8-K
Primis Financial Corp. (FRST)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event Reported): July 27, 2020
Southern National Bancorp of Virginia, Inc.
(Exact Name of Registrant as Specified in Charter)
| Virginia | 001-33037 | 20-1417448 |
|---|---|---|
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) |
| 6830 Old Dominion Drive, McLean, Virginia 22101 | ||
| --- | ||
| (Address of Principal Executive Offices) (Zip Code) |
(703) 893-7400
(Registrant's telephone number, including area code)
| Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: | ||
|---|---|---|
| [ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchanged on which registered |
|---|---|---|
| COMMON STOCK | SONA | NASDAQ |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). 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. [ ]
Item 2.02. Results of Operations and Financial Condition.
On July 27, 2020, Southern National Bancorp of Virginia, Inc. (“Southern National”) issued a press release announcing its financial results for the three months ended June 30, 2020. A copy of the press release is filed as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.
Item 7.01. Regulation FD Disclosure.
The Company has prepared presentation materials (the “Investor Presentation”) that management intends to use from time to time thereafter in presentations about the Company’s operations and performance. The Company may use the Investor Presentation, possibly with modifications, in presentations to current and potential investors, analysts, lenders, business partners, acquisition candidates, customers, employees and others with an interest in the Company and its business.
A copy of the Investor Presentation is furnished as Exhibit 99.2 to this report and incorporated here by reference. The Investor Presentation is also available on the Company's website at www.sonabank.com. Materials on the Company’s website are not part of or incorporated by reference into this report.
In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibits 99.1 and 99.2, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 8.01. Other Events.
On July 27, 2020, Southern National issued a press release announcing the declaration of a dividend payable to shareholders of record as of August 10, 2020. A copy of the press release is filed as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
99.1 Press Release dated July 27, 2020
99.2 Southern National Bancorp of Virginia, Inc. Investor Presentation dated July 27, 2020.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Southern National Bancorp of Virginia, Inc. | ||
|---|---|---|
| Date: July 27, 2020 | By: | /s/ Jeffrey L. Karafa |
| Jeffrey L. Karafa | ||
| Chief Financial Officer |
Exhibit 99.1
Southern National Bancorp of Virginia, Inc. announces earnings of $4.7 million for the quarter ended June 30, 2020, compared to $9.3 million for the quarter ended June 30, 2019
Southern National Bancorp of Virginia, Inc. also declares a dividend of $0.10 per share, its thirty-fifth consecutive quarterly dividend
MCLEAN, Va., July 27, 2020 /PRNewswire/ -- Southern National Bancorp of Virginia, Inc. (NASDAQ: SONA) ("Southern National" or the "Company"), and its wholly-owned subsidiary Sonabank (the "Bank"), today announced net income of $4.7 million for the quarter ended June 30, 2020, compared to $9.3 million for the quarter ended June 30, 2019. Earnings per share for the three months ended June 30, 2020 were $0.19 basic and diluted compared to $0.39 basic and $0.38 diluted for the three months ended June 30, 2019.
Earnings for the six months ended June 30, 2020 were $4.7 million compared to $15.3 million for the six months ended June 30, 2019. Earnings per share for the six months ended June 30, 2020 were $0.20 basic and $0.19 diluted compared to $0.64 basic and $0.63 diluted for the six months ended June 30, 2019.
The Board of Directors also announces and declares a dividend of $0.10 per share payable on August 21, 2020 to shareholders of record on August 10, 2020. This is Southern National's thirty-fifth consecutive quarterly dividend.
Commenting on the quarter, President and CEO Dennis J. Zember, Jr. said "I am really proud of what we accomplished in the second quarter of 2020. Despite the fact that our locations were closed, our bankers worked together to close and process over 3,800 PPP loans and grow core deposits at the fastest pace in our Company's history while steadily moving lower on rates. We saw a substantial improvement in revenue and pretax pre-provision earnings and held steady on operating expenses. Our announcement regarding Panacea illustrates our commitment to technology and creativity and promises to drive shareholder value with increased growth rates in earnings per share. We expect the second half of the year to be centered on managing through the economic impacts of the pandemic and are encouraged with the conversations and diligence we have directed to existing customer relationships."
Highlights for the three and six months ended June 30, 2020 include:
- Originated approx. 3,800 PPP loans totaling $335.6 million.
- Deferred PPP fees (net of expenses) of $10.6 million.
- Increased non-CD deposits to total deposits 71% compared to 59% at 2Q 2019.
- Cost of Deposits declined to 0.95% (over 45% compared to year end 2019 levels).
- Increased contribution from mortgage investment to $4.1 million.
- Increased PTPP income to $16.8 million or 2.27% of average assets (compared to 1.51% for 2019).
- Announced partnership with Tyler Stafford and Panacea that will increase long-term growth in assets and earnings per share focusing on medical professionals.
- Operating efficiency ratio of 49.07% compared to 58.21% in the same quarter of 2019.
- Total assets increased to approximately $3.1 billion at June 30, 2020.
- Tangible book value per share of $11.21 at June 30, 2020 has increased 6.9% since a year ago.
Net Interest Income
Net interest income increased to $22.5 million for the three months ended June 30, 2020 or $1.5 million due to higher levels of average earning assets. The Company's net interest margin for the current quarter declined to 3.33%, impacted heavily by the origination of PPP loans with net margins of only 0.77%. Excluding the effects of PPP loans, the Company's net interest margin would have increased to 3.50% compared to 3.40% at the same time in 2019. While yields on earning assets have fallen due to market conditions, the Company's funding costs have benefited materially for the first half of 2020 and are expected to continue improving for several additional quarters. Yields on earning assets have fallen from 4.93% to 4.25% when compared to the second quarter of 2019 versus a 67% decline in total cost of funding over the same period.
Commenting on the trends around net interest margin, Mr. Zember stated "Our foremost balance sheet strategy right now is to permanently improve our funding and our funding costs. In the coming quarters, we are looking to continue growing core deposits at a pace that will allow us to dramatically reduce reliance on brokered and listing service CDs. As we move through the year and see the funding mix move more towards checking and money market accounts, we will focus even more attention on funding costs. Strategically, we believe the pathway to our desired funding profile for the Company is a twelve to eighteen month process that will drive material value and profitability long-term."
