Attached files
file | filename |
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8-K/A - 8-K/A - Reliant Bancorp, Inc. | d942083d8ka.htm |
EX-23.1 - EX-23.1 - Reliant Bancorp, Inc. | d942083dex231.htm |
EX-99.2 - EX-99.2 - Reliant Bancorp, Inc. | d942083dex992.htm |
Exhibit 99.1
AUDITED AND UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Reliant Bank and Subsidiary
Consolidated Financial Statements
December 31, 2014 and 2013
RELIANT BANK
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
TABLE OF CONTENTS
PAGE | ||
INDEPENDENT AUDITORS REPORT |
1 - 2 | |
CONSOLIDATED FINANCIAL STATEMENTS |
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Consolidated Balance Sheets |
3 | |
Consolidated Statements of Operations |
4 | |
Consolidated Statements of Comprehensive Income |
5 | |
Consolidated Statements of Changes in Stockholders Equity |
6 | |
Consolidated Statements of Cash Flows |
7 - 8 | |
Notes to Consolidated Financial Statements |
9 - 57 |
INDEPENDENT AUDITORS REPORT
The Board of Directors
Reliant Bank
Brentwood, Tennessee
REPORT ON THE FINANCIAL STATEMENTS
We have audited the accompanying consolidated financial statements of Reliant Bank (the Bank) which comprise the consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, changes in stockholders equity, and cash flows for the years then ended and the related notes to the financial statements.
MANAGEMENTS RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
AUDITORS RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Banks preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Banks internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
-1-
OPINION
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Reliant Bank as of December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ KraftCPAs PLLC
Nashville, Tennessee
March 31, 2015
-2-
RELIANT BANK
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
2014 | 2013 | |||||||
ASSETS | ||||||||
Cash and due from banks, including reserve requirements of $2,569 and $2,632, respectively |
$ | 10,747 | $ | 10,610 | ||||
Federal funds sold |
400 | 59 | ||||||
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Total cash and cash equivalents |
11,147 | 10,669 | ||||||
Securities held to maturity (fair value $22,655 and $21,019, respectively) |
22,959 | 22,999 | ||||||
Securities available for sale |
54,286 | 46,463 | ||||||
Loans, net |
309,497 | 277,770 | ||||||
Mortgage loans held for sale |
26,640 | 2,680 | ||||||
Accrued interest receivable |
1,386 | 1,281 | ||||||
Leasehold improvements and equipment, net |
3,353 | 3,580 | ||||||
Restricted equity securities, at cost |
3,263 | 2,827 | ||||||
Other real estate, net |
1,204 | 1,375 | ||||||
Cash surrender value of life insurance contracts |
11,355 | 8,995 | ||||||
Deferred tax assets, net |
1,763 | 3,456 | ||||||
Goodwill |
773 | 773 | ||||||
Core deposit intangibles |
337 | 468 | ||||||
Other assets |
1,768 | 1,239 | ||||||
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TOTAL ASSETS |
$ | 449,731 | $ | 384,575 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
LIABILITIES |
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Deposits |
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Demand |
$ | 45,800 | $ | 38,931 | ||||
Interest-bearing demand |
51,414 | 52,852 | ||||||
Savings and money market deposit accounts |
106,874 | 113,482 | ||||||
Time, $250,000 or less |
115,885 | 80,472 | ||||||
Time, over $250,000 |
14,392 | 4,064 | ||||||
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Total deposits |
334,365 | 289,801 | ||||||
Accrued interest payable |
79 | 53 | ||||||
Federal Home Loan Bank advances |
63,500 | 55,000 | ||||||
Federal funds purchased |
6,651 | | ||||||
Other liabilities |
1,620 | 739 | ||||||
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TOTAL LIABILITIES |
406,215 | 345,593 | ||||||
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STOCKHOLDERS EQUITY |
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Common stock, $1 par value; 10,000,000 shares authorized; 3,910,191 shares issued and outstanding |
3,910 | 3,910 | ||||||
Additional paid-in capital |
38,955 | 38,925 | ||||||
Retained earning (accumulated deficit) |
901 | (2,212 | ) | |||||
Accumulated other comprehensive loss |
(250 | ) | (1,641 | ) | ||||
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TOTAL STOCKHOLDERS EQUITY |
43,516 | 38,982 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 449,731 | $ | 384,575 | ||||
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See accompanying notes to consolidated financial statements
-3-
RELIANT BANK
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
2014 | 2013 | |||||||
INTEREST INCOME |
||||||||
Interest and fees on loans |
$ | 15,377 | $ | 15,417 | ||||
Interest on investment securities |
1,665 | 1,363 | ||||||
Federal funds sold and other |
173 | 155 | ||||||
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TOTAL INTEREST INCOME |
17,215 | 16,935 | ||||||
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INTEREST EXPENSE |
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Deposits |
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Demand |
148 | 288 | ||||||
Savings and money market deposit accounts |
330 | 445 | ||||||
Time |
797 | 854 | ||||||
Federal Home Loan Bank advances and other |
354 | 297 | ||||||
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TOTAL INTEREST EXPENSE |
1,629 | 1,884 | ||||||
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NET INTEREST INCOME |
15,586 | 15,051 | ||||||
PROVISION FOR LOAN LOSSES |
(1,500 | ) | (350 | ) | ||||
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
17,086 | 15,401 | ||||||
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NON-INTEREST INCOME |
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Service charges on deposit accounts |
617 | 589 | ||||||
Gains on mortgage loans sold, net |
3,447 | 1,896 | ||||||
Gains on securities transactions, net (reclassified from other comprehensive income) |
143 | 31 | ||||||
Gain (losses) on sales of other real estate |
(8 | ) | 121 | |||||
Other |
409 | 290 | ||||||
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TOTAL NON-INTEREST INCOME |
4,608 | 2,927 | ||||||
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NON-INTEREST EXPENSES |
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Salaries and employee benefits |
10,170 | 7,633 | ||||||
Occupancy |
2,599 | 2,491 | ||||||
Data processing |
1,399 | 1,226 | ||||||
Advertising and public relations |
559 | 196 | ||||||
Audit, legal and consulting |
714 | 528 | ||||||
Federal deposit insurance |
264 | 340 | ||||||
Provision for losses on other real estate |
72 | 80 | ||||||
Other operating |
1,389 | 1,404 | ||||||
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TOTAL NON-INTEREST EXPENSES |
17,166 | 13,898 | ||||||
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INCOME BEFORE PROVISION FOR INCOME TAXES |
4,528 | 4,430 | ||||||
INCOME TAX EXPENSE |
1,816 | 1,741 | ||||||
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CONSOLIDATED NET INCOME |
2,712 | 2,689 | ||||||
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NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY |
1,184 | 549 | ||||||
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NET INCOME ATTRIBUTABLE TO RELIANT BANK |
$ | 3,896 | $ | 3,238 | ||||
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Basic earnings per share |
$ | 1.00 | $ | 0.83 | ||||
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Diluted earnings per share |
$ | 0.98 | $ | 0.83 | ||||
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See accompanying notes to consolidated financial statements
-4-
RELIANT BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
2014 | 2013 | |||||||
Consolidated net income |
$ | 2,712 | $ | 2,689 | ||||
Other comprehensive income (loss) |
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Net unrealized gains (losses) on available-for-sale securities, net of tax of $892 and ($1,101) for 2014 and 2013, respectively |
1,440 | (1,820 | ) | |||||
Reclassification adjustment for gains included in net income, net of tax of $55 and $12 for 2014 and 2013, respectively |
(88 | ) | (19 | ) | ||||
Amortization of unrealized holding loss related to transfer of securities from available for sale to held to maturity, net of tax of $26 and $11 for 2014 and 2013, respectively |
39 | 36 | ||||||
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TOTAL OTHER COMPREHENSIVE INCOME (LOSS) |
1,391 | (1,803 | ) | |||||
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TOTAL COMPREHENSIVE INCOME |
$ | 4,103 | $ | 886 | ||||
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See accompanying notes to consolidated financial statements
-5-
RELIANT BANK
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
CLASS A | CLASS B | ADDITIONAL PAID-IN CAPITAL |
RETAINED EARNINGS (ACCUMULATED DEFICIT) |
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
NONCONTROLLING INTEREST |
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COMMON STOCK |
COMMON STOCK |
COMMON STOCK |
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SHARES | AMOUNT | SHARES | AMOUNT | SHARES | AMOUNT | TOTAL | ||||||||||||||||||||||||||||||||||||||
BALANCE - JANUARY 1, 2013 |
2,493,612 | $ | 2,494 | 729,816 | $ | 730 | 687,363 | $ | 687 | $ | 38,924 | $ | (4,672 | ) | $ | 162 | $ | | $ | 38,325 | ||||||||||||||||||||||||
Common stock class conversion |
1,417,179 | 1,417 | (729,816 | ) | (730 | ) | (687,363 | ) | (687 | ) | | | | | | |||||||||||||||||||||||||||||
Repurchase of common stock and other |
(600 | ) | (1 | ) | | | | | (21 | ) | | | | (22 | ) | |||||||||||||||||||||||||||||
Stock based compensation expense |
| | | | | | 22 | | | | 22 | |||||||||||||||||||||||||||||||||
Noncontrolling interest contributions |
| | | | | | | | | 549 | 549 | |||||||||||||||||||||||||||||||||
Net income (loss) |
| | | | | | | 3,238 | | (549 | ) | 2,689 | ||||||||||||||||||||||||||||||||
Other comprehensive loss |
(1,803 | ) | (1,803 | ) | ||||||||||||||||||||||||||||||||||||||||
Cash dividends paid on common stock |
| | | | | | | (778 | ) | | | (778 | ) | |||||||||||||||||||||||||||||||
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BALANCE - DECEMBER 31, 2013 |
3,910,191 | 3,910 | | | | | 38,925 | (2,212 | ) | (1,641 | ) | | 38,982 | |||||||||||||||||||||||||||||||
Repurchase of common stock and other |
| | | | | | (2 | ) | | | | (2 | ) | |||||||||||||||||||||||||||||||
Stock based compensation expense |
| | | | | | 32 | | | | 32 | |||||||||||||||||||||||||||||||||
Noncontrolling interest contributions |
| | | | | | | | | 1,184 | 1,184 | |||||||||||||||||||||||||||||||||
Net income (loss) |
| | | | | | | 3,896 | | (1,184 | ) | 2,712 | ||||||||||||||||||||||||||||||||
Other comprehensive income |
| | | | | | | | 1,391 | | 1,391 | |||||||||||||||||||||||||||||||||
Cash dividends paid on common stock |
| | | | | | | (783 | ) | | | (783 | ) | |||||||||||||||||||||||||||||||
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BALANCE - DECEMBER 31, 2014 |
3,910,191 | $ | 3,910 | | $ | | | $ | | $ | 38,955 | $ | 901 | $ | (250 | ) | $ | | $ | 43,516 | ||||||||||||||||||||||||
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See accompanying notes to consolidated financial statements
-6-
RELIANT BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
2014 | 2013 | |||||||
OPERATING ACTIVITIES |
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Consolidated net income |
$ | 2,712 | $ | 2,689 | ||||
Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities: |
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Provision for loan losses |
(1,500 | ) | (350 | ) | ||||
Deferred income taxes |
830 | 1,191 | ||||||
Depreciation and amortization of premises and equipment |
567 | 615 | ||||||
Net amortization of securities |
391 | 336 | ||||||
Net realized gains on sales of securities |
(143 | ) | (31 | ) | ||||
Stock-based compensation expense |
32 | 22 | ||||||
Gains (losses) on sales of other real estate |
8 | (121 | ) | |||||
Provision for losses on other real estate |
72 | 80 | ||||||
Increase in cash surrender value of life insurance contracts |
(360 | ) | (219 | ) | ||||
Mortgage loans originated for resale |
(108,498 | ) | (55,944 | ) | ||||
Proceeds from sale of mortgage loans |
84,538 | 62,461 | ||||||
Amortization of core deposit intangible |
131 | 131 | ||||||
Change in: |
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Accrued interest receivable |
(105 | ) | (107 | ) | ||||
Prepaid FDIC insurance |
| 342 | ||||||
Other assets |
(120 | ) | 362 | |||||
Accrued interest payable and other liabilities |
657 | (296 | ) | |||||
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TOTAL ADJUSTMENTS |
(23,500 | ) | 8,472 | |||||
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
(20,788 | ) | 11,161 | |||||
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INVESTING ACTIVITIES |
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Activities in available-for-sale securities |
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Purchases |
(22,364 | ) | (53,621 | ) | ||||
Sales |
14,732 | 7,971 | ||||||
Maturities, prepayments and calls |
2,000 | 10,312 | ||||||
Maturities, prepayments and calls of held-to-maturity securities |
105 | | ||||||
Purchases of restricted equity securities |
(436 | ) | (431 | ) | ||||
Loan originations and payments |
(30,227 | ) | (1,993 | ) | ||||
Purchase of leasehold improvements, equipment and software |
(340 | ) | (122 | ) | ||||
Proceeds from sale of equipment |
| 3 | ||||||
Proceeds from sales of other real estate |
91 | 912 | ||||||
Purchase of life insurance contracts |
(2,000 | ) | (3,000 | ) | ||||
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NET CASH USED IN INVESTING ACTIVITIES |
(38,439 | ) | (39,969 | ) | ||||
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FINANCING ACTIVITIES |
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Net change in deposits |
44,564 | (40,510 | ) | |||||
Net change in federal funds purchased |
6,651 | | ||||||
Proceeds from short term Federal Home Loan Bank advances, net |
8,500 | 30,000 | ||||||
Proceeds from long term Federal Home Loan Bank advances |
| 10,000 | ||||||
Cash dividends on common stock |
(783 | ) | (778 | ) | ||||
Repurchase of common stock and other |
(2 | ) | (22 | ) | ||||
Noncontrolling interest contributions |
775 | 368 | ||||||
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
59,705 | (942 | ) | |||||
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
478 | (29,750 | ) | |||||
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR |
10,669 | 40,419 | ||||||
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CASH AND CASH EQUIVALENTS - END OF YEAR |
$ | 11,147 | $ | 10,669 | ||||
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See accompanying notes to consolidated financial statements
-7-
RELIANT BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
2014 | 2013 | |||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
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Cash paid during the year for |
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Interest |
$ | 1,603 | $ | 1,857 | ||||
Taxes |
$ | 142 | $ | 661 | ||||
Non-cash investing and financing activities |
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Non-cash transfers from loans to other real estate |
$ | | $ | 791 | ||||
Change in unrealized losses on securities available-for-sale |
$ | 2,439 | $ | (2,952 | ) | |||
Change in receivable due from minority interest |
$ | 409 | $ | 29 |
-8-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Reliant Bank and Subsidiaries (the Bank) conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The following is a brief summary of the significant policies.
Principles of Consolidation
The consolidated financial statements include the accounts of the Bank, its wholly-owned subsidiary, Reliant Investments, LLC, and its 51% owned subsidiary, Reliant Mortgage Ventures, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
Nature of Operations
The Bank began its organizational activities in 2005. The Bank was incorporated under the laws of the State of Tennessee and received its Certificate of Authority from the Tennessee Department of Financial Institutions and approval of FDIC insurance on January 9, 2006. The Bank provides financial services through its offices in Williamson County and Davidson County. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are commercial and residential construction loans, commercial loans, installment loans and lines secured by home equity. Substantially all loans are secured by specific items of collateral including commercial and residential real estate, business assets, and consumer assets. Commercial loans are expected to be repaid from cash flow from operations of businesses.
At December 31, 2014, the Bank had significant credit exposures to borrowers in real estate. If this industry experiences another economic slowdown and, as a result, the borrowers in this industry are unable to meet the obligations of their existing loan agreements, earnings could be negatively impacted.
At December 31, 2014, real estate loans comprised 71% of total loans. More specifically, the total loan portfolio consisted of 12% construction/land development, 23% 1-4 family residential and 36% commercial real estate.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
-9-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates (Continued)
Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for loan losses, the valuation of other real estate, the valuation of debt and equity securities, the valuation of deferred tax assets and fair values of financial instruments.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, deposits with other financial institutions with maturities less than 90 days, and federal funds sold. Generally, federal funds sold are purchased and sold for one-day periods. Net cash flows are reported for customer loan and deposit transactions, securities sold under repurchase agreements, federal funds sold, and short-term Federal Home Loan Bank borrowings.
The Bank maintains deposits in excess of the federal insurance amounts with other financial institutions. Management makes deposits only with financial institutions it considers to be financially sound.
Federal funds sold of $400 and $59 at December 31, 2014 and 2013, respectively, were invested in two financial institutions. Such funds were unsecured and matured the next business day.
Securities
The Bank classifies its securities in one of two categories: held to maturity and available for sale. Held to maturity securities are those securities for which the Bank has the ability and intent to hold until maturity. Securities are classified as available for sale when they might be sold before maturity.
