Southern National Bancorp of Virginia Earnings 2020-03-31

Balance Sheet	Income Statement	Cash Flow

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2020

Commission File No. 001-33037

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

(Exact name of registrant as specified in its charter)


Virginia	20-1417448
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)

6830 Old Dominion Drive

McLean, Virginia 22101

(Address of principal executive offices) (zip code)

(703) 893-7400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading symbol	Name of each exchange on which registered:
Common Stock	SONA	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b–2 of the Exchange Act:


Large accelerated filer ☐	Accelerated filer ☒	Smaller reporting company ☐

Non-accelerated filer ☐	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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of April 30, 2020, there were 24,297,703 shares of common stock outstanding.

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SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

FORM 10-Q

March 31, 2020

INDEX		PAGE
PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements
Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019		2
Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2020 and 2019		3
Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019		4
Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019		5
Notes to Unaudited Consolidated Financial Statements		6

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		30

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		39

Item 4 – Controls and Procedures		41

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings		41

Item 1A – Risk Factors		42

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		43

Item 3 – Defaults Upon Senior Securities		43

Item 4 – Mine Safety Disclosures		43

Item 5 – Other Information		43

Item 6 - Exhibits		44

Signatures		46

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SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts)


	March 31,		December 31,
	2020		2019
	(unaudited)		*
ASSETS
Cash and cash equivalents:
Cash and due from financial institutions	$	10,145	$	7,909
Interest-bearing deposits in other financial institutions		45,720		24,019
Total cash and cash equivalents		55,865		31,928

Securities available for sale, at fair value		168,520		164,820

Securities held to maturity, at amortized cost (fair value of $60,426 and $72,666, respectively)		59,234		72,448

Total loans		2,212,538		2,186,047
Less allowance for loan losses		(12,722)		(10,261)
Net loans		2,199,816		2,175,786
Stock in Federal Reserve Bank and Federal Home Loan Bank		21,396		17,832
Equity investment in mortgage affiliate		5,251		5,020
Preferred investment in mortgage affiliate		3,305		3,305
Bank premises and equipment, net		31,079		31,184
Operating lease right-of-use assets		7,664		8,013
Goodwill		101,954		101,954
Core deposit intangibles, net		6,850		7,191
Bank-owned life insurance		64,236		63,850
Other real estate owned		5,876		6,224
Deferred tax assets, net		11,154		11,788
Other assets		20,363		20,827
Total assets	$	2,762,563	$	2,722,170

LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits	$	338,095	$	339,153
Interest-bearing deposits:
NOW accounts		380,977		391,172
Money market accounts		477,660		466,867
Savings accounts		151,406		144,486
Time deposits		727,216		783,040
Total interest-bearing deposits		1,737,259		1,785,565
Total deposits		2,075,354		2,124,718

Securities sold under agreements to repurchase - short term		13,179		12,883
Federal Home Loan Bank (FHLB) advances		205,140		121,640
Junior subordinated debt - long term		9,645		9,632
Senior subordinated notes - long term		47,041		47,051
Operating lease liabilities		8,509		8,469
Other liabilities		24,873		20,536
Total liabilities		2,383,741		2,344,929
Commitments and contingencies (See Note 6)

Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no shares issued and outstanding		—		—
Common stock, $0.01 par value. Authorized 45,000,000 shares; 24,297,703 and 24,181,534 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively		242		241
Additional paid in capital		308,352		306,755
Retained earnings		67,061		69,462
Accumulated other comprehensive income		3,167		783
Total stockholders' equity		378,822		377,241
Total liabilities and stockholders' equity	$	2,762,563	$	2,722,170

* Derived from audited consolidated financial statements

See accompanying notes to unaudited consolidated financial statements.

