Southern National Bancorp
Apr 27, 2017

Southern National Bancorp of Virginia Inc. reports earnings for the first quarter of 2017 of $2.1 million after pre-tax deal costs of $323 thousand and declares a dividend of $.08

MCLEAN, Va., April 27, 2017 (GLOBE NEWSWIRE) -- Southern National Bancorp of Virginia Inc. (NASDAQ:SONA), the holding company for Sonabank, announced today that net income for the quarter ended March 31, 2017 was $2.1 million compared to $2.6 million during the quarter ended March 31, 2016. Excluding tax effected costs related to the pending merger with Eastern Virginia Bankshares (EVBS) net income would have been $2.4 million (Non-GAAP).

Two other factors depressed earnings in the first quarter: First, our 44% ownership in Southern Trust Mortgage (STM), our mortgage affiliate, resulted in a loss of $479 thousand during the first quarter of 2017 compared to a positive contribution of $80 thousand during the same quarter last year.  STM's loss resulted from investments in a new delivery system, new branches and onboarding costs of new loan officers. Second, the cost of servicing the subordinated debt issued January 20, 2017 by Southern National was $329 thousand during the first quarter of 2017. We will ultimately grow into the subordinated debt and its cost should be more than offset by increased revenues.

The Board of Directors declared a dividend of $.08 per share payable on May 26, 2017 to shareholders of record on May 15, 2017. This is our twenty-second consecutive quarterly dividend.

Overview

Net Interest Income

During the first quarter of 2017, net interest income before the provision for loan losses was $9.9 million, up from $9.7 million during the first quarter of 2016. Average loans during the first quarter of 2017 were $957.5 million compared to $843.2 million during the same period last year. The loan discount accretions on our three acquisitions were $447 thousand in the first quarter of 2017 compared to $551 thousand in the same quarter last year.  The interest expense on the subordinated note issued in January 2017 was $329 thousand for the quarter ended March 31, 2017 which reduced the net interest margin by 12 basis points. The net interest margin was 3.75% in the first quarter of 2017, down from 4.06% in the first quarter of 2016.  Absent interest expense on the subordinated debt during the first quarter of 2017, net interest margin would have been comparable to the fourth quarter of 2016.

Noninterest income

Noninterest loss was $67 thousand during the first quarter of 2017, compared to income of $501 thousand during the same quarter of 2016. During the first quarter of 2017 we experienced a loss attributable to our 44% ownership of STM of $479 thousand, compared to income of $80 thousand in the same quarter last year. STM's loss resulted from investments in a new delivery system, new branches and onboarding costs of new loan officers. STM expects to return to profitability in the second quarter of 2017.
Noninterest Expense

Noninterest expense was $6.1 million for the first quarter of 2017 compared to $6.0 million for the first quarter of 2016. Expenses related to the pending merger with EVBS were $323 thousand during the three months ended March 31, 2017, compared to no merger expenses during the same period last year. During the first quarter of 2017 we sold one other real estate owned (OREO) property recognizing a loss of $3 thousand, and we recognized impairment in the amount of $50 thousand on one OREO property resulting in a net loss of $53 thousand. This compared to a loss on OREO of $120 thousand for the first quarter of 2016. 

Loan Portfolio

Net loan growth in the first quarter of 2017 was a robust $43.8 million. $11.9 million of that amount were residential mortgages purchased for our portfolio from Southern Trust Mortgage.  Total loan originations were $70.4 million during the quarter ended March 31, 2017 including purchases of residential portfolio product from STM in the amount of $36.8 million.

The composition of our loan portfolio consisted of the following at March 31, 2017 and December 31, 2016:

 Covered Non-coveredTotal  Covered Non-coveredTotal  
  Loans (1) Loans Loans  Loans (1) Loans Loans 
 March 31, 2017 December 31, 2016 
Loans secured by real estate:        
Commercial real estate - owner-occupied$-$154,041 $154,041  $-$154,807 $154,807  
Commercial real estate - non-owner-occupied - 296,176  296,176   - 279,634  279,634  
Secured by farmland - 438  438   - 541  541  
Construction and land loans - 97,002  97,002   - 91,067  91,067  
Residential 1-4 family 9,957 248,108  258,065   10,519 220,291  230,810  
Multi- family residential - 30,222  30,222   - 30,021  30,021  
Home equity lines of credit 15,709 11,539  27,248   17,661 11,542  29,203  
Total real estate loans 25,666 837,526  863,192   28,180 787,903  816,083  
         
Commercial loans - 111,957  111,957   - 115,365  115,365  
Consumer loans - 804  804   - 856  856  
Gross loans 25,666 950,287  975,953   28,180 904,124  932,304  
         
Less deferred fees on loans - (1,731) (1,731)  - (1,889) (1,889) 
Loans, net of deferred fees$25,666$948,556 $974,222  $28,180$902,235 $930,415  
         
(1) Covered Loans were acquired in the Greater Atlantic transaction and are covered under an FDIC loss-share agreement. The agreement covering non-single
 
family loans expired in December 2014.
 

