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Southern National Bancorp of Virginia Inc. Reports Earnings of $1.6 Million for the Second Quarter and $3.1 million for the First Half of 2013 and Increases Dividend to $.07

MCLEAN, Va., July 25, 2013 (GLOBE NEWSWIRE) -- Southern National Bancorp of Virginia Inc. (Nasdaq:SONA), the holding company for Sonabank, announced today that net income for the quarter ended June 30, 2013 was $1.6 million and $3.1 million for the first half of 2013. That compares to $2.2 million and $4.1 million for the three and six months ended June 30, 2012. The second quarter of 2012 benefitted from a bargain purchase gain in conjunction with the HarVest acquisition which was partially offset by a writedown of other real estate owned ("OREO").

The Board of Directors declared a dividend of $.07 per share payable August 23, 2013 to shareholders of record on August 12, 2013. This was Southern National's seventh consecutive quarterly dividend and the fifth consecutive increase.

Overview

U.S. Treasury yields hit a cyclical low at the beginning of May 2013 with the 10 year U.S. Treasury yield hitting 1.6%. Since then it has risen over a percentage point to over 2.6%. That is a huge increase. It has resulted in a diminution in the fierce competition for refinancing loans which we wrote about last quarter, perhaps as a sense of reality began to pervade the market. Even so, we had payoffs of large loans of approximately $8.3 million during the quarter. However, that was offset this quarter by very strong loan closings of $36.0 million most of which closed near quarter-end.

Net Interest Income

Net interest income was $7.4 million in the quarter ended June 30, 2013 down from $7.8 million during the same period last year. The accretion of the discount on Greater Atlantic Bank's loans contributed $361 thousand to second quarter 2013 net interest income compared to $705 thousand during the second quarter of 2012. The accretion of the discount on HarVest's loans contributed $440 thousand in the second quarter of 2013 compared to $172 thousand during the second quarter of 2012. The cost of funds decreased from 1.16% for the quarter ended June 30, 2012, to 0.84% for the second quarter of 2013. Sonabank's net interest margin was 4.57% in the second quarter of 2013 compared to 5.07% during the comparable quarter last year and 4.94% during the first quarter of 2013.

Net interest income was $15.1 million during the six months ended June 30, 2013, compared to $15.5 million during the comparable period in the prior year. Approximately $805 thousand of the 2012 net interest income resulted from the recovery of discount recognized in purchase accounting during the first quarter of 2012 for two impaired loans acquired in the Greater Atlantic Bank acquisition following the receipt of payment from the borrowers. The total accretion of the discount on the Greater Atlantic Bank loan portfolio, including the aforementioned $805 thousand, amounted to $2.2 million in the first six months of 2012, compared to $808 thousand in the first half of 2013. The cost of funds decreased from 1.19% for the six months ended June 30, 2012, to 0.89% for the six months ended June 30, 2013. Sonabank's net interest margin was 4.76% in the first six months of 2013 compared to 5.32% during the same period last year.

Noninterest Income

During the second quarter of 2013 Sonabank had noninterest income of $448 thousand compared to noninterest income of $3.9 million during the second quarter of 2012. The decrease resulted primarily from the bargain purchase gain of $3.5 million from the HarVest transaction in the second quarter of 2012. In addition, there was an other than temporary impairment ("OTTI") of $235 thousand in one trust preferred security during the second quarter of 2012 compared to no OTTI charges during the second quarter of 2013. Income from bank owned life insurance ("BOLI") contributed $148 thousand during the second quarter of 2013 compared to $347 thousand the prior year quarter. The second quarter of 2012 was affected by a death benefit.

Noninterest income decreased from $4.9 million in the first six months of 2012 to $984 thousand in the first six months of 2013. The drivers of the decrease from the first half of 2012 were largely the same as the quarter except that 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 $9.7 million during the second quarter and the first half of 2013, respectively, compared to $7.2 million and $11.7 million during the same periods in 2012. Noninterest expenses for the second quarter of 2012 included the recognition of impairment in the values of five OREO properties in the Charlottesville market and one in the Culpeper market in the amount of $2.2 million. Also affecting the second quarter of 2012 were merger expenses relating to the HarVest transaction totaling $349 thousand, and other noninterest expenses related to the HarVest branches were $245 thousand. Occupancy and furniture and equipment expenses were $1.8 million during the first six months of 2013, compared to $1.6 million during 2012. Of this increase, $310 thousand resulted from operating five additional branches, four from the HarVest acquisition and one denovo. In addition, salaries and benefits expense has increased $627 thousand during the six months ended June 30, 2013, compared to 2012 due to the HarVest acquisition and other additional personnel. Full-time equivalent employees have increased from 137 at June 30, 2012, to 144 at June 30, 2013. Audit and accounting fees have decreased from $569 thousand during the six months ended June 30, 2012 to $251 thousand during the first six months of 2013. These fees were abnormally high in 2012 because of the restatement of 2010 and 2009 financial statements.

