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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) HarVest Other Total Covered Non-covered Total
Loans (2) Loans Loans Loans (1) Loans Loans
December 31, 2012 December 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:

  • The retention of $27.1 million of HarVest's mortgage-backed securities and collateralized mortgage obligations.
  • The purchase of $7.0 million in municipal securities. All municipal securities have been evaluated individually by us. Public ratings range from S&P AAA to AA- or Moody Aa2 to Aa3.
  • We purchased 5 callable agencies totaling $30.0 million.

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:

  • Pooled trust preferred securities as follows:

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

  • We own 55,000 shares of the Freddie Mac perpetual preferred stock Series V. The fair value of these shares at December 31, 2012 was $102 thousand.
  • We also own $816 thousand of SARM 2005-22 1A2, a residential collateralized mortgage obligation that is not government-sponsored.
  • We own residential government-sponsored mortgage-backed securities in the amount of $35.4 million and residential government-sponsored collateralized mortgage obligations totaling $5.4 million.

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,
2012 2011
(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 Ended For the Years Ended
December 31, December 31,
2012 2011 2012 2011
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 Ended For the Years Ended
December 31, December 31,
2012 2011 2012 2011
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,
2012 2011
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.comSource:Southern National Bancorp of Virginia, Inc.