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 September 30, 20202021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______

Commission File Number: 001-37391

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

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

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

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 November 3, 2020
4, 2021 was 16,297,676,16,576,680 excluding 337,794108,130 unexchanged shares in connection with acquisitions.






TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS3
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Item 1.
5
Item 2.
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Item 3.
6162
Item 4.
6162
6263
Item 1.
6263
Item 1A.Risk Factors
6263
Item 2.
6263
Item 3.
62
Item 4.
62
Item 5.
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Item 6.
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65


2


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”) 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:

(1) the global health and economic crisis precipitated byeffects of the coronavirus (COVID-19) pandemic;
(2)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;
(3)pandemic, (iii) the pace of recovery when the coronavirus (COVID-19) pandemic subsides;
(4)subsides, and (iv) the possible recurrencespeed with which coronavirus (COVID-19) vaccines can be widely distributed, those vaccines’ efficacy against the virus, including new variant strains, and public acceptance of the coronavirus (COVID-19);vaccines;
(5)    changes in political conditions or the legislative or regulatory environment, including governmental initiatives affecting the financial services industry such as, but not limited to, the Coronavirus Aid, Relief, and Economic Security Act (or the CARES Act);
(6)(2) the possibility that our asset quality could decline or that we experience greater loan losses than anticipated;
(7)(3) increased levels of other real estate, primarily as a result of foreclosures;
(8)(4) the impact of liquidity needs on our results of operations and financial condition;
(9)(5) competition from financial institutions and other financial service providers;
(10)(6) the effect of interest rate increases on the cost of deposits;
(11)(7) unanticipated weakness in loan demand or loan pricing;
(12)(8) greater than anticipated adverse conditions in the national economy or local economies in which we operate, including in Middle Tennessee;
(13)(9) lack of strategic growth opportunities or our failure to execute on available opportunities;
(14)(10) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses;
(15)(11) economic crises and associated credit issues in industries most impacted by the coronavirus (COVID-19) pandemic, including the restaurant, hospitalityhotel and retail sectors;
(16)(12) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits;
(17)(13) our ability to effectively manage problem credits;
(18)(14) our ability to successfully implement efficiency initiatives on time and with the results projected;
(19)(15) our ability to successfully develop and market new products and technology;
(20)(16) the impact of negative developments in the financial industry and United States and global capital and credit markets;
(21)(17) our ability to retain the services of key personnel;
(22)(18) our ability to adapt to technological changes;
(23)(19) risks associated with litigation, including reputational and financial risks and the applicability of insurance coverage;
(24)(20) the vulnerability of theReliant Bank’s computer and information technology systems and networks, of Reliant Bank (the “Bank”), and the systems and networks of third parties with whom Reliant Bancorp or theReliant Bank contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches and interruptions;
(25)(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;
(26)(22) adverse resultsimpacts (including costs, fines, reputational harm, and/or other negative effects) from current or future litigation, regulatory examinations, or other legal and/or regulatory actions;
(27)(23) the risk that expected cost savingsability to meet expectations regarding the timing and revenue synergies from (a)completion and accounting and tax treatment of the merger of Reliant Bancorp and Tennesseepending transaction with United Community Bank Holdings,Banks, Inc. (“TCB Holdings”UCBI”) (the “TCB Holdings Transaction”“Transaction”) or (b) the merger of Reliant Bancorp and First Advantage Bancorp (“FABK”) (the “FABK Transaction” and, together with the TCB Holdings Transaction, collectively, the “Transactions”), may not be realized or may take longer than anticipated to be realized;;
(28)(24) the effect of the Transactionsannouncement and pendency of the Transaction 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 Reliant Bancorp’sBancorp's common stock;
(29)(25) the riskoccurrence of any event, change, or other circumstances that could give rise to the businesses and operationstermination of TCB Holdings and its subsidiaries and of FABK and its subsidiaries cannot be successfully integrated with the business and operations of Reliant Bancorp and its subsidiaries or that integration will be more costly or difficult than expected;definitive merger agreement for the Transaction;
2

(30)(26) the amount of costs, fees, expenses and charges related to the Transactions,Transaction, including those arising as a result of unexpected factors or events;
(31)(27) the ability to obtain the shareholder and governmental approvals required for the Transaction;
(28) reputational risk associated with and the reaction of ourthe parties' customers, suppliers, employees, or other business partners to the Transactions;Transaction;
(32)(29) the outcome of any legal proceedings that may be instituted against Reliant Bancorp, UCBI or any of their respective directors or officers, following the announcement of the Transaction;
3

(30) the failure of any of the conditions to the closing of the Transaction to be satisfied, or any unexpected delay in closing the Transaction;
(31) the risk associated with Reliant Bancorp management’sCompany management's attention being diverted away from the day-to-day business and operations of Reliant Bancorp to the integrationcompletion of the Transactions;Transaction; and
(33)(32) 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 coronavirus (COVID-19) pandemic on our business, financial condition, liquidity, 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, other third parties, and us.

You should also consider carefully the risk factors discussed in Part I, Item 1A. "Risk Factors" of our most recent Annual Report on Form 10-K, and in Part II, Item 1A. "Risk Factors" in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, which address additional factors that could cause our actual results to differ from those set forth in forward-looking statements and could materially and adversely affect our business, operating results, and financial condition. The risks discussedAdditional factors which could affect the forward-looking statements can be found in this Quarterly Report are factors that, individually or inReliant 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 expectedSecurities 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 otherwise listed may develop or, if currently extant, we may not have yet recognized them.

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.
34
Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements (Unaudited)

RELIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2020 (UNAUDITED) AND DECEMBER 31, 2019 (AUDITED)
(Dollar amounts in thousands)
September 30, 2020December 31, 2019
ASSETS
Cash and due from banks$14,050 $7,953 
Interest-bearing deposits in financial institutions61,349 43,644 
Federal funds sold12,273 52 
Total cash and cash equivalents87,672 51,649 
Securities available for sale273,893 260,293 
Loans2,357,898 1,409,952 
Less allowance for loan losses(19,834)(12,578)
Loans, net2,338,064 1,397,374 
Mortgage loans held for sale, net99,587 37,476 
Accrued interest receivable14,615 7,188 
Premises and equipment, net33,319 21,064 
Operating leases right of use assets14,619 — 
Restricted equity securities, at cost17,367 11,279 
Other real estate, net1,326 750 
Cash surrender value of life insurance contracts68,109 46,632 
Deferred tax assets, net8,523 3,933 
Goodwill51,506 43,642 
Core deposit intangibles11,820 7,270 
Other assets24,092 13,292 
TOTAL ASSETS$3,044,512 $1,901,842 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest-bearing demand$538,844 $260,681 
Interest-bearing demand272,805 152,718 
Savings and money market deposit accounts813,001 408,724 
Time940,852 762,330 
Total deposits2,565,502 1,584,453 
Accrued interest payable3,744 2,022 
Federal funds purchased5,000 0 
Subordinated debentures70,389 70,883 
Federal Home Loan Bank advances40,555 10,737 
Operating leases liabilities15,756 — 
Other liabilities36,480 9,994 
TOTAL LIABILITIES2,737,426 1,678,089 
Preferred stock, $1 par value; 10,000,000 shares authorized, 0 shares issued to date0 0 
Common stock, $1 par value; 30,000,000 shares authorized; 16,634,572 and 11,206,254 shares issued and outstanding at September 30, 2020, and December 31, 2019, respectively16,635 11,206 
Additional paid-in capital232,738 167,006 
Retained earnings55,206 40,472 
Accumulated other comprehensive income2,507 5,069 
TOTAL SHAREHOLDERS’ EQUITY307,086 223,753 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$3,044,512 $1,901,842 
See accompanying notes to consolidated financial statements.
4

RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Dollar amounts in thousands except per share amounts)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
INTEREST INCOME
Interest and fees on loans$32,895 $17,502 $86,987 $50,631 
Interest and fees on loans held for sale1,037 263 2,412 614 
Interest on investment securities, taxable399 549 978 1,639 
Interest on investment securities, nontaxable1,186 1,576 3,874 4,944 
Federal funds sold and other250 321 738 918 
TOTAL INTEREST INCOME35,767 20,211 94,989 58,746 
INTEREST EXPENSE
Deposits
Demand236 81 554 278 
Savings and money market deposit accounts1,162 976 3,668 3,156 
Time2,736 4,825 9,577 12,850 
Federal Home Loan Bank advances and other104 66 613 534 
Subordinated debentures992 199 2,967 590 
TOTAL INTEREST EXPENSE5,230 6,147 17,379 17,408 
NET INTEREST INCOME30,537 14,064 77,610 41,338 
PROVISION FOR LOAN LOSSES1,500 606 7,400 806 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES29,037 13,458 70,210 40,532 
NONINTEREST INCOME
Service charges on deposit accounts1,583 976 4,172 2,796 
Gains on mortgage loans sold, net3,783 1,385 7,605 3,170 
Gain on securities transactions, net0 0 327 306 
Other noninterest income635 399 1,602 1,124 
TOTAL NONINTEREST INCOME6,001 2,760 13,706 7,396 
NONINTEREST EXPENSE
Salaries and employee benefits12,184 7,634 33,885 22,605 
Occupancy2,054 1,359 5,566 4,069 
Data processing and software2,240 1,553 6,085 4,538 
Professional fees775 404 1,933 1,836 
Regulatory Fees365 (17)1,356 596 
Merger expenses78 299 6,895 302 
Other operating expense2,637 1,815 6,476 4,973 
TOTAL NONINTEREST EXPENSE20,333 13,047 62,196 38,919 
INCOME BEFORE PROVISION FOR INCOME TAXES14,705 3,171 21,720 9,009 
INCOME TAX EXPENSE2,800 557 3,524 1,430 
CONSOLIDATED NET INCOME11,905 2,614 18,196 7,579 
NONCONTROLLING INTEREST IN NET (INCOME) LOSS OF SUBSIDIARY(374)1,386 990 4,484 
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS$11,531 $4,000 $19,186 $12,063 
Basic net income attributable to common shareholders, per share$0.70 $0.36 $1.27 $1.07 
Diluted net income attributable to common shareholders, per share$0.69 $0.36 $1.27 $1.07 
September 30, 2021 (unaudited)December 31, 2020
ASSETS
Cash and due from banks$13,270 $13,717 
Interest-bearing deposits in financial institutions66,155 79,756 
Federal funds sold1,002 1,572 
Total cash and cash equivalents80,427 95,045 
Securities available for sale254,416 256,653 
Loans2,389,833 2,300,783 
Less: allowance for loan losses(20,897)(20,636)
Loans, net2,368,936 2,280,147 
Mortgage loans held for sale, net62,543 147,524 
Accrued interest receivable14,374 14,889 
Premises and equipment, net27,519 31,462 
Operating leases right of use assets12,427 13,103 
Restricted equity securities, at cost15,770 16,551 
Other real estate, net3,088 1,246 
Cash surrender value of life insurance contracts78,460 77,988 
Deferred tax assets, net5,788 7,121 
Goodwill54,396 54,396 
Core deposit intangibles9,978 11,347 
Other assets25,437 19,063 
TOTAL ASSETS$3,013,559 $3,026,535 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest-bearing demand$626,598 $575,289 
Interest-bearing demand410,923 350,392 
Savings and money market deposit accounts989,677 857,210 
Time520,507 796,344 
Total deposits2,547,705 2,579,235 
Accrued interest payable2,302 2,571 
Subordinated debentures70,821 70,446 
Federal Home Loan Bank advances— 10,000 
Operating leases liabilities13,605 14,231 
Other liabilities22,811 28,079 
TOTAL LIABILITIES2,657,244 2,704,562 
Preferred stock, $1 par value per share; 10,000,000 shares authorized, zero shares issued to date— — 
Common stock, $1 par value per share; 30,000,000 shares authorized; 16,682,928 and 16,654,409 shares issued and outstanding at September 30, 2021, and December 31, 2020, respectively16,683 16,654 
Additional paid-in capital234,696 233,331 
Retained earnings98,182 65,757 
Accumulated other comprehensive income6,754 6,231 
TOTAL SHAREHOLDERS’ EQUITY356,315 321,973 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$3,013,559 $3,026,535 
See accompanying notes to consolidated financial statements.
5

RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Dollar amounts in thousands)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Consolidated net income$11,905 $2,614 $18,196 $7,579 
Other comprehensive income (loss)
Net unrealized gains on available-for-sale securities, net of tax of ($357) and ($973) for the three months ended September 30, 2020 and 2019, respectively, and ($864) and ($3,935) for the nine months ended September 30, 2020 and 2019, respectively1,008 2,736 2,442 11,122 
Net unrealized losses on interest rate swap derivatives net of tax of ($133) and $98 for the three months ended September 30, 2020 and 2019, respectively, and $1,685 and $569 for the nine months ended September 30, 2020 and 2019, respectively375 (275)(4,762)(1,606)
Reclassification adjustment for gains included in net income, net of tax of $0 and $0 for the three months ended September 30, 2020 and 2019, respectively, and $85 and $80 for the nine months ended September 30, 2020 and 2019, respectively0 0 (242)(226)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)1,383 2,461 (2,562)9,290 
TOTAL COMPREHENSIVE INCOME$13,288 $5,075 $15,634 $16,869 

thousands except per share amounts)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
INTEREST INCOME
Interest and fees on loans$30,817 $32,895 $92,989 $86,987 
Interest and fees on loans held for sale1,184 1,037 4,322 2,412 
Interest on investment securities, taxable786 399 2,059 978 
Interest on investment securities, nontaxable928 1,186 3,369 3,874 
Restricted equity securities and other215 251 668 738 
TOTAL INTEREST INCOME33,930 35,768 103,407 94,989 
INTEREST EXPENSE
Deposits
Demand153 236 641 554 
Savings and money market deposit accounts441 1,162 1,927 3,668 
Time3,348 2,735 10,314 9,577 
Federal Home Loan Bank advances and other borrowings9 104 26 613 
Subordinated debentures980 992 2,913 2,967 
TOTAL INTEREST EXPENSE4,931 5,229 15,821 17,379 
NET INTEREST INCOME28,999 30,539 87,586 77,610 
PROVISION FOR LOAN LOSSES— 1,500 — 7,400 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES28,999 29,039 87,586 70,210 
NONINTEREST INCOME
Service charges on deposit accounts1,678 1,583 4,895 4,172 
Gains on mortgage loans sold, net4,218 3,784 12,124 7,605 
Gain on securities transactions, net2,419 — 5,514 327 
Income from bank owned life insurance2,181 386 3,172 1,073 
Other noninterest income373 249 811 529 
TOTAL NONINTEREST INCOME10,869 6,002 26,516 13,706 
NONINTEREST EXPENSE
Salaries and employee benefits12,426 12,184 38,571 33,885 
Occupancy2,038 2,054 6,045 5,566 
Data processing and software2,265 2,240 6,756 6,085 
Professional fees526 775 2,127 1,933 
Regulatory fees328 365 1,032 1,356 
Merger expenses1,453 77 1,453 6,895 
Other operating expense3,345 2,639 8,545 6,476 
TOTAL NONINTEREST EXPENSE22,381 20,334 64,529 62,196 
INCOME BEFORE PROVISION FOR INCOME TAXES17,487 14,707 49,573 21,720 
INCOME TAX EXPENSE3,551 2,800 9,733 3,524 
CONSOLIDATED NET INCOME13,936 11,907 39,840 18,196 
NONCONTROLLING INTEREST IN NET (INCOME) LOSS OF SUBSIDIARY(647)(374)(1,357)990 
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS$13,289 $11,533 $38,483 $19,186 
Basic net income attributable to common shareholders, per share$0.80 $0.70 $2.31 $1.27 
Diluted net income attributable to common shareholders, per share$0.79 $0.69 $2.29 $1.27 
See accompanying notes to consolidated financial statements.
6

RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYCOMPREHENSIVE INCOME - UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Dollar amounts in thousands)

COMMON STOCKADDITIONAL
PAID-IN
CAPITAL		RETAINED
EARNINGS		ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)		NONCONTROLLING
INTEREST		TOTAL
SHARESAMOUNT
BALANCE - DECEMBER 31, 201911,206,254 $11,206 $167,006 $40,472 $5,069 $0 $223,753 
Stock based compensation expense— — 349 — — — 349 
Exercise of stock options868 1 7 — — — 8 
Restricted stock and dividend forfeiture(3,837)(4)(69)— — — (73)
Conversion shares issued to shareholders of Tennessee Community Bank Holdings, Inc.811,210 811 17,230 — — — 18,041 
Noncontrolling interest contributions— — — — — 976 976 
Cash dividend declared to common shareholders ($0.10 per share)— — — (1,207)— — (1,207)
Cumulative effect of lease standard adoption— — — 100 — — 100 
Net loss— — — (215)— (976)(1,191)
Other comprehensive loss— — — — (6,084)— (6,084)
BALANCE - MARCH 31, 202012,014,495 $12,014 $184,523 $39,150 $(1,015)$0 $234,672 
Stock based compensation expense— — 485 — — — 485 
Exercise of stock options1,021 1 14 — — — 15 
Employee Stock Purchase Plan stock issuance8,344 8 108 — — — 116 
Restricted stock awards3,022 3 (3)— — — 0 
Restricted stock and dividend forfeiture(1,697)(1)1 — — — 0 
Conversion shares issued to shareholders of First Advantage Bancorp4,606,419 4,607 47,308 — — — 51,915 
Noncontrolling interest contributions— — — — — 388 388 
Cash dividend declared to common shareholders ($0.10 per share)— — — (1,667)— — (1,667)
Net income (loss)— — — 7,868 — (388)7,480 
Other comprehensive income— — — — 2,139 — 2,139 
BALANCE - JUNE 30, 202016,631,604 $16,632 $232,436 $45,351 $1,124 $0 $295,543 
Stock based compensation expense— — 349 — — — 349 
Exercise of stock options4,655 5 61 — — — 66 
Restricted stock units vesting, net of taxes withheld8,030 8 (14)— — — (6)
Restricted stock and dividend forfeiture(9,717)(10)(94)— — — (103)
Noncontrolling interest contributions— — — — — (374)(374)
Cash dividend declared to common shareholders ($0.10 per share)— — — (1,676)— — (1,676)
Net income— — — 11,531 — 374 11,905 
Other comprehensive income— — — — 1,383 — 1,383 
BALANCE - SEPTEMBER 30, 202016,634,572 $16,635 $232,738 $55,206 $2,507 $0 $307,086 
Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Net income$13,936 $11,907 $39,840 $18,196 
Other comprehensive income:
Unrealized (losses) gains on securities available for sale:
Unrealized holdings (losses) gains arising during the period(1,864)1,365 (967)3,306 
Reclassification adjustment for gains included in net income(2,419)— (5,514)(327)
Tax effect1,119 (357)1,694 (779)
Net of tax(3,164)1,008 (4,787)2,200 
Unrealized (losses) gains on cash flow hedges
Unrealized holdings (losses) gains arising during the period(113)508 2,040 (6,448)
Reclassification adjustment for losses included in net income2,290 — 5,149 — 
Tax effect(568)(133)(1,879)1,686 
Net of tax1,609 375 5,310 (4,762)
Other comprehensive (loss) income(1,555)1,383 523 (2,562)
Comprehensive income$12,381 $13,290 $40,363 $15,634 
Comprehensive (income) loss attributable to noncontrolling interest(647)(374)(1,357)990 
Comprehensive income attributable to the controlling interest$11,734 $12,916 $39,006 $16,624 

COMMON STOCKADDITIONAL
PAID-IN
CAPITAL		RETAINED
EARNINGS		ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)		NONCONTROLLING
INTEREST		TOTAL
SHARESAMOUNT
BALANCE - DECEMBER 31, 201811,530,810 $11,531 $173,238 $27,329 $(3,684)$0 $208,414 
Stock based compensation expense— — 250 — — — 250 
Exercise of stock options2,183 2 26 — — — 28 
Restricted stock awards3,000 3 (3)— — — 0 
Restricted stock forfeiture(3,750)(4)4 1 — — 1 
Common stock shares redeemed(29,958)(30)(629)— — — (659)
Noncontrolling interest contributions— — — — — 1,543 1,543 
Cash dividends declared to common shareholders ($0.09 per share)— — — (1,035)— — (1,035)
Net income (loss)— — — 3,824 — (1,543)2,281 
Other comprehensive income— — — — 4,296 — 4,296 
BALANCE - MARCH 31, 201911,502,285 $11,502 $172,886 $30,119 $612 $0 $215,119 
Stock based compensation expense— — 280 — — — 280 
Exercise of stock options24,523 25 298 — — — 323 
Employee Stock Purchase Plan stock issuance4,728 5 85 — — — 90 
Restricted stock awards5,000 5 (5)— — — 0 
Restricted stock and dividend forfeiture(4,000)(4)4 — — — 0 
Common stock shares redeemed(335,973)(336)(7,296)— — — (7,632)
Noncontrolling interest contributions— — — — — 1,555 1,555 
Cash dividends declared to common shareholders ($0.09 per share)— — — (1,009)— — (1,009)
Net income (loss)— — — 4,239 — (1,555)2,684 
Other comprehensive income— — — — 2,533 — 2,533 
BALANCE - JUNE 30, 201911,196,563 $11,197 $166,252 $33,349 $3,145 $0 $213,943 
Stock based compensation expense— — 337 — — — 337 
Exercise of stock options600 1 8 — — — 9 
Restricted stock awards1,500 1 (1)— — — 0 
Restricted shares withheld for taxes(3,601)(4)(84)— — — (88)
Noncontrolling interest contributions— — — — — 1,386 1,386 
Cash dividend declared to common shareholders ($0.09 per share)— — — (1,010)— — (1,010)
Net income (loss)— — — 4,000 — (1,386)2,614 
Other comprehensive loss— — — — 2,461 — 2,461 
BALANCE - SEPTEMBER 30, 201911,195,062 $11,195 $166,512 $36,339 $5,606 $0 $219,652 

See accompanying notes to consolidated financial statements.
7

RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN SHAREHOLDERS’ EQUITY - UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Dollar amounts in thousands)
Nine Months Ended
September 30,
OPERATING ACTIVITIES20202019
Consolidated net income$18,196 $7,579 
Adjustments to reconcile consolidated net income to net cash (used in) provided by operating activities
Provision for loan losses7,400 806 
Deferred income taxes2,003 3,686 
Gain on disposal of premises and equipment(1)0 
Depreciation and amortization of premises and equipment2,084 1,486 
Net amortization of securities1,980 2,302 
Net realized gains on sales of securities(327)(306)
Gains on mortgage loans sold, net(7,605)(3,170)
Stock-based compensation expense1,183 867 
Gain on other real estate(24)0 
Increase in cash surrender value of life insurance contracts(1,073)(838)
Mortgage loans originated for resale(327,521)(106,520)
Proceeds from sale of mortgage loans278,893 108,756 
Cash payments arising from operating leases2,327 — 
Other accretion, net of other amortization(10,748)(477)
Change in
Accrued interest receivable(4,094)726 
Other assets(4,535)508 
Accrued interest payable(526)547 
Other liabilities6,497 (6,392)
TOTAL ADJUSTMENTS(54,087)1,981 
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES(35,891)9,560 
INVESTING ACTIVITIES
Cash used to convert shares, and redeem stock options and fractional shares, net of cash received(8,500)0 
Activities in available for sale securities
Purchases(31,179)(47,870)
Sales103,901 52,434 
Maturities, prepayments and calls10,370 8,587 
(Purchases) redemptions of restricted equity securities(1,867)411 
Net increase in loans(146,777)(118,758)
Purchase of premises and equipment(2,709)(843)
Proceeds from sale of premises and equipment257 0 
Proceeds from sale of other real estate2,273 0 
NET CASH USED IN INVESTING ACTIVITIES(74,231)(106,039)
FINANCING ACTIVITIES
Net change in deposits163,839 172,741 
Proceeds from Federal Home Loan Bank Advances444,000 163,824 
Payments on Federal Home Loan Bank Advances(463,156)(217,353)
Proceeds from Federal Funds Purchased5,000 0 
Issuance of common stock, net of repurchase of restricted shares(177)272 
Issuance of common stock related to exercise of stock options and ESPP199 90 
Redemption of common stock— (8,291)
Noncontrolling interest contributions received990 4,415 
Cash dividends paid on common stock(4,550)(3,077)
NET CASH PROVIDED BY FINANCING ACTIVITIES146,145 112,621 
NET CHANGE IN CASH AND CASH EQUIVALENTS36,023 16,142 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD51,649 35,178 
CASH AND CASH EQUIVALENTS - END OF PERIOD$87,672 $51,320 
COMMON STOCKADDITIONAL
PAID-IN
CAPITAL		RETAINED
EARNINGS		ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)		NONCONTROLLING
INTEREST		TOTAL
SHARESAMOUNT
BALANCE - JANUARY 1, 202116,654,409 $16,654 $233,331 $65,757 $6,231 $— $321,973 
Stock based compensation expense— — 339 — — — 339 
Exercise of stock options600 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, 202116,654,415 $16,654 $233,667 $75,891 $5,487 $— $331,699 
Stock based compensation expense— — 468 — — — 468 
Employee Stock Purchase Plan stock issuance18,986 20 278 — — — 298 
Restricted stock awards, net of taxes withheld and stock and dividend forfeitures(890)(1)(23)— — — (24)
Noncontrolling interest contributions— — — — — (140)(140)
Cash dividend declared to common shareholders ($0.12 per share)— — — (2,019)— — (2,019)
Net income— — — 13,045 — 140 13,185 
Other comprehensive income— — — — 2,822 — 2,822 
BALANCE - JUNE 30, 202116,672,511 $16,673 $234,390 $86,917 $8,309 $— $346,289 
Stock based compensation expense— — 458 — — — 458 
Exercise of stock options1,102 1 14 — — — 15 
Employee Stock Purchase Plan stock issuance2,795 3 63 — — — 66 
Restricted stock units vesting, net of taxes withheld and stock and dividend forfeitures6,520 6 (229)— — — (223)
Noncontrolling interest contributions— — — — — (647)(647)
Cash dividend declared to common shareholders ($0.12 per share)— — — (2,024)— — (2,024)
Net income— — — 13,289 — 647 13,936 
Other comprehensive income— — — — (1,555)— (1,555)
BALANCE - SEPTEMBER 30, 202116,682,928 $16,683 $234,696 $98,182 $6,754 $— $356,315 



