UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended SeptemberJune 30, 20172019
Commission File No. 001-33037001‑33037
SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
(Exact name of registrant as specified in its charter)
Virginia | 20‑1417448 |
(State or other jurisdiction | (I.R.S. Employer Identification No.) |
of incorporation or organization) |
6830 Old Dominion Drive
McLean, Virginia 22101
(Address of principal executive offices) (zip code)
(703) 893-7400893‑7400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading symbol | Name of each exchange on which registered: |
Common Stock | SONA | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x☒ NO ¨
☐
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x☒ NO ¨
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitiondefinitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “smaller reporting“emerging growth company” in Rule 12b–2 of the Exchange Act:
Large accelerated filer ¨Accelerated filerx Smaller reporting company¨
Non-accelerated filer ¨ An emerging growth company¨
(Do not check if a smaller reporting company)
| ||
Large accelerated filer ☐ | Accelerated filer ☒ | Smaller reporting company ☒ |
Non-accelerated filer ☐ | Emerging growth company ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212b‑2 of the Exchange Act).
Yes¨☐ Nox☒
As of NovemberAugust 2, 2017,2019, there were 23,916,45324,143,576 shares of common stock outstanding.outstanding.
SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
FORM 10-Q10‑Q
SeptemberJune 30, 20172019
PART I - FINANCIAL INFORMATION
SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
(dollars in thousands, except per share amounts)
|
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|
| June 30, |
| December 31, | ||
|
| 2019 |
| 2018 | ||
|
| (unaudited) |
| * | ||
ASSETS |
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|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
Cash and due from financial institutions |
| $ | 6,898 |
| $ | 6,939 |
Interest-bearing deposits in other financial institutions |
|
| 26,190 |
|
| 20,877 |
Federal funds sold |
|
| — |
|
| 795 |
Total cash and cash equivalents |
|
| 33,088 |
|
| 28,611 |
|
|
|
|
|
|
|
Securities available for sale, at fair value |
|
| 163,860 |
|
| 143,377 |
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|
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|
|
Securities held to maturity, at amortized cost (fair value of $86,681 and $89,109, respectively) |
|
| 86,815 |
|
| 92,462 |
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|
|
|
|
|
|
Total loans |
|
| 2,172,845 |
|
| 2,178,824 |
Less allowance for loan losses |
|
| (11,613) |
|
| (12,283) |
Net loans |
|
| 2,161,232 |
|
| 2,166,541 |
Stock in Federal Reserve Bank and Federal Home Loan Bank |
|
| 17,364 |
|
| 19,522 |
Equity investment in mortgage affiliate |
|
| 4,405 |
|
| 3,829 |
Preferred investment in mortgage affiliate |
|
| 3,305 |
|
| 3,305 |
Bank premises and equipment, net |
|
| 30,767 |
|
| 32,352 |
Operating lease right-of-use assets |
|
| 7,924 |
|
| — |
Goodwill |
|
| 101,954 |
|
| 101,954 |
Core deposit intangibles, net |
|
| 7,884 |
|
| 8,609 |
Bank-owned life insurance |
|
| 63,060 |
|
| 62,495 |
Other real estate owned |
|
| 5,041 |
|
| 5,077 |
Deferred tax assets, net |
|
| 14,475 |
|
| 14,104 |
Other assets |
|
| 23,129 |
|
| 19,057 |
Total assets |
| $ | 2,724,303 |
| $ | 2,701,295 |
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|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
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|
|
|
|
|
Noninterest-bearing demand deposits |
| $ | 335,024 |
| $ | 320,043 |
Interest-bearing deposits: |
|
|
|
|
|
|
NOW accounts |
|
| 361,787 |
|
| 345,597 |
Money market accounts |
|
| 444,299 |
|
| 355,469 |
Savings accounts |
|
| 143,328 |
|
| 151,050 |
Time deposits |
|
| 865,988 |
|
| 925,441 |
Total interest-bearing deposits |
|
| 1,815,402 |
|
| 1,777,557 |
Total deposits |
|
| 2,150,426 |
|
| 2,097,600 |
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|
|
|
|
|
|
Securities sold under agreements to repurchase - short term |
|
| 14,319 |
|
| 18,721 |
Federal Home Loan Bank (FHLB) advances - short term |
|
| 110,640 |
|
| 163,340 |
Junior subordinated debt - long term |
|
| 9,608 |
|
| 9,584 |
Senior subordinated notes - long term |
|
| 47,070 |
|
| 47,089 |
Operating lease liabilities |
|
| 8,385 |
|
| — |
Other liabilities |
|
| 21,063 |
|
| 16,671 |
Total liabilities |
|
| 2,361,511 |
|
| 2,353,005 |
Commitments and contingencies (See Note 6) |
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Stockholders' equity: |
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Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no shares issued and outstanding |
|
| — |
|
| — |
Common stock, $0.01 par value. Authorized 45,000,000 shares; 24,117,326 and 24,052,253 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively |
|
| 241 |
|
| 240 |
Additional paid in capital |
|
| 306,049 |
|
| 305,654 |
Retained earnings |
|
| 55,983 |
|
| 44,985 |
Accumulated other comprehensive income (loss) |
|
| 519 |
|
| (2,589) |
Total stockholders' equity |
|
| 362,792 |
|
| 348,290 |
Total liabilities and stockholders' equity |
| $ | 2,724,303 |
| $ | 2,701,295 |
* Derived from audited consolidated financial statements
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(unaudited) | (audited) | |||||||
ASSETS | ||||||||
Cash and cash equivalents: | ||||||||
Cash and due from financial institutions | $ | 7,500 | $ | 4,656 | ||||
Interest-bearing deposits in other financial institutions | 15,820 | 42,736 | ||||||
Total cash and cash equivalents | 23,320 | 47,392 | ||||||
Federal funds sold | 623 | - | ||||||
Securities available for sale, at fair value | 164,237 | 3,918 | ||||||
Securities held to maturity, at amortized cost | ||||||||
(fair value of $99,122 and $83,344, respectively) | 100,333 | 85,300 | ||||||
Covered loans | 23,979 | 28,180 | ||||||
Non-covered loans | 2,011,202 | 902,235 | ||||||
Total loans | 2,035,181 | 930,415 | ||||||
Less allowance for loan losses | (9,254 | ) | (8,610 | ) | ||||
Net loans | 2,025,927 | 921,805 | ||||||
Stock in Federal Reserve Bank and Federal Home Loan Bank | 24,076 | 7,929 | ||||||
Equity investment in mortgage affiliate | 4,617 | 4,629 | ||||||
Preferred investment in mortgage affiliate | 3,305 | 2,555 | ||||||
Bank premises and equipment, net | 36,289 | 8,227 | ||||||
Goodwill | 96,990 | 10,514 | ||||||
Core deposit intangibles, net | 10,416 | 874 | ||||||
FDIC indemnification asset | 1,525 | 2,111 | ||||||
Bank-owned life insurance | 50,491 | 23,826 | ||||||
Other real estate owned | 8,053 | 8,617 | ||||||
Deferred tax assets, net | 24,921 | 6,780 | ||||||
Other assets | 21,449 | 7,966 | ||||||
Total assets | $ | 2,596,572 | $ | 1,142,443 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Noninterest-bearing demand deposits | $ | 323,722 | $ | 88,783 | ||||
Interest-bearing deposits: | ||||||||
NOW accounts | 326,064 | 26,338 | ||||||
Cash management accounts | - | 9,658 | ||||||
Money market accounts | 364,420 | 129,835 | ||||||
Savings accounts | 166,030 | 52,755 | ||||||
Time deposits | 723,373 | 605,613 | ||||||
Total interest-bearing deposits | 1,579,887 | 824,199 | ||||||
Total deposits | 1,903,609 | 912,982 | ||||||
Securities sold under agreements to repurchase | 16,416 | - | ||||||
Federal Home Loan Bank (FHLB) advances - short term | 272,115 | 95,000 | ||||||
Junior subordinated debt | 9,522 | - | ||||||
Senior subordinated notes | 47,138 | - | ||||||
Other liabilities | 21,762 | 8,117 | ||||||
Total liabilities | 2,270,562 | 1,016,099 | ||||||
Commitments and contingencies (See Note 6) | - | - | ||||||
Stockholders' equity: | ||||||||
Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no shares issued and outstanding | - | - | ||||||
Common stock, $0.01 par value. Authorized 45,000,000 shares; issued and outstanding, 23,916,453 shares at September 30, 2017 and 12,263,643 at December 31, 2016 | 239 | 123 | ||||||
Additional paid in capital | 304,682 | 104,884 | ||||||
Retained earnings | 21,827 | 22,126 | ||||||
Accumulated other comprehensive loss | (738 | ) | (789 | ) | ||||
Total stockholders' equity | 326,010 | 126,344 | ||||||
Total liabilities and stockholders' equity | $ | 2,596,572 | $ | 1,142,443 |
See accompanying notes to unaudited consolidated financial statements.statements.
2
SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in thousands, except per share amounts) (Unaudited)
For the Three Months Ended | For the Nine Months Ended |
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September 30, | September 30, |
| For the Three Months Ended |
| For the Six Months Ended |
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2017 | 2016 | 2017 | 2016 |
| June 30, |
| June 30, |
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| 2019 |
| 2018 |
| 2019 |
| 2018 |
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Interest and dividend income: |
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Interest and fees on loans | $ | 26,726 | $ | 11,792 | $ | 51,819 | $ | 33,790 |
| $ | 28,378 |
| $ | 27,697 |
| $ | 56,352 |
| $ | 53,602 |
| ||||||||
Interest and dividends on taxable securities | 1,464 | 581 | 2,620 | 2,059 |
|
| 1,475 |
|
| 1,400 |
|
| 2,900 |
|
| 2,882 |
| ||||||||||||
Interest and dividends on tax exempt securities | 159 | 84 | 333 | 252 |
|
| 152 |
|
| 160 |
|
| 308 |
|
| 319 |
| ||||||||||||
Interest and dividends on other earning assets | 458 | 162 | 829 | 482 |
|
| 388 |
|
| 412 |
|
| 1,134 |
|
| 879 |
| ||||||||||||
Interest on federal funds sold | 4 | - | 4 | - |
|
| — |
|
| 14 |
|
| 2 |
|
| 21 |
| ||||||||||||
Total interest and dividend income | 28,811 | 12,619 | 55,605 | 36,583 |
|
| 30,393 |
|
| 29,683 |
|
| 60,696 |
|
| 57,703 |
| ||||||||||||
Interest expense: |
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Interest on deposits | 3,391 | 2,128 | 7,809 | 5,918 |
|
| 7,654 |
|
| 3,810 |
|
| 15,116 |
|
| 7,080 |
| ||||||||||||
Interest on repurchase agreements | 12 | - | 13 | 18 |
|
| 22 |
|
| 24 |
|
| 45 |
|
| 46 |
| ||||||||||||
Interest on junior subordinated debt | 120 | - | 129 | - |
|
| 150 |
|
| 147 |
|
| 300 |
|
| 275 |
| ||||||||||||
Interest on senior subordinated notes | 712 | - | 1,483 | - |
|
| 712 |
|
| 712 |
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| 1,424 |
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| 1,423 |
| ||||||||||||
Interest on other borrowings | 726 | 118 | 1,225 | 388 |
|
| 891 |
|
| 1,816 |
|
| 1,895 |
|
| 3,205 |
| ||||||||||||
Total interest expense | 4,961 | 2,246 | 10,659 | 6,324 |
|
| 9,429 |
|
| 6,509 |
|
| 18,780 |
|
| 12,029 |
| ||||||||||||
Net interest income | 23,850 | 10,373 | 44,946 | 30,259 |
|
| 20,964 |
|
| 23,174 |
|
| 41,916 |
|
| 45,674 |
| ||||||||||||
Provision for loan losses | 5,250 | 2,050 | 6,850 | 4,062 |
|
| — |
|
| 1,050 |
|
| 200 |
|
| 2,650 |
| ||||||||||||
Net interest income after provision for loan losses | 18,600 | 8,323 | 38,096 | 26,197 |
|
| 20,964 |
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| 22,124 |
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| 41,716 |
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| 43,024 |
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Noninterest income: |
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Account maintenance and deposit service fees | 1,518 | 225 | 2,098 | 675 |
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| 1,788 |
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| 1,375 |
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| 3,475 |
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| 2,783 |
| ||||||||||||
Income from bank-owned life insurance | 305 | 175 | 631 | 524 |
|
| 385 |
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| 563 |
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| 908 |
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| 870 |
| ||||||||||||
Equity (loss) income from mortgage affiliate | (83 | ) | 749 | (450 | ) | 1,381 | |||||||||||||||||||||||
(Loss) gain on sales of investment securities | (2 | ) | - | 255 | - | ||||||||||||||||||||||||
Equity gain (loss) from mortgage affiliate |
|
| 558 |
|
| 191 |
|
| 576 |
|
| (126) |
| ||||||||||||||||
Gain on sales of investment securities |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||||||||
Recoveries related to acquired charged-off loans and investment securities |
|
| 324 |
|
| 250 |
|
| 915 |
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| 1,733 |
| ||||||||||||||||
Other | 561 | 26 | 580 | 88 |
|
| 136 |
|
| 174 |
|
| 379 |
|
| 372 |
| ||||||||||||
Total noninterest income | 2,299 | 1,175 | 3,114 | 2,668 |
|
| 3,191 |
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| 2,553 |
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| 6,253 |
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| 5,632 |
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Noninterest expenses: |
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Salaries and benefits | 7,746 | 2,699 | 13,750 | 8,753 |
|
| 7,144 |
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| 7,007 |
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| 12,956 |
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| 13,779 |
| ||||||||||||
Occupancy expenses | 1,703 | 783 | 3,338 | 2,377 |
|
| 1,801 |
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| 1,656 |
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| 3,604 |
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| 3,306 |
| ||||||||||||
Furniture and equipment expenses | 907 | 283 | 1,401 | 720 |
|
| 738 |
|
| 712 |
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| 1,448 |
|
| 1,509 |
| ||||||||||||
Amortization of core deposit intangible | 360 | 44 | 483 | 168 |
|
| 362 |
|
| 361 |
|
| 725 |
|
| 723 |
| ||||||||||||
Virginia franchise tax expense | 364 | 96 | 605 | 290 |
|
| 563 |
|
| 492 |
|
| 1,126 |
|
| 856 |
| ||||||||||||
FDIC assessment | 186 | 165 | 391 | 478 | |||||||||||||||||||||||||
Data processing expense | 440 | 184 | 858 | 533 |
|
| 571 |
|
| 464 |
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| 1,083 |
|
| 930 |
| ||||||||||||
Telephone and communication expense | 567 | 201 | 912 | 586 |
|
| 406 |
|
| 501 |
|
| 781 |
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| 1,095 |
| ||||||||||||
Amortization of FDIC indemnification asset | 173 | 187 | 540 | 606 | |||||||||||||||||||||||||
Net (gain) loss on other real estate owned | (106 | ) | (9 | ) | 213 | 74 |
|
| (36) |
|
| (40) |
|
| (38) |
|
| 160 |
| ||||||||||
Merger expenses | 168 | - | 9,094 | - | |||||||||||||||||||||||||
Professional fees |
|
| 1,381 |
|
| 839 |
|
| 2,985 |
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| 1,788 |
| ||||||||||||||||
Other operating expenses | 1,928 | 725 | 3,745 | 2,403 |
|
| 962 |
|
| 1,625 |
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| 5,512 |
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| 3,090 |
| ||||||||||||
Total noninterest expenses | 14,436 | 5,358 | 35,330 | 16,988 |
|
| 13,892 |
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| 13,617 |
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| 30,182 |
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| 27,236 |
| ||||||||||||
Income before income taxes | 6,463 | 4,140 | 5,880 | 11,877 |
|
| 10,263 |
|
| 11,060 |
|
| 17,787 |
|
| 21,420 |
| ||||||||||||
Income tax expense | 2,089 | 1,375 | 2,294 | 3,757 |
|
| 944 |
|
| 2,193 |
|
| 2,448 |
|
| 4,294 |
| ||||||||||||
Net income | $ | 4,374 | $ | 2,765 | $ | 3,586 | $ | 8,120 |
| $ | 9,319 |
| $ | 8,867 |
| $ | 15,339 |
| $ | 17,126 |
| ||||||||
Other comprehensive income (loss): |
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Unrealized gain (loss) on available for sale securities | $ | 242 | $ | 188 | $ | 323 | $ | (296 | ) |
| $ | 2,844 |
| $ | (837) |
| $ | 3,928 |
| $ | (2,713) |
| |||||||
Realized amounts on securities sold, net | 2 | - | (255 | ) | - | ||||||||||||||||||||||||
Accretion of amounts previously recorded upon transfer to held-to-maturity from available-for-sale | 3 | 3 | 9 | 10 | |||||||||||||||||||||||||
Accretion of amounts previously recorded upon transfer to held to maturity from available for sale |
|
| 3 |
|
| 2 |
|
| 6 |
|
| 6 |
| ||||||||||||||||
Net unrealized gain (loss) | 247 | 191 | 77 | (286 | ) |
|
| 2,847 |
|
| (835) |
|
| 3,934 |
|
| (2,707) |
| |||||||||||
Tax effect | (84 | ) | (64 | ) | (26 | ) | 98 |
|
| 597 |
|
| (175) |
|
| 826 |
|
| (569) |
| |||||||||
Other comprehensive income (loss) | 163 | 127 | 51 | (188 | ) |
|
| 2,250 |
|
| (660) |
|
| 3,108 |
|
| (2,138) |
| |||||||||||
Comprehensive income | $ | 4,537 | $ | 2,892 | $ | 3,637 | $ | 7,932 |
| $ | 11,569 |
| $ | 8,207 |
|
| 18,447 |
|
| 14,988 |
| ||||||||
Earnings per share, basic | $ | 0.18 | $ | 0.23 | $ | 0.22 | $ | 0.66 |
| $ | 0.39 |
| $ | 0.37 |
| $ | 0.64 |
| $ | 0.71 |
| ||||||||
Earnings per share, diluted | $ | 0.18 | $ | 0.22 | $ | 0.21 | $ | 0.65 |
| $ | 0.38 |
| $ | 0.37 |
| $ | 0.63 |
| $ | 0.71 |
|
See accompanying notes to unauditedconsolidated financial statements.
3
SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'STOCKHOLDERS’ EQUITY
FOR THE NINETHREE AND SIX MONTHS ENDED SEPTEMBERJUNE 30, 20172019 AND 2018
(dollars in thousands, except per share amounts) (Unaudited)
Accumulated | ||||||||||||||||||||
Additional | Other | |||||||||||||||||||
Common | Paid in | Retained | Comphrensive | |||||||||||||||||
Stock | Capital | Earnings | Loss | Total | ||||||||||||||||
Balance - December 31, 2016 | $ | 123 | $ | 104,884 | $ | 22,126 | $ | (789 | ) | $ | 126,344 | |||||||||
Comprehensive income: | ||||||||||||||||||||
Net income | - | - | 3,586 | - | 3,586 | |||||||||||||||
Change in unrealized loss on securities available for sale (net of tax expense, $23) | - | - | - | 45 | 45 | |||||||||||||||
Change in unrecognized loss on securities held to maturity for which a portion of OTTI has been recognized (net of tax, $3 and accretion, $9 and amounts recorded into other comprehensive income at transfer) | - | - | - | 6 | 6 | |||||||||||||||
Dividends on common stock ($0.24 per share) | - | - | (3,885 | ) | - | (3,885 | ) | |||||||||||||
Issuance of common stock for warrants exercised (49,500 shares) | - | 449 | - | - | 449 | |||||||||||||||
Issuance of common stock under Stock Incentive Plan (45,550 shares) | - | 371 | - | - | 371 | |||||||||||||||
Issuance of common stock in connection with Eastern Virginia Bankshares, Inc. merger (11,557,760 shares) | 116 | 198,793 | - | - | 198,909 | |||||||||||||||
Stock-based compensation expense | - | 185 | - | - | 185 | |||||||||||||||
Balance - September 30, 2017 | $ | 239 | $ | 304,682 | $ | 21,827 | $ | (738 | ) | $ | 326,010 |
See accompanying notes to consolidated financial statements.
