PRIMIS FINANCIAL CORP. Management's discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of SNBV. This discussion and analysis should be read with the consolidated financial statements, the footnotes thereto, and the other financial data included in this report and in our annual report on Form 10-K for the year endedDecember 31, 2019 . Results of operations for the three months endedMarch 31, 2020 are not necessarily indicative of results that may be attained for any other period.
FORWARD-LOOKING STATEMENTS
Statements and financial discussion and analysis contained in this Quarterly
Report on Form 10-Q that are not statements of historical fact constitute
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
not historical facts and are based on current expectations, estimates and
projections about our industry, management's beliefs and certain assumptions
made by management, many of which, by their nature, are inherently uncertain and
beyond our control, particularly with regard to developments related to the
novel coronavirus ("COVID-19"). Accordingly, we caution you that any such
forward-looking statements are not guarantees of future performance and are
subject to risks, assumptions and uncertainties that are difficult to predict.
Although we believe that the expectations reflected in these forward-looking
statements are reasonable as of the date made, actual results may prove to be
materially different from the results expressed or implied by the
forward-looking statements. The words "believe," "may," "forecast," "should,"
"anticipate," "estimate," "expect," "intend," "continue," "would," "could,"
"hope," "might," "assume," "objective," "seek," "plan," "strive" or similar
words, or the negatives of these words, identify forward-looking statements.
Forward-looking statements involve risks and uncertainties that may cause our
actual results to differ materially from the expectations of future results we
express or imply in any forward-looking statements. In addition to the Risk
Factor contained in this Quarterly Report on Form 10-Q, as well as the Risk
Factors previously disclosed in our Annual Report on Form 10-K for the year
ended December 31, 2019 , factors that could contribute to those differences
include, but are not limited to:
? the effects of future economic, business and market conditions and disruptions
in the credit and financial markets, domestic and foreign;
the impact of COVID-19 on our business, including the impact of the actions
taken by governmental authorities to contain the virus or address the impact of
? the virus on
Coronavirus Aid, Relief and Economic Security ("CARES" Act)), and the resulting
effect of all of such items on our operations, liquidity and capital position,
and on the financial condition of our borrowers and other customers;
changes in the local economies in our market areas which adversely affect our
? customers and their ability to transact profitable business with us, including
the ability of our borrowers to repay their loans according to their terms or a
change in the value of the related collateral;
changes in the availability of funds resulting in increased costs or reduced
? liquidity, as well as the adequacy of our cash flow from operations and
borrowings to meet our short-term liquidity needs;
? a deterioration or downgrade in the credit quality and credit agency ratings of
the investment securities in our investment securities portfolio;
impairment concerns and risks related to our investment securities portfolio of
? collateralized mortgage obligations, agency mortgage-backed securities,
obligations of states and political subdivisions and pooled trust preferred
securities;
the incurrence and possible impairment of goodwill associated with current or
? future acquisitions and possible adverse short-term effects on our results of
operations;
increased credit risk in our assets and increased operating risk caused by a
? material change in commercial, consumer and/or real estate loans as
a percentage of our total loan portfolio;
? the concentration of our loan portfolio in loans collateralized by real estate;
? our level of construction and land development and commercial real estate
loans;
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? failure to prevent a breach to our Internet-based system and online commerce
security;
? changes in the levels of loan prepayments and the resulting effects on the
value of our loan portfolio;
? the failure of assumptions and estimates underlying the establishment of and
provisions made to the allowance for loan losses;
our ability to expand and grow our business and operations, including the
? establishment of additional branches and acquisition of additional branches and