COMMON STOCKADDITIONAL
PAID-IN
CAPITAL		RETAINED
EARNINGS		ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)		NONCONTROLLING
INTEREST		TOTAL
SHARESAMOUNT
BALANCE - JANUARY 1, 202011,206,254 $11,206 $167,006 $40,472 $5,069 $— $223,753 
Stock based compensation expense— — 349 — — — 349 
Exercise of stock options868 1 7 — — — 8 
Restricted stock awards, 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, 202012,014,495 $12,014 $184,523 $39,150 $(1,015)$— $234,672 
Stock based compensation expense— — 485 — — — 485 
Exercise of stock options1,021 1 14 — — — 15 
Employee Stock Purchase Plan stock issuance8,344 8 108 — — — 116 
Restricted stock awards, net of taxes withheld and stock and dividend forfeitures1,325 2 (2)— — — — 
Conversion shares issued to shareholders of First Advantage Bancorp4,606,419 4,607 47,308 — — — 51,915 
Noncontrolling interest contributions— — — — — 388 388 
Cash dividend declared to common shareholders ($0.10 per share)— — — (1,667)— — (1,667)
Net income (loss)— — — 7,868 — (388)7,480 
Other comprehensive income— — — — 2,139 — 2,139 
BALANCE - JUNE 30, 202016,631,604 $16,632 $232,436 $45,351 $1,124 $— $295,543 
Stock based compensation expense— — 349 — — — 349 
Exercise of stock options4,655 5 61 — — — 66 
Employee Stock Purchase Plan stock issuance— — — — — — — 
Restricted stock units vesting, net of taxes withheld and stock and dividend forfeitures(1,687)(2)(108)— — — (110)
Noncontrolling interest contributions— — — — — (374)(374)
Cash dividend declared to common shareholders ($0.10 per share)— — — (1,678)— — (1,678)
Net income— — — 11,533 — 374 11,907 
Other comprehensive income— — — — 1,383 — 1,383 
BALANCE - SEPTEMBER 30, 202016,634,572 $16,635 $232,738 $55,206 $2,507 $— $307,086 

See accompanying notes to consolidated financial statements.
8

RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(Dollar amounts in thousands)
Nine Months Ended
September 30,
OPERATING ACTIVITIES20212020
Consolidated net income$39,840 $18,196 
Adjustments to reconcile consolidated net income to net cash (used in) provided by operating activities
Provision for loan losses— 7,400 
Deferred income taxes1,148 2,003 
Loss (gain) on disposal of premises and equipment74 (1)
Depreciation of premises and equipment2,127 2,084 
Net amortization of securities1,202 1,980 
Net realized gains on sales of securities(5,514)(327)
Gains on mortgage loans sold, net(12,124)(7,605)
Stock-based compensation expense1,265 1,183 
Gain on other real estate(33)(24)
Provision for losses on other real estate98 — 
Earnings on bank-owned life insurance(3,172)(1,073)
Mortgage loans originated for resale(699,551)(327,521)
Proceeds from sale of mortgage loans796,656 278,893 
Right of use asset amortization1,951 1,224 
Other accretion, net of other amortization(2,827)(8,256)
Change in
Accrued interest receivable515 (4,094)
Other assets(3,729)(3,794)
Accrued interest payable(269)(526)
Other liabilities640 4,367 
TOTAL ADJUSTMENTS78,457 (54,087)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES118,297 (35,891)
INVESTING ACTIVITIES
Cash (used in) received from acquisitions, net— (8,500)
Activities in available for sale securities
Purchases(68,164)(31,179)
Sales58,855 103,901 
Maturities, prepayments and calls8,730 10,370 
Redemptions (purchases) of restricted equity securities781 (1,867)
Net change in loans(84,218)(146,777)
Purchase of premises and equipment(297)(2,709)
Proceeds from sale of premises and equipment51 257 
Proceeds from sale of other real estate126 2,273 
NET CASH USED IN INVESTING ACTIVITIES(84,136)(74,231)
FINANCING ACTIVITIES
Net change in deposits(31,493)163,839 
Proceeds from Federal Home Loan Bank advances423,000 444,000 
Payments on Federal Home Loan Bank advances(433,000)(463,156)
Issuance of ESPP shares and exercise of common stock options and warrants, net of repurchase of restricted shares129 22 
Noncontrolling interest contributions(1,357)990 
Cash dividends paid on common stock(6,058)(4,550)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES(48,779)146,145 
NET CHANGE IN CASH AND CASH EQUIVALENTS(14,618)36,023 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD95,045 51,649 
CASH AND CASH EQUIVALENTS - END OF PERIOD$80,427 $87,672 
See accompanying notes to consolidated financial statements.



RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Dollar amounts in thousands)
Nine Months Ended
September 30,
20202019
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for
Interest$20,508 $16,861 
Taxes$4,565 $1,607 
Non-cash investing and financing activities
Change in due to/from noncontrolling interest$990 $4,484 
Acquired bank facilities no longer in use transferred to other real estate owned and foreclosed assets from premises and equipment$2,420 $0 
Loans foreclosed and transferred to other real estate owned and foreclosed assets$197 $943 
Nine Months Ended September 30,
20212020
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for
Interest$15,752 $20,508 
Income taxes7,790 4,565 
Supplemental disclosures of non-cash transactions
Unrealized (loss) gain on securities available-for-sale$(7,128)$4,039 
Unrealized gain (loss) on derivatives7,836 (7,508)
Change in due to/from noncontrolling interest(1,357)990 
Bank facilities no longer in use transferred to other real estate from premises and equipment1,988 — 
Loans foreclosed and transferred to other real estate45 197 
Right of use assets obtained in exchange for operating lease liabilities1,302 11,973 
BOLI proceeds receivable recognized in income2,699 — 

See accompanying notes to consolidated financial statements.
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RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

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

Reliant Risk Management, Inc., a wholly-owned insurance captive subsidiary of Reliant Bancorp, 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 Tennessee Department of Commerce and 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"). All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and related notes appearing in 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 Reliant Bancorp, Inc., its wholly-owned direct and indirect subsidiaries and Reliant Mortgage Ventures, LLC ("RMV"), of which the Bank controls 51% of the governance rights. As described in Note 1211 to these unaudited consolidated financial statements, Reliant Bancorp, Inc. and Tennessee Community Bank Holdings, Inc. (“TCB HoldingsHoldings”) merged effective on January 1, 2020, and Reliant Bancorp, Inc. and FABKFirst Advantage Bancorp (“FABK”) merged effective April 1, 2020.

Proposed Merger with United Community Banks, Inc.

On July 14, 2021, United Community Banks, Inc. (NASDAQGS: UCBI) (“United”) and Reliant Bancorp announced the execution of a definitive merger agreement pursuant to which United will acquire Reliant Bancorp in an all-stock transaction with an aggregate value of approximately $517 million, or $30.58 per share of Reliant Bancorp common stock, based on United’s closing stock price of $31.07 on July 13, 2021. This agreement is subject to both regulatory and Reliant Bancorp shareholder approval. The transaction is expected to close in the first quarter of 2022.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for loan losses, the valuation of other real estate, the valuation of debt and equity securities, the valuation of deferred tax assets and fair values of financial instruments.

The consolidated financial statements as of September 30, 2020,2021, and for the three and nine months ended September 30, 20202021 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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The accompanying consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary to present a fair statement of the results for the interim periods presented. Such adjustments are of a normal recurring nature. The Company evaluates subsequent events through the date of filing. Certain prior period amounts have been reclassified to
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)

conform to the current period presentation. The results for the three and nine months ended September 30, 20202021 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, 20192020 for additional information related to previously issued accounting standards updates.

ASU 2016-02, “2019-12,Leases “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.” 842).”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 2016-02 requires lessees to recognize2019-12 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 lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discountedstep-up in the tax 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 assetgoodwill. ASU 2019-12 was effective for the lease term. ASU 2016-02 went into effect for the Companyus on January 1, 2020 and the Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. The Company also elected certain practical expedients within the standard and consistent with such elections did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases, and did not reassess any initial direct costs for existing leases. The effect of implementing this pronouncement resulted in right to use assets of $11,973 and a similar corresponding liability, as of January 1, 2020.

ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 was early adopted as of January 1, 20202021, and did not have a significant impact on the Company'sour consolidated financial statements as it simplifies the test of impairment of goodwill.statements.

ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." In March 2020, the FASBFinancial 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)

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

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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 September 30, 20202021 and December 31, 20192020 were as follows:
September 30, 2020
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value
U. S. Treasury and other U. S. government agencies$12,117 $1 $(1)$12,117 
State and municipal175,976 14,717 (70)190,623 
Corporate bonds15,750 167 (108)15,809 
Mortgage-backed securities41,240 348 (1,212)40,376 
Asset-backed securities15,199 0 (231)14,968
Total$260,282 $15,233 $(1,622)$273,893 
September 30, 2021
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value
U. S. Treasury and other U. S. government agencies$218 $— $— $218 
State and municipal161,733 10,039 (801)170,971 
Corporate bonds27,000 1,160 (8)28,152 
Mortgage-backed securities - Residential52,736 295 (208)52,823 
Asset-backed securities2,270 1 (19)2,252
Total$243,957 $11,495 $(1,036)$254,416 

December 31, 2019December 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 agenciesU. S. Treasury and other U. S. government agencies$59 $0 $0 $59 U. S. Treasury and other U. S. government agencies$47 $1 $— $48 
State and municipalState and municipal186,283 10,413 (36)196,660 State and municipal184,102 16,963 (77)200,988 
Corporate bondsCorporate bonds7,880 97 (132)7,845 Corporate bonds23,750 397 (34)24,113 
Mortgage-backed securities38,126 296 (661)37,761 
Mortgage-backed securities - ResidentialMortgage-backed securities - Residential28,084 360 (2)28,442 
Asset-backed securitiesAsset-backed securities18,374 0 (406)17,968 Asset-backed securities3,083 1 (22)3,062 
TotalTotal$250,722 $10,806 $(1,235)$260,293 Total$239,066 $17,722 $(135)$256,653 

Securities pledged at September 30, 20202021 and December 31, 20192020 had a carrying amount of $43,406$35,376 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 September 30,Nine Months Ended September 30,
2021202020212020
Proceeds$23,104 $233 $58,855 $103,901 
Gross gains2,419 371 5,514 810 
Gross losses— (371)— (483)

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The fair values of available for sale debt securities at September 30, 20202021 by contractual maturity are provided below. Actual maturities may differ from contractual maturities for mortgage- and asset-backed securities since the underlying asset may be called or prepaid with or without penalty. Securities not due at a single maturity date are shown separately.

Results from sales of securities were as follows:
Nine months ended
September 30, 2020September 30, 2019
Proceeds$103,901 $52,434 
Gross gains810 475 
Gross losses(483)(169)

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

Amortized
Cost		Estimated
Fair Value		Amortized
Cost		Estimated
Fair Value
Due within one yearDue within one year$12,567 $12,565 Due within one year$218 $218 
Due in one to five yearsDue in one to five years2,175 2,186 Due in one to five years2,085 2,120 
Due in five to ten yearsDue in five to ten years17,222 17,965 Due in five to ten years31,473 33,239 
Due after ten yearsDue after ten years171,879 185,833 Due after ten years155,175 163,764 
Mortgage-backed securitiesMortgage-backed securities41,240 40,376 Mortgage-backed securities52,736 52,823 
Asset-backed securitiesAsset-backed securities15,199 14,968 Asset-backed securities2,270 2,252 
TotalTotal$260,282 $273,893 Total$243,957 $254,416 

The following table shows available for sale securities with unrealized losses and their estimated fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 20202021 and December 31, 2019,2020, respectively:
Less than 12 months12 months or moreTotalLess than 12 months12 months or moreTotal
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
September 30, 2020
U. S. Treasury and other
U. S. government agencies		$12,066 $1 $0 $0 $12,066 $1 
September 30, 2021September 30, 2021
State and municipalState and municipal7,319 70 0 0 7,319 70 State and municipal$37,064 $801 $— $— $37,064 $801 
Corporate bondsCorporate bonds9,142 107 500 1 9,642 108 Corporate bonds1,742 8 — — 1,742 8 
Mortgage-backed securities6,613 282 20,982 930 27,595 1,212 
Mortgage-backed securities - ResidentialMortgage-backed securities - Residential33,283 207 74 1 33,357 208 
Asset-backed securitiesAsset-backed securities790 1 14,092 230 14,882 231 Asset-backed securities— — 2,045 19 2,045 19 
Total temporarily impairedTotal temporarily impaired$35,930 $461 $35,574 $1,161 $71,504 $1,622 Total temporarily impaired$72,089 $1,016 $2,119 $20 $74,208 $1,036 

December 31, 2019
U. S. Treasury and other
U. S. government agencies		$0 $0 $0 $0 $0 $0 
December 31, 2020December 31, 2020
State and municipalState and municipal1,960 36 0 0 1,960 36 State and municipal$9,475 $77 $— $— $9,475 $77 
Corporate bondsCorporate bonds0 0 2,499 132 2,499 132 Corporate bonds5,716 34 — — 5,716 34 
Mortgage-backed securities16,104 286 9,081 375 25,185 661 
Mortgage-backed securities - ResidentialMortgage-backed securities - Residential5,024 1 92 1 5,116 2 
Asset-backed securitiesAsset-backed securities0 0 17,682 406 17,682 406 Asset-backed securities729 2 2,013 20 2,742 22 
Total temporarily impairedTotal 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. As the fair value is expected to recover as the securities approach their maturity date and/or market rates decline, we do not consider these securities to be other-than-temporarily impaired at September 30, 2020.2021. There were 4348 and 4722 securities in an unrealized loss position as of September 30, 20202021 and December 31, 2019,2020, respectively.

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

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans at September 30, 20202021 and December 31, 20192020 were comprised as follows:
September 30,
2020		December 31, 2019September 30, 2021December 31, 2020
Commercial, Industrial and AgriculturalCommercial, Industrial and Agricultural$477,785 $245,515 Commercial, Industrial and Agricultural$450,710 $459,739 
Real EstateReal EstateReal Estate
1-4 Family Residential 1-4 Family Residential334,730 227,529  1-4 Family Residential310,855 323,473 
1-4 Family HELOC 1-4 Family HELOC101,492 96,228  1-4 Family HELOC100,895 100,525 
Multi-family and Commercial Multi-family and Commercial864,756 536,845  Multi-family and Commercial873,265 834,000 
Construction, Land Development and Farmland Construction, Land Development and Farmland366,760 273,872  Construction, Land Development and Farmland417,258 365,058 
ConsumerConsumer209,071 16,855 Consumer234,734 213,863 
OtherOther8,259 13,180 Other5,298 8,669 
Gross loansGross loans2,362,853 1,410,024 Gross loans2,393,015 2,305,327 
Less: Deferred loan fees Less: Deferred loan fees4,955 72  Less: Deferred loan fees3,182 4,544 
Less: Allowance for loan losses Less: Allowance for loan losses19,834 12,578  Less: Allowance for loan losses20,897 20,636 
Loans, netLoans, net$2,338,064 $1,397,374 Loans, net$2,368,936 $2,280,147 

Activity in the allowance for loan losses by portfolio segment was as follows for the three months endedAt September 30, 2021 and December 31, 2020, loans are recorded net of purchase discounts of $11,993 and September 30, 2019, respectively:

Commercial Industrial and AgriculturalMulti-family
and
Commercial
Real Estate		Construction
Land
Development and Farmland		1-4 Family
Residential
Real Estate		1-4 Family HELOCConsumerOtherTotal
Beginning balance at June 30, 2020$4,675 $8,407 $2,126 $1,454 $975 $584 $16 $18,237 
Charge-offs0 0 0 (8)0 (60)0 (68)
Recoveries88 9 4 22 12 30 0 165 
Provision249 (169)(175)821 498 272 4 1,500 
Ending balance at
September 30, 2020
$5,012 $8,247 $1,955 $2,289 $1,485 $826 $20 $19,834 

Beginning balance at June 30, 2019$1,881 $4,713 $2,707 $1,455 $686 $188 $36 $11,666 
Charge-offs(2)0 0 (12)0 (16)(21)(51)
Recoveries48 3 (201)4 0 16 200 70 
Provision372 472 7 (64)18 (18)(181)606 
Ending balance at
September 30, 2019
$2,299 $5,188 $2,513 $1,383 $704 $170 $34 $12,291 

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

Activity in the allowance for loan losses by portfolio segment was as follows for the nine months ended September 30, 2020 and September 30, 2019, respectively:
Commercial Industrial and AgriculturalMulti-family
and
Commercial
Real Estate		Construction
Land
Development and Farmland		1-4 Family
Residential
Real Estate		1-4 Family HELOCConsumerOtherTotal
Beginning balance at December 31, 2019$2,529 $5,285 $2,649 $1,280 $624 $177 $34 $12,578 
Charge-offs(507)0 (114)(68)(98)(355)0 (1,142)
Recoveries126 20 8 769 15 60 0 998 
Provision2,864 2,942 (588)308 944 944 (14)7,400 
Ending balance at
September 30, 2020
$5,012 $8,247 $1,955 $2,289 $1,485 $826 $20 $19,834 

Beginning balance at December 31, 2018$1,751 $4,429 $2,500 $1,333 $656 $184 $39 $10,892 
Charge-offs(170)0 0 (29)0 (37)(34)(270)
Recoveries342 62 0 220 11 28 200 863 
Provision376 697 13 (141)37 (5)(171)806 
Ending balance at
September 30, 2019
$2,299 $5,188 $2,513 $1,383 $704 $170 $34 $12,291 
$16,634, respectively.

The allowance for loan losses andCompany pledged loans to the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2020 were as follows:
Commercial Industrial and AgriculturalMulti-family
and
Commercial
Real Estate		Construction
Land
Development and Farmland		1-4 Family
Residential
Real Estate		1-4 Family HELOCConsumerOtherTotal
Allowance for loan losses
Individually evaluated for impairment$764 $0 $0 $0 $0 $0 $0 $764 
Acquired with credit impairment0 0 0 0 0 0 0 0 
Collectively evaluated for impairment4,248 8,247 1,955 2,289 1,485 82620 19,070 
Total$5,012 $8,247 $1,955 $2,289 $1,485 $826 $20 $19,834 
Loans
Individually evaluated for impairment$1,084 $2,537 $1,777 $1,687 $316 $592 $0 $7,993 
Acquired with credit impairment257 1,211 787 934 14 1,330 0 4,533 
Collectively evaluated for impairment476,444 861,008 364,196 332,109 101,162 207,1498,259 2,350,327 
Total$477,785 $864,756 $366,760 $334,730 $101,492 $209,071 $8,259 $2,362,853 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)

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 AgriculturalMulti-family
and
Commercial
Real Estate		Construction
Land
Development and Farmland		1-4 Family
Residential
Real Estate		1-4 Family HELOCConsumerOtherTotal
Allowance for loan losses
Individually evaluated for impairment$755 $0 $17 $0 $0 $0 $0 $772 
Acquired with credit impairment0 0 0 0 0 0 0 0 
Collectively evaluated for impairment1,774 5,285 2,632 1,280 624 177 34 11,806 
Total$2,529 $5,285 $2,649 $1,280 $624 $177 $34 $12,578 
Loans
Individually evaluated for impairment$1,154 $3,439 $1,217 $1,536 $374 $28 $0 $7,748 
Acquired with credit impairment0 215 813 195 0 0 0 1,223 
Collectively evaluated for impairment244,361 533,191 271,842 225,798 95,854 16,827 13,180 1,401,053 
Total$245,515 $536,845 $273,872 $227,529 $96,228 $16,855 $13,180 $1,410,024 



Non-accrual loans by class of loan were as followsFHLB at September 30, 20202021 and December 31, 2019:
September 30, 2020December 31, 2019
Commercial, Industrial and Agricultural$791 $572 
Multi-family and Commercial Real Estate1,532 1,276 
Construction, Land Development and Farmland1,100 555 
1-4 Family Residential Real Estate1,591 1,344 
1-4 Family HELOC239 296 
Consumer1,485 28 
Total$6,738 $4,071 

Performing non-accrual loans totaled $2,9262020 of $857,394 and $1,332 at September 30, 2020 and December 31, 2019,$646,498, respectively.

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

Individually impaired loans by class of loans were as follows at September 30, 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$2,575 $436 $905 $1,341 $764 
Multi-family and Commercial Real Estate5,837 3,748 0 3,748 0 
Construction, Land Development and Farmland3,032 2,564 0 2,564 0 
1-4 Family Residential Real Estate3,322 2,621 0 2,621 0 
1-4 Family HELOC436 330 0 330 0 
Consumer3,819 1,922 0 1,922 0 
Total$19,021 $11,621 $905 $12,526 $764 

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 $5 $1,149 $1,154 $755 
Multi-family and Commercial Real Estate3,746 3,654 0 3,654 0 
Construction, Land Development and Farmland2,347 1,859 171 2,030 17 
1-4 Family Residential Real Estate1,852 1,731 0 1,731 0 
1-4 Family HELOC376 374 0 374 0 
Consumer31 28 0 28 0 
Total$9,506 $7,651 $1,320 $8,971 $772 

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

The average balances of impaired loans and the interest income recognized for the three and nine months ended September 30, 2020 and 2019 were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Average Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income Recognized
Impaired loans with an allowance
Commercial, Industrial and Agricultural$947 $6$2,435 $112$975 $32$1,384 $342
Multi-family and Commercial Real Estate0 0 0 0 0 0 0 0 
Construction, Land Development and Farmland0 0 172 0 43 0 172 0 
1-4 Family Residential Real Estate0 0 0 0 0 0 0 0 
1-4 Family HELOC0 0 25 0 0 0 13 1 
Consumer0 0 0 0 1 0 0 0 
Subtotal947 6 2,631 112 1,019 32 1,568 343 
Impaired loans with no allowance
Commercial, Industrial and Agricultural594 42 672 9 356 56 537 33 
Multi-family and Commercial Real Estate4,375 63 3,474 46 4,138 278 2,838 141 
Construction, Land Development and Farmland2,949 28 1,797 21 2,471 115 2,399 168 
1-4 Family Residential Real Estate3,002 54 2,124 26 2,631 154 1,924 88 
1-4 Family HELOC331 0 296 0 367 0 148 4 
Consumer2,118 68 15 1 1,076 205 16 2 
Subtotal$13,369 $255$8,378 $103$11,039 $808$7,862 $436 
Total$14,316 $261 $11,009 $215 $12,058 $840$9,430 $779 

The Company utilizes a risk grading system to monitor the credit quality of the Company’s commercial loan portfolio which consists of commercial industrial and agricultural,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 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)

current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigation.
 
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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 effectedaffected 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 indicatorsThe following table provides the risk category of loans by applicable class of loan wereloans including purchase credit impaired (“PCI”) loans as follows atof September 30, 2021 and December 31, 2020:
PassSpecial
Mention		SubstandardTotal
Commercial, Industrial and Agricultural$474,199 $1,534 $2,052 $477,785 
1-4 Family Residential Real Estate331,930 5 2,795 334,730 
1-4 Family HELOC101,176 0 316 101,492 
Multi-family and Commercial Real Estate859,739 663 4,354 864,756 
Construction, Land Development and Farmland365,135 0 1,625 366,760 
Consumer207,016 7 2,048 209,071 
Other6,739 1,520 0 8,259 
Total$2,345,934 $3,729 $13,190 $2,362,853 

 PassSpecial
Mention		SubstandardTotal
September 30, 2021
Loans excluding PCI
Commercial, Industrial and Agricultural$448,003 $1,077 $1,573 $450,653 
1-4 Family Residential Real Estate308,977 1 1,234 310,212 
1-4 Family HELOC100,529 — 352 100,881 
Multi-family and Commercial Real Estate867,351 257 5,144 872,752 
Construction, Land Development and Farmland415,235 — 1,304 416,539 
Consumer232,185 1 1,747 233,933 
Other5,298 — — 5,298 
Total loans excluding PCI$2,377,578 $1,336 $11,354 $2,390,268 
Total PCI loans$1,031 $— $1,716 $2,747 
Total loans$2,378,609 $1,336 $13,070 $2,393,015 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)

Credit quality indicators by class of loan were as follows at December 31, 2019:
PassSpecial
Mention		SubstandardTotal PassSpecial
Mention		SubstandardTotal
December 31, 2020December 31, 2020
Loans excluding PCILoans excluding PCI
Commercial, Industrial and AgriculturalCommercial, Industrial and Agricultural$241,089 $2,382 $2,044 $245,515 Commercial, Industrial and Agricultural$456,170 $1,519 $1,863 $459,552 
1-4 Family Residential Real Estate1-4 Family Residential Real Estate225,809 0 1,720 227,529 1-4 Family Residential Real Estate320,555 5 2,165 322,725 
1-4 Family HELOC1-4 Family HELOC95,678 0 550 96,228 1-4 Family HELOC100,391 — 120 100,511 
Multi-family and Commercial Real EstateMulti-family and Commercial Real Estate531,055 1,519 4,271 536,845 Multi-family and Commercial Real Estate829,353 653 3,337 833,343 
Construction, Land Development and FarmlandConstruction, Land Development and Farmland272,440 0 1,432 273,872 Construction, Land Development and Farmland358,606 — 5,676 364,282 
ConsumerConsumer16,634 0 221 16,855 Consumer211,305 7 1,346 212,658 
OtherOther13,180 0 0 13,180 Other7,150 1,519 — 8,669 
Total$1,395,885 $3,901 $10,238 $1,410,024 
Total loans excluding PCITotal loans excluding PCI$2,283,530 $3,703 $14,507 $2,301,740 
Total PCI loansTotal PCI loans$998 $— $2,589 $3,587 
Total loansTotal loans$2,284,528 $3,703 $17,096 $2,305,327 

None of the Company's loans had a risk rating of "Doubtful" or "Loss" as of September 30, 20202021 or December 31, 2019.2020.

