Southern National Bancorp
Apr 22, 2010

Southern National Bancorp of Virginia Inc. Reports Earnings for the First Quarter of 2010, Up 98% From the First Quarter of 2009

MCLEAN, Va., April 22, 2010 (GLOBE NEWSWIRE) -- Southern National Bancorp of Virginia Inc. (Nasdaq:SONA), the holding company for Sonabank, announced today that net income for the quarter ended March 31, 2010 was $1.0 million compared to $526 thousand during the quarter ended March 31, 2009.

Net interest income before the provision for loan losses was $6.3 million for the first quarter of 2010, compared to $3.0 million for the first quarter of 2009. The net interest margin was 4.62% in the quarter ended March 31, 2010, compared to 3.12% in the quarter ended March 31, 2009. The significant improvement in the net interest income was attributable to:

Net interest income after provision for loan losses was $5.0 million for the first quarter of 2010, compared to $2.6 million for the first quarter of 2009. The provision for loan losses in the first quarter of 2009 was $480 thousand. The provision was $1.3 million in the first quarter of 2010. Net charge offs during the quarter ended March 31, 2010 were $1.1 million compared to $238 thousand during the same quarter last year. The charge-offs were related to various credits including one non-real estate related SBA loan, one real estate related SBA loan, one residential mortgage, two commercial and industrial loans, one consumer loan and one commercial real estate mortgage.

Noninterest income was $540 thousand during the first quarter of 2010, compared to $594 thousand during the same quarter of 2009. Noninterest income for the first quarter of 2009 benefitted from a gain on securities of $223 thousand and gain on other real estate owned ("OREO") of $87 thousand. Account maintenance and deposit service fees have increased from $132 thousand in the quarter ended March 31, 2009 to $241 thousand for the first quarter of 2010 primarily because of the increase in deposit accounts resulting from the Greater Atlantic and Millennium acquisitions.

Noninterest expense was $4.0 million for the first quarter of 2010 compared to $2.4 million for the first quarter of 2009. The amortization of the FDIC indemnification asset added $244 thousand to 2010 first quarter noninterest expenses and the amortization of the Greater Atlantic Bank core deposit intangible added $50 thousand. Also, as a result of the Greater Atlantic and Millennium transactions, compensation expense has increased $578 thousand in the first quarter of 2010 compared to the same period last year. Full-time equivalent employees increased from 66 at March 31, 2009 to 103 at March 31, 2010. Occupancy and equipment expenses have also increased $188 thousand, and data processing, online banking and ATM-related expenses are $140 thousand more than in the first quarter of 2009. Virginia franchise tax expense has increased $42 thousand in the quarter ended March 31, 2010 compared to the same period last year because of the increase in deposits during 2009. Consulting fees have increased to $50 thousand in the first quarter of 2010 from $5 thousand in the first quarter of 2009 primarily due to the Greater Atlantic acquisition.

We managed to achieve these earnings gains as we have transformed ourselves as an institution in the year since the end of the first quarter of 2009.

We purchased Millennium Bank's branch in Warrenton, Virginia in the third quarter of 2009. This acquisition strengthened our position in the Warrenton market where we already had a branch. We raised an additional $27 million of additional common equity. We acquired Greater Atlantic Bank in an FDIC assisted transaction to add four branches in the fourth quarter of 2009.

As a result of these three transactions, between the end of the first quarter of 2009 and the first quarter of 2010:

Total assets of Southern National Bancorp of Virginia were $611.7 million as of March 31, 2010 up from $610.7 million as of December 31, 2009. Net loans receivable decreased from $457.1 million at the end of 2009 to $446.2 million at March 31, 2010. Two large loans in the Sonabank portfolio totaling approximately $6.4 million were paid off, one on a project completed and refinanced and the other as a result of our borrower being acquired by a larger company. There were also principal repayments in the covered portfolio acquired in the Greater Atlantic transaction, including large repayments on three loans totaling approximately $3.2 million. The increase in bank premises and equipment was due to the purchase of certain fixed assets of Greater Atlantic from the FDIC in the amount of $1.6 million.

