Southern National Bancorp
Jan 21, 2016

Southern National Bancorp of Virginia Inc. Reports Earnings of $9.3 Million for 2015, Up 24% From $7.5 Million in 2014

Declares Seventeenth Consecutive Regular Dividend

MCLEAN, Va., Jan. 21, 2016 (GLOBE NEWSWIRE) -- Southern National Bancorp of Virginia, Inc.("Southern National") announced today that net income for the year ended December 31, 2015 was $9.3 million compared to $7.5 million for the year ended December 31, 2014. In addition, Southern National declared a regular quarterly dividend of $.08 per share payable on February 19, 2016 to shareholders of record on February 8, 2016.

Overview

2015 was a solid year where we built on what we put in place in 2014 and 2013 — including the acquisition of Prince George's Federal Savings (PGFSB) and the purchase of a 44% interest in Southern Trust Mortgage (STM).

Net Interest Income

Average loans during 2015 were $761.6 million compared to $608.6 million in 2014. The net interest margin for the year was 4.07% in 2015, down from 4.60% in 2014. 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 residential portfolio purchases from STM during the year. Net interest income was $36.6 million during the year ended December 31, 2015, compared to $33.4 million during the prior year. The accretion of the discount on loans acquired in the acquisitions of Greater Atlantic Bank, HarVest and Prince Georges Federal Savings Bank (PGFSB) contributed $2.6 million to net interest income during the year ended December 31, 2015, compared to $3.1 million during 2014. Other factors that resulted in the decline were:  (1) the weighted average interest rate on loans decreasing from 5.69% for the year ended December 31, 2014 to 5.27% for 2015, primarily because of the growth of the single-family residential portfolio as noted above; (2) the average balance of other earning assets, which is primarily interest earning balances at the Federal Reserve Bank (FRB), was $12.8 million more in 2015 compared to 2014 which decreased the net interest margin by approximately 6 basis points.  Going forward, we expect cash balances to be held at a lower level; (3) the cost of deposits increased from 0.71% for the year ended December 31, 2014, to 0.90% for the year ended December 31, 2015, as a result of increased retail money market rates and lengthening certificate of deposit maturities.

Net interest income was $9.5 million in the quarter ended December 31, 2015 up from $9.2 million during the same period the prior year. Average loans during the fourth quarter of 2015 were $803.3 million compared to $683.3 million during the same period last year. The net interest margin was 4.07% in the fourth quarter of 2015, up from 3.87% in the third quarter of 2015, but down from 4.41% in the fourth quarter of 2014.   On a more positive note, the improvement in net interest margin over the third quarter of 2015 was attributable primarily to the decrease in the average balance of other earning assets in the amount of $44.2 million and the cost of funds decreasing one basis point during the fourth quarter of 2015.   The cost of funds decrease was the result of refinancing $20 million of fixed rate Federal Home Loan Bank advances in November 2015, which extended the maturities and reduced the interest rate. The accretion of the discount on loans acquired in the acquisitions of Greater Atlantic Bank, HarVest and PGFSB contributed $614 thousand to net interest income during the three months ended December 31, 2015, compared to $837 thousand during the same period in 2014. 

There was very little impact from the Fed rate increase which will be discussed further in the section on interest sensitivity of the loan portfolio.

Noninterest Income

Noninterest income increased to $3.8 million in 2015 from $2.4 million in 2014. We recognized income from our equity investment in STM in the amount of $1.5 million during 2015 compared to $558 thousand in 2014. We closed on STM in May 2014, therefore, we recognized approximately seven and one half months of income in the year ended December 31, 2014. In the second quarter of 2015 we transferred from our held-to-maturity (HTM) portfolio all of the trust preferred securities and a non-government sponsored residential collateralized mortgage obligation (CMO) that had previously been classified as other than temporarily impaired to the available-for-sale (AFS) classification.  We sold five of these trust preferred securities and the CMO recognizing a net gain of $520 thousand. Due to the significant deterioration in these issuers' creditworthiness we feel that our change in classification does not taint our intention to hold to maturity in regards to the remainder of our HTM portfolio.

