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, ~~2020~~2021

☐ 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
~~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, 2020~~

4, 2021 was ~~16,618,298,~~16,406,720 excluding ~~887,485~~248,398 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	4038
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6058
Item 4.	Controls and Procedures	6058

PART II – OTHER INFORMATION			6159
Item 1.	Legal Proceedings	6159
Item 1A.	Risk Factors	6159
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6259
Item 3.	Defaults Upon Senior Securities	63<#>
Item 4.	Mine Safety Disclosures	63<#>
Item 5.	Other Information	63<#>
Item 6.	Exhibits	6460

SIGNATURES			6561

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~~effects of the coronavirus (COVID-19) ~~pandemic;~~

~~ii.~~pandemic, including (i) the magnitude and duration of the pandemic and its impact on general economic and financial market conditions and on our business, results of operations, and financial condition and that of our customers, (ii) actions taken by governments, businesses and individuals in response to the coronavirus (COVID-19) ~~pandemic;~~

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

~~iv.possible recurrence~~subsides, and (iv) the speed with which coronavirus (COVID-19) vaccines can be widely distributed, those vaccines’ efficacy against the virus and public acceptance of the ~~coronavirus (COVID-19);~~vaccines;

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

~~vi.~~(2) the possibility that our asset quality could decline or that we experience greater loan losses than anticipated;

~~vii.~~(3) increased levels of other real estate, primarily as a result of foreclosures;

~~viii.~~(4) the impact of liquidity needs on our results of operations and financial condition;

~~ix.~~(5) competition from financial institutions and other financial service providers;

x.(6) the effect of interest rate increases on the cost of deposits;

~~xi.~~(7) unanticipated weakness in loan demand or loan pricing;

~~xii.~~(8) greater than anticipated adverse conditions in the national economy or local economies in which we operate, including in Middle Tennessee;

~~xiii.~~(9) lack of strategic growth opportunities or our failure to execute on available opportunities;

~~xiv.~~(10) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses;

~~xv.~~(11) economic crises and associated credit issues in industries most impacted by the coronavirus (COVID-19) pandemic, including the ~~restaurant, hospitality~~hotel and retail sectors;

~~xvi.~~(12) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits;

~~xvii.~~(13) our ability to effectively manage problem credits;

~~xviii.~~(14) our ability to successfully implement efficiency initiatives on time and with the results projected;

~~xix.~~(15) our ability to successfully develop and market new products and technology;

~~xx.~~(16) the impact of negative developments in the financial industry and United States and global capital and credit markets;

~~xxi.~~(17) our ability to retain the services of key personnel;

~~xxii.~~(18) our ability to adapt to technological changes;

~~xxiii.~~(19) risks associated with litigation, including reputational and financial risks and the applicability of insurance coverage;

~~xxiv.~~(20) the vulnerability of Reliant Bank’s ~~(the “Bank”) network~~computer and ~~online banking portals,~~information technology systems and networks, and the systems and networks of third parties with whom ~~the Company and the~~Reliant Bancorp or Reliant Bank contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches and interruptions;

~~xxv.~~(21) 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.~~(22) adverse ~~results~~impacts (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.~~(23) the risk ~~that expected cost savings and revenue synergies from (a) the merger~~ of the Company and Tennessee Community Bank Holdings, Inc. (“TCB Holdings”) (the “TCB Holdings Transaction”) or (b) the merger of the Company and First Advantage Bancorp (“FABK”) (the “FABK Transaction” and, together with the TCB Holdings Transaction, collectively, the “Transactions”), may not be realized or may take longer than anticipated to be realized;

~~xxviii.~~the effect of the Transactions on our customer, supplier, or employee relationships and operating results (including without limitation difficulties in maintaining relationships with employees and customers), as well as on the market price of the Company’s common stock;

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

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

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

~~xxxii.the risk associated with Company management’s attention being diverted away from the day-to-day business and operations of the Company to the~~successful integration of the ~~Transactions;~~businesses Reliant Bancorp has recently acquired; and

~~xxxiii.~~(24) 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, 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~~Additional factors which could affect the forward-looking statements can be found in ~~this Quarterly Report are factors that, individually or in~~Reliant Bancorp’s quarterly reports on Form 10-Q, and current reports on Form 8-K filed with the ~~aggregate, management believes could cause our actual results to differ materially from expected~~Securities and ~~historical results.~~Exchange Commission (the “SEC”) and available on the SEC’s website at http://www.sec.gov. 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, 2020 (UNAUDITED) AND DECEMBER 31, 2019 (AUDITED)~~

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


		March 31, 2020		December 31, 2019			March 31, 2021 (unaudited)		December 31, 2020
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	46,318	$	50,990	Cash and due from banks	$	13,105	$	13,717
Interest-bearing deposits in financial institutions						Interest-bearing deposits in financial institutions	104,620		79,756
Federal funds sold	Federal funds sold	1,714		52		Federal funds sold	186		1,572
Total cash and cash equivalents	Total cash and cash equivalents	48,032		51,042		Total cash and cash equivalents	117,911		95,045
Securities available for sale	Securities available for sale	256,928		260,293		Securities available for sale	267,191		256,653
Loans						Loans	2,277,714		2,300,783
Less: allowance for loan losses						Less: allowance for loan losses	(20,785)		(20,636)
Loans, net	Loans, net	1,604,582		1,397,374		Loans, net	2,256,929		2,280,147
Mortgage loans held for sale, net	Mortgage loans held for sale, net	70,352		37,476		Mortgage loans held for sale, net	166,599		147,524
Accrued interest receivable	Accrued interest receivable	7,289		7,111		Accrued interest receivable	14,568		14,889
Premises and equipment, net	Premises and equipment, net	27,609		21,376		Premises and equipment, net	30,879		31,462
Operating leases right of use assets	Operating leases right of use assets	11,473		—		Operating leases right of use assets	13,372		13,103
Restricted equity securities, at cost	Restricted equity securities, at cost	14,405		11,279		Restricted equity securities, at cost	16,146		16,551
Other real estate, net	Other real estate, net	—		750		Other real estate, net	1,198		1,246
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	78,423		77,988
Deferred tax assets, net	Deferred tax assets, net	5,426		3,933		Deferred tax assets, net	7,453		7,121
Goodwill	Goodwill	50,723		43,642		Goodwill	54,396		54,396
Core deposit intangibles	Core deposit intangibles	10,486		7,270		Core deposit intangibles	10,891		11,347
Other assets	Other assets	17,927		10,289		Other assets	21,110		19,063
TOTAL ASSETS	TOTAL ASSETS	$	2,177,788	$	1,898,467	TOTAL ASSETS	$	3,057,066	$	3,026,535
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	$	578,764	$	575,289
Interest-bearing demand	Interest-bearing demand	170,304		152,718		Interest-bearing demand	397,047		350,392
Savings and money market deposit accounts	Savings and money market deposit accounts	494,750		408,724		Savings and money market deposit accounts	950,630		857,210
Time	Time	736,841		762,274		Time	686,469		796,344
Total deposits	Total deposits	1,722,448		1,583,789		Total deposits	2,612,910		2,579,235
Accrued interest payable	Accrued interest payable	3,995		2,022		Accrued interest payable	3,087		2,571

Subordinated debentures	Subordinated debentures	70,391		70,883		Subordinated debentures	70,719		70,446
Federal Home Loan Bank advances	Federal Home Loan Bank advances	127,628		10,737		Federal Home Loan Bank advances	0		10,000
Dividends payable		9		76
Operating lease liabilities		11,761		—
Operating leases liabilities						Operating leases liabilities	14,552		14,231
Other liabilities	Other liabilities	6,884		7,207		Other liabilities	24,099		28,079
TOTAL LIABILITIES	TOTAL LIABILITIES	1,943,116		1,674,714		TOTAL LIABILITIES	2,725,367		2,704,562
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; 16,654,415 and 16,654,409 shares issued and outstanding at March 31, 2021, and December 31, 2020, respectively						Common stock, $1 par value; 30,000,000 shares authorized; 16,654,415 and 16,654,409 shares issued and outstanding at March 31, 2021, and December 31, 2020, respectively	16,654		16,654
Additional paid-in capital	Additional paid-in capital	184,523		167,006		Additional paid-in capital	233,667		233,331
Retained earnings	Retained earnings	39,150		40,472		Retained earnings	75,891		65,757
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	5,487		6,231
TOTAL SHAREHOLDERS’ EQUITY						TOTAL SHAREHOLDERS’ EQUITY	331,699		321,973
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY						TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,057,066	$	3,026,535

See accompanying notes to consolidated financial statements.

RELIANT BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) - UNAUDITED

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

(Dollar amounts in thousands except per share amounts)


		Three Months Ended March 31,					Three Months Ended March 31,
		2020		2019			2021		2020
INTEREST INCOME	INTEREST INCOME					INTEREST INCOME
Interest and fees on loans	Interest and fees on loans	$	20,645	$	16,169	Interest and fees on loans	$	30,989	$	20,645
Interest and fees on loans held for sale	Interest and fees on loans held for sale	560		153		Interest and fees on loans held for sale	1,331		560
Interest on investment securities, taxable	Interest on investment securities, taxable	451		503		Interest on investment securities, taxable	610		451
Interest on investment securities, nontaxable	Interest on investment securities, nontaxable	1,371		1,718		Interest on investment securities, nontaxable	1,225		1,371
Federal funds sold and other	Federal funds sold and other	279		300		Federal funds sold and other	227		279
TOTAL INTEREST INCOME	TOTAL INTEREST INCOME	23,306		18,843		TOTAL INTEREST INCOME	34,382		23,306
INTEREST EXPENSE	INTEREST EXPENSE					INTEREST EXPENSE
Deposits	Deposits					Deposits
Demand	Demand	100		111		Demand	272		100
Savings and money market deposit accounts	Savings and money market deposit accounts	975		1,130		Savings and money market deposit accounts	839		1,030
Time	Time	3,762		3,571		Time	2,288		3,707
Federal Home Loan Bank advances and other	Federal Home Loan Bank advances and other	361		377		Federal Home Loan Bank advances and other	4		361
Subordinated debentures	Subordinated debentures	993		193		Subordinated debentures	953		993
TOTAL INTEREST EXPENSE	TOTAL INTEREST EXPENSE	6,191		5,382		TOTAL INTEREST EXPENSE	4,356		6,191
NET INTEREST INCOME	NET INTEREST INCOME	17,115		13,461		NET INTEREST INCOME	30,026		17,115
PROVISION FOR LOAN LOSSES	PROVISION FOR LOAN LOSSES	2,900		—		PROVISION FOR LOAN LOSSES	0		2,900
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	14,215		13,461		NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	30,026		14,215
NONINTEREST INCOME	NONINTEREST INCOME					NONINTEREST INCOME
Service charges on deposit accounts	Service charges on deposit accounts	1,208		884		Service charges on deposit accounts	1,561		1,208
Gains on mortgage loans sold, net	Gains on mortgage loans sold, net	1,573		560		Gains on mortgage loans sold, net	4,928		1,573
Gain on securities transactions, net	Gain on securities transactions, net	—		131		Gain on securities transactions, net	129		0
Gain on sale of other real estate		14		—
Gain on disposal of premises and equipment		9		—
Other		478		363
Other noninterest income						Other noninterest income	719		501
TOTAL NONINTEREST INCOME	TOTAL NONINTEREST INCOME	3,282		1,938		TOTAL NONINTEREST INCOME	7,337		3,282
NONINTEREST EXPENSE	NONINTEREST EXPENSE					NONINTEREST EXPENSE
Salaries and employee benefits	Salaries and employee benefits	9,237		7,265		Salaries and employee benefits	13,352		9,237
Occupancy	Occupancy	1,486		1,352		Occupancy	2,008		1,486
Information technology		1,819		1,410
Advertising and public relations		353		254
Audit, legal and consulting		478		796
Federal deposit insurance		336		195

Data processing and software						Data processing and software	2,229		1,819
Professional fees						Professional fees	1,243		478
Regulatory Fees						Regulatory Fees	361		454
Merger expenses	Merger expenses	4,186		2		Merger expenses	0		4,186
Other operating		1,703		1,472
Other operating expense						Other operating expense	2,471		1,938
TOTAL NONINTEREST EXPENSE	TOTAL NONINTEREST EXPENSE	19,598		12,746		TOTAL NONINTEREST EXPENSE	21,664		19,598
INCOME BEFORE PROVISION FOR INCOME TAXES		(2,101)		2,653
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES						INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES	15,699		(2,101)
INCOME TAX EXPENSE (BENEFIT)	INCOME TAX EXPENSE (BENEFIT)	(910)		372		INCOME TAX EXPENSE (BENEFIT)	2,980		(910)
CONSOLIDATED NET INCOME (LOSS)	CONSOLIDATED NET INCOME (LOSS)	(1,191)		2,281		CONSOLIDATED NET INCOME (LOSS)	12,719		(1,191)
NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY		976		1,543
NONCONTROLLING INTEREST IN NET (INCOME) LOSS OF SUBSIDIARY						NONCONTROLLING INTEREST IN NET (INCOME) LOSS OF SUBSIDIARY	(570)		976
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(215)	$	3,824	NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	12,149	$	(215)
Basic net income (loss) attributable to common shareholders, per share	Basic net income (loss) attributable to common shareholders, per share	$	(0.02)	$	0.34	Basic net income (loss) attributable to common shareholders, per share	$	0.73	$	(0.02)
Diluted net income (loss) attributable to common shareholders, per share	Diluted net income (loss) attributable to common shareholders, per share	$	(0.02)	$	0.33	Diluted net income (loss) attributable to common shareholders, per share	$	0.73	$	(0.02)

See accompanying notes to consolidated financial statements.

RELIANT BANCORP, INC.

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

~~FOR THE THREE MONTHS ENDED MARCH 31, 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


	Three Months Ended
		March 31, 2021		March 31, 2020
Net income (loss)		$	12,719	$	(1,191)
Other comprehensive (loss) income:
Unrealized gains (losses) on securities available for sale:
Unrealized holdings (losses) arising during the period		(2,357)		(2,368)
Reclassification adjustment for (gains) losses included in net income (loss)		(129)		0
Tax effect		650		619
Net of tax		(1,836)		(1,749)
Unrealized gains (losses) on cash flow hedges
Unrealized holdings gains (losses) arising during the period		1,478		(5,869)
Reclassification adjustment for (gains) losses included in net income		0		0
Tax effect		(386)		1,534
Net of tax		1,092		(4,335)
Other comprehensive (loss)		(744)		(6,084)
Comprehensive income (loss)		$	11,975	$	(7,275)
Comprehensive (income) loss attributable to noncontrolling interest		(570)		976
Comprehensive income (loss) attributable to the controlling interest		$	11,405	$	(6,299)

See accompanying notes to consolidated financial statements.

RELIANT BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN ~~STOCKHOLDERS’~~SHAREHOLDERS’ EQUITY - UNAUDITED

~~FOR THE THREE MONTHS ENDED MARCH 31, 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, 2021	16,654,409	16,654		233,331		65,757		6,231		0		321,973
Stock based compensation expense	—	—		339		—		—		—		339
Exercise of stock options	600	1		7		—		—		—		8

Restricted stock awards, net of taxes withheld and stock and dividend forfeitures	(594)	(1)		(10)		—		—		—		(11)
Noncontrolling interest contributions	—	—		—		—		—		(570)		(570)
Cash dividend declared to common shareholders ($0.12 per share)	—	—		—		(2,015)		—		—		(2,015)
Net income	—	—		—		12,149		—		570		12,719
Other comprehensive loss	—	—		—				(744)		—		(744)
BALANCE - MARCH 31, 2021	16,654,415	$	16,654	$	233,667	$	75,891	$	5,487	$	0	$	331,699

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


	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		0		223,753
Stock based compensation expense	—	—		349		—		—		—		349
Exercise of stock options	868	1		7		—		—		—		8
Restricted stock awards, net of taxes withheld and stock and dividend forfeitures	(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

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,
		2020		2019			Three Months Ended March 31,
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES	2021		2020
Consolidated net income (loss)	Consolidated net income (loss)	$	(1,191)	$	2,281	Consolidated net income (loss)	$	12,719	$	(1,191)
Adjustments to reconcile consolidated net income (loss) to net cash provided (used) by operating activities
Adjustments to reconcile consolidated net income (loss) to net cash (used in) provided by operating activities						Adjustments to reconcile consolidated net income (loss) to net cash (used in) provided by operating activities
Provision for loan losses	Provision for loan losses	2,900		—		Provision for loan losses	0		2,900

Deferred income taxes	Deferred income taxes	(295)		1,179		Deferred income taxes	(68)		264
Gain on disposal of premises and equipment	Gain on disposal of premises and equipment	(9)		—		Gain on disposal of premises and equipment	(3)		(9)
Depreciation and amortization of premises and equipment		598		497
Depreciation of premises and equipment						Depreciation of premises and equipment	741		564
Net amortization of securities	Net amortization of securities	202		825		Net amortization of securities	415		202
Net realized gains on sales of securities	Net realized gains on sales of securities	—		(131)		Net realized gains on sales of securities	(129)		0
Gains on mortgage loans sold, net	Gains on mortgage loans sold, net	(1,573)		(560)		Gains on mortgage loans sold, net	(4,928)		(1,573)
Stock-based compensation expense	Stock-based compensation expense	349		250		Stock-based compensation expense	339		349
Gain on other real estate	Gain on other real estate	(14)		—		Gain on other real estate	(14)		(14)
Increase in cash surrender value of life insurance contracts		(295)		(278)
Earnings on bank-owned life insurance						Earnings on bank-owned life insurance	(435)		(295)
Mortgage loans originated for resale	Mortgage loans originated for resale	(89,076)		(18,422)		Mortgage loans originated for resale	(311,296)		(89,076)
Proceeds from sale of mortgage loans	Proceeds from sale of mortgage loans	57,773		24,815		Proceeds from sale of mortgage loans	297,149		57,773
Other amortization (accretion)		(1)		(134)
Right of use asset amortization						Right of use asset amortization	667		536
Other accretion, net of other amortization						Other accretion, net of other amortization	(1,080)		(175)
Change in	Change in					Change in
Accrued interest receivable	Accrued interest receivable	770		(175)		Accrued interest receivable	321		514
Other assets	Other assets	(13,715)		(1,433)		Other assets	(2,074)		(12,708)
Accrued interest payable	Accrued interest payable	455		(73)		Accrued interest payable	516		1,455
Other liabilities	Other liabilities	(2,487)		(1,432)		Other liabilities	(2,593)		(5,609)
TOTAL ADJUSTMENTS	TOTAL ADJUSTMENTS	(44,418)		4,928		TOTAL ADJUSTMENTS	(22,472)		(44,902)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		(45,609)		7,209
NET CASH USED IN OPERATING ACTIVITIES						NET CASH USED IN OPERATING ACTIVITIES	(9,753)		(46,093)
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Cash used to convert shares, and redeem stock options and fractional shares, net of cash received		(7,480)		—
Cash (used in) received from acquisitions, net						Cash (used in) received from acquisitions, net	0		(7,480)
Activities in available for sale securities	Activities in available for sale securities					Activities in available for sale securities
Purchases	Purchases	—		(20,571)		Purchases	(17,199)		0
Sales	Sales	56,336		10,558		Sales	1,795		56,336
Maturities, prepayments and calls	Maturities, prepayments and calls	1,836		2,291		Maturities, prepayments and calls	1,570		1,836
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)
Redemptions (purchases) of restricted equity securities						Redemptions (purchases) of restricted equity securities	405		(2,217)
Net change in loans						Net change in loans	25,017		(37,883)
Purchase of premises and equipment						Purchase of premises and equipment	(217)		(457)
Proceeds from sale of premises and equipment	Proceeds from sale of premises and equipment	75		—		Proceeds from sale of premises and equipment	62		75
Proceeds from sale of other real estate	Proceeds from sale of other real estate	764		—		Proceeds from sale of other real estate	62		764

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		10,349		(38,218)
NET CASH PROVIDED BY INVESTING ACTIVITIES						NET CASH PROVIDED BY INVESTING ACTIVITIES	11,495		10,974
FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Net change in deposits	Net change in deposits	(71,768)		73,427		Net change in deposits	33,712		(72,023)
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
Proceeds from Federal Home Loan Bank advances						Proceeds from Federal Home Loan Bank advances	162,962		219,000
Payments on Federal Home Loan Bank advances						Payments on Federal Home Loan Bank advances	(172,962)		(115,179)

Issuance of ESPP shares and exercise of common stock options and warrants, net of repurchase of restricted shares						Issuance of ESPP shares and exercise of common stock options and warrants, net of repurchase of restricted shares	(3)		(65)
Noncontrolling interest contributions						Noncontrolling interest contributions	(570)		976
Cash dividends paid on common stock	Cash dividends paid on common stock	(1,274)		(1,035)		Cash dividends paid on common stock	(2,015)		(1,207)
NET CASH PROVIDED BY FINANCING ACTIVITIES	NET CASH PROVIDED BY FINANCING ACTIVITIES	31,632		31,036		NET CASH PROVIDED BY FINANCING ACTIVITIES	21,124		31,502
NET CHANGE IN CASH AND CASH EQUIVALENTS	NET CHANGE IN CASH AND CASH EQUIVALENTS	(3,628)		27		NET CHANGE IN CASH AND CASH EQUIVALENTS	22,866		(3,617)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	51,042		35,178		CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	95,045		51,649
CASH AND CASH EQUIVALENTS - END OF PERIOD	CASH AND CASH EQUIVALENTS - END OF PERIOD	$	47,414	$	35,205	CASH AND CASH EQUIVALENTS - END OF PERIOD	$	117,911	$	48,032

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,
		2020		2019			Three Months Ended March 31,
							2021		2020
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	$	3,877	$	4,218
Taxes		$	—	$	4
Income taxes						Income taxes	$	61	$	0

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)
Supplemental disclosures of non-cash transactions						Supplemental disclosures of non-cash transactions
Unrealized gain on securities available-for-sale						Unrealized gain on securities available-for-sale	$	(3,010)	$	(1,327)
Unrealized gain (loss) on derivatives						Unrealized gain (loss) on derivatives	$	2,002	$	(6,910)
Change in due to/from noncontrolling interest	Change in due to/from noncontrolling interest	$	976	$	1,543	Change in due to/from noncontrolling interest	$	(570)	$	976

Right of use assets obtained in exchange for operating lease liabilities						Right of use assets obtained in exchange for operating lease liabilities	$	936	$	11,973

See accompanying notes to consolidated financial statements.

