Attached files
file | filename |
---|---|
EXCEL - IDEA: XBRL DOCUMENT - Reliant Bancorp, Inc. | Financial_Report.xls |
EX-31.1 - EX-31.1 - Reliant Bancorp, Inc. | d914307dex311.htm |
EX-32.2 - EX-32.2 - Reliant Bancorp, Inc. | d914307dex322.htm |
EX-31.2 - EX-31.2 - Reliant Bancorp, Inc. | d914307dex312.htm |
EX-32.1 - EX-32.1 - Reliant Bancorp, Inc. | d914307dex321.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2015
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-37391
COMMERCE UNION BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Tennessee | 37-1641316 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
1736 Carothers Parkway, Suite 100 Brentwood, Tennessee |
37027 | |
(Address of principal executive offices) | (Zip Code) |
(615) 384-3357
(Registrants telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer | ¨ | Accelerated Filer | ¨ | |||
Non-Accelerated Filer | ¨ | Smaller Reporting Company | x |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the registrants common stock, par value $1.00 per share, as of May 13, 2015 was 7,062,508.
Table of Contents
Table of Contents
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of Commerce Union Bancshares, Inc. (we, our or us on a consolidated basis) contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Such statements include projections, predictions, expectations or statements as to beliefs or future events or results or refer to other matters that are not historical facts. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking statements contained in this annual report are based on various factors and were derived using numerous assumptions. In some cases, you can identify these forward-looking statements by words like may, will, should, expect, plan, anticipate, intend, believe, estimate, predict, potential, or continue or the negative of those words and other comparable words. You should be aware that those statements reflect only our predictions. If known or unknown risks or uncertainties should materialize, or if any one or more of our material underlying assumptions should prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind when reading this annual report and not place undue reliance on these forward-looking statements. Factors that might cause such differences include, but are not limited to:
| The risk that the weak national and local economies and weakly recovering (or continuing depressed) real estate and credit markets caused by the recent global recession will further, or continuously, constrain or reduce the demand for loan, deposit and other financial services and/or increase loan delinquencies and defaults; |
| The risk that the local economy will not continue the perceived, somewhat encouraging recovery that appears to be increasing the strength of the economic recovery in the Companys market areas; |
| The negative impact on profitability imposed on us by a compressed NIM (net interest margin on loans and other extensions of credit) that affects our ability to lend profitably and to price loans effectively in the face of competitive pressures; |
| Our liquidity requirements could be adversely affected by changes in our assets and liabilities; |
| The effect of legislative or regulatory developments, including changes in laws concerning banking, securities, taxes, insurance and other aspects of the financial services industry; |
| Our ability to attract, develop and retain qualified banking professionals; |
| A significant number of our customers failing to perform under their loans and other terms of credit agreements; |
| The growing concern on the impact of a future rise in interest rates, affecting both our pricing of credit and our investments; |
| Failure to attract or retain stable deposits at reasonable cost that is competitive with the larger international, national, and regional financial service providers with which we compete; |
| International, national, and local disasters such as terrorist attacks, natural disasters, or the effects of pandemic flu or other pandemic illness; |
| Significant reliance on loans secured by real estate and the associated vulnerability to downturns in the local real estate market, natural disasters and other variables impacting the value of real estate; |
| Incorrect responses to, or assumptions based on, experiences and circumstances, such as responses to known or perceived changes in the economy; |
| Volatility and disruption in financial, credit and securities markets; |
| Deterioration in the financial markets that may result in other-than-temporary impairment charges relating to securities owned by the Bank; |
| The effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board, the Securities and Exchange Commission (the SEC), the Public Company Accounting Oversight Board and other regulatory agencies; and |
| The effect of fiscal and governmental policies of the United States federal government. |
You should also consider carefully the risk factors discussed in Item 1A of Part II of this Form 10-Q, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition. The risks discussed in this annual report are factors that, individually or in the aggregate, management believes could cause our actual results to differ materially from expected and historical results. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider such disclosures to be a complete discussion of all potential risks or uncertainties. Factors not here or there listed may develop or, if currently extant, we may not have yet recognized them.
1
Table of Contents
The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
2
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
COMMERCE UNION BANCSHARES, INC.
Consolidated Balance Sheets
March 31, 2015 and December 31, 2014
(Unaudited)
(In Thousands, Except for Share Data) |
March 31, 2015 |
December 31, 2014 |
||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 12,378 | $ | 12,803 | ||||
Securities available-for-sale, at market (amortized cost of $28,408 and $26,343, respectively) |
29,487 | 27,403 | ||||||
Loans |
252,917 | 244,650 | ||||||
Allowance for loan losses |
(3,548 | ) | (3,433 | ) | ||||
|
|
|
|
|||||
Total loans, net |
249,369 | 241,217 | ||||||
Premises and equipment, net |
4,497 | 4,568 | ||||||
Restricted equity securities |
1,974 | 1,974 | ||||||
Accrued interest receivable |
1,245 | 1,507 | ||||||
Bank owned life insurance |
4,181 | 4,145 | ||||||
Deferred tax asset, net |
1,042 | 1,049 | ||||||
Other assets |
1,010 | 1,056 | ||||||
|
|
|
|
|||||
Total assets |
$ | 305,183 | $ | 295,722 | ||||
|
|
|
|
|||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Deposits: |
||||||||
Non-interest bearing |
$ | 36,130 | $ | 36,813 | ||||
Interest bearing |
210,793 | 200,180 | ||||||
|
|
|
|
|||||
Total deposits |
246,923 | 236,993 | ||||||
Securities sold under repurchase agreements |
488 | 370 | ||||||
Federal Home Loan Bank borrowings |
20,562 | 20,769 | ||||||
Accrued interest payable |
83 | 84 | ||||||
Dividends payable |
| 614 | ||||||
Other liabilities |
650 | 855 | ||||||
|
|
|
|
|||||
Total liabilities |
268,706 | 259,685 | ||||||
|
|
|
|
|||||
Shareholders equity: |
||||||||
Preferred stock, $1.00 par value; authorized 10,000,000 shares, no shares outstanding |
| | ||||||
Common stock, $1.00 par value; authorized 10,000,000 shares, issued and outstanding 3,069,030 and 3,068,830 at March 31, 2015 and December 31, 2014, respectively |
3,069 | 3,069 | ||||||
Additional paid-in capital |
31,692 | 31,681 | ||||||
Retained earnings |
1,050 | 633 | ||||||
Accumulated other comprehensive earnings, net of taxes of $413 and $406, respectively |
666 | 654 | ||||||
|
|
|
|
|||||
Total shareholders equity |
36,477 | 36,037 | ||||||
|
|
|
|
|||||
Total liabilities and shareholders equity |
$ | 305,183 | $ | 295,722 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements (unaudited).
3
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Consolidated Statements of Income
Three Months Ended March 31, 2015 and 2014
(Unaudited)
Three Months Ended | ||||||||
(In Thousands, except per share amounts) |
2015 | 2014 | ||||||
Interest income: |
||||||||
Loans, including fees |
$ | 2,921 | $ | 2,640 | ||||
Securities, taxable |
64 | 87 | ||||||
Securities, exempt from Federal income taxes |
133 | 100 | ||||||
Restricted equity securities and other |
43 | 24 | ||||||
|
|
|
|
|||||
Total interest income |
3,161 | 2,851 | ||||||
|
|
|
|
|||||
Interest expense: |
||||||||
Deposits |
334 | 333 | ||||||
Federal Home Loan Bank borrowings |
85 | 90 | ||||||
Federal funds purchased and repurchase agreements |
| | ||||||
|
|
|
|
|||||
Total interest expense |
419 | 423 | ||||||
|
|
|
|
|||||
Net interest income |
2,742 | 2,428 | ||||||
Provision for loan losses |
115 | 109 | ||||||
|
|
|
|
|||||
Net interest income after provision for loan losses |
2,627 | 2,319 | ||||||
|
|
|
|
|||||
Non-interest income: |
||||||||
Service charges and other fees on deposit accounts |
163 | 148 | ||||||
Investment services |
55 | 47 | ||||||
Bank owned life insurance income |
36 | 29 | ||||||
Other fee income on loans |
90 | 75 | ||||||
Gain on sale of other real estate owned |
| 1 | ||||||
Other non-interest income |
1 | 4 | ||||||
|
|
|
|
|||||
Total non-interest income |
345 | 304 | ||||||
|
|
|
|
|||||
Non-interest expense: |
||||||||
Employee salaries and benefits |
1,239 | 1,145 | ||||||
Occupancy |
200 | 180 | ||||||
Data processing |
106 | 95 | ||||||
Professional fees |
334 | 112 | ||||||
FDIC insurance |
39 | 34 | ||||||
Directors fees |
88 | 34 | ||||||
Office supplies and printing |
30 | 21 | ||||||
Advertising and promotional |
25 | 29 | ||||||
Other real estate expense |
| 4 | ||||||
State franchise tax |
22 | 22 | ||||||
Other operating expenses |
182 | 218 | ||||||
|
|
|
|
|||||
Total non-interest expense |
2,265 | 1,894 | ||||||
|
|
|
|
|||||
Net income before tax |
707 | 729 | ||||||
Income tax expense |
290 | 235 | ||||||
|
|
|
|
|||||
Net income |
$ | 417 | $ | 494 | ||||
|
|
|
|
|||||
Basic earnings per common share |
$ | 0.14 | $ | 0.16 | ||||
|
|
|
|
|||||
Diluted earnings per common share |
$ | 0.13 | $ | 0.16 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements (unaudited).
4
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 2015 and 2014
(Unaudited)
Three Months Ended | ||||||||
(In Thousands) |
2015 | 2014 | ||||||
Net income |
$ | 417 | $ | 494 | ||||
|
|
|
|
|||||
Other comprehensive income: |
||||||||
Unrealized gains on available-for-sale securities arising during period, net of taxes of $7 and $69 for 2015 and 2014, respectively |
12 | 112 | ||||||
Reclassification adjustment for gains included in net income, net of taxes |
| | ||||||
|
|
|
|
|||||
Other comprehensive income |
12 | 112 | ||||||
|
|
|
|
|||||
Comprehensive income |
$ | 429 | $ | 606 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements (unaudited).
5
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2015 and 2014
(Unaudited)
Three Months Ended | ||||||||
(In Thousands) |
2015 | 2014 | ||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 417 | $ | 494 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for loan losses |
115 | 109 | ||||||
Depreciation |
94 | 88 | ||||||
Amortization/(accretion) of securities, net |
73 | 61 | ||||||
Stock based compensation |
8 | 8 | ||||||
Gain on sale of other real estate owned |
| (1 | ) | |||||
Increase in cash surrender value of bank owned life insurance |
(36 | ) | (29 | ) | ||||
Net change in: |
||||||||
Accrued interest receivable |
262 | 132 | ||||||
Other assets |
231 | 157 | ||||||
Accrued interest payable |
(1 | ) | (1 | ) | ||||
Other liabilities |
(205 | ) | (125 | ) | ||||
|
|
|
|
|||||
Total adjustments |
541 | 399 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
958 | 893 | ||||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Purchase of securities available-for-sale |
(2,837 | ) | (2,862 | ) | ||||
Proceeds from maturities, pay downs and calls of securities available-for-sale |
699 | 1,220 | ||||||
Increase in loans, net of repayments |
(8,267 | ) | (8,091 | ) | ||||
Purchase of premises and equipment |
(23 | ) | (35 | ) | ||||
Purchase of restricted equity securities |
| (20 | ) | |||||
Purchase of bank owned life insurance |
| (2,000 | ) | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(10,428 | ) | (11,788 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Net change in deposits |
9,930 | 8,361 | ||||||
Net change in repurchase agreements |
118 | 74 | ||||||
Proceeds from FHLB borrowings, net of repayments |
(207 | ) | 1,813 | |||||
Stock issuance costs paid |
(185 | ) | | |||||
Dividends paid |
(614 | ) | (613 | ) | ||||
Proceeds from exercise of stock options |
3 | | ||||||
Proceeds from sale of common stock pursuant to dividend reinvestment |
| 72 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
9,045 | 9,707 | ||||||
|
|
|
|
|||||
Net change in cash and cash equivalents |
(425 | ) | (1,188 | ) | ||||
Cash and cash equivalents at beginning of year |
12,803 | 6,952 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 12,378 | $ | 5,764 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements (unaudited).
