Southern National Bancorp
Jan 24, 2013

Southern National Bancorp of Virginia, Inc. Reports Earnings of $6.6 Million for 2012 Compared to $4.4 Million in 2011; Declares Fourth Consecutive Regular Dividend

MCLEAN, Va., Jan. 24, 2013 (GLOBE NEWSWIRE) -- Southern National Bancorp of Virginia, Inc. (Nasdaq:SONA) ("Southern National") announced today that net income for the year ended December 31, 2012 was $6.6 million compared to $4.4 million for the year ended December 31, 2011. In addition, Southern National declared a regular quarterly dividend of $.05 per share payable on February 22, 2013 to shareholders of record on February 11, 2013. Southern National had previously paid regular dividends for the first three quarters of the year in the total amount of $.08 per share. In addition, a special dividend of $0.15 was declared and paid in December 2012.

Overview

Net income for the year ended December 31, 2012 was $6.6 million, up from $4.4 million for the year ended December 31, 2011.

Southern National's efficiency ratio was 56.30% for the year ended December 31, 2012, compared to 51.52% for the year ended December 31, 2011.

Fourth quarter 2012 earnings were $1.3 million up from $255 thousand in the fourth quarter of 2011.

Total assets of Southern National Bancorp of Virginia were $722.1 million as of December 31, 2012, up from $611.4 million as of December 31, 2011.

Net Interest Income

Net interest income was $31.7 million during the year ended December 31, 2012, compared to $27.3 million during the prior year. Average loans during 2012 were $526.4 million compared to $477.6 million last year. The net interest margin was 5.19% in 2012, up slightly from 5.06% in 2011. The Greater Atlantic Bank (GAB) loan discount accretion contributed $3.4 million to net interest income during 2012, compared to $3.3 million during 2011. The loan discount accretion on the HarVest Bank portfolio contributed $717 thousand during 2012. Before taking the discount accretion related to the GAB and HarVest acquisitions into account, the net interest margin would have been 4.52% in 2012 and 4.45% in 2011.

Net interest income was $8.1 million in the quarter ended December 31, 2012 up from $7.0 million during the same period the prior year. Average loans during the fourth quarter of 2012 were $535.9 million compared to $491.7 million during the same period last year. The net interest margin was 5.01% in the fourth quarter of 2012, down slightly from 5.03% in the fourth quarter of 2011. The GAB loan discount accretion contributed $544 thousand to net interest income during the fourth quarter of 2012, compared to $728 thousand during the fourth quarter of 2011. The loan discount accretion on the HarVest Bank portfolio contributed $305 thousand during the fourth quarter of 2012. Before taking the accretions related to the GAB and HarVest acquisitions into account, the net interest margin was 4.49% on the fourth quarter of 2012 and 4.51% in the last quarter of 2011.

Noninterest Income

During 2012 noninterest income increased to $3.0 million during 2012 from $2.1 million in 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 six other real estate owned ("OREO") properties in the Charlottesville market and one in the Culpeper market totaling $2.7 million during 2012. We recognized gains of $113 thousand on the sale of three OREO properties during 2012. In addition, there was an OTTI of $717 thousand in trust preferred securities during 2012 compared to $329 thousand in OTTI charges during 2011. Also, during the first quarter of 2012 the bank sold the guaranteed portions of SBA loans and realized a $657 thousand gain, and during the third quarter of 2012, there was a sale of SBA pooled securities resulting in a gain of $287 thousand. Income from bank owned life insurance ("BOLI") contributed $797 thousand during 2012, compared to $1.3 million during 2011. Both periods were affected by death benefits; however, the death benefit received in the 2011 period was $800 thousand as compared to $195 thousand in the 2012 period.

Noninterest Expense

Noninterest expense was $18.8 million in 2012 compared to $14.9 million in 2011. Audit and consulting fees totaled $1.1 million during 2012, compared to $393 thousand during 2011. Occupancy and furniture and equipment expenses were $3.4 million during 2012, compared to $2.8 million during 2011. Of this increase, $392 thousand resulted from operating five additional branches this year. In addition, salaries and benefits expense has increased $1.2 million during 2012, compared to 2011 as a result of the additional branches.   Full-time equivalent employees have increased from 112 at December 31, 2011, to 134 at December 31, 2012. As a result of recasting estimated recoveries under the FDIC indemnification agreement in the second quarter and the fourth quarter of 2012, amortization expense was $651 thousand for 2012, compared to accretion of $99 thousand for 2011.