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SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(dollars in thousands, except per share amounts) (Unaudited)


	For the Three Months Ended
	March 31,
	2020		2019
Interest and dividend income:
Interest and fees on loans	$	26,741	$	27,974
Interest and dividends on taxable securities		1,244		1,425
Interest and dividends on tax exempt securities		117		156
Interest and dividends on other earning assets		379		748
Total interest and dividend income		28,481		30,303
Interest expense:
Interest on deposits		6,503		7,462
Interest on repurchase agreements		19		23
Interest on junior subordinated debt		139		150
Interest on senior subordinated notes		712		712
Interest on other borrowings		593		1,004
Total interest expense		7,966		9,351
Net interest income		20,515		20,952
Provision for loan losses		3,450		200
Net interest income after provision for loan losses		17,065		20,752

Noninterest income:
Account maintenance and deposit service fees		1,698		1,687
Income from bank-owned life insurance		386		523
Equity gain from mortgage affiliate		231		18
Recoveries related to acquired charged-off loans and investment securities		184		591
Other		321		243
Total noninterest income		2,820		3,062

Noninterest expenses:
Salaries and benefits		12,309		5,812
Occupancy expenses		1,939		1,803
Furniture and equipment expenses		619		710
Amortization of core deposit intangible		341		363
Virginia franchise tax expense		570		563
Data processing expense		707		512
Telephone and communication expense		368		375
Net (gain) loss on other real estate owned		71		(2)
Professional fees		1,193		1,093
Other operating expenses		1,735		5,061
Total noninterest expenses		19,852		16,290
Income before income taxes		33		7,524
Income tax expense		6		1,504
Net income	$	27	$	6,020
Other comprehensive income:
Unrealized gain on available for sale securities	$	3,014	$	1,084
Accretion of amounts previously recorded upon transfer to held to maturity from available for sale		4		3
Net unrealized gain		3,018		1,087
Tax effect		634		229
Other comprehensive income		2,384		858
Comprehensive income	$	2,411	$	6,878
Earnings per share, basic	$	0.00	$	0.25
Earnings per share, diluted	$	0.00	$	0.25

See accompanying notes to unaudited consolidated financial statements.

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SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(dollars in thousands, except per share amounts) (Unaudited)


	For the Three Months Ended March 31, 2020
							Accumulated
			Additional				Other
	Common		Paid in		Retained		Comprehensive
	Stock		Capital		Earnings		Income		Total
Balance - December 31, 2019	$	241	$	306,755	$	69,462	$	783	$	377,241
Net income		—		—		27		—		27
Changes in other comprehensive income on investment securities (net of tax $634)		—		—		—		2,384		2,384
Dividends on common stock ($0.10 per share)		—		—		(2,428)		—		(2,428)
Issuance of common stock under Stock Incentive Plan (44,600 shares)		1		193		—		—		194
Stock-based compensation expense		—		1,404		—		—		1,404
Balance - March 31, 2020	$	242	$	308,352	$	67,061	$	3,167	$	378,822

	For the Three Months Ended March 31, 2019
							Accumulated
			Additional				Other
	Common		Paid in		Retained		Comprehensive
	Stock		Capital		Earnings		Loss		Total
Balance - December 31, 2018	$	240	$	305,654	$	44,985	$	(2,589)	$	348,290
Net income		—		—		6,020		—		6,020
Changes in other comprehensive loss on investment securities (net of tax $229)		—		—		—		858		858
Dividends on common stock ($0.09 per share)		—		—		(2,170)		—		(2,170)
Issuance of common stock under Stock Incentive Plan (17,250 shares)		1		121		—		—		122
Impact of adoption of ASU 2016-02		—		—		(535)		—		(535)
Stock-based compensation expense		—		104		—		—		104
Balance - March 31, 2019	$	241	$	305,879	$	48,300	$	(1,731)	$	352,689

See accompanying notes to unaudited consolidated financial statements.

