Alliance Bankshares 3rd Quarter 2009 Results: Financial News

Continued Progress in Reducing Nonperforming Assets; Positive Improvements in the Net Interest Margin; Strong Deposit Growth Seen in 2009

CHANTILLY, Va.--(BUSINESS WIRE)--Alliance Bankshares Corporation (NASDAQ:ABVA - News) today reported a third quarter loss of $896 thousand compared to the third quarter 2008 loss of $2.4 million. On a year-to-date basis the company reported a net loss of $1.9 million compared to a loss of $5.5 million for the same period in 2008. Despite the net loss, all regulatory capital ratios remain above the levels necessary to be considered a “well capitalized” institution.

“Our results, although improving, reflect the reality of where we are in the credit cycle. At the same time, the key drivers of our return to profitability are improving: a rising net interest margin, successful deposit gathering initiatives, well contained non-interest expense and declining levels of non-performing assets. Our team remains focused on the financial strategies we believe will return us to profitability,” said Thomas A. Young, Jr., President & CEO.

“The third quarter 2009 net interest margin improved to 3.01% and for the full year 2009 the net interest margin rose to 2.87%. Demand deposits were $120.9 million as of September 30, 2009, up over 60% since December 31, 2008. Non-interest expenses for the third quarter 2009 increased by a nominal 1.1% over the third quarter 2008 levels, while absorbing a variety of nonrecurring expenses. Nonperforming assets decreased to $14.6 million or 2.30% of total assets. Improving these performance metrics remains the primary focus of the management team,” he continued.

In accordance with the long term plan, management has made significant progress on a number of strategies:

As part of the strategic initiative to reduce certain loan concentrations and adjust the portfolio mix, the loan portfolio declined from the December 31, 2008 level of $367.4 million to the September 30, 2009 level of $355.5 million. Meaningful reductions have been achieved in construction loans, land loans and HELOCs.
The plan called for a significant reduction in trading assets. At September 30, 2009, trading assets amounted to $10.9 million or $71.7 million lower than the December 31, 2008 level of $82.6 million. Remaining are five private label collateralized mortgage obligations with a fair value of $4.3 million that are expected to cashflow out and a four agency callable bonds with a fair value of $6.6 million.
Core deposit initiatives have resulted in growing total deposits to $501.9 million as of September 30, 2009 compared to $428.7 million as of December 31, 2008. As of September 30, 2009, demand deposits represented 24.1% of total deposits up from the 17.6% as of December 31, 2008.

“One can never predict with certainty when recessions will start or end. The management team and the board of directors remain focused on taking action that will add long-term franchise value yet managing through the current recession. The recent third quarter GDP announcement may serve as an indicator that the recession is nearing the end. As we continually decrease our exposure to nonperforming assets, improve our funding mix and net interest margin and take a careful approach towards overhead costs, we believe the foundation for the future is positive. We thank you for your continuous support in the most challenging banking environment since the great depression,” said William M. Drohan, Chairman of the Board of Directors.

Some of the matters discussed herein may include forward-looking statements. These forward-looking statements may include statements regarding profitability, balance sheet management goals and actions and financial and other goals. These statements are based on certain assumptions and analyses by the company and other factors it believes are appropriate in the circumstances. However, the company's expectations are subject to a number of risks and uncertainties such as changes in personnel, interest rates, accounting standards, economic conditions and other factors that could cause actual results, events and developments to differ materially from those contemplated by any forward-looking statements herein. Consequently, all forwarding-looking statements made herein are qualified by these cautionary statements and cautionary language in the company's most recent report on Form 10-K and other documents filed with the Securities and Exchange Commission.

More information on Alliance Bankshares Corporation can be found online at www.alliancebankva.com, or by phoning an Alliance office.

