Southern National Bancorp
Jul 26, 2012

Southern National Bancorp of Virginia Inc. Reports Earnings of $2.2 Million for the Second Quarter and $4.1 Million for the First Half of 2012 and Increases Dividend to $.025

MCLEAN, Va., July 26, 2012 (GLOBE NEWSWIRE) -- Southern National Bancorp of Virginia Inc. (Nasdaq:SONA), the holding company for Sonabank, announced today that net income for the quarter ended June 30, 2012 was $2.2 million and $4.1 million for the first half of 2012. That compares to $1.4 million and $2.7 million for the three and six months ended June 30, 2011.

As previously announced Sonabank assumed substantially all of the deposits and liabilities and acquired substantially all of the assets of the HarVest Bank of Maryland from the FDIC as receiver. The acquisition included HarVest Bank's branches in Bethesda, North Rockville, Germantown and Frederick. Adding the new branches to an existing branch in Rockville brings Sonabank's total number of branches in Maryland to five, four of which are in Montgomery County. This was a strategic acquisition for Sonabank given the expansion into an affluent market. Full details on the transaction are contained in an 8-K/A filed on July 13, 2012.

The Board of Directors declared a dividend of $.025 per share, an increase of 67% over the prior quarter dividend, payable August 24, 2012 to shareholders of record on August 13, 2012. This was Southern National's third consecutive quarterly dividend.

Net Interest Income

Net interest income was $7.8 million in the quarter ended June 30, 2012 up from $6.6 million during the same period last year. The accretion of the discount on Greater Atlantic Bank's loans contributed $705 thousand to second quarter 2012 net interest income compared to $786 thousand during the second quarter of 2011. The accretion of the discount on HarVest's loans contributed $172 thousand in the second quarter of 2012. Average loans increased $68.1 million for the second quarter of 2012 compared to the quarter ended June 30, 2011, and the cost of funds decreased from 1.33% to 1.16%. Sonabank's net interest margin was 5.07% in the second quarter of 2012 compared to 4.96% during the comparable quarter last year and 5.59% during the first quarter of 2012.

Net interest income was $15.5 million during the six months ended June 30, 2012, compared to $13.1 million during the comparable period in the prior year. Approximately $805 thousand of the increase resulted from the recovery of discount recognized in purchase accounting during the first quarter of 2012 for two impaired loans acquired in the Greater Atlantic Bank acquisition following the receipt of payment from the borrowers. The total accretion of the discount on the Greater Atlantic Bank loan portfolio, including the aforementioned $805 thousand, amounted to $2.2 million in the first six months of 2012, compared to $1.8 million in the first half of 2011. Average loans increased $48.7 million for the first half of 2012 compared to the six months ended June 30, 2011, and the cost of funds decreased from 1.38% to 1.19%.

There was very little net impact on the net interest margin from the HarVest acquisition. Adjusted for the recovery of discount on two Greater Atlantic Bank loans the net interest margin would have been 5.00% during the first quarter of 2012. The net interest margin for the second quarter, including two months with the HarVest balance sheet, was 5.07%. An analysis of the yield on loans shows that the addition of the HarVest loan portfolio resulted in a modest increase but the addition of HarVest's securities, which had an average yield of 2.25% resulted in an offsetting decline. The average expense of interest bearing liabilities declined quarter to quarter after HarVest's CD's were repriced to Sonabank's current posted levels.

Noninterest Income

During the second quarter of 2012 Sonabank had noninterest income of $1.7 million compared to noninterest income of $1.0 million during the second quarter of 2011. The increase resulted from the bargain purchase gain of $3.5 million from the HarVest transaction which was partially offset by the recognition of impairment in the values of five OREO properties in the Charlottesville market and one in the Culpeper market. One of the Charlottesville property writedowns was based on a new appraisal received during the quarter. Four others in Charlottesville and the one in Culpeper were based on updated and extensive discussions with realtors for each property to allow the properties to be relisted where they could be sold in the current market. The impairment recognized aggregated $2.2 million. In addition, there was an other than temporary impairment ("OTTI") of $235 thousand in one trust preferred security during the second quarter of 2012 compared to $38 thousand in OTTI charges during the second quarter of 2011. Income from bank owned life insurance ("BOLI") contributed $347 thousand during the second quarter of 2012 compared to $933 thousand the prior year quarter. Both quarters were affected by death benefits.

