Primis Financial (FRST) 10-Q 2016 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2016

Commission File No. 001-33037

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

(Exact name of registrant as specified in its charter)

Virginia	20-1417448
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)

6830 Old Dominion Drive

McLean, Virginia 22101

(Address of principal executive offices) (zip code)

(703) 893-7400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x              NO¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES x              NO¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b–2 of the Exchange Act:

Large accelerated filer   ¨        Accelerated filerx   Smaller reporting company¨

Non-accelerated filer   ¨  (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨    Nox

As of October 25, 2016, there were 12,261,643 shares of common stock outstanding.

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

FORM 10-Q

September 30, 2016

INDEX

		PAGE
PART 1 - FINANCIAL INFORMATION
Item 1 -Financial Statements
	Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015	2
	Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2016 and 2015	3
	Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2016	4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015	5
	Notes to Consolidated Financial Statements	6-28
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		29-41
Item 3 – Quantitative and Qualitative Disclosures about Market Risk		42-44
Item 4 – Controls and Procedures		45
PART II - OTHER INFORMATION
Item 1 – Legal Proceedings		45
Item 1A – Risk Factors		45
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		45
Item 3 – Defaults Upon Senior Securities		45
Item 4 – Mine Safety Disclosures		45
Item 5 – Other Information		45
Item 6 - Exhibits		45
Signatures		47
Certifications

ITEM I - FINANCIAL INFORMATION

PART I - FINANCIAL STATEMENTS

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts) (Unaudited)

	September 30,			December 31,
	2016			2015
ASSETS
Cash and cash equivalents:
Cash and due from financial institutions	$	4,121		$	3,972
Interest-bearing deposits in other financial institutions		46,285			26,364
Total cash and cash equivalents		50,406			30,336
Securities available for sale, at fair value		3,908			4,209
Securities held to maturity, at amortized cost (fair value of $87,772 and $96,464, respectively)		86,958			96,780
Covered loans		29,561			34,373
Non-covered loans		883,270			795,052
Total loans		912,831			829,425
Less allowance for loan losses		(8,469	)		(8,421	)
Net loans		904,362			821,004
Stock in Federal Reserve Bank and Federal Home Loan Bank		7,504			6,929
Equity investment in mortgage affiliate		5,212			4,459
Preferred investment in mortgage affiliate		2,555			2,555
Bank premises and equipment, net		8,389			8,882
Goodwill		10,514			10,514
Core deposit intangibles, net		925			1,093
FDIC indemnification asset		2,306			2,922
Bank-owned life insurance		23,650			23,126
Other real estate owned		9,341			10,439
Deferred tax assets, net		6,784			6,716
Other assets		12,622			6,143
Total assets	$	1,135,436		$	1,036,107
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits	$	91,567		$	83,769
Interest-bearing deposits:
NOW accounts		31,197			28,080
Cash management accounts		9,660			-
Money market accounts		129,664			131,731
Savings accounts		51,114			49,939
Time deposits		602,069			531,775
Total interest-bearing deposits		823,704			741,525
Total deposits		915,271			825,294
Securities sold under agreements to repurchase		-			10,381
Federal Home Loan Bank (FHLB) advances - short term		75,000			59,000
Federal Home Loan Bank (FHLB) advances - long term		10,000			15,000
Other liabilities		10,120			6,796
Total liabilities		1,010,391			916,471
Commitments and contingencies (See Note 5)		-			-
Stockholders' equity:
Preferred stock, $.01 par value.  Authorized 5,000,000 shares; no shares issued and outstanding		-			-
Common stock, $.01 par value.  Authorized 45,000,000 shares; issued and outstanding, 12,261,643 shares at September 30, 2016 and 12,234,443 at December 31, 2015		123			122
Additional paid in capital		104,805			104,389
Retained earnings		20,915			15,735
Accumulated other comprehensive loss		(798	)		(610	)
Total stockholders' equity		125,045			119,636
Total liabilities and stockholders' equity	$	1,135,436		$	1,036,107

See accompanying notes to consolidated financial statements.

