Southern National Bancorp
Southern National Bancorp of Virginia Inc (Form: 10-Q, Received: 08/10/2015 10:26:19)

 

 

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 June 30, 2015

 

Commission File No. 001-33037

 

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
(Exact name of registrant as specified in its charter)

   
Virginia 20-1417448
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer Identification No.)

 

6830 Old Dominion Drive
McLean, Virginia 22101
(Address of principal executive offices) (zip code)

 

(703) 893-7400
(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

       
  YES ☒    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 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 ☒    NO ☐  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b–2 of the Exchange Act:

 

Large accelerated filer ☐ Accelerated filer ☒ Smaller reporting company ☐
     
Non-accelerated filer ☐ (Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

As of August 3, 2015, there were 12,232,409 shares of common stock outstanding.

 

 
 

 

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

FORM 10-Q

June 30, 2015

 

INDEX

       
      PAGE
       
PART 1 - FINANCIAL INFORMATION
       
Item 1 Financial Statements    
  Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014   2
  Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2015 and 2014   3
  Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2015   4
  Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014   5
  Notes to Consolidated Financial Statements   6- 28
       
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations   29- 43
       
Item 3 – Quantitative and Qualitative Disclosures about Market Risk   43-46
       
Item 4 – Controls and Procedures   47
       
PART II - OTHER INFORMATION
       
Item 1 – Legal Proceedings   47
       
Item 1A – Risk Factors   47
       
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds   47
       
Item 3 – Defaults Upon Senior Securities   48
       
Item 4 – Mine Safety Disclosures   48
       
Item 5 – Other Information   48
       
Item 6 - Exhibits   48
       
Signatures   49
       
Certifications  

 

 
 

 

 

ITEM I - FINANCIAL INFORMATION

PART I - FINANCIAL STATEMENTS

 

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts) (Unaudited)

                 
    June 30,
2015
    December 31,
2014
 
ASSETS                
Cash and cash equivalents:                
Cash and due from financial institutions   $ 5,934     $ 5,702  
Interest-bearing deposits in other financial institutions     68,592       32,618  
Total cash and cash equivalents     74,526       38,320  
                 
Securities available for sale, at fair value     4,133       2,285  
                 
Securities held to maturity, at amortized cost (fair value of $92,028 and $94,093, respectively)     93,047       94,058  
                 
Covered loans     37,476       38,496  
Non-covered loans     722,567       664,976  
Total loans     760,043       703,472  
Less allowance for loan losses     (7,994 )     (7,414 )
Net loans     752,049       696,058  
                 
Stock in Federal Reserve Bank and Federal Home Loan Bank     6,132       5,681  
Equity investment in mortgage affiliate     4,293       3,631  
Preferred investment in mortgage affiliate     2,555       1,805  
Bank premises and equipment, net     9,198       9,453  
Goodwill     10,514       10,514  
Core deposit intangibles, net     1,224       1,354  
FDIC indemnification asset     3,322       3,571  
Bank-owned life insurance     21,294       20,990  
Other real estate owned     13,647       13,051  
Deferred tax assets, net     6,746       10,083  
Other assets     9,036       5,791  
                 
Total assets   $ 1,011,716     $ 916,645  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
Noninterest-bearing demand deposits   $ 72,503     $ 69,560  
Interest-bearing deposits:                
NOW accounts     23,943       25,018  
Money market accounts     136,744       137,297  
Savings accounts     42,983       44,155  
Time deposits     540,857       466,395  
Total interest-bearing deposits     744,527       672,865  
Total deposits     817,030       742,425  
                 
Securities sold under agreements to repurchase and other short-term borrowings     45,036       29,044  
Federal Home Loan Bank (FHLB) advances     25,000       25,000  
Other liabilities     5,577       6,197  
Total liabilities     892,643       802,666  
                 
Commitments and contingencies (See Note 5)     -       -  
                 
Stockholders’ equity:                
                 
Preferred stock, $.01 par value. Authorized 5,000,000 shares; no shares issued and outstanding     -       -  
Common stock, $.01 par value. Authorized 45,000,000 shares; issued and outstanding, 12,232,409 shares at June 30, 2015 and 12,216,669 at December 31, 2014     122       122  
Additional paid in capital     104,301       104,072  
Retained earnings     15,317       12,805  
Accumulated other comprehensive loss     (667 )     (3,020 )
Total stockholders’ equity     119,073       113,979  
                 
Total liabilities and stockholders’ equity   $ 1,011,716     $ 916,645  

 

See accompanying notes to consolidated financial 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
June 30,
  For the Six Months Ended
June 30,
 
           
    2015   2014   2015   2014  
                           
Interest and dividend income :                          
Interest and fees on loans   $ 9,970   $ 8,100   $ 19,521   $ 15,856  
Interest and dividends on taxable securities     531     570     1,185     1,083  
Interest and dividends on tax exepmt securities     101     96     202     188  
Interest and dividends on other earning assets     130     160     259     440  
Total interest and dividend income     10,732     8,926     21,167     17,567  
Interest expense:                          
Interest on deposits     1,525     897     2,864     1,793  
Interest on borrowings     183     170     352     328  
Total interest expense     1,708     1,067     3,216     2,121  
                           
Net interest income     9,024     7,859     17,951     15,446  
                           
Provision for loan losses     1,500     194     2,025     1,369  
Net interest income after provision for loan losses     7,524     7,665     15,926     14,077  
                           
Noninterest income:                          
Account maintenance and deposit service fees     239     195     460     373  
Income from bank-owned life insurance     154     157     304     297  
Equity income from mortgage affiliate     793     331     778     331  
Gain on sale of other assets     7     -     7     202  
Net gain on sale of available for sale securities     520     -     520     -  
Total other-than-temporary impairment losses (OTTI)     -     (25 )   -     (41 )
Portion of OTTI recognized in other comprehensive income (before taxes)     -     -     -     -  
Net credit related OTTI recognized in earnings     -     (25 )   -     (41 )
Other     46     55     95     92  
                           