Noninterest income increased to $2.5 million in the first six months of 2012 from $1.4 million in the first six months of 2011. The drivers of the increase for the first half of 2012 were largely the same as the quarter except that during the first quarter of 2012 the bank sold the guaranteed portions of SBA loans and realized a $657 thousand gain.

Noninterest Expense

Noninterest expenses were $5.0 million and $9.3 million during the second quarter and the first half of 2012, respectively, compared to $3.6 million and $7.2 million during the same periods in 2011. The primary factors causing the increase were higher other professional services relating to the restatement of 2009, 2010 and 2011 and the recast of the FDIC indemnification asset. We acquired the Greater Atlantic loans in December 2009 and recasted our expected losses on these loans during the second quarter of 2012 based on the actual losses on the loan pools over the 24 month period. Estimated recoveries on the FDIC loss-share agreement are expected to be $5.5 million at June 30, 2012. The difference between the estimated recoveries and the carrying amount of the FDIC indemnification asset will be amortized over the life of the indemnification asset. As a result of the recast of the FDIC indemnification asset, amortization expense was $253 thousand for the quarter ended June 30, 2012, compared to accretion of $57 thousand for the same period last year. Audit and consulting fees were $271 thousand during the second quarter of 2012 compared to $83 thousand during the same period in 2011. Also affecting the second quarter were merger expenses relating to the HarVest transaction totaling $349 thousand, and other noninterest expenses related to the HarVest branches were $245 thousand.

Audit and consulting fees were $840 thousand during the six months ended June 30, 2012, compared to $214 thousand during the same period in 2011. The other increases in noninterest expenses for the first half of 2012 were largely the same as those for the second quarter.

Loan Portfolio

The composition of Sonabank's loan portfolio consisted of the following at June 30, 2012 and December 31, 2011:

   Non-covered Loans        
   CoveredHarVestOtherTotal Covered Non-covered Total 
 Loans (1)Loans (2) Loans Loans Loans (1) Loans Loans
 June 30, 2012December 31, 2011
 Mortgage loans on real estate:               
 Commercial real estate - owner-occupied   $ 5,497  $ 15,223  $ 79,280  $ 100,000  $ 4,854  $ 82,450  $ 87,304
 Commercial real estate - non-owner-occupied   12,076  11,118  114,026  137,220  11,243  117,059  128,302
 Secured by farmland   --   --   1,493  1,493  --   1,506  1,506
 Construction and land loans   1,255  6,537  52,221  60,013  2,883  39,565  42,448
 Residential 1-4 family   23,156  13,971  48,018  85,145  25,307  49,288  74,595
 Multi- family residential   628  930  18,426  19,984  629  19,553  20,182
 Home equity lines of credit   33,913  3,892  7,011  44,816  35,442  9,040  44,482
 Total real estate loans   76,525  51,671  320,475  448,671  80,358  318,461  398,819
               
 Commercial loans   1,894  7,855  87,474  97,223  2,122  89,939  92,061
 Consumer loans   103  97  1,576  1,776  108  1,868  1,976
 Gross loans   78,522  59,623  409,525  547,670  82,588  410,268  492,856
               
 Less deferred fees on loans   --   --   (1,025)  (1,025)  --   (1,088)  (1,088)
 Loans, net of deferred fees   $ 78,522  $ 59,623  $ 408,500  $ 546,645  $ 82,588  $ 409,180  $ 491,768
               
(1) Covered Loans are loans acquired in the Greater Atlantic transaction and are covered under an FDIC loss-share agreement.
(2) HarVest Loans are loans acquired in the HarVest transaction and are not covered under an FDIC loss-share agreement.

Net loans receivable increased from $491.8 million at the end of 2011 to $546.7 million at June 30, 2012. Within that total, covered loans declined by $4.1 million while the non-covered loan portfolio increased by $58.9 million. Non-covered loans included $59.6 million of loans acquired in the HarVest acquisition. We sold $5.7 million of SBA loans during the first quarter of 2012.