Past due statusActivity in the Allowance for Loan Loss (“ALL”) by class of loanportfolio segment was as follows atfor the three and nine months ended September 30, 2021 and 2020:
30-59 Days
Past Due		60-89 Days
Past Due		90+ Days
Past Due		Total
Past Due		CurrentTotal Loans
Commercial, Industrial and Agricultural$219 $0 $412 $631 $477,154 $477,785 
1-4 Family Residential Real Estate1,006 544 318 1,868 332,862 334,730 
1-4 Family HELOC0 0 198 198 101,294 101,492 
Multi-family and Commercial Real Estate0 0 1,023 1,023 863,733 864,756 
Construction, Land Development and Farmland0 684 205 889 365,871 366,760 
Consumer389 767 617 1,773 207,298 209,071 
Other0 0 0 0 8,259 8,259 
Total$1,614 $1,995 $2,773 $6,382 $2,356,471 $2,362,853 
 Commercial Industrial and Agricultural1-4 Family Residential Real Estate1-4 Family HELOCMulti-family and Commercial
Real Estate		Construction Land Development and FarmlandConsumerOtherTotal
Beginning balance at June 30, 2021$6,614 $1,923 $610 $8,498 $2,011 $1,222 $16 $20,894 
Charge-offs(3)(42)— — — (150)— (195)
Recoveries14 58 2 42 1 81 — 198 
Provision362 (642)(2)66 78 143 (5)— 
Ending balance at September 30, 2021$6,987 $1,297 $610 $8,606 $2,090 $1,296 $11 $20,897 
Beginning balance at June 30, 2020$4,675 $1,454 $975 $8,407 $2,126 $584 $16 $18,237 
Charge-offs— (8)— — — (60)— (68)
Recoveries88 22 12 9 4 30 — 165 
Provision249 821 498 (169)(175)272 4 1,500 
Ending balance at September 30, 2020$5,012 $2,289 $1,485 $8,247 $1,955 $826 $20 $19,834 
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Commercial Industrial and Agricultural1-4 Family Residential Real Estate1-4 Family HELOCMulti-family and Commercial
Real Estate		Construction Land Development and FarmlandConsumerOtherTotal
Beginning balance at December 31, 2020$5,441 $2,445 $1,416 $8,535 $1,841 $928 $30 $20,636 
Charge-offs(35)(63)— — — (604)— (702)
Recoveries315 154 7 257 92 138 — 963 
Provision1,266 (1,239)(813)(186)157 834 (19)— 
Ending balance at September 30, 2021$6,987 $1,297 $610 $8,606 $2,090 $1,296 $11 $20,897 
Beginning balance at December 31, 2019$2,529 $1,280 $624 $5,285 $2,649 $177 $34 $12,578 
Charge-offs(507)(68)(98)— (114)(355)— (1,142)
Recoveries126 769 15 20 8 60 — 998 
Provision2,864 308 944 2,942 (588)944 (14)7,400 
Ending balance at September 30, 2020$5,012 $2,289 $1,485 $8,247 $1,955 $826 $20 $19,834 

Past due statusThe ALL and the recorded investment in loans by classportfolio segment and based on impairment method as of loan was as follows at December 31, 2019:follows:
30-59 Days
Past Due		60-89 Days
Past Due		90+ Days
Past Due		Total
Past Due		CurrentTotal Loans
Commercial, Industrial and Agricultural$79 $4 $572 $655 $244,860 $245,515 
1-4 Family Residential Real Estate501 236 229 966 226,563 227,529 
1-4 Family HELOC0 0 296 296 95,932 96,228 
Multi-family and Commercial Real Estate485 0 558 1,043 535,802 536,845 
Construction, Land Development and Farmland255 0 339 594 273,278 273,872 
Consumer38 26 64 128 16,727 16,855 
Other0 0 0 0 13,180 13,180 
Total$1,358 $266 $2,058 $3,682 $1,406,342 $1,410,024 
Commercial Industrial and Agricultural1-4 Family Residential Real Estate1-4 Family HELOCMulti-family and Commercial
Real Estate		Construction Land Development and FarmlandConsumerOtherTotal
September 30, 2021
Allowance for loan losses
Individually evaluated for impairment$847 $— $— $— $67 $4 $— $918 
Acquired with credit impairment— — — — — — — — 
Collectively evaluated for impairment6,140 1,297 610 8,606 2,023 1,29211 19,979 
Total$6,987 $1,297 $610 $8,606 $2,090 $1,296 $11 $20,897 
Loans
Individually evaluated for impairment$1,433 $1,371 $352 $5,390 $1,750 $1,747 $— $12,043 
Acquired with credit impairment57 643 14 513 719 801 — 2,747 
Collectively evaluated for impairment449,220 308,841 100,529 867,362 414,789 232,1865,298 2,378,225 
Total$450,710 $310,855 $100,895 $873,265 $417,258 $234,734 $5,298 $2,393,015 
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Commercial Industrial and Agricultural1-4 Family Residential Real Estate1-4 Family HELOCMulti-family and Commercial
Real Estate		Construction Land Development and FarmlandConsumerOtherTotal
December 31, 2020
Allowance for loan losses
Individually evaluated for impairment$717 $18 $— $— $— $13 $— $748 
Acquired with credit impairment— — — — — — — — 
Collectively evaluated for impairment4,724 2,427 1,416 8,535 1,841 91530 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 $— $12,323 
Acquired with credit impairment187 748 14 657 776 1,205 — 3,587 
Collectively evaluated for impairment458,525 320,896 100,401 830,839 358,606 211,481 8,669 2,289,417 
Total$459,739 $323,473 $100,525 $834,000 $365,058 $213,863 $8,669 $2,305,327 

There was 1 loan
The following tables provide the period-end amounts of loans that are past due 90thirty 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 September 30, 2020 totaling $38. At2021 and December 31, 2019,2020:  
 Current and Accruing30-89 Days Past Due90+ Days
Past Due and Accruing Interest		Nonaccrual LoansTotal Loans
September 30, 2021
Loans excluding PCI
Commercial, Industrial and Agricultural$450,349 $19 $— $285 $450,653 
1-4 Family Residential Real Estate308,897 503 — 812 310,212 
1-4 Family HELOC100,777 — — 104 100,881 
Multi-family and Commercial Real Estate871,921 — — 831 872,752 
Construction, Land Development and Farmland415,350 144 — 1,045 416,539 
Consumer231,504 1,347 5 1,077 233,933 
Other5,298 — — — 5,298 
Total loans excluding PCI$2,384,096 $2,013 $5 $4,154 $2,390,268 
Total PCI loans$1,580 $24 $— $1,143 $2,747 
Total loans$2,385,676 $2,037 $5 $5,297 $2,393,015 
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 Current and Accruing30-89 Days Past Due90+ Days
Past Due and Accruing Interest		Nonaccrual LoansTotal Loans
December 31, 2020
Loans excluding PCI
Commercial, Industrial and Agricultural$458,974 $126 $— $452 $459,552 
1-4 Family Residential Real Estate319,180 2,071 — 1,474 322,725 
1-4 Family HELOC100,501 10 — — 100,511 
Multi-family and Commercial Real Estate832,697 150 — 496 833,343 
Construction, Land Development and Farmland363,376 — — 906 364,282 
Consumer210,552 1,413 1 692 212,658 
Other8,669 — — — 8,669 
Total loans excluding PCI$2,293,949 $3,770 $1 $4,020 $2,301,740 
Total PCI loans$1,584 $37 $— $1,966 $3,587 
Total loans$2,295,533 $3,807 $1 $5,986 $2,305,327 
Approximately $1,973 and $2,438 of nonaccrual loans as of September 30, 2021 and December 31, 2020, respectively, were performing pursuant to their contractual terms at those dates. Mortgage loans held for sale are excluded from the loan tables herein and have $977 and $630 on nonaccrual as of September 30, 2021 and December 31, 2020, respectively.

Purchased Credit Impaired Loans

The Company has purchased loans, for which there was, 1 loan totaling $64 past due 90 days or moreat acquisition, evidence of deterioration of credit quality since origination and still accruing interest.it was probable, at acquisition that all contractually required payments would not be collected. The carrying amount of those loans is as follows:
September 30, 2021December 31, 2020
Commercial, Industrial and Agricultural$782 $919 
1-4 Family Residential Real Estate868 1,004 
1-4 Family HELOC19 19 
Multi-family and Commercial Real Estate1,175 1,325 
Construction, Land Development and Farmland935 992 
Consumer1,426 1,924 
Total outstanding balance5,205 6,183 
Less remaining purchase discount2,458 2,596 
Allowance for loan losses— — 
Carrying amount, net of allowance for loan losses and remaining purchase discounts$2,747 $3,587 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,Accretable yield, or income expected to be collected on PCI loans, is as follows:
20212020
Balance at January 1,$580 $98 
New loans purchased— 870 
Accretion income(52)(137)
Balance at September 30,$528 $831 

On January 1, 2020 AND 2019 (UNAUDITED) AND DECEMBERand April 1, 2020, the Company completed the TCB Holdings and FABK Transactions, respectively (see Note 11 for more information). As a result of the 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 or premium is recognized as an adjustment to yield over the remaining life of each loan.

PCI loans purchased during the year ended December 31, 20192020, for which it was probable at acquisition that all contractually required payments would not be collected are as follows:
(Dollar amounts in thousands except per share amounts)
Tennessee Community Bank Holdings, Inc. acquisition on January 1, 2020First 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 
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Impaired Loans
The following table presents
Individually impaired loans by class modifiedof loans were as troubled debt restructurings ("TDRs") during the first nine months of 2020. There were follows at September 30, 2021 and December 31, 2020:
September 30, 2021December 31, 2020
 Unpaid
Principal
Balance		Recorded InvestmentRelated
Allowance		Unpaid
Principal
Balance		Recorded InvestmentRelated
Allowance
With no related allowance recorded
Commercial, Industrial and Agricultural$1,691 $642 $— $1,400 $367 $— 
1-4 Family Residential Real Estate2,419 2,015 — 3,034 2,473 — 
1-4 Family HELOC378 366 — 130 124 — 
Multi-family and Commercial Real Estate7,141 5,903 — 4,549 3,161 — 
Construction, Land Development and Farmland2,617 2,210 — 6,809 6,452 — 
Consumer3,848 2,512 — 3,590 2,348 — 
Subtotal$18,094 $13,648 $— $19,512 $14,925 $— 
With an allowance recorded
Commercial, Industrial and Agricultural$859 $847 $847 $859 $847 $717 
1-4 Family Residential Real Estate— — — 104 104 18 
1-4 Family HELOC— — — — — — 
Multi-family and Commercial Real Estate— — — — — — 
Construction, Land Development and Farmland259 259 67 — — — 
Consumer39 36 4 34 34 13 
Subtotal1,157 1,142 918 997 985 748 
Total$19,251 $14,790 $918 $20,509 $15,910 $748 

0 modifications
The average recorded investment in impaired loans for the three months ending September 30, 2020. There were 0 loans that were modified as TDRs during the three orand nine months ended September 30, 2019.2021, and 2020 was as follows:
Three months ended September 30,Nine months ended September 30,
2021202020212020
Average Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income RecognizedAverage recorded investmentInterest income recognizedAverage recorded investmentInterest income recognized
With no allowance
Commercial, Industrial and Agricultural$444 $6 $594 $42 $355 $26 $354 $56 
1-4 Family Residential Real Estate2,044 31 3,002 54 2,296 109 2,631 154 
1-4 Family HELOC332 3 331 — 272 11 367 — 
Multi-family and Commercial Real Estate5,655 86 4,375 63 4,741 271 4,138 278 
Construction, Land Development and Farmland4,222 42 2,949 28 5,424 114 2,471 115 
Consumer2,473 83 2,118 68 2,411 275 1,076 205 
Subtotal$15,170 $251 $13,369 $255 $15,499 $806 $11,037 $808 
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Number of ContractsPre-Modification Outstanding Recorded InvestmentsPost-Modification Outstanding Recorded Investments
September 30, 2020
Commercial, Industrial and Agricultural1 $150 $150 
Multi-family and Commercial Real Estate1 721 721 
1-4 Family Residential1 394 394 
Total3 $1,265 $1,265 

Three months ended September 30,Nine months ended September 30,
2021202020212020
Average Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income RecognizedAverage recorded investmentInterest income recognizedAverage recorded investmentInterest income recognized
With an allowance recorded
Commercial, Industrial and Agricultural$847 $6 $947 $6 $847 $18 $976 $32 
1-4 Family Residential Real Estate— — — — 26 — — — 
1-4 Family HELOC— — — — — — — — 
Multi-family and Commercial Real Estate50 — — — 38 — — — 
Construction, Land Development and Farmland86 3 — — 65 4 43 — 
Consumer46 1 — — 43 2 1 — 
Subtotal$1,029 $10 $947 $6 $1,019 $24 $1,020 $32 
Total$16,199 $261 $14,316 $261 $16,518 $830 $12,057 $840 

Restructured Loans

As of September 30, 2021 and December 31, 2020, the Company had recorded investments in troubled debt restructurings (“TDRs”) of $2,903 and $4,236, respectively. The Company did not allocate a specific allowance for those loans at September 30, 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 no TDR modifications in the three and nine months ending September 30, 2021 or the three months ended September 30, 2020. Modifications made during the nine months ended September 30, 2020 are displayed below.
Number of ContractsPre-Modification Outstanding Recorded InvestmentsPost-Modification Outstanding Recorded Investments
Commercial, Industrial and Agricultural1 $150 $150 
1-4 Family Residential1 721 721 
Multi-family and Commercial Real Estate1 394 394 
Total3 $1,265 $1,265 

Programs as part of COVID-19 Relief

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law onin March 27, 2020 and subsequently amended, along with subsequent regulatory guidance provide thatencouraged financial institutions to work prudently with borrowers who are or may electbe unable to account for certain loan modificationsmeet 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 as not TDRs.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 had applied this guidance to approve initial modificationsexecuted deferrals that remain on deferral at September 30, 2021, in April and May 2020 forconnection with Company COVID-19 relief programs. These remaining deferrals typically modify the loans with principal balances of $530.7 million. The majority of these modifications weresuch that they are interest-only for a period of up to three monthstime and contained either interest-only periodswere not considered TDRs under the interagency regulatory guidance or full payment deferrals. Through September 30, 2020, further modifications were approved for $21.8 millionthe CARES Act.
22
Table of the loans previously modified. Additional modifications of these loans are likely to be executed in the fourth quarter of 2020.Contents

September 30, 2021
Active Deferrals% of Loans
Multi-family and Commercial$67,372 2.82 %

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”). Upon completionAs of September 30, 2021, the FABK Transaction as disclosed in Note 12, we assumed their qualified SBA lender status. The Company originated 893had 7 PPP loans outstanding amounting to $83 million of PPP loans in 2020$292 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 deferred loan fee or cost is recognized related to each individual loan.

The Company has acquired As of September 30, 2021, $83,075 in PPP 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 amounthad cumulatively been forgiven of the purchased credit impaired loans were as follows at September 30, 2020 and December 31, 2019:$83,366 in loan originations since the CARES Act’s inception.

September 30, 2020December 31, 2019
Commercial, Industrial and Agricultural$989 $0 
Multi-family and Commercial Real Estate2,243 217 
Construction, Land Development and Farmland1,003 1,021 
1-4 Family Residential Real Estate1,211 231 
1-4 Family HELOC18 0 
Consumer2,105 0 
Total outstanding balance7,569 1,469 
Less remaining purchase discount3,036 246 
Allowance for loan losses0 0 
Carrying amount, net of allowance for loan losses and remaining purchase discounts$4,533 $1,223 

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

Activity related to the accretable portion of the purchase discount on loans acquired with deteriorated credit quality is as follows for the nine months ended September 30, 2020 and 2019:
20202019
Balance at January 1,$98 $110 
New loans purchased870 0 
Year-to-date settlements(137)(12)
Balance at September 30,$831 $98 
Year-to-date settlements include both loans that were charged-off as well as loans that were paid off.

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Interest$19 $210 $216 $358 
Fees176 455 1,808 739 
Total PPP Income$195 $665 $2,024 $1,097 


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 year are not recorded on the balance sheet.

The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company 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.

The implementation of the new standard resulted in recognition of a right-of-use asset of $12.0 million and a lease liability of $11.9 million at the date of adoption, which is related to the Company’s lease of premises used in operations. The Company used a discount rate of 4.5% in determining the right-of-use asset and lease liability as of January 1, 2020.

Information related to the Company's operating leases is presented below:
September 30, 2020
Operating leases right of use assets$14,619 
Operating leases liabilities$15,756 
Weighted average remaining lease term (in years)6.14
Weighted average discount rate4.34 %

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

Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
Operating lease cost$851 $2,333 
Short-term lease cost2 2 
Variable lease cost98276 
Total lease cost$951 $2,611 

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

Lease expense for the three and nine months ended September 30, 2019, prior to the adoption of ASU 2016-02, was $669 and $2,039, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)


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 beforeSeptember 30, 2020
September 30, 2021$3,155 
September 30, 20222,755 
September 30, 20232,716 
September 30, 20242,703 
September 30, 20252,372 
Thereafter4,289 
Total undiscounted cash flows17,990 
Discount on cash flows(2,234)
Total lease liability$15,756 

As of September 30, 2020, the Company entered into a five year lease with a related party that commences January 1, 2021 and has a base annual rental of $211,000, with a 2.5% per year increase. This lease may be terminated December 31, 2021 with a 90-day notice. As the lease has not yet commenced, it is not included in the lease payments due 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$10,000 as of September 30, 20202021 were designated as cash flow hedges of certain short-term interest-bearing liabilities andvariable rate 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 lossesLosses of $2,290 and $5,149 were reclassified from accumulated other comprehensive income into net income related to the $100 million and $150 million in swaps which were terminated during the periods presented.three and nine months ended September 30, 2021, respectively.


Summary information related to the interest rate swaps designated as cash flow hedges as of September 30, 2020,2021, is as follows:
Notional amounts$160,00010,000 
Weighted average pay rates2.0505.19 %
Weighted average receive rates0.3902.38 %
Weighted average maturity3.351.71 years
Unrealized losses$8,526468 

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

The following table reflects the cash flow hedges included in the Consolidated Balance Sheets as of September 30, 20202021 and December 31, 2019,2020, respectively:
September 30, 2020December 31, 2019September 30, 2021December 31, 2020
Notional AmountFair ValueNotional AmountFair ValueNotional AmountFair ValueNotional AmountFair Value
Included in other liabilities:Included in other liabilities:Included in other liabilities:
Interest rate swaps related to:Interest rate swaps related to:Interest rate swaps related to:
Subordinated debenturesSubordinated debentures$10,000 $(750)$10,000 $(439)Subordinated debentures$10,000 $(468)$10,000 $(690)
Short-term interest-bearing liabilitiesShort-term interest-bearing liabilities150,000 (7,776)100,000 (1,639)Short-term interest-bearing liabilities— — 150,000 (6,967)
Total included in other liabilitiesTotal included in other liabilities$160,000 $(8,526)$110,000 $(2,078)Total included in other liabilities$10,000 $(468)$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 and nine months ended September 30, 20202021 and 2019,2020, respectively:

Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Interest rate swaps-subordinate debentures$51 $(42)$(230)$(264)
Interest rate swaps-interest-bearing liabilities324 (233)(4,532)(1,342)
$375 $(275)$(4,762)$(1,606)
Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
Three months ended September 30,Nine months ended September 30,
2021202020212020
Interest rate swaps - subordinate debentures$47 $51 $164 $(230)
Interest rate swaps - interest-bearing liabilities1,562 324 5,146 (4,532)
$1,609 $375 $5,310 $(4,762)

Fair Value Hedges

Summary information related to the fair value hedges as of September 30, 2020,2021, is as follows:
Notional amounts$19,34517,090 
Weighted average pay rates3.513.68 %
Weighted average receive rates1.211.10 %
Weighted average maturity8.347.44 years
Unrealized losses$1,690848 

The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of September 30, 20202021 and December 31, 2019,2020, respectively:
September 30, 2020December 31, 2019September 30, 2021December 31, 2020
Notional AmountFair ValueNotional AmountFair ValueNotional AmountFair ValueNotional AmountFair Value
Included in other liabilities:Included in other liabilities:Included in other liabilities:
Interest rate swaps related to investmentsInterest rate swaps related to investments19,345 (1,690)19,605 (630)Interest rate swaps related to investments17,090 (848)18,525 (1,495)
Total included in other liabilitiesTotal included in other liabilities$19,345 $(1,690)$19,605 $(630)Total included in other liabilities$17,090 $(848)$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 and nine months ended September 30, 20202021 and 2019,2020, respectively:
Three Months Ended September 30,Nine Months Ended September 30,Three months ended September 30,
Nine months ended
September 30,
ItemItemLocation2020201920202019ItemLocation2021202020212020
Interest rate swaps - securitiesInterest rate swaps - securitiesInterest on investment securities, nontaxable$(118)$(20)$(243)$(21)Interest rate swaps - securitiesInterest on investment securities, nontaxable$(118)$(118)$(356)$(243)
Hedged item - securitiesHedged item - securitiesInterest on investment securities, nontaxable$118 $20 $243 $21 Hedged item - securitiesInterest on investment securities, nontaxable$118 $118 $356 $243 


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


NOTE 65 - STOCK-BASED COMPENSATION

In 2006, the board of directors and shareholders of the Bank (then known as "Commerce Union Bank") approved the Commerce Union Bank Stock Option Plan (the “Plan”). The Plan provided for the granting of stock options for up to 625,000 shares of Bank common stock to employees and organizers and authorized the issuance of Bank common stock upon the exercise of such options. As part of the Bank's reorganization into a holding company corporate structure in 2012, all Bank options were replaced with Commerce Union Bancshares, Inc. (now known as "Reliant Bancorp, Inc.") options with no change in terms.

On March 10, 2015, the shareholders of Reliant Bancorp (then known as "Commerce Union Bancshares, Inc.") approved the Commerce Union Bancshares, Inc. Amended and Restated Stock Option Plan (the “A&R Plan”), which permits the grant of awards with respect to up to 1,250,000 shares of Reliant Bancorp common stock in the form of stock options. As part of the merger of Commerce Union Bank and Reliant Bank in 2015, all outstanding stock options of Reliant Bank were converted to stock options of Reliant Bancorp (then known as "Commerce Union Bancshares, Inc.") under the A&R Plan. Under the A&R Plan, stock option awards may be granted in the form of incentive stock options or non-statutory stock options, and are generally exercisable for up to 10 years following the date such option awards are granted. Exercise prices of incentive stock options must be equal to or greater than the fair market value of Reliant Bancorp's common stock on the grant date.
    
On June 18, 2015, the shareholders of Reliant Bancorp (then known as "Commerce Union Bancshares, Inc.") approved the Commerce Union Bancshares, Inc. 2015 Equity Incentive Plan, which reserves up to 900,000 shares of Reliant Bancorp common stock to be subject to awards under the plan, including awards in the form of stock options, restricted stock grants, performance-based awards, and other awards denominated or payable by reference to or based on or related to Reliant Bancorp common stock.

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

Three Months Ended September 30,Nine Months Ended September 30,
Three Months Ended
September 30,
Nine Months Ended September 30,
20202019202020192021202020212020
Stock-based compensation expense before income taxesStock-based compensation expense before income taxes$349 $337 $1,183 $867 Stock-based compensation expense before income taxes$458 $349 $1,265 $1,183 
Less: deferred tax benefitLess: deferred tax benefit(91)(88)(309)(227)Less: deferred tax benefit(120)(91)(331)(309)
Reduction of net incomeReduction of net income$258 $249 $874 $640 Reduction of net income$338 $258 $934 $874 

Common Stock Options
    
A summary of stock option activity for the nine months ended September 30, 20202021 is as follows:
SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding at January 1, 2020149,293$18.81 6.68 years$553 
Granted0 $0 
Exercised(6,544)$12.03 26
Forfeited or expired(20,007)$21.02 
Outstanding at September 30, 2020122,742$18.81 5.95 years$73 
Exercisable at September 30, 202083,042$16.43 5.03 years$73 
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SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding at December 31, 2020116,621 $18.97 5.87 years$304 
Granted— $— 
Exercised(1,702)$14.36 20
Forfeited or expired(5,600)$13.42 
Outstanding at September 30, 2021109,319$19.33 5.32 years$1,340 
Exercisable at September 30, 202186,519$17.88 4.81 years$1,186 

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



SharesWeighted Average
Grant-Date Fair Value
Non-vested options at January 1, 202074,600 $6.08
Granted0 $0
Vested(23,400)$5.23
Forfeited(11,500)$6.37
Non-vested options at September 30, 202039,700 $6.56
As of September 30, 2020,2021, there was $235$144 of unrecognized future compensation expense to be recognized related to stock options. The cost is expected to be recognized over a weighted-average period of 3.082.31 years.
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Restricted Stock and Restricted Stock Unit Awards

The following table shows the activity related to non-vested restricted stock and restricted stock unit awards for the nine months ended September 30, 2020:2021:
Restricted Stock UnitsRestricted StockRestricted Stock UnitsRestricted Stock
Underlying SharesWeighted Average Grant-Date
Fair Value		SharesWeighted Average Grant-Date
Fair Value		Underlying SharesWeighted Average Grant-Date
Fair Value		SharesWeighted Average Grant-Date
Fair Value
Non-vested units/shares at January 1, 202047,750 $23.30 90,960 $25.31 
Outstanding at January 1, 2021Outstanding at January 1, 2021132,650 $16.93 40,910 $26.82 
GrantedGranted102,400 14.02 0 0 Granted70,655 26.07 — — 
VestedVested(12,500)22.57 (48,550)23.99 Vested(14,400)14.81 (35,410)27.54 
ForfeitedForfeited(2,000)10.25 0 Forfeited(9,500)17.59 — — 
Non-vested units/shares at September 30, 2020135,650 $16.55 42,410 $26.82 
Outstanding at September 30, 2021Outstanding at September 30, 2021179,405 $20.67 5,500 $22.17 

As of September 30, 2020,2021, there was $2,096$2,297 and $23 of unrecognized compensation cost related to non-vested restricted stock units and restricted stock unit awards.units, respectively. The cost is expected to be recognized over a weighted-average period of 2.11 years.2.01 years for the restricted stock units and 0.62 years for the restricted stock share awards. The total fair value of shares vested during the nine months ended September 30, 20202021 was $970.$1,379.


NOTE 76 - REGULATORY CAPITAL REQUIREMENTS

The Company and the Bank are subject to regulatory capital requirements administered by the federal and state banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action or affect the amount of dividends the Company and the Bank may distribute. Management believes that as of September 30, 2020,2021, the Company and the Bank met all capital adequacy requirements to which they were subject.

Capital amounts and ratios for Reliant Bancorp and the Bank (required) are presented below as of September 30, 20202021 and December 31, 2019.2020.