Total noninterest income     1,759     713     2,164     1,254  
                           
Noninterest expenses:                          
Salaries and benefits     2,836     2,427     5,639     4,816  
Occupancy expenses     826     759     1,697     1,531  
Furniture and equipment expenses     224     188     434     375  
Amortization of core deposit intangible     65     45     130     90  
Virginia franchise tax expense     88     113     176     229  
Merger expenses     -     209     -     422  
FDIC assessment     156     127     328     252  
Data processing expense     170     134     334     260  
Telephone and communication expense     201     180     407     358  
Change in FDIC indemnification asset     117     311     246     435  
Net (gain) loss on other real estate owned     (57 )   180     263     (239 )
Other operating expenses     963     972     1,756     1,635  
Total noninterest expenses     5,589     5,645     11,410     10,164  
Income before income taxes     3,694     2,733     6,680     5,167  
Income tax expense     1,228     961     2,210     1,753  
Net income   $ 2,466   $ 1,772   $ 4,470   $ 3,414  
Other comprehensive income:                          
Unrealized gain (loss) on available for sale securities   $ (241 ) $ 74   $ (218 ) $ 217  
Realized amount on securities sold, net     (520 )   -     (520 )   -  
Non-credit component of other-than-temporary impairment on held-to-maturity securities     4,278     14     4,278     35  
Accretion of amounts previously recorded upon transfer to held-to-maturity from available-for-sale     3     (22 )   25     (42 )
Net unrealized gain     3,520     66     3,565     210  
Tax effect     (1,196 )   (22 )   (1,212 )   (71 )
Other comprehensive income     2,324     44     2,353     139  
Comprehensive income   $ 4,790   $ 1,816   $ 6,823   $ 3,553  
Earnings per share, basic   $ 0.20   $ 0.15   $ 0.37   $ 0.29  
Earnings per share, diluted   $ 0.20   $ 0.15   $ 0.36   $ 0.29  

 

See accompanying notes to consolidated financial statements.

 

3
 

 

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2015

(dollars in thousands, except per share amounts) (Unaudited)

                                         
    Common
Stock
    Additional
Paid in
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Loss
    Total  
                                         
Balance - December 31, 2014   $ 122     $ 104,072     $ 12,805     $ (3,020 )   $ 113,979  
Comprehensive income:                                        
Net income                     4,470               4,470  
Change in unrealized loss on securities available for sale (net of tax benefit, $251)                             (487 )     (487 )
Change in unrecognized loss on securities held to maturity for which a portion of OTTI has been recognized (net of tax, $1,463 and accretion, $25 and amounts recorded into other comprehensive income at transfer)                             2,840       2,840  
Dividends on common stock ($.16 per share)                     (1,958 )             (1,958 )
Repurchase of comon stock (31,011 shares)             (365 )                     (365 )
Issuance of common stock under Stock                                        
Incentive Plan (46,750 shares)             425                       425  
Stock-based compensation expense             169                       169  
                                         
Balance - June 30, 2015   $ 122     $ 104,301     $ 15,317     $ (667 )   $ 119,073  

 

See accompanying notes to consolidated financial statements.

 

4
 

 

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(dollars in thousands) (Unaudited)

                 
    2015     2014  
                 
Operating activities:                
Net income   $ 4,470     $ 3,414  
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:                
Depreciation     451       351  
Amortization of core deposit intangible     130       90  
Other amortization, net     62       70  
Accretion of loan discount     (1,412 )     (1,474 )
Amortization of FDIC indemnification asset     246       435  
Provision for loan losses     2,025       1,369  
Earnings on bank-owned life insurance     (304 )     (297 )
Equity income on mortgage affiliate     (778 )     (331 )
Stock based compensation expense     169       151  
Net gain on sale of available for sale securities     (520 )     -  
Impairment on securities     -       41  
Net (gain) loss on other real estate owned     263       (239 )
Net decrease in other assets     1,105       630  
Net increase (decrease) in other liabilities     (620 )     354  
Net cash and cash equivalents provided by operating activities     5,287       4,564  
Investing activities:                
Proceeds from sales of available for sale securities     3,966       -  
Purchases of held to maturity securities     (7,156 )     (5,678 )
Proceeds from paydowns, maturities and calls of held to maturity securities     6,401       3,264  
Loan originations and payments, net     (60,194 )     (48,350 )
Purchase of bank-owned life insurance     -       (2,000 )
Investment in mortgage affiliate     (634 )     (5,043 )
Net increase in stock in Federal Reserve Bank and Federal Home Loan Bank     (451 )     (993 )
Payments received on FDIC indemnification asset     3       1,004  
Proceeds from sale of other real estate owned     481       2,424  
Purchases of bank premises and equipment     (196 )     (270 )
Net cash and cash equivalents used in investing activities     (57,780 )     (55,642 )
Financing activities:                
Net increase in deposits     74,605       28,872  
Cash dividends paid - common stock     (1,958 )     (1,623 )
Repurchase of common stock     (365 )     -  
Issuance of common stock under Stock Incentive Plan     425       147  
Net increase in securities sold under agreement to repurchase and other short-term borrowings     15,992       27,057  
Net cash and cash equivalents provided by financing activities     88,699       54,453  
Increase in cash and cash equivalents     36,206       3,375  
Cash and cash equivalents at beginning of period     38,320       20,856  
Cash and cash equivalents at end of period   $ 74,526     $ 24,231  
Supplemental disclosure of cash flow information                
Cash payments for:                
Interest   $ 3,056     $ 2,042  
Income taxes     2,310       2,123  
Supplemental schedule of noncash investing and financing activities                
Transfer from non-covered loans to other real estate owned     1,340       4,409  

 

See accompanying notes to consolidated financial statements.

 

5
 

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.  

Notes to Consolidated Financial Statements (Unaudited)
June 30, 2015

 

1.       ACCOUNTING POLICIES

 

Southern National Bancorp of Virginia, Inc. (“Southern National” or “SNBV”) is a corporation formed on July 28, 2004 under the laws of the Commonwealth of Virginia and is the holding company for Sonabank (“Sonabank”) a Virginia state chartered bank which commenced operations on April 14, 2005. Sonabank provides a range of financial services to individuals and small and medium sized businesses. Sonabank has fifteen branches in Virginia, located in Fairfax County (Reston, McLean and Fairfax), in Charlottesville, Warrenton (2), Middleburg, Leesburg (2), South Riding, Front Royal, New Market, Haymarket, Richmond and Clifton Forge, and eight branches in Maryland, in Rockville, Shady Grove, Frederick, Bethesda, Upper Marlboro, Brandywine, Owings and Huntingtown.

 

The consolidated financial statements include the accounts of Southern National Bancorp of Virginia, Inc. and its subsidiary. Significant inter-company accounts and transactions have been eliminated in consolidation.

 

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-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-K for the year ended December 31, 2014.

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with U. S. generally accepted accounting principles 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, the valuation of goodwill and intangible assets, the FDIC indemnification asset, mortgage servicing rights, other real estate owned and deferred tax assets.

 

Recent Accounting Pronouncements

 

In January 2014, the FASB issued ASU No. 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of 6 residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 did not to have a material impact on the Southern National’s Consolidated Financial Statements, but did add additional disclosures.