109

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RELIANT BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~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

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.~~2020. Amounts in the footnotes are shown in thousands, except for numbers of shares, per share amounts and as otherwise noted.

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 Tennessee Community Bank Holdings, Inc. (“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.~~First Advantage Bancorp (“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, ~~2020,~~2021, and for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, 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.

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

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

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

~~NOTE 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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conform to the current period presentation. The results for the three months ended March 31, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021.

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, 2020 for additional information related to previously issued accounting standards updates.

ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.” The guidance issued in this update simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 was effective for us on January 1, 2021, and did not have a significant impact on our consolidated financial statements.

ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." In March 2020, the Financial Accounting Standards Board (“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 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.

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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, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:


		March 31, 2020															March 31, 2021
		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	$	225	$	1	$	0	$	226
State and municipal	State and municipal	185,811		11,079		(436)		196,454		State and municipal	190,980		14,484		(564)		204,900
Corporate bonds	Corporate bonds	7,880		17		(62)		7,835		Corporate bonds	27,000		392		(128)		27,264
Mortgage backed securities		37,907		211		(2,217)		35,901
Asset backed securities		17,030		—		(349)		16,681
Mortgage-backed securities - Residential										Mortgage-backed securities - Residential	31,607		448		(32)		32,023
Asset-backed securities										Asset-backed securities	2,802		1		(25)		2,778

Total	Total	$	248,684	$	11,308	$	(3,064)	$	256,928	Total	$	252,614	$	15,326	$	(749)	$	267,191


		December 31, 2019															December 31, 2020
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U. S. Treasury and other U. S. government agencies	U. S. Treasury and other U. S. government agencies	$	59	$	—	$	—	$	59	U. S. Treasury and other U. S. government agencies	$	47	$	1	$	0	$	48
State and municipal	State and municipal	186,283		10,413		(36)		196,660		State and municipal	184,102		16,963		(77)		200,988
Corporate bonds	Corporate bonds	7,880		97		(132)		7,845		Corporate bonds	23,750		397		(34)		24,113
Mortgage backed securities		38,126		296		(661)		37,761
Asset backed securities		18,374		—		(406)		17,968
Mortgage-backed securities - Residential										Mortgage-backed securities - Residential	28,084		360		(2)		28,442
Asset-backed securities										Asset-backed securities	3,083		1		(22)		3,062

Total	Total	$	250,722	$	10,806	$	(1,235)	$	260,293	Total	$	239,066	$	17,722	$	(135)	$	256,653

Securities pledged at March 31, ~~2020~~2021 and December 31, ~~2019~~2020 had a carrying amount of ~~$45,380~~$29,643 and ~~$46,918,~~$30,491, respectively, and were pledged to collateralize Federal Home Loan Bank ("FHLB") advances, Federal Reserve Bank ("FRB") advances and municipal deposits.

Results from sales of securities were as follows:


	Three months ended
	March 31, 2021		March 31, 2020
Proceeds	$	1,795	$	56,336
Gross gains	129		0
Gross losses	0		0

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

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

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

~~NOTE 2 - SECURITIES (CONTINUED)~~

The fair values of available for sale debt securities at March 31, ~~2020~~2021 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			Amortized Cost		Estimated Fair Value
Due within one year	Due within one year	$	1,000	$	998	Due within one year	$	225	$	226
Due in one to five years	Due in one to five years	2,311		2,312		Due in one to five years	2,085		2,089
Due in five to ten years	Due in five to ten years	10,330		10,725		Due in five to ten years	33,886		35,028
Due after ten years	Due after ten years	180,106		190,311		Due after ten years	182,009		195,047
Mortgage backed securities		37,907		35,901
Asset backed securities		17,030		16,681
Mortgage-backed securities						Mortgage-backed securities	31,607		32,023
Asset-backed securities						Asset-backed securities	2,802		2,778
Total	Total	$	248,684	$	256,928	Total	$	252,614	$	267,191

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, ~~2020~~2021 and December 31, ~~2019,~~2020, 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
March 31, 2021														March 31, 2021

State and municipal	State and municipal	$	3,748	$	436	$	—	$	—	$	3,748	$	436	State and municipal	$	23,357	$	564	$	0	$	0	$	23,357	$	564
Corporate bonds	Corporate bonds	4,439		61		499		1		4,938		62		Corporate bonds	11,622		128		0		0		11,622		128
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 - Residential														Mortgage-backed securities - Residential	4,366		31		80		1		4,446		32
Asset-backed securities														Asset-backed securities	665		5		1,884		20		2,549		25
Total temporarily impaired	Total temporarily impaired	$	24,349	$	1,556	$	28,454	$	1,508	$	52,803	$	3,064	Total temporarily impaired	$	40,010	$	728	$	1,964	$	21	$	41,974	$	749


December 31, 2019
December 31, 2020														December 31, 2020

State and municipal	State and municipal	$	1,960	$	36	$	—	$	—	$	1,960	$	36	State and municipal	$	9,475	$	77	$	0	$	0	$	9,475	$	77
Corporate bonds	Corporate bonds	—		—		2,499		132		2,499		132		Corporate bonds	5,716		34		0		0		5,716		34
Mortgage backed securities		16,104		286		9,081		375		25,185		661
Asset backed securities		—		—		17,682		406		17,682		406
Mortgage-backed securities - Residential														Mortgage-backed securities - Residential	5,024		1		92		1		5,116		2
Asset-backed securities														Asset-backed securities	729		2		2,013		20		2,742		22
Total temporarily impaired	Total temporarily impaired	$	18,064	$	322	$	29,262	$	913	$	47,326	$	1,235	Total temporarily impaired	$	20,944	$	114	$	2,105	$	21	$	23,049	$	135

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 March 31, 2021. There were 4132 and 4722 securities in an unrealized loss position as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, 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

Loans at March 31, ~~2020~~2021 and December 31, ~~2019~~2020 were comprised as follows:


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Commercial, Industrial and Agricultural	Commercial, Industrial and Agricultural	$	283,035	$	245,515	Commercial, Industrial and Agricultural	$	430,373	$	459,739
Real Estate	Real Estate					Real Estate
1-4 Family Residential	1-4 Family Residential	261,718		227,529		1-4 Family Residential	322,170		323,473
1-4 Family HELOC	1-4 Family HELOC	99,296		96,228		1-4 Family HELOC	100,056		100,525
Multi-family and Commercial	Multi-family and Commercial	635,650		536,845		Multi-family and Commercial	831,242		834,000
Construction, Land Development and Farmland	Construction, Land Development and Farmland	308,598		273,872		Construction, Land Development and Farmland	372,950		365,058
Consumer	Consumer	24,141		16,855		Consumer	216,034		213,863
Other	Other	7,456		13,180		Other	8,560		8,669
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	2,281,385		2,305,327
Less: Deferred loan fees						Less: Deferred loan fees	3,671		4,544
Less: Allowance for loan losses						Less: Allowance for loan losses	20,785		20,636
Loans, net	Loans, net	$	1,604,582	$	1,397,374	Loans, net	$	2,256,929	$	2,280,147

~~Activity in the allowance for loan losses by portfolio segment was as follows for the three months ended~~At March 31, ~~2020~~2021 and ~~March 31, 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
Charge-offs (6) — — (17) — (11) — (34)
Recoveries 240 34 — 212 — 10 — 496
Provision (111) 130 150 (169) 14 (12) (2) —
Ending balance at
March 31, 2019 $ 1,874 $ 4,593 $ 2,650 $ 1,359 $ 670 $ 171 $ 37 $ 11,354

~~Table of Contents~~

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

~~MARCH~~December 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)~~loans are recorded net of purchase discounts of $14,833 and $16,634, respectively.

The ~~allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2020 were as follows:~~

Commercial Industrial and Agricultural Multi-family
and
Commercial
Real Estate Construction
Land
Development and Farmland 1-4 Family
Residential
Real Estate 1-4 Family HELOC Consumer Other Total
Allowance for loan losses
Individually evaluated for impairment $ 679 $ — $ — $ — $ — $ 4 $ — $ 683
Acquired with credit impairment — — — — — — — —
Collectively evaluated for impairment 3,172 6,760 1,836 1,488 873 294 15 14,438
Total $ 3,851 $ 6,760 $ 1,836 $ 1,488 $ 873 $ 298 $ 15 $ 15,121
Loans
Individually evaluated for impairment $ 936 $ 2,375 $ 1,095 $ 1,206 $ 418 $ 4 $ — $ 6,034
Acquired with credit impairment — 233 1,032 1,141 14 15 — 2,435
Collectively evaluated for impairment 282,099 633,042 306,471 259,371 98,864 24,122 7,456 1,611,425
Total $ 283,035 $ 635,650 $ 308,598 $ 261,718 $ 99,296 $ 24,141 $ 7,456 $ 1,619,894

~~The allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 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
Allowance for loan losses
Individually evaluated for impairment $ 755 $ — $ 17 $ — $ — $ — $ — $ 772
Acquired with credit impairment — — — — — — — —
Collectively evaluated for impairment 1,774 5,285 2,632 1,280 624 177 34 11,806
Total $ 2,529 $ 5,285 $ 2,649 $ 1,280 $ 624 $ 177 $ 34 $ 12,578
Loans
Individually evaluated for impairment $ 1,154 $ 2,396 $ 1,218 $ 1,120 $ 374 $ — $ — $ 6,262
Acquired with credit impairment — 215 813 195 — — — 1,223
Collectively evaluated for impairment 244,361 534,234 271,841 226,214 95,854 16,855 13,180 1,402,539
Total $ 245,515 $ 536,845 $ 273,872 $ 227,529 $ 96,228 $ 16,855 $ 13,180 $ 1,410,024

~~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)~~

~~Risk characteristics relevant to each portfolio segment are as follows:~~

~~Commercial,industrialand agricultural:~~ ~~The commercial, industrial and agricultural loan portfolio segment includes~~Company pledged 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, 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~~FHLB at March 31, ~~2020~~2021 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~~2020 of $448,697 and ~~$1,332 at March 31, 2020 and December 31, 2019,~~$646,498, 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 for the three months ended March 31, 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)~~

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,~~industrial, 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 as substandard. Substandard assets have a high probability of payment default, or they have other well-defined weaknesses. They require supervision that is more intensive ~~supervision~~ by Company management. Substandard assets are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigation.

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 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~~The following table provides the risk category of loans by applicable class of ~~loan were~~loans including purchase credit impaired (“PCI”) loans as ~~follows at~~of March 31, ~~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~~2021 and December 31, ~~2019:~~2020:

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 — 1,720 227,529
1-4 Family HELOC 95,678 — 550 96,228
Multi-family and Commercial Real Estate 531,055 1,519 4,271 536,845
Construction, Land Development and Farmland 272,440 — 1,432 273,872
Consumer 16,634 — 221 16,855
Other 13,180 — — 13,180
Total $ 1,395,885 $ 3,901 $ 10,238 $ 1,410,024


	Pass		Special Mention		Substandard		Total
March 31, 2021
Loans excluding PCI
Commercial, Industrial and Agricultural	$	427,787	$	1,415	$	1,004	$	430,206
1-4 Family Residential Real Estate	318,446		860		2,197		321,503
1-4 Family HELOC	99,757		0		285		100,042
Multi-family and Commercial Real Estate	825,088		1,757		3,803		830,648
Construction, Land Development and Farmland	366,620		0		5,591		372,211
Consumer	213,609		2		1,379		214,990
Other	8,560		0		0		8,560
Total loans excluding PCI	$	2,259,867	$	4,034	$	14,259	$	2,278,160








Total PCI loans	$	1,024	$	0	$	2,201	$	3,225
Total loans	$	2,260,891	$	4,034	$	16,460	$	2,281,385

2015

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)~~


	Pass		Special Mention		Substandard		Total
December 31, 2020
Loans excluding PCI
Commercial, Industrial and Agricultural	$	456,170	$	1,519	$	1,863	$	459,552
1-4 Family Residential Real Estate	320,555		5		2,165		322,725
1-4 Family HELOC	100,391		0		120		100,511
Multi-family and Commercial Real Estate	829,353		653		3,337		833,343
Construction, Land Development and Farmland	358,606		0		5,676		364,282
Consumer	211,305		7		1,346		212,658
Other	7,150		1,519		0		8,669
Total loans excluding PCI	$	2,283,530	$	3,703	$	14,507	$	2,301,740








Total PCI loans	$	998	$	0	$	2,589	$	3,587
Total loans	$	2,284,528	$	3,703	$	17,096	$	2,305,327

~~Past due status~~None of the Company's loans had a risk rating of "Doubtful" or "Loss" as of March 31, 2021 or December 31, 2020.

Activity in the Allowance for Loan Loss (“ALL”) by ~~class of loan~~portfolio segment was as follows ~~at March 31, 2020:~~

30-59 Days
Past Due 60-89 Days
Past Due 90+ Days
Past Due Total
Past Due Current Total Loans
Commercial, Industrial and Agricultural $ 603 $ 25 $ 432 $ 1,060 $ 281,975 $ 283,035
1-4 Family Residential Real Estate 424 413 469 1,306 260,412 261,718
1-4 Family HELOC 187 — 296 483 98,813 99,296
Multi-family and Commercial Real Estate 220 — 1,049 1,269 634,381 635,650
Construction, Land Development and Farmland 342 — 225 567 308,031 308,598
Consumer 23 11 16 50 24,091 24,141
Other — — — — 7,456 7,456
Total $ 1,799 $ 449 $ 2,487 $ 4,735 $ 1,615,159 $ 1,619,894

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

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

~~During~~for the three months ended March 31, ~~2020~~2021 and ~~March 31, 2019, there were no loans that were modified as troubled debt restructurings("TDRs").~~2020:


	Commercial Industrial and Agricultural		1-4 Family Residential Real Estate		1-4 Family HELOC		Multi-family and Commercial Real Estate		Construction Land Development and Farmland		Consumer		Other		Total
Beginning balance at December 31, 2020	$	5,441	$	2,445	$	1,416	$	8,535	$	1,841	$	928	$	30	$	20,636
Charge-offs	(32)		(7)		0		0		0		(259)		0		(298)
Recoveries	251		82		2		9		85		18		0		447
Provision	412		(82)		(308)		(479)		(21)		476		2		0
Ending balance at March 31, 2021	$	6,072	$	2,438	$	1,110	$	8,065	$	1,905	$	1,163	$	32	$	20,785

Beginning balance at December 31, 2019	$	2,529	$	1,280	$	624	$	5,285	$	2,649	$	177	$	34	$	12,578
Charge-offs	(294)		0		0		0		(114)		(31)		0		(439)
Recoveries	61		11		1		3		0		6		0		82
Provision	1,555		197		248		1,472		(699)		146		(19)		2,900
Ending balance at March 31, 2020	$	3,851	$	1,488	$	873	$	6,760	$	1,836	$	298	$	15	$	15,121

he 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

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

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

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

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

~~Through March 31, 2020, the Company had applied this guidance and modified loans with aggregate principal balances totaling~~
~~$319.0 million.~~ ~~More of these types of modifications are likely to be executed in the second quarter of 2020.~~

The ~~majority of these modifications involved three-month extensions of either interest-only periods or full payment deferrals. Of these modified loans the primary categories were~~ ~~$153.9 million~~ ~~commercial real estate loans,~~ ~~$80.2 million~~ ~~of hospitality-based loans,~~ ~~$39.2 million~~ ~~of restaurant-related loans,~~ ~~$16.1 million~~ ~~of commercial and industrial loans,~~ ~~$14.8 million~~ ~~of multifamily loans,~~ALL and the ~~remainder being church, medical~~recorded investment in loans by portfolio segment and ~~consumer loans.~~based on impairment method as of was as follows:


	Commercial Industrial and Agricultural		1-4 Family Residential Real Estate		1-4 Family HELOC		Multi-family and Commercial Real Estate		Construction Land Development and Farmland		Consumer		Other		Total
March 31, 2021
Allowance for loan losses
Individually evaluated for impairment	$	847	$	0	$	0	$	70	$	0	$	17	$	0	$	934
Acquired with credit impairment	0		0		0		0		0		0		0		0
Collectively evaluated for impairment	5,225		2,438		1,110		7,995		1,905		1,146		32		19,851
Total	$	6,072	$	2,438	$	1,110	$	8,065	$	1,905	$	1,163	$	32	$	20,785
Loans
Individually evaluated for impairment	$	847	$	1,956	$	286	$	4,047	$	6,062	$	1,372	$	0	$	14,570
Acquired with credit impairment	167		667		14		594		739		1,044		0		3,225
Collectively evaluated for impairment	429,359		319,547		99,756		826,601		366,149		213,618		8,560		2,263,590
Total	$	430,373	$	322,170	$	100,056	$	831,242	$	372,950	$	216,034	$	8,560	$	2,281,385
December 31, 2020
Allowance for loan losses
Individually evaluated for impairment	$	717	$	18	$	0	$	0	$	0	$	13	$	0	$	748
Acquired with credit impairment	0		0		0		0		0		0		0		0
Collectively evaluated for impairment	4,724		2,427		1,416		8,535		1,841		915		30		19,888
Total	$	5,441	$	2,445	$	1,416	$	8,535	$	1,841	$	928	$	30	$	20,636
Loans
Individually evaluated for impairment	$	1,027	$	1,829	$	110	$	2,504	$	5,676	$	1,177	$	0	$	12,323
Acquired with credit impairment	187		748		14		657		776		1,205		0		3,587
Collectively evaluated for impairment	458,525		320,896		100,401		830,839		358,606		211,481		8,669		2,289,417
Total	$	459,739	$	323,473	$	100,525	$	834,000	$	365,058	$	213,863	$	8,669	$	2,305,327

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

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

~~An eligible business can apply~~

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The following tables provide the period-end amounts of loans that are past due thirty to eighty-nine days, past due ninety or more days and still accruing interest, loans not accruing interest, purchased credit impaired loans, and loans current on payments accruing interest by category at March 31, 2021 and December 31, 2020:


	Current and Accruing		30-89 Days Past Due		90+ Days Past Due and Accruing Interest		Nonaccrual Loans		Total Loans
March 31, 2021
Loans excluding PCI
Commercial, Industrial and Agricultural	$	429,859	$	75	$	0	$	272	$	430,206
1-4 Family Residential Real Estate	319,522		525		0		1,456		321,503
1-4 Family HELOC	99,986		56		0		0		100,042
Multi-family and Commercial Real Estate	830,242		0		0		406		830,648
Construction, Land Development and Farmland	370,538		0		0		1,673		372,211
Consumer	213,377		897		3		713		214,990
Other	8,560		0		0		0		8,560
Total loans excluding PCI	$	2,272,084	$	1,553	$	3	$	4,520	$	2,278,160








Total PCI loans	$	1,595	$	43	$	0	$	1,587	$	3,225
Total loans	$	2,273,679	$	1,596	$	3	$	6,107	$	2,281,385
December 31, 2020
Loans excluding PCI
Commercial, Industrial and Agricultural	$	458,974	$	126	$	0	$	452	$	459,552
1-4 Family Residential Real Estate	319,180		2,071		0		1,474		322,725
1-4 Family HELOC	100,501		10		0		0		100,511
Multi-family and Commercial Real Estate	832,697		150		0		496		833,343
Construction, Land Development and Farmland	363,376		0		0		906		364,282
Consumer	210,552		1,413		1		692		212,658
Other	8,669		0		0		0		8,669
Total loans excluding PCI	$	2,293,949	$	3,770	$	1	$	4,020	$	2,301,740








Total PCI loans	$	1,584	$	37	$	0	$	1,966	$	3,587
Total loans	$	2,295,533	$	3,807	$	1	$	5,986	$	2,305,327

Approximately $2,306 and $2,438 of nonaccrual loans as of March 31, 2021 and December 31, 2020, respectively, were performing pursuant to their contractual terms at those dates. Mortgage loans held for a PPP loan up to the lesser of: (1) 2.5 times its average monthly “payroll costs;” or (2) $10.0 million. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six monthssale are excluded from the ~~date~~loan tables herein and have $1,070 and $630 on nonaccrual as of ~~disbursement. The SBA will guarantee 100%~~March 31, 2021 and December 31, 2020, respectively.

