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Southern National Bancorp Reports 3rd Quarter After Tax Profit of $214 Thousand

(October 20, 2009)

MCLEAN, Va., Oct. 20, 2009 (GLOBE NEWSWIRE) -- Southern National Bancorp of Virginia Inc. (Nasdaq:SONA) announced today that net income was $214 thousand during the quarter ended September 30, 2009.

The third quarter of 2009 was marked by a number of positive factors partially offset by a material negative factor.

The positive factors were as follows:

-- Our net interest margin was 3.89% compared to 3.51% last quarter, 3.12% during the first quarter of 2009 and 3.12% during the third quarter a year ago. -- We closed the previously announced transaction which included the assumption of approximately $26.6 million in Millennium Bank's Warrenton Branch's deposits and the purchase of approximately $23.6 million of selected loans from Millennium Bank as a whole. Our signs went up as of September 28th and we are operating the branch as a branch of Sonabank. -- Credit quality remained stable with non-performing assets and loans past due 90 days to total assets at 1.44% compared to 1.31% last quarter.


The negative factor was an additional other than temporary impairment ("OTTI") of $1.0 million before tax relating to our trust preferred securities due to continued deterioration during the quarter in the underlying collateral in four of the issues we own. Four banks rated above 100 by IDC deferred payments and interestingly, three of them had been recipients of TARP funding. Three of the issues we own had previously been subject to OTTI's in the second quarter, and the new deferrals increased the amount of the OTTI related to two of those issues. Three other issues experienced new OTTI's during the quarter. The details are outlined in the chart contained later in this press release.

The net income during the third quarter of 2009 of $214 thousand compared to a loss of $757 thousand in the third quarter of 2008. Both quarters were adversely affected by OTTIs. This quarter the pretax impairment charge was $1.0 million and was related to our holdings of trust preferred securities. The impairment charge in the third quarter of 2008 was $1.3 million and related to the Freddie Mac perpetual preferred stock owned by the Company, as illustrated in the table below.

Earnings after taxes for the first three quarters of 2009 were $763 thousand compared to $194 thousand during the period in 2008.

Net interest income was $4.0 million during the third quarter of 2009 compared to $3.5 million during the second quarter and to $3.1 million during the third quarter of 2008. Net interest income for the first three quarters of 2009 was $10.5 million compared to $9.2 million during the same period last year. The interest rate headwinds we described in the first quarter have largely subsided.

Noninterest income was $99 thousand during the third quarter of 2009, compared to noninterest loss of $776 thousand during the same quarter of the prior year. The noninterest income (loss) in the third quarter of 2009 and 2008 consisted of the following (in thousands):

2009 2008 ---------------------- OTTI on securities* $ (1,022) $ (1,345) Gain on sale of securities 148 111 Gain on sale of SBA loans 155 107 Net 141R gains related to Millennium transactions 423 - Gain on sale of other assets 56 39 Account maintenance and deposit service fees 171 133 Income from bank-owned life insurance 144 148 Other 24 31 ---------------------- $ 99 $ (776) ====================== * OTTI on trust preferred securities in 2009; OTTI on FHLMC preferred stock in 2008.

In the third quarter of 2008 the noninterest loss was largely attributable to an OTTI charge on Freddie Mac Perpetual Preferred stock.

Total noninterest expenses were $2.6 million during the quarter ended September 30, 2009 up from $2.3 million during the same quarter in 2008. The increase was in part attributable to approximately $93 thousand in expenses related to the Millennium branch acquisition as well as in increase in FDIC assessments of $97 thousand. The efficiency ratio improved to 60.9% during the third quarter of 2009, from 68.4% during the comparable quarter in 2008.

Total assets of Southern National Bancorp of Virginia were $462.1 million as of September 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 $341.4 million at September 30, 2009.

Loan Portfolio

The composition of our loan portfolio consists of the following at September 30, 2009 and December 31, 2008 (in thousands):

Sept. 30, Dec. 31, 2009 2008 --------- --------- Mortgage loans on real estate: Commercial $ 144,624 $ 104,866 Construction loans to residential builders 5,283 4,752 Other construction and land loans 42,692 51,836 Residential 1-4 family 61,057 60,376 Multi- family residential 10,801 5,581 Home equity lines of credit 10,790 11,509 --------- --------- Total real estate loans 275,247 238,920 Commercial loans 68,518 60,820 Consumer loans 3,026 3,074 --------- --------- Gross loans 346,791 302,814 Less unearned income on loans (559) (548) --------- --------- Loans, net of unearned income $ 346,232 $ 302,266 ========= =========

Virtually all of the growth in the loan portfolio during the third quarter of 2009 was attributable to the purchase of loans in the Millennium transaction. Organic growth was offset by the sale of $2.1 million in guaranteed portions of SBA loans, a $1.5 million foreclosure sale of a commercial property and residential foreclosures on three properties aggregating $603 thousand.