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| For the Three Months Ended June 30, 2019 | |||||||||||||
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|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
|
|
| Additional |
|
|
| Other |
|
| |||||
|
| Common |
| Paid in |
| Retained |
| Comprehensive |
|
| |||||
|
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Total | |||||
Balance - March 31, 2019 |
| $ | 241 |
| $ | 305,879 |
| $ | 48,300 |
| $ | (1,731) |
| $ | 352,689 |
Net income |
|
| — |
|
| — |
|
| 9,319 |
|
| — |
|
| 9,319 |
Changes in other comprehensive income on investment securities (net of tax, $597, and accretion of $3) |
|
| — |
|
| — |
|
| — |
|
| 2,250 |
|
| 2,250 |
Dividends on common stock ($0.18 per share) |
|
| — |
|
| — |
|
| (2,171) |
|
| — |
|
| (2,171) |
Issuance of common stock under Stock Incentive Plan (2,200 shares, net) |
|
| — |
|
| 7 |
|
| — |
|
| — |
|
| 7 |
Impact of adoption of ASU 2016-02 |
|
|
|
|
|
|
|
| 535 |
|
|
|
|
| 535 |
Stock-based compensation expense |
|
| — |
|
| 163 |
|
| — |
|
| — |
|
| 163 |
Balance - June 30, 2019 |
| $ | 241 |
| $ | 306,049 |
| $ | 55,983 |
| $ | 519 |
| $ | 362,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended June 30, 2018 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
|
|
| Additional |
|
|
| Other |
|
| |||||
|
| Common |
| Paid in |
| Retained |
| Comprehensive |
|
| |||||
|
| Stock |
| Capital |
| Earnings |
| Loss |
| Total | |||||
Balance - March 31, 2018 |
| $ | 240 |
| $ | 305,360 |
| $ | 25,324 |
| $ | (2,859) |
| $ | 328,065 |
Net income |
|
| — |
|
| — |
|
| 8,867 |
|
| — |
|
| 8,867 |
Changes in other comprehensive income on investment securities (net of tax, $826, and accretion of $6) |
|
| — |
|
| — |
|
| — |
|
| (660) |
|
| (660) |
Dividends on common stock ($0.18 per share) |
|
| — |
|
| — |
|
| (1,922) |
|
| — |
|
| (1,922) |
Issuance of common stock under Stock Incentive Plan (19,450 shares, net) |
|
| — |
|
| 6 |
|
| — |
|
| — |
|
| 6 |
Stock-based compensation expense |
|
| — |
|
| 94 |
|
| — |
|
| — |
|
| 94 |
Balance - June 30, 2018 |
| $ | 240 |
| $ | 305,460 |
| $ | 32,269 |
| $ | (3,519) |
| $ | 334,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS
CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINETHREE AND SIX MONTHS ENDED SEPTEMBERJUNE 30, 20172019 AND 20162018
(dollars in thousands)thousands, except per share amounts) (Unaudited)
2017 | 2016 | |||||||
Operating activities: | ||||||||
Net income | $ | 3,586 | $ | 8,120 | ||||
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: | ||||||||
Depreciation | 1,282 | 613 | ||||||
Amortization of core deposit intangible | 483 | 168 | ||||||
Other amortization, net | 633 | (61 | ) | |||||
Accretion of loan discount | (2,321 | ) | (1,465 | ) | ||||
Amortization of FDIC indemnification asset | 540 | 606 | ||||||
Provision for loan losses | 6,850 | 4,062 | ||||||
Earnings on bank-owned life insurance | (631 | ) | (524 | ) | ||||
Equity loss (income) on mortgage affiliate | 450 | (1,381 | ) | |||||
Stock-based compensation expense | 185 | 198 | ||||||
Net gain on sales of investment securities | (255 | ) | - | |||||
Net loss on other real estate owned | 213 | 74 | ||||||
Net decrease (increase) in other assets | 2,237 | (1,694 | ) | |||||
Net (decrease) increase in other liabilities | (851 | ) | 3,324 | |||||
Net cash and cash equivalents provided by operating activities | 12,401 | 12,040 | ||||||
Investing activities: | ||||||||
Purchase of federal funds sold | (623 | ) | - | |||||
Proceeds from sales of investment securities | 4,767 | - | ||||||
Purchases of held to maturity investment securities | (9,950 | ) | (46,055 | ) | ||||
Purchases of available for sale investment securities | (1,747 | ) | - | |||||
Proceeds from paydowns, maturities and calls of available for sale investment securities | 3,950 | - | ||||||
Proceeds from paydowns, maturities and calls of held to maturity investment securities | 9,752 | 55,976 | ||||||
Loan originations and payments, net | (51,059 | ) | (90,875 | ) | ||||
Distribution from mortgage affiliate | 48 | 628 | ||||||
Net increase in stock in Federal Reserve Bank and Federal Home Loan Bank | (9,413 | ) | (575 | ) | ||||
Payments received on FDIC indemnification asset | - | 10 | ||||||
Proceeds from sales of other real estate owned | 1,006 | 1,166 | ||||||
Purchases of bank premises and equipment | (750 | ) | (120 | ) | ||||
Acquisition of Eastern Virginia Bankshares, Inc. | (10 | ) | - | |||||
Cash acquired in acquisition of Eastern Virginia Bankshares, Inc. | 24,025 | - | ||||||
Net cash and cash equivalents used in investing activities | (30,004 | ) | (79,845 | ) | ||||
Financing activities: | ||||||||
Net (decrease) increase in deposits | (149,119 | ) | 79,596 | |||||
Cash dividends paid - common stock | (3,885 | ) | (2,940 | ) | ||||
Issuance of common stock for warrants exercised | 449 | 101 | ||||||
Issuance of common stock under Stock Incentive Plan | 371 | 118 | ||||||
Issuance of subordinated notes, net of cost | 26,075 | - | ||||||
Net increase in short-term borrowings | 119,640 | 16,000 | ||||||
Net decrease in long-term borrowings | - | (5,000 | ) | |||||
Net cash and cash equivalents (used in) provided by financing activities | (6,469 | ) | 87,875 | |||||
(Decrease) increase in cash and cash equivalents | (24,072 | ) | 20,070 | |||||
Cash and cash equivalents at beginning of period | 47,392 | 30,336 | ||||||
Cash and cash equivalents at end of period | $ | 23,320 | $ | 50,406 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash payments for: | ||||||||
Interest | $ | 9,231 | $ | 6,190 | ||||
Income taxes | 2,390 | 3,483 | ||||||
Supplemental schedule of noncash investing and financing activities | ||||||||
Transfer from long-term FHLB advances to short-term FHLB advances | $ | - | $ | 5,000 | ||||
Transfer from covered loans to other real estate owned | - | 144 | ||||||
Transfer from securities sold under agreement to repurchase to deposits | - | 10,381 | ||||||
Assets acquired, excluding cash and cash equivalents of $24,025 | 1,346,573 | - | ||||||
Liabilities assumed | 1,258,164 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Six Months Ended June 30, 2019 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
|
|
| Additional |
|
|
| Other |
|
| |||||
|
| Common |
| Paid in |
| Retained |
| Comprehensive |
|
| |||||
|
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Total | |||||
Balance - December 31, 2018 |
| $ | 240 |
| $ | 305,654 |
| $ | 44,985 |
| $ | (2,589) |
| $ | 348,290 |
Net income |
|
| — |
|
| — |
|
| 15,339 |
|
| — |
|
| 15,339 |
Changes in other comprehensive income on investment securities (net of tax, $826, and accretion of $6) |
|
| — |
|
| — |
|
| — |
|
| 3,108 |
|
| 3,108 |
Dividends on common stock ($0.18 per share) |
|
| — |
|
| — |
|
| (4,341) |
|
| — |
|
| (4,341) |
Issuance of common stock under Stock Incentive Plan (19,450 shares, net) |
|
| 1 |
|
| 128 |
|
| — |
|
| — |
|
| 129 |
Stock-based compensation expense |
|
| — |
|
| 267 |
|
| — |
|
| — |
|
| 267 |
Balance - June 30, 2019 |
| $ | 241 |
| $ | 306,049 |
| $ | 55,983 |
| $ | 519 |
| $ | 362,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Six Months Ended June 30, 2018 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
|
|
| Additional |
|
|
| Other |
|
| |||||
|
| Common |
| Paid in |
| Retained |
| Comprehensive |
|
| |||||
|
| Stock |
| Capital |
| Earnings |
| Loss |
| Total | |||||
Balance - December 31, 2017 |
| $ | 239 |
| $ | 304,932 |
| $ | 18,753 |
| $ | (1,152) |
| $ | 322,772 |
Net income |
|
| — |
|
| — |
|
| 17,126 |
|
| — |
|
| 17,126 |
Changes in other comprehensive loss on investment securities (net of tax, $394, and accretion of $3) |
|
| — |
|
| — |
|
| — |
|
| (2,138) |
|
| (2,138) |
Dividends on common stock ($0.08 per share) |
|
| — |
|
| — |
|
| (3,839) |
|
| — |
|
| (3,839) |
Issuance of common stock under Stock Incentive Plan (51,200 shares, net) |
|
| 1 |
|
| 359 |
|
| — |
|
| — |
|
| 360 |
Reclassification from accumulated other comprehensive loss to retained earnings due to adoption of ASU 2018-02 |
|
| — |
|
| — |
|
| 229 |
|
| (229) |
|
| — |
Stock-based compensation expense |
|
| — |
|
| 169 |
|
| — |
|
| — |
|
| 169 |
Balance - June 30, 2018 |
| $ | 240 |
| $ | 305,460 |
| $ | 32,269 |
| $ | (3,519) |
| $ | 334,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.statements.
5
SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(dollars in thousands) (Unaudited)
|
|
|
|
|
|
|
|
| 2019 |
| 2018 | ||
Operating activities: |
|
|
|
|
|
|
Net income |
| $ | 15,339 |
| $ | 17,126 |
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
| 3,411 |
|
| 3,732 |
Amortization of operating lease right-of-use assets |
|
| 1,275 |
|
| — |
Accretion of loan discount |
|
| (1,788) |
|
| (2,453) |
Amortization of FDIC indemnification asset |
|
| 354 |
|
| 350 |
Provision for loan losses |
|
| 200 |
|
| 2,650 |
Earnings on bank-owned life insurance |
|
| (908) |
|
| (706) |
Equity (gain) loss on mortgage affiliate |
|
| (576) |
|
| 126 |
Stock-based compensation expense |
|
| 267 |
|
| 169 |
Gain on bank-owned life insurance death benefit |
|
| — |
|
| (164) |
(Gain) loss on other real estate owned |
|
| (38) |
|
| 160 |
Provision for deferred income taxes |
|
| (1,197) |
|
| — |
Net (increase) decrease in other assets |
|
| (4,210) |
|
| 1,230 |
Net increase (decrease) in other liabilities |
|
| 3,362 |
|
| (2,169) |
Net cash and cash equivalents provided by operating activities |
|
| 15,491 |
|
| 20,051 |
Investing activities: |
|
|
|
|
|
|
Purchases of available for sale investment securities |
|
| (25,110) |
|
| — |
Proceeds from paydowns, maturities and calls of available for sale investment securities |
|
| 7,711 |
|
| 7,363 |
Proceeds from paydowns, maturities and calls of held to maturity investment securities |
|
| 5,463 |
|
| 2,498 |
Sales of FRB and FHLB stock |
|
| 2,158 |
|
| 756 |
Net (increase) decrease in loans |
|
| 6,896 |
|
| (91,728) |
Purchase of bank-owned life insurance |
|
| — |
|
| (12,000) |
Proceeds from bank-owned life insurance death benefit |
|
| 343 |
|
| 477 |
Proceeds from sales of other real estate owned, net of improvements |
|
| 74 |
|
| 1,857 |
Proceeds from sales of bank premise and equipment and assets held for sale |
|
| — |
|
| 2,136 |
Purchases of bank premises and equipment |
|
| (73) |
|
| (1,805) |
Net cash and cash equivalents used in investing activities |
|
| (2,538) |
|
| (90,446) |
Financing activities: |
|
|
|
|
|
|
Net increase in deposits |
|
| 52,837 |
|
| 115,153 |
Cash dividends paid on common stock |
|
| (4,341) |
|
| (3,839) |
Issuance of common stock under Stock Incentive Plan |
|
| 129 |
|
| 360 |
Net decrease in short-term borrowings |
|
| (57,101) |
|
| (14,579) |
Net cash and cash equivalents provided by (used in) financing activities |
|
| (8,476) |
|
| 97,095 |
Increase in cash and cash equivalents |
|
| 4,477 |
|
| 26,700 |
Cash and cash equivalents at beginning of period |
|
| 28,611 |
|
| 25,463 |
Cash and cash equivalents at end of period |
| $ | 33,088 |
| $ | 52,163 |
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
Cash payments for: |
|
|
|
|
|
|
Interest |
| $ | 18,643 |
| $ | 11,663 |
Income taxes |
|
| 2,937 |
|
| 4,516 |
Non-cash investing and financing activities: |
|
|
|
|
|
|
Initial recognition of operating lease right-of-use assets |
|
| 8,615 |
|
| — |
Initial recognition of operating lease liabilities |
|
| 9,099 |
|
| — |
See accompanying notes to unaudited consolidated financial statements.
6
SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
Notes to Unaudited Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172019
1. ACCOUNTING POLICIES
Southern National Bancorp of Virginia, Inc. (“Southern National” or “SNBV” or the “Company”) is a corporation that was formed on July 28, 2004 under the laws of the Commonwealth of Virginia and is the holding company for Sonabank (“Sonabank” or the “Bank”) a Virginia state-chartered bank which commenced operations on April 14, 2005. As of the close of business on June 23, 2017, SNBV completed its previously announced merger ofwith Eastern Virginia Bankshares, Inc. (“EVBS”) with and into SNBV and the completion of the merger of EVBS’s wholly-owned subsidiary, EVB, with and into SNBV’s wholly-owned subsidiary, Sonabank (see Note 2 - Business Combinations). This combination has brought together two banking companies with complementary business lines, creating one of the premier banking institutions headquartered in the Commonwealth of Virginia. EVBS was the holding company for EVB, a Virginia state-chartered bank which traced its beginnings to 1910.Sonabank. Sonabank provides a range of financial services to individuals and small and medium sized businesses. At SeptemberJune 30, 2017,2019, Sonabank had thirty-seventhirty-eight full-service retail branches in Virginia, located in the counties of Chesterfield (2), Essex (2), Fairfax (Reston, McLean and Fairfax), Gloucester (2), Hanover (3), King William, Lancaster, Middlesex (3), New Kent, Northumberland (3), Southampton, Surry, Sussex, and in Charlottesville, Clifton Forge, Colonial Heights, Front Royal, Hampton, Haymarket, Leesburg, Middleburg, New Market, Newport News, Richmond, South Riding, Warrenton, and Williamsburg, and seven full-service retail branches in Maryland, in Rockville, Shady Grove, Bethesda, Upper Marlboro, Brandywine, Owings and Huntingtown.
The consolidated financial statements include the accounts of Southern National and its subsidiaries Sonabank and EVB Statutory Trust I (the “Trust”). Significant inter-company accounts and transactions have been eliminated in consolidation. Southern National consolidates subsidiaries in which it holds, directly or indirectly, more than 50 percent of the voting rights or where it exercises control. Entities where Southern National holds 20 to 50 percent of the voting rights, or has the ability to exercise significant influence, or both, are accounted for under the equity method. Southern National has an interest in one affiliate, Southern Trust Mortgage, LLC (“STM”), which it accounts for as an equity method investment.
In addition, Southern National owns the Trust which is an unconsolidated subsidiary. The junior subordinated debt owed to the Trust is reported as a liability of Southern National.
The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and instructions for Form 10-Q10‑Q and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in Southern National’s Form 10-K10‑K for the year ended December 31, 2016.2018.
Revenue from Contracts with Customers
Southern National records revenue from contracts with customers in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606). Under Topic 606, we must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) we satisfy a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.
Our primary sources of revenue are derived from financial instruments, namely loans, investment securities, and other financial instruments that are not within the scope of Topic 606. We have evaluated the nature of the Company’s contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income and Comprehensive Income was not necessary. Southern National generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little
7
judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.
Operating Leases
The Company leases certain properties and equipment under operating leases. For leases in effect upon adoption of FASB Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) at January 1, 2019 and for any leases commencing thereafter, the Company recognizes a liability to make lease payments, the operating lease liability, and an asset representing the right to use the underlying asset during the lease term, the right-of-use asset. The operating lease liability is measured at the present value of the remaining lease payments, discounted at the Company’s incremental borrowing rate at inception. The right-of-use asset is measured at the amount of the operating lease liability adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, any unamortized initial direct costs, and any impairment of the right-of-use-asset. Lease expense consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis, variable lease payments not included in the operating lease liability, and any impairment of the right-of-use asset.
Certain of the Company’s leases contain options to renew the lease; however, these renewal options are not included in the calculation of the operating lease liabilities as they are not reasonably certain to be exercised. The Company’s leases do not contain residual value guarantees or material variable lease payments. The Company does not have any material restrictions or covenants imposed by leases that would impact the Company’s ability to pay dividends or cause the Company to incur additional financial obligations.
The Company has made an accounting policy election to not apply the recognition requirements in Topic 842 to short-term leases. The Company has also elected to use the practical expedient to make an accounting policy election for property leases to use the discount rates in effect on January 2, 2019 for the remaining life of the leases.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the carrying value of investment securities, other than temporary impairment of investment securities and the valuation of goodwill and intangible assets, the FDIC indemnification asset, other real estate owned (“OREO”), deferred tax assets, and fair value measurements related to assets acquired and liabilities assumed from business combinations.
assets.
Recent Accounting Pronouncements
In January 2016, the FinancialAdoption of New Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-1,Financial Instruments Overall (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in ASU 2016-1: (a) require equity investments (except for those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplify the impairment assessment of equity securities without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (d) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (e) require an entity to present separately in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (f) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the notes to the financial statements; and (g) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2016-01 is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Standards:
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, which updates narrow aspects of the guidance issued in ASU 2016-02. The amendments in this ASU arewere effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early applicationadoption of this ASU iswas permitted for all entities. Management currently anticipates recognizing a right-of-use asset and a lease liability associated with its long-term operating leases and isThe Company adopted ASU 2016-02 in the processfirst quarter of inventorying2019 and categorizinginventoried and categorized its lease agreements. Upon adoption, the Company recognized right-of-use assets and associated operating lease liabilities of $8.6 million and $9.1 million, respectively. Right-of-use assets and operating lease liabilities are reflected on our consolidated balance sheets. The company currently does not have any finance leases. See Note 5 – Leases for additional disclosures related to leases.
In March 2016,2017, the FASB issued ASU 2016-072017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Investments – Equity Method and Joint Ventures (Topic 323), SimplifyingPremium Amortization on Purchased Callable Debt Securities, which shortens the Transitionamortization period for certain
8
callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the Equity Method of Accounting.earliest call date. The amendments eliminatedo not require an accounting change for securities held at a discount; the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investeediscount continues to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments require that an entity that has an available for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments arebe amortized to maturity. ASU 2017-08 became effective for allpublic entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016.2018. The amendments should be applied prospectively upon their effective date to increase the level of ownership interest or degree of influence that resultcompany adopted ASU 2017-08 in the adoptionfirst quarter of the equity method. The adoption of the amendments2019 and it did not have an effect on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,Revenue From Contracts With Customers (Topic 606). These amendments affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g. insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and creates a Topic 606, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The ASU allows for either full retrospective or modified retrospective adoption. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2017. Our revenue is balanced between net interest income on financial assets and liabilities, which is explicitly excluded from the scope of the new standard, and noninterest income. The Company is nearing its overall assessment of revenue streams and reviewing contracts potentially affected by the ASU including deposit related fees, gains/losses on the sale of OREO, and interchange fees, to determine the potentialmaterial impact the new guidance is expected to have on the Company’s consolidated financial statements; however, the Company’s revenue recognition pattern for these revenue streams is not expected to change significantly from current practice. The Company is currently planning to adopt ASU No. 2014-09 on January 1,statements.
In July 2018, utilizing the modified retrospective approach.
In March 2016, the FASB issued ASU 2016-09,Compensation – Stock Compensation (Topic 718):2018-09, Codification Improvements. This ASU makes changes to Employee Share-Based Paymenta variety of topics to clarify, correct errors in, or make minor improvements to the Accounting (“ASU 2016-09”), which is intended to simplify several aspects Standards Codification. The majority of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.amendments in ASU 2016-09 is2018-09 were effective for annual periodsthe Company for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted.2018. The Company adopted this guidance duringASU 2018-09 in the first quarter of 2017 with an immaterial effect.2019 and it did not have a material impact on the Company’s consolidated financial statements.
New Accounting Standards Not Yet Adopted:
In June 2016,the FASB issued ASU 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments("ASU 2016-13"), which sets forth a “current expected credit loss” ("CECL") model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. For public business entities that are U.S. Securities and Exchange Commission filers, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Southern National is currently assessing the impact of the adoption of this ASU on its consolidated financial statements and is collectinghas engaged a third-party to collect data that will be needed to produce historical inputs into any models created as a result of adopting this ASU.
In August 2016,ASU. We are currently evaluating the FASB issued new guidance related toimpact of theStatement of Cash Flowsin ASU 2016-15. The new guidance clarifies the classification within the statement of cash flows for certain transactions, including debt extinguishment costs, zero-coupon debt, contingent consideration related to business combinations, insurance proceeds, equity method distributions and beneficial interests in securitizations. The guidance also clarifies that cash flows with aspects of multiple classes of cash flows or that cannot be separated by source or use should be classified based on the activity that is likely to be the predominant source or use of cash flows for the item. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The adoption of this guidance is not expected to be material to theASU on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,("ASU 2017-04"), which eliminates the second step of the previous FASB guidance for testing goodwill for impairment and is intended to reduce cost and complexity of goodwill impairment testing. The amendments in this ASU modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. After determining if the carrying amount of a reporting unit exceeds its fair value, the entity should take an impairment charge of the same amount to the goodwill for that reporting unit, not to exceed the total goodwill amount for that reporting unit. ASU 2017-04 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Southern National is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.