Noninterest Income
During the three months ended June 30, 2020, Southern National had record non-interest income of $8.4 million compared to $3.2 million for the three months ended June 30, 2019. Income on account maintenance and deposit service fees declined $299 thousand primarily in account service charges and NSF fees. Gains on our investment in Southern Trust Mortgage ("STM") increased to $4.2 million compared to $558 thousand in the same quarter in 2019, driven by higher margins on closed loans and materially higher volumes from refinance activity as well as production from new hires and teams that were on boarded in the last half of 2019. Lastly, the Company experienced a recovery related to a previously charged-off acquired loan of approximately $2 million during the second quarter of 2020.
Noninterest Expense
Noninterest expense was $14.1 million for the three months ended June 30, 2020, impressively similar to the $13.9 million reported for the three months ended June 30, 2019. The increase in noninterest expense was primarily due to a $385 thousand increase in data processing expense, a $194 thousand increase in employee compensation and benefits, all offset by a $495 thousand decrease in building and leasehold depreciation.
Noninterest expense was $33.9 million for the six months ended June 30, 2020 compared to $30.2 million during the same period in 2019. Both periods had unusually large non-recurring items including costs associated with the Company's management restructure, settlement of lawsuits and costs associated with the consolidation of several branches.
Loan Portfolio
Loans outstanding grew to $2.51 billion at June 30, 2020 compared to $2.17 billion at the same time in 2019. Loan production in the second quarter of 2020 centered mostly on PPP which totaled $335.6 million. Excluding PPP loans, loans outstanding have decreased $10.2 million since December 31, 2019.
The Company ended the second quarter of 2020 with a concentration in hotels totaling $288.4 million. The portfolio, prior to the pandemic, had debt weighted average debt coverage of approximately 147% and weighted average loan to value of approximately 68%. Substantially all of the Company's hotel loans are to national brands and approximately 93% of the portfolio are to limited service hotels, in non-leisure areas with historically lower operating costs. Approximately 76% percent of the hotel loans had been granted a COVID-19 deferral as of June 30, 2020.
Mr. Zember commented about the concentration, saying "During the second quarter, the executive team and our commercial relationship managers reviewed every relationship and portfolio concentration over $5.0 million. This review covered approximately 65% of the total portfolio and added to our confidence concerning the viability and strength of our customer base. There is no doubt that our hotel and hospitality customers are suffering with lower occupancy and revenue rates but the improvement in these and other key ratios over the quarter has been very encouraging. Additionally, the portfolio is heavily oriented around strong, lifetime operators with substantial equity in each project, lower loan-to-values and who are actively and permanently right-sizing their cost structures."
Credit Loss Provision and Asset Quality
The Allowance for Loan Losses (incurred loss model) increase to $23.6 million at June 30, 2020. The Allowance for Loan Losses to Total Loans now stands at 0.94%, and the Allowance to Loan plus discounts on acquired loan to Total Loans is 1.28%.
As the COVID-19 health crisis unfolded in the Company's markets and businesses experienced disruptions in normal operations, the Company provided certain modifications, including interest only or principal and interest deferments. Total modified loans or loans with requests for modifications at June 30, 2020 were $707.8 million.
Nonperforming assets, excluding portions guaranteed by the SBA, were 0.47% of total assets at June 30, 2020, compared to 0.40% at December 31, 2019. Total non-accrual loans increased to $14.9 million at June 30, 2020 compared to $8.9 million at December 31, 2019 due to COVID-19 related issues.
Lastly, the Company has participated extensively in the SBA's Payroll Protection Program. The Company had approved and secured funds for over 3,800 customers totaling $335.6 million. Net deferred PPP fees less direct origination expense is $10.6 million at June 30, 2020. The Company has secured borrowings from the Federal Reserve's discount window for the full amount of the PPP loans outstanding and does not anticipate any issues with liquidity. Additionally, the Company has contracted with certain firms with extensive experience in BSA, bank compliance, technology and underwriting to ensure the customer files are well documented and exceed the SBA's requirements for funding and stands ready to assist our customers in the upcoming loan forgiveness process.
Deposits
Total deposits remained flat at $2.15 billion at June 30, 2020 compared to $2.15 billion at the same time in 2019. However, during the quarter, the Company replaced $76 million of brokered, listing service and higher rate customer CDs with growth in checking, NOW and MMDA balances. The Company is aggressively building sales and incentive cultures focused on growing and managing core deposits, with the primary attention on commercial and consumer checking accounts. Management expects continued improvement in the funding mix over the next several quarters with additional reductions in total funding costs.
Stockholders' Equity
Tangible common book value at the end of the second quarter of 2020 was $11.21 per share, an increase of 6.9% since the same time in 2019. Tangible common equity at June 30, 2020 was $273.2 million, or 9.22% of tangible assets. Sonabank's capital ratios were especially strong with tier one leverage and total risk based capital ratios estimated at 10.62% and 14.22%, respectively at the end of the second quarter of 2020. The growth in assets during the quarter was mostly centered around PPP activity which reduced the Company's tangible common equity ratio by 77 bps and the Bank's tier one capital ratio by 134 bps.
About Southern National Bancorp of Virginia, Inc.
As of June 30, 2020, Southern National had $3.07 billion in total assets, $2.51 billion in total loans and $2.15 billion in total deposits. Sonabank, the Company's banking subsidiary provides a range of financial services to individuals and small and medium sized businesses through forty-two full-service branches in Virginia and Maryland and through certain internet and mobile applications.
Non-GAAP Measures
Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables. Southern National uses non-GAAP financial measures to analyze its performance.
Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of Southern National and provide meaningful comparison to its peers. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider Southern National's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of Southern National.
Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that relate to future events or the future performance of Southern National. Forward-looking statements are not guarantees of performance or results. These forward-looking statements are based on the current beliefs and expectations of the respective management of Southern National and Sonabank and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond their respective control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed or implied in these forward-looking statements because of numerous possible uncertainties. Words like "may," "plan," "contemplate," "anticipate," "believe," "intend," "continue," "expect," "project," "predict," "estimate," "could," "should," "would," "will," and similar expressions, should be considered as identifying forward-looking statements, although other phrasing may be used. Such forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the reports (such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Registration Statements on Form S-4) filed by Southern National. You should consider such factors and not place undue reliance on such forward-looking statements. No obligation is undertaken by Southern National to update such forward-looking statements to reflect events or circumstances occurring after the issuance of this press release.
| Contacts: | Addresses: | |||||||
|---|---|---|---|---|---|---|---|---|
| Dennis J. Zember, Jr., President and CEO | Southern National Bancorp of Virginia, Inc. | |||||||
| Phone: 804-997-2406 | 6830 Old Dominion Drive | |||||||
| McLean, VA 22101 | ||||||||
| Jeffrey L. Karafa, EVP and CFO | ||||||||
| Phone: 804-997-2404 | Sonabank | |||||||
| 10900 Nuckols Road, Suite 325 | ||||||||
| Glen Allen, VA 23060 | ||||||||
| Southern National Bancorp of Virginia, Inc., NASDAQ Symbol SONA<br><br>Website: www.sonabank.com | ||||||||
| For the Three Month Period | Year to Date Period | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Condensed Consolidated Balance Sheets (unaudited) | 2Q 2020 | 1Q 2020 | 4Q 2019 | 3Q 2019 | 2Q 2019 | YTD 2020 | YTD 2019 | |
| Assets | ||||||||
| Cash and cash equivalents | $ 82,586 | $ 55,865 | $ <br> 31,928 | $ 48,572 | $<br> 33,088 | $ 82,586 | $<br> 33,088 | |
| Investment securities-available for sale | 160,979 | 168,520 | 164,820 | 163,344 | 163,860 | 160,979 | 163,860 | |
| Investment securities-held to maturity | 53,958 | 59,234 | 72,448 | 78,790 | 86,815 | 53,958 | 86,815 | |
| Stock in Federal Reserve Bank and Federal Home Loan Bank | 16,927 | 21,396 | 17,832 | 14,602 | 17,364 | 17,193 | 17,633 | |
| Loans receivable, net of deferred fees | 2,511,504 | 2,212,538 | 2,186,047 | 2,141,385 | 2,172,845 | 2,511,504 | 2,172,845 | |
| Allowance for loan losses | (23,627) | (12,722) | (10,261) | (11,201) | (11,613) | (23,627) | (11,613) | |
| Net loans | 2,487,877 | 2,199,816 | 2,175,786 | 2,130,184 | 2,161,232 | 2,487,877 | 2,161,232 | |
| Loans held for sale | - | - | - | - | - | - | - | |
| Intangible assets | 108,463 | 108,804 | 109,145 | 109,486 | 109,838 | 108,463 | 109,838 | |
| Operating lease right-of-use assets | 7,111 | 7,664 | 8,013 | 8,374 | 7,924 | 7,111 | 7,924 | |
| Bank premises and equipment, net | 31,087 | 31,079 | 31,184 | 31,265 | 30,767 | 31,087 | 31,367 | |
| Bank-owned life insurance | 64,622 | 64,236 | 63,850 | 63,452 | 63,060 | 64,622 | 63,060 | |
| Deferred tax assets, net | 11,087 | 11,154 | 11,788 | 11,788 | 11,788 | 11,087 | 14,475 | |
| Other assets | 47,209 | 34,795 | 35,376 | 36,527 | 35,880 | 47,209 | 35,011 | |
| Total assets | $ 3,072,171 | $ 2,762,563 | $ 2,722,170 | $ 2,698,915 | $ 2,724,303 | $ 3,072,171 | $ 2,724,303 | |
| Liabilities and stockholders' equity | ||||||||
| Demand deposits | $ 447,605 | $ 338,095 | $ 339,153 | $ 343,686 | $ 335,024 | $ 447,605 | $ <br> 335,024 | |
| NOW accounts | 424,096 | 380,977 | 391,172 | 368,354 | 361,787 | 424,096 | 361,787 | |
| Money market accounts | 488,229 | 477,660 | 466,867 | 458,737 | 444,299 | 488,229 | 444,299 | |
| Savings accounts | 171,681 | 151,406 | 144,486 | 146,119 | 143,328 | 171,681 | 143,328 | |
| Time deposits | 619,918 | 727,216 | 783,040 | 861,842 | 865,988 | 619,918 | 865,988 | |
| Total deposits | 2,151,529 | 2,075,354 | 2,124,718 | 2,178,738 | 2,150,426 | 2,151,529 | 2,150,426 | |
| Federal Home Loan Bank advances | 100,000 | 205,140 | 121,640 | 45,640 | 110,640 | 100,000 | 110,640 | |
| PPPLF Advances | 333,574 | - | - | - | - | 333,574 | - | |
| Subordinated notes | 56,689 | 56,686 | 56,683 | 56,681 | 56,678 | 56,689 | 56,678 | |
| Operating lease liabilities | 7,896 | 8,509 | 8,469 | 8,830 | 8,385 | 7,896 | 8,385 | |
| Other liabilities | 40,814 | 38,052 | 33,419 | 38,396 | 35,382 | 40,814 | 35,382 | |
| Total liabilities | 2,690,502 | 2,383,741 | 2,344,929 | 2,328,285 | 2,361,512 | 2,690,502 | 2,361,512 | |
| Stockholders' equity | 381,669 | 378,822 | 377,241 | 370,630 | 362,792 | 381,669 | 362,792 | |