Actual
Regulatory
Capital		Minimum Required
Capital Including
Capital Conservation
Buffer		To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
AmountRatioAmountRatioAmountRatio
September 30, 2021
Reliant Bancorp
Tier I leverage$297,367 10.04 %$118,473 4.00 %$148,091 5.00 %
Common equity tier I285,537 10.52 %189,996 7.00 %176,425 6.50 %
Tier I risk-based capital297,367 10.95 %230,833 8.50 %217,254 8.00 %
Total risk-based capital377,977 13.92 %285,112 10.50 %271,535 10.00 %
Bank
Tier I leverage$347,450 11.76 %$118,185 4.00 %$147,732 5.00 %
Common equity tier I347,450 14.10 %172,493 7.00 %160,172 6.50 %
Tier I risk-based capital347,450 14.10 %209,456 8.50 %197,135 8.00 %
Total risk-based capital369,072 14.98 %258,695 10.50 %246,377 10.00 %
2526
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)

Actual
Regulatory
Capital		Minimum Required
Capital Including
Capital Conservation
Buffer		To Be Well
Capitalized Under
Prompt Corrective
Action Provisions		Actual
Regulatory
Capital		Minimum Required
Capital Including
Capital Conservation
Buffer		To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
AmountRatioAmountRatioAmountRatio
September 30, 2020
December 31, 2020December 31, 2020
Reliant BancorpReliant BancorpReliant Bancorp
Tier I leverageTier I leverage$253,534 8.72 %$116,300 4.00 %$145,375 5.00 %Tier I leverage$262,282 8.91 %$117,747 4.00 %$147,184 5.00 %
Common equity tier ICommon equity tier I241,786 9.77 %173,235 7.00 %160,861 6.50 %Common equity tier I250,513 10.22 %171,584 7.00 %159,328 6.50 %
Tier I risk-based capitalTier I risk-based capital253,534 10.25 %210,248 8.50 %197,880 8.00 %Tier I risk-based capital262,282 10.70 %208,355 8.50 %196,099 8.00 %
Total risk-based capitalTotal risk-based capital332,434 13.44 %259,714 10.50 %247,347 10.00 %Total risk-based capital342,246 13.96 %257,420 10.50 %245,162 10.00 %
BankBankBank
Tier I leverageTier I leverage$304,376 10.48 %$116,174 4.00 %$145,218 5.00 %Tier I leverage$313,633 10.64 %$117,907 4.00 %$147,384 5.00 %
Common equity tier ICommon equity tier I304,376 12.33 %172,801 7.00 %160,458 6.50 %Common equity tier I313,633 12.83 %171,117 7.00 %158,894 6.50 %
Tier I risk-based capitalTier I risk-based capital304,376 12.33 %209,829 8.50 %197,486 8.00 %Tier I risk-based capital313,633 12.83 %207,785 8.50 %195,562 8.00 %
Total risk-based capitalTotal risk-based capital324,635 13.15 %259,214 10.50 %246,871 10.00 %Total risk-based capital334,919 13.71 %256,503 10.50 %244,288 10.00 %
December 31, 2019
Reliant Bancorp
Tier I leverage$176,748 9.74 %$72,586 4.00 %$90,733 5.00 %
Common equity tier I165,063 10.55 %109,520 7.00 %101,698 6.50 %
Tier I risk-based capital176,748 11.30 %132,952 8.50 %125,131 8.00 %
Total risk-based capital249,751 15.97 %164,207 10.50 %156,388 10.00 %
Bank
Tier I leverage$186,734 10.30 %$72,518 4.00 %$90,648 5.00 %
Common equity tier I186,734 11.95 %109,384 7.00 %101,571 6.50 %
Tier I risk-based capital186,734 11.95 %132,823 8.50 %125,010 8.00 %
Total risk-based capital199,737 12.79 %163,975 10.50 %156,167 10.00 %



NOTE 87 - EARNINGS PER SHARE

The following is a summary of the components comprising basic and diluted earnings per common share of stock ("EPS"):
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
September 30,September 30,September 30,September 30,
20202019202020192021202020212020
Basic EPS ComputationBasic EPS ComputationBasic EPS Computation
Net income attributable to common shareholdersNet income attributable to common shareholders$11,531 $4,000 $19,186 $12,063 Net income attributable to common shareholders$13,289 $11,533 $38,483 $19,186 
Weighted average common shares outstandingWeighted average common shares outstanding16,587,274 11,104,918 15,053,087 11,247,921 Weighted average common shares outstanding16,665,155 16,587,274 16,632,587 15,053,087 
Basic earnings per common shareBasic earnings per common share$0.70 $0.36 $1.27 $1.07 Basic earnings per common share$0.80 $0.70 $2.31 $1.27 
Diluted EPS ComputationDiluted EPS ComputationDiluted EPS Computation
Net income attributable to common shareholdersNet income attributable to common shareholders$11,531 $4,000 $19,186 $12,063 Net income attributable to common shareholders$13,289 $11,533 $38,483 $19,186 
Weighted average common shares outstandingWeighted average common shares outstanding16,587,274 11,104,918 15,053,087 11,247,921 Weighted average common shares outstanding16,665,155 16,587,274 16,632,587 15,053,087 
Dilutive effect of stock options, restricted stock shares and units, and employee stock purchase planDilutive effect of stock options, restricted stock shares and units, and employee stock purchase plan62,399 72,449 67,616 66,445 Dilutive effect of stock options, restricted stock shares and units, and employee stock purchase plan140,002 62,399 144,385 67,616 
Adjusted weighted average common shares outstandingAdjusted weighted average common shares outstanding16,649,673 11,177,367 15,120,703 11,314,366 Adjusted weighted average common shares outstanding16,805,157 16,649,673 16,776,972 15,120,703 
Diluted earnings per common shareDiluted earnings per common share$0.69 $0.36 $1.27 $1.07 Diluted earnings per common share$0.79 $0.69 $2.29 $1.27 


NOTE 98 - 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.

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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.

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 estimated discounted future cash flows.

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

Impaired Loans: The fair value of an impaired loan with specific allocations of the allowance for loan losses is generally based on the present value of expected payments using the loan’s effective rate as the discount rate or recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)




appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Other Real Estate and Repossessed Assets: The fair value of other real estate and repossessed assets 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.
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Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

The following table sets forth the Company’s major categories of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of September 30, 20202021 and December 31, 2019:2020:
Fair ValueQuoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Fair ValueQuoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
September 30, 2020
September 30, 2021September 30, 2021
AssetsAssetsAssets
U. S. Treasury and other U. S. government agenciesU. S. Treasury and other U. S. government agencies$12,117 $0 $12,117 $0 U. S. Treasury and other U. S. government agencies$218 $— $218 $— 
State and municipalState and municipal190,623 0 190,623 0 State and municipal170,971 — 170,971 — 
Corporate bondsCorporate bonds15,809 0 15,809 0 Corporate bonds28,152 — 28,152 — 
Mortgage backed securities40,376 0 40,376 0 
Asset backed securities14,968 0 14,968 0 
Mortgage-backed securitiesMortgage-backed securities52,823 — 52,823 — 
Asset-backed securitiesAsset-backed securities2,252 — 2,252 — 
LiabilitiesLiabilitiesLiabilities
Derivative liabilitiesDerivative liabilities$10,216 $0 $10,216 $0 Derivative liabilities$1,316 $— $1,316 $— 
December 31, 2019
December 31, 2020December 31, 2020
AssetsAssetsAssets
U. S. Treasury and other U. S. government agenciesU. S. Treasury and other U. S. government agencies$59 $0 $59 $0 U. S. Treasury and other U. S. government agencies$48 $— $48 $— 
State and municipalState and municipal196,660 0 196,660 0 State and municipal200,988 — 200,988 — 
Corporate bondsCorporate bonds7,845 0 7,845 0 Corporate bonds24,113 — 24,113 — 
Mortgage backed securities37,761 0 37,761 0 
Asset backed securities17,968 0 17,968 0 
Mortgage-backed securitiesMortgage-backed securities28,442 — 28,442 — 
Asset-backed securitiesAsset-backed securities3,062 — 3,062 — 
Derivative assets688 0 688 0 
LiabilitiesLiabilitiesLiabilities
Derivative liabilitiesDerivative liabilities$3,396 $0 $3,396 $0 Derivative liabilities$9,152 $— $9,152 $— 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)





The following table sets forth the Company’s major categories of assets and liabilities measured at fair value on a nonrecurring basis, by level within the fair value hierarchy, as of September 30, 20202021 and December 31, 2019:2020:

Fair ValueQuoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)
September 30, 2020    
Assets    
Impaired loans$141 $0 $0 $141 
Other real estate1,326 0 0 1,326 
Other repossessions1,603 0 0 1,603 
December 31, 2019    
Assets    
Impaired loans$553 $0 $0 $553 
Other real estate7500 0 750 
Other repossessions00 0 0 


Fair ValueQuoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)
September 30, 2021    
Assets    
Impaired loans$13,872 $— $— $13,872 
Other real estate3,088 — — 3,088 
Other repossessions865 — — 865 
December 31, 2020    
Assets    
Impaired loans$15,162 $— $— $15,162 
Other real estate1,246— — 1,246 
Other repossessions1,424— — 1,424 

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at September 30, 20202021 and December 31, 2019:2020:
Valuation
Techniques (1)		Significant
Unobservable Inputs		Range
(Weighted Average)
Impaired loansAppraisalEstimated costs to sell10%
Other real estateAppraisalEstimated costs to sell10%
Other repossessionsThird-party guidelinesEstimated costs to sell10%
(1)The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. Estimated cash flows change and appraised values of the assets or collateral underlying the loans will be sensitive to changes.

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




Carrying amounts and estimated fair values of financial instruments not reported at fair value at September 30, 20202021 and December 31, 20192020 were as follows:
September 30, 2020Carrying
Amount		Estimated
Fair
Value		Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)
September 30, 2021September 30, 2021Carrying
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 assetsFinancial assetsFinancial assets
Cash and due from banksCash and due from banks$14,050 $14,050 $14,050 $0 $0 Cash and due from banks$13,270 $13,270 $13,270 $— $— 
Interest-bearing deposits in financial institutionsInterest-bearing deposits in financial institutions66,155 66,155 66,155 — — 
Federal funds soldFederal funds sold12,273 12,273 0 12,273 0 Federal funds sold1,002 1,002 — 1,002 — 
Loans, netLoans, net2,338,064 2,336,300 0 0 2,336,300 Loans, net2,368,936 2,393,109 — — 2,393,109 
Mortgage loans held for saleMortgage loans held for sale99,587 99,587 0 99,587 0 Mortgage loans held for sale62,543 62,521 — 62,521 — 
Accrued interest receivableAccrued interest receivable14,615 14,615 0 14,615 0 Accrued interest receivable14,374 14,374 — 14,374 — 
Restricted equity securitiesRestricted equity securities17,367 17,367 0 17,367 0 Restricted equity securities15,770 15,770 — 15,770 — 
Financial liabilitiesFinancial liabilitiesFinancial liabilities
DepositsDeposits$2,565,502 $2,571,305 $0 $0 $2,571,305 Deposits$2,547,705 $2,548,511 $— $— $2,548,511 
Accrued interest payableAccrued interest payable3,744 3,744 0 3,744 0 Accrued interest payable2,302 2,302 — 2,302 — 
Subordinate debenturesSubordinate debentures70,389 69,237 0 0 69,237 Subordinate debentures70,821 72,373 — — 72,373 
Federal Home Loan Bank advancesFederal Home Loan Bank advances40,555 40,887 0 0 40,887 Federal Home Loan Bank advances— — — — — 
December 31, 2020Carrying
Amount		Estimated
Fair
Value		Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Financial assets
Cash and due from banks$13,717 $13,717 $13,717 $— $— 
Interest-bearing deposits in financial institutions79,756 79,756 79,756 — — 
Federal funds sold1,572 1,572 — 1,572 — 
Loans, net2,280,147 2,293,723 — — 2,293,723 
Mortgage loans held for sale147,524 149,342 — 149,342 — 
Accrued interest receivable14,889 14,889 — 14,889 — 
Restricted equity securities16,551 16,551 — 16,551 — 
Financial liabilities
Deposits$2,579,235 $2,583,525 $— $— $2,583,525 
Accrued interest payable2,571 2,571 — 2,571 — 
Subordinate debentures70,446 71,750 — — 71,750 
Federal Home Loan Bank advances10,000 10,000 — — 10,000 

December 31, 2019
Financial assets
Cash and due from banks$7,953 $7,953 $7,953 $0 $0 
Federal funds sold52 52 0 52 0 
Loans, net1,397,374 1,383,719 0 0 1,383,719 
Mortgage loans held for sale37,476 38,379 0 38,379 0 
Accrued interest receivable7,188 7,188 0 7,188 0 
Restricted equity securities11,279 11,279 0 11,279 0 
Financial liabilities
Deposits$1,584,453 $1,582,781 $0 $0 $1,582,781 
Accrued interest payable2,022 2,022 0 2,022 0 
Subordinate debentures70,883 71,454 0 0 71,454 
Federal Home Loan Bank advances10,737 10,755 0 0 10,755 
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The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, restricted equity securities, federal funds sold or purchased, demand deposits, and variable rate loans or deposits that re-price frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of debt is based on discounted cash flows using current rates for similar financing.

NOTE 109 - SEGMENT REPORTING

The Company has 2 reportable business segments: commercial banking and residential mortgage banking. Segment information is derived from the internal reporting system utilized by management. Revenues and expenses for segments reflect those which can be specifically identified and have been assigned based on internally developed allocation methods. Financial results have been presented, to the extent practicable, as if each segment operated on a stand-alone basis.

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




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

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

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

The following presents summarized results of operations for the Company’s business segments for the periods indicated:
Three Months Ended
September 30, 2020
Commercial BankingResidential
Mortgage
Banking		Elimination
Entries		Consolidated
Net interest income$29,729 $808 $0 $30,537 
Provision for loan losses1,500 0 0 1,500 
Noninterest income2,218 3,797 (14)6,001 
Noninterest expense (excluding merger expense)16,065 4,190 0 20,255 
Merger expense78 0 0 78 
Income tax expense (benefit)2,773 27 0 2,800 
Net income (loss)11,531 388 (14)11,905 
Noncontrolling interest in net income of subsidiary0 (388)14 (374)
Net income attributable to common shareholders$11,531 $0 $0 $11,531 

 Three Months Ended
September 30, 2019
 Commercial BankingResidential Mortgage BankingElimination EntriesConsolidated
Net interest income$13,910 $154 $0 $14,064 
Provision for loan losses606 0 0 606 
Noninterest income1,375 1,377 8 2,760 
Noninterest expense (excluding merger expense)9,726 3,022 0 12,748 
Merger expense299 0 0 299 
Income tax expense (benefit)654 (97)0 557 
Net income (loss)4,000 (1,394)8 2,614 
Noncontrolling interest in net loss of subsidiary0 1,394 (8)1,386 
Net income attributable to common shareholders$4,000 $0 $0 $4,000 

Three Months Ended
September 30, 2021
Commercial BankingResidential
Mortgage
Banking		Elimination
Entries		Consolidated
Net interest income$28,164 $835 $— $28,999 
Provision for loan losses— — — — 
Noninterest income6,651 4,177 41 10,869 
Noninterest expense (excluding merger expense)16,551 4,377 — 20,928 
Merger expense1,453 — — 1,453 
Income tax expense3,522 29 — 3,551 
Net income13,289 606 41 13,936 
Noncontrolling interest in net income of subsidiary— (606)(41)(647)
Net income attributable to common shareholders$13,289 $— $— $13,289 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)




Nine Months Ended September 30, 2020 Three Months Ended
September 30, 2020
Commercial BankingResidential Mortgage BankingElimination EntriesConsolidated Commercial BankingResidential Mortgage BankingElimination EntriesConsolidated
Net interest incomeNet interest income$75,933 $1,677 $0 $77,610 Net interest income$29,731 $808 $— $30,539 
Provision for loan lossesProvision for loan losses7,400 0 0 7,400 Provision for loan losses1,500 — — 1,500 
Noninterest incomeNoninterest income6,102 7,601 3 13,706 Noninterest income2,219 3,797 (14)6,002 
Noninterest expense (excluding merger expense)Noninterest expense (excluding merger expense)44,961 10,340 0 55,301 Noninterest expense (excluding merger expense)16,067 4,190 — 20,257 
Merger expenseMerger expense6,895 0 0 6,895 Merger expense77 — — 77 
Income tax expense (benefit)3,593 (69)0 3,524 
Net income (loss)19,186 (993)3 18,196 
Noncontrolling interest in net loss of subsidiary0 993 (3)990 
Income tax (benefit) expenseIncome tax (benefit) expense2,773 27 — 2,800 
Net (loss) incomeNet (loss) income11,533 388 (14)11,907 
Noncontrolling interest in net income of subsidiaryNoncontrolling interest in net income of subsidiary— (388)14 (374)
Net income attributable to common shareholdersNet income attributable to common shareholders$19,186 $0 $0 $19,186 Net income attributable to common shareholders$11,533 $— $— $11,533 

Nine Months Ended September 30, 2019 Nine months ended September 30, 2021
Commercial BankingResidential Mortgage BankingElimination EntriesConsolidated Commercial BankingResidential Mortgage BankingElimination EntriesConsolidated
Net interest incomeNet interest income$40,986 $352 $0 $41,338 Net interest income$84,737 $2,849 $— $87,586 
Provision for loan lossesProvision for loan losses806 0 0 806 Provision for loan losses— — — — 
Noninterest incomeNoninterest income4,226 3,187 (17)7,396 Noninterest income14,395 12,461 (340)26,516 
Noninterest expense (excluding merger expense)Noninterest expense (excluding merger expense)30,300 8,317 0 38,617 Noninterest expense (excluding merger expense)49,581 13,495 — 63,076 
Merger expenseMerger expense302 0 0 302 Merger expense1,453 — — 1,453 
Income tax expense (benefit)Income tax expense (benefit)1,741 (311)0 1,430 Income tax expense (benefit)9,615 118 — 9,733 
Net income (loss)Net income (loss)12,063 (4,467)(17)7,579 Net income (loss)38,483 1,697 (340)39,840 
Noncontrolling interest in net loss of subsidiary0 4,467 17 4,484 
Noncontrolling interest in net income of subsidiaryNoncontrolling interest in net income of subsidiary— (1,697)340 (1,357)
Net income attributable to common shareholdersNet income attributable to common shareholders$12,063 $0 $0 $12,063 Net income attributable to common shareholders$38,483 $— $— $38,483 

 Nine months ended September 30, 2020
 Commercial BankingResidential Mortgage BankingElimination EntriesConsolidated
Net interest income$75,933 $1,677 $— $77,610 
Provision for loan losses7,400 — — 7,400 
Noninterest income6,102 7,601 3 13,706 
Noninterest expense (excluding merger expense)44,961 10,340 — 55,301 
Merger expense6,895 — — 6,895 
Income tax expense (benefit)3,593 (69)— 3,524 
Net income (loss)19,186 (993)3 18,196 
Noncontrolling interest in net loss of subsidiary— 993 (3)990 
Net income attributable to common shareholders$19,186 $— $— $19,186 

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NOTE 1110 – INCOME TAXES

Income tax expense for the three and nine months ended September 30, 20202021 totaled $3,551 and $9,733, respectively, compared to $2,800 and $3,524 respectively, compared to $557 and $1,430, respectively, for the three and nine months ended September 30, 2019.2020, respectively. The effective tax rate for the three and nine months ended September 30, 20202021 was 19.0%20.3% and 16.2%19.6%, respectively, compared to 17.6%19.0% and 15.9%, respectively,16.2% for the three and nine months ended September 30, 2019.2020, respectively.


NOTE 1211 - 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)




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

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





Allocation of Purchase Price
Total consideration above$36,547 
Fair value of assets acquired and liabilities assumed
Cash and cash equivalents11,026 
Investment securities available for sale56,336 
Loans, net of unearned income171,445 
Accrued interest receivable948 
Premises and equipment6,4015,221 
Cash surrender value of life insurance contracts5,629 
Restricted equity securities909 
Core deposit intangible3,617 
Other assets833 
Deposits(210,538)
Deferred tax liability(337)(157)
Borrowings(58)
FHLB advances(13,102)
Other liabilities(3,682)(4,337)
Total fair value of net assets acquired29,42727,772 
Goodwill$7,1208,775 

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.

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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:

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




Calculation of Purchase Price
Shares of First Advantage Bancorp common stock outstanding as of April 1, 20203,935,165 
Conversion of restricted stock units to shares of common stock of First Advantage Bancorp as of April 1, 20202,000 
Total First Advantage Bancorp common stock outstanding as of April 1, 20203,937,165 
Exchange ratio for Reliant Bancorp, Inc. common stock1.17
Reliant Bancorp, Inc. common stock shares issued4,606,483 
Remove fractional shares(64)
Reliant Bancorp, Inc. common stock shares issued4,606,419
Reliant Bancorp, Inc. share price at April 1, 2020$11.27 
Estimated value of Reliant Bancorp, Inc. shares issued51,914 
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 equivalents11,159 
Investment securities available for sale35,970 
Loans, net of unearned income622,423 
Mortgage loans held for sale, net5,878 
Premises and equipment7,9057,757 
Deferred tax asset6,0244,937 
Cash surrender value of life insurance contracts14,776 
Other real estate and repossessed assets1,259 
Core deposit intangible2,280 
Operating lease right-of-use assets6,5365,846 
Other assets10,93411,624 
Deposits(608,690)
Borrowings(35,962)
Operating lease liabilities(6,536)
Other liabilities(10,606)
Total fair value of net assets acquired63,35062,115 
Goodwill$7441,979 

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




Supplemental Pro Forma Combined Condensed Statements of Income

Pro forma data for the three and nine months ended September 30, 20202021 and 20192020 in the table below presents information as if the TCB Holdings Transaction and FABK Transaction occurred on January 1, 2019.2020. 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 and nine months of 20192020 that may not have been necessary had the acquired loans been recorded at fair value as of the beginning of 2019.2020. 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 EndedNine Months EndedThree Months EndedNine Months Ended
September 30,September 30,
20202019202020192021202020212020
Revenue(1)
Revenue(1)
$35,881 $29,478 $106,771 $86,217 
Revenue(1)
$39,868 $36,541 $114,102 $97,623 
Net interest incomeNet interest income$29,880 $25,232 $85,741 $74,835 Net interest income$28,999 $30,539 $87,586 $82,686 
Net income attributable to common shareholdersNet income attributable to common shareholders$11,117 $9,182 $17,715 $28,545 Net income attributable to common shareholders$13,289 $11,533 $38,483 $13,768 
(1) Net interest income plus noninterest income
(1) Net interest income plus noninterest income
(1) Net interest income plus noninterest income


NOTE 12 - 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 evaluated all events or transactions that occurred after September 30, 2021 through the date of the issued financial statements.

On October 19, 2021, the board of directors of Reliant Bancorp declared a quarterly cash dividend of $0.12 per share payable on November 12, 2021 to shareholders of record as of the close of business on October 29, 2021.
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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
The following is a summary of the Company’s financial highlights and significant events for the nine months ended September 30, 2020:

•Net income attributable to common shareholders totaled $19.2 million, or $1.27 per diluted common share, for the nine months ended September 30, 2020 compared to $12.1 million, or $1.07 per diluted common share, during the same period in 2019.
•Merger expenses for the nine months ended September 30, 2020 totaled $6.9 million.
•Loans increased $940.7 million for the nine months ended September 30, 2020.
•Deposits increased $981.0 million for the nine months ended September 30, 2020.
•Asset quality remained strong with nonperforming assets to total assets of 0.32 percent.
•Successfully closed the TCB Holdings and FABK transactions as well as conversions with Community Bank & Trust and First Advantage Bank.
The following discussion and analysis is intended to assist in the understanding and assessment of significant changes and trends related to our financial position and operating results. This discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere herein along with Reliant Bancorp's Annual Report on Form 10-K for the year ended December 31, 2019.2020. Amounts in the narrative are shown in thousands, except for economic and demographic information, numbers of shares, per share amounts and as otherwise noted.
Acquisition of parent company of CBT
Effective January 1, 2020, Reliant Bancorp completed the acquisition of TCB Holdings. On the terms and subject to the conditions set forth in the TCB Holdings Agreement, TCB Holdings merged with and into Reliant Bancorp, with Reliant Bancorp as the surviving corporation. Immediately following the TCB Holdings Transaction, CBT merged with and into Reliant Bank, with Reliant Bank continuing as the surviving banking corporation. Pursuant to the 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 Reliant Bancorp's 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 instead 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.
Acquisition of parent company of FAB
Effective April 1, 2020, Reliant Bancorp, completed the acquisition of FABK and FAB. In accordance with the terms of the FABK Agreement, (i) Merger Sub merged with and into FABK, with FABK being the surviving corporation and becoming a wholly-owned subsidiary of Reliant Bancorp, and (ii) immediately following the merger of FABK and Merger Sub, FABK merged with and into Reliant Bancorp, with Reliant Bancorp being the surviving corporation. Additionally, immediately following the merger of Reliant Bancorp and FABK, FAB merged with and into Reliant Bank, with Reliant Bank being the surviving bank.Critical Accounting Estimates

As considerationOur 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 FABK Transaction, each outstanding sharereporting periods. We monitor the status of FABK Common Stock, other thanproposed 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 on Form 10-K for the fiscal year ended December 31, 2020. Subsequent adoptions and changes to critical accounting policies during the nine months ended September 30, 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 excluded shares, at the effective timefinancial 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 FABK Transaction converted into the right to receive (i) 1.17 sharesCompany’s performance, financial condition, and efficiency of Reliant Bancorp Common Stock and (ii) $3.00 in cash, without interest. In lieuoperations. Management of the issuanceCompany believes that these non-GAAP financial measures provide a greater understanding of fractional sharesongoing operations, enhance comparability of Reliant Bancorp Common Stock, Reliant Bancorp agreedresults 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, pay cashor 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 lieu of fractional shares based on the volume-weighted average closing pricethis Quarterly Report include “adjusted net interest margin (NIM),” “adjusted net income,” “adjusted diluted earnings 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,” “bank segment adjusted noninterest expense,” “bank segment adjusted efficiency ratio,” “adjusted cost of Reliant Bancorp Common Stock on The Nasdaq Capital Marketfunds,” “adjusted cost of interest-bearing liabilities,” and “adjusted cost of deposits.”

Executive Overview and Earnings Summary

Net income attributable to common shareholders amounted to $13,289, or $0.80 per basic share, and $38,483, or $2.31 per basic share, for the 10 consecutive trading days ending onthree and including Marchnine months ended September 30, 2021, respectively, compared to $11,533, or $0.70 per basic share and $19,186, or $1.27 per basic share for the same periods in 2020, respectively. Diluted net income attributable to common shareholders was $0.79 and $2.29 for the three and nine months ended September 30, 2021, respectively, compared to $0.69 and $1.27 per share for the three and nine months ended September 30, 2020, (calculated as $11.74). Reliant Bancorp paid aggregate considerationrespectively.

