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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): July 25, 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 July 25, 2019, Southern National Bancorp of Virginia, Inc. (“Southern National”) issued a press release announcing its financial results for the three and six months ended June 30, 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 8.01. Other Events.

 

On July 25, 2019, Southern National issued a press release announcing the declaration of a dividend payable to shareholders of record as of August 12, 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

 

99.1 Press Release dated July 25, 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: July 25, 2019 By: /s/ Jeffrey L. Karafa  
    Jeffrey L. Karafa  
    Chief Financial Officer  

 

 

 

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Section 2: EX-99.1 (EXHIBIT 99.1)

Southern National Bancorp of Virginia, Inc. announces earnings of $9.3 million for the quarter ended June 30, 2019, compared to $8.9 million for the quarter ended June 30, 2018



Southern National Bancorp of Virginia, Inc. also declares a dividend of $0.09 per share, its thirty-first consecutive quarterly dividend.

MCLEAN, Va., July 25, 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 $9.3 million for the quarter ended June 30, 2019, compared to $8.9 million for the quarter ended June 30, 2018. Earnings per share for the three months ended June 30, 2019 were $0.39 basic and $0.38 diluted compared to $0.37 basic and diluted, for the same period in 2018.

For the six months ended June 30, 2019, net income was $15.3 million compared to $17.1 million for the six months ended June 30, 2018. Earnings per share were $0.64 basic and $0.63 diluted for the six months ended June 30, 2019 compared to $0.71 basic and diluted the year before.

The Board of Directors declared a dividend of $0.09 per share payable on August 23, 2019 to shareholders of record on August 12, 2019. This is Southern National's thirty-first consecutive quarterly dividend.

Highlights for the three and six months ended June 30, 2019 include:

Net Interest Income

Net interest income was $21.0 million for the quarter ended June 30, 2019 compared to $23.2 million for the second quarter of 2018, which is a direct result of the rising costs of funds including deposits and borrowings. Net interest margin for the three months ended June 30, 2019 was 3.40% compared to 3.41% for the three months ended March 31, 2019 and 3.79% for the three months ended June 30, 2018. The yield on earnings assets was 4.93% for the three months ended June 30, 2019 compared to 4.94% for the three months ended March 31, 2019 and 4.86% for the three months ended June 30, 2018. The cost of funds on interest bearing liabilities was 1.62% for the second quarter compared to 1.61% for the first quarter and 1.11% for the second quarter of 2018 as cost of deposit gathering flattens.

Net interest income was $41.9 million for the six months ended June 30, 2019 compared to $45.7 million for the six months ended June 30, 2018. Net interest margin was 3.41% and 3.80% for the six months ended June 30, 2019 and 2018, respectively, as a result of a rising interest rate environment during 2018 and competition for deposits.

The acquired loan discount accretion on loans acquired in the acquisitions of Eastern Virginia Bankshares, Inc. ("EVBS"), Greater Atlantic Bank, HarVest and Prince Georges Federal Savings Bank contributed $972 thousand and $1.8 million to net interest income during the three and six months ended June 30, 2019, respectively, compared to $1.1 million and $2.2 million during the three and six months ended June 30, 2018. As expected, the decrease in accretion is due to the slowdown in acquired loan prepayments and payoffs.

Noninterest Income

During the second quarter of 2019, Southern National had noninterest income of $3.2 million compared to $2.6 million during the second quarter of 2018. Income improved on account maintenance and deposit service fees by $413 thousand. Income from bank-owned life insurance decreased $178 thousand due to death benefits paid in 2018. Gain on our investment in Southern Trust Mortgage ("STM") increased to $558 thousand for the three months ended June 30, 2019 compared to a gain of $191 thousand the year before due to operational improvements within STM. For the three months ended June 30, 2019, other noninterest income has benefited from $324 thousand of recoveries of legacy investment securities and loans charged off by EVBS premerger compared to $243 thousand for the three months ended June 30, 2018.

During the six months ended June 30, 2019, noninterest income was $6.3 million compared to $5.6 million for the same period in 2018. Income improved on account maintenance and deposits services fee by $693 thousand during the first six months of 2019. Gain on our investment in STM increased to $576 thousand for the six months ended June 30, 2019 compared to a loss of $(126) thousand the year before. Recoveries of legacy investment securities and loans charged off by EVBS premerger decreased $811 thousand for the first six months of 2019 compared to the same period in 2018.

