Southern National Bancorp
Oct 25, 2012

Southern National Bancorp of Virginia Inc. Reports Earnings of $1.2 Million for the Third Quarter and $5.3 Million for the First Nine Months of 2012; Dividend Increased From $.025 to $.04

MCLEAN, Va., Oct. 25, 2012 (GLOBE NEWSWIRE) -- Southern National Bancorp of Virginia Inc. (Nasdaq:SONA), the holding company for Sonabank, announced today that net income for the quarter and nine months ended September 30, 2012 was $1.2 million and $5.3 million compared to $1.4 million and $4.1 million during the third quarter and the first nine months of 2011.

The slight decline in net income during the quarter was largely attributable to an other than temporary impairment ("OTTI") charge on one trust preferred security which was partially offset by a gain on sale of SBA loan pooled securities. In addition, the provision for loan losses was elevated in the third quarter due to a charge off related to a short sale of a property in West Virginia.

The Board of Directors declared a dividend of $.04 per share, an increase of 60% over the prior quarter dividend, payable November 23, 2012 to shareholders of record on November 12, 2012. This was Southern National's fourth consecutive quarterly dividend.

Net Interest Income

Net interest income was $8.1 million in the quarter ended September 30, 2012 up from $7.2 million during the same period last year. Sonabank's net interest margin was 5.14% in the third quarter of 2012, down from 5.22% in the third quarter of 2011.  

Net interest income was $23.6 million during the nine months ended September 30, 2012, compared to $20.3 million during the same period in the prior year. Average loans during the first nine months of 2012 were $523.2 million compared to $472.2 million during the same period last year. The Greater Atlantic Bank loan discount accretion contributed $2.9 million to net interest income during the first nine months of 2012, compared to $2.6 million during the nine months ended September 30, 2011. The loan discount accretion on the HarVest Bank portfolio contributed $412 thousand through the third quarter of 2012.

Noninterest Income

During the third quarter of 2012 Sonabank had noninterest income of $264 thousand compared to noninterest income of $366 thousand during the third quarter of 2011. The decline was primarily related to an OTTI charge on trust preferred securities in the amount of $480 thousand which was partially offset by a gain on the sale of SBA pooled securities in the amount of $287 thousand.

Noninterest income increased to $2.8 million in the first nine months of 2012 from $1.7 million in the first nine months 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 other real estate owned ("OREO") properties in the Charlottesville market and one in the Culpeper market during the second quarter of 2012. In addition, there was an 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. Also, 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 $4.8 million and $14.1 million during the third quarter and the first nine months of 2012, respectively, compared to $3.9 million and $11.2 million during the same periods in 2011.  Occupancy expenses were $902 thousand during the quarter compared to $713 thousand during the third quarter of 2011. $134 thousand of the increase resulted from operating five more branches this quarter, and $43 thousand was a result of expenses related to the HarVest administrative office on a lease which has now been terminated. As a result of recasting estimated recoveries under the FDIC indemnification agreement for the Greater Atlantic Bank acquisition in the second quarter of 2012, amortization expense was $242 thousand for the quarter ended September 30, 2012, compared to accretion of $13 thousand for the same period last year. Audit and consulting fees were $137 thousand during the third quarter of 2012 compared to $93 thousand during the same period in 2011.

Audit and consulting fees were $977 thousand during the nine months ended September 30, 2012, compared to $306 thousand during the same period in 2011. Occupancy expenses were $2.5 million during the nine months ended September 30, 2012, compared to $2.1 million during the same period in 2011. Of this increase, $213 thousand resulted from operating five additional branches this quarter, and $67 thousand was a result of expenses related to the HarVest administrative office on a lease which has now been terminated. As a result of recasting estimated recoveries under the FDIC indemnification agreement in the second quarter of 2012, amortization expense was $481 thousand for the nine months ended September 30, 2012, compared to accretion of $85 thousand for the same period last year. The efficiency ratio was 55.03% during the nine months ended September 30, 2012, compared to 51.87% during the same period the prior year.

