Item 1. Consolidated Financial Statements (Unaudited)
RELIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2020 (UNAUDITED) AND DECEMBER 31, 2019 (AUDITED)
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
ASSETS
|
|
|
|
Cash and due from banks
|
$
|
93,838
|
|
|
$
|
50,990
|
|
Federal funds sold
|
638
|
|
|
52
|
|
Total cash and cash equivalents
|
94,476
|
|
|
51,042
|
|
Securities available for sale
|
249,014
|
|
|
260,293
|
|
Loans, net
|
2,299,087
|
|
|
1,397,374
|
|
Mortgage loans held for sale, net
|
101,579
|
|
|
37,476
|
|
Accrued interest receivable
|
13,901
|
|
|
7,111
|
|
Premises and equipment, net
|
34,194
|
|
|
21,064
|
|
Operating leases right of use assets
|
15,452
|
|
|
—
|
|
Restricted equity securities, at cost
|
17,509
|
|
|
11,279
|
|
Other real estate, net
|
2,514
|
|
|
750
|
|
Cash surrender value of life insurance contracts
|
67,723
|
|
|
46,632
|
|
Deferred tax assets, net
|
9,787
|
|
|
3,933
|
|
Goodwill
|
51,058
|
|
|
43,642
|
|
Core deposit intangibles
|
12,293
|
|
|
7,270
|
|
Other assets
|
23,025
|
|
|
10,601
|
|
TOTAL ASSETS
|
$
|
2,991,612
|
|
|
$
|
1,898,467
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Deposits
|
|
|
|
Noninterest-bearing demand
|
$
|
519,684
|
|
|
$
|
260,073
|
|
Interest-bearing demand
|
288,710
|
|
|
152,718
|
|
Savings and money market deposit accounts
|
771,505
|
|
|
408,724
|
|
Time
|
950,163
|
|
|
762,274
|
|
Total deposits
|
2,530,062
|
|
|
1,583,789
|
|
Accrued interest payable
|
2,918
|
|
|
2,022
|
|
|
|
|
|
Subordinated debentures
|
70,413
|
|
|
70,883
|
|
Federal Home Loan Bank advances
|
49,121
|
|
|
10,737
|
|
|
|
|
|
Operating lease liabilities
|
16,591
|
|
|
—
|
|
Other liabilities
|
26,964
|
|
|
7,283
|
|
TOTAL LIABILITIES
|
2,696,069
|
|
|
1,674,714
|
|
Preferred stock, $1 par value; 10,000,000 shares authorized, no shares issued to date
|
—
|
|
|
—
|
|
Common stock, $1 par value; 30,000,000 shares authorized; 16,631,604 and 11,206,254 shares issued and outstanding at June 30, 2020, and December 31, 2019, respectively
|
16,632
|
|
|
11,206
|
|
Additional paid-in capital
|
232,436
|
|
|
167,006
|
|
Retained earnings
|
45,351
|
|
|
40,472
|
|
Accumulated other comprehensive income
|
1,124
|
|
|
5,069
|
|
TOTAL STOCKHOLDERS’ EQUITY
|
295,543
|
|
|
223,753
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
2,991,612
|
|
|
$
|
1,898,467
|
|
See accompanying notes to consolidated financial statements.
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Dollar amounts in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
$
|
33,447
|
|
|
$
|
16,960
|
|
|
$
|
54,092
|
|
|
$
|
33,129
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans held for sale
|
815
|
|
|
198
|
|
|
1,375
|
|
|
351
|
|
|
|
|
|
|
|
|
|
Interest on investment securities, taxable
|
128
|
|
|
587
|
|
|
579
|
|
|
1,090
|
|
|
|
|
|
|
|
|
|
Interest on investment securities, nontaxable
|
1,317
|
|
|
1,650
|
|
|
2,688
|
|
|
3,368
|
|
|
|
|
|
|
|
|
|
Federal funds sold and other
|
208
|
|
|
297
|
|
|
487
|
|
|
597
|
|
|
|
|
|
|
|
|
|
TOTAL INTEREST INCOME
|
35,915
|
|
|
19,692
|
|
|
59,221
|
|
|
38,535
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
|
218
|
|
|
86
|
|
|
318
|
|
|
197
|
|
|
|
|
|
|
|
|
|
Savings and money market deposit accounts
|
1,531
|
|
|
1,051
|
|
|
2,506
|
|
|
2,181
|
|
|
|
|
|
|
|
|
|
Time
|
3,080
|
|
|
4,369
|
|
|
6,842
|
|
|
7,940
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances and other
|
148
|
|
|
175
|
|
|
509
|
|
|
552
|
|
|
|
|
|
|
|
|
|
Subordinated debentures
|
982
|
|
|
198
|
|
|
1,975
|
|
|
391
|
|
|
|
|
|
|
|
|
|
TOTAL INTEREST EXPENSE
|
5,959
|
|
|
5,879
|
|
|
12,150
|
|
|
11,261
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
29,956
|
|
|
13,813
|
|
|
47,071
|
|
|
27,274
|
|
|
|
|
|
|
|
|
|
PROVISION FOR LOAN LOSSES
|
3,000
|
|
|
200
|
|
|
5,900
|
|
|
200
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
26,956
|
|
|
13,613
|
|
|
41,171
|
|
|
27,074
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
1,381
|
|
|
936
|
|
|
2,589
|
|
|
1,820
|
|
|
|
|
|
|
|
|
|
Gains on mortgage loans sold, net
|
2,248
|
|
|
1,225
|
|
|
3,821
|
|
|
1,785
|
|
|
|
|
|
|
|
|
|
Gain on securities transactions, net
|
327
|
|
|
175
|
|
|
327
|
|
|
306
|
|
|
|
|
|
|
|
|
|
Gain on sale of other real estate
|
11
|
|
|
—
|
|
|
25
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Gain on disposal of premises and equipment
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other
|
455
|
|
|
362
|
|
|
933
|
|
|
725
|
|
|
|
|
|
|
|
|
|
TOTAL NONINTEREST INCOME
|
4,422
|
|
|
2,698
|
|
|
7,704
|
|
|
4,636
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
12,464
|
|
|
7,706
|
|
|
21,701
|
|
|
14,971
|
|
|
|
|
|
|
|
|
|
Occupancy
|
2,026
|
|
|
1,358
|
|
|
3,512
|
|
|
2,710
|
|
|
|
|
|
|
|
|
|
Information technology
|
2,027
|
|
|
1,575
|
|
|
3,846
|
|
|
2,985
|
|
|
|
|
|
|
|
|
|
Advertising and public relations
|
228
|
|
|
275
|
|
|
581
|
|
|
529
|
|
|
|
|
|
|
|
|
|
Audit, legal and consulting
|
680
|
|
|
690
|
|
|
1,158
|
|
|
1,486
|
|
|
|
|
|
|
|
|
|
Federal deposit insurance
|
441
|
|
|
249
|
|
|
777
|
|
|
444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger expenses
|
2,632
|
|
|
1
|
|
|
6,818
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Other operating
|
1,766
|
|
|
1,272
|
|
|
3,469
|
|
|
2,744
|
|
|
|
|
|
|
|
|
|
TOTAL NONINTEREST EXPENSE
|
22,264
|
|
|
13,126
|
|
|
41,862
|
|
|
25,872
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE PROVISION FOR INCOME TAXES
|
9,114
|
|
|
3,185
|
|
|
7,013
|
|
|
5,838
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
|
1,634
|
|
|
501
|
|
|
724
|
|
|
873
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED NET INCOME
|
7,480
|
|
|
2,684
|
|
|
6,289
|
|
|
4,965
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY
|
388
|
|
|
1,555
|
|
|
1,364
|
|
|
3,098
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
$
|
7,868
|
|
|
$
|
4,239
|
|
|
$
|
7,653
|
|
|
$
|
8,063
|
|
|
|
|
|
|
|
|
|
Basic net income attributable to common shareholders, per share
|
$
|
0.48
|
|
|
$
|
0.38
|
|
|
$
|
0.54
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
Diluted net income attributable to common shareholders, per share
|
$
|
0.48
|
|
|
$
|
0.38
|
|
|
$
|
0.54
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Consolidated net income
|
$
|
7,480
|
|
|
$
|
2,684
|
|
|
$
|
6,289
|
|
|
$
|
4,965
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on available-for-sale securities, net of tax of $1,127 and $1,241 for the three months ended June 30, 2020 and 2019, respectively, and $508 and $2,962 for the six months ended June 30, 2020 and 2019, respectively
|
3,182
|
|
|
3,523
|
|
|
1,433
|
|
|
8,386
|
|
|
|
|
|
|
|
|
|
Net unrealized losses on interest rate swap derivatives net of tax of $284 and $304 or the three months ended June 30, 2020 and 2019, respectively, and $1,819 and $471for the six months ended June 30, 2020 and 2019, respectively
|
(802)
|
|
|
(861)
|
|
|
(5,137)
|
|
|
(1,331)
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for gains included in net income, net of tax of $86 and $46 for the three months ended June 30, 2020 and 2019, respectively, and $86 and $80 for the six months ended June 30, 2020 and 2019, respectively
|
(241)
|
|
|
(129)
|
|
|
(241)
|
|
|
(226)
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
|
2,139
|
|
|
2,533
|
|
|
(3,945)
|
|
|
6,829
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE INCOME
|
$
|
9,619
|
|
|
$
|
5,217
|
|
|
$
|
2,344
|
|
|
$
|
11,794
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK
|
|
|
|
ADDITIONAL
PAID-IN
CAPITAL
|
|
RETAINED
EARNINGS
|
|
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
|
|
NONCONTROLLING
INTEREST
|
|
TOTAL
|
|
SHARES
|
|
AMOUNT
|
|
|
|
|
|
|
|
|
|
|
BALANCE - JANUARY 1, 2020
|
11,206,254
|
|
|
$
|
11,206
|
|
|
$
|
167,006
|
|
|
$
|
40,472
|
|
|
$
|
5,069
|
|
|
$
|
—
|
|
|
$
|
223,753
|
|
Stock based compensation expense
|
—
|
|
|
—
|
|
|
349
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
349
|
|
Exercise of stock options
|
868
|
|
|
1
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock and dividend forfeiture
|
(3,837)
|
|
|
(4)
|
|
|
(69)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(73)
|
|
Conversion shares issued to shareholders of Tennessee Community Bank Holdings, Inc.
