Total earning assets	2,771,917		5.29	35,767		1,669,482		4.98	20,211		18,271		(2,334)		15,937
Nonearning assets	Nonearning assets	193,386					140,835											Nonearning assets	209,770					136,973
Total assets	Total assets	$	2,178,418				$	1,731,177										Total assets	$	2,981,687				$	1,806,455
Interest bearing liabilities	Interest bearing liabilities																	Interest bearing liabilities
Interest bearing demand	Interest bearing demand	186,236		0.22	100		148,649		0.30	111		110		(121)		(11)		Interest bearing demand	272,506		0.34	236		142,702		0.23	81		102		53		155
Savings and money market	Savings and money market	459,756		0.85	975		400,328		1.14	1,130		799		(954)		(155)		Savings and money market	786,589		0.59	1,162		350,440		1.10	976		296		(110)		186
Time deposits - retail	Time deposits - retail	541,545		1.85	2,496		577,270		2.05	2,921		(165)		(260)		(425)		Time deposits - retail	715,310		1.01	1,819		540,688		2.17	2,956		1,735		(2,872)		(1,137)
Time deposits - wholesale	Time deposits - wholesale	229,820		2.22	1,266		106,625		2.47	650		1,057		(441)		616		Time deposits - wholesale	223,095		1.64	917		294,750		2.52	1,872		(392)		(563)		(955)
Total interest bearing deposits		1,417,357		1.37	4,837		1,232,872		1.58	4,812		1,801		(1,776)		25
Federal Home Loan Bank advances		109,349		1.33	361		56,718		2.70	377		994		(1,010)		(16)
Subordinated debt		70,607		5.66	993		11,613		6.74	193		1,019		(219)		800
Total interest-bearing deposits																		Total interest-bearing deposits	1,997,500		0.82	4,134		1,328,580		1.76	5,885		1,741		(3,492)		(1,751)
Federal Home Loan Bank advances and other borrowings																		Federal Home Loan Bank advances and other borrowings	40,567		1.02	104		14,216		1.84	66		50		(12)		38
Subordinated Debt																		Subordinated Debt	70,361		5.61	992		11,655		6.77	199		821		(28)		793
Total borrowed funds	Total borrowed funds	179,956		3.03	1,354		68,331		3.38	570		2,013		(1,229)		784		Total borrowed funds	110,928		3.93	1,096		25,871		4.06	265		871		(40)		831
Total interest-bearing liabilities	Total interest-bearing liabilities	1,597,313		1.56	6,191		1,301,203		1.68	5,382		3,814		(3,005)		809		Total interest-bearing liabilities	2,108,428		0.99	5,230		1,354,451		1.80	6,150		2,612		(3,532)		(920)
Net interest rate spread (%) / Net interest income ($)	Net interest rate spread (%) / Net interest income ($)			3.30	$	17,814			3.32	$	14,221	$	4,455	$	(862)	$	3,594	Net interest rate spread (%) / Net interest income ($)			4.30	$	30,537			3.18	$	14,061	$	15,658	$	1,198	$	16,857
Noninterest bearing deposits	Noninterest bearing deposits	312,137		(0.26)			211,122		(0.24)									Noninterest bearing deposits	536,353		(0.20)			227,502		(0.26)
Other noninterest bearing liabilities	Other noninterest bearing liabilities	27,069					9,391											Other noninterest bearing liabilities	37,471					7,415
Stockholder's equity		241,899					209,461
Total liabilities and stockholders' equity		$	2,178,418				$	1,731,177
Shareholders' equity																		Shareholders' equity	299,435					217,087
Total liabilities and shareholders' equity																		Total liabilities and shareholders' equity	$	2,981,687				$	1,806,455
Cost of funds	Cost of funds			1.30					1.44									Cost of funds			0.79					1.54
Net interest margin	Net interest margin			3.61					3.63									Net interest margin			4.54					3.51

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	Nine Months Ended September 30, 2020					Nine Months Ended September 30, 2019					Change
	Average Balances		Rates / Yields (%)	Interest Income / Expense		Average Balances		Rates / Yields (%)	Interest Income / Expense		Due to Volume		Due to Rate		Total
Interest earning assets
Loans	$	2,085,316	5.38	$	82,105	$	1,275,834	5.15	$	48,273	$	32,502	$	2,288	$	34,790
Loan fees	—		0.31	4,882		—		0.25	2,358		2,524		—		2,524
Loans with fees	2,085,316		5.69	86,987		1,275,834		5.40	50,631		35,026		2,288		37,314
Mortgage loans held for sale	79,000		4.08	2,412		14,534		5.65	614		1,918		(120)		1,798
Deposits with banks	55,212		0.59	242		30,487		1.75	399		(859)		702		(157)
Investment securities - taxable	69,490		1.88	978		74,330		2.95	1,639		(101)		(560)		(661)
Investment securities - tax-exempt	191,814		3.46	3,874		223,596		3.75	3,874		(839)		(456)		(1,295)
Federal funds sold and other	19,324		3.43	496		12,751		5.44	519		(81)		58		(23)
Total earning assets	2,500,156		5.23	94,989		1,631,532		5.00	57,676		35,064		1,912		36,976
Nonearning assets	203,703					138,926
Total assets	$	2,703,859				$	1,770,458
Interest bearing liabilities
Interest bearing demand	245,962		0.30	554		144,427		0.26	278		226		50		276
Savings and money market	659,673		0.74	3,668		374,876		1.13	3,156		938		(426)		512
Time deposits - retail	669,119		1.29	6,446		576,568		2.12	9,137		1,870		(4,561)		(2,691)
Time deposits - wholesale	218,109		1.92	3,131		191,133		2.60	3,713		682		(1,264)		(582)
Total interest-bearing deposits	1,792,863		1.03	13,799		1,287,004		1.69	16,284		3,717		(6,202)		(2,485)
Federal Home Loan Bank advances and other	92,264		0.89	613		31,378		2.28	534		115		(36)		79
Subordinated Debt	70,455		5.63	2,967		11,634		6.78	590		2,460		(83)		2,377
Total borrowed funds	162,719		2.94	3,580		43,012		3.49	1,124		2,575		(119)		2,456
Total interest-bearing liabilities	1,955,582		1.19	17,379		1,330,016		1.75	17,408		6,292		(6,321)		(29)
Net interest rate spread (%) / Net interest income ($)			4.04	$	77,610			3.25	$	43,566	$	28,772	$	8,232	$	37,005
Noninterest bearing deposits	439,521		(0.22)			219,106		(0.25)
Other noninterest bearing liabilities	31,910					8,229
Shareholders' equity	276,846					213,107
Total liabilities and shareholders' equity	$	2,703,859				$	1,770,458
Cost of funds			0.97					1.50
Net interest margin			4.30					3.57

Table Assumptions—Average loan balances are inclusive of nonperforming loans. Interest income and yields computed on tax-exempt instruments are on a ~~tax equivalent~~tax-equivalent basis including a state tax credit included in loan yields of ~~$304~~$751 and $1,834 for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, and $300 and $900 for the same ~~period~~periods in 2019. Net interest spread is calculated as the yields realized on interest-bearing assets less the rates paid on interest-bearing ~~liabilities.~~liabilities as well as tax-exempt securities adjustments of $347 and $1,095 for the three and nine months ended September 30, 2020, respectively, and $423 and $1,320 for the same periods in 2019. 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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Analysis—For the three and nine months ended ~~March 31,~~September 30, 2020, we recorded net interest income on a tax-equivalent basis of approximately ~~$17,814,~~$31,643 and $80,570, respectively, which resulted in a net interest margin (net interest income divided by the average balance of ~~interest earning~~interest-earning assets) of ~~3.61%.~~4.54% and 4.30%, respectively. For the three and nine months ended ~~March 31,~~September 30, 2019, we recorded net interest income on a ~~tax equivalent~~tax-equivalent basis of approximately ~~$14,221,~~$14,787 and $43,566, respectively, which resulted in a net interest margin of ~~3.63%.~~3.51% and 3.57%, respectively.