banks, and our ability to realize the cost savings and revenue enhancements we
expect from such activities;
government intervention in the
legislative, tax, accounting and regulatory actions and reforms, including the
? Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank
Act"), the Jumpstart Our Business Startups Act, the Consumer Financial
banking authorities and the Tax Cuts and Jobs Act of 2017;
? uncertainty related to the transition away from or methods of calculating the
LIBOR;
? increased competition for deposits and loans adversely affecting rates and
terms;
? the continued service of key management personnel;
? the potential payment of interest on demand deposit accounts to effectively
compete for customers;
? potential environmental liability risk associated with properties that we
assume upon foreclosure;
? increased asset levels and changes in the composition of assets and the
resulting impact on our capital levels and regulatory capital ratios;
risks of current or future mergers and acquisitions, including the related time
? and cost of implementing transactions and the potential failure to achieve
expected gains, revenue growth or expense savings;
increases in regulatory capital requirements for banking organizations
? generally, which may adversely affect our ability to expand our business or
could cause us to shrink our business;
? acts of God or of war or other conflicts, acts of terrorism, pandemics or other
catastrophic events that may affect general economic conditions;
? changes in accounting policies, rules and practices and applications or
determinations made thereunder;
? fraudulent and negligent acts by loan applicants, mortgage brokers and our
employees;
? failure to maintain effective internal controls and procedures;
the risk that our deferred tax assets could be reduced if future taxable income
is less than currently estimated, if corporate tax rates in the future are less
? than current rates, or if sales of our capital stock trigger limitations on the
amount of net operating loss carryforwards that we may utilize for income tax
purposes;
? our ability to attract and retain qualified employees; and
other factors and risks described under "Risk Factors" herein and in any of our
? subsequent reports that we file with the
(the "Commission" or "SEC") under the Exchange Act.
Forward-looking statements are not guarantees of performance or results and should not be relied upon as representing management's views as of any subsequent date. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe we have chosen these assumptions or bases in good faith and that they are reasonable. We caution you, however, that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. When considering forward-looking statements, you should refer to the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q and in our periodic and current reports filed with theSEC for specific factors that could cause our actual results to be different from those expressed or implied by our forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q (or an earlier date to the extent applicable). Except as required by applicable law, we undertake no obligation to update publicly these statements in light of new information or future events.
OVERVIEW
SNBV is a corporation that was formed onJuly 28, 2004 under the laws of theCommonwealth of Virginia and is the holding company forSonabank aVirginia state-chartered bank which commenced operations onApril 14, 2005 . OnJune 23, 2017 , SNBV completed its merger with EVBS and the merger of EVBS's wholly-owned subsidiary, EVB, with and into SNBV's wholly-owned subsidiary,Sonabank .Sonabank provides a range of financial services to individuals and small and medium sized businesses. 31 Table of Contents AtMarch 31, 2020 ,Sonabank had forty-five full-service branches. Thirty-eight full-service retail branches are inVirginia , located inAshland , Burgess,Callao ,Central Garage ,Charlottesville ,Chester ,Clifton Forge ,Colonial Heights ,Courtland ,Deltaville ,Fairfax ,Front Royal ,Gloucester ,Gloucester Point ,Hampton ,Hartfield ,Haymarket ,Heathsville ,Kilmarnock ,Leesburg ,McLean ,Mechanicsville (2),Middleburg ,Midlothian ,New Market ,Newport News ,Quinton ,Reston ,Richmond ,South Riding ,Surry ,Tappahannock (2),Urbanna ,Warrenton ,Waverly , andWilliamsburg , and seven full-service retail branches inMaryland , located inBethesda ,Brandywine ,Huntingtown ,Owings ,Rockville ,Shady Grove , andUpper Marlboro . We have administrative offices inWarrenton andGlen Allen, Virginia , and executive offices inGeorgetown ,Washington, D.C. andGlen Allen, Virginia where senior management is located.