6
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements
March 31, 2015 and December 31, 2014
(Unaudited)
Note 1. Basis of Presentation
The accompanying consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The consolidated financial statements include the financial results of Commerce Union Bancshares, Inc. and its wholly-owned subsidiary, Commerce Union Bank, Inc. (collectively, the Company). All intercompany accounts have been eliminated in consolidation.
In the opinion of management, the consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) and disclosures necessary to summarize fairly the financial position of the Company as of March 31, 2015 and December 31, 2014 and the results of operations for the three months ended March 31, 2015 and 2014, comprehensive income for the three months ended March 31, 2015 and 2014 and changes in cash flows for the three months ended March 31, 2015 and 2014. The interim consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements presented in the Companys Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The results for interim periods are not necessarily indicative of results to be expected for the complete fiscal year.
Certain reclassifications have been made to 2014 financial information to conform to the 2015 presentation. Amounts provided in the narrative are shown in thousands, except for number of shares, per share amounts and as otherwise noted.
Critical Accounting Policies
Our accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America as defined by the Public Company Accounting Oversight Board and conform to general practices accepted within the banking industry. Our most significant accounting policies are presented in the Companys December 31, 2014 Form 10-K and the notes to the audited consolidated financial statements contained therein. Certain accounting policies require management to make significant estimates and assumptions that have a material effect on the carrying value of certain assets and liabilities, and we consider these to be critical accounting policies. The estimates and assumptions used are based on historical experience and other factors that management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and on our results of operations for the reporting periods.
Note 2. Securities
Securities have been classified in the balance sheet according to managements intent. The Companys classification of securities at March 31, 2015 was as follows:
Securities Available-For-Sale | ||||||||||||||||
(In Thousands) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Market Value |
||||||||||||
Mortgage-backed securities: |
||||||||||||||||
GSEs residential |
$ | 9,004 | $ | 353 | $ | 1 | $ | 9,356 | ||||||||
Obligations of state and political subdivisions |
19,404 | 790 | 63 | 20,131 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities |
$ | 28,408 | $ | 1,143 | $ | 64 | $ | 29,487 | ||||||||
|
|
|
|
|
|
|
|
7
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements, Continued
March 31, 2015 and December 31, 2014
(Unaudited)
The Companys classification of securities at December 31, 2014 was as follows:
Securities Available-For-Sale | ||||||||||||||||
(In Thousands) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Market Value |
||||||||||||
Mortgage-backed securities: |
||||||||||||||||
GSEs residential |
$ | 9,627 | $ | 357 | $ | 2 | $ | 9,982 | ||||||||
Obligations of state and political subdivisions |
16,716 | 716 | 11 | 17,421 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities |
$ | 26,343 | $ | 1,073 | $ | 13 | $ | 27,403 | ||||||||
|
|
|
|
|
|
|
|
Note 3. Loans
The detail of loans at March 31, 2015 and December 31, 2014 is as follows:
(In Thousands) |
March 31, 2015 |
December 31, 2014 |
||||||
Real estate: |
||||||||
Construction and land development |
$ | 31,608 | $ | 29,925 | ||||
Residential properties |
71,884 | 68,125 | ||||||
Commercial and agricultural real estate |
88,329 | 88,173 | ||||||
Commercial and agricultural production |
45,679 | 42,621 | ||||||
Other* |
15,950 | 16,349 | ||||||
|
|
|
|
|||||
Total loans |
253,450 | 245,193 | ||||||
Unearned loan fees |
(533 | ) | (543 | ) | ||||
|
|
|
|
|||||
252,917 | 244,650 | |||||||
Allowance for loan losses |
(3,548 | ) | (3,433 | ) | ||||
|
|
|
|
|||||
Net loans |
$ | 249,369 | $ | 241,217 | ||||
|
|
|
|
* | Includes home equity lines of credit, multifamily real estate mortgages, consumer loans and loans to municipalities. |
The Companys principal customers are primarily in the Middle Tennessee area with a concentration in Robertson, Sumner, Rutherford, and Davidson Counties. Credit is extended to businesses and individuals and is evidenced by promissory notes. The terms and conditions of the loans including collateral vary depending upon the purpose of the credit and the borrowers financial condition.
8
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements, Continued
March 31, 2015 and December 31, 2014
(Unaudited)
Allowance for Loan Losses
Transactions in the allowance for loan losses by type of loan for the three months ended March 31, 2015 and for the year ended December 31, 2014 are summarized as follows:
Real Estate | ||||||||||||||||||||||||
(In Thousands) |
Construction and Land Development |
Residential Properties |
Commercial and Agricultural Real Estate |
Commercial and Agricultural Production |
Other | Total | ||||||||||||||||||
March 31, 2015: |
||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||
Beginning balance |
$ | 278 | $ | 687 | $ | 1,166 | $ | 1,145 | $ | 157 | $ | 3,433 | ||||||||||||
Provision |
28 | 68 | 59 | (43 | ) | 3 | 115 | |||||||||||||||||
Charge-offs |
| | | | | | ||||||||||||||||||
Recoveries |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
$ | 306 | $ | 755 | $ | 1,225 | $ | 1,102 | $ | 160 | $ | 3,548 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Specific reserves: |
||||||||||||||||||||||||
Impaired loans |
$ | | $ | 19 | $ | 3 | $ | 543 | $ | | $ | 565 | ||||||||||||
General reserves |
306 | 736 | 1,222 | 559 | 160 | 2,983 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 306 | $ | 755 | $ | 1,225 | $ | 1,102 | $ | 160 | $ | 3,548 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loans: |
||||||||||||||||||||||||
Loans individually evaluated for impairment |
$ | | $ | 287 | $ | 665 | $ | 2,058 | $ | | $ | 3,010 | ||||||||||||
Loans collectively evaluated for impairment |
31,608 | 71,597 | 87,664 | 43,621 | 15,950 | 250,440 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 31,608 | $ | 71,884 | $ | 88,329 | $ | 45,679 | $ | 15,950 | $ | 253,450 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2014: |
||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||
Beginning balance |
$ | 230 | $ | 752 | $ | 1,227 | $ | 539 | $ | 120 | $ | 2,868 | ||||||||||||
Provision |
48 | (65 | ) | (61 | ) | 606 | 37 | 565 | ||||||||||||||||
Charge-offs |
| | | | | | ||||||||||||||||||
Recoveries |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
$ | 278 | $ | 687 | $ | 1,166 | $ | 1,145 | $ | 157 | $ | 3,433 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Specific reserves: |
||||||||||||||||||||||||
Impaired loans |
$ | | $ | 19 | $ | 3 | $ | 647 | $ | | $ | 669 | ||||||||||||
General reserves |
278 | 668 | 1,163 | 498 | 157 | 2,764 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 278 | $ | 687 | $ | 1,166 | $ | 1,145 | $ | 157 | $ | 3,433 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loans: |
||||||||||||||||||||||||
Loans individually evaluated for impairment |
$ | | $ | 287 | $ | 669 | $ | 2,066 | $ | | $ | 3,022 | ||||||||||||
Loans collectively evaluated for impairment |
29,925 | 67,838 | 87,504 | 40,555 | 16,349 | 242,171 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 29,925 | $ | 68,125 | $ | 88,173 | $ | 42,621 | $ | 16,349 | $ | 245,193 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
9
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements, Continued
March 31, 2015 and December 31, 2014
(Unaudited)
The provision for loan losses represents a charge to earnings necessary, after loan charge-offs and recoveries, to maintain the allowance for loan losses at an appropriate level which is adequate to absorb estimated losses inherent in the loan portfolio. Such estimated losses arise primarily from the loan portfolio but may also result from other sources, including commitments to extend credit and letters of credit. The level of the allowance is determined on a quarterly basis using procedures which include: (1) categorizing commercial, commercial real estate and construction and land development loans into risk categories to estimate loss probabilities based primarily on the historical loss experience of those risk categories and current economic conditions; (2) analyzing significant commercial, commercial real estate and construction and land development credits and calculating specific reserves as necessary; (3) assessing various homogeneous consumer and home equity lines of credit loan categories to estimate loss probabilities based primarily on historical loss experience; and (4) considering various other factors, such as changes in credit concentrations, loan mix, and economic conditions which may not be specifically quantified in the loan analysis process.
Managements calculation of the Companys allowance for loan losses shows the Companys allowance as being adequate, and management believes it has properly identified and handled deteriorating relationships during the past year. While troubled loan relationships continue to exist, the amount of troubled loans in the portfolio has continued to decrease.
The allowance for loan losses consists of an allocated portion and an unallocated, or general, portion. The allocated portion is maintained to cover estimated losses applicable to specific relationships in the loan portfolio. The unallocated portion is maintained to absorb losses which probably exist as of the evaluation date but are not identified by the more objective processes used for the allocated portion of the allowance due to risk of errors or imprecision. While the total allowance consists of an allocated portion and an unallocated portion, these terms are primarily used to describe a process. Both portions of the allowance are available to provide for inherent loss in the entire portfolio.
The allowance for loan losses is increased by provisions for loan losses charged to expense and is reduced by loans charged off net of recoveries on loans previously charged off. The provision is based on managements determination of the amount of the allowance necessary to provide for estimated loan losses based on its evaluation of the loan portfolio. Determining the appropriate level of the allowance and the amount of the provision involves uncertainties and matters of judgment and therefore cannot be determined with precision. At March 31, 2015 and at December 31, 2014, the allowance represented 1.40% and 1.40% of total loans, respectively.
Note 4. 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 | ||||||||
(In Thousands, except share and per share amounts) |
March 31, 2015 |
March 31, 2014 |
||||||
Basic EPS Computation: |
||||||||
Numerator Earnings for the period |
$ | 417 | $ | 494 | ||||
Denominator Weighted average number of common shares outstanding |
3,068,859 | 3,065,810 | ||||||
|
|
|
|
|||||
Basic earnings per common share |
$ | 0.14 | $ | 0.16 | ||||
|
|
|
|
|||||
Diluted EPS Computation: |
||||||||
Numerator Earnings for the period |
$ | 417 | $ | 494 | ||||
Denominator Weighted average number of common shares outstanding |
3,068,859 | 3,065,810 | ||||||
Dilutive effect of stock options |
111,929 | 42,572 | ||||||
|
|
|
|
|||||
Denominator Adjusted weighted average number of common shares outstanding |
3,180,788 | 3,108,382 | ||||||
|
|
|
|
|||||
Diluted earnings per common share |
$ | 0.13 | $ | 0.16 | ||||
|
|
|
|
The effects of stock option exercises in the diluted earnings per share calculation were considered to be 112,000 and 43,000 for the three months ended March 31, 2015 and 2014, respectively.
10
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements, Continued
March 31, 2015 and December 31, 2014
(Unaudited)
Note 5. Regulatory Matters and Restrictions on Dividends
The Bank is subject to regulatory capital requirements administered by the Federal Reserve Bank and the Tennessee Department of Financial Institutions. Failure to meet capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that could, in that event, have a direct material effect on the institutions financial statements. The relevant regulations require the Bank to meet specific capital adequacy guidelines that involve quantitative measures of the Banks assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting principles. The Banks capital classifications are also subject to qualitative judgments by the Regulators about components, risk weightings and other factors. Those qualitative judgments could also affect the Banks capital status and the amount of dividends the Bank may distribute.
In July 2013, the FDIC approved final rules that substantially amend the regulatory risk-based capital rules applicable to the Company and 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 Act.
Under these rules, the leverage and risk-based capital ratios of bank holding companies may not be lower than the leverage and risk-based capital ratios for insured depository institutions. The final rules implementing the Basel III regulatory capital reforms became effective on January 1, 2015, and include new minimum risk-based capital and leverage ratios. Moreover, 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.
