MCLEAN, Va., July 24, 2009 (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, 2009 was $23 thousand and $549 thousand for the six months ended June 30, 2009 compared to $450 thousand and $951 thousand during the second quarter and the first six months of 2008. Earnings were adversely impacted by other than temporary impairment charges (OTTI's) of $863 thousand before tax on three of our trust preferred securities which experienced significant incremental deferrals during the quarter. Earnings for the second quarter and the six months were also adversely impacted by the FDIC special assessment of $190 thousand before tax as well as increases in the regular assessment which amounted to $124 thousand during the second quarter of 2009 compared to $50 thousand during the second quarter of 2008.
On a more positive note, Sonabank's net interest margin on a linked quarter basis rose significantly from 3.12% in the first quarter of 2009 to 3.51% in the second quarter of 2009. The rise resulted from a small increase in the yield on loans from 6.04% in the first quarter to 6.08% in the second quarter. This was a result of a stabilized prime rate and Sonabank's efforts to establish floors on prime rate based loans. This improvement was partially offset by a decline in the yield on investment securities from 4.63% in the first quarter to 4.24% in the second quarter. The yield on earning assets increased from 5.57% during the first quarter to 5.60% during the second quarter.
On the liability side of the balance sheet the average cost of funds for time deposits declined from 3.33% during the first quarter to 2.68% during the second quarter as pressures subsided in the deposit markets. Overall this was reflected in a 41 basis point decline in the cost of funds quarter to quarter.
In terms of net interest margin, absent something extraordinary happening, we expect the first quarter to have been the low.
Net interest income was $3.5 million for the second quarter of 2009, compared to $2.9 million in the second quarter of 2008. The net interest margin was 3.51% in the quarter ended June 30, 2009, compared to 3.20% in the quarter ended June 30, 2008.
Noninterest loss was $502 thousand during the second quarter of 2009, compared to income of $147 thousand during the same quarter of the prior year. The OTTI charges recognized offset growth in noninterest income attributable to an increase in account maintenance and deposit service fees and other noninterest income.
Net interest income was $6.5 million during the six months ended June 30, 2009, compared to $6.2 million during the comparable period in the prior year.
Noninterest income decreased from $268 thousand in the first six months of 2008 to $92 thousand in the first six months of 2009. Noninterest income for the first six months of 2009 included a gain on sale of securities of $223 thousand and gain on other real estate owned of $117 thousand, which is offset by the OTTI charge recognized totaling $863 thousand. Noninterest income for the same period last year included a net loss on other real estate owned of $175 thousand.
Despite the costs associated with the two new branches we opened in Leesburg and costs to support other organic growth of the Bank, noninterest expenses were well controlled and rose 11% from $4.4 million for the first six months of 2008 to $4.9 million for the first six months of 2009.
One extremely important driver of cost in the second quarter was that Sonabank has long had a semi-annual bonus plan. As a consequence of the difficulties faced in the quarter, we have suspended the bonus payments for the first half of the year, and compensation cost for the quarter is down compared to the same quarter last year.
Total assets of Southern National Bancorp of Virginia were $432.7 million as of June 30, 2009 up from $431.9 million as of December 31, 2008. Net loans receivable grew from $298.0 million at the end of 2008 to $321.6 million at June 30, 2009.
Loan Portfolio
The composition of our loan portfolio consists of the following at June 30, 2009 and December 31, 2008:
June 30, December 31,
2009 2008
--------- ---------
Mortgage loans on real estate:
Commercial $ 126,998 $ 104,866
Construction loans to residential builders 4,844 4,752
Other construction and land loans 41,054 51,836
Residential 1-4 family 62,081 60,376
Multi- family residential 7,463 5,581
Home equity lines of credit 13,250 11,509
--------- ---------
Total real estate loans 255,690 238,920
Commercial loans 67,759 60,820
Consumer loans 3,320 3,074
--------- ---------
Gross loans 326,769 302,814
Less unearned income on loans (550) (548)
--------- ---------
Loans, net of unearned income $ 326,219 $ 302,266
========= =========
The largest growth segments were commercial real estate and commercial loans.