RESULTS OF OPERATIONS
Net Income
Three-Month Comparison. Net income for the three months endedMarch 31, 2020 was$27 thousand , or$0.00 basic and diluted earnings per share, compared to net income of$6.0 million , or$0.25 basic and diluted earnings per share for the three months endedMarch 31, 2019 . Net income declined$6.0 million during the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . The decline in net income was driven by a one-time charge of$4.4 million , net of taxes of salary and benefits expense related to the restructuring of executive management and a$378 thousand , net of taxes, one-time charge to occupancy for the pending closure of three underperforming branch offices. During the three months endedMarch 31, 2020 , the Company made certain adjustments to its qualitative factors in response to the impact of COVID-19 that increased the provision by$3.1 million . Net income was also impacted by lower income tax expenses in the current year.
During the three months ended
Net Interest Income
Our operating results depend primarily on our net interest income, which is the difference between interest and dividend income on interest-earning assets such as loans and investments, and interest expense on interest-bearing liabilities such as deposits and borrowings. Three-Month Comparison. Net interest income was$20.5 million for the three months endedMarch 31, 2020 compared to$21.0 million for the three months endedMarch 31, 2019 . Southern National's net interest margin for the three months endedMarch 31, 2020 was 3.32% compared to 3.41% for the three months endedMarch 31, 2019 . Total income on interest-earning assets was$28.5 million and$30.3 million for the three months endedMarch 31, 2020 and 2019, respectively. The yield on average interest-earning assets decreased 33 basis points to 4.61% during the three months endedMarch 31, 2020 compared to the 4.94% yield on average interest-earning assets during the three months endedMarch 31, 2019 . The cost of average interest-bearing liabilities decreased 26 basis points to 1.60% during the three months endedMarch 31, 2020 when comparing to the 1.86% cost on average interest-bearing liabilities during the three months endedMarch 31, 2019 . Interest and fees on loans totaled$26.7 million and$28.0 million for the first quarters of 2020 and 2019, respectively. The accretion of the discount on loans acquired in the acquisitions of EVBS,Greater Atlantic Bank ,HarVest and Prince Georges Federal Savings Bank contributed$597 thousand to net interest income during the three months endedMarch 31, 2020 compared to$816 thousand during the three months endedMarch 31, 2019 . The decrease in accretion was due to the slowdown in the volume of acquired loan prepayments and payoffs. Average loans during the first quarter of 2020 were$2.20 billion compared to$2.16 billion during the first quarter of 2019. Total interest expense was$8.0 million and$9.4 million for the three months endedMarch 31, 2020 and 2019, respectively. Interest on deposits was$6.5 million and$7.5 million for the three months endedMarch 31, 2020 and 2019, respectively. Total average interest-bearing deposits for the first quarter of 2020 and 2019 were$1.75 billion and$1.82 billion , respectively. The yield on total average interest-bearing deposits was 1.49% and 1.66% for the quarter endedMarch 31, 2020 and 2019, respectively. Interest expense on total average borrowings, which include securities sold under agreements to repurchase, FHLB advances, junior subordinated debt, and senior subordinated notes, was$1.5
million and
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$1.9 million for the three months ended March 31, 2020 and 2019, respectively.
Total average borrowings were $251.8 million and $214.0 million for the three
months ended March 31, 2020 and 2019, respectively.