Loan Loss Provision/Asset Quality

Non-covered OREO as of June 30, 2012 was $12.1 million (excluding $750 thousand of HarVest OREO) compared to $13.6 million as of the end of the previous year. During the six months ended June 30, 2012 we had two foreclosures in the amount of $2.0 million and OREO sales of $1.1 million.

Non-covered nonaccrual loans (excluding HarVest loans) were $3.0 million (excluding $2.6 million of loans fully covered by SBA guarantees) at June 30, 2012 compared to $2.1 million (excluding $2.5 million of loans fully covered by SBA guarantees) at the end of last year. The ratio of non-covered non-performing assets to non-covered assets (excluding HarVest loans and OREO) decreased from 2.98% (excluding the SBA guaranteed loans) at the end of 2011 to 2.64% (excluding the SBA guaranteed loans) at June 30, 2012. The portions of these SBA loans that were unguaranteed were charged off.

Southern National Bancorp of Virginia's allowance for loan losses (excluding the allowance for HarVest loans) as a percentage of non-covered loans (excluding HarVest loans) at June 30, 2012 was 1.61%, compared to 1.54% at the end of 2011. Management believes the allowance is adequate at this time but monitors trends in past due and non-performing loans to determine whether the allowance should be increased.

Securities Portfolio

Investment securities, available for sale and held to maturity, were $70.8 million at June 30, 2012 and $45.0 million at December 31, 2011. We acquired securities with a fair value of $38.4 million in the HarVest transaction, and we sold $11.3 million of those securities. We retained mortgage-backed securities and collateralized mortgage obligations with a fair value of $27.1 million.

As of June 30, 2012 we owned pooled trust preferred securities as follows:

    Ratings    
  Tranche When Purchased Current Ratings
Security Level Moody's Fitch Moody's Fitch
           
ALESCO VII A1B Senior Aaa AAA Baa3 BB
MMCF III B Senior Sub A3 A-- Ba1 CC
           
           
           
           
Other Than Temporarily Impaired:          
TPREF FUNDING II Mezzanine A1 A-- Caa3 C
TRAP 2007-XII C1 Mezzanine A3 A C C
TRAP 2007-XIII D Mezzanine NR A-- NR C
MMC FUNDING XVIII Mezzanine A3 A-- Ca C
ALESCO V C1 Mezzanine A2 A C C
ALESCO XV C1 Mezzanine A3 A-- C C
ALESCO XVI C Mezzanine A3 A-- C C
             
           Previously   
           Recognized   
           Cumulative   
      Estimated Current  Other   
    Fair Defaults and  Comprehensive   
Security Par Value Book Value Value Deferrals   Loss (1)   
  (in thousands)      
ALESCO VII A1B  $ 6,953  $ 6,253  $ 3,603  $ 117,400  $ 297  
MMCF III B  435  426  271  37,000  9  
   7,388  6,679  3,874    $ 306  
             
          Cumulative Cumulative
          Other Comprehensive  OTTI Related to 
Other Than Temporarily Impaired:         Loss (2)  Credit Loss (2) 
TPREF FUNDING II  1,500  383  456  134,100 $ 763  $ 354
TRAP 2007-XII C1  2,099  99  99  191,205  1,186  814
TRAP 2007-XIII D  2,039  --   54  223,750  7  2,032
MMC FUNDING XVIII  1,066  27  173  101,682  347  692
ALESCO V C1  2,053  464  386  84,000  1,003  586
ALESCO XV C1  3,162  29  657  249,100  574  2,559
ALESCO XVI C  2,104  117  430  97,400  807  1,180
   14,023  1,119  2,255    $ 4,687  $ 8,217
             
Total  $ 21,411  $ 7,798  $ 6,129      
             
             
(1) Pre-tax, and represents unrealized losses at date of transfer from available-for-sale to held-to-maturity, net of accretion
(2) Pre-tax

Each of these securities has been evaluated for potential impairment under ASC 325. In performing a detailed cash flow analysis of each security, Sonabank works with independent third parties to identify the most reflective estimate of the cash flow estimated to be collected. If this estimate results in a present value of expected cash flows that is less than the amortized cost basis of a security (that is, credit loss exists), an OTTI is considered to have occurred. If there is no credit loss, any impairment is considered temporary.