Our year-over-year average loan volume increased by approximately ~~30.3%~~63.4% for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 compared to the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and was mainly driven by the ~~merger with CBT.~~TCB Holdings Transaction and FABK

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Transaction. Our combined loan and loan fee yield ~~decreased~~increased from ~~5.39%~~5.38% to ~~5.23%~~5.73% for the three months ended ~~March 31,~~September 30, 2020 compared to the same period in 2019 and increased from 5.40% to 5.69% for the nine months ended September 30, 2020 compared to the same period in 2019. The ~~decreased~~increased yield for the three and nine months ended ~~March 31,~~September 30, 2020 is primarily attributable to ~~a 13 basis points decrease in contractual loan yields including adjustment for~~the increased purchase accounting accretion afrom the two ~~basis points decrease in state tax credits, and a one basis point decrease in loan fees.~~mergers as well as the increased fees from the PPP loans.

Our tax-equivalent yield on tax-exempt investments was ~~3.56%~~3.29% and 3.46% for the three and nine months ended ~~March 31,~~September 30, 2020 compared to ~~3.86%~~3.60% and 3.75% for the same ~~period~~periods in 2019. Our year-over-year average tax-exempt investment volume decreased by ~~13.7%~~14.2% for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 compared to the same period in 2019 due to investment sales in the fourth quarter of 2019. Our year-over-year average taxable securities volume ~~increased~~decreased by ~~3.1%~~6.5% for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 compared to the same period in 2019.

Our cost of funds decreased to ~~1.30%~~0.79% and 0.97% from ~~1.44%~~1.54% and 1.50%, respectively, for the three and nine months ended ~~March 31,~~September 30, 2020 compared to the same ~~period~~periods in 2019. The decrease in our cost of funds was primarily driven by ~~an across the board~~a decrease in the cost of our ~~interest bearing~~interest-bearing deposits and other interest-bearing liabilities due to the recent decrease in rates by the Federal Reserve. We experienced a ~~47.8%~~100.6% increase in our average ~~noninterest bearing~~noninterest-bearing deposits for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 when compared to the same period in 2019, which is ~~mainly~~largely attributable to the ~~merger with CBT.~~TCB Holdings Transaction and FABK Transaction.

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~~slight expansions in a rising rate environment and ~~slightly expand~~slight contractions 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 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

We recorded a provision of ~~$2,900~~$1,500 and $7,400 for loan losses for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, compared to $0$606 and $806 for the three and nine months ended ~~March 31,~~September 30, 2019. The increase in provision expense for the three and nine months ended ~~March 31,~~September 30, 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. The acquired loan portfolios from First Advantage Bank and Community Bank & Trust are reserved for through fair value marks that consider both credit quality and changes in interest rates. See “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Balance Sheets at ~~March 31,~~September 30, 2020 and December 31, 2019 - Allowance for Loan Losses” included herein for further analysis of the provision for loan losses.

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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 ~~March 31,~~September 30, 2020, and 2019 (dollars in thousands):


		Three Months Ended March 31,						Percent Increase				Three Months Ended September 30,				Percent Increase		Nine Months Ended September 30,				Percent Increase
		2020		2019		(Decrease)				2020		2019		(Decrease)		2020		2019		(Decrease)
Noninterest Income	Noninterest Income								Noninterest Income
Service charges and fees on deposits	Service charges and fees on deposits	$	1,208	$	884	36.7	%		Service charges and fees on deposits	$	1,583	$	976	62.2	%	$	4,172	$	2,796	49.2	%
Gains on mortgage loans sold, net	Gains on mortgage loans sold, net	1,573		560		180.9	%		Gains on mortgage loans sold, net	3,783		1,385		173.1	%	7,605		3,170		139.9	%
Securities gains, net	Securities gains, net	—		131		(100.0)	%		Securities gains, net	—		—		—	%	327		306		6.9	%
Gain on sale of other real estate		14		—		100.0	%
Gain on disposal of premises and equipment		9		—		—	%

Other noninterest income:	Other noninterest income:								Other noninterest income:
Bank-owned life insurance	Bank-owned life insurance	295		279		5.7	%		Bank-owned life insurance	386		283		36.4	%	1,073		838		28.0	%
Brokerage revenue	Brokerage revenue	32		11		190.9	%		Brokerage revenue	65		13		400.0	%	142		33		330.3	%
Miscellaneous noninterest income	Miscellaneous noninterest income	151		73		106.8	%		Miscellaneous noninterest income	184		103		78.6	%	387		253		53.0	%
Total other noninterest income	Total other noninterest income	478		363		31.7	%		Total other noninterest income	635		399		59.1	%	1,602		1,124		42.5	%
Total noninterest income	Total noninterest income	$	3,282	$	1,938	69.3	%		Total noninterest income	$	6,001	$	2,760	117.4	%	$	13,706	$	7,396	85.3	%

The most significant reasons for the changes in total noninterest income during the three and nine months ended ~~March 31,~~September 30, 2020 compared to the same ~~period~~periods in 2019 are the fluctuation in gains on mortgage loans sold, net ~~and~~as well as the increase in service ~~charges.~~charges mainly attributable to the two mergers. These and other factors impacting noninterest income are discussed further below.

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Service charges and fees on deposit accounts have increased due to the TCB Holdings Transaction, the FABK Transaction, and the concentrated effort to attract noninterest-bearing deposits. An increase in ~~attracting noninterest-bearing deposits, with~~debit card fees makes up the majority of the ~~36.7%~~62.2% and 49.2% increase ~~deriving from an increase~~for the three and nine months ended September 30, 2020 as compared to the same period in ~~our debit card fees.~~2019.

Securities gains and losses often fluctuate from period to period and can sometimes be attributable to various balance sheet risk strategies. During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, the Company sold securities ~~acquired from the TCB Holdings Transaction~~ totaling ~~$56,336 at no gain.~~$103,901 with a gain of $327. During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the Company sold securities classified as available for sale totaling ~~$10,558~~$52,434 with a gain of ~~$131.~~$306. Securities were not sold in the three months ended September 30, 2020 or September 30, 2019.

Generally, mortgage-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 ~~$1,573~~$3,783 and $7,605 for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, compared to ~~$560~~$1,385 and $3,170 for the same ~~period~~periods in the prior year. The increase in gains for the three and nine months ended ~~March 31,~~September 30, 2020 when compared to the same periods in 2019 is primarily driven by the increase in volume in the ~~RMV's correspondent lending channel.~~traditional mortgage market. As discussed further in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019, 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 of increased production in the second and third quarters, the Company's held-for-sale portfolio increased by ~~$32.9~~$62.1 million from December 31, ~~2019. Management expects this market~~2019 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 months ended March 31, 2020, there was a gain of $14 due to the sale of other real estate compared to no gain in the same period in 2019.~~September 30, 2020.

Noninterest income also includes appreciation in the cash surrender value of bank-owned life insurance, which was ~~$295~~$386 and $1,073 for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, compared to ~~$279~~$283 and $838 for the same ~~period~~periods in 2019. The increases for both periods are attributable to the recent mergers. 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.