The following table details average balances of interest-earning assets and interest-bearing liabilities, the amount of interest earned/paid on such assets and liabilities, and the yield/rate for the periods indicated:
Average Balance Sheets and Net Interest
Analysis For the Three Months Ended
March 31, 2020 March 31, 2019
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
(Dollar amounts in thousands)
Assets
Interest-earning assets:
Loans, net of deferred fees (1)
(2) $ 2,200,926 $ 26,741 4.89 % $ 2,155,252 $ 27,974 5.26 %
Investment securities 231,794 1,361 2.36 % 237,420 1,581 2.70 %
Other earning assets 54,800 379 2.79 % 90,370 748 3.36 %
Total earning assets 2,487,520 28,481 4.61 % 2,483,041 30,303 4.94 %
Allowance for loan losses (10,928) (12,296)
Total non-earning assets 263,627 257,217
Total assets $ 2,740,220 $ 2,727,963
Liabilities and stockholders'
equity
Interest-bearing liabilities:
NOW and other demand accounts $ 379,531 $ 786 0.83 % $345,935$ 642 0.75 % Money market accounts 469,651 1,575 1.35 % 401,615 1,828 1.85 % Savings accounts 147,697 116 0.32 % 147,589 115 0.32 % Time deposits 756,055 4,026 2.14 % 926,137 4,877 2.14 %
Total interest-bearing deposits 1,752,934 6,503 1.49 %
1,821,276 7,462 1.66 % Borrowings 251,830 1,463 2.34 % 213,929 1,889 3.58 % Total interest-bearing liabilities 2,004,764 7,966 1.60 % 2,035,205 9,351 1.86 % Noninterest-bearing liabilities: Demand deposits 333,408 320,299 Other liabilities 21,781 19,414 Total liabilities 2,359,953 2,374,919 Stockholders' equity 380,267 353,044 Total liabilities and stockholders' equity$ 2,740,220 $ 2,727,963 Net interest income$ 20,515 $ 20,952 Interest rate spread 3.01 % 3.08 % Net interest margin 3.32 % 3.41 %
(1) Includes loan fees in both interest income and the calculation of the yield
on loans.
(2) Calculations include non-accruing loans in average loan amounts outstanding.
Provision for Loan Losses
The provision for loan losses is a current charge to earnings made in order to adjust the allowance for loan losses to an appropriate level for inherent probable losses in the loan portfolio based on an evaluation of the loan portfolio, current economic conditions, changes in the nature and volume of lending, historical loan experience and other known internal and external factors affecting loan collectability. Our allowance for loan losses is calculated by segmenting the loan portfolio by loan type and applying risk factors to each segment. The risk factors are determined by considering historical loss data, peer data, as well as applying management's judgment.
The Company elected to defer adoption of the CECL model until the earlier of the national emergency being lifted orDecember 31, 2020 , as provided for by the CARES Act. During the three months endedMarch 31, 2020 , the Company made certain adjustments to its qualitative factors in response to the impact of COVID-19 that increased the provision by$3.1 million . For the three months endedMarch 31, 2020 and 2019, the provision for loan losses was$3.5 million and 33 Table of Contents
Noninterest Income
The following table presents the major categories of noninterest income for the
three months ended
For the Three Months Ended
March 31,
(dollars in thousands) 2020 2019 Change
Account maintenance and deposit service fees
$ 11 Income from bank-owned life insurance 386 523
(137)
Equity gain from mortgage affiliate 231 18
213
Recoveries related to acquired charged-off loans and investment securities 184 591 (407) Other 321 243 78 Total noninterest income$ 2,820 $ 3,062 $ (242) Noninterest income decreased 7.9% to$2.8 million for the three months endedMarch 31, 2020 compared to$3.1 million for the three months endedMarch 31, 2019 . The$242 thousand decrease was primarily driven by a$407 thousand decrease in recoveries related to acquired charged-off loans and investment securities. The decrease was also attributable to a$137 thousand decrease in income from bank-owned life insurance due to death benefits paid in the first quarter of 2019. These decreases were partially offset by an increase of$213 thousand in equity gain from mortgage affiliate. Other noninterest income benefited from$321 thousand in income on other equity investments during the three months endedMarch 31, 2020 compared to$243 thousand for the three months endedMarch 31, 2019 . Noninterest Expense
