PR Newswire | Jul 27, 2020 04:01PM EDT

for the quarter ended June 30, 2020, compared to $9.3 million for the quarter ended June 30, 2019

07/27 15:00 CDT

Southern National Bancorp of Virginia, Inc. announces earnings of $4.7 million for the quarter ended June 30, 2020, compared to $9.3 million for the quarter ended June 30, 2019Southern National Bancorp of Virginia, Inc. also declares a dividend of $0.10 per share, its thirty-fifth consecutive quarterly dividend MCLEAN, Va., July 27, 2020

MCLEAN, Va., July 27, 2020 /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 $4.7 million for the quarter ended June 30, 2020, compared to $9.3 million for the quarter ended June 30, 2019. Earnings per share for the three months ended June 30, 2020 were $0.19 basic and diluted compared to $0.39 basic and $0.38 diluted for the three months ended June 30, 2019.

Earnings for the six months ended June 30, 2020 were $4.7 million compared to $15.3 million for the six months ended June 30, 2019. Earnings per share for the six months ended June 30, 2020 were $0.20 basic and $0.19 diluted compared to $0.64 basic and $0.63 diluted for the six months ended June 30, 2019.

The Board of Directors also announces and declares a dividend of $0.10 per share payable on August 21, 2020 to shareholders of record on August 10, 2020. This is Southern National's thirty-fifth consecutive quarterly dividend.

Commenting on the quarter, President and CEO Dennis J. Zember, Jr. said "I am really proud of what we accomplished in the second quarter of 2020. Despite the fact that our locations were closed, our bankers worked together to close and process over 3,800 PPP loans and grow core deposits at the fastest pace in our Company's history while steadily moving lower on rates. We saw a substantial improvement in revenue and pretax pre-provision earnings and held steady on operating expenses. Our announcement regarding Panacea illustrates our commitment to technology and creativity and promises to drive shareholder value with increased growth rates in earnings per share. We expect the second half of the year to be centered on managing through the economic impacts of the pandemic and are encouraged with the conversations and diligence we have directed to existing customer relationships."

Highlights for the three and six months ended June 30, 2020 include:

* Originated approx. 3,800 PPP loans totaling $335.6 million. * Deferred PPP fees (net of expenses) of $10.6 million. * Increased non-CD deposits to total deposits 71% compared to 59% at 2Q 2019. * Cost of Deposits declined to 0.95% (over 45% compared to year end 2019 levels). * Increased contribution from mortgage investment to $4.1 million. * Increased PTPP income to $16.8 million or 2.27% of average assets (compared to 1.51% for 2019). * Announced partnership with Tyler Stafford and Panacea that will increase long-term growth in assets and earnings per share focusing on medical professionals. * Operating efficiency ratio of 49.07% compared to 58.21% in the same quarter of 2019. * Total assets increased to approximately $3.1 billion at June 30, 2020. * Tangible book value per share of $11.21 at June 30, 2020 has increased 6.9% since a year ago.

Net Interest Income

Net interest income increased to $22.5 million for the three months ended June 30, 2020 or $1.5 million due to higher levels of average earning assets. The Company's net interest margin for the current quarter declined to 3.33%, impacted heavily by the origination of PPP loans with net margins of only 0.77%. Excluding the effects of PPP loans, the Company's net interest margin would have increased to 3.50% compared to 3.40% at the same time in 2019. While yields on earning assets have fallen due to market conditions, the Company's funding costs have benefited materially for the first half of 2020 and are expected to continue improving for several additional quarters. Yields on earning assets have fallen from 4.93% to 4.25% when compared to the second quarter of 2019 versus a 67% decline in total cost of funding over the same period.

Commenting on the trends around net interest margin, Mr. Zember stated "Our foremost balance sheet strategy right now is to permanently improve our funding and our funding costs. In the coming quarters, we are looking to continue growing core deposits at a pace that will allow us to dramatically reduce reliance on brokered and listing service CDs. As we move through the year and see the funding mix move more towards checking and money market accounts, we will focus even more attention on funding costs. Strategically, we believe the pathway to our desired funding profile for the Company is a twelve to eighteen month process that will drive material value and profitability long-term."