 

6
 

 

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. This ASU will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is not permitted. The ASU allows for either full retrospective or modified retrospective adoption. SNBV is assessing the effects of this ASU, which exclude financial instruments from its scope, but does not anticipate that it will have a material impact on its financial position or results of operations.

 

In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period . The amendments clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Management does not anticipate that this ASU will significantly impact SNBV.

 

In June 2014, the FASB issued ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The new guidance aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as repurchase financings with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. The amendments in the ASU require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The amendments in the ASU also require expanded disclosures, effective for the 7 current reporting period of June 30, 2015, about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings (see Note 8 to the Consolidated Financial Statements). We adopted the amendments in this ASU effective January 1, 2015. As of June 30, 2015, all of our repurchase agreements were typical in nature (i.e., not repurchase-to-maturity transactions or repurchase agreements executed as a repurchase financing) and are accounted for as secured borrowings. As such, the adoption of ASU No. 2014-11 did not have a material impact on our consolidated financial statements.

 

7
 

 

2.       STOCK- BASED COMPENSATION

 

In 2004, the 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 was approved by the Board of Directors in January 2010 and approved by the stockholders at the Annual Meeting in April 2010. The 2010 plan 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 employ 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 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.

 

Southern National granted 125,500 options during the first six months of 2015. The fair value of each option granted is estimated on the date of grant using the Black-Scholes options-pricing model. The following weighted-average assumptions were used to value options granted in the six months ended June 30, 2015: 

         
Expected life     10 years  
Expected volatility     14.71 %
Risk-free interest rate     2.26 %
Weighted average fair value per option granted   $ 0.51  
Dividend yield     5.51 %

 

For the three and six months ended June 30, 2015 and 2014, stock-based compensation expense was $85 thousand and $169 thousand, respectively, compared to $75 thousand and $151 thousand for the same periods last year. As of June 30, 2015, unrecognized compensation expense associated with the stock options was $791 thousand, which is expected to be recognized over a weighted average period of 3.1 years.

 

8
 

 

A summary of the activity in the stock option plan during the six months ended June 30, 2015 follows (dollars in thousands): 

                           
      Shares     Weighted
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual
Term
    Aggregate
Intrinsic
Value
(in thousands)
 
Options outstanding, beginning of period     621,050   $ 8.49              
Granted     125,500     11.43              
Forfeited     -     -              
Exercised     (46,750 )   9.09              
Options outstanding, end of period     699,800   $ 8.98     7.0   $ 1,528  
                           
Vested or expected to vest     699,800   $ 8.98     7.0   $ 1,528  
                           
Exercisable at end of period     317,730   $ 7.84     5.0   $ 1,041  

  

3.       SECURITIES

 

The amortized cost and fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows (in thousands): 

                                 
    Amortized
Cost
    Gross Unrealized     Fair
Value
 
June 30, 2015       Gains     Losses      
Obligations of states and political subdivisions   $ 2,291     $ 8     $ (61 )   $ 2,238  
Trust preferred securities     2,590       -       (695 )     1,895  
    $ 4,881     $ 8     $ (756 )   $ 4,133  

                                 
    Amortized
Cost
    Gross Unrealized     Fair
Value
 
December 31, 2014       Gains     Losses      
Obligations of states and political subdivisions   $ 2,295     $ -     $ (10 )   $ 2,285  

 

The amortized cost, unrecognized gains and losses, and fair value of securities held to maturity were as follows (in thousands):  

                                 
    Amortized
Cost
    Gross Unrecognized     Fair
Value
 
June 30, 2015       Gains     Losses      
Residential government-sponsored mortgage-backed securities   $ 22,916     $ 556     $ (21 )   $ 23,451  
Residential government-sponsored collateralized mortgage obligations     3,236       -       (51 )     3,185  
Government-sponsored agency securities     46,925       174       (1,066 )     46,033  
Obligations of states and political subdivisions     15,473       72       (287 )     15,258  
Trust preferred securities     4,497       -       (396 )     4,101  
    $ 93,047     $ 802     $ (1,821 )   $ 92,028  

 

                                 
    Amortized
Cost
    Gross Unrecognized     Fair
Value
 
December 31, 2014       Gains     Losses      
Residential government-sponsored mortgage-backed securities   $ 22,897     $ 708     $ (8 )   $ 23,597  
Residential government-sponsored collateralized mortgage obligations     3,564       -       (53 )     3,511  
Government-sponsored agency securities     44,949       294       (822 )     44,421  
Obligations of states and political subdivisions     15,531       108       (145 )     15,494  
Other residential collateralized mortgage obligations     599       -       -       599  
Trust preferred securities     6,518       1,527       (1,574 )     6,471  
    $ 94,058     $ 2,637     $ (2,602 )   $ 94,093  

 

The amortized cost amounts are net of recognized other than temporary impairment.

 

9
 

 

In the second quarter of 2015, we transferred from our held-to-maturity (HTM) portfolio all of the trust preferred securities and a non-government sponsored residential CMO that had been other than temporarily impaired to the available-for-sale (AFS) classification. We sold five of these trust preferred securities and the CMO recognizing a net gain of $520 thousand. Due to the significant deterioration in these issuers’ creditworthiness and the current conditions for a possible sale of these securities, we feel that our change in classification does not taint our intentions in regards to the remainder of our HTM portfolio. The two trust preferred securities we retained in the AFS classification have a fair value of $1.9 million as of June 30, 2015. We also have two trust preferred securities that we retained in the HTM classification in the amount of $4.5 million. These two securities have never been other than temporarily impaired.

 

The fair value and carrying amount, if different, of debt securities as of June 30, 2015, by contractual maturity were as follows (in thousands). Securities not due at a single maturity date, primarily mortgage-backed securities and collateralized mortgage obligations, are shown separately. 

                                 
    Held to Maturity     Available for Sale  
    Amortized
Cost
            Amortized
Cost
         
        Fair Value         Fair Value  
Due in five to ten years   $ 13,367     $ 13,189     $ -     $ -  
Due after ten years     53,528       52,203       4,881       4,133  
Residential government-sponsored mortgage-backed securities     22,916       23,451       -       -  
Residential government-sponsored collateralized mortgage obligations     3,236       3,185       -       -  
Total   $ 93,047     $ 92,028     $ 4,881     $ 4,133  

 

Securities with a carrying amount of approximately $68.2 million and $71.8 million at June 30, 2015 and December 31, 2014, respectively, were pledged to secure public deposits, repurchase agreements and a line of credit for advances from the Federal Home Loan Bank of Atlanta (“FHLB”).