ALLIANCE BANKSHARES CORPORATION

Consolidated Balance Sheets

September 30,
December 31, September 30,

2009* 2008 2008*

ASSETS (Dollars in thousands)

Cash and due from banks $ 72,711 $ 12,205 $ 25,211

Federal funds sold 35,249 5,050 12,976

Trading securities, at fair value 10,893 82,584 89,386

Investment securities available-for-sale, at fair value 133,327 73,303 21,793

Loans held for sale 589 347 989

Loans, net of unearned discount and fees 355,500 367,371 370,768

Less: allowance for loan losses (5,295 ) (5,751 ) (6,000 )

Loans, net 350,205 361,620 364,768

Premises and equipment, net 2,153 1,888 1,861

Other real estate owned (OREO) 9,808 11,749 13,379

Intangible assets 2,016 2,331 2,415

Goodwill 3,569 3,569 3,869

Other assets 15,210 18,203 16,172

TOTAL ASSETS $ 635,730 $ 572,849 $ 552,819

LIABILITIES AND STOCKHOLDERS' EQUITY

Non-interest bearing deposits $ 120,941 $ 75,448 $ 74,167

Interest-bearing deposits ($9,233, $24,180 and $41,329 at fair value) 380,943 353,276 327,281

Total deposits 501,884 428,724 401,448

Repurchase agreements, federal funds purchased and other borrowings 32,907 40,711 46,318

Federal Home Loan Bank advances ($25,908, $26,361 and $26,111 at fair value) 50,908 51,361 51,111

Trust Preferred Capital Notes 10,310 10,310 10,310

Other liabilities 3,387 4,576 4,379

Commitments and contingent liabilities - - -

TOTAL LIABILITIES 599,396 535,682 513,566

Common stock, $4 par value; 15,000,000 shares authorized; 5,106,819, 5,106,819 and 5,106,819 shares issued and outstanding at September 30, 2009, December 31, 2008 and September 30, 2008, respectively.
20,427 20,427 20,427

Capital surplus 25,724 25,364 25,293

Retained earnings (deficit) (10,488 ) (8,620 ) (5,137 )

Accumulated other comprehensive income (loss), net 671 (4 ) (1,330 )

TOTAL STOCKHOLDERS' EQUITY 36,334 37,167 39,253

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 635,730 $ 572,849 $ 552,819

* Unaudited financial results

ALLIANCE BANKSHARES CORPORATION

Consolidated Income Statements

Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended

September 30, September 30, September 30, September 30,

2009* 2008* 2009* 2008*

(Dollars in thousands, except per share)

INTEREST INCOME:

Loans $ 5,319 $ 5,897 $ 15,781 $ 18,110

Trading securities 242 986 1,345 3,082

Investment securities 1,719 253 4,333 850

Federal funds sold 16 28 44 114

Total interest income 7,296 7,164 21,503 22,156

INTEREST EXPENSE:

Deposits 2,670 3,166 8,220 9,760

Purchased funds and other borrowings 516 788 1,652 2,862

Total interest expense 3,186 3,954 9,872 12,622

Net interest income 4,110 3,210 11,631 9,534

Provision for loan losses 1,421 2,200 2,695 3,360

Net interest income after provision for loan losses 2,689 1,010 8,936 6,174

OTHER INCOME:

Insurance commissions 611 681 2,301 2,497

Deposit account service charges 75 65 218 209

Gain on sale of loans 12 29 87 121

Net gain on sale of securities 507 (56 ) 1,370 (46 )

Trading activity and fair value adjustments (4 ) (142 ) (143 ) (2,531 )

Other operating income 47 24 94 91

Total other income (loss) 1,248 601 3,927 341

OTHER EXPENSES:

Salaries and employee benefits 2,156 2,270 6,534 6,695

Occupancy expense 661 623 1,933 1,714

Equipment expense 238 254 682 731

Other real estate owned expense 519 715 1,134 1,289

Operating expenses 1,748 1,400 5,456 4,640

Total other expenses 5,322 5,262 15,739 15,069

INCOME (LOSS) BEFORE INCOME TAXES (1,385 ) (3,651 ) (2,876 ) (8,554 )