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SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019


	For the Years Ended March 31,
	2020		2019
Operating activities:
Net income	$	27	$	6,020
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation and amortization		1,364		1,741
Amortization of operating lease right-of-use assets		1,038		586
Accretion of loan discount		(597)		(816)
Amortization of FDIC indemnification asset		—		177
Provision for loan losses		3,450		200
Earnings on bank-owned life insurance		(386)		(523)
Equity gain on mortgage affiliate		(231)		(18)
Stock-based compensation expense		1,404		104
(Gain) loss on other real estate owned		71		(2)
Net (increase) decrease in other assets		464		(4,420)
Net increase in other liabilities		3,687		8,641
Net cash and cash equivalents provided by operating activities		10,291		11,690
Investing activities:
Purchases of held to maturity investment securities		(15,197)		—
Purchases of available for sale investment securities		(9,980)		(15,313)
Proceeds from paydowns, maturities and calls of available for sale investment securities		8,907		3,172
Proceeds from paydowns, maturities and calls of held to maturity investment securities		28,271		1,778
Net (increase) decrease of FRB and FHLB stock		(3,564)		1,095
Net (increase) decrease in loans		(26,883)		21,815
Proceeds from bank-owned life insurance death benefit		—		344
Sales of other real estate owned, net of improvements		277		38
Purchases of bank premises and equipment		(383)		(7)
Net cash and cash equivalents provided by (used in) investing activities		(18,552)		12,922
Financing activities:
Net increase (decrease) in deposits		(49,364)		13,464
Cash dividends paid on common stock		(2,428)		(2,170)
Issuance of common stock under Stock Incentive Plan		194		122
Net decrease (increase) in short-term borrowings		83,796		(32,798)
Net cash and cash equivalents provided by (used in) financing activities		32,198		(21,382)
Increase in cash and cash equivalents		23,937		3,230
Cash and cash equivalents at beginning of period		31,928		28,611
Cash and cash equivalents at end of period	$	55,865	$	31,841
Supplemental disclosure of cash flow information
Cash payments for:
Interest	$	7,848	$	8,989
Non-cash investing and financing activities:
Initial recognition of operating lease right-of-use assets	$	—	$	8,296
Initial recognition of operating lease liabilities		—		9,305

See accompanying notes to unaudited consolidated financial statements.

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SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

Notes to Unaudited Consolidated Financial Statements

March 31, 2020

1. ACCOUNTING POLICIES

Southern National Bancorp of Virginia, Inc. (“Southern National” or “SNBV” or the “Company”) is a corporation that was formed on July 28, 2004 under the laws of the Commonwealth of Virginia and is the holding company for Sonabank (“Sonabank” or the “Bank”) a Virginia state-chartered bank which commenced operations on April 14, 2005. On June 23, 2017, SNBV completed its merger with Eastern Virginia Bankshares, Inc. (“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.

At March 31, 2020, Sonabank had forty-five full-service branches. Thirty-eight full-service retail branches are in Virginia, located in Ashland, 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, and Williamsburg, and seven full-service retail branches in Maryland, located in Bethesda, Brandywine, Huntingtown, Owings, Rockville, Shady Grove, and Upper Marlboro. We have administrative offices in Warrenton and Glen Allen, Virginia, and executive offices in Georgetown, Washington, D.C. and Glen Allen, Virginia where senior management is located.

The consolidated financial statements include the accounts of Southern National and its subsidiaries Sonabank and EVB Statutory Trust I (the “Trust”). Significant inter-company accounts and transactions have been eliminated in consolidation. Southern National consolidates subsidiaries in which it holds, directly or indirectly, more than 50 percent of the voting rights or where it exercises control. Entities where Southern National holds 20 to 50 percent of the voting rights, or has the ability to exercise significant influence, or both, are accounted for under the equity method. Southern National has an interest in one affiliate, Southern Trust Mortgage, LLC (“STM”), which it accounts for as an equity method investment. In addition, Southern National owns the Trust which is an unconsolidated subsidiary. The junior subordinated debt owed to the Trust is reported as a liability of Southern National.

The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and instructions for Form 10-Q and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in Southern National’s Form 10-K for the year ended December 31, 2019.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Material estimates that are particularly susceptible to significant change in the near term include: the determination of the allowance for loan losses, the fair value of investment securities, other than temporary impairment of investment securities, the valuation of goodwill and intangible assets, other real estate owned (“OREO”) and deferred taxes.