Interest income includes purchase premiums and discounts amortized or accreted over the life of the related security as an adjustment to the yield without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
When the fair value of a debt security has declined below the amortized cost at the measurement date, if an entity intends to sell a security or is more likely than not to sell the security before the recovery of the securitys cost basis, the entity must recognize the other-than-temporary impairment (OTTI) in earnings. For a debt security with a fair value below the amortized cost at the measurement date where it is more likely than not that an entity will not sell the security before the recovery of its cost basis, but an entity does not expect to recover the entire cost basis of the security, the security is classified as OTTI.
-10-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities (Continued)
The related OTTI loss on the debt security will be recognized in earnings to the extent of the credit losses, with the remaining impairment loss recognized in accumulated other comprehensive income. In estimating OTTI losses, management considers: the length of time and extent that fair value of the security has been less than the cost of the security, the financial condition and near term prospects of the issuer, cash flow, stress testing analysis on securities, when applicable, and the Companys ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.
Transfers of securities into the held-to-maturity category from the available-for-sale category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in other comprehensive income and in the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining life of the security.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using a straight-line method without anticipating prepayments. This treatment does not materially differ from the level interest yield method. Past due status is determined based on the contractual terms of the note.
The accrual of interest is discontinued when a loan becomes 90 days past due according to the contractual terms of the note unless it is well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. When a loan is placed on non-accrual status, previously accrued and uncollected interest is charged against interest income on loans. When full collection of the remaining book balance is uncertain, interest payments received are applied to the principal balance outstanding. In some cases, when the remaining book balance of the loan is deemed fully collectible, payments are treated as interest income on a cash basis. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The restructuring of a loan is considered a troubled debt restructuring if the borrower is experiencing financial difficulties and the Bank has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.
-11-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using historical loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, current economic conditions (national and local), and other factors such as changes in interest rates, portfolio concentrations, changes in the experience, ability, and depth of the lending function, levels of and trends in charged-off loans, recoveries, past due loans and volume and severity of classified loans. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The entire allowance is available for any loan that, in managements judgment, should be charged off.
During 2011, the Bank added an unallocated general reserve. This unallocated portion of the reserve is above the allocated amount calculated for each loan pool segment based on each loan pools historical loss experience adjusted for current economic and environmental factors. This unallocated reserve was added due to the volatility in credit losses and the uncertainty risk that is not specifically identified with any particular loan pool segment. It also recognizes that the current recessionary period has manifested in higher and more unpredictable loss rates over an extended period of time. Management believes the decline in real estate values over the past several years as well as the continued slowness in general economic recovery supports maintaining an unallocated portion of the general reserve.
A loan is impaired when full payment under the loan terms is not expected. All classified loans and loans on non-accrual status are individually evaluated for impairment. Factors considered in determining if a loan is impaired include the borrowers ability to repay amounts owed, collateral deficiencies, the risk rating of the loan and economic conditions affecting the borrowers industry, among other things. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loans existing rate or at the fair value (less estimated costs to sell) of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless the principal amount is deemed fully collectible, in which case interest is recognized on a cash basis. When recognition of interest income on a cash basis is appropriate, the amount of income recognized is limited to what would have been accrued on the remaining principal balance at the contractual rate. Cash payments received over this limit, and not applied to reduce the loans remaining principal balance, are recorded as recoveries of prior charge-offs until these charge-offs have been fully recovered.
-12-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Mortgage Loans Held for Sale
Mortgage loans originated and held for sale in the secondary market are carried at lower of aggregate cost or market value, as determined by outstanding commitments from investors. These loans are typically marketed to potential investors prior to closing the loan with the borrower. Net unrealized losses, if any, are recorded through a valuation allowance and charged to operations. The related servicing rights are generally sold with the loans. At December 31, 2014 and 2013, cost approximates the market value of such loans.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Bank, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.
Leasehold Improvements and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets or the terms of the related lease for leasehold improvements. The range of estimated useful lives for leasehold improvements is 3 to 25 years, which correlates with the applicable lease term, while the range of estimated useful lives for furniture, fixtures and equipment is 3 to 7 years. Gain or loss on items retired and otherwise disposed of is credited or charged to operations and the cost and related accumulated depreciation are removed from the asset and accumulated depreciation accounts.
Expenditures and improvements of premises and equipment are capitalized and those for maintenance and repairs are charged to earnings as incurred.
Restricted Equity Securities
Each member of the Federal Reserve is required to subscribe to Federal Reserve Bank (FRB) stock.
The Bank is a member of the Federal Home Loan Bank (FHLB) system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts.
These stocks are carried at cost, classified as restricted equity securities, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.
-13-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other Real Estate
Real estate acquired in the settlement of loans is initially recorded at estimated fair value, less estimated cost to sell, if less than the carrying value of the loan when acquired. Based on periodic evaluations by management, the carrying values are reduced by a direct charge to earnings when they exceed net realizable value. Costs relating to the development and improvement of the property are capitalized up to fair value less cost to sell, while holding costs of the property are charged to expense in the period incurred.
Cash Surrender Value of Life Insurance Contracts
The Bank is the owner and beneficiary of various life insurance policies on certain key employees. These policies are recorded at their cash surrender values.
Impairment of Long-Term Assets
Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are written down to fair value, with a corresponding charge to earnings.
Goodwill
Goodwill represents that excess of the purchase price of over the fair value of assets and liabilities acquired in a 2009 business acquisition. Goodwill is evaluated for impairment at least annually and more frequently if events and circumstances indicate that the asset might be impaired.
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
Stock Based Compensation
Compensation cost recognized for stock options issued to employees is based on the fair value of these awards at the date of grant. A binomial model is utilized to estimate the fair value of stock options. Compensation cost is recognized over the required service period, generally defined as the vesting period.
-14-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Income tax expense or benefit is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
Management performs an evaluation of all income tax positions taken or expected to be taken in the course of preparing the Banks income tax returns to determine whether the income tax positions meet a more likely than not standard of being sustained under examination by the applicable taxing authorities. Management has performed its evaluation of all income tax positions taken on all open income tax returns and has determined that there were no positions taken that do not meet the more likely than not standard. Accordingly, there are no provisions for income taxes, penalties or interest receivable or payable relating to uncertain income tax positions in the accompanying financial statements.
The Bank files income tax returns in the U.S. federal jurisdiction and various states. The Banks federal and state income tax returns for years prior to fiscal year 2011 are no longer open to examination. Certain returns from years in which net operating losses have occurred are still open for examination by the tax authorities.
Earnings Per Share
Earnings per share is computed by dividing net income attributable to Reliant Bank by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing income attributable to Reliant Bank by the weighted-average number of common shares outstanding plus shares representing the dilutive effect of stock options outstanding.
Retirement Plan
The Bank has a 401(k) retirement plan covering all employees who elect to participate, subject to certain eligibility requirements. The Plan allows employees to defer up to 100% of their salary, subject to regulatory limitations with the Bank matching 100% of the first 3% and 50% of the next 2% which is contributed by the employee. The Bank recognizes as expense the amount of matching contributions related to the 401(k) plan. Vesting within the plan is immediate for 100% of deferral and employer contributions.
-15-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale and derivatives. These gains and losses are recognized as a separate component of stockholders equity.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the consolidated financial statements.
Restrictions on Cash
Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.
Dividend Restriction
Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to shareholders.
Advertising Costs
Advertising costs are generally charged to operations in the year incurred.
Fair Value Measurements
Financial accounting standards relating to fair value measurements establish a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 | Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Bank has the ability to access. |
-16-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value Measurements (Continued)
Level 2 | Inputs to the valuation methodology include: | |
Quoted prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets or liabilities in inactive markets;
Inputs other than quoted prices that are observable for the asset or liability;
Inputs that are derived principally from or corroborated by the observable market data by correlation or other means. | ||
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. | ||
Level 3 | Inputs to the valuation methodology are unobservable and reflect an entitys own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. |
An assets or liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis:
Securities available for sale: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities (Level 2 inputs). The Bank obtains fair value measurements for securities available for sale from an independent pricing service. The fair value measurements consider observable data that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, cash flows and reference data, including market research publications, among other things.
-17-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value Measurements (Continued)
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis include the following:
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on the present value of expected payments using the loans effective rate as the discount rate or recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
Other real estate owned: The fair value of other real estate owned is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
No changes in the valuation methodologies have been made since the prior year.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Banks valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
-18-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 4. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
Events Occurring After Reporting Date
The Bank has evaluated events and transactions that occurred between December 31, 2014 and March 31, 2015, the date the consolidated financial statements were available to be issued, for possible recognition or disclosure in the consolidated financial statements.
Reclassifications
Certain reclassifications have been made in the 2013 consolidated financial statements to conform to the 2014 presentation. These reclassifications had no effect on the results of operations previously reported.
Recent Authoritative Accounting Guidance
The following discusses new authoritative accounting guidance and the related impact on the Bank.
In January 2014, the FASB issued ASU 2014-04, Receivables - Troubled 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 Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. For entities other than public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. This ASU is not expected to have a material impact on the Banks financial statements.
-19-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Authoritative Accounting Guidance (Continued)
In August 2014, the FASB issued ASU 2014-14, Receivables Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. The amendments of ASU 2014-14 require a mortgage loan to be derecognized and a separate receivable to be recognized upon foreclosure if the loan has a government guarantee that is non-separable from the loan before foreclosure, the creditor has the ability and intent to convey the real estate property to the guarantor, and any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Additionally, the separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor upon foreclosure. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. This ASU is not expected to have a material impact on the Banks financial statements.
NOTE 2 - SECURITIES
The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:
December 31, 2014 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 4,758 | $ | | $ | (130 | ) | $ | 4,628 | |||||||
State and municipal |
35,952 | 523 | (266 | ) | 36,209 | |||||||||||
Corporate bonds |
1,000 | 7 | | 1,007 | ||||||||||||
Mortgage backed securities |
9,933 | 146 | (137 | ) | 9,942 | |||||||||||
Money market |
2,500 | | | 2,500 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 54,143 | $ | 676 | $ | (533 | ) | $ | 54,286 | |||||||
|
|
|
|
|
|
|
|
December 31, 2014 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 4,766 | $ | | $ | (441 | ) | $ | 4,325 | |||||||
State and municipal |
31,666 | 120 | (1,512 | ) | 30,274 | |||||||||||
Corporate bonds |
1,000 | 8 | (4 | ) | 1,004 | |||||||||||
Mortgage backed securities |
11,327 | 37 | (504 | ) | 10,860 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 48,759 | $ | 165 | $ | (2,461 | ) | $ | 46,463 | |||||||
|
|
|
|
|
|
|
|
-20-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 2 - SECURITIES (CONTINUED)
The carrying and fair value of held to maturity securities and the related gross unrealized gains and losses were as follows:
December 31, 2014 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 21,016 | $ | 3 | $ | (344 | ) | $ | 20,675 | |||||||
Corporate bonds |
1,943 | 42 | (5 | ) | 1,980 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 22,959 | $ | 45 | $ | (349 | ) | $ | 22,655 | |||||||
|
|
|
|
|
|
|
|
December 31, 2013 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 21,068 | $ | | $ | (1,895 | ) | $ | 19,173 | |||||||
Corporate bonds |
1,931 | | (85 | ) | 1,846 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 22,999 | $ | | $ | (1,980 | ) | $ | 21,019 | |||||||
|
|
|
|
|
|
|
|
The fair value of held to maturity and available for sale debt securities at December 31, 2014 by contractual maturity are provided below. Securities not due at a single maturity date, primarily mortgage backed securities, are shown separately.
Held To Maturity | Available For Sale | |||||||||||||||
Carrying Value |
Estimated Fair Value |
Amortized Cost |
Estimated Fair Value |
|||||||||||||
Due in one to five years |
$ | 494 | $ | 499 | $ | 7,402 | $ | 7,326 | ||||||||
Due in five to ten years |
1,666 | 1,664 | 13,097 | 12,998 | ||||||||||||
Due after ten years |
20,799 | 20,492 | 23,711 | 24,020 | ||||||||||||
Mortgage backed securities |
| | 9,933 | 9,942 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 22,959 | $ | 22,655 | $ | 54,143 | $ | 54,286 | |||||||||
|
|
|
|
|
|
|
|
-21-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 2 - SECURITIES (CONTINUED)
Sales of available for sale securities were as follows:
2014 | 2013 | |||||||
Proceeds |
$ | 14,732 | $ | 7,971 | ||||
Realized gross gains |
158 | 31 | ||||||
Realized gross losses |
(15 | ) | |
The following table shows available for sale securities with unrealized losses and their estimated fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2014 and December 31, 2013:
December 31, 2014 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
|||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 996 | $ | 3 | $ | 3,357 | $ | 127 | $ | 4,353 | $ | 130 | ||||||||||||
State and municipal |
6,185 | 101 | 8,614 | 165 | 14,799 | 266 | ||||||||||||||||||
Mortgage backed securities |
| | 4,807 | 137 | 4,807 | 137 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired |
$ | 7,181 | $ | 104 | $ | 16,778 | $ | 429 | $ | 23,959 | $ | 533 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
|||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 4,325 | $ | 441 | $ | | $ | | $ | 4,325 | $ | 441 | ||||||||||||
State and municipal |
20,620 | 1,180 | 3,432 | 332 | 24,052 | 1,512 | ||||||||||||||||||
Corporate bonds |
496 | 4 | | | 496 | 4 | ||||||||||||||||||
Mortgage backed securities |
9,968 | 504 | | | 9,968 | 504 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired |
$ | 35,409 | $ | 2,129 | $ | 3,432 | $ | 332 | $ | 38,841 | $ | 2,461 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
-22-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 2 - SECURITIES (CONTINUED)
The following table shows held to maturity securities with unrealized losses and their estimated fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2014 and December 31, 2013:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
|||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | | $ | | $ | 20,459 | $ | 344 | $ | 20,459 | $ | 344 | ||||||||||||
Corporate bonds |
| | 493 | 5 | 493 | 5 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired |
$ | | $ | | $ | 20,952 | $ | 349 | $ | 20,952 | $ | 349 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2013 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
|||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 18,312 | $ | 1,776 | $ | 861 | $ | 119 | $ | 19,173 | $ | 1,895 | ||||||||||||
Corporate bonds |
1,434 | 51 | 412 | 34 | 1,846 | 85 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired |
$ | 19,746 | $ | 1,827 | $ | 1,273 | $ | 153 | $ | 21,019 | $ | 1,980 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2014, Management had the intent and ability to hold these securities for the foreseeable future, and the decline in fair value was largely due to changes in interest rates. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline. There were 68 securities in an unrealized loss position as of December 31, 2014.
Securities pledged at December 31, 2014 and 2013 had a carrying amount of $32,783 and $32,213, respectively, and were pledged to collateralize Federal Home Loan Bank advances, Federal Reserve advances and municipal deposits.
At December 31, 2014 and 2013, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies or U.S. Government sponsored entities, in an amount greater than 10% of stockholders equity.
