Southern National Bancorp
Jan 22, 2015

Southern National Bancorp of Virginia Inc. Reports Earnings of $7.5 Million Compared to $6.3 Million in 2013. Declares Thirteenth Consecutive Regular Dividend.

MCLEAN, Va., Jan. 22, 2015 (GLOBE NEWSWIRE) -- Southern National Bancorp of Virginia, Inc. ("Southern National") (Nasdaq:SONA) announced today that net income for the year ended December 31, 2014 was $7.5 million compared to $6.3 million for the year ended December 31, 2013. In addition, Southern National declared a regular quarterly dividend of $.08 per share payable on February 20, 2015 to shareholders of record on February 9, 2015.

Overview

2014 was a year of solid accomplishment across the board:

Net Interest Income

The brutal competition we had seen for loans, particularly at the beginning of 2013, diminished in 2014. Average loans during 2014 were $608.6 million compared to $516.9 million last year. The growth resulted from the factors noted above. The net interest margin was 4.60% in 2014, down from 4.75% in 2013. The decline in the net interest margin was partially attributable to an increase in the residential loan portfolio resulting from the PGFSB acquisition and the portfolio purchases from STM during the year. Net interest income was $33.4 million during the year ended December 31, 2014, compared to $30.4 million during the prior year.

The Greater Atlantic Bank (GAB) loan discount accretion contributed $2.0 million to net interest income during 2014, compared to $1.7 million during 2013. The loan discount accretion on the HarVest Bank portfolio contributed $920 thousand during 2014, compared to $1.9 million during 2013. The discount accretion on the PGFSB portfolio was $229 thousand in 2014. Before taking the discount accretion related to the three acquisitions into account, the net interest margin would have been 4.17% in 2014 and 4.20% in 2013.

Net interest income was $9.2 million in the quarter ended December 31, 2014 up from $7.6 million during the same period the prior year. Average loans during the fourth quarter of 2014 were $683.3 million compared to $526.9 million during the same period last year. The net interest margin was 4.41% in the fourth quarter of 2014, down from 4.65% in the fourth quarter of 2013. Before taking the accretions related to the three acquisitions into account, the net interest margin was 4.01% in the fourth quarter of 2014 and 4.18% in the last quarter of 2013.

Noninterest Income

Noninterest income increased to $2.4 million in 2014 from $1.8 million in 2013. In addition to income from the STM investment in the amount of $558 thousand, we sold part of our investment in CapitalSouth Partners Fund III, a Small Business Investment Company, for a gain of $202 thousand.

Noninterest Expense

Noninterest expense was $21.1 million in 2014 compared to $19.3 million in 2013. Merger expenses were $487 thousand during 2014, compared to $35 thousand in 2013.

The net gain on other real estate owned (OREO) in 2014 was $433 thousand compared to a gain on OREO of $188 thousand in 2013. The gain in 2014 resulted primarily from the sale of eight OREO properties at a gain of $1.1 million, the sale of three properties at a loss of $226 thousand, and impairment of $400 thousand on two properties.    During 2013, we sold five properties from OREO resulting in gains of $1.3 million. We sold four other properties resulting in losses of $588 thousand. We also recognized impairment in the value of four properties in the amount of $550 thousand.

As a result of the cash flow analysis of the acquired GAB loans and the related FDIC indemnification asset in the second quarter of 2014, the amortization expense of the indemnification asset increased from $483 thousand in 2013, to $1.2 million in 2014. 

Loan Portfolio

Since July 31, 2014 Sonabank's loans have included the loans of PGFSB which were brought over at fair value as determined by management with the assistance of an outside third party. In addition, a portfolio of PGFSB's impaired loans were sold immediately subsequent to the acquisition with the sale amount equaling the acquired fair value amount. The net addition to Sonabank's loans was $59.5 million as of December 31, 2014. The acquisition constituted an 11% increase in Sonabank's loans during the year. Other factors noted above were the year end outstanding balance on the STM warehouse line in the amount of $9.4 million at December 31, 2014 and the purchases of $20.2 million in portfolio product during the year. The remainder of the growth was new originations less scheduled repayments and prepayments. That growth was $68.3 million or 13%.