Table of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses.Contents

Purchased Credit Impaired Loans

The Company has ~~acquired~~purchased 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~~those loans ~~were~~is as ~~follows at March 31, 2020 and December 31, 2019:~~follows:


	March 31, 2021		December 31, 2020
Commercial, Industrial and Agricultural	$	899	$	919
1-4 Family Residential Real Estate	905		1,004
1-4 Family HELOC	19		19
Multi-family and Commercial Real Estate	1,261		1,325
Construction, Land Development and Farmland	954		992
Consumer	1,732		1,924
Total outstanding balance	5,770		6,183
Less remaining purchase discount	2,545		2,596
Allowance for loan losses	0		0
Carrying amount, net of allowance for loan losses and remaining purchase discounts	$	3,225	$	3,587

March 31, 2020 December 31, 2019
Commercial, Industrial and Agricultural $ 232 $ —
Multi-family and Commercial Real Estate 242 217
Construction, Land Development and Farmland 1,283 1,021
1-4 Family Residential Real Estate 1,453 231
1-4 Family HELOC 19 —
Consumer 21 —
Total outstanding balance 3,250 1,469
Less remaining purchase discount 815 246
Allowance for loan losses — —
Carrying amount, net of allowance for loan losses $ 2,435 $ 1,223
Accretable yield, or income expected to be collected on PCI loans, is as follows:


	2021		2020
Balance at January 1,	$	580	$	98
New loans purchased	0		131
Accretion income	(36)		(20)
Balance at March 31,	$	544	$	209

~~Activity related to~~On January 1, 2020 and April 1, 2020, the ~~accretable portion~~Company completed the TCB and FABK Transactions, respectively (see Note 12 for more information). As a result of the ~~purchase~~acquisitions, the Company recorded loans with an initial fair value of $170.0 million and $625.8 million, respectively. Of those loans, $1,688 and $4,668, respectively, were considered to be PCI loans, which are loans for which it is probable at the acquisition date that all contractually required payments will not be collected. The remaining loans are considered to be purchased non-impaired loans and their related fair value discount ~~on loans acquired with deteriorated credit quality~~or premium is recognized as ~~follows for~~an adjustment to yield over the ~~three months ended March 31, 2020 and 2019:~~

2020 2019
Balance at January 1, $ 98 $ 110
New loans purchased 131 —
Year-to-date settlements (20) —
Balance at March 31, 209 110
remaining life of each loan.

PCI loans purchased during the year ended December 31, 2020, for which it was probable at acquisition that all contractually required payments would not be collected are as follows:


	Tennessee Community Bank Holdings, Inc. acquisition on January 1, 2020		First Advantage Bancorp acquisition on April 1, 2020
Contractually required payments receivable of loans purchased during the year:	$	2,799	$	7,540
Nonaccretable difference	(980)		(2,133)
Cash flows expected to be collected at acquisition	$	1,819	$	5,407
Accretable yield	(131)		(739)
Fair value of acquired loans at acquisition	$	1,688	$	4,668

2219

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~MARCH~~

Impaired Loans

Individually impaired loans by class of loans were as follows at March 31, ~~2020~~2021 and ~~2019 (UNAUDITED) AND DECEMBER~~December 31, ~~2019~~2020:

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


	March 31, 2021						December 31, 2020
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
With no related allowance recorded
Commercial, Industrial and Agricultural	$	1,207	$	167	$	—	$	1,400	$	367	$	—
1-4 Family Residential Real Estate	3,110		2,623		—		3,034		2,473		—
1-4 Family HELOC	313		300		—		130		124		—
Multi-family and Commercial Real Estate	5,937		4,491		—		4,549		3,161		—
Construction, Land Development and Farmland	7,185		6,801		—		6,809		6,452		—
Consumer	3,605		2,352		—		3,590		2,348		—
Subtotal	$	21,357	$	16,734	$	—	$	19,512	$	14,925	$	—
With an allowance recorded
Commercial, Industrial and Agricultural	$	859	$	847	$	847	$	859	$	847	$	717
1-4 Family Residential Real Estate	0		0		0		104		104		18
1-4 Family HELOC	0		0		0		0		0		0
Multi-family and Commercial Real Estate	150		150		70		0		0		0
Construction, Land Development and Farmland	0		0		0		0		0		0
Consumer	66		64		17		34		34		13
Subtotal	1,075		1,061		934		997		985		748
Total	$	22,432	$	17,795	$	934	$	20,509	$	15,910	$	748

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~~NOTE 4 - OTHER REAL ESTATE~~

The average recorded investment in impaired loans for the period ended March 31, 2021, and 2020 was as follows:


	Three months ended March 31,
	2021				2020
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no allowance
Commercial, Industrial and Agricultural	$	267	$	6	$	298	$	5
1-4 Family Residential Real Estate	2,548		33		2,630		40
1-4 Family HELOC	212		3		278		0
Multi-family and Commercial Real Estate	3,826		88		3,654		53
Construction, Land Development and Farmland	6,627		104		4,290		54
Consumer	2,350		76		1,193		1
Subtotal	$	15,830	$	310	$	12,343	$	153
With an allowance recorded
Commercial, Industrial and Agricultural	$	847	$	6	$	852	$	20
1-4 Family Residential Real Estate	52		0		52		0
1-4 Family HELOC	0		0		0		0
Multi-family and Commercial Real Estate	75		2		0		0
Construction, Land Development and Farmland	0		0		0		0
Consumer	49		2		19		0
Subtotal	$	1,023	$	10	$	923	$	20
Total	$	16,853	$	320	$	13,266	$	173

AtRestructured Loans

As of March 31, 2021 and December 31, 2020, the Company had recorded investments in troubled debt restructurings (“TDRs”) of $3,938 and $4,236, respectively. The Company did not allocate a specific allowance for those loans at March 31, 2021 and December 31, 2020 and there were no commitments to lend additional amounts. Loans accounted for as TDR include modifications from original terms such as those due to bankruptcy proceedings, certain modifications of amortization periods or extended suspension of principal payments due to customer financial difficulties. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. Loans accounted for as TDR are individually evaluated for impairment.

There were 0 TDR modifications in the three months ending March 31, 2021 or March 31, 2020.

Programs as part of COVID-19 Relief

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law in March 2020 and subsequently amended, along with subsequent regulatory guidance encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by U.S. GAAP beginning March 1, 2020 until the earlier of January 1, 2022 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak terminates. The following table outlines the Company's recorded investment and percentage of loans held for investment by class of financing receivable for Company executed deferrals that remain on deferral at March 31, 2021, in connection with Company COVID-19 relief programs. These deferrals typically ranged from sixty to ninety days per deferral and were not considered TDRs under the interagency regulatory guidance or the CARES Act.. As of March 31, 2021, the Company had a total of $597,327 loans previously deferred that returned to normal payment status.

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	March 31, 2021
	Active Deferrals		% of Loans
Multi-family and Commercial	$	21,329	0.94	%
Construction, Land Development and Farmland	11,792		0.52	%
Total	$	33,121	1.46	%

The CARES Act provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (“SBA”) to administer new loan programs including, but not limited to, the guarantee of loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). As of March 31, 2021, the Company had 588 PPP loans outstanding amounting to $41.9 million which are included in the commercial, industrial, and agricultural segment. PPP loans do not have a corresponding allowance as they are fully guaranteed by the SBA. Fees range from 1% to 5% of the loan and are deferred and amortized over the life of the loan. As PPP loans are forgiven, any ~~other real estate.~~deferred loan fee or cost is recognized related to each individual loan. As of March 31, 2021, $41.5 million in PPP loans had been forgiven cumulatively since the CARES Act’s inception. During the three months ended March 31, 2021, $1,042 in fees and interest was recognized in earnings.

NOTE 4 - 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. Leases with initial terms of less than one parcel 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,year are not recorded on the balance sheet.

The Company’s long-term lease agreements are classified as operating leases. Certain of ~~other real estate was $750~~these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of ~~one parcel~~the lease liabilities to the extent the options are reasonably assured of ~~other real estate. During~~being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The implementation of the ~~three months ended March 31, 2019, $943 was added to other real estate. Expenses~~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 ~~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:


	March 31, 2021			December 31, 2020
Operating leases right of use assets	$	13,372		$	13,103
Operating leases liabilities	$	14,552		$	14,231
Weighted average remaining lease term (in years)	6.08			6.33
Weighted average discount rate	4.30		%	4.34		%

The components of lease expense included in occupancy expenses for the three months ended March 31, ~~2019.~~2021 and 2020, were as follows:


	Three months ended March 31,
	2021		2020
Operating lease cost	$	806	$	628
Short-term lease cost	2		0
Variable lease cost	97		80
Total lease cost	$	905	$	708

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The Company does not separate lease and non-lease components and instead elects to account for them as a single lease component. Variable lease cost primarily represents variable payments such as common area maintenance, utilities, and property taxes.

A maturity analysis of operating lease liabilities and a reconciliation of undiscounted cash flows to the total operating lease liability is as follows:


Lease payments due on or before	March 31, 2021
March 31, 2022	$	2,255
March 31, 2023	2,702
March 31, 2024	2,717
March 31, 2025	2,700
March 31, 2026	2,211
Thereafter	3,773
Total undiscounted cash flows	16,358

Discount on cash flows	(1,806)
Total lease liability	$	14,552

The Company entered into a five year lease with a related party that commenced January 1, 2021 and has a base annual rental of $211,000, with a 2.5% per year increase. This lease may be terminated December 31, 2021 with a 90-day notice and included in the table above.

NOTE 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, 2021 were designated as cash flow hedges of certain short-term interest-bearing liabilities and subordinated debentures, which are fully effective. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swap agreements. NaN gains or losses were reclassified from accumulated other comprehensive income into net income during the periods presented.

Summary information related to the interest rate swaps designated as cash flow hedges as of March 31, 2021, is as follows:


Notional amounts	$	160,000
Weighted average pay rates	2.05		%
Weighted average receive rates	0.35		%
Weighted average maturity	2.85 years
Unrealized losses	$	6,178

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The following table reflects the cash flow hedges included in the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, respectively:


	March 31, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value



Included in other liabilities:
Interest rate swaps related to:
Subordinated debentures	$	10,000	$	(598)	$	10,000	$	(690)
Short-term interest-bearing liabilities	150,000		(5,580)		150,000		(6,967)
Total included in other liabilities	$	160,000	$	(6,178)	$	160,000	$	(7,657)

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 months ended March 31, 2021 and 2020, respectively:


	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
	Three months ended March 31,
	2021		2020
Interest rate swaps - subordinate debentures	$	68	$	(289)
Interest rate swaps - interest-bearing liabilities	1,024		(4,046)
	$	1,092	$	(4,335)

Fair Value Hedges

Summary information related to the fair value hedges as of March 31, 2021, is as follows:


Notional amounts	$	17,925
Weighted average pay rates	3.67		%
Weighted average receive rates	1.17		%
Weighted average maturity	7.83 years
Unrealized losses	$	971

The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, respectively:


	March 31, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value



Included in other liabilities:
Interest rate swaps related to investments	17,925		(971)		18,525		(1,495)
Total included in other liabilities	$	17,925	$	(971)	$	18,525	$	(1,495)

The following table reflects the fair value hedges and the underlying hedged items included in the Consolidated Statements of Income for the three months ended March 31, 2021 and 2020, respectively:


		Three months ended March 31,
Item	Location	2021		2020
Interest rate swaps - securities	Interest on investment securities, nontaxable	$	(121)	$	(47)
Hedged item - securities	Interest on investment securities, nontaxable	$	121	$	47

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~~NOTE 5 - FAIR VALUES OF ASSETS AND LIABILITIES~~

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

~~Level 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.~~

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.

~~Table of Contents~~

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

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

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

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

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

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

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

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis include the following:

~~Impaired Loans~~: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on the present value of expected payments using the loan’s effective rate as the discount rate or recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

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

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

Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

~~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:

Valuation
Techniques (1)

Significant
Unobservable Inputs

Range
(Weighted Average)

~~Impaired loans~~

~~Appraisal~~

~~Estimated costs to sell~~

~~10%~~

~~Other real estate owned~~

~~Appraisal~~

~~Estimated costs to sell~~

~~10%~~

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

~~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~~board of ~~Directors~~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 ~~the Company~~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 ~~Company~~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 ~~Commerce~~Reliant Bancorp (then known as "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~~Reliant Bancorp's common stock on the grant date.

On June 18, 2015, the shareholders of ~~Commerce~~Reliant Bancorp (then known as "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 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 March 31,
	2021		2020
Stock-based compensation expense before income taxes	$	339	$	349
Less: deferred tax benefit	(89)		(91)
Reduction of net income	$	250	$	258

Common Stock Options

A summary of stock option activity for the three months ended March 31, ~~2020~~2021 is as follows:


		Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value			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
Outstanding at December 31, 2020								Outstanding at December 31, 2020	116,621	$	18.97	5.87 years	$	304
Granted	Granted	—	$	—				Granted	0	$	0
Exercised	Exercised	(868)	$	8.49	1.73 years	11		Exercised	(600)	$	13.65		4
Forfeited or expired	Forfeited or expired	—	$	—				Forfeited or expired	(600)	$	26.43
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
Outstanding at March 31, 2021								Outstanding at March 31, 2021	115,421	$	18.96	5.66 years	$	1,126
Exercisable at March 31, 2021								Exercisable at March 31, 2021	79,721	$	16.56	4.82 years	$	969

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,~~2021, there was ~~$346~~$185 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 2.70 years.

2825

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:~~2021:


		Restricted Stock Units				Restricted Stock						Restricted Stock Units			Restricted Stock
		Shares	Weighted Average Grant-Date Fair Value		Shares	Weighted Average Grant-Date Fair Value			Underlying 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
Outstanding at January 1, 2021								Outstanding at January 1, 2021	132,650	$	16.93	40,910	$	26.82
Granted	Granted	—	—		—	—		Granted	2,000	18.42		0	0
Vested	Vested	—	—		(11,163)	21.89		Vested	0	0		(2,000)	27.49
Forfeited	Forfeited	—	—		(3,837)	21.89		Forfeited	(1,000)	22.13		0	0
Non-vested shares at March 31, 2020		47,750	$	23.30	75,960	$	25.99
Outstanding at March 31, 2021								Outstanding at March 31, 2021	133,650	$	16.92	38,910	$	26.78

As of March 31, ~~2020,~~2021, there was ~~$2,323~~$1,361 and $135 of unrecognized compensation cost related to non-vested restricted ~~stock~~share units and restricted stock ~~unit~~share awards, respectively. The cost is expected to be recognized over a weighted-average period of 1.95 years for the restricted stock units and 0.57 years for the restricted stock share awards. The total fair value of shares vested during three months ended March 31, 2021 was $37.

NOTE 7 - REGULATORY CAPITAL REQUIREMENTS

The Company and the Bank isare 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.~~action or affect the amount of dividends the Company and the Bank may distribute. Management believes that as of March 31, ~~2020,~~2021, the Company and the Bank ~~meets~~met all capital adequacy requirements to which ~~it is~~they were 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, 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~~Reliant Bancorp and the Bank (required) are presented below as of March 31, ~~2020~~2021 and December 31, ~~2019.~~2020.


		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
March 31, 2021														March 31, 2021
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	$	273,173	9.33	%	$	117,116	4.00	%	$	146,395	5.00	%
Common equity tier 1		172,103		9.54	%	126,281		7.00	%	117,261		6.50	%
Common equity tier I														Common equity tier I	261,384		10.41	%	175,763		7.00	%	163,208		6.50	%
Tier I risk-based capital														Tier I risk-based capital	273,173		10.88	%	213,416		8.50	%	200,863		8.00	%
Total risk-based capital														Total risk-based capital	353,538		14.09	%	263,460		10.50	%	250,914		10.00	%
Bank														Bank
Tier I leverage														Tier I leverage	$	324,052	11.06	%	$	117,198	4.00	%	$	146,497	5.00	%
Common equity tier I														Common equity tier I	324,052		12.93	%	175,434		7.00	%	162,903		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	324,052		12.93	%	213,027		8.50	%	200,496		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	345,487		13.79	%	263,061		10.50	%	250,534		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	%

Table of Contents


	Actual Regulatory Capital				Minimum Required Capital Including Capital Conservation Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
December 31, 2020
Reliant Bancorp
Tier I leverage	$	262,282	8.91	%	$	117,747	4.00	%	$	147,184	5.00	%
Common equity tier I	250,513		10.22	%	171,584		7.00	%	159,328		6.50	%
Tier I risk-based capital	262,282		10.70	%	208,355		8.50	%	196,099		8.00	%
Total risk-based capital	342,246		13.96	%	257,420		10.50	%	245,162		10.00	%
Bank
Tier I leverage	$	313,633	10.64	%	$	117,907	4.00	%	$	147,384	5.00	%
Common equity tier I	313,633		12.83	%	171,117		7.00	%	158,894		6.50	%
Tier I risk-based capital	313,633		12.83	%	207,785		8.50	%	195,562		8.00	%
Total risk-based capital	334,919		13.71	%	256,503		10.50	%	244,288		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							Three Months Ended
		March 31,							March 31,
		2020		2019			2021		2020
Basic EPS Computation	Basic EPS Computation					Basic EPS Computation
Net income attributable to common shareholders		$	(215)	$	3,824
Net income (loss) attributable to common shareholders						Net income (loss) attributable to common shareholders	$	12,149	$	(215)
Weighted average common shares outstanding	Weighted average common shares outstanding	11,892,723		11,405,438		Weighted average common shares outstanding	16,615,169		11,892,723
Basic earnings per common share		$	(0.02)	$	0.34
Basic earnings (loss) per common share						Basic earnings (loss) per common share	$	0.73	$	(0.02)
Diluted EPS Computation	Diluted EPS Computation					Diluted EPS Computation
Net income attributable to common shareholders		$	(215)	$	3,824
Net income (loss) attributable to common shareholders						Net income (loss) attributable to common shareholders	$	12,149	$	(215)
Weighted average common shares outstanding	Weighted average common shares outstanding	11,892,723		11,405,438		Weighted average common shares outstanding	16,615,169		11,892,723
Dilutive effect of stock options, restricted stock shares and units, and employee stock purchase plan	Dilutive effect of stock options, restricted stock shares and units, and employee stock purchase plan	2,297		81,707		Dilutive effect of stock options, restricted stock shares and units, and employee stock purchase plan	125,134		0
Adjusted weighted average common shares outstanding	Adjusted weighted average common shares outstanding	11,895,020		11,487,145		Adjusted weighted average common shares outstanding	16,740,303		11,892,723
Diluted earnings per common share		$	(0.02)	$	0.33
Diluted earnings (loss) per common share						Diluted earnings (loss) per common share	$	0.73	$	(0.02)

NOTE 9 - ~~SEGMENT REPORTING~~FAIR VALUES OF ASSETS AND LIABILITIES

~~The~~Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that 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,ability to ~~the extent practicable, as if each segment operated on a stand-alone basis.~~access.