Risks and Uncertainties

The outbreak of the novel Corona Virus Disease 2019 (“COVID-19”) has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to

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the Company. In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. The spread of COVID-19 has caused significant uncertainty, volatility and disruption in the U.S. and global economy and has disrupted banking and other financial activity in the areas in which the Company operates. Given the ongoing and dynamic nature COVID-19, it is not possible to accurately predict the extent, severity or duration of these conditions or when normal economic and operating conditions will resume. For this reason, the extent to which the COVID-19 pandemic affects our business, operations and financial condition, as well as our regulatory capital and liquidity ratios and credit ratings, is highly uncertain and unpredictable and depends on, among other things, new information that may emerge concerning the scope, duration and severity of the COVID-19 pandemic and actions taken by governmental authorities and other parties in response to the pandemic. If the pandemic is prolonged, the adverse impact on the markets in which we operate and on our business, operations and financial condition could deepen.

Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts are expected to have a material impact on the Company’s operations. The CARES Act includes provisions that temporarily delay the required implementation date of Financial Accounting Standards Board (“FASB”) ASC Topic 326, Financial Instruments—Credit Losses, and suspend the requirements related to accounting for a troubled debt restructuring (“TDR”), for certain entities.

The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global response to contain COVID-19 escalates further or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and resulting measures to curtail its spread, will have on the Company’s operations, the Company is disclosing potentially material items of which it is aware.

Financial position and results of operations

The Company’s fee income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company is actively working with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. At this time, the Company is unable to project the materiality of such an impact, but recognize the breadth of the economic impact is likely to impact its fee income in future periods.

The Company’s interest income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company is actively working with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods.

Capital and liquidity

While the Company believes that it has sufficient capital to withstand an extended economic recession brought about by COVID-19, its reported and regulatory capital ratios could be adversely impacted by further credit losses. The Company relies on cash on hand as well as dividends from its subsidiary bank to service its debt. If the Company’s capital deteriorates such that its subsidiary bank is unable to pay dividends to it for an extended period of time, the Company may not be able to service its debt.

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The Company maintains access to multiple sources of liquidity. Wholesale funding markets have remained open to us, but rates for short term funding have recently been volatile. If funding costs are elevated for an extended period of time, it could have an adverse effect on the Company’s net interest margin. If an extended recession caused large number of the Company’s deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding.

Asset valuation

Goodwill is evaluated for impairment on an annual basis or more frequently if events or circumstances warrant. Our annual assessment timing is during the third calendar quarter. Considering the effects of COVID-19, management determined there to be a triggering event in the first quarter of 2020. For the 2020 assessment, we performed a qualitative assessment to determine if it was more likely than not that the fair value of our single reporting unit is less than its carrying amount. We concluded that the fair value of our single reporting unit exceeded its carrying amount and that it was not necessary to perform the quantitative impairment test pursuant to ASC 350-20. Our qualitative assessment considered many factors including, but not limited to, our actual and projected operating performance and profitability, as well as consideration of recent bank merger and acquisition transaction metrics. No impairment losses were considered necessary based on management’s assessment.

Currently, the Company does not expect COVID-19 to affect its ability to account timely for the assets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

COVID-19 could cause a further and sustained decline in the Company’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform another goodwill impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

It is possible that the lingering effects of COVID-19 could cause the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform an intangible asset impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

Processes, controls and business continuity plan

The Company has invoked its Board approved Pandemic Preparedness Plan that includes a remote working strategy. The Company does not anticipate incurring additional material cost related to its continued deployment of the remote working strategy. No material operational or internal control challenges or risks have been identified to date. The Company does not anticipate significant challenges to its ability to maintain its systems and controls in light of the measures the Company has taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraint through the implementation of its business continuity plans.

Lending operations and accommodations to borrowers

As the health crisis unfolded, the Company’s markets and businesses experienced disruptions in normal operations. In keeping with regulatory guidance to work with borrowers during this unprecedented situation, the Company provided certain modifications, including interest only or principal and interest deferments. As of April 30, 2020, total modified loans or loans with requests for modifications were $548.1 million and the Company anticipates additional amounts throughout the second quarter of 2020.

