Southern National Bancorp of Virginia Earnings 2019-06-30

SONA 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 sona-20190630x10q.htm 10-Q sona_Current_Folio_10Q

Table of Contents

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 June 30, 2019

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 August 2, 2019, there were 24,143,576 shares of common stock outstanding.

Table of Contents

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

FORM 10‑Q

June 30, 2019

INDEX		PAGE
PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements
Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018		2
Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2019 and 2018		3
Consolidated Statement of Changes in Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018		4
Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018		6
Notes to Unaudited Consolidated Financial Statements		7

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		31

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		42

Item 4 – Controls and Procedures		44

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings		45

Item 1A – Risk Factors		45

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		45

Item 3 – Defaults Upon Senior Securities		45

Item 4 – Mine Safety Disclosures		45

Item 5 – Other Information		45

Item 6 - Exhibits		46

Signatures		49

Table of Contents

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts)


	June 30,		December 31,
	2019		2018
	(unaudited)		*
ASSETS
Cash and cash equivalents:
Cash and due from financial institutions	$	6,898	$	6,939
Interest-bearing deposits in other financial institutions		26,190		20,877
Federal funds sold		—		795
Total cash and cash equivalents		33,088		28,611

Securities available for sale, at fair value		163,860		143,377

Securities held to maturity, at amortized cost (fair value of $86,681 and $89,109, respectively)		86,815		92,462

Total loans		2,172,845		2,178,824
Less allowance for loan losses		(11,613)		(12,283)
Net loans		2,161,232		2,166,541
Stock in Federal Reserve Bank and Federal Home Loan Bank		17,364		19,522
Equity investment in mortgage affiliate		4,405		3,829
Preferred investment in mortgage affiliate		3,305		3,305
Bank premises and equipment, net		30,767		32,352
Operating lease right-of-use assets		7,924		—
Goodwill		101,954		101,954
Core deposit intangibles, net		7,884		8,609
Bank-owned life insurance		63,060		62,495
Other real estate owned		5,041		5,077
Deferred tax assets, net		14,475		14,104
Other assets		23,129		19,057
Total assets	$	2,724,303	$	2,701,295

LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits	$	335,024	$	320,043
Interest-bearing deposits:
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 interest-bearing deposits		1,815,402		1,777,557
Total deposits		2,150,426		2,097,600

Securities sold under agreements to repurchase - short term		14,319		18,721
Federal Home Loan Bank (FHLB) advances - short term		110,640		163,340
Junior subordinated debt - long term		9,608		9,584
Senior subordinated notes - long term		47,070		47,089
Operating lease liabilities		8,385		—
Other liabilities		21,063		16,671
Total liabilities		2,361,511		2,353,005
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; 24,117,326 and 24,052,253 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		241		240
Additional paid in capital		306,049		305,654
Retained earnings		55,983		44,985
Accumulated other comprehensive income (loss)		519		(2,589)
Total stockholders' equity		362,792		348,290
Total liabilities and stockholders' equity	$	2,724,303	$	2,701,295

* Derived from audited consolidated financial statements

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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				For the Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Interest and dividend income:
Interest and fees on loans	$	28,378	$	27,697	$	56,352	$	53,602
Interest and dividends on taxable securities		1,475		1,400		2,900		2,882
Interest and dividends on tax exempt securities		152		160		308		319
Interest and dividends on other earning assets		388		412		1,134		879
Interest on federal funds sold		—		14		2		21
Total interest and dividend income		30,393		29,683		60,696		57,703
Interest expense:
Interest on deposits		7,654		3,810		15,116		7,080
Interest on repurchase agreements		22		24		45		46
Interest on junior subordinated debt		150		147		300		275
Interest on senior subordinated notes		712		712		1,424		1,423
Interest on other borrowings		891		1,816		1,895		3,205
Total 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

Noninterest income:
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)
Gain on sales of investment securities		—		—		—		—
Recoveries related to acquired charged-off loans and investment securities		324		250		915		1,733
Other		136		174		379		372
Total noninterest income		3,191		2,553		6,253		5,632