The analyses resulted in OTTI charges related to credit on the trust preferred securities in the amount of $235 thousand during the second quarter of 2012, compared to OTTI charges related to credit on the trust preferred securities totaling $38 thousand for three months ended June 30, 2011.

Deposits

Total deposits were $544.0 million at June 30, 2012 compared to $461.1 million at December 31, 2011. We acquired deposits in the amount of $140.5 million in the HarVest transaction. Total time deposits were $295.9 million at June 30, 2012, compared to $255.8 million at December 31, 2011. We acquired time deposits totaling $107.6 million in the HarVest acquisition. We allowed $46.3 million of Sonabank time deposits to run off since December 31, 2011 and following repricing of the HarVest time deposits, there was a decrease of $21.2 million in those deposits. Noninterest-bearing deposits were $52.7 million at June 30, 2012 and $32.6 million at December 31, 2011.

Stockholders' Equity

Total stockholders' equity increased from $99.1 million as of December 31, 2011 to $103.0 million at June 30, 2012 as a result of the retention of earnings. Our Tier 1 Risk Based Capital Ratios were 17.67% and 17.08% for Southern National Bancorp of Virginia, Inc. and Sonabank, respectively, as of June 30, 2012.

Southern National Bancorp of Virginia, Inc. is a bank holding company with assets of $712.0 million at June 30, 2012. Sonabank provides a range of financial services to individuals and small and medium sized businesses. Sonabank has 14 branches in Virginia, located in Fairfax County (Reston, McLean and Fairfax), in Charlottesville, Warrenton (2), Middleburg, Leesburg (2), South Riding, Front Royal, New Market, Richmond and Clifton Forge, and five branches in Maryland (four in Montgomery County and one in Frederick County).

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    
(in thousands)    
 June 30,December 31,    
 20122011    
  (Unaudited)      
Assets        
Cash and cash equivalents  $ 27,343  $ 5,035    
Investment securities-available for sale  9,037  9,905    
Investment securities-held to maturity  61,728  35,075    
Stock in Federal Reserve Bank and Federal Home Loan Bank  6,030  6,653    
Loans receivable, net of unearned income  546,645  491,768    
Allowance for loan losses  (6,655)  (6,295)    
Net loans  539,990  485,473    
Intangible assets  10,876  11,155    
Bank premises and equipment, net  6,132  6,350    
Bank-owned life insurance  17,485  17,575    
FDIC indemnification asset  7,314  7,537    
Other assets  26,056  26,615    
Total assets  $ 711,991  $ 611,373    
         
Liabilities and stockholders' equity        
Noninterest-bearing deposits  $ 52,706  $ 32,582    
Interest-bearing deposits  491,296  428,513    
Securities sold under agreements to repurchase and other short-term borrowings  31,029  17,736    
Federal Home Loan Bank advances  30,250  30,000    
Other liabilities  3,698  3,491    
Total liabilities  608,979  512,322    
Stockholders' equity  103,012  99,051    
Total liabilities and stockholders' equity  $ 711,991  $ 611,373    
     
         
Condensed Consolidated Statements of Income
(Unaudited)
 (in thousands)
 For the Quarters EndedFor the Six Months Ended
 June 30,June 30,
 2012201120122011
         
Interest and dividend income  $ 9,361  $ 8,092  $ 18,435  $ 16,231
Interest expense  1,528  1,516  2,962  3,111
Net interest income  7,833  6,576  15,473  13,120
Provision for loan losses  1,325  2,250  2,775  3,590
Net interest income after provision for loan losses  6,508  4,326  12,698  9,530
Account maintenance and deposit service fees  206  218  402  418
Income from bank-owned life insurance  347  933  500  1,067
Bargain purchase gain on acquisition  3,484  --   3,484  -- 
Gain on sale of loans  --   --   657  -- 
Gain (loss) on other real estate owned, net  (2,201)  (108)  (2,386)  (147)
Net impairment losses recognized in earnings  (235)  (38)  (237)  (70)
Net loss on sale of available for sale securities  (13)  --   (13)  -- 
Other   81  44  135  89
Noninterest income   1,669  1,049  2,542  1,357
Employee compensation and benefits  1,970  1,704  3,795  3,308
Occupancy expenses  848  685  1,586  1,360
FDIC assessment  142  119  271  272
Change in FDIC indemnification asset  253  (57)  239  (73)
Other expenses  1,749  1,184  3,384  2,372
Noninterest expense  4,962  3,635  9,275  7,239
Income before income taxes  3,215  1,740  5,965  3,648
Income tax expense   1,000  293  1,907  911
Net income  $ 2,215  $ 1,447  $ 4,058  $ 2,737
 