Noninterest Expense

Noninterest expense was $13.9 million during the second quarter of 2019 compared to $13.6 million during the same period in 2018. Employee compensation and benefits expense totaled $7.1 million for the second quarter of 2019, as compared to $7.0 million for the same period of 2018 due to $350 thousand of separation expense recognized in 2019 and offset by savings from the reduction in staff completed during 2018. Occupancy and equipment expense increased $171 thousand for the second quarter of 2019 compared to the second quarter of 2018 due to improvements made on our branch offices.

Noninterest expense was $30.2 million during the six months ended June 30, 2019 compared to $27.2 million for the six months ended June 30, 2018. The primary increase in noninterest expense was due to a nonrecurring other loss of $3.2 million with related legal expense of $502 thousand during the first quarter of 2019.

Income Tax Expense

Income taxes benefited $1.2 million for the three and six months ended June 30, 2019 due to the formal assessment and rebooking of the $5.5 million net operating loss carryforward that was written off in the fourth quarter of 2018.

Securities Portfolio

Investment securities totaled $250.7 million at June 30, 2019 and represent 9.20% 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. During the first and second quarter of 2019, $15.0 million and $9.9 million of securities were purchased, respectively. No securities were purchased or sold during 2018.

Loan Portfolio

Loans outstanding of $2.17 billion at June 30, 2019 are down $6.0 million, or -0.55% annualized, since December 31, 2018. Unanticipated large loan payoffs of $50.0 million in the first quarter of 2019 were offset by growth of $29.4 million during the first quarter and $14.6 million during the second quarter.

The composition of our loan portfolio consisted of the following at June 30, 2019 and December 31, 2018 (in thousands):


June 30, 2019


December 31, 2018

 Loans secured by real estate: 




    Commercial real estate - owner occupied 

$               410,832


$                   407,031

    Commercial real estate - non-owner occupied 

561,732


540,698

    Secured by farmland 

9,692


20,966

    Construction and land loans 

158,956


146,654

    Residential 1-4 family (1)

572,715


565,083

    Multi-family residential 

82,593


82,516

    Home equity lines of credit (1)

117,298


128,225

     Total real estate loans 

1,913,818


1,891,173





 Commercial loans  

229,502


255,441

 Consumer loans 

29,310


32,347

      Gross loans 

2,172,630


2,178,961





 Less deferred costs (fees) on loans 

215


(137)

 Loans receivable, net of deferred costs (fees) 

$            2,172,845


$                2,178,824





 (1) Includes covered loans totaling $15.8 million and $18.3 million as of June 30, 2019 and 

       December 31, 2018, respectively. Covered loans were acquired in the acquisition of Greater Atlantic Bank 

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

Loan Loss Provision and Asset Quality

Asset quality remained high during the first quarter of 2019. For the six months ended June 30, 2019, the provision for loan losses was $200 thousand compared to $2.7 million for the same period last year. Net charge offs for the three and six months ended June 30, 2019 were $261 thousand and $870 thousand, respectively, compared to $804 thousand and $1.0 million for the same periods in 2018.

Southern National's allowance for loan losses as a percentage of total non-covered loans at June 30, 2019 was 0.54%, compared to 0.57% at December 31, 2018. The allowance for loan losses as a percentage of non-covered non-acquired loans was 0.78% and 0.85% at June 30, 2019 and December 31, 2018, respectively.

Non-covered nonaccrual loans were $2.0 million (excluding $3.2 million of loans fully covered by SBA guarantees) at June 30, 2019 compared to $2.5 million (excluding $3.4 million of loans fully covered by SBA guarantees) as of December 31, 2018. The ratio of non-covered nonperforming assets (excluding the SBA guaranteed loans) to total assets decreased from 0.28% at December 31, 2018 to 0.26% at June 30, 2019.

Other real estate owned at June 30, 2018 was $5.0 million compared to $5.1 million at December 31, 2018.