Noninterest expenses:
Salaries and benefits		7,144		7,007		12,956		13,779
Occupancy expenses		1,801		1,656		3,604		3,306
Furniture and equipment expenses		738		712		1,448		1,509
Amortization of core deposit intangible		362		361		725		723
Virginia franchise tax expense		563		492		1,126		856
Data processing expense		571		464		1,083		930
Telephone and communication expense		406		501		781		1,095
Net (gain) loss on other real estate owned		(36)		(40)		(38)		160
Professional fees		1,381		839		2,985		1,788
Other operating expenses		962		1,625		5,512		3,090
Total noninterest expenses		13,892		13,617		30,182		27,236
Income before income taxes		10,263		11,060		17,787		21,420
Income tax expense		944		2,193		2,448		4,294
Net income	$	9,319	$	8,867	$	15,339	$	17,126
Other comprehensive income (loss):
Unrealized gain (loss) on available for sale securities	$	2,844	$	(837)	$	3,928	$	(2,713)
Accretion of amounts previously recorded upon transfer to held to maturity from available for sale		3		2		6		6
Net unrealized gain (loss)		2,847		(835)		3,934		(2,707)
Tax effect		597		(175)		826		(569)
Other comprehensive income (loss)		2,250		(660)		3,108		(2,138)
Comprehensive income	$	11,569	$	8,207		18,447		14,988
Earnings per share, basic	$	0.39	$	0.37	$	0.64	$	0.71
Earnings per share, diluted	$	0.38	$	0.37	$	0.63	$	0.71

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

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


	For the Three Months Ended June 30, 2019
							Accumulated
			Additional				Other
	Common		Paid in		Retained		Comprehensive
	Stock		Capital		Earnings		Income (Loss)		Total
Balance - March 31, 2019	$	241	$	305,879	$	48,300	$	(1,731)	$	352,689
Net income		—		—		9,319		—		9,319
Changes in other comprehensive income on investment securities (net of tax, $597, and accretion of $3)		—		—		—		2,250		2,250
Dividends on common stock ($0.18 per share)		—		—		(2,171)		—		(2,171)
Issuance of common stock under Stock Incentive Plan (2,200 shares, net)		—		7		—		—		7
Impact of adoption of ASU 2016-02						535				535
Stock-based compensation expense		—		163		—		—		163
Balance - June 30, 2019	$	241	$	306,049	$	55,983	$	519	$	362,792

	For the Three Months Ended June 30, 2018
							Accumulated
			Additional				Other
	Common		Paid in		Retained		Comprehensive
	Stock		Capital		Earnings		Loss		Total
Balance - March 31, 2018	$	240	$	305,360	$	25,324	$	(2,859)	$	328,065
Net income		—		—		8,867		—		8,867
Changes in other comprehensive income on investment securities (net of tax, $826, and accretion of $6)		—		—		—		(660)		(660)
Dividends on common stock ($0.18 per share)		—		—		(1,922)		—		(1,922)
Issuance of common stock under Stock Incentive Plan (19,450 shares, net)		—		6		—		—		6
Stock-based compensation expense		—		94		—		—		94
Balance - June 30, 2018	$	240	$	305,460	$	32,269	$	(3,519)	$	334,450

Table of Contents

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

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


	For the Six Months Ended June 30, 2019
							Accumulated
			Additional				Other
	Common		Paid in		Retained		Comprehensive
	Stock		Capital		Earnings		Income (Loss)		Total
Balance - December 31, 2018	$	240	$	305,654	$	44,985	$	(2,589)	$	348,290
Net income		—		—		15,339		—		15,339
Changes in other comprehensive income on investment securities (net of tax, $826, and accretion of $6)		—		—		—		3,108		3,108
Dividends on common stock ($0.18 per share)		—		—		(4,341)		—		(4,341)
Issuance of common stock under Stock Incentive Plan (19,450 shares, net)		1		128		—		—		129
Stock-based compensation expense		—		267		—		—		267
Balance - June 30, 2019	$	241	$	306,049	$	55,983	$	519	$	362,792