~~Retail Banking~~ ~~provides deposit and lending services~~Level 2 Inputs 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.valuation methodology include:

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

The ~~following presents summarized results~~methods described above may produce a fair value calculation that may not be indicative of ~~operations for~~net realizable value or reflective of future fair values. Furthermore, while the Company’s ~~business segments for~~valuation methods are appropriate and consistent with other market participants, 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 - DERIVATIVES~~

~~The Company utilizes interest rate swap agreements as part~~use of ~~its asset liability management strategy~~different methodologies or assumptions to ~~help manage its interest rate risk position. The notional amount of~~determine 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, 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~~certain financial instruments could result in ~~other assets (liabilities) with changes in~~a different estimate of fair value ~~recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should~~at the ~~hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swap agreements.~~

reporting date.

3228

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

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

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

~~NOTE 10 - DERIVATIVES (CONTINUED)~~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.

~~Summary information related to~~The following table sets forth the ~~interest rate swaps designated as cash flow hedges~~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, is as follows:~~2021 and December 31, 2020:

~~Notional amounts~~


	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, 2021
Assets
U. S. Treasury and other U. S. government agencies	$	226	$	0	$	226	$	0
State and municipal	204,900		0		204,900		0
Corporate bonds	27,264		0		27,264		0
Mortgage backed securities	32,023		0		32,023		0
Asset backed securities	2,778		0		2,778		0

Liabilities
Derivative liabilities	$	7,149	$	0	$	7,149	$	0
December 31, 2020
Assets
U. S. Treasury and other U. S. government agencies	$	48	$	0	$	48	$	0
State and municipal	200,988		0		200,988		0
Corporate bonds	24,113		0		24,113		0
Mortgage backed securities	28,442		0		28,442		0
Asset backed securities	3,062		0		3,062		0


Liabilities
Derivative liabilities	$	9,152	$	0	$	9,152	$	0

Table of Contents

~~160,000~~

~~Weighted average pay rates~~

~~2.050~~

~~Weighted average receive rates~~

~~1.679~~

~~Weighted average maturity~~

~~3.81 years~~

~~Unrealized losses~~

~~7,947~~

~~Cash Flow Hedges~~


	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, 2021
Assets
Impaired loans	$	16,861	$	0	$	0	$	16,861
Other real estate	1,198		0		0		1,198
Other repossessions	1,283		0		0		1,283
December 31, 2020
Assets
Impaired loans	$	15,162	$	0	$	0	$	15,162
Other real estate	1,246		0		0		1,246
Other repossessions	1,424		0		0		1,424

The following table presents ~~the net gains (losses) recorded in accumulated other comprehensive income~~additional quantitative information about assets measured at fair value on a nonrecurring basis and ~~the Consolidated Statements of Income relating~~for which we have utilized Level 3 inputs to ~~the cash flow derivative instruments for the three months ended~~determine fair value at March 31, 2021 and December 31, 2020:

~~Amount of Gain (Loss) Recognized in OCI~~Valuation
~~(Effective Portion)~~Techniques (1)

~~Amount of Gain (Loss) Reclassified from OCI to Interest Income~~Significant
Unobservable Inputs

~~Amount of Gain (Loss) Recognized in Other Noninterest Income (Ineffective Portion)~~Range
(Weighted Average)

~~March 31, 2020~~

~~Interest rate contracts~~Impaired loans

~~(4,335,000)~~

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 ~~following table reflects~~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 ~~hedges included in~~method if the ~~Consolidated Balance Sheets as~~loan is not collateral dependent. Estimated cash flows change and appraised values 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

the assets or collateral underlying the loans will be sensitive to changes.

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

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

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

~~NOTE 10 - DERIVATIVES (CONTINUED)~~Carrying amounts and estimated fair values of financial instruments not reported at fair value at March 31, 2021 and December 31, 2020 were as follows:


March 31, 2021	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets
Cash and due from banks	$	13,105	$	13,105	$	13,105	$	0	$	0
Interest-bearing deposits in financial institutions	104,620		104,620		104,620		0		0
Federal funds sold	186		186		0		186		0
Loans, net	2,256,929		2,261,953		0		0		2,261,953
Mortgage loans held for sale	166,599		168,456		0		168,456		0
Accrued interest receivable	14,568		14,568		0		14,568		0
Restricted equity securities	16,146		16,146		0		16,146		0
Financial liabilities
Deposits	$	2,612,910	$	2,615,295	$	0	$	0	$	2,615,295
Accrued interest payable	3,087		3,087		0		3,087		0
Subordinate debentures	70,719		72,522		0		0		72,522
Federal Home Loan Bank advances	0		0		0		0		0

~~Fair Value Hedges~~


December 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	$	13,717	$	13,717	$	13,717	$	0	$	0
Interest-bearing deposits in financial institutions	79,756		79,756		79,756		0		0
Federal funds sold	1,572		1,572		0		1,572		0
Loans, net	2,280,147		2,293,723		0		0		2,293,723
Mortgage loans held for sale	147,524		149,342		0		149,342		0
Accrued interest receivable	14,889		14,889		0		14,889		0
Restricted equity securities	16,551		16,551		0		16,551		0
Financial liabilities
Deposits	$	2,579,235	$	2,583,525	$	0	$	0	$	2,583,525
Accrued interest payable	2,571		2,571		0		2,571		0
Subordinate debentures	70,446		71,750		0		0		71,750
Federal Home Loan Bank advances	10,000		10,000		0		0		10,000

The ~~following table reflects the~~methods and assumptions used to estimate fair value ~~hedges included in the Consolidated Statements of Income for the three months ended March 31, 2020 and 2019, respectively:~~

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)
are described as follows:

~~The following table reflects~~Carrying amount is the estimated fair value ~~hedges included in the Consolidated Balance Sheets as~~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,

Table 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 assets:
Interest rate swaps related to investments $ — $ — $ — $ —
Total included in other assets $ — $ — $ — $ —
Included in other liabilities:
Interest rate swaps related to investments 19,605 1,671 19,605 630
Total included in other liabilities $ 19,605 $ 1,671 $ 19,605 $ 630
Contents

fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of debt is based on discounted cash flows using current rates for similar financing.

~~NOTE 11 – INCOME TAXES~~

Income tax expense (benefit) for the three months ended March 31, 2020 totaled $(910) compared to $372 for the three months ended March 31, 2019. The effective tax rate for the three months ended March 31, 2020 was 43.3% compared to 14.0% for the three months ended March 31, 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 1210 - ~~BUSINESS COMBINATION~~SEGMENT REPORTING

~~Effective January 1, 2020,~~The Company has 2 reportable business segments: commercial banking and residential mortgage banking. Segment information is derived from the ~~Company completed the acquisition of TCB Holdings pursuant~~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 ~~Agreement~~extent practicable, as if each segment operated on a stand-alone basis.

Commercial Banking provides deposit and ~~Plan~~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 ~~Merger, dated September 16, 2019 (the “TCB Holdings Agreement”), by~~credit throughout the United States. The traditional first lien residential mortgage loans are typically underwritten to government agency standards and ~~among the Company, TCB Holdings,~~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 ~~Community Bank & Trust, a Tennessee-chartered commercial bank~~are underwritten to their standards. RMV also acquires loans from approved correspondent lenders and ~~wholly owned subsidiary of TCB Holdings (“CBT”). On the terms and subject to the conditions set forth~~resells them in the ~~Merger Agreement, TCB Holdings merged with~~secondary market. These loans are not government agency-qualified loans and ~~into the Company (the “TCB Holdings Transaction”), with the Company~~are of higher risk, such as the surviving corporation. Immediately following the TCB Holdings Transaction, CBT merged with and into Reliant, with Reliant continuing as the surviving banking corporation. Pursuant to the TCB Holdings Agreement, at the effective timejumbo loans or senior position home equity lines 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 common stock, par value $1.00 per share (“Company Common Stock”). The Company issued 811,210 shares of Company Common Stock and paid approximately $18,073 in cash, in respect of shares of TCB Holdings common stock as consideration for the TCB Holdings Transaction. The Company did not issue fractional shares of Company Common Stock in connection with the TCB Holdings Transaction, but paid cash in lieu of fractional shares based on the volume weighted average closing price per share of the Company Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including December 30, 2019 (calculated as $22.36). At the effective time 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 paid aggregate consideration to holders of unexercised options of approximately $430. All shares of Company’s common stock outstanding prior to the TCB Merger were unaffected by the TCB Merger.credit.

The following ~~table details~~presents summarized results of operations for the ~~financial impact of~~Company’s business segments for the ~~business combination, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:~~periods indicated:


	Three Months Ended March 31, 2021
	Commercial Banking		Residential Mortgage Banking		Elimination Entries		Consolidated
Net interest income	$	29,133	$	893	$	0	$	30,026
Provision for loan losses	0		0		0		0
Noninterest income	2,409		5,033		(105)		7,337
Noninterest expense (excluding merger expense)	16,460		5,204		0		21,664
Merger expense	0		0		0		0
Income tax expense (benefit)	2,933		47		0		2,980
Net income (loss)	12,149		675		(105)		12,719
Noncontrolling interest in net income of subsidiary	0		(675)		105		(570)
Net income attributable to common shareholders	$	12,149	$	0	$	0	$	12,149

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

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

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


~~Calculation of Purchase Price~~
~~Shares of 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~~


	Three Months Ended March 31, 2020
	Commercial Banking		Residential Mortgage Banking		Elimination Entries		Consolidated
Net interest income	$	16,782	$	333	$	0	$	17,115
Provision for loan losses	2,900		0		0		2,900
Noninterest income	1,709		1,565		8		3,282
Noninterest expense (excluding merger expense)	12,461		2,951		0		15,412
Merger expense	4,186		0		0		4,186
Income tax (benefit) expense	(841)		(69)		0		(910)
Net (loss) income	(215)		(984)		8		(1,191)
Noncontrolling interest in net loss of subsidiary	0		984		(8)		976
Net income attributable to common shareholders	$	(215)	$	0	$	0	$	(215)


~~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~~11 – INCOME TAXES

~~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.

~~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)~~

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

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

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

~~ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”~~ ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available for sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is expected to be effective on January 1, 2023. We are currently evaluating the potential impact of ASU 2016-13 on our financial statements. We are currently developing an implementation plan to include assessment of processes, portfolio segmentation, model development, system requirements and the identification of data and resource needs, among other things. The adoption of the ASU 2016-13 could result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses for certain debt securities and other financial assets. In April 2019, the FASB issued ASU No. 2019-04, ~~Codification Improvements to Financial Instruments - Credit Losses (ASC 326), Derivatives and Hedging (ASC 815), and Financial Instruments (ASC 825)~~. The amendments in the ASU improve the Codification by eliminating inconsistencies and providing clarifications. The amended guidance in this ASU related to the credit losses will be effective for the Company for fiscal years and interim periods beginning after December 15, 2022. The Company is currently evaluating the impact of these ASUs on the Company’s consolidated financial statements. While we are currently unable to reasonably estimate the impact of adopting 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.

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

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

~~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 15 - SUBSEQUENT EVENTS~~

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

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 headquartered in Clarksville, Tennessee. FAB operated branch offices in Montgomery, Davidson and Williamson 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.

~~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 15 - SUBSEQUENT EVENTS (CONTINUED)~~

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

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

~~Table of Contents~~

~~Item2. 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 months ended March 31, 2020:~~

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

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

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

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

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

•~~Successfully closed the TCB Holdings Transaction and conversion with Community Bank and Trust.~~

The following discussion and analysis is intended to assist in the understanding and assessment of significant changes and trends related to our financial position and operating results. This discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere herein along with our Annual Report on Form 10-K for the year ended December 31, 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 completed the acquisition of TCB Holdings,~~ pursuant to the TCB Holdings Agreement, by and among the Company, TCB Holdings, and CBT. On the terms and subject to the conditions set forth in the Merger Agreement, TCB Holdings merged with and into the Company, with the Company as the surviving corporation. Immediately following the TCB Holdings Transaction, CBT merged with and into Reliant Bank, with Reliant Bank continuing as the surviving banking corporation. Pursuant to the Merger Agreement, at the Effective Time of the TCB Holdings Transaction, each outstanding share of TCB Holdings common stock, par value $1.00 per share (other than certain excluded shares), was converted into and canceled in exchange for the right to receive (i) $17.13 in cash, without interest, and (ii) 0.769 shares of Company's common stock. The Company issued 811,210 shares of Company Common Stock and paid approximately $18,073 in cash, in respect of shares of TCB Holdings common stock as consideration for the TCB Holdings Transaction. The Company did not issue fractional shares of Company Common Stock in connection with the TCB Holdings Transaction, but paid cash in lieu of fractional shares based on the volume weighted average closing price per share of the Company Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including December 30, 2019 (calculated as $22.36). At the Effective Time, each outstanding option to purchase TCB Holdings common stock was canceled in exchange for a cash payment in an amount equal to the product of (i) $34.25 minus the per share exercise price of the option multiplied by (ii) the number of shares of TCB Holdings common stock subject to the option (to the extent not previously exercised). The Company paid aggregate consideration payable to holders of unexercised options of approximately $430. All shares of Company’s common stock outstanding prior to the merger were unaffected by the TCB Holdings Transaction.

~~Acquisition of parent company of FAB~~

On October 22, 2019, 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.

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 FABK Merger, FABK merged with and into Reliant Bancorp, 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.

~~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 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 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.

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.

~~Recent Events – COVID-19 Pandemic~~

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

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

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

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

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

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

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

~~Table of Contents~~

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

~~Critical Accounting Policies~~

The accounting principles we follow and our methods of applying these principles conform to GAAP and with general practices within the banking industry. There have been no significant changes to our critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2019. The following is a brief summary of the more significant policies.

~~Principles of Consolidation~~

The consolidated financial statements as of and for the periods presented include the accounts of Reliant Bancorp, the Bank, TRUPS, Holdings, and RMV. All significant intercompany balances and transactions have been eliminated in consolidation. As described in Note 12 to our consolidated financial statements, effective on January 1, 2020, Reliant Bancorp and TCB Holdings merged.

During 2011, the Bank and another entity organized RMV. Under the RMV operating agreement, the non-controlling member receives 70% of the cash flow distributions of RMV, and the Bank receives 30% of the cash flow distributions, once the non-controlling member recovers its capital contributions to RMV. The non-controlling member is required to fund RMV’s losses in arrears via additional capital contributions to RMV. As of March 31, 2020, RMV's cumulative losses to date totaled $14,399. RMV will have to generate net income of at least this amount before the Bank will participate in future income distributions.

~~Purchased Loans~~

The Company maintains an allowance for loan losses on purchased loans based on credit deterioration subsequent to the acquisition date. In accordance with the accounting guidance for business combinations, because we recorded all acquired loans at fair value as of the date of the TCB Holdings Transaction with the Company, we did not establish an allowance for loan losses on any of the loans we purchased as of the acquisition date as any credit deterioration evident in the loans was included in the determination of the acquisition date fair values. For purchased credit-impaired loans accounted for under ASC 310-30, management is required to establish an allowance for loan losses subsequent to the date of acquisition by re-estimating expected cash flows on these loans on a quarterly basis, with any decline in expected cash flows due to a credit triggering impairment recorded as provision for loan losses. The allowance for loan losses established is the excess of the loan’s carrying value over the present value of projected future cash flows, discounted at the current accounting yield of the loan or the fair value of collateral (less estimated costs to sell) for collateral dependent loans. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. While the determination of specific cash flows involves estimates, each estimate is unique to the individual loan, and none is individually significant. For non-purchased credit-impaired loans acquired in the TCB Holdings Transaction and that are accounted for under ASC 310-20, the historical loss estimates are based on the historical losses experienced by the Bank for loans with similar characteristics as those acquired other than purchased credit-impaired loans. The Bank records an allowance for loan losses only when the calculated amount exceeds the remaining credit mark established at acquisition.

~~Allowance for Loan Losses~~

The allowance for loan losses ("allowance") is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using historical loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, current economic conditions (national and local), and other factors such as changes in interest rates, portfolio concentrations, changes in the experience, ability, and depth of the lending function, levels of and trends in charged-off loans, recoveries, past-due loans and volume and severity of classified loans. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The entire allowance is available for any loan that, in management’s judgment, should be charged off.

~~Table of Contents~~

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

~~Fair Value of Financial Instruments~~

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note to our consolidated financial statements. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

~~COMPARISON OF RESULTS OF OPERATIONS FOR THETHREE MONTHSENDED MARCH 31, 2020AND 2019~~

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 Transaction on January 1, 2020, the Company:~~

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

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

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

•~~expanded its employee base from 300 to 321 full time equivalent employees.~~

~~Earnings~~

Net income (loss) attributable to common shareholders amounted to $(215), or $(0.02) per basic share, for the three months ended March 31, 2020 compared to $3,824, or $0.34 per basic share, for the same period in 2019. Diluted net income (loss) attributable to common shareholders was $(0.02) per share for the three months ended March 31, 2020 compared to $0.33 per share for the three months ended March 31, 2019. The major components contributing to the change when compared to the prior year are an increase of 53.8% in noninterest expense (mainly driven by merger expenses) for the three months ended March 31, 2020, and an increase of $2,900 in provision for loan losses for the three months ended March 31, 2020, compared to the same period in 2019. These and other components of earnings are discussed further below.