During 2014, we sold part of our investment in CapitalSouth Partners Fund III, a Small Business Investment Company, for a gain of $202 thousand.  There were OTTI charges of $41 thousand for one trust preferred security during 2014.

Noninterest Expense

Noninterest expenses were $23.3 million during 2015, compared to $21.1 million during 2014.  During 2015, we had losses on other real estate owned (OREO) of $740 thousand as we charged down five OREO properties which proved challenging to sell.  This was partially offset by gains on the sale of six properties in the amount of $449 thousand, resulting in a net loss of $291 thousand.  The net gain on OREO for 2014 was $433 thousand. The gain in 2014 resulted from the sale of eight OREO properties at a gain of $1.1 million, the sale of three properties at a loss of $466 thousand, and impairment of $160 thousand on two properties. Merger expenses were $487 thousand during 2014. There were no such expenses in 2015. Employee compensation increased by $1.6 million during 2015 compared to 2014, mainly as a result of the PGFSB merger.  Total full time equivalent employees increased from 153 as of June 30, 2014 to 181 as of December 31, 2015 primarily as a result of the PGFSB merger.  During the fourth quarter of 2015, we refinanced $20 million of Federal Home Loan Bank of Atlanta advances and incurred a prepayment penalty in the amount of $184 thousand.

Loan Portfolio

The composition of our loan portfolio consisted of the following at December 31, 2015 and 2014 (in thousands):

         
 Covered Non-coveredTotal  Covered Non-coveredTotal  
  Loans (1) Loans Loans  Loans (1) Loans Loans 
 December 31, 2015 December 31, 2014 
Loans secured by real estate:         
Commercial real estate - owner-occupied $  -  $  141,521 $  141,521  $  -  $  136,597 $  136,597  
Commercial real estate - non-owner-occupied    -     256,513    256,513     -     200,517    200,517  
Secured by farmland    -     578    578     -     612    612  
Construction and land loans    -     67,832    67,832     -     57,938    57,938  
Residential 1-4 family    12,994    165,077    178,071     14,837    123,233    138,070  
Multi- family residential    -     25,501    25,501     -     21,832    21,832  
Home equity lines of credit    21,379    13,798    35,177     23,658    9,751    33,409  
Total real estate loans    34,373    670,820    705,193     38,495    550,480    588,975  
         
Commercial loans    -    124,985    124,985     -    114,714    114,714  
Consumer loans    -    1,366    1,366     -    1,564    1,564  
Gross loans    34,373    797,171    831,544     38,495    666,758    705,253  
         
Less deferred fees on loans    -     (2,119)   (2,119)    1    (1,782)   (1,781) 
Loans, net of deferred fees $  34,373 $  795,052 $  829,425  $  38,496 $  664,976 $  703,472  
         
(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.  
         

Interest Sensitivity

We report in our 10Q's and our 10K the impact of interest rate shocks on projected net interest income. We analyze the impact of 100 to 400 basis point shifts in the yield curve under various scenarios. Nothing on that scale has happened yet and everyone has a different opinion of what the Fed is likely to do.

Sonabank is asset sensitive. Our net interest income will tend to rise as interest rates rise. An immediate rate shock of 100 basis points across the yield curve would result in slightly more than a 1% increase of the Bank's net interest income. The increase of 100 basis points hasn't happened yet. The only thing which has happened is that the Fed raised its target rate for Fed Funds on December 17, 2015, and the prime rate rose in lock step by ¼%. This will ultimately be significant since $422 million of our $844 million gross loan portfolio is tied to the prime rate in one way or another.