	For the Six Months Ended June 30, 2018
							Accumulated
			Additional				Other
	Common		Paid in		Retained		Comprehensive
	Stock		Capital		Earnings		Loss		Total
Balance - December 31, 2017	$	239	$	304,932	$	18,753	$	(1,152)	$	322,772
Net income		—		—		17,126		—		17,126
Changes in other comprehensive loss on investment securities (net of tax, $394, and accretion of $3)		—		—		—		(2,138)		(2,138)
Dividends on common stock ($0.08 per share)		—		—		(3,839)		—		(3,839)
Issuance of common stock under Stock Incentive Plan (51,200 shares, net)		1		359		—		—		360
Reclassification from accumulated other comprehensive loss to retained earnings due to adoption of ASU 2018-02		—		—		229		(229)		—
Stock-based compensation expense		—		169		—		—		169
Balance - June 30, 2018	$	240	$	305,460	$	32,269	$	(3,519)	$	334,450

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands) (Unaudited)


	2019		2018
Operating activities:
Net income	$	15,339	$	17,126
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation and amortization		3,411		3,732
Amortization of operating lease right-of-use assets		1,275		—
Accretion of loan discount		(1,788)		(2,453)
Amortization of FDIC indemnification asset		354		350
Provision for loan losses		200		2,650
Earnings on bank-owned life insurance		(908)		(706)
Equity (gain) loss on mortgage affiliate		(576)		126
Stock-based compensation expense		267		169
Gain on bank-owned life insurance death benefit		—		(164)
(Gain) loss on other real estate owned		(38)		160
Provision for deferred income taxes		(1,197)		—
Net (increase) decrease in other assets		(4,210)		1,230
Net increase (decrease) in other liabilities		3,362		(2,169)
Net cash and cash equivalents provided by operating activities		15,491		20,051
Investing activities:
Purchases of available for sale investment securities		(25,110)		—
Proceeds from paydowns, maturities and calls of available for sale investment securities		7,711		7,363
Proceeds from paydowns, maturities and calls of held to maturity investment securities		5,463		2,498
Sales of FRB and FHLB stock		2,158		756
Net (increase) decrease in loans		6,896		(91,728)
Purchase of bank-owned life insurance		—		(12,000)
Proceeds from bank-owned life insurance death benefit		343		477
Proceeds from sales of other real estate owned, net of improvements		74		1,857
Proceeds from sales of bank premise and equipment and assets held for sale

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$14.86	25	$368

10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-07-25	Earnings, Other Events, Exhibits
8-K	2019-06-20	Officers
8-K	2019-05-23	Shareholder Vote
8-K	2019-04-26	Earnings, Other Events, Exhibits
8-K	2019-01-24	Earnings, Other Events, Exhibits
8-K	2019-01-24	Earnings, Other Events, Exhibits
8-K	2018-11-27	Exhibits
8-K	2018-10-29	Officers, Exhibits
8-K	2018-10-25	Earnings, Other Events, Exhibits
8-K	2018-09-19	Exhibits
8-K	2018-09-06	Officers
8-K	2018-07-26	Earnings, Other Events, Exhibits
8-K	2018-05-24	Shareholder Vote
8-K	2018-04-26	Earnings, Other Events, Exhibits
8-K	2018-04-20	Exhibits
8-K	2018-04-16	Exhibits
8-K	2018-04-02	Exhibits
8-K	2018-01-26	Earnings, Other Events, Exhibits

PCTY	Paylocity Holding	5,050
AWI	Armstrong World Industries	4,270
WTS	Watts Water Technologies	2,360
VRAY	Viewray	820
EZPW	EZCorp	538
JAX	J. Alexander's	155
DARE	Dare Bioscience	16
OVTZ	Oculus	0
LEVB	Level Brands	0
TIK	Tel Instrument Electronics	0

EX-10.1	sona-20190630ex1014218ef.htm
EX-31.1	sona-20190630ex311510405.htm
EX-31.2	sona-20190630ex3122a3d3c.htm
EX-32.1	sona-20190630ex321efb139.htm