Loan Loss Provision/Asset Quality

The loan loss provision for the quarter ended March 31, 2017 was $550 thousand, compared to $625 thousand for the same period last year.  Charge offs for the three months ended March 31, 2017 were $512 thousand, compared to $367 thousand for the same period in 2016.

Non-covered OREO as of March 31, 2017 was $8.3 million compared to $8.6 million as of the end of the previous year. Non-covered nonaccrual loans were $1.6 million (excluding $2.1 million of loans fully covered by SBA guarantees) at March 31, 2017 compared to $1.6 million (excluding $2.2 million of loans fully covered by SBA guarantees) at the end of last year.  The ratio of non-covered non-performing assets (excluding the SBA guaranteed loans) to non-covered assets decreased from 0.92% at the end of 2016 to 0.86% at March 31, 2017. The portions of these SBA loans that were unguaranteed were charged off.

Southern National's allowance for loan losses as a percentage of non-covered total loans at March 31, 2017 was 0.91%, compared to 0.95% at the end of 2016.  Management believes the allowance is adequate at this time but continues to monitor trends in environmental factors which may potentially affect future losses.

Securities Portfolio

Investment securities, available for sale and held to maturity, were $93.2 million at March 31, 2017 up from $89.2 million at December 31, 2016. 

Securities in our investment portfolio as of March 31, 2017 were as follows:

During the first quarter of 2017, we purchased $10.0 million of callable agency securities. One callable agency security in the amount of $5.0 million was called.

Deposits

Total deposits were $896.2 million at March 31, 2017 compared to $913.0 million at December 31, 2016. Demand deposits and NOW accounts increased $13.4 million during the quarter ended March 31, 2017, while certificates of deposit decreased $28.6 million during the same period.

Stockholders' Equity

Total stockholders' equity increased from $126.3 million at December 31, 2016 to $128.3 million at March 31, 2017 primarily as a result of the retention of earnings. Our Tier 1 Risk Based Capital Ratios were 12.49% and 14.68% for Southern National Bancorp of Virginia, Inc. and Sonabank, respectively, as of March 31, 2017.

Southern National Bancorp of Virginia, Inc. is a bank holding company with assets of $1.2 billion at March 31, 2017.  Sonabank provides a range of financial services to individuals and small and medium sized businesses. Sonabank has fifteen branches in Virginia, located in Fairfax County (Reston, McLean and Fairfax), in Charlottesville, Warrenton (2), Middleburg, Leesburg (2), South Riding, Front Royal, New Market, Haymarket,  Richmond and Clifton Forge, and eight branches in Maryland, in Rockville, Shady Grove, Frederick, Bethesda, Upper Marlboro, Brandywine, Owings and Huntingtown.

Reconciliation of Non-GAAP Measures

Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures.  Southern National uses non-GAAP financial measures, net income and return on average assets and equity excluding merger expenses, to analyze its performance excluding merger related expenses.  See reconciliation table on page 8.

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 Bancorp of Virginia, Inc. 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 Bancorp of Virginia, Inc. 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) filed by Southern National Bancorp of Virginia, Inc. You should consider such factors and not place undue reliance on such forward-looking statements. No obligation is undertaken by Southern National Bancorp of Virginia, Inc. 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)    
   March 31, December 31,
    2017   2016 
Assets    
Cash and cash equivalents $35,419  $47,392 
Investment securities-available for sale  4,238   3,918 
Investment securities-held to maturity  89,003   85,300 
Stock in Federal Reserve Bank and Federal Home Loan Bank  8,917   7,929 
Loans receivable, net of unearned income  974,222   930,415 
Allowance for loan losses  (8,678)  (8,610)
 Net loans  965,544   921,805 
Intangible assets  11,339   11,388 
Bank premises and equipment, net  8,083   8,227 
Bank-owned life insurance  23,989   23,826 
FDIC indemnification asset  1,920   2,111 
Other assets  28,881   30,547 
 Total assets $1,177,333  $1,142,443 
      
Liabilities and stockholders' equity    
Demand deposits and NOW accounts $138,213  $124,779 
Money market accounts  127,052   129,835 
Savings accounts  53,949   52,755 
Time deposits  577,003   605,613 
Total deposits  896,217   912,982 
Federal Home Loan Bank advances - short term  116,000   95,000 
Subordinated notes  26,075   - 
Other liabilities  10,753   8,117 
 Total liabilities  1,049,045   1,016,099 
Stockholders' equity  128,288   126,344 
 Total liabilities and stockholders' equity $1,177,333  $1,142,443 
      