The major components contributing to holdersthe change when compared to the prior year periods are a decrease of unexercised options5.0% for the three months ended September 30, 2021 and an increase of approximately $368. Based on12.9% for the March 31, 2020 closing pricenine months ended September 30, 2021 in net interest income, an increase of 81.1% and 93.5% in noninterest income for Reliant Bancorp Common Stockthe three and nine months ended September 30, 2021, respectively, and a decrease of $11.27 per$1,500 and $7,400 in provision for loan losses for the three and nine months ended September 30, 2021, respectively.
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share and 3,937,165 shares of FABK Common Stock outstanding on March 31, 2020, the consideration
Tax-equivalent net interest margin decreased to 4.22% from 4.54% for the FABK Transaction was approximately $64,094,three months ended September 30, 2021 compared to 2020 and decreased to 4.28% from 4.30% for the nine months ended September 30, 2021 compared to the same periods in the aggregate, or $16.28 per share2020. These and other components of FABK Common Stock.earnings are discussed further below.

Formation of Reliant Risk Management, Inc.
Selected Financial Data

Reliant Risk Management, Inc. is a wholly-owned insurance captive subsidiary
(Dollar amounts in thousands, except per share amounts)Three months ended,Nine months ended
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Selected Statement of Income Data
Total interest income$33,930 $35,768 $103,407 $94,989 
Total interest expense4,931 5,229 15,821 17,379 
Net interest income28,999 30,539 87,586 77,610 
Provision for credit loss— 1,500 — 7,400 
Total noninterest income10,869 6,002 26,516 13,706 
Total noninterest expense22,381 20,334 64,529 62,196 
Net income before income taxes17,487 14,707 49,573 021,720 
Income tax expense3,551 2,800 9,733 3,524 
Consolidated net income13,936 11,907 39,840 18,196 
Noncontrolling interest in net loss of subsidiary(647)(374)(1,357)990 
Net income attributable to common shareholders$13,289 $11,533 $38,483 $19,186 
Per Common Share
Basic net income$0.80 $0.70 $2.31 $1.27 
Diluted net income0.79 0.69 2.29 1.27 
Adjusted diluted income (1)
0.87 0.70 2.38 1.62 
Book value21.36 18.46 21.36 18.46 
Tangible book value(1)
17.50 14.65 17.50 14.65 
Shares Outstanding
Basic weighted average common shares16,665,155 16,587,274 16,632,587 15,053,087 
Diluted weighted average common shares16,805,157 16,649,673 16,776,972 15,120,703 
Common shares outstanding at period end16,682,928 16,634,572 16,682,928 16,634,572 
Selected Balance Sheet Data
Loans, net of unearned income$2,389,833 $2,357,898 $2,389,833 $2,357,898 
Total assets3,013,559 3,044,512 3,013,559 3,044,512 
Customer deposits2,289,737 2,185,915 2,289,737 2,185,915 
Wholesale and institutional deposits257,968 379,587 257,968 379,587 
Total deposits2,547,705 2,565,502 2,547,705 2,565,502 
Total liabilities2,657,244 2,737,426 2,657,244 2,737,426 
Total shareholders' equity356,315 307,086 356,315 307,086 
Total liabilities and shareholders' equity3,013,559 3,044,512 3,013,559 3,044,512 
Selected Balance Sheet Data - Averages
Loans held for investment$2,360,073 $2,337,958 $2,310,056 $2,085,467 
Earning assets(1)
2,818,164 2,771,917 2,826,721 2,500,951 
Total assets3,036,777 2,991,818 3,046,160 2,711,218 
Interest-bearing liabilities2,032,296 2,108,428 2,075,003 1,955,621 
Total liabilities2,685,605 2,692,383 2,706,837 2,434,372 
Total shareholders' equity351,172 299,435 339,323 276,846 
40
Table of Reliant Bancorp, Inc. that began operations on June 1, 2020 as a Tennessee-based captive insurance company which insures Reliant BancorpContents
(Dollar amounts in thousands, except per share amounts)Three months ended,Nine months ended
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Selected Performance Ratios
Return on average assets (2)
1.74 %1.53 %1.69 %0.95 %
Return on shareholders' equity (2)
15.01 %15.32 %15.16 %9.26 %
Return on average tangible common equity (1) (2)
18.40 %19.42 %18.76 %12.04 %
Average shareholders' equity to average assets11.56 %10.01 %11.14 %10.21 %
Net interest margin (tax-equivalent basis) (2)
4.22 %4.54 %4.28 %4.30 %
Efficiency Ratio (tax-equivalent basis)54.8 %54.0 %55.1 %66.0 %
Bank Segment efficiency ratio (1)
51.7 %50.5 %51.5 %63.2 %
Loans held for investment to deposits ratio93.8 %91.9 %93.8 %91.9 %
Interest Rates and Yields (2)
Yield on interest-earning assets4.91 %5.29 %5.03 %5.23 %
Yield on loans held for investment5.29 %5.73 %5.50 %5.69 %
Cost of interest-bearing liabilities0.96 %0.99 %1.02 %1.19 %
Adjust cost of interest-bearing liabilities (1)
0.52 %0.99 %0.69 %1.19 %
Cost of funds0.74 %0.79 %0.79 %0.97 %
Adjusted cost of funds (1)
0.40 %0.79 %0.53 %0.97 %
Cost of total deposits0.58 %0.62 %0.64 %0.81 %
Adjusted cost of total deposits (1)
0.26 %0.62 %0.40 %0.81 %
Preliminary Consolidated Capital Ratios (3)
Tier 1 leverage10.04 %8.72 %10.04 %8.72 %
Common equity tier 110.52 %9.77 %10.52 %9.77 %
Tier 1 risk-based capital10.95 %10.25 %10.95 %10.25 %
Total risk-based capital13.92 %13.44 %13.92 %13.44 %
Selected Asset Quality Measures
Allowance for loan losses to total loans0.87 %0.84 %0.87 %0.84 %
Allowance for loan losses plus unaccreted purchased loan discounts to total loans (1)
1.38 %1.64 %1.38 %1.64 %
Net (recoveries) charge offs$(3)$(97)$(261)$144 
Net (recoveries) charge offs to average loans (2)
— %(0.02)%(0.02)%0.01 %
Total nonperforming loans held for investment (HFI)$5,302 $6,802 $5,302 $6,802 
Total nonperforming assets (4)
$10,232 $9,731 $10,232 $9,731 
Nonperforming loans HFI to total loans HFI0.22 %0.29 %0.22 %0.29 %
Nonperforming assets to total assets0.34 %0.32 %0.34 %0.32 %
Nonperforming assets to total loans HFI and NPAs0.43 %0.41 %0.43 %0.41 %
(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 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. It pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. Reliant Risk Management, Inc. is subject to regulations of the State of Tennessee and undergoes periodic examinations by the Tennessee Department of Commerce and Insurance.real estate.

Critical Accounting Policies

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

Principles of Consolidation





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Reconciliation of Non-GAAP Financial Measures
Three Months EndedNine months ended
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Adjusted net interest margin:
Net interest income$28,999 $30,539 $87,586 $77,610 
Add: tax equivalent interest income947 1,107 2,987 2,960 
Add: swap termination fees2,290 — 5,149 — 
Less: purchase accounting adjustments(993)(3,868)(4,676)(9,773)
Adjusted net interest income$31,243 $27,778 $91,046 $70,797 
Average earning assets$2,818,164 $2,771,917 $2,826,721 $2,500,951 
Net interest margin-tax equivalent4.22 %4.54 %4.28 %4.30 %
Adjusted net interest margin4.40 %3.99 %4.31 %3.78 %
Adjusted net income (1):
Net income attributable to common shareholders$13,289 $11,533 $38,483 $19,186 
Add: merger related expenses1,453 77 1,453 6,895 
Less: income tax impact of merger related expenses(48)(10)(48)(1,607)
Adjusted net income$14,694 $11,600 $39,888 $24,474 
Adjusted diluted earnings per share:
Adjusted net income$14,694 $11,600 $39,888 $24,474 
Weighted average shares - diluted16,805,157 16,649,673 16,776,972 15,120,703 
Diluted earnings per share$0.79 $0.69 $2.29 $1.27 
Adjusted diluted earnings per share$0.87 $0.70 $2.38 $1.62 
Adjusted annualized return on average assets:
Adjusted net income$14,694 $11,600 $39,888 $24,474 
Average assets3,036,777 2,991,818 3,046,160 2,711,218 
Annualized return on average assets1.74 %1.53 %1.69 %0.95 %
Adjusted annualized return on average assets1.92 %1.54 %1.75 %1.21 %
Adjusted annualized return on average equity:
Adjusted net income$14,694 $11,600 $39,888 $24,474 
Average total shareholders' equity351,172 299,435 339,323 276,846 
Annualized return on average equity15.01 %15.32 %15.16 %9.26 %
Adjusted annualized return on average equity16.60 %15.41 %15.72 %11.81 %
Adjusted annualized return on average tangible common equity:
Average total shareholders' equity$351,172 $299,435 $339,323 $276,846 
Less: average intangible assets(64,607)(63,212)(65,072)(64,042)
Average tangible common equity$286,565 $236,223 $274,251 $212,804 
Adjusted net income14,694 11,600 39,888 24,474 
Annualized return on average tangible common equity18.40 %19.42 %18.76 %12.04 %
Adjusted annualized return on average tangible common equity20.34 %19.54 %19.45 %15.36 %
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Three Months EndedNine months ended
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Adjusted pre-tax pre-provision income:
Income before provision for income taxes$17,487 $14,707 $49,573 $21,720 
Add: merger related expenses1,453 77 1,453 6,895 
Add: provision for loan losses— 1,500 — 7,400 
Adjusted pre-tax pre-provision income$18,940 $16,284 $51,026 $36,015 
Tangible common equity to tangible assets:
Tangible common equity:
Total shareholders' equity$356,315 $307,086 $356,315 $307,086 
Less: intangible assets(64,374)(63,326)(64,374)(63,326)
Tangible common equity$291,941 $243,760 $291,941 $243,760 
Tangible assets:
Total assets$3,013,559 $3,044,512 $3,013,559 $3,044,512 
Less: intangible assets(64,374)(63,326)(64,374)(63,326)
Tangible assets$2,949,185 $2,981,186 $2,949,185 $2,981,186 
Total shareholders' equity to total assets11.82 %10.09 %11.82 %10.09 %
Tangible common equity to tangible assets9.90 %8.18 %9.90 %8.18 %
Tangible book value per share:
Tangible common equity$291,941 $243,760 $291,941 $243,760 
Total shares of common stock outstanding16,682,928 16,634,572 16,682,928 16,634,572 
Book value per common share$21.36 $18.46 $21.36 $18.46 
Tangible book value per share$17.50 $14.65 $17.50 $14.65 
Allowance for loan losses plus unaccreted loan purchase discounts:
Allowance for loan losses$20,897 $19,834 $20,897 $19,834 
Unaccreted loan purchase discounts11,993 18,939 11,993 18,939 
Allowance for loan losses plus unaccreted loan purchase discounts:$32,890 $38,773 $32,890 $38,773 
Total loans2,389,833 2,357,898 2,389,833 2,357,898 
Allowance for loan losses plus unaccreted purchased loan discounts to total loans1.38 %1.64 %1.38 %1.64 %
Allowance for loan losses to total loans0.87 %0.84 %0.87 %0.84 %
Bank segment adjusted net income:
Bank segment net income$13,289 $11,533 $38,483 $19,186 
Add: merger related expenses1,453 77 1,453 6,895 
Less: income tax impact of merger related expenses(48)(10)(48)(1,607)
Bank segment adjusted net income$14,694 $11,600 $39,888 $24,474 
Bank segment adjusted noninterest expense:
Bank segment noninterest expense$18,004 $16,144 $51,034 $51,856 
Less: merger related expenses(1,453)(77)(1,453)(6,895)
Bank segment adjusted noninterest expense$16,551 $16,067 $49,581 $44,961 
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Three Months EndedNine months ended
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Bank segment adjusted efficiency ratio:
Bank segment adjusted total revenues:
Bank segment net interest income$28,164 $29,731 $84,737 $75,933 
Add: Tax equivalent interest income947 1,107 2,987 2,960 
Add: Bank segment noninterest income6,651 2,219 14,395 6,102 
Less: Gains on sale of securities, OREO, premises and equipment (2)
(2,405)9 (5,473)(352)
Add: Swap termination fees (2)
2,290 — 5,149 — 
Bank segment adjusted total revenues$35,647 $33,066 $101,795 $84,643 
Bank segment efficiency ratio51.7 %50.5 %51.5 %63.2 %
Bank segment adjusted efficiency ratio46.4 %48.6 %48.7 %53.1 %
Adjusted cost of funds:
Adjusted interest expense:
Interest Expense$4,931 $5,229 $15,821 $17,379 
Less: Swap termination fees(2,290)— (5,149)— 
Adjusted interest expense$2,641 $5,229 $10,672 $17,379 
Average funds2,649,200 2,644,781 2,668,477 2,394,976 
Cost of funds0.74 %0.79 %0.79 %0.97 %
Adjusted cost of funds0.40 %0.79 %0.53 %0.97 %
Adjusted cost of interest-bearing liabilities:
Adjusted interest expense$2,641 $5,229 $10,672 $17,379 
Average interest-bearing liabilities2,032,296 2,108,428 2,075,003 1,955,621 
Cost of interest-bearing liabilities0.96 %0.99 %1.02 %1.19 %
Adjusted cost of interest-bearing liabilities0.52 %0.99 %0.69 %1.19 %
Adjusted cost of deposits:
Adjusted deposit expense:
Deposit expense$3,942 $4,133 $12,882 $13,799 
Less: Swap termination fees(2,290)— (5,149)— 
Adjusted deposit expense$1,652 $4,133 $7,733 $13,799 
Average deposits2,567,679 2,533,853 2,584,162 2,232,298 
Cost of deposits0.58 %0.62 %0.64 %0.81 %
Adjusted cost of deposits0.26 %0.62 %0.40 %0.81 %
(1)The Company's consolidated financial statementsswap termination fees included in the adjusted net interest income calculation in the second and third quarters of 2021 were done so in conjunction with securities sales thereby nullifying the effects on net income. Therefore, we have not adjusted for these transactions as adjusted net income.
(2) Securities sold in the second and third quarters of 2021 were done in conjunction with the swap termination fees. Therefore, we have adjusted for both sides of this transaction.

Mergers and for the periods presented include the accountsacquisitions

Acquisition of Reliant Bancorp, theTennessee Community Bank Community First Trups Holding Company (a wholly owned subsidiary of Reliant Bancorp), Reliant Risk Management,Holdings, Inc., Reliant Investment Holdings, LLC (a wholly owned subsidiary of the Bank), and RMV. All significant intercompany balances and transactions have been eliminated in consolidation. As described previously, effective
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 TCB Holdings merged and effectivetotal deposits of approximately $1.8 billion.
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Acquisition of First Advantage Bancorp
On April 1, 2020, Reliant Bancorp andacquired First Advantage Bancorp, merged.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 11-Business Combinations for further information regarding our acquisition activity, assets acquired, and purchase price paid.

Proposed Merger with United Community Banks, Inc.
On July 14, 2021, United Community Banks, Inc. (NASDAQGS: UCBI) (“United”) and Reliant Bancorp announced the execution of a definitive merger agreement pursuant to which United will acquire Reliant Bancorp in an all-stock transaction with an aggregate value of approximately $517 million, or $30.58 per share of Reliant Bancorp common stock, based on United’s closing stock price of $31.07 per share on July 13, 2021. This agreement is subject to both regulatory and Reliant Bancorp shareholder approval. The transaction is expected to close in the first quarter of 2022.

Coronavirus (COVID-19) Impact

During 2011,2020, the COVID-19 health pandemic created a crisis resulting in volatility in financial markets, sudden, unprecedented job losses, and disruption in consumer and commercial behavior, resulting in governments in the United States and globally to intervene with varying levels of direct monetary support and fiscal stimulus packages. All industries, municipalities and consumers have been impacted by the health crisis to some degree, including the markets that we serve. In attempts to “flatten the curve”, businesses not deemed essential were closed or constrained to capacity limitations, individuals were asked to restrict their movements, observe social distancing and shelter in place. These actions resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses, leading to a loss of revenues and a rapid increase in unemployment, widening of credit spreads, dislocation of bond markets, disruption of global supply chains and changes in consumer spending behavior. As certain restrictions began lifting and more businesses were allowed to open their doors in late 2020, we began to experience a slow improvement in commerce through much of our footprint, which continued into the first half of 2021 with further easing of restrictions and increasing availability of vaccinations. Despite the pickup in economic activity, commercial and consumer activity has not returned to pre-pandemic levels. Although most restrictions were lifted and vaccines became widely available during the first half of 2021, during the summer of 2021, concern began building regarding the potential impact the new Delta variant of the virus may have on the global economy and the efficacy of available vaccines to protect against widespread infection. As such, there continues to be uncertainty regarding the long term effects on the global economy, which could have a material adverse impact on the Company's business operations, asset valuations, financial condition, and results of operations.

The Company has taken several actions to offer various forms of support to our customers and communities impacted by the virus. In addition, the Company continues to take deliberate actions to ensure the continued health and strength of its balance sheet, including increases in liquidity and managing assets and liabilities in order to maintain a strong capital position.


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.

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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 September 30, 2021, and 2020 (dollars in thousands):
Three Months Ended September 30,Change
20212020
Average Balances (1)
Rates / Yields (%)Interest Income / Expense
Average Balances (1)
Rates / Yields (%)Interest Income / ExpenseDue to VolumeDue to RateTotal
Interest earning assets
Loans (2) (3)
$2,360,073 4.96 $28,847 $2,337,958 5.34 $30,640 $289 $(2,173)$(1,884)
Loan fees— 0.33 1,970 — 0.38 2,255 (285)— (285)
Loans with fees2,360,073 5.29 30,817 2,337,958 5.73 32,895 4 (2,173)(2,169)
Mortgage loans held for sale134,245 3.50 1,184 103,729 3.98 1,037 249 (102)147 
Deposits with banks45,885 0.39 45 57,909 0.47 68 (13)(10)(23)
Investment securities - taxable106,433 2.93 786 67,569 2.35 399 271 116 387 
Investment securities - tax-exempt (4)
154,417 3.10 928 185,058 3.30 1,186 (239)(88)(327)
Restricted equity securities and other17,111 3.94 170 19,694 3.70 183 (26)13 (13)
Total earning assets2,818,164 4.91 33,930 2,771,917 5.29 35,768 246 (2,244)(1,998)
Nonearning assets218,613 219,901 
Total assets$3,036,777 $2,991,818 
Interest bearing liabilities
Interest bearing demand411,796 0.15 153 272,506 0.34 236 890 (973)(83)
Savings and money market980,069 0.18 441 786,589 0.59 1,162 395 (1,116)(721)
Time deposits - retail440,390 0.74 825 715,310 0.97 1,744 (568)(351)(919)
Time deposits - wholesale118,520 8.45 2,523 223,095 1.77 991 (217)1,749 1,532 
Total interest-bearing deposits1,950,775 0.80 3,942 1,997,500 0.82 4,133 499 (690)(191)
Federal Home Loan Bank advances and other borrowings10,724 0.33 9 40,567 1.02 104 (49)(46)(95)
Subordinated debt70,797 5.49 980 70,361 5.61 992 5 (17)(12)
Total borrowed funds81,521 4.81 989 110,928 3.93 1,096 (45)(62)(107)
Total interest-bearing liabilities2,032,296 0.96 4,931 2,108,428 0.99 5,229 455 (753)(298)
Net interest spread (5)
3.95 $28,999 4.30 $30,539 $(209)$(1,491)$(1,700)
Noninterest bearing deposits616,904 (0.22)536,353 (0.20)
Other noninterest bearing liabilities36,405 47,602 
Shareholders' equity351,172 299,435 
Total liabilities and shareholders' equity$3,036,777 $2,991,818 
Cost of funds0.74 0.79 
Net interest margin (6)
4.22 4.54 
(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 $669 and $760, for the three months ended September 30, 2021 and September 30, 2020, respectively.
(4)     Yields on tax-exempt securities are shown on a tax-equivalent basis.
(5)    Net interest spread is calculated as the yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities.
(6)    Net interest margin is the result of net interest income calculated on a tax-equivalent basis divided by average interest earning assets for the period.

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Three months ended September 30, 2021 compared to three months ended September 30, 2020
For the three months ended September 30, 2021, we recorded net interest income on a tax-equivalent basis of approximately $29,946 which resulted in a net interest margin (net interest income divided by the average balance of interest-earning assets) of 4.22% as compared to 4.54% for the three months ended September 30, 2020. This decrease was primarily due to a decrease in loan yields and a $2,290 swap termination fee incurred during the quarter which is reflected in the cost of funds. The adjusted net interest margin, which excludes this fee impact as well as the benefits from purchase accounting accretion, showed continued improvement as it increased 41 basis points from the prior year to 4.40%. Net income and earnings per share during the quarter were not materially affected by this termination fee as securities were sold for a gain of $2,419 to offset the swap termination transaction.

The components of our loan yield, a key driver to our NIM for the three months ended September 30, 2021, and September 30, 2020, were as follows:
Three months ended September 30,
20212020
Interest IncomeAverage YieldInterest IncomeAverage Yield
Loan yield components:
Contractual interest rate on loans held for investment (1)
$27,862 4.68 %$27,760 4.73 %
Origination and other fee income (2)
1,970 0.33 %2,255 0.38 %
Accretion on purchased loans9850.17 %2,8800.49 %
Loan tax credits6690.11 %7600.13 %
Tax-equivalent loan interest income$31,486 5.29 %$33,655 5.73 %
(1)    Includes $19 and $210 in loan contractual interest related to PPP loans for the three months ended September 30, 2021 and September 30, 2020, respectively.
(2)    Includes $176 and $455 in PPP related fees for the three months ended September 30, 2021 and September 30, 2020, respectively.

Our combined loan and loan fee yield decreased from 5.11% to 5.01% for the three months ended September 30, 2021 compared to the same period in 2020 as purchase accounting accretion decreased during the quarter. Our year-over-year quarterly average loan volume increased by approximately 0.9% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and when PPP loans are excluded, average loan volume increased by 1.6%.

Accretion on purchased loans contributed 17 basis points to the NIM for three months ended September 30, 2021 compared to the 49 basis points contributed in the comparable period in 2020, and $12.0 million of purchase accounting accretion remained as of September 30, 2021. Contractual interest and origination fees on PPP loans contributed 1 basis point to the NIM for the three months ended September 30, 2021 as fees are recognized upon forgiveness compared to decreasing NIM by 6 basis points in the comparable period in 2020 due to the low comparative loan yield driven by the increased PPP loan volume in 2020. We anticipate recognizing $11 in deferred origination fees over the remaining life of the PPP loan portfolio.

Our cost of funds decreased to 0.74% from 0.79% for the three months ended September 30, 2021 compared to the same period in 2020. Cost of funds excluding the swap termination fee decreased 39 basis points 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 38.4% year-over-year compared to the increase in average total deposits of 1.3%. In addition to the 4 basis point increase in cost of deposits, or 36 basis point decrease when excluding swap termination fees, cost of funds benefited from a decrease in the cost of FHLB advances of 69 basis points as the average balance decreased 73.6% as a result of the prepayments in the fourth quarter of 2020.


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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 nine months ended September 30, 2021, and 2020 (dollars in thousands):
Nine Months Ended
September 30, 2021		Nine Months Ended
September 30, 2020		Change
Average Balances (1)
Rates / Yields (%)Interest Income / Expense
Average Balances (1)
Rates / Yields (%)Interest Income / ExpenseDue to VolumeDue to RateTotal
Interest earning assets
Loans (2) (3)
$2,310,056 5.07 $85,675 $2,085,467 5.38 $82,105 $10,835 $(7,133)$3,702 
Loan fees— 0.42 7,314 — 0.31 4,882 2,432 — 2,432 
Loans with fees2,310,056 5.50 92,989 2,085,467 5.69 86,987 13,267 (7,133)6,134 
Mortgage loans held for sale178,817 3.23 4,322 79,000 4.08 2,412 2,793 (883)1,910 
Deposits with banks55,422 0.36 149 55,856 0.58 242 (2)(91)(93)
Investment securities - taxable81,917 3.36 2,059 69,490 1.88 978 200 881 1,081 
Investment securities - tax-exempt (4)
183,094 3.18 3,369 191,814 3.46 3,874 (220)(390)(610)
Restricted equity securities and other17,415 3.98 519 19,324 3.43 496 (72)95 23 
Total earning assets2,826,721 5.03 103,407 2,500,951 5.23 94,989 15,966 (7,521)8,445 
Nonearning assets219,439 210,267 
Total assets$3,046,160 $2,711,218 
Interest bearing liabilities
Interest bearing demand400,667 0.21 641 246,042 0.30 554 358 (271)87 
Savings and money market951,486 0.27 1,927 659,673 0.74 3,668 1,831 (3,572)(1,741)
Time deposits - retail459,272 0.95 3,271 669,119 1.29 6,457 (1,731)(1,455)(3,186)
Time deposits - wholesale179,263 5.25 7,043 218,109 1.91 3,120 (984)4,907 3,923 
Total interest-bearing deposits1,990,688 0.87 12,882 1,792,943 1.03 13,799 (526)(391)(917)
Federal Home Loan Bank advances and other borrowings13,603 0.26 26 92,223 0.89 613 (321)(266)(587)
Subordinated debt70,712 5.51 2,913 70,455 5.63 2,967 16 (70)(54)
Total borrowed funds84,315 4.66 2,939 162,678 2.94 3,580 (305)(336)(641)
Total interest-bearing liabilities2,075,003 1.02 15,821 1,955,621 1.19 17,379 (831)(727)(1,558)
Net interest spread (5)
4.01 $87,586 4.04 $77,610 $16,797 $(6,794)$10,003 
Noninterest bearing deposits593,474 (0.23)439,355 (0.22)
Other noninterest bearing liabilities38,360 39,396 
Shareholders' equity339,323 276,846 
Total liabilities and shareholders' equity$3,046,160 $2,711,218 
Cost of funds0.79 0.97 
Net interest margin (6)
4.28 4.30 
(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 $1,997 and $1,865, for the nine months ended September 30, 2021 and September 30, 2020, respectively.
(4)     Yields on tax-exempt securities are shown on a tax-equivalent basis.
(5)    Net interest spread is calculated as the yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities.
(6)    Net interest margin is the result of net interest income calculated on a tax-equivalent basis divided by average interest earning assets for the period.