Nonperforming assets increased from $5.7 million (1.31% of assets) at June 30, 2009 to $6.7 million (1.44% of assets) at September 30, 2009. The change in the balance is primarily the result of the following:

-- The collateral securing the owner occupied $1.5 million commercial real estate loan which was put on non-accrual last quarter was sold at auction at a small gain during the quarter. At quarter end we put a $2.4 million owner occupied commercial real estate loan on non-accrual. The owner continues to operate the facility, but at this time is only able to make partial payments. The appraised value of the real estate was $4.6 million as of the last appraisal in November 2007. -- 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. In addition, we own three residential properties taken in foreclosures with an aggregate carrying value of $547 thousand which are being actively marketed.

The provision for loan losses during the three month period ending September 30, 2009 was $1.2 million and net charge offs were $878 thousand resulting in an increase in the allowance for loan losses of $300 thousand. The charge offs during the quarter related primarily to one commercial and industrial loan which has been almost completely written off. In addition, we charged off small amounts on a number of residential mortgages. During the comparable quarter in 2008 the provision for loan losses was $500 thousand and net charge offs were $389 thousand.

The ratio of the allowance for loan losses to total loans is 1.41% as of September 30, 2009.

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 have resulted in increased deferrals and defaults in the underlying collateral.

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:

-- We assume that all of the issuers rated 1 by IDC Financial Publishing that have not already defaulted or deferred will default or defer immediately with 100% loss, except for one issuer that has received TARP funding. On one security, TPREF Funding II which has a minimal cushion, we have assumed an additional $10 million in defaults which results in an OTTI. -- 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 Sterne Agee using the forward LIBOR curve plus original spread to discount projected cash flows to present values.

At the end of the second quarter of 2009, management's analysis deemed three of the ten securities we own other than temporarily impaired. The cash flow analysis in the second 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 booked second quarter OTTI charges accordingly. In the third quarter of 2009 our analysis indicated that we would incur OTTI charges on three additional securities: MMC Funding XVIII, TRAP 2007 - XIII D and TPREF Funding II.

The results were as follows (in thousands):

Ratings Tranche When Purchased Current Ratings Security Level Moody's Fitch Moody's Fitch ------------------------------------------------------------------ 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: TRAP 2007-XII C1 Mezzanine A3 A Ca CC Other Than Temporarily Impaired: TPREF FUNDING II Mezzanine A1 A- Caa3 CC TRAP 2007-XIII D Mezzanine NR A- NR C MMC FUNDING XVIII Mezzanine A3 A- Ca C 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 $ 8,792 $ 7,802 $ 6,506 MMCF II B 583 533 484 MMCF III B 709 692 369 -------------------------------------------- 10,084 9,027 7,359 -------------------------------------------- Other: TRAP 2007-XII C1 2,012 1,422 282 -------------------------------------------- Other Than Temporarily Impaired: TPREF FUNDING II 1,500 522 522 TRAP 2007-XIII D 2,023 142 142 MMC FUNDING XVIII 1,025 99 99 ALESCO V C1 2,000 704 640 ALESCO XV C1 3,032 212 212 ALESCO XVI C 2,021 424 424 -------------------------------------------- 11,601 2,103 2,039 -------------------------------------------- Total $23,697 $12,552 $ 9,680 ============================================ Sandler O'Neill(a) Sterne Agee(b) % of Current Estimated Defaults and Incremental Current Deferrals Defaults Defaults and to Current Required to Security Deferrals Collateral Break Yield(1) ---------------------------------------------------------------- Investment Grade: ALESCO VII A1B $132,556 21% $288,348 b MMCF II B 34,000 26% 16,900 a MMCF III B 10,000 8% 30,200 a Other: TRAP 2007-XII C1 118,250 24% 40,860 b Other Than Temporarily Impaired: TPREF FUNDING II 114,000 33% 2,200 a TRAP 2007-XIII D 158,250 21% -- b MMC FUNDING XVIII 100,500 30% -- a ALESCO V C1 70,942 21% 272 b ALESCO XV C1 180,250 27% -- b ALESCO XVI C 126,250 25% -- b Previously Recognized Cumulative Other Comprehensive Security Loss(2) ---------------------------- Investment Grade: ALESCO VII A1B $ 332 MMCF II B 50 MMCF III B 17 ------- $ 399 ======= Other: TRAP 2007-XII C1 $ 590 ======= Cumulative Previously Current Other Than Other Recognized Quarter Temporarily Comprehensive OTTI Related to OTTI Related to Impaired: Loss(3) Credit Loss(3) Credit Loss(3) ------------------------------------------------- TPREF FUNDING II $ 922 $ -- $ 56 TRAP 2007-XIII D 1,800 -- 81 MMC FUNDING XVIII 605 -- 321 ALESCO V C1 1,293 3 -- ALESCO XV C1 1,577 799 444 ALESCO XVI C 1,416 61 120 ------------------------------------------------- $ 7,613 $ 863 $ 1,022 ------------------------------------------------- (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

