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Background:

In a decade marred with bank failures and government bailouts, investors have not always been keen on looking to regional banks for stability and growth. However, Southern National Bancorp of Virginia, Inc. (SONA), the holding company for the Sonabank brand of banks in the Mid Atlantic region, is positioning itself to be a strong acquisition target. Based in Mclean, VA, the bank has fourteen branches within Virginia and five branches within Maryland. Shares were recently trading at $9.94 off a 52 week high of $12.00 and well above a 52 week low of $6.65. Year to date shares have been trading at an improvement of about $2.00 per share. Institutional ownership has appeared to remain strong with around 51% of shares being held by funds and other financial firms.

Investor Logic:

Recent surveys have indicated that 2013 will yield strong demand for bank acquisitions as over 57% are looking to purchase another firm. The kicker here is that many expect that only 2% banks are looking to be sold. With this information in mind, there remain quite a few compelling reasons that investors should find SONA shares appealing.

  • SONA pays a quarterly dividend of $0.05. This dividend is annualized at around 2.1%. Additionally this is inline with or above dividends of many peers. A dividend can provide some security to investors looking to take a gamble on a potential buyout offer. In comparison, Annapolis Bancorp (ANNB) a comparable firm within the region, pays no dividend at all.

  • SONA management has a proven history of running successful banks and selling them for a profit. The husband and wife team of CEO Georgia Derrico and President Rod Porter are noted for taking the helm at Southern Financial in 1986, growing the bank to have a network of 34 branches and assets totaling $1,400,000, before selling Southern Financial to Provident Bank (now M+T Bank) for $300 million in 2004.

  • SONA has grown its assets to levels well over $700 million in efforts to become appealing to a larger bank. Strong assets make the bank more appealing to larger players.

  • Rod Porter has been quoted as saying "if we get an offer we can't refuse, we'll take it," implying that the firm would listen to all reasonable buyout offers. Porter then stated that it would be beneficial to use the bank's improved cash position to purchase another bank that would bring Sonabank assets over the $1 billion level.

  • As noted previously, SONA has significantly improved its financial situation year over year.

Date

Revenues*

EBIT*

Net Income*

Cash*

Dec 2011

$35,586.00

$7,200.00

$4,401.00

$56,668.00

Dec 2012

$40,528.00

$10,476.00

$6,569.00

$131,854.00

* Numbers listed in thousands

- The bank's sizable increase in its cash position makes an acquisition that would grow the bank's total assets to over $1 billion all the more likely. Increasing the cash on hand improves the bank's ability to purchase one or more smaller competitors in the region. In early 2012, Sonabank completed an acquisition of Maryland based HarVest Bank in order to increase the bank's presence within the Mid Atlantic.

Conclusion:

Sonabank is a bank that has grown by purchasing other failing banks. The management team has a history of cultivating and selling a bank for profit, and has stated their intentions to do the same with Sonabank. A dividend payout from SONA and a relatively large cash position could provide investors with some stability in the time running up to a buyout offer. While not set in stone, it appears that the management team is paving the way for a buyout to occur.

Source: Sonabank: A Regional Bank With Proven Buyout Potential