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LOANS AND ALLOWANCE FOR LOAN LOSSES
3 Months Ended
Mar. 31, 2020
Loans and Allowance for Loan Losses [Abstract]  
LOANS AND ALLOWANCE FOR LOAN LOSSES

4.      LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes the composition of our loan portfolio as of March 30, 2020 and December 31, 2019 (in thousands):

    

March 31, 2020

    

December 31, 2019

Loans secured by real estate:

 

  

Commercial real estate - owner occupied

$

409,739

$

414,479

Commercial real estate - non-owner occupied

 

599,987

 

559,195

Secured by farmland

 

16,608

 

17,622

Construction and land loans

 

115,144

 

150,750

Residential 1-4 family (1)

 

624,119

 

604,777

Multi- family residential

 

90,652

 

82,055

Home equity lines of credit (1)

 

106,820

 

109,006

Total real estate loans

 

1,963,069

 

1,937,884

Commercial loans

 

223,433

 

221,447

Consumer loans

 

25,708

 

26,304

Subtotal

 

2,212,210

 

2,185,635

Plus deferred costs on loans

 

328

 

412

Total loans

$

2,212,538

$

2,186,047

(1)Included $13.5 million of loans as of December 31, 2019, acquired in the Greater Atlantic Bank (“GAB”) transaction covered under an FDIC loss-share agreement. The agreement covering single family loans expired on December 31, 2019.

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 Company’s consolidated financial results.

Accretable discount on the acquired loans totaled $10.6 million and $11.2 million at March 31, 2020 and December 31, 2019, respectively. Accretion associated with the acquired loans held for investment of $597 thousand and $816 thousand was recognized during the three months ended March 31, 2020 and 2019, respectively.

Impaired loans for the portfolio were as follows (in thousands):

Total Loans

    

    

Unpaid 

    

Recorded

Principal

Related 

March 31, 2020

Investment (1)

Balance

Allowance

With no related allowance recorded

 

  

 

  

 

  

Commercial real estate - owner occupied

$

5,986

$

6,956

$

Commercial real estate - non-owner occupied (2)

 

3,231

 

3,327

 

Construction and land development

 

357

 

802

 

Commercial loans

 

5,276

 

6,513

 

Residential 1-4 family (3)

 

5,103

 

6,222

 

Other consumer loans

 

20

 

20

 

Total

$

19,973

$

23,840

$

With an allowance recorded

 

  

 

  

 

  

Commercial real estate - owner occupied

$

$

$

Commercial real estate - non-owner occupied (2)

 

 

 

Construction and land development

 

 

 

Commercial loans

 

2,415

 

2,480

 

1,309

Residential 1-4 family (3)

 

 

 

Other consumer loans

 

 

 

Total

$

2,415

$

2,480

$

1,309

Grand total

$

22,388

$

26,320

$

1,309

Total Loans

    

    

Unpaid 

    

Recorded

Principal

Related 

December 31, 2019

Investment (1)

Balance

Allowance

With no related allowance recorded

 

  

 

  

 

  

Commercial real estate - owner occupied

$

6,890

$

8,530

$

Commercial real estate - non-owner occupied (2)

 

3,120

 

3,363

 

Construction and land development

 

345

 

747

 

Commercial loans

 

5,049

 

8,490

 

Residential 1-4 family (3)

 

1,021

 

2,719

 

Other consumer loans

 

 

 

Total

$

16,425

$

23,849

$

With an allowance recorded

 

  

 

  

 

  

Commercial real estate - owner occupied

$

$

$

Commercial real estate - non-owner occupied (2)

 

176

 

281

 

1

Construction and land development

 

 

 

Commercial loans

 

2,498

 

2,533

 

957

Residential 1-4 family (3)

 

2,841

 

3,243

 

92

Other consumer loans

 

39

 

39

 

1

Total

$

5,554

$

6,096

$

1,051

Grand total

$

21,979

$

29,945

$

1,051

(1)Recorded investment is after cumulative prior charge offs of $1.5 million as of March 31, 2020 and December 31, 2019. These loans also have aggregate SBA guarantees of $4.4 million and $3.1 million as of March 31, 2020 and December 31, 2019, respectively.
(2)Includes loans secured by farmland and multi-family residential loans.
(3)Includes home equity lines of credit.

