Reliant Bancorp, Inc. : Reports Record Loans, Deposits and Assets for 2017

Reliant Bancorp, Inc., formerly Commerce Union Bancshares, Inc. (“Reliant Bancorp” or “the Company”) (Nasdaq: RBNC), the parent company for Reliant Bank (“Reliant”), announced today record loans, deposits and assets for the fourth quarter and year ended December 31, 2017.

Fourth quarter net income attributable to common shareholders was $1.2 million, or $0.13 per fully diluted share, compared with $2.0 million, or $0.25 per fully diluted share, recorded in the fourth quarter of 2016. Net income attributable to common shareholders for the full year 2017 was $7.2 million, or $0.88 per fully diluted share, compared with $8.9 million, or $1.16 per fully diluted share in 2016.

There were several items impacting the Company’s most recent quarterly and annual results for December 31, 2017:

• Merger expenses, net of taxes of $620,000 and $1.08 million for the three months and year ended December 31, 2017. There were no comparable expenses in 2016.
• Revaluation of the Company’s deferred tax asset offset by the deferred tax liability for a net charge of $620,000 for the three months and year ended December 31, 2017. There was no comparable revaluation in 2016.
• Purchase accounting adjustments positively impacting results, net of taxes of $19,000 and $71,000 for the three months and year ended December 31, 2017, and $55,000 and $694,000 for the three months and year ended December 31, 2016.
• Interest income recognized on payoff of purchased credit impaired loans totaling $218,000 and $382,000 for the years ended December 31, 2017 and 2016. There was no comparable interest income due to the payoff of purchased credit impaired loans for the fourth quarters of 2017 and 2016.
• Net gains from securities transactions, sale of other real estate, or disposal of premises and equipment, net of taxes of $0 and $22,000 for the three months and year ended December 31, 2017. Net losses, net of taxes of $197,000 for the three month ended December 31, 2016 and net gains, net of taxes of $208,000 for the year ended December 31, 2016.

The above items negatively impacted net income attributable to common shareholders, per diluted share by $0.13 and $0.17 for the three months and year ended December 31, 2017, and by $0.02 for the three months ended December 31, 2016, while positively impacting net income attributable to common shareholders by $0.17 per diluted share for the year ended December 31, 2016. In August of 2017, the Company raised $23.2 million, net of expenses, issuing 1.1 million shares of common stock in a private offering that increased average shares outstanding compared with the fourth quarter and full year 2016.

“We are excited to report record assets, loans and deposits for 2017,” stated DeVan D. Ard, Jr., Chairman, President and Chief Executive Officer. “Our results were due to organic growth across our markets, including growth in C&I, commercial real estate, and consumer loans. I am honored to welcome the shareholders and employees of Community First to Reliant Bancorp. We closed our merger on January 1, 2018, on time and immediately following the corporate name change to Reliant Bancorp. Both the completion of the merger and the name change move us further towards our strategic growth initiatives and provide a unique opportunity to build a progressive brand in our growing Middle Tennessee footprint.

“The Nashville area maintained its strength in job and wage growth in the fourth quarter of 2017, and unemployment rates in our key markets continued to decline, according to a recent report by MetroStudy. Additionally, business and consumer optimism continues to drive loan demand. In the fourth quarter, loan production exceeded $84 million, a 20% increase over the same period last year, and the loan pipeline entering the new year is healthy and diverse. The focus for the coming year will be the successful integration of Community First and leveraging our increased market presence in the greater middle Tennessee area,” continued Ard.

The Company continued its forward momentum with assets increasing 23.4% in 2017 to $1.13 billion. Strong loan production drove loans to a record level of $772.2 million – an increase of 15.8% since 2016. Core deposits rose 4% in the fourth quarter, and total deposits rose to $883.5 million at year end 2017, an increase of 15.7% from year end 2016. Reliant enters 2018 with more scale, an expanded footprint, stronger branding, and increased retail presence. All elements will play important roles in accelerating growth.