In January 2017, theAugust 2018, FASB issued ASU 2017-01,Business Combinations2018-13, Fair Value measurement (Topic 805): Clarifying the Definition of a Business, which is intended to provide guidance in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses in order to provide stakeholders with more detailed reporting and less cost to analyze transactions.820). This ASU provides a screen to determine when a set of assets is not a business. It requires that when substantially alladds, eliminates and modifies certain disclosure requirements for fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set of assets is not a business. If the screen is not met, themeasurements. The amendments in this update provide a framework to assist entities in evaluating whether both an input and a substantive processASU 2018-13 are present for the set to be a business. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. No disclosures are required at transition and early adoption is permitted. We are currently evaluating the impact of adopting the new guidance on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-03,Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323) – Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings.ASU 2017-03 provides amendments that add paragraph 250-10-S99-6 which includes the text of "SEC Staff Announcement: Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of a Registrant When Such Standards Are Adopted in a Future Period” (in accordance with Staff Accounting Bulletin (“SAB”) Topic 11.M). Registrants are required to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate the impact of the adoption, then additional qualitative disclosures should be considered to assist the reader in assessing the significance of the standard's impact on its financial statements. Southern National has enhanced its disclosures regarding the expected impact of recently issued accounting standards adopted in a future period will have on its accounting and disclosures.
In March 2017, the FASB issued ASU 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities,which shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.2019. Early adoption is permitted. The disclosures are effective using the prospective method for certain disclosures and retrospective for majority of the disclosures. Southern National is currently reviewing its portfolioin the process of debt securities to determineevaluating the impact that this ASU will haveof adopting the new guidance on its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09,Compensation - Stock Compensation (Topic 718),Scope of Modification Accounting. These amendments provide guidance on determining which changes to the termsstatements and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. Southern National is currently evaluating the impact of the amendments in the ASU on its consolidated financial statements.
On June 23, 2017, SNBV completed its acquisition of EVBS and its subsidiaries, the Trust and EVB. Pursuant to the Agreement and Plan of Merger, dated December 13, 2016, as amended, holders of EVBS common stock received 0.6313 shares of SNBV common stock for each outstanding share of EVBS common stock held immediately prior to the effective time of the Merger and holders of Non-Voting Mandatorily Convertible Non-Cumulative Preferred Stock, Series B of EVBS (“EVBS Series B Preferred Stock”) received 0.6313 shares of SNBV common stock for each share of EVBS Series B Preferred Stock held immediately prior to the effective time of the Merger, which totaled approximately $198.9 million based on SNBV’s closing common stock price on June 23, 2017 of $17.21 per share. EVBS was a bank holding company organized and chartered under the laws of the Commonwealth of Virginia on September 5, 1997, commenced operations on December 29, 1997 and was headquartered in Glen Allen, Virginia. EVBS operated twenty-four retail branches, which served diverse markets that primarily are in the counties of Essex, Gloucester, Hanover, Henrico, King and Queen, King William, Lancaster, Middlesex, New Kent, Northumberland, Southampton, Surry, Sussex and the cities of Colonial Heights, Hampton, Newport News, Richmond and Williamsburg.
SNBV accounted for the acquisition using the acquisition method of accounting in accordance with FASB Accounting Standards Codification (“ASC”) 805,“Business Combinations.” Under the acquisition method of accounting, the assets and liabilities of EVBS were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities, particularly related to the loan portfolio, is a complicated process involving significant judgment regarding methods and assumptions used to calculate the estimated fair values. The fair values are preliminary and subject to refinement for up to one year after the acquisition date as additional information relative to the acquisition date fair values becomes available. SNBV recognized goodwill of $86.5 million in connection with the acquisition, none of which is deductible for income tax purposes.
The following table details the total consideration paid by SNBV on June 23, 2017 in connection with the acquisition of EVBS, the fair values of the assets acquired and liabilities assumed, and the resulting goodwill.
As Recorded | Fair Value | As Recorded | ||||||||||
(dollars in thousands) (unaudited) | by EVBS | Adjustments | by the Company | |||||||||
Consideration paid: | ||||||||||||
Cash | $ | 10 | ||||||||||
SNBV common stock | 198,909 | |||||||||||
Total consideration paid | $ | 198,919 | ||||||||||
Identifiable assets acquired: | ||||||||||||
Cash and due from banks | $ | 4,350 | $ | - | $ | 4,350 | ||||||
Interest bearing deposits with banks | 18,993 | - | 18,993 | |||||||||
Federal funds sold | 682 | - | 682 | |||||||||
Securities available for sale, at fair value | 163,029 | (150 | ) | 162,879 | ||||||||
Securities held to maturity, at carrying value | 19,036 | 508 | 19,544 | |||||||||
Restricted securities, at cost | 6,734 | - | 6,734 | |||||||||
Loans | 1,045,600 | (7,722 | ) | 1,037,878 | ||||||||
Loans held for sale | 19,689 | - | 19,689 | |||||||||
Deferred income taxes | 15,735 | 2,844 | 18,579 | |||||||||
Bank premises and equipment | 24,242 | 4,352 | 28,594 | |||||||||
Assets held for sale | 2,970 | (1,285 | ) | 1,685 | ||||||||
Accrued interest receivable | 4,272 | - | 4,272 | |||||||||
Other real estate owned | 563 | 92 | 655 | |||||||||
Core deposit intangible | 435 | 9,590 | 10,025 | |||||||||
Bank owned life insurance | 26,035 | - | 26,035 | |||||||||
Other assets | 10,004 | - | 10,004 | |||||||||
Total identifiable assets acquired | 1,362,369 | 8,229 | 1,370,598 | |||||||||
Identifiable liabilities assumed: | ||||||||||||
Noninterest-bearing demand accounts | 226,637 | - | 226,637 | |||||||||
Interest-bearing deposits | 920,743 | 1,182 | 921,925 | |||||||||
Federal funds purchased and repurchase agreements | 7,598 | - | 7,598 | |||||||||
Federal Home Loan Bank advances | 57,475 | - | 57,475 | |||||||||
Junior subordinated debt | 10,310 | (801 | ) | 9,509 | ||||||||
Senior subordinated notes | 19,175 | 1,876 | 21,051 | |||||||||
Accrued interest payable | 902 | - | 902 | |||||||||
Other liabilities | 13,067 | - | 13,067 | |||||||||
Total identifiable liabilities assumed | 1,255,907 | 2,257 | 1,258,164 | |||||||||
Net identifiable assets acquired | $ | 106,462 | $ | 5,972 | $ | 112,434 | ||||||
Goodwill resulting from acquisition | $ | 86,485 |
The net effect of the amortization and accretion of premiums and discounts associated with the Company’s acquisition accounting adjustments to assets acquired and liabilities assumed from EVBS had the following impact on the consolidated statements of income during the three and nine months ended September 30, 2017:
For the Three Months | For the Nine Months | |||||||
(dollars in thousands) | Ended September 30, 2017 | Ended September 30, 2017 | ||||||
Loans (1) | $ | 1,127 | $ | 1,218 | ||||
Time deposits (2) | 213 | 217 | ||||||
Junior and senior subordinated debt (3) | 21 | 23 | ||||||
Core deposit intangible (4) | (312 | ) | (338 | ) | ||||
Net impact to income before income taxes | $ | 1,049 | $ | 1,120 |
disclosures.
Fair values of the major categories of assets acquired and liabilities assumed were determined as follows:
Loans: The acquired loans were recorded at fair value at the acquisition date of $1.04 billion without carryover of EVBS’s allowance for loan losses. The unpaid principal balance and discount at the merger date were $1.05 billion and $15.4 million, respectively. Where loans exhibited characteristics of performance, fair value was determined based on a discounted cash flow analysis which included default estimates; loans without such characteristics, fair value was determined based on the estimated values of the underlying collateral. While estimating the amount and timing of both principal and interest cash flows expected to be collected, a market-based discount rate was applied. In this regard, the acquired loans were segregated into pools based on loan type and credit risk. Loan type was determined based on collateral type and purpose, industry segment and loan structure. Credit risk characteristics included risk rating groups pass, special mention and substandard and lien position. For valuation purposes, these pools were further disaggregated by maturity and pricing characteristics (e.g., fixed-rate, adjustable-rate, balloon maturities)2.
Loans Held for Sale: The $19.7 million of acquired loans held for sale were recorded at fair value at the acquisition date. Acquired loans held for sale represent the potentially credit-impaired loans that were moved out of the held for investment portfolio and marked to fair value by EVBS just prior to the closing of the merger. Fair value was determined using quoted prices from an independent, third party buyer. Subsequent to the acquisition date, acquired loans held for sale were sold to an independent third party.
Premises and Equipment and Assets Held for Sale: The fair value of EVBS’s premises, including land, buildings and improvements, was determined based upon appraisal by licensed appraisers. These appraisals were based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison and income capitalization approaches for each property appraised. The fair value of bank-owned real estate resulted in a net premium of $3.1 million. Land is not depreciated.
Core Deposit Intangible: The fair value of the core deposit intangible (��CDI”) was determined based on a combined discounted economic benefit and market approach. The economic benefit was calculated as the cost savings between maintaining the core deposit base and using an alternate funding source, such as FHLB advances. The life of the deposit base and projected deposit attrition rates was determined using EVBS's historical deposit data. The CDI was estimated at $10.0 million or 0.9% of total deposits. The CDI is being amortized over a weighted average life of 96 months using the straight-line method.
Time Deposits: The fair value of time deposits was determined based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. The resulting estimated fair value adjustment of time deposits is a $1.2 million premium and is being amortized over the weighted average remaining life of approximately 18 months using the straight-line method.
FHLB Advances: The fair value of FHLB advances was considered to be equivalent to EVBS’s recorded book balance as the advances mature in 90 days or less.
Junior Subordinated Debt and Senior Subordinated Notes:The fair value of the junior subordinated debt and senior subordinated notes were based on discounted cash flows using rates for securities with similar terms. The resulting estimated fair value adjustment of junior subordinated debt is a $801 thousand discount and is being accreted over the remaining life of approximately 195 months using the straight-line method. The resulting estimated fair value adjustment of senior subordinated notes is a $1.1 million premium and is being amortized over the remaining life of approximately 95 months using the straight-line method.
Deferred Income Taxes: Certain deferred tax assets and liabilities were carried over to SNBV from EVBS based on the Company’s ability to utilize them in the future. Additionally, deferred tax assets and liabilities were established for acquisition accounting fair value adjustments as the future amortization/accretion of these adjustments represent temporary differences between book income and taxable income.
The table below illustrates the unaudited pro forma revenue and net income of the combined entities had the acquisition taken place on January 1, 2016. The unaudited combined pro forma revenue and net income combines the historical results of EVBS with the Company's consolidated statements of income for the periods listed below and, while certain adjustments were made for the estimated effect of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition actually taken place on January 1, 2016. Acquisition-related expenses of $168 thousand and $9.1 million were included in the Company's reported consolidated statements of income for the three and nine months ended September 30, 2017, respectively, but were excluded from the unaudited pro forma information listed below. While the majority of the acquisition-related expenses have been recognized in the first nine months of 2017, the Company believes that additional legal and other transition expenses related to this acquisition will be likely throughout the remainder of 2017. Additionally, the Company expects to achieve further operational cost savings and other efficiencies as a result of the acquisition which are not reflected in the unaudited pro forma amounts below:
Unaudited | Unaudited | Unaudited | Unaudited | |||||||||||||
Pro Forma | Pro Forma | Pro Forma | Pro Forma | |||||||||||||
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
(dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net interest income | $ | 23,850 | $ | 21,139 | $ | 67,271 | $ | 63,467 | ||||||||
Net income | 4,648 | 5,742 | 17,774 | 17,385 |
STOCK-BASED COMPENSATION
In 2004, the Company’s Board of Directors adopted a stock option plan that authorized the reservation of up to 302,500 shares of common stock and provided for the granting of stock options to certain directors, officers and employees. The 2010 Stock Awards and Incentive Plan (the “2010 Plan”) was approved by the Company’s Board of Directors in January 2010 and approved by the stockholders at the Annual Stockholder Meeting in April 2010. The 2010 Plan
9
authorized the reservation of an additional 700,000 shares of common stock for the granting of stock awards. The options granted to officers and employees are incentive stock options and the options granted to non-employee directors are non-qualified stock options. The purpose of the plan is to afford key employees an incentive to remain in the employemployment of Southern National and to assist in the attracting and retaining of non-employee directors by affording them an opportunity to share in Southern National’s anticipated future success. Under the plan, the option’s price cannot be less than the fair market value of the stock on the grant date. The maximum term of the options is ten years and options granted may be subject to a graded vesting schedule.
At the June 21, 2017 Annual Meeting of Stockholders of Southern National, the 2017 Equity Compensation Plan (the “2017 Plan”) was approved as recommended by the Board of Directors. The 2017 Plan replacesreplaced the 2010 Plan and has a maximum number of 750,000 shares reserved for issuance. The purpose of the 2017 Plan is to promote the success of the Company by providing greater incentive to employees, non-employee directors, consultants and advisors to associate their personal interests with the long-term financial success of the Company, including its subsidiaries, and with growth in stockholder value, consistent with the Company’s risk management practices. Because the 2017 Plan was approved, shares under the 2004 stock-option plan or 2010 Plan will no longer be awarded.
A summary of the activity in the stock option plan during the six months ended June 30, 2019 follows:
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| Weighted |
| Average |
| Aggregate | ||
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| Average |
| Remaining |
| Intrinsic | ||
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| Exercise |
| Contractual |
| Value | ||
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| Shares |
| Price |
| Term |
| (in thousands) | ||
Options outstanding, beginning of period |
| 642,350 |
| $ | 9.77 |
| 5.0 |
| $ | 2,219 |
Forfeited |
| (2,700) |
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| 10.52 |
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Exercised |
| (19,450) |
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| 6.77 |
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Options outstanding, end of period |
| 620,200 |
| $ | 9.86 |
| 4.6 |
| $ | 3,383 |
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Exercisable at end of period |
| 478,050 |
| $ | 9.04 |
| 3.9 |
| $ | 2,856 |
Southern National granted no regular options during the first nine months of 2017, but did issue 22,559 options under the 2017 Plan in connection with the merger with EVBS which options were previously outstanding under the EVBS 2003 Stock Incentive Plan. Immediately prior to the effective time of the merger, each option to purchase shares of EVBS common stock granted under an EVBS stock plan vested and was converted into and became an option to purchase shares of common stock of SNBV (each, an “Assumed Option”), which was adjusted (i) by multiplying the number of shares of common stock that could be purchased under the Assumed Option by the 0.6313 exchange ratio and rounding down to the nearest share and (ii) by dividing the per share exercise price of the option by the 0.6313 exchange ratio and rounding up to the nearest cent. SNBV assumed each Assumed Option in accordance with the terms of the EVBS stock plan and award agreement by which it is evidenced.
For the three and nine months ended September 30, 2017, stock-basedStock-based compensation expense associated with stock options was $84$22 thousand and $185 thousand, respectively, compared to $62 thousand and $198$39 thousand for the same periods last year,three months ended June 30, 2019 and 2018, respectively and $43 thousand and $78 thousand for the six months ended June 30, 2019 and 2018, respectively. As of SeptemberJune 30, 2017,2019, unrecognized compensation expense associated with the stock options was $272$50 thousand, which is expected to be recognized over a weighted average period of 2.01.5 years.
As of June 30, 2019, 48,500 shares of restricted stock were granted at a weighted average exercise price of $14.15 to certain officers of Southern National under the 2017 Plan and are subject to vesting in five years. These shares are included in the total shares outstanding at June 30, 2019. As of June 30, 2019, 2,700 shares of restricted stock granted to certain officers of Southern National under the 2017 Plan were forfeited. Restricted stock compensation expense totaled $141 thousand and $55 thousand for the three months ended June 30, 2019 and 2018, respectively and $224 thousand and $61 thousand for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, unrecognized compensation expense associated with restricted stock was $1.3 million, which is expected to be recognized over a weighted average period of 4.2 years.
A summary
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Weighted | ||||||||||||||||
Weighted | Average | Aggregate | ||||||||||||||
Average | Remaining | Intrinsic | ||||||||||||||
Exercise | Contractual | Value | ||||||||||||||
Shares | Price | Term | (in thousands) | |||||||||||||
Options outstanding, beginning of period | 782,200 | $ | 9.56 | |||||||||||||
Granted | - | - | ||||||||||||||
Options issued in connection with EVBS merger | 22,559 | 24.54 | ||||||||||||||
Forfeited | (12,400 | ) | 11.53 | |||||||||||||
Exercised | (42,750 | ) | 8.67 | |||||||||||||
Options outstanding, end of period | 749,609 | $ | 10.03 | 5.7 | $ | 5,391 | ||||||||||
Exercisable at end of period | 409,759 | $ | 7.72 | 4.1 | $ | 3,164 |
3. INVESTMENT SECURITIES
The amortized cost and fair value of available for sale investment securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows (in thousands):
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June 30, 2019 |
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Residential government-sponsored mortgage-backed securities |
| $ | 45,594 |
| $ | 331 |
| $ | (76) |
| $ | 45,849 |
Obligations of states and political subdivisions |
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| 18,166 |
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| 427 |
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| — |
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| 18,593 |
Corporate securities |
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| 2,006 |
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| 13 |
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| — |
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| 2,019 |
Trust preferred securities |
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| 2,589 |
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| 316 |
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| (314) |
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| 2,591 |
Residential government-sponsored collateralized mortgage obligations |
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| 40,814 |
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| 214 |
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| (48) |
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| 40,980 |
Government-sponsored agency securities |
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| 8,597 |
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| 37 |
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| — |
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| 8,634 |
Agency commercial mortgage-backed securities |
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| 27,839 |
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| 154 |
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| (14) |
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| 27,979 |
SBA pool securities |
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| 17,401 |
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| 21 |
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| (207) |
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| 17,215 |
Total |
| $ | 163,006 |
| $ | 1,513 |
| $ | (659) |
| $ | 163,860 |
Amortized | Gross Unrealized | Fair | ||||||||||||||
September 30, 2017 | Cost | Gains | Losses | Value | ||||||||||||
Agency residential mortgage-backed securities (fixed and variable rate) | $ | 32,237 | $ | 3 | $ | (135 | ) | $ | 32,105 | |||||||
Obligations of states and political subdivisions | 18,650 | 32 | (73 | ) | 18,609 | |||||||||||
Corporate securities | 2,014 | 1 | - | 2,015 | ||||||||||||
Trust preferred securities | 2,589 | 14 | (237 | ) | 2,366 | |||||||||||
Residential government-sponsored collateralized mortgage obligations | 53,643 | 5 | (278 | ) | 53,370 | |||||||||||
Government-sponsored agency securities | 1,747 | - | (14 | ) | 1,733 | |||||||||||
Agency commercial mortgage-backed securities | 28,304 | - | (223 | ) | 28,081 | |||||||||||
SBA pool securities | 25,937 | 46 | (25 | ) | 25,958 | |||||||||||
$ | 165,121 | $ | 101 | $ | (985 | ) | $ | 164,237 |
Amortized | Gross Unrealized | Fair | ||||||||||||||
December 31, 2016 | Cost | Gains | Losses | Value | ||||||||||||
Obligations of states and political subdivisions | $ | 2,280 | $ | 9 | $ | (30 | ) | $ | 2,259 | |||||||
Trust preferred securities | 2,590 | - | (931 | ) | 1,659 | |||||||||||
$ | 4,870 | $ | 9 | $ | (961 | ) | $ | 3,918 |
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December 31, 2018 |
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|
|
|
|
|
|
|
|
|
|
Residential government-sponsored mortgage-backed securities |
| $ | 27,945 |
| $ | — |
| $ | (643) |
| $ | 27,302 |
Obligations of states and political subdivisions |
|
| 18,305 |
|
| 30 |
|
| (280) |
|
| 18,055 |
Corporate securities |
|
| 2,008 |
|
| 1 |
|
| (1) |
|
| 2,008 |
Trust preferred securities |
|
| 2,589 |
|
| 356 |
|
| (304) |
|
| 2,641 |
Residential government-sponsored collateralized mortgage obligations |
|
| 44,095 |
|
| 3 |
|
| (1,041) |
|
| 43,057 |
Government-sponsored agency securities |
|
| 3,247 |
|
| — |
|
| (122) |
|
| 3,125 |
Agency commercial mortgage-backed securities |
|
| 28,069 |
|
| — |
|
| (765) |
|
| 27,304 |
SBA pool securities |
|
| 20,183 |
|
| 10 |
|
| (308) |
|
| 19,885 |
Total |
| $ | 146,441 |
| $ | 400 |
| $ | (3,464) |
| $ | 143,377 |
The amortized cost, unrecognized gains and losses, and fair value of investment securities held to maturity were as follows (in thousands):
Amortized | Gross Unrecognized | Fair |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
September 30, 2017 | Cost | Gains | Losses | Value | ||||||||||||||||||||||||
|
| Amortized |
| Gross Unrecognized |
| Fair | ||||||||||||||||||||||
|
| Cost |
| Gains |
| Losses |
| Value | ||||||||||||||||||||
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Residential government-sponsored mortgage-backed securities | $ | 12,015 | $ | 45 | $ | (48 | ) | $ | 12,012 |
| $ | 8,957 |
| $ | 19 |
| $ | (33) |
| $ | 8,943 | |||||||
Obligations of states and political subdivisions |
|
| 20,121 |
|
| 176 |
|
| (10) |
|
| 20,287 | ||||||||||||||||
Trust preferred securities |
|
| 2,471 |
|
| 124 |
|
| (2) |
|
| 2,593 | ||||||||||||||||
Residential government-sponsored collateralized mortgage obligations | 9,494 | - | (51 | ) | 9,443 |
|
| 4,607 |
|
| 10 |
|
| (16) |
|
| 4,601 | |||||||||||
Government-sponsored agency securities | 52,648 | 48 | (1,334 | ) | 51,362 |
|
| 50,659 |
|
| 100 |
|
| (502) |
|
| 50,257 | |||||||||||
Obligations of states and political subdivisions | 22,917 | 170 | (76 | ) | 23,011 | |||||||||||||||||||||||
Trust preferred securities | 3,259 | 58 | (23 | ) | 3,294 | |||||||||||||||||||||||
$ | 100,333 | $ | 321 | $ | (1,532 | ) | $ | 99,122 | ||||||||||||||||||||
Total |
| $ | 86,815 |
| $ | 429 |
| $ | (563) |
| $ | 86,681 |
Amortized | Gross Unrecognized | Fair | ||||||||||||||
December 31, 2016 | Cost | Gains | Losses | Value | ||||||||||||
Residential government-sponsored mortgage-backed securities | $ | 18,594 | $ | 308 | $ | (118 | ) | $ | 18,784 | |||||||
Residential government-sponsored collateralized mortgage obligations | 2,371 | - | (54 | ) | 2,317 | |||||||||||
Government-sponsored agency securities | 47,975 | 28 | (1,865 | ) | 46,138 | |||||||||||
Obligations of states and political subdivisions | 12,706 | 53 | (162 | ) | 12,597 | |||||||||||
Trust preferred securities | 3,654 | - | (146 | ) | 3,508 | |||||||||||
$ | 85,300 | $ | 389 | $ | (2,345 | ) | $ | 83,344 |
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortized |
| Gross Unrecognized |
| Fair | ||||||
|
| Cost |
| Gains |
| Losses |
| Value | ||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Residential government-sponsored mortgage-backed securities |
| $ | 9,699 |
| $ | 4 |
| $ | (230) |
| $ | 9,473 |
Obligations of states and political subdivisions |
|
| 21,496 |
|
| 85 |
|
| (147) |
|
| 21,434 |
Trust preferred securities |
|
| 2,610 |
|
| 150 |
|
| (1) |
|
| 2,759 |
Residential government-sponsored collateralized mortgage obligations |
|
| 6,001 |
|
| — |
|
| (91) |
|
| 5,910 |
Government-sponsored agency securities |
|
| 52,656 |
|
| — |
|
| (3,123) |
|
| 49,533 |
Total |
| $ | 92,462 |
| $ | 239 |
| $ | (3,592) |
| $ | 89,109 |
The amortized cost amounts are net of recognized other than temporary impairment.impairment on trust preferred securities.