The following table presents the major categories of noninterest expense for the
three months ended
For the Three Months Ended
March 31,
(dollars in thousands) 2020 2019 Change
Salaries and benefits $ 12,309 $ 5,812 $ 6,497
Occupancy expenses 1,939 1,803 136Furniture and equipment expenses 619 710
(91)
Amortization of core deposit intangible 341 363
(22)
Virginia franchise tax expense 570 563
7
Data processing expense 707 512
195
Telephone and communication expense 368 375
(7)
Net (gain) loss on other real estate owned 71 (2)
73 Professional fees 1,193 - 1,193 Other operating expenses 1,735 6,154 (4,419) Total noninterest expenses$ 19,852 $ 16,290 $ 3,562
Noninterest expenses were$19.9 million during the three months endedMarch 31, 2020 , compared to$16.3 million during the three months endedMarch 31, 2019 . The 21.9% increase in noninterest expenses was primarily due to an increase in employee compensation and benefits expense and higher legal and professional services expense, partially offset by lower other operating expenses. Employee compensation and benefits expense totaled$12.3 million and$5.8 million for the three months endedMarch 31, 2020 and 2019, respectively. The increase was associated with a pre-tax management restructuring expenses of$5.6 million in the current year. Professional fees increased$1.2 million for the three months endedMarch 31, 2020 , when compared to the three months endedMarch 31, 2019 mainly due to costs incurred as part of our implementation efforts for the 2020 adoption of the CECL accounting standard, enhancements to 34
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our compliance and Bank Secrecy Act programs, and general legal expense for corporate matters in 2020. The decrease in other operating expenses was driven by a pre-tax nonrecurring loss of$3.2 million with related legal expense of$502 thousand during the first quarter of 2019, that did not recur.
FINANCIAL CONDITION
Balance Sheet Overview
Total assets were$2.76 billion as ofMarch 31, 2020 and$2.72 billion as ofDecember 31, 2019 . Total loans increased 1.21%, from$2.19 billion atDecember 31, 2019 to$2.21 billion atMarch 31, 2020 with loan production in the quarter centered mostly on the Company's adjustable rate mortgage offerings with 1-4 family mortgages. Total deposits were$2.08 billion atMarch 31, 2020 compared to$2.12 billion atDecember 31, 2019 and total equity was$378.8 million and$377.2 million atMarch 31, 2020 andDecember 31, 2019 , respectively.
Loan Portfolio
Total loans were$2.21 billion and$2.19 billion atMarch 31, 2020 andDecember 31, 2019 , respectively. Loan production in the first quarter of 2020 centered mostly on the Company's adjustable rate mortgage offerings with 1-4 family mortgages. The Company experienced no overall growth in its combined commercial real estate portfolio and construction and development loans during the three months endedMarch 31, 2020 and were only$1.12 billion or 50.84% of total loans as ofMarch 31, 2020 . As ofMarch 31, 2020 , the Company had hotel loans of$279.7 million . For the year endedDecember 31, 2019 , the portfolio of hotel loans had debt coverage of approximately 147% and weighted average loan to value of approximately 68%. 99% of the Company's hotel loans are to national brands (Marriott, Hilton, Choice, IHG, Best Western, and Wyndham) with 93% of the portfolio being to limited service hotels with historically lower operating costs.