This is a summary: 

      
   CurrentlyAdjusts at a 
 AdjustsAdjustsOperatingFuture Date 
 DailyMonthlyat a Floor(No Floor)Total
      
SBA loans$  -  $  54,894 $  -  $  -  $  54,894 
GAB HELOC   -     23,867    -     -     23,867 
Other HELOC   -     1,155    5,246    -     6,401 
CRE loans   12,971    -     81,088    146,810    240,869 
Commercial lines of credit   8,808    9,695    14,573    -     33,076 
Commercial term loans   3,035    5,770    -     15,290    24,095 
Commercial construction   4,780    10,585    -     -     15,365 
Other   3,706    4,908    7,849    7,015    23,478 
      
Total$ 33,300 $ 110,874 $ 108,756 $ 169,115 $  422,045 
      

Loan Loss Provision/Asset Quality

The loan loss provision for the year ended December 31, 2015 was $3.2 million, compared to $3.4 million for the same period last year.  Charge offs for the year ended December 31, 2015 were $2.7 million, compared to $3.3 million for the same period in 2014.

Non-covered OREO as of December 31, 2015 was $10.1 million compared to $13.1 million as of the end of the previous year. During 2015, two properties in the amount of $1.6 million were transferred to OREO.  There were sales of OREO properties totaling $3.8 million and recognition of impairment totaling $740 thousand during 2015.

Non-covered nonaccrual loans were $632 thousand (excluding $3.5 million of loans fully covered by SBA guarantees) at December 31, 2015 compared to $988 thousand (excluding $4.7 million of loans fully covered by SBA guarantees) at the end of 2014.  The ratio of non-covered non-performing assets (excluding the SBA guaranteed loans) to non-covered assets decreased from 1.60% at the end of 2014 to 1.07% at December 31, 2015. 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, 2015 was 1.06%, compared to 1.11% at the end of 2014. 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 $101.0 million at December 31, 2015 up from $96.3 million at December 31, 2014. 

Securities in our investment portfolio as of December 31, 2015 were as follows:

During 2015, we purchased $16.0 million of callable agency securities and $2.2 million of residential government-sponsored mortgage-backed securities. Two callable agency securities in the amount of $5.0 million and two municipal bonds in the amount of $2.6 million were called.

Deposits

Total deposits were $825.3 million at December 31, 2015 compared to $742.4 million at December 31, 2014.   Noninterest-bearing demand deposits and NOW accounts were $111.8 million at December 31, 2015 up from $94.6 million at December 31, 2014.

Stockholders' Equity

After repurchasing a total of 62,177 shares at an average price of $11.60 under a previously announced share repurchase program, total stockholders' equity increased from $114.0 million at December 31, 2014 to $119.6 million at December 31, 2015 as a result of the retention of earnings. Our Tier 1 Risk Based Capital Ratios were 13.13% and 12.99% for Southern National Bancorp of Virginia, Inc. and Sonabank, respectively, as of December 31, 2015.

Southern National Bancorp of Virginia, Inc. is a bank holding company with assets of $1.036 billion at December 31, 2015.  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.    

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,     
    2015   2014      
Assets         
Cash and cash equivalents $  30,336  $  38,320      
Investment securities-available for sale    4,209     2,285      
Investment securities-held to maturity    96,780     94,058      
Stock in Federal Reserve Bank and Federal Home Loan Bank    6,929     5,681      
Loans receivable, net of unearned income    829,425     703,472      
Allowance for loan losses    (8,421)    (7,414)     
 Net loans    821,004     696,058      
Intangible assets    11,607     11,868      
Bank premises and equipment, net    8,882     9,453      
Bank-owned life insurance    23,126     20,990      
FDIC indemnification asset    2,922     3,571      
Other assets    30,312     34,361      
 Total assets $  1,036,107  $  916,645      
           
Liabilities and stockholders' equity         
Demand deposits and NOW accounts $  111,849  $  94,578      
Money market accounts    131,731     137,297      
Savings accounts    49,939     44,155      
Time deposits    531,775     466,395      
Total deposits    825,294     742,425      
Securities sold under agreements to repurchase     10,381     13,794      
Federal Home Loan Bank advances - short term    59,000     15,250      
Federal Home Loan Bank advances - long term    15,000     25,000      
Other liabilities    6,796     6,197      
 Total liabilities    916,471     802,666      
Stockholders' equity    119,636     113,979      
 Total liabilities and stockholders' equity $  1,036,107  $  916,645      
           
           
           
Condensed Consolidated Statements of Income 
(Unaudited) 
 (in thousands)         
   For the Quarters Ended For the Twelve Months Ended 
   December 31, December 31, 
    2015   2014   2015   2014  
           