Nine months ended September 30, 2021 compared to nine months ended September 30, 2020

For the nine months ended September 30, 2021, we recorded net interest income on a tax-equivalent basis of approximately $90,573 which resulted in a net interest margin (net interest income divided by the average balance of interest-earning assets) of 4.28% compared to 4.30% for the nine months ended September 30, 2020. This decrease was primarily driven by a decrease in loan yields and a $5,149 swap termination fee incurred during 2021 which is reflected in the cost of funds. The adjusted net
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interest margin, which excludes this fee impact as well as the benefits from purchase accounting accretion, showed continued improvement as it increased 53 basis points from the prior year to 4.31%. Net income and earnings per share during the year were not materially affected by this termination fee as securities were sold for a gain of $5,514 to offset the swap termination transaction.

The components of our loan yield, a key driver to our NIM for the nine months ended September 30, 2021, and September 30, 2020, were as follows:
Nine months ended September 30,
20212020
Interest IncomeAverage YieldInterest IncomeAverage Yield
Loan yield components:
Interest rate on loans held for investment (1)
$81,059 4.69 %$74,463 4.77 %
Origination and other fee income (2)
7,314 0.42 %4,882 0.31 %
Accretion on purchased loans4,6160.27 %7,6420.49 %
Loan tax credits1,9970.12 %1,8650.12 %
Tax-equivalent loan interest income$94,986 5.50 %$88,852 5.69 %
(1)    Includes $216 and $358 in loan contractual interest related to PPP loans for the nine months ended September 30, 2021 and September 30, 2020, respectively.
(2)    Includes $1,808 and $739 in PPP related fees for the nine months ended September 30, 2021 and September 30, 2020, respectively.

Our combined loan and loan fee yield increased from 5.08% to 5.11% for the nine months ended September 30, 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 10.8% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 and was largely driven by the FABK Transaction.

Accretion on purchased loans contributed 27 basis points to the NIM for the nine months ended September 30, 2021 compared to the 49 basis points contributed in the comparable period in 2020. Contractual interest and origination fees on PPP loans contributed 5 basis points to the NIM for the nine months ended September 30, 2021 as fees are recognized upon forgiveness as compared to decreasing NIM by 6 basis points in the comparable period in 2020 due to the increased PPP loan volume in 2020 compared to the loan yield in 2020.

Our cost of funds decreased to 0.79% from 0.97% for the nine months ended September 30, 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. When excluding the swap termination fees incurred in the second and third quarters of 2021, cost of funds decreased 44 basis points to 0.53%. Average retail time deposits decreased 31.4% year-over-year compared to the increase in average total deposits of 15.8%. In addition to the 17 basis point decrease in cost of deposits, or 41 basis points adjusted for swap termination fees, cost of funds benefited from a decrease in the cost of FHLB advances of 63 basis points as the average balance decreased 85.2% 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 and nine months ended September 30, 2021 compared to $1,500 and $7,400 recorded in the three and nine months ended September 30, 2020, respectively. The provision expense for the three and nine months ended September 30, 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 economic outlooks have improved in 2021, in part due to the federal stimulus programs and vaccine rollouts.

The acquired loan portfolios from First Advantage Bank and another entity organizedCommunity 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.

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Noninterest Income
Our noninterest income is composed of several components, some of which vary significantly between periods. The following is a summary of our noninterest income for the three and nine months ended September 30, 2021, and 2020 (dollars in thousands):
Three Months Ended September 30,Percent
Increase		Nine Months Ended September 30,Percent
Increase
20212020(Decrease)20212020(Decrease)
Non-Interest Income
Service charges and fees on deposits$1,678 $1,583 6.0 %$4,895 $4,172 17.3 %
Gains on mortgage loans sold, net4,218 3,784 11.5 %12,124 7,605 59.4 %
Gain on securities transactions, net2,419 — 100.0 %5,514 327 1586.2 %
Bank-owned life insurance2,181 386 465.0 %3,172 1,073 195.6 %
Brokerage revenue79 65 21.5 %232 142 63.4 %
Miscellaneous noninterest income294 184 59.8 %579 387 49.6 %
Total noninterest income$10,869 $6,002 81.1 %$26,516 $13,706 93.5 %

The most significant reasons for the changes in total noninterest income during the three and nine months ended September 30, 2021 compared to the same periods in 2020 are the fluctuation in gains on mortgage loans sold, net as well as the increase in service charges, gain on securities transactions, and income from bank-owned life insurance.

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 $105,750 and $699,551 in the three and nine months ended September 30, 2021, respectively, as compared to $143,375 and $327,521 in the same periods 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 nine months ended September 30, 2021, the Company sold securities totaling $58,855 with a gain of $5,514. Of this gain, $2,966 and $2,419 was realized to offset the effects of the swap termination fees incurred in the second quarter and third quarters, respectively. During the nine months ended September 30, 2020, the Company sold securities classified as available for sale, many of which were acquired in the TCB Holdings transaction, totaling $103,901 for a gain of $327.

Noninterest income also includes income from bank-owned life insurance (“BOLI”), which increased during the three and nine months ended September 30, 2021 when compared to the the same period in 2020, driven by the additional policies acquired from the FABK and TCB Holdings transactions, additional policies purchased in 2020, and proceeds from death benefit claims in the third quarter of 2021. 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 and nine months ended September 30, 2021 and 2020 (dollars in thousands):

Three Months Ended September 30,Percent
Increase		Nine Months Ended
September 30,		Percent
Increase
20212020(Decrease)20212020(Decrease)
Non-Interest Expense
Salaries and employee benefits$12,426 $12,184 2.0 %$38,571 $33,885 13.8 %
Occupancy2,038 2,054 (0.8)%6,045 5,566 8.6 %
Data processing and software2,265 2,240 1.1 %6,756 6,085 11.0 %
Professional fees526 775 (32.1)%2,127 1,933 10.0 %
Regulatory fees328 365 (10.1)%1,032 1,356 (23.9)%
Merger expenses1,453 77 1787.0 %1,453 6,895 (78.9)%
Other operating expense3,345 2,639 26.8 %8,545 6,476 31.9 %
Total noninterest expense$22,381 $20,334 10.1 %$64,529 $62,196 3.8 %

Noninterest expense increased during the three months ended September 30, 2021 when compared to September 30, 2020 which is primarily driven by the merger expenses incurred in 2021 and the incremental costs incurred following the TCB Holdings and FABK transactions. Noninterest expense increased during the nine months ended September 30, 2021 when compared to September 30, 2020 which is primarily driven by the incremental costs incurred following the TCB Holdings and FABK transactions offset by the merger expenses incurred in 2020.

The 2.0% and 13.8% increase in salaries and employee benefits during the three and nine months ended September 30, 2021, respectively, when compared to September 30, 2020 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 decrease in average FTEs from 422 for the three months ended September 30, 2020 to 415 for the three months ended September 30, 2021, and an increase from 364 for the nine months ended September 30, 2020 to 419 for the nine months ended September 30, 2021.

Occupancy costs decreased by $16 or 0.8% during the three months ended September 30, 2021 and increased $479, or 8.6% during the nine months ended September 30, 2021 compared to the same periods in 2020 as the FABK Transaction and the expansion of RMV increased costs in 2020 and is offset by the branch justification project that has resulted in the closure of three branches in 2021.

Data processing and software expense increased during the three and nine months ended September 30, 2020 to September 30, 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. Under

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 51.7% and 51.5% for the three and nine months ended September 30, 2021, respectively, compared to 50.5% and 63.2% for the same periods in 2020. Our adjusted efficiency ratio, on a tax-equivalent basis, was 46.4% and 48.7% for the three and nine months ended September 30, 2021, respectively, compared to 48.6% and 53.1% for the same periods in 2020. See “Reconciliation of Non-GAAP Financial Measures” in this Quarterly Report for the reconciliation of the adjusted efficiency ratio.

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Income Taxes
During the three and nine months ended September 30, 2021 we recorded consolidated income tax expense of $3,551 and $9,733, respectively, as compared to $2,800 and $3,524 for the same periods in 2020. This represents consolidated effective tax rates for the three and nine month ended September 30, 2021 of 20.3% and 19.6%, respectively, compared to 19.0% and 16.2% for the same periods in 2020. When evaluating the bank segment alone, this ratio was 21.0% and 20.0% for the three and nine months ended September 30, 2021, respectively, as compared to 19.4% and 15.8% for the same period in 2020.

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 theany cash flow distributions, onceafter the non-controlling member recovers its aggregate capital contributions to RMV.contributions. The non-controlling member is required to fund RMV’sRMV's losses, in arrears, via additional capital contributions to RMV. As of September 30, 2020, RMV's cumulative losses to date totaled $14,707.contributions. RMV will have to generatehad a net income of at least this amount before$647 and $1,357 for the Bank will participatethree and nine months ended September 30, 2021, respectively, compared to net income of $374 and loss of $990 for the same periods in future cash flow distributions.2020. The improvements in operating results is mainly attributable to the productive market conditions produced by the low interest rate environment. Also, see Note 9 to our consolidated financial statements for segment reporting.

Purchased Loans
FINANCIAL CONDITION

Overview

The Company maintainsCompany’s total assets were $3,013,559 at September 30, 2021 and $3,026,535 at December 31, 2020, a decrease of 0.4%. Total liabilities were $2,657,244 at September 30, 2021 and $2,704,562 at December 31, 2020, a decrease of 1.7%. The decrease in liabilities was substantially attributable to the decrease in deposits of $31,530, or 1.2% and the decrease in assets was largely attributable to the decrease in mortgage loans held for sale of $84,981, or 57.6%. 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, onat September 30, 2021, and December 31, 2020, were $2,368,936 and $2,280,147, respectively, representing an increase of 3.9%, or 6.9% when PPP loans are excluded.

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The table below provides a summary of the loan portfolio composition for the dates noted (including purchased credit-impaired ("PCI") loans).
September 30, 2021December 31, 2020
AmountPercentAmountPercent
Commercial, Industrial and Agricultural$450,710 18.8 %$459,739 19.9 %
Real estate:
1-4 Family Residential310,855 13.0 %323,473 14.0 %
1-4 Family HELOC100,895 4.2 %100,525 4.4 %
Multifamily and Commercial873,265 36.6 %834,000 36.2 %
Construction, Land Development and Farmland417,258 17.4 %365,058 15.8 %
Consumer234,734 9.8 %213,863 9.3 %
Other5,298 0.2 %8,669 0.4 %
2,393,015 100.0 %2,305,327 100.0 %
Less:
Deferred loan fees3,182 4,544 
Allowance for loan losses20,897 20,636 
Loans, net$2,368,936 $2,280,147 

The table below provides a summary of PCI loans based on credit deterioration subsequent to the acquisition date. In accordance with the accounting guidance for business combinations, because we recorded all loans acquired from TCB Holdings and FABK at fair value as of the datesSeptember 30, 2021 and December 31, 2020:
September 30, 2021December 31, 2020
Commercial, Industrial and Agricultural$782 $919 
Real estate:
1-4 Family Residential868 1,004 
1-4 Family HELOC19 19 
Multifamily and Commercial1,175 1,325 
Construction, Land Development and Farmland935 992 
Consumer1,426 1,924 
Total gross PCI loans5,205 6,183 
Less:
Remaining purchase discount2,458 2,596 
Allowance for loan losses— — 
Loans, net$2,747 $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 $450,710 at September 30, 2021 and decreased by 2.0% compared to $459,739 at December 31, 2020 which was largely driven by PPP loan forgiveness.

Real estate loans comprised 71.2% of the TCB Holdings Transactionloan portfolio at September 30, 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 FABK Transaction, respectively, we did not establish an allowance for loan losses on any of theresidential portfolio 2.9% from December 31, 2020 to September 30, 2021. Multi-family and commercial loans we purchased as of the acquisition date as any credit deterioration evident in the loans was included in the determinationreal 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 $873,265 at September 30, 2021 and increased 4.7% 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
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December 31, 2020, to September 30, 2021, of 9.8% primarily due to the $25,062 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 38.9% from December 31, 2020 to September 30, 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 September 30, 2021, excluding unearned net fees and costs.
One Year or
Less		One to Five
Years		Over Five
Years		Total
Gross loans$566,044 $1,290,581 $536,390 $2,393,015 
Fixed interest rate$1,213,415 
Variable interest rate1,179,600 
Total$2,393,015 

The information presented in the above table is based upon the contractual maturities or next repricing date of the acquisition date fair values. For purchased credit-impairedindividual loans, accounted for under ASC 310-30, managementincluding loans which may be subject to renewal at their contractual maturity. Renewal of such loans is requiredsubject to establish an allowance for loan losses subsequent toreview and credit approval, as well as modification of terms upon their maturity. Consequently, we believe this treatment presents fairly the dates of acquisition by re-estimating expected cash flows on these loans on a quarterly basis, with any decline in expected cash flows due to a credit triggering impairment recorded as provision for loan losses. The allowance for loan losses established is the excess of the loan’s carrying value over the present value of projected future cash flows, discounted at the current accounting yieldmaturity and repricing structure 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 purchased non-credit-impaired loans acquired in the TCB Holdings Transaction and the FABK Transaction that are accounted for under ASC 310-20, the historical loss estimates are based on the historical losses experienced by the Bank for loans with similar characteristics as those acquired other than purchased credit-impaired loans. The Bank records an allowance for loan losses only when the calculated amount exceeds the remaining credit mark established at acquisition.portfolio.

AllowanceProvision for Loan Losses

The allowance for loan losses ("allowance") isWe did not record a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent
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recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using historical loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, current economic conditions (national and local), and other factors such as changes in interest rates, portfolio concentrations, changes in the experience, ability, and depth of the lending function, levels of and trends in charged-off loans, recoveries, past-due loans and volume and severity of classified loans. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The entire allowance is available for any loan that, in management’s judgment, should be charged off as uncollectible.

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

Fair Value of Financial Instruments

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

Coronavirus (COVID-19) Impact

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

Operational Impact

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

Loan Modifications

Section 4013 of the CARES Act, which was signed into law on March 27, 2020, provides that financial institutions may elect to account for loan modifications occurring between March 1, 2020, and the earlier of December 31, 2020 and the 60th day after the end of the COVID-19 national emergency declared by President Trump, which are due to COVID-19 and where the borrower was current on contractual payments as of December 31, 2019, as not TDRs. Additionally, on April 7, 2020, federal banking regulators issued an Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus (Revised), which replaced a prior interagency statement predating the CARES Act. The revised interagency statement encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual payment obligations because of the effects of COVID-19. It also addresses loan modifications not meeting the criteria set forth in Section 4013 of the CARES Act or for which financial institutions elect not to apply Section 4013. With respect to these loan modifications, the revised interagency statement provides that short-term (e.g. six month) modifications made on a good faith basis in response to COVID-19 to borrowers who were current on their contractual payments at the time of implementation of a modification program are not TDRs.

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

Initial Modification Requests through May 31, 2020Subsequent Modification Requests through September 30, 2020
Commercial RE$291,232 $6,179 
Hospitality96,047 14,211 
Restaurant54,067 — 
C&I34,851 1,448 
Multifamily14,757 — 
Manufactured Housing14,887 — 
Church/Consumer/Medical24,809 — 
Total Modification Requests$530,650 $21,838

Paycheck Protection Program (PPP) and Liquidity

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

An eligible business could apply for a PPP loan in an amount up to the lesser of: (1) 2.5 times its average monthly “payroll costs” or (2) $10.0 million. PPP loans have: (a) an interest rate of 1.0%; (b) a two-year loan term to maturity for loans made prior to June 5, 2020, or a five-year loan term to maturity for loans made on or after June 5, 2020; and (c) principal and interest payments deferred for 10 months after the end of the borrower's loan forgiveness covered period. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses.

Through September 30, 2020, we had received SBA authorizations for 893 PPP loans totaling $83,290 and related fees of $3,296. Participation in the PPP will likely have an impact on the Company's asset mix and net interest margin for the remainder of 2020. At September 30, 2020, we had $93,000 in federal funds lines available and $337,000 of available borrowing capacity from correspondent banks. In addition, the Federal Reserve has implemented a liquidity facility available to financial institutions participating in the PPP. As such, the Company believes it has sufficient liquidity sources to continue to provide this important service to local businesses if and as additional funds are appropriated for the PPP.

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

Asset Impairment

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

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


Risks

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

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Allowance for Loan Loss

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

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


COMPARISON OF RESULTS OF OPERATIONS FOR THETHREE AND NINE MONTHSENDED SEPTEMBER 30, 2020AND 2019

Effect of Mergers
Effective January 1, 2020, Reliant Bancorp completed the acquisition of TCB Holdings.
As a result of the TCB Holdings Transaction, on January 1, 2020, the Company:

•acquired total assets of $257 million;
•acquired total loans of $171 million; and
•acquired total deposits of $211 million.

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

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

•acquired total assets of $725 million;
•acquired total loans of $622 million; and
•acquired total deposits of $609 million.

Earnings

Net income attributable to common shareholders amounted to $11,531, or $0.70 per basic share, and $19,186, or $1.27 per basic share, for the three and nine months ended September 30, 2020, respectively, compared to $4,000, or $0.36 per basic share, and $12,063, or $1.07 per basic share, for the same periods in 2019, respectively. Diluted net income attributable to common shareholders was $0.69 and $1.27 per share for the three and nine months ended September 30, 2020, respectively, compared to $0.36 and $1.07 per share for the three and nine months ended September 30, 2019, respectively. The major components contributing to the change when compared to the prior year periods are an increase of 117.1% and 87.7% in net interest income for the three and nine months ended September 30, 2020, respectively, and an increase of 117.4% and 85.3% in noninterest income for the three and nine months ended September 30, 2020, respectively, and partially offset by an increase of 55.8% and 59.8% in noninterest expense (mainly driven by salaries and employee benefits) for the three and nine months ended September 30, 2020, and an increase of $894 and $6,594 in provision for loan losses for the three and nine months ended September 30, 2020,2021 compared to $1,500 and $7,400 recorded in the same periods in 2019. Thesethree and other components of earnings are discussed further below.

Non-GAAP Financial Measures

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

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

Three Months EndedNine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
NON-GAAP FINANCIAL MEASURES
Adjusted net interest margin (1)(4)
Net interest income$30,537 $14,064 $77,610 $41,338 
Fully tax-equivalent adjustments:
Loans$760 $302 $1,865 $908 
Tax-exempt investment securities$347 $424 $1,095 $1,320 
Tax-equivalent net interest income (1)(2)
$31,643 $14,787 $80,570 $43,566 
Purchase accounting adjustments(3,868)(383)(9,773)(1,163)
Adjusted net interest income (1)
$27,775 $14,404 $70,797 $42,403 
Net interest margin (tax-equivalent basis)4.54 %3.51 %4.30 %3.57 %
Adjusted net interest margin3.98 %3.42 %3.78 %3.47 %
Adjusted net income attributable to common shareholders and related impact (1)
Net income attributable to common shareholders$11,531 $4,000 $19,186 $12,063 
Merger expenses78 299 6,895 302 
Tax effect of adjustments to net income(20)(27)(1,617)(79)
After tax adjustments to net income58 272 5,278 223 
Adjusted net income attributable to common shareholders11,589 4,272 24,464 12,286 
Net income attributable to common shareholders, per diluted share$0.69 $0.36 $1.27 $1.07 
Adjusted net income attributable to common shareholders, per diluted share$0.70 $0.38 $1.62 $1.09 
Return on average:
Return on average assets(3)
1.54 %0.88 %0.95 %0.91 %
Adjusted return on average assets (1)(3)
1.55 %0.94 %1.21 %0.93 %
Return on average shareholders' equity(3)
15.32 %7.31 %9.26 %7.57 %
Adjusted return on average shareholders' equity (1)(3)
15.40 %7.81 %11.80 %7.71 %
Average tangible shareholders' equity: (1)
Average shareholders' equity299,435 217,087 276,846 213,107 
Less: average goodwill51,108 43,642 52,241 43,642 
Less: average core deposit intangibles12,104 7,598 11,801 7,863 
Average tangible shareholders' equity236,223 165,847 212,804 161,602 
Return on average tangible common equity (ROATCE) (1)(3)
19.42 %9.57 %12.04 %9.98 %
Adjusted ROATCE (1) (3)
19.52 %10.22 %15.36 %10.16 %
(1) Not a recognized measure under U.S. GAAP.
(2) Amount includes tax equivalent adjustment to quantify the tax equivalent net interest income.
(3) Data has been annualized.
(4) Prior calculation of this ratio removed tax credits related to certain tax-preference-qualified loans and tax-exempt securities.nine months ended September 30, 2020, respectively. The Company views these credits as normal course of business and as such removal is unnecessary.


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Net Interest Income

Net interest income represents the amount by which interest earned on various earning assets exceeds interest accrued on deposits and other interest-bearing liabilities and is the most significant component of our revenues. The following table sets forth the amount of our average balances, interest income or interestprovision expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for interest-earning assets and interest-bearing liabilities, net interest rate spread and net interest margin for the three and nine months ended September 30, 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 economic outlooks have improved in 2021, in part due to the federal stimulus programs and 2019 (dollars in thousands):vaccine rollouts.

Three Months Ended September 30, 2020Three Months Ended September 30, 2019Change
Average BalancesRates / Yields (%)Interest Income / ExpenseAverage BalancesRates / Yields (%)Interest Income / ExpenseDue to VolumeDue to RateTotal
Interest earning assets
Loans$2,337,958 5.34 $30,640 $1,312,153 5.12 $16,632 $13,712 $754 $14,466 
Loan fees— 0.38 2,255 — 0.26 870 1,385 — 1,385 
Loans with fees2,337,958 5.73 32,895 1,312,153 5.38 17,502 15,097 754 15,850 
Mortgage loans held for sale103,729 3.98 1,037 18,271 5.71 263 828 (54)774 
Deposits with banks57,909 0.47 68 33,410 1.96 165 2,642 (2,739)(97)
Investment securities - taxable67,569 2.35 399 73,115 2.98 549 (40)(110)(150)
Investment securities - tax-exempt185,058 3.29 1,186 220,233 3.60 1,576 (303)(164)(467)
Federal funds sold and other19,694 3.68 182 12,300 5.03 156 47 (21)26 
Total earning assets2,771,917 5.29 35,767 1,669,482 4.98 20,211 18,271 (2,334)15,937 
Nonearning assets209,770 136,973 
Total assets$2,981,687 $1,806,455 
Interest bearing liabilities
Interest bearing demand272,506 0.34 236 142,702 0.23 81 102 53 155 
Savings and money market786,589 0.59 1,162 350,440 1.10 976 296 (110)186 
Time deposits - retail715,310 1.01 1,819 540,688 2.17 2,956 1,735 (2,872)(1,137)
Time deposits - wholesale223,095 1.64 917 294,750 2.52 1,872 (392)(563)(955)
Total interest-bearing deposits1,997,500 0.82 4,134 1,328,580 1.76 5,885 1,741 (3,492)(1,751)
Federal Home Loan Bank advances and other borrowings40,567 1.02 104 14,216 1.84 66 50 (12)38 
Subordinated Debt70,361 5.61 992 11,655 6.77 199 821 (28)793 
Total borrowed funds110,928 3.93 1,096 25,871 4.06 265 871 (40)831 
Total interest-bearing liabilities2,108,428 0.99 5,230 1,354,451 1.80 6,150 2,612 (3,532)(920)
Net interest rate spread (%) / Net interest income ($)4.30 $30,537 3.18 $14,061 $15,658 $1,198 $16,857 
Noninterest bearing deposits536,353 (0.20)227,502 (0.26)
Other noninterest bearing liabilities37,471 7,415 
Shareholders' equity299,435 217,087 
Total liabilities and shareholders' equity$2,981,687 $1,806,455 
Cost of funds0.79 1.54 
Net interest margin4.54 3.51 

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.

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Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019Change
Average BalancesRates / Yields (%)Interest Income / ExpenseAverage BalancesRates / Yields (%)Interest Income / ExpenseDue to VolumeDue to RateTotal
Interest earning assets
Loans$2,085,316 5.38 $82,105 $1,275,834 5.15 $48,273 $32,502 $2,288 $34,790 
Loan fees— 0.31 4,882 — 0.25 2,358 2,524 — 2,524 
Loans with fees2,085,316 5.69 86,987 1,275,834 5.40 50,631 35,026 2,288 37,314 
Mortgage loans held for sale79,000 4.08 2,412 14,534 5.65 614 1,918 (120)1,798 
Deposits with banks55,212 0.59 242 30,487 1.75 399 (859)702 (157)
Investment securities - taxable69,490 1.88 978 74,330 2.95 1,639 (101)(560)(661)
Investment securities - tax-exempt191,814 3.46 3,874 223,596 3.75 3,874 (839)(456)(1,295)
Federal funds sold and other19,324 3.43 496 12,751 5.44 519 (81)58 (23)
Total earning assets2,500,156 5.23 94,989 1,631,532 5.00 57,676 35,064 1,912 36,976 
Nonearning assets203,703 138,926 
Total assets$2,703,859 $1,770,458 
Interest bearing liabilities
Interest bearing demand245,962 0.30 554 144,427 0.26 278 226 50 276 
Savings and money market659,673 0.74 3,668 374,876 1.13 3,156 938 (426)512 
Time deposits - retail669,119 1.29 6,446 576,568 2.12 9,137 1,870 (4,561)(2,691)
Time deposits - wholesale218,109 1.92 3,131 191,133 2.60 3,713 682 (1,264)(582)
Total interest-bearing deposits1,792,863 1.03 13,799 1,287,004 1.69 16,284 3,717 (6,202)(2,485)
Federal Home Loan Bank advances and other92,264 0.89 613 31,378 2.28 534 115 (36)79 
Subordinated Debt70,455 5.63 2,967 11,634 6.78 590 2,460 (83)2,377 
Total borrowed funds162,719 2.94 3,580 43,012 3.49 1,124 2,575 (119)2,456 
Total interest-bearing liabilities1,955,582 1.19 17,379 1,330,016 1.75 17,408 6,292 (6,321)(29)
Net interest rate spread (%) / Net interest income ($)4.04 $77,610 3.25 $43,566 $28,772 $8,232 $37,005 
Noninterest bearing deposits439,521 (0.22)219,106 (0.25)
Other noninterest bearing liabilities31,910 8,229 
Shareholders' equity276,846 213,107 
Total liabilities and shareholders' equity$2,703,859 $1,770,458 
Cost of funds0.97 1.50 
Net interest margin4.30 3.57 
Noninterest Income

Table Assumptions—Average loan balances are inclusiveOur noninterest income is composed of nonperforming loans. Interestseveral components, some of which vary significantly between periods. The following is a summary of our noninterest income and yields computed on tax-exempt instruments are on a tax-equivalent basis including a state tax credit included in loan yields of $751 and $1,834 for the three and nine months ended September 30, 2021, and 2020 respectively,(dollars in thousands):
Three Months Ended September 30,Percent
Increase		Nine Months Ended September 30,Percent
Increase
20212020(Decrease)20212020(Decrease)
Non-Interest Income
Service charges and fees on deposits$1,678 $1,583 6.0 %$4,895 $4,172 17.3 %
Gains on mortgage loans sold, net4,218 3,784 11.5 %12,124 7,605 59.4 %
Gain on securities transactions, net2,419 — 100.0 %5,514 327 1586.2 %
Bank-owned life insurance2,181 386 465.0 %3,172 1,073 195.6 %
Brokerage revenue79 65 21.5 %232 142 63.4 %
Miscellaneous noninterest income294 184 59.8 %579 387 49.6 %
Total noninterest income$10,869 $6,002 81.1 %$26,516 $13,706 93.5 %

The most significant reasons for the changes in total noninterest income during the three and $300 and $900 fornine months ended September 30, 2021 compared to the same periods in 2019. Net interest spread is calculated as2020 are the yields realizedfluctuation in gains on interest-bearing assets less the rates paid on interest-bearing liabilitiesmortgage loans sold, net as well as tax-exemptthe increase in service charges, gain on securities adjustmentstransactions, and income from bank-owned life insurance.