During the three and six months ended June 30, 2019, $9.8 million and $25.1 million, respectively of available for sale investment securities were purchased.
The fair value and carrying amount, if different, of debt investment securities as of SeptemberJune 30, 2017,2019, by contractual maturity were as follows (in thousands). Investment securities not due at a single maturity date are shown separately.
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Held to Maturity | Available for Sale |
| Available for Sale |
| Held to Maturity | |||||||||||||||||||||||
Amortized | Amortized |
| Amortized |
|
|
|
| Amortized |
|
|
| |||||||||||||||||
Cost | Fair Value | Cost | Fair Value |
| Cost |
| Fair Value |
| Cost |
| Fair Value | |||||||||||||||||
Due in one to five years | $ | 1,456 | $ | 1,477 | $ | 1,946 | $ | 1,943 |
| $ | 3,343 |
| $ | 3,366 |
| $ | 4,963 |
| $ | 4,987 | ||||||||
Due in five to ten years | 23,496 | 23,178 | 5,397 | 5,393 |
|
| 11,923 |
|
| 12,061 |
|
| 18,933 |
|
| 18,917 | ||||||||||||
Due after ten years | 53,872 | 53,012 | 17,657 | 17,387 |
|
| 16,092 |
|
| 16,410 |
|
| 49,355 |
|
| 49,233 | ||||||||||||
Agency residential mortgage-backed securities (fixed and variable rate) | 12,015 | 12,012 | 32,237 | 32,105 | ||||||||||||||||||||||||
Residential government-sponsored mortgage-backed securities |
|
| 45,594 |
|
| 45,849 |
|
| 8,957 |
|
| 8,943 | ||||||||||||||||
Residential government-sponsored collateralized mortgage obligations | 9,494 | 9,443 | 53,643 | 53,370 |
|
| 40,814 |
|
| 40,980 |
|
| 4,607 |
|
| 4,601 | ||||||||||||
Agency commercial mortgage-backed securities | - | - | 28,304 | 28,081 |
|
| 27,839 |
|
| 27,979 |
|
| — |
|
| — | ||||||||||||
SBA pool securities | - | - | 25,937 | 25,958 |
|
| 17,401 |
|
| 17,215 |
|
| — |
|
| — | ||||||||||||
Total | $ | 100,333 | $ | 99,122 | $ | 165,121 | $ | 164,237 |
| $ | 163,006 |
| $ | 163,860 |
| $ | 86,815 |
| $ | 86,681 |
Investment securities with a carrying amount of approximately $134.2$152.6 million and $73.9$165.7 million at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively, were pledged to secure public deposits, certain other deposits, a line of credit for advances from the Federal Home Loan Bank (“FHLB”) of Atlanta, (“FHLB”), and repurchase agreements.
Southern National monitors the portfolio for indicators of other than temporary impairment. At SeptemberJune 30, 20172019 and December 31, 2016,2018, certain investment securities’ fair values were below cost. As outlined in the table below, there were investment securities with fair values totaling approximately $202.7$97.1 million in the portfolio with the carrying value exceeding the estimated fair value that are considered temporarily impaired at SeptemberJune 30, 2017.2019. Because the decline in fair value is attributable to changes in interest rates and market illiquidity, and not credit quality, and because we do not have the intent to sell these investment securities and it is likely that we will not be required to sell the investment securities before their anticipated recovery, management does not consider these investment securities to be other than temporarily impaired as of SeptemberJune 30, 2017.2019.
12
The following tables present information regarding investment securities available for sale and held to maturity in a continuous unrealized loss position as of SeptemberJune 30, 20172019 and December 31, 2016 (in thousands)2018 by duration of time in a loss position:position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 |
| Less than 12 months |
| 12 Months or More |
| Total | ||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
Available for Sale |
| value |
| Losses |
| value |
| Losses |
| value |
| Losses | ||||||
Residential government-sponsored mortgage-backed securities |
| $ | 4,373 |
| $ | (10) |
| $ | 14,238 |
| $ | (66) |
| $ | 18,611 |
| $ | (76) |
Obligations of states and political subdivisions |
|
| — |
|
| — |
|
| 1,006 |
|
| — |
|
| 1,006 |
|
| — |
Corporate securities |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Trust preferred securities |
|
| — |
|
| — |
|
| 795 |
|
| (314) |
|
| 795 |
|
| (314) |
Residential government-sponsored collateralized mortgage obligations |
|
| 475 |
|
| (7) |
|
| 8,973 |
|
| (41) |
|
| 9,448 |
|
| (48) |
Government-sponsored agency securities |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Agency commercial mortgage-backed securities |
|
| — |
|
| — |
|
| 6,190 |
|
| (14) |
|
| 6,190 |
|
| (14) |
SBA pool securities |
|
| — |
|
| — |
|
| 11,575 |
|
| (207) |
|
| 11,575 |
|
| (207) |
Total |
| $ | 4,848 |
| $ | (17) |
| $ | 42,777 |
| $ | (642) |
| $ | 47,625 |
| $ | (659) |
September 30, 2017 | Less than 12 months | 12 Months or More | Total | |||||||||||||||||||||
Available for Sale | Fair value | Unrealized Losses | Fair value | Unrealized Losses | Fair value | Unrealized Losses | ||||||||||||||||||
Agency residential mortgage-backed securities (fixed and variable rate) | $ | 33,288 | $ | (135 | ) | $ | - | $ | - | $ | 33,288 | $ | (135 | ) | ||||||||||
Obligations of states and political subdivisions | 14,509 | (73 | ) | - | - | 14,509 | (73 | ) | ||||||||||||||||
Trust preferred securities | - | - | 863 | (237 | ) | 863 | (237 | ) | ||||||||||||||||
Residential government-sponsored collateralized mortgage obligations | 52,134 | (278 | ) | - | - | 52,134 | (278 | ) | ||||||||||||||||
Government-sponsored agency securities | 1,733 | (14 | ) | - | - | 1,733 | (14 | ) | ||||||||||||||||
Agency commercial mortgage-backed securities | 28,081 | (223 | ) | - | - | 28,081 | (223 | ) | ||||||||||||||||
SBA pool securities | 11,468 | (25 | ) | - | - | 11,468 | (25 | ) | ||||||||||||||||
$ | 141,213 | $ | (748 | ) | $ | 863 | $ | (237 | ) | $ | 142,076 | $ | (985 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 |
| Less than 12 months |
| 12 Months or More |
| Total | ||||||||||||
|
| Fair |
| Unrecognized |
| Fair |
| Unrecognized |
| Fair |
| Unrecognized | ||||||
Held to Maturity |
| value |
| Losses |
| value |
| Losses |
| value |
| Losses | ||||||
Residential government-sponsored mortgage-backed securities |
| $ | — |
| $ | — |
| $ | 3,865 |
| $ | (33) |
| $ | 3,865 |
| $ | (33) |
Obligations of states and political subdivisions |
|
| — |
|
| — |
|
| 3,731 |
|
| (10) |
|
| 3,731 |
|
| (10) |
Trust preferred securities |
|
| — |
|
| — |
|
| 56 |
|
| (2) |
|
| 56 |
|
| (2) |
Residential government-sponsored collateralized mortgage obligations |
|
| — |
|
| — |
|
| 3,365 |
|
| (16) |
|
| 3,365 |
|
| (16) |
Government-sponsored agency securities |
|
| — |
|
| — |
|
| 38,478 |
|
| (502) |
|
| 38,478 |
|
| (502) |
Total |
| $ | — |
| $ | — |
| $ | 49,495 |
| $ | (563) |
| $ | 49,495 |
| $ | (563) |
Less than 12 months | 12 Months or More | Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Held to Maturity | Fair value | Unrecognized Losses | Fair value | Unrecognized Losses | Fair value | Unrecognized Losses | ||||||||||||||||||||||||||||||||||||
December 31, 2018 |
| Less than 12 months |
| 12 Months or More |
| Total | ||||||||||||||||||||||||||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||||||||||||||||||||||||||
Available for Sale |
| value |
| Losses |
| value |
| Losses |
| value |
| Losses | ||||||||||||||||||||||||||||||
Residential government-sponsored mortgage-backed securities | $ | 3,403 | $ | (40 | ) | $ | 419 | $ | (8 | ) | $ | 3,822 | $ | (48 | ) |
| $ | 393 |
| $ | (5) |
| $ | 26,910 |
| $ | (638) |
| $ | 27,303 |
| $ | (643) | |||||||||
Obligations of states and political subdivisions |
|
| 2,220 |
|
| (78) |
|
| 13,385 |
|
| (202) |
|
| 15,605 |
|
| (280) | ||||||||||||||||||||||||
Corporate securities |
|
| 1,008 |
|
| (1) |
|
| — |
|
| — |
|
| 1,008 |
|
| (1) | ||||||||||||||||||||||||
Trust preferred securities |
|
| — |
|
| — |
|
| 795 |
|
| (304) |
|
| 795 |
|
| (304) | ||||||||||||||||||||||||
Residential government-sponsored collateralized mortgage obligations | 7,820 | (15 | ) | 1,623 | (36 | ) | 9,443 | (51 | ) |
|
| — |
|
| — |
|
| 42,598 |
|
| (1,041) |
|
| 42,598 |
|
| (1,041) | |||||||||||||||
Government-sponsored agency securities | 12,724 | (264 | ) | 24,917 | (1,070 | ) | 37,641 | (1,334 | ) |
|
| — |
|
| — |
|
| 3,125 |
|
| (122) |
|
| 3,125 |
|
| (122) | |||||||||||||||
Obligations of states and political subdivisions | 7,441 | (48 | ) | 2,030 | (28 | ) | 9,471 | (76 | ) | |||||||||||||||||||||||||||||||||
Trust preferred securities | - | - | 239 | (23 | ) | 239 | (23 | ) | ||||||||||||||||||||||||||||||||||
$ | 31,388 | $ | (367 | ) | $ | 29,228 | $ | (1,165 | ) | $ | 60,616 | $ | (1,532 | ) | ||||||||||||||||||||||||||||
Agency commercial mortgage-backed securities |
|
| — |
|
| — |
|
| 27,304 |
|
| (765) |
|
| 27,304 |
|
| (765) | ||||||||||||||||||||||||
SBA pool securities |
|
| 6,009 |
|
| (70) |
|
| 10,546 |
|
| (238) |
|
| 16,555 |
|
| (308) | ||||||||||||||||||||||||
Total |
| $ | 9,630 |
| $ | (154) |
| $ | 124,663 |
| $ | (3,310) |
| $ | 134,293 |
| $ | (3,464) |
December 31, 2016 | ||||||||||||||||||||||||
Less than 12 months | 12 Months or More | Total | ||||||||||||||||||||||
Available for Sale | Fair value | Unrealized Losses | Fair value | Unrealized Losses | Fair value | Unrealized Losses | ||||||||||||||||||
Obligations of states and political subdivisions | $ | 1,706 | $ | (30 | ) | $ | - | $ | - | $ | 1,706 | $ | (30 | ) | ||||||||||
Trust preferred securities | - | - | 1,658 | (931 | ) | 1,658 | (931 | ) | ||||||||||||||||
$ | 1,706 | $ | (30 | ) | $ | 1,658 | $ | (931 | ) | $ | 3,364 | $ | (961 | ) |
Less than 12 months | 12 Months or More | Total | ||||||||||||||||||||||
Held to Maturity | Fair value | Unrecognized Losses | Fair value | Unrecognized Losses | Fair value | Unrecognized Losses | ||||||||||||||||||
Residential government-sponsored mortgage-backed securities | $ | 10,238 | $ | (110 | ) | $ | 457 | $ | (8 | ) | $ | 10,695 | $ | (118 | ) | |||||||||
Residential government-sponsored collateralized mortgage obligations | 1,346 | (27 | ) | 971 | (27 | ) | 2,317 | (54 | ) | |||||||||||||||
Government-sponsored agency securities | 41,110 | (1,865 | ) | - | - | 41,110 | (1,865 | ) | ||||||||||||||||
Obligations of states and political subdivisions | 3,578 | (98 | ) | 1,065 | (64 | ) | 4,643 | (162 | ) | |||||||||||||||
Trust preferred securities | - | - | 3,508 | (146 | ) | 3,508 | (146 | ) | ||||||||||||||||
$ | 56,272 | $ | (2,100 | ) | $ | 6,001 | $ | (245 | ) | $ | 62,273 | $ | (2,345 | ) |
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
| Less than 12 months |
| 12 Months or More |
| Total | ||||||||||||
|
| Fair |
| Unrecognized |
| Fair |
| Unrecognized |
| Fair |
| Unrecognized | ||||||
Held to Maturity |
| value |
| Losses |
| value |
| Losses |
| value |
| Losses | ||||||
Residential government-sponsored mortgage-backed securities |
| $ | — |
| $ | — |
| $ | 8,935 |
| $ | (230) |
| $ | 8,935 |
| $ | (230) |
Obligations of states and political subdivisions |
|
| 3,273 |
|
| (10) |
|
| 7,187 |
|
| (137) |
|
| 10,460 |
|
| (147) |
Trust preferred securities |
|
| — |
|
| — |
|
| 60 |
|
| (1) |
|
| 60 |
|
| (1) |
Residential government-sponsored collateralized mortgage obligations |
|
| — |
|
| — |
|
| 5,910 |
|
| (91) |
|
| 5,910 |
|
| (91) |
Government-sponsored agency securities |
|
| — |
|
| — |
|
| 49,532 |
|
| (3,123) |
|
| 49,532 |
|
| (3,123) |
Total |
| $ | 3,273 |
| $ | (10) |
| $ | 71,624 |
| $ | (3,582) |
| $ | 74,897 |
| $ | (3,592) |
As of SeptemberJune 30, 2017,2019, we owned pooled trust preferred securities as follows:
Previously | ||||||||||||||||||||||||||||||
% of Current | Recognized | |||||||||||||||||||||||||||||
Defaults and | Cumulative | |||||||||||||||||||||||||||||
Ratings | Estimated | Deferrals to | Other | |||||||||||||||||||||||||||
Tranche | When Purchased | Current Ratings | Fair | Total | Comprehensive | |||||||||||||||||||||||||
Security | Level | Moody's | Fitch | Moody's | Fitch | Par Value | Book Value | Value | Collateral | Loss (1) | ||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||
Held to Maturity | ||||||||||||||||||||||||||||||
ALESCO VII A1B | Senior | Aaa | AAA | Aa2 | A | $ | 3,250 | $ | 2,998 | $ | 3,055 | 17 | % | $ | 228 | |||||||||||||||
MMCF III B | Senior Sub | A3 | A- | Ba1 | BBB | 265 | 261 | 239 | 32 | % | 4 | |||||||||||||||||||
3,515 | 3,259 | 3,294 | $ | 232 | ||||||||||||||||||||||||||
Cumulative OTTI | ||||||||||||||||||||||||||||||
Related to | ||||||||||||||||||||||||||||||
Credit Loss (2) | ||||||||||||||||||||||||||||||
Available for Sale | ||||||||||||||||||||||||||||||
Other Than Temporarily Impaired: | ||||||||||||||||||||||||||||||
TPREF FUNDING II | Mezzanine | A1 | A- | Caa3 | C | 1,500 | 1,099 | 862 | 28 | % | $ | 400 | ||||||||||||||||||
ALESCO V C1 | Mezzanine | A2 | A | Caa2 | C | 2,150 | 1,490 | 1,504 | 13 | % | 660 | |||||||||||||||||||
3,650 | 2,589 | 2,366 | $ | 1,060 | ||||||||||||||||||||||||||
Total | $ | 7,165 | $ | 5,848 | $ | 5,660 |
(1) Pre-tax, and represents unrealized losses at date of transfer from available-for-sale to held-to-maturity, net of accretion
(2) Pre-tax
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| Cumulative | |
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| Ratings When |
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| Estimated |
| Deferrals to |
| Other | ||||||||
|
| Tranche |
| Purchased |
| Current Ratings |
| Par |
| Book |
| Fair |
| Total |
| Comprehensive | ||||||||
Security |
| Level |
| Moody's |
| Fitch |
| Moody's |
| Fitch |
| Value |
| Value |
| Value |
| Collateral |
| Loss (1) | ||||
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALESCO VII A1B |
| Senior |
| Aaa |
| AA |
| Aa1 |
| AA |
| $ | 2,596 |
| $ | 2,413 |
| $ | 2,537 |
| 17 | % | $ | 219 |
MMCF III B |
| Senior Sub |
| A3 |
| WD |
| Ba1 |
| BBB |
|
| 59 |
|
| 58 |
|
| 56 |
| 45 | % |
| 4 |
|
|
|
|
|
|
|
|
|
|
|
|
| 2,655 |
|
| 2,471 |
|
| 2,593 |
|
|
| $ | 223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cumulative OTTI | |
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Related to | |
Other Than Temporarily Impaired: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit Loss (2) | |
TPREF FUNDING II |
| Mezzanine |
| A1 |
| D |
| Caa3 |
| D |
|
| 1,500 |
|
| 1,099 |
|
| 785 |
| 31 | % | $ | 400 |
ALESCO V C1 |
| Mezzanine |
| A2 |
| C |
| Caa1 |
| C |
|
| 2,150 |
|
| 1,490 |
|
| 1,806 |
| 14 | % |
| 660 |
|
|
|
|
|
|
|
|
|
|
|
|
| 3,650 |
|
| 2,589 |
|
| 2,591 |
|
|
| $ | 1,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
| $ | 6,305 |
| $ | 5,060 |
| $ | 5,184 |
|
|
|
|
|
(1) | Pre-tax, and represents unrealized losses at date of transfer from available-for-sale to held-to-maturity, net of accretion. |
(2) | Pre-tax. |
Each of these investment securities has been evaluated for other than temporary impairment. In performing a detailed cash flow analysis of each investment security, Sonabank works with independent third parties to estimate expected cash flows and assist with the evaluation of other than temporary impairment. The cash flow analyses performed included the following assumptions:
· | 0.5% of the remaining performing collateral will default or defer per annum. |
· | Recoveries of 9% with a two year lag on all defaults and deferrals. |
· | No prepayments for 10 years and then 1% per annum for the remaining life of the investment security. |
· | Our investment securities have been modeled using the above assumptions by independent third parties using the forward LIBOR curve to discount projected cash flows to present values. |
We recognized no other than temporary impairment charges during the three and ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
The following table presents a roll forward
14
2017 | 2016 | |||||||
Amount of cumulative other than temporary impairment related to credit loss prior to January 1 | $ | 1,060 | $ | 1,060 | ||||
Amounts related to credit loss for which an other than temporary impairment was not previously recognized | - | - | ||||||
Amounts related to credit loss for which an other than temporary impairment was previously recognized | - | - | ||||||
Reductions due to realized losses | - | - | ||||||
Amount of cumulative other than temporary impairment related to credit loss as of September 30 | $ | 1,060 | $ | 1,060 |
Changes in accumulated other comprehensive (loss)loss by component for the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 are shown in the tabletables below. All amounts are net of tax (in thousands).