|
811,210
|
|
|
811
|
|
|
17,230
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,041
|
|
Noncontrolling interest contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
976
|
|
|
976
|
|
Cash dividend declared to common shareholders ($0.10 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,207)
|
|
|
—
|
|
|
—
|
|
|
(1,207)
|
|
Cumulative effect of lease standard adoption
|
—
|
|
|
—
|
|
|
—
|
|
|
100
|
|
|
—
|
|
|
—
|
|
|
100
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(215)
|
|
|
—
|
|
|
(976)
|
|
|
(1,191)
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,084)
|
|
|
—
|
|
|
(6,084)
|
|
BALANCE - MARCH 31, 2020
|
12,014,495
|
|
|
$
|
12,014
|
|
|
$
|
184,523
|
|
|
$
|
39,150
|
|
|
$
|
(1,015)
|
|
|
$
|
—
|
|
|
$
|
234,672
|
|
Stock based compensation expense
|
—
|
|
|
—
|
|
|
485
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
485
|
|
Exercise of stock options
|
1,021
|
|
|
1
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15
|
|
Employee Stock Purchase Plan stock issuance
|
8,344
|
|
|
8
|
|
|
108
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
116
|
|
Restricted stock awards
|
3,022
|
|
|
3
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Restricted stock and dividend forfeiture
|
(1,697)
|
|
|
(1)
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Conversion shares issued to shareholders of First Advantage Bancorp
|
4,606,419
|
|
|
4,607
|
|
|
47,308
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51,915
|
|
Noncontrolling interest contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
388
|
|
|
388
|
|
Cash dividend declared to common shareholders ($0.10 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,667)
|
|
|
—
|
|
|
—
|
|
|
(1,667)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
7,868
|
|
|
—
|
|
|
(388)
|
|
|
7,480
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,139
|
|
|
—
|
|
|
2,139
|
|
BALANCE - JUNE 30, 2020
|
16,631,604
|
|
|
$
|
16,632
|
|
|
$
|
232,436
|
|
|
$
|
45,351
|
|
|
$
|
1,124
|
|
|
$
|
—
|
|
|
$
|
295,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK
|
|
|
|
ADDITIONAL
PAID-IN
CAPITAL
|
|
RETAINED
EARNINGS
|
|
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
|
|
NONCONTROLLING
INTEREST
|
|
TOTAL
|
|
SHARES
|
|
AMOUNT
|
|
|
|
|
|
|
|
|
|
|
BALANCE - JANUARY 1, 2019
|
11,530,810
|
|
|
$
|
11,531
|
|
|
$
|
173,238
|
|
|
$
|
27,329
|
|
|
$
|
(3,684)
|
|
|
$
|
—
|
|
|
$
|
208,414
|
|
Stock based compensation expense
|
—
|
|
|
—
|
|
|
250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250
|
|
Exercise of stock options
|
2,183
|
|
|
2
|
|
|
26
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
Restricted stock awards
|
3,000
|
|
|
3
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Restricted stock forfeiture
|
(3,750)
|
|
|
(4)
|
|
|
4
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Common stock shares redeemed
|
(29,958)
|
|
|
(30)
|
|
|
(629)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(659)
|
|
Noncontrolling interest contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,543
|
|
|
1,543
|
|
Cash dividends declared to common shareholders ($0.09 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,035)
|
|
|
—
|
|
|
—
|
|
|
(1,035)
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
3,824
|
|
|
—
|
|
|
(1,543)
|
|
|
2,281
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,296
|
|
|
—
|
|
|
4,296
|
|
BALANCE - MARCH 31, 2019
|
11,502,285
|
|
|
$
|
11,502
|
|
|
$
|
172,886
|
|
|
$
|
30,119
|
|
|
$
|
612
|
|
|
$
|
—
|
|
|
$
|
215,119
|
|
Stock based compensation expense
|
—
|
|
|
—
|
|
|
280
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
280
|
|
Exercise of stock options
|
24,523
|
|
|
25
|
|
|
298
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
323
|
|
Employee Stock Purchase Plan stock issuance
|
4,728
|
|
|
5
|
|
|
85
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
90
|
|
Restricted stock awards
|
5,000
|
|
|
5
|
|
|
(5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Restricted stock and dividend forfeiture
|
(4,000)
|
|
|
(4)
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common stock shares redeemed
|
(335,973)
|
|
|
(336)
|
|
|
(7,296)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,632)
|
|
Noncontrolling interest contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,555
|
|
|
1,555
|
|
Cash dividends declared to common shareholders ($0.09 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,009)
|
|
|
—
|
|
|
—
|
|
|
(1,009)
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
4,239
|
|
|
—
|
|
|
(1,555)
|
|
|
2,684
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,533
|
|
|
—
|
|
|
2,533
|
|
BALANCE - JUNE 30, 2019
|
11,196,563
|
|
|
$
|
11,197
|
|
|
$
|
166,252
|
|
|
$
|
33,349
|
|
|
$
|
3,145
|
|
|
$
|
—
|
|
|
$
|
213,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
OPERATING ACTIVITIES
|
2020
|
|
2019
|
Consolidated net income
|
$
|
6,289
|
|
|
$
|
4,965
|
|
Adjustments to reconcile consolidated net income to net cash provided (used) by operating activities
|
|
|
|
Provision for loan losses
|
5,900
|
|
|
200
|
|
|
|
|
|
Deferred income taxes
|
1,997
|
|
|
1,880
|
|
Gain on disposal of premises and equipment
|
(9)
|
|
|
—
|
|
Depreciation and amortization of premises and equipment
|
1,327
|
|
|
991
|
|
Net amortization of securities
|
1,354
|
|
|
1,586
|
|
Net realized gains on sales of securities
|
(327)
|
|
|
(306)
|
|
Gains on mortgage loans sold, net
|
(3,821)
|
|
|
(1,785)
|
|
Stock-based compensation expense
|
834
|
|
|
530
|
|
Gain on other real estate
|
(25)
|
|
|
—
|
|
Increase in cash surrender value of life insurance contracts
|
(687)
|
|
|
(555)
|
|
Mortgage loans originated for resale
|
(184,146)
|
|
|
(57,816)
|
|
Proceeds from sale of mortgage loans
|
129,742
|
|
|
63,853
|
|
Other accretion, net of other amortization
|
(4,184)
|
|
|
(380)
|
|
Change in
|
|
|
|
Accrued interest receivable
|
(3,457)
|
|
|
968
|
|
Other assets
|
(10,478)
|
|
|
(3,202)
|
|
Accrued interest payable
|
(1,352)
|
|
|
(96)
|
|
Other liabilities
|
2,323
|
|
|
(4,389)
|
|
TOTAL ADJUSTMENTS
|
(65,009)
|
|
|
1,479
|
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
(58,720)
|
|
|
6,444
|
|
INVESTING ACTIVITIES
|
|
|
|
Cash used to convert shares, and redeem stock options and fractional shares, net of cash received
|
(8,500)
|
|
|
—
|
|
Activities in available for sale securities
|
|
|
|
Purchases
|
(6,000)
|
|
|
(41,083)
|
|
Sales
|
103,668
|
|
|
52,434
|
|
Maturities, prepayments and calls
|
9,635
|
|
|
5,418
|
|
(Redemptions) purchases of restricted equity securities
|
(2,009)
|
|
|
202
|
|
Net increase in loans
|
(108,983)
|
|
|
(81,026)
|
|
Purchase of buildings, leasehold improvements, and equipment
|
(2,566)
|
|
|
(590)
|
|
Proceeds from sale of premises and equipment
|
90
|
|
|
—
|
|
Proceeds from sale of other real estate
|
889
|
|
|
—
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) INVESTING ACTIVITIES
|
(13,776)
|
|
|
(64,645)
|
|
FINANCING ACTIVITIES
|
|
|
|
Net change in deposits
|
128,110
|
|
|
112,388
|
|
Net change in other borrowings acquired from merger
|
(58)
|
|
|
—
|
|
Net change in advances from Federal Home Loan Bank
|
(10,617)
|
|
|
(46,352)
|
|
Issuance of common stock, net of repurchase of restricted shares
|
—
|
|
|
351
|
|
Issuance of common stock related to exercise of stock options and ESPP
|
139
|
|
|
90
|
|
Redemption of common stock to settle tax liability on restricted stock
|
(73)
|
|
|
(8,291)
|
|
Noncontrolling interest contributions received
|
1,364
|
|
|
2,905
|
|
Cash dividends paid on common stock
|
(2,935)
|
|
|
(2,071)
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
115,930
|
|
|
59,020
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
43,434
|
|
|
819
|
|
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
|
51,042
|
|
|
35,178
|
|
CASH AND CASH EQUIVALENTS - END OF PERIOD
|
$
|
94,476
|
|
|
$
|
35,997
|
|
See accompanying notes to consolidated financial statements.
RELIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
2019
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
Cash paid during the period for
|
|
|
|
Interest
|
$
|
12,382
|
|
|
$
|
11,357
|
|
Taxes
|
$
|
31
|
|
|
$
|
536
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
Unrealized gain on securities available-for-sale
|
$
|
2,745
|
|
|
$
|
12,099
|
|
Unrealized gain (loss) on derivatives
|
$
|
8,087
|
|
|
$
|
(2,859)
|
|
Change in due to/from noncontrolling interest
|
$
|
1,364
|
|
|
$
|
3,098
|
|
Acquired bank facilities no longer in use transferred to other real estate owned and foreclosed assets from premises and equipment
|
$
|
2,420
|
|
|
$
|
—
|
|
Loans foreclosed and transferred to other real estate owned and foreclosed assets
|
$
|
—
|
|
|
$
|
848
|
|
See accompanying notes to consolidated financial statements.
RELIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Reliant Bancorp, Inc. conform to accounting principles generally accepted in the United States of America ("U.S. GAAP") and to general practices within the banking industry. The following is a brief summary of the significant policies.
Nature of Operations
Reliant Bancorp, Inc. is a Tennessee corporation and the holding company for and the sole shareholder of Reliant Bank. Reliant Bancorp is registered as a financial holding company under the Bank Holding Company Act of 1956, as amended ("Bank Holding Company Act"). Reliant Bank is a commercial bank chartered under Tennessee law and a member of the Federal Reserve System (the "Federal Reserve"). Reliant Bank, Reliant Bancorp's wholly-owned bank subsidiary, provides a full range of traditional banking products and services to business and consumer clients throughout Middle Tennessee and the Nashville-Davidson-Murfreesboro-Franklin, TN Metropolitan Statistical Area (the “Nashville MSA”) and Chattanooga, Tennessee. Reliant Bank operates banking centers in Cheatham, Davidson, Hamilton, Hickman, Maury, Montgomery, Robertson, Rutherford, Sumner, and Williamson counties, Tennessee. Additionally, Reliant Bank operates mortgage offices in Brentwood, Chattanooga, Hendersonville, and Memphis, Tennessee, as well as two in Little Rock and one in Crossett, Arkansas. On January 1, 2020, TCB Holdings, a community banking organization headquartered in Ashland City, Tennessee, was merged with and into Reliant Bancorp. On April 1, 2020, First Advantage Bancorp, a community banking organization headquartered in Clarksville, Tennessee, was merged with and into Reliant Bancorp (See Note 12).
Reliant Risk Management, Inc., a newly-formed, wholly-owned insurance captive subsidiary of Reliant Bancorp, Inc. 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 U.S. GAAP. All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with Reliant Bancorp, Inc.’s consolidated financial statements and related notes appearing in Reliant Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019.
The consolidated financial statements as of and for the periods presented include the accounts of Reliant Bancorp, Inc., Reliant Bank (the "Bank"), Community First Trups Holding Company ("TRUPS"), which is wholly owned by Reliant Bancorp, Inc., Reliant Risk Management, Inc. ("Risk"), which is wholly owned by Reliant Bancorp Inc., Reliant Investment Holdings, LLC ("Holdings"), which is wholly owned by the Bank, and Reliant Mortgage Ventures, LLC ("RMV"), of which the Bank controls 51% of the governance rights. Reliant Bancorp Inc., the Bank, TRUPS, Risk, Holdings, and RMV are collectively referred to herein as the “Company”. All significant inter-company balances and transactions have been eliminated in consolidation. As described in Note 12 to these unaudited consolidated financial statements, Reliant Bancorp, Inc. and TCB Holdings merged effective on January 1, 2020, and Reliant Bancorp, Inc. and FABK merged effective April 1, 2020. The accounting and reporting policies of the Company conform to U.S. GAAP and general practices in the banking industry.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
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 June 30, 2020, and for the three and six months ended June 30, 2020 and 2019, included herein have not been audited. The accounting and reporting policies of the Company conform to U.S. GAAP and Article 8 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures made are adequate to make the information not misleading.
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 conform to the current period presentation. The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
Recently Adopted Accounting Pronouncements
Information about certain issued accounting standards updates is presented below. Also refer to Note 1 - Summary of Significant Accounting Policies, “Recent Authoritative Accounting Guidance” in the Annual Report on Form 10-K for the year ended December 31, 2019 for additional information related to previously issued accounting standards updates.
ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 went into effect for the Company on January 1, 2020 and the Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. The Company also elected certain practical expedients within the standard and consistent with such elections did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases, and did not reassess any initial direct costs for existing leases. The effect of implementing this pronouncement resulted in right to use assets of $11,973 and a similar corresponding liability, as of January 1, 2020.
ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." In March 2020, the FASB issued Topic 848 amendments to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company has evaluated the effect of the pronouncement on the consolidated financial statements, noting no significant impact.
Newly Issued not yet Effective Accounting Standards
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available for sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is expected to be effective on January 1, 2023. We are currently evaluating the potential impact of ASU 2016-13 on the Company's financial statements. We are currently developing an implementation plan to include assessment of processes, portfolio segmentation, model development, system requirements and the identification of data and resource needs, among other things. The adoption of 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
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 will be effective for the Company for fiscal years and interim periods beginning after December 15, 2022. The Company is currently evaluating the impact of these ASUs on the Company’s consolidated financial statements. While we are currently unable to reasonably estimate the impact of adopting these ASUs, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of the Company's loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.
ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 will be effective for the Company on January 1, 2021, with earlier adoption permitted and is not currently expected to have a significant impact on the Company's consolidated financial statements as it simplifies the test of impairment of goodwill.
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 June 30, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
U. S. Treasury and other U. S. government agencies
|
$
|
54
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
55
|
|
State and municipal
|
171,979
|
|
|
13,865
|
|
|
(118)
|
|
|
185,726
|
|
Corporate bonds
|
11,250
|
|
|
99
|
|
|
(83)
|
|
|
11,266
|
|
Mortgage-backed securities
|
37,624
|
|
|
350
|
|
|
(1,531)
|
|
|
36,443
|
|
Asset-backed securities
|
15,791
|
|
|
—
|
|
|
(267)
|
|
|
15,524
|
|
|
|
|
|
|
|
|
Total
|
$
|
236,698
|
|
|
$
|
14,315
|
|
|
$
|
(1,999)
|
|
|
$
|
249,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
U. S. Treasury and other U. S. government agencies
|
$
|
59
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59
|
|
State and municipal
|
186,283
|
|
|
10,413
|
|
|
(36)
|
|
|
196,660
|
|
Corporate bonds
|
7,880
|
|
|
97
|
|
|
(132)
|
|
|
7,845
|
|
Mortgage-backed securities
|
38,126
|
|
|
296
|
|
|
(661)
|
|
|
37,761
|
|
Asset-backed securities
|
18,374
|
|
|
—
|
|
|
(406)
|
|
|
17,968
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
250,722
|
|
|
$
|
10,806
|
|
|
$
|
(1,235)
|
|
|
$
|
260,293
|
|
Securities pledged at June 30, 2020 and December 31, 2019 had a carrying amount of $43,972 and $46,918, respectively, and were pledged to collateralize Federal Home Loan Bank ("FHLB") advances, Federal Reserve Bank ("FRB") advances and municipal deposits.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
The fair values of available for sale debt securities at June 30, 2020 by contractual maturity are provided below. Actual maturities may differ from contractual maturities for mortgage- and asset-backed securities since the underlying asset may be called or prepaid with or without penalty. Securities not due at a single maturity date are shown separately.
