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Section 1: 8-K (FORM 8-K)

 

 

 

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): January 24, 2019  

 

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))

 

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 January 24, 2019, Southern National Bancorp of Virginia, Inc. (“Southern National”) issued a press release announcing its financial results for the three and twelve months ended December 31, 2018.  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 8.01. Other Events.

 

On January 24, 2019, Southern National issued a press release announcing the declaration of a dividend payable to shareholders of record as of February 11, 2019.  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

 

99.1Press Release dated January 24, 2019

 

 

 

  

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: January 24, 2019 By:  /s/ Jeffrey L. Karafa  
    Jeffrey L. Karafa  
    Chief Financial Officer  

 

 

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Section 2: EX-99.1 (EXHIBIT 99.1)

For the first full year following its merger of equals, Southern National Bancorp of Virginia, Inc. announces record earnings of $33.7 million for 2018, compared to $2.4 million for 2017



Southern National Bancorp of Virginia, Inc. also announces a $0.01 increase in its dividend and declares a dividend of $0.09 per share, its twenty-ninth consecutive quarterly dividend.

MCLEAN, Va., Jan. 24, 2019 /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 $7.7 million and $33.7 million for the three and twelve months ended December 31, 2018, respectively. That compares to a net loss of ($1.2) million and net income of $2.4 million for the three and twelve months ended December 31, 2017, respectively. Earnings per share for the three and twelve months ended December 31, 2018 was $0.32 basic and diluted, and $1.40 basic and $1.39 diluted, respectively, compared to ($0.05) basic and diluted, and $0.13 basic and diluted per share for the same periods in 2017, respectively. For comparative purposes, the Company's 2017 earnings were impacted by $9.4 million of merger related expenses and a $7.2 million deferred tax asset write-down related to the Tax Cuts and Jobs Act of 2017.

The Board of Directors is pleased to announce and declare a $0.01 increase in the dividend from $0.08 to $0.09 per share payable on February 22, 2019 to shareholders of record on February 11, 2019. The dividend increase is a direct result of our very strong performance and an appropriate return to our shareholders. This is Southern National's twenty-ninth consecutive quarterly dividend.

The Company, just over a year and a half after its 2017 merger-of-equals with Eastern Virginia Bankshares, Inc. ("EVBS"), has completed its integration and assimilation of the two banks into one. Management is now focused on increasing loans and deposits, increasing profitability and increasing franchise value.

Highlights for the three and twelve months ended December 31, 2018 include:

Net Interest Income

Net interest income was $22.8 million for the quarter ended December 31, 2018 compared to $23.0 million for the fourth quarter of 2017, which is a direct result of the rising costs of funds.

Southern National's net interest margin was 3.66% and 3.72% for the three and twelve months ended December 31, 2018, respectively, compared to 3.86% and 3.87% for the three and twelve months ended December 31, 2017. The Company's cost of funds increased 53 basis points to 1.41% since December 31, 2017. The acquired loan discount accretion on loans acquired in the acquisitions of EVBS, Greater Atlantic Bank, HarVest and Prince Georges Federal Savings Bank contributed $1.4 million and $4.5 million to net interest income during the three and twelve months ended December 31, 2018, respectively.

Noninterest Income

During the fourth quarter of 2018, Southern National had noninterest income of $1.9 million compared to $2.3 million during the fourth quarter of 2017. Income from bank-owned life insurance has increased due to death benefit payouts in 2018 as well as the income from the purchase of an additional $12.0 million in bank-owned life insurance during 2018. Loss on our investment in STM increased to ($894) thousand for the twelve months ended December 31, 2018 compared to a loss of ($345) thousand the year before due to rising interest rates and operational changes within STM. For the twelve months ended December 31, 2018, other noninterest income has benefited from $2.5 million of recoveries of legacy investment securities and loans charged off by EVBS before Southern National merged with EVBS during the late second quarter of 2017.

Noninterest income was $10.2 million for the twelve months of 2018, compared to $5.4 million for the twelve months of 2017. Generally, differences for the twelve months end December 31, 2018 and 2017 are not comparable due to the merger of EVBS into Southern National.

Noninterest Expense

Noninterest expense was $13.4 million during the fourth quarter of 2018, respectively, compared to $13.8 million during the same period in 2017. Employee compensation and benefits expense totaled $6.8 million for the fourth quarter of 2018, as compared to $6.5 million for the same period of 2017. Occupancy and equipment expenses remain flat.

The Company recognized a $300 thousand of write-downs on other real estate owned ("OREO") offset by $1 thousand gain on the sale of OREO during the fourth quarter of 2018, bringing write-downs to $650 thousand offset by gain on sale of $290 thousand for a net loss of $360 thousand for the year. No merger expenses were recorded for 2018. Other noninterest expenses have declined due to the consolidation process and overhead control.