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Holding |
|
|
|
|
|
| |
|
| Losses on |
| Held to Maturity |
|
|
| ||
For the three months ended June 30, 2019 |
| Available for Sale |
| Securities |
| Total | |||
Beginning balance |
| $ | (1,563) |
| $ | (168) |
| $ | (1,731) |
Current period other comprehensive income |
|
| 2,247 |
|
| 3 |
|
| 2,250 |
Ending balance |
| $ | 684 |
| $ | (165) |
| $ | 519 |
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Holding |
|
|
|
|
|
| |
|
| Losses on |
| Held to Maturity |
|
|
| ||
For the three months ended June 30, 2018 |
| Available for Sale |
| Securities |
| Total | |||
Beginning balance |
| $ | (2,680) |
| $ | (179) |
| $ | (2,859) |
Current period other comprehensive (loss) income |
|
| (662) |
|
| 2 |
|
| (660) |
Ending balance |
| $ | (3,342) |
| $ | (177) |
| $ | (3,519) |
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Holding |
|
|
|
|
|
| |
|
| Losses on |
| Held to Maturity |
|
|
| ||
For the six months ended June 30, 2019 |
| Available for Sale |
| Securities |
| Total | |||
Beginning balance |
| $ | (2,419) |
| $ | (170) |
| $ | (2,589) |
Current-period other comprehensive income |
|
| 3,103 |
|
| 5 |
|
| 3,108 |
Ending balance |
| $ | 684 |
| $ | (165) |
| $ | 519 |
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Holding |
|
|
|
|
|
| |
|
| Losses on |
| Held to Maturity |
|
|
| ||
For the six months ended June 30, 2018 |
| Available for Sale |
| Securities |
| Total | |||
Beginning balance |
| $ | (999) |
| $ | (153) |
| $ | (1,152) |
Amounts reclassified from accumulated other comprehensive loss due to the adoption of ASU 2018-02 |
|
| (199) |
|
| (30) |
|
| (229) |
Subtotal |
|
| (1,198) |
|
| (183) |
|
| (1,381) |
Current period other comprehensive (loss) income |
|
| (2,144) |
|
| 6 |
|
| (2,138) |
Ending balance |
| $ | (3,342) |
| $ | (177) |
| $ | (3,519) |
Unrealized Holding | ||||||||||||
(Losses) on | Held to Maturity | |||||||||||
For the three months ended September 30, 2017 | Available for Sale Securities | Securities | Total | |||||||||
Beginning balance | $ | (743 | ) | $ | (158 | ) | $ | (901 | ) | |||
Other comprehensive income before reclassifications | 161 | 2 | 163 | |||||||||
Net current-period other comprehensive income | 161 | 2 | 163 | |||||||||
Ending balance | $ | (582 | ) | $ | (156 | ) | $ | (738 | ) |
Unrealized Holding | ||||||||||||
(Losses) on | Held to Maturity | |||||||||||
For the nine months ended September 30, 2017 | Available for Sale Securities | Securities | Total | |||||||||
Beginning balance | $ | (627 | ) | $ | (162 | ) | $ | (789 | ) | |||
Other comprehensive income before reclassifications | 45 | 6 | 51 | |||||||||
Net current-period other comprehensive income | 45 | 6 | 51 | |||||||||
Ending balance | $ | (582 | ) | $ | (156 | ) | $ | (738 | ) |
Unrealized Holding | ||||||||||||
(Losses) on | Held to Maturity | |||||||||||
For the three months ended September 30, 2016 | Available for Sale Securities | Securities | Total | |||||||||
Beginning balance | $ | (760 | ) | $ | (165 | ) | $ | (925 | ) | |||
Other comprehensive income before reclassifications | 125 | 2 | 127 | |||||||||
Net current-period other comprehensive income | 125 | 2 | 127 | |||||||||
Ending balance | $ | (635 | ) | $ | (163 | ) | $ | (798 | ) |
Unrealized Holding | ||||||||||||
(Losses) on | Held to Maturity | |||||||||||
For the nine months ended September 30, 2016 | Available for Sale Securities | Securities | Total | |||||||||
Beginning balance | $ | (440 | ) | $ | (170 | ) | $ | (610 | ) | |||
Other comprehensive (loss) income before reclassifications | (195 | ) | 7 | (188 | ) | |||||||
Net current-period other comprehensive (loss) income | (195 | ) | 7 | (188 | ) | |||||||
Ending balance | $ | (635 | ) | $ | (163 | ) | $ | (798 | ) |
15
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table summarizes the composition of our loan portfolio as of SeptemberJune 30, 20172019 and December 31, 2016:2018 (in thousands):
Covered | Non-covered | Total | Covered | Non-covered | Total | |||||||||||||||||||||||||
Loans (1) | Loans | Loans | Loans (1) | Loans | Loans |
|
|
|
|
|
| |||||||||||||||||||
September 30, 2017 | December 31, 2016 |
| June 30, 2019 |
| December 31, 2018 | |||||||||||||||||||||||||
Loans secured by real estate: |
|
|
|
|
|
| ||||||||||||||||||||||||
Commercial real estate - owner-occupied | $ | - | $ | 399,799 | $ | 399,799 | $ | - | $ | 154,807 | $ | 154,807 | ||||||||||||||||||
Commercial real estate - non-owner-occupied | - | 452,797 | 452,797 | - | 279,634 | 279,634 | ||||||||||||||||||||||||
Commercial real estate - owner occupied |
| $ | 410,832 |
| $ | 407,031 | ||||||||||||||||||||||||
Commercial real estate - non-owner occupied |
|
| 561,732 |
|
| 540,698 | ||||||||||||||||||||||||
Secured by farmland | - | 13,270 | 13,270 | - | 541 | 541 |
|
| 18,629 |
|
| 20,966 | ||||||||||||||||||
Construction and land loans | - | 198,328 | 198,328 | - | 91,067 | 91,067 |
|
| 158,956 |
|
| 146,654 | ||||||||||||||||||
Residential 1-4 family | 9,356 | 462,545 | 471,901 | 10,519 | 220,291 | 230,810 | ||||||||||||||||||||||||
Residential 1-4 family(1) |
|
| 572,715 |
|
| 565,083 | ||||||||||||||||||||||||
Multi- family residential | - | 73,547 | 73,547 | - | 30,021 | 30,021 |
|
| 82,593 |
|
| 82,516 | ||||||||||||||||||
Home equity lines of credit | 14,623 | 137,681 | 152,304 | 17,661 | 11,542 | 29,203 | ||||||||||||||||||||||||
Home equity lines of credit(1) |
|
| 117,298 |
|
| 128,225 | ||||||||||||||||||||||||
Total real estate loans | 23,979 | 1,737,967 | 1,761,946 | 28,180 | 787,903 | 816,083 |
|
| 1,922,755 |
|
| 1,891,173 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Commercial loans | - | 235,171 | 235,171 | - | 115,365 | 115,365 |
|
| 220,566 |
|
| 255,441 | ||||||||||||||||||
Consumer loans | - | 39,460 | 39,460 | - | 856 | 856 |
|
| 29,310 |
|
| 32,347 | ||||||||||||||||||
Gross loans | 23,979 | 2,012,598 | 2,036,577 | 28,180 | 904,124 | 932,304 | ||||||||||||||||||||||||
Less deferred fees on loans | - | (1,396 | ) | (1,396 | ) | - | (1,889 | ) | (1,889 | ) | ||||||||||||||||||||
Subtotal |
|
| 2,172,631 |
|
| 2,178,961 | ||||||||||||||||||||||||
Plus (less) deferred costs (fees) on loans |
|
| 214 |
|
| (137) | ||||||||||||||||||||||||
Loans, net of deferred fees | $ | 23,979 | $ | 2,011,202 | $ | 2,035,181 | $ | 28,180 | $ | 902,235 | $ | 930,415 |
| $ | 2,172,845 |
| $ | 2,178,824 |
(1) | Includes $15.8 million and $18.3 million of loans as of June 30, 2019 and December 31, 2018, respectively, acquired in the Greater Atlantic Bank (“GAB”) transaction covered under an FDIC loss-share agreement. The agreement covering single family loans expires in December 2019. |
(1) Covered LoansIn the first quarter of 2019, $33.9 million of commercial loans were acquired in the Greater Atlantic transactionreclassified into loans secured by real estate, upon review and are covered under an FDIC loss-share agreement. The agreement covering single family loans expires in December 2019.
validation of collateral and Call Report codes.
Accounting policy related to the allowance for loan losses is considered a critical policy given the level of estimation, judgment, and uncertainty in the levels of the allowance required to account for the inherent probable losses in the loan portfolio and the material effect such estimation, judgment, and uncertainty can have on the consolidated financial results.
On June 23, 2017, in connection with the merger with EVBS, SNBV acquired loans held for sale with a fair value of $19.7 million and loans held for investment with an unpaid principal balance of $1.05 billion and an estimated fair value of $1.04 billion, which created an accretable discount of $15.4 million at acquisition. Accretion of $1.1 million and $1.2 million associated with these acquired loans held for investment was recognized in the three and nine months ended September 30, 2017, respectively.
As part of the Greater Atlantic BankGAB acquisition, the Bank and the FDIC entered into loss sharing agreements on approximately $143.4 million (contractual basis) of Greater Atlantic Bank’sGAB’s assets. There were two agreements with the FDIC: one for single family loans which is a 10-year10‑year agreement expiring in December 2019, and one for non-single family (commercial) assets which was a 5-year5‑year agreement which expired in December 2014. The Bank will continue to share in the losses on the loans and foreclosed loan collateral with the FDIC as specified in the loss sharing agreements;agreement related to single family loans; we refer to these assets collectively as “covered assets.” Loans that are not covered in the loss sharing agreement are referred to as “non-covered loans”. As of Septemberloans.” Covered loans totaled $15.8 million and $18.3 million at June 30, 2017, non-covered loans included $22.6 million of loans acquired in the HarVest acquisition, $37.3 million acquired in the Prince Georges Federal Savings Bank (“PGFSB”) acquisition2019 and $990.4 million acquired in the EVBS acquisition.
December 31, 2018, respectively.
Accretable discount on the acquired EVBS, Greater AtlanticGAB, Prince George’s Federal Savings Bank PGFSB,(“PGFSB”), and the HarVest Bank (“HarVest”) loans totaled $19.6$13.3 million and $6.5$15.1 million at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively.
Accretion associated with the acquired loans held for investment of $972 thousand and $1.1 million was recognized in the three months ended June 30, 2019 and 2018, respectively, and $1.8 million and $2.2 million was recognized in the six months ended June 30, 2019 and 2018, respectively.
For the three acquisitions subsequent to the Greater Atlantic BankGAB acquisition noted above, management sold the majority of the purchased credit impaired loans immediately after closing of the acquisition.
16
Impaired loans for the covered and non-covered portfolios were as follows (in thousands):
Covered Loans | Non-covered Loans | Total Loans | ||||||||||||||||||||||||||||||||||
Unpaid | Unpaid | Unpaid | ||||||||||||||||||||||||||||||||||
Recorded | Principal | Related | Recorded | Principal | Related | Recorded | Principal | Related | ||||||||||||||||||||||||||||
September 30, 2017 | Investment | Balance | Allowance | Investment (1) | Balance | Allowance | Investment | Balance | Allowance | |||||||||||||||||||||||||||
With no related allowance recorded | ||||||||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | - | $ | 1,218 | $ | 1,324 | $ | - | $ | 1,218 | $ | 1,324 | $ | - | ||||||||||||||||||
Commercial real estate - non-owner occupied (2) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Construction and land development | - | - | - | 9,984 | 9,984 | - | 9,984 | 9,984 | - | |||||||||||||||||||||||||||
Commercial loans | - | - | - | 4,128 | 9,126 | - | 4,128 | 9,126 | - | |||||||||||||||||||||||||||
Residential 1-4 family (3) | 1,285 | 1,495 | - | 376 | 517 | - | 1,661 | 2,012 | - | |||||||||||||||||||||||||||
Other consumer loans | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Total | $ | 1,285 | $ | 1,495 | $ | - | $ | 15,706 | $ | 20,951 | $ | - | $ | 16,991 | $ | 22,446 | $ | - | ||||||||||||||||||
With an allowance recorded | ||||||||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||
Commercial real estate - non-owner occupied (2) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Construction and land development | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Commercial loans | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Residential 1-4 family (3) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Other consumer loans | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Total | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||
Grand total | $ | 1,285 | $ | 1,495 | $ | - | $ | 15,706 | $ | 20,951 | $ | - | $ | 16,991 | $ | 22,446 | $ | - |
(1) Recorded investment is after cumulative prior charge offs of $5.2 million. These loans also have aggregate SBA guarantees of $1.7 million.
(2) Includes loans secured by farmland and multi-family residential loans.
(3) Includes home equity lines of credit.
Covered Loans | Non-covered Loans | Total Loans | ||||||||||||||||||||||||||||||||||
Unpaid | Unpaid | Unpaid | ||||||||||||||||||||||||||||||||||
Recorded | Principal | Related | Recorded | Principal | Related | Recorded | Principal | Related | ||||||||||||||||||||||||||||
December 31, 2016 | Investment | Balance | Allowance | Investment (1) | Balance | Allowance | Investment | Balance | Allowance | |||||||||||||||||||||||||||
With no related allowance recorded | ||||||||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | - | $ | 5,583 | $ | 5,592 | $ | - | $ | 5,583 | $ | 5,592 | $ | - | ||||||||||||||||||
Commercial real estate - non-owner occupied (2) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Construction and land development | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Commercial loans | - | - | - | 3,002 | 3,603 | - | 3,002 | 3,603 | - | |||||||||||||||||||||||||||
Residential 1-4 family (3) | 963 | 1,113 | - | - | - | - | 963 | 1,113 | - | |||||||||||||||||||||||||||
Other consumer loans | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Total | $ | 963 | $ | 1,113 | $ | - | $ | 8,585 | $ | 9,195 | $ | - | $ | 9,548 | $ | 10,308 | $ | - | ||||||||||||||||||
With an allowance recorded | ||||||||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | - | $ | 688 | $ | 688 | $ | 150 | $ | 688 | $ | 688 | $ | 150 | ||||||||||||||||||
Commercial real estate - non-owner occupied (2) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Construction and land development | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Commercial loans | - | - | - | 3,378 | 5,798 | 750 | 3,378 | 5,798 | 750 | |||||||||||||||||||||||||||
Residential 1-4 family (3) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Other consumer loans | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Total | $ | - | $ | - | $ | - | $ | 4,066 | $ | 6,486 | $ | 900 | $ | 4,066 | $ | 6,486 | $ | 900 | ||||||||||||||||||
Grand total | $ | 963 | $ | 1,113 | $ | - | $ | 12,651 | $ | 15,681 | $ | 900 | $ | 13,614 | $ | 16,794 | $ | 900 |
(1) Recorded investment is after cumulative prior charge offs of $3.0 million. These loans also have aggregate SBA guarantees of $2.2 million.
(2) Includes loans secured by farmland and multi-family residential loans.
(3) Includes home equity lines of credit.
|
|
|
|
|
|
|
|
|
|
|
| Total Loans | |||||||
|
|
|
|
| Unpaid |
|
|
| |
|
| Recorded |
| Principal |
| Related | |||
June 30, 2019 |
| Investment (1) |
| Balance |
| Allowance | |||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | 5,279 |
| $ | 7,019 |
| $ | — |
Commercial real estate - non-owner occupied (2) |
|
| 4,868 |
|
| 5,011 |
|
| — |
Construction and land development |
|
| 338 |
|
| 749 |
|
| — |
Commercial loans |
|
| 5,442 |
|
| 9,052 |
|
| — |
Residential 1-4 family (3) |
|
| 1,635 |
|
| 4,127 |
|
| — |
Other consumer loans |
|
| — |
|
| 20 |
|
| — |
Total |
| $ | 17,562 |
| $ | 25,978 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | — |
| $ | — |
| $ | — |
Commercial real estate - non-owner occupied (2) |
|
| — |
|
| — |
|
| — |
Construction and land development |
|
| — |
|
| — |
|
| — |
Commercial loans |
|
| 2,771 |
|
| 2,771 |
|
| 600 |
Residential 1-4 family (3) |
|
| 1,179 |
|
| 1,463 |
|
| 5 |
Other consumer loans |
|
| — |
|
| — |
|
| — |
Total |
| $ | 3,950 |
| $ | 4,234 |
| $ | 605 |
Grand total |
| $ | 21,512 |
| $ | 30,212 |
| $ | 605 |
(1) | Recorded investment is after cumulative prior charge offs of $1.3 million. These loans also have aggregate SBA guarantees of $3.2 million. |
(2) | Includes loans secured by farmland and multi-family loans. |
(3) | Includes home equity lines of credit. |
|
|
|
|
|
|
|
|
|
|
|
| Total Loans | |||||||
|
|
|
|
| Unpaid |
|
|
| |
|
| Recorded |
| Principal |
| Related | |||
December 31, 2018 |
| Investment (1) |
| Balance |
| Allowance | |||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | 2,795 |
| $ | 4,777 |
| $ | — |
Commercial real estate - non-owner occupied (2) |
|
| 171 |
|
| 333 |
|
| — |
Construction and land development |
|
| — |
|
| 336 |
|
| — |
Commercial loans |
|
| 3,450 |
|
| 6,013 |
|
| — |
Residential 1-4 family (3) |
|
| 1,591 |
|
| 5,911 |
|
| — |
Other consumer loans |
|
| — |
|
| — |
|
| — |
Total |
| $ | 8,007 |
| $ | 17,370 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | — |
| $ | — |
| $ | — |
Commercial real estate - non-owner occupied (2) |
|
| — |
|
| — |
|
| — |
Construction and land development |
|
| — |
|
| — |
|
| — |
Commercial loans |
|
| 2,626 |
|
| 3,276 |
|
| 612 |
Residential 1-4 family (3) |
|
| 1,429 |
|
| 1,476 |
|
| 6 |
Other consumer loans |
|
| — |
|
| — |
|
| — |
Total |
| $ | 4,055 |
| $ | 4,752 |
| $ | 618 |
Grand total |
| $ | 12,062 |
| $ | 22,122 |
| $ | 618 |
(1) | Recorded investment is after cumulative prior charge offs of $1.5 million. These loans also have aggregate SBA guarantees of $3.4 million. |
(2) | Includes loans secured by farmland and multi-family loans. |
(3) | Includes home equity lines of credit. |
17
The following tables present the average recorded investment and interest income recognized for impaired loans recognized by class of loans for the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 (in thousands):
|
|
|
|
|
|
|
|
| Total Loans | ||||
|
| Average |
| Interest | ||
|
| Recorded |
| Income | ||
Three Months Ended June 30, 2019 |
| Investment |
| Recognized | ||
With no related allowance recorded |
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | 5,433 |
| $ | 92 |
Commercial real estate - non-owner occupied (1) |
|
| 4,901 |
|
| 100 |
Construction and land development |
|
| 357 |
|
| 14 |
Commercial loans |
|
| 5,524 |
|
| 98 |
Residential 1-4 family (2) |
|
| 1,691 |
|
| 48 |
Other consumer loans |
|
| — |
|
| — |
Total |
| $ | 17,906 |
| $ | 352 |
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | — |
| $ | — |
Commercial real estate - non-owner occupied (1) |
|
| — |
|
| — |
Construction and land development |
|
| — |
|
| — |
Commercial loans |
|
| 2,787 |
|
| 49 |
Residential 1-4 family (2) |
|
| 1,256 |
|
| 20 |
Other consumer loans |
|
| — |
|
| — |
Total |
| $ | 4,043 |
| $ | 69 |
Grand total |
| $ | 21,949 |
| $ | 421 |
(1) | Includes loans secured by farmland and multi-family loans. |
(2) |
|
|
|
|
|
|
|
|
|
| Total Loans | ||||
|
| Average |
| Interest | ||
|
| Recorded |
| Income | ||
Three Months Ended June 30, 2018 |
| Investment |
| Recognized | ||
With no related allowance recorded |
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | 668 |
| $ | 9 |
Commercial real estate - non-owner occupied (1) |
|
| 193 |
|
| 5 |
Construction and land development |
|
| — |
|
| — |
Commercial loans |
|
| 5,109 |
|
| 10 |
Residential 1-4 family (2) |
|
| 2,894 |
|
| 14 |
Other consumer loans |
|
| 21 |
|
| — |
Total |
| $ | 8,885 |
| $ | 38 |
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | — |
| $ | — |
Commercial real estate - non-owner occupied (1) |
|
| — |
|
| — |
Construction and land development |
|
| — |
|
| — |
Commercial loans |
|
| — |
|
| — |
Residential 1-4 family (2) |
|
| — |
|
| — |
Other consumer loans |
|
| — |
|
| — |
Total |
| $ | — |
| $ | — |
Grand total |
| $ | 8,885 |
| $ | 38 |
(1) | Includes loans secured by farmland and multi-family loans. |
(2) | Includes home equity lines of credit. |
18
|
|
|
|
|
|
|
|
| Total Loans | ||||
|
| Average |
| Interest | ||
|
| Recorded |
| Income | ||
Six Months Ended June 30, 2019 |
| Investment |
| Recognized | ||
With no related allowance recorded |
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | 5,459 |
| $ | 158 |
Commercial real estate - non-owner occupied (1) |
|
| 4,933 |
|
| 137 |
Construction and land development |
|
| 362 |
|
| 28 |
Commercial loans |
|
| 5,547 |
|
| 109 |
Residential 1-4 family (2) |
|
| 1,703 |
|
| 107 |
Other consumer loans |
|
| — |
|
| — |
Total |
| $ | 18,004 |
| $ | 539 |
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | — |
| $ | — |
Commercial real estate - non-owner occupied (1) |
|
| — |
|
| — |
Construction and land development |
|
| — |
|
| — |
Commercial loans |
|
| 2,819 |
|
| 99 |
Residential 1-4 family (2) |
|
| 1,257 |
|
| 38 |
Other consumer loans |
|
| — |
|
| — |
Total |
| $ | 4,076 |
| $ | 137 |
Grand total |
| $ | 22,080 |
| $ | 676 |
(1) | Includes loans secured by farmland and multi-family loans. |
(2) | Includes home equity lines of credit. |
Covered Loans | Non-covered Loans | Total Loans | ||||||||||||||||||||||
Average | Interest | Average | Interest | Average | Interest | |||||||||||||||||||
Recorded | Income | Recorded | Income | Recorded | Income | |||||||||||||||||||
Nine months ended September 30, 2017 | Investment | Recognized | Investment | Recognized | Investment | Recognized | ||||||||||||||||||
With no related allowance recorded | ||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | 1,328 | $ | 27 | $ | 1,328 | $ | 27 | ||||||||||||
Commercial real estate - non-owner occupied (1) | - | - | - | - | - | - | ||||||||||||||||||
Construction and land development | - | - | 9,934 | 158 | 9,934 | 158 | ||||||||||||||||||
Commercial loans | - | - | 8,206 | 323 | 8,206 | 323 | ||||||||||||||||||
Residential 1-4 family (2) | 1,292 | 45 | 517 | - | 1,809 | 45 | ||||||||||||||||||
Other consumer loans | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | 1,292 | $ | 45 | $ | 19,985 | $ | 508 | $ | 21,277 | $ | 553 | ||||||||||||
With an allowance recorded | ||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Commercial real estate - non-owner occupied (1) | - | - | - | - | - | - | ||||||||||||||||||
Construction and land development | - | - | - | - | - | - | ||||||||||||||||||
Commercial loans | - | - | - | - | - | - | ||||||||||||||||||
Residential 1-4 family (2) | - | - | - | - | - | - | ||||||||||||||||||
Other consumer loans | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Grand total | $ | 1,292 | $ | 45 | $ | 19,985 | $ | 508 | $ | 21,277 | $ | 553 |
(1) Includes loans secured by farmland and multi-family residential loans.