In addition to the new minimum capital level requirements, the rules also establish a capital conservation buffer of 2.5% (to be phased in over three years) above the new regulatory minimum risk-based capital ratios, and result in the following minimum ratios once the capital conservation buffer is fully phased in: (I ) a common Tier 1 risk-based capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%. The capital conversation buffer is to be phased in beginning in January, 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January, 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitation establish a maximum percentage of eligible retained income that could be utilized for such actions.
The Bank is required to maintain minimum amounts of capital to total risk weighted assets, as defined by the banking regulators. In addition, the Bank is required to have a minimum leverage ratio. The Banks actual capital amounts, ratios and regulatory requirements as of March 31, 2015 and December 31, 2014 are presented in the following table:
Minimum To Be Well | ||||||||||||||||||||||||
Minimum Capital | Capitalized Under Prompt | |||||||||||||||||||||||
Actual | Requirement | Corrective Action Provision | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
March 31, 2015: |
||||||||||||||||||||||||
Common equity Tier I capital to risk-weighted assets: |
||||||||||||||||||||||||
Commerce Union Bank |
$ | 35,265 | 14.5 | % | $ | 10,924 | 4.5 | % | $ | 15,779 | 6.5 | % | ||||||||||||
Total capital to risk weighted assets: |
||||||||||||||||||||||||
Commerce Union Bank |
38,305 | 15.8 | 19,420 | 8.0 | 24,276 | 10.0 | ||||||||||||||||||
Tier 1 capital to risk weighted assets: |
||||||||||||||||||||||||
Commerce Union Bank |
35,265 | 14.5 | 14,565 | 6.0 | 19,420 | 8.0 | ||||||||||||||||||
Tier 1 leverage ratio: |
||||||||||||||||||||||||
Commerce Union Bank |
35,265 | 11.9 | 11,836 | 4.0 | 14,795 | 5.0 |
11
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements, Continued
March 31, 2015 and December 31, 2014
(Unaudited)
Minimum To Be Well | ||||||||||||||||||||||||
Minimum Capital | Capitalized Under Prompt | |||||||||||||||||||||||
Actual | Requirement | Corrective Action Provision | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
December 31, 2014: |
||||||||||||||||||||||||
Total capital to risk weighted assets: |
||||||||||||||||||||||||
Commerce Union Bank |
$ | 37,993 | 15.4 | % | $ | 19,720 | 8.0 | % | $ | 24,650 | 10.0 | % | ||||||||||||
Tier 1 capital to risk weighted assets: |
||||||||||||||||||||||||
Commerce Union Bank |
34,913 | 14.1 | 9,860 | 4.0 | 14,790 | 6.0 | ||||||||||||||||||
Tier 1 leverage ratio: |
||||||||||||||||||||||||
Commerce Union Bank |
34,913 | 12.2 | 11,469 | 4.0 | 14,336 | 5.0 |
As of March 31, 2015 and December 31, 2014, the most recent notification from the banking regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification that management believes have changed the Banks category.
Note 6. Stock Option Arrangement
In 2006, the Board of Directors and shareholders of the Bank approved the Commerce Union Bank Stock Option Plan (the Plan). The Plan provides for the granting of stock options, and authorizes the issuance of common stock upon the exercise of such options, for up to 625,000 shares of common stock to employees and organizers of the Company. As part of the reorganization, all Commerce Union Bank options were replaced with Commerce Union Bancshares, Inc. options with no change in terms. On March 10, 2015, the shareholders of the Company approved the Commerce Union Bancshares, Inc. Amended and Restated Stock Option Plan which permits the grant of awards up to 1,250,000 shares of the Company common stock in the form of stock options.
Under the Stock Option Plan, stock option awards may be granted in the form of incentive stock options or nonstatutory stock options, and are generally exercisable for up to ten years following the date such option awards are granted. Exercise prices of incentive stock options must be equal to or greater than the fair market value of the common stock on the grant date.
A summary of the stock option activity is as follows:
March 31, 2015 | December 31, 2014 | |||||||||||||||
Shares | Weighted Average Exercise Price |
Shares | Weighted Average Exercise Price |
|||||||||||||
Outstanding at beginning of year |
453,703 | $ | 10.43 | 460,458 | $ | 10.42 | ||||||||||
Granted |
| | 12,000 | 12.60 | ||||||||||||
Exercised |
(200 | ) | 11.43 | | | |||||||||||
Forfeited |
(850 | ) | 11.43 | (18,755 | ) | 11.42 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Outstanding at end of year |
452,653 | $ | 10.43 | 453,703 | $ | 10.43 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options exercisable at year end |
415,793 | 411,423 | ||||||||||||||
|
|
|
|
The Company has adopted FASB ASC 718, Share-Based Payment. This accounting standard requires that all share-based payments to employees, including grants of employee stock options, be recognized in the financial statements based on their fair values at the date of grant.
12
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements, Continued
March 31, 2015 and December 31, 2014
(Unaudited)
The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2014:
December 31, 2014 |
||||
Expected dividends |
1.59 | % | ||
Expected term (in years) |
6.5 | |||
Expected volatility |
22.80 | % | ||
Risk-free rate |
2.22 | % |
There were no stock option grants during the three months ended March 31, 2015.
The following table summarizes information about stock options outstanding at March 31, 2015:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Range of Exercise Prices |
Number Outstanding at 3/31/15 |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life |
Number Exercisable at 3/31/15 |
Weighted Average Exercise Price |
|||||||||||||||
$ 9.52 - $ 12.76 |
452,653 | $ | 10.43 | 2.8 years | 415,793 | $ | 10.31 | |||||||||||||
|
|
|
|
|||||||||||||||||
452,653 | 415,793 | |||||||||||||||||||
|
|
|
|
|||||||||||||||||
Aggregate intrinsic value (in thousands) |
$ | 2,045 | $ | 1,927 | ||||||||||||||||
|
|
|
|
The following table summarizes information about stock options outstanding at December 31, 2014:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Range of Exercise Prices |
Number Outstanding at 12/31/14 |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life |
Number Exercisable at 12/31/14 |
Weighted Average Exercise Price |
|||||||||||||||
$ 9.52 - $ 12.76 |
453,703 | $ | 10.43 | 3.09 years | 411,423 | $ | 10.30 | |||||||||||||
|
|
|
|
|||||||||||||||||
453,703 | 411,423 | |||||||||||||||||||
|
|
|
|
|||||||||||||||||
Aggregate intrinsic value (in thousands) |
$ | 1,164 | $ | 1,111 | ||||||||||||||||
|
|
|
|
The weighted average fair value of options granted during 2014 was $2.78. There were 200 options exercised during the three months ended March 31, 2015 and no options were exercised during 2014.
As of March 31, 2015 there was $66,000 of total unrecognized cost related to non-vested share-based compensation arrangements granted under the stock option plan. The cost is expected to be recognized over a weighted-average period of 1.8 years.
13
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements, Continued
March 31, 2015 and December 31, 2014
(Unaudited)
Note 7. Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. The definition of fair value focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not the entry price, i.e., the price that would be paid to acquire the asset or received to assume the liability at the measurement date. The statement emphasizes that fair value is a market-based measurement; not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.
Valuation Hierarchy
FASB ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
| Level 1inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| Level 2inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| Level 3inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
A financial instruments categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Assets
Securities available-for-saleWhere quoted prices are available for identical securities in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy.
Impaired loansA loan is considered to be impaired when it is probable the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected payments using the loans original effective rate as the discount rate, the loans observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance may be established as a component of the allowance for loan losses or the expense is recognized as a charge-off. Impaired loans are classified within Level 3 of the hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the borrowers underlying financial condition.
Other real estate ownedOther real estate owned OREO represents real estate foreclosed upon by the Company through loan defaults by customers or acquired in lieu of foreclosure. Substantially all of these amounts relate to lots, homes and development projects that are either completed or are in various stages of construction for which the Company believes it has adequate collateral. Upon foreclosure, the property is recorded at the lower of cost or fair value, based on appraised value, less selling costs estimated as of the date acquired with any loss recognized as a charge-off through the allowance for loan losses.
14
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements, Continued
March 31, 2015 and December 31, 2014
(Unaudited)
Additional OREO losses for subsequent valuation downward adjustments are determined on a specific property basis and are included as a component of noninterest expense along with holding costs. Any gains or losses realized at the time of disposal are also reflected in noninterest expense, as applicable. OREO is included in Level 3 of the valuation hierarchy due to the lack of observable market inputs into the determination of fair value. Appraisal values are property-specific and sensitive to the changes in the overall economic environment.
Other assetsIncluded in other assets are certain assets carried at fair value, including the cash surrender value of bank owned life insurance policies. The Company uses financial information received from insurance carriers indicating the performance of the insurance policies and cash surrender values in determining the carrying value of life insurance. The Company reflects these assets within Level 3 of the valuation hierarchy due to the unobservable inputs included in the valuation of these items. The Company does not consider the fair values of these policies to be materially sensitive to changes in these unobservable inputs.
The following tables present the financial instruments carried at fair value as of March 31, 2015 and December 31, 2014, by caption on the consolidated balance sheet and by FASB ASC 820 valuation hierarchy (as described above) (in thousands):
Measured on a Recurring Basis | ||||||||||||||||
Total Carrying Value in the Consolidated Balance Sheet |
Quoted Market Prices in an Active Market (Level 1) |
Models with Significant Observable Market Parameters (Level 2) |
Models with Significant Unobservable Market Parameters (Level 3) |
|||||||||||||
March 31, 2015 |
||||||||||||||||
Investment securities available-for-sale: |
||||||||||||||||
U.S. Government sponsored enterprises |
$ | | $ | | $ | | $ | | ||||||||
Mortgage-backed securities |
9,356 | | 9,356 | | ||||||||||||
Obligations of state and political subdivisions |
20,131 | | 20,131 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total investment securities available-for-sale |
29,487 | | 29,487 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other assets |
4,181 | | | 4,181 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 33,668 | $ | | $ | 29,487 | $ | 4,181 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Measured on a Recurring Basis | ||||||||||||||||
Total Carrying Value in the Consolidated Balance Sheet |
Quoted Market Prices in an Active Market (Level 1) |
Models with Significant Observable Market Parameters (Level 2) |
Models with Significant Unobservable Market Parameters (Level 3) |
|||||||||||||
December 31, 2014 |
||||||||||||||||
Investment securities available-for-sale: |
||||||||||||||||
U.S. Government sponsored enterprises |
$ | | $ | | $ | | $ | | ||||||||
Mortgage-backed securities |
9,982 | | 9,982 | | ||||||||||||
Obligations of state and political subdivisions |
17,421 | | 17,421 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total investment securities available-for-sale |
27,403 | | 27,403 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other assets |
4,145 | | | 4,145 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 31,548 | $ | | $ | 27,403 | $ | 4,145 | ||||||||
|
|
|
|
|
|
|
|
15
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements, Continued
March 31, 2015 and December 31, 2014
(Unaudited)
Measured on a Non-Recurring Basis | ||||||||||||||||
Total Carrying Value in the Consolidated Balance Sheet |
Quoted Market Prices in an Active Market (Level 1) |
Models with Significant Observable Market Parameters (Level 2) |
Models with Significant Unobservable Market Parameters (Level 3) |
|||||||||||||
March 31, 2015 |
||||||||||||||||
Other real estate owned |
$ | | $ | | $ | | $ | | ||||||||
Impaired loans, net (1) |
2,445 | | | 2,445 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,445 | $ | | $ | | $ | 2,445 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2014 |
||||||||||||||||
Other real estate owned |
$ | | $ | | $ | | $ | | ||||||||
Impaired loans, net (1) |
2,353 | | | 2,353 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,353 | $ | | $ | | $ | 2,353 | ||||||||
|
|
|
|
|
|
|
|
(1) | Amount is net of a valuation allowance of $565,000 at March 31, 2015 and $669,000 at December 31, 2014 as required by ASC 310, Receivables. |
There are no liabilities measured at fair value.
In the case of the bond portfolio, the Company monitors the valuation technique utilized by various pricing agencies to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the three months ended March 31, 2015 and for the twelve months ended December 31, 2014, there were no transfers between Levels 1, 2 or 3.