Loan Portfolio

The composition of our loan portfolio consisted of the following at December 31, 2012 and 2011 (in thousands):

 Covered Non-covered Loans        
  Loans (1)HarVestOtherTotal Covered Non-covered Total 
   Loans (2) Loans Loans Loans (1) Loans Loans
 December 31, 2012December 31, 2011
 Mortgage loans on real estate:               
 Commercial real estate - owner-occupied   $ 4,143  $ 12,507  $ 76,617  $ 93,267  $ 4,854  $ 82,450  $ 87,304
 Commercial real estate - non-owner-occupied   10,246  10,895  111,155  132,296  11,243  117,059  128,302
 Secured by farmland   --   --   1,479  1,479  --   1,506  1,506
 Construction and land loans   1,261  3,949  53,263  58,473  2,883  39,565  42,448
 Residential 1-4 family   21,005  15,170  46,149  82,324  25,307  49,288  74,595
 Multi- family residential   614  736  18,038  19,388  629  19,553  20,182
 Home equity lines of credit   31,292  2,515  6,663  40,470  35,442  9,040  44,482
 Total real estate loans   68,561  45,772  313,364  427,697  80,358  318,461  398,819
               
 Commercial loans   2,672  6,214  92,867  101,753  2,122  89,939  92,061
 Consumer loans   88  16  1,607  1,711  108  1,868  1,976
 Gross loans   71,321  52,002  407,838  531,161  82,588  410,268  492,856
               
 Less deferred fees on loans   7  3  (1,020)  (1,010)  --   (1,088)  (1,088)
 Loans, net of deferred fees   $ 71,328  $ 52,005  $ 406,818  $ 530,151  $ 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.

The covered portfolio continued to decline as a result of repayments in the Greater Atlantic Bank portfolio which continued to perform well. The non-covered portfolio grew largely as a result of the HarVest Bank acquisition in April.

During the fourth quarter there were over $6 million in prepayments in the HarVest acquired portfolio primarily attributable to loan participations which HarVest had with other banks. They were refinanced elsewhere at lower rates. Virtually all of them were outside HarVest's primary market area.

During the fourth quarter we also experienced pressure to lower rates on our legacy loans but it proved to be manageable and prepayments were less than on the HarVest portfolio. Subsequent to year-end and not reflected in the numbers above was one $7 million prepayment on a Sonabank legacy loan where the borrower was able to cut his principal and interest payments in half without recourse at another institution.

Loan Loss Provision/Asset Quality

Given market conditions, property location, length of time on the market and other factors, we completed an updated property by property review in the second quarter of 2012 and recognized impairment in the values of seven properties in an aggregate amount of $2.2 million. In addition, we recognized impairment of $150 thousand in the first quarter of 2012 and $300 thousand in the fourth quarter of 2012. The impairment was partially offset by a small gain on the sale of one property. During the year, we also sold three commercial properties and foreclosed on three properties and acquired one in the HarVest Bank acquisition. 

As a result, non-covered OREO as of December 31, 2012 was $13.2 million compared to $13.6 million as of the end of the previous year.

Non-covered nonaccrual loans were $5.0 million (excluding $2.6 million of loans fully covered by SBA guarantees) at December 31, 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 2.80% (excluding the SBA guaranteed loans) at December 31, 2012. The portions of these SBA loans that were unguaranteed were charged off.

We had charge-offs totaling $6.1 million during the year ended December 31, 2012 compared to $8.0 in 2011. Charge-offs in the fourth quarter of 2012 included $400 thousand on a loan originated and sold by 1st Service Bank to a third party prior to its acquisition by Sonabank in 2006. The third party attempted to put back the loan to Sonabank, and we contested and agreed to enter into arbitration. Late in 2012, an arbitrator ruled against us. The loan is impaired, and we have reflected a charge of $320 thousand in the provision for loan losses for this loan and recognized an immediate charge-off against our allowance for loan losses of the full amount of the loan. 

Southern National Bancorp of Virginia's allowance for loan losses as a percentage of non-covered total loans was 1.54%, at December 31, 2012 and 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 adjusted.

Securities Portfolio

Investment securities, available for sale and held to maturity, were $86.4 million at December 31, 2012 compared to $45.0 million at the end of 2011. The increase was due to the following:

These purchases were partially offset by normal repayments and the sale of $8.2 million in SBA guaranteed loan pools acquired in the Greater Atlantic Bank merger.