~~Table of Contents~~

~~Net Interest Income~~

Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of our revenues. The following table sets forth the amount of our average balances, interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for interest-earning assets and interest-bearing liabilities, net interest spread and net interest margin for the three months ended March 31, 2020, and 2019 (dollars in thousands):

Three Months Ended
March 31, 2020 Three Months Ended
March 31, 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 $ 1,613,033 5.01 $ 20,077 $ 1,238,341 5.16 $ 15,766 $ 7,323 $ (3,012) $ 4,311
Loan fees — 0.22 890 — 0.23 706 184 — 184
Loans with fees 1,613,033 5.23 20,967 1,238,341 5.39 16,472 7,507 (3,012) 4,495
Mortgage loans held for sale 47,685 4.72 560 10,747 5.77 153 601 (194) 407
Deposits with banks 36,062 1.38 124 27,643 1.73 118 120 (114) 6
Investment securities - taxable 74,688 2.43 451 72,464 2.82 503 93 (145) (52)
Investment securities - tax-exempt 197,241 3.56 1,748 228,497 3.86 2,175 (272) (155) (427)
Federal funds sold and other 16,323 3.82 155 12,650 5.83 182 220 (247) (27)
Total earning assets 1,985,032 4.86 24,005 1,590,342 5.00 19,603 8,269 (3,866) 4,403
Nonearning assets 193,386 140,835
Total assets $ 2,178,418 $ 1,731,177
Interest bearing liabilities
Interest bearing demand 186,236 0.22 100 148,649 0.30 111 110 (121) (11)
Savings and money market 459,756 0.85 975 400,328 1.14 1,130 799 (954) (155)
Time deposits - retail 541,545 1.85 2,496 577,270 2.05 2,921 (165) (260) (425)
Time deposits - wholesale 229,820 2.22 1,266 106,625 2.47 650 1,057 (441) 616
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 borrowed funds 179,956 3.03 1,354 68,331 3.38 570 2,013 (1,229) 784
Total interest-bearing liabilities 1,597,313 1.56 6,191 1,301,203 1.68 5,382 3,814 (3,005) 809
Net interest rate spread (%) / Net interest income ($) 3.30 $ 17,814 3.32 $ 14,221 $ 4,455 $ (862) $ 3,594
Noninterest bearing deposits 312,137 (0.26) 211,122 (0.24)
Other noninterest bearing liabilities 27,069 9,391
Stockholder's equity 241,899 209,461
Total liabilities and stockholders' equity $ 2,178,418 $ 1,731,177
Cost of funds 1.30 1.44
Net interest margin 3.61 3.63

~~Table Assumptions~~—Average loan balances are inclusive of nonperforming loans. Interest income and yields computed on tax-exempt instruments are on a tax equivalent basis including a state tax credit included in loan yields of $304 for the three months ended March 31, 2020 and $300 for the same period in 2019. Net interest spread is calculated as the yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities. Net interest margin is the result of net interest income calculated on a tax-equivalent basis divided by average interest earning assets for the period. Changes in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for earning assets and sources of funds on which interest is received or paid. Volume change is calculated as change in volume times the previous rate while rate change is change in rate times the previous volume. Changes not due solely to volume or rate changes have been allocated to volume change and rate change in proportion to the relationship of the absolute dollar amounts of the change in each category.

~~Table of Contents~~

~~Analysis~~—For the three months ended March 31, 2020, we recorded net interest income on a tax-equivalent basis of approximately $17,814, which resulted in a net interest margin (net interest income divided by the average balance of interest earning assets) of 3.61%. For the three months ended March 31, 2019, we recorded net interest income on a tax equivalent basis of approximately $14,221, which resulted in a net interest margin of 3.63%.

Our year-over-year average loan volume increased by approximately 30.3% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 and was mainly driven by the merger with CBT. Our combined loan and loan fee yield decreased from 5.39% to 5.23% for the three months ended March 31, 2020 compared to the same period in 2019. The decreased yield for the three months ended March 31, 2020 is primarily attributable to a 13 basis points decrease in contractual loan yields including adjustment for purchase accounting accretion, a two basis points decrease in state tax credits, and a one basis point decrease in loan fees.

Our tax-equivalent yield on tax-exempt investments was 3.56% for the three months ended March 31, 2020 compared to 3.86% and for the same period in 2019. Our year-over-year average tax-exempt investment volume decreased by 13.7% for the three months ended March 31, 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 by 3.1% for the three months ended March 31, 2020 compared to the same period in 2019.

Our cost of funds decreased to 1.30% from 1.44% for the three months ended March 31, 2020 compared to the same period in 2019. The decrease in our cost of funds was primarily driven by an across the board decrease in the cost of our interest bearing deposits and other interest-bearing liabilities due to the recent decrease in rates by the Federal Reserve. We experienced a 47.8% increase in our average noninterest bearing deposits for the three months ended March 31, 2020 when compared to the same period in 2019 which is mainly attributable to the merger with CBT.

The Bank strives to maintain a strong net interest margin that is insulated from changes in market interest rates. Our net interest margin, while generally considered fairly neutral, is currently subject to slightly contract in a rising rate environment and slightly expand in a falling rate environment. In the lowering interest rate environment that we anticipate, the shorter durations of our non-core funding sources are expected to contribute to interest expense savings that are expected to be slightly higher than (i) the anticipated loss of interest income 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 for loan losses for the three months ended March 31, 2020 compared to $0 for the three months ended March 31, 2019. The increase in provision~~ expense for the three months ended March 31, ~~2020 can be primarily attributed~~2021 totaled $2,980, compared to ~~the recent downturn in the economy due to COVID-19 while~~ a ~~portion is due to the growing loan portfolio. See “Part I, Item 2. Management’s Discussion and Analysis~~benefit of Financial Condition and Results of Operations - Comparison of Balance Sheets at March 31, 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~~$910 for the three months ended March 31, ~~2020, and 2019 (dollars in thousands):~~

Three Months Ended March 31, Percent
Increase
2020 2019 (Decrease)
Noninterest Income
Service charges and fees on deposits $ 1,208 $ 884 36.7 %
Gains on mortgage loans sold, net 1,573 560 180.9 %
Securities gains, net — 131 (100.0) %
Gain on sale of other real estate 14 — 100.0 %
Gain on disposal of premises and equipment 9 — — %
Other noninterest income:
   Bank-owned life insurance 295 279 5.7 %
   Brokerage revenue 32 11 190.9 %
   Miscellaneous noninterest income 151 73 106.8 %
Total other noninterest income 478 363 31.7 %
Total noninterest income $ 3,282 $ 1,938 69.3 %

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

Service charges and fees on deposit accounts have increased due to the TCB Holdings Transaction and the concentrated effort in attracting noninterest-bearing deposits, with the majority of the 36.7% increase deriving from an increase in our debit card fees.

Securities gains and losses often fluctuate from period to period and can sometimes be attributable to various balance sheet risk strategies. During the three months ended March 31, 2020, the Company sold securities acquired from the TCB Holdings Transaction totaling $56,336 at no gain. During the three months ended March 31, 2019, the Company sold securities classified as available for sale totaling $10,558 with a gain of $131.

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 for the three months ended March 31, 2020 compared to $560 for the same period in the prior year. The increase in gains for the three months ended March 31, 2020 when compared to 2019 is primarily driven by the increase in volume in the RMV's correspondent lending channel. As discussed further in the notes to our consolidated financial statements, gains on mortgage loans sold are generally recognized at the time of a loan sale corresponding to the transfer of risk. The secondary market for the sale of non-qualified mortgage loans experienced a disruption related to the COVID-19 pandemic at March 31, 2020. As a result, the Company's held-for-sale portfolio increased by $32.9 million from December 31, 2019. Management expects this market to recover. Also, as of March 31, 2020, purchases of loans from correspondents have been halted until additional secondary market data is available.

~~During the three 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.~~

Noninterest income also includes appreciation in the cash surrender value of bank-owned life insurance, which was $295 for the three months ended March 31, 2020 compared to $279 for the same period in 2019. The assets that support these policies are administered by the life insurance carriers and the income we receive (i.e., increases or decreases in the cash surrender value of the policies) is dependent upon the returns the insurance carriers are able to earn on the underlying investments that support the policies. Earnings on these policies generally are not expected to be taxable.

~~Table of Contents~~

~~Noninterest Expense~~

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

Three Months Ended March 31, Percent
Increase
2020 2019 (Decrease)
Noninterest Expense
Salaries and employee benefits $ 9,237 $ 7,265 27.1 %
Occupancy 1,486 1,352 9.9 %
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 %
Merger expenses 4,186 2 209200.0 %
Other operating 1,703 1,472 15.7 %
Total noninterest expense $ 19,598 $ 12,746 53.8 %

Noninterest expense increased by $6,852, or 53.8%, for the three months ended March 31, 2020 due in large part to an increase in merger expenses and salaries and employee benefits. The three-month period ended March 31, 2020 has been impacted by the TCB Holdings Transaction that has resulted in adds to staff, additional vendor relationships and investments in technology. These and other factors impacting noninterest expense are discussed further below.

Salaries and employee benefits increased by $1,972 or 27.1% for the three months ended March 31, 2020 compared to the same period in 2019. This increase is primarily attributable to the TCB Holdings Transaction, and year over year growth causing an increase in full-time equivalent by 41. We believe the staffing level normalized by the end of the first quarter but will increase again in the second quarter as we close another merger.

Occupancy costs increased $134 or 9.9%, during the three months ended March 31, 2020 compared to the same period in 2019 mainly due to the TCB Holdings 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 one of the Hot Springs Arkansas offices subsequently closing in March 2020.

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

Advertising and public relations costs increased by $99 or 39.0% when comparing the three months ended March 31, 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 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 FDIC deposit insurance expense is based on our outstanding liabilities for the period multiplied by a factor determined by the FDIC, mainly driven by our most recent regulatory rating and certain financial performance factors. Our FDIC expense increased by $141 for the three months ended March 31, 2020, compared to the same period in 2019. This increase is primarily the result of our increase in deposits due to the TCB Holdings Transaction.

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Merger-related expenses increased by $4,184 for the three months ended March 31, 2020 when 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 merger expenses to continue to be incurred until the two mergers and conversion are complete.

Other operating expenses increased by $231 or 15.7% for the three months ended March 31, 2020, compared to the same period in 2019 mainly due to an increase in amortization of core deposit intangibles due to the TCB Holdings Transaction.

~~Income Taxes~~

During the three months ended March 31, 2020, we recorded consolidated income tax expense (benefit) of $(910) compared to $372 for the three months ended March 31, 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 returns of the Bank and non-controlling member for federal purposes.

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

~~Non-controlling Interest in NetLossof Subsidiary~~

Our non-controlling interest in net loss of subsidiary is solely attributable to the minority interest. The Bank has a 51% voting interest in this venture, but under the terms of the related operating agreement, the non-controlling member receives 70% of the cash flow distributions of RMV and the Bank receives 30% of any distribution, after the non-controlling member recovers its aggregate capital contributions. The non-controlling member is required to fund RMV's losses, in arrears, via additional capital contributions. RMV had a net loss of $976 for the three months ended March 31, 2020 compared to a net loss of $1,543 for the same period in 2019. The decreased loss for the three months ended March 31, 2020 when compared to the same period in 2019 is mainly attributable to the correspondent line of business. Also, see Note 9 to our consolidated financial statements for segment reporting.

~~COMPARISON OF BALANCE SHEETS ATMARCH 31, 2020AND DECEMBER 31, 2019~~

~~Overview~~

The Company’s total assets were $2,177,788 at March 31, 2020 and $1,898,467 at December 31, 2019. Assets increased by 14.7% from December 31, 2019 to March 31, 2020, primarily due to loan growth of $207,208, or 14.8%. Total liabilities were $1,943,116 at March 31, 2020 and $1,674,714 at December 31, 2019, an increase of 16.0%. The increase in liabilities from December 31, 2019 to March 31, 2020,2021 was substantially attributable to the increase in deposits of $138,659, or 8.8%, and an increase in FHLB advances of $116,891 during the period. These changes were materially impacted by the TCB Holdings Transaction. These and other components of our consolidated balance sheets are discussed further below.

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~~Loans~~

Lending-related income is the largest component of our net interest income and is a major contributor to profitability. The loan portfolio is the largest component of earning assets, and it, therefore, generates the largest portion of revenues. The absolute volume of loans and the volume of loans as a percentage of earning assets is an important determinant of net interest margin as loans are expected to produce higher yields than securities and other earning assets. As previously described, the competition for quality loans in our markets has remained strong. Our goal is to steadily grow our loan portfolio, focusing on quality. This is not always possible for various reasons, including but not limited to scheduled maturities or early payoffs exceeding new loan volume. Early payoffs typically increase in lowering rate environments as customers identify advantageous opportunities for refinancing. We have been adding experienced lending officers to our staff to help with loan growth. We have expanded our Middle Tennessee footprint into Cheatham County with the TCB Holdings Transaction. Total loans, net, at March 31, 2020, and December 31, 2019, were $1,604,582 and $1,397,374, respectively. This represented an increase of 14.8% from December 31, 2019 to March 31, 2020. As part of the increase in loans, $171,445, were acquired in connection with the TCB Holdings Transaction.

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

March 31, 2020 December 31, 2019
Amount Percent Amount Percent
Commercial, Industrial and Agricultural $ 283,035 17.4 % $ 245,515 17.5 %
Real estate:
1-4 Family Residential 261,718 16.2 % 227,529 16.1 %
1-4 Family HELOC 99,296 6.1 % 96,228 6.8 %
Multifamily and Commercial 635,650 39.2 % 536,845 38.1 %
Construction, Land Development and Farmland 308,598 19.1 % 273,872 19.4 %
Consumer 24,141 1.5 % 16,855 1.2 %
Other 7,456 0.5 % 13,180 0.9 %
1,619,894 100.0 % 1,410,024 100.0 %
Less:
Deferred loan fees (costs) 191 72
Allowance for loan losses 15,121 12,578
Loans, net $ 1,604,582 $ 1,397,374

~~The table below provides a summary of PCI loans as of March 31, 2020:~~


	~~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~~

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Commercial, industrial and agricultural loans above consist solely of loans made to U.S. domiciled customers. These include loans for use in normal business operations to finance working capital needs, equipment purchases, or other expansionary projects. Commercial, industrial, and agricultural loans of $283,035 at March 31, 2020, increased by 15.3% compared to $245,515 at December 31, 2019.

Real estate loans comprised 80.6% of the loan portfolio at March 31, 2020. Residential loans included in this category consist mainly of closed-end loans secured by first and second liens that are not held for sale and revolving, open-end loans secured by 1-4 family residential properties extended under home equity lines of credit. The Company increased the residential portfolio 11.5% from December 31, 2019 to March 31, 2020. Multi-family and commercial loans included in the real estate category above include (in typical order of prominence) loans secured by non-owner-occupied nonfarm nonresidential properties, loans secured by owner-occupied nonfarm nonresidential properties, and loans secured by multi-family residential properties. Multi-family and commercial real estate loans of $635,650 at March 31, 2020, increased 18.4% compared to the $536,845 held as of December 31, 2019. Real estate construction loans consist of 1-4 family residential construction loans, other construction loans, land loans, and loans secured by farmland. Construction lending has 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, automobile and other consumer loans. Our consumer loans experienced an increase from December 31, 2019, to March 31, 2020, of 43.2%.

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

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

One Year or
Less One to Five
Years Over Five
Years Total
Gross loans $ 487,657 $ 771,007 $ 361,230 $ 1,619,894
Fixed interest rate $ 874,394
Variable interest rate 745,500
Total $ 1,619,894

The information presented in the above table is based upon the contractual maturities or next repricing date of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity. Consequently, we believe this treatment presents fairly the maturity and repricing structure of the loan portfolio.

~~Allowance for Loan Losses~~

At March 31, 2020, the allowance for loan losses was $15,121 compared to $12,578 at December 31, 2019. The allowance for loan losses as a percentage of total loans was 0.93% at March 31, 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
Beginning Balance, January 1, 2020 and 2019 $ 12,578 $ 10,892
Loans charged off:
Commercial, Industrial and Agricultural (294) (6)
Real estate:
1-4 Family Residential — (17)
1-4 Family HELOC — —
Multifamily and Commercial — —
Construction, Land Development and Farmland (114) —
Consumer (31) (11)
Other — —
Total loans charged off (439) (34)
Recoveries on loans previously charged off:
Commercial, Industrial and Agricultural 61 240
Real estate:
1-4 Family Residential 11 212
1-4 Family HELOC 1 —
Multifamily and Commercial 3 34
Construction, Land Development and Farmland — —
Consumer 6 10
Other — —
Total loan recoveries 82 496
Net recoveries (charge-offs) (357) 462
Provision for loan losses 2,900 —
Total allowance for loan losses at end of period $ 15,121 $ 11,354
Gross loans at end of period ⁽¹⁾
$ 1,619,894 $ 1,261,194
Average gross loans ⁽¹⁾
$ 1,613,033 $ 1,238,341
Allowance for loan losses to total loans 0.93 % 0.90 %
Net recoveries (charge-offs) to average loans (annualized) (0.09) % 0.15 %

⁽¹⁾~~Loan balances exclude loans held for sale.~~

~~Table of Contents~~

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
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 $ 3,851 25.5 % 17.4 % $ 1,874 16.5 % 17.6 %
Real estate:
1-4 Family Residential 1,488 9.8 % 16.2 % 1,359 12.0 % 19.1 %
1-4 Family HELOC 873 5.8 % 6.1 % 670 5.9 % 7.3 %
Multifamily and Commercial 6,760 44.7 % 39.2 % 4,593 40.5 % 36.3 %
Construction, Land Development and Farmland 1,836 12.1 % 19.1 % 2,650 23.3 % 16.7 %
Consumer 298 2.0 % 1.5 % 171 1.5 % 1.8 %
Other 15 0.1 % 0.5 % 37 0.3 % 1.2 %
$ 15,121 100.0 % 100.0 % $ 11,354 100.0 % 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. 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
Nonaccrual loans $ 3,949 $ 4,071
Past due loans 90 days or more and still accruing interest 94 64
Restructured loans 1,785 1,799
Total nonperforming loans 5,828 5,934
Foreclosed real estate ("OREO") — 750
Total nonperforming assets $ 5,828 $ 6,684
Total nonperforming loans as a percentage of total loans 0.36 % 0.42 %
Total nonperforming assets as a percentage of total assets 0.27 % 0.35 %
Allowance for loan losses as a percentage of nonperforming loans 259.45 % 211.96 %

~~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’ 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 at March 31, 2020, which was relatively flat in comparison to the $260,293 in securities balances at December 31, 2019. Activity during the three months ended March 31, 2020 includes the sale of $56,336 of securities as well as $1,836 of principal paydowns, calls, and maturities. In connection with the TCB Holdings Transaction, management determined that it would be beneficial to liquidate that portfolio and utilize those funds for loan demand and other uses.

~~Restricted equity securities totaled $14,405 and $11,279 at March 31, 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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~~The table below summarizes the contractual maturities of securities at March 31, 2020:~~

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

~~Premises and Equipment~~

Premises and equipment, net, totaled $27,609 at March 31, 2020 compared to $21,376 at December 31, 2019, a net increase of $6,233, or 29.2%. Premises and equipment purchases amounted to approximately $457 during the three months ended March 31, 2020 and were mainly incurred for additional leasehold improvements for our branches and new mortgage locations while depreciation expense amounted to $598. As part of the TCB Holdings Transaction, $6,440 of premises and equipment were acquired effective January 1. 2020. At March 31, 2020, we operated from 21 retail banking locations as well as five stand-alone mortgage loan production offices. At March 31, 2020, our branches were located 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.

~~Deposits~~

Deposits represent the Company’s largest source of funds. The Company competes with other bank and non-bank institutions for deposits, as well as with a growing number of non-deposit investment alternatives available to depositors such as money market funds and other brokerage investment products. Challenges to deposit growth include price changes on deposit products given movements in the interest rate environment and other competitive pricing pressures, and customer preferences regarding higher-costing deposit products or non-deposit investment alternatives.

~~At March 31, 2020, total deposits were $1,722,448, an increase of $138,659, or 8.8%~~19.0%, compared to $1,583,789 at December 31, 2019. During the three months ended March 31, 2020, noninterest bearing demand deposits increased by $60,480, interest-bearing demand deposits increased by $17,586, savings and money market deposits increased by $86,026, and time deposits decreased by $25,433. The primary factor43.3% for of the increase in deposits is attributable to the deposits acquired related to TCB Holdings Transaction which totaled $210,528. During the quarter ending March 31, 2020, management shifted from using brokered time deposits to transactional deposits and to using FHLB advances.

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


	~~March 31, 2020~~
~~Twelve months or less~~	$	~~222,166~~
~~Over twelve months through three years~~	~~26,918~~
~~Over three years~~	~~3,713~~
~~Total~~	$	~~252,797~~

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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, 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)%

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

~~Economic Value of Equity~~—Our economic value of equity model measures the extent that estimated economic values of our assets, liabilities and off-balance sheet items will change as a result of interest rate changes. Economic values are determined by

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~~discounting expected cash flows from assets, liabilities and off-balance sheet items, which establishes a base case economic value of equity.~~

~~To help monitor our related risk, we have established the following policy limits regarding simulated changes in our economic value of equity:~~


Instantaneous, Parallel Change in Prevailing Interest Rates Equal to						Maximum Percentage Decline in Economic Value of Equity from the Economic Value of Equity at Currently Prevailing Interest Rates
~~+100 bp~~						~~15%~~
~~+200 bp~~						~~25%~~
~~+300 bp~~						~~30%~~
~~+400 bp~~						~~35%~~
~~Non-parallel shifts~~						~~35%~~

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

Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate loans, have features (generally referred to as interest rate caps and floors) which limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates. Our ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing, and capital policies.