-23-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at December 31, 2014 and 2013 were comprised as follows:
2014 | 2013 | |||||||
Commerical |
$ | 80,817 | $ | 84,715 | ||||
Real estate: |
||||||||
Residential |
74,405 | 73,957 | ||||||
Commercial |
112,805 | 91,400 | ||||||
Construction |
37,127 | 27,916 | ||||||
Consumer |
11,771 | 8,330 | ||||||
Other |
300 | 302 | ||||||
|
|
|
|
|||||
317,225 | 286,620 | |||||||
Less: |
||||||||
Deferred loan fees |
375 | 320 | ||||||
Allowance for possible loan losses |
7,353 | 8,530 | ||||||
|
|
|
|
|||||
Loans, net |
$ | 309,497 | $ | 277,770 | ||||
|
|
|
|
Activity in the allowance for loan losses by portfolio segment was as follows for the year ended December 31, 2014:
Commercial and Industrial |
Multi Family and Commercial Real Estate |
Construction and Land Development |
1-4 Family Residential Real Estate |
|||||||||||||
Beginning balance |
$ | 2,138 | $ | 1,581 | $ | 553 | $ | 1,071 | ||||||||
Charge-offs |
(9 | ) | | | | |||||||||||
Recoveries |
178 | 49 | 111 | 100 | ||||||||||||
Provisions |
(123 | ) | 440 | 78 | (529 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 2,184 | $ | 2,070 | $ | 742 | $ | 642 | ||||||||
|
|
|
|
|
|
|
|
1-4 Family HELOC |
Consumer | Other | Unallocated | Total | ||||||||||||||||
Beginning balance |
$ | 865 | $ | 257 | $ | 13 | $ | 2,052 | $ | 8,530 | ||||||||||
Charge-offs |
| (120 | ) | (11 | ) | | (140 | ) | ||||||||||||
Recoveries |
25 | | | | 463 | |||||||||||||||
Provisions |
(36 | ) | 44 | | (1,374 | ) | (1,500 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance |
$ | 854 | $ | 181 | $ | 2 | $ | 678 | $ | 7,353 | ||||||||||
|
|
|
|
|
|
|
|
|
|
-24-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Activity in the allowance for loan losses by portfolio segment was as follows for the year ended December 31, 2013:
Commercial and Industrial |
Multi Family and Commercial Real Estate |
Construction and Land Development |
1-4 Family Residential Real Estate |
|||||||||||||
Beginning balance |
$ | 1,318 | $ | 1,467 | $ | 339 | $ | 2,319 | ||||||||
Charge-offs |
(41 | ) | | | (53 | ) | ||||||||||
Recoveries |
381 | 105 | 250 | 281 | ||||||||||||
Provisions |
480 | 9 | (36 | ) | (1,476 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 2,138 | $ | 1,581 | $ | 553 | $ | 1,071 | ||||||||
|
|
|
|
|
|
|
|
1-4 Family HELOC |
Consumer | Other | Unallocated | Total | ||||||||||||||||
Beginning balance |
$ | 1,366 | $ | 48 | $ | 2 | $ | 901 | $ | 7,760 | ||||||||||
Charge-offs |
(143 | ) | (16 | ) | | | (253 | ) | ||||||||||||
Recoveries |
354 | 1 | 1 | | 1,373 | |||||||||||||||
Provisions |
(712 | ) | 224 | 10 | 1,151 | (350 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance |
$ | 865 | $ | 257 | $ | 13 | $ | 2,052 | $ | 8,530 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2014 was as follows:
Commercial and Industrial |
Multi Family and Commercial Real Estate |
Construction and Land Development |
1-4 Family Residential Real Estate |
|||||||||||||
Allowance for loan losses: |
||||||||||||||||
Individually evaluated |
$ | 743 | $ | 37 | $ | | $ | 93 | ||||||||
Collectively evaluated |
1,441 | 2,033 | 742 | 549 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,184 | $ | 2,070 | $ | 742 | $ | 642 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans: |
||||||||||||||||
Individually evaluated |
$ | 2,258 | $ | 1,234 | $ | | $ | 5,411 | ||||||||
Collectively evaluated |
78,559 | 111,571 | 37,127 | 35,886 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 80,817 | $ | 112,805 | $ | 37,127 | $ | 41,297 | ||||||||
|
|
|
|
|
|
|
|
1-4 Family HELOC |
Consumer | Other | Unallocated | Total | ||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||
Individually evaluated |
$ | 392 | $ | | $ | | $ | | $ | 1,265 | ||||||||||
Collectively evaluated |
462 | 181 | 2 | 678 | 6,088 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 854 | $ | 181 | $ | 2 | $ | 678 | $ | 7,353 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans: |
||||||||||||||||||||
Individually evaluated |
$ | 2,114 | $ | | $ | | $ | 11,017 | ||||||||||||
Collectively evaluated |
30,994 | 11,771 | 300 | 306,208 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 33,108 | $ | 11,771 | $ | 300 | $ | 317,225 | ||||||||||||
|
|
|
|
|
|
|
|
-25-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2013 was as follows:
Commercial and Industrial |
Multi Family and Commercial Real Estate |
Construction and Land Development |
1-4 Family Residential Real Estate |
|||||||||||||
Allowance for loan losses: |
||||||||||||||||
Individually evaluated |
$ | 679 | $ | | $ | | $ | 477 | ||||||||
Collectively evaluated |
1,459 | 1,581 | 553 | 594 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,138 | $ | 1,581 | $ | 553 | $ | 1,071 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans: |
||||||||||||||||
Individually evaluated |
$ | 1,604 | $ | 1,244 | $ | 272 | $ | 5,220 | ||||||||
Collectively evaluated |
83,111 | 90,156 | 27,644 | 33,384 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 84,715 | $ | 91,400 | $ | 27,916 | $ | 38,604 | ||||||||
|
|
|
|
|
|
|
|
1-4 Family HELOC |
Consumer | Other | Unallocated | Total | ||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||
Individually evaluated |
$ | 195 | $ | 175 | $ | | $ | | $ | 1,526 | ||||||||||
Collectively evaluated |
670 | 82 | 13 | 2,052 | 7,004 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 865 | $ | 257 | $ | 13 | $ | 2,052 | $ | 8,530 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans: |
||||||||||||||||||||
Individually evaluated |
$ | 1,786 | $ | 175 | $ | | $ | 10,301 | ||||||||||||
Collectively evaluated |
33,567 | 8,155 | 302 | 276,319 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 35,353 | $ | 8,330 | $ | 302 | $ | 286,620 | ||||||||||||
|
|
|
|
|
|
|
|
The Bank did not have any loans acquired with deteriorated credit quality at December 31, 2014 and 2013.
Risk characteristics relevant to each portfolio segment are as follows:
Commercial and industrial: The commercial and industrial loan portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers business operations. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
-26-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Multi-family and commercial real estate: Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.
Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Banks commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Banks exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Bank also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting the market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. Non-owner occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or affiliate of the party, who owns the property.
At December 31, 2014, approximately 23% of the outstanding principal balance of the Banks commercial real estate loan portfolio was secured by owner-occupied properties.
Construction and land development: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Bank also finances construction loans for owner-occupied properties. A portion of the Banks construction and land portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). With respect to construction loans to developers and builders that are secured by non-owner occupied properties that the Bank may originate from time to time, the Bank generally requires the borrower to have had an existing relationship with the Bank and have a proven record of success. Construction and land development loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners.
-27-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Bank until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
1-4 family residential real estate: Residential real estate loans represent loans to consumers or investors to finance a residence. These loans are typically financed on 15 to 30 year amortization terms, but generally with shorter maturities of 5 to 15 years. Many of these loans are extended to borrowers to finance their primary or secondary residence. Loans to an investor secured by a 1-4 family residence will be repaid from either the rental income from the property or from the sale of the property. This loan segment also includes closed-end home equity loans which are secured by a first or second mortgage on the borrowers residence. This allows customers to borrow against the equity in their home. Loans in this portfolio segment are underwritten and approved based on a number of credit quality criteria including limits on maximum Loan-to-Value (LTV), minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment.
1-4 family HELOC: This loan segment includes open-end home equity loans which are secured by a first or second mortgage on the borrowers residence. This allows customers to borrow against the equity in their home utilizing a revolving line of credit. These loans are underwritten and approved based on a number of credit quality criteria including limits on maximum LTV, minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment. Because of the revolving nature of these loans as well as the fact that many represent second mortgages, this portfolio segment can contain more risk than the amortizing 1-4 family residential real estate loans.
-28-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Consumer: The consumer loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures. Consumer loans may be secured or unsecured and are usually structured with short or medium term maturities. These loans are underwritten and approved based on a number of consumer credit quality criteria including limits on maximum LTV on secured consumer loans, minimum credit scores, and maximum debt to income. Many traditional forms of consumer installment credit have standard monthly payments and fixed repayment schedules of one to five years. These loans are made with either fixed or variable interest rates that are based on specific indices. Installment loans fill a variety of needs, such as financing the purchase of an automobile, a boat, a recreational vehicle, or other large personal items, or for consolidating debt. These loans may be unsecured or secured by an assignment of title, as in an automobile loan, or by money in a bank account. In addition to consumer installment loans this portfolio segment also includes secured and unsecured personal lines of credit as well as overdraft protection lines. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.
Non-accrual loans by class of loan were as follows at December 31:
2014 | 2013 | |||||||
Commercial and Industrial |
$ | 211 | $ | 752 | ||||
Multi Family and Commercial Real Estate |
821 | 808 | ||||||
1-4 Family Residential Real Estate |
243 | 475 | ||||||
1-4 Family HELOC |
1,350 | 1,360 | ||||||
Consumer |
| 175 | ||||||
|
|
|
|
|||||
Total |
$ | 2,625 | $ | 3,570 | ||||
|
|
|
|
-29-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Individually impaired loans by class of loans were as follows at December 31, 2014:
Unpaid Principal Balance |
Recorded Investment with no Allowance Recorded |
Recorded Investment with Allowance Recorded |
Total Recorded Investment |
Related Allowance |
Average Recorded Investment |
|||||||||||||||||||
Commercial and Industrial |
$ | 2,324 | $ | 743 | $ | 1,515 | $ | 2,258 | $ | 743 | $ | 1,773 | ||||||||||||
Multi Family and Commercial Real Estate |
1,404 | 739 | 495 | 1,234 | 37 | 1,246 | ||||||||||||||||||
Construction and Land Development |
| | | | | 161 | ||||||||||||||||||
1-4 Family Residential Real Estate |
5,456 | 243 | 5,168 | 5,411 | 93 | 5,428 | ||||||||||||||||||
1-4 Family HELOC |
2,227 | 764 | 1,350 | 2,114 | 392 | 1,989 | ||||||||||||||||||
Consumer |
| | | | | 35 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 11,411 | $ | 2,489 | $ | 8,528 | $ | 11,017 | $ | 1,265 | $ | 10,632 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on these loans while they were classified as impaired totaled $656 for 2014.
Individually impaired loans by class of loans were as follows at December 31, 2013:
Unpaid Principal Balance |
Recorded Investment with no Allowance Recorded |
Recorded Investment with Allowance Recorded |
Total Recorded Investment |
Related Allowance |
Average Recorded Investment |
|||||||||||||||||||
Commercial and Industrial |
$ | 1,885 | $ | 852 | $ | 752 | $ | 1,604 | $ | 679 | $ | 1,367 | ||||||||||||
Multi Family and Commercial Real Estate |
1,371 | 1,244 | | 1,244 | | 1,277 | ||||||||||||||||||
Construction and Land Development |
272 | 272 | | 272 | | 1,805 | ||||||||||||||||||
1-4 Family Residential Real Estate |
5,276 | 995 | 4,225 | 5,220 | 477 | 5,429 | ||||||||||||||||||
1-4 Family HELOC |
1,891 | 1,504 | 282 | 1,786 | 195 | 2,212 | ||||||||||||||||||
Consumer |
175 | | 175 | 175 | 175 | 88 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 10,870 | $ | 4,867 | $ | 5,434 | $ | 10,301 | $ | 1,526 | $ | 12,178 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on these loans while they were classified as impaired totaled $251 for 2013.
-30-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The Bank utilizes a risk grading system to monitor the credit quality of the Banks commercial loan portfolio which consists of commercial and industrial, commercial real estate and construction loans. Loans are graded on a scale of 1 to 9. Grades 1 - 5 are pass credits, grade 6 is special mention, grade 7 is substandard, grade 8 is doubtful and grade 9 is loss. A description of the risk grades are as follows:
Grade 1 - Minimal Risk (Pass)
This grade includes loans to borrowers with a strong financial position and history of profits and cash flows sufficient to service the debt. These borrowers have well defined sources of primary/secondary repayment, conservatively leveraged balance sheets and the ability to access a wide range of financing alternatives. Collateral securing these loans is negotiable, of sufficient value and in possession of the Bank. Risk of loss is unlikely.
Grade 2 - High Quality (Pass)
This grade includes loans to borrowers with a strong financial condition reflecting dependable net profits and cash flows. The borrower has verifiable liquid net worth providing above average asset protection. An identifiable market exits for the collateral. Risk of loss is unlikely.
Grade 3 - Above Average (Pass)
This grade includes loans to borrowers with a balance sheet that reflects a comfortable degree of leverage and liquidity. Borrowers are profitable and have a sustained record of servicing debt. An identifiable market exits for the collateral, but liquidation could take up to one year. Risk of loss is unlikely.
Grade 4 - Average (Pass)
This grade includes loans to borrowers with a financial condition that is satisfactory and comparable to industry standards. The borrower has verifiable net worth, providing over time, average asset protection. Borrower cash flows are sufficient to satisfy debt service requirements. Risk of loss is below average.
Grade 5 - Acceptable (Management Attention) (Pass)
This grade includes loans to borrowers whose loans are performing, but sources of repayment are not documented by the current credit analysis. There are some declining trends in margins, ratios and/or cash flow. Guarantor(s) have strong net worth(s), but assets may be concentrated in real estate or other illiquid investments. Risk of loss is average.
-31-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Grade 6 - Special Mention
Special mention assets have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Banks position at some future date. These assets pose elevated risk, but their weakness does not yet justify a substandard classification. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. The special mention rating is designed to identify a specific level of risk and concern about asset quality. Although a special mention asset has a higher probability of default than a pass asset, its default is not imminent.
Grade 7 - Substandard
A substandard extension of credit is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit so classified should have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard credits, does not have to exist in individual extensions of credit classified substandard. Substandard assets have a high probability of payment default, or they have other well-defined weaknesses. They require more intensive supervision by Bank management. Substandard assets are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigation.
-32-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Grade 8 - Doubtful
An extension of credit classified doubtful has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage of and strengthen the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceedings, capital injection, perfecting liens on additional collateral, or refinancing plans. Generally, the doubtful classification should not extend for a long period of time because in most cases the pending factors or events that warranted the doubtful classification should be resolved either positively or negatively in a reasonable period of time.
Grade 9 - Loss
Extensions of credit classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. Amounts classified loss should be promptly charged off. The Bank will not attempt long term recoveries while the credit remains on the Banks books. Losses should be taken in the period in which they surface as uncollectible. With loss assets, the underlying borrowers are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Once an asset is classified loss, there is little prospect of collecting either its principal or interest.
-33-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Consumer purpose loans are initially assigned a default loan grade of 99 (Pass) and are risk graded (Grade 6, 7, or 8) according to delinquency status when applicable.
Credit quality indicators by class of loan were as follows at December 31, 2014:
Commercial and Industrial |
Multi Family and Commercial Real Estate |
Construction and Land Development |
||||||||||
Pass (grades 1-5) |
$ | 79,280 | $ | 111,571 | $ | 37,127 | ||||||
Substandard |
1,537 | 1,234 | | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 80,817 | $ | 112,805 | $ | 37,127 | ||||||
|
|
|
|
|
|
Consumer and Other |
1-4 Family Residential Real Estate |
1-4 Family HELOC |
Total | |||||||||||||
Pass (grades 1-5) |
$ | 12,071 | $ | 39,849 | $ | 30,994 | $ | 310,892 | ||||||||
Substandard |
| 1,448 | 2,114 | 6,333 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 12,071 | $ | 41,297 | $ | 33,108 | $ | 317,225 | ||||||||
|
|
|
|
|
|
|
|
Credit quality indicators by class of loan were as follows at December 31, 2013:
Commercial and Industrial |
Multi Family and Commercial Real Estate |
Construction and Land Development |
||||||||||
Pass (grades 1-5) |
$ | 83,111 | $ | 90,156 | $ | 27,644 | ||||||
Substandard |
1,604 | 1,244 | 272 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 84,715 | $ | 91,400 | $ | 27,916 | ||||||
|
|
|
|
|
|
Consumer and Other |
1-4 Family Residential Real Estate |
1-4 Family HELOC |
Total | |||||||||||||
Pass (grades 1-5) |
$ | 8,457 | $ | 33,384 | $ | 33,567 | $ | 276,319 | ||||||||
Substandard |
175 | 5,220 | 1,786 | 10,301 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 8,632 | $ | 38,604 | $ | 35,353 | $ | 286,620 | ||||||||
|
|
|
|
|
|
|
|
-34-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Past due loan balances by class of loan were as follows at December 31, 2014:
Accruing 30-59 Days Past Due |
Accruing 60-89 Days Past Due |
Accruing Greater than 90 Days |
Accruing Total Past Due |
|||||||||||||
Commercial and industrial |
$ | | $ | | $ | | $ | | ||||||||
Multi family and commercial real estate |
| | | | ||||||||||||
Construction and land development |
| | | | ||||||||||||
1-4 family residential real estate |
181 | | | 181 | ||||||||||||
1-4 family HELOC |
337 | | | 337 | ||||||||||||
Consumer |
| | | | ||||||||||||
Other / loans secured by farmland |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 518 | $ | | $ | | $ | 518 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Current | Non Accrual Current Loans |
Non Accrual Past Due Loans |
Total Loans | |||||||||||||
Commercial and industrial |
$ | 80,606 | $ | 211 | $ | | $ | 80,817 | ||||||||
Multi family and commercial real estate |
111,984 | | 821 | 112,805 | ||||||||||||
Construction and land development |
37,127 | | | 37,127 | ||||||||||||
1-4 family residential real estate |
40,873 | 243 | | 41,297 | ||||||||||||
1-4 family HELOC |
31,421 | 1,162 | 188 | 33,108 | ||||||||||||
Consumer |
11,771 | | | 11,771 | ||||||||||||
Other / loans secured by farmland |
300 | | | 300 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 314,082 | $ | 1,616 | $ | 1,009 | $ | 317,225 | ||||||||
|
|
|
|
|
|
|
|
-35-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Past due loan balances by class of loan were as follows at December 31, 2013:
Accruing 30-59 Days Past Due |
Accruing 60-89 Days Past Due |
Accruing Greater than 90 Days |
Accruing Total Past Due |
|||||||||||||
Commercial and industrial |
$ | | $ | | $ | | $ | | ||||||||
Multi family and commercial real estate |
| | | | ||||||||||||
Construction and land development |
| | | | ||||||||||||
1-4 family residential real estate |
| | | | ||||||||||||
1-4 family HELOC |
| | | | ||||||||||||
Consumer |
| | | | ||||||||||||
Other / loans secured by farmland |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Current | Non Accrual Current Loans |
Non Accrual Past Due Loans |
Total Loans | |||||||||||||
Commercial and industrial |
$ | 83,963 | $ | | $ | 752 | $ | 84,715 | ||||||||
Multi family and commercial real estate |
90,592 | 808 | | 91,400 | ||||||||||||
Construction and land development |
27,916 | | | 27,916 | ||||||||||||
1-4 family residential real estate |
38,129 | 475 | | 38,604 | ||||||||||||
1-4 family HELOC |
33,993 | 1,360 | | 35,353 | ||||||||||||
Consumer |
8,155 | | 175 | 8,330 | ||||||||||||
Other / loans secured by farmland |
302 | | | 302 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 283,050 | $ | 2,643 | $ | 927 | $ | 286,620 | ||||||||
|
|
|
|
|
|
|
|
There were no loans past due 90 days or more and still accruing interest at December 31, 2014 or 2013.