~~Table of Contents~~

Noninterest Expense

The following is a summary of our noninterest expense for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 (dollars in thousands):


		Three Months Ended March 31,						Percent Increase				Three Months Ended September 30,				Percent Increase		Nine Months Ended September 30,				Percent Increase
		2020		2019		(Decrease)				2020		2019		(Decrease)		2020		2019		(Decrease)
Noninterest Expense	Noninterest Expense								Noninterest Expense
Salaries and employee benefits	Salaries and employee benefits	$	9,237	$	7,265	27.1	%		Salaries and employee benefits	$	12,184	$	7,634	59.6	%	$	33,885	$	22,605	49.9	%
Occupancy	Occupancy	1,486		1,352		9.9	%		Occupancy	2,054		1,359		51.1	%	5,566		4,069		36.8	%
Information technology		1,819		1,410		29.0	%
Advertising and public relations		353		254		39.0	%
Audit, legal and consulting		478		796		(39.9)	%
Federal deposit insurance		336		195		72.3	%
Data processing and software									Data processing and software	2,240		1,553		44.2	%	6,085		4,538		34.1	%

Professional fees									Professional fees	775		404		91.8	%	1,933		1,836		5.3	%
Regulatory fees									Regulatory fees	365		(17)		2,247.1	%	1,356		596		127.5	%
Merger expenses	Merger expenses	4,186		2		209200.0	%		Merger expenses	78		299		(73.9)	%	6,895		302		2,183.1	%
Other operating		1,703		1,472		15.7	%
Other operating expense									Other operating expense	2,637		1,815		45.3	%	6,476		4,973		30.2	%
Total noninterest expense	Total noninterest expense	$	19,598	$	12,746	53.8	%		Total noninterest expense	$	20,333	$	13,047	55.8	%	$	62,196	$	38,919	59.8	%

Noninterest expense increased by ~~$6,852,~~$7,286 and $23,277, or ~~53.8%~~55.8% and 59.8%, for the three and nine months ended ~~March 31,~~September 30, 2020, ~~due~~respectively, compared to the same periods in ~~large part to~~2019 driven by an increase in ~~merger expenses and~~ salaries and employee ~~benefits.~~benefits for both periods and merger expenses when comparing the nine months ended. The ~~three-month period~~three and nine-months periods ended ~~March 31,~~September 30, 2020 ~~has~~have been impacted by the TCB Holdings Transaction ~~that has~~and the FABK Transaction which have resulted in ~~adds~~additions to staff, additional vendor relationships and investments in technology. These and other factors impacting noninterest expense are discussed further below.

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Salaries and employee benefits increased by ~~$1,972~~$4,550 and $11,280 or ~~27.1%~~59.6% and 49.9% for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, compared to the same ~~period~~periods in 2019. This increase is primarily attributable to the TCB Holdings Transaction in the first quarter of 2020 and FABK Transaction in the second quarter of 2020, as well as our year over year growth ~~causing an increase in full-time equivalent by 41. We believe~~and severance for three executive officers. The staffing levels have normalized during the ~~staffing level normalized by the end of the first quarter but will increase again in the second quarter as we close another merger.~~third quarter.

Occupancy costs increased ~~$134~~by $695 or ~~9.9%,~~51.1% and $1,497 or 36.8% during the three and nine months ended ~~March 31,~~September 30, 2020, respectively, compared to the same ~~period~~periods in 2019 mainly due to the TCB Holdings Transaction and the FABK Transaction as well as the additional leases for mortgage production offices in Memphis and Chattanooga, Tennessee and two offices in Little Rock, Arkansas, two in Hot Springs Arkansas, and one in Crossett, Arkansas which opened during August 2019 and with oneexpansion of ~~the Hot Springs Arkansas offices subsequently closing in March 2020.~~RMV.

~~Information technology~~Data processing and software costs increased by ~~$409~~$687 or ~~29.0%~~44.2% and $1,547 or 34.1% when comparing the three and nine months ended ~~March 31,~~September 30, 2020, respectively, to the comparable ~~period~~periods in 2019. This increase is mainly attributable to increased costs due to ~~increasing~~an increased volume of accounts and transactions services as well as ~~our~~ continued ~~investment~~investments in information ~~security and other~~ technology ~~and our increase in locations mentioned in the previous paragraph.~~infrastructure. Both the volume and location increases are primarily due to the TCB Holdings Transaction, the FABK Transaction, and the expansion of RMV.

~~Advertising and public relations costs~~Professional fees increased by ~~$99~~$371 or ~~39.0%~~91.8%, and $97 or 5.3%, respectively, when comparing the three and nine months ended ~~March 31,~~September 30, 2020, to the same ~~period in 2019. Increased costs were primarily attributable to increased promotional expenses and advertising for RMV.~~

~~Audit, legal and consulting costs decreased by $318 or 39.9%, when comparing to the three months ended March 31, 2020 to the same period~~periods in 2019. This fluctuation is mainly attributable to the ~~decrease of legal and consulting fees incurred by RMV and partially offset by~~ increased fees related to special projects by the Company.

Our regulatory expenses are largely made up of FDIC deposit insurance expense which 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 increased by ~~$141~~$382 and $760 for the three and nine months ended ~~March 31,~~September 30, 2020, compared to the same ~~period~~periods in 2019. This increase is primarily the result of our increase in deposits due to the TCB Holdings ~~Transaction.~~

~~Table of Contents~~

Transaction and the FABK Transaction as well as credits received in 2019 which significantly reduced the expense recognized.

Merger-related expenses increased by ~~$4,184~~$6,593 for the nine months ended September 30, 2020 when compared to the same period in 2019 and decreased by $221 for the three months ended ~~March 31,~~September 30, 2020 ~~when~~as compared to the same period in 2019. These costs are considered one-time expenses which ~~for 2020~~ are associated with the TCB Holdings Transaction and the FABK Transaction. We ~~expect~~anticipate no further significant merger expenses to ~~continue to~~ be incurred ~~until the~~in relation to these two ~~mergers and conversion are complete.~~transactions.

Other operating expenses increased by ~~$231~~$822 or ~~15.7%~~45.3% and $1,503 or 30.2% for the three and nine months ended ~~March 31,~~September 30, 2020 compared to the same ~~period~~periods in 2019, mainly due to an increase in amortization of core deposit intangibles and franchise taxes due to the TCB Holdings Transaction and FABK Transaction.

Income Taxes

During the three and nine months ended ~~March 31,~~September 30, 2020, we recorded consolidated income tax expense ~~(benefit)~~ of ~~$(910)~~$2,800 and $3,524, respectively, compared to ~~$372~~$557 and $1,430, respectively, for the three and nine months ended ~~March 31,~~September 30, 2019. The Company files separate federal tax returns for RMV and the bank segment. The taxable income or losses of the mortgage banking operations are included in the respective franchise and excise returns of the Bank and non-controlling member for federal purposes.

Our income tax expense ~~(benefit)~~ attributable to shareholders for the three and nine months ended ~~March 31,~~September 30, 2020, reflects an effective income tax rate of ~~79.6%~~19.39% and 15.77%, respectively, (exclusive of a tax ~~benefit~~expense (benefit) from our mortgage banking operations of ~~$69~~$27 and $(69) for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, on pre-tax ~~losses~~income (losses) of ~~$1,045~~$415 and $(1,062) for the three and nine months ended ~~March 31, 2020)~~September 30, 2020, respectively), compared to ~~11.2%~~14.05% and 12.61% for the same ~~period~~periods in 2019 (exclusive of a tax benefit of ~~$108~~$97and $311 on pre-tax losses of ~~$1,651,~~$(1,491) and $(4,778), respectively, from our mortgage banking operations for the comparable ~~period~~periods in 2019). Additionally, our effective tax rate for the three and nine months ended ~~March 31,~~September 30, 2020 is higher than the same period in 2019 primarily due to the ~~large amount of merger expenses~~change in ~~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.~~income before taxes. The Company's ~~tax exempt~~tax-exempt income from securities, loans and earnings from bank-owned life insurance contracts as well as state tax credits related to loans to encourage economic development impact the effective tax rate.