(2) Includes home equity lines of credit.
Covered Loans | Non-covered Loans | Total Loans | ||||||||||||||||||||||
Average | Interest | Average | Interest | Average | Interest | |||||||||||||||||||
Recorded | Income | Recorded | Income | Recorded | Income | |||||||||||||||||||
Nine months ended September 30, 2016 | Investment | Recognized | Investment | Recognized | Investment | Recognized | ||||||||||||||||||
With no related allowance recorded | ||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | 6,711 | $ | 220 | $ | 6,711 | $ | 220 | ||||||||||||
Commercial real estate - non-owner occupied (1) | - | - | 134 | 8 | 134 | 8 | ||||||||||||||||||
Construction and land development | - | - | - | - | - | - | ||||||||||||||||||
Commercial loans | - | - | 2,852 | - | 2,852 | - | ||||||||||||||||||
Residential 1-4 family (2) | 996 | 24 | - | - | 996 | 24 | ||||||||||||||||||
Other consumer loans | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | 996 | $ | 24 | $ | 9,697 | $ | 228 | $ | 10,693 | $ | 252 | ||||||||||||
With an allowance recorded | ||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | 696 | $ | 24 | $ | 696 | $ | 24 | ||||||||||||
Commercial real estate - non-owner occupied (1) | - | - | - | - | - | - | ||||||||||||||||||
Construction and land development | - | - | - | - | - | - | ||||||||||||||||||
Commercial loans | - | - | 3,301 | 117 | 3,301 | 117 | ||||||||||||||||||
Residential 1-4 family (2) | - | - | - | - | - | - | ||||||||||||||||||
Other consumer loans | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | - | $ | - | $ | 3,997 | $ | 141 | $ | 3,997 | $ | 141 | ||||||||||||
Grand total | $ | 996 | $ | 24 | $ | 13,694 | $ | 369 | $ | 14,690 | $ | 393 |
(1) Includes loans secured by farmland and multi-family residential loans.
(2) Includes home equity lines of credit.
|
|
|
|
|
|
|
|
| Total Loans | ||||
|
| Average |
| Interest | ||
|
| Recorded |
| Income | ||
Six Months Ended June 30, 2018 |
| Investment |
| Recognized | ||
With no related allowance recorded |
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | 670 |
| $ | 17 |
Commercial real estate - non-owner occupied (1) |
|
| 194 |
|
| 10 |
Construction and land development |
|
| — |
|
| — |
Commercial loans |
|
| 5,032 |
|
| 25 |
Residential 1-4 family (2) |
|
| 2,733 |
|
| 49 |
Other consumer loans |
|
| 21 |
|
| — |
Total |
| $ | 8,650 |
| $ | 101 |
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | — |
| $ | — |
Commercial real estate - non-owner occupied (1) |
|
| — |
|
| — |
Construction and land development |
|
| — |
|
| — |
Commercial loans |
|
| — |
|
| — |
Residential 1-4 family (2) |
|
| — |
|
| — |
Other consumer loans |
|
| — |
|
| — |
Total |
| $ | — |
| $ | — |
Grand total |
| $ | 8,650 |
| $ | 101 |
(1) | Includes loans secured by farmland and multi-family loans. |
(2) | Includes home equity lines of credit. |
19
The following tables present the aging of the recorded investment in past due loans by class of loans as of SeptemberJune 30, 20172019 and December 31, 20162018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 30 - 59 |
| 60 - 89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Days |
| Days |
| 90 Days |
| Total |
| Nonaccrual |
| Loans Not |
| Total | |||||||
June 30, 2019 |
| Past Due |
| Past Due |
| or More |
| Past Due |
| Loans |
| Past Due |
| Loans | |||||||
Total loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | 265 |
| $ | — |
| $ | — |
| $ | 265 |
| $ | 813 |
| $ | 409,754 |
| $ | 410,832 |
Commercial real estate - non-owner occupied (1) |
|
| 915 |
|
| — |
|
| — |
|
| 915 |
|
| — |
|
| 662,039 |
|
| 662,954 |
Construction and land development |
|
| 237 |
|
| — |
|
| — |
|
| 237 |
|
| — |
|
| 158,719 |
|
| 158,956 |
Commercial loans |
|
| 3,052 |
|
| 157 |
|
| — |
|
| 3,209 |
|
| 3,207 |
|
| 214,150 |
|
| 220,566 |
Residential 1-4 family (2) |
|
| 2,827 |
|
| 2,170 |
|
| — |
|
| 4,997 |
|
| 1,180 |
|
| 683,836 |
|
| 690,013 |
Other consumer loans |
|
| 135 |
|
| 14 |
|
| — |
|
| 149 |
|
| — |
|
| 29,161 |
|
| 29,310 |
Total |
| $ | 7,431 |
| $ | 2,341 |
| $ | — |
| $ | 9,772 |
| $ | 5,200 |
| $ | 2,157,659 |
| $ | 2,172,631 |
(1) | Includes loans secured by farmland and multi-family loans. |
(2) | Includes home equity lines of credit. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 30 - 59 |
| 60 - 89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Days |
| Days |
| 90 Days |
| Total |
| Nonaccrual |
| Loans Not |
| Total | |||||||
December 31, 2018 |
| Past Due |
| Past Due |
| or More |
| Past Due |
| Loans |
| Past Due |
| Loans | |||||||
Total loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | 577 |
| $ | 344 |
| $ | — |
| $ | 921 |
| $ | 1,284 |
| $ | 404,826 |
| $ | 407,031 |
Commercial real estate - non-owner occupied (1) |
|
| 581 |
|
| 617 |
|
| — |
|
| 1,198 |
|
| — |
|
| 642,982 |
|
| 644,180 |
Construction and land development |
|
| 851 |
|
| — |
|
| — |
|
| 851 |
|
| — |
|
| 145,803 |
|
| 146,654 |
Commercial loans |
|
| 319 |
|
| 168 |
|
| — |
|
| 487 |
|
| 3,391 |
|
| 251,563 |
|
| 255,441 |
Residential 1-4 family (2) |
|
| 5,523 |
|
| 197 |
|
| — |
|
| 5,720 |
|
| 2,055 |
|
| 685,533 |
|
| 693,308 |
Other consumer loans |
|
| 142 |
|
| 18 |
|
| — |
|
| 160 |
|
| — |
|
| 32,187 |
|
| 32,347 |
Total |
| $ | 7,993 |
| $ | 1,344 |
| $ | — |
| $ | 9,337 |
| $ | 6,730 |
| $ | 2,162,894 |
| $ | 2,178,961 |
(1) | Includes loans secured by farmland and multi-family loans. |
(2) | Includes home equity lines of credit. |
30 - 59 | 60 - 89 | |||||||||||||||||||||||||||
Days | Days | 90 Days | Total | Nonaccrual | Loans Not | Total | ||||||||||||||||||||||
September 30, 2017 | Past Due | Past Due | or More | Past Due | Loans | Past Due | Loans | |||||||||||||||||||||
Covered loans: | ||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
Commercial real estate - non-owner occupied (1) | - | - | - | - | - | - | - | |||||||||||||||||||||
Construction and land development | - | - | - | - | - | - | - | |||||||||||||||||||||
Commercial loans | - | - | - | - | - | - | - | |||||||||||||||||||||
Residential 1-4 family (2) | 23 | 193 | - | 216 | 1,109 | 22,654 | 23,979 | |||||||||||||||||||||
Other consumer loans | - | - | - | - | - | - | - | |||||||||||||||||||||
Total | $ | 23 | $ | 193 | $ | - | $ | 216 | $ | 1,109 | $ | 22,654 | $ | 23,979 | ||||||||||||||
Non-covered loans: | ||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | 4,491 | $ | 40 | $ | - | $ | 4,531 | $ | 636 | $ | 394,632 | $ | 399,799 | ||||||||||||||
Commercial real estate - non-owner occupied (1) | 1,934 | 39 | - | 1,973 | - | 537,641 | 539,614 | |||||||||||||||||||||
Construction and land development | 1,604 | - | - | 1,604 | 9,984 | 186,740 | 198,328 | |||||||||||||||||||||
Commercial loans | 5,994 | 250 | - | 6,244 | 1,732 | 227,195 | 235,171 | |||||||||||||||||||||
Residential 1-4 family (2) | 3,565 | 1,119 | - | 4,684 | 639 | 594,903 | 600,226 | |||||||||||||||||||||
Other consumer loans | 37 | 8 | - | 45 | - | 39,415 | 39,460 | |||||||||||||||||||||
Total | $ | 17,625 | $ | 1,456 | $ | - | $ | 19,081 | $ | 12,991 | $ | 1,980,526 | $ | 2,012,598 | ||||||||||||||
Total loans: | ||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | 4,491 | $ | 40 | $ | - | $ | 4,531 | $ | 636 | $ | 394,632 | $ | 399,799 | ||||||||||||||
Commercial real estate - non-owner occupied (1) | 1,934 | 39 | - | 1,973 | - | 537,641 | 539,614 | |||||||||||||||||||||
Construction and land development | 1,604 | - | - | 1,604 | 9,984 | 186,740 | 198,328 | |||||||||||||||||||||
Commercial loans | 5,994 | 250 | - | 6,244 | 1,732 | 227,195 | 235,171 | |||||||||||||||||||||
Residential 1-4 family (2) | 3,588 | 1,312 | - | 4,900 | 1,748 | 617,557 | 624,205 | |||||||||||||||||||||
Other consumer loans | 37 | 8 | - | 45 | - | 39,415 | 39,460 | |||||||||||||||||||||
Total | $ | 17,648 | $ | 1,649 | $ | - | $ | 19,297 | $ | 14,100 | $ | 2,003,180 | $ | 2,036,577 |
30 - 59 | 60 - 89 | |||||||||||||||||||||||||||
Days | Days | 90 Days | Total | Nonaccrual | Loans Not | Total | ||||||||||||||||||||||
December 31, 2016 | Past Due | Past Due | or More | Past Due | Loans | Past Due | Loans | |||||||||||||||||||||
Covered loans: | ||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
Commercial real estate - non-owner occupied (1) | - | - | - | - | - | - | - | |||||||||||||||||||||
Construction and land development | - | - | - | - | - | - | - | |||||||||||||||||||||
Commercial loans | - | - | - | - | - | - | - | |||||||||||||||||||||
Residential 1-4 family (2) | 221 | 95 | - | 316 | 850 | 27,014 | 28,180 | |||||||||||||||||||||
Other consumer loans | - | - | - | - | - | - | - | |||||||||||||||||||||
Total | $ | 221 | $ | 95 | $ | - | $ | 316 | $ | 850 | $ | 27,014 | $ | 28,180 | ||||||||||||||
Non-covered loans: | ||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | - | $ | - | $ | 637 | $ | 154,170 | $ | 154,807 | ||||||||||||||
Commercial real estate - non-owner occupied (1) | - | - | - | - | - | 310,196 | 310,196 | |||||||||||||||||||||
Construction and land development | - | - | - | - | - | 91,067 | 91,067 | |||||||||||||||||||||
Commercial loans | 1,349 | - | - | 1,349 | 3,158 | 110,858 | 115,365 | |||||||||||||||||||||
Residential 1-4 family (2) | 1,011 | - | - | 1,011 | - | 230,822 | 231,833 | |||||||||||||||||||||
Other consumer loans | - | - | - | - | - | 856 | 856 | |||||||||||||||||||||
Total | $ | 2,360 | $ | - | $ | - | $ | 2,360 | $ | 3,795 | $ | 897,969 | $ | 904,124 | ||||||||||||||
Total loans: | ||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | - | $ | - | $ | 637 | $ | 154,170 | $ | 154,807 | ||||||||||||||
Commercial real estate - non-owner occupied (1) | - | - | - | - | - | 310,196 | 310,196 | |||||||||||||||||||||
Construction and land development | - | - | - | - | - | 91,067 | 91,067 | |||||||||||||||||||||
Commercial loans | 1,349 | - | - | 1,349 | 3,158 | 110,858 | 115,365 | |||||||||||||||||||||
Residential 1-4 family (2) | 1,232 | 95 | - | 1,327 | 850 | 257,836 | 260,013 | |||||||||||||||||||||
Other consumer loans | - | - | - | - | - | 856 | 856 | |||||||||||||||||||||
Total | $ | 2,581 | $ | 95 | $ | - | $ | 2,676 | $ | 4,645 | $ | 924,983 | $ | 932,304 |
20
(1) Includes loans secured by farmland and multi-family residential loans.
(2) Includes home equity lines of credit.
Non-covered nonaccrualNonaccrual loans include SBA guaranteed amounts totaling $1.7$3.2 million and $2.2$3.4 million at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively.
Activity in the allowance for non-covered loan and lease losses for the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 is summarized below (in thousands):
Commercial | Commercial | |||||||||||||||||||||||||||||||
Real Estate | Real Estate | Construction | Other | |||||||||||||||||||||||||||||
Owner | Non-owner | and Land | Commercial | 1-4 Family | Consumer | |||||||||||||||||||||||||||
Occupied | Occupied (1) | Development | Loans | Residential (2) | Loans | Unallocated | Total | |||||||||||||||||||||||||
Non-covered loans: | ||||||||||||||||||||||||||||||||
Three months ended September 30, 2017 | ||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 938 | $ | 1,790 | $ | 1,096 | $ | 2,691 | $ | 1,423 | $ | 84 | $ | 1,175 | $ | 9,197 | ||||||||||||||||
Charge offs | - | - | - | (5,316 | ) | - | (57 | ) | - | (5,373 | ) | |||||||||||||||||||||
Recoveries | 7 | - | - | 170 | 2 | 1 | - | 180 | ||||||||||||||||||||||||
Provision | (129 | ) | (260 | ) | (293 | ) | 6,629 | 15 | 297 | (1,009 | ) | 5,250 | ||||||||||||||||||||
Ending balance | $ | 816 | $ | 1,530 | $ | 803 | $ | 4,174 | $ | 1,440 | $ | 325 | $ | 166 | $ | 9,254 | ||||||||||||||||
Three months ended September 30, 2016 | ||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 721 | $ | 1,403 | $ | 855 | $ | 3,345 | $ | 1,262 | $ | 122 | $ | 713 | $ | 8,421 | ||||||||||||||||
Charge offs | (798 | ) | - | - | (1,363 | ) | - | - | - | (2,161 | ) | |||||||||||||||||||||
Recoveries | - | - | 120 | 33 | 4 | 2 | - | 159 | ||||||||||||||||||||||||
Provision | 916 | 196 | (328 | ) | 1,257 | 95 | (41 | ) | (45 | ) | 2,050 | |||||||||||||||||||||
Ending balance | $ | 839 | $ | 1,599 | $ | 647 | $ | 3,272 | $ | 1,361 | $ | 83 | $ | 668 | $ | 8,469 |
(1) Includes loans secured by farmland and multi-family residential loans.
(2) Includes home equity lines of credit.
Commercial | Commercial | |||||||||||||||||||||||||||||||
Real Estate | Real Estate | Construction | Other | |||||||||||||||||||||||||||||
Owner | Non-owner | and Land | Commercial | 1-4 Family | Consumer | |||||||||||||||||||||||||||
Occupied | Occupied (1) | Development | Loans | Residential (2) | Loans | Unallocated | Total | |||||||||||||||||||||||||
Non-covered loans: | ||||||||||||||||||||||||||||||||
Nine months ended September 30, 2017 | ||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 905 | $ | 1,484 | $ | 752 | $ | 3,366 | $ | 1,279 | $ | 78 | $ | 746 | $ | 8,610 | ||||||||||||||||
Charge offs | - | (100 | ) | - | (6,283 | ) | (319 | ) | (63 | ) | - | (6,765 | ) | |||||||||||||||||||
Recoveries | 28 | 299 | - | 221 | 6 | 5 | - | 559 | ||||||||||||||||||||||||
Provision | (117 | ) | (153 | ) | 51 | 6,870 | 474 | 305 | (580 | ) | 6,850 | |||||||||||||||||||||
Ending balance | $ | 816 | $ | 1,530 | $ | 803 | $ | 4,174 | $ | 1,440 | $ | 325 | $ | 166 | $ | 9,254 | ||||||||||||||||
Nine months ended September 30, 2016 | ||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 1,185 | $ | 1,222 | $ | 865 | $ | 3,041 | $ | 1,408 | $ | 48 | $ | 652 | $ | 8,421 | ||||||||||||||||
Charge offs | (798 | ) | - | (450 | ) | (2,633 | ) | (22 | ) | (322 | ) | - | (4,225 | ) | ||||||||||||||||||
Recoveries | - | 1 | 120 | 78 | 8 | 4 | - | 211 | ||||||||||||||||||||||||
Provision | 452 | 376 | 112 | 2,786 | (33 | ) | 353 | 16 | 4,062 | |||||||||||||||||||||||
Ending balance | $ | 839 | $ | 1,599 | $ | 647 | $ | 3,272 | $ | 1,361 | $ | 83 | $ | 668 | $ | 8,469 |
(1) Includes loans secured by farmland and multi-family residential loans.
(2) Includes home equity lines of credit.