Balance Sheet Growth

($ in thousands)

• Total assets increased $83.9 million, or 8.1%, to a record $1.13 billion at December 31, 2017, rising from $1.04 billion at September 30, 2017, and up $213.1 million, or 23.4% from December 31, 2016. The increase in assets was due primarily to growth in loans, investments, mortgage loans held for sale and bank-owned life insurance.
• Earning assets grew $78.7 million, or 8.0% in the fourth quarter, including $22.9 million in loans and $27.9 million in investment securities. Earning assets grew 24.9% from December 31, 2016, including an increase of $105.4 million in loans and $73.4 million in investment securities.
• Loans increased $22.9 million, or 3.1%, or 12.2% on an annualized basis, from September 30, 2017, to December 31, 2017, and were up 15.8% over December 31, 2016. Loan growth benefited from increased demand from commercial customers and home builders.
• Asset quality remained sound and improved from the prior quarters. Nonperforming assets to total assets improved to 0.46% at December 31, 2017, compared to 0.49% at September 30, 2017, and 0.62% at December 31, 2016. The Company had no other real estate owned at December 31, 2017, September 30, 2017, or December 31, 2016.
• Deferred tax assets totaled $1.3 million at December 31, 2017. Deferred tax assets were reduced by approximately $620,000 at year end 2017 due to the newly enacted Tax Cuts and Jobs Act that reduced the federal corporate tax rate from 35% to 21%.
• Total deposits rose to a record $883.5 million at December 31, 2017, an increase of 5.1%, or 20.5% annualized from September 30, 2017, and were up 15.7% over December 31, 2016. Deposit growth from the prior year generally benefited from increases in time deposits. Demand deposits remained flat during the quarter and were down 2.1% since December 31, 2016. The Company continues to enhance its efforts to seek these low-cost deposits in the market.
• Total stockholders’ equity grew by 1.6% during the quarter to $140.1 million and grew 31.1% since December 31, 2016. The growth benefited from our August 2017, $23.2 million capital raise, net of expenses, as well as our earnings accretion, an improvement in the Accumulated Other Comprehensive Income and capital raised through the exercises of employee stock options. These items were partially offset by the quarterly cash dividends declared throughout 2017.

Revenue Growth and Profitability

($ in thousands except per share amounts)