The table below includes a rollforward of the balance sheet amounts for the period ended March 31, 2015 and year ended December 31, 2014 (including the change in fair value) for financial instruments classified by the Company within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology (in thousands):
March 31, 2015 | December 31, 2014 | |||||||||||||||
Other Assets |
Other Liabilities |
Other Assets |
Other Liabilities |
|||||||||||||
Fair value, January 1 |
$ | 4,145 | $ | | $ | 2,003 | $ | | ||||||||
Total realized gains included in income |
36 | | 142 | | ||||||||||||
Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at |
| | | | ||||||||||||
Purchases, issuances and settlements, net |
| | 2,000 | | ||||||||||||
Transfers out of Level 3 |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Fair value |
$ | 4,181 | $ | | $ | 4,145 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total realized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at |
$ | 36 | $ | | $ | 142 | $ | | ||||||||
|
|
|
|
|
|
|
|
16
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements, Continued
March 31, 2015 and December 31, 2014
(Unaudited)
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments that are not measured at fair value. In cases where quoted market prices are not available, fair values are based on estimates using discounted cash flow models. Those models are significantly affected by the assumptions used, including the discount rates, estimates of future cash flows and borrower creditworthiness. The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2015 and December 31, 2014. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
LoansThe fair value of our loan portfolio includes a credit risk factor in the determination of the fair value of our loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. Our loan portfolio is initially fair valued using a segmented approach. We divide our loan portfolio into the following categories: variable rate loans, impaired loans and all other loans. The results are then adjusted to account for credit risk.
For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. Fair values for impaired loans are estimated using discounted cash flow models or based on the fair value of the underlying collateral. For other loans, fair values are estimated using discounted cash flow models, using current market interest rates offered for loans with similar terms to borrowers of similar credit quality. The values derived from the discounted cash flow approach for each of the above portfolios are then further discounted to incorporate credit risk to determine the exit price.
Deposits, Securities Sold Under Agreements to Repurchase and Federal Home Loan Bank AdvancesThe carrying amounts of securities sold under repurchase agreements, non-interest bearing deposits and savings deposits approximate their fair values. Fair values for Federal Home Loan Bank advances and certificates of deposit are estimated using discounted cash flow models, using current market interest rates offered on certificates with similar remaining maturities.
Off-Balance Sheet InstrumentsThe fair values of the Companys off-balance-sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value to the Company until such commitments are funded.
The following table presents the carrying amounts, estimated fair value and placement in the fair value hierarchy of the Companys financial instruments at March 31, 2015 and December 31, 2014. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as noninterest bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.
(In Thousands) |
Carrying/ Notional Amount |
Estimated Fair Value (1) |
Quoted Market Prices in an Active Market (Level 1) |
Models with Significant Observable Market Parameters (Level 2) |
Models with Significant Unobservable Market Parameters (Level 3) |
|||||||||||||||
March 31, 2015 |
||||||||||||||||||||
Financial assets: |
||||||||||||||||||||
Loans, net |
$ | 249,369 | $ | 244,505 | $ | | $ | | $ | 244,505 | ||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits and securities sold under agreements to repurchase |
247,411 | 247,794 | | | 247,794 | |||||||||||||||
Federal Home Loan Bank advances |
20,562 | 20,856 | | | 20,856 | |||||||||||||||
Off-balance sheet instruments: |
||||||||||||||||||||
Commitments to extend credit |
| | | | | |||||||||||||||
Standby letters of credit |
| | | | |
17
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements, Continued
March 31, 2015 and December 31, 2014
(Unaudited)
(In Thousands) |
Carrying/ Notional Amount |
Estimated Fair Value (1) |
Quoted Market Prices in an Active Market (Level 1) |
Models with Significant Observable Market Parameters (Level 2) |
Models with Significant Unobservable Market Parameters (Level 3) |
|||||||||||||||
December 31, 2014 |
||||||||||||||||||||
Financial assets: |
||||||||||||||||||||
Loans, net |
$ | 241,217 | $ | 241,842 | $ | | $ | | $ | 241,842 | ||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits and securities sold under agreements to repurchase |
237,363 | 235,052 | | | 235,052 | |||||||||||||||
Federal Home Loan Bank advances |
20,769 | 20,998 | | | 20,998 | |||||||||||||||
Off-balance sheet instruments: |
||||||||||||||||||||
Commitments to extend credit |
| | | | | |||||||||||||||
Standby letters of credit |
| | | | | |||||||||||||||
(1) | Estimated fair values are consistent with an exit-price concept. The assumptions used to estimate the fair values are intended to approximate those that a market-participant would realize in a hypothetical orderly transaction. |
Note 8. Recent Accounting Pronouncements
In January 2014, the FASB issued ASU 2014-01, InvestmentsEquity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this ASU permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this ASU should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company does not currently have any LIHTC programs. Therefore, retroactive adoption will not impact our previously reported financial statements.
In January 2014, the FASB issued ASU 2014-04, ReceivablesTroubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this ASU clarify that in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this ASU using either a modified retrospective transition method or a prospective transition method. This ASU did not have a material impact on our financial statements.
18
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Notes to Consolidated Financial Statements, Continued
March 31, 2015 and December 31, 2014
(Unaudited)
In June 2014, the FASB issued ASU 2014-10, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this ASU change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The amendments also require enhanced disclosures. The accounting changes in this ASU are effective for the first interim or annual period beginning after December 15, 2014. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. This ASU did not have material impact on our financial statements.
In June 2014, the FASB issued ASU 2014-12, Compensation- Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period. The amendments in this ASU require that a performance target that affects vesting and that could be achieved after the requisite service period has elapsed be treated as a performance condition. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this ASU either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this ASU as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. The Company does not expect this ASU to have a material impact on our financial statements as performance targets do not affect vesting of stock options issued.
Note 9. Merger Agreement
On March 10, 2015, the Company approved a merger with Reliant Bank (Reliant) which became effective on April 1, 2015 (the Merger). Each outstanding share and options to purchase shares of Reliant common stock converted into the right to receive 1.0213 shares of the Companys common stock. After the Merger was completed, the Companys shareholders owned approximately 44.5% of the common stock and Reliant Banks shareholders owned approximately 55.5% of the outstanding common stock on a fully diluted basis.
The Merger was accounted for as a reverse merger using the acquisition method of accounting, in accordance with the provisions of FASB ASC Topic 805-10 Business Combinations.
As such, for accounting purposes, Reliant was considered to be acquiring Commerce Union in this transaction. As a result, the historical financial statements of the combined company will be the historical financial statements of Reliant. The Merger was effected by the issuance of shares of Commerce Union stock to Reliant shareholders. The assets and liabilities of Commerce Union as of the effective date of the Merger were recorded at their respective estimated fair values and added to those of Reliant. Any excess of purchase price over the net estimate fair values of the acquired assets and liabilities of Commerce Union were allocated to all identifiable intangibles assets. Any remaining excess were then allocated to goodwill.
In periods following the Merger, the comparative historical financial statements of Commerce Union will be those of Reliant prior to the Merger. These financial statements will reflect the results attributable to the acquired operations of Commerce Union, as the acquired company for accounting purposes, which began on April 1, 2015.
19
Table of Contents
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
General
The purpose of this discussion is to provide insight into the financial condition and results of operations of the Company. This discussion should be read in conjunction with the Companys annual consolidated financial statements filed in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2014. Amounts provided in the narrative are shown in thousands, except for economic and demographic information, numbers of shares, per share amounts and as otherwise noted.
Like most community banks, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.
In addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our customers. We describe the various components of this non-interest income, as well as our non-interest expense, in the following discussion.
On March 10, 2015, the Company approved a merger with Reliant Bank (Reliant) which was effective on April 1, 2015 (the Merger). Under the terms of the Merger each outstanding share and options to purchase shares of Reliant common stock were converted into the right to receive 1.0213 shares of the Companys common stock. After the Merger was completed, the Companys shareholders own approximately 44.5% of the common stock and Reliant Banks shareholders own approximately 55.5% of the outstanding common stock on a fully diluted basis.
The Merger was accounted for as a reverse merger using the acquisition method of accounting, in accordance with the provisions of FASB ASC Topic 805-10 Business Combinations.
As such, for accounting purposes, Reliant acquired Commerce Union in this transaction. As a result, the historical financial statements of the combined company are the historical financial statements of Reliant when the merger was consummated. The Merger was effected by the issuance of shares of Commerce Union stock to Reliant shareholders. The assets and liabilities of Commerce Union as of the effective date of the Merger were recorded at their respective estimated fair values and added to those of Reliant. Any excess of purchase price over the net estimate fair values of the acquired assets and liabilities of Commerce Union were allocated to all identifiable intangibles assets. Any remaining excess was allocated to goodwill.
In periods following the Merger, the comparative historical financial statements of Commerce Union will be those of Reliant prior to the Merger. These financial statements will reflect the results attributable to the acquired operations of Commerce Union, as the acquired company for accounting purposes, beginning on the date the Merger was completed.
The purpose of this discussion is to provide insight into the financial condition and results of operations of the Company. This discussion should be read in conjunction with the annual consolidated financial statements filed in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission in March of 2015. The Annual Report on Form 10-K also contains important information concerning the Company, its operations, applicable laws and regulations, and other matters. Certain updated risk factors and other information appear in Part II of this Report. All amounts are in thousands, except per share data or unless otherwise indicated.
Critical Accounting Estimates
The accounting principles we follow and our methods of applying these principles conform with U.S. generally accepted accounting principles and with general practices within the banking industry. In connection with the application of those principles, we have made judgments and estimates which, in the case of the determination of
20
Table of Contents
our allowance for loan losses have been critical to the determination of our financial position and results of operations. Additional information regarding significant accounting policies is described in Note 1 to the Financial Statements for the year ended December 31, 2014 in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission in March of 2015.
Allowance for Loan Losses (allowance) - Our management assesses the adequacy of the allowance prior to the end of each calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon managements evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loan losses are charged off when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a confirming event has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely. Allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in managements judgment, is deemed to be uncollectible.
A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan will be collected as scheduled in the loan agreement.
An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan (recorded investment in the loan is the principal balance plus any accrued interest, net of deferred loan fees or costs and unamortized premium or discount). The impairment is recognized through the allowance. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loans effective interest rate, or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral, less estimated disposal costs. If the measure of the impaired loan is less than the recorded investment in the loan, the Company recognizes an impairment by creating a valuation allowance with a corresponding charge to the provision for loan losses or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to the provision for loan losses. Management believes it follows appropriate accounting and regulatory guidance in determining impairment and accrual status of impaired loans.
The level of allowance maintained is believed by management to be adequate to absorb probable losses inherent in the portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.
In assessing the adequacy of the allowance, we also consider the results of our ongoing loan review process. We undertake this process both to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our loan review process includes the judgment of management, the input from our independent loan reviewers, and reviews that may have been conducted by bank regulatory agencies as part of their usual examination process. We incorporate loan review results in the determination of whether or not it is probable that we will be able to collect all amounts due according to the contractual terms of a loan.
As part of managements quarterly assessment of the allowance, management divides the loan portfolio into segments based on bank call reporting requirements. Each segment is then analyzed such that an allocation of the allowance is estimated for each loan segment.
The allowance allocation begins with a process of estimating the probable losses in each loan segments. The estimates for these loans are based on our historical loss data for that category over the last four quarters.
The estimated loan loss allocation for all loan portfolio segments is then adjusted for several environmental factors. The allocation for environmental factors is particularly subjective and does not lend itself
21
Table of Contents
to exact mathematical calculation. This amount represents estimated probable inherent credit losses which exist, but have not yet been identified, as of the balance sheet date, and are based upon quarterly trend assessments in delinquent and nonaccrual loans, unanticipated charge-offs, credit concentration changes, prevailing economic conditions, changes in lending personnel experience, changes in lending policies or procedures and other influencing factors. These environmental factors are considered for each of the loan segments, and the allowance allocation, as determined by the processes noted above for each component, is increased or decreased based on the incremental assessment of these various environmental factors.