Non-performing assets increased from $4.7 million (1.09% of assets) at March 31, 2009 to $5.7 million (1.31% of assets) at June 30, 2009. The change in the balance is primarily the result of the following:
* There was an addition of one owner occupied commercial real estate loan in the amount of $1.5 million to non-performing status. There is a $1.1 million SBA 504 loan behind us. A current appraisal values the property at $1.7 million, not including several hundred thousand in equipment. This loan was only 45 days past due at June 30, 2009, but the owners have declared Chapter 7 bankruptcy. * The sale of one residential property in other real estate owned with a carrying value of $280 thousand, as well as a short sale of another residential property to pay off a nonperforming loan with a carrying value of $391 thousand.
The bulk of our other real estate owned balance continues to be comprised of one property, which contains 33 finished 2 to 4 acre lots in Culpeper. There are no new developments on that property.
The loan loss provision was $545 thousand, $480 thousand and $255 thousand during the quarters ended June 30, 2009, March 31, 2009 and June 30, 2008, respectively. Net charge-offs were $434 thousand, $238 thousand and $99 thousand during the same periods.
The ratio of the allowance for loan losses to total loans remained at 1.4% as of June 30, 2009, March 31, 2009 and June 30, 2008.
The Securities Portfolio
Sonabank owns a portfolio of trust preferred securities. These securities have been adversely affected by the continued deterioration of some sectors of the banking system which resulted in increased defaults this quarter. In performing a detailed cash flow analysis of each security, Sonabank works with independent third parties to identify its 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 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:
* Unless the company has received funding under TARP, we assume that all of the issuers rated 1 by IDC Financial Publishing that have not already defaulted will default immediately with 100% loss. * We assume that annual defaults for the remaining life of each security will be 37.5 basis points. According to FTN Financial: "The FDIC lists the number of bank failures each year from 1934- 2008. Comparing bank failures to the number of FDIC institutions produces an annual average default rate of 36 basis points." * We assume recoveries ranging from 0% to 75% on deferrals after two years depending on the IDC rating of the deferring entity. * We assume no prepayments for 10 years and then 1% per annum for the remaining life of the security. According to FTN Financial: "Prepayments were common in 2006 and 2007 when issuers were able to refinance into lower cost borrowings. That was a much different environment than today and most parties expect prepayments to be very low absent a change in credit conditions." * Our securities have been modeled using the above assumptions by Sandler O'Neill or FTN Financial using the forward LIBOR curve plus original spread to discount projected cash flows to present values.
Management's analysis in the second quarter deemed three of the ten securities we own other than temporarily impaired. The cash flow analysis this quarter indicated that one security, ALESCO XV C1 would probably experience significant credit losses. Two others, ALESCO V C1 and ALESCO XVI C, would probably experience minor credit losses. We have booked OTTI charges accordingly. The credit portion of the OTTI was taken through net income and the remainder through other comprehensive income.
Ratings
Tranche When Purchased Current Ratings
Security Level Moody's Fitch Moody's Fitch
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Investment Grade:
ALESCO VII A1B Senior Aaa AAA A3 AA
MMCF II B Senior Sub A3 AA- Baa2 BBB
MMCF III B Senior Sub A3 A- Baa3 B
Other:
TPREF FUNDING II Mezzanine A1 A- Caa3 CC
TRAP 2007-XII C1 Mezzanine A3 A Ca CC
TRAP 2007-XIII D Mezzanine NR A- NR C
MMC FUNDING XVIII Mezzanine A3 A- Ca C
Other Than Temporarily
Impaired:
ALESCO V C1 Mezzanine A2 A Ca CC
ALESCO XV C1 Mezzanine A3 A- Ca CC
ALESCO XVI C Mezzanine A3 A- Ca CC
Estimated
Fair
Security Par Value Book Value Value
--------------------------------------------------------------------
Investment Grade: (in thousands)
ALESCO VII A1B $ 8,832 $ 7,828 $ 6,118
MMCF II B 583 533 494
MMCF III B 709 691 390
------------------------------
10,124 9,052 7,002
------------------------------
Other:
TPREF FUNDING II 1,500 1,299 552