Interest and dividend income $  11,386  $  10,541  $  43,701  $  38,091  
Interest expense    1,896     1,381     7,077     4,673  
 Net interest income    9,490     9,160     36,624     33,418  
Provision for loan losses    296     1,100     3,171     3,444  
 Net interest income after provision for loan losses    9,194     8,060     33,453     29,974  
Account maintenance and deposit service fees    250     232     953     826  
Income from bank-owned life insurance    172     161     636     617  
Equity income from mortgage affiliate    189     51     1,459     558  
Net impairment losses recognized in earnings    -      -      -      (41) 
Net gain on sale of available for sale securities    -      -      520     -   
Gain on sale of other assets    -      -      7     202  
Other     42     57     206     202  
 Noninterest income     653     501     3,781     2,364  
Employee compensation and benefits    3,329     2,738     11,860     10,225  
Occupancy expenses    952     1,046     4,084     3,952  
FDIC assessment    162     169     664     569  
Change in FDIC indemnification asset    279     392     630     1,230  
Net (gain) loss on other real estate owned, net    (69)    -      291     (433) 
Other expenses    1,644     1,302     5,749     5,558  
 Noninterest expense    6,297     5,647     23,278     21,101  
 Income before income taxes    3,550     2,914     13,956     11,237  
Income tax expense     1,212     953     4,667     3,754  
 Net income $  2,338  $  1,961  $  9,289  $  7,483  
           
           
           
           
           
           
Financial Highlights 
(Unaudited) 
(Dollars in thousands except per share data)         
           
           
           
   For the Quarters Ended For the Twelve Months Ended 
   December 31, December 31, 
    2015   2014   2015   2014  
           
Per Share Data :         
Earnings  per share - Basic $  0.19  $  0.16  $  0.76  $  0.63  
Earnings  per share - Diluted $  0.19  $  0.16  $  0.75  $  0.63  
Book value per share     $  9.78  $  9.33  
Tangible book value per share     $  8.83  $  8.23  
Weighted average shares outstanding - Basic    12,218,380     12,207,794     12,224,494     11,846,126  
Weighted average shares outstanding - Diluted    12,349,157     12,321,828     12,330,431     11,927,083  
Shares outstanding at end of period        12,234,443     12,216,669  
           
Selected Performance Ratios and Other Data:         
Return on average assets  0.93%  0.86%  0.95%  0.94% 
Return on average equity  7.71%  6.73%  7.87%  6.76% 
Yield on earning assets  4.88%  5.07%  4.85%  5.24% 
Cost of funds  0.95%  0.78%  0.91%  0.75% 
Net interest margin  4.07%  4.41%  4.07%  4.60% 
Efficiency ratio (1)  62.76%  58.45%  57.64%  60.45% 
Net charge-offs to average loans  0.002%  0.12%  0.28%  0.51% 
Amortization of intangibles $  65  $  69  $  261  $  220  
           
           
       As of 
       December 31, December 31, 
        2015   2014  
           
Stockholders' equity to total assets      11.55%  12.43% 
Tier 1 risk-based captial ratio      13.13%  15.19% 
Intangible assets:         
 Goodwill     $  10,514  $  10,514  
 Core deposit intangible        1,093     1,354  
 Total     $  11,607  $  11,868  
           
Non-covered loans and other real estate owned (2):         
Nonaccrual loans (3)     $  4,173  $  5,652  
Loans past due 90 days and accruing interest        -      -   
Other real estate owned        10,096     13,051  
Total nonperforming assets      $  14,269  $  18,703  
Allowance for loan losses to total non-covered  loans      1.06%  1.11% 
Nonperforming assets excluding SBA guaranteed loans to total          
non-covered assets      1.07%  1.60% 
           
(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 $3.5 million and $4.7 million at December 31, 2015 and December 31, 2014, respectively.
 
Contact: R. Roderick Porter, President 
Phone: 202-464-1130 ext. 2406
Southern National Bancorp, NASDAQ Symbol SONA
Website: www.sonabank.com