~~Liquidity Risk Management~~—The purpose of liquidity risk management is to ensure that there are sufficient cash flows to satisfy loan demand, deposit withdrawals, and our other needs. Traditional sources of liquidity for a bank include asset maturities and growth in core deposits. A bank may achieve its desired liquidity objectives from the management of its assets and liabilities and by internally generated funding through its operations. Funds invested in marketable instruments that can be readily sold and the continuous maturing of other earning assets are sources of liquidity from an asset perspective. The liability base provides sources of liquidity through attraction of increased deposits and borrowing funds from various other institutions and sources.

Changes in interest rates also affect our liquidity position. We currently price deposits in response to market rates and our management intends to continue this policy. If deposits are not priced in response to market rates, a loss of deposits could occur which would negatively affect our liquidity position.

Scheduled loan payments are a relatively stable source of funds, but loan payoffs and deposit flows fluctuate significantly, being influenced by interest rates, general economic conditions, competition, and the actions of our customers. Additionally, debt security investments are subject to prepayment and call provisions that could accelerate their payoff prior to stated maturity. We attempt to price our deposit products to meet our asset/liability objectives consistent with local market conditions. Our ALCO is responsible for monitoring our ongoing liquidity needs. Our regulators also monitor our liquidity and capital resources on a periodic basis.

The Company has established a line of credit with the FHLB, which is secured by a blanket pledge of 1-4 family residential mortgages, multi-family residential, commercial real estate, and home equity loans, and available-for-sale securities. At March 31, 2020, FHLB advances totaled $127,628 compared to $10,737 as of December 31, 2019. The increase in FHLB advances generally is in conjunction with the decrease in time deposits to decrease more expensive brokered deposits.

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

Scheduled Maturities Amount Weighted
Average
Rates
2020 $ 115,000 0.24%
2021 7,312 2.33%
2022 506 1.22%
2023 4,205 2.36%
2024 605 2.50%
$ 127,628 0.44%

The Company has outstanding $23,000 of subordinated debentures associated with trust preferred securities issued by trusts that are affiliates of Reliant Bancorp, $10,000 of which is owned by a wholly owned subsidiary of Reliant Bancorp. Reliant Bancorp has timely made its scheduled interest payments on these subordinated debentures since assumed in the first quarter of 2018. As of March 31, 2020, Reliant Bancorp was current on all interest payments due related to its subordinated debentures. Reliant Bancorp has the right to defer the payment of interest on the subordinated debentures at any time, for a period not to exceed 20 consecutive quarters. During the period in which it is deferring the payment of interest on its subordinated debentures, the indentures governing the subordinated debentures provide that Reliant Bancorp cannot pay any dividends on its common stock or preferred stock.

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

~~Capital~~

Stockholders’ equity was $234,672 at March 31, 2020, an increase of $10,919, or 4.9%, from $223,753 at December 31, 2019. During the three months ended March 31, 2020, the Company completed the TCB Holdings Transaction which increased stockholders' equity $18,041. This increase was primarily offset during the quarter by dividends declared of $1,207, a net loss of $1,191, and an other comprehensive loss of $6,084. Contributions from the noncontrolling interest of $976 were recognized in the quarter. The increase in stockholders' equity mitigated by the growth in the Bank's assets led to an increase in the Bank’s March 31, 2020 Tier 1 leverage ratio to 10.58% compared with 10.30% at December 31, 2019 (see other ratios discussed further below). Additionally, the subordinated debentures qualify as Tier 1 and Total risk-based capital for the Company. Common dividends of $1,274 (of which $76 were declared in the prior year) were paid during the three months ended March 31, 2020.

On July 14, 2017, the Company filed a Registration Statement on Form S-3 to offer, issue and sell from time to time in one or more offerings any combination of (i) common stock, (ii) preferred stock, (iii) debt securities, (iv) depository shares, (v) warrants, and (vi) units, up to a maximum aggregate offering price of $75,000,000. The net proceeds from any offering will be used for general corporate purposes including acquisitions, capital expenditures, investments, and the repayment, redemption, or refinancing of any indebtedness or other securities. Until allocated to such purposes it is expected that we will invest any proceeds in short-term, interest-bearing instruments or other investment-grade securities. The Securities and Exchange Commission declared the Registration Statement on Form S-3 effective on August 17, 2017, and the Registration Statement on Form S-3 will expire on August 17, 2020.

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commensurate with the risk profile assigned to their assets in accordance with the guidelines. We regularly review our capital adequacy to ensure compliance with these regulations and guidelines and to help ensure that sufficient capital is available for current and future needs. It is management’s intent to maintain an optimal capital and leverage mix for growth and for shareholder returns.

Prompt corrective action regulations provide five capital classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since these notifications that management believes have changed the institution’s category. Actual and required capital amounts and ratios are presented below as of March 31, 2020 and December 31, 2019 for the Company and Bank.

Actual Regulatory Capital Minimum Required Capital
Including Capital
Conservation Buffer To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount Ratio Amount Ratio Amount Ratio
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 %

~~Effects of Inflation and Changing Prices~~

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

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~~shareholders’ equity. Commercial and other loan originations and 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 were as follows at March 31, 2020:~~


	~~March 31, 2020~~
~~Unused lines of credit~~	$	~~365,838~~
~~Standby letters of credit~~	~~17,027~~
~~Total commitments~~	$	~~382,865~~

~~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 and $129,605 respectively, at March 31, 2020 and December 31, 2019. At March 31, 2020 and December 31, 2019, the contracts had negative fair values totaling $9,618 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 fiscal year ended December 31, 2020, or until such earlier time that we have more than $1.07 billion in total annual gross revenues, have more than $700 million in market value of our common shares held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. Management cannot predict if investors will find Reliant Bancorp’s common stock less attractive because it will rely on these exemptions. If some investors find Reliant Bancorp’s common stock less attractive as a result, there may be a less active trading market for its common stock and Reliant Bancorp’s stock price may be more volatile.

Further, the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. Reliant Bancorp has elected to take advantage of the extended transition period that allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies, which means that the financial statements included in this filing, as well as the financial statements we will file in the future, will be subject to all new or revised accounting standards generally applicable to private companies. As a result, we will comply with new or revised accounting standards to the same extent that compliance is required for non-public companies.

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NOTE 12 - BUSINESS COMBINATIONS

Tennessee Community Bank Holdings, Inc.

Effective January 1, 2020, Reliant Bancorp completed the acquisition of TCB Holdings pursuant to the Agreement and Plan of Merger, dated September 16, 2019 (the “TCB Holdings Agreement”), by and among Reliant Bancorp, TCB Holdings, and Community Bank & Trust, a Tennessee-chartered commercial bank and wholly owned subsidiary of TCB Holdings (“CBT”). On the terms and subject to the conditions set forth in the TCB Holdings Agreement, TCB Holdings merged with and into Reliant Bancorp (the “TCB Holdings Transaction”), with Reliant Bancorp as the surviving corporation. Immediately following the TCB Holdings Transaction, CBT merged with and into the Bank, with the Bank continuing as the surviving banking corporation. Pursuant to the TCB Holdings Agreement, at the effective time of the TCB Holdings Transaction, each outstanding share of TCB Holdings common stock, par value $1.00 per share (other than certain excluded shares), was converted into and canceled in exchange for the right to receive (i) $17.13 in cash, without interest, and (ii) 0.769 shares of the Reliant Bancorp’s common stock, par value $1.00 per share (“Reliant Bancorp Common Stock”). The aggregate consideration payable by Reliant Bancorp in respect of shares of TCB Holdings common stock as consideration for the TCB Holdings Transaction was 811,210 shares of Reliant Bancorp Common Stock and approximately $18,073 in cash. Reliant Bancorp did not issue fractional shares of Reliant Bancorp Common Stock in connection with the TCB Holdings Transaction, but paid cash in lieu of fractional shares based on the volume weighted average closing price per share of the Reliant Bancorp Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including December 30, 2019 (calculated as $22.36). At the effective time of the TCB Holdings Transaction, each outstanding option to purchase TCB Holdings common stock was canceled in exchange for a cash payment in an amount equal to the product of (i) $34.25 minus the per share exercise price of the option multiplied by (ii) the number of shares of TCB Holdings common stock subject to the option (to the extent not previously exercised). Reliant Bancorp paid aggregate consideration to holders of unexercised options of approximately $430. All shares of Reliant Bancorp Common Stock outstanding immediately prior to the TCB Holdings Transaction were unaffected by the TCB Holdings Transaction.

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


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

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

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

Accrued interest receivable	948
Premises and equipment	5,221

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

Core deposit intangible	3,617
Other assets	833
Deposits	(210,538)
Deferred tax liability	(157)
Borrowings	(58)
FHLB advances	(13,102)
Other liabilities	(4,337)
Total fair value of net assets acquired	27,772
Goodwill	$	8,775

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

First Advantage Bancorp

Effective April 1, 2020, Reliant Bancorp completed the acquisition of FABK pursuant to the Agreement and Plan of Merger, dated October 22, 2019 (the “FABK Agreement”), by and among Reliant Bancorp, FABK, and PG Merger Sub, Inc., a Tennessee corporation and wholly owned subsidiary of Reliant Bancorp ("Merger Sub"). On the terms and subject to the conditions set forth in the FABK Agreement, Merger Sub merged with and into FABK (the "FABK Transaction"), with FABK as the surviving corporation, followed immediately by the merger of FABK with and into Reliant Bancorp, with Reliant Bancorp as the surviving corporation. Immediately following the merger of FABK into Reliant Bancorp, First Advantage Bank, a Tennessee-chartered commercial bank and wholly owned subsidiary of FABK ("FAB"), merged with and into the Bank, with the Bank continuing as the surviving banking corporation. Pursuant to the FABK Agreement, at the effective time of the FABK Transaction, each outstanding share of FABK common stock, par value $0.01 per share (the “FABK Common Stock”), other than certain excluded shares, was converted into the right to receive (i) 1.17 shares of Reliant Bancorp Common Stock and (ii) $3.00 in cash, without interest. In lieu of the issuance of fractional shares of Reliant Bancorp Common Stock, Reliant Bancorp agreed to pay cash in lieu of fractional shares based on the volume-weighted average closing price per share of Reliant Bancorp Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including March 30, 2020 (calculated as $11.74). Based on the April 1, 2020 opening price for Reliant Bancorp Common Stock of $11.27 per share and 3,935,165 shares of FABK Common Stock outstanding on April 1, 2020, the consideration for the FABK Transaction was approximately $64,094, in the aggregate, or $16.28 per share of FABK Common Stock.

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


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


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

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

Premises and equipment	7,757
Deferred tax asset	4,937
Cash surrender value of life insurance contracts	14,776
Other real estate and repossessed assets	1,259
Core deposit intangible	2,280
Operating lease right-of-use assets	5,846
Other assets	11,624
Deposits	(608,690)
Borrowings	(35,962)
Operating lease liabilities	(6,536)
Other liabilities	(10,606)
Total fair value of net assets acquired	62,115
Goodwill	$	1,979

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

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Supplemental Pro Forma Combined Condensed Statements of Income

Pro forma data for the three months ended March 31, 2021 and 2020 in the table below presents information as if the TCB Holdings Transaction and FABK Transaction occurred on January 1, 2020. These results combine the historical results of TCB Holdings and FABK into the Company's consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments, they are not indicative of what would have occurred had the acquisitions taken place on the indicated date nor are they intended to represent or be indicative of future results of operations. In particular, no adjustments have been made to eliminate the amount of TCB Holdings' or FABK's provision for credit losses for the first three months of 2020 that may not have been necessary had the acquired loans been recorded at fair value as of the beginning of 2020. Additionally, these financials were not adjusted for non-recurring expenses, such as merger-related charges incurred by either the Company, TCB Holdings or FABK. The Company expects to achieve operating cost savings and other business synergies as a result of the acquisitions which are also not reflected in the pro forma amounts.


	Three Months Ended
	March 31,
	2021		2020
Revenue(1)	$	37,363	$	28,109
Net interest income	$	30,026	$	23,596
Net income attributable to common shareholders	$	12,149	$	(3,821)


(1) Net interest income plus noninterest income

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Item2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

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 Reliant Bancorp's Annual Report on Form 10-K for the year ended December 31, 2020. Amounts in the narrative are shown in thousands, except for economic and demographic information, numbers of shares, per share amounts and as otherwise noted.

Critical Accounting Estimates

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and general practices within the banking industry. Within our financial statements, certain financial information contain approximate measurements of financial effects of transactions and impacts at the consolidated balance sheet dates and our results of operations for the reporting periods. We monitor the status of proposed and newly issued accounting standards to evaluate the impact on our financial condition and results of operations. Our accounting policies, including the impact of newly issued accounting standards, are discussed in further detail in Note 1, "Summary of Significant Accounting Policies," in the notes to our consolidated financial statements in our Annual report. Subsequent adoptions and changes to critical accounting policies during the three months ended March 31, 2021 are further described in Note 1 within "Part 1. Financial Information - Notes to consolidated financial statements" of this report.

Non-GAAP Financial Measures

This Quarterly Report contains certain financial measures that are not measures recognized under U.S. GAAP and, therefore, are considered non-GAAP financial measures. Members of Company management use these non-GAAP financial measures in their analysis of the Company’s performance, financial condition, and efficiency of operations. Management of the Company believes that these non-GAAP financial measures provide a greater understanding of ongoing operations, enhance comparability of results with prior periods, and demonstrate the effects of significant gains and charges in the periods presented. Management of the Company also believes that investors find these non-GAAP financial measures useful as they assist investors in understanding underlying operating performance and identifying and analyzing ongoing operating trends. However, the non-GAAP financial measures discussed herein should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with U.S. GAAP. Moreover, the manner in which the non-GAAP financial measures discussed herein are calculated may differ from the manner in which measures with similar names are calculated by other companies. You should understand how other companies calculate their financial measures similar to, or with names similar to, the non-GAAP financial measures we have discussed herein when comparing such non-GAAP financial measures.

The non-GAAP measures in this Quarterly Report include “adjusted net interest margin (NIM),” “adjusted net income (loss),” “adjusted diluted earnings (loss) per share (EPS),” “adjusted annualized return on average assets (ROAA),” “adjusted annualized return on average equity (ROAE),” “adjusted annualized return on average tangible common equity (ROATCE),” “adjusted pre-tax pre-provision income,” “tangible common equity to tangible assets (TCE/TA),” “tangible book value per share,” “allowance for loan losses plus unaccreted purchased loan discounts to total loans,” “bank segment adjusted net income (loss),” “bank segment adjusted noninterest expense,” and “bank segment adjusted efficiency ratio.”

Executive Overview and Earnings Summary

Net income attributable to common shareholders amounted to $12,149, or $0.73 per basic share, for the three months ended March 31, 2021, compared to a loss of $215, or $0.02 per basic share for the same periods in 2020. Diluted net income attributable to common shareholders was $0.73 for the three months ended March 31, 2021 compared to a loss of $0.02 per share for the three months ended March 31, 2020.

The major components contributing to the change when compared to the prior year period are an increase of 75.4% in net interest income for the three months ended March 31, 2021 and an increase of 123.6% in noninterest income for the three months ended March 31, 2021, and partially offset by an increase of 10.5% in noninterest expense for the three months ended March 31, 2021, and a decrease of $2,900 in provision for loan losses for the three months ended March 31, 2021, compared to the same period in 2020 due to the expected impact from the economic slowdown from the COVID-19 pandemic experienced in 2020.

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Tax-equivalent net interest margin increased to 4.51% for the three months ended March 31, 2021 compared to 3.60% in the same period in 2020. These and other components of earnings are discussed further below.

Selected Financial Data


(Dollar amounts in thousands, except per share amounts)	Three months ended,
	March 31, 2021		March 31, 2020
Selected Statement of Income Data
Total interest income	$	34,382	$	23,306
Total interest expense	4,356		6,191
Net interest income	30,026		17,115
Provision for credit loss	—		2,900
Total noninterest income	7,337		3,282
Total noninterest expense	21,664		19,598
Net income before income taxes	15,699		(2,101)
Income tax expense (benefit)	2,980		(910)
Consolidated net income (loss)	12,719		(1,191)
Noncontrolling interest in net loss of subsidiary	(570)		976
Net income (loss) attributable to common shareholders	$	12,149	$	(215)
Per Common Share
Basic income (loss)	$	0.73	$	(0.02)
Diluted income (loss)	0.73		(0.02)
Adjusted diluted income (1)	0.73		0.25
Book value	19.92		19.53
Tangible book value(1)	16.00		14.44
Shares Outstanding
Basic weighted average common shares	16,615,169		11,892,723
Diluted weighted average common shares	16,740,303		11,892,723
Common shares outstanding at period end	16,654,415		12,014,495
Selected Balance Sheet Data
Loans, net of unearned income	$	2,277,714	$	1,619,445
Total assets	3,057,066		2,185,793
Customer deposits	2,350,168		1,377,407
Wholesale and institutional deposits	262,742		345,450
Total deposits	2,612,910		1,722,857
Total liabilities	2,725,367		1,951,121
Total shareholders' equity	331,699		234,672
Total liabilities and shareholders' equity	3,057,066		2,185,793
Selected Balance Sheet Data - Quarterly Averages
Loans held for investment	$	2,280,379	$	1,613,030
Earning assets(1)	2,792,919		1,992,550
Total assets	3,013,114		2,181,809
Interest-bearing liabilities	2,079,238		1,597,762
Total liabilities	2,686,085		1,939,910
Total shareholders' equity	327,029		241,899

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(Dollar amounts in thousands, except per share amounts)	Three months ended,
	March 31, 2021			March 31, 2020
Selected Performance Ratios
Return on average assets (2)	1.64		%	(0.04)		%
Return on shareholders' equity (2)	15.07		%	(0.36)		%
Return on average tangible common equity (1) (2)	18.84		%	(0.49)		%
Average shareholders' equity to average assets	10.85		%	11.09		%
Net interest margin (tax-equivalent basis) (2)	4.51		%	3.60		%
Efficiency Ratio (tax-equivalent basis)	56.4		%	92.9		%
Bank Segment efficiency ratio (1)	52.2		%	90.0		%
Loans held for investment to deposits ratio	87.20		%	94.00		%
Interest Rates and Yields (2)
Yield on interest-earning assets	5.14		%	4.85		%
Yield on loans held for investment	5.63		%	5.23		%
Cost of interest-bearing liabilities	0.85		%	1.56		%
Cost of total deposits	0.51		%	1.11		%
Preliminary Consolidated Capital Ratios (3)
Tier 1 leverage	9.33		%	8.91		%
Common equity tier 1	10.41		%	9.54		%
Tier 1 risk-based capital	10.88		%	10.19		%
Total risk-based capital	14.09		%	14.30		%
Selected Asset Quality Measures


Allowance for loan losses to total loans	0.91		%	0.93		%

Allowance for loan losses and purchase loan discounts to total loans	1.56		%	1.23		%
Net (recoveries) charge offs	$	(149)		$	357
Net (recoveries) charge offs to average loans (2)	(0.03)		%	0.09		%
Total nonperforming loans held for investment (HFI)	$	6,110		$	4,043
Total nonperforming assets (4)	$	9,661		$	4,043
Nonperforming loans HFI to total loans HFI	0.27		%	0.25		%
Nonperforming assets to total assets	0.32		%	0.18		%
Nonperforming assets to total loans HFI and NPAs	0.42		%	0.25		%

(1) Certain measures are considered non-GAAP financial measures. See “Reconciliation of Non-GAAP Financial Measures”.

(2) Data has been annualized.

(3) Current quarter capital ratios are estimated

(4) Nonperforming assets consist of nonperforming loans held for investment, nonperforming loans held for sale, repossessed assets, and other real estate.