Loan Portfolio

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

   Non-covered Loans        
 Covered
Loans (1)
HarVest
Loans (2)
Other
Loans
Total
Loans
Covered
Loans (1)
Non-covered 
Loans
Total
Loans
 September 30, 2012December 31, 2011
 Mortgage loans on real estate:               
 Commercial real estate - owner-occupied   $ 4,276  $ 17,067  $ 77,731  $ 99,074  $ 4,854  $ 82,450  $ 87,304
 Commercial real estate - non-owner-occupied   11,965  11,233  107,307  130,505  11,243  117,059  128,302
 Secured by farmland   --   --   1,486  1,486  --   1,506  1,506
 Construction and land loans   1,244  5,500  54,647  61,391  2,883  39,565  42,448
 Residential 1-4 family   22,038  13,709  47,330  83,077  25,307  49,288  74,595
 Multi- family residential   621  736  18,358  19,715  629  19,553  20,182
 Home equity lines of credit   33,288  1,991  6,925  42,204  35,442  9,040  44,482
 Total real estate loans   73,432  50,236  313,784  437,452  80,358  318,461  398,819
               
 Commercial loans   3,058  7,098  89,413  99,569  2,122  89,939  92,061
 Consumer loans   104  18  1,626  1,748  108  1,868  1,976
 Gross loans   76,594  57,352  404,823  538,769  82,588  410,268  492,856
               
 Less deferred fees on loans   6  (5)  (1,001)  (1,000)  --   (1,088)  (1,088)
 Loans, net of deferred fees   $ 76,600  $ 57,347  $ 403,822  $ 537,769  $ 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.

Loan growth has been basically flat since the end of the year with the exception of the HarVest acquisition. In the Northern Virginia market, which is heavily dependent on defense spending and related government contracting, there is growing concern about the potential for sequestration. As a consequence, loan demand has been soft in Northern Virginia.

Net loans receivable increased from $491.8 million at the end of 2011 to $537.8 million at September 30, 2012. Within that total, covered loans declined by $6.0 million while the non-covered loan portfolio increased by $52.0 million. Non-covered loans included $57.3 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

The loan loss provision for the third quarter of 2012 was $1.8 million compared to $1.3 million for the second quarter of 2012 and $1.6 million during the third quarter of 2011. Charge-offs totaled $1.9 million, $1.8 million and $1.5 million, respectively, during those three quarters.

Non-covered OREO as of September 30, 2012 was $12.8 million compared to $13.6 million as of the end of the previous year. During the nine months ended September 30, 2012 we had two foreclosures in the amount of $2.0 million and OREO sales of $1.1 million.

Non-covered nonaccrual loans were $4.5 million (excluding $2.6 million of loans fully covered by SBA guarantees) at September 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 decreased from 2.98% (excluding the SBA guaranteed loans) at the end of 2011 to 2.75% (excluding the SBA guaranteed loans) at September 30, 2012. The portions of these SBA loans that were unguaranteed were charged off.

Southern National Bancorp of Virginia's allowance for loan losses as a percentage of non-covered loans at September 30, 2012 was 1.50%, 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 $80.5 million at September 30, 2012 and $45.0 million at December 31, 2011. In the second quarter of 2012, 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. We purchased $20.0 million of callable agency securities and $2.0 million of tax-exempt municipal securities during the third quarter of 2012. We also sold $8.0 million of SBA pooled securities which resulted in a gain of $287 thousand during the quarter.