The composition of our loan portfolio consisted of the following at
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 624,119 604,777
Multi-family residential 90,652 82,055
Home equity lines of credit 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 As ofMarch 31, 2020 andDecember 31, 2019 , substantially all of our loans were to customers located inVirginia andMaryland . We are not dependent on any single customer or group of customers whose insolvency would have a material adverse effect on operations. 35 Table of Contents Asset Quality
Asset quality remained high during the first quarter of 2020. The outbreak of COVID-19 will likely have an impact on our asset quality, but it is unknown to what extent at this point. We will generally place a loan on nonaccrual status when it becomes 90 days past due. Loans will also be placed on nonaccrual status in cases where we are uncertain whether the borrower can satisfy the contractual terms of the loan agreement. Cash payments received while a loan is categorized as nonaccrual will be recorded as a reduction of principal as long as doubt exists as to future collections. We maintain appraisals on loans secured by real estate, particularly those categorized as nonperforming loans and potential problem loans. In instances where appraisals reflect reduced collateral values, we make an evaluation of the borrower's overall financial condition to determine the need, if any, for impairment or write-down to their fair values. If foreclosure occurs, we record OREO at the lower of our recorded investment in the loan or fair value less our estimated costs to sell. Our loss and delinquency experience on our loan portfolio has been limited by a number of factors, including our underwriting standards and the relatively short period of time since the loans were originated. Whether our loss and delinquency experience in the area of our portfolio will increase significantly depends upon the value of the real estate securing loans and economic factors such as the overall economy of the region. OREO atMarch 31, 2020 was$5.9 million compared to$6.2 million atDecember 31, 2019 . The decrease was driven by a write-down on OREO during the first quarter of 2020. Loans acquired in the GAB transaction covered under anFDIC loss-share agreement expired onDecember 31, 2019 and therefore any references to "non-covered" do not apply to any periods afterDecember 31, 2019 . Nonaccrual loans were$6.1 million (excluding$2.9 million of loans fully covered by SBA guarantees) atMarch 31, 2020 compared to$4.8 million (non-covered and excluding$4.1 million of loans fully covered by SBA guarantees) atDecember 31, 2019 . The ratio of non-covered nonperforming assets (excluding the SBA guaranteed loans) to total non-covered assets was 0.41% atDecember 31, 2019 and the ratio of nonperforming assets (excluding the SBA guaranteed loans) to total assets was 0.43% atMarch 31, 2020 , an increase of 2 basis points. Southern National's allowance for loan losses as a percentage of total loans atMarch 31, 2020 was 0.58%, compared to 0.47% atDecember 31, 2019 (based on total non-covered loans). We have an internal loan review and a loan committee, both of which provide on-going monitoring to identify and address issues with problem loans. The loan loss provision is determined after consideration of all known relevant internal and external factors affecting loan collectability to maintain the allowance for loan and lease losses at a level necessary to absorb estimated credit losses. 36 Table of Contents
The following table presents a comparison of nonperforming assets as of
March 31, December 31,
2020 2019 (1)
Nonaccrual loans $ 8,941 $ 8,900Loans past due 90 days and accruing interest -
-
Total nonperforming loans 8,941 8,900
Other real estate owned 5,876 6,224
Total nonperforming assets $ 14,817 $ 15,124
Troubled debt restructurings $ 694 $ 697SBA guaranteed amounts included in nonaccrual loans$ 2,889
$ 4,129
Allowance for loan losses to nonperforming loans 142.28 % 115.30 % Allowance for loan losses to total loans 0.58 % 0.47 % Nonperforming assets excluding SBA guaranteed loans to total assets 0.43 % 0.41 % (1)December 31, 2019 included non-covered loans and non-covered assets.
Investment Securities
Investment securities, available for sale and held to maturity, totaled
Investment securities in our portfolio as of
? residential government-sponsored collateralized mortgage obligations in the
amount of
? agency residential mortgage-backed securities in the amount
? corporate bonds in the amount of
? commercial mortgage-backed securities in the amount of
? SBA loan pool securities in the amount of
? callable agency securities in the amount of
? trust preferred securities in the amount of
municipal bonds in the amount of