Reconciliation of Non-GAAP Financial Measures


	Three months ended
		March 31, 2021			March 31, 2020
Adjusted net interest margin (1):
Net interest income		$	30,026		$	17,115
Add: tax equivalent interest income		1,019			699
Less: purchase accounting adjustments		(1,844)			(672)
Adjusted net interest income		$	29,201		$	17,142
Average Earning Assets		$	2,792,919		$	1,992,550
Net interest margin-tax equivalent		4.51		%	3.60		%
Adjusted net interest margin		4.24		%	3.46		%

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	Three months ended
		March 31, 2021			March 31, 2020
Adjusted net income:
Net income (loss) attributable to common shareholders		$	12,149		$	(215)
Add: merger related expenses		—			4,186
Less: income tax impact of merger related expenses		—			(1,032)
Adjusted net income		$	12,149		$	2,939

Adjusted diluted earnings per share:
Adjusted net income		$	12,149		$	2,939
Weighted average shares - diluted		16,740,303			11,892,723
Diluted earnings (loss) per share		$	0.73		$	(0.02)
Adjusted diluted earnings per share		$	0.73		$	0.25

Adjusted annualized return on average assets:
Adjusted net income		$	12,149		$	2,939
Average assets		3,013,114			2,181,809
Annualized return on average assets		1.64		%	(0.04)		%
Adjusted annualized return on average assets		1.64		%	0.54		%

Adjusted annualized return on average equity:
Adjusted net income		$	12,149		$	2,939
Average total shareholders' equity		327,029			241,899
Annualized return on average equity		15.07		%	(0.36)		%
Adjusted annualized return on average equity		15.07		%	4.89		%

Adjusted annualized return on average tangible common equity:
Average total shareholders' equity		$	327,029		$	241,899
Less: average intangible assets		(65,531)			(65,329)
Average tangible common equity		$	261,498		$	176,570
Adjusted net income		12,149			2,939
Annualized return on average tangible common equity		18.84		%	(0.49)		%
Adjusted annualized return on average tangible common equity		18.84		%	6.69		%

Adjusted pre-tax pre-provision income:
Income (loss) before provision for income taxes		$	15,699		$	(2,101)
Add: merger related expenses		—			4,186
Add: provision for loan losses		—			2,900
Adjusted pre-tax pre-provision income		$	15,699		$	4,985

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	Three months ended
		March 31, 2021			March 31, 2020
Tangible common equity to tangible assets:
Tangible common equity:
Total shareholders' equity		$	331,699		$	234,672
Less: intangible assets		(65,287)			(61,209)
Tangible common equity		$	266,412		$	173,463
Tangible assets:
Total assets		$	3,057,066		$	2,185,793
Less: intangible assets		(65,287)			(61,209)
Tangible assets		$	2,991,779		$	2,124,584
Total shareholders' equity to total assets		10.85		%	10.74		%
Tangible common equity to tangible assets		8.90		%	8.16		%

Tangible book value per share:
Tangible common equity		$	266,412		$	173,463
Total shares of common stock outstanding		16,654,415			12,014,495
Book value per common share		$	19.92		$	19.53
Tangible book value per share		$	16.00		$	14.44

Allowance for loan losses plus unaccreted loan purchase discounts:
Allowance for loan losses		$	20,785		$	15,121
Unaccreted loan purchase discounts		14,833			4,771
Allowance for loan losses plus unaccreted loan purchase discounts:		$	35,618		$	19,892
Total loans		2,277,714			1,619,445
Allowance for loan losses plus unaccreted purchased loan discounts to total loans		1.56		%	1.23		%
Allowance for loan losses to total loans		0.91		%	0.93		%

Bank segment adjusted net income:
Bank segment net income (loss)		$	12,149		$	(215)
Add: merger related expenses		—			4,186
Less: income tax impact of merger related expenses		—			(1,032)
Bank segment adjusted net income		$	12,149		$	2,939

Bank segment adjusted noninterest expense:
Bank segment noninterest expense		$	16,460		$	16,647
Add: merger related expenses		—			(4,186)
Bank segment adjusted noninterest expense		$	16,460		$	12,461

Bank segment adjusted efficiency ratio:
Bank segment adjusted total revenues:
Bank segment net interest income		$	29,133		$	16,782
Add: Tax equivalent interest income		1,019			699
Add: Bank segment noninterest income		2,409			1,709
Add: (Gain) loss on sale of securities, OREO, premises and equipment		(146)			(23)
Bank segment adjusted total revenues		$	32,415		$	19,167
Bank segment efficiency ratio		52.2		%	90.0		%
Bank segment adjusted efficiency ratio		50.8		%	65.0		%

(1) Prior calculation of this measure 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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Mergers and acquisitions

Acquisition of Tennessee Community Bank Holdings, Inc.

On January 1, 2020, Reliant Bancorp acquired Tennessee Community Bank Holdings, Inc., the parent company for Community Bank & Trust, a Tennessee state-chartered bank headquartered in Ashland City, Tennessee. Upon completion of this transaction, the Company had approximately $2.2 billion in total consolidated assets, gross loans of approximately $1.6 billion, and total deposits of approximately $1.8 billion.

Acquisition of First Advantage Bancorp

On April 1, 2020, Reliant Bancorp acquired First Advantage Bancorp, the parent company for First Advantage Bank, a Tennessee state-chartered bank headquartered in Clarksville, Tennessee. Upon completion of this transaction, the Company had approximately $2.9 billion in total consolidated assets, gross loans of approximately $2.2 billion, and total deposits of approximately $2.3 billion.

See Note 12-Business Combinations for further information regarding our acquisition activity, assets acquired, and purchase price paid.

Coronavirus (COVID-19) Impact

During the current and prior fiscal year, the COVID-19 pandemic had a significant impact on our customers, associates, and communities, which collectively impacts our shareholders. Below is a summary of some of those impacts and our responses related to COVID-19.

As part of our pandemic response, we have encouraged a significant portion of our employees to work from home. We have also extended virtual medical coverage to all employees as well as provided pay to employees who may have been exposed. We are encouraging virtual meetings and conference calls in place of in-person meetings. We are promoting social distancing, frequent hand washing, thorough disinfection of all surfaces, and the use of masks or nose and mouth coverings has been mandated in all of our locations. We have welcomed back customers for lobby visits beginning March 29, 2021 after a steady decline of COVID-19 case counts and hospitalizations were reported by the Tennessee Department of Health. Banking center drive-ups, ATMs and online/mobile banking services continue to operate. Tennessee’s Governor Lee has declared that the pandemic state in Tennessee is no longer considered a health crisis, but a “managed public health issue” as businesses begin to return to normal operation and mask mandates are lifted. Infection rates in the communities we serve vary by region and we will make prudent decisions for the safety of our colleagues and our clients.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law in March 2020 and subsequently amended, along with subsequent regulatory guidance encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, the CARES Act further provides that a qualified loan modification is except by law from classification as a TDR as defined by U.S. GAAP beginning March 1, 2020 until the earlier of January 1, 2022 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak terminates. As of March 31, 2021, the Company had $33,121 of loans modified and a total of $597,327 loans previously deferred that returned to normal payment status. These deferrals typically ranged from sixty to ninety days per deferral and were not considered TDRs under the interagency regulatory guidance or the CARES Act.

The Company is participating in the Paycheck Protection Program ("PPP") under the CARES Act, which is being administered by the SBA. As of March 31, 2021 the Bank had 588 PPP loans outstanding totaling $41.9 million with $41.5 million in PPP loans forgiven and repaid to date. Participation in the PPP will likely have an impact on the Company's asset mix and net interest margin in 2021.

At March 31, 2021, our level of nonperforming assets was 0.32% of total assets and was not materially impacted by the economic pressures of COVID-19. We are closely monitoring credit risk and our exposure to increased loan losses resulting from the impact of COVID-19 on our commercial and other clients.

We are in regular communication with our customers to gain a better understanding of our highest risk exposures and probable defaults. In the quarter ended March 31, 2021 we did not increase our allowance for loan loss through a provision as loan growth was minimal during the quarter and economic factors have considerably improved, partially due to the federal stimulus programs.

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

As of March 31, 2021, Reliant Bancorp’s and Reliant Bank’s capital ratios were in excess of the regulatory minimum capital requirements and those required to be considered well-capitalized under applicable federal regulations. 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.

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RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

The largest component of our net income is net interest income - the difference between the income earned on loans, investment securities and other interest earning assets and interest expense on deposit accounts and other interest-bearing liabilities. Net interest income calculated on a tax-equivalent basis divided by total average interest-earning assets represents our net interest margin. The major factors that affect net interest income and net interest margin are changes in volumes, the yield on interest-earning assets and the cost of interest-bearing liabilities. Our margin can also be affected by economic conditions, the competitive environment, loan demand and deposit flow. Our ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and our net interest income.

The following tables set forth the amount of our average balances, interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for interest-earning assets and interest-bearing liabilities, net interest spread and net interest margin for the three months ended March 31, 2021, and 2020 (dollars in thousands):


	Three Months Ended March 31, 2021					Three Months Ended March 31, 2020					Change
	Average Balances (1)		Rates / Yields (%)	Interest Income / Expense		Average Balances (1)		Rates / Yields (%)	Interest Income / Expense		Due to Volume		Due to Rate		Total
Interest earning assets
Loans (2) (3)	$	2,280,379	5.15	$	28,288	$	1,613,030	5.01	$	19,755	$	8,311	$	561	$	8,872
Loan fees	—		0.48	2,701		—		0.22	890		1,811		—		1,811
Loans with fees	2,280,379		5.63	30,989		1,613,030		5.23	20,645		10,122		561		10,683
Mortgage loans held for sale	169,747		3.18	1,331		47,685		4.72	560		884		(113)		771
Deposits with banks	61,939		0.34	52		43,583		1.14	124		108		(180)		(72)
Investment securities - taxable	65,499		3.78	610		74,688		2.43	451		(45)		204		159
Investment securities - tax-exempt (4)	198,034		3.24	1,225		197,241		3.56	1,371		8		(173)		(165)
Restricted equity securities and other	17,321		4.10	175		16,323		3.82	155		9		11		20
Total earning assets	2,792,919		5.14	34,382		1,992,550		4.85	23,306		11,085		311		11,396
Nonearning assets	220,195					189,259
Total assets	$	3,013,114				$	2,181,809
Interest bearing liabilities
Interest bearing demand	377,714		0.29	272		186,236		0.22	100		131		41		172
Savings and money market	901,444		0.38	839		459,756		0.90	1,030		(479)		288		(191)
Time deposits - retail	494,508		1.15	1,404		541,973		1.85	2,496		(205)		(887)		(1,092)
Time deposits - wholesale	227,513		1.58	884		229,870		2.12	1,211		(13)		(314)		(327)
Total interest-bearing deposits	2,001,179		0.69	3,399		1,417,835		1.37	4,837		(566)		(872)		(1,438)
Federal Home Loan Bank advances and other borrowings	7,467		0.22	4		109,320		1.33	361		(188)		(169)		(357)
Subordinated debt	70,592		5.48	953		70,607		5.66	993		—		(40)		(40)
Total borrowed funds	78,059		4.97	957		179,927		3.03	1,354		(189)		(208)		(397)
Total interest-bearing liabilities	2,079,238		0.85	4,356		1,597,762		1.56	6,191		(754)		(1,081)		(1,835)
Net interest spread (5)			4.29	$	30,026			3.29	$	17,115	$	11,839	$	1,392	$	13,231
Noninterest bearing deposits	565,770		(0.18)			312,073		(0.26)
Other noninterest bearing liabilities	41,077					30,075
Shareholders' equity	327,029					241,899
Total liabilities and shareholders' equity	$	3,013,114				$	2,181,809
Cost of funds			0.67					1.30
Net interest margin (6)			4.51					3.60

(1) Calculated using daily averages.

(2) Average loan balances include nonaccrual loans.

(3) Yields on loans reflects tax-exempt interest and state tax credits received on low or zero percent interest loans made to construct low income housing of $661 and $322, for the years ended March 31, 2021 and March 31, 2020, respectively.

(4) Yields on tax-exempt securities are shown on a tax-equivalent basis.

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(5) Net interest spread is calculated as the yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities.

(6) Net interest margin is the result of net interest income calculated on a tax-equivalent basis divided by average interest earning assets for the period.

For the three months ended March 31, 2021, we recorded net interest income on a tax-equivalent basis of approximately $31,045 which resulted in a net interest margin (net interest income divided by the average balance of interest-earning assets) of 4.51% compared to 3.60% for the three months ended March 31, 2020. This increase was primarily driven by an increase in average loan balances and a decrease in the Company's use of retail deposits which have a higher interest rate as well as an overall decline in the interest rate environment.

The components of our loan yield, a key driver to our NIM for the three months ended March 31, 2021, and March 31, 2020, were as follows:


	Three months ended March 31,
	2021				2020
	Interest Income		Average Yield		Interest Income		Average Yield
Loan yield components:
Contractual interest rate on loans held for investment (1)	$	26,489	4.71	%	$	19,233	4.80	%
Origination and other fee income (2)	2,701		0.48	%	890		0.22	%
Accretion on purchased loans	1,799		0.32	%	522		0.13	%
Loan tax credits	661		0.12	%	322		0.08	%
Tax-equivalent loan interest income	$	31,650	5.63	%	$	20,967	5.23	%

(1) Includes $139 in loan contractual interest related to PPP loans for the three months ended March 31, 2021.

(2) Includes $903 in PPP related fees for the three months ended March 31, 2021.

Our combined loan and loan fee yield increased from 5.23% to 5.63% for the three months ended March 31, 2021 compared to the same period in 2020. The effects of the declining interest rate environment were offset by the realization of additional interest income related to the FABK acquisition which occurred on April 1, 2020. Our year-over-year average loan volume increased by approximately 41.4% for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 and was mainly driven by the FABK Transaction which made up $526.0 million of the loan balance as of March 31, 2021. Additionally, our continued focus on serving our customers led to organic growth of 8.2% year-over-year. In addition to the overall loan volume increase, the FABK acquisition resulted in the addition of the manufactured housing loan portfolio which generate higher yields when compared to other loan types and contributed to the loan yield increase.

Accretion on purchased loans contributed 32 basis points to the NIM for three months ended March 31, 2021 as a result of the increased accretion included in interest income from the FABK Transaction compared to the 13 basis points contributed in the comparable period in 2020 which only included accretion income from the TCB Transaction. Contractual interest and origination fees on PPP loans attributed 5 basis points to the NIM for the three months ended March 31, 2021. We anticipate recognizing $906 in deferred origination fees over the remaining life of the PPP loan portfolio.

Our cost of funds decreased to 0.67% from 1.30% for the three months ended March 31, 2021 compared to the same period in 2020 as rates continue to decline and our team continues to focus on reducing more costly time deposits and retaining lower cost customer deposits. Average retail time deposits decreased 8.8% year-over-year compared to the increase in average total deposits of 48.4%. While the acquired FABK deposits drives a majority of this increase, organic deposits increased 22.1% year-over-year. In addition to the 60 basis point decrease in cost of deposits, cost of funds benefited from a decrease in the cost of FHLB advances of 111 basis points as the average balance decreased 93.2% as a result of the prepayments in the fourth quarter of 2020.

Provision for Loan Losses

We did not record a provision for loan losses for the three months ended March 31, 2021 compared to $2,900 recorded in the three months ended March 31, 2020. The provision expense for the three months ended March 31, 2020 can be primarily attributed to the expected downturn in the economy due to COVID-19 as well as the growth in the loan portfolio, whereas, the three months ended March 31, 2021 experienced minimal growth in the loan portfolio. Additionally, economic outlooks have improved, in part due to the federal stimulus programs and vaccine rollouts.

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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 - Financial Condition - Allowance for Loan Losses” included herein for further analysis of the provision for loan losses.

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 months ended March 31, 2021, and 2020 (dollars in thousands):


	Three Months Ended March 31,				Percent Increase
	2021		2020		(Decrease)
Non-Interest Income
Service charges and fees on deposits	$	1,561	$	1,208	29.2	%
Gains on mortgage loans sold, net	4,928		1,573		213.3	%
Securities gains, net	129		—		100.0	%



Bank-owned life insurance	435		295		47.5	%
Brokerage revenue	69		32		115.6	%
Miscellaneous noninterest income	215		174		23.6	%

Total noninterest income	$	7,337	$	3,282	123.6	%

The most significant reasons for the changes in total noninterest income during the three months ended March 31, 2021 compared to the same period in 2020 are the fluctuation in gains on mortgage loans sold, net as well as the increase in service charges.

Service charges on deposit accounts generally reflect customer growth trends but also are impacted by changes in our fee pricing structure to help attract and retain customers. The increase in service charges and fees was driven primarily by the incremental increase in transaction volume related to our acquisitions, as well as growth in the volume of our legacy deposit accounts.

Gains on mortgage loans sold, net, consists of fees from the origination and sale of mortgage loans. All of these loan sales transfer servicing rights to the buyer. The mortgage banking business is directly impacted by the interest rate environment, increased regulations, consumer demand, and economic conditions. Mortgage production, especially refinance activity, typically rises in declining interest rate environments. Mortgage loans originated or purchased through correspondents for resale totaled $311,296 in three months ended March 31, 2021 as compared to $89,076 in the same period in 2020 as a result of the productive market conditions produced by the low interest rate environment.

Securities gains and losses often fluctuate from period to period and can sometimes be attributable to various balance sheet risk strategies. During the three months ended March 31, 2021, the Company sold securities totaling $1,795 with a gain of $129. During the three months ended March 31, 2020, the Company sold securities classified as available for sale which were acquired in the TCB Holdings transaction totaling $56,336. No gain was recognized as the securities were sold at the fair value for which they were acquired.

Noninterest income also includes income from bank-owned life insurance (“BOLI”), which increased during the three months ended March 31, 2021 when compared to the the same period in 2020, driven by the additional policies acquired from the FABK and TCB Holdings transactions as well as additional policies purchased in 2020. The assets that support these policies are administered by the life insurance carriers and the income we receive (i.e., increases or decreases in the cash surrender value of the policies) is dependent upon the returns the insurance carriers are able to earn on the underlying investments that support the policies. Earnings on these policies generally are not taxable.

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Noninterest Expense

The following is a summary of our noninterest expense for the three months ended March 31, 2021 and 2020 (dollars in thousands):


	Three Months Ended March 31,				Percent Increase
	2021		2020		(Decrease)
Non-Interest Expense
Salaries and employee benefits	$	13,352	$	9,237	44.5	%
Occupancy	2,008		1,486		35.1	%
Data processing and software	2,229		1,819		22.5	%
Professional fees	1,243		478		160.0	%
Regulatory fees	361		454		(20.5)	%
Merger expenses	—		4,186		(100.0)	%
Other operating expense	2,471		1,938		27.5	%
Total noninterest expense	$	21,664	$	19,598	10.5	%

Noninterest expense increased during the three months ended March 31, 2021 when compared to March 31, 2020 which is primarily driven by incremental costs incurred following the TCB Holdings and FABK transactions offset by the merger expenses incurred in 2020. While we continue to pursue strategic acquisition activities, we are not currently anticipating any merger expenses in 2021.

The 44.5% increase in salaries and employee benefits is primarily attributable to the increase in employees from the FABK transaction as well as our year-over-year growth. While staffing levels have normalized, we experienced an overall increase in FTEs from 321 at March 31, 2020 to 425 at March 31, 2021.

Occupancy costs increased by $522 or 35.1% during the three months ended March 31, 2021 compared to the same period in 2020 mainly due to the FABK Transaction as well as the expansion of RMV. The Board has approved a branch justification project that has resulted in the announced closure of one branch and the intent to close two additional branches in 2021.

Data processing and software expense increased from March 31, 2020 to March 31, 2021 and is mainly attributable to an increased volume of accounts and transactions services as well as continued investments in information technology infrastructure. Both the volume and location increases are primarily due to the FABK Transaction and the expansion of RMV.