TRAP 2007-XII C1 2,000 1,409 251
TRAP 2007-XIII D 2,012 1,382 380
MMC FUNDING XVIII 1,020 757 246
------------------------------
6,532 4,847 1,429
------------------------------
Other Than Temporarily
Impaired:
ALESCO V C1 2,000 704 704
ALESCO XV C1 3,018 420 420
ALESCO XVI C 2,012 539 539
------------------------------
7,030 1,663 1,663
------------------------------
Total $23,686 $ 15,562 $ 10,094
==============================
% of Current Previously
Current Defaults and Recognized
Defaults Deferrals Cumulative
and to Current Other Comprehensive
Security Deferrals Collateral Loss (1)
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Investment Grade: (in thousands)
ALESCO VII A1B $ 99,300 16% $ 335
MMCF II B 28,000 22% 50
MMCF III B 10,000 8% 17
--------
$ 402
========
Other:
TPREF FUNDING II 87,000 25% 201
TRAP 2007-XII C1 84,750 17% 591
TRAP 2007-XIII D 86,000 11% 630
MMC FUNDING XVIII 62,500 19% 264
--------
$ 1,686
========
Cumulative Amount of
Other Than Other OTTI Related
Temporarily Comprehensive to Credit
Impaired: Loss (2) Loss (2)
-----------------------
ALESCO V C1 63,500 19% $ 1,293 $ 3
ALESCO XV C1 169,250 25% 1,800 799
ALESCO XVI C 110,000 22% 1,411 61
-----------------------
$ 4,504 $ 863
=======================
(1) Pre-tax, and represents unrealized losses at date of transfer
from available-for-sale to held-to-maturity
(2) Pre-tax
Sonabank also owns the following securities:
* $38.9 million of FNMA and FHLMC mortgage-backed securities. Since the conservatorship, these securities carry the full faith and credit of the U.S. Government. As of June 30, 2009, the fair market value of these securities was $39.8 million. * We also own $2.2 million of the SARM 2005-22 1A2. This CMO was downgraded from AAA to B by Standard and Poors in June 2009, but has been rated BBB by Fitch since the fourth quarter of 2008. This security was originated in 2005. The average FICO score of the underlying loans at origination was 748. As of June 30, 2009, delinquencies of more than 60 days, foreclosures and REO totaled 27.5% compared to 23.2% at March 31, 2009. Credit support is 13.9 compared to 14 when originally issued, which provides coverage of 1.54 times projected losses in the collateral. The fair market value is $1.2 million * We own 80,000 shares of the Freddie Mac perpetual preferred stock Series V. We have recorded total OTTI charges on this security of $1.976 million. The fair value at June 30, 2009 was $35 thousand.
Deposits
Total deposits were up to $314.8 million at June 30, 2009 from $309.5 million at December 31, 2008. Noninterest-bearing deposits were up to $25.2 million at June 30, 2009 from $23.2 million at December 31, 2008.
Stockholders' Equity
Total stockholders' equity decreased from $68.8 million as of December 31, 2008 to $67.5 million at June 30, 2009 due to the write-down to fair value for certain trust preferred securities which resulted from the OTTI charges on the trust preferred securities. The non-credit component of the OTTI charge is a component of accumulated other comprehensive income.
Sonabank's branches are located in Fairfax County (Reston, McLean and Fairfax), in Charlottesville, Warrenton, Leesburg and Clifton Forge. All of our branches are in Virginia.
As previously announced Sonabank has entered into a definitive agreement to acquire the Warrenton branch office, deposits and selected loans from Millennium Bank, N.A. subject to regulatory approval.
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 reports (such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q) filed by Southern National Bancorp. You should consider such factors and not place undue reliance on such forward-looking statements. No obligation is undertaken by Southern National Bancorp 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
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Condensed Consolidated Balance Sheets
(Unaudited)
----------------------------------------------------------------------
(in thousands)
June 30, December 31,
2009 2008
---------- -----------
Assets
Cash and cash equivalents $ 7,430 $ 14,762
Investment securities-available for sale 4,775 15,633
Investment securities-held to maturity 52,990 59,326
Stock in Federal Reserve Bank and Federal
Home Loan Bank 4,464 4,041
Loans receivable, net of unearned income 326,219 302,266
Allowance for loan losses (4,571) (4,218)
---------- -----------
Net loans 321,648 298,048
Intangible assets 11,491 11,854
Bank premises and equipment, net 3,379 3,598
Bank-owned life insurance 13,723 13,435