-36-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Troubled debt restructurings occurring during the year ended December 31, 2014 by class of loan were as follows:
Number of Contracts |
Pre-Modification Oustanding Recorded Investments |
Post-Modification Oustanding Recorded Investments |
||||||||||
Troubled Debt Restructuring |
||||||||||||
Commercial and industrial |
2 | $ | 948 | $ | 1,044 | |||||||
Multi family and commercial real estate |
| | | |||||||||
Construction and land development |
| | | |||||||||
1-4 family residential real estate |
| | | |||||||||
1-4 family HELOC |
| | | |||||||||
Consumer |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total |
2 | $ | 948 | $ | 1,044 | |||||||
|
|
|
|
|
|
Troubled debt restructurings occurring during the year ended December 31, 2013 by class of loan were as follows:
Number of Contracts |
Pre-Modification Oustanding Recorded Investments |
Post-Modification Oustanding Recorded Investments |
||||||||||
Troubled Debt Restructuring |
||||||||||||
Commercial and industrial |
| $ | | $ | | |||||||
Multi family and commercial real estate |
1 | 920 | 938 | |||||||||
Construction and land development |
| | | |||||||||
1-4 family residential real estate |
5 | 4,978 | 4,595 | |||||||||
1-4 family HELOC |
| | | |||||||||
Consumer |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total |
6 | $ | 5,898 | $ | 5,533 | |||||||
|
|
|
|
|
|
-37-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The Bank charged off $53 of loans against the allowance for loan losses as a result of loans that were modified as troubled debt restructurings during 2013. There were no charge offs resulting from modifications during 2014. The above modifications related to extending the amortization period of the loan, interest rate concessions, principal forgiveness, and payment modifications.
The Bank did not have any loans modified as troubled debt restructurings during 2014 or 2013 that subsequently defaulted in either of these years.
In the normal course of business the Bank will enter into various credit arrangements with its executive officers, directors and their affiliates. These arrangements generally take the form of commercial lines of credit, personal lines of credit, mortgage loans, term loans or revolving arrangements secured by personal residences. An analysis of the activity with respect to loans to related parties is as follows:
2014 | 2013 | |||||||
Balance - January 1 |
$ | 9,443 | $ | 7,648 | ||||
New loans during the year |
3,170 | 4,690 | ||||||
Repayments during the year |
(2,618 | ) | (2,895 | ) | ||||
|
|
|
|
|||||
Balance - December 31 |
$ | 9,995 | $ | 9,443 | ||||
|
|
|
|
As of December 31, 2014 and 2013, none of these loans were restructured, nor were any related party loans charged off in 2014 or 2013.
-38-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 4 - FAIR VALUES OF ASSETS AND LIABILITIES
The following table sets forth the Banks major categories of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of December 31, 2014 and 2013:
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
2014 | ||||||||||||||||
Assets |
||||||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 4,628 | $ | | $ | 4,628 | $ | | ||||||||
State and municipal |
36,209 | | 36,209 | | ||||||||||||
Corporate bonds |
1,007 | | 1,007 | | ||||||||||||
Mortgage backed securities |
9,942 | | 9,942 | | ||||||||||||
Money Market |
2,500 | | 2,500 | | ||||||||||||
Liabilities |
||||||||||||||||
Interest rate swap |
$ | 250 | $ | | $ | 250 | $ | | ||||||||
2013 | ||||||||||||||||
Assets |
||||||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 4,325 | $ | | $ | 4,325 | $ | | ||||||||
State and municipal |
30,274 | | 30,274 | | ||||||||||||
Corporate bonds |
1,004 | | 1,004 | | ||||||||||||
Mortgage backed securities |
10,860 | | 10,860 | |
-39-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 4 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
The following table sets forth the Banks major categories of assets and liabilities measured at fair value on a nonrecurring basis, by level within the fair value hierarchy, as of December 31, 2014 and 2013:
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
2014 | ||||||||||||||||
Assets |
||||||||||||||||
Impaired loans |
$ | 7,263 | $ | | $ | | $ | 7,263 | ||||||||
Other real estate owned |
1,204 | | | 1,204 | ||||||||||||
2013 | ||||||||||||||||
Assets |
||||||||||||||||
Impaired loans |
$ | 3,908 | $ | | $ | | $ | 3,908 | ||||||||
Other real estate owned |
1,375 | | | 1,375 |
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at December 31, 2014 and 2013:
Valuation Techniques (1) |
Significant Unobservable Outputs |
Range (Weighted Average) | ||||
Impaired loans |
Appraisal | Estimated costs to sell | 10% | |||
Other real estate owned |
Appraisal | Estimated costs to sell | 10% |
(1) | The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. |
-40-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 4 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
Carrying amounts and estimated fair values of financial instruments, by level within the fair value hierarchy, at December 31, 2014 were as follows:
Carrying Amount |
Estimated Fair Value |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and due from banks |
$ | 10,747 | $ | 10,747 | $ | 10,747 | $ | | $ | | ||||||||||
Federal funds sold |
400 | 400 | 400 | | | |||||||||||||||
Securties held to maturity |
22,959 | 22,655 | | 22,655 | | |||||||||||||||
Securities available for sale |
54,286 | 54,286 | | 54,286 | | |||||||||||||||
Loans, net |
309,497 | 319,332 | | | 319,332 | |||||||||||||||
Mortgage loans held for sale |
26,640 | 26,640 | | | 26,640 | |||||||||||||||
Accrued interest receivable |
1,386 | 1,386 | | 1,386 | | |||||||||||||||
Restricted equity securities |
3,263 | 3,263 | | 3,263 | | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
334,365 | 323,404 | | | 323,404 | |||||||||||||||
Accrued interest payable |
79 | 79 | | 79 | | |||||||||||||||
Federal Home Loan Bank advances |
63,500 | 63,776 | | 63,776 | | |||||||||||||||
Interest rate swap |
250 | 250 | | 250 | | |||||||||||||||
Federal funds purchased |
6,651 | 6,651 | | 6,651 | |
Carrying amounts and estimated fair values of financial instruments, by level within the fair value hierarchy, at December 31, 2013 were as follows:
Carrying Amount |
Estimated Fair Value |
Active Markets for Identical Assets (Level 1) |
Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and due from banks |
$ | 10,610 | $ | 10,610 | $ | 10,610 | $ | | $ | | ||||||||||
Federal funds sold |
59 | 59 | 59 | | | |||||||||||||||
Securties held to maturity |
22,999 | 21,019 | | 21,019 | | |||||||||||||||
Securities available for sale |
46,463 | 46,463 | | 46,463 | | |||||||||||||||
Loans, net |
277,770 | 280,332 | | | 280,332 | |||||||||||||||
Mortgage loans held for sale |
2,680 | 2,680 | | | 2,680 | |||||||||||||||
Accrued interest receivable |
1,281 | 1,281 | | 1,281 | | |||||||||||||||
Restricted equity securities |
2,827 | 2,827 | | 2,827 | | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
289,801 | 278,117 | | | 278,117 | |||||||||||||||
Accrued interest payable |
53 | 53 | | 53 | | |||||||||||||||
Federal Home Loan Bank advances |
55,000 | 55,377 | | 55,377 | |
-41-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 4 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
The methods and assumptions used to estimate fair value are described as follows:
Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, restricted equity securities, demand deposits, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items is not considered material.
NOTE 5 - LEASEHOLD IMPROVEMENTS AND EQUIPMENT
The detail of leasehold improvements and equipment at December 31 is as follows:
2014 | 2013 | |||||||
Construction in progress |
$ | 71 | $ | 14 | ||||
Leasehold improvements |
3,699 | 3,682 | ||||||
Furniture, fixtures and equipment |
3,769 | 3,504 | ||||||
|
|
|
|
|||||
7,539 | 7,200 | |||||||
Less: accumulated depreciation |
(4,186 | ) | (3,620 | ) | ||||
|
|
|
|
|||||
$ | 3,353 | $ | 3,580 | |||||
|
|
|
|
Depreciation expense was $567 and $615 for 2014 and 2013, respectively.
NOTE 6 - RESTRICTED EQUITY SECURITIES
The Bank owned the following restricted equity securities as of December 31:
2014 | 2013 | |||||||
Federal Reserve Bank |
$ | 1,286 | $ | 1,150 | ||||
Federal Home Loan Bank |
1,977 | 1,677 | ||||||
|
|
|
|
|||||
$ | 3,263 | $ | 2,827 | |||||
|
|
|
|
-42-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 7 - GOODWILL AND CORE DEPOSIT INTANGIBLE
The following intangible assets were acquired in a 2009 business acquisition:
2014 | 2013 | |||||||
Goodwill |
$ | 773 | $ | 773 | ||||
|
|
|
|
|||||
Amortized intangible assets: |
||||||||
Core deposit intangibles |
$ | 1,045 | $ | 1,045 | ||||
Less accumulated amortization |
(708 | ) | (577 | ) | ||||
|
|
|
|
|||||
$ | 337 | $ | 468 | |||||
|
|
|
|
Amortization expense was $131 for 2014 and 2013.
Estimated future amortization expense as of December 31, 2014 is as follows:
2015 |
$ | 131 | ||
2016 |
131 | |||
2017 |
75 | |||
|
|
|||
Total |
$ | 337 | ||
|
|
NOTE 8 - DEPOSITS
Contractual maturities of time deposit accounts for the next five years at December 31, 2014 are as follows:
Maturity |
Amount | |||
2015 |
$ | 115,646 | ||
2016 |
10,584 | |||
2017 |
2,767 | |||
2018 |
792 | |||
2019 |
488 | |||
|
|
|||
$ | 130,277 | |||
|
|
-43-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 8 - DEPOSITS (CONTINUED)
The aggregate amount of overdrafts reclassified as loans receivable was $140 and $23 at December 31, 2014 and 2013, respectively.
Deposits from principal officers, directors, and their affiliates at December 31, 2014 and 2013 were $5,498 and $4,994, respectively.
The Bank had deposits from one customer that accounted for approximately 6% and 5% of total deposits at December 31, 2014 and 2013, respectively.
NOTE 9 - FEDERAL HOME LOAN BANK ADVANCES
At December 31, advances from the Federal Home Loan Bank were as follows:
2014 | 2013 | |||||||
Maturities January 2015 through September 2018, fixed rates ranging from .14% to 2.99% |
$ | 63,500 | $ | 55,000 |
Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized by $63,827 and $64,502 of first mortgage loans and home equity lines of credit at December 31, 2014 and 2013, respectively. The Banks additional borrowing capacity was $6,502 and $7,302 at December 31, 2014 and 2013, respectively.
Required future principal payments are as follows:
2015 |
$ | 53,500 | ||
2016 |
5,000 | |||
2017 |
| |||
2018 |
5,000 | |||
|
|
|||
Total |
$ | 63,500 | ||
|
|
-44-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 10 - BENEFIT PLANS
The Bank has a 401(k) benefit plan that allows employee contributions up to 100% of their compensation, subject to regulatory limitations. The Bank matches 100% of the first 3% contributed by the employee and 50% of the next 2% of the compensation contributed. Expense was $173 for 2014 and $170 for 2013.
NOTE 11 - INCOME TAXES
The income tax expense consists of the following for the years ended December 31:
2014 | 2013 | |||||||
Income tax expense: |
||||||||
Current |
$ | 986 | $ | 550 | ||||
Deferred |
830 | 1,191 | ||||||
|
|
|
|
|||||
Total provision for income tax expense |
$ | 1,816 | $ | 1,741 | ||||
|
|
|
|
A reconciliation of the income tax expense for the years ended December 31, 2014 and 2013 from the expected tax expense computed by applying the statutory federal income tax rate of 34 percent to income before income taxes is as follows:
2014 | 2013 | |||||||
Computed expected tax expense |
$ | 1,951 | $ | 1,692 | ||||
(Increase) decrease in tax expense resulting from: |
||||||||
State tax expense, net of federal tax effect |
234 | 207 | ||||||
Tax exempt interest |
(260 | ) | (126 | ) | ||||
Disallowed interest expense |
13 | 10 | ||||||
Incentive stock options |
11 | 7 | ||||||
Cash surrender value of life insurance contracts |
(123 | ) | (74 | ) | ||||
Meals and entertainment |
15 | 15 | ||||||
Expiration of capital loss carryover |
43 | | ||||||
Other |
(68 | ) | 10 | |||||
|
|
|
|
|||||
Total income tax expense |
$ | 1,816 | $ | 1,741 | ||||
|
|
|
|
During the years ended December 31, 2014 and 2013, an estimated future tax benefit (liability) of ($863) and $1,119 arose from unrealized gains and losses on available for sale securities and derivatives.
-45-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 11 - INCOME TAXES (CONTINUED)
Significant components of deferred tax assets as of December 31, 2014 and 2013 are as follows:
2014 | 2013 | |||||||
Organizational and start-up costs |
$ | 145 | $ | 170 | ||||
Allowance for loan losses |
1,057 | 1,944 | ||||||
Loan fees |
144 | 123 | ||||||
Other real estate |
43 | 38 | ||||||
Premises and equipment |
(39 | ) | (114 | ) | ||||
Net operating losses |
| 12 | ||||||
Unrealized gains on available-for-sale securities |
155 | 1,018 | ||||||
Non-accrual loans |
138 | 125 | ||||||
Alternative minimum tax credit |
| 45 | ||||||
Other |
120 | 95 | ||||||
|
|
|
|
|||||
Total |
$ | 1,763 | $ | 3,456 | ||||
|
|
|
|
|||||
State |
$ | 308 | $ | 608 | ||||
Federal |
1,455 | 2,848 | ||||||
|
|
|
|
|||||
Net deferred tax asset |
$ | 1,763 | $ | 3,456 | ||||
|
|
|
|
In assessing the future realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. During 2014 and 2013, management determined that it was more likely than not that all of the deferred tax assets would be realized.
-46-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 12 - STOCK RIGHTS AND PREFERENCES
The following chart describes the relative rights and preferences for Common Stock, Class A Common Stock, and Class B Common Stock.
Common Stock |
Class A Common Stock |
Class B Common Stock | ||||
Voting Rights |
Entitled to vote on all matters for which stockholder approval is required under Tennessee law | Entitled to vote only on any merger, share exchange, sale of substantially all the assets, voluntary dissolution or as required by law | Only entitled to vote as may be required by law | |||
Dividends |
If and when declared by our board of directors | 3% premium on any dividends paid on our Common Stock | 5% premium on any dividends paid on our Common Stock | |||
Liquidation Rights |
Entitled to distribution of assets on same basis as holders of Class A and Class B Common Stock | Entitled to distribution of assets on same basis as holders of Common Stock | Entitled to distribution of assets on same basis as holders of Common Stock | |||
Conversion Rights |
None | Entitled to convert to Common Stock on a 1:1 basis upon the sale of substantially all of the assets of the Bank or upon a change of control of the Bank | Entitled to convert to Common Stock on a 1:1 basis upon the sale of substantially all of the assets of the Bank or upon a change of control of the Bank or the merger of the Bank with and into another corporation | |||
Par Value |
$1.00 per share | $1.00 per share | $1.00 per share |
During 2013, the Banks charter was amended to reclassify all outstanding shares of Class A Common Stock and Class B Common Stock into an equal number of shares of Common Stock.
NOTE 13 - STOCK-BASED COMPENSATION
The Bank has a share based compensation plan as described below. Total compensation expense for the plan was $32 for 2014 and $22 for 2013.
-47-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 13 - STOCK-BASED COMPENSATION (CONTINUED)
The Banks 2006 Reliant Bank Stock Option Plan (as subsequently amended in 2007 and 2009, referred to as the stock option plan or the Plan), which is stockholder-approved, permits the grant of share options to its employees, directors and organizers for up to 600,000 shares of common stock. The Bank believes that such awards better align the interests of its employees with those of its stockholders. Employee awards are generally granted with an exercise price equal to the market price of the Banks common stock at the date of grant; those option awards have a vesting period of four years and have a 10-year contractual term. Director and organizer grants are made at an exercise price equal to the market price of the Banks common stock at the date of the grant, vest immediately and have a 10-year contractual term.
The Bank assigns discretion to its Board of Directors to make grants either as qualified incentive stock options or as non-qualified stock options. All employee grants are intended to be treated as qualified incentive stock options. All other grants are expected to be treated as non-qualified.
The fair value of each option award is estimated on the date of grant using a binomial option valuation model that uses the assumptions noted in the table below. Expected stock price volatility is based on historical volatilities of a peer group. The Bank uses historical data to estimate option exercise and post-vesting termination behavior.