Professional fees increased by $765 or 160.0%, when comparing the three months ended March 31, 2021 to the same period in 2020 primarily driven by the settlement of lawsuits occurring at RMV regarding activities under previous RMV management.

Efficiency ratio

The efficiency ratio is one measure of productivity in the banking industry. This ratio is calculated to measure the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense by the sum of net interest income and noninterest income. For an adjusted efficiency ratio, we exclude certain gains, losses and expenses we do not consider core to our business.

Our efficiency ratio of our banking segment was 52.2% and 90.0% for the three months ended March 31, 2021 and 2020, respectively. Our adjusted efficiency ratio, on a tax-equivalent basis, was 50.8% and 65.0% for the three months ended March 31, 2021 and 2020, respectively. See “Reconciliation of Non-GAAP Financial Measures” in this Quarterly Report for the reconciliation of the adjusted efficiency ratio.

Income Taxes

During the three months ended March 31, 2021 we recorded consolidated income tax expense of $2,980 as compared to a recorded benefit of $910 for the same period in 2020. This represents consolidated effective tax rates of 19.0% and 43.3%, respectively. When evaluating the bank segment alone, this ratio was 19.5% for the three months ended March 31, 2021 as

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compared to 79.6% for the same period in 2020. This decrease is primarily due to the nondeductible merger expenses in the first quarter of 2020 when compared to 2021.

Non-controlling Interest in Operating Resultsof Subsidiary

Our non-controlling interest in 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 cash flow distributions, after the non-controlling member recovers its aggregate capital contributions. The non-controlling member is required to fund RMV's losses, in arrears, via additional capital contributions. RMV had a net income of $570 for the three months ended March 31, 2021 compared to a net loss of $976 for the same period in 2020. The improvements in operating results is mainly attributable to the productive market conditions produced by the low interest rate environment. Also, see Note 10 to our consolidated financial statements for segment reporting.

FINANCIAL CONDITION

Overview

The Company’s total assets were $3,057,066 at March 31, 2021 and $3,026,535 at December 31, 2020, an increase of 1.0%. Total liabilities were $2,725,367 at March 31, 2021 and $2,704,562 at December 31, 2020, an increase of 0.8%. The increase in liabilities was substantially attributable to the increase in deposits of $33,675, or 1.3%, and offset by a decrease in FHLB advances of $10,000 during the period. These and other components of our consolidated balance sheets are discussed further below.

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. 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, as well as economic conditions. Early payoffs typically increase in 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. Total loans, net of allowance for loan losses, at March 31, 2021, and December 31, 2020, were $2,256,929 and $2,280,147, respectively, representing a decrease of 1.0%.

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


	March 31, 2021				December 31, 2020
	Amount		Percent		Amount		Percent
Commercial, Industrial and Agricultural	$	430,373	18.9	%	$	459,739	19.9	%
Real estate:
1-4 Family Residential	322,170		14.1	%	323,473		14.0	%
1-4 Family HELOC	100,056		4.4	%	100,525		4.4	%
Multifamily and Commercial	831,242		36.4	%	834,000		36.2	%
Construction, Land Development and Farmland	372,950		16.3	%	365,058		15.8	%
Consumer	216,034		9.5	%	213,863		9.3	%
Other	8,560		0.4	%	8,669		0.4	%
	2,281,385		100.0	%	2,305,327		100.0	%
Less:
Deferred loan fees	3,671				4,544
Allowance for loan losses	20,785				20,636
Loans, net	$	2,256,929			$	2,280,147

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The table below provides a summary of PCI loans as of March 31, 2021 and December 31, 2020:


	March 31, 2021		December 31, 2020

Commercial, Industrial and Agricultural	$	899	$	919
Real estate:
1-4 Family Residential	905		1,004
1-4 Family HELOC	19		19
Multifamily and Commercial	1,261		1,325
Construction, Land Development and Farmland	954		992
Consumer	1,732		1,924

Total gross PCI loans	5,770		6,183
Less:
Remaining purchase discount	2,545		2,596
Allowance for loan losses	—		—
Loans, net	$	3,225	$	3,587

Commercial, industrial and agricultural loans above consist solely of loans made to U.S.-domiciled customers. These include loans for use in normal business operations to finance working capital needs, equipment purchases, or other expansionary projects. Commercial, industrial, and agricultural loans were $430,373 at March 31, 2021 and decreased by 6.4% compared to $459,739 at December 31, 2020 which was largely driven by PPP loan forgiveness.

Real estate loans comprised 71.2% of the loan portfolio at March 31, 2021. 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 decreased the residential portfolio 0.4% from December 31, 2020 to March 31, 2021. Multi-family and commercial loans included in the real estate category above include (in typical order of prominence) loans secured by non-owner-occupied commercial real estate properties, and loans secured by multi-family residential properties. Multi-family and commercial real estate loans were $831,242 at March 31, 2021 and decreased 0.3% compared to the $834,000 held as of December 31, 2020. 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, 2020, to March 31, 2021, of 1.0% primarily due to the $4,716 increase in loans to finance manufactured homes that are not secured by real estate.

Other loans consist mainly of loans to states and political subdivisions and loans to other depository institutions and experienced a decrease of 1.3% from December 31, 2020 to March 31, 2021 due to loan payments.

The repayment of loans is a source of additional liquidity. The following table sets forth the loans repricing or maturing within specific intervals at March 31, 2021, excluding unearned net fees and costs.


	One Year or Less		One to Five Years		Over Five Years		Total
Gross loans	$	632,171	$	1,091,418	$	557,796	$	2,281,385
Fixed interest rate							$	1,273,607
Variable interest rate							1,007,778
Total							$	2,281,385

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Allowance for Loan Losses

At March 31, 2021, the allowance for loan losses was $20,785 compared to $20,636 at December 31, 2020. The allowance for loan losses as a percentage of total loans was 0.91% at March 31, 2021 compared to 0.90% at December 31, 2020.

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, 2021			March 31, 2020
Beginning Balance, January 1, 2021 and 2020, respectively	$	20,636		$	12,578
Loans charged off:
Commercial, Industrial and Agricultural	(32)			(294)
Real estate:
1-4 Family Residential	(7)			—
1-4 Family HELOC	—			—
Multifamily and Commercial	—			—
Construction, Land Development and Farmland	—			(114)
Consumer	(259)			(31)
Other	—			—
Total loans charged off	(298)			(439)
Recoveries on loans previously charged off:
Commercial, Industrial and Agricultural	251			61
Real estate:
1-4 Family Residential	82			11
1-4 Family HELOC	2			1
Multifamily and Commercial	9			3
Construction, Land Development and Farmland	85			—
Consumer	18			6
Other	—			—
Total loan recoveries	447			82
Net (charge-offs) recoveries	149			(357)
Provision for loan losses	—			2,900
Total allowance for loan losses at end of period	$	20,785		$	15,121
Allowance for loan losses to total loans, net	0.91		%	0.93		%
Net charge-offs (recoveries) to average loans outstanding	(0.03)		%	0.09		%

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	March 31, 2021						March 31, 2020
	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	$	6,072	29.2	%	18.9	%	$	3,851	25.5	%	17.4	%
Real estate:
1-4 Family Residential	2,438		11.7	%	14.1	%	1,488		9.8	%	16.2	%
1-4 Family HELOC	1,110		5.3	%	4.4	%	873		5.8	%	6.1	%
Multifamily and Commercial	8,065		38.8	%	36.4	%	6,760		44.7	%	39.2	%
Construction, Land Development and Farmland	1,905		9.2	%	16.3	%	1,836		12.1	%	19.1	%
Consumer	1,163		5.6	%	9.5	%	298		2.0	%	1.5	%
Other	32		0.2	%	0.4	%	15		0.1	%	0.5	%
	$	20,785	100.0	%	100.0	%	$	15,121	100.0	%	100.0	%

Nonperforming Assets

Nonperforming assets consists of nonperforming loans plus real estate acquired through foreclosure or deed in lieu of foreclosure and other repossessed collateral as well as banking facilities taken out of service. 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.

The following table provides information with respect to the Company’s nonperforming assets.


	March 31, 2021			December 31, 2020



Total nonperforming loans	$	6,110		$	5,987
Foreclosed real estate ("OREO")	1,198			1,246
Repossessed collateral	1,283			1,424
Mortgage Loans HFS	1,070			630
Total nonperforming assets	$	9,661		$	9,287
Total nonperforming loans HFI as a percentage of total loans HFI	0.27		%	0.26		%
Total nonperforming assets as a percentage of total assets	0.32		%	0.31		%
Allowance for loan losses as a percentage of nonperforming loans HFI	340.18		%	344.68		%
Troubled Debt Restructurings ("TDRs")	$	3,938		$	4,236
TDRs as a percentage of total loans	0.17		%	0.18		%

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 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.

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Securities totaled $267,191 at March 31, 2021, in comparison to the $256,653 in securities balances at December 31, 2020. This increase can largely be attributed to the Company's investment in state and municipal bonds and mortgage backed securities during the period of $17,199. Activity during the three months ended March 31, 2021 includes the sale of $1,795 of securities as well as $1,570 of principal paydowns, calls, and maturities.

Restricted equity securities totaled $16,146 and $16,551 at March 31, 2021, and December 31, 2020, 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, 2021					December 31, 2020
	Amortized Cost		Fair Value	% of Total		Amortized Cost		Fair Value	% of Total
U.S. Treasury and other U.S. government agencies	$	225	226	0.08	%	$	47	48	0.02	%
State and municipal bonds	190,980		204,900	76.69	%	184,102		200,988	78.31	%
Corporate bonds	27,000		27,264	10.20	%	23,750		24,113	9.40	%
Mortgage-backed securities	31,607		32,023	11.99	%	28,084		28,442	11.08	%
Asset-backed securities	2,802		2,778	1.04	%	3,083		3,062	1.19	%

Total	$	252,614	267,191	100.00	%	$	239,066	256,653	100.00	%

The table below summarizes the contractual maturities of securities at March 31, 2021:


	Amortized Cost		Estimated Fair Value
Due within one year	$	225	$	226
Due in one to five years	2,085		2,089
Due in five to ten years	33,886		35,028
Due after ten years	182,009		195,047
Mortgage-backed securities	31,607		32,023
Asset-backed securities	2,802		2,778
Total	$	252,614	$	267,191

Premises and Equipment

Premises and equipment, net, totaled $30,879 at March 31, 2021 compared to $31,462 at December 31, 2020, a net decrease of $583, or 1.9%. Premises and equipment purchases amounted to approximately $217 during the three months ended March 31, 2021 and were mainly incurred for additional leasehold improvements and equipment for our branches and mortgage locations while depreciation expense amounted to $741.

Deposits

Deposits represent the Company’s largest source of funds. The Company competes with other 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 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, 2021, total deposits were $2,612,910, an increase of $33,675, or 1.3%, compared to $2,579,235 at December 31, 2020. During the three months ended March 31, 2021, noninterest bearing demand deposits increased by $3,475, interest-bearing demand deposits increased by $46,655, savings and money market deposits increased by $93,420, and time deposits decreased by $109,875. Our team continues to focus on retaining low cost customer deposits while decreasing higher cost time deposits.

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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, 2021.


	March 31, 2021
Twelve months or less	$	136,406
Over twelve months through three years	19,145
Over three years	4,396
Total	$	159,947

Market 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

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	(3.9)%	(15)%	(7.2)%	(15)%
-100 bp	(2.3)%	(10)%	(4.7)%	(10)%
+100 bp	2.2%	(10)%	5.1%	(10)%
+200 bp	5.1%	(15)%	10.3%	(15)%
+300 bp	8.5%	(20)%	15.8%	(20)%
+400 bp	11.8%	(25)%	21.3%	(25)%

We were in compliance with our earnings simulation model policies as of March 31, 2021, 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 discounting expected cash flows from assets, liabilities and off-balance sheet items, which establishes a base case economic value of equity.

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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
±100bp						15%
±200 bp						25%
±300 bp						30%
±400 bp						35%
Non-parallel shifts						35%

At March 31, 2021, our model results indicated that we were within these policy limits.

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.

The Company has outstanding $23,000 of subordinated debentures associated with trust preferred securities issued by trusts that are affiliates of Reliant Bancorp, $10,000 of which is owned by a wholly-owned subsidiary of Reliant Bancorp. Reliant Bancorp has timely made its scheduled interest payments on these subordinated debentures since assumed in the first quarter of 2018. As of March 31, 2021, 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

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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 $60,000 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

Shareholders’ equity was $331,699 at March 31, 2021, an increase of $9,726, or 3.0%, from $321,973 at December 31, 2020, mainly due to current quarter net income. This increase was primarily offset by dividends declared of $2,015, and other comprehensive loss of $744. Contributions from the noncontrolling interest of $570 were recognized in the three months ended March 31, 2021. The increase in shareholders' equity mitigated by the growth in the Bank's assets led to an increase in the Bank’s March 31, 2021 Tier 1 leverage ratio to 11.06% compared with 10.64% at December 31, 2020. See other ratios discussed further below. Additionally, the subordinated debentures qualified as Tier 1 and Total risk-based capital for the Company due to asset size at the time of issuance.

On 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, (vi) units, (vii) purchase contracts, and (viii) rights, up to a maximum aggregate offering price of $100,000. The net proceeds from any offering will be used for general corporate purposes including repayment of debt or payment of interest thereon, capital expenditures, acquisitions, investments, and any other 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 September 3, 2020, and the Registration Statement on Form S-3 will expire on 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 commensurate with the risk profile assigned to their assets in accordance with 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, 2021, 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, 2021 and December 31, 2020 for Reliant Bancorp and the Bank.

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	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, 2021
Company
Tier I leverage	$	273,173	9.33	%	$	117,116	4.00	%	$	146,395	5.00	%
Common equity Tier 1	261,384		10.41	%	175,763		7.00	%	163,208		6.50	%
Tier I risk-based capital	273,173		10.88	%	213,416		8.50	%	200,863		8.00	%
Total risk-based capital	353,538		14.09	%	263,460		10.50	%	250,914		10.00	%
Bank
Tier I leverage	$	324,052	11.06	%	$	117,198	4.00	%	$	146,497	5.00	%
Common equity Tier 1	324,052		12.93	%	175,434		7.00	%	162,903		6.50	%
Tier I risk-based capital	324,052		12.93	%	213,027		8.50	%	200,496		8.00	%
Total risk-based capital	345,487		13.79	%	263,061		10.50	%	250,534		10.00	%

December 31, 2020
Company
Tier I leverage	$	262,282	8.91	%	$	117,747	4.00	%	$	147,184	5.00	%
Common equity Tier 1	250,513		10.22	%	171,584		7.00	%	159,328		6.50	%
Tier I risk-based capital	262,282		10.70	%	208,355		8.50	%	196,099		8.00	%
Total risk-based capital	342,246		13.96	%	257,420		10.50	%	245,162		10.00	%
Bank
Tier I leverage	$	313,633	10.64	%	$	117,907	4.00	%	$	147,384	5.00	%
Common equity Tier 1	313,633		12.83	%	171,117		7.00	%	158,894		6.50	%
Tier I risk-based capital	313,633		12.83	%	207,785		8.50	%	195,562		8.00	%
Total risk-based capital	334,919		13.71	%	256,503		10.50	%	244,288		10.00	%

Effects of Inflation and Changing Prices

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP, which 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 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, 2021:


	March 31, 2021
Unused lines of credit	$	614,196
Standby letters of credit	26,736
Total commitments	$	640,932

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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, ~~2020,~~2021, 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.~~

~~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.

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~~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, ~~2020.~~2021.

~~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)
January 1, 2021 to January 31, 2021	594	$18.62	—	$10,000
February 1, 2021 to February 28, 2021	—	$—	—	$10,000
March 1, 2021 to March 31, 2021	—	$—	—	$10,000
Total	594	$18.62	—	$10,000

(1)During the quarter ended March 31, ~~2020, 15,000~~2021, 2,000 shares of restricted stock previously awarded to certain of the participants in our stock plans vested. We withheld ~~3,837~~594 shares to satisfy tax withholding requirements associated with the vesting of these shares of restricted stock.

(2)On ~~March 10, 2020, the Company's~~January 26, 2021, Reliant Bancorp's board of directors authorized a stock repurchase plan allowing ~~the Company~~Reliant Bancorp to repurchase up to ~~$15~~$10 million of outstanding ~~Company common stock~~Reliant Bancorp Common Stock (the "Repurchase Plan"). As of March 31, ~~2020, the Company~~2021, Reliant Bancorp had not repurchased any shares of ~~the Company's common stock~~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~~The Repurchase Plan ~~to preserve our financial strength during this challenging economic environment.~~is effective through December 31, 2021.

~~Item 3.~~ ~~Defaults Upon Senior Securities.~~

~~Not applicable.~~

~~Item 4.~~ ~~Mine Safety Disclosures.~~

~~Not applicable.~~

~~Item 5.~~ ~~Other Information.~~

~~None.~~

6359

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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 ~~Current~~Quarterly Report on Form ~~8-K~~10-Q filed on ~~June 21, 2018)~~August 7, 2020).

~~4.1~~10.1			~~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~~(incorporated by reference to Exhibit 10.3 of Reliant Bancorp’s ~~definitive proxy statement~~Annual Report on ~~Schedule 14A~~Form 10-K filed on ~~April 10, 2018)~~March 9, 2021).

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.

6460

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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, 2020~~6, 2021

/s/ DeVan D. Ard, Jr.

DeVan D. Ard, Jr.

~~President~~Chairman and Chief Executive Officer

(Principal Executive Officer)

May ~~8, 2020~~6, 2021

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

~~J. Daniel Dellinger~~Jerry Cooksey

Chief Financial Officer

(Principal Financial Officer)

6561


	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
Charge-offs	(6)		—		—		(17)		—		(11)		—		(34)
Recoveries	240		34		—		212		—		10		—		496
Provision	(111)		130		150		(169)		14		(12)		(2)		—
Ending balance at March 31, 2019	$	1,874	$	4,593	$	2,650	$	1,359	$	670	$	171	$	37	$	11,354


	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


	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Current		Total Loans
Commercial, Industrial and Agricultural	$	603	$	25	$	432	$	1,060	$	281,975	$	283,035
1-4 Family Residential Real Estate	424		413		469		1,306		260,412		261,718
1-4 Family HELOC	187		—		296		483		98,813		99,296
Multi-family and Commercial Real Estate	220		—		1,049		1,269		634,381		635,650
Construction, Land Development and Farmland	342		—		225		567		308,031		308,598
Consumer	23		11		16		50		24,091		24,141
Other	—		—		—		—		7,456		7,456
Total	$	1,799	$	449	$	2,487	$	4,735	$	1,615,159	$	1,619,894


	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


	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


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)


	March 31, 2020			March 31, 2019
Beginning Balance, January 1, 2020 and 2019	$	12,578		$	10,892
Loans charged off:
Commercial, Industrial and Agricultural	(294)			(6)
Real estate:
1-4 Family Residential	—			(17)
1-4 Family HELOC	—			—
Multifamily and Commercial	—			—
Construction, Land Development and Farmland	(114)			—
Consumer	(31)			(11)
Other	—			—
Total loans charged off	(439)			(34)
Recoveries on loans previously charged off:
Commercial, Industrial and Agricultural	61			240
Real estate:
1-4 Family Residential	11			212
1-4 Family HELOC	1			—
Multifamily and Commercial	3			34
Construction, Land Development and Farmland	—			—
Consumer	6			10
Other	—			—
Total loan recoveries	82			496
Net recoveries (charge-offs)	(357)			462
Provision for loan losses	2,900			—
Total allowance for loan losses at end of period	$	15,121		$	11,354
Gross loans at end of period ⁽¹⁾	$	1,619,894		$	1,261,194
Average gross loans ⁽¹⁾	$	1,613,033		$	1,238,341
Allowance for loan losses to total loans	0.93		%	0.90		%
Net recoveries (charge-offs) to average loans (annualized)	(0.09)		%	0.15		%


Scheduled Maturities	Amount		Weighted Average Rates
2020	$	115,000	0.24%
2021	7,312		2.33%
2022	506		1.22%
2023	4,205		2.36%
2024	605		2.50%

	$	127,628	0.44%