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
Due within one year
|
$
|
500
|
|
|
$
|
498
|
|
Due in one to five years
|
2,179
|
|
|
2,180
|
|
Due in five to ten years
|
14,693
|
|
|
15,379
|
|
Due after ten years
|
165,911
|
|
|
178,990
|
|
Mortgage-backed securities
|
37,624
|
|
|
36,443
|
|
Asset-backed securities
|
15,791
|
|
|
15,524
|
|
Total
|
$
|
236,698
|
|
|
$
|
249,014
|
|
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 June 30, 2020 and December 31, 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
|
12 months or more
|
|
|
|
Total
|
|
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
Unrealized
Loss
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
$
|
1,879
|
|
|
$
|
118
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,879
|
|
|
$
|
118
|
|
Corporate bonds
|
4,669
|
|
|
81
|
|
|
499
|
|
|
2
|
|
|
5,168
|
|
|
83
|
|
Mortgage-backed securities
|
15,045
|
|
|
822
|
|
|
12,250
|
|
|
709
|
|
|
27,295
|
|
|
1,531
|
|
Asset-backed securities
|
821
|
|
|
1
|
|
|
14,633
|
|
|
266
|
|
|
15,454
|
|
|
267
|
|
Total temporarily impaired
|
$
|
22,414
|
|
|
$
|
1,022
|
|
|
$
|
27,382
|
|
|
$
|
977
|
|
|
$
|
49,796
|
|
|
$
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
$
|
1,960
|
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,960
|
|
|
$
|
36
|
|
Corporate bonds
|
—
|
|
|
—
|
|
|
2,499
|
|
|
132
|
|
|
2,499
|
|
|
132
|
|
Mortgage-backed securities
|
16,104
|
|
|
286
|
|
|
9,081
|
|
|
375
|
|
|
25,185
|
|
|
661
|
|
Asset-backed securities
|
—
|
|
|
—
|
|
|
17,682
|
|
|
406
|
|
|
17,682
|
|
|
406
|
|
Total temporarily impaired
|
$
|
18,064
|
|
|
$
|
322
|
|
|
$
|
29,262
|
|
|
$
|
913
|
|
|
$
|
47,326
|
|
|
$
|
1,235
|
|
Management has the intent and ability to hold all securities in an unrealized loss position for the foreseeable future, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline. There were 37 and 47 securities in an unrealized loss position as of June 30, 2020 and December 31, 2019, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 June 30, 2020 and December 31, 2019 were comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31, 2019
|
Commercial, Industrial and Agricultural
|
$
|
452,628
|
|
|
$
|
245,515
|
|
Real Estate
|
|
|
|
1-4 Family Residential
|
360,908
|
|
|
227,529
|
|
1-4 Family HELOC
|
85,050
|
|
|
96,228
|
|
Multi-family and Commercial
|
883,751
|
|
|
536,845
|
|
Construction, Land Development and Farmland
|
337,459
|
|
|
273,872
|
|
Consumer
|
195,510
|
|
|
16,855
|
|
Other
|
7,203
|
|
|
13,180
|
|
Total
|
2,322,509
|
|
|
1,410,024
|
|
Less
|
|
|
|
Deferred loan fees
|
5,185
|
|
|
72
|
|
Allowance for loan losses
|
18,237
|
|
|
12,578
|
|
Loans, net
|
$
|
2,299,087
|
|
|
$
|
1,397,374
|
|
Activity in the allowance for loan losses by portfolio segment was as follows for the six months ended June 30, 2020 and June 30, 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Industrial and Agricultural
|
|
Multi-family
and
Commercial
Real Estate
|
|
Construction
Land
Development and Farmland
|
|
1-4 Family
Residential
Real Estate
|
1-4 Family HELOC
|
Consumer
|
Other
|
Total
|
Beginning balance at December 31, 2019
|
$
|
2,529
|
|
|
$
|
5,285
|
|
|
$
|
2,649
|
|
|
$
|
1,280
|
|
$
|
624
|
|
$
|
177
|
|
$
|
34
|
|
$
|
12,578
|
|
Charge-offs
|
(539)
|
|
|
—
|
|
|
(114)
|
|
|
(60)
|
|
(98)
|
|
(295)
|
|
—
|
|
(1,106)
|
|
Recoveries
|
70
|
|
|
11
|
|
|
4
|
|
|
747
|
|
3
|
|
30
|
|
—
|
|
865
|
|
Provision
|
2,615
|
|
|
3,111
|
|
|
(413)
|
|
|
(513)
|
|
446
|
|
672
|
|
(18)
|
|
5,900
|
|
Ending balance at
June 30, 2020
|
$
|
4,675
|
|
|
$
|
8,407
|
|
|
$
|
2,126
|
|
|
$
|
1,454
|
|
$
|
975
|
|
$
|
584
|
|
$
|
16
|
|
$
|
18,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at December 31, 2018
|
$
|
1,751
|
|
|
$
|
4,429
|
|
|
$
|
2,500
|
|
|
$
|
1,333
|
|
$
|
656
|
|
$
|
184
|
|
$
|
39
|
|
$
|
10,892
|
|
Charge-offs
|
(168)
|
|
|
—
|
|
|
—
|
|
|
(17)
|
|
—
|
|
(21)
|
|
(13)
|
|
(219)
|
|
Recoveries
|
294
|
|
|
59
|
|
|
201
|
|
|
216
|
|
11
|
|
12
|
|
—
|
|
793
|
|
Provision
|
4
|
|
|
225
|
|
|
6
|
|
|
(77)
|
|
19
|
|
13
|
|
10
|
|
200
|
|
Ending balance at
June 30, 2019
|
$
|
1,881
|
|
|
$
|
4,713
|
|
|
$
|
2,707
|
|
|
$
|
1,455
|
|
$
|
686
|
|
$
|
188
|
|
$
|
36
|
|
$
|
11,666
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 June 30, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Industrial and Agricultural
|
|
Multi-family
and
Commercial
Real Estate
|
|
Construction
Land
Development and Farmland
|
|
1-4 Family
Residential
Real Estate
|
1-4 Family HELOC
|
Consumer
|
Other
|
Total
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
818
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
818
|
|
Acquired with credit impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Collectively evaluated for impairment
|
3,857
|
|
|
8,407
|
|
|
2,126
|
|
|
1,454
|
|
975
|
|
584
|
16
|
|
17,419
|
|
Total
|
$
|
4,675
|
|
|
$
|
8,407
|
|
|
$
|
2,126
|
|
|
$
|
1,454
|
|
$
|
975
|
|
$
|
584
|
|
$
|
16
|
|
$
|
18,237
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
1,218
|
|
|
$
|
2,667
|
|
|
$
|
1,817
|
|
|
$
|
1,474
|
|
$
|
318
|
|
$
|
—
|
|
$
|
—
|
|
$
|
7,494
|
|
Acquired with credit impairment
|
441
|
|
|
1,341
|
|
|
796
|
|
|
1,005
|
|
14
|
|
1,326
|
|
—
|
|
4,923
|
|
Collectively evaluated for impairment
|
450,969
|
|
|
879,743
|
|
|
334,846
|
|
|
358,429
|
|
84,718
|
|
194,184
|
7,203
|
|
2,310,092
|
|
Total
|
$
|
452,628
|
|
|
$
|
883,751
|
|
|
$
|
337,459
|
|
|
$
|
360,908
|
|
$
|
85,050
|
|
$
|
195,510
|
|
$
|
7,203
|
|
$
|
2,322,509
|
|
The allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Industrial and Agricultural
|
|
Multi-family
and
Commercial
Real Estate
|
|
Construction
Land
Development and Farmland
|
|
1-4 Family
Residential
Real Estate
|
1-4 Family HELOC
|
Consumer
|
Other
|
Total
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
755
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
772
|
|
Acquired with credit impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Collectively evaluated for impairment
|
1,774
|
|
|
5,285
|
|
|
2,632
|
|
|
1,280
|
|
624
|
|
177
|
|
34
|
|
11,806
|
|
Total
|
$
|
2,529
|
|
|
$
|
5,285
|
|
|
$
|
2,649
|
|
|
$
|
1,280
|
|
$
|
624
|
|
$
|
177
|
|
$
|
34
|
|
$
|
12,578
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
1,154
|
|
|
$
|
2,396
|
|
|
$
|
1,218
|
|
|
$
|
1,120
|
|
$
|
374
|
|
$
|
—
|
|
$
|
—
|
|
$
|
6,262
|
|
Acquired with credit impairment
|
—
|
|
|
215
|
|
|
813
|
|
|
195
|
|
—
|
|
—
|
|
—
|
|
1,223
|
|
Collectively evaluated for impairment
|
244,361
|
|
|
534,234
|
|
|
271,841
|
|
|
226,214
|
|
95,854
|
|
16,855
|
|
13,180
|
|
1,402,539
|
|
Total
|
$
|
245,515
|
|
|
$
|
536,845
|
|
|
$
|
273,872
|
|
|
$
|
227,529
|
|
$
|
96,228
|
|
$
|
16,855
|
|
$
|
13,180
|
|
$
|
1,410,024
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
Risk characteristics relevant to each portfolio segment are as follows:
Commercial, industrial and agricultural: The commercial, industrial and agricultural loan portfolio segment includes loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations. Commercial, industrial and agricultural loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis.
Multi-family and commercial real estate: Multi-family and commercial real estate loans are subject to underwriting standards and processes similar to commercial, industrial and agricultural loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.
Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties comprising the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting the market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. Non-owner occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property.
These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or an affiliate of the party, who owns the property.
Construction and land development: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Company also finances construction loans for owner-occupied properties. A portion of the Company’s construction and land development portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). With respect to construction loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
1-4 family residential real estate: Residential real estate loans, which include related manufactured homes with real estate, represent loans to consumers or investors to finance a residence. These loans are typically financed on 15- to 30-year amortization terms, but generally with shorter maturities of 5 to 15 years. Many of these loans are extended to borrowers to finance their primary or secondary residence. Loans to an investor secured by a 1-4 family residence will be repaid from either the rental income from the property or from the sale of the property. This loan segment also includes closed-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home. Loans in this portfolio segment are underwritten and approved based on a number of credit quality criteria including limits on maximum Loan-to-Value ("LTV"), minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these market values impact the depth of potential losses in this portfolio segment.
1-4 family HELOC: This loan segment includes open-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home utilizing a revolving line of credit. These loans are underwritten and approved based on a number of credit quality criteria including limits on maximum LTV, minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these market values impact the depth of potential losses in this portfolio segment. Because of the revolving nature of these loans as well as the fact that many represent second mortgages, this portfolio segment can contain more risk than the amortizing 1-4 family residential real estate loans.
Consumer: The consumer loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures as well as manufactured homes without real estate. Consumer loans may be secured or unsecured and are usually structured with short or medium term maturities. These loans are underwritten and approved based on a number of consumer credit quality criteria including limits on maximum LTV on secured consumer loans, minimum credit scores, and maximum debt to income. Many traditional forms of consumer installment credit have standard monthly payments and fixed repayment schedules of one to five years. These loans are made with either fixed or variable interest rates that are based on specific indices. Loans to finance manufactured homes that are not secured by real estate are classified as consumer loans and have standard monthly payments and fixed repayment schedules of 15 to 23 years. Installment loans fill a variety of needs, such as financing the purchase of an automobile, a boat, a recreational vehicle, or other large personal items, or for consolidating debt. These loans may be unsecured or secured by an assignment of title, as in an automobile loan, or by money in a bank account. In addition to consumer installment loans, this portfolio segment also includes secured and unsecured personal lines of credit as well as overdraft protection lines. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.
Non-accrual loans by class of loan were as follows at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Commercial, Industrial and Agricultural
|
$
|
928
|
|
|
$
|
572
|
|
Multi-family and Commercial Real Estate
|
2,711
|
|
|
1,276
|
|
Construction, Land Development and Farmland
|
412
|
|
|
555
|
|
1-4 Family Residential Real Estate
|
1,468
|
|
|
1,344
|
|
1-4 Family HELOC
|
241
|
|
|
296
|
|
Consumer
|
1,781
|
|
|
28
|
|
Total
|
$
|
7,541
|
|
|
$
|
4,071
|
|
Performing non-accrual loans totaled $2,392 and $1,332 at June 30, 2020 and December 31, 2019, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 June 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
|
$
|
2,845
|
|
|
$
|
670
|
|
|
$
|
989
|
|
|
$
|
1,659
|
|
|
$
|
818
|
|
Multi-family and Commercial Real Estate
|
5,691
|
|
|
4,008
|
|
|
—
|
|
|
4,008
|
|
|
—
|
|
Construction, Land Development and Farmland
|
3,081
|
|
|
2,613
|
|
|
—
|
|
|
2,613
|
|
|
—
|
|
1-4 Family Residential Real Estate
|
3,121
|
|
|
2,479
|
|
|
—
|
|
|
2,479
|
|
|
—
|
|
1-4 Family HELOC
|
438
|
|
|
332
|
|
|
—
|
|
|
332
|
|
|
—
|
|
Consumer
|
3,132
|
|
|
1,326
|
|
|
—
|
|
|
1,326
|
|
|
—
|
|
Total
|
$
|
18,308
|
|
|
$
|
11,428
|
|
|
$
|
989
|
|
|
$
|
12,417
|
|
|
$
|
818
|
|
Individually impaired loans by class of loans were as follows at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
Principal
Balance
|
|
Recorded
Investment
with no
Allowance for Loan Losses
Recorded
|
|
Recorded
Investment
with
Allowance for Loan Losses
Recorded
|
|
Total
Recorded
Investment
|
|
Related
Allowance for Loan Losses
|
Commercial, Industrial and Agricultural
|
$
|
1,154
|
|
|
$
|
—
|
|
|
$
|
1,154
|
|
|
$
|
1,154
|
|
|
$
|
755
|
|
Multi-family and Commercial Real Estate
|
2,624
|
|
|
2,611
|
|
|
—
|
|
|
2,611
|
|
|
—
|
|
Construction, Land Development and Farmland
|
2,348
|
|
|
1,860
|
|
|
171
|
|
|
2,031
|
|
|
17
|
|
1-4 Family Residential Real Estate
|
1,419
|
|
|
1,315
|
|
|
—
|
|
|
1,315
|
|
|
—
|
|
1-4 Family HELOC
|
376
|
|
|
374
|
|
|
—
|
|
|
374
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
7,921
|
|
|
$
|
6,160
|
|
|
$
|
1,325
|
|
|
$
|
7,485
|
|
|
$
|
772
|
|
The average balances of impaired loans for the six months ended June 30, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Commercial, Industrial and Agricultural
|
$
|
1,200
|
|
|
$
|
791
|
|
Multi-family and Commercial Real Estate
|
3,076
|
|
|
2,548
|
|
Construction, Land Development and Farmland
|
2,017
|
|
|
2,747
|
|
1-4 Family Residential Real Estate
|
1,915
|
|
|
1,639
|
|
1-4 Family HELOC
|
380
|
|
|
99
|
|
Consumer
|
448
|
|
|
11
|
|
Total
|
$
|
9,036
|
|
|
$
|
7,835
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
The Company utilizes a risk grading system to monitor the credit quality of the Company’s commercial loan portfolio which consists of commercial, industrial and agricultural, commercial real estate and construction loans. Loans are graded on a scale of 1 to 9. Grades 1 to 5 are pass credits, grade 6 is special mention, grade 7 is substandard, grade 8 is doubtful and grade 9 is loss. A description of the risk grades are as follows:
Grade 1 - Minimal Risk (Pass)
This grade includes loans to borrowers with a strong financial position and history of profits and cash flows sufficient to service the debt. These borrowers have well defined sources of primary/secondary repayment, conservatively leveraged balance sheets and the ability to access a wide range of financing alternatives. Collateral securing these loans is negotiable, of sufficient value and in possession of the Company. Risk of loss is unlikely.
Grade 2 - High Quality (Pass)
This grade includes loans to borrowers with a strong financial condition reflecting dependable net profits and cash flows. The borrower has verifiable liquid net worth providing above average asset protection. An identifiable market exists for the collateral. Risk of loss is unlikely.
Grade 3 - Above Average (Pass)
This grade includes loans to borrowers with a balance sheet that reflects a comfortable degree of leverage and liquidity. Borrowers are profitable and have a sustained record of servicing debt. An identifiable market exists for the collateral, but liquidation could take up to one year. Risk of loss is unlikely.
Grade 4 - Average (Pass)
This grade includes loans to borrowers with a financial condition that is satisfactory and comparable to industry standards. The borrower has verifiable net worth, providing over time average asset protection. The borrower's cash flows are sufficient to satisfy debt service requirements. Risk of loss is below average.
Grade 5 - Acceptable (Management Attention) (Pass)
This grade includes loans to borrowers whose loans are performing, but sources of repayment are not documented by the current credit analysis. There are some declining trends in margins, ratios and/or cash flow. Guarantor(s) have strong net worth(s), but assets may be concentrated in real estate or other illiquid investments. Risk of loss is average.
Grade 6 - Special Mention
Special mention assets have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s position at some future date. These assets pose elevated risk, but their weakness does not yet justify a substandard classification. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. The special mention rating is designed to identify a specific level of risk and concern about asset quality. Although a special mention asset has a higher probability of default than a pass asset, its default is not imminent.