Noninterest Income

During the three months ended June 30, 2020, Southern National had record non-interest income of $8.4 million compared to $3.2 million for the three months ended June 30, 2019. Income on account maintenance and deposit service fees declined $299 thousand primarily in account service charges and NSF fees. Gains on our investment in Southern Trust Mortgage ("STM") increased to $4.2 million compared to $558 thousand in the same quarter in 2019, driven by higher margins on closed loans and materially higher volumes from refinance activity as well as production from new hires and teams that were on boarded in the last half of 2019. Lastly, the Company experienced a recovery related to a previously charged-off acquired loan of approximately $2 million during the second quarter of 2020.

Noninterest Expense

Noninterest expense was $14.1 million for the three months ended June 30, 2020, impressively similar to the $13.9 million reported for the three months ended June 30, 2019. The increase in noninterest expense was primarily due to a $385 thousand increase in data processing expense, a $194 thousand increase in employee compensation and benefits, all offset by a $495 thousand decrease in building and leasehold depreciation.

Noninterest expense was $33.9 million for the six months ended June 30, 2020 compared to $30.2 million during the same period in 2019. Both periods had unusually large non-recurring items including costs associated with the Company's management restructure, settlement of lawsuits and costs associated with the consolidation of several branches.

Loan Portfolio

Loans outstanding grew to $2.51 billion at June 30, 2020 compared to $2.17 billion at the same time in 2019. Loan production in the second quarter of 2020 centered mostly on PPP which totaled $335.6 million. Excluding PPP loans, loans outstanding have decreased $10.2 million since December 31, 2019.

The Company ended the second quarter of 2020 with a concentration in hotels totaling $288.4 million. The portfolio, prior to the pandemic, had debt weighted average debt coverage of approximately 147% and weighted average loan to value of approximately 68%. Substantially all of the Company's hotel loans are to national brands and approximately 93% of the portfolio are to limited service hotels, in non-leisure areas with historically lower operating costs. Approximately 76% percent of the hotel loans had been granted a COVID-19 deferral as of June 30, 2020.

Mr. Zember commented about the concentration, saying "During the second quarter, the executive team and our commercial relationship managers reviewed every relationship and portfolio concentration over $5.0 million. This review covered approximately 65% of the total portfolio and added to our confidence concerning the viability and strength of our customer base. There is no doubt that our hotel and hospitality customers are suffering with lower occupancy and revenue rates but the improvement in these and other key ratios over the quarter has been very encouraging. Additionally, the portfolio is heavily oriented around strong, lifetime operators with substantial equity in each project, lower loan-to-values and who are actively and permanently right-sizing their cost structures."

Credit Loss Provision and Asset Quality

The Allowance for Loan Losses (incurred loss model) increase to $23.6 million at June 30, 2020. The Allowance for Loan Losses to Total Loans now stands at 0.94%, and the Allowance to Loan plus discounts on acquired loan to Total Loans is 1.28%.

As the COVID-19 health crisis unfolded in the Company's markets and businesses experienced disruptions in normal operations, the Company provided certain modifications, including interest only or principal and interest deferments. Total modified loans or loans with requests for modifications at June 30, 2020 were $707.8 million.

Nonperforming assets, excluding portions guaranteed by the SBA, were 0.47% of total assets at June 30, 2020, compared to 0.40% at December 31, 2019. Total non-accrual loans increased to $14.9 million at June 30, 2020 compared to $8.9 million at December 31, 2019 due to COVID-19 related issues.

Lastly, the Company has participated extensively in the SBA's Payroll Protection Program. The Company had approved and secured funds for over 3,800 customers totaling $335.6 million. Net deferred PPP fees less direct origination expense is $10.6 million at June 30, 2020. The Company has secured borrowings from the Federal Reserve's discount window for the full amount of the PPP loans outstanding and does not anticipate any issues with liquidity. Additionally, the Company has contracted with certain firms with extensive experience in BSA, bank compliance, technology and underwriting to ensure the customer files are well documented and exceed the SBA's requirements for funding and stands ready to assist our customers in the upcoming loan forgiveness process.