? with a taxable equivalent yield of 3.0% and ratings as ofMarch 31, 2020 as follows: Moody's Amount Standard & Poor's Amount Rating (in thousands) Rating (in thousands) Aaa $ 5,997 AAA $ 5,571 Aa1 6,567 AA+ 6,636 Aa2 3,917 AA 8,533 Aa3 693 AA- 1,798 A1 2,346 A+ 1,003 A2 1,003 A 842 Baa1 - BBB+ - NA 9,441 NA 5,581 Total$ 29,964 Total$ 29,964 During the three months endedMarch 31, 2020 ,$10.0 million of available for sale investment securities and$15.2 million of held to maturity investment securities were purchased. No investment securities were sold during the first quarter of 2020 and 2019. 37
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AtMarch 31, 2020 , we owned pooled trust preferred securities as follows (in thousands): % of Previously Current Recognized Defaults and Cumulative Ratings Estimated Deferrals to Other Tranche When Purchased Current Ratings Par Book Fair Total Comprehensive Security Level Moody's Fitch Moody's Fitch Value Value Value Collateral Loss (1) (in thousands) Held to Maturity ALESCO VII A1B Senior Aaa AAA Aa1 AA$ 1,910 $ 1,783 $ 1,758 17 % $ 219$ 1,910 $ 1,783 $ 1,758 $ 219 Cumulative OTTI Available for Sale Related to
Other Than Temporarily Impaired:
Credit Loss (2)
TPREF FUNDING II Mezzanine A1 A- Caa3 WD $ 1,500 $ 1,040 $ 675 32 % $ 400
ALESCO V C1 Mezzanine A2 A Caa1 C 2,150 1,490 1,591 15 % 660
$ 3,650 $ 2,530 $ 2,266 $ 1,060
Total $ 5,560 $ 4,313 $ 4,024 (1) Pre-tax, and represents unrealized losses at date of transfer from
available-for-sale to held-to-maturity, net of accretion.
(2) Pre-tax. Each of these investment securities has been evaluated for potential impairment under accounting guidelines. In performing a detailed cash flow analysis of each investment security,Sonabank works with independent third parties to identify the most reflective estimate of the cash flow estimated to be collected. If this estimate results in a present value of expected cash flows that is less than the amortized cost basis of an investment security (that is, credit loss exists), an other than temporary impairment is considered to have occurred. If there is no credit loss, any impairment is considered temporary.
We recognized no other than temporary impairment charges during the three months
ended
Liquidity and Funds Management
The objective of our liquidity management is to ensure the ability to meet our financial obligations. These obligations include the payment of deposits on demand or at maturity, the repayment of borrowings at maturity and the ability to fund commitments and other new business opportunities. We obtain funding from a variety of sources, including customer deposit accounts, customer certificates of deposit and payments on our loans and investments. Historically, our level of core deposits has been insufficient to fully fund our lending activities. As a result, we have sought funding from additional sources, including institutional certificates of deposit and the sale of available for sale investment securities. In addition, we maintain lines of credit with the FHLB ofAtlanta , federal funds lines of credit with three correspondent banks and utilize securities sold under agreements to repurchase and reverse repurchase agreement borrowings from approved securities dealers. We prepare a cash flow forecast on a 30, 60 and 90 day basis along with a one and a two year basis. The projections incorporate expected cash flows on loans, investment securities, and deposits based on data used to prepare our interest rate risk analyses. To estimate loan growth, the projection incorporates the scheduled loan closings in the Loan Pipeline Report along with other management estimates. During the three months endedMarch 31, 2020 , we funded our financial obligations with deposits and borrowings from the FHLB ofAtlanta . AtMarch 31, 2020 , we had$341.0 million of unfunded lines of credit and undisbursed construction loan funds. The amount of certificate of deposit accounts maturing in 2020 is$540.8 million as ofMarch 31 , 38
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2020. Management anticipates that funding requirements for these commitments can be met from the normal sources of funds.
Capital Resources
The following table provides a comparison of the leverage and risk-weighted
capital ratios of
Minimum
Required for
Capital Actual Ratio at
Adequacy To Be Categorized March 31, December 31,
Purposes as Well Capitalized (1) 2020 2019
Sonabank
Common equity tier 1 capital ratio 4.50 % 6.50 % 14.44 % 14.81 %
Tier 1 risk-based capital ratio 6.00 % 8.00 % 14.44 % 14.81 %
Total risk-based capital ratio 8.00 % 10.00 % 15.04 % 15.29 %
Leverage ratio 4.00 % 5.00 % 11.86 % 12.07 %
(1) Prompt corrective action provisions are not applicable at the bank holding
company level.
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