Business context and reporting period
This summary covers Southern National Bancorp of Virginia, Inc.’s unaudited first quarter ended March 31, 2018. The filing describes Sonabank’s Virginia- and Maryland-based banking business and reflects the June 2017 acquisition of Eastern Virginia Bankshares (EVBS). The request metadata names Primis Financial Corp., but the supplied filing is for Southern National Bancorp of Virginia, Inc.; verify the intended issuer.
Key financial metrics
| Metric | Q1 2018 | Comparison |
|---|---|---|
| Total assets | $2.650 billion at March 31 | $2.614 billion at December 31, 2017 |
| Total loans | $2.107 billion | $2.062 billion at December 31, 2017 |
| Total deposits | $1.895 billion | $1.865 billion at December 31, 2017 |
| Net interest income | $22.5 million | $9.9 million in Q1 2017 |
| Net interest margin | 3.82% | 3.74% in Q1 2017 |
| Provision for loan losses | $1.6 million | $0.55 million in Q1 2017 |
| Net income / diluted EPS | $8.3 million / $0.34 | $2.1 million / $0.16 in Q1 2017 |
| Cash flows | Operating $14.4 million; investing use $38.3 million; financing $27.1 million | Cash increased $3.2 million to $28.6 million |
| Stockholders’ equity | $328.1 million at March 31 | $322.8 million at December 31, 2017 |
Interest expense was $5.5 million, compared with $2.7 million in Q1 2017. Noninterest income was $3.1 million, versus a $0.1 million loss, and noninterest expense was $13.6 million, versus $6.1 million. The filing reports a 21% federal corporate tax rate following the Tax Cuts and Jobs Act; reported income tax expense was $2.1 million.
At quarter-end, short-term FHLB advances were $334.6 million, repurchase agreements $15.8 million, junior subordinated debt $9.5 million, and senior subordinated notes $47.1 million. Sonabank’s capital ratios were 12.87% common equity tier 1, 12.87% Tier 1 risk-based, 13.39% total risk-based, and 10.41% leverage; the filing states the bank was well capitalized.
Material changes versus the prior comparable period
- Year-over-year increases in most income and expense lines largely reflect the EVBS merger, so the comparison is not on a like-for-like scale.
- Management attributed positive Q1 2018 earnings effects to $1.2 million of acquired-loan discount accretion, approximately $1.5 million of recoveries on legacy EVBS securities and loans, and the lower federal tax rate.
- Average loans increased to $2.08 billion from $957.5 million in Q1 2017. Net interest margin rose 8 basis points; management reported cost of funds of 0.98%, down from 1.07%.
- Loans grew 2.1% from year-end, primarily through organic growth. The allowance for loan losses increased to $10.8 million from $9.4 million. Net charge-offs were $242,000.
- Available-for-sale securities had $3.6 million of gross unrealized losses at March 31, compared with $1.8 million at year-end. Management attributed declines to interest rates and market illiquidity, not credit quality, and reported no other-than-temporary impairment charges.
Outlook, commentary, risks and unusual items
Management said it would continue to pursue merger cost savings and revenue opportunities while growing the balance sheet prudently. It expected employee compensation and benefits expense to remain relatively level after the final merger-related staff reductions in Q4 2017. No specific earnings or growth guidance was provided.
Key risks include real-estate and construction lending concentration, borrower and collateral performance, funding availability and cost, interest-rate exposure, securities valuation and credit quality, and realizing expected merger benefits. Loans were 79.5% of total assets. At quarter-end, unfunded lines and undisbursed construction funds were $366.1 million; management expected to meet commitments from normal funding sources. Non-covered nonperforming assets were $23.8 million, including $16.5 million of nonaccrual loans and $7.3 million of OREO. One $9.9 million nonaccrual construction-related loan was secured by properties appraised at approximately $14 million.
Interest-rate modeling showed estimated economic value of equity falling 25.87% under an immediate 200-basis-point rate decline, a scenario outside company policy guidelines; the filing says the other EVE scenarios were within guidelines. Modeled net interest income declined 1.7% in that scenario and remained within guidelines. The company cautioned that these models rely on assumptions and are not precise forecasts.
Other notable items include adoption of a tax-effect reclassification standard, which increased accumulated other comprehensive loss by approximately $229,000 with an offset to retained earnings. The company was assessing the future impact of the expected-credit-loss standard. Management reported effective disclosure controls, no material changes to internal control over financial reporting, and no pending or threatened legal proceedings known as of March 31, 2018.
Important facts for investors to verify
- Confirm issuer identity: the supplied 10-Q is Southern National Bancorp of Virginia, not Primis Financial Corp.
- Separate organic performance from EVBS acquisition effects, acquired-loan accretion, recoveries, and tax-rate changes when assessing earnings growth.
- Review credit trends, particularly nonaccrual loans, the $9.9 million construction-related exposure, allowance coverage, and real-estate concentrations.
- Assess liquidity and funding sensitivity, including $334.6 million of FHLB advances and $366.1 million of unfunded commitments.
- Evaluate securities’ unrealized losses and the modeled vulnerability of economic value of equity to falling rates.
- Check whether projected merger savings and revenue enhancements were realized in subsequent reporting periods; the filing gives no quantified outlook.