Non-controlling Interest in ~~NetLoss~~Operating Results of Subsidiary

Our non-controlling interest in ~~net loss~~operating results of subsidiary is solely attributable to the RMV 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 cash flow distributions of RMV and the Bank receives 30% of any ~~distribution,~~cash flow distributions, after the ~~non-controlling~~non-

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controlling member recovers its aggregate capital contributions. The non-controlling member is required to fund RMV's losses, in arrears, via additional capital contributions. RMV had a net ~~loss~~income (loss) of ~~$976~~$374 and $(990) for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, compared to a net loss of ~~$1,543~~$(1,386) and $(4,484) for the same ~~period~~periods in 2019. The ~~decreased loss~~improvements in operating results for the three and nine months ended ~~March 31,~~September 30, 2020 when compared to the same period in 2019 is mainly attributable to the decrease in expense relating to the start-up of the correspondent line of ~~business.~~business in 2019. Also, see Note 910 to our consolidated financial statements for segment reporting.

COMPARISON OF BALANCE SHEETS AT ~~MARCH 31,~~SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

Overview

The Company’s total assets were ~~$2,177,788~~$3,044,512 at ~~March 31,~~September 30, 2020 and ~~$1,898,467~~$1,901,842 at December 31, 2019. Assets increased by ~~14.7%~~60.1% from December 31, 2019 to ~~March 31,~~September 30, 2020, primarily due to ~~loan growth of $207,208, or 14.8%.~~acquisition activity which increased total loans by $756,240. Total liabilities were ~~$1,943,116~~$2,737,426 at ~~March 31,~~September 30, 2020 and ~~$1,674,714~~$1,678,089 at December 31, 2019, an increase of ~~16.0%~~63.1%. The increase in liabilities ~~from December 31, 2019 to March 31, 2020,~~ was substantially attributable to the increase in deposits of ~~$138,659,~~$981,049, or ~~8.8%~~61.9%, and an increase in FHLB advances of ~~$116,891~~$29,818 during the period. These changes were materially impacted by the TCB Holdings Transaction as well as the FABK 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~~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.~~volume, as well as economic conditions. Early payoffs typically increase in ~~lowering~~falling 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 Cheatham County with the TCB Holdings Transaction. The FABK Transaction expanded our footprint into Montgomery County as well as enhanced our presence in Davidson County. Additionally, the FABK Transaction diversified our loan portfolio with the addition of loans related to manufactured housing. Total loans, net, at ~~March 31,~~September 30, 2020, and December 31, 2019, were ~~$1,604,582~~$2,338,064 and $1,397,374, ~~respectively. This represented~~respectively, representing an increase of ~~14.8% from December 31, 2019~~67.3%. Contributing to ~~March 31, 2020. As part of the~~this increase, ~~in loans,~~ $171,445 were acquired in connection with the first quarter TCB Holdings Transaction and $622,423 were acquired in connection with the second quarter FABK Transaction.

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


		March 31, 2020						December 31, 2019							September 30, 2020				December 31, 2019
		Amount		Percent		Amount		Percent			Amount		Percent		Amount		Percent
Commercial, Industrial and Agricultural	Commercial, Industrial and Agricultural	$	283,035	17.4	%	$	245,515	17.5	%	Commercial, Industrial and Agricultural	$	477,785	20.2	%	$	245,515	17.4	%
Real estate:	Real estate:									Real estate:
1-4 Family Residential	1-4 Family Residential	261,718		16.2	%	227,529		16.1	%	1-4 Family Residential	334,730		14.2	%	227,529		16.2	%
1-4 Family HELOC	1-4 Family HELOC	99,296		6.1	%	96,228		6.8	%	1-4 Family HELOC	101,492		4.3	%	96,228		6.8	%
Multifamily and Commercial	Multifamily and Commercial	635,650		39.2	%	536,845		38.1	%	Multifamily and Commercial	864,756		36.7	%	536,845		38.1	%
Construction, Land Development and Farmland	Construction, Land Development and Farmland	308,598		19.1	%	273,872		19.4	%	Construction, Land Development and Farmland	366,760		15.5	%	273,872		19.4	%
Consumer	Consumer	24,141		1.5	%	16,855		1.2	%	Consumer	209,071		8.8	%	16,855		1.2	%
Other	Other	7,456		0.5	%	13,180		0.9	%	Other	8,259		0.3	%	13,180		0.9	%
		1,619,894		100.0	%	1,410,024		100.0	%		2,362,853		100.0	%	1,410,024		100.0	%
Less:	Less:									Less:
Deferred loan fees (costs)		191				72
Deferred loan fees										Deferred loan fees	4,955				72
Allowance for loan losses	Allowance for loan losses	15,121				12,578				Allowance for loan losses	19,834				12,578
Loans, net	Loans, net	$	1,604,582			$	1,397,374			Loans, net	$	2,338,064			$	1,397,374

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The table below provides a summary of PCI loans as of ~~March~~September 30, 2020 and December 31, ~~2020:~~2019:


	~~March 31, 2020~~

~~Commercial, Industrial and Agricultural~~	$	~~232~~
~~Real estate:~~
~~1-4 Family Residential~~	~~1,453~~
~~1-4 Family HELOC~~	19
~~Multifamily and Commercial~~	~~242~~
~~Construction, Land Development and Farmland~~	~~1,283~~
~~Consumer~~	21
~~Other~~	—
~~Total gross PCI loans~~	~~3,250~~
~~Less:~~
~~Remaining purchase discount~~	~~815~~
~~Allowance for loan losses~~	—
~~Loans, net~~	$	~~2,435~~


	September 30, 2020		December 31, 2019

Commercial, Industrial and Agricultural	$	989	$	—
Real estate:
1-4 Family Residential	1,211		231
1-4 Family HELOC	18		—
Multifamily and Commercial	2,243		217
Construction, Land Development and Farmland	1,003		1,021
Consumer	2,105		—
Other	—		—
Total gross PCI loans	7,569		1,469
Less:
Remaining purchase discount	3,036		246
Allowance for loan losses	—		—
Loans, net	$	4,533	$	1,223

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Commercial, industrial and agricultural loans above consist solely of loans made to ~~U.S. domiciled~~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 $283,035~~were $477,785 at ~~March 31,~~September 30, 2020 and increased by ~~15.3%~~94.6% compared to $245,515 at December 31, ~~2019.~~2019 primarily driven by the TCB Holdings Transaction and FABK Transaction.

Real estate loans comprised ~~80.6%~~70.7% of the loan portfolio at ~~March 31,~~September 30, 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 ~~11.5%~~34.7% from December 31, 2019 to ~~March 31, 2020.~~September 30, 2020 primarily driven by the TCB Holdings Transaction and FABK Transaction. 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~~commercial real estate properties, and loans secured by multi-family residential properties. Multi-family and commercial real estate loans ~~of $635,650~~were $864,756 at ~~March 31,~~September 30, 2020 and increased ~~18.4%~~61.1% compared to the $536,845 held as of December 31, ~~2019.~~2019 primarily driven by the TCB Holdings Transaction and FABK Transaction. 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 continued to increase based on a strong local market demand.

Consumer loans mainly consist of loans to individuals for household, family, and other personal expenditures under revolving credit plans, credit cards, and automobile and other consumer loans. Our consumer loans experienced an increase from December 31, 2019, to ~~March 31,~~September 30, 2020, of ~~43.2%.~~1,140.4% primarily due to loans to finance manufactured homes that are not secured by real estate acquired in the FABK Transaction.