No activity in the allowance for covered loan and lease losses was recorded during the three and nine months ended September 30, 2017 and 2016.
|
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|
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|
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|
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|
|
|
|
|
| Commercial |
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Real Estate |
| Real Estate |
| Construction |
|
|
|
|
|
|
| Other |
|
|
|
|
|
| ||||
|
| Owner |
| Non-owner |
| and Land |
| Commercial |
| 1-4 Family |
| Consumer |
|
|
|
|
|
| ||||||
Three Months Ended June 30, 2019 |
| Occupied |
| Occupied (1) |
| Development |
| Loans |
| Residential (2) |
| Loans |
| Unallocated |
| Total | ||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Beginning balance |
| $ | 816 |
| $ | 1,831 |
| $ | 920 |
| $ | 6,106 |
| $ | 1,170 |
| $ | 253 |
| $ | 778 |
| $ | 11,874 |
Provision (recovery) |
|
| 599 |
|
| 56 |
|
| (118) |
|
| (481) |
|
| (237) |
|
| 105 |
|
| 76 |
|
| — |
Charge offs |
|
| (782) |
|
| — |
|
| — |
|
| — |
|
| (90) |
|
| (96) |
|
| — |
|
| (968) |
Recoveries |
|
| 200 |
|
| 3 |
|
| — |
|
| 209 |
|
| 284 |
|
| 11 |
|
| — |
|
| 707 |
Ending balance |
| $ | 833 |
| $ | 1,890 |
| $ | 802 |
| $ | 5,834 |
| $ | 1,127 |
| $ | 273 |
| $ | 854 |
| $ | 11,613 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018 |
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 859 |
| $ | 1,550 |
| $ | 804 |
| $ | 5,272 |
| $ | 1,450 |
| $ | 820 |
| $ | — |
| $ | 10,755 |
Provision (recovery) |
|
| (113) |
|
| (257) |
|
| 69 |
|
| 1,709 |
|
| 199 |
|
| (557) |
|
| — |
|
| 1,050 |
Charge offs |
|
| — |
|
| — |
|
| — |
|
| (707) |
|
| (95) |
|
| (91) |
|
| — |
|
| (893) |
Recoveries |
|
| 4 |
|
| — |
|
| — |
|
| 32 |
|
| 25 |
|
| 27 |
|
| — |
|
| 88 |
Ending balance |
| $ | 750 |
| $ | 1,293 |
| $ | 873 |
| $ | 6,306 |
| $ | 1,579 |
| $ | 199 |
| $ | — |
| $ | 11,000 |
(1) | Includes loans secured by farmland and multi-family loans. |
(2) | Includes home equity lines of credit. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
| Commercial |
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Real Estate |
| Real Estate |
| Construction |
|
|
|
|
|
|
| Other |
|
|
|
|
|
| ||||
|
| Owner |
| Non-owner |
| and Land |
| Commercial |
| 1-4 Family |
| Consumer |
|
|
|
| ||||||||
Six Months Ended June 30, 2019 |
| Occupied |
| Occupied (1) |
| Development |
| Loans |
| Residential (2) |
| Loans |
| Unallocated |
| Total | ||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 802 |
| $ | 1,669 |
| $ | 821 |
| $ | 7,097 |
| $ | 1,106 |
| $ | 224 |
| $ | 564 |
| $ | 12,283 |
Provision (recovery) |
|
| 610 |
|
| 680 |
|
| (19) |
|
| (1,368) |
|
| (181) |
|
| 188 |
|
| 290 |
|
| 200 |
Charge offs |
|
| (782) |
|
| (462) |
|
| — |
|
| (167) |
|
| (90) |
|
| (156) |
|
| — |
|
| (1,657) |
Recoveries |
|
| 203 |
|
| 3 |
|
| — |
|
| 272 |
|
| 292 |
|
| 17 |
|
| — |
|
| 787 |
Ending balance |
| $ | 833 |
| $ | 1,890 |
| $ | 802 |
| $ | 5,834 |
| $ | 1,127 |
| $ | 273 |
| $ | 854 |
| $ | 11,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 690 |
| $ | 1,321 |
| $ | 692 |
| $ | 4,496 |
| $ | 1,586 |
| $ | 612 |
| $ | — |
| $ | 9,397 |
Provision (recovery) |
|
| 53 |
|
| (28) |
|
| 181 |
|
| 2,540 |
|
| 165 |
|
| (261) |
|
| — |
|
| 2,650 |
Charge offs |
|
| — |
|
| — |
|
| — |
|
| (937) |
|
| (261) |
|
| (182) |
|
| — |
|
| (1,380) |
Recoveries |
|
| 7 |
|
| — |
|
| — |
|
| 207 |
|
| 89 |
|
| 30 |
|
| — |
|
| 333 |
Ending balance |
| $ | 750 |
| $ | 1,293 |
| $ | 873 |
| $ | 6,306 |
| $ | 1,579 |
| $ | 199 |
| $ | — |
| $ | 11,000 |
(1) | Includes loans secured by farmland and multi-family loans. |
(2) | Includes home equity lines of credit. |
21
The following tables present the balance in the allowance for loan losses and the recorded investment in non-covered loans by portfolio segment and based on impairment method as of SeptemberJune 30, 20172019 and December 31, 20162018 (in thousands):
Commercial | Commercial | |||||||||||||||||||||||||||||||
Real Estate | Real Estate | Construction | Other | |||||||||||||||||||||||||||||
Owner | Non-owner | and Land | Commercial | 1-4 Family | Consumer | |||||||||||||||||||||||||||
Occupied | Occupied (1) | Development | Loans | Residential (2) | Loans | Unallocated | Total | |||||||||||||||||||||||||
Non-covered loans: | ||||||||||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||||||
Ending allowance balance attributable to loans: | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Collectively evaluated for impairment | 816 | 1,530 | 803 | 4,174 | 1,440 | 325 | 166 | 9,254 | ||||||||||||||||||||||||
Total ending allowance | $ | 816 | $ | 1,530 | $ | 803 | $ | 4,174 | $ | 1,440 | $ | 325 | $ | 166 | $ | 9,254 | ||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,218 | $ | - | $ | 9,984 | $ | 4,128 | $ | 376 | $ | - | $ | - | $ | 15,706 | ||||||||||||||||
Collectively evaluated for impairment | 398,581 | 539,614 | 188,344 | 231,043 | 599,850 | 39,460 | - | 1,996,892 | ||||||||||||||||||||||||
Total ending loan balances | $ | 399,799 | $ | 539,614 | $ | 198,328 | $ | 235,171 | $ | 600,226 | $ | 39,460 | $ | - | $ | 2,012,598 | ||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||
Ending allowance balance attributable to loans: | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 150 | $ | - | $ | - | $ | 750 | $ | - | $ | - | $ | - | $ | 900 | ||||||||||||||||
Collectively evaluated for impairment | 755 | 1,484 | 752 | 2,616 | 1,279 | 78 | 746 | 7,710 | ||||||||||||||||||||||||
Total ending allowance | $ | 905 | $ | 1,484 | $ | 752 | $ | 3,366 | $ | 1,279 | $ | 78 | $ | 746 | $ | 8,610 | ||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 6,271 | $ | - | $ | - | $ | 6,380 | $ | - | $ | - | $ | - | $ | 12,651 | ||||||||||||||||
Collectively evaluated for impairment | 148,536 | 310,196 | 91,067 | 108,985 | 231,833 | 856 | - | 891,473 | ||||||||||||||||||||||||
Total ending loan balances | $ | 154,807 | $ | 310,196 | $ | 91,067 | $ | 115,365 | $ | 231,833 | $ | 856 | $ | - | $ | 904,124 |
(1) Includes loans secured by farmland and multi-family residential loans.
(2) Includes home equity lines of credit.
The following tables present the balance in the allowance for covered loan losses and the recorded investment in covered loans by portfolio segment and based on impairment method as of September 30, 2017 and December 31, 2016 (in thousands):
Commercial | Commercial | |||||||||||||||||||||||||||||||
Real Estate | Real Estate | Construction | Other | |||||||||||||||||||||||||||||
Owner | Non-owner | and Land | Commercial | 1-4 Family | Consumer | |||||||||||||||||||||||||||
Occupied | Occupied (1) | Development | Loans | Residential (2) | Loans | Unallocated | Total | |||||||||||||||||||||||||
Covered loans: | ||||||||||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||||||
Ending allowance balance attributable to loans: | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Collectively evaluated for impairment | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total ending allowance | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | - | $ | - | $ | - | $ | - | $ | 1,285 | $ | - | $ | - | $ | 1,285 | ||||||||||||||||
Collectively evaluated for impairment | - | - | - | - | 22,694 | - | - | 22,694 | ||||||||||||||||||||||||
Total ending loan balances | $ | - | $ | - | $ | - | $ | - | $ | 23,979 | $ | - | $ | - | $ | 23,979 | ||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||
Ending allowance balance attributable to loans: | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Collectively evaluated for impairment | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total ending allowance | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | - | $ | - | $ | - | $ | - | $ | 963 | $ | - | $ | - | $ | 963 | ||||||||||||||||
Collectively evaluated for impairment | - | - | - | - | 27,217 | - | - | 27,217 | ||||||||||||||||||||||||
Total ending loan balances | $ | - | $ | - | $ | - | $ | - | $ | 28,180 | $ | - | $ | - | $ | 28,180 |
(1) Includes loans secured by farmland and multi-family residential loans.
(2) Includes home equity lines of credit.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial |
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Real Estate |
| Real Estate |
| Construction |
|
|
|
|
|
|
| Other |
|
|
|
|
|
| ||||
|
| Owner |
| Non-owner |
| and Land |
| Commercial |
| 1-4 Family |
| Consumer |
|
|
|
|
|
| ||||||
June 30, 2019 |
| Occupied |
| Occupied (1) |
| Development |
| Loans |
| Residential (2) |
| Loans |
| Unallocated |
| Total | ||||||||
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | 600 |
| $ | — |
| $ | — |
| $ | — |
| $ | 600 |
Collectively evaluated for impairment |
|
| 833 |
|
| 1,890 |
|
| 802 |
|
| 5,234 |
|
| 1,127 |
|
| 273 |
|
| 854 |
|
| 11,013 |
Total ending allowance |
| $ | 833 |
| $ | 1,890 |
| $ | 802 |
| $ | 5,834 |
| $ | 1,127 |
| $ | 273 |
| $ | 854 |
| $ | 11,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | 5,279 |
| $ | 4,868 |
| $ | 338 |
| $ | 5,442 |
| $ | 1,635 |
| $ | — |
| $ | — |
| $ | 17,562 |
Collectively evaluated for impairment |
|
| 405,553 |
|
| 658,086 |
|
| 158,618 |
|
| 215,124 |
|
| 688,378 |
|
| 29,310 |
|
| — |
|
| 2,155,069 |
Total ending loan balances |
| $ | 410,832 |
| $ | 662,954 |
| $ | 158,956 |
| $ | 220,566 |
| $ | 690,013 |
| $ | 29,310 |
| $ | — |
| $ | 2,172,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | 600 |
| $ | — |
| $ | — |
| $ | — |
| $ | 600 |
Collectively evaluated for impairment |
|
| 802 |
|
| 1,669 |
|
| 821 |
|
| 6,497 |
|
| 1,106 |
|
| 224 |
|
| 564 |
|
| 11,683 |
Total ending allowance |
| $ | 802 |
| $ | 1,669 |
| $ | 821 |
| $ | 7,097 |
| $ | 1,106 |
| $ | 224 |
| $ | 564 |
| $ | 12,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | 2,795 |
| $ | 171 |
| $ | — |
| $ | 3,450 |
| $ | 1,591 |
| $ | — |
| $ | — |
| $ | 8,007 |
Collectively evaluated for impairment |
|
| 404,236 |
|
| 644,009 |
|
| 146,654 |
|
| 251,991 |
|
| 691,717 |
|
| 32,347 |
|
| — |
|
| 2,170,954 |
Total ending loan balances |
| $ | 407,031 |
| $ | 644,180 |
| $ | 146,654 |
| $ | 255,441 |
| $ | 693,308 |
| $ | 32,347 |
| $ | — |
| $ | 2,178,961 |
(1) | Includes loans secured by farmland and multi-family loans. |
(2) | Includes home equity lines of credit. |
Troubled Debt Restructurings
A modification is classified as a troubled debt restructuring (“TDR”) if both of the following exist: (1) the borrower is experiencing financial difficulty and (2) the Bank has granted a concession to the borrower. The Bank determines that a borrower may be experiencing financial difficulty if the borrower is currently delinquent on any of its debt, or if the Bank is concerned that the borrower may not be able to perform in accordance with the current terms of the loan agreement in the foreseeable future. Many aspects of the borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty, particularly as it relates to commercial borrowers due to the complex nature of the loan structure, business/industry risk and borrower/guarantor structures. Concessions may include the reduction of an interest rate at a rate lower than current market rate for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. When evaluating whether a concession has been granted, the Bank also considers whether the borrower has provided additional collateral or guarantors and whether such additions adequately compensate the Bank for the restructured terms, or if the revised terms are consistent with those currently being offered to new loan customers. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management’s judgment is required when determining whether a modification is a TDR.
Although each occurrence is unique to the borrower and is evaluated separately, for all portfolio segments, TDRs are typically modified through reduction in interest rates, reductions in payments, changing the payment terms from principal and interest to interest only, and/or extensions in term maturity.
22
During the three and nine months ending SeptemberAs of June 30, 2017, there were no2019, we had two loans in TDRs. One loan was modified in TDRs.TDRs during the year ending December 31, 2018. One TDR which had been modified in 2013 defaulted during the second quarter ofin 2015. This loan, in the amount of $677$655 thousand, was current as of SeptemberJune 30, 2017.
During the three and nine months ending September 30, 2016, there were no loans modified in TDRs. One TDR which had been modified in 2013 defaulted during the second quarter of 2015. This loan, in the amount of $692 thousand, was current as of September 30, 2016.
2019.
Credit Quality Indicators
Through its system of internal controls, Southern National evaluates and segments loan portfolio credit quality on a quarterly basis using regulatory definitions for Special Mention, Substandard and Doubtful. Special Mention loans are considered to be criticized. Substandard and Doubtful loans are considered to be classified. Southern National had no loans classified Doubtful at September 30, 2017 or December 31, 2016.
Special Mention loans are loans that have a potential weakness that deservesdeserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position.
Substandard loans may be inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful loans have all the weaknesses inherent in those classified as 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.
Southern National had no loans classified Doubtful at June 30, 2019 or December 31, 2018.
As of SeptemberJune 30, 20172019 and December 31, 2016,2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Loans | ||||||||||
|
| Special |
|
|
|
|
|
|
|
|
| |
June 30, 2019 |
| Mention |
| Substandard (3) |
| Pass |
| Total | ||||
Commercial real estate - owner occupied |
| $ | 3,939 |
| $ | 5,058 |
| $ | 401,835 |
| $ | 410,832 |
Commercial real estate - non-owner occupied (1) |
|
| 4,311 |
|
| 181 |
|
| 658,462 |
|
| 662,954 |
Construction and land development |
|
| 731 |
|
| — |
|
| 158,225 |
|
| 158,956 |
Commercial loans |
|
| 3,439 |
|
| 7,173 |
|
| 209,954 |
|
| 220,566 |
Residential 1-4 family (2) |
|
| 471 |
|
| 2,583 |
|
| 686,959 |
|
| 690,013 |
Other consumer loans |
|
| 132 |
|
| — |
|
| 29,178 |
|
| 29,310 |
Total |
| $ | 13,023 |
| $ | 14,995 |
| $ | 2,144,613 |
| $ | 2,172,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Loans | ||||||||||
|
| Special |
|
|
|
|
|
|
|
|
| |
December 31, 2018 |
| Mention |
| Substandard (3) |
| Pass |
| Total | ||||
Commercial real estate - owner occupied |
| $ | 6,611 |
| $ | 2,810 |
| $ | 397,610 |
| $ | 407,031 |
Commercial real estate - non-owner occupied (1) |
|
| 4,382 |
|
| 189 |
|
| 639,609 |
|
| 644,180 |
Construction and land development |
|
| — |
|
| — |
|
| 146,654 |
|
| 146,654 |
Commercial loans |
|
| 2,373 |
|
| 2,689 |
|
| 250,379 |
|
| 255,441 |
Residential 1-4 family (2) |
|
| 395 |
|
| 1,982 |
|
| 690,931 |
|
| 693,308 |
Other consumer loans |
|
| 142 |
|
| — |
|
| 32,205 |
|
| 32,347 |
Total |
| $ | 13,903 |
| $ | 7,670 |
| $ | 2,157,388 |
| $ | 2,178,961 |
(1) | Includes loans secured by farmland and multi-family residential loans. |
(2) | Includes home equity lines of credit. |
(3) | Includes SBA guarantees of $3.2 million and $3.4 million as of June 30, 2019 and December 31, 2018, respectively. |
Covered Loans | Non-covered Loans | Total Loans | ||||||||||||||||||||||||||||||||||||||
Classified/ | Special | Classified/ | ||||||||||||||||||||||||||||||||||||||
September 30, 2017 | Criticized (1) | Pass | Total | Mention | Substandard (3) | Pass | Total | Criticized | Pass | Total | ||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | - | $ | - | $ | 1,218 | $ | 398,581 | $ | 399,799 | $ | 1,218 | $ | 398,581 | $ | 399,799 | ||||||||||||||||||||
Commercial real estate - non-owner occupied (2) | - | - | - | - | 9,984 | 529,630 | 539,614 | 9,984 | 529,630 | 539,614 | ||||||||||||||||||||||||||||||
Construction and land development | - | - | - | - | - | 198,328 | 198,328 | - | 198,328 | 198,328 | ||||||||||||||||||||||||||||||
Commercial loans | - | - | - | 3,258 | 4,128 | 227,785 | 235,171 | 7,386 | 227,785 | 235,171 | ||||||||||||||||||||||||||||||
Residential 1-4 family (4) | 1,285 | 22,694 | 23,979 | - | 376 | 599,850 | 600,226 | 1,661 | 622,544 | 624,205 | ||||||||||||||||||||||||||||||
Other consumer loans | - | - | - | - | - | 39,460 | 39,460 | - | 39,460 | 39,460 | ||||||||||||||||||||||||||||||
Total | $ | 1,285 | $ | 22,694 | $ | 23,979 | $ | 3,258 | $ | 15,706 | $ | 1,993,634 | $ | 2,012,598 | $ | 20,249 | $ | 2,016,328 | $ | 2,036,577 |
Covered Loans | Non-covered Loans | Total Loans | ||||||||||||||||||||||||||||||||||||||
Classified/ | Special | Classified/ | ||||||||||||||||||||||||||||||||||||||
December 31, 2016 | Criticized (1) | Pass | Total | Mention | Substandard (3) | Pass | Total | Criticized | Pass | Total | ||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | - | $ | - | $ | - | $ | - | $ | 6,271 | $ | 148,536 | $ | 154,807 | $ | 6,271 | $ | 148,536 | $ | 154,807 | ||||||||||||||||||||
Commercial real estate - non-owner occupied (2) | - | - | - | - | - | 310,196 | 310,196 | - | 310,196 | 310,196 | ||||||||||||||||||||||||||||||
Construction and land development | - | - | - | - | - | 91,067 | 91,067 | - | 91,067 | 91,067 | ||||||||||||||||||||||||||||||
Commercial loans | - | - | - | 28 | 6,380 | 108,957 | 115,365 | 6,408 | 108,957 | 115,365 | ||||||||||||||||||||||||||||||
Residential 1-4 family (4) | 963 | 27,217 | 28,180 | - | - | 231,833 | 231,833 | 963 | 259,050 | 260,013 | ||||||||||||||||||||||||||||||
Other consumer loans | - | - | - | - | - | 856 | 856 | - | 856 | 856 | ||||||||||||||||||||||||||||||
Total | $ | 963 | $ | 27,217 | $ | 28,180 | $ | 28 | $ | 12,651 | $ | 891,445 | $ | 904,124 | $ | 13,642 | $ | 918,662 | $ | 932,304 |
23
(1) Credit quality is enhanced by a loss sharing agreement with the FDIC in the covered portfolio. The same credit quality indicators used in the non-covered portfolio are combined.
(2) Includes loans secured by farmland and multi-family residential loans.
(3) Includes SBA guaranteesTable of $1.7 million and $2.2 million as of September 30, 2017 and December 31, 2016.Contents
(4) Includes home equity lines of credit.
The amount of foreclosed residential real estate property held at SeptemberJune 30, 20172019 and December 31, 20162018 was $2.0 million and $3.4 million, respectively.$ $1.2 million. The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was $1.4$0.5 million and $1.8$1.5 million at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively.
5.LEASES
The Company leases certain premises and equipment under operating leases. At June 30, 2019, the Company had operating lease liabilities totaling $8.4 million and right-of-use assets totaling $7.9 million related to these leases. Operating lease liabilities and right-of-use assets are reflected in our consolidated balance sheets. We do not currently have any financing leases. For the three and six months ended June 30, 2019, our net operating lease cost was $693 thousand and $1.3 million, respectively, and was reflected in occupancy expenses on our income statement.
The following table presents other information related to our operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Six Months Ended |
|
|
|
| |
(in thousands except for percent and period data) |
| June 30, 2019 |
|
|
|
| |
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 2,483 |
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
| $ | — |
|
|
|
|
Weighted-average remaining lease term - operating leases, in years |
|
| 6.0 |
|
|
|
|
Weighted-average discount rate - operating leases |
|
| 3.0 | % |
|
|
|
The following table summarizes the maturity of remaining lease liabilities:
|
|
|
|
|
|
|
|
|
| As of | |
|
| June 30, | |
(dollars in thousands) |
| 2019 | |
Lease payments due: |
|
|
|
Less than one year |
| $ | 1,199 |
One to three years |
|
| 3,445 |
Three to five years |
|
| 2,384 |
More than five years |
|
| 2,199 |
Total lease payments |
|
| 9,227 |
Less: lease expense |
|
| (842) |
Lease liabilities |
| $ | 8,385 |
As of June 30, 2019, the Company does not have or expect any operating leases that have not yet commenced or will create additional lease liabilities and right-of-use assets for the Company.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Southern National is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and guarantees of credit card accounts sold by EVBS premerger.accounts. These instruments involve elements of credit and funding risk in excess of the amount recognized in the consolidated balance sheet. Letters of credit are written conditional commitments issued by Southern National to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. We had letters of credit outstanding totaling $14.3$19.6 million and $6.4$19.2 million as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively.
24
Our exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit is based on the contractual amount of these instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Unless noted otherwise, we do not require collateral or other security to support financial instruments with credit risk.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments are made predominately for adjustable rate loans, and generally have fixed expiration dates of up to three months or other termination clauses and usually require payment of a fee. Since many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer'scustomer’s creditworthiness on a case-by-case basis.