Condensed Consolidated Statements of Income
(Unaudited)
 (in thousands)     
   For the Quarters Ended 
   March 31, 
    2017   2016  
       
       
Interest and dividend income $12,545  $11,673  
Interest expense  2,654   1,962  
 Net interest income  9,891   9,711  
Provision for loan losses  550   625  
 Net interest income after provision for loan losses  9,341   9,086  
Account maintenance and deposit service fees  213   223  
Income from bank-owned life insurance  163   174  
Equity (loss) income from mortgage affiliate  (479)  80  
Other  36   24  
 Noninterest (loss) income  (67)  501  
Employee compensation and benefits  2,898   3,128  
Occupancy expenses  1,038   998  
FDIC assessments  137   146  
Amortization of FDIC indemnification asset  191   216  
Net loss on other real estate owned  53   120  
Merger expenses  323   -  
Other expenses  1,413   1,425  
 Noninterest expense  6,053   6,033  
 Income before income taxes  3,221   3,554  
Income tax expense  1,167   989  
 Net income $2,054  $2,565  
       
 Reconciliation of Non-GAAP Financial Measures
       
Net income excluding merger expenses     
Net income $2,054  $2,565  
Merger expenses  323   -  
Income tax effect of adjustment  (9)  -  
Net income excluding merger expenses (Non-GAAP) $2,368  $2,565  
       
Return on average assets excluding merger expenses     
Return on average assets  0.73%   1.00%  
Effect to adjust for merger expenses  0.11   -  
Return on average assets excluding merger expenses (Non-GAAP) 0.84%   1.00%  
       
Return on average equity excluding merger expenses     
Return on average equity  6.57%   8.56%  
Effect to adjust for merger expenses  1.00   -  
Return on average equity excluding merger expenses (Non-GAAP) 7.57%   8.56%  
       


Financial Highlights
  
(Unaudited)  
(Dollars in thousands except per share data)      
        
   For the Quarters Ended  
   March 31,  
    2017   2016   
        
Per Share Data:      
Earnings  per share - Basic $0.17  $0.21   
Earnings  per share - Diluted $0.16  $0.21   
Book value per share $10.40  $9.89   
Tangible book value per share $9.48  $8.95   
Weighted average shares outstanding - Basic  12,307,423   12,237,058   
Weighted average shares outstanding - Diluted  12,611,090   12,402,299   
Shares outstanding at end of period  12,330,043   12,244,943   
        
Selected Performance Ratios and Other Data (1):      
Return on average assets  0.73%   1.00%   
Return on average equity  6.57%   8.56%   
Yield on earning assets  4.76%   4.88%   
Cost of funds  1.18%   0.95%   
Net interest margin  3.75%   4.06%   
Efficiency ratio (2)  57.79%   57.94%   
Net charge-offs (recoveries) to average loans  0.05%   0.04%   
Amortization of intangibles $49  $62   
        
        
   As of  
   March 31, December 31,  
    2017   2016   
        
Stockholders' equity to total assets  10.90%   11.06%   
Tier 1 risk-based capital ratio  12.49%   12.69%   
Intangible assets:      
 Goodwill $10,514  $10,514   
 Core deposit intangible  825   874   
 Total $11,339  $11,388   
        
Non-covered loans and other real estate owned (3):      
Nonaccrual loans (4) $3,663  $3,795   
Loans past due 90 days and accruing interest  -   -   
Other real estate owned  8,265   8,617   
Total nonperforming assets $11,928  $12,412   
Allowance for loan losses to total non-covered  loans  0.91%   0.95%   
Nonperforming assets excluding SBA guaranteed loans to total      
non-covered assets  0.86%   0.92%   
        
(1) Selected performance ratios and other data are annualized except for the efficiency ratio, net charge offs and amortization of intangibles.
(2) Excludes gains/losses and write-downs on OREO, gains/losses on sale of loans, gains/losses on sale of securities, merger expenses
and impairment losses recognized in earnings.
    
(3) Applies only to non-covered Sonabank loans and other real estate owned.
    
(4) Nonaccrual loans include SBA guaranteed amounts totaling $2.1 million and $2.2 million at March 31, 2017 and December 31, 2016, respectively.
          

 

Contact: R. Roderick Porter, President 
Phone: 202-464-1130 ext. 2406
Fax: 202-464-1134
Southern National Bancorp, NASDAQ Symbol SONA
Website: www.sonabank.com