Income tax expense (benefit) (489 ) (1,280 ) (1,008 ) (3,017 )

NET INCOME (LOSS) $ (896 ) $ (2,371 ) $ (1,868 ) $ (5,537 )

Net income (loss) per common share, basic $ (0.18 ) $ (0.46 ) $ (0.37 ) $ (1.08 )

Net income (loss) per common share, diluted $ (0.18 ) $ (0.46 ) $ (0.37 ) $ (1.08 )

Weighted average number of shares, basic 5,106,819 5,106,819 5,106,819 5,106,819

Weighted average number of shares, diluted 5,106,819 5,106,819 5,106,819 5,106,819

* Unaudited financial results

ALLIANCE BANKSHARES CORPORATION

Consolidated Statistical Information

Performance Information

September 30, September 30,

2009* 2008*

(Dollars in thousands, except per share)

Performance Information:

For The Three Months Ended:

Average loans $ 357,196 $ 371,206

Average earning assets 552,103 494,278

Average assets 600,098 548,307

Average non-interest bearing deposits 100,753 65,432

Average total deposits 468,596 387,156

Average interest-bearing liabilities 461,199 438,462

Average equity 35,409 41,828

Net interest margin ⁽¹⁾ 3.01 % 2.65 %

Earnings per share, basic $ (0.18 ) $ (0.46 )

Earnings per share, diluted (0.18 ) (0.46 )

For The Nine Months Ended:

Average loans $ 362,480 $ 378,751

Average earning assets 552,455 501,555

Average assets 598,341 551,037

Average non-interest bearing deposits 96,540 66,597

Average total deposits 451,356 384,548

Average interest-bearing liabilities 462,707 438,027

Average equity 36,294 43,482

Net interest margin ⁽¹⁾ 2.87 % 2.60 %

Earnings per share, basic ⁽²⁾ $ (0.37 ) $ (1.08 )

Earnings per share, diluted ⁽²⁾ (0.37 ) (1.08 )

* Unaudited financial results

⁽¹⁾On a fully-tax equivalent basis assuming a 34% federal tax rate.

ALLIANCE BANKSHARES CORPORATION

Consolidated Statistical Information

Credit Quality Information ⁽¹⁾

September 30, December 31, September 30,

2009* 2008 2008*

(Dollars in thousands)

Credit Quality Information:

Nonperforming assets:

Impaired loans (performing loans with a specific allowance) $ 541 $ 1,428 $ 6,082

Non-accrual loans 4,277 3,467 2,803

OREO 9,808 11,749 13,379

Total nonperforming assets & past due loans $ 14,626 $ 16,644 $ 22,264

Specific reserves associated with impaired & non-accrual loans $ 1,312 $ 1,148 $ 1,714

Largest components of the nonperforming assets listed above:

September 30, 2009 impaired loans (100% of the total)

$541 thousand on building lots in Northern Virginia.

September 30, 2009 non-accrual loans (93.9% of the total)

$1.7 million which is secured by 1-4 family residential properties to a variety of borrowers.

$783 thousand which is secured by business assets in Northern Virginia.

$655 thousand on building lots in Northern Virginia.

$400 thousand which is secured by a commercial real estate property in Winchester, Virginia.

(Non-accrual as of 3/31/09)

$373 thousand which is secured by a residential condominium project in Virginia Beach, Virginia.

(Non-accrual as of 9/30/08)

$130 thousand which is a consumer HELOCs to one borrower.

September 30, 2009 OREO (95.0% of the total)

$2.6 million which is multi-family land in Northern Virginia.

(OREO as of 9/30/09)

$2.1 million which is farmland/development acreage in the Winchester Virginia area.

(OREO as of 3/31/08)

$1.4 million which is residential building lots in Northern Virginia.

(OREO as of 6/30/08)

$1.2 million on building lots in Northern Virginia.