| Total liabilities and stockholders' equity | $ 3,072,171 | $ 2,762,563 | $<br> 2,722,170 | $ 2,698,915 | $ 2,724,303 | $ 3,072,171 | $ 2,724,303 | |
| Tangible common equity | $ 273,206 | $ 270,018 | $ 268,096 | $ 261,144 | $ 252,953 | $ 273,206 | $ <br> 252,953 | |
| Tangible common equity to tangible assets | 9.22% | 10.17% | 10.26% | 10.09% | 9.68% | 9.22% | 9.68% | |
| Tangible book value | $ 11.21 | $ 11.11 | $ 11.09 | $ 10.80 | $ <br>10.49 | $ 11.21 | $ 10.49 | |
| For the Three Month Period | Year to Date Period | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Condensed Consolidated Statement of Operations (unaudited) | 2Q 2020 | 1Q 2020 | 4Q 2019 | 3Q 2019 | 2Q 2019 | YTD 2020 | YTD 2019 | |
| Interest and dividend income | $ 28,672 | $ 28,481 | $ 29,354 | $ 30,474 | $ 30,393 | $ 57,153 | $<br> 60,696 | |
| Interest expense | 6,199 | 7,966 | 8,685 | 9,459 | 9,429 | 14,165 | 18,780 | |
| Net interest income | 22,473 | 20,515 | 20,669 | 21,015 | 20,964 | 42,988 | 41,916 | |
| Provision for credit losses | 10,899 | 3,450 | - | 150 | - | 14,349 | 200 | |
| Net interest income after provision for loan losses | 11,574 | 17,065 | 20,669 | 20,865 | 20,964 | 28,639 | 41,716 | |
| Account maintenance and deposit service fees | 1,489 | 1,698 | 1,847 | 1,837 | 1,788 | 3,187 | 3,475 | |
| Income from bank-owned life insurance | 385 | 386 | 399 | 392 | 385 | 771 | 908 | |
| Equity gain from mortgage affiliate | 4,161 | 231 | 16 | 599 | 558 | 4,392 | 576 | |
| Recoveries related to acquired charged-off loans and investment securities | 2,235 | 184 | 477 | 145 | 324 | 2,419 | 915 | |
| Other | 123 | 321 | 620 | 1 | 135 | 444 | 378 | |
| Noninterest income | 8,393 | 2,820 | 3,359 | 2,974 | 3,190 | 11,213 | 6,253 | |
| Employee compensation and benefits | 7,338 | 12,309 | 6,738 | 6,567 | 7,144 | 19,647 | 12,956 | |
| Occupancy and equipment expenses | 2,044 | 2,558 | 2,389 | 1,482 | 2,538 | 4,602 | 5,051 | |
| Amortization of core deposit intangible | 341 | 341 | 341 | 352 | 362 | 682 | 725 | |
| Virginia franchise tax expense | 659 | 570 | 562 | 563 | 563 | 1,229 | 1,126 | |
| Data processing expense | 956 | 707 | 677 | 622 | 571 | 1,663 | 1,083 | |
| Telecommunication and communication expense | 369 | 368 | 357 | 477 | 177 | 737 | 781 | |
| Net (gain) loss on other real estate owned | - | 71 | - | - | (36) | 71 | (38) | |
| Professional fees | 873 | 1,193 | 1,036 | 673 | 1,381 | 2,066 | 1,903 | |
| Other expenses | 1,490 | 1,735 | 1,696 | 1,878 | 1,192 | 3,225 | 6,596 | |
| Noninterest expense | 14,070 | 19,852 | 13,796 | 12,614 | 13,892 | 33,922 | 30,182 | |
| Income before income taxes | 5,897 | 33 | 10,232 | 11,225 | 10,262 | 5,930 | 17,786 | |
| Income tax expense | 1,188 | 6 | 1,268 | 2,361 | 943 | 1,194 | 2,448 | |
| Net income | $ 4,709 | $ 27 | $ 8,964 | $ 8,864 | $ 9,319 | $ 4,736 | $ 15,339 | |
| Non-GAAP adjustments to Net Income | ||||||||
| Management Restructure | $ <br> - | $ 4,899 | $<br> - | $ - | $ - | $ 4,899 | $ - | |
| Branch Closures | - | 479 | - | - | - | 479 | - | |
| Other loss and related legal expenses | - | - | - | - | - | - | 3,702 | |
| Income tax effect | - | (1,076) | - | - | - | (1,076) | (777) | |
| Total Net Income adjusted for nonrecurring expenses | $ <br> 4,709 | $ 4,329 | $ 8,964 | $ 8,864 | $ 9,319 | $ 9,038 | $ 18,264 | |
| Pretax preprovision earnings | $ 16,796 | $ 7,785 | $ <br> 10,232 | $ 11,375 | $<br> 10,262 | $ 24,581 | $<br> 20,911 | |
| Pretax preprovision earnings to average assets | 2.27% | 1.14% | 1.50% | 1.67% | 1.51% | 3.46% | 3.08% | |
| For the Three Month Period | Year to Date Period | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2Q 2020 | 1Q 2020 | 4Q 2019 | 3Q 2019 | 2Q 2019 | YTD 2020 | YTD 2019 | ||
| Per Share Data: | ||||||||
| Earnings per share - Basic | $ 0.19 | $ 0.00 | $ <br> 0.37 | $ 0.37 | $ 0.39 | $ 0.20 | $ 0.64 | |
| Earnings per share - Diluted | $<br> 0.19 | $ 0.00 | $ 0.37 | $ 0.36 | $ 0.38 | $ 0.19 | $ 0.63 | |
| Book value per share | $ <br> 15.74 | $ 15.59 | $ 15.60 | $ 15.33 | $ 15.04 | $ 15.77 | $ 15.11 | |
| Tangible book value per share | $ <br> 11.21 | $ 11.11 | $ 11.09 | $ 10.80 | $ 10.49 | $ 11.21 | $ 10.49 | |
| Weighted average shares outstanding - Basic | 24,246,355 | 24,168,359 | 24,092,534 | 24,071,925 | 24,024,580 | 24,207,357 | 24,017,311 | |
| Weighted average shares outstanding - Diluted | 24,352,708 | 24,388,085 | 24,411,147 | 24,374,163 | 24,322,717 | 24,349,153 | 24,315,017 | |
| Shares outstanding at end of period | 24,361,603 | 24,297,703 | 24,181,534 | 24,171,776 | 24,117,326 | 24,361,603 | 24,117,326 | |
| Selected Performance Ratios: | ||||||||
| Return on average assets | 0.61% | 0.00% | 1.31% | 1.29% | 1.37% | 0.33% | 1.14% | |
| Return on average equity | 4.92% | 0.03% | 9.49% | 9.57% | 10.46% | 2.49% | 8.71% | |
| Return on average tangible equity | 6.86% | 0.04% | 13.40% | 13.64% | 15.10% | 3.48% | 12.50% | |
| Yield on earning assets | 4.25% | 4.61% | 4.75% | 4.89% | 4.93% | 4.42% | 4.93% | |