Deposits

Total deposits remained flat at $2.15 billion at June 30, 2020 compared to $2.15 billion at the same time in 2019. However, during the quarter, the Company replaced $76 million of brokered, listing service and higher rate customer CDs with growth in checking, NOW and MMDA balances. The Company is aggressively building sales and incentive cultures focused on growing and managing core deposits, with the primary attention on commercial and consumer checking accounts. Management expects continued improvement in the funding mix over the next several quarters with additional reductions in total funding costs.

Stockholders' Equity

Tangible common book value at the end of the second quarter of 2020 was $11.21 per share, an increase of 6.9% since the same time in 2019. Tangible common equity at June 30, 2020 was $273.2 million, or 9.22% of tangible assets. Sonabank's capital ratios were especially strong with tier one leverage and total risk based capital ratios estimated at 10.62% and 14.22%, respectively at the end of the second quarter of 2020. The growth in assets during the quarter was mostly centered around PPP activity which reduced the Company's tangible common equity ratio by 77 bps and the Bank's tier one capital ratio by 134 bps.

About Southern National Bancorp of Virginia, Inc.

As of June 30, 2020, Southern National had $3.07 billion in total assets, $2.51 billion in total loans and $2.15 billion in total deposits. Sonabank, the Company's banking subsidiary provides a range of financial services to individuals and small and medium sized businesses through forty-two full-service branches in Virginia and Maryland and through certain internet and mobile applications.

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.

Contacts: Addresses:

Dennis J. Zember, Jr., President and CEO Southern National Bancorp of Virginia, Inc.

Phone: 804-997-2406 6830 Old Dominion Drive

McLean, VA 22101

Jeffrey L. Karafa, EVP and CFO

Phone: 804-997-2404 Sonabank

10900 Nuckols Road, Suite 325

Glen Allen, VA 23060

Southern National Bancorp of Virginia, Inc.,NASDAQ Symbol SONAWebsite: www.sonabank.com

For the Three Month Period Year to Date Period

CondensedConsolidated Balance 2Q 2020 1Q 2020 4Q 2019 3Q 2019 2Q 2019 YTD 2020 YTD 2019Sheets (unaudited)

Assets

Cash and cash $ 82,586 $ 55,865 $ 31,928 $ 48,572 $ 33,088 $ 82,586 $ 33,088equivalents

Investmentsecurities-available 160,979 168,520 164,820 163,344 163,860 160,979 163,860for sale

Investmentsecurities-held to 53,958 59,234 72,448 78,790 86,815 53,958 86,815maturity

Stock in FederalReserve Bank and 16,927 21,396 17,832 14,602 17,364 17,193 17,633Federal Home LoanBank

Loans receivable, 2,511,504 2,212,538 2,186,047 2,141,385 2,172,845 2,511,504 2,172,845net of deferred fees

Allowance for loan (23,627) (12,722) (10,261) (11,201) (11,613) (23,627) (11,613)losses

Net loans 2,487,877 2,199,816 2,175,786 2,130,184 2,161,232 2,487,877 2,161,232

Loans held for sale - - - - - - -

Intangible assets 108,463 108,804 109,145 109,486 109,838 108,463 109,838

Operating lease 7,111 7,664 8,013 8,374 7,924 7,111 7,924right-of-use assets

Bank premises and 31,087 31,079 31,184 31,265 30,767 31,087 31,367equipment, net

Bank-owned life 64,622 64,236 63,850 63,452 63,060 64,622 63,060insurance

Deferred tax assets, 11,087 11,154 11,788 11,788 11,788 11,087 14,475net

Other assets 47,209 34,795 35,376 36,527 35,880 47,209 35,011

Total assets $ 3,072,171 $ 2,762,563 $ 2,722,170 $ 2,698,915 $ 2,724,303 $ 3,072,171 $ 2,724,303

Liabilities andstockholders' equity

Demand deposits $ 447,605 $ 338,095 $ 339,153 $ 343,686 $ 335,024 $ 447,605 $ 335,024