(OREO as of 3/31/08)

$911 thousand which consists of two parcels of land in Northern Virginia.

(OREO as of 3/31/08)

$667 thousand which is two office condominium units in Northern Virginia.

(OREO as of 3/31/09; sold in October 2009)

$527 thousand which is a two unit office condominium in Richmond, Virginia.

(OREO as of 12/31/07)

* Unaudited financial results

⁽¹⁾The allowance for loan losses includes a specific allocation for all impaired loans. Nonperforming assets are defined as impaired loans, non-accrual loans, OREO and loans past due 90 days or more and still accruing interest.

ALLIANCE BANKSHARES CORPORATION

Consolidated Statistical Information

Credit Quality Information ⁽¹⁾

For The Nine Months Ended: September 30, September 30,

2009* 2008*

(Dollars in thousands)

Balance, beginning of period $ 5,751 $ 6,411

Provision for loan losses 2,695 3,360

Loans charged off (3,289 ) (4,242 )

Recoveries of loans charged off 138 471

Net charge-offs (3,151 ) (3,771 )

Balance, end of period $ 5,295 $ 6,000

September 30, June 30, March 31, December 31, September 30,

2009* 2009* 2009* 2008 2008*

Ratios:

Allowance for loan losses to total loans 1.49 % 1.47 % 1.42 % 1.57 % 1.62 %

Allowance for loan losses to non-accrual loans 1.2X 0.9X 2.3X 1.7X 2.1X

Allowance for loan losses to nonperforming assets 0.4X 0.3X 0.4X 0.3X 0.3X

Nonperforming assets to total assets 2.30 % 2.41 % 2.42 % 2.91 % 4.03 %

Net charge-offs to average loans 0.88 % 0.50 % 0.30 % 1.43 % 1.00 %

* Unaudited financial results

⁽¹⁾The allowance for loan losses includes a specific allocation for all impaired loans. Nonperforming assets are defined as impaired loans, non-accrual loans, OREO and loans past due 90 days or more and still accruing interest.

ALLIANCE BANKSHARES CORPORATION

Consolidated Statistical Information

Trading Asset & Liability Summary

September 30, 2009 December 31, 2008 September 30, 2008

Fair Fair Fair

Trading Securities Value Yield Value Yield Value Yield

(Dollars in thousands)

U.S. government corporations & agencies $ 6,562 5.18 % $ 35,947 5.25 % $ 40,292 5.32 %

PCMOs ¹ 4,331 5.36 % 12,251 5.42 % 12,569 5.40 %

SBA securities ² - 0.00 % 34,386 2.99 % 36,525 3.03 %

Totals $ 10,893 5.26 % $ 82,584 4.37 % $ 89,386 4.44 %

¹ All PCMOs were rated AAA by at least one service on the purchase date. The current portfolio has a variety of ratings.

All instruments are performing as expected.

²SBA securities are U.S. government agency securities. For presentation purposes they are separated out on the table above.

September 30, 2009 December 31, 2008 September 30, 2008

Fair Fair Fair

Fair Value Assets and Liabilities Value Value Value

(Dollars in thousands)

Trading securities $ 10,893 $ 82,584 $ 89,386

Interest-bearing deposits (brokered certificates of deposit) $ 9,233 $ 24,180 $ 41,329

FHLB advances 25,908 26,361 26,111

Total fair value liabilities $ 35,141 $ 50,541 $ 67,440

ALLIANCE BANKSHARES CORPORATION

Consolidated Statistical Information

Capital Information

September 30, December 31, September 30,

2009* 2008 2008*

(Dollars in thousands, except per share)

Capital Information:

Book value per share $ 7.11 $ 7.28 $ 7.69

Tier I risk-based capital ratio 10.0 % 9.6 % 10.0 %

Total risk-based capital ratio 11.2 % 10.9 % 11.3 %

Leverage capital ratio 6.7 % 7.6 % 8.2 %

* Unaudited financial results