The composition of our loan portfolio consisted of the following at December 31, 2014 and 2013 (in thousands):

 Covered Non-coveredTotal Covered Non-coveredTotal 
  Loans (1) Loans Loans Loans (1) Loans Loans
 December 31, 2014December 31, 2013
 Loans secured by real estate:             
 Commercial real estate - owner-occupied   $ --   $ 136,597  $ 136,597  $ 1,603  $ 106,225  $ 107,828
 Commercial real estate - non-owner-occupied   --   200,517  200,517  5,829  150,008  155,837
 Secured by farmland   --   612  612  100  508  608
 Construction and land loans   --   57,938  57,938  1  39,068  39,069
 Residential 1-4 family   14,837  123,233  138,070  16,631  66,482  83,113
 Multi- family residential   --   21,832  21,832  585  21,496  22,081
 Home equity lines of credit   23,658  9,751  33,409  25,769  6,431  32,200
 Total real estate loans   38,495  550,480  588,975  50,518  390,218  440,736
             
 Commercial loans   --  114,714  114,714  1,097  104,284  105,381
 Consumer loans   --  1,564  1,564  81  1,308  1,389
 Gross loans   38,495  666,758  705,253  51,696  495,810  547,506
             
 Less deferred fees on loans   1  (1,782)  (1,781)  5  (1,453)  (1,448)
 Loans, net of deferred fees   $ 38,496  $ 664,976  $ 703,472  $ 51,701  $ 494,357  $ 546,058
             
(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. 

The indemnification against losses in the commercial portfolio on the GAB portfolio ended in December 2014. The FDIC indemnification on the GAB residential mortgages and the GAB HELOCS continue for another five years. The chart above reflects that.

Of note during the year were the following:

Loan Loss Provision/Asset Quality

The loan loss provision for the year ended December 31, 2014 was $3.4 million, compared to $3.6 million for the same period last year. Charge offs for the year ended December 31, 2014 were $3.3 million, compared to $4.1 million for the same period in 2013.

Non-covered OREO as of December 31, 2014 was $13.1 million compared to $9.6 million as of the end of the previous year. During 2014, three properties in the amount of $4.7 million were transferred to OREO, and two commercial properties totaling $1.8 million that were previously covered under the FDIC indemnification agreement are now considered non-covered assets. There were sales of OREO properties totaling $2.3 million, recoveries from a bankruptcy proceeding in the amount of $187 thousand and recognition of impairment totaling $400 thousand during 2014.

Non-covered nonaccrual loans were $988 thousand (excluding $4.7 million of loans fully covered by SBA guarantees) at December 31, 2014 compared to $6.0 million (excluding $1.9 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 2.35% at the end of 2013 to 1.60% at December 31, 2014. 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 December 31, 2014 was 1.11%, compared to 1.42% at the end of 2013. The ratio has declined largely because the loans acquired from Prince George's FSB were booked at fair value and are not subject to a loan loss reserve unless there is deterioration subsequent to the acquisition. The overall increase in the loan volume also has affected the ratio. 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 $96.3 million and $84.4 million, respectively, at December 31, 2014 and 2013. The increase was primarily due to the purchases of $15.2 million in callable agency securities, $2.2 million in mortgage-backed securities and $1.3 million in municipal bonds net of repayments during 2014.

Securities in our investment portfolio are as follows:

Deposits

Total deposits increased to $742.4 million at December 31, 2014 from $540.4 million as of December 31, 2013 largely as a result of the Prince George's FSB acquisition. Notably, non-interest bearing demand deposits increased from a year-end 2013 level of $44.6 million to $69.6 million as of December 31, 2014. Similarly, savings account balances increased from $17.0 million to $44.2 million, and money market account balances increased from $130.9 million to $137.3 million over the same period.

Stockholders' Equity

Total stockholders' equity increased to $114.0 million as of December 31, 2014 from $106.6 million at December 31, 2013 as a result of the increase in retention of earnings. Our Tier 1 Risk Based Capital Ratios were 15.01% and 18.56% for Southern National Bancorp of Virginia, Inc., as of December 31, 2014 and 2013, respectively.

Southern National Bancorp of Virginia, Inc. is a bank holding company with assets of $916.3 million at December 31, 2014. 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 nine branches in Maryland, in Rockville, Shady Grove, Germantown, Frederick, Bethesda, Upper Marlboro, Brandywine, Owings and Huntingtown.    

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)        
 December 31,December 31,    
 20142013    
Assets        
Cash and cash equivalents  $ 38,320  $ 20,856    
Investment securities-available for sale  2,285  1,993    
Investment securities-held to maturity  94,058  82,443    
Stock in Federal Reserve Bank and Federal Home Loan Bank  5,681  5,915    
Loans receivable, net of unearned income  703,472  546,058    
Allowance for loan losses  (7,414)  (7,090)    
Net loans  696,058  538,968    
Intangible assets  13,427  9,973    
Bank premises and equipment, net  9,453  6,324    
Bank-owned life insurance  20,990  18,374    
FDIC indemnification asset  3,571  5,804    
Other assets  32,484  25,535    
Total assets  $ 916,327  $ 716,185    
         
Liabilities and stockholders' equity        
Demand deposits  $ 94,578  $ 68,940    
Money market accounts  137,297  130,855    
Savings accounts  44,155  16,999    
Time deposits  466,395  323,565    
Securities sold under agreements to repurchase and other short-term borrowings  29,044  39,795    
Federal Home Loan Bank advances  25,000  25,000    
Other liabilities  5,879  4,417    
Total liabilities  802,348  609,571    
Stockholders' equity  113,979  106,614    
Total liabilities and stockholders' equity  $ 916,327  $ 716,185    
     