Noninterest expense was $53.8 million for the twelve months of 2018. Noninterest expenses post-merger are in-line with Management's pre-merger expectations. Noninterest expense for the twelve months of 2017 were $49.1 million and included $9.4 million of merger expenses and are generally not comparable to 2018 due to the merger of EVBS into Southern National.

Income Tax Expense

Income tax expense for the fourth quarter of 2018 was affected by the reassessment of $5 million net operating loss carryforward related to an EVBS premerger acquisition from 2014. Income tax expense for the fourth quarter of 2017 was affected by a $7.2 million write-down of the Company's deferred tax assets related to the Tax Cuts and Jobs Act of 2017.

Securities Portfolio

Investment securities totaled $235.8 million at December 31, 2018 and represent 8.72% of total assets. Southern National utilizes its securities portfolio to augment income and manage its interest rate risk while serving as a source of liquidity. In 2017, at the time of the merger, the securities portfolio was restructured to meet the future needs of the Company. As a result, no securities have been purchased or sold during 2018.

Loan Portfolio

Loan demand remains elevated in the Company's markets. Loan growth in 2018 was $116.5 million, or 5.65%, bringing loans receivable, net of deferred fees to $2.18 billion at December 31, 2018. Additionally, loan sales have totaled $11.9 million and loan participations sold are $4.0 million for the twelve months ended December 31, 2018.

The composition of our loan portfolio consisted of the following at December 31, 2018 and 2017 (in thousands):


December 31, 2018


December 31, 2017

 Loans secured by real estate: 




    Commercial real estate - owner occupied 

$               399,993


$                   401,847

    Commercial real estate - non-owner occupied 

484,306


440,700

    Secured by farmland 

20,966


23,038

    Construction and land loans 

210,084


197,972

    Residential 1-4 family (1)

565,083


483,006

    Multi-family residential 

82,516


70,892

    Home equity lines of credit (1)

128,225


152,829

     Total real estate loans 

1,891,173


1,770,284





 Commercial loans  

255,441


253,258

 Consumer loans 

32,347


39,374

      Gross loans 

2,178,961


2,062,916





 Less deferred fees on loans 

(137)


(588)

 Loans receivable, net of deferred fees  

$            2,178,824


$                2,062,328





 (1) Includes covered loans totaling $18.3 million and $23.3 million as of December 31, 2018 and 



       December 31, 2017, respectively. Covered loans were acquired in the acquistion of Greater Atlantic Bank 

       and are covered under a FDIC loss-share agreement.  The agreement expires in December 2019. 


Loan Loss Provision/Asset Quality

Asset quality remained high during the twelve months of 2018. For the twelve months ended December 31, 2018, the provision for loan losses was $4.2 million compared to $8.6 million for the same period last year. Net charge offs (recoveries) for the three and twelve months ended December 31, 2018 were ($332) thousand and $1.3 million, respectively, compared to $5.2 million and $6.3 million for the same periods in 2017, respectively. Southern National's allowance for loan losses as a percentage of total non-covered loans at December 31, 2018 was 0.57%, compared to 0.46% at the end of 2017. The allowance for loan losses as a percentage of non-covered non-acquired loans was 0.85% and 0.77% at December 31, 2018 and 2017, respectively.

Non-covered nonaccrual loans were $2.5 million (excluding $3.4 million of loans fully covered by SBA guarantees) at December 31, 2018 compared to $12.3 million (excluding $4.7 million of loans fully covered by SBA guarantees) as of December 31, 2017. During 2018, a $9.9 million loan that had been on nonaccrual status since the third quarter of 2017 was fully paid off, which resulted in $732 thousand of recovered interest being recognized. The ratio of non-covered nonperforming assets (excluding the SBA guaranteed loans) to total assets decreased from 0.77% at the end of 2017 to 0.28% at December 31, 2018.

OREO at December 31, 2018 was $5.1 million compared to $7.6 million at December 31, 2017. The decline has been a result of a combination of OREO sales and write-downs.

Deposits

The competition for deposits in the Company's markets continues to climb, as so do the rates being paid on deposits. Total deposits were $2.10 billion at December 31, 2018 compared to $1.87 billion at December 31, 2017, an increase of $232.4 million, or 12.46%. During the twelve months ended December 31, 2018, demand deposits increased by $0.9 million, or 0.27%, NOW accounts increased by $15.7 million, or 4.77%, while money market accounts increased $0.4 million or 0.11%. Savings accounts decreased to $151.1 million or (6.73%) at December 31, 2018 from a balance of $161.9 million at December 31, 2017, and time deposits increased $226.4 million, or 32.38%, from $699.0 million at December 31, 2017, to $925.4 million at December 31, 2018.