Southern National Bancorp of Virginia's allowance for loan losses was $5.4 million at March 31, 2010 compared to $5.2 million at December 31, 2009. As a percentage of total non-covered loans at March 31, 2010 the allowance was 1.56%, and as of December 31, 2009 it was 1.48%.

Loan Portfolio

The composition of our loan portfolio consists of the following at March 31, 2010 and December 31, 2009:

 Covered LoansNoncovered LoansTotal LoansCovered LoansNoncovered LoansTotal Loans
 March 31, 2010December 31, 2009
 Mortgage loans on
   real estate: 
      
 Commercial  $ 21,204 $ 143,285 $ 164,489 $ 24,494 $ 146,295 $ 170,789
 Construction loans to
    residential builders 
 --  2,486 2,486 --  5,436 5,436
 Other construction and
    land loans 
 2,202 42,352 44,554 3,498 42,564 46,062
 Residential 1-4 family  32,662 64,382 97,044 33,815 61,024 94,839
 Multi- family residential  2,550 10,647 13,197 2,570 10,726 13,296
 Home equity lines of
    credit 
 42,890 10,779 53,669 44,235 10,532 54,767
 Total real estate loans  101,508 273,931 375,439 108,612 276,577 385,189
       
 Commercial loans  2,524 71,162 73,686 3,184 70,757 73,941
 Consumer loans  172 2,809 2,981 193 3,528 3,721
 Gross loans   104,204 347,902 452,106 111,989 350,862 462,851
       
 Less unearned income
   on loans 
 --  (496) (496) --  (564) (564)
 Loans, net of unearned
   income 
 $ 104,204 $ 347,406 $ 451,610 $ 111,989 $ 350,298 $ 462,287

Non-covered nonperforming assets decreased by $408 thousand to $6.6 million at March 31, 2010. We have internal loan review and a loan committee which provide on-going monitoring to identify and address issues with problem loans. We believe the allowance for loan losses is sufficient to cover probable incurred credit losses at March 31, 2010.

Our only OREO in the non-covered portfolio is the previously reported property, which contains 33 finished 2 to 4 acre lots in Culpeper. In the Greater Atlantic covered portfolio we have a property with several apartment units in Georgia with a current carrying value of $310 thousand and two single family residential properties totaling $157 thousand.

Securities Portfolio

Investment securities, available for sale and held to maturity, were $73.2 million at March 31, 2010 and $76.2 million at December 31, 2009.

As of March 31, 2010 we owned pooled trust preferred securities as follows:

   Ratings     Estimated
  Tranche When Purchased Current Ratings  Fair
Security Level Moody's Fitch Moody's Fitch Par Value Book Value Value
Investment Grade:      (in thousands)
ALESCO VII A1B Senior Aaa AAA A3 A $ 8,674 $ 7,716 $ 7,044
MMCF II B Senior Sub A3 AA- Baa2 BB 578 530 503
MMCF III B Senior Sub A3 A- Baa3 B 702 685 436
       9,954 8,931 7,983
         
          
         
Other Than Temporarily Impaired:        
TPREF FUNDING II Mezzanine A1 A- Caa3 C 1,500 478 562
TRAP 2007-XII C1 Mezzanine A3 A Ca C 2,028 125 329
TRAP 2007-XIII D Mezzanine NR A- NR NR 2,032 --  -- 
MMC FUNDING XVIII Mezzanine A3 A- Ca C 1,031 83 128
ALESCO V C1 Mezzanine A2 A Ca C 2,031 555 625
ALESCO XV C1 Mezzanine A3 A- Ca C 3,053 28 234
ALESCO XVI C Mezzanine A3 A- Ca C 2,035 113 314
       13,710 1,382 2,192
         