Grade 7 - Substandard
A ‘‘substandard’’ extension of credit is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit so classified should have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard credits, does not have to exist in individual extensions of credit classified substandard. Substandard assets have a high probability of payment default, or they have other well-defined weaknesses. They require more intensive supervision by Company management. Substandard assets are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
Grade 8 - Doubtful
An extension of credit classified ‘‘doubtful’’ has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage of and strengthen the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceedings, capital injection, perfecting liens on additional collateral, or refinancing plans. Generally, the doubtful classification should not extend for a long period of time because in most cases the pending factors or events that warranted the doubtful classification should be resolved either positively or negatively in a reasonable period of time.
Grade 9 - Loss
Extensions of credit classified ‘‘loss’’ are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. Amounts classified loss should be promptly charged off. The Company will not attempt long term recoveries while the credit remains on the Company’s books. Losses should be taken in the period in which they surface as uncollectible. With loss assets, the underlying borrowers are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Once an asset is classified loss, there is little prospect of collecting either its principal or interest.
Non-commercial purpose loans are initially assigned a default loan grade of 99 (Pass) and are risk graded (Grade 6, 7, or 8) according to delinquency status when applicable.
Credit quality indicators by class of loan were as follows at June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
|
|
Total
|
Commercial, Industrial and Agricultural
|
$
|
448,744
|
|
|
$
|
1,551
|
|
|
$
|
2,333
|
|
|
|
|
$
|
452,628
|
|
1-4 Family Residential Real Estate
|
357,377
|
|
|
115
|
|
|
3,416
|
|
|
|
|
360,908
|
|
1-4 Family HELOC
|
84,718
|
|
|
—
|
|
|
332
|
|
|
|
|
85,050
|
|
Multi-family and Commercial Real Estate
|
877,359
|
|
|
705
|
|
|
5,687
|
|
|
|
|
883,751
|
|
Construction, Land Development and Farmland
|
335,771
|
|
|
—
|
|
|
1,688
|
|
|
|
|
337,459
|
|
Consumer
|
192,837
|
|
|
9
|
|
|
2,664
|
|
|
|
|
195,510
|
|
Other
|
5,683
|
|
|
1,520
|
|
|
—
|
|
|
|
|
7,203
|
|
Total
|
$
|
2,302,489
|
|
|
$
|
3,900
|
|
|
$
|
16,120
|
|
|
|
|
$
|
2,322,509
|
|
Credit quality indicators by class of loan were as follows at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Total
|
Commercial, Industrial and Agricultural
|
$
|
241,089
|
|
|
$
|
2,382
|
|
|
$
|
2,044
|
|
|
$
|
245,515
|
|
1-4 Family Residential Real Estate
|
225,809
|
|
|
—
|
|
|
1,720
|
|
|
227,529
|
|
1-4 Family HELOC
|
95,678
|
|
|
—
|
|
|
550
|
|
|
96,228
|
|
Multi-family and Commercial Real Estate
|
531,055
|
|
|
1,519
|
|
|
4,271
|
|
|
536,845
|
|
Construction, Land Development and Farmland
|
272,440
|
|
|
—
|
|
|
1,432
|
|
|
273,872
|
|
Consumer
|
16,634
|
|
|
—
|
|
|
221
|
|
|
16,855
|
|
Other
|
13,180
|
|
|
—
|
|
|
—
|
|
|
13,180
|
|
Total
|
$
|
1,395,885
|
|
|
$
|
3,901
|
|
|
$
|
10,238
|
|
|
$
|
1,410,024
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
Past due status by class of loan was as follows at June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90+ Days
Past Due
|
|
Total
Past Due
|
|
Current
|
|
Total Loans
|
Commercial, Industrial and Agricultural
|
$
|
600
|
|
|
$
|
5
|
|
|
$
|
490
|
|
|
$
|
1,095
|
|
|
$
|
451,533
|
|
|
$
|
452,628
|
|
1-4 Family Residential Real Estate
|
790
|
|
|
760
|
|
|
483
|
|
|
2,033
|
|
|
358,875
|
|
|
360,908
|
|
1-4 Family HELOC
|
—
|
|
|
—
|
|
|
198
|
|
|
198
|
|
|
84,852
|
|
|
85,050
|
|
Multi-family and Commercial Real Estate
|
—
|
|
|
—
|
|
|
2,166
|
|
|
2,166
|
|
|
881,585
|
|
|
883,751
|
|
Construction, Land Development and Farmland
|
411
|
|
|
569
|
|
|
225
|
|
|
1,205
|
|
|
336,254
|
|
|
337,459
|
|
Consumer
|
407
|
|
|
326
|
|
|
913
|
|
|
1,646
|
|
|
193,864
|
|
|
195,510
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,203
|
|
|
7,203
|
|
Total
|
$
|
2,208
|
|
|
$
|
1,660
|
|
|
$
|
4,475
|
|
|
$
|
8,343
|
|
|
$
|
2,314,166
|
|
|
$
|
2,322,509
|
|
Past due status by class of loan was as follows at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90+ Days
Past Due
|
|
Total
Past Due
|
|
Current
|
|
Total Loans
|
Commercial, Industrial and Agricultural
|
$
|
79
|
|
|
$
|
4
|
|
|
$
|
572
|
|
|
$
|
655
|
|
|
$
|
244,860
|
|
|
$
|
245,515
|
|
1-4 Family Residential Real Estate
|
501
|
|
|
236
|
|
|
229
|
|
|
966
|
|
|
226,563
|
|
|
227,529
|
|
1-4 Family HELOC
|
—
|
|
|
—
|
|
|
296
|
|
|
296
|
|
|
95,932
|
|
|
96,228
|
|
Multi-family and Commercial Real Estate
|
485
|
|
|
—
|
|
|
558
|
|
|
1,043
|
|
|
535,802
|
|
|
536,845
|
|
Construction, Land Development and Farmland
|
255
|
|
|
—
|
|
|
339
|
|
|
594
|
|
|
273,278
|
|
|
273,872
|
|
Consumer
|
38
|
|
|
26
|
|
|
64
|
|
|
128
|
|
|
16,727
|
|
|
16,855
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,180
|
|
|
13,180
|
|
Total
|
$
|
1,358
|
|
|
$
|
266
|
|
|
$
|
2,058
|
|
|
$
|
3,682
|
|
|
$
|
1,406,342
|
|
|
$
|
1,410,024
|
|
There were no loans past due 90 days or more and still accruing interest at June 30, 2020. However, credit card balances totaling $8 were past due 90 days or more and still accruing interest. At December 31, 2019, there was one loan totaling $64 past due 90 days or more and still accruing interest.
Mortgage loans held for sale of $101,579 are excluded from the loans and allowance tables herein. While the majority of this balance is current, loans past due 30-59 days are $3,270 and $184 as of June 30, 2020 and December 31, 2019, respectively. No mortgage loans held for sale were past due 60 days or more as of June 30, 2020 or December 31, 2019, respectively.
The following table presents loans by class modified as troubled debt restructurings ("TDRs") during the first six months of 2020. There were no loans that were modified as TDRs during the six months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Contracts
|
|
Pre-Modification Outstanding Recorded Investments
|
|
Post-Modification Outstanding Recorded Investments
|
June 30, 2020
|
|
|
|
|
|
Commercial, Industrial and Agricultural
|
1
|
|
|
$
|
150
|
|
|
$
|
150
|
|
Multi-family and Commercial Real Estate
|
1
|
|
|
721
|
|
|
721
|
|
1-4 Family Residential
|
1
|
|
|
394
|
|
|
394
|
|
Total
|
3
|
|
|
$
|
1,265
|
|
|
$
|
1,265
|
|
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020, and subsequent regulatory guidance provide that financial institutions may elect to account for certain loan modifications due to COVID-19 as not TDRs. The Company had applied this guidance to approve initial modifications in April and May 2020 for
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
loans with principal balances of $530.7 million. The majority of these modifications were for a period of up to three months and contained either interest-only periods or full payment deferrals. Through August 5, 2020, further modifications were approved for $39.0 million of the loans previously modified. Additional modifications of these loans are likely to be executed in the third quarter of 2020.
The CARES Act provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. 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 completion of the FABK Transaction as disclosed in Note 12, we assumed their qualified SBA lender status. The Company originated $83.3 million of PPP loans in the second quarter of 2020 which are included in the commercial, industrial, and agricultural segment.
The Company has acquired loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The outstanding balance and carrying amount of the purchased credit impaired loans were as follows at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Commercial, Industrial and Agricultural
|
$
|
1,192
|
|
|
$
|
—
|
|
Multi-family and Commercial Real Estate
|
2,372
|
|
|
217
|
|
Construction, Land Development and Farmland
|
1,012
|
|
|
1,021
|
|
1-4 Family Residential Real Estate
|
1,314
|
|
|
231
|
|
1-4 Family HELOC
|
18
|
|
|
—
|
|
Consumer
|
2,416
|
|
|
—
|
|
Total outstanding balance
|
8,324
|
|
|
1,469
|
|
Less remaining purchase discount
|
3,401
|
|
|
246
|
|
Allowance for loan losses
|
—
|
|
|
—
|
|
Carrying amount, net of allowance for loan losses and remaining purchase discounts
|
$
|
4,923
|
|
|
$
|
1,223
|
|
Activity related to the accretable portion of the purchase discount on loans acquired with deteriorated credit quality is as follows for the six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Balance at January 1,
|
$
|
98
|
|
|
$
|
110
|
|
New loans purchased
|
870
|
|
|
—
|
|
Year-to-date settlements
|
(80)
|
|
|
(7)
|
|
Balance at June 30,
|
$
|
888
|
|
|
$
|
103
|
|
NOTE 4 - OTHER REAL ESTATE
At June 30, 2020, and December 31, 2019, the Company held other real estate recorded at a value of $2,514 and $750, respectively, which represents fair value less costs to sell. The June 30, 2020 balance included retired bank facilities of $2,420 and two manufactured housing properties valued at $94. These residential properties were part of the four properties valued at $208 added through the acquisition of First Advantage Bank in the second quarter of 2020. During the three months ended June 30, 2020, the Company sold two of these properties resulting in a gain on sale of $11. Additionally, at June 30, 2020, there were three real estate loans with related balances totaling $320 in the process of foreclosure. Of the two retired bank facilities no longer in use, one sold as of July 31, 2020. Expenses related to other real estate totaled $4 for the three and six months ended June 30, 2020, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
NOTE 5 - FAIR VALUES OF ASSETS AND LIABILITIES
Financial accounting standards relating to fair value measurements establish a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2 Inputs to the valuation methodology include:
•Quoted prices for similar assets or liabilities in active markets;
•Quoted prices for identical or similar assets or liabilities in inactive markets;
•Inputs other than quoted prices that are observable for the asset or liability; and
•Inputs that are derived principally from or corroborated by the observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 Inputs to the valuation methodology are unobservable and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis:
Securities available for sale: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Company obtains fair value measurements for securities available for sale from an independent pricing service. The fair value measurements consider observable data that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, cash flows and reference data, including market research publications, among other things.
Interest rate swaps: The fair values of interest rate swaps are determined based on discounted future cash flows.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis include the following:
Impaired Loans: The fair value of an impaired loan with specific allocations of the allowance for loan losses is generally based on the present value of expected payments using the loan’s effective rate as the discount rate or recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
Other Real Estate: The fair value of other real estate is generally based on recent real estate appraisals less estimated disposition cost. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in Level 3 classification of the inputs for determining fair value.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company’s valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
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 June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
June 30, 2020
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
U. S. Treasury and other U. S. government agencies
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
55
|
|
|
$
|
—
|
|
State and municipal
|
185,726
|
|
|
—
|
|
|
185,726
|
|
|
—
|
|
Corporate bonds
|
11,266
|
|
|
—
|
|
|
11,266
|
|
|
—
|
|
Mortgage backed securities
|
36,443
|
|
|
—
|
|
|
36,443
|
|
|
—
|
|
Asset backed securities
|
15,524
|
|
|
—
|
|
|
15,524
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
10,795
|
|
|
$
|
—
|
|
|
$
|
10,795
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
U. S. Treasury and other U. S. government agencies
|
$
|
59
|
|
|
$
|
—
|
|
|
$
|
59
|
|
|
$
|
—
|
|
State and municipal
|
196,660
|
|
|
—
|
|
|
196,660
|
|
|
—
|
|
Corporate bonds
|
7,845
|
|
|
—
|
|
|
7,845
|
|
|
—
|
|
Mortgage backed securities
|
37,761
|
|
|
—
|
|
|
37,761
|
|
|
—
|
|
Asset backed securities
|
17,968
|
|
|
—
|
|
|
17,968
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
688
|
|
|
—
|
|
|
688
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
3,396
|
|
|
$
|
—
|
|
|
$
|
3,396
|
|
|
$
|
—
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
June 30, 2020
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Impaired loans
|
$
|
171
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
171
|
|
Other real estate
|
2,514
|
|
|
—
|
|
|
—
|
|
|
2,514
|
|
Other repossessions
|
1,508
|
|
|
—
|
|
|
—
|
|
|
1,508
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Impaired loans
|
$
|
553
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
553
|
|
Other real estate
|
750
|
|
—
|
|
|
—
|
|
|
750
|
|
Other repossessions
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
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 June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
Techniques (1)
|
|
Significant
Unobservable Inputs
|
|
Range
(Weighted Average)
|
Impaired loans
|
Appraisal
|
|
Estimated costs to sell
|
|
10%
|
Other real estate
|
Appraisal
|
|
Estimated costs to sell
|
|
10%
|
Other repossessions
|
Third-party guidelines
|
|
Estimated costs to sell
|
|
10%
|
(1)The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. Estimated cash flows change and appraised values of the assets or collateral underlying the loans will be sensitive to changes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 June 30, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
Financial assets
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
$
|
93,838
|
|
|
$
|
93,838
|
|
|
$
|
93,838
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Federal funds sold
|
638
|
|
|
638
|
|
|
—
|
|
|
638
|
|
|
—
|
|
Loans, net
|
2,299,087
|
|
|
2,297,086
|
|
|
—
|
|
|
—
|
|
|
2,297,086
|
|
Mortgage loans held for sale
|
101,579
|
|
|
102,531
|
|
|
—
|
|
|
102,531
|
|
|
—
|
|
Accrued interest receivable
|
13,901
|
|
|
13,901
|
|
|
—
|
|
|
13,901
|
|
|
—
|
|
Restricted equity securities
|
17,509
|
|
|
17,509
|
|
|
—
|
|
|
17,509
|
|
|
—
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
Deposits
|
$
|
2,530,062
|
|
|
$
|
2,537,890
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,537,890
|
|
Accrued interest payable
|
2,918
|
|
|
2,918
|
|
|
—
|
|
|
2,918
|
|
|
—
|
|
Subordinate debentures
|
70,413
|
|
|
67,543
|
|
|
—
|
|
|
—
|
|
|
67,543
|
|
Federal Home Loan Bank advances
|
49,121
|
|
|
49,552
|
|
|
—
|
|
|
—
|
|
|
49,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
$
|
50,990
|
|
|
$
|
50,990
|
|
|
$
|
50,990
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Federal funds sold
|
52
|
|
|
52
|
|
|
—
|
|
|
52
|
|
|
—
|
|
Loans, net
|
1,397,374
|
|
|
1,383,719
|
|
|
—
|
|
|
—
|
|
|
1,383,719
|
|
Mortgage loans held for sale
|
37,476
|
|
|
38,379
|
|
|
—
|
|
|
38,379
|
|
|
—
|
|
Accrued interest receivable
|
7,111
|
|
|
7,111
|
|
|
—
|
|
|
7,111
|
|
|
—
|
|
Restricted equity securities
|
11,279
|
|
|
11,279
|
|
|
—
|
|
|
11,279
|
|
|
—
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
Deposits
|
$
|
1,583,789
|
|
|
$
|
1,582,117
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,582,117
|
|
Accrued interest payable
|
2,022
|
|
|
2,022
|
|
|
—
|
|
|
2,022
|
|
|
—
|
|
Subordinate debentures
|
70,883
|
|
|
71,454
|
|
|
—
|
|
|
—
|
|
|
71,454
|
|
Federal Home Loan Bank advances
|
10,737
|
|
|
10,755
|
|
|
—
|
|
|
—
|
|
|
10,755
|
|
The methods and assumptions used to estimate fair value are described as follows:
Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, restricted equity securities, federal funds sold or purchased, demand deposits, and variable rate loans or deposits that re-price frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of debt is based on discounted cash flows using current rates for similar financing.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
NOTE 6 - STOCK-BASED COMPENSATION
In 2006, the Board of Directors and shareholders of the Bank (then known as "Commerce Union Bank") approved the Commerce Union Bank Stock Option Plan (the “Plan”). The Plan provided for the granting of stock options for up to 625,000 shares of Bank common stock to employees and organizers and authorized the issuance of Bank common stock upon the exercise of such options. As part of the Bank's reorganization into a holding company corporate structure in 2012, all Bank options were replaced with Commerce Union Bancshares, Inc. (now known as "Reliant Bancorp, Inc.") options with no change in terms.