Stockholders' Equity

Total stockholders' equity increased from $322.8 million at December 31, 2017 to $348.3 million at December 31, 2018. Our estimated tier 1 risk-based capital ratios were 12.06% and 13.83% for Southern National and Sonabank, respectively, as of December 31, 2018.

About Southern National Bancorp of Virginia, Inc.

As of December 31, 2018, Southern National had $2.70 billion in total assets, $2.18 billion in total loans and $2.10 billion in total deposits. Sonabank provides a range of financial services to individuals and small and medium sized businesses. At December 31, 2018, Sonabank had forty-five full-service branches. Thirty-eight full-service retail branches are in Virginia, located in the counties of Chesterfield (2), Essex (2), Fairfax (Reston, McLean and Fairfax), Gloucester (2), Hanover (3), King William, Lancaster, Middlesex (3), New Kent, Northumberland (3), Southampton, Surry, Sussex, and in Charlottesville, Clifton Forge, Colonial Heights, Front Royal, Hampton, Haymarket, Leesburg, Middleburg, New Market, Newport News, Richmond, South Riding, Warrenton, and Williamsburg, and seven full-service retail branches in Maryland, in Rockville, Shady Grove, Bethesda, Upper Marlboro, Brandywine, Owings and Huntingtown.

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:

Joe A. Shearin, CEO

Southern National Bancorp of Virginia, Inc.

Phone: 804-528-4752

6830 Old Dominion Drive


McLean, VA 22101

Georgia S. Derrico, Executive Chairman


Phone: 202-464-1130 ext. 2405

Sonabank        


10900 Nuckols Road, Suite 325

R. Roderick Porter, Executive Vice Chairman

Glen Allen, VA 23060

Phone: 202-464-1130 ext. 2406



Southern National Bancorp of Virginia, Inc., NASDAQ Symbol SONA

Website: www.sonabank.com

Southern National Bancorp of Virginia, Inc.

McLean, Virginia

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)









December 31,


December 31,





2018


2017 (1)


Assets






Cash and cash equivalents


$                  28,611


$         25,463


Investment securities-available for sale


143,377


160,673


Investment securities-held to maturity


92,462


98,912


Stock in Federal Reserve Bank and Federal Home Loan Bank


19,522


26,775


Loans receivable, net of deferred fees


2,178,824


2,062,328


Allowance for loan losses


(12,283)


(9,397)


     Net loans


2,166,541


2,052,931


Intangible assets


110,563


110,660


Bank premises and equipment, net


32,352


35,788


Bank-owned life insurance


62,495


50,790


Deferred tax assets, net


14,104


16,903


Other assets


31,267


35,357


     Total assets


$             2,701,294


$     2,614,252









Liabilities and stockholders' equity






Demand deposits


$                320,043


$       319,189


NOW accounts


345,597


329,878


Money market accounts


355,469


355,084


Savings accounts


151,050


161,947


Time deposits


925,441


699,058


     Total deposits


2,097,600


1,865,156


Federal Home Loan Bank advances-short term


163,340


335,615


Subordinated notes


56,673


56,662


Other liabilities


35,392


34,047


     Total liabilities


2,353,005


2,291,480


Stockholders' equity


348,290


322,772


     Total liabilities and stockholders' equity


$             2,701,294


$     2,614,252









(1) Derived from audited financial statements.



























Condensed Consolidated Statements of Operations

(Unaudited)

 (in thousands)












For the Three Months Ended


For the Twelve Months Ended




December 31,


December 31,




2018


2017


2018


2017

Interest and dividend income


$         31,150


$         27,965


$       118,907


$         83,570

Interest expense


8,345


4,995


27,840


15,653


Net interest income


22,804


22,970


91,066


67,917

Provision for loan losses


500


1,775


4,200


8,625


Net interest income after provision for loan losses


22,304


21,195


86,866


59,292

Account maintenance and deposit service fees


1,762


1,466


5,960


3,564

Income from bank-owned life insurance


520


298


1,983


929

Equity (loss) from mortgage affiliate


(696)


106


(894)


(345)

Gain on sales of investment securities


-


-


-


255

Other 


345


462


3,152


1,026


Noninterest income


1,929


2,332


10,199


5,429

Employee compensation and benefits


6,847


6,535


27,706


20,285

Occupancy and equipment expenses


2,328


2,298


9,424


7,037

Amortization of core deposit intangible


361


362


1,445


845

FDIC assessments


251


411


1,065


802

Amortization of FDIC indemnification asset


237


201


764


741

Net loss on other real estate owned


299


307


360


520

Merger expenses


-


332


-


9,426

Other expenses


3,086


3,390


12,996


9,493


Noninterest expense


13,409


13,836


53,760


49,149


Income before income taxes


10,824


9,691


43,305


15,572

Income tax expense 


3,120


10,852


9,614


13,147


Net income (loss)


$           7,704


$         (1,161)


$         33,691


$           2,425































Financial Highlights

(Unaudited)