Other loans consist mainly of loans to states and political subdivisions and loans to other depository institutions and experienced a decrease of ~~43.4%~~37.3% from December 31, 2019 to ~~March 31, 2020.~~September 30, 2020 due to loan payments.

The repayment of loans is a source of additional ~~liquidity for us.~~liquidity. The following table sets forth the loans repricing or maturing within specific intervals at ~~March 31,~~September 30, 2020, excluding unearned net fees and costs.


		One Year or Less		One to Five Years		Over Five Years		Total			One Year or Less		One to Five Years		Over Five Years		Total
Gross loans	Gross loans	$	487,657	$	771,007	$	361,230	$	1,619,894	Gross loans	$	617,774	$	1,132,058	$	613,021	$	2,362,853

Fixed interest rate	Fixed interest rate							$	874,394	Fixed interest rate							$	1,391,044
Variable interest rate	Variable interest rate							745,500		Variable interest rate							971,809
Total	Total							$	1,619,894	Total							$	2,362,853

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.

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Allowance for Loan Losses

At ~~March 31,~~September 30, 2020, the allowance for loan losses was ~~$15,121~~$19,834 compared to $12,578 at December 31, 2019. The allowance for loan losses as a percentage of total loans was ~~0.93%~~0.84% at ~~March 31,~~September 30, 2020 compared to 0.89% at December 31, 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, 2020			March 31, 2019				September 30, 2020			September 30, 2019
Beginning Balance, January 1, 2020 and 2019		$	12,578		$	10,892
Beginning Balance, January 1, 2020 and 2019, respectively								Beginning Balance, January 1, 2020 and 2019, respectively	$	12,578		$	10,892
Loans charged off:	Loans charged off:							Loans charged off:
Commercial, Industrial and Agricultural	Commercial, Industrial and Agricultural	(294)			(6)			Commercial, Industrial and Agricultural	(507)			(170)
Real estate:	Real estate:							Real estate:
1-4 Family Residential	1-4 Family Residential	—			(17)			1-4 Family Residential	(68)			(29)
1-4 Family HELOC	1-4 Family HELOC	—			—			1-4 Family HELOC	(98)			—
Multifamily and Commercial	Multifamily and Commercial	—			—			Multifamily and Commercial	—			—
Construction, Land Development and Farmland	Construction, Land Development and Farmland	(114)			—			Construction, Land Development and Farmland	(114)			—
Consumer	Consumer	(31)			(11)			Consumer	(355)			(37)
Other	Other	—			—			Other	—			(34)
Total loans charged off	Total loans charged off	(439)			(34)			Total loans charged off	(1,142)			(270)
Recoveries on loans previously charged off:	Recoveries on loans previously charged off:							Recoveries on loans previously charged off:
Commercial, Industrial and Agricultural	Commercial, Industrial and Agricultural	61			240			Commercial, Industrial and Agricultural	126			342
Real estate:	Real estate:							Real estate:
1-4 Family Residential	1-4 Family Residential	11			212			1-4 Family Residential	769			220
1-4 Family HELOC	1-4 Family HELOC	1			—			1-4 Family HELOC	15			11
Multifamily and Commercial	Multifamily and Commercial	3			34			Multifamily and Commercial	20			62
Construction, Land Development and Farmland	Construction, Land Development and Farmland	—			—			Construction, Land Development and Farmland	8			—
Consumer	Consumer	6			10			Consumer	60			28
Other	Other	—			—			Other	—			200
Total loan recoveries	Total loan recoveries	82			496			Total loan recoveries	998			863
Net recoveries (charge-offs)		(357)			462
Net (charge-offs) recoveries								Net (charge-offs) recoveries	(144)			593
Provision for loan losses	Provision for loan losses	2,900			—			Provision for loan losses	7,400			806
Total allowance for loan losses at end of period	Total allowance for loan losses at end of period	$	15,121		$	11,354		Total allowance for loan losses at end of period	$	19,834		$	12,291
Gross loans at end of period ⁽¹⁾	Gross loans at end of period ⁽¹⁾	$	1,619,894		$	1,261,194		Gross loans at end of period (1)	$	2,362,853		$	1,350,522
Average gross loans ⁽¹⁾	Average gross loans ⁽¹⁾	$	1,613,033		$	1,238,341		Average gross loans (1)	$	2,085,316		$	1,275,834
Allowance for loan losses to total loans	Allowance for loan losses to total loans	0.93		%	0.90		%	Allowance for loan losses to total loans	0.84		%	0.91		%
Net recoveries (charge-offs) to average loans (annualized)		(0.09)		%	0.15		%
Net (charge-offs) recoveries to average loans (annualized)								Net (charge-offs) recoveries to average loans (annualized)	(0.01)		%	0.06		%

⁽¹⁾Loan balances exclude loans held for sale.

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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, 2020										March 31, 2019											September 30, 2020				September 30, 2019
		Amount		% of Allowance to Allowance		% of Loan Type to Total Loans		Amount		% of Allowance to Allowance		% of Loan Type to Total Loans			Amount		% of Allowance to Allowance		% of Loan Type to Total Loans		Amount		% of Allowance to Allowance		% of Loan Type to Total Loans
Commercial, Industrial and Agricultural	Commercial, Industrial and Agricultural	$	3,851	25.5	%	17.4	%	$	1,874	16.5	%	17.6	%	Commercial, Industrial and Agricultural	$	5,012	25.3	%	20.2	%	$	2,299	18.7	%	17.2	%
Real estate:	Real estate:													Real estate:
1-4 Family Residential	1-4 Family Residential	1,488		9.8	%	16.2	%	1,359		12.0	%	19.1	%	1-4 Family Residential	2,289		11.5	%	14.2	%	1,383		11.3	%	17.5	%
1-4 Family HELOC	1-4 Family HELOC	873		5.8	%	6.1	%	670		5.9	%	7.3	%	1-4 Family HELOC	1,485		7.5	%	4.3	%	704		5.7	%	6.9	%
Multifamily and Commercial	Multifamily and Commercial	6,760		44.7	%	39.2	%	4,593		40.5	%	36.3	%	Multifamily and Commercial	8,247		41.5	%	36.7	%	5,188		42.2	%	38.5	%
Construction, Land Development and Farmland	Construction, Land Development and Farmland	1,836		12.1	%	19.1	%	2,650		23.3	%	16.7	%	Construction, Land Development and Farmland	1,955		9.9	%	15.5	%	2,513		20.4	%	17.6	%
Consumer	Consumer	298		2.0	%	1.5	%	171		1.5	%	1.8	%	Consumer	826		4.2	%	8.8	%	170		1.4	%	1.3	%
Other	Other	15		0.1	%	0.5	%	37		0.3	%	1.2	%	Other	20		0.1	%	0.3	%	34		0.3	%	1.0	%
		$	15,121	100.0	%	100.0	%	$	11,354	100.0	%	100.0	%		$	19,834	100.0	%	100.0	%	$	12,291	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 consists of nonperforming loans plus real estate acquired through foreclosure or deed in lieu of ~~foreclosure.~~foreclosure and other repossessed collateral. Nonperforming loans by definition consists 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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The following table provides information with respect to the Company’s nonperforming assets.