NOW accounts 424,096 380,977 391,172 368,354 361,787 424,096 361,787

Money market 488,229 477,660 466,867 458,737 444,299 488,229 444,299accounts

Savings accounts 171,681 151,406 144,486 146,119 143,328 171,681 143,328

Time deposits 619,918 727,216 783,040 861,842 865,988 619,918 865,988

Total deposits 2,151,529 2,075,354 2,124,718 2,178,738 2,150,426 2,151,529 2,150,426

Federal Home Loan 100,000 205,140 121,640 45,640 110,640 100,000 110,640Bank advances

PPPLF Advances 333,574 - - - - 333,574 -

Subordinated notes 56,689 56,686 56,683 56,681 56,678 56,689 56,678

Operating lease 7,896 8,509 8,469 8,830 8,385 7,896 8,385liabilities

Other liabilities 40,814 38,052 33,419 38,396 35,382 40,814 35,382

Total liabilities 2,690,502 2,383,741 2,344,929 2,328,285 2,361,512 2,690,502 2,361,512

Stockholders' equity 381,669 378,822 377,241 370,630 362,792 381,669 362,792

Total liabilities and stockholders' $ 3,072,171 $ 2,762,563 $ 2,722,170 $ 2,698,915 $ 2,724,303 $ 3,072,171 $ 2,724,303 equity

Tangible common $ 273,206 $ 270,018 $ 268,096 $ 261,144 $ 252,953 $ 273,206 $ 252,953equity

Tangible commonequity to tangible 9.22% 10.17% 10.26% 10.09% 9.68% 9.22% 9.68%assets

Tangible book value $ 11.21 $ 11.11 $ 11.09 $ 10.80 $ 10.49 $ 11.21 $ 10.49

For the Three Month Period Year to Date Period

CondensedConsolidatedStatement of 2Q 2020 1Q 2020 4Q 2019 3Q 2019 2Q 2019 YTD 2020 YTD 2019Operations(unaudited)

Interest and $ 28,672 $ 28,481 $ 29,354 $ 30,474 $ 30,393 $ 57,153 $ 60,696dividend income

Interest expense 6,199 7,966 8,685 9,459 9,429 14,165 18,780

Net interest 22,473 20,515 20,669 21,015 20,964 42,988 41,916 income

Provision for 10,899 3,450 - 150 - 14,349 200credit losses

Net interest income after 11,574 17,065 20,669 20,865 20,964 28,639 41,716 provision for loan losses

Accountmaintenance and 1,489 1,698 1,847 1,837 1,788 3,187 3,475deposit servicefees

Income frombank-owned life 385 386 399 392 385 771 908insurance

Equity gain frommortgage 4,161 231 16 599 558 4,392 576affiliate

Recoveriesrelated toacquired 2,235 184 477 145 324 2,419 915charged-off loansand investmentsecurities

Other 123 321 620 1 135 444 378

Noninterest 8,393 2,820 3,359 2,974 3,190 11,213 6,253 income

Employeecompensation and 7,338 12,309 6,738 6,567 7,144 19,647 12,956benefits

Occupancy andequipment 2,044 2,558 2,389 1,482 2,538 4,602 5,051expenses

Amortization ofcore deposit 341 341 341 352 362 682 725intangible

Virginiafranchise tax 659 570 562 563 563 1,229 1,126expense

Data processing 956 707 677 622 571 1,663 1,083expense

Telecommunicationand communication 369 368 357 477 177 737 781expense

Net (gain) losson other real - 71 - - (36) 71 (38)estate owned

Professional fees 873 1,193 1,036 673 1,381 2,066 1,903

Other expenses 1,490 1,735 1,696 1,878 1,192 3,225 6,596

Noninterest 14,070 19,852 13,796 12,614 13,892 33,922 30,182 expense

Income before 5,897 33 10,232 11,225 10,262 5,930 17,786 income taxes

Income tax 1,188 6 1,268 2,361 943 1,194 2,448expense

Net income $ 4,709 $ 27 $ 8,964 $ 8,864 $ 9,319 $ 4,736 $ 15,339

Non-GAAPadjustments toNet Income

Management $ - $ 4,899 $ - $ - $ - $ 4,899 $ - Restructure

Branch Closures - 479 - - - 479 -

Other loss and related legal - - - - - - 3,702 expenses

Income tax - (1,076) - - - (1,076) (777) effect

Total Net Income adjusted $ 4,709 $ 4,329 $ 8,964 $ 8,864 $ 9,319 $ 9,038 $ 18,264 for nonrecurring expenses