 

10
 

 

Southern National monitors the portfolio for indicators of other than temporary impairment. At June 30, 2015 and December 31, 2014, certain securities’ fair values were below cost. As outlined in the table below, there were securities with fair values totaling approximately $57.5 million in the portfolio with the carrying value exceeding the estimated fair value that are considered temporarily impaired at June 30, 2015. 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 securities and it is likely that we will not be required to sell the securities before their anticipated recovery, management does not consider these securities to be other-than-temporarily impaired as of June 30, 2015. The following tables present information regarding securities in a continuous unrealized loss position as of June 30, 2015 and December 31, 2014 (in thousands) by duration of time in a loss position: 

 

June 30, 2015                        
    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   $ 1,679     $ (61 )   $ -     $ -     $ 1,679     $ (61 )
 Trust preferred securities     -       -       1,895       (695 )     1,895       (695 )
    $ 1,679     $ (61 )   $ 1,895     $ (695 )   $ 3,574     $ (756 )

  

                                     
    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   $ 5,249     $ (17 )   $ 721     $ (4 )   $ 5,970     $ (21 )
Residential government-sponsored collateralized mortgage obligations     592       (3 )     2,593       (48 )     3,185       (51 )
Government-sponsored agency securities     23,253       (679 )     9,601       (387 )     32,854       (1,066 )
Obligations of states and political subdivisions     5,439       (73 )     2,371       (214 )     7,810       (287 )
Trust preferred securities     -       -       4,101       (396 )     4,101       (396 )
    $ 34,533     $ (772 )   $ 19,387     $ (1,049 )   $ 53,920     $ (1,821 )

 

December 31, 2014                                    
    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   $ 485     $ (1 )   $ 1,800     $ (9 )   $ 2,285     $ (10 )

                                     
    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   $ 3,506     $ (8 )   $ -     $ -     $ 3,506     $ (8 )
 Residential government-sponsored collateralized mortgage obligations     692       (3 )     2,819       (50 )     3,511       (53 )
 Government-sponsored agency securities     -       -       29,154       (822 )     29,154       (822 )
 Obligations of states and political subdivisions     485       (20 )     8,139       (125 )     8,624       (145 )
 Trust preferred securities     -       -       4,233       (1,574 )     4,233       (1,574 )
    $ 4,683     $ (31 )   $ 44,345     $ (2,571 )   $ 49,028     $ (2,602 )

  

As of June 30, 2015, 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)  
Held to Maturity                           (in thousands)                  
ALESCO VII  A1B   Senior   Aaa     AAA     A3     BBB     $ 4,583     $ 4,181     $ 3,827       12 %   $ 260  
MMCF III B   Senior Sub   A3     A-     Ba1     CC       321       316       274       30 %     5  
                                  4,904       4,497       4,101             $ 265  
                                                                     
                                                                   
Available for Sale                                                                  
Other Than Temporarily Impaired:                                                           Cumulative OTTI
Related to
Credit Loss (2)
 
TPREF FUNDING II   Mezzanine   A1     A-     Caa3     C       1,500       1,100       697       36 %     400  
ALESCO V C1   Mezzanine   A2     A     C     C       2,150       1,490       1,198       15 %     660  
                                  3,650       2,590       1,895             $ 1,060  
                                                                     
Total                               $ 8,554     $ 7,087     $ 5,996                  

 

(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 securities has been evaluated for other than temporary impairment. In performing a detailed cash flow analysis of each 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:

 

  · 5% of the remaining performing collateral will default or defer per annum.
  · Recoveries of 13% 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 security.  

 

11
 

 

  · Additionally banks with assets over $15 billion will no longer be allowed to count down streamed trust preferred proceeds as Tier 1 capital (although it will still be counted as Tier 2 capital). That will incent the large banks to prepay their trust preferred securities if they can or if it is economically desirable. As a consequence, we have projected in all of our pools that 10% of the collateral issued by banks with assets over $15 billion will prepay in the first year of the forecast, and 15% in the second year.
  · Our 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 OTTI charges during the six months ended June 30, 2015 compared to OTTI charges related to credit on the trust preferred securities totaling $25 thousand during the second quarter of 2014, and $41 thousand during the six months ended June 30, 2014.

 

The following table presents a roll forward of the credit losses on our securities previously classified as held to maturity and now classified as held for sale recognized in earnings for the six months ended June 30, 2015 and 2014 (in thousands):

         
    2015   2014  
                 
Amount of cumulative other-than-temporary impairment related to credit loss prior to January 1   $ 8,949     $ 8,911  
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     -       41  
Reductions due to sales of securities for which an other-than-temporary impairment was previously recognized     (7,889 )     -  
Reductions due to realized losses     -       (2 )
Amount of cumulative other-than-temporary impairment related to credit loss as of June 30   $ 1,060     $ 8,950  

 

Changes in accumulated other comprehensive income by component for the three and six months ended June 30, 2015 and 2014 are shown in the table below. All amounts are net of tax (in thousands).

 

12
 

                         
For the three months ended June 30, 2015   Unrealized Holding
Gains (Losses) on
Available for Sale
    Held to Maturity        
    Securities     Securities     Total  
Beginning balance   $ 9     $ (3,000 )   $ (2,991 )
Other comprehensive income/(loss) before reclassifications     (502 )     2       (500 )
Amounts reclassified from accumulated other comprehensive income/(loss)     -       2,824       2,824  
Net current-period other comprehensive income/(loss)     (502 )     2,826       2,324  
Ending balance   $ (493 )   $ (174 )   $ (667 )
                         
For the six months ended June 30, 2015   Unrealized Holding
Gains (Losses) on
Available for Sale
Securities
    Held to Maturity
Securities
    Total  
Beginning balance   $ (6 )   $ (3,014 )   $ (3,020 )
Other comprehensive income/(loss) before reclassifications     (487 )     16       (471 )
Amounts reclassified from accumulated other comprehensive income/(loss)     -       2,824       2,824  
Net current-period other comprehensive income/(loss)     (487 )     2,840       2,353  
Ending balance   $ (493 )   $ (174 )   $ (667 )
                         
For the three months ended June 30, 2014   Unrealized Holding
Gains (Losses) on
Available for Sale
Securities
   

Held to Maturity

Securities

    Total  
Beginning balance   $ (109 )   $ (2,986 )   $ (3,095 )
Other comprehensive income/(loss) before reclassifications     49       (5 )     44  
Amounts reclassified from accumulated other comprehensive income/(loss)     -       -       -  
Net current-period other comprehensive income/(loss)     49       (5 )     44  
Ending balance   $ (60 )   $ (2,991 )   $ (3,051 )
                         