Other securities held include the following:

                     Previously   
                     Recognized   
                     Cumulative   
    Ratings         Estimated Current  Other   
  Tranche When Purchased Current Ratings   Fair Defaults and  Comprehensive   
Security Level Moody's Fitch Moody's Fitch Par Value Book Value Value Deferrals   Loss (1)   
            (in thousands)      
ALESCO VII A1B Senior Aaa AAA Baa3 BB  $ 6,877  $ 6,200  $ 4,135  $ 117,400  $ 290  
MMCF III B Senior Sub A3 A- Ba1 CC  425  416  261  27,000  9  
             7,302  6,616  4,396    $ 299  
                       
                    Cumulative Cumulative
                    Other Comprehensive  OTTI Related to 
Other Than Temporarily Impaired:                   Loss (2)  Credit Loss (2) 
TPREF FUNDING II Mezzanine A1 A- Caa3 C  1,500  422  502  134,100  723  $ 355
TRAP 2007-XII C1 Mezzanine A3 A C C  2,116  56  67  202,705  767  1,293
TRAP 2007-XIII D Mezzanine NR A- NR C  2,039  --   100  208,000  7  2,032
MMC FUNDING XVIII Mezzanine A3 A- Ca C  1,073  27  241  96,682  355  691
ALESCO V C1 Mezzanine A2 A C C  2,150  475  453  83,225  1,014  661
ALESCO XV C1 Mezzanine A3 A- C C  3,187  29  665  229,100  599  2,559
ALESCO XVI C Mezzanine A3 A- C C  2,121  118  499  71,150  823  1,180
             14,186  1,127  2,527    $ 4,288  $ 8,771
                       
Total            $ 21,488  $ 7,743  $ 6,923      
                       
                       
(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                      

HarVest Acquisition

During the second quarter of 2012 Sonabank assumed substantially all of the deposits and other liabilities and acquired substantially all of the assets of HarVest Bank of Maryland in an FDIC assisted transaction. HarVest Bank had branches in Bethesda, North Rockville, Germantown and Frederick. With Sonabank's existing branch in Rockville that brought Sonabank's total number of branches in Maryland to five, four of which are in Montgomery County.

Branch Activity

During the third quarter Sonabank opened a de novo branch in Haymarket, Virginia.

During the fourth quarter Sonabank moved HarVest Bank's Bethesda branch to a far superior location on Wisconsin Avenue in Bethesda.

Deposits

Total deposits were $551.0 million at December 31, 2012 compared to $461.1 million at December 31, 2011. Noninterest-bearing demand deposits were $49.6 million as of December 31, 2012 up from $32.6 million a year earlier.

Stockholders' Equity 

Total stockholders' equity increased to $103.2 million as of December 31, 2012 from $99.1 million at December 31, 2011 as a result of the retention of earnings. Our Tier 1 Risk Based Capital Ratios were 18.33% and 19.37% for Southern National Bancorp of Virginia, Inc., as of December 31, 2012 and 2011, respectively.

Southern National Bancorp of Virginia, Inc. is a bank holding company with assets of $722.1 million at December 31, 2012. 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 five branches in Maryland.    

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 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 Annual Reports on Form 10-K for the year ended December 31, 2010 and other reports and statements filed by Southern National Bancorp of Virginia, Inc. with the SEC. 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)      
 December 31,December 31,    
 20122011    
  (Unaudited)      
Assets      
Cash and cash equivalents  $ 39,200  $ 5,035    
Investment securities-available for sale  2,391  9,905    
Investment securities-held to maturity  84,051  35,075    
Stock in Federal Reserve Bank and Federal Home Loan Bank  6,212  6,653    
Loans receivable, net of unearned income  530,151  491,768    
Allowance for loan losses  (7,066)  (6,295)    
Net loans  523,085  485,473    
Intangible assets  10,440  11,155    
Bank premises and equipment, net  6,552  6,350    
Bank-owned life insurance  17,782  17,575    
FDIC indemnification asset  6,735  7,537    
Other assets  25,655  26,615    
Total assets  $ 722,103  $ 611,373    
         
Liabilities and stockholders' equity
Noninterest-bearing deposits  $ 49,644  $ 32,582    
Interest-bearing deposits  501,333  428,513    
         
Securities sold under agreements to repurchase and other short-term borrowings  33,412  17,736    
Federal Home Loan Bank advances  30,250  30,000    
Other liabilities  4,288  3,491    
Total liabilities  618,927  512,322    
Stockholders' equity  103,176  99,051    
Total liabilities and stockholders' equity  $ 722,103  $ 611,373    
         