| Cost of funds on interest bearing liabilities | 0.97% | 1.60% | 1.49% | 1.60% | 1.62% | 1.16% | 1.87% | |
| Net interest margin | 3.33% | 3.32% | 3.35% | 3.37% | 3.40% | 3.32% | 3.41% | |
| Net loans to deposits | 115.63% | 106.00% | 102.40% | 97.77% | 100.50% | 115.63% | 101.58% | |
| Operating efficiency ratio | 49.07% | 85.84% | 57.60% | 52.76% | 58.21% | 65.46% | 63.73% | |
| Overhead ratio | 0.13% | 1.85% | 0.22% | 0.11% | 0.20% | 0.96% | 0.42% | |
| Net charge-offs to average loans | 0.00% | 0.04% | 0.04% | 0.03% | 0.01% | 0.04% | 0.04% | |
| Reconciliation of Non-GAAP items: | ||||||||
| Return on average assets | 0.61% | 0.00% | 1.31% | 1.29% | 1.37% | 0.33% | 1.14% | |
| Effect of adjustment for the nonrecurring expenses | 0.00% | 0.63% | 0.00% | 0.00% | 0.00% | 0.31% | 0.21% | |
| Return on average assets excluding the nonrecurring expenses (Non-GAAP) | 0.61% | 0.63% | 1.31% | 1.29% | 1.37% | 0.64% | 1.35% | |
| Return on average equity | 4.92% | 0.03% | 9.49% | 9.57% | 10.46% | 2.49% | 8.71% | |
| Effect of adjustment for the nonrecurring expenses | 0.00% | 4.54% | 0.00% | 0.00% | 0.00% | 2.25% | 1.66% | |
| Return on average equity excluding the nonrecurring expenses (Non-GAAP) | 4.92% | 4.57% | 0.00% | 0.00% | 10.46% | 4.74% | 10.37% | |
| Operating efficiency ratio | 49.07% | 85.84% | 57.60% | 52.76% | 58.21% | 65.46% | 63.73% | |
| Effect of adjustment for the nonrecurring expenses | 0.00% | -23.34% | 0.00% | 0.00% | 0.00% | -8.32% | -7.80% | |
| Operating efficiency ratio excluding the nonrecurring expenses (Non-GAAP) | 49.07% | 62.50% | 57.60% | 52.76% | 58.21% | 57.14% | 55.93% | |
| Tangible book value | $ 11.21 | $ 11.11 | $ <br> 11.09 | $ 10.80 | $ 10.49 | $ 11.21 | $ 10.49 | |
| Effect of adjustment for the nonrecurring expenses | - | 0.18 | - | - | - | 0.18 | 0.12 | |
| Tangible book value excluding the nonrecurring expenses (Non-GAAP) | $ <br> 11.21 | $ 11.29 | $ 11.09 | $ 10.80 | $ 10.49 | $ 11.39 | $ 10.61 | |
| For the Three Month Period | Year to Date Period | |||||||
| --- | --- | --- | --- | --- | --- | --- | ||
| Asset Quality Information: | 2Q 2020 | 1Q 2020 | 3Q 2019 | 2Q 2019 | YTD 2020 | |||
| Loans secured by real estate: | ||||||||
| Commercial real estate - owner occupied | $ 412,916 | 409,739 | $ 399,105 | $ 410,832 | 413,689 | |||
| Commercial real estate - non-owner occupied | 591,229 | 599,987 | 542,909 | 561,732 | 591,323 | |||
| Secured by farmland | 16,845 | 16,608 | 17,504 | 9,692 | 16,845 | |||
| Construction and loan loans | 122,086 | 115,144 | 162,458 | 158,956 | 122,456 | |||
| Residential 1-4 family | 612,247 | 624,119 | 574,935 | 572,715 | 612,809 | |||
| Multi-family residential | 100,685 | 90,652 | 82,626 | 82,593 | 100,685 | |||
| Home equity lines of credit | 101,218 | 106,820 | 112,801 | 117,298 | 101,289 | |||
| Total real estate loans | 1,957,226 | 1,963,069 | 1,892,338 | 1,913,818 | 1,959,096 | |||
| Commercial loans | 204,160 | 223,433 | 220,707 | 229,502 | 204,286 | |||
| SBA Paycheck Protection Program loans | 335,612 | - | - | - | 335,612 | |||
| Consumer loans | 24,733 | 25,708 | 28,075 | 29,310 | 24,734 | |||
| Gross loans | 2,521,731 | 2,212,210 | 2,141,120 | 2,172,630 | 2,523,728 | |||
| Plus (less) deferred costs (fees) on loans | (10,227) | 328 | 265 | 215 | (10,227) | |||
| Loan receivable, net of deferred costs (fees) | $<br> 2,511,504 | 2,212,538 | $ 2,141,385 | $ 2,172,845 | 2,513,501 | |||
| Allowance for Loan Losses (Incurred Loss Model): | ||||||||
| Balance at beginning of period | $ (12,722) | (10,261) | $ (11,613) | $ (11,874) | (10,261) | |||
| Provision for loan losses | (10,900) | (3,450) | (150) | - | (14,350) | |||
| Charge-offs | 34 | 1,098 | 648 | 968 | 1,132 | |||
| Recoveries | (39) | (109) | (85) | (707) | (148) | |||
| Net charge-offs | (5) | 989 | 563 | 261 | 984 | |||
| Ending balance | $ (23,627) | (12,722) | $ (11,201) | $ (11,613) | (23,627) | |||
| Cummulative reconciliation to CECL (Not yet adopted): | ||||||||
| CECL adoption impact on acquired loans | (2,347) | (2,347) | (2,347) | |||||
| CECL adoption impact on retained earnings | (5,429) | (5,429) | (5,429) | |||||
| CECL adoption impact on deferred tax assets | (1,495) | (1,495) | (1,495) | |||||
| Cummulative additional provision for loan losses | (2,841) | (10,666) | (2,841) | |||||
| Ending balance | $ (35,739) | (32,659) | (35,739) | |||||
| Allowance for Unfunded Commitments (Incurred Loss Model): | ||||||||
| Balance at beginning of period | $ <br>(55) | (55) | $ (55) | $ (55) | (55) | |||
| Cummulative reconciliation to CECL (Not yet adopted): | ||||||||
| CECL adoption impact on retained earnings | (239) | (239) | (239) | |||||
| CECL adoption impact on deferred tax assets | (66) | (66) | (66) | |||||
| Cummulative additional provision for unfunded commitments | (883) | (491) | (883) | |||||
| Ending balance | $ (1,177) | (785) | (1,177) |
All values are in US Dollars.