For the six months ended June 30, 2014   Unrealized Holding
Gains (Losses) on
Available for Sale
Securities
    Held to Maturity
Securities
    Total  
Beginning balance   $ (203 )   $ (2,987 )   $ (3,190 )
Other comprehensive income/(loss) before reclassifications     143       (4 )     139  
Amounts reclassified from accumulated other comprehensive income/(loss)     -       -       -  
Net current-period other comprehensive income/(loss)     143       (4 )     139  
Ending balance   $ (60 )   $ (2,991 )   $ (3,051 )
                         
4. LOANS AND ALLOWANCE FOR LOAN LOSSES

 

The following table summarizes the composition of our loan portfolio as of June 30, 2015 and December 31, 2014:

                                         
   

Covered

Loans (1)

 

Non-covered

Loans

 

Total

Loans  

   

Covered  

Loans (1)  

 

Non-covered

Loans

 

Total

Loans  

 
    June 30, 2015     December 31, 2014  
Loans secured by real estate:                                        
Commercial real estate - owner-occupied   $ -   $ 140,490   $ 140,490     $ -   $ 136,597   $ 136,597  
Commercial real estate - non-owner-occupied     -     237,515     237,515       -     200,517     200,517  
Secured by farmland     -     598     598       -     612     612  
Construction and land loans     -     58,316     58,316       -     57,938     57,938  
Residential 1-4 family     14,264     137,996     152,260       14,837     123,233     138,070  
Multi- family residential     -     21,662     21,662       -     21,832     21,832  
Home equity lines of credit     23,206     12,382     35,588       23,658     9,751     33,409  
Total real estate loans     37,470     608,959     646,429       38,495     550,480     588,975  
                                         
Commercial loans     -     114,152     114,152       -     114,714     114,714  
Consumer loans     -     1,446     1,446       -     1,564     1,564  
Gross loans     37,470     724,557     762,027       38,495     666,758     705,253  
                                         
Less deferred fees on loans     6     (1,990 )   (1,984 )     1     (1,782 )   (1,781 )
Loans, net of deferred fees   $ 37,476   $ 722,567   $ 760,043     $ 38,496   $ 664,976   $ 703,472  

 

(1) Covered Loans were acquired in the Greater Atlantic transaction and are covered under an FDIC loss-share agreement. The agreement covering non-single family loans expired in December 2014.

 

13
 

 

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.

 

As part of the Greater Atlantic acquisition, the Bank and the FDIC entered into loss sharing agreements on approximately $143.4 million (contractual basis) of Greater Atlantic Bank’s assets. There were two agreements with the FDIC, one for single family loans which is a 10-year agreement expiring in December 2019, and one for non-single family (commercial) assets which was a 5-year agreement which expired in December 2014. The Bank will share in the losses on the loans and foreclosed loan collateral with the FDIC as specified in the loss sharing agreements; 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 June 30, 2015, non-covered loans included $31.2 million of loans acquired in the HarVest acquisition and $55.8 million acquired in the PGFSB acquisition.

 

Accretable discount on the acquired Greater Atlantic loans, the PGFSB loans and the HarVest loans was $8.0 million and $9.3 million at June 30, 2015 and December 31, 2014 respectively.

 

Credit-impaired covered loans are those loans which presented evidence of credit deterioration at the date of acquisition and it is probable that Southern National would not collect all contractually required principal and interest payments. Generally, acquired loans that meet Southern National’s definition for nonaccrual status fell within the definition of credit-impaired covered loans.

 

 

14
 

Impaired loans for the covered and non-covered portfolios were as follows (in thousands):

                                                         
June 30, 2015   Covered Loans   Non-covered Loans   Total Loans  
   

Recorded  

Investment  

 

Unpaid Principal  

Balance  

 

Related  

Allowance  

 

Recorded

Investment (1)  

 

Unpaid Principal

Balance  

 

Related  

Allowance

 

Recorded  

Investment

 

Unpaid Principal

Balance  

 

Related  

Allowance

 
With no related allowance recorded                                                        
Commercial real estate - owner occupied   $ -   $ -   $ -   $ 6,619   $ 7,137   $ -   $ 6,619   $ 7,137   $ -  
Commercial real estate - non-owner occupied (2)     -     -     -     138     234     -     138     234     -  
Construction and land development     -     -     -     -     -     -     -     -     -  
Commercial loans     -     -     -     3,328     4,236     -     3,328     4,236     -  
Residential 1-4 family (4)     1,740     2,049     -     -     -     -     1,740     2,049     -  
Other consumer loans     -     -     -     -     -     -     -     -     -  
                                                         
Total   $ 1,740   $ 2,049   $ -   $ 10,085   $ 11,607   $ -   $ 11,825   $ 13,656   $ -  
                                                         
With an allowance recorded                                                        
Commercial real estate - owner occupied   $ -   $ -   $ -   $ 765   $ 865   $ 214   $ 765   $ 865   $ 214  
Commercial real estate - non-owner occupied (2)     -     -     -     -     -     -     -     -     -  
Construction and land development     -     -     -     -     -     -     -     -     -  
Commercial loans     -     -     -     3,614     3,614     400     3,614     3,614     400  
Residential 1-4 family (4)     -     -     -     -     -     -     -     -     -  
Other consumer loans     -     -     -     -     -     -     -     -     -  
                                                         
Total   $ -   $ -   $ -   $ 4,379   $ 4,479   $ 614   $ 4,379   $ 4,479   $ 614  
Grand total   $ 1,740   $ 2,049   $ -   $ 14,464   $ 16,086   $ 614   $ 16,204   $ 18,135   $ 614  

 

(1) Recorded investment is after cumulative prior charge offs of $1.5 million. These loans also have aggregate SBA guarantees of $4.8 million.
(2) Includes loans secured by farmland and multi-family residential loans.
(3) The Bank recognizes loan impairment and may concurrently record a charge off to the allowance for loan losses.
(4) Includes home equity lines of credit.