On March 10, 2015, the shareholders of Reliant Bancorp (then known as "Commerce Union Bancshares, Inc.") approved the Commerce Union Bancshares, Inc. Amended and Restated Stock Option Plan (the “A&R Plan”), which permits the grant of awards with respect to up to 1,250,000 shares of Reliant Bancorp common stock in the form of stock options. As part of the merger of Commerce Union Bank and Reliant Bank in 2015, all outstanding stock options of Reliant Bank were converted to stock options of Reliant Bancorp (then known as "Commerce Union Bancshares, Inc.") under the A&R Plan. Under the A&R Plan, stock option awards may be granted in the form of incentive stock options or non-statutory stock options, and are generally exercisable for up to 10 years following the date such option awards are granted. Exercise prices of incentive stock options must be equal to or greater than the fair market value of Reliant Bancorp's common stock on the grant date.
On June 18, 2015, the shareholders of Reliant Bancorp (then known as "Commerce Union Bancshares, Inc.") approved the Commerce Union Bancshares, Inc. 2015 Equity Incentive Plan, which reserves up to 900,000 shares of Reliant Bancorp common stock to be subject to awards under the plan, including awards in the form of stock options, restricted stock grants, performance-based awards, and other awards denominated or payable by reference to or based on or related to Reliant Bancorp common stock.
Common Stock Options
A summary of stock option activity for the six months ended June 30, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
|
Outstanding at January 1, 2020
|
149,293
|
|
$
|
18.81
|
|
|
6.68 years
|
|
$
|
553
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Exercised
|
(1,889)
|
|
$
|
11.47
|
|
|
|
|
|
Forfeited or expired
|
(12,700)
|
|
$
|
21.82
|
|
|
|
|
|
Outstanding at June 30, 2020
|
134,704
|
|
$
|
18.68
|
|
|
6.13 years
|
|
$
|
191
|
|
Exercisable at June 30, 2020
|
74,004
|
|
$
|
15.63
|
|
|
4.82 years
|
|
$
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant-Date Fair Value
|
Non-vested options at January 1, 2020
|
74,600
|
|
|
$6.08
|
Granted
|
—
|
|
|
$—
|
Vested
|
(3,200)
|
|
|
$5.91
|
Forfeited
|
(10,700)
|
|
|
$5.86
|
Non-vested options at June 30, 2020
|
60,700
|
|
|
$6.13
|
As of June 30, 2020, there was $267 of unrecognized future compensation expense to be recognized related to stock options.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
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 six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
|
|
Restricted Stock
|
|
|
|
Underlying Shares
|
|
Weighted Average Grant-Date
Fair Value
|
|
Shares
|
|
Weighted Average Grant-Date
Fair Value
|
Non-vested units/shares at January 1, 2020
|
47,750
|
|
|
$
|
23.30
|
|
|
90,960
|
|
|
$
|
25.31
|
|
Granted
|
10,000
|
|
|
12.63
|
|
|
—
|
|
|
—
|
|
Vested
|
(3,022)
|
|
|
23.30
|
|
|
(16,466)
|
|
|
23.41
|
|
Forfeited
|
(978)
|
|
|
23.30
|
|
|
(5,534)
|
|
|
23.35
|
|
Non-vested units/shares at June 30, 2020
|
53,750
|
|
|
$
|
21.31
|
|
|
68,960
|
|
|
$
|
25.92
|
|
As of June 30, 2020, there was $981 of unrecognized compensation cost related to non-vested restricted stock and restricted stock unit awards.
NOTE 7 - REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to regulatory capital requirements administered by the federal and state banking agencies. As of June 30, 2020, Reliant Bancorp fell under the Federal Reserve's Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (the “Small Bank Holding Company Policy Statement”), which is generally applicable to bank holding companies with consolidated assets of less than $3 billion, and was, therefore, not subject to consolidated capital requirements. However, we have chosen to provide our consolidated capital ratios below. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of June 30, 2020, the Bank meets all capital adequacy requirements to which it is subject.
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 only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At June 30, 2020 and December 31, 2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.
In July 2013, the Federal Deposit Insurance Corporation (FDIC) approved final rules that substantially amended the regulatory risk-based capital rules applicable to Reliant Bancorp and the Bank. The final rules implement the regulatory capital reforms of the Basel Committee on Banking Supervision reflected in “Basel III: A Global Framework for More Resilient Banks and Banking Systems” ("Basel III") and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
Under these rules, the leverage and risk-based capital ratios of bank holding companies (other than bank holding companies that
fall under the Small Bank Holding Company Policy Statement and are not subject to consolidated capital requirements) may not be lower than the leverage and risk-based capital ratios for insured depository institutions. The final rules implementing Basel III became effective on January 1, 2015, and include new minimum risk-based capital and leverage ratios and a new common equity tier 1 ratio. In addition, these rules refine the definition of what constitutes capital for purposes of calculating those ratios, including the definitions of Tier 1 capital and Tier 2 capital.
Basel III established a “capital conservation buffer” of 2.5%. An institution is subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer.
Capital amounts and ratios for Reliant Bancorp and the Bank (required) are presented below as of June 30, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
Regulatory
Capital
|
|
|
|
Minimum Required
Capital Including
Capital Conservation
Buffer
|
|
|
|
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Reliant Bancorp
|
|
|
|
|
|
|
|
|
|
|
|
Tier I leverage
|
$
|
243,428
|
|
|
8.47
|
%
|
|
$
|
114,960
|
|
|
4.00
|
%
|
|
$
|
143,700
|
|
|
5.00
|
%
|
Common equity tier I
|
231,701
|
|
|
9.25
|
%
|
|
175,341
|
|
|
7.00
|
%
|
|
162,817
|
|
|
6.50
|
%
|
Tier I risk-based capital
|
243,428
|
|
|
9.71
|
%
|
|
213,094
|
|
|
8.50
|
%
|
|
200,559
|
|
|
8.00
|
%
|
Total risk-based capital
|
320,776
|
|
|
12.80
|
%
|
|
263,150
|
|
|
10.50
|
%
|
|
250,619
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
|
|
|
|
|
|
|
|
|
Tier I leverage
|
$
|
293,602
|
|
|
10.23
|
%
|
|
$
|
114,791
|
|
|
4.00
|
%
|
|
$
|
143,489
|
|
|
5.00
|
%
|
Common equity tier I
|
293,602
|
|
|
11.74
|
%
|
|
175,028
|
|
|
7.00
|
%
|
|
162,526
|
|
|
6.50
|
%
|
Tier I risk-based capital
|
293,602
|
|
|
11.74
|
%
|
|
212,534
|
|
|
8.50
|
%
|
|
200,032
|
|
|
8.00
|
%
|
Total risk-based capital
|
312,264
|
|
|
12.49
|
%
|
|
262,541
|
|
|
10.50
|
%
|
|
250,039
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Reliant Bancorp
|
|
|
|
|
|
|
|
|
|
|
|
Tier I leverage
|
$
|
176,748
|
|
|
9.74
|
%
|
|
$
|
72,586
|
|
|
4.00
|
%
|
|
$
|
90,733
|
|
|
5.00
|
%
|
Common equity tier I
|
165,063
|
|
|
10.55
|
%
|
|
109,520
|
|
|
7.00
|
%
|
|
101,698
|
|
|
6.50
|
%
|
Tier I risk-based capital
|
176,748
|
|
|
11.30
|
%
|
|
132,952
|
|
|
8.50
|
%
|
|
125,131
|
|
|
8.00
|
%
|
Total risk-based capital
|
249,751
|
|
|
15.97
|
%
|
|
164,207
|
|
|
10.50
|
%
|
|
156,388
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
|
|
|
|
|
|
|
|
|
Tier I leverage
|
$
|
186,734
|
|
|
10.30
|
%
|
|
$
|
72,518
|
|
|
4.00
|
%
|
|
$
|
90,648
|
|
|
5.00
|
%
|
Common equity tier I
|
186,734
|
|
|
11.95
|
%
|
|
109,384
|
|
|
7.00
|
%
|
|
101,571
|
|
|
6.50
|
%
|
Tier I risk-based capital
|
186,734
|
|
|
11.95
|
%
|
|
132,823
|
|
|
8.50
|
%
|
|
125,010
|
|
|
8.00
|
%
|
Total risk-based capital
|
199,737
|
|
|
12.79
|
%
|
|
163,975
|
|
|
10.50
|
%
|
|
156,167
|
|
|
10.00
|
%
|
NOTE 8 - EARNINGS PER SHARE
The following is a summary of the components comprising basic and diluted earnings per common share of stock ("EPS"):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
Basic EPS Computation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
$
|
7,868
|
|
|
$
|
4,239
|
|
|
$
|
7,653
|
|
|
$
|
8,063
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
16,496,817
|
|
|
11,196,898
|
|
|
14,196,254
|
|
|
11,300,095
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.48
|
|
|
$
|
0.38
|
|
|
$
|
0.54
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
Diluted EPS Computation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
$
|
7,868
|
|
|
$
|
4,239
|
|
|
$
|
7,653
|
|
|
$
|
8,063
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
16,496,817
|
|
|
11,196,898
|
|
|
14,196,254
|
|
|
11,300,095
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options, restricted stock shares and units, and employee stock purchase plan
|
32,263
|
|
|
89,729
|
|
|
44,911
|
|
|
78,300
|
|
|
|
|
|
|
|
|
Adjusted weighted average common shares outstanding
|
16,529,080
|
|
|
11,286,627
|
|
|
14,241,165
|
|
|
11,378,395
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
$
|
0.48
|
|
|
$
|
0.38
|
|
|
$
|
0.54
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
NOTE 9 - SEGMENT REPORTING
The Company has two reportable business segments: retail banking and residential mortgage banking. Segment information is derived from the internal reporting system utilized by management. Revenues and expenses for segments reflect those which can be specifically identified and have been assigned based on internally developed allocation methods. Financial results have been presented, to the extent practicable, as if each segment operated on a stand-alone basis.
Retail Banking provides deposit and lending services to consumer and business customers within our primary geographic markets. Our customers are serviced through branch locations, ATMs, online banking, and mobile banking.
Residential Mortgage Banking originates traditional first lien residential mortgage loans and first lien home equity lines of credit throughout the United States. The traditional first lien residential mortgage loans are typically underwritten to government agency standards and sold to third-party secondary market mortgage investors. The home equity lines of credit are typically sold to participating banks or other investor groups and are underwritten to their standards.