With the passage of the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”), the Company is actively participating in assisting its customers with applications for resources through the

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program. PPP loans have a two-year term and earn interest at 1%. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of April 30, 2020, the Company has approved and secured funds with the SBA 250 PPP loans representing $52.5 million in funding. An additional 1,726 loans for $202.7 million have been approved for SBA PPP pending funding. It is the Company’s understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish additional allowance for credit loss through additional credit loss expense charged to earnings.

Credit

The Company is working with customers directly affected by COVID-19. The Company is prepared to offer short-term assistance in accordance with regulator guidelines. As a result of the current economic environment caused by the COVID-19 virus, the Company is engaging in more frequent communication with borrowers to better understand their situation and the challenges faced, allowing it to respond proactively as needs and issues arise. It is possible that the Company’s asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

Recent Accounting Pronouncements

Adoption of New Accounting Standards:

In August 2018, FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). This ASU adds, eliminates and modifies certain disclosure requirements for fair value measurements. The amendments in ASU 2018-13 were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption was permitted. The Company adopted ASU 2018-13 in the first quarter of 2020. The disclosures were effective using the prospective method for certain disclosures and retrospective for a majority of the disclosures. The Company adopted ASU 2018-13 in the first quarter of 2020 and it did not have a material impact on the Company’s consolidated financial statements.

New Accounting Standards Not Yet Adopted:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which along with several other subsequent codification updates related to accounting for credit losses, sets forth a “current expected credit loss” ("CECL") model requiring the Company to measure all expected credit losses for financial instruments recorded at amortized cost held at the reporting date. The estimate is to be based on historical experience, current conditions and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. The amendments were effective for the Company beginning January 1, 2020. The initial adoption of this ASU will result in an increase of approximately $11.3 million in our allowance for loan losses, including transfers of non-accretable discount on purchased credit-impaired loans. The increase is a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. The adoption of this ASU requires that we establish an allowance for expected credit losses for certain debt securities and other financial assets which are not material. We plan to elect the federal banking agencies’ rule providing for an optional three-year phase-in period for the day-one adverse regulatory capital effects upon adopting the standard. The Company elected to defer adoption of CECL until the termination date of the current national emergency, declared by the President on March 31, 2020, under the National Emergencies Act concerning the COVID-19 outbreak, or December 31, 2020.

In December 2019, FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. This ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual periods beginning after December 15, 2020, including

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interim periods within those annual periods. Early adoption is permitted. Southern National is currently in the process of evaluating the impact of adopting the new guidance on its consolidated financial statements and disclosures.

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. ASU 2020-04 is effective upon issuance and can be applied through December 31, 2022. Southern National is currently in the process of evaluating the impact of adopting the new guidance on its consolidated financial statements and disclosures.

2. STOCK-BASED COMPENSATION

At the June 21, 2017 Annual Meeting of Stockholders of Southern National, the 2017 Equity Compensation Plan (the “2017 Plan”) was approved as recommended by the Board of Directors. The 2017 Plan replaced the 2010 Plan and has a maximum number of 750,000 shares reserved for issuance. The purpose of the 2017 Plan was to promote the success of the Company by providing greater incentive to employees, non-employee directors, consultants and advisors to associate their personal interests with the long-term financial success of the Company, including its subsidiaries, and with growth in stockholder value, consistent with the Company’s risk management practices. Because the 2017 Plan was approved, shares under the 2004 stock-option plan or 2010 Plan were to be no longer awarded.

A summary of the activity in the stock option plan during the three months ended March 31, 2020 follows:


				Weighted
		Weighted		Average	Aggregate
		Average		Remaining	Intrinsic
		Exercise		Contractual	Value
	Shares	Price		Term	(in thousands)
Options outstanding, beginning of period	555,750	$	10.02	4.3	$	3,518
Exercised	(44,600)		7.32
Options outstanding, end of period	511,150	$	10.25	4.3	$	(212)

Exercisable at end of period	392,730	$	9.45	3.7	$	18

Stock-based compensation expense associated with stock options was $95 thousand and $21 thousand for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, unrecognized compensation expense associated with stock options was $24 thousand, which is expected to be recognized over a weighted average period of 1.1 year.