                                                         
    Covered Loans   Non-covered Loans   Total Loans  
December 31, 2014   Recorded
Investment
  Unpaid Principal
Balance
  Related
Allowance
  Recorded
Investment (1)
  Unpaid Principal
Balance
  Related
Allowance
  Recorded
Investment
  Unpaid Principal
Balance
  Related
Allowance
 
With no related allowance recorded                                                        
Commercial real estate - owner occupied   $ -   $ -   $ -   $ 10,394   $ 10,394   $ -   $ 10,394   $ 10,394   $ -  
Commercial real estate - non-owner occupied (2)     -     -     -     1,859     2,118     -     1,859     2,118     -  
Construction and land development     -     -     -     -     -     -     -     -     -  
Commercial loans     -     -     -     4,998     4,999     -     4,998     4,999     -  
Residential 1-4 family (4)     1,740     2,053     -     -     -     -     1,740     2,053     -  
Other consumer loans     -     -     -     -     -     -     -     -     -  
                                                         
Total   $ 1,740   $ 2,053   $ -   $ 17,251   $ 17,511   $ -   $ 18,991   $ 19,564   $ -  
                                                         
With an allowance recorded                                                        
Commercial real estate - owner occupied   $ -   $ -   $ -   $ 1,609   $ 2,231   $ 151   $ 1,609   $ 2,231   $ 151  
Commercial real estate - non-owner occupied (2)     -     -     -     -     -     -     -     -     -  
Construction and land development     -     -     -     467     740     120     467     740     120  
Commercial loans     -     -     -     3,141     3,944     134     3,141     3,944     134  
Residential 1-4 family (4)     -     -     -     1,344     1,465     300     1,344     1,465     300  
Other consumer loans     -     -     -     -     -     -     -     -     -  
                                                         
Total   $ -   $ -   $ -   $ 6,561   $ 8,380   $ 705   $ 6,561   $ 8,380   $ 705  
Grand total   $ 1,740   $ 2,053   $ -   $ 23,812   $ 25,891   $ 705   $ 25,552   $ 27,944   $ 705  

 

(1) Recorded investment is after cumulative prior charge offs of $1.7 million. These loans also have aggregate SBA guarantees of $4.7 million.
(2) Includes loans secured by farmland and multi-family residential loans.
(3) The Bank recognizes loan impairment and may concurrently record a charge off to the allowance for loan losses.
(4) Includes home equity lines of credit.

 

15
 

 

The following tables present the average recorded investment and interest income for impaired loans recognized by class of loans for the three and six months ended June 30, 2015 and 2014 (in thousands):

                                       
Three months ended June 30, 2015   Covered Loans   Non-covered Loans   Total Loans  
   

Average

Recorded  

Investment

 

Interest  

Income

Recognized

 

Average

Recorded  

Investment

 

Interest  

Income

Recognized

 

Average

Recorded

Investment

 

Interest

Income

Recognize  

 
With no related allowance recorded                                      
Commercial real estate - owner occupied   $ -   $ -   $ 6,629   $ 74   $ 6,629   $ 74  
Commercial real estate - non-owner occupied (1)     -     -     139     3     139     3  
Construction and land development     -     -     -     -     -     -  
Commercial loans     -     -     3,068     -     3,068     -  
Residential 1-4 family (2)     1,682     11     -     -     1,682     11  
Other consumer loans     -     -     -     -     -     -  
                                       
Total   $ 1,682   $ 11   $ 9,836   $ 77   $ 11,518   $ 88  
                                       
With an allowance recorded                                      
Commercial real estate - owner occupied   $ -   $ -   $ 771   $ 11   $ 771   $ 11  
Commercial real estate - non-owner occupied (1)     -     -     -     -     -     -  
Construction and land development     -     -     -     -     -     -  
Commercial loans     -     -     3,621     54     3,621     54  
Residential 1-4 family (2)     -     -     -     -     -     -  
Other consumer loans     -     -     -     -     -     -  
                                       
Total   $ -   $ -   $ 4,392   $ 65   $ 4,392   $ 65  
Grand total   $ 1,682   $ 11   $ 14,228   $ 142   $ 15,910   $ 153  

 

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Includes home equity lines of credit.

                                       
Three months ended June 30, 2014   Covered Loans   Non-covered Loans   Total Loans  
 

Average

Recorded

Investment

Interest

Income

Recognized

Average

Recorded

Investment  

Interest

Income

Recognized

 

Average  

Recorded  

Investment

Interest

Income

Recognized  

 
With no related allowance recorded                                      
Commercial real estate - owner occupied   $ 743   $ 13   $ 7,335   $ 90   $ 8,078   $ 103  
Commercial real estate - non-owner occupied (1)     1,883     3     339     8     2,222     11  
Construction and land development     -     -     -     -     -     -  
Commercial loans     -     -     4,941     20     4,941     20  
Residential 1-4 family (2)     1,209     10     5,865     79     7,074     89  
Other consumer loans     -     -     -     -     -     -  
                                       
Total   $ 3,835   $ 26   $ 18,480   $ 197   $ 22,315   $ 223  
                                       
With an allowance recorded                                      
Commercial real estate - owner occupied   $ -   $ -   $ 106   $ 4   $ 106   $ 4  
Commercial real estate - non-owner occupied (1)     -     -     -     -     -     -  
Construction and land development     -     -     -     -     -     -  
Commercial loans     -     -     851     -     851     -  
Residential 1-4 family (2)     -     -     -     -     -     -  
Other consumer loans     -     -     -     -     -     -  
                                       
Total   $ -   $ -   $ 957   $ 4   $ 957   $ 4  
Grand total   $ 3,835   $ 26   $ 19,437   $ 201   $ 23,272   $ 227  

 

(1) Includes loans secured by farmland and multi-family residential loans.
(2) Includes home equity lines of credit.

16
 

 

                                       
                                     
Six months ended June 30, 2015   Covered Loans   Non-covered Loans   Total Loans  
    Average
Recorded
Investment
  Interest
Income
Recognized
  Average
Recorded
Investment
  Interest
Income
Recognized
  Average
Recorded
Investment
  Interest
Income
Recognized
 
With no related allowance recorded                                      
Commercial real estate - owner occupied   $ -   $ -   $ 6,638   $ 148   $ 6,638   $ 148  
Commercial real estate - non-owner occupied (1)     -     -     140     6     140     6  
Construction and land development     -     -     -     -     -     -  
Commercial loans     -     -     2,972     -     2,972     -  
Residential 1-4 family (2)     1,668     22     -     -     1,668     22  
Other consumer loans     -     -     -     -     -     -  
                                       
Total   $ 1,668   $ 22   $ 9,750   $ 154   $ 11,418   $ 176  
                                       
With an allowance recorded                                      
Commercial real estate - owner occupied   $ -   $ -   $ 777   $ 21   $ 777   $ 21  
Commercial real estate - non-owner occupied (1)     -     -     -     -     -     -  
Construction and land development     -     -     -     -     -     -  
Commercial loans     -     -     3,641     107     3,641     107  
Residential 1-4 family (2)     -     -     -     -     -     -  
Other consumer loans     -     -     -     -     -     -  
                                       
Total   $ -   $ -   $ 4,418   $ 128   $ 4,418   $ 128  
Grand total   $ 1,668   $ 22   $ 14,168   $ 282   $ 15,836   $ 304  

 

(1) Includes loans secured by farmland and multi-family residential loans. 

(2) Includes home equity lines of credit.