Pretaxpreprovision $ 16,796 $ 7,785 $ 10,232 $ 11,375 $ 10,262 $ 24,581 $ 20,911earnings

Pretaxpreprovision 2.27% 1.14% 1.50% 1.67% 1.51% 3.46% 3.08%earnings toaverage assets

For the Three Month Period Year to Date Period

2Q 2020 1Q 2020 4Q 2019 3Q 2019 2Q 2019 YTD 2020 YTD 2019

Per Share Data:

Earnings per $ 0.19 $ 0.00 $ 0.37 $ 0.37 $ 0.39 $ 0.20 $ 0.64share - Basic

Earnings per $ 0.19 $ 0.00 $ 0.37 $ 0.36 $ 0.38 $ 0.19 $ 0.63share - Diluted

Book value per $ 15.74 $ 15.59 $ 15.60 $ 15.33 $ 15.04 $ 15.77 $ 15.11share

Tangible book $ 11.21 $ 11.11 $ 11.09 $ 10.80 $ 10.49 $ 11.21 $ 10.49value per share

Weighted averageshares 24,246,355 24,168,359 24,092,534 24,071,925 24,024,580 24,207,357 24,017,311outstanding -Basic

Weighted averageshares 24,352,708 24,388,085 24,411,147 24,374,163 24,322,717 24,349,153 24,315,017outstanding -Diluted

Sharesoutstanding at 24,361,603 24,297,703 24,181,534 24,171,776 24,117,326 24,361,603 24,117,326end of period

SelectedPerformanceRatios:

Return on 0.61% 0.00% 1.31% 1.29% 1.37% 0.33% 1.14%average assets

Return on 4.92% 0.03% 9.49% 9.57% 10.46% 2.49% 8.71%average equity

Return onaverage tangible 6.86% 0.04% 13.40% 13.64% 15.10% 3.48% 12.50%equity

Yield on earning 4.25% 4.61% 4.75% 4.89% 4.93% 4.42% 4.93%assets

Cost of funds oninterest bearing 0.97% 1.60% 1.49% 1.60% 1.62% 1.16% 1.87%liabilities

Net interest 3.33% 3.32% 3.35% 3.37% 3.40% 3.32% 3.41%margin

Net loans to 115.63% 106.00% 102.40% 97.77% 100.50% 115.63% 101.58%deposits

Operating 49.07% 85.84% 57.60% 52.76% 58.21% 65.46% 63.73%efficiency ratio

Overhead ratio 0.13% 1.85% 0.22% 0.11% 0.20% 0.96% 0.42%

Net charge-offs 0.00% 0.04% 0.04% 0.03% 0.01% 0.04% 0.04%to average loans

Reconciliationof Non-GAAPitems:

Return on 0.61% 0.00% 1.31% 1.29% 1.37% 0.33% 1.14%average assets

Effect of adjustment for the 0.00% 0.63% 0.00% 0.00% 0.00% 0.31% 0.21% nonrecurring expenses

Return onaverage assetsexcluding the 0.61% 0.63% 1.31% 1.29% 1.37% 0.64% 1.35%nonrecurringexpenses(Non-GAAP)

Return on 4.92% 0.03% 9.49% 9.57% 10.46% 2.49% 8.71%average equity

Effect of adjustment for the 0.00% 4.54% 0.00% 0.00% 0.00% 2.25% 1.66% nonrecurring expenses

Return onaverage equityexcluding the 4.92% 4.57% 0.00% 0.00% 10.46% 4.74% 10.37%nonrecurringexpenses(Non-GAAP)

Operating 49.07% 85.84% 57.60% 52.76% 58.21% 65.46% 63.73%efficiency ratio

Effect of adjustment for the 0.00% -23.34% 0.00% 0.00% 0.00% -8.32% -7.80% nonrecurring expenses

Operatingefficiency ratioexcluding the 49.07% 62.50% 57.60% 52.76% 58.21% 57.14% 55.93%nonrecurringexpenses(Non-GAAP)