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

    Ratings    
    When Purchased Current Ratings
Security Tranche 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
           
           





Security





Par Value





Book Value



Estimated
Fair
Value



Current
Defaults and
Deferrals 
Previously
Recognized
Cumulative
Other 
Comprehensive 
Loss (1) 
 
  (in thousands)      
ALESCO VII A1B  $ 6,904  $ 6,216  $ 4,211  $ 117,400  $ 296  
MMCF III B  435  426  254  37,000  9  
   7,339  6,642  4,465    $ 305  
             
             
Other Than Temporarily Impaired:         Cumulative
Other Comprehensive
Loss (2)
Cumulative
OTTI Related to 
Credit Loss (2) 
TPREF FUNDING II  1,500  423  423  134,100  722  $ 355
TRAP 2007-XII C1  2,107  55  55  202,705  759  1,293
TRAP 2007-XIII D  2,039  --   83  214,000  7  2,032
MMC FUNDING XVIII  1,070  27  166  96,682  352  691
ALESCO V C1  2,138  473  426  84,000  1,004  661
ALESCO XV C1  3,175  30  641  249,100  586  2,559
ALESCO XVI C  2,113  117  472  86,150  816  1,180
   14,142  1,125  2,266    $ 4,246  $ 8,771
             
Total  $ 21,481  $ 7,767  $ 6,731      
             
             
(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. 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 two trust preferred securities (TRAP 2007-XII C1 and TPREF FUNDING II) in the amount of $480 thousand during the third quarter of 2012, compared to OTTI charges related to credit on the trust preferred securities totaling $43 thousand for three months ended September 30, 2011.  The OTTI charge on TRAP 2007-XII C1 was $479 thousand and was caused by the deferral of interest payments by a large issuer in the deal which has eroded the credit support below the tranche we own. This adverse credit development impacts the amount and timing of expected cash flows to the tranche, resulting in the recognition of OTTI.

Deposits

Total deposits were $537.3 million at September 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 $297.3 million at September 30, 2012, compared to $255.8 million at December 31, 2011. We acquired time deposits totaling $107.6 million in the HarVest acquisition. Noninterest-bearing deposits were $43.1 million at September 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 $104.0 million at September 30, 2012 as a result of the retention of earnings. Our Tier 1 Risk Based Capital Ratios were 18.25% and 17.70% for Southern National Bancorp of Virginia, Inc. and Sonabank, respectively, as of September 30, 2012.

Southern National Bancorp of Virginia, Inc. is a bank holding company with assets of $708.3 million at September 30, 2012. Sonabank provides a range of financial services to individuals and small and medium sized businesses. Sonabank has 15 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, Haymarket 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 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. These factors should be considered, and undue reliance should not be placed on such forward-looking statements. No obligation is undertaken by Southern National Bancorp 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)    
 September 30,
2012
December 31,
2011
   
  (Unaudited)      
Assets        
Cash and cash equivalents  $ 22,288  $ 5,035    
Investment securities-available for sale  49  9,905    
Investment securities-held to maturity  80,496  35,075    
Stock in Federal Reserve Bank and Federal Home Loan Bank  6,190  6,653    
Loans receivable, net of unearned income  537,769  491,768    
Allowance for loan losses  (6,911)  (6,295)    
Net loans  530,858  485,473    
Intangible assets  10,640  11,155    
Bank premises and equipment, net  6,476  6,350    
Bank-owned life insurance  17,633  17,575    
FDIC indemnification asset  7,006  7,537    
Other assets  26,626  26,615    
Total assets  $ 708,262  $ 611,373    
         
Liabilities and stockholders' equity        
Noninterest-bearing deposits  $ 43,096  $ 32,582    
Interest-bearing deposits  494,155  428,513    
Securities sold under agreements to repurchase and other short-term borrowings  32,713  17,736    
Federal Home Loan Bank advances  30,250  30,000    
Other liabilities  4,025  3,491    
Total liabilities  604,239  512,322    
Stockholders' equity  104,023  99,051    
Total liabilities and stockholders' equity  $ 708,262  $ 611,373    
     
         
 
Condensed Consolidated Statements of Income
(Unaudited)
 (in thousands)        
 For the Quarters Ended
September 30,
For the Nine Months Ended
September 30,
 2012201120122011
         