We then test the resulting allowance by comparing the balance in the allowance to industry and peer information. Our management then evaluates the result of the procedures performed, including the result of our testing, and concludes on the appropriateness of the balance of the allowance in its entirety.
Other-than-temporary ImpairmentImpaired securities are assessed quarterly for the presence of other-than-temporary impairment (OTTI). A decline in the fair value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in the carrying amount of the security. To determine whether OTTI has occurred, management considers factors such as (1) length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Banks ability and intent to hold the security for a period sufficient to allow for an anticipated recovery in fair value. If management deems a security to be OTTI, management reviews the present value of the future cash flows associated with the security. A shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as a credit loss. If a credit loss is identified, the credit loss is recognized as a charge to earnings and a new cost basis for the security is established. If management concludes that no credit loss exists and it is not more-likely-than-not that the Company will be required to sell the security before the recovery of the securitys cost basis, then the security is not deemed OTTI and the shortfall is recorded as a component of equity.
Results of Operations
Commerce Union had earnings of $417 for the first three months of 2015, or $0.14 basic earnings per share, compared to earnings of $494 or $0.16 basic earnings per share for the same period of 2014. The diluted earnings per share were $0.13 for the first three months of 2015 and $0.16 for the same period in 2014.
During the three months ended March 31, 2015, there were a number of variances when compared with the same period in 2014, but the most significant variances occurred in income from fees on deposit and loan accounts, employee salaries and benefits expense and professional fees. These variances are discussed on the pages that follow.
Net Interest Income
Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of Commerce Unions earnings. Total interest income for the three month ended March 31, 2015 was $3,161 and total interest expense was $419, resulting in net interest income for the three months ended March 31, 2015 totaling $2,742. For the same period in 2014 total interest income was $2,851 and total interest expense was $423, which resulted in net interest income of $2,428. This represents an 10.9% increase in total interest income, a 0.9% decrease in total interest expense and a 12.9% increase in net interest income when comparing the same periods from 2015 and 2014. When comparing the variances related to interest income and interest expense for the three months ended March 31, 2015 and 2014, the increases and decrease, respectively, were attributed to the following: (1) the increase in interest income is due to the increase in loan demand; and, (2) the decrease in interest expense is primarily due to Commerce Union Banks management of the rates on interest-bearing liabilities over the past year, effectively reducing the cost of interest-bearing liabilities from 0.9% for the three months ended March 31, 2014 to 0.7% for the same period in 2015.
The Federal Reserve has not raised interest rates over the past several years. In the recent Federal Reserve press release dated April 29, 2015, the Federal Open Market Committee stated that it today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in
22
Table of Contents
the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. Based on that report and others like it, management believes that Commerce Unions net interest margin should remain relatively stable depending upon rates offered by competitors in its local markets and depending upon the stability of Commerce Unions loan and deposit portfolios.
Provision for Loan Losses
The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in managements evaluation, is adequate to provide coverage for estimated losses on outstanding loans and to provide for uncertainties in the economy. As a result of evaluating the allowance for loan losses at March 31, 2015, management recorded a provision of $115 for the three months ended March 31, 2015. There was a $109 provision for loan losses recorded during the three months ended March 31, 2014. This is due to the continuing growth in Commerce Unions loan portfolio.
Management recognizes that more borrowers may develop cash flow issues that could adversely affect their ability to fully pay back their loans. Our reserve analysis and our provisions to the allowance for loan losses factor in these considerations, but if the economy weakens or does not recover more quickly, or if there is an increase in loan volumes, Commerce Union may have to record additional loan loss provisions in the future. The total allowance for loan losses was $3,548 or 1.40% of loans at March 31, 2015, and $3,433 or 1.40% of loans at December 31, 2014. The level of the allowance maintained by Commerce Union involves evaluation of uncertainties and matters of judgment. Management believes the allowance for loan losses at March 31, 2015 and December 31, 2014 to be adequate.
Non-Interest Income
Commerce Unions non-interest income consists of service charges and other fees on deposit accounts, investment services, bank owned life insurance income, other fee income on loans and gain on sale of other real estate owned. Total non-interest income for the three months ended March 31, 2015 was $345 compared with $304 for the same period in 2014, an increase of $41 or 13.5%. The primary factors in the increase were: (1) an increase in bank owned life insurance income of $7 or 24.1% when comparing the three months ended March 31, 2015 with the same period in 2014; (2) an increase in investment services income of $8 or 17.0%; (3) an increase in service charges and other fees of deposit accounts of $15 or 10.1% and (4) an increase in other fee income on loans of $15 or 20.0%. Management believes that non-interest income will continue to supplement core earnings for Commerce Union. Management also believes that brokerage fees will be fairly stable; however, if the national stock markets increase or decrease in value, Commerce Unions brokerage income will be directly affected, since many of Commerce Unions fee opportunities in brokerage directly correlate to the movement of the stock markets. Service charge income on deposits has increased in comparison with the prior year as has other fee income on loans due to overall growth in the loan portfolio and deposit accounts.
Non-Interest Expense
Non-interest expenses consist primarily of employee costs, occupancy expenses, professional fees and other operating expenses. Non-interest expense for the three months ended March 31, 2015 was $2,265, compared to $1,894 for the same period in 2014, an increase of $371 or 19.6%. The most significant changes noted when comparing the three months ended 2015 to the same period in 2014 were $183 of transaction costs related to the merger with Reliant Bank that occurred on April 1, 2015. Also, employee salaries and benefits increased $94, or 8.2%, as compared to the same period in 2014. This was offset by a decline in other operating expenses of $36 or 16.5%.
Income Taxes
We recorded income tax expense for the three months ended March 31, 2015 and 2014 of $290 and $235, respectively. Our income tax expense for the three months ended March 31, 2015 reflects an effective income tax rate of 41.0% compared to 32.2% for the three months ended March 31, 2014 which is principally impacted by our investments in municipal securities and our bank-owned life insurance offset in part by meals and entertainment and other expenses, portions of which are non-deductible. The effective income tax rate for the three months ended March 31, 2015 was impacted by nondeductible merger expenses.
23
Table of Contents
Financial Condition
Balance Sheet Summary
Commerce Unions total assets were $305,183 at March 31, 2015 and $295,722 at December 31, 2014. Loans, net of allowance for loan losses, totaled $249,369 at March 31, 2015 and $241,217 at December 31, 2014. Investment securities totaled $29,487 at March 31, 2015 and $27,403 at December 31, 2014. Restricted equity securities totaled $1,974 at March 31, 2015 and December 31, 2014. Bank owned life insurance totaled $4,181 and $4,145 at March 31, 2015, and December 31, 2014, respectively. The percentage changes for these categories are a 3.2% increase in total assets, a 3.4% increase in loans, net of allowance for loan losses, a 7.6% increase in investment securities and a 0.9% increase in bank owned life insurance.
Total liabilities increased by 3.5% to $268,706 at March 31, 2015 from $259,685 at December 31, 2014. Stockholders equity increased 1.2% to $36,477 at March 31, 2015 from $36,037 at December 31, 2014, primarily due net income for the first three months of 2015. A more detailed discussion of assets, liabilities and capital follows.
There are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the following section we have included a discussion of this process, as well as several tables describing our allowance for loan losses and the allocation of this allowance among our various categories of loans.
Loans
Loans are a large component of Commerce Unions assets and are a primary source of income. The loan portfolio is composed of five primary categories: commercial and agricultural production; residential real estate; construction and land development; commercial and agricultural real estate; and other loans. The table below sets forth the loan categories and the relative percentages of these loan categories in the portfolio at March 31, 2015 and December 31, 2014.
Loan categories are as follows:
March 31, 2015 | December 31, 2014 | |||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||
Commercial and agricultural production |
$ | 45,679 | 18.0 | % | $ | 42,621 | 17.4 | % | ||||||||
Real estate: |
||||||||||||||||
Construction and land development |
31,608 | 12.5 | 29,925 | 12.2 | ||||||||||||
Residential properties |
71,884 | 28.4 | 68,125 | 27.8 | ||||||||||||
Commercial and agricultural real estate |
88,329 | 34.9 | 88,173 | 36.0 | ||||||||||||
Other |
15,950 | 6.2 | 16,349 | 6.6 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 253,450 | 100.0 | % | $ | 245,193 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
As represented in the table, gross loans increased by approximately 3.4% during the three months ended March 31, 2015. Commerce Union experienced growth in commercial loans and real estate loans, with increases in commercial and agricultural real estate loans (0.2%), construction and land development loans (5.6%), residential real estate loans (5.5%) and commercial and agricultural production loans (7.2%). Commerce Union Bank experienced a decrease of 2.4% in other loans.
24
Table of Contents
At March 31, 2015, real estate loans accounted for 75.7% of total loans. Accordingly, Commerce Union has a significant concentration of credit that is dependent on the continuing strength of the local real estate market. Management is focused on making loans in an orderly fashion to maintain quality, especially considering the economic impact of the recession several years ago.
The Federal regulatory agencies issued two guidances that have a significant impact on real-estate related lending and, thus, on the operations of Commerce Union. One part of the guidance could require lenders to restrict lending secured primarily by certain categories of commercial real estate to a level at 300% of their capital or to raise additional capital. This factor, combined with the current economic environment, has affected Commerce Unions loan strategy away from, or to limit its expansion of, commercial real estate lending, which has been a material part of Commerce Unions lending strategy. This could also have a negative impact on Commerce Unions lending and profitability. Management actively monitors the composition of Commerce Unions loan portfolio, focusing on concentrations of credit, and the results of that monitoring activity is periodically reported to the Board of Directors.
The other guidance relates to the structuring of certain types of mortgages that allows negative amortization of consumer mortgage loans. Although Commerce Union does not engage at present in a significant amount of lending using these types of instruments, the guidance could have the effect of making Commerce Union less competitive in consumer mortgage lending if the local market is driving the demand for such an offering.
Commerce Union follows the provisions of ASC 310-10 and ASC 310-40. These standards apply to impaired loans except for large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment including residential mortgage and consumer installment loans.
A loan is impaired when it is probable that Commerce Union will be unable to collect the scheduled payments of principal and interest due under the contractual terms of the loan agreement. Impaired loans are measured at the present value of expected future cash flows discounted at the loans effective interest rate, at the loans observable market price, or the fair value of the collateral if the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, Commerce Union shall recognize an impairment by creating a valuation allowance with a corresponding charge to the provision for loan losses or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to the provision for loan losses.
Commerce Unions home equity lines of credit and consumer loans which total approximately $8,993 and $1,946, respectively at March 31, 2015, are divided into various groups of smaller-balance homogeneous loans that are collectively evaluated for impairment. Substantially all other loans of Commerce Union are evaluated for specific impairment. If home equity lines of credit and consumer loans are part of a larger relationship that is considered impaired by management, then a specific reserve may be assigned to affected single-family residential loans in those relationships. Commerce Union considers all loans subject to the provisions of ASC 310-10 and ASC 310-40 that are on nonaccrual status to be impaired. Loans are placed on nonaccrual status when doubt as to timely collection of principal or interest exists, or when principal or interest is past due 90 days or more unless such loans are well-secured and in the process of collection. Delays or shortfalls in loan payments are evaluated with various other factors to determine if a loan is impaired. Generally, delinquencies under 90 days are considered insignificant unless certain other factors are present which indicate impairment is probable. The decision to place a loan on nonaccrual status is also based on an evaluation of the borrowers financial condition, collateral, liquidation value, and other factors that affect the borrowers ability to pay.
Generally, at the time a loan is placed on nonaccrual status, all interest accrued and uncollected on the loan in the current fiscal year is reversed from income, and all interest accrued and uncollected from the prior year is charged off against the allowance for loan losses. Thereafter, interest on nonaccrual loans is recognized as interest income only to the extent that cash is received and future collection of principal is not in doubt. If the collectability of outstanding principal is doubtful, such interest received is applied as a reduction of principal. A nonaccrual loan may be restored to accruing status when principal and interest is no longer past due and unpaid and future collection of principal and interest on a timely basis is not in doubt. At March 31, 2015, there were six non-accrual loans totaling $1,538, and there were five non-accrual loans totaling $1,570 at December 31, 2014.