| For the Three Month Period | Year to Date Period | |||||||
|---|---|---|---|---|---|---|---|---|
| Net Charge-off Information: | 2Q 2020 | 1Q 2020 | 4Q 2019 | 3Q 2019 | 2Q 2019 | YTD 2020 | YTD 2019 | |
| Charge-offs | ||||||||
| Commercial, financial and agricultural | $ <br> - | $ 821 | $ 188 | $ 267 | $ - | $ 821 | $ 167 | |
| Real estate - construction and development | - | - | - | - | - | - | - | |
| Real estate - commercial and farmland | - | - | 403 | - | 781 | - | 1,244 | |
| Real estate - residential | - | 245 | 336 | 316 | 90 | 245 | 90 | |
| Consumer installment | 34 | 32 | 47 | 65 | 97 | 66 | 156 | |
| Total charge-offs | 34 | 1,098 | 974 | 648 | 968 | 1,132 | 1,657 | |
| Recoveries | ||||||||
| Commercial, financial and agricultural | (18) | (66) | (14) | (65) | (209) | (84) | (272) | |
| Real estate - construction and development | - | - | - | - | - | - | - | |
| Real estate - commercial and farmland | (3) | (6) | (3) | (4) | (203) | (9) | (206) | |
| Real estate - residential | (6) | (31) | (6) | (8) | (284) | (37) | (292) | |
| Consumer installment | (12) | (6) | (11) | (8) | (11) | (18) | (17) | |
| Total recoveries | (39) | (109) | (34) | (85) | (707) | (148) | (787) | |
| Net charge-offs | $ (5) | $ 989 | $ 940 | $ 563 | $ 261 | $ 984 | $ 870 | |
| Non-Performing Assets: | ||||||||
| Accruing loans delinquent 90 days or more | $ <br> - | $ - | $ - | $ - | $ - | $ - | $ - | |
| Nonaccrual loans | 14,930 | 8,941 | 8,900 | 3,842 | 5,200 | 14,930 | 5,200 | |
| Other real estate owned | 6,006 | 5,876 | 6,224 | 5,835 | 5,041 | 6,006 | 5,041 | |
| Total non-performing assets | $ 20,936 | $ 14,817 | $<br> 15,124 | $ 9,677 | $ 10,241 | $ 20,936 | $ 10,241 | |
| SBA guaranteed portion of non-performing loans | $ <br>3,513 | $ 2,889 | $<br> 4,129 | $ 3,309 | $ 3,207 | $ 3,513 | $ 3,207 | |
| Troubled debt restructuring | $ 1,667 | $ 694 | $ <br> 697 | $ 679 | $ 685 | $ 1,667 | $ 685 | |
| Loans deferred under COVID-19 modifications | $ 707,841 | $ 24,308 | $ - | $ - | $ - | $ 707,841 | $<br> - | |
| Asset Quality Ratios: | ||||||||
| Non-performing assets as a percent of total assets, excluding SBA guarantees | 0.57% | 0.43% | 0.40% | 0.24% | 0.26% | 0.57% | 0.26% | |
| Net charge-offs as a percent of average loans (annualized) | 0.00% | 0.18% | 0.17% | 0.10% | 0.05% | 0.09% | 0.08% | |
| Loans by Risk Grade: | ||||||||
| Pass, not graded | $ 653,943 | $ 630,827 | $ 611,160 | $ 568,101 | $ 580,033 | $ 655,940 | $ <br> 580,033 | |
| Pass Grade 1 - Highest Quality | 306 | 538 | 374 | 271 | 364 | 306 | 364 | |
| Pass Grade 2 - Good Quality | 323,512 | 28,583 | 27,855 | 25,852 | 28,199 | 323,512 | 28,199 | |
| Pass Grade 3 - Satisfactory Quality | 837,606 | 866,316 | 871,463 | 856,087 | 850,758 | 837,606 | 850,758 | |
| Pass Grade 4 - Pass | 662,534 | 664,124 | 652,464 | 666,958 | 689,046 | 662,534 | 689,046 | |
| Pass Grade 5 - Special Mention | 14,006 | 11,622 | 12,235 | 13,093 | 14,326 | 14,006 | 14,326 | |
| Grade 6 - Substandard | 19,597 | 10,528 | 10,496 | 11,023 | 10,119 | 19,597 | 10,119 | |
| Grade 7 - Doubtful | - | - | - | - | - | - | - | |
| Grade 8 - Loss | - | - | - | - | - | - | - | |
| Total loans | $ 2,511,504 | $ 2,212,538 | $ 2,186,047 | $ 2,141,385 | $ 2,172,845 | $ 2,513,501 | $ 2,172,845 | |
| For the Three Month Period | Year to Date Period | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | |
| Average Balances: | 2Q 2020 | 1Q 2020 | 4Q 2019 | 3Q 2019 | 2Q 2019 | YTD 2020 | YTD 2019 | |
| Assets | ||||||||
| Interest-earning assets: | ||||||||
| Loans, net of deferred fees | $ 2,401,620 | $ 2,200,926 | $ 2,165,717 | $ 2,165,717 | $ 2,161,505 | $ 2,301,274 | $<br> 2,158,395 | |
| Investment securities | 222,124 | 231,794 | 242,916 | 242,916 | 248,276 | 226,959 | 242,878 | |
| Other earning assets | 91,230 | 54,800 | 65,706 | 65,706 | 55,824 | 73,015 | 73,001 | |
| Total earning assets | 2,714,974 | 2,487,520 | 2,474,340 | 2,474,340 | 2,465,605 | 2,601,248 | 2,474,275 | |
| Other assets | 250,897 | 252,700 | 254,550 | 254,550 | 254,118 | 251,798 | 249,545 | |
| Total assets | 2,965,872 | 2,740,220 | 2,728,890 | 2,728,890 | 2,719,723 | 2,853,046 | 2,723,820 | |
| Liabilities and stockholders' equity | ||||||||
| Demand deposits | $ 418,382 | $ 333,408 | $ 334,435 | $ 334,435 | $ 331,481 | $ 375,895 | $ <br> 325,921 | |
| Interest-bearing liabilities: | ||||||||
| NOW and other demand accounts | 404,700 | 379,531 | 362,564 | 362,564 | 357,850 | 392,115 | 351,925 | |