Interest and dividend income  $ 9,600  $ 8,688  $ 28,035  $ 24,919
Interest expense  1,469  1,489  4,431  4,601
Net interest income  8,131  7,199  23,604  20,318
Provision for loan losses  1,830  1,550  4,605  5,140
Net interest income after provision for loan losses  6,301  5,649  18,999  15,178
Account maintenance and deposit service fees  222  218  624  636
Income from bank-owned life insurance  148  129  649  1,196
Bargain purchase gain on acquisition  --   --   3,484  -- 
Gain on sale of loans  --   --   657  -- 
Gain (loss) on other real estate owned, net  24  --   (2,362)  (147)
OTTI losses recognized in earnings  (480)  (43)  (717)  (113)
Net gain on sale of available for sale securities  287  --   274  -- 
Other   63  62  198  151
Noninterest income   264  366  2,807  1,723
Employee compensation and benefits  2,073  1,759  5,868  5,066
Occupancy expenses  902  713  2,488  2,073
FDIC assessment  146  125  417  397
Change in FDIC indemnification asset  242  (13)  481  (85)
Other expenses  1,415  1,330  4,799  3,702
Noninterest expense  4,778  3,914  14,053  11,153
Income before income taxes  1,787  2,101  7,753  5,748
Income tax expense   579  692  2,487  1,602
Net income  $ 1,208  $ 1,409  $ 5,266  $ 4,146
 
         
         
         
         
Financial Highlights
(Unaudited)
(Dollars in thousands except per share data)        
         
         
 For the Quarters Ended
September 30,
For the Nine Months Ended
September 30,
 2012201120122011
         
Per Share Data :        
Earnings per share - Basic  $ 0.10  $ 0.12  $ 0.45  $ 0.36
Earnings per share - Diluted  $ 0.10  $ 0.12  $ 0.45  $ 0.36
Book value per share      $ 8.98  $ 8.52
Tangible book value per share      $ 8.06  $ 7.57
Weighted average shares outstanding - Basic  11,590,212  11,590,212  11,590,212  11,590,212
Weighted average shares outstanding - Diluted  11,597,540  11,590,928  11,594,349  11,592,017
Shares outstanding at end of period      11,590,212  11,590,212
         
Selected Performance Ratios and Other Data:        
Return on average assets 0.69% 0.92% 1.06% 0.94%
Return on average equity 4.62% 5.69% 6.90% 5.73%
Yield on earning assets 6.07% 6.30% 6.24% 6.23%
Cost of funds 1.08% 1.25% 1.15% 1.34%
Cost of funds including non-interest bearing deposits 1.00% 1.17% 1.06% 1.25%
Net interest margin 5.14% 5.22% 5.26% 5.08%
Efficiency ratio (1) 55.79% 51.45% 55.03% 51.87%
Net charge-offs (recoveries) to average loans 0.29% 0.31% 0.75% 0.99%
Amortization of intangibles  $ 236  $ 230  $ 694  $ 689
 
         
     As of
     September 30,
2012
December 31,
2011
         
Stockholders' equity to total assets     14.69% 16.20%
Tier 1 risk-based capital ratio     18.25% 19.37%
Intangible assets:        
Goodwill      $ 9,160  $ 9,160
Core deposit intangible      1,480  1,995
 Total      $ 10,640  $ 11,155
         
Non-covered loans and other real estate owned (2):        
Nonaccrual loans (3)      $ 7,099  $ 4,541
Loans past due 90 days and accruing interest      --   32
Other real estate owned      12,815  13,620
Total nonperforming assets       $ 19,914  $ 18,193
Allowance for loan losses to total non-covered loans     1.50% 1.54%
Nonperforming assets to total non-covered assets      3.16% 3.44%
Nonperforming assets excluding SBA guaranteed loans to total non-covered assets    2.75% 2.98%
Nonperforming assets excluding SBA guaranteed loans to total non-covered loans and OREO  3.65% 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 .
(3) Nonaccrual loans include SBA guaranteed amounts totaling $2.6 million and $2.5 million at September 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