     
Condensed Consolidated Statements of Income
(Unaudited)
 (in thousands)        
 For the Quarters EndedFor the Years Ended
 December 31,December 31,
 2012201120122011
         
Interest and dividend income  $ 9,526  $ 8,504  $ 37,561  $ 33,423
Interest expense  1,397  1,486  5,828  6,087
Net interest income  8,129  7,018  31,733  27,336
Provision for loan losses  1,590  3,352  6,195  8,492
Net interest income after provision for loan losses  6,539  3,666  25,538  18,844
Account maintenance and deposit service fees  207  198  832  833
Income from bank-owned life insurance  148  139  797  1,336
Bargain purchase gain on acquisition  --   --   3,484  -- 
Gain on sale of loans  --   395  657  395
Gain (loss) on other real estate owned, net  (256)  (150)  (2,632)  (297)
Gain on other assets  --   --   14  -- 
OTTI losses recognized in earnings  --   (216)  (717)  (329)
Net gain on sale of available for sale securities  --   --   274  -- 
Other   57  56  254  207
Noninterest income   156  422  2,963  2,145
Employee compensation and benefits  2,125  1,720  7,993  6,787
Occupancy expenses  911  723  3,399  2,796
FDIC assessment  148  125  565  522
Change in FDIC indemnification asset  170  (14)  651  (99)
Other expenses  1,410  1,189  6,209  4,890
Noninterest expense  4,764  3,743  18,817  14,896
Income before income taxes  1,931  345  9,684  6,093
Income tax expense   628  90  3,115  1,692
Net income  $ 1,303  $ 255  $ 6,569  $ 4,401
 
         
         
         
         
         
Financial Highlights
(Unaudited)
(Dollars in thousands except per share data)        
         
         
         
 For the Quarters EndedFor the Years Ended
 December 31,December 31,
 2012201120122011
         
Per Share Data :      
Earnings per share - Basic  $ 0.11  $ 0.02  $ 0.57  $ 0.38
Earnings per share - Diluted  $ 0.11  $ 0.02  $ 0.57  $ 0.38
Book value per share  $ 8.90  $ 8.55
Tangible book value per share  $ 8.00  $ 7.58
Weighted average shares outstanding - Basic  11,590,212  11,590,212  11,590,212  11,590,212
Weighted average shares outstanding - Diluted  11,599,928  11,590,359  11,596,176  11,591,156
Shares outstanding at end of period  11,590,212  11,590,212
         
Selected Performance Ratios and Other Data:
Return on average assets 0.73% 0.16% 0.97% 0.74%
Return on average equity 4.96% 1.03% 6.40% 4.51%
Yield on earning assets 5.87% 6.10% 6.15% 6.19%
Yield on earning assets excluding discount accretion on loans acquired in GAB and HarVest acquisitions 5.35% 5.58% 5.47% 5.58%
Cost of funds 1.00% 1.23% 1.11% 1.31%
Cost of funds including non-interest bearing deposits 0.92% 1.15% 1.03% 1.22%
Net interest margin 5.01% 5.03% 5.19% 5.06%
         
Net interest margin excluding discount accretion on loans acquired in GAB and HarVest acquisitions 4.49% 4.51% 4.52% 4.45%
Efficiency ratio (1) 55.78% 50.51% 56.30% 51.52%
Net charge-offs (recoveries) to average loans 0.28% 0.64% 1.04% 1.63%
Amortization of intangibles  $ 200  $ 230  $ 893  $ 919
 
         
     As of
     December 31,December 31,
     20122011
         
Stockholders' equity to total assets 14.29% 16.20%
Tier 1 risk-based capital ratio 18.33% 19.37%
Intangible assets:      
Goodwill    $ 9,160  $ 9,160
Core deposit intangible  1,281  1,995
 Total    $ 10,441  $ 11,155
         
Non-covered loans and other real estate owned (2):
Nonaccrual loans (3)  $ 7,628  $ 4,541
Loans past due 90 days and accruing interest - 32
Other real estate owned  13,200  13,620
Total nonperforming assets   $ 20,828  $ 18,193
Allowance for loan losses to total non-covered loans 1.54% 1.54%
Nonperforming assets excluding SBA guaranteed loans to total non-covered assets  2.80% 2.98%
Nonperforming assets excluding SBA guaranteed loans to total non-covered loans and OREO 3.86% 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 December 31, 2012 and December 31, 2011, respectively.
CONTACT: R. Roderick Porter, President

         Phone: 202-464-1130 ext. 2406

         Fax: 202-464-1134

         Website: www.sonabank.com