During the second quarter of 2019, RMV began acquiring loans from approved correspondent lenders and reselling them in the secondary market. These loans are not government agency-qualified loans and are of higher risk, such as jumbo loans or senior position home equity lines of credit.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
The following presents summarized results of operations for the Company’s business segments for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2020
|
|
|
|
|
|
|
|
Retail Banking
|
|
Residential
Mortgage
Banking
|
|
Elimination
Entries
|
|
Consolidated
|
Net interest income
|
$
|
29,420
|
|
|
$
|
536
|
|
|
$
|
—
|
|
|
$
|
29,956
|
|
Provision for loan losses
|
3,000
|
|
|
—
|
|
|
—
|
|
|
3,000
|
|
Noninterest income
|
2,174
|
|
|
2,240
|
|
|
8
|
|
|
4,422
|
|
Noninterest expense (excluding merger expense)
|
16,433
|
|
|
3,199
|
|
|
—
|
|
|
19,632
|
|
Merger expense
|
2,632
|
|
|
—
|
|
|
—
|
|
|
2,632
|
|
Income tax expense (benefit)
|
1,661
|
|
|
(27)
|
|
|
—
|
|
|
1,634
|
|
Net income (loss)
|
7,868
|
|
|
(396)
|
|
|
8
|
|
|
7,480
|
|
Noncontrolling interest in net loss of subsidiary
|
—
|
|
|
396
|
|
|
(8)
|
|
|
388
|
|
Net income attributable to common shareholders
|
$
|
7,868
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
|
|
|
|
|
|
Retail Banking
|
|
Residential Mortgage Banking
|
|
Elimination Entries
|
|
Consolidated
|
Net interest income
|
$
|
13,703
|
|
|
$
|
110
|
|
|
$
|
—
|
|
|
$
|
13,813
|
|
Provision for loan losses
|
200
|
|
|
—
|
|
|
—
|
|
|
200
|
|
Noninterest income
|
1,473
|
|
|
1,235
|
|
|
(10)
|
|
|
2,698
|
|
Noninterest expense (excluding merger expense)
|
10,129
|
|
|
2,996
|
|
|
—
|
|
|
13,125
|
|
Merger expense
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Income tax expense (benefit)
|
607
|
|
|
(106)
|
|
|
—
|
|
|
501
|
|
Net income (loss)
|
4,239
|
|
|
(1,545)
|
|
|
(10)
|
|
|
2,684
|
|
Noncontrolling interest in net loss of subsidiary
|
—
|
|
|
1,545
|
|
|
10
|
|
|
1,555
|
|
Net income attributable to common shareholders
|
$
|
4,239
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
Retail Banking
|
|
Residential Mortgage Banking
|
|
Elimination Entries
|
|
Consolidated
|
Net interest income
|
$
|
46,202
|
|
|
$
|
869
|
|
|
$
|
—
|
|
|
$
|
47,071
|
|
Provision for loan losses
|
5,900
|
|
|
—
|
|
|
—
|
|
|
5,900
|
|
Noninterest income
|
3,883
|
|
|
3,804
|
|
|
17
|
|
|
7,704
|
|
Noninterest expense (excluding merger expense)
|
28,894
|
|
|
6,150
|
|
|
—
|
|
|
35,044
|
|
Merger expense
|
6,818
|
|
|
—
|
|
|
—
|
|
|
6,818
|
|
Income tax expense (benefit)
|
820
|
|
|
(96)
|
|
|
—
|
|
|
724
|
|
Net income (loss)
|
7,653
|
|
|
(1,381)
|
|
|
17
|
|
|
6,289
|
|
Noncontrolling interest in net loss of subsidiary
|
—
|
|
|
1,381
|
|
|
(17)
|
|
|
1,364
|
|
Net income attributable to common shareholders
|
$
|
7,653
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,653
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
Retail Banking
|
|
Residential Mortgage Banking
|
|
Elimination Entries
|
|
Consolidated
|
Net interest income
|
$
|
27,076
|
|
|
$
|
198
|
|
|
$
|
—
|
|
|
$
|
27,274
|
|
Provision for loan losses
|
200
|
|
|
—
|
|
|
—
|
|
|
200
|
|
Noninterest income
|
2,851
|
|
|
1,810
|
|
|
(25)
|
|
|
4,636
|
|
Noninterest expense (excluding merger expense)
|
20,574
|
|
|
5,295
|
|
|
—
|
|
|
25,869
|
|
Merger expense
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Income tax expense (benefit)
|
1,087
|
|
|
(214)
|
|
|
—
|
|
|
873
|
|
Net income (loss)
|
8,063
|
|
|
(3,073)
|
|
|
(25)
|
|
|
4,965
|
|
Noncontrolling interest in net loss of subsidiary
|
—
|
|
|
3,073
|
|
|
25
|
|
|
3,098
|
|
Net income attributable to common shareholders
|
$
|
8,063
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,063
|
|
NOTE 10 - DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and other terms of the individual interest rate swap agreements.
Interest Rate Swaps Designated as Cash Flow Hedges
Interest rate swaps with notional amounts totaling $160,000 as of June 30, 2020 were designated as cash flow hedges of certain short-term interest-bearing liabilities and subordinated debentures, which are fully effective. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swap agreements.
Summary information related to the interest rate swaps designated as cash flow hedges as of June 30, 2020, is as follows:
|
|
|
|
|
|
Notional amounts
|
$
|
160,000
|
|
Weighted average pay rates
|
2.050
|
%
|
Weighted average receive rates
|
1.679
|
%
|
Weighted average maturity
|
3.60 years
|
Unrealized losses
|
$
|
9,034
|
|
Cash Flow Hedges
The following table presents the net gains (losses) recorded in accumulated other comprehensive income and the Consolidated Statements of Income relating to the cash flow derivative instruments for the three months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in OCI
(Effective Portion)
|
|
Amount of Gain (Loss) Reclassified from OCI to Interest Income
|
|
Amount of Gain (Loss) Recognized in Other Noninterest Income (Ineffective Portion)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
Interest rate contracts
|
$
|
(5,137)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 June 30, 2020 and December 31, 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
Notional Amount
|
|
Fair Value
|
|
Notional Amount
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in other liabilities:
|
|
|
|
|
|
|
|
Interest rate swaps related to:
|
|
|
|
|
|
|
|
Subordinate debentures
|
$
|
10,000
|
|
|
$
|
819
|
|
|
$
|
10,000
|
|
|
$
|
439
|
|
Short-term interest bearing liabilities
|
150,000
|
|
|
8,215
|
|
|
100,000
|
|
|
1,639
|
|
Total included in other liabilities
|
$
|
160,000
|
|
|
$
|
9,034
|
|
|
$
|
110,000
|
|
|
$
|
2,078
|
|
Fair Value Hedges
The following table reflects the fair value hedges included in the Consolidated Statements of Income for the six months ended June 30, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
Location
|
|
June 30, 2020
|
|
June 30, 2019
|
Change in fair value on interest rate swaps hedging investments
|
Interest income
|
|
$
|
(1,131)
|
|
|
$
|
(1,057)
|
|
The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
Notional Amount
|
|
Fair Value
|
|
Notional Amount
|
|
Fair Value
|
Included in other assets:
|
|
|
|
|
|
|
|
Interest rate swaps related to investments
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total included in other assets
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Included in other liabilities:
|
|
|
|
|
|
|
|
Interest rate swaps related to investments
|
19,605
|
|
|
1,761
|
|
|
19,605
|
|
|
630
|
|
Total included in other liabilities
|
$
|
19,605
|
|
|
$
|
1,761
|
|
|
$
|
19,605
|
|
|
$
|
630
|
|
NOTE 11 – INCOME TAXES
Income tax expense for the three and six months ended June 30, 2020 totaled $1,634 and $724, respectively, compared to $501 and $873, respectively, for the three and six months ended June 30, 2019. The effective tax rate for the three and six months ended June 30, 2020 was 17.9% and 10.3%, respectively, compared to 15.7% and 15.0%, respectively, for the three and six months ended June 30, 2019. During the three and six months ended June 30, 2020, merger expenses and the provision expense had the impact of reducing taxable income and increasing the proportion of tax-exempt income to total income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
NOTE 12 - BUSINESS COMBINATIONS
Tennessee Community Bank Holdings, Inc.
Effective January 1, 2020, Reliant Bancorp completed the acquisition of TCB Holdings pursuant to the Agreement and Plan of Merger, dated September 16, 2019 (the “TCB Holdings Agreement”), by and among Reliant Bancorp, TCB Holdings, and Community Bank & Trust, a Tennessee-chartered commercial bank and wholly owned subsidiary of TCB Holdings (“CBT”). On the terms and subject to the conditions set forth in the TCB Holdings Agreement, TCB Holdings merged with and into the Reliant Bancorp (the “TCB Holdings Transaction”), with Reliant Bancorp as the surviving corporation. Immediately following the TCB Holdings Transaction, CBT merged with and into the Bank, with the Bank continuing as the surviving banking corporation. Pursuant to the TCB Holdings Agreement, at the effective time of the TCB Holdings Transaction, each outstanding share of TCB Holdings common stock, par value $1.00 per share (other than certain excluded shares), was converted into and canceled in exchange for the right to receive (i) $17.13 in cash, without interest, and (ii) 0.769 shares of the Reliant Bancorp’s common stock, par value $1.00 per share (“Reliant Bancorp Common Stock”). The aggregate consideration payable by Reliant Bancorp in respect of shares of TCB Holdings common stock as consideration for the TCB Holdings Transaction was 811,210 shares of Reliant Bancorp Common Stock and approximately $18,073 in cash. Reliant Bancorp did not issue fractional shares of Reliant Bancorp Common Stock in connection with the TCB Holdings Transaction, but paid cash in lieu of fractional shares based on the volume weighted average closing price per share of the Reliant Bancorp Common Stock on The Nasdaq Capital Market for the 10 consecutive trading days ending on and including December 30, 2019 (calculated as $22.36). At the effective time of the TCB Holdings Transaction, each outstanding option to purchase TCB Holdings common stock was canceled in exchange for a cash payment in an amount equal to the product of (i) $34.25 minus the per share exercise price of the option multiplied by (ii) the number of shares of TCB Holdings common stock subject to the option (to the extent not previously exercised). Reliant Bancorp paid aggregate consideration to holders of unexercised options of approximately $430. All shares of Reliant Bancorp’s common stock outstanding immediately prior to the TCB Holdings Transaction were unaffected by the TCB Holdings Transaction.
The following table details the financial impact of the TCB Holdings Transaction, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:
|
|
|
|
|
|
|
|
|
Calculation of Purchase Price
|
|
|
Shares of Tennessee Community Bank Holdings, Inc. common stock outstanding as of January 1, 2020
|
|
1,055,041
|
|
Exchange ratio for Reliant Bancorp, Inc. common stock
|
|
0.769
|
|
Reliant Bancorp, Inc. common stock shares issued
|
|
811,210
|
|
Reliant Bancorp, Inc. share price at January 1, 2020
|
|
$
|
22.24
|
|
Estimated value of Reliant Bancorp, Inc. shares issued
|
|
18,041
|
Cash settlement for Tennessee Community Bank Holdings, Inc. common stock ($17.13 per share)
|
|
18,073
|
|
Cash settlement for Tennessee Community Bank Holdings, Inc.'s 26,450 outstanding stock options ($34.25 settlement price less weighted average exercise price of $18.00)
|
|
430
|
|
Cash settlement for Reliant Bancorp, Inc. fractional shares ($22.36 per pro rata fractional share)
|
|
3
|
|
Estimated fair value of Tennessee Community Bank Holdings, Inc.
|
|
$
|
36,547
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
Tennessee Community Bank Holdings, Inc., continued
|
|
|
|
|
|
|
|
|
Allocation of Purchase Price
|
|
|
Total consideration above
|
|
$
|
36,547
|
|
Fair value of assets acquired and liabilities assumed
|
|
|
Cash and cash equivalents
|
|
11,026
|
|
|
|
|
Investment securities available for sale
|
|
56,336
|
|
Loans, net of unearned income
|
|
171,445
|
|
|
|
|
Accrued interest receivable
|
|
948
|
|
Premises and equipment
|
|
6,427
|
|
|
|
|
Cash surrender value of life insurance contracts
|
|
5,629
|
|
Restricted equity securities
|
|
909
|
|
|
|
|
Core deposit intangible
|
|
3,617
|
|
Other assets
|
|
833
|
|
Deposits
|
|
(210,538)
|
|
Deferred tax liability
|
|
(337)
|
|
Borrowings
|
|
(58)
|
|
FHLB advances
|
|
(13,102)
|
|
Other liabilities
|
|
(3,682)
|
|
Total fair value of net assets acquired
|
|
29,453
|
|
Goodwill
|
|
$
|
7,094
|
|
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
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 First Advantage Bank, a Tennessee-chartered commercial bank and wholly owned subsidiary of FABK (“FAB”). On the terms and subject to the conditions set forth in the FABK Agreement, FABK merged with and into Reliant Bancorp (the “FABK Transaction”), with Reliant Bancorp as the surviving corporation. Immediately following the FABK Transaction, 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.
The following table details the financial impact of the FABK Transaction, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed and goodwill recognized:
|
|
|
|
|
|
|
|
|
Calculation of Purchase Price
|
|
|
Shares of First Advantage Bancorp common stock outstanding as of April 1, 2020
|
|
3,935,165
|
|
Conversion of restricted stock units to shares of common stock of First Advantage Bancorp as of April 1, 2020
|
|
2,000
|
|
Total First Advantage Bancorp common stock outstanding as of April 1, 2020
|
|
3,937,165
|
|
Exchange ratio for Reliant Bancorp, Inc. common stock
|
|
1.17
|
Reliant Bancorp, Inc. common stock shares issued
|
|
4,606,483
|
|
Remove fractional shares
|
|
(64)
|
|
Reliant Bancorp, Inc. common stock shares issued
|
|
4,606,419
|
Reliant Bancorp, Inc. share price at April 1, 2020
|
|
$
|
11.27
|
|
Estimated value of Reliant Bancorp, Inc. shares issued
|
|
51,914
|
|
Cash settlement for Reliant Bancorp, Inc. fractional shares ($11.74 per pro rata fractional share)
|
|
1
|
Cash settlement for First Advantage Bancorp common stock ($3.00 per share)
|
|
11,805
|
Cash settlement for First Advantage Bancorp restricted stock units ($3.00 per share)
|
|
6
|
Cash settlement for First Advantage Bancorp's 34,800 outstanding stock options ($30.00 settlement price less weighted average exercise price of $19.44)
|
|
368
|
Estimated fair value of First Advantage Bancorp
|
|
$
|
64,094
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
First Advantage Bancorp, continued
|
|
|
|
|
|
|
|
|
Allocation of Purchase Price
|
|
|
Total consideration above
|
|
$
|
64,094
|
|
Fair value of assets acquired and liabilities assumed
|
|
|
Cash and cash equivalents
|
|
11,159
|
|
|
|
|
Investment securities available for sale
|
|
35,970
|
|
Loans, net of unearned income
|
|
622,423
|
|
Mortgage loans held for sale, net
|
|
5,878
|
|
|
|
|
Premises and equipment
|
|
7,965
|
|
Deferred tax asset
|
|
6,791
|
|
Cash surrender value of life insurance contracts
|
|
14,776
|
|
Other real estate and repossessed assets
|
|
1,259
|
|
Core deposit intangible
|
|
2,280
|
|
Operating lease right-of-use assets
|
|
6,536
|
|
Other assets
|
|
10,529
|
|
Deposits
|
|
(608,690)
|
|
Borrowings
|
|
(35,962)
|
|
Operating lease liabilities
|
|
(6,536)
|
|
Other liabilities
|
|
(10,606)
|
|
Total fair value of net assets acquired
|
|
63,772
|
|
Goodwill
|
|
$
|
322
|
|
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 six months ended June 30, 2020 and 2019 in the table below presents information as if the TCB Holdings Transaction and FABK Transaction occurred on January 1, 2019. These results combine the historical results of TCB Holdings and FABK into the Company's consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments, they are 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 six months of 2019 that may not have been necessary had the acquired loans been recorded at fair value as of the beginning of 2019. Additionally, these financials were not adjusted for non-recurring expenses, such as merger-related charges incurred by either the Company, TCB Holdings or FABK. The Company expects to achieve operating cost savings and other business synergies as a result of the acquisitions which are also not reflected in the pro forma amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
2019
|
2020
|
|
2019
|
Revenue(1)
|
$
|
33,340
|
|
|
$
|
28,791
|
|
$
|
63,564
|
|
|
$
|
56,739
|
|
Net interest income
|
$
|
28,918
|
|
|
$
|
24,648
|
|
$
|
54,629
|
|
|
$
|
49,603
|
|
Net income attributable to common shareholders
|
$
|
7,073
|
|
|
$
|
8,014
|
|
$
|
5,176
|
|
|
$
|
15,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Net interest income plus noninterest income
|
|
|
|
|
|
|
NOTE 13 - LEASES
On January 1, 2020, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. 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:
|
|
|
|
|
|
|
|
|
June 30, 2020
|
Operating leases right of use assets
|
$
|
15,452
|
|
Operating lease liabilities
|
$
|
16,591
|
|
Weighted average remaining lease term (in years)
|
6.62
|
Weighted average discount rate
|
4.33
|
%
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2020 AND 2019 (UNAUDITED) AND DECEMBER 31, 2019
(Dollar amounts in thousands except per share amounts)
The components of lease expense included in occupancy expenses for the three and six months ended June 30, 2020, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2020
|
|
Six months ended June 30, 2020
|
Operating lease cost
|
$
|
854
|
|
|
$
|
1,482
|
|
Short-term lease cost
|
—
|
|
|
—
|
|
Variable lease cost
|
98
|
|
178
|
|
Total lease cost
|
$
|
952
|
|
|
$
|
1,660
|
|
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 six months ended June 30, 2019, prior to the adoption of ASU 2016-02, was $678 and $1,371, respectively.