The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
No options were granted in 2014. During 2013, the Bank granted 1,500 stock options to one employee with an exercise price of $8.00. These options were granted as qualified stock options by the Banks Board of Directors with a four year vesting period.
The fair value of options granted during 2013 was determined using the following weighted-average assumptions as of the grant date, resulting in an estimated fair value per option of $1.57.
Risk-free interest rate |
2.81% | |
Expected term |
10 years | |
Expected stock price volatility |
25.00% | |
Dividend yield |
2.50% |
-48-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 13 - STOCK-BASED COMPENSATION (CONTINUED)
A summary of the activity in the stock option plans for 2014 is as follows:
Shares | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
Outstanding at January 1, 2014 |
401,265 | $ | 10.62 | |||||||||||||
Granted |
| | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited or expired |
(17,700 | ) | 11.29 | |||||||||||||
|
|
|
|
|||||||||||||
Outstanding at December 31, 2014 |
383,565 | 10.39 | 1.73 | $ | 712 | |||||||||||
|
|
|||||||||||||||
Exercisable at December 31, 2014 |
376,840 | 10.45 | 1.64 | $ | 682 | |||||||||||
|
|
Shares | Weighted Average Grant-Date Fair Value |
|||||||
Non-vested options - beginning of year |
15,937 | $ | 2.90 | |||||
Granted |
| | ||||||
Vested |
(7,312 | ) | 3.29 | |||||
Forefeited/expired |
(1,900 | ) | 1.82 | |||||
|
|
|||||||
Non-vested options - end of year |
6,725 | 2.77 | ||||||
|
|
As of December 31, 2014, there was $11 of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 1.12 years.
-49-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 14 - REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to regulatory capital requirements administered by the federal and state banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of December 31, 2014 and 2013, the Bank meets all capital adequacy requirements to which it is subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2014 and 2013, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institutions category.
Actual and required capital amounts and ratios are presented below as of December 31, 2014 and 2013.
Actual Regulatory Capital |
For Capital Adequacy Purposes |
To Be Well Capitalized Under Prompt Corrective Action Provisions |
||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
2014: |
||||||||||||||||||||||||
Tier I leverage |
$ | 42,542 | 9.71 | % | $ | 17,525 | 4 | % | $ | 21,906 | 5 | % | ||||||||||||
Tier I risk-based capital |
$ | 42,542 | 12.19 | % | $ | 13,960 | 4 | % | $ | 20,939 | 6 | % | ||||||||||||
Total risk-based capital |
$ | 46,942 | 13.45 | % | $ | 27,921 | 8 | % | $ | 34,901 | 10 | % | ||||||||||||
2013: |
||||||||||||||||||||||||
Tier I leverage |
$ | 38,845 | 10.26 | % | $ | 15,149 | 4 | % | $ | 18,936 | 5 | % | ||||||||||||
Tier I risk-based capital |
$ | 38,845 | 12.66 | % | $ | 12,277 | 4 | % | $ | 18,415 | 6 | % | ||||||||||||
Total risk-based capital |
$ | 42,739 | 13.93 | % | $ | 24,553 | 8 | % | $ | 30,692 | 10 | % |
-50-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 14 - REGULATORY CAPITAL REQUIREMENTS (CONTINUED)
In July 2013, the Banks regulators adopted revised regulatory capital requirements known as Basel III, which became effective January 1, 2015. Required capital ratios applicable to the Bank under these guidelines are as follows:
Minimum | Well Capitalized |
|||||||
Common equity Tier 1 capital |
4.5 | % | 6.5 | % | ||||
Tier 1 risk based capital |
6.0 | % | 8.0 | % | ||||
Total risk based capital |
8.0 | % | 10.0 | % | ||||
Tier 1 leverage ratio |
4.0 | % | 5.0 | % |
The new requirements also establish a capital conservation buffer of 2.5% which will be phased in over four years. If capital levels fall below the minimum requirement plus the capital conservation buffer, the Bank will be subject to restrictions related dividend payments, share repurchases, and certain employee bonuses.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Bank has federal funds lines at other financial institutions with availability totaling $32,800 and $21,800 at December 31, 2014 and 2013, respectively. At December 31, 2014, the Bank had an outstanding balance of $6,651 under these federal funds lines. The Bank had no outstanding balance under these lines as of December 31, 2013. The Bank also has an unsecured line of credit at IDC Deposits with availability of $20,000. The Bank did not have an outstanding balance under this line of credit at December 31, 2014 or 2013.
At December 31, 2014, the Bank has employment agreements with the President, Chief Operating Officer, Chief Lending Officer and Chief Credit Officer. Upon the occurrence of an Event of Termination as defined by the agreements, the Bank has an obligation to pay each of the four executive officers lump sum payments as defined in the agreements.
-51-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 16 - LEASES
The Banks principal offices are located at 1736 Carothers Parkway in Brentwood, Tennessee in Williamson County. The Bank leases these offices from a related third party but owns the leasehold improvements.
The Bank leases additional offices for its operation center and branch at 101 Creekstone Boulevard in Franklin, Tennessee from a related third party but owns the leasehold improvements.
A summary of the Banks leased facilities (other than month-to-month agreements) follows:
Property Description |
Base Lease Expiration Date |
Base Lease Term With Renewal Periods |
Escalation Clause | |||
1736 Carothers Parkway, Brentwood |
February 28, 2017 | 25 years | 3% annually | |||
6005 Nolensville Road, Nashville |
September 30, 2018 | 20 years | none | |||
5109 Peter Taylor Park Drive, Brentwood |
July 31, 2016 | 17 years | 3% annually | |||
4108 Hillsboro Pike, Nashville |
November 30, 2021 | 27 years | 10% after 5th year of initial term | |||
101 Creekstone Boulevard, Franklin |
March 31, 2020 | 20 years | Consumer Price Index with a cap of 2% annually | |||
711 East Main Street, Suite 105, Hendersonville |
October 31, 2017 | 5 years | 2.5% annually | |||
745 South Church Street, Murfreesboro |
April 15, 2015 | 3 years | $100 annually |
The Bank has classified all leases as operating lease agreements for office space, copiers, and an automobile. Future minimum rental payments required under the terms of the noncancellable leases are as follows:
Year Ending December 31, |
||||
2015 |
$ | 1,626 | ||
2016 |
1,570 | |||
2017 |
1,062 | |||
2018 |
930 | |||
2019 |
863 | |||
Thereafter |
688 | |||
|
|
|||
Total |
$ | 6,739 | ||
|
|
Total rent expense under the leases amounted to $1,876 and $1,722, respectively, during the years ended December 31, 2014 and 2013.
-52-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 17 - RELATED PARTY TRANSACTIONS
The main office, operations center, and Franklin branch are leased from Corporations in which owners in the Corporations serve as members of the Banks Board of Directors. The amounts paid under these leases approximated $972 and $949 during the years ended December 31, 2014 and 2013, respectively.
Rent commitments, before considering renewal options that generally are present, were as follows:
Year Ending December 31, |
||||
2015 |
$ | 996 | ||
2016 |
1,021 | |||
2017 |
627 | |||
2018 |
555 | |||
2019 |
566 | |||
Thereafter |
142 | |||
|
|
|||
Total |
$ | 3,907 | ||
|
|
NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection lines, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.
The contractual amounts of financial instruments with off-balance-sheet risk at December 31, 2014 and 2013 were as follows:
2014 | 2013 | |||||||
Unused lines of credit |
||||||||
Fixed |
$ | 9,652 | $ | 7,110 | ||||
Variable |
38,701 | 43,479 | ||||||
Standby letters of credit |
6,784 | 4,090 | ||||||
|
|
|
|
|||||
Total |
$ | 55,137 | $ | 54,679 | ||||
|
|
|
|
-53-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 19 - DERIVATIVES
During the second quarter of 2014, the Bank began executing an approximate $10.5 million specific investment and related swap strategy. The strategy called for the purchase of approximately $10.5 million of investment grade municipal securities with the simultaneous execution of third-party swap arrangements effectively converting the fixed municipal yields to floating rates. These fair value hedges are intended to reduce the interest rate risk associated with the underlying hedged item by mitigating the risk of changes in fair value based on fluctuations in interest rates.
These derivative instruments were designated and qualified as fair value hedges. Accordingly, the gain or loss on the derivative as well as the offsetting gain or loss on the available-for-sale securities attributable to the hedged risk are recognized in current earnings. At December 31, 2014, the Banks fair value hedges were effective and are not expected to have a significant impact on our net income over the next 12 months.
The notional amounts of the swap agreements were $10.3 million at December 31, 2014. There were no such agreements outstanding at December 31, 2013. At December 31, 2014, the fair value of the swap agreements amounted to $250 and is included in other liabilities.
NOTE 20 - EARNINGS PER SHARE
The following is a summary of the components comprising basic and diluted earnings per common share of stock (EPS):
Year Ended December 31, | ||||||||
2014 | 2013 | |||||||
Basic EPS Computation |
||||||||
Net income attributable to Reliant Bank |
$ | 3,896 | $ | 3,238 | ||||
Weighted average common shares outstanding |
3,910,191 | 3,910,777 | ||||||
|
|
|
|
|||||
Basic earnings per common share |
$ | 1.00 | $ | 0.83 | ||||
|
|
|
|
|||||
Diluted EPS Computation |
||||||||
Net income attributable to Reliant Bank |
$ | 3,896 | $ | 3,238 | ||||
Weighted average common shares outstanding |
3,910,191 | 3,910,777 | ||||||
Dilutive effect of stock options |
59,334 | 3,305 | ||||||
|
|
|
|
|||||
Adjusted weighted average common shares outstanding |
3,969,525 | 3,914,082 | ||||||
|
|
|
|
|||||
Diluted earnings per common share |
$ | 0.98 | $ | 0.83 | ||||
|
|
|
|
-54-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 21 - BUSINESS COMBINATION
On March 12, 2015, the shareholders of the Bank approved a merger with Commerce Union Bancshares, Inc. (Commerce Union), the one bank holding company of Commerce Union Bank, in which the Banks shareholders will receive 1.0213 shares of Commerce Union common stock in exchange for each share of the Banks common stock. After the merger, it is anticipated that shareholders of the Bank will own approximately 55.5% of the outstanding common stock of the combined entity on a fully diluted basis.
While Commerce Union will legally be the acquiring entity in the merger and will continue under the name Commerce Union Bancshares, Inc., the merger will be accounted for as a reverse merger using the acquisition method of accounting, in accordance with the provisions of FASB ASC 805-10 Business Combinations. Under this guidance, for accounting purposes, the Bank is considered the acquirer in the merger, and as a result the historical financial statements of the combined entity will be the historical financial statements of the Bank upon completion of the merger.
The merger will be effected by the issuance of shares of Commerce Union stock to shareholders of the Bank. The assets and liabilities of Commerce Union as of the effective date of the merger will be recorded at their respective estimated fair values and combined with those of the Bank. Any excess of the purchase price over the net estimated fair values of the acquired assets and liabilities will be first be allocated to all identifiable intangible assets with any remaining excess allocated to goodwill.
In periods following the merger, the financial statements of the combined entity will include the results attributable to Commerce Union beginning on the date the merger is completed.
During the year ended December 31, 2014 merger related costs for Reliant Bank totaled $911.
NOTE 22 - SUBSEQUENT EVENT
On January 16, 2015 the Company sold $20,806 of securities that were classified as held to maturity at December 31, 2014 and recognized a loss on sale of $396. Subsequent to this sale, all other securities classified as held to maturity were transferred to available for sale effective as of the date of the sale.
-55-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 23 - QUARTERLY FINANCIAL RESULTS (UNAUDITED)
The following is a summary of consolidated quarterly financial results for the year ended December 31, 2014:
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|||||||||||||
Interest Income |
$ | 3,974 | $ | 4,126 | $ | 4,622 | $ | 4,493 | ||||||||
Net interest income |
3,575 | 3,724 | 4,203 | 4,084 | ||||||||||||
Provision for loan losses |
(500 | ) | (250 | ) | (500 | ) | (250 | ) | ||||||||
Income before provision for income taxes |
1,327 | 1,001 | 690 | 1,510 | ||||||||||||
Consolidated net income |
763 | 501 | 322 | 1,126 | ||||||||||||
Noncontrolling interest in net loss of subsidiary |
311 | 489 | 527 | (143 | ) | |||||||||||
Net income attributable to Reliant Bank |
1,074 | 990 | 849 | 983 | ||||||||||||
Basic earnings per share |
0.27 | 0.26 | 0.21 | 0.26 | ||||||||||||
Diluted earnings per share |
0.27 | 0.25 | 0.21 | 0.25 |
The following is a summary of consolidated quarterly financial results for the year ended December 31, 2013:
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|||||||||||||
Interest Income |
$ | 4,142 | $ | 4,132 | $ | 4,387 | $ | 4,274 | ||||||||
Net interest income |
3,640 | 3,662 | 3,910 | 3,839 | ||||||||||||
Provision for loan losses |
| | | (350 | ) | |||||||||||
Income before provision for income taxes |
811 | 1,016 | 1,405 | 1,198 | ||||||||||||
Consolidated net income |
447 | 612 | 862 | 768 | ||||||||||||
Noncontrolling interest in net loss of subsidiary |
207 | 147 | 92 | 103 | ||||||||||||
Net income attributable to Reliant Bank |
654 | 759 | 954 | 871 | ||||||||||||
Basic earnings per share |
0.17 | 0.19 | 0.25 | 0.22 | ||||||||||||
Diluted earnings per share |
0.17 | 0.19 | 0.25 | 0.22 |
-56-
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2014 AND 2013
(Dollar amounts in thousands except per share amounts)
NOTE 24 - MORTGAGE OPERATIONS
During 2011, the Bank and VHC Fund 1, LLC organized Reliant Mortgage Ventures, LLC (the Venture) for the purpose of improving the Banks mortgage operations. The Bank holds 51% of the governance rights of the Venture (and therefore consolidates the results of its operations) and 30% of the Ventures financial rights. VHC Fund 1, LLC holds 49% of the governance rights of the Venture and 70% of the related financial rights. VHC Fund 1, LLC is controlled by an immediate family member of the Banks Chairman. Under the related operating agreement, the non-controlling member receives 70% of the profits of the Venture, and the bank receives 30% of the profits once the non-controlling member recovers its cumulative losses. The non-controlling member is responsible for 100% of the mortgage ventures operational and credit losses. Losses of the Venture amounted to $1,184 and $549 for the years ended December 31, 2014 and 2013, respectively. These losses are included in the consolidated results of operations. The portion of the losses attributable to the non-controlling member (100% for 2014 and 2013) are included in noncontrolling interest in net loss of subsidiary on the accompanying consolidated statements of operations.
Direct costs incurred by the Bank attributable to the mortgage operations are allocated to the Venture but no overhead or indirect costs are currently allocated.