     
         
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands)        
 For the Quarters EndedFor the Twelve Months Ended
 December 31,December 31,
 2014201320142013
         
Interest and dividend income  $ 10,541  $ 8,697  $ 38,091  $ 35,116
Interest expense  1,381  1,118  4,673  4,668
Net interest income  9,160  7,579  33,418  30,448
Provision for loan losses  1,100  600  3,444  3,615
Net interest income after provision for loan losses  8,060  6,979  29,974  26,833
Account maintenance and deposit service fees  232  200  826  793
Income from bank-owned life insurance  161  147  617  592
Equity income from mortgage affiliate  51  --   558  -- 
Net impairment losses recognized in earnings  --   --   (41)  (3)
Net gain on sale of available for sale securities  --   --   --   142
Gain on other assets  --   --   202  13
Other  57  47  202  216
Noninterest income  501  394  2,364  1,753
Employee compensation and benefits  2,738  2,303  10,225  9,063
Occupancy expenses  1,046  983  3,952  3,787
FDIC assessment  169  147  569  823
Change in FDIC indemnification asset  392  133  1,230  483
Net (gain) loss on other real estate owned, net  --   392  (433)  (188)
Other expenses  1,302  1,324  5,558  5,324
Noninterest expense  5,647  5,282  21,101  19,292
Income before income taxes  2,914  2,091  11,237  9,294
Income tax expense  953  695  3,754  3,036
Net income  $ 1,961  $ 1,396  $ 7,483  $ 6,258
 
         
         
 
Financial Highlights
(Unaudited)
(Dollars in thousands except per share data)        
         
 For the Quarters EndedFor the Twelve Months Ended
 December 31,December 31,
 2014201320142013
         
Per Share Data :        
Earnings per share - Basic  $ 0.16  $ 0.12  $ 0.63  $ 0.54
Earnings per share - Diluted  $ 0.16  $ 0.12  $ 0.63  $ 0.54
Book value per share      $ 9.33  $ 9.20
Tangible book value per share      $ 8.23  $ 8.34
Weighted average shares outstanding - Basic  12,207,794  11,590,612  11,846,126  11,590,333
Weighted average shares outstanding - Diluted  12,321,828  11,643,749  11,927,083  11,627,445
Shares outstanding at end of period      12,216,669  11,590,612
         
Selected Performance Ratios and Other Data:        
Return on average assets 0.86% 0.78% 0.94% 0.89%
Return on average equity 6.73% 5.20% 6.76% 5.95%
Yield on earning assets 5.07% 5.34% 5.24% 5.48%
Yield on earning assets excluding discount accretion on loans acquired in GAB, HarVest and PGFSB acquistions 4.67% 4.86% 4.81% 4.93%
Cost of funds 0.78% 0.80% 0.75% 0.85%
Cost of funds including non-interest bearing deposits 0.71% 0.74% 0.69% 0.79%
Net interest margin 4.41% 4.65% 4.60% 4.75%
Net interest margin excluding discount accretion on loans acquired in GAB, HarVest and PGFSB acquistions 4.01% 4.18% 4.17% 4.20%
Efficiency ratio (1) 58.45% 61.33% 60.45% 60.78%
Net charge-offs to average loans 0.12% 0.18% 0.51% 0.69%
Amortization of intangibles  $ 69  $ 98  $ 220  $ 467
 
         
     As of
     December 31,December 31,
     20142013
         
Stockholders' equity to total assets     12.44% 14.89%
Tier 1 risk-based captial ratio     15.01% 18.56%
Intangible assets:        
Goodwill      $ 12,073  $ 9,160
Core deposit intangible      1,354  813
Total      $ 13,427  $ 9,973
         
Non-covered loans and other real estate owned (2):        
Nonaccrual loans (3)      $ 5,652  $ 7,814
Loans past due 90 days and accruing interest      --   -- 
Other real estate owned      13,051  9,579
Total nonperforming assets      $ 18,703  $ 17,393
Allowance for loan losses to total non-covered loans     1.11% 1.42%
Nonperforming assets excluding SBA guaranteed loans to total non-covered assets     1.60% 2.35%
         
(1) Excludes gains and write-downs on OREO, gains on sale of loans, gains/losses on sale of securities and impairment losses recognized in earnings.
(2) Applies only to non-covered Sonabank loans and other real estate owned.
(3) Nonaccrual loans include SBA guaranteed amounts totaling $4.7 million and $1.9 million at December 31, 2014 and December 31, 2013, respectively.
         
CONTACT: R. Roderick Porter, President

         Phone: 202-464-1130 ext. 2406

         Southern National Bancorp, NASDAQ Symbol SONA

         Website: www.sonabank.com