Tangible book $ 11.21 $ 11.11 $ 11.09 $ 10.80 $ 10.49 $ 11.21 $ 10.49value

Effect of adjustment for the - 0.18 - - - 0.18 0.12 nonrecurring expenses

Tangible bookvalue excludingthe nonrecurring $ 11.21 $ 11.29 $ 11.09 $ 10.80 $ 10.49 $ 11.39 $ 10.61expenses(Non-GAAP)

For the Three Month Period Year to Date Period

Asset Quality 2Q 2020 1Q 2020 4Q 2019 3Q 2019 2Q 2019 YTD 2020 YTD 2019Information:

Loans secured byreal estate:

Commercial real estate - owner $ 412,916 $ 409,739 $ 414,479 $ 399,105 $ 410,832 $ 413,689 $ 410,832 occupied

Commercial real estate - 591,229 599,987 559,195 542,909 561,732 591,323 561,732 non-owner occupied

Secured by 16,845 16,608 17,622 17,504 9,692 16,845 9,692 farmland

Construction and 122,086 115,144 150,750 162,458 158,956 122,456 158,956 loan loans

Residential 1-4 612,247 624,119 604,777 574,935 572,715 612,809 572,715 family

Multi-family 100,685 90,652 82,055 82,626 82,593 100,685 82,593 residential

Home equity lines 101,218 106,820 109,006 112,801 117,298 101,289 117,298 of credit

Total real 1,957,226 1,963,069 1,937,884 1,892,338 1,913,818 1,959,096 1,913,818 estate loans

Commercial loans 204,160 223,433 221,447 220,707 229,502 204,286 229,502

SBA PaycheckProtection Program 335,612 - - - - 335,612 -loans

Consumer loans 24,733 25,708 26,304 28,075 29,310 24,734 29,310

Gross loans 2,521,731 2,212,210 2,185,635 2,141,120 2,172,630 2,523,728 2,172,630

Plus (less)deferred costs (10,227) 328 412 265 215 (10,227) 215(fees) on loans

Loan receivable,net of deferred $ 2,511,504 $ 2,212,538 $ 2,186,047 $ 2,141,385 $ 2,172,845 $ 2,513,501 $ 2,172,845costs (fees)

Allowance for LoanLosses (IncurredLoss Model):

Balance atbeginning of $ (12,722) $ (10,261) $ (11,201) $ (11,613) $ (11,874) $ (10,261) $ (12,283)period

Provision for loan (10,900) (3,450) - (150) - (14,350) (200)losses

Charge-offs 34 1,098 974 648 968 1,132 1,657

Recoveries (39) (109) (34) (85) (707) (148) (787)

Net charge-offs (5) 989 940 563 261 984 870

Ending balance $ (23,627) $ (12,722) $ (10,261) $ (11,201) $ (11,613) $ (23,627) $ (11,613)

Cummulativereconciliation toCECL (Not yetadopted):

CECL adoptionimpact on acquired (2,347) (2,347) (2,347)loans

CECL adoptionimpact on retained (5,429) (5,429) (5,429)earnings

CECL adoptionimpact on deferred (1,495) (1,495) (1,495)tax assets

Cummulativeadditional (2,841) (10,666) (2,841)provision for loanlosses

Ending balance $ (35,739) $ (32,659) $ (35,739)

Allowance forUnfundedCommitments(Incurred LossModel):

Balance atbeginning of $ (55) $ (55) $ (55) $ (55) $ (55) $ (55) $ (55)period

Cummulativereconciliation toCECL (Not yetadopted):

CECL adoptionimpact on retained (239) (239) (239)earnings

CECL adoptionimpact on deferred (66) (66) (66)tax assets

Cummulativeadditionalprovision for (883) (491) (883)unfundedcommitments

Ending balance $ (1,177) $ (785) $ (1,177)

For the Three Month Period Year to Date Period

Net Charge-off 2Q 2020 1Q 2020 4Q 2019 3Q 2019 2Q 2019 YTD 2020 YTD 2019Information:

Charge-offs

Commercial,financial and $ - $ 821 $ 188 $ 267 $ - $ 821 $ 167agricultural

Real estate -construction and - - - - - - -development

Real estate -commercial and - - 403 - 781 - 1,244farmland

Real estate - - 245 336 316 90 245 90residential

Consumer installment 34 32 47 65 97 66 156

Total charge-offs 34 1,098 974 648 968 1,132 1,657

Recoveries

Commercial,financial and (18) (66) (14) (65) (209) (84) (272)agricultural

Real estate -construction and - - - - - - -development

Real estate -commercial and (3) (6) (3) (4) (203) (9) (206)farmland

Real estate - (6) (31) (6) (8) (284) (37) (292)residential

Consumer installment (12) (6) (11) (8) (11) (18) (17)

Total recoveries (39) (109) (34) (85) (707) (148) (787)

Net charge-offs $ (5) $ 989 $ 940 $ 563 $ 261 $ 984 $ 870

Non-PerformingAssets:

Accruing loansdelinquent 90 days $ - $ - $ - $ - $ - $ - $ -or more

Nonaccrual loans 14,930 8,941 8,900 3,842 5,200 14,930 5,200

Other real estate 6,006 5,876 6,224 5,835 5,041 6,006 5,041owned

Total non-performing $ 20,936 $ 14,817 $ 15,124 $ 9,677 $ 10,241 $ 20,936 $ 10,241assets

SBA guaranteed portion of $ 3,513 $ 2,889 $ 4,129 $ 3,309 $ 3,207 $ 3,513 $ 3,207 non-performing loans

Troubled debt $ 1,667 $ 694 $ 697 $ 679 $ 685 $ 1,667 $ 685restructuring

Loans deferred underCOVID-19 $ 707,841 $ 24,308 $ - $ - $ - $ 707,841 $ -modifications

Asset QualityRatios:

Non-performingassets as a percentof total assets, 0.57% 0.43% 0.40% 0.24% 0.26% 0.57% 0.26%excluding SBAguarantees

Net charge-offs as apercent of average 0.00% 0.18% 0.17% 0.10% 0.05% 0.09% 0.08%loans (annualized)

Loans by Risk Grade:

Pass, not graded $ 653,943 $ 630,827 $ 611,160 $ 568,101 $ 580,033 $ 655,940 $ 580,033

Pass Grade 1 - 306 538 374 271 364 306 364Highest Quality

Pass Grade 2 - 323,512 28,583 27,855 25,852 28,199 323,512 28,199Good Quality

Pass Grade 3 - 837,606 866,316 871,463 856,087 850,758 837,606 850,758Satisfactory Quality

Pass Grade 4 - 662,534 664,124 652,464 666,958 689,046 662,534 689,046Pass

Pass Grade 5 - 14,006 11,622 12,235 13,093 14,326 14,006 14,326Special Mention

Grade 6 - 19,597 10,528 10,496 11,023 10,119 19,597 10,119Substandard

Grade 7 - Doubtful - - - - - - -

Grade 8 - Loss - - - - - - -

Total loans $ 2,511,504 $ 2,212,538 $ 2,186,047 $ 2,141,385 $ 2,172,845 $ 2,513,501 $ 2,172,845

For the Three Month Period Year to Date Period

Average 2Q 2020 1Q 2020 4Q 2019 3Q 2019 2Q 2019 YTD 2020 YTD 2019Balances:

Assets

Interest-earningassets:

Loans, net of $ 2,401,620 $ 2,200,926 $ 2,165,717 $ 2,165,717 $ 2,161,505 $ 2,301,274 $ 2,158,395deferred fees

Investment 222,124 231,794 242,916 242,916 248,276 226,959 242,878securities

Other earning 91,230 54,800 65,706 65,706 55,824 73,015 73,001assets

Total earning 2,714,974 2,487,520 2,474,340 2,474,340 2,465,605 2,601,248 2,474,275assets

Other assets 250,897 252,700 254,550 254,550 254,118 251,798 249,545

Total assets 2,965,872 2,740,220 2,728,890 2,728,890 2,719,723 2,853,046 2,723,820

Liabilities andstockholders'equity

Demand deposits $ 418,382 $ 333,408 $ 334,435 $ 334,435 $ 331,481 $ 375,895 $ 325,921