• Net income attributable to common shareholders was $1.2 million in the fourth quarter of 2017, compared to $1.8 million in the third quarter of 2017, and $2.0 million in the fourth quarter of 2016. The decrease in earnings from the prior quarters was due primarily to a $620,000 charge related to the fourth quarter write-down of deferred tax assets. In addition, the Company reported $620,000 of net merger expenses in the fourth quarter of 2017 associated with our merger with Community First compared to $460,000 in the third quarter of 2017 and no comparable expense in the fourth quarter of 2016.
• Return on average assets for the quarter ended December 31, 2017, was 0.43% compared to 0.73% for the third quarter of 2017, and 0.87% for the fourth quarter of 2016. Our return on average assets was strongly influenced by the items impacting our net income attributable to common shareholders discussed above.
• Return on average equity for the quarter ended December 31, 2017, was 3.41%, compared to 6.18% in the third quarter of 2017, and 7.33% in the fourth quarter of 2016. Our return on average equity was affected by the changes in net income attributable to common shareholders discussed above as well as the capital raise completed in August 2017.
• Total interest income increased to $10.9 million in the fourth quarter of 2017, up 2.1%, compared to the third quarter of 2017, and up 21.3%, compared to the fourth quarter of 2016. The increases were driven by growth in earning assets, including loans and investment securities offset by a reduction of discount accretion relating to purchase accounting when compared to the fourth quarter of the prior year. Net interest income was $8.9 million in the fourth quarter of 2017, down 2.0% from the third quarter of 2017 due mainly to a higher cost of funds.
• Net interest margin for the quarter ended December 31, 2017, was 3.80%, compared with 4.08% in the third quarter of 2017, and 4.03% for the fourth quarter of 2016. The decrease in net interest margin from the prior quarter and year was due to the factors affecting interest income mentioned in the above bullet and the higher cost of funds.
• The Company continued to add volume and better yields to its investment portfolio. Securities available for sale grew to $220.2 million as of December 31, 2017, an increase of 14.5% from September 30, 2017, and 50.0% from December 31, 2016. The average tax-equivalent yield increased to 3.78% in the fourth quarter of 2017, compared to 3.18% in the same quarter of 2016.
• Provision for loan losses was $121,000 for the fourth quarter of 2017, compared to $540,000 in the third quarter of 2017, and $208,000 in the fourth quarter of 2016. The provision for loan losses declined due to improved credit metrics compared with the third quarter of 2017 and fourth quarter of 2016. The Company had net charge-offs of $12,000 in the fourth quarter of 2017, compared to net charge-offs of $302,000 in the third quarter of 2017 and net recoveries of $74,000 in the fourth quarter of 2016.
• Noninterest income was $1.6 million in the fourth quarter of 2017, compared to $2.1 million in the third quarter of 2017, and $869,000 in the fourth quarter of 2016. Revenue from mortgage loans sold declined by $647,000 from the third quarter of 2017 and increased $282,000 from the fourth quarter of 2016. Based on its joint-venture agreement, the Company does not absorb any losses incurred by its mortgage venture, and until previous losses born by the venture’s non-controlling member are offset, will not recognize profit. For the fourth quarter of 2017, the mortgage subsidiary incurred a net loss of $185,000 that was allocated 100% to the non-controlling member of the venture compared with a loss of $6,000 in the third quarter of 2017 and a loss of $532,000 in the fourth quarter of 2016.
• Noninterest expenses were $8.4 million in the fourth quarter of 2017, compared to $8.5 million in the third quarter of 2017, and $6.8 million in the fourth quarter of 2016. The increase from the fourth quarter of 2016 was due to the merger expenses incurred in the fourth quarter of 2017 previously discussed, and additional commission expense relating to mortgage loan sales compared with the fourth quarter of 2016.
• The subsidiary Bank’s efficiency ratio, excluding the mortgage subsidiary, for the quarter ended December 31, 2017, was 58.2%, compared to 57.2% in the third quarter of 2017, and 58.0% for the fourth quarter of 2016.
• Income tax expense totaled $937,000 in the fourth quarter of 2017, compared to $306,000 in the third quarter of 2017, and $438,000 in the fourth quarter of 2016. The fourth quarter 2017 tax expense included a $620,000 charge arising from the Company’s deferred tax asset offset by a deferred tax liability arising from the newly enacted Tax Cuts and Jobs Act. The Company’s consolidated effective tax rate is impacted by the consolidation of pre-tax profits and losses from our mortgage venture with the federal portion of the income tax expense or benefit being solely attributable to the non-controlling member. For this reason, our consolidated income tax rate can vary significantly depending on the amount of mortgage venture income or losses being consolidated. Our effective tax rate that is attributable to our retail banking segment is the rate applicable to our common shareholders. This rate was 15.6% for the fourth quarter of 2017, after excluding the effect of the tax law change in December 2017, compared to 14.2% in the third quarter of 2017, and 19.4% in the fourth quarter of 2016. The Company expects to benefit from lower federal income taxes in 2018 due to the newly enacted Tax Cuts and Jobs Act.

Strong Capital Position

Reliant’s capital position remained strong at December 31, 2017. Reliant maintained a December 31, 2017, Tier 1 leverage ratio of 11.68%, compared to a 12.20% ratio at September 30, 2017, and 10.75% at December 31, 2016. Total stockholders’ equity rose to $140.1 million and tangible book value per common share grew to $14.11 at December 31, 2017, from $13.88 at September 30, 2017, and $12.08 at December 31, 2016, reflecting the impact of our private placement in the third quarter of 2017 as well as earnings accretion. Reliant’s capital ratios are expected to be maintained significantly above the ratios of a “well-capitalized” institution.