Total      $ 23,664 $ 10,313 $ 10,175
       
    Sandler O'Neill (a)   
    Sterne Agee (b)  Previously  
   % of Current Estimated   Recognized  
   Defaults and Incremental   Cumulative  
  Current Deferrals Defaults   Other  
  Defaults and to Current Required to   Comprehensive  
Security Deferrals  Collateral Break Yield (1)   Loss (2)  
Investment Grade:      
ALESCO VII A1B $ 176,056 28% $ 213,967 b $ 328 
MMCF II B 34,000 27% 16,900 a 48 
MMCF III B 27,000 23% 22,100 a 17 
      $ 393 
       
      Cumulative Cumulative
      Other
Comprehensive
 OTTI Related to 
Other Than Temporarily Impaired:     Loss
(3)
 Credit Loss (3) 
TPREF FUNDING II 115,100 33% --   780 $ 242
TRAP 2007-XII C1 132,705 27% --   1,324 579
TRAP 2007-XIII D 260,250 35% --   --  2,032
MMC FUNDING XVIII 94,682 29% --   478 470
ALESCO V C1 91,442 27% --   963 513
ALESCO XV C1 225,100 34% --   466 2,559
ALESCO XVI C 147,250 29% --   742 1,180
      $ 4,753 $ 7,575
       
(1) A break in yield for a given tranche means that defaults/deferrals have reached such a level that the tranche would not receive all of its contractual cash flows (principal and interest) by maturity (so not just a temporary interest shortfall, but an actual loss in yield on the investment). In other words, the magnitude of the defaults/deferrals has depleted all of the credit enhancement (excess interest and over-collateralization) beneath the given tranche. This represents additional defaults beyond those currently existing. 
(2) Pre-tax, and represents unrealized losses at date of transfer from available-for-sale to held-to-maturity 
(3) Pre-tax 

We have evaluated each of these securities for potential impairment under ASC 325, and have reviewed each of the issues' collateral participants using various techniques including the ratings provided in the Bank Financial Quarterly published by IDC Financial Publishing, Inc. We have also reviewed the interest and principal coverage of each of the tranches we own. In performing a detailed cash flow analysis of each security, we work with independent third parties to identify our best 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 other than temporary impairment ("OTTI") is considered to have occurred. If there is no credit loss, any impairment is considered temporary. The cash flow analysis we performed included the following assumptions:

These assumptions resulted in no OTTI recognition on the trust preferred securities during the first quarter of 2010.

We also own $1.9 million of SARM 2005-22 1A2. This residential collateralized mortgage obligation was downgraded from B to CCC by Standard and Poors in September 2009, and it was downgraded from BBB to CC by Fitch in August 2009. The fair market value is $1.5 million. We have evaluated this security for potential impairment and, based on our review of the trustee report, shock analysis and current information regarding delinquencies, nonperforming loans and credit support, determined that an OTTI does exist as of March 31, 2010 in the amount of $7 thousand. The assumptions used in the analysis included a 5% prepayment speed, 10% default rate, a 50% loss severity and an accounting yield of 4.75%. 

Deposits

Total deposits were $449.2 million at March 31, 2010 compared to $455.8 million at December 31, 2009. The decline was almost entirely in brokered deposits which fell from $70.0 million as of December 31, 2009 to $65.0 million at March 31, 2010. Noninterest-bearing deposits were $33.5 million at March 31, 2010 and $33.3 million at December 31, 2009.

Stockholders' Equity

Total stockholders' equity increased from $97.1 million as of December 31, 2009 to $98.3 million at March 31, 2010 as a result of the retention of earnings. Tangible stockholders' equity to total tangible assets was 14.34%, and the Tier 1 Risk Based Capital Ratio was 21.23% as of March 31, 2010.