-57-
RELIANT BANK
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
March 31, 2015 |
December 31, 2014 |
|||||||
ASSETS | ||||||||
Cash and due from banks |
$ | 28,193 | $ | 10,747 | ||||
Federal funds sold |
268 | 400 | ||||||
|
|
|
|
|||||
Total cash and cash equivalents |
28,461 | 11,147 | ||||||
Securities held to maturity (fair value of $22,655 at December 31, 2014) |
| 22,959 | ||||||
Securities available for sale |
87,493 | 54,286 | ||||||
Loans, net |
305,838 | 309,497 | ||||||
Mortgage loans held for sale |
27,389 | 26,640 | ||||||
Accrued interest receivable |
1,414 | 1,386 | ||||||
Leasehold improvements and equipment, net |
3,259 | 3,353 | ||||||
Restricted equity securities, at cost |
3,349 | 3,263 | ||||||
Other real estate, net |
1,184 | 1,204 | ||||||
Cash surrender value of life insurance contracts |
11,448 | 11,355 | ||||||
Deferred tax assets, net |
1,621 | 1,763 | ||||||
Goodwill |
773 | 773 | ||||||
Core deposit intangibles |
305 | 337 | ||||||
Other assets |
1,914 | 1,768 | ||||||
|
|
|
|
|||||
TOTAL ASSETS |
$ | 474,448 | $ | 449,731 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
LIABILITIES |
||||||||
Deposits |
||||||||
Demand |
$ | 56,557 | $ | 45,800 | ||||
Interest-bearing demand |
53,820 | 51,414 | ||||||
Savings and money market deposit accounts |
111,872 | 106,874 | ||||||
Time, $250,000 or less |
132,100 | 115,885 | ||||||
Time, over $250,000 |
22,213 | 14,392 | ||||||
|
|
|
|
|||||
Total deposits |
376,562 | 334,365 | ||||||
Accrued interest payable |
49 | 79 | ||||||
Federal Home Loan Bank advances |
52,500 | 63,500 | ||||||
Federal funds purchased |
| 6,651 | ||||||
Other liabilities |
1,273 | 1,620 | ||||||
|
|
|
|
|||||
TOTAL LIABILITIES |
430,384 | 406,215 | ||||||
|
|
|
|
|||||
STOCKHOLDERS EQUITY |
||||||||
Common stock, $1 par value; 10,000,000 shares authorized; 3,910,191 shares issued and outstanding |
3,910 | 3,910 | ||||||
Additional paid-in capital |
38,960 | 38,955 | ||||||
Retained earnings |
1,513 | 901 | ||||||
Accumulated other comprehensive loss |
(319 | ) | (250 | ) | ||||
|
|
|
|
|||||
TOTAL STOCKHOLDERS EQUITY |
44,064 | 43,516 | ||||||
|
|
|
|
|||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 474,448 | $ | 449,731 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements
RELIANT BANK
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(Dollar amounts in thousands except per share amounts)
(Unaudited)
March 31, 2015 |
March 31, 2014 |
|||||||
INTEREST INCOME |
||||||||
Interest and fees on loans |
$ | 4,036 | $ | 3,505 | ||||
Interest on investment securities |
385 | 430 | ||||||
Federal funds sold and other |
52 | 39 | ||||||
|
|
|
|
|||||
TOTAL INTEREST INCOME |
4,473 | 3,974 | ||||||
|
|
|
|
|||||
INTEREST EXPENSE |
||||||||
Deposits |
||||||||
Demand |
22 | 46 | ||||||
Savings and money market deposit accounts |
65 | 87 | ||||||
Time |
224 | 178 | ||||||
Federal Home Loan Bank advances and other |
93 | 88 | ||||||
|
|
|
|
|||||
TOTAL INTEREST EXPENSE |
404 | 399 | ||||||
|
|
|
|
|||||
NET INTEREST INCOME |
4,069 | 3,575 | ||||||
PROVISION FOR LOAN LOSSES |
| (500 | ) | |||||
|
|
|
|
|||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
4,069 | 4,075 | ||||||
|
|
|
|
|||||
NONINTEREST INCOME |
||||||||
Service charges on deposit accounts |
147 | 130 | ||||||
Secondary market loan origination fees |
1,777 | 269 | ||||||
Gain (loss) on securities transactions, net |
(396 | ) | 66 | |||||
Loss on sales of other real estate |
| (8 | ) | |||||
Other |
106 | 87 | ||||||
|
|
|
|
|||||
TOTAL NONINTEREST INCOME |
1,634 | 544 | ||||||
|
|
|
|
|||||
NONINTEREST EXPENSES |
||||||||
Salaries and employee benefits |
2,839 | 1,868 | ||||||
Occupancy |
700 | 622 | ||||||
Data processing |
408 | 299 | ||||||
Advertising and public relations |
209 | 74 | ||||||
Audit, legal and consulting |
224 | 97 | ||||||
Federal deposit insurance |
70 | 60 | ||||||
Provision for losses on other real estate |
20 | | ||||||
Other operating |
508 | 272 | ||||||
|
|
|
|
|||||
TOTAL NONINTEREST EXPENSES |
4,978 | 3,292 | ||||||
|
|
|
|
|||||
INCOME BEFORE PROVISION FOR INCOME TAXES |
725 | 1,327 | ||||||
INCOME TAX EXPENSE |
184 | 564 | ||||||
|
|
|
|
|||||
CONSOLIDATED NET INCOME |
541 | 763 | ||||||
|
|
|
|
|||||
NONCONTROLLING INTEREST IN NET LOSS OF SUBSIDIARY |
71 | 311 | ||||||
|
|
|
|
|||||
NET INCOME ATTRIBUTABLE TO RELIANT BANK |
$ | 612 | $ | 1,074 | ||||
|
|
|
|
|||||
Basic net income attributable to Reliant Bank per common share available to common stockholders |
$ | 0.16 | $ | 0.27 | ||||
|
|
|
|
|||||
Diluted net income attributable to Reliant Bank per common share available to common stockholders |
$ | 0.15 | $ | 0.27 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements
RELIANT BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(Dollar amounts in thousands except per share amounts)
(Unaudited)
March 31, 2015 |
March 31, 2014 |
|||||||
Consolidated net income |
$ | 541 | $ | 763 | ||||
Other comprehensive income (loss) |
||||||||
Net unrealized gains (losses) on available-for-sale securities, net of tax expense (benefit) of $(309) and $356 for 2015 and 2014, respectively |
(497 | ) | 574 | |||||
Reclassification adjustment for (gains) losses included in net income, net of tax of $(152) and $25 for 2015 and 2014, respectively |
244 | (41 | ) | |||||
Amortization of unrealized holding loss related to transfer of securities from available for sale to held to maturity, net of tax of $113 and $7 for 2015 and 2014, respectively |
184 | 11 | ||||||
|
|
|
|
|||||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) |
(69 | ) | 544 | |||||
|
|
|
|
|||||
TOTAL COMPREHENSIVE INCOME |
$ | 472 | $ | 1,307 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements
RELIANT BANK
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(Dollar amounts in thousands except per share amounts)
(Unaudited)
COMMON STOCK | ADDITIONAL PAID-IN CAPITAL |
RETAINED EARNINGS (ACCUMULATED DEFICIT) |
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
NONCONTROLLING INTEREST |
TOTAL | |||||||||||||||||||||||
SHARES | AMOUNT | |||||||||||||||||||||||||||
BALANCE - JANUARY 1, 2014 |
3,910,191 | $ | 3,910 | $ | 38,925 | $ | (2,212 | ) | $ | (1,641 | ) | $ | | $ | 38,982 | |||||||||||||
Stock based compensation expense |
| | 6 | | | | 6 | |||||||||||||||||||||
Noncontrolling interest contributions |
| | | | | 311 | 311 | |||||||||||||||||||||
Net income (loss) |
| | | 1,074 | | (311 | ) | 763 | ||||||||||||||||||||
Other comprehensive income |
| | | | 544 | | 544 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE - |
3,910,191 | $ | 3,910 | $ | 38,931 | $ | (1,138 | ) | $ | (1,097 | ) | $ | | $ | 40,606 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE - JANUARY 1, 2015 |
3,910,191 | $ | 3,910 | $ | 38,955 | $ | 901 | $ | (250 | ) | $ | | $ | 43,516 | ||||||||||||||
Stock based compensation expense |
| | 5 | | | | 5 | |||||||||||||||||||||
Noncontrolling interest contributions |
| | | | | 71 | 71 | |||||||||||||||||||||
Net income (loss) |
| | | 612 | | (71 | ) | 541 | ||||||||||||||||||||
Other comprehensive loss |
| | | | (69 | ) | | (69 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE - |
3,910,191 | $ | 3,910 | $ | 38,960 | $ | 1,513 | $ | (319 | ) | $ | | $ | 44,064 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
RELIANT BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(Dollar amounts in thousands except per share amounts)
(Unaudited)
March 31, 2015 |
March 31, 2014 |
|||||||
OPERATING ACTIVITIES |
||||||||
Consolidated net income |
$ | 541 | $ | 763 | ||||
Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities: |
||||||||
Provision for loan losses |
| (500 | ) | |||||
Deferred income taxes |
186 | 806 | ||||||
Depreciation and amortization of premises and equipment |
127 | 155 | ||||||
Net amortization of securities |
144 | 82 | ||||||
Net realized (gains) losses on sales of securities |
396 | (66 | ) | |||||
Stock-based compensation expense |
5 | 6 | ||||||
Losses on sales of other real estate |
| 8 | ||||||
Provision for losses on other real estate |
20 | | ||||||
Increase in cash surrender value of life insurance contracts |
(93 | ) | (79 | ) | ||||
Mortgage loans originated for resale |
(40,871 | ) | (7,570 | ) | ||||
Proceeds from sale of mortgage loans |
40,122 | 7,476 | ||||||
Amortization of core deposit intangible |
32 | 33 | ||||||
Change in: |
||||||||
Accrued interest receivable |
(28 | ) | 5 | |||||
Other assets |
(75 | ) | (430 | ) | ||||
Accrued interest payable and other liabilities |
(707 | ) | (149 | ) | ||||
|
|
|
|
|||||
TOTAL ADJUSTMENTS |
(742 | ) | (223 | ) | ||||
|
|
|
|
|||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
(201 | ) | 540 | |||||
|
|
|
|
|||||
INVESTING ACTIVITIES |
||||||||
Activities in available for sale securities |
||||||||
Purchases |
(32,293 | ) | (1,056 | ) | ||||
Sales |
459 | 3,935 | ||||||
Maturities, prepayments and calls |
614 | 279 | ||||||
Activities in held to maturity securities |
||||||||
Sales |
20,649 | | ||||||
Maturities, prepayments and calls |
| 34 | ||||||
Purchases of restricted equity securities |
(86 | ) | (100 | ) | ||||
Loan originations and payments, net |
3,659 | (6,089 | ) | |||||
Purchase of leasehold improvements, equipment and software |
(33 | ) | (73 | ) | ||||
Proceeds from sale of equipment |
| 13 | ||||||
Proceeds from sales of other real estate |
| 92 | ||||||
Purchase of life insurance contracts |
| (2,000 | ) | |||||
|
|
|
|
|||||
NET CASH USED IN INVESTING ACTIVITIES |
(7,031 | ) | (4,965 | ) | ||||
|
|
|
|
|||||
FINANCING ACTIVITIES |
||||||||
Net change in deposits |
42,197 | 15,958 | ||||||
Net change in federal funds purchased |
(6,651 | ) | | |||||
Repayments on Federal Home Loan Bank advances, net |
(11,000 | ) | (10,000 | ) | ||||
Noncontrolling interest contributions |
| 135 | ||||||
|
|
|
|
|||||
NET CASH PROVIDED BY FINANCING ACTIVITIES |
24,546 | 6,093 | ||||||
|
|
|
|
|||||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
17,314 | 1,668 | ||||||
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR |
11,147 | 10,669 | ||||||
|
|
|
|
|||||
CASH AND CASH EQUIVALENTS - END OF YEAR |
$ | 28,461 | $ | 12,337 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements
RELIANT BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(Dollar amounts in thousands except per share amounts)
(Unaudited)
March 31, 2015 |
March 31, 2014 |
|||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||||
Cash paid during the year for: |
||||||||
Interest |
$ | 434 | $ | 397 | ||||
Taxes |
$ | 380 | $ | | ||||
Non-cash investing and financing activities: |
||||||||
Change in unrealized gain on securities available-for-sale |
$ | (80 | ) | $ | 864 | |||
Change in receivable due from minority interest |
71 | 176 |
See accompanying notes to consolidated financial statements
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Reliant Bank, its wholly owned subsidiary, Reliant Investments, LLC, and its majority owned subsidiary, Reliant Mortgage Ventures, LLC, collectively (the Bank). All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and reporting policies of the Bank conform to accounting principles generally accepted in the United States of America (U.S. GAAP) and to general practices in the banking industry.
The consolidated financial statements as of March 31, 2015, and for the three months ended March 31, 2015 and 2014, included herein have not been audited. The December 31, 2014 Balance Sheet is derived from the audited financial statements. The accounting and reporting policies of the Bank conform to U.S. generally accepted accounting principles and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Bank believes that the disclosures made are adequate to make the information not misleading. These financial statements should be read in conjunction with the Banks 2014 audited financial statements. The accompanying consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented. Such adjustments are of a normal recurring nature. The results for the three month period ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 2 - SECURITIES
The amortized cost and fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive loss at March 31, 2015 and December 31, 2014 were as follows:
March 31, 2015 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 4,953 | $ | 29 | $ | (42 | ) | $ | 4,940 | |||||||
State and municipal |
48,532 | 706 | (575 | ) | 48,663 | |||||||||||
Corporate bonds |
3,000 | 19 | (16 | ) | 3,003 | |||||||||||
Mortgage backed securities |
28,445 | 162 | (220 | ) | 28,387 | |||||||||||
Money market |
2,500 | | | 2,500 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 87,430 | $ | 916 | $ | (853 | ) | $ | 87,493 | |||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2014 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 4,758 | $ | | $ | (130 | ) | $ | 4,628 | |||||||
State and municipal |
35,952 | 523 | (266 | ) | 36,209 | |||||||||||
Corporate bonds |
1,000 | 7 | | 1,007 | ||||||||||||
Mortgage backed securities |
9,933 | 146 | (137 | ) | 9,942 | |||||||||||
Money market |
2,500 | | | 2,500 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 54,143 | $ | 676 | $ | (533 | ) | $ | 54,286 | |||||||
|
|
|
|
|
|
|
|
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 2 - SECURITIES (CONTINUED)
The amortized cost and fair value of held to maturity securities and the related gross unrealized gains and losses at December 31, 2014 was as follows:
December 31, 2014 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 21,016 | $ | 3 | $ | (344 | ) | $ | 20,675 | |||||||
Corporate bonds |
1,943 | 42 | (5 | ) | 1,980 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 22,959 | $ | 45 | $ | (349 | ) | $ | 22,655 | |||||||
|
|
|
|
|
|
|
|
On January 16, 2015 the Bank sold $20,806 of securities that were classified as held to maturity and recognized a loss on sale of $396. Subsequent to this sale, all remaining securities classified as held to maturity were transferred to available for sale effective as of the date of the sale.
Securities pledged at March 31, 2015 and December 31, 2014 had a carrying amount of $35,704 and $32,783, respectively, and were pledged to collateralize Federal Home Loan Bank advances, Federal Reserve advances and municipal deposits.
At March 31, 2015 and December 31, 2014, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies or U.S. Government sponsored entities, in an amount greater than 10% of stockholders equity.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 2 - SECURITIES (CONTINUED)
The fair value of available for sale debt securities at March 31, 2015 by contractual maturity are provided below. Securities not due at a single maturity date, primarily mortgage backed securities, are shown separately.
Available For Sale | ||||||||
Amortized Cost |
Estimated Fair Value |
|||||||
Due in one to five years |
$ | 8,199 | $ | 8,171 | ||||
Due in five to ten years |
14,071 | 14,148 | ||||||
Due after ten years |
36,715 | 36,787 | ||||||
Mortgage backed securities |
28,445 | 28,387 | ||||||
|
|
|
|
|||||
$ | 87,430 | $ | 87,493 | |||||
|
|
|
|
The following table shows available for sale securities with unrealized losses and their estimated fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2015 and December 31, 2014:
March 31, 2015 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
|||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | | $ | | $ | 3,442 | $ | 42 | $ | 3,442 | $ | 42 | ||||||||||||
State and municipal |
19,288 | 496 | 4,640 | 79 | 23,928 | 575 | ||||||||||||||||||
Corporate bonds |
988 | 12 | 496 | 4 | 1,484 | 16 | ||||||||||||||||||
Mortgage backed securities |
18,759 | 137 | 4,674 | 83 | 23,433 | 220 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired |
$ | 39,035 | $ | 645 | $ | 13,252 | $ | 208 | $ | 52,287 | $ | 853 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2014 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
|||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 996 | $ | 3 | $ | 3,357 | $ | 127 | $ | 4,353 | $ | 130 | ||||||||||||
State and municipal |
6,185 | 101 | 8,614 | 165 | 14,799 | 266 | ||||||||||||||||||
Mortgage backed securities |
| | 4,807 | 137 | 4,807 | 137 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired |
$ | 7,181 | $ | 104 | $ | 16,778 | $ | 429 | $ | 23,959 | $ | 533 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 2 - SECURITIES (CONTINUED)
The following table shows held to maturities securities with unrealized losses and their estimated fair value aggregated by investment category and length of time that individual securities were in a continuous unrealized loss position as of December 31, 2014:
December 31, 2014 | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
Estimated Fair Value |
Unrealized Loss |
|||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | | $ | | $ | 20,459 | $ | 344 | $ | 20,459 | $ | 344 | ||||||||||||
Corporate bonds |
| | 493 | 5 | 493 | 5 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired |
$ | | $ | | $ | 20,952 | $ | 349 | $ | 20,952 | $ | 349 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline. There were 70 securities that were in an unrealized loss position as of March 31, 2015.