                                       
  Six months ended June 30, 2014   Covered Loans   Non-covered Loans   Total Loans  
    Average
Recorded
Investment
  Interest
Income
Recognized
  Average
Recorded
Investment
  Interest
Income
Recognized
  Average
Recorded
Investment
  Interest
Income
Recognized
 
With no related allowance recorded                                      
Commercial real estate - owner occupied   $ 742   $ 26   $ 6,325   $ 180   $ 7,067   $ 206  
Commercial real estate - non-owner occupied (1)     1,890     24     347     17     2,237     41  
Construction and land development     -     -     -     -     -     -  
Commercial loans     -     -     3,905     42     3,905     42  
Residential 1-4 family (2)     1,214     22     5,570     157     6,784     179  
Other consumer loans     -     -     -     -     -     -  
                                       
Total   $ 3,846   $ 72   $ 16,147   $ 396   $ 19,993   $ 468  
                                       
With an allowance recorded                                      
Commercial real estate - owner occupied   $ -   $ -   $ 111   $ 8   $ 111   $ 8  
Commercial real estate - non-owner occupied (1)     -     -     -     -     -     -  
Construction and land development     -     -     -     -     -     -  
Commercial loans     -     -     1,018     -     1,018     -  
Residential 1-4 family (2)     -     -     -     -     -     -  
Other consumer loans     -     -     -     -     -     -  
                                       
Total   $ -   $ -   $ 1,129   $ 8   $ 1,129   $ 8  
Grand total   $ 3,846   $ 72   $ 17,276   $ 404   $ 21,122   $ 476  

 

(1) Includes loans secured by farmland and multi-family residential loans. 

(2) Includes home equity lines of credit.

 

17
 

 

The following tables present the aging of the recorded investment in past due loans by class of loans as of June 30, 2015 and December 31, 2014 (in thousands):

                                             
June 30, 2015   30 - 59
Days
Past Due
  60 - 89
Days
Past Due
  90 Days
or More
  Total
Past Due
  Nonaccrual
Loans
  Loans Not
Past Due
  Total
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)     13     -     -     13     583     36,874     37,470  
Other consumer loans     -     -     -     -     -     -     -  
                                             
Total   $ 13   $ -   $ -   $ 13   $ 583   $ 36,874   $ 37,470  
                                             
Non-covered loans:                                            
Commercial real estate - owner occupied   $ 701   $ -   $ -   $ 701   $ 66   $ 139,723   $ 140,490  
Commercial real estate - non-owner occupied (1)     114     -     -     114     -     259,661     259,775  
Construction and land development     -     -     -     -     -     58,316     58,316  
Commercial loans     984     -     -     984     4,776     108,392     114,152  
Residential 1-4 family (2)     419     108     -     527     -     149,851     150,378  
Other consumer loans     -     12     -     12     -     1,434     1,446  
                                             
Total   $ 2,218   $ 120   $ -   $ 2,338   $ 4,842   $ 717,377   $ 724,557  
                                             
Total loans:                                            
Commercial real estate - owner occupied   $ 701   $ -   $ -   $ 701   $ 66   $ 139,723   $ 140,490  
Commercial real estate - non-owner occupied (1)     114     -     -     114     -     259,661     259,775  
Construction and land development     -     -     -     -     -     58,316     58,316  
Commercial loans     984     -     -     984     4,776     108,392     114,152  
Residential 1-4 family (2)     432     108     -     540     583     186,725     187,848  
Other consumer loans     -     12     -     12     -     1,434     1,446  
                                             
Total   $ 2,231   $ 120   $ -   $ 2,351   $ 5,425   $ 754,251   $ 762,027  

                                             
December 31, 2014   30 - 59
Days
Past Due
  60 - 89
Days
Past Due
  90 Days
or More
  Total
Past Due
  Nonaccrual
Loans
  Loans Not
Past Due
  Total
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)     10     148     -     158     859     37,478     38,495  
Other consumer loans     -     -     -     -     -     -     -  
                                             
Total   $ 10   $ 148   $ -   $ 158   $ 859   $ 37,478   $ 38,495  
                                             
Non-covered loans:                                            
Commercial real estate - owner occupied   $ -         $ -   $ -   $ 1,524   $ 135,073   $ 136,597  
Commercial real estate - non-owner occupied (1)     4,128     -     -     4,128     -     218,833     222,961  
Construction and land development     -     -     -     -     467     57,471     57,938  
Commercial loans     -     -     -     -     3,140     111,574     114,714  
Residential 1-4 family (2)     319     586     -     905     521     131,558     132,984  
Other consumer loans     6     -     -     6     -     1,558     1,564  
                                             
Total   $ 4,453   $ 586   $ -   $ 5,039   $ 5,652   $ 656,067   $ 666,758  
                                             
Total loans:                                            
Commercial real estate - owner occupied   $ -   $ -   $ -   $ -   $ 1,524   $ 135,073   $ 136,597  
Commercial real estate - non-owner occupied (1)     4,128     -     -     4,128     -     218,833     222,961  
Construction and land development     -     -     -     -     467     57,471     57,938  
Commercial loans     -     -     -     -     3,140     111,574     114,714  
Residential 1-4 family (2)     329     734     -     1,063     1,380     169,036     171,479  
Other consumer loans     6     -     -     6     -     1,558     1,564  
                                             
Total   $ 4,463   $ 734   $ -   $ 5,197   $ 6,511   $ 693,545   $ 705,253  

 

(1) Includes loans secured by farmland and multi-family residential loans. 

(2) Includes home equity lines of credit.

 

Non-covered nonaccrual loans include SBA guaranteed amounts totaling $4.8 million and $4.7 million at June 30, 2015 and December 31, 2014, respectively.

 

18
 

 

Activity in the allowance for non-covered loan and lease losses for the three and six months ended June 30, 2015 and 2014 is summarized below (in thousands):

                                                   
Non-covered loans:
Three months ended June 30, 2015
  Commercial
Real Estate
Owner
Occupied
  Commercial
Real Estate
Non-owner
Occupied (1)
  Construction
and Land
Development
  Commercial
Loans
  1-4 Family
Residential (2)
  Other
Consumer
Loans
  Unallocated   Total  
Allowance for loan losses:                                                  
Beginning balance   $ 1,424   $ 1,188   $ 1,351   $ 2,049   $ 1,215   $ 43   $ 450   $ 7,720  
Charge offs     (1,000 )   -     -     (266 )   -     (3 )   -     (1,269 )
Recoveries     3     6     -     10     2     1     -     22  
Provision     627     330     (299 )   628     7     5     202     1,500  
Ending balance   $ 1,054   $ 1,524   $ 1,052   $ 2,421   $ 1,224   $ 46   $ 652   $ 7,973  
                                                   
Three months ended June 30, 2014                                                  
Allowance for loan losses:                                                  
Beginning balance   $ 616   $ 810   $ 1,152   $ 2,648   $ 1,102   $ 50   $ 927   $ 7,305  
Charge offs     -     -     -     (260 )   -     -     -     (260 )
Recoveries     4     6     1     58     1     -     70        
Provision     (24 )   117     247     480     (318 )   9     (311 )   200  
Ending balance   $ 596   $ 933   $ 1,400   $ 2,926   $ 785   $ 59   $ 616   $ 7,315  

 

(1) Includes loans secured by farmland and multi-family residential loans. 

