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

Net interest income was $62.9 million for the nine months ended September 30, 2019 compared to $68.3 million for the nine months ended September 30, 2018.  Net interest margin was 3.40% and 3.75% for the nine months ended September 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 $901 thousand and $2.7 million to net interest income during the three and nine months ended September 30, 2019, respectively, compared to $1.1 million and $3.2 million during the three and nine months ended September 30, 2018.  As expected, the decrease in accretion is due to the slowdown in the volume of acquired loan prepayments and payoffs.

Noninterest Income

During the third quarter of 2019, Southern National had noninterest income of $3.0 million compared to $2.6 million during the third quarter of 2018.  Income improved on account maintenance and deposit service fees by $439 thousand.  Income from bank-owned life insurance decreased $201 thousand due to death benefits paid in 2018.  Gain on our investment in Southern Trust Mortgage ("STM") increased to $599 thousand for the three months ended September 30, 2019 compared to a loss of $(72) thousand the year before due to operational improvements within STM. For the three months ended September 30, 2019, other noninterest income has benefited from $145 thousand of recoveries of legacy investment securities and loans charged off by EVBS premerger compared to $677 thousand for the three months ended September 30, 2018.

During the nine months ended September 30, 2019, noninterest income was $9.2 million compared to $8.3 million for the same period in 2018.  Income improved on account maintenance and deposit services fees by $1.1 million during the first nine months of 2019.  Gain on our investment in STM increased to $1.2 million for the nine months ended September 30, 2019 compared to a loss of $(198) thousand the year before.  Recoveries of legacy investment securities and loans charged off by EVBS premerger decreased $1.3 million for the first nine months of 2019 compared to the same period in 2018.

Noninterest Expense

Noninterest expense was $12.6 million during the third quarter of 2019 compared to $13.1 million during the same period in 2018.  Employee compensation and benefits expense totaled $6.6 million for the third quarter of 2019, as compared to $7.1 million for the same period of 2018 due to savings from the reduction in staff completed during 2018.  Occupancy and equipment expense decreased $798 thousand for the third quarter of 2019 compared to the third quarter of 2018.

Noninterest expense was $42.8 million during the nine months ended September 30, 2019 compared to $40.4 million for the nine months ended September 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 nine months ended September 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 $242.1 million at September 30, 2019 and represents 9.0% 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, second, and third quarter of 2019, $15.3 million, $9.8 million, and $20.2 million of securities were purchased, respectively to offset securities called as interest rates decline.  No securities have been sold in 2019 and no securities were purchased or sold during 2018.

Loan Portfolio

Loans outstanding of $2.14 billion at September 30, 2019 are down $37.4 million, or -2.29% annualized, since December 31, 2018.  The decline in loan balance has primarily been the result of unanticipated pay downs or payoffs.  Of those loans, $2 million and greater, that have paid off or paid down in 2019, $47.7 million (or 51%) was due to the sale of the customer's property, $24.1 (or 26%) were loans that refinanced elsewhere for unacceptable rate or structure, $13.7 million (or 14%) were projects that transitioned to government financing, and $8.1 million (or 9%) was due to cyclical fluctuation in credit line activity.  New loans originated in the third quarter totaled $51.8 million.

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

Loan Loss Provision and Asset Quality

Asset quality remained high during the third quarter of 2019.  For the nine months ended September 30, 2019, the provision for loan losses was $350 thousand compared to $3.7 million for the same period last year. Net charge offs for the three and nine months ended September 30, 2019 were $562 thousand and $1.4 million, respectively, compared to $600 thousand and $1.6 million for the same periods in 2018. 

Southern National's allowance for loan losses as a percentage of total non-covered loans at September 30, 2019 was 0.53%, compared to 0.57% at December 31, 2018.  The allowance for loan losses as a percentage of non-covered non-acquired loans was 0.74% and 0.85% at September 30, 2019 and December 31, 2018, respectively.

Non-covered nonaccrual loans were $533 thousand (excluding $3.3 million of loans fully covered by SBA guarantees) at September 30, 2019 compared to $3.3 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 0.24% at September 30, 2019.

Other real estate owned at September 30, 2019 increased to $5.8 million compared to $5.1 million at December 31, 2018 due the foreclosure of one small office building.

Deposits

Total deposits of $2.18 billion at September 30, 2019 have increased $81.1 million since December 31, 2018 or 5.16% annualized.  During the nine months ended September 30, 2019, demand deposits increased by $23.6 million, or 9.85% annualized, NOW accounts increased by $22.8 million, or 8.78%, while money market accounts increased $103.3 million or 38.73%. Savings accounts decreased to $146.1 million or (4.35%) at September 30, 2019 from a balance of $151.1 million at December 31, 2018. Time deposits decreased $63.6 million, or (9.16%), from $925.4 million at December 31, 2018, to $861.8 million at September 30, 2019 due to the reduction in brokered time accounts.

The Bank's adjustable yield money market accounts have grown to $160.8 million at September 30, 2019 from $56.1 million at December 31, 2018.  In a declining interest rate environment, this product lowers the cost of funds and improves the net interest margin.

Stockholders' Equity

Total stockholders' equity increased to $370.6 million at September 30, 2019 from $348.3 million at December 31, 2018. Our tier 1 risk-based capital ratios were approximately 12.96% and 14.60% for Southern National and Sonabank, respectively, as of September 30, 2019.

About Southern National Bancorp of Virginia, Inc.

As of September 30, 2019, Southern National had $2.70 billion in total assets, $2.14 billion in total loans and $2.18 billion in total deposits. Sonabank provides a range of financial services to individuals and small and medium sized businesses.  At September 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)
			September 30,		December 31,
			2019		2018(1)
Assets
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