Loan Portfolio

The composition of Sonabank's loan portfolio consisted of the following at June 30, 2013 and December 31, 2012:

Covered Non-covered Total Covered Non-covered Total
Loans (1) Loans Loans Loans (1) Loans Loans
June 30, 2013 December 31, 2012
Loans secured by real estate:
Commercial real estate - owner-occupied $ 3,662 $ 93,837 $ 97,499 $ 4,143 $ 93,288 $ 97,431
Commercial real estate - non-owner-occupied 6,028 140,929 146,957 10,246 130,152 140,398
Secured by farmland 103 517 620 -- 1,479 1,479
Construction and land loans 52 31,076 31,128 1,261 44,946 46,207
Residential 1-4 family 19,067 62,544 81,611 21,005 61,319 82,324
Multi- family residential 598 21,924 22,522 614 18,774 19,388
Home equity lines of credit 28,954 7,776 36,730 31,292 9,178 40,470
Total real estate loans 58,464 358,603 417,067 68,561 359,136 427,697
Commercial loans 1,261 105,752 107,013 2,672 99,081 101,753
Consumer loans 87 1,338 1,425 88 1,623 1,711
Gross loans 59,812 465,693 525,505 71,321 459,840 531,161
Less deferred fees on loans 7 (1,228) (1,221) 7 (1,017) (1,010)
Loans, net of deferred fees $ 59,819 $ 464,465 $ 524,284 $ 71,328 $ 458,823 $ 530,151
(1) Covered Loans were acquired in the Greater Atlantic transaction and are covered under an FDIC loss-share agreement.

Loans, net of deferred fees, decreased $5.9 million from $530.2 million at the end of 2012 to $524.3 million at June 30, 2013, but increased $14.3 million from March 31, 2013. We had payoffs of large loans of approximately $8.3 million and $3.5 million in foreclosures during the quarter. However, that was offset this quarter by very strong loan closings of $36.0 million most of which closed near quarter-end.

Loan Loss Provision/Asset Quality

Non-covered OREO as of June 30, 2013 was $12.1 million compared to $13.2 million as of the end of the previous year. During the three months ended June 30, 2013 we had two foreclosures in the non-covered portfolio in the amount of $1.3 million and OREO sales of $617 thousand. For the six months ended June 30, 2013 we had four foreclosures in the non-covered portfolio totaling $1.6 million and OREO sales of $2.6 million. In the covered portfolio we had one foreclosure during the three months ended June 30, 2013 in the amount of $2.2 million and during the six months had two foreclosures totaling $4.0 million. In the second quarter of 2013, we sold the property foreclosed on in the first quarter of 2013 for $1.9 million which resulted in a small gain.

Non-covered nonaccrual loans were $4.6 million (excluding $1.6 million of loans fully covered by SBA guarantees) at June 30, 2013 compared to $5.0 million (excluding $2.6 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 2.80% at the end of 2012 to 2.60% at June 30, 2013. 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 June 30, 2013 was 1.55%, compared to 1.52% at the end of 2012. 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 $85.4 million at June 30, 2013 and $86.4 million at December 31, 2012.

Investment activity during the first six months of 2013 was concentrated on municipal bonds (as it was in the fourth quarter of 2012) and to a lesser extent on callable agencies. The yields available on FNMA and FHLMC mortgage pass through securities where we have historically invested excess cash have been adversely affected by the Federal Reserve Board's third round of quantitative easing and its purchases of $40 billion a month in mortgage-backed securities. The yields on higher quality, bank qualified municipal bonds have been significantly higher on a taxable equivalent basis although they do entail some extension risk. We went into the strategy of investing in municipals with an overall asset sensitive balance sheet and are monitoring it to ensure we do not get outside our risk tolerance level. Through the end of the second quarter of 2013, we had assembled a portfolio of $13.0 million with a taxable equivalent yield of 3.02% and ratings as follows:

Rating Amount
Service Rating (in thousands)
Moody's Aaa $ 505
Moody's Aa2 3,208
Moody's Aa3 724
Standard & Poor's AAA 2,682
Standard & Poor's AA 3,690
Standard & Poor's AA- 2,237
$ 13,046

As of June 30, 2013 we owned pooled trust preferred securities as follows:

Previously
% of Current Recognized
Defaults and Cumulative
Ratings Estimated Deferrals to Other
Tranche When Purchased Current Ratings Fair Total Comprehensive
Security Level Moody's Fitch Moody's Fitch Par Value Book Value Value Collateral Loss (1)
(in thousands)
ALESCO VII A1B Senior Aaa AAA Baa3 BB $ 6,777 $ 6,124 $ 4,097 24% $ 281
MMCF III B Senior Sub A3 A- Ba1 CC 421 413 255 30% 8
7,198 6,537 4,352 $ 289
Cumulative Other Cumulative
Comprehensive OTTI Related to
Other Than Temporarily Impaired: Loss (2) Credit Loss (2)
TPREF FUNDING II Mezzanine A1 A- Caa3 C 1,500 515 520 44% $ 626 $ 359
TRAP 2007-XII C1 Mezzanine A3 A C C 2,132 56 140 39% 783 1,293
TRAP 2007-XIII D Mezzanine NR A- NR C 2,039 -- 103 29% 7 2,032
MMC FUNDING XVIII Mezzanine A3 A- Ca C 1,081 27 254 30% 363 691
ALESCO V C1 Mezzanine A2 A C C 2,150 475 548 23% 1,014 661
ALESCO XV C1 Mezzanine A3 A- C C 3,210 30 152 35% 621 2,559
ALESCO XVI C Mezzanine A3 A- C C 2,136 119 576 16% 837 1,180
14,248 1,222 2,293 $ 4,251 $ 8,775
Total $ 21,446 $ 7,759 $ 6,645
(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 under Accounting Standards Codification Topic 325. 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 no OTTI charges related to credit on the trust preferred securities during the second quarter of 2013, compared to OTTI charges related to credit on the trust preferred securities totaling $235 thousand for three months ended June 30, 2012. During the six months ended June 30, 2013 there were OTTI charges totaling $3 thousand, compared to $237 thousand during the same period last year.

Deposits

Total deposits were $545.6 million at June 30, 2013 compared to $551.0 million at December 31, 2012. Certificates of deposit increased $14.0 million during the six months. There was a decrease in money market accounts of $16.8 million during the six months ended June 30, 2013. Noninterest-bearing deposits were $45.3 million at June 30, 2013 and $49.6 million at December 31, 2012. Noninterest-bearing deposits were historically high at December 31, 2012, primarily because of large balances held by title companies.

Stockholders' Equity

Total stockholders' equity increased from $103.2 million at December 31, 2012 to $104.9 million at June 30, 2013 as a result of the retention of earnings. Our Tier 1 Risk Based Capital Ratios were 18.84% and 18.73% for Southern National Bancorp of Virginia, Inc. and Sonabank, respectively, as of June 30, 2013.

Southern National Bancorp of Virginia, Inc. is a bank holding company with assets of $706.7 million at June 30, 2013. 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, in Rockville, Shady Grove, Germantown, Frederick and Bethesda. In the first quarter of 2013, the former HarVest Bank branch in Bethesda was relocated to a far superior location on Wisconsin Avenue.