At SeptemberJune 30, 20172019 and December 31, 2016,2018, we had unfunded lines of credit and undisbursed construction loan funds totaling $399.8$342.0 million and $135.8$339.2 million, respectively. Virtually all of our unfunded lines of credit and undisbursed construction loan funds are variable rate.
Premerger, EVBS sold its credit card portfolio. With that sale, EVBS guaranteed the credit card accounts of certain customers to the bank that issues the cards. In connection with the merger with EVBS, Southern National now is the guarantor. The fair value of guarantees of credit card accounts previously sold is based on the estimated cost to settle the obligations with the counterparty and are not considered significant as of September 30, 2017.
7.Earnings Per ShareEARNINGS PER SHARE
The following is a reconciliation of the denominators of the basic and diluted earnings per share (“EPS”) computations (dollars(amounts in thousands, except per share data):
Weighted |
|
|
|
|
|
|
|
| ||||||||||||
Average |
|
|
|
| Weighted |
|
|
| ||||||||||||
Income | Shares | Per Share |
|
|
|
| Average |
|
|
| ||||||||||
(Numerator) | (Denominator) | Amount |
| Income |
| Shares |
| Per Share | ||||||||||||
For the three months ended September 30, 2017 | ||||||||||||||||||||
|
| (Numerator) |
| (Denominator) |
| Amount | ||||||||||||||
For the three months ended June 30, 2019 |
|
|
|
|
|
|
|
| ||||||||||||
Basic EPS | $ | 4,374 | 23,913 | $ | 0.18 |
| $ | 9,319 |
| 24,025 |
| $ | 0.39 | |||||||
Effect of dilutive stock options and warrants | - | 305 | - | |||||||||||||||||
Effect of dilutive stock options |
|
| — |
| 298 |
|
| (0.01) | ||||||||||||
Diluted EPS | $ | 4,374 | 24,218 | $ | 0.18 |
| $ | 9,319 |
| 24,323 |
| $ | 0.38 | |||||||
|
|
|
|
|
|
|
| |||||||||||||
For the three months ended September 30, 2016 | ||||||||||||||||||||
For the three months ended June 30, 2018 |
|
|
|
|
|
|
|
| ||||||||||||
Basic EPS | $ | 2,765 | 12,258 | $ | 0.23 |
| $ | 8,867 |
| 24,038 |
| $ | 0.37 | |||||||
Effect of dilutive stock options and warrants | - | 171 | - | |||||||||||||||||
Effect of dilutive stock options |
|
| — |
| 292 |
|
| — | ||||||||||||
Diluted EPS | $ | 2,765 | 12,429 | $ | 0.22 |
| $ | 8,867 |
| 24,330 |
| $ | 0.37 | |||||||
|
|
|
|
|
|
|
| |||||||||||||
For the nine months ended September 30, 2017 | ||||||||||||||||||||
For the six months ended June 30, 2019 |
|
|
|
|
|
|
|
| ||||||||||||
Basic EPS | $ | 3,586 | 16,526 | $ | 0.22 |
| $ | 15,339 |
| 24,017 |
| $ | 0.64 | |||||||
Effect of dilutive stock options and warrants | - | 295 | - | |||||||||||||||||
Effect of dilutive stock options |
|
| — |
| 298 |
|
| (0.01) | ||||||||||||
Diluted EPS | $ | 3,586 | 16,821 | $ | 0.21 |
| $ | 15,339 |
| 24,315 |
| $ | 0.63 | |||||||
|
|
|
|
|
|
|
| |||||||||||||
For the nine months ended September 30, 2016 | ||||||||||||||||||||
For the six months ended June 30, 2018 |
|
|
|
|
|
|
|
| ||||||||||||
Basic EPS | $ | 8,120 | 12,248 | $ | 0.66 |
| $ | 17,126 |
| 24,000 |
| $ | 0.71 | |||||||
Effect of dilutive stock options and warrants | - | 154 | - | |||||||||||||||||
Effect of dilutive stock options |
|
| — |
| 282 |
|
| — | ||||||||||||
Diluted EPS | $ | 8,120 | 12,402 | $ | 0.65 |
| $ | 17,126 |
| 24,282 |
| $ | 0.71 |
There were 480,729 and 467,977The Company did not have any anti-dilutive options outstanding for the threein 2019 and nine months ended September 30, 2017, respectively. There were 684,604 and 702,027 anti-dilutive options and warrants outstanding for the three and nine months ended September 30, 2016, respectively.2018.
25
8.FAIR VALUE
ASC 820-10820 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability
The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:
Assets Measured on a Recurring Basis:
Investment Securities Available for Sale
Where quoted prices are available in an active market, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities would include highly liquid government bonds and mortgage products and exchange traded equities.products. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of investment securities with similar characteristics or discounted cash flow. Level 2 investment securities would include U.S. agency securities, mortgage-backed securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy. Currently, alla majority of Southern National’s available for sale debt investment securities are considered to be Level 2 investment securities, except for a few corporate securities that are classified as Level 3 investment securities.
26
Assets measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements Using | |||||||
|
|
|
|
|
|
|
| Significant |
|
|
| |
|
|
|
|
| Quoted Prices in |
| Other |
| Significant | |||
|
|
|
|
| Active Markets for |
| Observable |
| Unobservable | |||
|
| Total at |
| Identical Assets |
| Inputs |
| Inputs | ||||
(dollars in thousands) |
| June 30, 2019 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
Residential government-sponsored mortgage-backed securities |
| $ | 45,849 |
| $ | — |
| $ | 45,849 |
| $ | — |
Obligations of states and political subdivisions |
|
| 18,593 |
|
| — |
|
| 18,593 |
|
| — |
Corporate securities |
|
| 2,019 |
|
| — |
|
| 1,019 |
|
| 1,000 |
Trust preferred securities |
|
| 2,591 |
|
| — |
|
| 2,591 |
|
| — |
Residential government-sponsored collateralized mortgage obligations |
|
| 40,980 |
|
| — |
|
| 40,980 |
|
| — |
Government-sponsored agency securities |
|
| 8,634 |
|
| — |
|
| 8,634 |
|
| — |
Agency commercial mortgage-backed securities |
|
| 27,979 |
|
| — |
|
| 27,979 |
|
| — |
SBA pool securities |
|
| 17,215 |
|
| — |
|
| 17,215 |
|
| — |
Total |
| $ | 163,860 |
| $ | — |
| $ | 162,860 |
| $ | 1,000 |
Fair Value Measurements Using | ||||||||||||||||
Significant | ||||||||||||||||
Quoted Prices in | Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Total at | Identical Assets | Inputs | Inputs | |||||||||||||
(dollars in thousands) | September 30, 2017 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Financial assets: | ||||||||||||||||
Available for sale securities | ||||||||||||||||
Agency residential mortgage-backed securities (fixed and variable rate) | $ | 32,105 | $ | - | $ | 32,105 | $ | - | ||||||||
Obligations of states and political subdivisions | 18,609 | - | 18,609 | - | ||||||||||||
Corporate securities | 2,015 | - | 2,015 | - | ||||||||||||
Trust preferred securities | 2,366 | - | 2,366 | - | ||||||||||||
Residential government-sponsored collateralized mortgage obligations | 53,370 | - | 53,370 | - | ||||||||||||
Government-sponsored agency securities | 1,733 | - | 1,733 | - | ||||||||||||
Agency commercial mortgage-backed securities | 28,081 | - | 28,081 | - | ||||||||||||
SBA pool securities | 25,958 | - | 25,958 | - | ||||||||||||
$ | 164,237 | $ | - | $ | 164,237 | $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Fair Value Measurements Using |
|
|
|
| Fair Value Measurements Using | |||||||||||||||||||||||
Significant |
|
|
|
|
|
|
| Significant |
|
|
| |||||||||||||||||
Quoted Prices in | Other | Significant |
|
|
|
| Quoted Prices in |
| Other |
| Significant | |||||||||||||||||
Active Markets for | Observable | Unobservable |
|
|
|
| Active Markets for |
| Observable |
| Unobservable | |||||||||||||||||
Total at | Identical Assets | Inputs | Inputs |
| Total at |
| Identical Assets |
| Inputs |
| Inputs | |||||||||||||||||
(dollars in thousands) | December 31, 2016 | (Level 1) | (Level 2) | (Level 3) |
| December 31, 2018 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Residential government-sponsored mortgage-backed securities |
| $ | 27,302 |
| $ | — |
| $ | 27,302 |
| $ | — | ||||||||||||||||
Obligations of states and political subdivisions | $ | 2,259 | $ | - | $ | 2,259 | $ | - |
|
| 18,055 |
|
| — |
|
| 18,055 |
|
| — | ||||||||
Corporate securities |
|
| 2,008 |
|
| — |
|
| 1,008 |
|
| 1,000 | ||||||||||||||||
Trust preferred securities | 1,659 | - | 1,659 | - |
|
| 2,641 |
|
| — |
|
| 2,641 |
|
| — | ||||||||||||
$ | 3,918 | $ | - | $ | 3,918 | $ | - | |||||||||||||||||||||
Residential government-sponsored collateralized mortgage obligations |
|
| 43,057 |
|
| — |
|
| 43,057 |
|
| — | ||||||||||||||||
Government-sponsored agency securities |
|
| 3,125 |
|
| — |
|
| 3,125 |
|
| — | ||||||||||||||||
Agency commercial mortgage-backed securities |
|
| 27,304 |
|
| — |
|
| 27,304 |
|
| — | ||||||||||||||||
SBA pool securities |
|
| 19,885 |
|
| — |
|
| 19,885 |
|
| — | ||||||||||||||||
Total |
| $ | 143,377 |
| $ | — |
| $ | 142,377 |
| $ | 1,000 |
Assets and Liabilities Measured on a Non-recurring Basis:
Impaired Loans
Generally, we measure the impairment for impaired loans considering the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral is determined by an independent appraisal or evaluation less estimated costs related to selling the collateral. In some cases appraised value is net of costs to sell. Estimated selling costs range from 6% to 10% of collateral valuation at SeptemberJune 30, 20172019 and December 31, 2016.2018. Fair value is classified as Level 3 in the fair value hierarchy. Non-covered loansLoans identified as impaired totaled $15.7$21.5 million (including SBA guarantees of $1.7$3.2 million) as of SeptemberJune 30, 20172019 with $0 allocated$605 thousand allocation made to the allowance for loan losses compared to a carrying amount of $12.7$12.1 million (including SBA guarantees of $2.2$3.4 million) with an allocated$618 thousand allocation made to the allowance for loan losses totaling $900 thousand at December 31, 2016.2018.
Assets held for sale
In connection with the merger with EVBS, SNBV acquired four properties that were either former EVBS administrative locations or previously anticipated to be future EVBS administrative locations. Assets held for sale are
27
measured at fair value less cost to sell, based on appraisals conducted by an independent, licensed appraiser outside of the Company using observable market data. If the fair value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3. Assets held for sale are measured at fair value on a non-recurring basis.basis and are included in other assets in the consolidated balance sheets. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense on the consolidated statements of comprehensive income.
Other Real Estate Owned (“OREO”)
OREO is evaluated at the time of acquisition and recorded at fair value as determined by independent appraisal or evaluation less cost to sell. In some cases appraised value is net of costs to sell. Selling costs have been in the range from 5.0% to 7.6% of collateral valuation at SeptemberJune 30, 20172019 and December 31, 2016.2018. Fair value is classified as Level 3 in the fair value hierarchy. OREO is further evaluated quarterly for any additional impairment. At SeptemberJune 30, 2017, the total amount of non-covered OREO was $8.1 million,2019 and there was no covered OREO. As of December 31, 2016,2018, the total amount of OREO was $8.6$5.0 million and there was no covered OREO.
$5.1 million, respectively.
Assets measured at fair value on a non-recurring basis are summarized below:
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|
|
|
|
| Fair Value Measurements Using | |||||||
|
|
|
|
|
|
|
| Significant |
|
|
| |
|
|
|
|
| Quoted Prices in |
| Other |
| Significant | |||
|
|
|
|
| Active Markets for |
| Observable |
| Unobservable | |||
|
| Total at |
| Identical Assets |
| Inputs |
| Inputs | ||||
(dollars in thousands) |
| June 30, 2019 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied |
| $ | 5,279 |
| $ | — |
| $ | — |
| $ | 5,279 |
Commercial real estate - non-owner occupied (1) |
|
| 4,868 |
|
| — |
|
| — |
|
| 4,868 |
Construction and land development |
|
| 338 |
|
| — |
|
| — |
|
| 338 |
Commercial loans |
|
| 8,213 |
|
| — |
|
| — |
|
| 8,213 |
Residential 1-4 family (2) |
|
| 2,814 |
|
| — |
|
| — |
|
| 2,814 |
Assets held for sale |
|
| 600 |
|
| — |
|
| — |
|
| 600 |
Other real estate owned: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate - owner occupied (1) |
|
| 908 |
|
| — |
|
| — |
|
| 908 |
Construction and land development |
|
| 2,902 |
|
| — |
|
| — |
|
| 2,902 |
Residential 1-4 family (2) |
|
| 1,231 |
|
| — |
|
| — |
|
| 1,231 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Fair Value Measurements Using |
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| Fair Value Measurements Using | |||||||||||||||||||||||
Significant |
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|
|
| Significant |
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| |||||||||||||||||
Quoted Prices in | Other | Significant |
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|
| Quoted Prices in |
| Other |
| Significant | |||||||||||||||||
Active Markets for | Observable | Unobservable |
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| Active Markets for |
| Observable |
| Unobservable | |||||||||||||||||
Total at | Identical Assets | Inputs | Inputs |
| Total at |
| Identical Assets |
| Inputs |
| Inputs | |||||||||||||||||
(dollars in thousands) | September 30, 2017 | (Level 1) | (Level 2) | (Level 3) |
| December 31, 2018 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||||||||||||||
Impaired non-covered loans: | ||||||||||||||||||||||||||||
Impaired loans: |
|
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|
|
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|
|
| ||||||||||||||||
Commercial real estate - owner occupied | $ | 1,218 | $ | - | $ | - | $ | 1,218 |
| $ | 2,795 |
| $ | — |
| $ | — |
| $ | 2,795 | ||||||||
Commercial real estate - non-owner occupied (1) |
|
| 171 |
|
| — |
|
| — |
|
| 171 | ||||||||||||||||
Commercial loans |
|
| 6,076 |
|
| — |
|
| — |
|
| 6,076 | ||||||||||||||||
Residential 1-4 family (2) |
|
| 3,020 |
|
| — |
|
| — |
|
| 3,020 | ||||||||||||||||
Assets held for sale |
|
| 600 |
|
| — |
|
| — |
|
| 600 | ||||||||||||||||
Other real estate owned: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Commercial real estate - owner occupied (1) |
|
| 908 |
|
| — |
|
| — |
|
| 908 | ||||||||||||||||
Construction and land development | 9,984 | - | - | 9,984 |
|
| 2,938 |
|
| — |
|
| — |
|
| 2,938 | ||||||||||||
Commercial loans | 4,128 | - | - | 4,128 | ||||||||||||||||||||||||
Residential 1-4 family | 376 | - | - | 376 | ||||||||||||||||||||||||
Impaired covered loans: | ||||||||||||||||||||||||||||
Residential 1-4 family | 1,285 | - | - | 1,285 | ||||||||||||||||||||||||
Assets held for sale | 1,685 | - | - | 1,685 | ||||||||||||||||||||||||
Non-covered other real estate owned: | ||||||||||||||||||||||||||||
Commercial real estate - owner occupied | 3,092 | - | - | 3,092 | ||||||||||||||||||||||||
Construction and land development | 2,923 | - | - | 2,923 | ||||||||||||||||||||||||
Residential 1-4 family | 2,038 | - | - | 2,038 | ||||||||||||||||||||||||
Residential 1-4 family (2) |
|
| 1,231 |
|
| — |
|
| — |
|
| 1,231 |
(1) |
28 Fair Value of Financial Instruments The carrying amount, estimated fair values and fair value hierarchy levels (previously defined) of financial instruments were as follows (in thousands)
Carrying amount is the estimated fair value for cash and cash equivalents (including federal funds sold), equity 9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS Other short-term borrowings can consist of
10. JUNIOR SUBORDINATED DEBT AND SENIOR SUBORDINATED NOTES In connection with our merger with EVBS, the Company assumed 29 underwriting totaling approximately $650 million. The trust issuer The trust preferred securities may be included in Tier 1 capital for regulatory capital adequacy determination purposes up to 25% of Tier 1 capital after its inclusion. At
On January 20, 2017, Southern National completed the sale of $27.0 million of its fixed-to-floating rate Subordinated Notes due 2027 (the “SNBV Senior Subordinated Notes”). The SNBV Senior Subordinated Notes will initially bear interest at 5.875% per annum until January 31, 2022; thereafter, the SNBV Senior Subordinated Notes will be payable at an annual floating rate equal to three-month LIBOR plus a spread of 3.95% until maturity or early redemption. At Also in connection with our merger with EVBS, the Company assumed the Senior Subordinated Note Purchase Agreement previously entered into by EVBS on April 22, 2015 with certain institutional accredited investors pursuant to which EVBS sold $20.0 million (fair value adjustment of $1.9 million) in aggregate principal amount of its 6.50% Fixed-to-Floating Rate Subordinated Notes due 2025 (the “EVBS Senior Subordinated Notes”) to the investors at a price equal to 100% of the aggregate principal amount of the EVBS Senior Subordinated Notes. 30 ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of SNBV. This discussion and analysis should be read with the consolidated financial statements, the footnotes thereto, and the other financial data included in this report and in our annual report on Form FORWARD-LOOKING STATEMENTS Statements and financial discussion and analysis contained in this Quarterly Report on Form 10-Q that are not statements of historical fact constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
31
Forward-looking statements are not guarantees of performance or OVERVIEW SNBV is a corporation that was formed on July 28, 2004 under the laws of the Commonwealth of Virginia and is the holding company for Sonabank a Virginia state-chartered bank which commenced operations on April 14, 2005. As of the close of business on June 23, 2017, SNBV completed its
We have administrative offices in Warrenton and Glen Allen, Virginia, and executive offices in Georgetown, Washington, D.C. and Glen Allen, Virginia where senior management is located. 32 RESULTS OF OPERATIONS Net Income Three-Month Comparison.Net income for the three The increase in the net income during the three During the three months ended June 30, 2018, net income was impacted positively by the $1.2 million of accretion income from the acquired loan discounts, $732 thousand of interest income recognized on the payout of a $9.9 million nonaccrual loan, and $250 thousand of income from recoveries of legacy investment securities and loans charged off by EVBS before it merged into Southern National in June of 2017. Six-Month Comparison.Net income for the The decrease in the net income during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was primarily driven by a nonrecurring other loss of $3.2 million and related legal expense of $502 thousand. The decrease was partially offset by an income tax benefit of $1.2 million in the second quarter of 2019 due to the formal assessment and rebooking of the $5.5 million net operating loss carryforward that was written off in the fourth quarter of 2018. During the six months ended June 30, 2018, the net income was impacted positively by the January 1, 2018. Net Interest Income Our operating results depend primarily on our net interest income, which is the difference between interest and dividend income on interest-earning assets such as loans and investments, and interest expense on interest-bearing liabilities such as deposits and borrowings. Three-Month Comparison.Net interest income was
33 Total interest ended June 30, 2019 and 2018, respectively. The following
Six-Month Comparison.Net interest income was $41.9 million for the six months ended June 30, 2019 compared to $45.7 million for the six months ended June 30, 2018, which was a direct result of the rising costs of funds including deposits and borrowings. Southern National’s net interest margin for the six months ended June 30, 2019 was 3.41% compared to 3.80% for the six months ended June 30, 2018. Total income on interest-earning assets was $60.6 million and $57.7 million for the six months ended June 30, 2019 and 2018, respectively. The yield on average interest-earning assets was 4.94% and 4.81% for the six months ended June 30, 2019 and 2018, respectively. Interest and fees on loans totaled $56.4 million and $53.6 million for the six months ended June 30, 2019 and 2018, respectively. The accretion of the 34 discount on loans acquired in the acquisitions of EVBS, Greater Atlantic Bank, HarVest and Prince Georges Federal Savings Bank contributed $972 thousand to net interest income during the six months ended June 30, 2019 compared to $2.5 million during the six months ended June 30, 2018. The decrease in accretion was due to the slowdown in acquired loan prepayments and payoffs. Average loans during the six months ended June 30, 2019 were $2.16 billion compared to $2.11 billion during the six months ended June 30, 2018. Total interest expense was $18.8 million and $12.0 million for the six months ended June 30, 2019 and 2018, respectively. Interest on deposits was $15.1 million and $7.1 million for the six months ended June 30, 2019 and 2018, respectively. Total average interest-bearing deposits for the six months ended June 30, 2019 and 2018 were $1.80 billion and $1.55 billion, respectively. The yield on total average interest-bearing deposits was 1.69% and 0.92% for the six months ended June 30, 2019 and 2018, respectively. Interest expense on total average borrowings, which include securities sold under agreements to repurchase, FHLB advances, junior subordinated debt, and senior subordinated notes, was $3.7 million and $4.9 million for the six months ended June 30, 2019 and 2018, respectively. Total average borrowings were $218.5 million and $439.0 million for the six months ended June 30, 2019 and 2018, respectively. The following table details average balances of interest-earning assets and interest-bearing liabilities, the amount of interest earned/paid on such assets and liabilities, and the yield/rate for the periods indicated:
|