Sonabank also owns the following securities:

-- $41.7 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 September 30, 2009, the fair market value of these securities was $42.9 million. -- We also own $2.1 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. This security was originated in 2005. The average FICO score of the underlying loans at origination was 748. As of September 30, 2009, delinquencies of more than 60 days, foreclosures and REO totaled 30.3% compared to 27.5% at June 30, 2009. Credit support is 11.78 compared to 14 when originally issued, which provides coverage of 1.19 times projected losses in the collateral. The fair market value is $1.3 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 not exist as of September 30, 2009. -- We own 55,000 shares of the Freddie Mac perpetual preferred stock Series V. The fair value of the shares we still own at September 30, 2009 was $91 thousand.

Deposits

Noninterest bearing deposits were strong at $27.6 million at September 30, 2009 up from $23.2 million at the end of last year. Money market accounts grew from $51.0 million at December 31, 2008 to $62.2 million at September 30, 2009. Now accounts and savings accounts aggregated $12.0 million at September 30, 2009 compared to December 31, 2008 balances of $10.4 million. As of September 30, 2009, brokered deposits, which include brokered certificates of deposit and brokered money market deposits, amounted to $104.9 million compared to $145.3 million at December 31, 2008. Customer repos were $23.0 million at September 30, 2009 compared $20.9 million at December 31, 2008.

Stockholders' Equity

Total stockholders' equity was $66.5 million as of September 30, 2009. Our Tier 1 Risk Based Capital Ratios were 14.89% and 14.29% for Southern National Bancorp of Virginia, Inc. and Sonabank, respectively.

Southern National Bancorp of Virginia, Inc. is the holding company for Sonabank which operates nine banking offices in McLean, Reston, Fairfax, Leesburg (2), Warrenton (2), Charlottesville, and Clifton Forge, Virginia.

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 Southern National Bancorp's Annual Report on Form 10-K for the year ended December 31, 2008 and subsequent filings by Southern National Bancorp with the Securities and Exchange Commission. You should consider such factors and not place undue reliance on such forward-looking statements. Forward-looking statements speak only as of the date they are made. No obligation is undertaken by Southern National Bancorp to update such forward-looking statements to reflect events or circumstances occurring after such statements, unless otherwise required by law.