| Money market accounts | 488,648 | 469,651 | 456,492 | 456,492 | 432,927 | 479,150 | 417,358 | |
| Savings accounts | 163,574 | 147,697 | 144,266 | 144,266 | 146,073 | 155,635 | 146,827 | |
| Time deposits | 710,483 | 756,055 | 867,533 | 867,533 | 848,806 | 733,269 | 887,258 | |
| Total Deposits | 2,185,787 | 1,752,934 | 1,830,855 | 1,830,855 | 1,785,656 | 2,136,064 | 2,129,289 | |
| Borrowings | 371,836 | 251,830 | 173,866 | 173,866 | 223,053 | 311,833 | 218,516 | |
| Total Funding | 2,557,623 | 2,004,764 | 2,004,722 | 2,004,722 | 2,008,709 | 2,447,897 | 2,347,805 | |
| Other Liabilities | 24,495 | 21,781 | 24,398 | 22,385 | 22,123 | 23,138 | 20,818 | |
| Stockholders' equity | 383,753 | 380,267 | 367,349 | 367,349 | 357,410 | 382,010 | 355,197 | |
| Total liabilities and stockholders' equity | $<br> 2,965,872 | $ 2,740,220 | $ 2,728,890 | $ 2,728,890 | $ 2,719,723 | $ 2,853,046 | $ 2,723,820 | |
| For the Three Month Period | Year to Date Period | |||||||
| Net Interest Margin: | 2Q 2020 | 1Q 2020 | 4Q 2019 | 3Q 2019 | 2Q 2019 | YTD 2020 | YTD 2019 | |
| Loans | $ 27,044 | $ <br>26,741 | $ 27,489 | $ <br> 28,340 | $ 28,378 | $ 53,785 | $<br> 56,352 | |
| Investment securities | 1,247 | 1,361 | 1,495 | 1,521 | 1,627 | 2,608 | 3,208 | |
| Other earning assets | 381 | 379 | 431 | 614 | 326 | 760 | 1,074 | |
| Total Earning Assets | 28,672 | 28,481 | 29,415 | 30,475 | 30,331 | 57,153 | 60,634 | |
| NIB DDA | ||||||||
| NOW and other demand accounts | 745 | 786 | 791 | 783 | 773 | 1,531 | 1,415 | |
| Money market accounts | 830 | 1,575 | 1,779 | 2,080 | 2,058 | 2,404 | 3,886 | |
| Savings accounts | 107 | 116 | 116 | 115 | 115 | 223 | 230 | |
| Time deposits | 3,464 | 4,026 | 4,798 | 5,023 | 4,709 | 7,491 | 9,586 | |
| Total Deposit Costs | 5,146 | 6,503 | 7,484 | 8,001 | 7,655 | 11,649 | 15,117 | |
| Other Borrowings | 1,053 | 1,463 | 1,201 | 1,458 | 1,774 | 2,516 | 3,663 | |
| Total Funding | 6,199 | 7,966 | 8,685 | 9,459 | 9,429 | 14,165 | 18,780 | |
| Net Interest Income | $ 22,473 | $ 20,515 | $ <br>20,730 | $ 21,016 | $ 20,902 | $ 42,988 | $ 41,854 | |
| For the Three Month Period | Year to Date Period | |||||||
| Asset and Liability Yields | 2Q 2020 | 1Q 2020 | 4Q 2019 | 3Q 2019 | 2Q 2019 | YTD 2020 | YTD 2019 | |
| Loans | 4.53% | 4.89% | 5.04% | 5.19% | 5.27% | 4.70% | 5.26% | |
| Investments | 2.26% | 2.36% | 2.44% | 2.48% | 2.63% | 2.31% | 2.66% | |
| Short term assets | 1.68% | 2.78% | 2.60% | 3.71% | 2.34% | 2.09% | 2.97% | |
| Total Earning Assets | 4.25% | 4.60% | 4.72% | 4.89% | 4.93% | 4.42% | 4.94% | |
| NOW | 0.74% | 0.83% | 0.87% | 0.86% | 0.87% | 0.79% | 0.81% | |
| MMDA | 0.68% | 1.35% | 1.55% | 1.81% | 1.91% | 1.01% | 1.88% | |
| Savings | 0.26% | 0.32% | 0.32% | 0.32% | 0.32% | 0.29% | 0.32% | |
| CDs | 1.96% | 2.14% | 2.19% | 2.30% | 2.23% | 2.05% | 2.18% | |
| Interest Bearing Deposits | 0.95% | 1.49% | 1.62% | 1.73% | 1.72% | 1.10% | 1.43% | |
| (total cost of deposits) | 0.95% | 1.49% | 1.62% | 1.73% | 1.72% | 1.10% | 1.43% | |
| Other Funding | 1.14% | 2.34% | 2.74% | 3.33% | 3.19% | 1.62% | 3.38% | |
| Total Cost of Funding | 0.97% | 1.60% | 1.72% | 1.87% | 1.88% | 1.16% | 1.61% | |
| Net Interest Margin | 3.33% | 3.32% | 3.32% | 3.37% | 3.40% | 3.32% | 3.41% | |
| Net Interest Spread | 3.27% | 3.01% | 3.00% | 3.01% | 3.05% | 3.25% | 3.33% |
sona-ex992_26.pptx.htm
NASDAQ|SONA Exhibit 99.2
Overview of SONA Company Overview Financial Highlights as of 2Q 2020 Headquarters: McLean, VA Branches:42 Balance Sheet ($mm) Assets:3.1 Loans:2.5 Deposits:2.2 TCE/TA (%):9.22% Profitability (%) PTPP ROAA:2.27% Net Interest Margin:3.33% Efficiency Ratio:49.1% Asset Quality (%) NPAs/Assets:0.57% NCOs/Avg Loans: 0.00% (Reserves+Marks)/Loans:1.28% Trading Ticker:SONA Exchange: NASDAQ Global Select
Operating Highlights – 2Q 2020 Originated approx. 3,800 PPP loans totaling $335.6 million. Deferred PPP fees (net of expenses) of $10.6 million. Increased provision and built reserve for loan losses plus purchased marks to 1.28% of total loans (excluding PPP). Increased non-CD deposits to total deposits 71% compared to 59% at 2Q 2019. Cost of Deposits declined to 0.95% (over 45% compared to year end 2019 levels) Increased contribution from mortgage investment to $4.1 million. Increased PTPP income to $16.8 million or 2.27% of average assets (compared to 1.51% for 2019). Announced partnership with Tyler Stafford and Panacea that will increase long-term growth in assets and earnings per share focusing on medical professionals.