A maturity analysis of operating lease liabilities and a reconciliation of undiscounted cash flows to the total operating lease liability is as follows:
|
|
|
|
|
|
|
|
|
Lease payments due on or before
|
|
June 30, 2020
|
June 30, 2021
|
|
$
|
3,923
|
|
June 30, 2022
|
|
2,903
|
|
June 30, 2023
|
|
2,681
|
|
June 30, 2024
|
|
2,648
|
|
June 30, 2025
|
|
2,504
|
|
Thereafter
|
|
5,101
|
|
Total undiscounted cash flows
|
|
19,760
|
|
|
|
|
Discount on cash flows
|
|
(3,169)
|
|
Total lease liability
|
|
$
|
16,591
|
|
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 six months ended June 30, 2020:
•Net income attributable to common shareholders totaled $7.7 million, or $0.54 per diluted common share, for the six months ended June 30, 2020 compared to $8.1 million, or $0.71 per diluted common share, during the same period in 2019.
•Merger expenses for the six months ended June 30, 2020 totaled $6.8 million.
•Loans increased $912.5 million for the six months ended June 30, 2020.
•Deposits increased $946.3 million for the six months ended June 30, 2020.
•Asset quality remained strong with nonperforming assets to total assets of 0.50 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. 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
On October 22, 2019, Reliant Bancorp, PG Merger Sub, Inc. ("Merger Sub"), a wholly owned subsidiary of Reliant Bancorp, and FABK entered into a definitive agreement providing for Reliant Bancorp to acquire FABK and FAB. Reliant Bancorp completed its acquisition of FABK and FAB effective April 1, 2020.
In accordance with the terms of the FABK Agreement, on April 1, 2020, (i) Merger Sub merged with and into FABK, 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.
As consideration for the FABK Transaction, each outstanding share of FABK Common Stock, other than certain excluded shares, at the effective time of the FABK Transaction converted into the right to receive (i) 1.17 shares of 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 March 31, 2020 closing price for Reliant Bancorp Common Stock of $11.27 per share and 3,937,165 shares of FABK Common Stock outstanding on March 31, 2020, the consideration for the FABK Transaction was approximately $64,094, in the aggregate, or $16.28 per share of FABK Common Stock.
Formation of Reliant Risk Management, Inc.
Reliant Risk Management, Inc. a newly-formed, wholly-owned insurance captive subsidiary of Reliant Bancorp, Inc. 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. 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.
Critical Accounting Policies
The accounting principles we follow and our methods of applying these principles conform to U.S. GAAP and with general practices within the banking industry. There have been no significant changes to our critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2019. The following is a brief summary of the more significant policies.
Principles of Consolidation
The Company's consolidated financial statements as of and for the periods presented include the accounts of Reliant Bancorp, the Bank, TRUPS, Holdings, Risk, and RMV. All significant intercompany balances and transactions have been eliminated in consolidation. As described in Note 12 to our consolidated financial statements, effective January 1, 2020, Reliant Bancorp and TCB Holdings merged and effective April 1, 2020, Reliant Bancorp and First Advantage Bancorp merged.
During 2011, the Bank and another entity organized RMV. Under the RMV operating agreement, the non-controlling member receives 70% of the cash flow distributions of RMV, and the Bank receives 30% of the cash flow distributions, once the non-controlling member recovers its capital contributions to RMV. The non-controlling member is required to fund RMV’s losses in arrears via additional capital contributions to RMV. As of June 30, 2020, RMV's cumulative losses to date totaled $15,803. RMV will have to generate net income of at least this amount before the Bank will participate in future cash flow distributions.
Purchased Loans
The Company maintains an allowance for loan losses on purchased loans based on credit deterioration subsequent to the acquisition date. In accordance with the accounting guidance for business combinations, because we recorded all loans acquired from TCB Holdings and FABK at fair value as of the dates of the TCB Holdings Transaction and the FABK Transaction, respectively, we did not establish an allowance for loan losses on any of the loans we purchased as of the acquisition date as any credit deterioration evident in the loans was included in the determination of the acquisition date fair values. For purchased credit-impaired loans accounted for under ASC 310-30, management is required to establish an allowance for loan losses subsequent to the dates of acquisition by re-estimating expected cash flows on these loans on a quarterly basis, with any decline in expected cash flows due to a credit triggering impairment recorded as provision for loan losses. The allowance for loan losses established is the excess of the loan’s carrying value over the present value of projected future cash flows, discounted at the current accounting yield of the loan or the fair value of collateral (less estimated costs to sell) for collateral dependent loans. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. While the determination of specific cash flows involves estimates, each estimate is unique to the individual loan, and none is individually significant. For non-purchased credit-impaired loans acquired in the TCB Holdings Transaction and the FABK Transaction that are accounted for under ASC 310-20, the historical loss estimates are based on the historical losses experienced by the Bank for loans with similar characteristics as those acquired other than purchased credit-impaired loans. The Bank records an allowance for loan losses only when the calculated amount exceeds the remaining credit mark established at acquisition.
Allowance for Loan Losses
The allowance for loan losses ("allowance") is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent 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 the impact 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 selected branches in each market open for limited hours, with the other branches closed except for advance appointments for essential services. Banking center drive-ups, ATMs and online/mobile banking services continue to operate. It remains undetermined how long our banking centers will operate at these service levels. 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.
Through July 29, 2020, the Company had applied this guidance to approve initial modifications In April and May 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 August 5, 2020, further modifications were approved for $39.0 million of the loans previously modified. Additional modifications are likely to be executed in the third quarter of 2020.
|
|
|
|
|
|
|
|
|
|
Initial Modification Requests through May 31, 2020
|
Subsequent Modification Requests through July 29, 2020
|
Commercial RE
|
$
|
291,232
|
|
$
|
1,485
|
|
Hospitality
|
96,047
|
|
30,012
|
|
Restaurant
|
54,067
|
|
—
|
|
C&I
|
34,851
|
|
6,095
|
|
Multifamily
|
14,757
|
|
1,422
|
|
Manufactured Housing
|
14,887
|
|
—
|
|
Church/Consumer/Medical
|
24,809
|
|
34
|
|
Total Modification Requests
|
$
|
530,650
|
|
$39,048
|
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 can 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 six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses.
Through June 30, 2020, we had received SBA authorizations for PPP loans totaling $83,291 and related fees of $3,301. 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 June 30, 2020, we had $98,000 in federal funds lines available and $293,800 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 June 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 June 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.
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 second quarter of 2020 we recorded a provision expense of $3.0 million, all of which can be attributed to increased risk factors related to the COVID-19 pandemic. 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 June 30, 2020 and December 31, 2019 - Allowance for Loan Losses” for more information.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 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:
•increased consolidated total assets from $1,898.5 million to $2,157.1 million;
•increased total loans from $1,410.0 million to $1,581.5 million;
•increased total deposits from $1,583.8 million to $1,794.3 million; and
•expanded its employee base from 300 to 321 full time equivalent employees.
Effective April 1, 2020, Reliant Bancorp completed the acquisition of FABK.
As a result of the FABK Transaction, on April 1, 2020, the Company:
•increased consolidated total assets from $2,177.8 million to $2,883.6 million;
•increased total loans from $1,619.7 million to $2,242.1 million;
•increased total deposits from $1,722.4 million to $2,331.1 million; and
•expanded its employee base from 323 to 442 full time equivalent employees.
Earnings
Net income attributable to common shareholders amounted to $7,868, or $0.48 per basic share, and $7,653, or $0.54 per basic share, for the three and six months ended June 30, 2020, respectively, compared to $4,239, or $0.38 per basic share, and $8,063, or $0.71 per basic share, for the same periods in 2019, respectively. Diluted net income attributable to common shareholders was $0.48 and $0.54 per share for the three and six months ended June 30, 2020, respectively, compared to $0.38 and $0.71 per share for the three and six months ended June 30, 2019, respectively. The major components contributing to the change when compared to the prior year periods are an increase of 116.9% and 72.6% in net interest income for the three and six months ended June 30, 2020, respectively, and an increase of 63.9% and 66.2% in noninterest income for the three and six months ended June 30, 2020, respectively, and partially offset by an increase of 69.6% and 61.8% in noninterest expense (mainly driven by merger expenses) for the three and six months ended June 30, 2020, and an increase of $2,800 and $5,700 in provision for loan losses for the three and six months ended June 30, 2020, compared to the same periods in 2019. These and other components of earnings are discussed further below.
Non-GAAP Financial Measures
This Form 10-Q 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 presente din accordance with U.S. GAAP. Management believes that non-GAAP financial measures provide a greater understanding of ongoing performance and operations and enhance comparability accross 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 tools, and readers should not consider them in isolation or as a substitute for analysis of the 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 stockholders' equity; (viii) average tangible common equity; and, (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 GAAP financial measures.
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|
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|
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|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
June 30, 2020
|
June 30, 2019
|
|
June 30, 2020
|
June 30, 2019
|
NON-GAAP FINANCIAL MEASURES
|
|
|
|
|
|
Adjusted net interest margin (1)
|
|
|
|
|
|
Net interest income
|
$
|
29,956
|
|
$
|
13,813
|
|
|
$
|
47,071
|
|
$
|
27,274
|
|
Fully tax-equivalent adjustments:
|
|
|
|
|
|
Loans
|
$
|
790
|
|
$
|
303
|
|
|
$
|
1,106
|
|
$
|
606
|
|
Tax-exempt investment securities
|
$
|
371
|
|
$
|
441
|
|
|
$
|
748
|
|
$
|
896
|
|
Tax-equivalent net interest income (1)(2)
|
$
|
31,117
|
|
$
|
14,555
|
|
|
$
|
48,925
|
|
$
|
28,776
|
|
Purchase accounting adjustments
|
(5,232)
|
|
(448)
|
|
|
(1,267)
|
|
(780)
|
|
Tax credits
|
(779)
|
|
(300)
|
|
|
1,083
|
|
600
|
|
Adjusted net interest income (1)
|
$
|
25,106
|
|
$
|
13,807
|
|
|
$
|
48,747
|
|
$
|
28,596
|
|
|
|
|
|
|
|
Net interest margin
|
4.58
|
%
|
3.57
|
%
|
|
4.16
|
%
|
3.60
|
%
|
Adjusted net interest margin
|
3.70
|
%
|
3.39
|
%
|
|
4.15
|
%
|
3.59
|
%
|
|
|
|
|
|
|
Adjusted net income attributable to common shareholders and related impact (1)(3)
|
|
|
|
|
|
Net income attributable to common shareholders
|
$
|
7,868
|
|
$
|
4,239
|
|
|
$
|
7,653
|
|
$
|
8,063
|
|
Merger expenses
|
2,632
|
|
1
|
|
|
6,818
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|
3
|
|
Pre-tax adjustments to net income
|
2,632
|
|
1
|
|
|
6,818
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|
3
|
|
Tax effect of adjustments to net income
|
565
|
|
—
|
|
|
682
|
|
567
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|
After tax adjustments to net income
|
2,067
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|
1
|
|
|
6,136
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(564)
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Adjusted net income attributable to common shareholders
|
9,935
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|
4,240
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|
|
13,789
|
|
7,499
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|
|
|
|
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|
Net income attributable to common shareholders, per diluted share
|
$
|
0.48
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|
$
|
0.38
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|
|
$
|
0.54
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|
$
|
0.71
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|
Adjusted net income attributable to common shareholders, per diluted share
|
$
|
0.60
|
|
$
|
0.38
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|
|
$
|
0.97
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|
$
|
0.65
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|
|
|
|
|
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|
Return on average:
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|
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Return on average assets(4)
|
1.07
|
%
|
0.96
|
%
|
|
0.60
|
%
|
0.92
|
%
|
Adjusted return on average assets (1)(4)
|
1.35
|
%
|
0.96
|
%
|
|
1.08
|
%
|
0.86
|
%
|
Return on average stockholders' equity(4)
|
10.89
|
%
|
7.97
|
%
|
|
2.88
|
%
|
3.82
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%
|
Adjusted return on average stockholders' equity (1)(4)
|
13.75
|
%
|
7.98
|
%
|
|
10.39
|
%
|
7.11
|
%
|
|
|
|
|
|
|
Average tangible stockholders' equity: (1)
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|
|
|
|
|
Average stockholders' equity
|
288,961
|
|
212,648
|
|
|
265,427
|
|
211,064
|
|
Less: average goodwill
|
51,058
|
|
43,642
|
|
|
52,814
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|
43,642
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|
Less: average core deposit intangibles
|
12,529
|
|
7,834
|
|
|
11,648
|
|
7,952
|
|
Average tangible common equity
|
225,374
|
|
161,172
|
|
|
213,833
|
|
159,470
|
|
|
|
|
|
|
|
Return on average tangible common equity (ROATCE) (1)(4)
|
13.96
|
%
|
10.52
|
%
|
|
7.16
|
%
|
10.11
|
%
|
Adjusted ROATCE (1) (4)
|
17.63
|
%
|
10.52
|
%
|
|
12.90
|
%
|
9.40
|
%
|
(1) Not a recognized measure under U.S. GAAP.
(2) Amount includes tax equivalent adjustment to quantify the tax equivalent net interest income.