A summary of the activity in the restricted stock plan for 2020 follows:


							Weighted

Price	15.59	EPS	1
Shares	24	P/E	12
MCap	380	P/FCF	14
Net Debt	-49	EBIT	65
TEV	331	TEV/EBIT	5
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-05-08
10-K	2019-12-31	Filed 2020-03-16
10-Q	2019-09-30	Filed 2019-11-07
10-Q	2019-06-30	Filed 2019-08-08
10-Q	2019-03-31	Filed 2019-05-09
10-K	2018-12-31	Filed 2019-03-15
10-Q	2018-09-30	Filed 2018-11-09
10-Q	2018-06-30	Filed 2018-08-09
10-Q	2018-03-31	Filed 2018-05-10
10-K	2017-12-31	Filed 2018-03-16
10-Q	2017-09-30	Filed 2017-11-09
10-Q	2017-06-30	Filed 2017-08-09
10-Q	2017-03-31	Filed 2017-05-09
10-K	2016-12-31	Filed 2017-03-16
10-Q	2016-09-30	Filed 2016-11-09
10-Q	2016-06-30	Filed 2016-08-08
10-Q	2016-03-31	Filed 2016-05-10
10-K	2015-12-31	Filed 2016-03-15
10-Q	2015-09-30	Filed 2015-11-09
10-Q	2015-06-30	Filed 2015-08-10
10-Q	2015-03-31	Filed 2015-05-11
10-K	2014-12-31	Filed 2015-03-13
10-Q	2014-09-30	Filed 2014-11-10
10-Q	2014-06-30	Filed 2014-08-06
10-Q	2014-03-31	Filed 2014-05-09
10-K	2013-12-31	Filed 2014-03-12
10-Q	2013-09-30	Filed 2013-11-12
10-Q	2013-06-30	Filed 2013-08-09
10-Q	2013-03-31	Filed 2013-05-10
10-K	2012-12-31	Filed 2013-03-05
10-Q	2012-09-30	Filed 2012-11-08
10-Q	2012-06-30	Filed 2012-08-09
10-Q	2012-05-08	Filed 2012-05-10
10-K	2011-12-31	Filed 2012-04-17
10-Q	2011-09-30	Filed 2011-11-09
10-Q	2011-06-30	Filed 2011-08-09
10-Q	2011-03-31	Filed 2011-05-09
10-K	2010-12-31	Filed 2011-03-15
10-Q	2010-09-30	Filed 2010-11-08
10-Q	2010-06-30	Filed 2010-08-12
10-Q	2010-03-31	Filed 2010-05-14
10-K	2009-12-31	Filed 2010-03-08

8-K	2020-05-21
8-K	2020-04-28
8-K	2020-04-23
8-K	2020-04-08
8-K	2020-03-31
8-K	2020-02-19
8-K	2020-01-30
8-K	2019-10-24
8-K	2019-10-02
8-K	2019-07-25
8-K	2019-06-20
8-K	2019-05-23
8-K	2019-04-26
8-K	2019-02-28
8-K	2019-01-24
8-K	2018-11-27
8-K	2018-10-29
8-K	2018-10-25
8-K	2018-09-19
8-K	2018-09-06
8-K	2018-07-26
8-K	2018-05-24
8-K	2018-04-26
8-K	2018-04-20
8-K	2018-04-16
8-K	2018-04-02
8-K	2018-03-12
8-K	2018-01-26

EX-10.1	sona-20200331xex10d1.htm
EX-10.2	sona-20200331xex10d2.htm
EX-10.3	sona-20200331xex10d3.htm
EX-10.4	sona-20200331xex10d4.htm
EX-31.1	sona-20200331xex31d1.htm
EX-31.2	sona-20200331xex31d2.htm
EX-32.1	sona-20200331xex32d1.htm

SONA 10Q Quarterly Report

Southern National Bancorp of Virginia Earnings 2020-03-31