Other assets 12,819 11,227
---------- -----------
Total assets $ 432,719 $ 431,924
========== ===========
Liabilities and stockholders' equity
Noninterest-bearing deposits $ 25,249 $ 23,219
Interest-bearing deposits 289,575 286,241
Securities sold under agreements to
repurchase and other short-term
borrowings 18,220 20,890
Federal Home Loan Bank advances 30,000 30,000
Other liabilities 2,127 2,798
--------- -----------
Total liabilities 365,171 363,148
Stockholders' equity 67,548 68,776
--------- -----------
Total liabilities and stockholders' equity $ 432,719 $ 431,924
========= ===========
----------------------------------------------------------------------
Condensed Consolidated Statements of Income
(Unaudited)
----------------------------------------------------------------------
(in thousands)
For the Quarters Ended For the Six Months Ended
June 30, June 30,
2009 2008 2009 2008
---------- ---------- ---------- -----------
Interest and dividend
income $ 5,571 $ 5,863 $ 10,997 $ 12,276
Interest expense 2,081 2,933 4,461 6,126
---------- ---------- ---------- -----------
Net interest income 3,490 2,930 6,536 6,150
Provision for loan
losses 545 255 1,025 706
---------- ---------- ---------- -----------
Net interest income
after provision for
loan losses 2,945 2,675 5,511 5,444
---------- ---------- ---------- -----------
Account maintenance
and deposit service
fees 138 118 270 234
Income from bank-owned
life insurance 140 145 288 290
Net gain (loss) on
other real estate
owned 30 -- 117 (175)
Net impairment losses
recognized in
earnings (863) (124) (863) (124)
Gain on securities -- -- 223 --
Other 53 8 57 43
---------- ---------- ---------- -----------
Noninterest income
(loss) (502) 147 92 268
---------- ---------- ---------- -----------
Employee compensation
and benefits 936 948 1,999 1,918
Premises, furniture
and equipment 512 502 1,021 968
FDIC special assessment 190 -- 190 --
Other expenses 836 771 1,697 1,547
---------- ---------- ---------- -----------
Noninterest expense 2,474 2,221 4,907 4,433
---------- ---------- ---------- -----------
Income (loss) before
income taxes (31) 601 696 1,279
Income tax expense
(benefit) (54) 151 147 328
---------- ---------- ---------- -----------
Net income $ 23 $ 450 $ 549 $ 951
========== ========== ========== ===========
----------------------------------------------------------------------
Financial Highlights
(Unaudited)
---------------------------------------------------------------------
(Dollars in thousands except per share data)
For the Quarters Ended For the Six Months Ended
June 30, June 30,
2009 2008 2009 2008
---------- ---------- ---------- ----------
Per Share Data :
Earnings per share
- Basic $ 0.00 $ 0.07 $ 0.08 $ 0.14
Earnings per share
- Diluted $ 0.00 $ 0.07 $ 0.08 $ 0.14
Book value per share $ 9.94 $ 10.07
Tangible book value
per share $ 8.25 $ 8.28
Weighted average
shares outstanding
- Basic 6,798,547 6,798,547 6,798,547 6,798,547
Weighted average
shares outstanding
- Diluted 6,798,547 6,798,547 6,798,547 6,800,190
Shares outstanding
at end of period 6,798,547 6,798,547
Selected Performance
Ratios and Other Data:
Return on average
assets 0.02% 0.45% 0.25% 0.48%
Return on average
equity 0.13% 2.59% 1.59% 2.98%
Yield on earning
assets 5.60% 6.40% 5.58% 6.84%
Cost of funds 2.44% 3.78% 2.64% 4.03%
Cost of funds
including non-interest
bearing deposits 2.29% 3.54% 2.48% 3.78%
Net interest margin 3.51% 3.20% 3.32% 3.43%
Efficiency ratio (1) 64.75% 69.38% 68.62% 66.00%
Net charge-offs
(recoveries) to
average loans 0.14% 0.04% 0.21% 0.06%
Amortization of
intangibles $ 182 $ 182 $ 363 $ 363
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As of
June 30, December 31,
2009 2008
----------------------
Nonaccrual loans $ 2,244 $ 1,078
Loans past due 90 days and accruing
interest -- 135
Other real estate owned 3,415 3,434
---------- ----------
Total nonperforming assets and
loans past due 90 days $ 5,659 $ 4,647
Allowance for loan losses to
total loans 1.40% 1.40%
Nonperforming assets and loans past due
90 days to total assets 1.31% 1.08%
Nonperforming assets and loans past due
90 days to total loans 1.73% 1.54%
Stockholders' equity to total assets 15.61% 15.92%
Tangible stockholders' equity to total
tangible assets 13.31% 13.55%
Tier 1 risk-based capital ratio 15.14% 17.46%
Intangible assets:
Goodwill $ 8,713 $ 8,713
Core deposit intangible 2,778 3,141
Total $ 11,491 $ 11,854
(1) Excludes gains and write-downs on OREO, gains on sale of loans
and net securities gains (losses).