Interest-bearingliabilities:

NOW and other 404,700 379,531 362,564 362,564 357,850 392,115 351,925demand accounts

Money market 488,648 469,651 456,492 456,492 432,927 479,150 417,358accounts

Savings accounts 163,574 147,697 144,266 144,266 146,073 155,635 146,827

Time deposits 710,483 756,055 867,533 867,533 848,806 733,269 887,258

Total 2,185,787 1,752,934 1,830,855 1,830,855 1,785,656 2,136,064 2,129,289Deposits

Borrowings 371,836 251,830 173,866 173,866 223,053 311,833 218,516

Total Funding 2,557,623 2,004,764 2,004,722 2,004,722 2,008,709 2,447,897 2,347,805

Other 24,495 21,781 24,398 22,385 22,123 23,138 20,818Liabilities

Stockholders' 383,753 380,267 367,349 367,349 357,410 382,010 355,197equity

Totalliabilities and $ 2,965,872 $ 2,740,220 $ 2,728,890 $ 2,728,890 $ 2,719,723 $ 2,853,046 $ 2,723,820stockholders'equity

For the Three Month Period Year to Date Period

Net Interest 2Q 2020 1Q 2020 4Q 2019 3Q 2019 2Q 2019 YTD 2020 YTD 2019Margin:

Loans $ 27,044 $ 26,741 $ 27,489 $ 28,340 $ 28,378 $ 53,785 $ 56,352

Investment 1,247 1,361 1,495 1,521 1,627 2,608 3,208securities

Other earning 381 379 431 614 326 760 1,074assets

Total Earning 28,672 28,481 29,415 30,475 30,331 57,153 60,634Assets

NIB DDA

NOW and other 745 786 791 783 773 1,531 1,415demand accounts

Money market 830 1,575 1,779 2,080 2,058 2,404 3,886accounts

Savings accounts 107 116 116 115 115 223 230

Time deposits 3,464 4,026 4,798 5,023 4,709 7,491 9,586

Total Deposit 5,146 6,503 7,484 8,001 7,655 11,649 15,117Costs

Other Borrowings 1,053 1,463 1,201 1,458 1,774 2,516 3,663

Total Funding 6,199 7,966 8,685 9,459 9,429 14,165 18,780

Net Interest $ 22,473 $ 20,515 $ 20,730 $ 21,016 $ 20,902 $ 42,988 $ 41,854Income

For the Three Month Period Year to Date Period

Asset and 2Q 2020 1Q 2020 4Q 2019 3Q 2019 2Q 2019 YTD 2020 YTD 2019Liability Yields

Loans 4.53% 4.89% 5.04% 5.19% 5.27% 4.70% 5.26%

Investments 2.26% 2.36% 2.44% 2.48% 2.63% 2.31% 2.66%

Short term 1.68% 2.78% 2.60% 3.71% 2.34% 2.09% 2.97%assets

Total Earning 4.25% 4.60% 4.72% 4.89% 4.93% 4.42% 4.94%Assets

NOW 0.74% 0.83% 0.87% 0.86% 0.87% 0.79% 0.81%

MMDA 0.68% 1.35% 1.55% 1.81% 1.91% 1.01% 1.88%

Savings 0.26% 0.32% 0.32% 0.32% 0.32% 0.29% 0.32%

CDs 1.96% 2.14% 2.19% 2.30% 2.23% 2.05% 2.18%

Interest 0.95% 1.49% 1.62% 1.73% 1.72% 1.10% 1.43%Bearing Deposits

(total cost of 0.95% 1.49% 1.62% 1.73% 1.72% 1.10% 1.43%deposits)

Other Funding 1.14% 2.34% 2.74% 3.33% 3.19% 1.62% 3.38%

Total Cost of 0.97% 1.60% 1.72% 1.87% 1.88% 1.16% 1.61%Funding

Net Interest 3.33% 3.32% 3.32% 3.37% 3.40% 3.32% 3.41%Margin

Net Interest 3.27% 3.01% 3.00% 3.01% 3.05% 3.25% 3.33%Spread

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SOURCE Southern National Bancorp of Virginia, Inc.