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at March 31, 2015 and December 31, 2014 were comprised as follows:
March 31, 2015 |
December 31, 2014 |
|||||||
Commerical |
$ | 83,041 | $ | 80,817 | ||||
Real estate |
||||||||
Residential |
66,213 | 74,405 | ||||||
Commercial |
114,056 | 112,805 | ||||||
Construction |
39,791 | 37,127 | ||||||
Consumer |
10,262 | 11,771 | ||||||
Other |
300 | 300 | ||||||
|
|
|
|
|||||
313,663 | 317,225 | |||||||
Less |
||||||||
Deferred loan fees |
417 | 375 | ||||||
Allowance for possible loan losses |
7,408 | 7,353 | ||||||
|
|
|
|
|||||
Loans, net |
$ | 305,838 | $ | 309,497 | ||||
|
|
|
|
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Activity in the allowance for loan losses by portfolio segment was as follows for the three months ended March 31, 2015:
Commercial and Industrial |
Multi Family and Commercial Real Estate |
Construction and Land Development |
1-4 Family Residential Real Estate |
|||||||||||||
Beginning balance |
$ | 2,184 | $ | 2,070 | $ | 742 | $ | 642 | ||||||||
Charge-offs |
| | | | ||||||||||||
Recoveries |
48 | 1 | 2 | | ||||||||||||
Provision |
120 | (100 | ) | (73 | ) | (115 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 2,352 | $ | 1,971 | $ | 671 | $ | 527 | ||||||||
|
|
|
|
|
|
|
|
1-4 Family HELOC |
Consumer | Other | Unallocated | Total | ||||||||||||||||
Beginning balance |
$ | 854 | $ | 181 | $ | 2 | $ | 678 | $ | 7,353 | ||||||||||
Charge-offs |
| | (4 | ) | | (4 | ) | |||||||||||||
Recoveries |
8 | | | | 59 | |||||||||||||||
Provision |
(132 | ) | (29 | ) | 3 | 326 | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance |
$ | 730 | $ | 152 | $ | 1 | $ | 1,004 | $ | 7,408 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses by portfolio segment was as follows for the three months ended March 31, 2014:
Commercial and Industrial |
Multi Family and Commercial Real Estate |
Construction and Land Development |
1-4 Family Residential Real Estate |
|||||||||||||
Beginning balance |
$ | 2,138 | $ | 1,581 | $ | 553 | $ | 1,071 | ||||||||
Charge-offs |
(9 | ) | | | | |||||||||||
Recoveries |
43 | 25 | 104 | 89 | ||||||||||||
Provision |
(204 | ) | 180 | (48 | ) | (123 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 1,968 | $ | 1,786 | $ | 609 | $ | 1,037 | ||||||||
|
|
|
|
|
|
|
|
1-4 Family HELOC |
Consumer | Other | Unallocated | Total | ||||||||||||||||
Beginning balance |
$ | 865 | $ | 257 | $ | 13 | $ | 2,052 | $ | 8,530 | ||||||||||
Charge-offs |
| (121 | ) | | | (130 | ) | |||||||||||||
Recoveries |
| | | | 261 | |||||||||||||||
Provision |
(146 | ) | 38 | (12 | ) | (185 | ) | (500 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance |
$ | 719 | $ | 174 | $ | 1 | $ | 1,867 | $ | 8,161 | ||||||||||
|
|
|
|
|
|
|
|
|
|
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2015 was as follows:
Commercial and Industrial |
Multi Family and Commercial Real Estate |
Construction and Land Development |
1-4 Family Residential Real Estate |
|||||||||||||
Allowance for loan losses |
||||||||||||||||
Individually evaluated for impairment |
$ | 723 | $ | 37 | $ | | $ | 99 | ||||||||
Collectively evaluated for impairment |
1,629 | 1,934 | 671 | 428 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,352 | $ | 1,971 | $ | 671 | $ | 527 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans |
||||||||||||||||
Individually evaluated for impairment |
$ | 2,211 | $ | 1,229 | $ | | $ | 2,555 | ||||||||
Collectively evaluated for impairment |
80,830 | 112,827 | 39,791 | 31,731 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 83,041 | $ | 114,056 | $ | 39,791 | $ | 34,286 | ||||||||
|
|
|
|
|
|
|
|
1-4 Family HELOC |
Consumer | Other | Unallocated | Total | ||||||||||||||||
Allowance for loan losses |
||||||||||||||||||||
Individually evaluated for impairment |
$ | 275 | $ | | $ | | $ | | $ | 1,134 | ||||||||||
Collectively evaluated for impairment |
455 | 152 | 1 | 1,004 | 6,274 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 730 | $ | 152 | $ | 1 | $ | 1,004 | $ | 7,408 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans |
||||||||||||||||||||
Individually evaluated for impairment |
$ | 1,996 | $ | | $ | | $ | 7,991 | ||||||||||||
Collectively evaluated for impairment |
29,931 | 10,262 | 300 | 305,672 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 31,927 | $ | 10,262 | $ | 300 | $ | 313,663 | ||||||||||||
|
|
|
|
|
|
|
|
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2014 was as follows:
Commercial and Industrial |
Multi Family and Commercial Real Estate |
Construction and Land Development |
1-4 Family Residential Real Estate |
|||||||||||||
Allowance for loan losses |
||||||||||||||||
Individually evaluated for impairment |
$ | 743 | $ | 37 | $ | | $ | 93 | ||||||||
Collectively evaluated for impairment |
1,441 | 2,033 | 742 | 549 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,184 | $ | 2,070 | $ | 742 | $ | 642 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans |
||||||||||||||||
Individually evaluated for impairment |
$ | 2,258 | $ | 1,234 | $ | | $ | 5,411 | ||||||||
Collectively evaluated for impairment |
78,559 | 111,571 | 37,127 | 35,886 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 80,817 | $ | 112,805 | $ | 37,127 | $ | 41,297 | ||||||||
|
|
|
|
|
|
|
|
1-4 Family HELOC |
Consumer | Other | Unallocated | Total | ||||||||||||||||
Allowance for loan losses |
||||||||||||||||||||
Individually evaluated for impairment |
$ | 392 | $ | | $ | | $ | | $ | 1,265 | ||||||||||
Collectively evaluated for impairment |
462 | 181 | 2 | 678 | 6,088 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 854 | $ | 181 | $ | 2 | $ | 678 | $ | 7,353 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans |
||||||||||||||||||||
Individually evaluated for impairment |
$ | 2,114 | $ | | $ | | $ | 11,017 | ||||||||||||
Collectively evaluated for impairment |
30,994 | 11,771 | 300 | 306,208 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 33,108 | $ | 11,771 | $ | 300 | $ | 317,225 | ||||||||||||
|
|
|
|
|
|
|
|
The Bank did not have any loans acquired with deteriorated credit quality at March 31, 2015 or December 31, 2014.
Risk characteristics relevant to each portfolio segment are as follows:
Commercial and industrial: The commercial and industrial loan portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers business operations. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Multi-family and commercial real estate: Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.
Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Banks commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Banks exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Bank also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting the market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. Non-owner occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or affiliate of the party, who owns the property.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Construction and land development: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Bank also finances construction loans for owner-occupied properties. A portion of the Banks construction and land portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). With respect to construction loans to developers and builders that are secured by non-owner occupied properties that the Bank may originate from time to time, the Bank generally requires the borrower to have had an existing relationship with the Bank and have a proven record of success. Construction and land development loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Bank until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
1-4 family residential real estate: Residential real estate loans represent loans to consumers or investors to finance a residence. These loans are typically financed on 15 to 30 year amortization terms, but generally with shorter maturities of 5 to 15 years. Many of these loans are extended to borrowers to finance their primary or secondary residence. Loans to an investor secured by a 1-4 family residence will be repaid from either the rental income from the property or from the sale of the property. This loan segment also includes closed-end home equity loans which are secured by a first or second mortgage on the borrowers residence. This allows customers to borrow against the equity in their home. Loans in this portfolio segment are underwritten and approved based on a number of credit quality criteria including limits on maximum Loan-to-Value (LTV), minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment.
1-4 family HELOC: This loan segment includes open-end home equity loans which are secured by a first or second mortgage on the borrowers residence. This allows customers to borrow against the equity in their home utilizing a revolving line of credit. These loans are underwritten and approved based on a number of credit quality criteria including limits on maximum LTV, minimum credit scores, and maximum debt to income. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment. Because of the revolving nature of these loans as well as the fact that many represent second mortgages, this portfolio segment can contain more risk than the amortizing 1-4 family residential real estate loans.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Consumer: The consumer loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures. Consumer loans may be secured or unsecured and are usually structured with short or medium term maturities. These loans are underwritten and approved based on a number of consumer credit quality criteria including limits on maximum LTV on secured consumer loans, minimum credit scores, and maximum debt to income. Many traditional forms of consumer installment credit have standard monthly payments and fixed repayment schedules of one to five years. These loans are made with either fixed or variable interest rates that are based on specific indices. Installment loans fill a variety of needs, such as financing the purchase of an automobile, a boat, a recreational vehicle, or other large personal items, or for consolidating debt. These loans may be unsecured or secured by an assignment of title, as in an automobile loan, or by money in a bank account. In addition to consumer installment loans this portfolio segment also includes secured and unsecured personal lines of credit as well as overdraft protection lines. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.
Non-accrual loans by class of loan were as follows at March 31, 2015 and December 31, 2014:
2015 | 2014 | |||||||
Commercial and Industrial |
$ | 723 | $ | 211 | ||||
Multi Family and Commercial Real Estate |
821 | 821 | ||||||
1-4 Family Residential Real Estate |
398 | 243 | ||||||
1-4 Family HELOC |
1,347 | 1,350 | ||||||
|
|
|
|
|||||
Total |
$ | 3,289 | $ | 2,625 | ||||
|
|
|
|
Individually impaired loans by class of loans were as follows at March 31, 2015:
Unpaid Principal Balance |
Recorded Investment with no Allowance Recorded |
Recorded Investment with Allowance Recorded |
Total Recorded Investment |
Related Allowance |
||||||||||||||||
Commercial and Industrial |
$ | 3,175 | $ | 1,488 | $ | 723 | $ | 2,211 | $ | 723 | ||||||||||
Multi Family and Commercial Real Estate |
1,399 | 490 | 739 | 1,229 | 37 | |||||||||||||||
Construction and Land Development |
| | | | | |||||||||||||||
1-4 Family Residential Real Estate |
2,604 | 2,157 | 398 | 2,555 | 99 | |||||||||||||||
1-4 Family HELOC |
2,668 | 1,347 | 649 | 1,996 | 275 | |||||||||||||||
Consumer |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 9,846 | $ | 5,482 | $ | 2,509 | $ | 7,991 | $ | 1,134 | ||||||||||
|
|
|
|
|
|
|
|
|
|
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Individually impaired loans by class of loans were as follows at December 31, 2014:
Unpaid Principal Balance |
Recorded Investment with no Allowance Recorded |
Recorded Investment with Allowance Recorded |
Total Recorded Investment |
Related Allowance |
||||||||||||||||
Commercial and Industrial |
$ | 2,324 | $ | 743 | $ | 1,515 | $ | 2,258 | $ | 743 | ||||||||||
Multi Family and Commercial Real Estate |
1,404 | 739 | 495 | 1,234 | 37 | |||||||||||||||
Construction and Land Development |
| | | | | |||||||||||||||
1-4 Family Residential Real Estate |
5,456 | 243 | 5,168 | 5,411 | 93 | |||||||||||||||
1-4 Family HELOC |
2,227 | 764 | 1,350 | 2,114 | 392 | |||||||||||||||
Consumer |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 11,411 | $ | 2,489 | $ | 8,528 | $ | 11,017 | $ | 1,265 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The average balances of impaired loans for the three months ended March 31, 2015 and 2014 were as follows:
2015 | 2014 | |||||||
Commercial and Industrial |
$ | 2,235 | $ | 1,540 | ||||
Multi Family and Commercial Real Estate |
1,232 | 1,232 | ||||||
Construction and Land Development |
| 270 | ||||||
1-4 Family Residential Real Estate |
3,983 | 5,214 | ||||||
1-4 Family HELOC |
2,055 | 1,688 | ||||||
Consumer |
| 88 | ||||||
|
|
|
|
|||||
Total |
$ | 9,505 | $ | 10,032 | ||||
|
|
|
|
Interest income recognized on these loans was not material for the three months ended March 31, 2015 or 2014.
The Bank utilizes a risk grading system to monitor the credit quality of the Banks commercial loan portfolio which consists of commercial and industrial, commercial real estate and construction loans. Loans are graded on a scale of 1 to 9. Grades 1 - 5 are pass credits, grade 6 is special mention, grade 7 is substandard, grade 8 is doubtful and grade 9 is loss. A description of the risk grades are as follows:
Grade 1 - Minimal Risk (Pass)
This grade includes loans to borrowers with a strong financial position and history of profits and cash flows sufficient to service the debt. These borrowers have well defined sources of primary/secondary repayment, conservatively leveraged balance sheets and the ability to access a wide range of financing alternatives. Collateral securing these loans is negotiable, of sufficient value and in possession of the Bank. Risk of loss is unlikely.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Grade 2 - High Quality (Pass)
This grade includes loans to borrowers with a strong financial condition reflecting dependable net profits and cash flows. The borrower has verifiable liquid net worth providing above average asset protection. An identifiable market exits for the collateral. Risk of loss is unlikely.
Grade 3 - Above Average (Pass)
This grade includes loans to borrowers with a balance sheet that reflects a comfortable degree of leverage and liquidity. Borrowers are profitable and have a sustained record of servicing debt. An identifiable market exits for the collateral, but liquidation could take up to one year. Risk of loss is unlikely.
Grade 4 - Average (Pass)
This grade includes loans to borrowers with a financial condition that is satisfactory and comparable to industry standards. The borrower has verifiable net worth, providing over time, average asset protection. Borrower cash flows are sufficient to satisfy debt service requirements. Risk of loss is below average.
Grade 5 - Acceptable (Management Attention) (Pass)
This grade includes loans to borrowers whose loans are performing, but sources of repayment are not documented by the current credit analysis. There are some declining trends in margins, ratios and/or cash flow. Guarantor(s) have strong net worth(s), but assets may be concentrated in real estate or other illiquid investments. Risk of loss is average.
Grade 6 - Special Mention
Special mention assets have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Banks position at some future date. These assets pose elevated risk, but their weakness does not yet justify a substandard classification. Borrowers may be experiencing adverse operating trends (declining revenues or margins) or an ill proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a special mention rating. Nonfinancial reasons for rating a credit exposure special mention include management problems, pending litigation, an ineffective loan agreement or other material structural weakness, and any other significant deviation from prudent lending practices. The special mention rating is designed to identify a specific level of risk and concern about asset quality. Although a special mention asset has a higher probability of default than a pass asset, its default is not imminent.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Grade 7 - Substandard
A substandard extension of credit is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit so classified should have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard credits, does not have to exist in individual extensions of credit classified substandard. Substandard assets have a high probability of payment default, or they have other well-defined weaknesses. They require more intensive supervision by Bank management. Substandard assets are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigation.
Grade 8 - Doubtful
An extension of credit classified doubtful has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage of and strengthen the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceedings, capital injection, perfecting liens on additional collateral, or refinancing plans. Generally, the doubtful classification should not extend for a long period of time because in most cases the pending factors or events that warranted the doubtful classification should be resolved either positively or negatively in a reasonable period of time.
Grade 9 - Loss
Extensions of credit classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. Amounts classified loss should be promptly charged off. The Bank will not attempt long term recoveries while the credit remains on the Banks books. Losses should be taken in the period in which they surface as uncollectible. With loss assets, the underlying borrowers are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Once an asset is classified loss, there is little prospect of collecting either its principal or interest.