The following tables present the average recorded investment and interest income recognized for impaired loans recognized by class of loans for the three months ended March 31, 2020 and 2019 (in thousands):

Total Loans

Average

Interest

    

Recorded

    

Income

Three Months Ended March 31, 2020

Investment

Recognized

With no related allowance recorded

Commercial real estate - owner occupied

$

6,987

 

$

91

Commercial real estate - non-owner occupied (1)

 

3,341

 

 

46

Construction and land development

 

815

 

 

14

Commercial loans

 

3,646

 

 

46

Residential 1-4 family (2)

 

6,229

 

 

37

Other consumer loans

 

20

 

 

Total

$

21,038

 

$

234

With an allowance recorded

Commercial real estate - owner occupied

$

 

$

Commercial real estate - non-owner occupied (1)

 

 

 

Construction and land development

 

 

 

Commercial loans

 

3,581

 

 

49

Residential 1-4 family (2)

 

 

 

Other consumer loans

 

 

 

Total

$

3,581

 

$

49

Grand total

$

24,619

 

$

283

Total Loans

Average

Interest

    

Recorded

    

Income

Three Months Ended March 31, 2019

Investment

Recognized

With no related allowance recorded

Commercial real estate - owner occupied

$

6,034

 

$

66

Commercial real estate - non-owner occupied (1)

 

4,435

 

 

37

Construction and land development

 

370

 

 

14

Commercial loans

 

5,011

 

 

11

Residential 1-4 family (2)

 

5,305

 

 

59

Other consumer loans

 

40

 

 

Total

$

21,195

 

$

187

With an allowance recorded

Commercial real estate - owner occupied

$

 

$

Commercial real estate - non-owner occupied (1)

 

 

 

Construction and land development

 

 

 

Commercial loans

 

4,712

 

 

50

Residential 1-4 family (2)

 

984

 

 

18

Other consumer loans

 

 

 

Total

$

5,696

 

$

68

Grand total

$

26,891

 

$

255

________________________________________

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

The following tables present the aging of the recorded investment in past due loans by class of loans as of March 31, 2020 and December 31, 2019 (in thousands):

    

30 - 59

    

60 - 89

    

90 

    

    

    

    

Days

Days

Days 

Total

Nonaccrual

Loans Not

Total

March 31, 2020

Past Due

Past Due

or More

Past Due

Loans (3)

Past Due

Loans (4)

Total loans:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Commercial real estate - owner occupied

$

8,716

$

942

$

$

9,658

$

$

400,081

$

409,739

Commercial real estate - non-owner occupied (1)

 

10,837

 

867

 

 

11,704

 

 

695,543

 

707,247

Construction and land development

 

1,087

 

 

 

1,087

 

 

114,057

 

115,144

Commercial loans

 

571

 

109

 

 

680

 

5,358

 

217,395

 

223,433

Residential 1-4 family (2)

 

14,531

 

394

 

 

14,925

 

3,563

 

712,451

 

730,939

Other consumer loans

 

211

 

6

 

 

217

 

20

 

25,471

 

25,708

Total

$

35,953

$

2,318

$

$

38,271

$

8,941

$

2,164,998

$

2,212,210

    

30 - 59

    

60 - 89

    

90 

    

    

    

    

Days

Days

Days 

Total

Nonaccrual

Loans Not

Total

December 31, 2019

Past Due

Past Due

or More

Past Due

Loans (3)

Past Due

Loans

Total loans:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Commercial real estate - owner occupied

$

813

$

$

$

813

$

$

413,666

$

414,479

Commercial real estate - non-owner occupied (1)

 

936

 

 

 

936

 

 

657,936

 

658,872

Construction and land development

 

746

 

275

 

 

1,021

 

 

149,729

 

150,750

Commercial loans

 

234

 

62

 

 

296

 

6,337

 

214,814

 

221,447

Residential 1-4 family (2)

 

4,060

 

 

 

4,060

 

2,524

 

707,199

 

713,783

Other consumer loans

 

107

 

 

 

107

 

39

 

26,158

 

26,304

Total

$

6,896

$

337

$

$

7,233

$

8,900

$

2,169,502

$

2,185,635

(1)Includes loans secured by farmland and multi-family residential loans.
(2)Includes home equity lines of credit.
(3)Nonaccrual loans include SBA guaranteed amounts totaling $2.9 million and $4.1 million at March 31, 2020 and December 31, 2019, respectively.
(4)Includes $547.1 million of loans that were subject to deferrals at April 30, 2020.

Activity in the allowance for loan and lease losses by class of loan for the three months ended March 31, 2020 and 2019 is summarized below (in thousands):

    

Commercial

    

Commercial

    

    

    

    

    

    

    

    

    

    

    

 

Real Estate

Real Estate

Construction

Other

 

Owner

Non-owner

and Land

Commercial

1-4 Family

Consumer

 

Three Months Ended March 31, 2020

 

Occupied

 

Occupied (1)

 

Development

 

Loans

 

Residential (2)

 

Loans

 

Unallocated

 

Total

Allowance for loan losses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Beginning balance

$

810

$

1,720

$

683

$

5,418

$

1,266

$

190

$

174

$

10,261

Provision (recovery) for non-purchased loans

 

253

 

971

 

(307)

 

822

 

1,387

 

74

 

(100)

 

3,100

Provision for purchase credit impaired loans

350

350

Total provision (recovery)

253

971

(307)

1,172

1,387

74

(100)

3,450

Charge offs

 

 

 

 

(822)

 

(245)

 

(32)

 

 

(1,099)

Recoveries

 

5

 

2

 

 

65

 

31

 

7

 

 