“We expect 2018 to be another solid year of growth for Reliant Bank and Reliant Bancorp. The Community First merger provides Reliant with a solid platform to build on during the year as we consolidate their operations and expand our services into their legacy markets. Although we expect expenses related to the merger to continue through the first half of 2018 as we integrate our banks, we also expect the lower federal tax rate to largely offset these costs. Our entire team remains focused on providing our customers with great service as we continue to seek opportunities that will build future profitability,” concluded Ard.

Non-GAAP Financial Measures

This document contains non-GAAP financial measures. The non-GAAP measures in this release below include “adjusted net interest margin,” “adjusted net income attributable to common shareholders and related impact on ROA, ROE, and earnings per diluted share,” and “efficiency ratio.” We believe these non-GAAP measures provide useful information to investors because these are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions. In addition, we believe certain purchase accounting adjustments, income relating to the recoveries of purchased credit impaired loans, gains or losses on securities transactions, gains or losses on the sale of assets, gains or losses on disposal of premises and equipment, and merger expenses do not necessarily reflect the operational performance of the business in these periods; accordingly, it is useful to consider these line items with and without such adjustments. We believe this presentation also increases comparability of period-to-period results.

Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non-GAAP financial measures may not be comparable to similar measures used by other companies. We caution investors not to place undue reliance on such non-GAAP measures, but instead to consider them with the most directly comparable GAAP measure. Non-GAAP financial measures have limitations as analytical tools, and should not be considered in isolation, or as a substitute for our results as reported under generally accepted accounting principles.

About Reliant Bancorp and Reliant Bank

Reliant Bancorp, Inc. is a Brentwood, Tennessee-based bank holding company which operates banking centers in Davidson, Robertson, Sumner, Williamson, Maury and Hickman counties, Tennessee along with loan and deposit production offices in Rutherford and Hamilton counties, Tennessee, through its wholly-owned subsidiary Reliant Bank. Reliant Bank is a full-service commercial bank that offers a variety of deposit, lending and mortgage products and services to business and consumer customers. As of December 31, 2017, Reliant Bancorp had approximately $1.13 billion in total assets, approximately $772 million in loans and approximately $884 million in deposits. For additional information, locations and hours of operation, please visit their website at www.reliantbank.com.

Forward Looking Statements

All statements, other than statements of historical fact, included in this release are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “anticipate,” “expect,” “may,” “will,” “assume,” “should,” “predict,” “could,” “would,” “intend,” “targets,” “estimates,” “projects,” “plans,” “potential” and other similar words and expressions of the future are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking, including statements about the benefits to Reliant Bancorp of the Community First merger, Reliant Bancorp’s future financial and operating results (including the anticipated impact of the transaction on the combined company’s earnings per share and tangible book value) and Reliant Bancorp’s plans, objectives and intentions.

All forward-looking statements are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of Reliant Bancorp to differ materially from any results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, (1) the risk that the cost savings and any revenue synergies from the Community First merger may not be realized or take longer than anticipated to be realized, (2) the ability of Reliant Bancorp to meet expectations regarding the accounting and tax treatment of the transaction, (3) the effect of the announcement or completion of the transaction on employee and customer relationships and operating results (including, without limitation, difficulties in maintaining relationships with employees and customers), (4) the risk that integration of Community First’s operations with those of Reliant Bancorp will be materially delayed or will be more costly or difficult than expected, (5) the amount of costs, fees, expenses, and charges related to the transaction, (6) reputational risk and the reaction of the parties’ customers, suppliers, employees or other business partners to the transaction, (7) the dilution caused by Reliant Bancorp’s issuance of additional shares of its common stock in the transaction, and (8) general competitive, economic, political and market conditions. Additional factors which could affect the forward-looking statements can be found in Reliant Bancorp’s (formerly Commerce Union Bancshares, Inc.) annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website at http://www.sec.gov. Reliant Bancorp believes the forward-looking statements contained herein are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations and speak only as of the date that they are made. Reliant Bancorp disclaims any obligation to update or revise any forward-looking statements contained in this release, which speak only as of the date hereof, whether as a result of new information, future events or otherwise.