		March 31, 2020			December 31, 2019				September 30, 2020			December 31, 2019
Nonaccrual loans	Nonaccrual loans	$	3,949		$	4,071		Nonaccrual loans	$	6,738		$	4,071
Past due loans 90 days or more and still accruing interest	Past due loans 90 days or more and still accruing interest	94			64			Past due loans 90 days or more and still accruing interest	64			64
Restructured loans		1,785			1,799

Total nonperforming loans	Total nonperforming loans	5,828			5,934			Total nonperforming loans	6,802			4,135
Foreclosed real estate ("OREO")	Foreclosed real estate ("OREO")	—			750			Foreclosed real estate ("OREO")	1,326			750
Repossessed collateral								Repossessed collateral	1,603			—
Total nonperforming assets	Total nonperforming assets	$	5,828		$	6,684		Total nonperforming assets	$	9,731		$	4,885
Total nonperforming loans as a percentage of total loans	Total nonperforming loans as a percentage of total loans	0.36		%	0.42		%	Total nonperforming loans as a percentage of total loans	0.29		%	0.29		%
Total nonperforming assets as a percentage of total assets	Total nonperforming assets as a percentage of total assets	0.27		%	0.35		%	Total nonperforming assets as a percentage of total assets	0.32		%	0.26		%
Allowance for loan losses as a percentage of nonperforming loans	Allowance for loan losses as a percentage of nonperforming loans	259.45		%	211.96		%	Allowance for loan losses as a percentage of nonperforming loans	291.61		%	304.18		%

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 investment 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’~~shareholders’ 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 ~~$256,928~~$273,893 at ~~March 31,~~September 30, 2020, ~~which was relatively flat~~ in comparison to the $260,293 in securities balances at December 31, 2019. This increase can largely be attributed to the Company's investment in bank holding company subordinated debt offerings and U.S. Treasuries during the period of $31,179. Activity during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 includes the sale of ~~$56,336~~

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$103,901 of securities, most of which were acquired as part of the TCB Holdings Transaction and FABK Transaction, as well as ~~$1,836~~$10,370 of principal paydowns, calls, and maturities. In connection with the TCB Holdings Transaction and FABK Transaction, management determined that it would be beneficial to liquidate ~~that portfolio~~those portfolios and utilize those funds for loan demand and other uses.

Restricted equity securities totaled ~~$14,405~~$17,367 and $11,279 at ~~March 31,~~September 30, 2020, and December 31, 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, 2020 December 31, 2019
Amortized
Cost Fair Value % of Total Amortized
Cost Fair Value % of Total
U.S. Treasury and other U.S. government agencies $ 56 57 0.02 % $ 59 59 0.02 %
State and municipal 185,811 196,454 76.47 % 186,283 196,660 75.56 %
Corporate bonds 7,880 7,835 3.05 % 7,880 7,845 3.01 %
Mortgage backed securities 37,907 35,901 13.97 % 38,126 37,761 14.51 %
Asset backed securities 17,030 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, 2020					December 31, 2019
	Amortized Cost		Fair Value	% of Total		Amortized Cost		Fair Value	% of Total
U.S. Treasury and other U.S. government agencies	$	12,117	12,117	4.42	%	$	59	59	0.02	%
State and municipal bonds	175,976		190,623	69.61	%	186,283		196,660	75.56	%
Corporate bonds	15,750		15,809	5.77	%	7,880		7,845	3.01	%
Mortgage-backed securities	41,240		40,376	14.74	%	38,126		37,761	14.51	%
Asset-backed securities	15,199		14,968	5.46	%	18,374		17,968	6.90	%

Total	$	260,282	273,893	100.00	%	$	250,722	260,293	100.00	%

The table below summarizes the contractual maturities of securities at ~~March 31,~~September 30, 2020:


		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
Due within one year	Due within one year	$	1,000	$	998	Due within one year	$	12,567	$	12,565
Due in one to five years	Due in one to five years	2,311		2,312		Due in one to five years	2,175		2,186
Due in five to ten years	Due in five to ten years	10,330		10,725		Due in five to ten years	17,222		17,965
Due after ten years	Due after ten years	180,106		190,311		Due after ten years	171,879		185,833
Mortgage backed securities		37,907		35,901
Asset backed securities		17,030		16,681
Mortgage-backed securities						Mortgage-backed securities	41,240		40,376
Asset-backed securities						Asset-backed securities	15,199		14,968
Total	Total	$	248,684	$	256,928	Total	$	260,282	$	273,893

Premises and Equipment

Premises and equipment, net, totaled ~~$27,609~~$33,319 at ~~March 31,~~September 30, 2020 compared to ~~$21,376~~$21,064 at December 31, 2019, a net increase of ~~$6,233,~~$12,255, or ~~29.2%~~58.2%. Premises and equipment purchases amounted to approximately ~~$457~~$2,709 during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and were mainly incurred for additional leasehold improvements for our branches and new mortgage locations while depreciation expense amounted to ~~$598.~~$2,084. As part of the TCB Holdings Transaction, ~~$6,440~~$6,401 of premises and equipment were acquired effective January 1.1, 2020. ~~At March 31,~~Effective April 1, 2020, ~~we operated from 21 retail banking locations as well as five stand-alone mortgage loan production offices. At March 31, 2020, our branches~~premises and equipment of $7,905 were ~~located~~acquired in Cheatham, Davidson, Hamilton, Hickman, Maury, Robertson, Rutherford, Sumner and Williamson counties in Tennessee. As of 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.the FABK Transaction.

Deposits

Deposits represent the Company’s largest source of funds. The Company competes with other ~~bank~~banks 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~~interest rate 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 ~~March 31,~~September 30, 2020, total deposits were ~~$1,722,448,~~$2,565,502, an increase of ~~$138,659,~~$981,049, or ~~8.8%~~61.9%, compared to ~~$1,583,789~~$1,584,453 at December 31, 2019. During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, noninterest bearing demand deposits increased by ~~$60,480,~~$278,163, interest-bearing demand deposits increased by ~~$17,586,~~$120,087, savings and money market deposits increased by ~~$86,026,~~$404,277, and time deposits ~~decreased~~increased by ~~$25,433.~~$178,522. The primary ~~factor for~~driver of the increase in deposits is attributable to the deposits acquired ~~related to~~in the TCB Holdings Transaction which totaled ~~$210,528.~~$210,538 coupled with those acquired in the FABK Transaction which totaled

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$608,690. During the ~~quarter~~nine months ending ~~March 31,~~September 30, 2020, management shifted from using brokered time deposits to transactional deposits and to using FHLB ~~advances.~~advances which offset this increase.

The following table shows maturity or repricing of time deposits of $250 or more by category based on time remaining until maturity at ~~March 31,~~September 30, 2020.


	~~March 31,~~September 30, 2020
Twelve months or less	$	~~222,166~~293,942
Over twelve months through three years	~~26,918~~21,622
Over three years	~~3,713~~5,221
Total	$	~~252,797~~320,785

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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 slightly exceeded our policy as of ~~March 31,~~September 30, 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
Next 12 Next 24
Months Months
Estimate Policy Estimate Policy
-200 bp (1.4)% (15)% (3.5)% (15)%
-100 bp (0.6)% (10)% (2.4)% (10)%
+100 bp (0.7)% (10)% 1.8% (10)%
+200 bp (0.2)% (15)% 4.2% (15)%
+300 bp 0.8% (20)% 6.6% (20)%
+400 bp 1.7% (25)% 8.9% (25)%

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Instantaneous, Parallel Change in Prevailing Interest Rates Equal to	Estimated Change in Net Interest Income and Policy of Maximum Percentage Decline in Net Interest Income
	Next 12		Next 24
	Months		Months
	Estimate	Policy	Estimate	Policy
-200 bp	(0.9)%	(15)%	(2.2)%	(15)%
-100 bp	(0.7)%	(10)%	(1.8)%	(10)%
+100 bp	0.9%	(10)%	3.2%	(10)%
+200 bp	2.4%	(15)%	6.6%	(15)%
+300 bp	4.5%	(20)%	10.3%	(20)%
+400 bp	6.7%	(25)%	14.2%	(25)%

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

Economic Value of Equity Model—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 bp~~±100bp						15%
+±200 bp						25%
+±300 bp						30%
+±400 bp						35%
Non-parallel shifts						35%

At ~~March 31,~~September 30, 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.