25
Table of Contents
Other loans may be classified as impaired when the current net worth and financial capacity of the borrower or the collateral pledged, if any, is viewed as inadequate. In those cases, such loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt, and if such deficiencies are not corrected, there is a probability that Commerce Union will sustain some loss. In such cases, interest income continues to accrue as long as the loan does not meet Commerce Unions criteria for nonaccrual status.
Generally Commerce Union also classifies as impaired any loans the terms of which have been modified in a troubled debt restructuring. Interest is accrued on such loans that continue to meet the modified terms of their loan agreements. At March 31, 2015, Commerce Union had one loan that has had its term modified in a troubled debt restructuring, and at December 31, 2014, Commerce Union had one such loan. Troubled debt restructurings are discussed in more detail later in this document.
Commerce Union Banks charge-off policy for impaired loans is similar to its charge-off policy for all loans in that loans are charged-off in the month when they are considered uncollectible.
Impaired loans and related allowance for loan loss allocation amounts at March 31, 2015 were as follows:
Impaired Loans | ||||||||||||||||||||
Impaired Loans With Allowance | With No Allowance | |||||||||||||||||||
Principal Balance |
Recorded Investment |
Allocated Allowance for Loan Losses |
Principal Balance |
Recorded Investment |
||||||||||||||||
Commercial and agricultural production |
$ | 1,749 | $ | 1,785 | $ | 543 | $ | 308 | $ | 318 | ||||||||||
Real estate: |
||||||||||||||||||||
Construction and land development |
| | | | | |||||||||||||||
Residential properties |
125 | 125 | 19 | 162 | 163 | |||||||||||||||
Commercial and agricultural real estate |
123 | 123 | 3 | 543 | 543 | |||||||||||||||
Other |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,997 | $ | 2,033 | $ | 565 | $ | 1,013 | $ | 1,024 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Impaired loans and related allowance for loan loss allocation amounts at December 31, 2014 were as follows:
Impaired Loans | ||||||||||||||||||||
Impaired Loans With Allowance | With No Allowance | |||||||||||||||||||
Principal Balance |
Recorded Investment |
Allocated Allowance for Loan Losses |
Principal Balance |
Recorded Investment |
||||||||||||||||
Commercial and agricultural production |
$ | 1,773 | $ | 1,812 | $ | 647 | $ | 293 | $ | 308 | ||||||||||
Real estate: |
||||||||||||||||||||
Construction and land development |
| | | | | |||||||||||||||
Residential properties |
125 | 126 | 19 | 162 | 163 | |||||||||||||||
Commercial and agricultural real estate |
125 | 133 | 3 | 544 | 548 | |||||||||||||||
Other |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 2,023 | $ | 2,071 | $ | 669 | $ | 999 | $ | 1,019 | ||||||||||
|
|
|
|
|
|
|
|
|
|
26
Table of Contents
The average recorded investment in impaired loans for March 31, 2015 and December 31, 2014 was $3,016 and $3,559, respectively. The related total amount of interest income recognized for the period that such loans were impaired was $69 for the three months ended March 31, 2015, which compares with $19 for the same period in 2014. Commerce Unions level of impaired loans decreased over the year, going from $3,022 at December 31, 2014 to $3,010 at March 31, 2015 as a result of collection efforts. Commerce Unions management believes that existing loan loss reserves are adequate to absorb potential losses that may occur in these segments of the portfolio.
At March 31, 2015 and December 31, 2014, there were $5,740 and $6,848, respectively, in loans included in Commerce Unions internal watch list. Loans are identified for inclusion on the watch list when information obtained about changes or uncertainties that may affect a borrowers financial condition have prompted management to more closely monitor the ability of the borrower to comply with the agreed upon repayment terms of the loan agreement. The resulting loan classifications could represent trends or uncertainties which management expects may impact future operating results, liquidity or capital resources.
The allowance for loan losses is discussed under Provision for Loan Losses. Commerce Union maintains its allowance for loan losses at an amount considered by management to be adequate to provide for the possibility of loan losses in the loan portfolio.
Essentially all of Commerce Unions loans originate from Robertson and Sumner County and adjacent counties in Tennessee. Commerce Union seeks to exercise prudent risk management in lending, including diversification by loan category and industry segment, as well as by identification of credit risks. Management is also sensitive, despite this diversification by loan category and industry segment, to the risks associated with Commerce Unions geographic loan concentration in Robertson and Sumner County and Middle Tennessee.
Commerce Union has targeted commercial business lending, commercial and residential real estate lending and consumer lending. Commerce Union seeks to build a loan portfolio which is capable of adjusting to swings in the interest rate market, and it is Commerce Unions policy to maintain a diverse loan portfolio not dependent on any particular market or industry segment. Management has set a goal for loans to approximate 85% to 90% of deposits. At March 31, 2015, Commerce Unions loan-to-deposit ratio is 102.4%, which indicates that Commerce Union is continuing to experience loan growth in excess of its core deposit growth and that the bank is bridging the difference with lower cost wholesale funds.
Credit Quality Indicators
Commerce Union categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Commerce Union analyzes loans individually by classifying the loans as to credit risk. Loans classified as substandard or pass/watch (also known as special mention) are reviewed regularly by Commerce Union to determine if appropriately classified or to determine if the loan is impaired. Commerce Unions loan portfolio is reviewed for credit quality on a regular basis, with samples being selected based on loan size, credit grades, etc., to assist Commerce Unions management in its efforts to properly apply credit risk management processes.
27
Table of Contents
Loans excluded from the scope of the annual review process are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts Commerce Union for a modification. In these circumstances, the customer relationship is specifically evaluated for potential classification as to pass/watch, substandard or doubtful, or could even be considered for charge-off. Commerce Union uses the following definitions for risk ratings:
1. | Prime Credit Risk |
Minimal risk potential. Generally secured with liquid collateral that has more than adequate margin of protection to off-set market depreciation and accruing interest, satisfactory pledging agreements and collateral is held under satisfactory control. In addition, the borrower possesses the ability to repay the debt without disposition of collateral.
2. | Above Average Credit Risk |
Excellent sources of repayment with debt supported by strong collateral values and/or acceptable financial capacity. No evidence of weakness in the credit.
3. | Average Credit Risk |
Loan is of satisfactory quality and is considered collectible in full. Repayment is supported by limited but adequate cash flow and/or collateral values.
4. | Acceptable Credit Risk |
A loan of acceptable quality; however, has characteristics that may warrant more than normal attention. These characteristics may include: industry and/or type of lending. Borrower may have acceptable but smaller margins of debt service coverage with some elements of reduced financial strength.
5. | Special Mention/Watch |
An asset which is currently protected but has potential weakness which may, if not corrected, inadequately protect the banks credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
6. | Substandard |
A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
7. | Doubtful |
An asset classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection of liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
8. | Loss |
Assets 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 asset has absolutely no recovery of salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. Closed-end retail loans that become past due 120 cumulative days and open-end retail loans that become past due 180 cumulative days from the contractual due date will be classified loss and charged off.
28
Table of Contents
The following table breaks down Commerce Union Banks credit quality indicators by type of loan as of March 31, 2015:
Real Estate | ||||||||||||||||||||||||
Commercial | Commercial | |||||||||||||||||||||||
Construction | and | and | ||||||||||||||||||||||
and Land | Residential | Agricultural | Agricultural | |||||||||||||||||||||
Development | Properties | Real Estate | Production | Other | Total | |||||||||||||||||||
Grade: |
||||||||||||||||||||||||
Pass |
$ | 31,608 | $ | 70,754 | $ | 86,079 | $ | 43,368 | $ | 15,901 | $ | 247,710 | ||||||||||||
Special mention |
| 843 | 2,016 | 692 | 49 | 3,600 | ||||||||||||||||||
Substandard |
| 287 | 234 | 1,619 | | 2,140 | ||||||||||||||||||
Doubtful |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 31,608 | $ | 71,884 | $ | 88,329 | $ | 45,679 | $ | 15,950 | $ | 253,450 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table breaks down Commerce Unions credit quality indicators by type of loan as of December 31, 2014:
Real Estate | ||||||||||||||||||||||||
Commercial | Commercial | |||||||||||||||||||||||
Construction | and | and | ||||||||||||||||||||||
and Land | Residential | Agricultural | Agricultural | |||||||||||||||||||||
Development | Properties | Real Estate | Production | Other | Total | |||||||||||||||||||
Grade: |
||||||||||||||||||||||||
Pass |
$ | 29,335 | $ | 66,666 | $ | 85,763 | $ | 40,282 | $ | 16,299 | $ | 238,345 | ||||||||||||
Special mention |
590 | 847 | 2,174 | 712 | 50 | 4,373 | ||||||||||||||||||
Substandard |
| 612 | 236 | 1,627 | | 2,475 | ||||||||||||||||||
Doubtful |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 29,925 | $ | 68,125 | $ | 88,173 | $ | 42,621 | $ | 16,349 | $ | 245,193 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides an aging analysis of Commerce Unions past due loans as of March 31, 2015:
Recorded | ||||||||||||||||||||||||||||
Greater | Investment | |||||||||||||||||||||||||||
30-59 | 60-89 | than 90 | Total | Total | Past Due | |||||||||||||||||||||||
Days | Days | Days or | Past Due | Current | Total | >90 Days and | ||||||||||||||||||||||
(In Thousands) | Past Due | Past Due | Nonaccrual | Loans | Loans | Loans | Still Accruing | |||||||||||||||||||||
Commercial and agricultural production |
$ | 19 | $ | 205 | $ | 1,352 | $ | 1,576 | $ | 44,103 | $ | 45,679 | $ | | ||||||||||||||
Real estate: |
||||||||||||||||||||||||||||
Construction and land development |
| | | | 31,608 | 31,608 | | |||||||||||||||||||||
Residential properties |
402 | | | 402 | 71,482 | 71,884 | | |||||||||||||||||||||
Commercial and agricultural real estate |
9 | | 186 | 195 | 88,134 | 88,329 | | |||||||||||||||||||||
Other |
8 | | | 8 | 15,942 | 15,950 | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 438 | $ | 205 | $ | 1,538 | $ | 2,181 | $ | 251,269 | $ | 253,450 | $ | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Table of Contents
The following table provides an aging analysis of Commerce Unions past due loans as of December 31, 2014:
Recorded | ||||||||||||||||||||||||||||
Greater | Investment | |||||||||||||||||||||||||||
30-59 | 60-89 | than 90 | Total | Total | Past Due | |||||||||||||||||||||||
Days | Days | Days or | Past Due | Current | Total | >90 Days and | ||||||||||||||||||||||
(In Thousands) | Past Due | Past Due | Nonaccrual | Loans | Loans | Loans | Still Accruing | |||||||||||||||||||||
Commercial and agricultural production |
$ | | $ | | $ | 1,382 | $ | 1,382 | $ | 41,239 | $ | 42,621 | $ | | ||||||||||||||
Real estate: |
||||||||||||||||||||||||||||
Construction and land development |
| | | | 29,925 | 29,925 | | |||||||||||||||||||||
Residential properties |
| | | | 68,125 | 68,125 | | |||||||||||||||||||||
Commercial and agricultural real estate |
| | 188 | 188 | 87,985 | 88,173 | | |||||||||||||||||||||
Other |
| | | | 16,349 | 16,349 | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | | | $ | 1,570 | $ | 1,570 | $ | 243,623 | $ | 245,193 | $ | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings
Commerce Unions loan portfolio includes certain loans that have been modified in a troubled debt restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from Commerce Unions loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrowers sustained repayment performance for a reasonable period, generally nine months.
Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and result in potential incremental losses. These potential incremental losses have been factored into our overall allowance for loan losses estimate. The level of any re-defaults will likely be affected by future economic conditions. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is repaid in full, reclassified to loans held for sale, foreclosed, charged off, sold, or it meets both of the following criteria to be removed from TDR status: (1) the restructuring agreement specifies an interest rate equal to or greater than the rate that the borrower was willing to accept at the time of the restructuring for a new loan with comparable risk; and (2) the loan is not impaired based on the terms specified by the restructuring agreement. During the three months ended March 31, 2015, there were no loans added to Commerce Unions list of TDRs and there were no loans that were removed due to being paid off and no charged off loans or loans that were removed due to being sold.