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)
June 30, December 31,
2013 2012
Assets
Cash and cash equivalents $ 28,545 $ 39,200
Investment securities-available for sale 2,034 2,391
Investment securities-held to maturity 83,354 84,051
Stock in Federal Reserve Bank and Federal Home Loan Bank 5,240 6,212
Loans receivable, net of unearned income 524,284 530,151
Allowance for loan losses (7,296) (7,066)
Net loans 516,988 523,085
Intangible assets 10,195 10,440
Bank premises and equipment, net 6,286 6,552
Bank-owned life insurance 18,079 17,782
FDIC indemnification asset 6,308 6,735
Other assets 29,695 27,364
Total assets $ 706,724 $ 723,812
Liabilities and stockholders' equity
Demand deposits $ 67,347 $ 72,418
Money market accounts 146,461 163,233
Savings accounts 12,148 9,618
Time deposits 319,682 305,708
Securities sold under agreements to repurchase and other short-term borrowings 20,530 33,411
Federal Home Loan Bank advances 30,250 30,250
Other liabilities 5,370 5,998
Total liabilities 601,788 620,636
Stockholders' equity 104,936 103,176
Total liabilities and stockholders' equity $ 706,724 $ 723,812
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands)
For the Quarters Ended For the Six Months Ended
June 30, June 30,
2013 2012 2013 2012
Interest and dividend income $ 8,549 $ 9,361 $ 17,572 $ 18,435
Interest expense 1,175 1,528 2,428 2,962
Net interest income 7,374 7,833 15,144 15,473
Provision for loan losses 725 1,325 1,818 2,775
Net interest income after provision for loan losses 6,649 6,508 13,326 12,698
Account maintenance and deposit service fees 203 206 396 402
Income from bank-owned life insurance 148 347 297 500
Bargain purchase gain on acquisition -- 3,484 -- 3,484
Gain on sale of loans -- -- -- 657
Net impairment losses recognized in earnings -- (235) (3) (237)
Net gain (loss) on sale of available for sale securities -- (13) 142 (13)
Gain on other assets 13 -- 13 14
Other 84 81 139 121
Noninterest income 448 3,870 984 4,928
Employee compensation and benefits 2,176 1,970 4,422 3,795
Occupancy expenses 923 848 1,839 1,586
FDIC assessment 225 142 458 271
Change in FDIC indemnification asset 107 253 237 239
Loss on other real estate owned, net 62 2,201 118 2,386
Other expenses 1,305 1,749 2,675 3,384
Noninterest expense 4,798 7,163 9,749 11,661
Income before income taxes 2,299 3,215 4,561 5,965
Income tax expense 744 1,000 1,480 1,907
Net income $ 1,555 $ 2,215 $ 3,081 $ 4,058
Financial Highlights
(Unaudited)
(Dollars in thousands except per share data)
For the Quarters Ended For the Six Months Ended
June 30, June 30,
2013 2012 2013 2012
Per Share Data :
Earnings per share - Basic $ 0.13 $ 0.19 $ 0.27 $ 0.35
Earnings per share - Diluted $ 0.13 $ 0.19 $ 0.27 $ 0.35
Book value per share $ 9.05 $ 8.89
Tangible book value per share $ 8.17 $ 7.95
Weighted average shares outstanding - Basic 11,590,212 11,590,212 11,590,212 11,590,212
Weighted average shares outstanding - Diluted 11,634,525 11,594,033 11,623,422 11,592,747
Shares outstanding at end of period 11,590,212 11,590,212
Selected Performance Ratios and Other Data:
Return on average assets 0.88% 1.30% 0.88% 1.26%
Return on average equity 5.95% 8.76% 5.96% 8.08%
Yield on earning assets 5.30% 6.07% 5.52% 6.33%
Yield on earning assets excluding discount accretion on loans acquired in GAB and HarVest acquisitions 4.80% 5.50% 5.01% 5.59%
Cost of funds 0.84% 1.16% 0.89% 1.19%
Cost of funds including non-interest bearing deposits 0.78% 1.07% 0.82% 1.10%
Net interest margin 4.57% 5.07% 4.76% 5.32%
Net interest margin excluding discount accretion on loans acquired in GAB and HarVest acquisitions 4.07% 4.51% 4.25% 4.57%
Efficiency ratio (1) 60.65% 59.99% 60.28% 56.90%
Net charge-offs (recoveries) to average loans 0.13% 0.28% 0.31% 0.46%
Amortization of intangibles $ 123 $ 228 $ 246 $ 458
As of
June 30, December 31,
2013 2012
Stockholders' equity to total assets 14.85% 14.25%
Tier 1 risk-based captial ratio 18.84% 18.33%
Intangible assets:
Goodwill $ 9,160 $ 9,160
Core deposit intangible 1,035 1,280
Total $ 10,195 $ 10,440
Non-covered loans and other real estate owned (2):
Nonaccrual loans (3) $ 6,275 $ 7,628
Loans past due 90 days and accruing interest -- --
Other real estate owned 12,119 13,200
Total nonperforming assets $ 18,394 $ 20,828
Allowance for loan losses to total non-covered loans 1.55% 1.52%
Nonperforming assets excluding SBA guaranteed loans to total non-covered assets 2.60% 2.80%
(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 $1.6 million and $2.6 million at June 30, 2013 and December 31, 2012, 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.comSource:Southern National Bancorp of Virginia, Inc.