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 $347our legacy deposit accounts.

Gains on mortgage loans sold, net, consists of fees from the origination and $1,095sale 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 $105,750 and $699,551 in the three and nine months ended September 30, 2021, respectively, as compared to $143,375 and $327,521 in the same periods 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 nine months ended September 30, 2021, the Company sold securities totaling $58,855 with a gain of $5,514. Of this gain, $2,966 and $2,419 was realized to offset the effects of the swap termination fees incurred in the second quarter and third quarters, respectively. During the nine months ended September 30, 2020, the Company sold securities classified as available for sale, many of which were acquired in the TCB Holdings transaction, totaling $103,901 for a gain of $327.

Noninterest income also includes income from bank-owned life insurance (“BOLI”), which increased during the three and nine months ended September 30, 2021 when compared to the the same period in 2020, driven by the additional policies acquired from the FABK and TCB Holdings transactions, additional policies purchased in 2020, and proceeds from death benefit claims in the third quarter of 2021. 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 and nine months ended September 30, 2021 and 2020 (dollars in thousands):

Three Months Ended September 30,Percent
Increase		Nine Months Ended
September 30,		Percent
Increase
20212020(Decrease)20212020(Decrease)
Non-Interest Expense
Salaries and employee benefits$12,426 $12,184 2.0 %$38,571 $33,885 13.8 %
Occupancy2,038 2,054 (0.8)%6,045 5,566 8.6 %
Data processing and software2,265 2,240 1.1 %6,756 6,085 11.0 %
Professional fees526 775 (32.1)%2,127 1,933 10.0 %
Regulatory fees328 365 (10.1)%1,032 1,356 (23.9)%
Merger expenses1,453 77 1787.0 %1,453 6,895 (78.9)%
Other operating expense3,345 2,639 26.8 %8,545 6,476 31.9 %
Total noninterest expense$22,381 $20,334 10.1 %$64,529 $62,196 3.8 %

Noninterest expense increased during the three months ended September 30, 2021 when compared to September 30, 2020 which is primarily driven by the merger expenses incurred in 2021 and the incremental costs incurred following the TCB Holdings and FABK transactions. Noninterest expense increased during the nine months ended September 30, 2021 when compared to September 30, 2020 which is primarily driven by the incremental costs incurred following the TCB Holdings and FABK transactions offset by the merger expenses incurred in 2020.

The 2.0% and 13.8% increase in salaries and employee benefits during the three and nine months ended September 30, 2021, respectively, when compared to September 30, 2020 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 decrease in average FTEs from 422 for the three months ended September 30, 2020 to 415 for the three months ended September 30, 2021, and $423an increase from 364 for the nine months ended September 30, 2020 to 419 for the nine months ended September 30, 2021.

Occupancy costs decreased by $16 or 0.8% during the three months ended September 30, 2021 and $1,320 forincreased $479, or 8.6% during the nine months ended September 30, 2021 compared to the same periods in 2019. Net interest margin2020 as the FABK Transaction and the expansion of RMV increased costs in 2020 and is offset by the resultbranch justification project that has resulted in the closure of net interest income calculated on a tax-equivalent basis divided by average interest earning assets for the period. Changesthree branches 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.2021.

Analysis—ForData processing and software expense increased during the three and nine months ended September 30, 2020 we recordedto September 30, 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.

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 on a tax-equivalent basisand 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 approximately $31,643our banking segment was 51.7% and $80,570, respectively, which resulted in a net interest margin (net interest income divided by the average balance of interest-earning assets) of 4.54% and 4.30%, respectively. For51.5% for the three and nine months ended September 30, 2019, we recorded net interest income2021, respectively, compared to 50.5% and 63.2% for the same periods in 2020. Our adjusted efficiency ratio, on a tax-equivalent basis, of approximately $14,787was 46.4% and $43,566, respectively, which resulted in a net interest margin of 3.51% and 3.57%, respectively.

Our year-over-year average loan volume increased by approximately 63.4%48.7% for the three and nine months ended September 30, 20202021, respectively, compared to 48.6% and 53.1% for the nine months ended September 30, 2019 and was mainly driven bysame periods in 2020. See “Reconciliation of Non-GAAP Financial Measures” in this Quarterly Report for the TCB Holdings Transaction and FABKreconciliation of the adjusted efficiency ratio.

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Transaction. Our combined loan and loan fee yield increased from 5.38% to 5.73% forIncome Taxes
During the three months ended September 30, 2020 compared to the same period in 2019 and increased from 5.40% to 5.69% for the nine months ended September 30, 20202021 we recorded consolidated income tax expense of $3,551 and $9,733, respectively, as compared to $2,800 and $3,524 for the same periodperiods in 2019. The increased yield2020. This represents consolidated effective tax rates for the three and nine month ended September 30, 2021 of 20.3% and 19.6%, respectively, compared to 19.0% and 16.2% for the same periods in 2020. When evaluating the bank segment alone, this ratio was 21.0% and 20.0% for the three and nine months ended September 30, 2020 is primarily attributable2021, respectively, as compared to 19.4% and 15.8% for the increased purchase accounting accretion from the two mergers as well as the increased fees from the PPP loans.same period in 2020.

Non-controlling Interest in Operating Resultsof Subsidiary

Our tax-equivalent yield on tax-exempt investments was 3.29%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 3.46%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 $647 and $1,357 for the three and nine months ended September 30, 20202021, respectively, compared to 3.60%net income of $374 and 3.75%loss of $990 for the same periods in 2019. Our year-over-year average tax-exempt investment volume decreased by 14.2% for the nine months ended September 30, 2020 compared2020. The improvements in operating results is mainly attributable to the same period in 2019 dueproductive market conditions produced by the low interest rate environment. Also, see Note 9 to investment sales in the fourth quarter of 2019. Our year-over-year average taxable securities volume decreased by 6.5%our consolidated financial statements for the nine months ended September 30, 2020 compared to the same period in 2019.segment reporting.

Our cost of funds decreased to 0.79% and 0.97% from 1.54% and 1.50%, respectively, for the three and nine months ended
FINANCIAL CONDITION

Overview

The Company’s total assets were $3,013,559 at September 30, 2021 and $3,026,535 at December 31, 2020, compared to the same periods in 2019.a decrease of 0.4%. Total liabilities were $2,657,244 at September 30, 2021 and $2,704,562 at December 31, 2020, a decrease of 1.7%. The decrease in our cost of fundsliabilities was primarily driven by asubstantially attributable to the decrease in the costdeposits of our interest-bearing deposits$31,530, or 1.2% and other interest-bearing liabilities due to the recent decrease in rates by the Federal Reserve. We experienced a 100.6% increase in our average noninterest-bearing deposits for the nine months ended September 30, 2020 when compared to the same period in 2019, which isassets was largely attributable to the TCB Holdings Transactiondecrease in mortgage loans held for sale of $84,981, or 57.6%. These and FABK Transaction.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 September 30, 2021, and December 31, 2020, were $2,368,936 and $2,280,147, respectively, representing an increase of 3.9%, or 6.9% when PPP loans are excluded.

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The table below provides a summary of the loan portfolio composition for the dates noted (including purchased credit-impaired ("PCI") loans).
September 30, 2021December 31, 2020
AmountPercentAmountPercent
Commercial, Industrial and Agricultural$450,710 18.8 %$459,739 19.9 %
Real estate:
1-4 Family Residential310,855 13.0 %323,473 14.0 %
1-4 Family HELOC100,895 4.2 %100,525 4.4 %
Multifamily and Commercial873,265 36.6 %834,000 36.2 %
Construction, Land Development and Farmland417,258 17.4 %365,058 15.8 %
Consumer234,734 9.8 %213,863 9.3 %
Other5,298 0.2 %8,669 0.4 %
2,393,015 100.0 %2,305,327 100.0 %
Less:
Deferred loan fees3,182 4,544 
Allowance for loan losses20,897 20,636 
Loans, net$2,368,936 $2,280,147 

The Bank strives to maintaintable below provides 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 slight expansions in a rising rate environmentsummary of PCI loans as of September 30, 2021 and slight contractions in a falling rate environment. The Company has interest rate floors on certain loans and those floors will mitigate further declines in interest rates.December 31, 2020:
September 30, 2021December 31, 2020
Commercial, Industrial and Agricultural$782 $919 
Real estate:
1-4 Family Residential868 1,004 
1-4 Family HELOC19 19 
Multifamily and Commercial1,175 1,325 
Construction, Land Development and Farmland935 992 
Consumer1,426 1,924 
Total gross PCI loans5,205 6,183 
Less:
Remaining purchase discount2,458 2,596 
Allowance for loan losses— — 
Loans, net$2,747 $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 $450,710 at September 30, 2021 and decreased by 2.0% 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 September 30, 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 2.9% from December 31, 2020 to September 30, 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 $873,265 at September 30, 2021 and increased 4.7% 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
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December 31, 2020, to September 30, 2021, of 9.8% primarily due to the $25,062 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 38.9% from December 31, 2020 to September 30, 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 September 30, 2021, excluding unearned net fees and costs.
One Year or
Less		One to Five
Years		Over Five
Years		Total
Gross loans$566,044 $1,290,581 $536,390 $2,393,015 
Fixed interest rate$1,213,415 
Variable interest rate1,179,600 
Total$2,393,015 

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.

Provision for Loan Losses

We recordeddid not record a provision of $1,500 and $7,400 for loan losses for the three and nine months ended September 30, 2020, respectively,2021 compared to $606$1,500 and $806 for$7,400 recorded in the three and nine months ended September 30, 2019.2020, respectively. The increase in provision expense for the three and nine months ended September 30, 2020 can be primarily attributed to the recentexpected downturn in the economy due to COVID-19 while a portion isas well as the growth in the loan portfolio, whereas economic outlooks have improved in 2021, in part due to the growing loan portfolio. federal stimulus programs and vaccine rollouts.

The acquired loan portfolios from First Advantage Bank and Community Bank & Trust are reserved for through fair value marks that consider both credit quality and changes in interest rates. See “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Balance Sheets at September 30, 2020 and December 31, 2019Financial Condition - Allowance for Loan Losses” included herein for further analysis of the provision for loan losses.

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Noninterest Income

Our noninterest income is composed of several components, some of which vary significantly between periods. The following is a summary of our noninterest income for the three and nine months ended September 30, 2020,2021, and 20192020 (dollars in thousands):
Three Months Ended September 30,Percent
Increase		Nine Months Ended September 30,Percent
Increase		Three Months Ended September 30,Percent
Increase		Nine Months Ended September 30,Percent
Increase
20202019(Decrease)20202019(Decrease)20212020(Decrease)20212020(Decrease)
Noninterest Income
Non-Interest IncomeNon-Interest Income
Service charges and fees on depositsService charges and fees on deposits$1,583 $976 62.2 %$4,172 $2,796 49.2 %Service charges and fees on deposits$1,678 $1,583 6.0 %$4,895 $4,172 17.3 %
Gains on mortgage loans sold, netGains on mortgage loans sold, net3,783 1,385 173.1 %7,605 3,170 139.9 %Gains on mortgage loans sold, net4,218 3,784 11.5 %12,124 7,605 59.4 %
Securities gains, net— — — %327 306 6.9 %
Gain on securities transactions, netGain on securities transactions, net2,419 — 100.0 %5,514 327 1586.2 %
Other noninterest income:
Bank-owned life insurance Bank-owned life insurance386 283 36.4 %1,073 838 28.0 %Bank-owned life insurance2,181 386 465.0 %3,172 1,073 195.6 %
Brokerage revenue Brokerage revenue65 13 400.0 %142 33 330.3 %Brokerage revenue79 65 21.5 %232 142 63.4 %
Miscellaneous noninterest income Miscellaneous noninterest income184 103 78.6 %387 253 53.0 %Miscellaneous noninterest income294 184 59.8 %579 387 49.6 %
Total other noninterest income635 399 59.1 %1,602 1,124 42.5 %
Total noninterest incomeTotal noninterest income$6,001 $2,760 117.4 %$13,706 $7,396 85.3 %Total noninterest income$10,869 $6,002 81.1 %$26,516 $13,706 93.5 %

The most significant reasons for the changes in total noninterest income during the three and nine months ended September 30, 20202021 compared to the same periods in 20192020 are the fluctuation in gains on mortgage loans sold, net as well as the increase in service charges, mainly attributable to the two mergers. Thesegain on securities transactions, and other factors impacting noninterest income are discussed further below.
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from bank-owned life insurance.

Service charges and fees on deposit accounts have increased duegenerally 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 TCB Holdings Transaction,buyer. The mortgage banking business is directly impacted by the FABK Transaction,interest rate environment, increased regulations, consumer demand, and the concentrated effort to attract noninterest-bearing deposits. An increaseeconomic conditions. Mortgage production, especially refinance activity, typically rises in debit card fees makes up the majority of the 62.2%declining interest rate environments. Mortgage loans originated or purchased through correspondents for resale totaled $105,750 and 49.2% increase for$699,551 in the three and nine months ended September 30, 20202021, respectively, as compared to $143,375 and $327,521 in the same periodperiods in 2019.2020 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 nine months ended September 30, 2020,2021, the Company sold securities totaling $103,901$58,855 with a gain of $327.$5,514. Of this gain, $2,966 and $2,419 was realized to offset the effects of the swap termination fees incurred in the second quarter and third quarters, respectively. During the nine months ended September 30, 2019,2020, the Company sold securities classified as available for sale, many of which were acquired in the TCB Holdings transaction, totaling $52,434 with$103,901 for a gain of $306. Securities were not sold in the three months ended September 30, 2020 or September 30, 2019.$327.

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 fluctuateNoninterest income also includes income 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 $3,783 and $7,605 forbank-owned life insurance (“BOLI”), which increased during the three and nine months ended September 30, 2020, respectively, compared to $1,385 and $3,170 for the same periods in the prior year. The increase in gains for the three and nine months ended September 30, 20202021 when compared to the the same periodsperiod in 2019 is primarily2020, driven by the increaseadditional policies acquired from the FABK and TCB Holdings transactions, additional policies purchased in volume2020, and proceeds from death benefit claims in the traditional mortgage market. As discussed further in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019, gains on mortgage loans sold are generally recognized at the timethird quarter of a loan sale corresponding to the transfer of risk. As a result of increased production in the second and third quarters, the Company's held-for-sale portfolio increased by $62.1 million from December 31, 2019 to September 30, 2020.

Noninterest income also includes appreciation in the cash surrender value of bank-owned life insurance, which was $386 and $1,073 for the three and nine months ended September 30, 2020, respectively, compared to $283 and $838 for the same periods in 2019. The increases for both periods are attributable to the recent mergers.2021. 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.

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Noninterest Expense

The following is a summary of our noninterest expense for the three and nine months ended September 30, 20202021 and 20192020 (dollars in thousands):
Three Months Ended September 30,Percent
Increase		Nine Months Ended
September 30,		Percent
Increase
20202019(Decrease)20202019(Decrease)
Noninterest Expense
Salaries and employee benefits$12,184 $7,634 59.6 %$33,885 $22,605 49.9 %
Occupancy2,054 1,359 51.1 %5,566 4,069 36.8 %
Data processing and software2,240 1,553 44.2 %6,085 4,538 34.1 %
Professional fees775 404 91.8 %1,933 1,836 5.3 %
Regulatory fees365 (17)2,247.1 %1,356 596 127.5 %
Merger expenses78 299 (73.9)%6,895 302 2,183.1 %
Other operating expense2,637 1,815 45.3 %6,476 4,973 30.2 %
Total noninterest expense$20,333 $13,047 55.8 %$62,196 $38,919 59.8 %

Three Months Ended September 30,Percent
Increase		Nine Months Ended
September 30,		Percent
Increase
20212020(Decrease)20212020(Decrease)
Non-Interest Expense
Salaries and employee benefits$12,426 $12,184 2.0 %$38,571 $33,885 13.8 %
Occupancy2,038 2,054 (0.8)%6,045 5,566 8.6 %
Data processing and software2,265 2,240 1.1 %6,756 6,085 11.0 %
Professional fees526 775 (32.1)%2,127 1,933 10.0 %
Regulatory fees328 365 (10.1)%1,032 1,356 (23.9)%
Merger expenses1,453 77 1787.0 %1,453 6,895 (78.9)%
Other operating expense3,345 2,639 26.8 %8,545 6,476 31.9 %
Total noninterest expense$22,381 $20,334 10.1 %$64,529 $62,196 3.8 %

Noninterest expense increased during the three months ended September 30, 2021 when compared to September 30, 2020 which is primarily driven by $7,286the merger expenses incurred in 2021 and $23,277, or 55.8%the incremental costs incurred following the TCB Holdings and 59.8%, forFABK transactions. Noninterest expense increased during the nine months ended September 30, 2021 when compared to September 30, 2020 which is primarily driven by the incremental costs incurred following the TCB Holdings and FABK transactions offset by the merger expenses incurred in 2020.

The 2.0% and 13.8% increase in salaries and employee benefits during the three and nine months ended September 30, 2021, respectively, when compared to September 30, 2020 respectively,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 decrease in average FTEs from 422 for the three months ended September 30, 2020 to 415 for the three months ended September 30, 2021, and an increase from 364 for the nine months ended September 30, 2020 to 419 for the nine months ended September 30, 2021.

Occupancy costs decreased by $16 or 0.8% during the three months ended September 30, 2021 and increased $479, or 8.6% during the nine months ended September 30, 2021 compared to the same periods in 2019 driven by an increase in salaries and employee benefits for both periods and merger expenses when comparing2020 as the nine months ended. The three and nine-months periods ended September 30, 2020 have been impacted by the TCB HoldingsFABK Transaction and the FABK Transaction which haveexpansion of RMV increased costs in 2020 and is offset by the branch justification project that has resulted in additions to staff, additional vendor relationships and investmentsthe closure of three branches in technology. These and other factors impacting noninterest expense are discussed further below.2021.

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SalariesData processing and employee benefitssoftware expense increased by $4,550 and $11,280 or 59.6% and 49.9% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. This increase is primarily attributable to the TCB Holdings Transaction in the first quarter of 2020 and FABK Transaction in the second quarter of 2020, as well as our year over year growth and severance for three executive officers. The staffing levels have normalized during the third quarter.

Occupancy costs increased by $695 or 51.1% and $1,497 or 36.8% during the three and nine months ended September 30, 2020 respectively, compared to the same periods in 2019 mainly due to the TCB Holdings Transaction and the FABK Transaction as well as the expansion of RMV.

Data processing and software costs increased by $687 or 44.2% and $1,547 or 34.1% when comparing the three and nine months ended September 30, 2020, respectively, to the comparable periods in 2019. This increase2021 and is mainly attributable to increased costs due 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 TCB Holdings Transaction, the FABK Transaction and the expansion of RMV.

Professional fees increasedEfficiency 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 $371 or 91.8%, and $97 or 5.3%, respectively, when comparing the three and nine months ended September 30, 2020, to the same periods in 2019. This fluctuation is mainly attributable to the increased fees related to special projectsdividing noninterest expense by the Company.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 regulatory expenses are largely made upefficiency ratio of FDIC deposit insurance expense which is based on our outstanding liabilities for the period multiplied by a factor determined by the FDIC, mainly driven by our most recent regulatory ratingbanking segment was 51.7% and certain financial performance factors. Our FDIC expense increased by $382 and $76051.5% for the three and nine months ended September 30, 2020,2021, respectively, compared to 50.5% and 63.2% for the same periods in 2019. This increase is primarily the result of our increase in deposits due to the TCB Holdings Transaction2020. Our adjusted efficiency ratio, on a tax-equivalent basis, was 46.4% and the FABK Transaction as well as credits received in 2019 which significantly reduced the expense recognized.

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

Other operating expenses increased by $822 or 45.3% and $1,503 or 30.2%48.7% for the three and nine months ended September 30, 20202021, respectively, compared to 48.6% and 53.1% for the same periods in 2019, mainly due to an increase2020. See “Reconciliation of Non-GAAP Financial Measures” in amortizationthis Quarterly Report for the reconciliation of core deposit intangibles and franchise taxes due to the TCB Holdings Transaction and FABK Transaction.adjusted efficiency ratio.

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Income Taxes

During the three and nine months ended September 30, 2020,2021 we recorded consolidated income tax expense of $3,551 and $9,733, respectively, as compared to $2,800 and $3,524 for the same periods in 2020. This represents consolidated effective tax rates for the three and nine month ended September 30, 2021 of 20.3% and 19.6%, respectively, compared to $55719.0% and $1,430, respectively,16.2% for the same periods in 2020. When evaluating the bank segment alone, this ratio was 21.0% and 20.0% for the three and nine months ended September 30, 2019. The Company files separate federal tax returns for RMV and the bank segment. The taxable income or losses of the mortgage banking operations are included in the respective franchise and excise returns of the Bank and non-controlling member for federal purposes.

Our income tax expense attributable to shareholders for the three and nine months ended September 30, 2020, reflects an effective income tax rate of 19.39% and 15.77%,2021, respectively, (exclusive of a tax expense (benefit) from our mortgage banking operations of $27 and $(69) for the three and nine months ended September 30, 2020, respectively, on pre-tax income (losses) of $415 and $(1,062) for the three and nine months ended September 30, 2020, respectively),as compared to 14.05%19.4% and 12.61%15.8% for the same periods in 2019 (exclusive of a tax benefit of $97and $311 on pre-tax losses of $(1,491) and $(4,778), respectively, from our mortgage banking operations for the comparable periods in 2019). Additionally, our effective tax rate for the three and nine months ended September 30, 2020 is higher than the same period in 2019 primarily due to the change in the proportion of tax-exempt income to income before taxes. 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.2020.

Non-controlling Interest in Operating Results of 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-
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controllingnon-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 (loss) of $374$647 and $(990)$1,357 for the three and nine months ended September 30, 2020,2021, respectively, compared to a net income of $374 and loss of $(1,386) and $(4,484)$990 for the same periods in 2019.2020. The improvements in operating results for the three and nine months ended September 30, 2020 when compared to the same period in 2019 is mainly attributable to the decrease in expense relating toproductive market conditions produced by the start-up of the correspondent line of business in 2019.low interest rate environment. Also, see Note 109 to our consolidated financial statements for segment reporting.

COMPARISON OF BALANCE SHEETS ATSEPTEMBER 30, 2020AND DECEMBER 31, 2019FINANCIAL CONDITION

Overview

The Company’s total assets were $3,044,512$3,013,559 at September 30, 20202021 and $1,901,842$3,026,535 at December 31, 2019. Assets increased by 60.1% from December 31, 2019 to September 30, 2020, primarily due to acquisition activity which increased total loans by $756,240.a decrease of 0.4%. Total liabilities were $2,737,426$2,657,244 at September 30, 20202021 and $1,678,089$2,704,562 at December 31, 2019, an increase2020, a decrease of 63.1%1.7%. The increasedecrease in liabilities was substantially attributable to the increasedecrease in deposits of $981,049,$31,530, or 61.9%,1.2% and an increasethe decrease in FHLB advancesassets was largely attributable to the decrease in mortgage loans held for sale of $29,818 during the period. These changes were materially impacted by the TCB Holdings Transaction as well as the FABK Transaction.$84,981, or 57.6%. 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. We have expanded our Middle Tennessee footprint into Cheatham County with the TCB Holdings Transaction. The FABK Transaction expanded our footprint into Montgomery County as well as enhanced our presence in Davidson County. Additionally, the FABK Transaction diversified our loan portfolio with the addition of loans related to manufactured housing. Total loans, net of allowance for loan losses, at September 30, 2020,2021, and December 31, 2019,2020, were $2,338,064$2,368,936 and $1,397,374,$2,280,147, respectively, representing an increase of 67.3%. Contributing to this increase, $171,445 were acquired in connection with the first quarter TCB Holdings Transaction and $622,423 were acquired in connection with the second quarter FABK Transaction.3.9%, or 6.9% when PPP loans are excluded.