(Dollars in thousands except per share data)






















For the Three Months Ended


For the Twelve Months Ended




December 31,


December 31,




2018


2017


2018


2017

Per Share Data:









Earnings  (loss) per share - Basic


$            0.32


$           (0.05)


$            1.40


$            0.13

Earnings (loss) per share - Diluted


$            0.32


$           (0.05)


$            1.39


$            0.13

Book value per share


$          14.48


$          13.48


$          14.48


$          13.48

Tangible book value per share (1)


$            9.88


$            8.86


$            9.88


$            8.86

Weighted average shares outstanding - Basic


24,050,541


23,923,410


24,025,155


18,390,810

Weighted average shares outstanding - Diluted


24,265,885


24,228,054


24,272,617


18,685,427

Shares outstanding at end of period


24,052,253


23,936,453


24,052,253


23,936,453











Selected Performance Ratios (2):









Return on average assets


1.12%


-0.18%


1.25%


0.13%

Return on average equity


8.84%


-1.40%


9.99%


1.02%

Return on average tangible equity (3)


13.01%


-1.57%


14.87%


1.39%

Yield on earning assets


5.00%


4.69%


4.86%


4.76%

Cost of funds


1.41%


0.88%


1.19%


0.94%

Net interest margin


3.66%


3.86%


3.72%


3.87%

Net loans to deposits


103.29%


110.07%


103.29%


110.07%

Operating efficiency ratio (4)


53.29%


52.85%


54.15%


54.20%

Net charge-offs (recoveries) to average loans


-0.02%


0.08%


0.06%


0.51%














As of








December 31,


December 31,








2018


2017















Stockholders' equity to total assets


12.89%


12.35%





Tier 1 risk-based capital ratio (estimated for December 31, 2018)

12.06%


10.70%





Intangible assets:









     Goodwill


$       101,954


$       100,606





     Core deposit intangible, net


8,609


10,054





        Total


$       110,563


$       110,660















Loans and other real estate owned (5):









Nonaccrual loans (6)


$           5,916


$         16,963





Loans past due 90 days and accruing interest


-


-





Other real estate owned


5,077


7,577





Total nonperforming assets 


$         10,993


$         24,540





Allowance for loan losses to total non-covered  loans


0.57%


0.46%





Nonperforming assets excluding SBA guaranteed loans to









    total assets


0.28%


0.77%















(1) Non-GAAP measure defined as stockholders' equity less  goodwill and other intangibles divided by common shares outstanding.

(2) Selected performance ratios are annualized except the operating efficiency ratio and net charge-offs to average loans.

(3) Non-GAAP measure defined as average stockholders' equity less average goodwill and other intangibles.

(4) Non-GAAP measure excludes gains/losses and write-downs on OREO, gains/losses on sale of loans, gains/losses on sale of securities,  

      merger expenses, and recoveries related to acquired charged-off loans and securities that are recognized in other noninterest income.

(5) Applies only to non-covered  loans and other real estate owned.

(6) Nonaccrual loans include SBA guaranteed amounts totaling $3.4 million and $4.7 million at December 31, 2018 and

      December 31,  2017, respectively.


Reconciliation of Non-GAAP Financial Measures

(Unaudited)














For the Three Months Ended


For the Twelve Months Ended


(Dollars in thousands)

December 31,


December 31,




2018


2017


2018


2017

Net income excluding merger expenses and 










DTA revaluation adjustment (Non-GAAP)









Net (loss) income (GAAP)


$           7,704


$         (1,161)


$         33,691


$           2,425

Merger expenses


-


332


-


9,426

Income tax effect of adjustment for merger expenses


-


(79)


-


(2,680)

Additional estimated income tax expense related to the DTA revaluation

-


7,210


-


7,210

Net income excluding merger expenses and DTA revaluation adjustment (Non-GAAP)

$           7,704


$           6,302


$         33,691


$         16,381











Return on average assets excluding merger expenses and 









DTA revaluation adjustment (Non-GAAP)









Return on average assets 


1.12%


-0.18%


1.25%


0.13%

Effect to adjust for merger expenses and additional estimated









 income tax expense related to the DTA revaluation


0.00%


1.14%


0.00%


0.72%

Return on average assets excluding merger expenses and










DTA revaluation adjustment (Non-GAAP)


1.12%


0.96%


1.25%


0.85%











Return on average equity excluding merger expenses and









DTA revaluation adjustment (Non-GAAP)









Return on average equity 


8.84%


-1.40%


9.99%


1.02%

Effect to adjust for merger expenses and additional estimated









 income tax expense related to the DTA revaluation


0.00%


8.97%


0.00%


5.86%

Return on average equity excluding merger expenses and










DTA revaluation adjustment (Non-GAAP)


8.84%


7.57%


9.99%


6.88%



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