(2) Includes home equity lines of credit.

                                                   
Non-covered loans:
Six months ended June 30, 2015
  Commercial
Real Estate
Owner
Occupied
  Commercial
Real Estate
Non-owner
Occupied (1)
  Construction
and Land
Development
  Commercial
Loans
  1-4 Family
Residential
  Other
Consumer
Loans
  Unallocated   Total  
Allowance for loan losses:                                                  
Beginning balance   $ 855   $ 1,123   $ 1,644   $ 2,063   $ 1,322   $ 49   $ 337   $ 7,393  
Charge offs     (1,000 )   -     -     (619 )   -     (5 )   -     (1,624 )
Recoveries     4     12     139     19     4     1     -     179  
Provision     1,195     389     (731 )   958     (102 )   1     315     2,025  
Ending balance   $ 1,054   $ 1,524   $ 1,052   $ 2,421   $ 1,224   $ 46   $ 652   $ 7,973  
                                                   
Six months ended June 30, 2014                                                  
Allowance for loan losses:                                                  
Beginning balance   $ 814   $ 985   $ 1,068   $ 2,797   $ 1,302   $ 54   $ 19   $ 7,039  
Charge offs     (71 )   -     -     (848 )   (300 )   -     -     (1,219 )
Recoveries     8     12     1     92     2     5     -     120  
Provision     (155 )   (64 )   331     885     (219 )   -     597     1,375  
Ending balance   $ 596   $ 933   $ 1,400   $ 2,926   $ 785   $ 59   $ 616   $ 7,315  

 

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Includes home equity lines of credit.

 

19
 

 

Activity in the allowance for covered loan and lease losses by class of loan for the three and six months ended June 30, 2015 and 2014 is summarized below (in thousands):

                                                   
Covered loans:
Three months ended June 30, 2015
  Commercial
Real Estate
Owner
Occupied
  Commercial
Real Estate
Non-owner
Occupied (1)
  Construction
and Land
Development
  Commercial
Loans
  1-4 Family
Residential (3)
  Other
Consumer
Loans
  Unallocated   Total  
Allowance for loan losses:                                                  
Beginning balance   $ -   $ -   $ -   $ -   $ 17   $ 4   $ -   $ 21  
Charge offs     -     -     -     -     -     -     -     -  
Recoveries     -     -     -     -     -     -     -     -  
Adjustments (2)     -     -     -     -     -     -     -     -  
Provision     -     -     -     -     -     -     -     -  
Ending balance   $ -   $ -   $ -   $ -   $ 17   $ 4   $ -   $ 21  
                                                   
Three months ended June 30, 2014                                                  
Allowance for loan losses:                                                  
Beginning balance   $ -   $ 45   $ -   $ -   $ -   $ 6   $ -   $ 51  
Charge offs     -     -     -     -     -     -     -     -  
Recoveries     -     -     -     -     -     -     -     -  
Adjustments (2)     -     (36 )   -     -     14     (2 )   -     (24 )
Provision     -     (9 )   -     -     3     -     -     (6 )
Ending balance   $ -   $ -   $ -   $ -   $ 17   $ 4   $ -   $ 21  

 

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Represents the portion of increased expected losses which is covered by the loss sharing agreement with the FDIC.

(3) Includes home equity lines of credit.

                                                   
Covered loans:
Six months ended June 30, 2015
  Commercial
Real Estate
Owner
Occupied
  Commercial
Real Estate
Non-owner
Occupied (1)
  Construction
and Land
Development
  Commercial
Loans
  1-4 Family
Residential (3)
  Other
Consumer
Loans
  Unallocated   Total  
Allowance for loan losses:                                                  
Beginning balance   $ -   $ -   $ -   $ -   $ 17   $ 4   $ -   $ 21  
Charge offs     -     -     -     -     -     -     -     -  
Recoveries     -     -     -     -     -     -     -     -  
Adjustments (2)     -     -     -     -     -     -     -     -  
Provision     -     -     -     -     -     -     -     -  
Ending balance   $ -   $ -   $ -   $ -   $ 17   $ 4   $ -   $ 21  
                                                   
Six months ended June 30, 2014                                                  
Allowance for loan losses:                                                  
Beginning balance   $ -   $ 45   $ -   $ -   $ -   $ 6   $ -   $ 51  
Charge offs     -     -     -     -     -     -     -     -  
Recoveries     -     -     -     -     -     -     -     -  
Adjustments (2)     -     (36 )   -     -     14     (2 )   -     (24 )
Provision     -     (9 )   -     -     3     -     -     (6 )
Ending balance   $ -   $ -   $ -   $ -   $ 17   $ 4   $ -   $ 21  

 

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Represents the portion of increased expected losses which is covered by the loss sharing agreement with the FDIC.

(3) Includes home equity lines of credit.

 

20
 

 

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 June 30, 2015 and December 31, 2014 (in thousands):

                                                   
Non-covered loans:   Commercial
Real Estate
Owner
Occupied
  Commercial
Real Estate
Non-owner
Occupied (1)
  Construction
and Land
Development
  Commercial
Loans
  1-4 Family
Residential (2)
  Other
Consumer
Loans
  Unallocated   Total  
June 30, 2015                                                  
Ending allowance balance attributable to loans:                                                  
Individually evaluated for impairment   $ 214   $ -   $ -   $ 400   $ -   $ -   $ -   $ 614  
Collectively evaluated for impairment     840     1,524     1,052     2,021     1,224     46     652     7,359  
Total ending allowance   $ 1,054   $ 1,524   $ 1,052   $ 2,421   $ 1,224   $ 46   $ 652   $ 7,973  
                                                   
Loans:                                                  
Individually evaluated for impairment   $ 7,384   $ 138   $ -   $ 6,942   $ -   $ -   $ -   $ 14,464  
Collectively evaluated for impairment     133,106     259,637     58,316     107,210     150,378     1,446     -     710,093  
Total ending loan balances   $ 140,490   $ 259,775   $ 58,316   $ 114,152   $ 150,378   $ 1,446   $ -   $