The following table summarizes the carrying balances of TDRs at March 31, 2015, and December 31, 2014:
March 31, | December 31, | |||||||
(In Thousands) | 2015 | 2014 | ||||||
Performing TDRs |
$ | | | |||||
Nonperforming TDRs |
186 | 188 | ||||||
|
|
|
|
|||||
Total TDRs |
$ | 186 | 188 | |||||
|
|
|
|
30
Table of Contents
The following table summarizes loans modified as troubled debt restructurings within the periods shown for which there was a subsequent default:
For the Three Months Ended | For the Year Ended | |||||||||||||||
March 31, 2015 | December 31, 2014 | |||||||||||||||
Number | Number | |||||||||||||||
Troubled Debt Restructurings | of | Recorded | of | Recorded | ||||||||||||
That Subsequently Defaulted | Loans | Investment | Loans | Investment | ||||||||||||
(In Thousands) | (In Thousands) | |||||||||||||||
Real estate: |
||||||||||||||||
Construction and land development |
| $ | | | $ | | ||||||||||
Residential properties |
| | | | ||||||||||||
Commercial and agricultural real estate |
| | | | ||||||||||||
Commercial and agricultural production |
| | | | ||||||||||||
Other |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
| $ | | | $ | | ||||||||||
|
|
|
|
|
|
|
|
A payment default is considered to be any payment made more than 30 days later than the payments scheduled due date.
Nonperforming Assets
The following table provides information with respect to Commerce Unions non-performing assets at March 31, 2015, and December 31, 2014:
March 31, | December 31, | |||||||
(In Thousands) | 2015 | 2014 | ||||||
Loans on nonaccrual status |
$ | 1,538 | $ | 1,570 | ||||
Loans past due 90 days or more but not on nonaccrual status |
| | ||||||
Foreclosed assets |
| | ||||||
|
|
|
|
|||||
Total non-performing assets |
$ | 1,538 | $ | 1,570 | ||||
|
|
|
|
Foreclosed Assets
The following table presents activity related to foreclosed assets for the periods shown:
For the Three | For the Year | |||||||
Months ended | Ended | |||||||
March 31, | December 31, | |||||||
2015 | 2014 | |||||||
Balance at beginning of year |
$ | | $ | 153 | ||||
Additions |
| | ||||||
Dispositions |
| 153 | ||||||
Change in valuation allowance |
| | ||||||
|
|
|
|
|||||
Balances at end of period |
$ | | $ | | ||||
|
|
|
|
31
Table of Contents
The following table summarizes foreclosed asset expenses for the periods shown:
For the Three | For the Year | |||||||
Months ended | Ended | |||||||
March 31, | December 31, | |||||||
2015 | 2014 | |||||||
Operating costs |
$ | | $ | 9 | ||||
Net (gains) losses on sales of foreclosed assets |
| (6 | ) | |||||
Additions to valuation allowance |
| | ||||||
|
|
|
|
|||||
Total |
$ | | $ | 3 | ||||
|
|
|
|
32
Table of Contents
Securities
Securities are a primary component of Commerce Unions earning assets. Securities totaled $29,487 at March 31, 2015. This represents a 7.6% increase from the December 31, 2014 total of $27,403. The increase in securities is due to the purchase of securities to increase Commerce Unions interest margin. Restricted equity securities totaled $1,974 at March 31, 2015 and December 31, 2014. Change in restricted equity securities are directly related to the periodic evaluation of Commerce Unions required Federal Reserve Bank and Federal Home Loan Bank stock positions.
Commerce Union applies the provisions of ASC 320, InvestmentDebt and Equity Securities. Under the provisions of the Statement, securities are classified in three categories and accounted for as follows:
| Debt securities that the enterprise has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized costs. |
| Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. |
| Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders equity. |
Commerce Union has classified all its securities as available-for-sale. The investment securities portfolio is the second largest component of Commerce Unions earning assets and represented 9.7% of total assets at March 31, 2015. Commerce Union Bank uses the investment securities portfolio to provide cash flow and to meet pledging requirements for deposits of public funds, securities sold under agreement to repurchase and secured Fed Funds lines of credit. The average yield on the investment securities portfolio for the three months ended 2015 was 3.67% on a tax-equivalent basis.
The following table shows Commerce Unions investments gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at March 31, 2015:
In Thousands, Except Number of Securities | ||||||||||||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||
Number | Number | |||||||||||||||||||||||||||||||
Of | Of | |||||||||||||||||||||||||||||||
Fair | Unrealized | Securities | Fair | Unrealized | Securities | Fair | Unrealized | |||||||||||||||||||||||||
Value | Losses | Included | Value | Losses | Included | Value | Losses | |||||||||||||||||||||||||
Mortgage-backed securities: |
||||||||||||||||||||||||||||||||
GSEs residential |
$ | 664 | $ | 1 | 1 | $ | | $ | | | $ | 664 | $ | 1 | ||||||||||||||||||
Obligations of state and political subdivisions |
3,011 | 63 | 8 | | | | 3,011 | 63 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total temporarily impaired securities |
$ | 3,675 | $ | 64 | 9 | $ | | $ | | | $ | 3,675 | $ | 64 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Table of Contents
The following table shows Commerce Unions investments gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at December 31, 2014:
In Thousands, Except Number of Securities | ||||||||||||||||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||
Number | Number | |||||||||||||||||||||||||||||||
Of | Of | |||||||||||||||||||||||||||||||
Fair | Unrealized | Securities | Fair | Unrealized | Securities | Fair | Unrealized | |||||||||||||||||||||||||
Value | Losses | Included | Value | Losses | Included | Value | Losses | |||||||||||||||||||||||||
Mortgage-backed securities: |
||||||||||||||||||||||||||||||||
GSEs residential |
$ | 704 | $ | 2 | 1 | $ | | $ | | | $ | 704 | $ | 2 | ||||||||||||||||||
Obligations of state and political Subdivisions |
847 | 11 | 2 | 208 | | 1 | 1,055 | 11 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total temporarily impaired securities |
$ | 1,551 | $ | 13 | 3 | $ | 208 | $ | | 1 | $ | 1,759 | $ | 13 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These securities are considered high quality investments in line with normal industry investing practices. The unrealized losses are primarily the result of changes in the interest rate and sector environments. Consistent with the original classification as available-for-sale securities, Commerce Union does not intend to sell any of the debt securities with unrealized losses and we do not believe that it is more likely than not that we will be required to sell a security in an unrealized loss position prior to a recovery in its value. Accordingly, we have not recognized any other-than-temporary impairment in our consolidated statement of operations. Commerce Union may sell the above or other securities in the ordinary course of business in response to unexpected and significant changes in liquidity needs, unexpected and significant increases in interest rates and/or sector spreads that significantly extend the securitys holding period.
Deposits
Deposits are the principal source of funds for Commerce Union. Total deposits were $246,923 and $236,993 at March 31, 2015 and December 31, 2014, respectively, an increase of 4.2%. The increase in deposits is attributable to an increase in personal checking accounts. There has also been a shift in the composition of Commerce Unions deposits where time deposit customers have migrated into money market accounts to earn more interest while maintaining their liquidity. This trend may continue as deposit interest rates continue to be very low.
Historically, Commerce Union has targeted local consumers, professionals, local governments, commercial businesses and agricultural interests as its central customers; therefore, deposit instruments in the form of demand deposits, savings accounts, money market demand accounts, certificates of deposit and individual retirement accounts are offered to customers. Management believes Robertson and Sumner County and the surrounding area is a stable economic market offering growth opportunities for Commerce Union; however, Commerce Union competes with several of the larger bank holding companies that have bank offices in this area, as well as other community banks, and therefore, no assurances of market growth can be given. Accordingly, for the past few years, Commerce Union Bank has continued to expand its use of wholesale/brokered funding to supplement its traditional reliance upon retail deposits. Over the long term, however, management firmly believes that its position as a locally-owned financial institution that offers personalized service will continue to contribute significantly to deposit growth.
Non-interest bearing deposits decreased 1.9% from $36,813 at December 31, 2014 to $36,130 at March 31, 2015. Total interest-bearing deposits increased 5.3% from $200,180 at December 31, 2014 to $210,793 at March 31, 2015.
34
Table of Contents
The table below sets forth the total balances of our deposits by type as of March 31, 2015, and December 31, 2014, and the percent change in balances over the intervening period:
March 31, 2015 |
December 31, 2014 |
% Change | ||||||||||
(In Thousands) | ||||||||||||
Noninterest-bearing accounts |
$ | 36,130 | $ | 36,813 | (1.9 | )% | ||||||
Interest bearing demand deposits |
51,804 | 50,567 | 2.4 | |||||||||
Savings and money market accounts |
65,538 | 56,046 | 16.9 | |||||||||
Certificates of deposit and individual retirement accounts $250,000 or greater |
39,873 | 38,139 | 4.5 | |||||||||
Other certificates of deposit and individual retirement accounts |
53,578 | 55,428 | 3.3 | |||||||||
|
|
|
|
|
|
|||||||
Total deposits |
$ | 246,923 | $ | 236,993 | 4.2 | % | ||||||
|
|
|
|
|
|
Liquidity and Asset Management
Commerce Unions management seeks to maximize net interest income by managing our assets and liabilities within appropriate constraints on capital, liquidity and interest rate risk. Liquidity is the ability to maintain sufficient cash levels necessary to fund operations, meet the requirements of depositors and borrowers, and fund attractive investment opportunities. Commerce Unions primary source of liquidity is expected to be a stable core deposit base. In addition, short-term investments, loan payments and investment security maturities provide a secondary source. Higher levels of liquidity bear corresponding costs, measured in terms of lower yields on short-term more liquid earning assets and higher interest expense involved in extending liability maturities.
Commerce Union maintains a formal asset and liability management process to quantify, monitor and control interest rate risk and to assist management in maintaining stability in the net interest margin under varying interest rate environments. Commerce Union accomplishes this process through the development and implementation of lending, funding and pricing strategies designed to maximize net interest income under varying interest rate environments subject to specific liquidity and interest rate risk guidelines.
Analysis of rate sensitivity and rate gap analysis are the primary tools used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Included in the analysis are cash flows and maturities of financial instruments held for purposes other than trading, changes in market conditions, loan volumes and pricing and deposit volume and mix. These assumptions are inherently uncertain, and, as a result, net interest income cannot be precisely estimated nor can the impact of higher or lower interest rates on net interest income be precisely predicted. Actual results will differ due to timing, magnitude and frequency of interest rate changes and changes in market conditions and managements strategies, among other factors.
Commerce Unions securities portfolio consists of earning assets that provide interest income. Securities classified as available-for-sale include securities intended to be used as part of Commerce Unions asset/liability strategy and/or securities that may be sold in response to changes in interest rate, prepayment risk, the need or desire to increase capital and similar economic factors. Securities totaling $3,743 mature or will be subject to rate adjustments within the next 12 months.
A secondary source of liquidity is Commerce Unions loan portfolio. At March 31, 2015, loans of approximately $58,962 either will become due or will be subject to rate adjustments within 12 months.
As for liabilities, certificates of deposit and other time deposits of $100,000 or greater of approximately $29,346 either will become due or will be subject to rate adjustments during the next 12 months. Management does not anticipate that there will be significant reductions from deposit accounts that allow withdrawals, such as negotiable order of withdrawal accounts, money market demand accounts, demand deposits and regular savings accounts in the future.
35
Table of Contents
Capital Position and Dividends
At March 31, 2015, and December 31, 2014, total stockholders equity was $36,477 and $36,037 or 12.0% and 12.2%, respectively, of total assets. That is an increase of $440 or 1.2% since year-end and is primarily due to a $12 increase in net unrealized gains in Commerce Unions available-for-sale securities, earnings of $417 and stock option compensation expense recognized of $8. The Company also issued 200 common shares for $3.