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The table below provides a summary of the loan portfolio composition for the dates noted (including purchased credit-impaired ("PCI") loans).
September 30, 2020December 31, 2019September 30, 2021December 31, 2020
AmountPercentAmountPercentAmountPercentAmountPercent
Commercial, Industrial and AgriculturalCommercial, Industrial and Agricultural$477,785 20.2 %$245,515 17.4 %Commercial, Industrial and Agricultural$450,710 18.8 %$459,739 19.9 %
Real estate:Real estate:Real estate:
1-4 Family Residential1-4 Family Residential334,730 14.2 %227,529 16.2 %1-4 Family Residential310,855 13.0 %323,473 14.0 %
1-4 Family HELOC1-4 Family HELOC101,492 4.3 %96,228 6.8 %1-4 Family HELOC100,895 4.2 %100,525 4.4 %
Multifamily and CommercialMultifamily and Commercial864,756 36.7 %536,845 38.1 %Multifamily and Commercial873,265 36.6 %834,000 36.2 %
Construction, Land Development and FarmlandConstruction, Land Development and Farmland366,760 15.5 %273,872 19.4 %Construction, Land Development and Farmland417,258 17.4 %365,058 15.8 %
ConsumerConsumer209,071 8.8 %16,855 1.2 %Consumer234,734 9.8 %213,863 9.3 %
OtherOther8,259 0.3 %13,180 0.9 %Other5,298 0.2 %8,669 0.4 %
2,362,853 100.0 %1,410,024 100.0 %2,393,015 100.0 %2,305,327 100.0 %
Less:Less:Less:
Deferred loan feesDeferred loan fees4,955 72 Deferred loan fees3,182 4,544 
Allowance for loan lossesAllowance for loan losses19,834 12,578 Allowance for loan losses20,897 20,636 
Loans, netLoans, net$2,338,064 $1,397,374 Loans, net$2,368,936 $2,280,147 

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The table below provides a summary of PCI loans as of September 30, 20202021 and December 31, 2019:2020:
September 30, 2020December 31, 2019September 30, 2021December 31, 2020
Commercial, Industrial and AgriculturalCommercial, Industrial and Agricultural$989 $— Commercial, Industrial and Agricultural$782 $919 
Real estate:Real estate:Real estate:
1-4 Family Residential1-4 Family Residential1,211 231 1-4 Family Residential868 1,004 
1-4 Family HELOC1-4 Family HELOC18 — 1-4 Family HELOC19 19 
Multifamily and CommercialMultifamily and Commercial2,243 217 Multifamily and Commercial1,175 1,325 
Construction, Land Development and FarmlandConstruction, Land Development and Farmland1,003 1,021 Construction, Land Development and Farmland935 992 
ConsumerConsumer2,105 — Consumer1,426 1,924 
Other— — 
Total gross PCI loansTotal gross PCI loans7,569 1,469 Total gross PCI loans5,205 6,183 
Less:Less:Less:
Remaining purchase discountRemaining purchase discount3,036 246 Remaining purchase discount2,458 2,596 
Allowance for loan lossesAllowance for loan losses— — Allowance for loan losses— — 
Loans, netLoans, net$4,533 $1,223 Loans, net$2,747 $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 $477,785$450,710 at September 30, 20202021 and increaseddecreased by 94.6%2.0% compared to $245,515$459,739 at December 31, 2019 primarily2020 which was largely driven by the TCB Holdings Transaction and FABK Transaction.PPP loan forgiveness.

Real estate loans comprised 70.7%71.2% of the loan portfolio at September 30, 2020.2021. 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 increaseddecreased the residential portfolio 34.7%2.9% from December 31, 20192020 to September 30, 2020 primarily driven by the TCB Holdings Transaction and FABK Transaction.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 $864,756$873,265 at September 30, 20202021 and increased 61.1%4.7% compared to the $536,845$834,000 held as of December 31, 2019 primarily driven by the TCB Holdings Transaction and FABK Transaction.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
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December 31, 2019,2020, to September 30, 2020,2021, of 1,140.4%9.8% primarily due to the $25,062 increase in loans to finance manufactured homes that are not secured by real estate acquired in the FABK Transaction.estate.

Other loans consist mainly of loans to states and political subdivisions and loans to other depository institutions and experienced a decrease of 37.3%38.9% from December 31, 20192020 to September 30, 20202021 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 September 30, 2020,2021, excluding unearned net fees and costs.
One Year or
Less		One to Five
Years		Over Five
Years		TotalOne Year or
Less		One to Five
Years		Over Five
Years		Total
Gross loansGross loans$617,774 $1,132,058 $613,021 $2,362,853 Gross loans$566,044 $1,290,581 $536,390 $2,393,015 
Fixed interest rateFixed interest rate$1,391,044 Fixed interest rate$1,213,415 
Variable interest rateVariable interest rate971,809 Variable interest rate1,179,600 
TotalTotal$2,362,853 Total$2,393,015 

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

At September 30, 2020,2021, the allowance for loan losses was $19,834$20,897 compared to $12,578$20,636 at December 31, 2019.2020. The allowance for loan losses as a percentage of total loans was 0.84%0.87% at September 30, 20202021 compared to 0.89%0.90% at December 31, 2019.2020.



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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
September 30, 2020September 30, 2019
Beginning Balance, January 1, 2020 and 2019, respectively$12,578 $10,892 
Loans charged off:
Commercial, Industrial and Agricultural(507)(170)
Real estate:
1-4 Family Residential(68)(29)
1-4 Family HELOC(98)— 
Multifamily and Commercial— — 
Construction, Land Development and Farmland(114)— 
Consumer(355)(37)
Other— (34)
Total loans charged off(1,142)(270)
Recoveries on loans previously charged off:
Commercial, Industrial and Agricultural126 342 
Real estate:
1-4 Family Residential769 220 
1-4 Family HELOC15 11 
Multifamily and Commercial20 62 
Construction, Land Development and Farmland8 — 
Consumer60 28 
Other— 200 
Total loan recoveries998 863 
Net (charge-offs) recoveries(144)593 
Provision for loan losses7,400 806 
Total allowance for loan losses at end of period$19,834 $12,291 
Gross loans at end of period (1)
$2,362,853 $1,350,522 
Average gross loans (1)
$2,085,316 $1,275,834 
Allowance for loan losses to total loans0.84 %0.91 %
Net (charge-offs) recoveries to average loans (annualized)(0.01)%0.06 %
(1)Loan balances exclude loans held for sale.
September 30, 2021September 30, 2020
Beginning Balance, January 1, 2021 and 2020, respectively$20,636 $12,578 
Loans charged off:
Commercial, Industrial and Agricultural(35)(507)
Real estate:
1-4 Family Residential(63)(68)
1-4 Family HELOC— (98)
Multifamily and Commercial— — 
Construction, Land Development and Farmland— (114)
Consumer(604)(355)
Other— — 
Total loans charged off(702)(1,142)
Recoveries on loans previously charged off:
Commercial, Industrial and Agricultural315 126 
Real estate:
1-4 Family Residential154 769 
1-4 Family HELOC7 15 
Multifamily and Commercial257 20 
Construction, Land Development and Farmland92 8 
Consumer138 60 
Other— — 
Total loan recoveries963 998 
Net recoveries (charge-offs)261 (144)
Provision for loan losses— 7,400 
Total allowance for loan losses at end of period$20,897 $19,834 
Allowance for loan losses to total loans, net0.87 %0.84 %
Net (recoveries) charge-offs to average loans outstanding(0.02)%0.01 %

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While no portion of the allowance for loan losses is in any way restricted to any individual loan or group of loans, and the entire allowance for loan losses is available to absorb losses from any and all loans, the following table summarizes our allocation of allowance for loan losses by loan category and loans in each category as a percentage of total loans, for the periods presented.
September 30, 2020September 30, 2019September 30, 2021December 31, 2020
Amount% of Allowance to Allowance% of Loan Type to Total LoansAmount% of Allowance to Allowance% of Loan Type to Total LoansAmount% of Allowance to Allowance% of Loan Type to Total LoansAmount% of Allowance to Allowance% of Loan Type to Total Loans
Commercial, Industrial and AgriculturalCommercial, Industrial and Agricultural$5,012 25.3 %20.2 %$2,299 18.7 %17.2 %Commercial, Industrial and Agricultural$6,987 33.4 %18.8 %$5,441 26.4 %19.9 %
Real estate:Real estate:Real estate:
1-4 Family Residential1-4 Family Residential2,289 11.5 %14.2 %1,383 11.3 %17.5 %1-4 Family Residential1,297 6.2 %13.0 %2,445 11.8 %14.0 %
1-4 Family HELOC1-4 Family HELOC1,485 7.5 %4.3 %704 5.7 %6.9 %1-4 Family HELOC610 2.9 %4.2 %1,416 6.9 %4.4 %
Multifamily and CommercialMultifamily and Commercial8,247 41.5 %36.7 %5,188 42.2 %38.5 %Multifamily and Commercial8,606 41.2 %36.6 %8,535 41.4 %36.2 %
Construction, Land Development and FarmlandConstruction, Land Development and Farmland1,955 9.9 %15.5 %2,513 20.4 %17.6 %Construction, Land Development and Farmland2,090 10.0 %17.4 %1,841 8.9 %15.8 %
ConsumerConsumer826 4.2 %8.8 %170 1.4 %1.3 %Consumer1,296 6.2 %9.8 %928 4.5 %9.3 %
OtherOther20 0.1 %0.3 %34 0.3 %1.0 %Other11 0.1 %0.2 %30 0.1 %0.4 %
$19,834 100.0 %100.0 %$12,291 100.0 %100.0 %$20,897 100.0 %100.0 %$20,636 100.0 %100.0 %

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Nonperforming Assets

Nonperforming assets consists of nonperforming loans plus real estate acquired through foreclosure or deed in lieu of foreclosure and other repossessed collateral.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.
September 30, 2020December 31, 2019September 30, 2021December 31, 2020
Nonaccrual loans$6,738 $4,071 
Past due loans 90 days or more and still accruing interest64 64 
Total nonperforming loansTotal nonperforming loans6,802 4,135 Total nonperforming loans$5,302 $5,987 
Foreclosed real estate ("OREO")Foreclosed real estate ("OREO")1,326 750 Foreclosed real estate ("OREO")3,088 1,246 
Repossessed collateralRepossessed collateral1,603 — Repossessed collateral865 1,424 
Mortgage Loans HFSMortgage Loans HFS977 630 
Total nonperforming assetsTotal nonperforming assets$9,731 $4,885 Total nonperforming assets$10,232 $9,287 
Total nonperforming loans as a percentage of total loans0.29 %0.29 %
Total nonperforming loans HFI as a percentage of total loans HFITotal nonperforming loans HFI as a percentage of total loans HFI0.22 %0.26 %
Total nonperforming assets as a percentage of total assetsTotal nonperforming assets as a percentage of total assets0.32 %0.26 %Total nonperforming assets as a percentage of total assets0.34 %0.31 %
Allowance for loan losses as a percentage of nonperforming loans291.61 %304.18 %
Allowance for loan losses as a percentage of nonperforming loans HFIAllowance for loan losses as a percentage of nonperforming loans HFI394.13 %344.68 %
Troubled Debt Restructurings ("TDRs")Troubled Debt Restructurings ("TDRs")$2,903 $4,236 
TDRs as a percentage of total loansTDRs as a percentage of total loans0.12 %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.

Securities totaled $273,893$254,416 at September 30, 2020,2021, in comparison to the $260,293$256,653 in securities balances at December 31, 2019.2020. This increasedecrease can largely be attributed to the Company's investment in bank holding company subordinated debt offerings and U.S. Treasuriessale of securities to offset swap termination fees during the periodsecond and third quarters of $31,179.2021. Activity during the nine months ended September 30, 20202021 includes the sale of
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$103,901 of securities most of which were acquired as part of the TCB Holdings Transaction and FABK Transaction, as well as $10,370$8,730 of principal paydowns, calls, and maturities. In connection with the TCB Holdings Transaction and FABK Transaction, management determined that it would be beneficial to liquidate those portfolios and utilize those funds for loan demand and other uses.

Restricted equity securities totaled $17,367$15,770 and $11,279$16,551 at September 30, 2020,2021, and December 31, 2019,2020, 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:
September 30, 2020December 31, 2019September 30, 2021December 31, 2020
Amortized
Cost		Fair Value% of TotalAmortized
Cost		Fair Value% of TotalAmortized
Cost		Fair Value% of TotalAmortized
Cost		Fair Value% of Total
U.S. Treasury and other U.S. government agenciesU.S. Treasury and other U.S. government agencies$12,117 12,117 4.42 %$59 59 0.02 %U.S. Treasury and other U.S. government agencies$218 218 0.09 %$47 48 0.02 %
State and municipal bondsState and municipal bonds175,976 190,623 69.61 %186,283 196,660 75.56 %State and municipal bonds161,733 170,971 67.19 %184,102 200,988 78.31 %
Corporate bondsCorporate bonds15,750 15,809 5.77 %7,880 7,845 3.01 %Corporate bonds27,000 28,152 11.07 %23,750 24,113 9.40 %
Mortgage-backed securitiesMortgage-backed securities41,240 40,376 14.74 %38,126 37,761 14.51 %Mortgage-backed securities52,736 52,823 20.76 %28,084 28,442 11.08 %
Asset-backed securitiesAsset-backed securities15,199 14,968 5.46 %18,374 17,968 6.90 %Asset-backed securities2,270 2,252 0.89 %3,083 3,062 1.19 %
TotalTotal$260,282 273,893 100.00 %$250,722 260,293 100.00 %Total$243,957 254,416 100.00 %$239,066 256,653 100.00 %

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The table below summarizes the contractual maturities of securities at September 30, 2020:
Amortized
Cost		Estimated
Fair Value
Due within one year$12,567 $12,565 
Due in one to five years2,175 2,186 
Due in five to ten years17,222 17,965 
Due after ten years171,879 185,833 
Mortgage-backed securities41,240 40,376 
Asset-backed securities15,199 14,968 
Total$260,282 $273,893 
2021:
Amortized
Cost		Estimated
Fair Value
Due within one year$218 $218 
Due in one to five years2,085 2,120 
Due in five to ten years31,473 33,239 
Due after ten years155,175 163,764 
Mortgage-backed securities52,736 52,823 
Asset-backed securities2,270 2,252 
Total$243,957 $254,416 

Premises and Equipment

Premises and equipment, net, totaled $33,319$27,519 at September 30, 20202021 compared to $21,064$31,462 at December 31, 2019,2020, a net increasedecrease of $12,255,$3,943, or 58.2%12.5%. Premises and equipment purchases amounted to approximately $2,709$297 during the nine months ended September 30, 20202021 and were mainly incurred for additional leasehold improvements and equipment for our branches and new mortgage locations while depreciation expense amounted to $2,084. As part$2,127. Retired bank facilities of the TCB Holdings Transaction, $6,401 of premises and equipment$1,988 were acquired effective January 1, 2020. Effective April 1, 2020, premises and equipment of $7,905 were acquired in the FABK Transaction.transferred to other real estate owned during 2021.

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 September 30, 2020,2021, total deposits were $2,565,502, an increase$2,547,705, a decrease of $981,049,$31,530, or 61.9%1.2%, compared to $1,584,453$2,579,235 at December 31, 2019.2020. During the nine months ended September 30, 2020,2021, noninterest bearing demand deposits increased by $278,163,$51,309, interest-bearing demand deposits increased by $120,087,$60,531, savings and money market deposits increased by $404,277,$132,467, and time deposits increaseddecreased by $178,522. $275,837. Our team continues to focus on retaining low cost customer deposits and has utilized cash flow from mortgage loan sales in order to decrease higher cost time deposits.

The primary driverfollowing table sets forth the distribution by type of our deposit accounts as well as year-to-date average rates for the increase in deposits is attributable todates indicated:
September 30, 2021December 31, 2020
Ending Balance% of Total DepositsAverage RateEnding Balance% of Total DepositsAverage Rate
Noninterest-bearing demand$626,598 24.6 %— %$575,289 22.3 %— %
Interest bearing demand410,923 16.1 %0.21 %$350,392 13.6 %0.30 %
Savings and money market989,677 38.9 %0.27 %$857,210 33.2 %0.67 %
Time deposits - retail433,442 17.0 %0.95 %527,985 20.5 %1.19 %
Time deposits - wholesale87,065 3.4 %5.25 %268,359 10.4 %1.77 %
Total deposits$2,547,705 100.00 %0.64 %$2,579,235 100.00 %0.73 %

Average deposit balances by type, together with the deposits acquiredaverage rates per period are reflected in the TCB Holdings Transaction which totaled $210,538 coupled with those acquiredaverage balance sheet amounts, interest paid and rate analysis tables included in this management's discussion and analysis under the FABK Transaction which totaledsubheading "Results of Operations" discussion.
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$608,690. During the nine months ending September 30, 2020, management shifted from using brokered time deposits to transactional deposits and to using FHLB advances which offset this increase.

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

2021:
September 30, 20202021
Twelve months or less$293,942137,387 
Over twelve months through three years21,62223,245 
Over three years5,2212,420 
Total$320,785163,052 

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 September 30, 2020 for the 12-month cumulative repricing gap. Although we do monitor our gap on a periodic basis, we recognize the potential shortcomings of such a model. The static nature of the gap schedule makes it difficult to incorporate changes in behavior that are caused by changes in interest rates. Also, although the periods of estimated and contractual repricing are identified in the analysis, the extent of repricing is not modeled in the gap schedule (i.e. whether repricing is expected to move on a one-to-one or other basis in relationship to the market changes simulated). For these reasons and as a result of other model shortcomings, we rely more heavily on the earnings simulation model and the economic value of equity model discussed further below.

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

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Instantaneous, Parallel Change in Prevailing Interest Rates Equal toInstantaneous, Parallel Change in Prevailing Interest Rates Equal toEstimated Change in Net Interest Income and Policy of Maximum
Percentage Decline in Net Interest Income		Instantaneous, Parallel Change in Prevailing Interest Rates Equal toEstimated Change in Net Interest Income and Policy of Maximum
Percentage Decline in Net Interest Income
Next 12Next 24Next 12Next 24
MonthsMonthsMonthsMonths
EstimatePolicyEstimatePolicyEstimatePolicyEstimatePolicy
-200 bp-200 bp(0.9)%(15)%(2.2)%(15)%-200 bp(3.0)%(15)%(6.7)%(15)%
-100 bp-100 bp(0.7)%(10)%(1.8)%(10)%-100 bp(2.0)%(10)%(4.9)%(10)%
+100 bp+100 bp0.9%(10)%3.2%(10)%+100 bp1.5%(10)%3.8%(10)%
+200 bp+200 bp2.4%(15)%6.6%(15)%+200 bp3.6%(15)%7.6%(15)%
+300 bp+300 bp4.5%(20)%10.3%(20)%+300 bp6.0%(20)%11.7%(20)%
+400 bp+400 bp6.7%(25)%14.2%(25)%+400 bp8.4%(25)%15.9%(25)%

We were in compliance with our earnings simulation model policies as of September 30, 2020,2021, 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
±100bp15%
±200 bp25%
±300 bp30%
±400 bp35%
Non-parallel shifts35%

At September 30, 2020,2021, our model results indicated that we were within these policy limits.

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

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

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

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

The Company has established a line of credit with the FHLB, which is secured by a blanket pledge of 1-4 family residential mortgages, multi-family residential, commercial real estate, and home equity loans, and available-for-sale securities. At September 30, 2020,2021, FHLB advances totaled $40,555$0 compared to $10,737$10,000 as of December 31, 2019. This increase in FHLB advances generally correlates with a decrease in more expensive brokered deposits, contributing to an improved net interest margin.

At September 30, 2020, the scheduled maturities of our FHLB advances and interest rates were as follows (scheduled maturities will differ from scheduled repayments):
Scheduled MaturitiesAmountWeighted
Average
Rates
2020$23,000 0.22%
202112,636 2.36%
2022402 1.22%
20234,005 2.38%
2024512 2.52%
$40,555 1.14%
2020.

The Company has outstanding $23,000 of subordinated debentures associated with trust preferred securities issued by trusts that are affiliates of Reliant Bancorp, $10,000 of which is owned by a wholly-owned subsidiary of Reliant Bancorp. Reliant Bancorp has timely made its scheduled interest payments on these subordinated debentures since assumed in the first quarter of 2018. As of September 30, 2020,2021, 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 $307,086$356,315 at September 30, 2020,2021, an increase of $83,333,$34,342, or 37.2%10.7%, from $223,753$321,973 at December 31, 2019. During the nine months ended September 30, 2020, the Company completed the TCB Holdings Transaction which increased shareholders' equity $18,041mainly due to net income and the FABK Transaction which increased shareholders' equity $51,915. Netother comprehensive income also contributed to the increase by $19,186.of $523. This increase was primarily offset by dividends declared of $4,550, and other comprehensive loss of $2,562.$6,058. Contributions from the noncontrolling interest of $990$1,357 were recognized in the nine months ended September 30, 2020.2021. The increase in shareholders' equity mitigated by the growth in the Bank's average assets led to an increase in the Bank’s September 30, 20202021 Tier 1 leverage ratio to 10.48%11.76% compared with 10.30%10.64% at December 31, 2019.2020. 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.
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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 September 30, 2020,2021, 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 September 30, 20202021 and December 31, 20192020 for Reliant Bancorp and the Bank.

Actual Regulatory CapitalMinimum Required Capital
Including Capital
Conservation Buffer		To Be Well Capitalized
Under Prompt Corrective
Action Provisions
AmountRatioAmountRatioAmountRatio
September 30, 2020
Reliant Bancorp
Tier I leverage$253,534 8.72 %$116,300 4.00 %$145,375 5.00 %
Common equity Tier 1241,786 9.77 %173,235 7.00 %160,861 6.50 %
Tier I risk-based capital253,534 10.25 %210,248 8.50 %197,880 8.00 %
Total risk-based capital332,434 13.44 %259,714 10.50 %247,347 10.00 %
Bank
Tier I leverage$304,376 10.48 %$116,174 4.00 %$145,218 5.00 %
Common equity Tier 1304,376 12.33 %172,801 7.00 %160,458 6.50 %
Tier I risk-based capital304,376 12.33 %209,829 8.50 %197,486 8.00 %
Total risk-based capital324,635 13.15 %259,214 10.50 %246,871 10.00 %
December 31, 2019
Reliant Bancorp
Tier I leverage$176,748 9.74 %$72,586 4.00 %$90,733 5.00 %
Common equity Tier 1165,063 10.55 %109,520 7.00 %101,698 6.50 %
Tier I risk-based capital176,748 11.30 %132,952 8.50 %125,131 8.00 %
Total risk-based capital249,751 15.97 %164,207 10.50 %156,388 10.00 %
Bank
Tier I leverage$186,734 10.30 %$72,518 4.00 %$90,648 5.00 %
Common equity Tier 1186,734 11.95 %109,384 7.00 %101,571 6.50 %
Tier I risk-based capital186,734 11.95 %132,823 8.50 %125,010 8.00 %
Total risk-based capital199,737 12.79 %163,975 10.50 %156,167 10.00 %
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Actual Regulatory CapitalMinimum Required Capital
Including Capital
Conservation Buffer		To Be Well Capitalized
Under Prompt Corrective
Action Provisions
AmountRatioAmountRatioAmountRatio
September 30, 2021
Company
Tier I leverage$297,367 10.04 %$118,473 4.00 %$148,091 5.00 %
Common equity Tier 1285,537 10.52 %189,996 7.00 %176,425 6.50 %
Tier I risk-based capital297,367 10.95 %230,833 8.50 %217,254 8.00 %
Total risk-based capital377,977 13.92 %285,112 10.50 %271,535 10.00 %
Bank
Tier I leverage$347,450 11.76 %$118,185 4.00 %$147,732 5.00 %
Common equity Tier 1347,450 14.10 %172,493 7.00 %160,172 6.50 %
Tier I risk-based capital347,450 14.10 %209,456 8.50 %197,135 8.00 %
Total risk-based capital369,072 14.98 %258,695 10.50 %246,377 10.00 %
December 31, 2020
Company
Tier I leverage$262,282 8.91 %$117,747 4.00 %$147,184 5.00 %
Common equity Tier 1250,513 10.22 %171,584 7.00 %159,328 6.50 %
Tier I risk-based capital262,282 10.70 %208,355 8.50 %196,099 8.00 %
Total risk-based capital342,246 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 1313,633 12.83 %171,117 7.00 %158,894 6.50 %
Tier I risk-based capital313,633 12.83 %207,785 8.50 %195,562 8.00 %
Total risk-based capital334,919 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 September 30, 2020:2021:
September 30, 20202021
Unused lines of credit$534,971638,112 
Standby letters of credit19,79330,633 
Total commitments$554,764668,745 

Other Off-Balance Sheet Arrangements

The Company utilizes interest rate swaps to mitigate interest rate risk. The total notional amount of swap agreements was $179,345 and $129,605, respectively, at September 30, 2020 and December 31, 2019. At September 30, 2020 and December 31, 2019, the contracts had negative fair values totaling $10,216 and $2,708, respectively.

Emerging Growth Company Status

Reliant Bancorp is presently an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if Reliant Bancorp chooses to comply with the reporting requirements of public companies that are not emerging growth companies, Reliant Bancorp may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as Reliant Bancorp is an emerging growth company. Reliant Bancorp will remain an emerging growth company through the fiscal year ended December 31, 2020. 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 certain financial statements we will file in the future, will be subject to all new or revised accounting standards generally applicable to private companies. As a result, we will comply with new or revised accounting standards to the same extent that compliance is required for non-public companies.
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Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

This item is not applicable to smaller reporting companies.

Item 4.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Management, including our 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 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 Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended September 30, 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 fiscal year ended December 31, 2019 as supplemented by Part II, Item 1A. "Risk Factors" in Reliant Bancorp's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.


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

The following table contains information regarding shares of our common stock repurchased by Reliant Bancorp during the three months ended September 30, 2020.2021.
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (2) (in thousands)
July 1, 2020 to July 31, 2020—$——$15,000
August 1, 2020 to August 31, 20206,799$14.66—$15,000
September 1, 2020 to September 30, 2020545$14.70—$15,000
Total7,344$14.67—$15,000
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (2) (in thousands)
July 1, 2021 to July 31, 20217,746$28.21—$10,000
August 1, 2021 to August 31, 2021134$29.91—$10,000
September 1, 2021 to September 30, 2021—$——$10,000
Total7,880$28.24—$10,000
(1)During the quarter ended September 30, 2020, 26,5502021, 30,410 shares of restricted stock previously awarded to certain of the participants in our stock plans vested. We withheld 7,3447,880 shares to satisfy tax withholding requirements associated with the vesting of these shares of restricted stock.

(2)On March 10, 2020,January 26, 2021, Reliant Bancorp's board of directors authorized a stock repurchase plan allowing Reliant Bancorp to repurchase up to $15$10 million of outstanding Reliant Bancorp common stockCommon Stock (the "Repurchase Plan"). As of September 30, 2020,2021, Reliant Bancorp had not repurchased any shares of Reliant Bancorp common stockCommon Stock under the Repurchase Plan. The Repurchase Plan does not obligate 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 theThe Repurchase Plan to preserve our financial strength during this challenging economic environment.

Item 3. Defaults Upon Senior Securities.

Not applicable.


Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

is effective through December 31, 2021 but was suspended in August 2021.
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None.
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Item 6.         Exhibits.
EXHIBIT INDEX 
Exhibit
No.
Description    
2.1
Certification pursuant to Rule 13a-14(a)/15d-14(a).
 
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.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*    Filed herewith.
**    Furnished herewith.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RELIANT BANCORP, INC.
November 5, 20202021/s/ DeVan D. Ard, Jr.
DeVan D. Ard, Jr.
Chairman and Chief Executive Officer
(Principal Executive Officer)
November 5, 20202021/s/ Jerry Cooksey
Jerry Cooksey
Chief Financial Officer
(Principal Financial Officer)

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