Southern National Bancorp of Virginia, Inc. McLean, Virginia --------------------------------------------------------------------- Condensed Consolidated Balance Sheets (Unaudited) --------------------------------------------------------------------- (in thousands) Sept. 30, Dec. 31, 2009 2008 --------- --------- Assets Cash and cash equivalents $ 17,056 $ 14,762 Investment securities-available for sale 5,133 15,633 Investment securities-held to maturity 51,824 59,326 Stock in Federal Reserve Bank and Federal Home Loan Bank 4,427 4,041 Loans receivable, net of unearned income 346,232 302,266 Allowance for loan losses (4,871) (4,218) --------- --------- Net loans 341,361 298,048 Intangible assets 11,552 11,854 Bank premises and equipment, net 3,328 3,598 Bank-owned life insurance 13,867 13,435 Other assets 13,570 11,227 --------- --------- Total assets $ 462,118 $ 431,924 ========= ========= Liabilities and stockholders' equity Noninterest-bearing deposits $ 27,592 $ 23,219 Interest-bearing deposits 313,096 286,241 Securities sold under agreements to repurchase and other short-term borrowings 23,001 20,890 Federal Home Loan Bank advances 30,000 30,000 Other liabilities 1,986 2,798 --------- --------- Total liabilities 395,675 363,148 Stockholders' equity 66,443 68,776 --------- --------- Total liabilities and stockholders' equity $ 462,118 $ 431,924 ========= ========= --------------------------------------------------------------------- Condensed Consolidated Statements of Income (Unaudited) --------------------------------------------------------------------- (in thousands) For the Quarters For the Nine Months Ended Ended September 30, September 30, 2009 2008 2009 2008 -------- -------- -------- -------- Interest and dividend income $ 5,778 $ 6,039 $ 16,775 $ 18,315 Interest expense 1,827 2,989 6,288 9,114 -------- -------- -------- -------- Net interest income 3,951 3,050 10,487 9,201 Provision for loan losses 1,178 500 2,203 1,207 -------- -------- -------- -------- Net interest income after provision for loan losses 2,773 2,550 8,284 7,994 -------- -------- -------- -------- Account maintenance and deposit service fees 171 133 441 367 Income from bank-owned life insurance 144 148 432 438 Gain on sale of loans 155 107 155 107 Net gain (loss) on other assets 479 39 596 (136) Net impairment losses recognized in earnings (1,022) (1,345) (1,885) (1,469) Gain on sale of securities 148 111 371 111 Other 24 31 81 73 -------- -------- -------- -------- Noninterest income (loss) 99 (776) 191 (509) -------- -------- -------- -------- Salaries and benefits 1,098 1,045 3,097 2,963 Occupancy expenses 515 507 1,535 1,475 FDIC assessments 151 54 448 153 FDIC special assessment -- -- 190 -- Other 850 694 2,251 2,142 -------- -------- -------- -------- Noninterest expense 2,614 2,300 7,521 6,733 -------- -------- -------- -------- Income (loss) before income taxes 258 (526) 954 752 Income tax expense (benefit) 44 231 191 558 -------- -------- -------- -------- Net income (loss) $ 214 $ (757) $ 763 $ 194 ======== ======== ======== ======== Financial Highlights (Unaudited) --------------------------------------------------------------------- (Dollars in thousands except per share data) For the Quarters For the Nine Months Ended Ended September 30, September 30, 2009 2008 2009 2008 --------- --------- --------- --------- Per Share Data: Earnings per share - Basic $ 0.03 $ (0.11) $ 0.11 $ 0.03 Earnings per share - Diluted $ 0.03 $ (0.11) $ 0.11 $ 0.03 Book value per share $ 9.77 $ 9.95 Tangible book value per share $ 8.07 $ 8.18 Weighted average shares outstanding - Basic 6,798,547 6,798,547 6,798,547 6,798,547 Weighted average shares outstanding - Diluted 6,800,126 6,798,547 6,798,547 6,798,547 Shares outstanding at end of period 6,798,547 6,798,547 Selected Performance Ratios and Other Data: Return on average assets 0.19% -0.71% 0.23% 0.06% Return on average equity 1.25% -4.37% 1.48% 0.37% Yield on earning assets 5.69% 6.17% 5.62% 6.61% Cost of funds 2.08% 3.54% 2.45% 3.85% Cost of funds including non-interest bearing deposits 1.96% 3.35% 2.30% 3.63% Net interest margin 3.89% 3.12% 3.51% 3.32% Efficiency ratio (1) 60.93% 68.41% 65.74% 66.80% Net charge-offs (recoveries) to average loans 0.26% 0.13% 0.48% 0.20% Amortization of intangibles $ 182 $ 182 $ 545 $ 545 --------------------------------------------------------------------- As of Sept. 30, Dec. 31, 2009 2008 --------------------- Nonaccrual loans $ 2,913 $ 1,078 Loans past due 90 days and accruing interest -- 135 Other real estate owned 3,744 3,434 --------- --------- Total nonperforming assets $ 6,657 $ 4,647 Allowance for loan losses to total loans 1.41% 1.40% Nonperforming assets to total assets 1.44% 1.08% Nonperforming assets to total loans 1.92% 1.54% Stockholders' equity to total assets 14.38% 15.92% Tier 1 risk-based capital ratio 14.89% 17.46% Intangible assets: Goodwill $ 8,713 $ 8,713 Core deposit intangible 2,839 3,141 Total $ 11,552 $ 11,854 (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.

CONTACT: Southern National Bancorp R. Roderick Porter, President 202-464-1130 ext. 2406 Fax: 202-464-1134 www.sonabank.com


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