The increase in net unrealized gains in Commerce Unions available-for-sale securities is due to the decrease in market rates that occurred during 2014. As market rates fall, the market values of securities increase, unless the securities have variable rate features, and most of Commerce Unions securities do not have variable rate features. Such an increase is reflected as a reduction in Commerce Unions total capital, but it does not impact Commerce Unions capital ratios. Unrealized gains or losses on available-for-sale securities are eliminated from the regulatory calculation of capital ratios to remove the market value volatility that is caused by changes in market rates.
The table below sets forth Commerce Unions capital ratios as of the periods indicated.
March 31, | December 31, | |||||||
2015 | 2014 | |||||||
Common Equity Tier I |
14.5 | % | N/A | |||||
Regulatory Minimum |
4.5 | % | N/A | |||||
Well-capitalized Minimum |
6.5 | % | N/A | |||||
Tier I Leverage |
11.9 | % | 12.2 | % | ||||
Regulatory Minimum |
4.0 | % | 4.0 | % | ||||
Well-capitalized Minimum |
5.0 | % | 5.0 | % | ||||
Tier I Risk-Based Capital |
14.5 | % | 14.1 | % | ||||
Regulatory Minimum |
6.0 | % | 4.0 | % | ||||
Well-capitalized Minimum |
8.0 | % | 6.0 | % | ||||
Total Risk-Based Capital |
15.8 | % | 15.4 | % | ||||
Regulatory Minimum |
8.0 | % | 8.0 | % | ||||
Well-capitalized Minimum |
10.00 | % | 10.0 | % |
Commerce Unions principal regulators have established minimum risk-based capital requirements and leverage capital requirements for Commerce Union. These guidelines classify capital into two categories of Tier I and Total risk-based capital. Total risk-based capital consists of Tier I (or core) capital (essentially common equity less intangible assets) and Tier II capital (essentially qualifying long-term debt, of which Commerce Union has none, and a part of the allowance for loan losses). In determining risk-based capital requirements, assets are assigned risk-weights of 0% to 100%, depending on regulatory assigned levels of credit risk associated with such assets.
Commerce Union is considered well-capitalized based on its regulatory capital ratios. As Commerce Unions assets increase, its capital ratios can be expected to decline, but not below the well-capitalized level established by the regulatory agencies. Loan growth and asset quality continue to be the main issues faced by Commerce Union Bancshares, Inc. and the banking industry as a whole.
There are statutory, regulatory and prudential limitations on the payment of dividends by Commerce Union. Tennessee law restricts the amount of dividends that may be paid by Commerce Union. In no event is a Tennessee-chartered bank permitted to pay dividends in any calendar year that exceed the total of its net income of
36
Table of Contents
that year combined with its retained net income of the preceding two years without the prior approval of the Commissioner of the Tennessee Department of Financial Institutions. Prior regulatory approval must be obtained before declaring any dividends if the amount of Commerce Unions capital and surplus is below certain statutory limits. Dividends can also be restricted under federal law, and under state safety and soundness considerations, as a result of a declining or inadequate capital level. Future dividends may be paid at the discretion of the board of directors consistent with the regulatory, legal and prudential considerations discussed elsewhere in this document.
On July 2, 2013, the Board of Governors of the Federal Reserve System approved a final rule that substantially revises and replaces the regulatory agencies current capital rules to align with the Basel III capital standards and to meet certain requirements of the Dodd-Frank Act. Certain requirements of the new rules establish more restrictive capital definitions, higher risk-weightings for certain asset classes, capital buffers, and higher minimum capital ratios. Commerce Union Bancshares, Inc. became subject to the new rule on January 1, 2015.
Off Balance Sheet Arrangements
At March 31, 2015, Commerce Union had unfunded loan commitments outstanding of approximately $43,349 and outstanding standby letters of credit of approximately $1,900. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, in addition to its available cash, Commerce Union has the ability to liquidate securities available-for-sale or borrow funds from the Federal Home Loan Bank or purchase Federal funds from other financial institutions. Additionally, Commerce Union could sell participations in these or other loans to correspondent banks. As mentioned above, Commerce Union has been able to fund its ongoing liquidity needs through its stable core deposit base, loan payments, its investment security maturities and short-term borrowings.
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act), and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if the Company complies with the greater obligations of public companies that are not emerging growth companies, the Company may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as the Company is an emerging growth company. The Company will remain an emerging growth company for up to five years, though it may cease to be an emerging growth company earlier under certain circumstances, including if, before the end of such five years, it is deemed to be a large accelerated filer under the rules of the SEC (which depends on, among other things, having a market value of common stock held by non-affiliates in excess of $700 million) or if total annual gross revenues equal or exceed $1 billion in a fiscal year. Management cannot predict if investors will find the Companys common stock less attractive because it will rely on these exemptions. If some investors find the Companys common stock less attractive as a result, there may be a less active trading market for its common stock and the Companys stock price may be more volatile.
Further, the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, it adopts the new or revised standard at the time public companies adopt the new or revised standard. This election is irrevocable.
37
Table of Contents
Impact of Inflation
Although interest rates are significantly affected by inflation, the inflation rate is immaterial when reviewing Commerce Unions results of operations.
38
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Yields on Average Earning Assets and Rates
on Average Interest-Bearing Liabilities
Dollars In Thousands | ||||||||||||||||||||||||||||||||||||
March 31, 2015 | March 31, 2014 | Change | ||||||||||||||||||||||||||||||||||
Average | Interest | Income/ | Average | Interest | Income/ | Due to | Due to | |||||||||||||||||||||||||||||
Balance | Rate | Expense* | Balance | Rate | Expense* | Volume | Rate | Total | ||||||||||||||||||||||||||||
Loans, net of unearned interest |
$ | 246,927 | 4.73 | % | 11,684 | $ | 213,960 | 4.94 | % | 10,560 | 1,585 | (461 | ) | 1,124 | ||||||||||||||||||||||
Investment securities - taxable |
9,757 | 2.62 | 256 | 13,062 | 2.66 | 348 | (87 | ) | (5 | ) | (92 | ) | ||||||||||||||||||||||||
Investment securities - tax exempt |
19,156 | 2.78 | 532 | 12,653 | 3.16 | 400 | 185 | (53 | ) | 132 | ||||||||||||||||||||||||||
Taxable equivalent adjustment |
| 1.43 | 274 | | 1.63 | 206 | 95 | (27 | ) | 68 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total tax-exempt investment securities |
19,156 | 4.21 | 806 | 12,653 | 4.79 | 606 | 280 | (80 | ) | 200 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total investment securities |
28,913 | 3.67 | 1,062 | 25,715 | 3.71 | 954 | 193 | (85 | ) | 108 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Restricted equity securities and other |
1,974 | 8.71 | 172 | 1,881 | 5.10 | 96 | 5 | 71 | 76 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total earning assets |
277,814 | 4.65 | 12,918 | 241,556 | 4.81 | 11,610 | 1,783 | (475 | ) | 1,308 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Cash and due from banks |
10,166 | 4,945 | ||||||||||||||||||||||||||||||||||
Allowance for loan losses |
(3,462 | ) | (2,883 | ) | ||||||||||||||||||||||||||||||||
Bank premises and equipment |
4,551 | 4,799 | ||||||||||||||||||||||||||||||||||
Other assets |
6,833 | 5,662 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||
Total assets |
$ | 295,902 | $ | 254,079 | ||||||||||||||||||||||||||||||||
|
|
|
|
* | Annualized |
39
Table of Contents
COMMERCE UNION BANCSHARES, INC.
Dollars In Thousands | ||||||||||||||||||||||||||||||||||||
March 31, 2015 | March 31, 2014 | Change | ||||||||||||||||||||||||||||||||||
Average | Interest | Income/ | Average | Interest | Income/ | Due to | Due to | |||||||||||||||||||||||||||||
Balance | Rate | Expense* | Balance | Rate | Expense* | Volume | Rate | Total | ||||||||||||||||||||||||||||
Deposits: |
||||||||||||||||||||||||||||||||||||
Interest bearing checking accounts |
$ | 51,474 | .27 | % | 140 | $ | 39,525 | .29 | % | 116 | 33 | (9 | ) | 24 | ||||||||||||||||||||||
Money market demand accounts |
53,279 | .42 | 224 | 40,677 | .43 | 176 | 52 | (4 | ) | 48 | ||||||||||||||||||||||||||
Individual retirement accounts |
7,814 | 1.23 | 96 | 8,341 | 1.77 | 148 | (9 | ) | (43 | ) | (52 | ) | ||||||||||||||||||||||||
Other savings deposits |
6,794 | .12 | 8 | 5,883 | .14 | 8 | 1 | (1 | ) | | ||||||||||||||||||||||||||
Certificates of deposit $100,000 and over |
62,341 | .99 | 616 | 51,401 | 1.23 | 632 | 120 | (136 | ) | (16 | ) | |||||||||||||||||||||||||
Certificates of deposit under $100,000 |
22,644 | 1.11 | 252 | 24,934 | 1.01 | 252 | (24 | ) | 24 | | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total interest-bearing deposits |
204,346 | .66 | 1,336 | 170,761 | .78 | 1,332 | 173 | (169 | ) | 4 | ||||||||||||||||||||||||||
Securities sold under repurchase agreements |
493 | | | 491 | | | | | | |||||||||||||||||||||||||||
Federal Home Loan Bank advances |
20,754 | 1.64 | 340 | 21,740 | 1.66 | 360 | (16 | ) | (4 | ) | (20 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total interest-bearing liabilities |
225,593 | .74 | 1,676 | 192,992 | .88 | 1,692 | 157 | (173 | ) | (16 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Non-interest bearing deposits |
33,935 | 25,958 | ||||||||||||||||||||||||||||||||||
Other liabilities |
159 | 799 | ||||||||||||||||||||||||||||||||||
Stockholders equity |
36,215 | 34,330 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||
Total liabilities and stockholders equity |
$ | 295,902 | $ | 254,079 | ||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||
Net interest income |
11,242 | 9,918 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||
Net interest margin (1) |
4.05 | % | 4.11 | % | ||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||
Net interest spread (2) |
3.91 | % | 3.93 | % | ||||||||||||||||||||||||||||||||
|
|
|
|
* | Annualized |
(1) | Net interest income divided by average earning assets. |
(2) | Average interest rate on earning assets less average interest rate on interest-bearing liabilities. |
40
Table of Contents
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
This item is not applicable to smaller reporting companies.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in the Companys internal control over financial reporting during the three months ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
41
Table of Contents
ITEM 1. | LEGAL PROCEEDINGS |
Various legal proceedings to which Commerce Union or a subsidiary of Commerce Union is a party arise from time to time in the normal course of business. There are no material pending legal proceedings to which Commerce Union or a subsidiary is a party or of which any of their property is the subject.
ITEM 1A. | RISK FACTORS |
Investing in Commerce Union involves various risks which are particular to our company, our industry and our market area. We believe all significant risks to investors in Commerce Union have been outlined in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. However, other risks may prove to be important in the future, and new risks may emerge at any time. We cannot predict with certainty all potential developments which could materially affect our financial performance or condition. There has been no material change to our risk factors as previously disclosed in the above described Annual Report on Form 10-K.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS |
31.1 | Certification pursuant to Rule 13a-14(a)/15d-14(a) | |
31.2 | Certification pursuant to Rule 13a-14(a)/15d-14(a) | |
32.1 | Certification pursuant to 18 USC Section 1350 Sarbanes-Oxley Act of 2002 | |
32.2 | Certification pursuant to 18 USC Section 1350 Sarbanes-Oxley Act of 2002 | |
101 | Interactive Data Files* |
* | The documents formatted in eXtensible Business Reporting Language (XBRL) and attached as Exhibit 101 to this report are deemed not filed as part of a registration statement or prospectus for purposes of Section 12 of the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act and otherwise not subject to liability under these sections. |
42
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COMMERCE UNION BANCSHARES, INC. | ||||||
May 13, 2015 | /s/ William Ronald DeBerry | |||||
William Ronald DeBerry | ||||||
Chief Executive Officer | ||||||
(principal executive officer) | ||||||
May 13, 2015 | /s/ J. Daniel Dellinger | |||||
J. Daniel Dellinger | ||||||
Chief Financial Officer |
43