(3) Beginning the quarter ended September 30, 2019, purchase accounting adjustments will no longer be included in the adjusted net income calculation as these have been determined to be ordinary course of business. All historical periods have been adjusted to reflect this change.
(4) Data has been annualized.
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 interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for interest-earning assets and interest-bearing liabilities, net interest rate spread and net interest margin for the three and six months ended June 30, 2020, and 2019 (dollars in thousands):
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Three Months Ended
June 30, 2020
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Three Months Ended
June 30, 2019
|
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Change
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|
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|
Average Balances
|
Rates / Yields (%)
|
Interest Income / Expense
|
|
Average Balances
|
Rates / Yields (%)
|
Interest Income / Expense
|
|
Due to Volume
|
Due to Rate
|
Total
|
Interest earning assets
|
|
|
|
|
|
|
|
|
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|
Loans
|
$
|
2,302,154
|
|
5.68
|
|
$
|
32,498
|
|
|
$
|
1,276,197
|
|
5.18
|
|
$
|
16,481
|
|
|
$
|
14,300
|
|
$
|
1,717
|
|
$
|
16,017
|
|
Loan fees
|
—
|
|
0.30
|
|
1,739
|
|
|
—
|
|
0.25
|
|
782
|
|
|
957
|
|
—
|
|
957
|
|
Loans with fees
|
2,302,154
|
|
5.98
|
|
34,237
|
|
|
1,276,197
|
|
5.43
|
|
17,263
|
|
|
15,257
|
|
1,717
|
|
16,974
|
|
Mortgage loans held for sale
|
85,313
|
|
3.84
|
|
815
|
|
|
14,502
|
|
5.48
|
|
198
|
|
|
1,030
|
|
(413)
|
|
617
|
|
Deposits with banks
|
66,031
|
|
0.30
|
|
50
|
|
|
30,342
|
|
1.53
|
|
116
|
|
|
404
|
|
(470)
|
|
(66)
|
|
Investment securities - taxable
|
66,234
|
|
0.78
|
|
128
|
|
|
77,405
|
|
3.04
|
|
587
|
|
|
(75)
|
|
(384)
|
|
(459)
|
|
Investment securities - tax-exempt
|
193,216
|
|
3.51
|
|
1,688
|
|
|
222,149
|
|
3.77
|
|
2,090
|
|
|
(263)
|
|
(139)
|
|
(402)
|
|
Federal funds sold and other
|
21,950
|
|
2.90
|
|
158
|
|
|
13,308
|
|
5.46
|
|
181
|
|
|
382
|
|
(405)
|
|
(23)
|
|
Total earning assets
|
2,734,898
|
|
5.45
|
|
37,076
|
|
|
1,633,903
|
|
5.02
|
|
20,435
|
|
|
16,735
|
|
(95)
|
|
16,641
|
|
Nonearning assets
|
213,468
|
|
|
|
|
139,123
|
|
|
|
|
|
|
|
Total assets
|
$
|
2,948,366
|
|
|
|
|
$
|
1,773,026
|
|
|
|
|
|
|
|
Interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
|
279,171
|
|
0.31
|
|
218
|
|
|
141,997
|
|
0.24
|
|
86
|
|
|
101
|
|
31
|
|
132
|
|
Savings and money market
|
731,278
|
|
0.84
|
|
1,531
|
|
|
374,406
|
|
1.13
|
|
1,051
|
|
|
2,089
|
|
(1,609)
|
|
480
|
|
Time deposits - retail
|
749,566
|
|
1.15
|
|
2,152
|
|
|
612,148
|
|
2.14
|
|
3,263
|
|
|
3,597
|
|
(4,708)
|
|
(1,111)
|
|
Time deposits - wholesale
|
201,307
|
|
1.85
|
|
928
|
|
|
169,956
|
|
2.72
|
|
1,151
|
|
|
1,000
|
|
(1,223)
|
|
(223)
|
|
Total interest-bearing deposits
|
1,961,322
|
|
0.99
|
|
4,829
|
|
|
1,298,507
|
|
1.71
|
|
5,551
|
|
|
6,788
|
|
(7,510)
|
|
(722)
|
|
Federal Home Loan Bank advances
|
127,399
|
|
0.47
|
|
148
|
|
|
23,668
|
|
2.20
|
|
130
|
|
|
710
|
|
(692)
|
|
18
|
|
Subordinated debt
|
70,397
|
|
5.61
|
|
982
|
|
|
11,634
|
|
6.83
|
|
198
|
|
|
1,031
|
|
(247)
|
|
784
|
|
Total borrowed funds
|
197,796
|
|
2.30
|
|
1,130
|
|
|
35,302
|
|
3.73
|
|
328
|
|
|
1,741
|
|
(939)
|
|
802
|
|
Total interest-bearing liabilities
|
2,159,118
|
|
1.11
|
|
5,959
|
|
|
1,333,809
|
|
1.77
|
|
5,879
|
|
|
8,529
|
|
(8,449)
|
|
80
|
|
Net interest rate spread (%) / Net interest income ($)
|
|
4.34
|
|
$
|
31,117
|
|
|
|
3.25
|
|
$
|
14,556
|
|
|
$
|
8,207
|
|
$
|
8,354
|
|
$
|
16,561
|
|
Noninterest bearing deposits
|
468,620
|
|
(0.20)
|
|
|
|
218,512
|
|
(0.25)
|
|
|
|
|
|
|
Other noninterest bearing liabilities
|
31,667
|
|
|
|
|
8,057
|
|
|
|
|
|
|
|
Stockholders' equity
|
288,961
|
|
|
|
|
212,648
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
$
|
2,948,366
|
|
|
|
|
$
|
1,773,026
|
|
|
|
|
|
|
|
Cost of funds
|
|
0.91
|
|
|
|
|
1.52
|
|
|
|
|
|
|
Net interest margin
|
|
4.58
|
|
|
|
|
3.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
Change
|
|
|
|
Average Balances
|
Rates / Yields (%)
|
Interest Income / Expense
|
|
Average Balances
|
Rates / Yields (%)
|
Interest Income / Expense
|
|
Due to Volume
|
Due to Rate
|
Total
|
Interest earning assets
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
$
|
1,957,592
|
|
5.40
|
|
$
|
52,569
|
|
|
$
|
1,257,373
|
|
5.17
|
|
$
|
32,247
|
|
|
$
|
18,819
|
|
$
|
1,503
|
|
$
|
20,322
|
|
Loan fees
|
—
|
|
0.27
|
|
2,629
|
|
|
—
|
|
0.24
|
|
1,488
|
|
|
1,141
|
|
—
|
|
1,141
|
|
Loans with fees
|
1,957,592
|
|
5.67
|
|
55,198
|
|
|
1,257,373
|
|
5.41
|
|
33,735
|
|
|
19,960
|
|
1,503
|
|
21,463
|
|
Mortgage loans held for sale
|
66,499
|
|
4.16
|
|
1,375
|
|
|
12,635
|
|
5.60
|
|
351
|
|
|
1,309
|
|
(285)
|
|
1,024
|
|
Deposits with banks
|
54,807
|
|
0.64
|
|
174
|
|
|
29,000
|
|
1.63
|
|
234
|
|
|
306
|
|
(366)
|
|
(60)
|
|
Investment securities - taxable
|
70,461
|
|
1.65
|
|
579
|
|
|
74,948
|
|
2.93
|
|
1,090
|
|
|
(61)
|
|
(450)
|
|
(511)
|
|
Investment securities - tax-exempt
|
195,228
|
|
3.54
|
|
3,436
|
|
|
225,305
|
|
3.82
|
|
4,264
|
|
|
(535)
|
|
(294)
|
|
(829)
|
|
Federal funds sold and other
|
19,136
|
|
3.29
|
|
313
|
|
|
12,981
|
|
5.64
|
|
363
|
|
|
298
|
|
(348)
|
|
(50)
|
|
Total earning assets
|
2,363,723
|
|
5.20
|
|
61,075
|
|
|
1,612,242
|
|
5.01
|
|
40,037
|
|
|
21,278
|
|
(240)
|
|
21,038
|
|
Nonearning assets
|
199,657
|
|
|
|
|
139,964
|
|
|
|
|
|
|
|
Total assets
|
$
|
2,563,380
|
|
|
|
|
$
|
1,752,206
|
|
|
|
|
|
|
|
Interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
|
232,703
|
|
0.27
|
|
318
|
|
|
145,304
|
|
0.27
|
|
197
|
|
|
121
|
|
—
|
|
121
|
|
Savings and money market
|
595,517
|
|
0.85
|
|
2,506
|
|
|
387,296
|
|
1.14
|
|
2,181
|
|
|
1,745
|
|
(1,420)
|
|
325
|
|
Time deposits - retail
|
645,769
|
|
1.46
|
|
4,702
|
|
|
594,805
|
|
2.10
|
|
6,184
|
|
|
1,345
|
|
(2,827)
|
|
(1,482)
|
|
Time deposits - wholesale
|
215,589
|
|
2.00
|
|
2,140
|
|
|
138,466
|
|
2.56
|
|
1,756
|
|
|
1,389
|
|
(1,005)
|
|
384
|
|
Total interest-bearing deposits
|
1,689,578
|
|
1.15
|
|
9,666
|
|
|
1,265,871
|
|
1.64
|
|
10,318
|
|
|
4,600
|
|
(5,252)
|
|
(652)
|
|
Federal Home Loan Bank advances and other
|
118,374
|
|
0.86
|
|
509
|
|
|
40,101
|
|
2.78
|
|
552
|
|
|
1,106
|
|
(1,149)
|
|
(43)
|
|
Subordinated debt
|
70,502
|
|
5.63
|
|
1,975
|
|
|
11,634
|
|
6.78
|
|
391
|
|
|
1,792
|
|
(208)
|
|
1,584
|
|
Total borrowed funds
|
188,876
|
|
2.64
|
|
2,484
|
|
|
51,735
|
|
3.68
|
|
943
|
|
0
|
2,898
|
|
(1,357)
|
|
1,541
|
|
Total interest-bearing liabilities
|
1,878,454
|
|
1.30
|
|
12,150
|
|
|
1,317,606
|
|
1.72
|
|
11,261
|
|
|
7,498
|
|
(6,609)
|
|
889
|
|
Net interest rate spread (%) / Net interest income ($)
|
|
3.90
|
|
$
|
48,925
|
|
|
|
3.29
|
|
$
|
28,776
|
|
|
$
|
13,780
|
|
$
|
6,369
|
|
$
|
20,149
|
|
Noninterest bearing deposits
|
390,394
|
|
(0.22)
|
|
|
|
214,838
|
|
(0.24)
|
|
|
|
|
|
|
Other noninterest bearing liabilities
|
29,105
|
|
|
|
|
8,698
|
|
|
|
|
|
|
|
Stockholders' equity
|
265,427
|
|
|
|
|
211,064
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
$
|
2,563,380
|
|
|
|
|
$
|
1,752,206
|
|
|
|
|
|
|
|
Cost of funds
|
|
1.08
|
|
|
|
|
1.48
|
|
|
|
|
|
|
Net interest margin
|
|
4.16
|
|
|
|
|
3.60
|
|
|
|
|
|
|
Table Assumptions—Average loan balances are inclusive of nonperforming loans. Interest income and yields computed on tax-exempt instruments are on a tax-equivalent basis including a state tax credit included in loan yields of $779 and $1,083 for the three and six months ended June 30, 2020 and $300 and $600 for the same periods in 2019. Net interest spread is calculated as the yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities. Net interest margin is the result of net interest income calculated on a tax-equivalent basis divided by average interest earning assets for the period. Changes in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for earning assets and sources of funds on which interest is received or paid. Volume change is calculated as change in volume times the previous rate while rate change is change in rate times the previous volume. Changes not due solely to volume or rate changes have been allocated to volume change and rate change in proportion to the relationship of the absolute dollar amounts of the change in each category.
Analysis—For the three and six months ended June 30, 2020, we recorded net interest income on a tax-equivalent basis of approximately $31,117 and $48,925, respectively, which resulted in a net interest margin (net interest income divided by the average balance of interest-earning assets) of 4.58% and 4.16%, respectively. For the three and six months ended June 30, 2019, we recorded net interest income on a tax-equivalent basis of approximately $14,556 and $28,776, respectively, which resulted in a net interest margin of 3.57% and 3.60%, respectively.
Our year-over-year average loan volume increased by approximately 55.7% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 and was mainly driven by the TCB Holdings Transaction and FABK Transaction. Our combined loan and loan fee yield increased from 5.43% to 5.98% for the three months ended June 30, 2020 compared to the
same period in 2019 and increased from 5.41% to 5.67% for the six months ended June 30, 2020 compared to the same period in 2019. The increased yield for the three and six months ended June 30, 2020 is primarily attributable to the increased purchase accounting accretion from the two mergers as well as the increased fees from the PPP loans.
Our tax-equivalent yield on tax-exempt investments was 3.51% and 3.54% for the three and six months ended June 30, 2020 compared to 3.77% and 3.82% for the same periods in 2019. Our year-over-year average tax-exempt investment volume decreased by 13.3% for the six months ended June 30, 2020 compared to the same period in 2019 due to investment sales in the fourth quarter of 2019. Our year-over-year average taxable securities volume increased by 6.0% for the six months ended June 30, 2020 compared to the same period in 2019.
Our cost of funds decreased to 0.91% and 1.08% from 1.52% and 1.48%, respectively, for the three and six months ended June 30, 2020 compared to the same periods in 2019. The decrease in our cost of funds was primarily driven by an across the board decrease in the cost of our interest-bearing deposits and other interest-bearing liabilities due to the recent decrease in rates by the Federal Reserve. We experienced an 81.7% increase in our average noninterest-bearing deposits for the six months ended June 30, 2020 when compared to the same period in 2019, which is mainly attributable to the TCB Holdings Transaction and FABK Transaction.
The Bank strives to maintain a strong net interest margin that is insulated from changes in market interest rates. Our net interest margin, while generally considered fairly neutral, is currently subject to slightly expand in a rising rate environment and slightly contract in a falling rate environment. The Company has interest rate floors on certain loans and those floors will mitigate further declines in interest rates.
Provision for Loan Losses
We recorded a provision of $3,000 and $5,900 for loan losses for the three and six months ended June 30, 2020, respectively, compared to $200 for the three and six months ended June 30, 2019. The increase in provision expense for the three and six months ended June 30, 2020 can be primarily attributed to the recent downturn in the economy due to COVID-19 while a portion is due to the growing loan portfolio. See “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Balance Sheets at June 30, 2020 and December 31, 2019 - Allowance for Loan Losses” included herein for further analysis of the provision for loan losses.