Sonabank operates 12 branches in Virginia located in Fairfax County (Reston, McLean and Fairfax), in Charlottesville, Warrenton (2), Leesburg (2), South Riding, Front Royal, New Market and Clifton Forge, and we also have a branch in Rockville, 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 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)  
 March 31,December 31,
 20102009
Assets  
Cash and cash equivalents $ 20,946 $ 8,070
Investment securities-available for sale 18,027 18,505
Investment securities-held to maturity 55,188 57,696
Stock in Federal Reserve Bank and Federal Home Loan Bank 6,775 5,940
Loans receivable, net of unearned income 451,610 462,287
Allowance for loan losses (5,421) (5,172)
Net loans 446,189 457,115
Intangible assets 12,336 12,571
Bank premises and equipment, net 4,761 3,225
Bank-owned life insurance 14,153 14,014
FDIC indemnification asset 19,164 19,408
Other assets 14,140 14,130
Total assets $ 611,679 $ 610,674
   
Liabilities and stockholders' equity  
Noninterest-bearing deposits $ 33,509 $ 33,339
Interest-bearing deposits 415,713 422,452
Securities sold under agreements to repurchase and other   
 short-term borrowings 21,248 22,020
Federal Home Loan Bank advances 35,000 30,000
Other liabilities 7,956 5,739
Total liabilities 513,426 513,550
Stockholders' equity 98,253 97,124
Total liabilities and stockholders' equity $ 611,679 $ 610,674
 
   
Condensed Consolidated Statements of Income
(Unaudited)
 (in thousands)  
 For the Quarters Ended
 March 31,
 20102009
   
Interest and dividend income $ 8,391 $ 5,426
Interest expense 2,131 2,380
Net interest income 6,260 3,046
Provision for loan losses 1,300 480
Net interest income after provision for loan losses 4,960 2,566
Account maintenance and deposit service fees 241 132
Income from bank-owned life insurance 139 148
Gain (loss) on other real estate owned, net 20 87
Net impairment losses recognized in earnings (7) -- 
Gain on securities --  223
Other  147 4
Noninterest income 540 594
Employee compensation and benefits 1,641 1,063
Premises, furniture and equipment 696 508
FDIC assessments 189 174
Other expenses 1,452 688
Noninterest expense 3,978 2,433
Income before income taxes 1,522 727
Income tax expense 481 201
Net income $ 1,041 $ 526
 
   
Financial Highlights
(Unaudited)
(Dollars in thousands except per share data)  
   
 For the Quarters Ended
 March 31,
 20102009
   
Per Share Data (1):  
Earnings per share - Basic $ 0.09 $ 0.08
Earnings per share - Diluted $ 0.09 $ 0.08
Book value per share $ 8.48 $ 10.19
Tangible book value per share $ 7.41 $ 8.47
Weighted average shares outstanding - Basic 11,590,212 6,798,547
Weighted average shares outstanding - Diluted 11,593,463 6,798,547
Shares outstanding at end of period 11,590,212 6,798,547
   
Selected Performance Ratios and Other Data:  
Return on average assets 0.69% 0.49%
Return on average equity 4.35% 3.08%
Yield on earning assets 6.20% 5.57%
Cost of funds 1.81% 2.85%
Cost of funds including non-interest bearing deposits 1.69% 2.67%
Net interest margin 4.62% 3.12%
Efficiency ratio (1) 58.61% 73.06%
Net charge-offs (recoveries) to average loans 0.23% 0.08%
Amortization of intangibles $ 236 $ 182
 
   
 As of
 March 31,December 31,
 20102009
   
Stockholders' equity to total assets 16.06% 15.88%
Tier 1 risk-based capital ratio 21.23% 17.23%
Intangible assets:  
Goodwill $ 8,713 $ 8,713
Core deposit intangible 3,623 3,858
 Total $ 12,336 $ 12,571
   
Non-covered loans and other real estate owned (2):  
Nonaccrual loans  $ 3,782 $ 4,190
Loans past due 90 days and accruing interest --  -- 
Other real estate owned 2,796 2,796
Total nonperforming assets  $ 6,578 $ 6,986
Allowance for loan losses to total non-covered loans 1.56% 1.48%
Nonperforming assets to total non-covered assets 1.30% 1.41%
Nonperforming assets to total non-covered loans 1.89% 1.99%
   
(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.  
CONTACT:  Southern National Bancorp of Virginia Inc.
          R. Roderick Porter, President
          202-464-1130 ext. 2406
          Fax: 202-464-1134
          www.sonabank.com

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