110

Ending balance

$

1,068

$

2,693

$

376

$

5,833

$

2,439

$

239

$

74

$

12,722

Three Months Ended March 31, 2019

Allowance for loan losses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Beginning balance

$

802

$

1,669

$

821

$

7,097

$

1,106

$

224

$

564

$

12,283

Provision (recovery)

 

11

 

624

 

99

 

(887)

 

56

 

83

 

214

 

200

Charge offs

 

 

(462)

 

 

(167)

 

 

(60)

 

 

(689)

Recoveries

 

3

 

 

 

63

 

8

 

6

 

 

80

Ending balance

$

816

$

1,831

$

920

$

6,106

$

1,170

$

253

$

778

$

11,874

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

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2020 and 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 December 31, 2019 (in thousands):

    

Commercial

    

Commercial

    

    

    

    

    

    

Real Estate

Real Estate

Construction

Other

 

Owner

Non-owner

and Land

Commercial

1-4 Family

Consumer

 

March 31, 2020

Occupied

Occupied (1)

Development

Loans

Residential (2)

Loans

Unallocated

Total

Ending allowance balance attributable to loans:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Individually evaluated for impairment

$

$

$

$

1,309

$

$

$

$

1,309

Collectively evaluated for impairment

 

1,068

 

2,693

 

376

 

4,524

 

2,439

 

239

 

74

 

11,413

Total ending allowance

$

1,068

$

2,693

$

376

$

5,833

$

2,439

$

239

$

74

$

12,722

Loans:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Individually evaluated for impairment

$

5,986

$

3,231

$

357

$

5,276

$

5,103

$

20

$

$

19,973

Collectively evaluated for impairment

 

403,753

 

704,016

 

114,787

 

218,157

 

725,836

 

25,688

 

 

2,192,237

Total ending loan balances

$

409,739

$

707,247

$

115,144

$

223,433

$

730,939

$

25,708

$

$

2,212,210

December 31, 2019

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Ending allowance balance attributable to loans:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Individually evaluated for impairment

$

$

$

$

957

$

85

$

$

$

1,042

Collectively evaluated for impairment

 

810

 

1,720

 

683

 

4,461

 

1,181

 

190

 

174

 

9,219

Total ending allowance

$

810

$

1,720

$

683

$

5,418

$

1,266

$

190

$

174

$

10,261

Loans:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Individually evaluated for impairment

$

6,890

$

3,120

$

345

$

7,544

$

1,443

$

$

$

19,342

Collectively evaluated for impairment

 

407,589

 

655,752

 

150,405

 

213,903

 

712,340

 

26,304

 

 

2,166,293

Total ending loan balances

$

414,479

$

658,872

$

150,750

$

221,447

$

713,783

$

26,304

$

$

2,185,635

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

Troubled Debt Restructurings

A modification is classified as a 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 rates 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.

There were no TDRs during the three months ended March 31, 2020 and there have been no defaults of TDRs modified during the past twelve months.

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.

Special Mention loans are loans that have a potential weakness that deserve 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 March 31, 2020 or December 31, 2019.

As of  March 31, 2020 and December 31, 2019, 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

    

    

    

 

March 31, 2020

Mention

Substandard (3)

Pass

Total

Commercial real estate - owner occupied

$

3,795

$

4,192

$

401,752

$

409,739

Commercial real estate - non-owner occupied (1)

 

3,563

 

173

 

703,511

 

707,247

Construction and land development

 

 

667

 

114,477

 

115,144

Commercial loans

 

3,487

 

4,212

 

215,734

 

223,433

Residential 1-4 family (2)

 

661

 

1,308

 

728,970

 

730,939

Other consumer loans

 

116

 

 

25,592

 

25,708

Total

$

11,622

$

10,552

$

2,190,036

$

2,212,210

Total Loans

    

Special

    

    

    

 

December 31, 2019

Mention

Substandard (3)

Pass

Total

Commercial real estate - owner occupied

$

3,821

$

3,975

$

406,683

$

414,479

Commercial real estate - non-owner occupied (1)

 

4,193

 

176

 

654,503

 

658,872

Construction and land development

 

 

690

 

150,060

 

150,750

Commercial loans

 

3,432

 

4,462

 

213,553

 

221,447

Residential 1-4 family (2)

 

666

 

1,194

 

711,923

 

713,783

Other consumer loans

 

122

 

 

26,182

 

26,304

Total

$

12,234

$

10,497

$

2,162,904

$

2,185,635

(1)Includes loans secured by farmland and multi-family residential loans.
(2)Includes home equity lines of credit.
(3)Includes SBA guarantees of $2.9 million and $4.1 million as of March 31, 2020 and December 31, 2019, respectively.

The amount of foreclosed residential real estate property held at March 31, 2020 and December 31, 2019 was $1.2 million and $1.4 million, respectively. The recorded investment in consumer mortgage loans collateralized by residential

real estate property that are in the process of foreclosure was $2.0 million and $1.9 million at March 31, 2020 and December 31, 2019, respectively.