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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 ~~March 31,~~September 30, 2020, FHLB advances totaled ~~$127,628~~$40,555 compared to $10,737 as of December 31, 2019. ~~The~~This increase in FHLB advances generally ~~is in conjunction~~correlates with ~~the~~a decrease in ~~time deposits to decrease~~ more expensive brokered ~~deposits.~~

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deposits, contributing to an improved net interest margin.

At ~~March 31,~~September 30, 2020, the scheduled maturities of our FHLB advances and interest rates were as follows (scheduled maturities will differ from scheduled repayments):


Scheduled Maturities	Scheduled Maturities	Amount		Weighted Average Rates	Scheduled Maturities	Amount		Weighted Average Rates
2020	2020	$	115,000	0.24%	2020	$	23,000	0.22%
2021	2021	7,312		2.33%	2021	12,636		2.36%
2022	2022	506		1.22%	2022	402		1.22%
2023	2023	4,205		2.36%	2023	4,005		2.38%
2024	2024	605		2.50%	2024	512		2.52%

		$	127,628	0.44%		$	40,555	1.14%

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~~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 ~~March 31,~~September 30, 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~~$60,000 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’~~Shareholders’ equity was ~~$234,672~~$307,086 at ~~March 31,~~September 30, 2020, an increase of ~~$10,919,~~$83,333, or ~~4.9%~~37.2%, from $223,753 at December 31, 2019. During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, the Company completed the TCB Holdings Transaction which increased ~~stockholders'~~shareholders' equity ~~$18,041.~~$18,041 and the FABK Transaction which increased shareholders' equity $51,915. Net income also contributed to the increase by $19,186. This increase was primarily offset ~~during the quarter~~ by dividends declared of ~~$1,207, a net loss of $1,191,~~$4,550, and an other comprehensive loss of ~~$6,084.~~$2,562. Contributions from the noncontrolling interest of ~~$976~~$990 were recognized in the ~~quarter.~~nine months ended September 30, 2020. The increase in ~~stockholders'~~shareholders' equity mitigated by the growth in the Bank's assets led to an increase in the Bank’s ~~March 31,~~September 30, 2020 Tier 1 leverage ratio to ~~10.58%~~10.48% compared with 10.30% at December 31, ~~2019 (see~~2019. See other ratios discussed further ~~below).~~below. Additionally, the subordinated debentures ~~qualify~~qualified as Tier 1 and Total risk-based capital for the ~~Company. Common dividends~~Company due to asset size at the time of ~~$1,274 (of which $76 were declared in the prior year) were paid during the three months ended March 31, 2020.~~issuance.

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On ~~July 14, 2017,~~August 24, 2020, 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) depository shares, (v) warrants, ~~and~~ (vi) units, (vii) purchase contracts, and (viii) rights, up to a maximum aggregate offering price of ~~$75,000,000.~~$100,000. The net proceeds from any offering will be used for general corporate purposes including ~~acquisitions,~~repayment of debt or payment of interest thereon, capital expenditures, acquisitions, investments, and ~~the repayment, redemption, or refinancing of~~ any ~~indebtedness or~~ other ~~securities.~~purposes that we may specify in any prospectus supplement. Until allocated to such purposes it is expected that we will invest any proceeds in short-term, interest-bearing instruments or other investment-grade securities. The Securities and Exchange Commission declared the Registration Statement on Form S-3 effective on ~~August 17, 2017,~~September 3, 2020, and the Registration Statement on Form S-3 will expire on ~~August 17, 2020.~~September 3, 2023.

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 capital 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~~applicable regulations and guidelines. We regularly review our capital adequacy to ensure compliance with these regulations and guidelines and to help ensure that sufficient capital is available for current and future needs. It is management’s intent to maintain an optimal capital and leverage mix for growth and for shareholder returns.

Prompt corrective action regulations provide five bank capital classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2020 and December 31, 2019 for Reliant Bancorp and the ~~Company and~~ Bank.


		Actual Regulatory Capital						Minimum Required Capital Including Capital Conservation Buffer								To Be Well Capitalized Under Prompt Corrective Action Provisions					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			Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2020
Company
September 30, 2020														September 30, 2020
Reliant Bancorp														Reliant Bancorp
Tier I leverage	Tier I leverage	$	183,873	8.91	%	$	82,547	4.00	%	$	103,184	5.00	%	Tier I leverage	$	253,534	8.72	%	$	116,300	4.00	%	$	145,375	5.00	%
Common equity Tier 1	Common equity Tier 1	172,103		9.54	%	126,281		7.00	%	117,261		6.50	%	Common equity Tier 1	241,786		9.77	%	173,235		7.00	%	160,861		6.50	%
Tier I risk-based capital	Tier I risk-based capital	183,873		10.19	%	153,378		8.50	%	144,356		8.00	%	Tier I risk-based capital	253,534		10.25	%	210,248		8.50	%	197,880		8.00	%
Total risk-based capital	Total risk-based capital	258,040		14.30	%	189,452		10.50	%	180,430		10.00	%	Total risk-based capital	332,434		13.44	%	259,714		10.50	%	247,347		10.00	%

Bank	Bank													Bank
Tier I leverage	Tier I leverage	$	217,399	10.58	%	$	82,192	4.00	%	$	102,741	5.00	%	Tier I leverage	$	304,376	10.48	%	$	116,174	4.00	%	$	145,218	5.00	%
Common equity Tier 1	Common equity Tier 1	217,399		12.13	%	125,457		7.00	%	116,496		6.50	%	Common equity Tier 1	304,376		12.33	%	172,801		7.00	%	160,458		6.50	%
Tier I risk-based capital	Tier I risk-based capital	217,399		12.13	%	152,341		8.50	%	143,379		8.00	%	Tier I risk-based capital	304,376		12.33	%	209,829		8.50	%	197,486		8.00	%
Total risk-based capital	Total risk-based capital	232,945		13.00	%	188,148		10.50	%	179,188		10.00	%	Total risk-based capital	324,635		13.15	%	259,214		10.50	%	246,871		10.00	%

December 31, 2019	December 31, 2019													December 31, 2019
Company
Reliant Bancorp														Reliant Bancorp
Tier I leverage	Tier I leverage	$	176,748	9.74	%	$	72,586	4.00	%	$	90,733	5.00	%	Tier I leverage	$	176,748	9.74	%	$	72,586	4.00	%	$	90,733	5.00	%
Common equity Tier 1	Common equity Tier 1	165,063		10.55	%	109,520		7.00	%	101,698		6.50	%	Common equity Tier 1	165,063		10.55	%	109,520		7.00	%	101,698		6.50	%
Tier I risk-based capital	Tier I risk-based capital	176,748		11.30	%	132,952		8.50	%	125,131		8.00	%	Tier I risk-based capital	176,748		11.30	%	132,952		8.50	%	125,131		8.00	%
Total risk-based capital	Total risk-based capital	249,751		15.97	%	164,207		10.50	%	156,388		10.00	%	Total risk-based capital	249,751		15.97	%	164,207		10.50	%	156,388		10.00	%