Experienced Executive Team Name Position Experience Dennis J . Zember, Jr. President & CEO 26 Years Jeff Karafa EVP, Chief Financial Officer 37 Years Stephen Weber EVP, Chief Strategy Officer 22 Years Marie Leibson EVP, Chief SBA Lending Officer 34 Years Bruce Brockwell EVP, Head of Commercial Banking 30 Years William Stevens EVP, Chief Credit Risk Officer 51 Years Keith Avant EVP, Chief Credit Officer 28 Years Barry Almond EVP, Head of Retail Banking 33 Years John Colantoni EVP, Chief Risk Officer 31 Years Cody Sheflett EVP, Chief Operating Officer and Chief Information Officer 23 Years
Operating & Strategic Focus Manage through the pandemic and resulting economic effects Aggressively managing and monitoring relationships and portfolios greater than $5 million (65% of total portfolio) Cautiously evaluating strategic opportunities for best short-term impact on capital and credit risk Improve the Operating Results of the Company Improve the deposit mix, focusing less on brokered and higher cost retail CDs, substantially lowering the Company’s cost of funds. Establish sales culture that focuses on and rewards growth in core deposits Position the Company for a more substantial growth rate in loans in 2021 through key hires in 2020. Diversify the Company’s LOB and non-interest income lines of business Greatly expand the Company’s mortgage opportunity and earnings contribution Increase the production and sales of Government guaranteed loans Capitalize on the Panacea opportunity to expand our technology and product offerings, improve our growth rates and demonstrate the creative and entrepreneurial energy to drive shareholder value long term.
Pre-tax Pre-Provision Earnings Record levels of PTPP in 2Q 2020 Improvement in PTPP during the quarter supported by: Material improvement in cost of funds and funding mix Recoveries on acquired but previously charged off loans of approx. $2 million Improvement in mortgage contribution of approx. $4 million Material improvement in cost of funds and funding mix
Total Assets & Capital Levels Asset Growth (PPP) accounted for approx. 115bps reduction in TCE/TA Pending implementation of CECL will reduce: TCE/TA by approx. 32bps TBV by approx. $0.39 per share Deferred PPP income, when realized will increase: TCE/TA by 28bps TBV by $0.34 per share Total Assets (in billions) and TCE/TA
Net Interest Margin Core Margin Trends Steady declines in cost of interest bearing deposits expected to continue through 1Q 21 CD maturities for 3Q and 4Q have current costs of approx. 1.90%. We expect over 100bps of savings on renewal. Approx. 70% of our variable rate loans have floors Only 9% of our 1-4 family ARMS have rate adjustments in next 18 months. Core NIM Core NIM excludes impacts from accretion, purchase loan amortization and PPP.
Panacea Financial Why Sonabank? Why Panacea? Professional relationship between the principals goes back several years, operating styles amongst both sides are well known and appreciated. Sonabank’s management has past history building national lines of business that are accretive to value proposition, credit quality and operating ratios. Panacea’s idea and passion combined with practical, ground-level understanding of the banking and financial needs are uniquely interesting and timely. Financial Benefits for Sonabank Accretive to our long-term credit quality given our customer base and their credit trends Accretive to our long-term EPS growth rate with conservative growth and spread projections Accretive to our loan and deposit trends. Long-term deposit opportunity greatly eclipses the initial loan relationship with the medical professional. Ownership stake in the program assures Sonabank participates in more than just increases in spread income and balance sheet growth Cultural and Image Benefits for Sonabank Demonstrates the new creativity and vision management has for the future of building value Drives development of technology and logistics for banking services that is broadly lacking in the industry
NPAs / Loans + Oreo (%) NCOs / Average Loans (%) Past Dues / Loans (%) Classified Assets / Capital (%) Asset Quality remains consistently solid with improvement in the 2nd quarter as we continued to focus on important risk management activities The Bank had no charge offs in the 2nd quarter Past due loans dropped to 70 bps from 209 bps during the 1st quarter as Covid related payment deferrals were completed in the 2nd quarter Classified Assets to Capital in Q2 is 5.49% consistent with previous quarters and remains low further demonstrating portfolio quality Asset Quality Trends
Reserves / Nonaccrual Loans (%) Allowance for Loan Losses ($MM) Reserves / Loans (%) Both the Allowance and Capital levels make the Bank very well-positioned to navigate the current economic environment from a position of strength. Because of the uncertain macroeconomic environment, the Bank added heavily to reserves during the 2nd quarter. ALLL balance rose to $23.6MM up from $12.7MM at the end of the 1st quarter and $10.3MM at the end of FY2019. Reserves/total loans rose to 0.90%, appropriate given the uncertain environment. Adding credit marks from previous acquisitions brings reserves/total loans to 1.28%. Reserves cover non-accrual loans by 158% giving the Bank substantial room for any unexpected credit losses. Allowance for Loan Losses
Diversified Loan Portfolio Loan Composition at June 30, 2020 - $2.52 Billion (Includes PPP) One of the Bank’s main strengths is the diversity of its portfolio. During the 2nd Quarter, total loan balances grew by 14% and C&I grew from 10% of the portfolio to 22% of the portfolio due to the Bank’s success in its PPP lending activities. Both the C&D and CRE loan segments continue to be well below regulatory guidelines.