Deposits

Total deposits of $2.15 billion at June 30, 2019 have increased $52.8 million since December 31, 2018 or 5.04% annualized. During the six months ended June 30, 2019, demand deposits increased by $15.0 million, or 9.36%, NOW accounts increased by $16.2 million, or 9.37%, while money market accounts increased $88.8 million or 49.98%. Savings accounts decreased to $143.3 million or (10.22%) at June 30, 2019 from a balance of $151.1 million at December 31, 2018. Time deposits decreased $59.4 million, or (12.85%), from $925.4 million at December 31, 2018, to $866.0 million at June 30, 2019 due to the reduction in brokered time accounts.

Stockholders' Equity

Total stockholders' equity increased to $362.8 million at June 30, 2019 from $348.3 million at December 31, 2018. Our tier 1 risk-based capital ratios were approximately 12.48% and 14.08% for Southern National and Sonabank, respectively, as of June 30, 2019.

About Southern National Bancorp of Virginia, Inc.

As of June 30, 2019, Southern National had $2.72 billion in total assets, $2.17 billion in total loans and $2.15 billion in total deposits. Sonabank provides a range of financial services to individuals and small and medium sized businesses. At June 30, 2019, 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.

Southern National Bancorp of Virginia, Inc.

McLean, Virginia

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)







June 30,


December 31,




2019


2018(1)


Assets





Cash and cash equivalents

$                  33,088


$         28,611


Investment securities-available for sale

163,860


143,377


Investment securities-held to maturity

86,815


92,462


Stock in Federal Reserve Bank and Federal Home Loan Bank

17,364


19,522


Loans receivable, net of deferred fees

2,172,845


2,178,824


Allowance for loan losses

(11,613)


(12,283)



Net loans

2,161,232


2,166,541


Intangible assets

109,838


110,563


Operating lease right-of-use assets

7,924


-


Bank premises and equipment, net

30,767


32,352


Bank-owned life insurance

63,060


62,495


Deferred tax assets, net

14,475


14,104


Other assets

35,880


31,268



Total assets

$             2,724,303


$     2,701,295








Liabilities and stockholders' equity





Demand deposits

$                335,024


$       320,043


NOW accounts

361,787


345,597


Money market accounts

444,299


355,469


Savings accounts

143,328


151,050


Time deposits

865,988


925,441


    Total deposits

2,150,426


2,097,600


Federal Home Loan Bank advances-short term

110,640


163,340


Subordinated notes

56,678


56,673


Operating lease liabilities

8,385


-


Other liabilities

35,382


35,392



Total liabilities

2,361,511


2,353,005


Stockholders' equity

362,792


348,290



Total liabilities and stockholders' equity

$             2,724,303


$     2,701,295








(1) Derived from audited financial statements.























Condensed Consolidated Statements of Operations

(Unaudited)

 (in thousands)










For the Three Months Ended


For the Six Months Ended



June 30,


June 30,



2019


2018


2019


2018

Interest and dividend income

$         30,393


$         29,683


$         60,696


$         57,703

Interest expense

9,429


6,509


18,780


12,029


Net interest income

20,964


23,174


41,916


45,674

Provision for loan losses

-


1,050


200


2,650


Net interest income after provision for loan losses

20,964


22,124


41,716


43,024

Account maintenance and deposit service fees

1,788


1,375


3,475


2,783

Income from bank-owned life insurance

385


563


908


870

Equity gain (loss) from mortgage affiliate

558


191


576


(126)

Recoveries related to acquired charged-off 








   loans and  investment securities

324


243


915


1,726

Other 

135


181


378


379


Noninterest income

3,190


2,553


6,253


5,632

Employee compensation and benefits

7,144


7,007


12,956


13,779

Occupancy and equipment expenses

2,538


2,367


5,051


4,815

Amortization of core deposit intangible

362


362


725


723

FDIC assessments

-


319


-


655

Amortization of FDIC indemnification asset

177


177


325


350

Net (gain) loss on other real estate owned

(36)


(40)


(38)


160

Other expenses

3,707


3,425


11,163


6,754


Noninterest expense

13,892


13,617


30,182


27,236


Income before income taxes

10,262


11,060


17,786


21,420

Income tax expense 

943


2,193


2,448


4,294


Net income 

$           9,319


$           8,867


$         15,339


$         17,126

Financial Highlights

(Unaudited)

(Dollars in thousands except per share data)



















For the Three Months Ended


For the Six Months Ended



June 30,


June 30,



2019


2018


2019


2018

Per Share Data:








Earnings  (loss) per share - Basic

$            0.39


$            0.37


$            0.64


$            0.71

Earnings (loss) per share - Diluted

$            0.38


$            0.37


$            0.63


$            0.71

Book value per share

$          15.04


$          13.91


$          15.04


$          13.91

Tangible book value per share (1)

$          10.49


$            9.32


$          10.49


$            9.32

Weighted average shares outstanding - Basic

24,024,580


24,037,906


24,017,311


23,999,937

Weighted average shares outstanding - Diluted

24,322,717


24,329,135


24,315,017


24,281,292

Shares outstanding at end of period

24,117,326


24,046,453


24,117,326


24,046,453










Selected Performance Ratios (2):








Return on average assets

1.37%


1.32%


1.14%


1.29%

Return on average equity

10.46%


10.68%


8.71%


10.41%

Return on average tangible equity (3)

15.10%


15.97%


12.63%


15.52%

Yield on earning assets

4.93%


4.86%


4.94%


4.81%

Cost of funds

1.62%


1.11%


1.61%


1.05%

Net interest margin

3.40%


3.79%


3.41%


3.80%

Net loans to deposits

100.50%


108.24%


100.50%


108.24%

Operating efficiency ratio (4)

58.21%


53.60%


63.73%


54.62%

Net charge-offs to average loans

0.01%


0.04%


0.04%


0.05%












As of







June 30,


December 31,







2019


2018














Stockholders' equity to total assets

13.32%


12.89%





Tier 1 risk-based capital ratio (approximate for June 30, 2019)

12.48%


12.06%





Intangible assets:









Goodwill

$       101,954


$       101,954






Core deposit intangible, net

7,884


8,609






   Total

$       109,838


$       110,563














Loans and other real estate owned (5):








Nonaccrual loans (6)

$           5,200


$           5,916





Loans past due 90 days and accruing interest

-


-





Other real estate owned

5,041


5,077





Total nonperforming assets 

$         10,241


$         10,993





Allowance for loan losses to total non-covered  loans

0.54%


0.57%





Nonperforming assets excluding SBA guaranteed loans to








    total assets

0.26%


0.28%














(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 $3.2 million and $3.4 million at June 30, 2018 and

      December 31,  2018, respectively.

Reconciliation of Non-GAAP Financial Measures

(Unaudited)












For the Three Months Ended


For the Six Months Ended


(Dollars in thousands)

June 30,


June 30,



2019


2018


2019


2018

Net income excluding the nonrecurring other loss 









and related legal adjustment (Non-GAAP)








Net income (GAAP)

$           9,319


$           8,867


$         15,339


$         17,126

Nonrecurring other loss and related legal expense

-


-


3,702


-

Income tax effect of adjustment for the nonrecurring other loss









and related legal adjustment 

-


-


(777)


-

Net income excluding the nonrecurring other loss 









and related legal adjustment (Non-GAAP)

$           9,319


$           8,867


$         18,264


$         17,126










Return on average assets excluding the nonrecurring other loss









and related legal adjustment (Non-GAAP)








Return on average assets 

1.37%


1.32%


1.14%


1.29%

Effect of adjustment for the nonrecurring other loss









and related legal adjustment 

0.00%


0.00%


0.21%


0.00%

Return on average assets excluding the nonrecurring other loss









and related legal adjustment (Non-GAAP)

1.37%


1.27%


1.35%


0.85%










Return on average assets excluding the nonrecurring other loss









and related legal adjustment (Non-GAAP)








Return on average equity  

10.46%


10.68%


8.71%


10.41%

Effect of adjustment for the nonrecurring other loss









and related legal adjustment 

0.00%


0.00%


1.66%


0.00%

Return on average assets excluding the nonrecurring other loss









and related legal adjustment (Non-GAAP)

10.46%


10.68%


10.37%


10.41%









Operating Efficiency Ratio









and related legal adjustment (Non-GAAP)








Operating Efficiency Ratio

58.21%


53.60%


63.73%


54.62%

Effect of adjustment for the nonrecurring other loss









and related legal adjustment 

0.00%


0.00%


-7.80%


0.00%

Operating Efficiency Ratio exlcuding the nonrecurring other loss









and related legal adjustment (Non-GAAP)

58.21%


53.60%


55.93%


54.62%

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




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