Bank	Bank													Bank
Tier I leverage	Tier I leverage	$	186,734	10.30	%	$	72,518	4.00	%	$	90,648	5.00	%	Tier I leverage	$	186,734	10.30	%	$	72,518	4.00	%	$	90,648	5.00	%
Common equity Tier 1	Common equity Tier 1	186,734		11.95	%	109,384		7.00	%	101,571		6.50	%	Common equity Tier 1	186,734		11.95	%	109,384		7.00	%	101,571		6.50	%
Tier I risk-based capital	Tier I risk-based capital	186,734		11.95	%	132,823		8.50	%	125,010		8.00	%	Tier I risk-based capital	186,734		11.95	%	132,823		8.50	%	125,010		8.00	%
Total risk-based capital	Total risk-based capital	199,737		12.79	%	163,975		10.50	%	156,167		10.00	%	Total risk-based capital	199,737		12.79	%	163,975		10.50	%	156,167		10.00	%

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Effects of Inflation and Changing Prices

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP, which ~~require~~requires 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 refinancing 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 of the Company were as follows at ~~March 31,~~September 30, 2020:


	~~March 31,~~September 30, 2020
Unused lines of credit	$	~~365,838~~534,971
Standby letters of credit	~~17,027~~19,793
Total commitments	$	~~382,865~~554,764

Other Off-Balance Sheet Arrangements

The Company utilizes interest rate swaps to mitigate interest rate risk. The total notional amount of swap agreements was ~~$179,605~~$179,345 and $129,605, respectively, at ~~March 31,~~September 30, 2020 and December 31, 2019. At ~~March 31,~~September 30, 2020 and December 31, 2019, the contracts had negative fair values totaling ~~$9,618~~$10,216 and $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 the 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.2020. 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~~certain 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 ~~March 31,~~September 30, 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 bank 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, 2019 ~~except~~ as ~~described below.~~supplemented by Part II, Item 1A. "Risk Factors" in Reliant Bancorp's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.

~~We may not be able to successfully integrate businesses recently acquired or to realize the anticipated benefits of the acquisitions.~~

We have begun the process of integrating TCB Holdings and 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 acquired 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 FABK. Further, we entered into definitive agreements to acquire TCB Holdings and FABK 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 FABK 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.

~~We 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 FABK with our operations. Unanticipated costs may be incurred in the integration of our business with the businesses of TCB Holdings and FABK. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of these 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.

~~Table of Contents~~

~~The economic impact of the COVID-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 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 travel 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 PPP 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 other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility 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 risks relating to noncompliance with the PPP. 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 costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations. The Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity 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 liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.

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 ~~March 31,~~September 30, 2020.

~~Table of Contents~~

Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (2)
January 1, 2020 to January 31, 2020 — $— — $—
February 1, 2020 to February 29, 2020 2,505 $21.75 — $—
March 1, 2020 to March 31, 2020 1,332 $13.74 — $15,000
January 1 2020 to March 31, 2020 3,837 $18.97 — $15,000


Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (2) (in thousands)
July 1, 2020 to July 31, 2020	—	$—	—	$15,000
August 1, 2020 to August 31, 2020	6,799	$14.66	—	$15,000
September 1, 2020 to September 30, 2020	545	$14.70	—	$15,000
Total	7,344	$14.67	—	$15,000

(1)During the quarter ended ~~March 31,~~September 30, 2020, ~~15,000~~26,550 shares of restricted stock previously awarded to certain of the participants in our stock plans vested. We withheld ~~3,837~~7,344 shares to satisfy tax withholding requirements associated with the vesting of these shares of restricted stock.

(2)On March 10, 2020, ~~the Company's~~Reliant Bancorp's board of directors authorized a stock repurchase plan allowing ~~the Company~~Reliant Bancorp to repurchase up to $15 million of outstanding ~~Company~~Reliant Bancorp common stock (the "Repurchase Plan"). As of ~~March 31,~~September 30, 2020, ~~the Company~~Reliant Bancorp had not repurchased any shares of ~~the Company's~~Reliant Bancorp common stock under the Repurchase Plan. The Repurchase Plan does not obligate ~~the Company~~Reliant Bancorp 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.

Table of Contents

None.

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Item 6. Exhibits.

EXHIBIT INDEX


Exhibit No.			Description

3.1			Amended and Restated Charter of Reliant Bancorp, Inc. (Restated for SEC filing purposes) (incorporated by reference to Exhibit 3.1 of Reliant Bancorp's Quarterly Report on Form 10-Q filed on November 6, 2018).

3.2			Third Amended and Restated Bylaws of Reliant Bancorp, Inc., ~~effective June 15, 2018~~as amended (Restated for SEC filing purposes) (incorporated by reference to Exhibit ~~3.1~~3.2 of Reliant Bancorp's Quarterly Report on Form 10-Q filed on August 7 , 2020).

10.1			Employment Agreement, dated September 21, 2020, by and among Reliant Bancorp, Inc., Reliant Bank, and Mark Seaton (incorporated by reference to Exhibit 10.1 of Reliant Bancorp's Current Report on Form 8-K filed on ~~June~~September 21, ~~2018).~~

~~4.1~~			~~Common Stock Specimen Certificate (incorporated by reference to Exhibit 4.4 of Reliant Bancorp's Registration Statement on Form S-8 filed on December 19, 2018).~~

~~4.2~~			~~Commerce Union Bancshares, Inc. Amended and Restated Stock Option Plan (incorporated by reference to Exhibit 10.17 to Form S-4 filed July 3, 2014).~~

~~4.3~~			~~2015 Equity Incentive Plan (incorporated by reference to Appendix A to Reliant Bancorp’s definitive proxy statement on Schedule 14A filed May 14, 2015).~~

~~4.4~~			~~Reliant Bancorp, Inc. 2018 Employee Stock Purchase Plan (incorporates by reference to Reliant Bancorp’s definitive proxy statement on Schedule 14A filed on April 10, 2018)~~2020).

31.1*			Certification pursuant to Rule 13a-14(a)/15d-14(a).

31.2*			Certification pursuant to Rule 13a-14(a)/15d-14(a).

32.1**			Certification pursuant to 18 USC Section 1350 - Sarbanes-Oxley Act of 2002.

101.INS*			Inline XBRL Instance Document.

101.SCH*			Inline XBRL Schema Documents.

101.CAL*			Inline XBRL Calculation Linkbase Document.

101.LAB*			Inline XBRL Label Linkbase Document.

101.PRE*			Inline XBRL Presentation Linkbase Document.

101.DEF*			Inline XBRL Definition Linkbase Document.

104			Cover 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,~~November 5, 2020

/s/ DeVan D. Ard, Jr.

DeVan D. Ard, Jr.

~~President~~Chairman and Chief Executive Officer

(Principal Executive Officer)

~~May 8,~~November 5, 2020

/s/ ~~J. Daniel Dellinger~~Jerry Cooksey

~~J. Daniel Dellinger~~Jerry Cooksey

Chief Financial Officer

(Principal Financial Officer)

6561


	Three Months Ended
	March 31,
	2020		2019
Basic EPS Computation
Net income attributable to common shareholders	$	(215)	$	3,824
Weighted average common shares outstanding	11,892,723		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 outstanding	11,892,723		11,405,438
Dilutive effect of stock options, restricted stock shares and units, and employee stock purchase plan	2,297		81,707
Adjusted weighted average common shares outstanding	11,895,020		11,487,145
Diluted earnings per common share	$	(0.02)	$	0.33


	Three Months Ended March 31, 2020
	Retail Banking		Residential Mortgage Banking		Elimination Entries		Consolidated
Net interest income	$	16,782	$	333	$	—	$	17,115
Provision for loan losses	2,900		—		—		2,900
Noninterest income	1,709		1,565		8		3,282
Noninterest expense (excluding merger expense)	12,461		2,951		—		15,412
Merger expense	4,186		—		—		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)


Interest rate contracts	Location	March 31, 2020		March 31, 2019
Change in fair value on interest rate swaps hedging investments	Interest income	$	(1,041)	$	(501)