Consumer purpose loans are initially assigned a default loan grade of 99 (Pass) and are risk graded (Grade 6, 7, or 8) according to delinquency status when applicable.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Credit quality indicators by class of loan were as follows at March 31, 2015:
Commercial and Industrial |
Multi Family and Commercial Real Estate |
Construction and Land Development |
||||||||||
Pass (grades 1-5) |
$ | 82,318 | $ | 112,827 | $ | 39,791 | ||||||
Substandard |
723 | 1,229 | | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 83,041 | $ | 114,056 | $ | 39,791 | ||||||
|
|
|
|
|
|
Consumer and Other |
1-4 Family Residential Real Estate |
1-4 Family HELOC |
Total | |||||||||||||
Pass (grades 1-5) |
$ | 10,562 | $ | 31,731 | $ | 29,931 | $ | 307,160 | ||||||||
Substandard |
| 2,555 | 1,996 | 6,503 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 10,562 | $ | 34,286 | $ | 31,927 | $ | 313,663 | ||||||||
|
|
|
|
|
|
|
|
Credit quality indicators by class of loan were as follows at December 31, 2014:
Commercial and Industrial |
Multi Family and Commercial Real Estate |
Construction and Land Development |
||||||||||
Pass (grades 1-5) |
$ | 79,280 | $ | 111,571 | $ | 37,127 | ||||||
Substandard |
1,537 | 1,234 | | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 80,817 | $ | 112,805 | $ | 37,127 | ||||||
|
|
|
|
|
|
Consumer and Other |
1-4 Family Residential Real Estate |
1-4 Family HELOC |
Total | |||||||||||||
Pass (grades 1-5) |
$ | 12,071 | $ | 39,849 | $ | 30,994 | $ | 310,892 | ||||||||
Substandard |
| 1,448 | 2,114 | 6,333 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 12,071 | $ | 41,297 | $ | 33,108 | $ | 317,225 | ||||||||
|
|
|
|
|
|
|
|
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Past due loan balances by class of loan were as follows at March 31, 2015:
Accruing 30-59 Days Past Due |
Accruing 60-89 Days Past Due |
Accruing Greater than 90 Days |
Accruing Total Past Due |
|||||||||||||
Commercial and industrial |
$ | | $ | | $ | | $ | | ||||||||
Multi family and commercial real estate |
| | | | ||||||||||||
Construction and land development |
| | | | ||||||||||||
1-4 family residential real estate |
| 956 | | 956 | ||||||||||||
1-4 family HELOC |
| | | | ||||||||||||
Consumer |
| | | | ||||||||||||
Other |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | 956 | $ | | $ | 956 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Current | Non Accrual Current Loans |
Non Accrual Past Due Loans |
Total Loans | |||||||||||||
Commercial and industrial |
$ | 82,318 | $ | 200 | $ | 523 | $ | 83,041 | ||||||||
Multi family and commercial real estate |
113,235 | | 821 | 114,056 | ||||||||||||
Construction and land development |
39,791 | | | 39,791 | ||||||||||||
1-4 family residential real estate |
32,932 | 238 | 160 | 34,286 | ||||||||||||
1-4 family HELOC |
30,580 | 732 | 615 | 31,927 | ||||||||||||
Consumer |
10,262 | | | 10,262 | ||||||||||||
Other |
300 | | | 300 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 309,418 | $ | 1,170 | $ | 2,119 | $ | 313,663 | ||||||||
|
|
|
|
|
|
|
|
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Past due loan balances by class of loan were as follows at December 31, 2014:
Accruing 30-59 Days Past Due |
Accruing 60-89 Days Past Due |
Accruing Greater than 90 Days |
Accruing Total Past Due |
|||||||||||||
Commercial and industrial |
$ | | $ | | $ | | $ | | ||||||||
Multi family and commercial real estate |
| | | | ||||||||||||
Construction and land development |
| | | | ||||||||||||
1-4 family residential real estate |
181 | | | 181 | ||||||||||||
1-4 family HELOC |
337 | | | 337 | ||||||||||||
Consumer |
| | | | ||||||||||||
Other |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 518 | $ | | $ | | $ | 518 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Current | Non Accrual Current Loans |
Non Accrual Past Due Loans |
Total Loans | |||||||||||||
Commercial and industrial |
$ | 80,606 | $ | 211 | $ | | $ | 80,817 | ||||||||
Multi family and commercial real estate |
111,984 | | 821 | 112,805 | ||||||||||||
Construction and land development |
37,127 | | | 37,127 | ||||||||||||
1-4 family residential real estate |
40,873 | 243 | | 41,297 | ||||||||||||
1-4 family HELOC |
31,421 | 1,162 | 188 | 33,108 | ||||||||||||
Consumer |
11,771 | | | 11,771 | ||||||||||||
Other |
300 | | | 300 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 314,082 | $ | 1,616 | $ | 1,009 | $ | 317,225 | ||||||||
|
|
|
|
|
|
|
|
There were no loans that were past due 90 days or more and still accruing interest at March 31, 2015 or December 31, 2014.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 4 - FAIR VALUES OF ASSETS AND LIABILITIES
Financial accounting standards relating to fair value measurements establish a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 | Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Bank has the ability to access. | |||
Level 2 | Inputs to the valuation methodology include: | |||
Quoted prices for similar assets or liabilities in active markets; | ||||
Quoted prices for identical or similar assets or liabilities in inactive markets; | ||||
Inputs other than quoted prices that are observable for the asset or liability; | ||||
Inputs that are derived principally from or corroborated by the observable market data by correlation or other means. | ||||
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. | ||||
Level 3 | Inputs to the valuation methodology are unobservable and reflect an entitys own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. |
An assets or liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis:
Securities available for sale: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities (Level 2 inputs). The Bank obtains fair value measurements for securities available for sale from an independent pricing service. The fair value measurements consider observable data that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, cash flows and reference data, including market research publications, among other things.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 4 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis include the following:
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on the present value of expected payments using the loans effective rate as the discount rate or recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
Other real estate owned: The fair value of other real estate owned is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.
There were no changes in valuation methodologies used during the three months ended March 31, 2015.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Banks valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 4 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
The following table sets forth the Banks major categories of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of March 31, 2015 and December 31, 2014:
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
March 31, 2015 | ||||||||||||||||
Assets |
||||||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 4,940 | $ | | $ | 4,940 | $ | | ||||||||
State and municipal |
48,663 | | 48,663 | | ||||||||||||
Corporate bonds |
3,003 | | 3,003 | | ||||||||||||
Mortgage backed securities |
28,387 | | 28,387 | | ||||||||||||
Money market |
2,500 | | 2,500 | | ||||||||||||
Liabilities |
||||||||||||||||
Interest rate swap |
$ | 579 | $ | | $ | 579 | $ | | ||||||||
December 31, 2014 | ||||||||||||||||
Assets |
||||||||||||||||
U.S. Treasury and other U.S. government agencies |
$ | 4,628 | $ | | $ | 4,628 | $ | | ||||||||
State and municipal |
36,209 | | 36,209 | | ||||||||||||
Corporate bonds |
1,007 | | 1,007 | | ||||||||||||
Mortgage backed securities |
9,942 | | 9,942 | | ||||||||||||
Money market |
2,500 | | 2,500 | | ||||||||||||
Liabilities |
||||||||||||||||
Interest rate swap |
$ | 250 | $ | | $ | 250 | $ | |
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 4 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
The following table sets forth the Banks major categories of assets and liabilities measured at fair value on a nonrecurring basis, by level within the fair value hierarchy, as of March 31, 2015 and December 31, 2014:
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
2015 | ||||||||||||||||
Assets |
||||||||||||||||
Impaired loans |
$ | 1,375 | $ | | $ | | $ | 1,375 | ||||||||
Other real estate owned |
1,184 | | | 1,184 | ||||||||||||
2014 | ||||||||||||||||
Assets |
||||||||||||||||
Impaired loans |
$ | 7,263 | $ | | $ | | $ | 7,263 | ||||||||
Other real estate owned |
1,204 | | | 1,204 |
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at March 31, 2015 and December 31, 2014:
Valuation Techniques (1) |
Significant Unobservable Outputs |
Range (Weighted Average) | ||||||
Impaired loans |
Appraisal | Estimated costs to sell | 10% | |||||
Other real estate owned |
Appraisal | Estimated costs to sell | 10% |
(1) | The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent. |
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 4 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
Carrying amounts and estimated fair values of financial instruments at March 31, 2015 were as follows:
Carrying Amount |
Estimated Fair Value |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and due from banks |
$ | 28,193 | $ | 28,193 | $ | 28,193 | $ | | $ | | ||||||||||
Federal funds sold |
268 | 268 | 268 | | | |||||||||||||||
Securities available for sale |
87,493 | 87,493 | | 87,493 | | |||||||||||||||
Loans, net |
305,838 | 307,603 | | | 307,603 | |||||||||||||||
Mortgage loans held for sale |
27,389 | 27,389 | | | 27,389 | |||||||||||||||
Accrued interest receivable |
1,414 | 1,414 | | 1,414 | | |||||||||||||||
Restricted equity securities |
3,349 | 3,349 | | 3,349 | | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
376,562 | 366,287 | | | 366,287 | |||||||||||||||
Accrued interest payable |
49 | 49 | | 49 | | |||||||||||||||
Federal Home Loan Bank advances |
52,500 | 52,792 | | 52,792 | | |||||||||||||||
Interest rate swap |
579 | 579 | | 579 | |
Carrying amounts and estimated fair values of financial instruments at December 31, 2014 were as follows:
Carrying Amount |
Estimated Fair Value |
Active Markets for Identical Assets (Level 1) |
Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and due from banks |
$ | 10,747 | $ | 10,747 | $ | 10,747 | $ | | $ | | ||||||||||
Federal funds sold |
400 | 400 | 400 | | | |||||||||||||||
Securties held to maturity |
22,959 | 22,655 | | 22,655 | | |||||||||||||||
Securities available for sale |
54,286 | 54,286 | | 54,286 | | |||||||||||||||
Loans, net |
309,497 | 319,332 | | | 319,332 | |||||||||||||||
Mortgage loans held for sale |
26,640 | 26,640 | | | 26,640 | |||||||||||||||
Accrued interest receivable |
1,386 | 1,386 | | 1,386 | | |||||||||||||||
Restricted equity securities |
3,263 | 3,263 | | 3,263 | | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
334,365 | 323,404 | | | 323,404 | |||||||||||||||
Accrued interest payable |
79 | 79 | | 79 | | |||||||||||||||
Federal Home Loan Bank advances |
63,500 | 63,776 | | 63,776 | | |||||||||||||||
Interest rate swap |
250 | 250 | | 250 | | |||||||||||||||
Federal funds purchased |
6,651 | 6,651 | | 6,651 | |
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 4 - FAIR VALUES OF ASSETS AND LIABILITIES (CONTINUED)
The methods and assumptions used to estimate fair value are described as follows:
Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, restricted equity securities, demand deposits, and variable rate loans or deposits that re-price frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of debt is based discounted cash flows using current rates for similar financing. The fair value of off-balance-sheet items is based on the current contractual settlement amount.
NOTE 5 - STOCK-BASED COMPENSATION
The Bank has a share based compensation plan as described below. Total compensation expense for the plan was $5 and $6 for the three months ended March 31, 2015 and 2014.
The Banks 2006 Reliant Bank Stock Option Plan (as subsequently amended in 2007 and 2009, referred to as the stock option plan or the Plan), which is stockholder-approved, permits the grant of share options to its employees, directors and organizers for up to 600,000 shares of common stock. The Bank believes that such awards better align the interests of its employees with those of its stockholders. Employee awards are generally granted with an exercise price equal to the market price of the Banks common stock at the date of grant, have a vesting period of four years and have a 10-year contractual term. Director and organizer grants are made at an exercise price equal to the market price of the Banks common stock at the date of the grant, vest immediately and have a 10-year contractual term.
The Bank assigns discretion to its Board of Directors to make grants either as qualified incentive stock options or as non-qualified stock options. All employee grants are intended to be treated as qualified incentive stock options. All other grants are expected to be treated as non-qualified.
No stock options were granted during the three months ended March 31, 2015 or March 31, 2014.
As of March 31, 2015, there was approximately $6 of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The remaining cost is expected to be recognized within the next 12 months.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 5 - STOCK-BASED COMPENSATION (CONTINUED)
A summary of the activity in the stock option plans for the three months ended March 31, 2015 is as follows:
Shares | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
Outstanding at January 1, 2015 |
383,565 | $ | 10.39 | |||||||||||||
Granted |
| | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited or expired |
(250 | ) | 7.50 | |||||||||||||
|
|
|
|
|||||||||||||
Outstanding at March 31, 2015 |
383,315 | $ | 10.40 | 1.48 | $ | 1,826,488 | ||||||||||
|
|
|||||||||||||||
Exercisable at March 31, 2015 |
380,015 | $ | 10.42 | 1.43 | $ | 1,800,852 | ||||||||||
|
|
Shares | Weighted Average Grant-Date Fair Value |
|||||||
Non-vested options - beginning of year |
6,725 | $ | 2.77 | |||||
Granted |
| | ||||||
Vested |
(3,425 | ) | 2.77 | |||||
Forfeited |
| | ||||||
|
|
|||||||
Non-vested options - end of year |
3,300 | 2.77 | ||||||
|
|
NOTE 6 - REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to regulatory capital requirements administered by the federal and state banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of March 31, 2015 and December 31, 2014, the Bank meets all capital adequacy requirements to which it is subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2015 and December 31, 2014, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institutions category.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 6 - REGULATORY CAPITAL REQUIREMENTS (CONTINUED)
In July 2013, the FDIC approved final rules that substantially amend the regulatory risk-based capital rules applicable to the Bank. The final rules implement the regulatory capital reforms of the Basel Committee on Banking Supervision reflected in Basel III: A Global Framework for More Resilient Banks and Banking Systems (Basel III) and changes required by the Dodd-Frank 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 Basel III became effective on January 1, 2015, and include new minimum risk-based capital and leverage ratios and a new common equity tier 1 ratio. In addition, these rules refine the definition of what constitutes capital for purposes of calculating those ratios, including the definitions of Tier 1 capital and Tier 2 capital.
Basel III establishes a capital conservation buffer of 2.5% to be phased in beginning on January 1, 2016, at a rate of .625% per year, becoming fully phased in on January 1, 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.
Actual and required capital amounts and ratios are presented below as of March 31, 2015 and December 31, 2014.
Actual Regulatory Capital |
For Capital Adequacy Purposes |
To Be Well Capitalized Under Prompt Corrective Action Provisions |
||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
March 31, 2015 |
||||||||||||||||||||||||
Common equity tier 1 |
$ | 43,483 | 10.97 | % | $ | 17,837 | 4.5 | % | $ | 25,765 | 6.5 | % | ||||||||||||
Tier I leverage |
$ | 43,483 | 9.53 | % | $ | 18,251 | 4.0 | % | $ | 22,814 | 5.0 | % | ||||||||||||
Tier I risk-based capital |
$ | 43,483 | 10.97 | % | $ | 23,783 | 6.0 | % | $ | 31,710 | 8.0 | % | ||||||||||||
Total risk-based capital |
$ | 48,469 | 12.22 | % | $ | 31,731 | 8.0 | % | $ | 39,665 | 10.0 | % | ||||||||||||
December 31, 2014 |
||||||||||||||||||||||||
Tier I leverage |
$ | 42,542 | 9.71 | % | $ | 17,525 | 4.0 | % | $ | 21,906 | 5.0 | % | ||||||||||||
Tier I risk-based capital |
$ | 42,542 | 12.19 | % | $ | 13,960 | 4.0 | % | $ | 20,939 | 6.0 | % | ||||||||||||
Total risk-based capital |
$ | 46,942 | 13.45 | % | $ | 27,921 | 8.0 | % | $ | 34,901 | 10.0 | % |
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 7 - EARNINGS PER SHARE
The following is a summary of the components comprising basic and diluted earnings per common share of stock (EPS):
Three Months Ended | ||||||||
March 31, 2015 | March 31, 2014 | |||||||
Basic EPS Computation: |
||||||||
Net income attributable to Reliant Bank |
$ | 612 | $ | 1,074 | ||||
Weighted average common shares outstanding |
3,910,191 | 3,910,191 | ||||||
|
|
|
|
|||||
Basic earnings per common share |
$ | 0.16 | $ | 0.27 | ||||
|
|
|
|
|||||
Diluted EPS Computation: |
||||||||
Net income attributable to Reliant Bank |
$ | 612 | $ | 1,074 | ||||
Weighted average common shares outstanding |
3,910,191 | 3,910,191 | ||||||
Dilutive effect of stock options |
119,625 | 55,528 | ||||||
|
|
|
|
|||||
Adjusted weighted average common shares outstanding |
4,029,816 | 3,965,719 | ||||||
|
|
|
|
|||||
Diluted earnings per common share |
$ | 0.15 | $ | 0.27 | ||||
|
|
|
|
NOTE 8 - SUBSEQUENT EVENT - BUSINESS COMBINATION
On March 12, 2015, the shareholders of the Bank approved a merger with Commerce Union Bancshares, Inc. (Commerce Union), the one bank holding company of Commerce Union Bank, which became effective April 1, 2015. The Banks shareholders received 1.0213 shares of Commerce Union common stock in exchange for each share of the Banks common stock. After the merger, shareholders of the Bank owned approximately 55.5% of the outstanding common stock of the combined entity on a fully diluted basis.
While Commerce Union was the acquiring entity for legal purposes and will continue under the name Commerce Union Bancshares, Inc., the merger is being accounted for as a reverse merger using the acquisition method of accounting, in accordance with the provisions of FASB ASC 805-10 Business Combinations. Under this guidance, for accounting purposes, the Bank is considered the acquirer in the merger, and as a result the historical financial statements of the combined entity will be the historical financial statements of the Bank.
The merger was effected by the issuance of shares of Commerce Union stock to shareholders of the Bank. The assets and liabilities of Commerce Union as of the effective date of the merger were recorded at their respective estimated fair values and combined with those of the Bank. The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities was allocated to identifiable intangible assets with the remaining excess allocated to goodwill.
In periods following the merger, the financial statements of the combined entity will include the results attributable to Commerce Union beginning on the date the merger was completed.
RELIANT BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014
(Dollar amounts in thousands except per share amounts)
NOTE 8 - SUBSEQUENT EVENT - BUSINESS COMBINATION (CONTINUED)
The following table details the preliminary estimated financial impact of the merger, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed, and goodwill recognized:
Calculation of Purchase Price |
||||
Shares of CUB common stock outstanding as of March 31, 2015 |
3,069,030 | |||
Estimated market price of CUB common stock on April 1, 2015 |
$ | 14.95 | ||
|
|
|||
Estimated fair value of CUB common stock |
45,882 | |||
Estimated fair value of CUB stock options |
2,019 | |||
|
|
|||
Total consideration |
$ | 47,901 | ||
|
|
|||
Allocation of Purchase Price |
||||
Total consideration above |
$ | 47,901 | ||
|
|
|||
Fair value of assets acquired and liabilities assumed: |
||||
Cash and cash equivalents |
$ | 12,378 | ||
Investment securities available for sale |
29,487 | |||
Loans |
248,122 | |||
Premises and equipment |
5,807 | |||
Deferred tax asset, net |
549 | |||
Bank owned life insurance |
4,181 | |||
Core deposit intangible |
1,901 | |||
Prepaid and other assets |
4,229 | |||
Deposits |
(247,307 | ) | ||
Securities sold under repurchase agreements |
(488 | ) | ||
Other borrowings |
(20,856 | ) | ||
Payables and other liabilities |
(733 | ) | ||
|
|
|||
Total fair value of net assets acquired |
37,270 | |||
|
|
|||
Goodwill |
$ | 10,631 | ||
|
|