         
         
         
         
         
Financial Highlights
(Unaudited)
(Dollars in thousands except per share data)
         
 For the Quarters EndedFor the Six Months Ended
 June 30,June 30,
 2012201120122011
         
Per Share Data :        
Earnings per share - Basic  $ 0.19  $ 0.12  $ 0.35  $ 0.24
Earnings per share - Diluted  $ 0.19  $ 0.12  $ 0.35  $ 0.24
Book value per share      $ 8.89  $ 8.39
Tangible book value per share      $ 7.95  $ 7.43
Weighted average shares outstanding - Basic  11,590,212  11,590,212  11,590,212  11,590,212
Weighted average shares outstanding - Diluted  11,594,033  11,591,216  11,592,747  11,592,525
Shares outstanding at end of period      11,590,212  11,590,212
         
Selected Performance Ratios and Other Data:        
Return on average assets 1.30% 0.99% 1.26% 0.94%
Return on average equity 8.76% 6.00% 8.08% 5.75%
Yield on earning assets 6.07% 6.10% 6.33% 6.19%
Cost of funds 1.16% 1.33% 1.19% 1.38%
Cost of funds including non-interest bearing deposits 1.07% 1.24% 1.10% 1.29%
Net interest margin 5.07% 4.96% 5.32% 5.01%
Efficiency ratio (1) 59.99% 52.14% 54.65% 52.10%
Net charge-offs (recoveries) to average loans 0.28% 0.40% 0.46% 0.67%
Amortization of intangibles  $ 228  $ 230  $ 458  $ 460
 
         
       As of
     June 30,December 31,
     20122011
         
Stockholders' equity to total assets     14.47% 16.20%
Tier 1 risk-based capital ratio     17.67% 19.37%
Intangible assets:        
Goodwill      $ 9,160  $ 9,160
Core deposit intangible      1,716  1,995
 Total      $ 10,876  $ 11,155
         
Non-covered loans and other real estate owned (2):        
Nonaccrual loans (3)      $ 5,618  $ 4,541
Loans past due 90 days and accruing interest      --   32
Other real estate owned      12,072  13,620
Total nonperforming assets       $ 17,690  $ 18,193
Allowance for loan losses (excluding HarVest) to total non-covered loans excluding loans acquired in the HarVest transaction     1.61% 1.54%
Nonperforming assets to total non-covered assets excluding loans and OREO acquired in the HarVest transaction     3.09% 3.44%
Nonperforming assets excluding SBA guaranteed loans to total non-covered assets excluding loans and OREO acquired in the HarVest transaction     2.64% 2.98%
Nonperforming assets excluding SBA guaranteed loans to total non-covered loans and OREO excluding those acquired in the HarVest transaction     3.59% 3.72%
         
(1) Excludes gains and write-downs on OREO, gains on sale of loans, gains/losses on sale of securities, impairment losses recognized in earnings and nonrecurring income on bank-owned life insurance.
(2) Applies only to non-covered loans and other real estate owned excluding those acquired in the HarVest transaction.
(3) Nonaccrual loans include SBA guaranteed amounts totaling $2.6 million and $2.5 million at June 30, 2012 and December 31, 2011, respectively.
CONTACT: R. Roderick Porter, President

         Phone: 202-464-1130 ext. 2406

         Fax: 202-464-1134

         Southern National Bancorp of Virginia Inc.

         NASDAQ Symbol SONA

         Website: www.sonabank.com