2

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(dollars in thousands, except per share amounts) (Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Interest and dividend income :
Interest and fees on loans	$	11,792		$	10,099		$	33,790		$	29,620
Interest and dividends on taxable securities		581			587			2,059			1,772
Interest and dividends on tax exepmt securities		84			100			252			302
Interest and dividends on other earning assets		162			362			482			621
Total interest and dividend income		12,619			11,148			36,583			32,315
Interest expense:
Interest on deposits		2,128			1,796			5,918			4,660
Interest on borrowings		118			169			406			521
Total interest expense		2,246			1,965			6,324			5,181
Net interest income		10,373			9,183			30,259			27,134
Provision for loan losses		2,050			850			4,062			2,875
Net interest income after provision for loan losses		8,323			8,333			26,197			24,259
Noninterest income:
Account maintenance and deposit service fees		225			243			675			703
Income from bank-owned life insurance		175			160			524			464
Equity income from mortgage affiliate		749			492			1,381			1,270
Gain on sale of other assets		-			-			-			7
Net gain on sale of available for sale securities		-			-			-			520
Other		26			69			88			164
Total noninterest income		1,175			964			2,668			3,128
Noninterest expenses:
Salaries and benefits		2,699			2,892			8,753			8,531
Occupancy expenses		783			807			2,377			2,504
Furniture and equipment expenses		283			194			720			628
Amortization of core deposit intangible		44			66			168			196
Virginia franchise tax expense		96			88			290			264
FDIC assessment		165			174			478			502
Data processing expense		184			164			533			498
Telephone and communication expense		201			197			586			604
Amortization of FDIC indemnification asset		187			105			606			351
Net (gain) loss on other real estate owned		(9	)		97			74			360
Other operating expenses		725			787			2,403			2,543
Total noninterest expenses		5,358			5,571			16,988			16,981
Income before income taxes		4,140			3,726			11,877			10,406
Income tax expense		1,375			1,245			3,757			3,455
Net income	$	2,765		$	2,481		$	8,120		$	6,951
Other comprehensive income (loss):
Unrealized gain (loss) on available for sale securities	$	188		$	(7	)	$	(296	)	$	(225	)
Realized amount on securities sold, net		-			-			-			(520	)
Non-credit component of other-than-temporary impairment on held-to-maturity securities		-			-			-			4,278
Accretion of amounts previously recorded upon transfer to held-to-maturity from available-for-sale		3			3			10			28
Net unrealized gain (loss)		191			(4	)		(286	)		3,561
Tax effect		(64	)		1			98			(1,211	)
Other comprehensive income (loss)		127			(3	)		(188	)		2,350
Comprehensive income	$	2,892		$	2,478		$	7,932		$	9,301
Earnings per share, basic	$	0.23		$	0.20		$	0.66		$	0.56
Earnings per share, diluted	$	0.22		$	0.20		$	0.65		$	0.56

See accompanying notes to consolidated financial statements.

3

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

(dollars in thousands, except per share amounts) (Unaudited)

								Accumulated
			Additional					Other
	Common		Paid in		Retained			Comprehensive
	Stock		Capital		Earnings			Loss			Total
Balance - December 31, 2015	$	122	$	104,389	$	15,735		$	(610	)	$	119,636
Comprehensive income:
Net income						8,120						8,120
Change in unrealized loss  on securities available for sale (net of tax benefit, $101)									(195	)		(195	)
Change in unrecognized loss on securities held to maturity for which a portion of OTTI has been recognized (net of tax, $3 and accretion, $7 and amounts recorded into other comprehensive income at transfer)									7			7
Dividends on common stock ($.24 per share)						(2,940	)					(2,940	)
Issuance of common stock for warrants exercised (11,000 shares)		1		100								101
Issuance of common stock under Stock
Incentive Plan (16,200 shares)				118								118
Stock-based compensation expense				198								198
Balance - September 30, 2016	$	123	$	104,805	$	20,915		$	(798	)	$	125,045

See accompanying notes to consolidated financial statements.

4

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

(dollars in thousands) (Unaudited)

	2016			2015
Operating activities:
Net income	$	8,120		$	6,951
Adjustments to reconcile net income to net cash and cash equivalents provided  by operating activities:
Depreciation		613			668
Amortization of core deposit intangible		168			196
Other amortization, net		(61	)		119
Accretion of loan discount		(1,465	)		(1,941	)
Amortization of FDIC indemnification asset		606			351
Provision for loan losses		4,062			2,875
Earnings on bank-owned life insurance		(524	)		(464	)
Equity income on mortgage affiliate		(1,381	)		(1,270	)
Stock based compensation expense		198			252
Net gain on sale of available for sale securities		-			(520	)
Net loss on other real estate owned		74			360
Net (increase) decrease in other assets		(1,694	)		4,643
Net increase (decrease) in other liabilities		3,324			(263	)
Net cash and cash equivalents provided by operating activities		12,040			11,957
Investing activities:
Proceeds from sales of available for sale securities		-			3,966
Purchases of  held to maturity securities		(46,055	)		(16,152	)
Proceeds from paydowns, maturities and calls of held to maturity securities		55,976			9,826
Loan originations and payments, net		(90,875	)		(89,999	)
Purchase of bank-owned life insurance		-			(500	)
Investment in mortgage affiliate		-			(311	)
Distribution from mortgage affiliate		628			-
Net increase in stock in Federal Reserve Bank and Federal Home Loan Bank		(575	)		(154	)
Payments received on FDIC indemnification asset		10			3
Proceeds from sale of other real estate owned		1,166			2,908
Purchases of bank premises and equipment		(120	)		(280	)
Net cash and cash equivalents used in investing activities		(79,845	)		(90,693	)
Financing activities:
Net increase in deposits		79,596			88,278
Cash dividends paid - common stock		(2,940	)		(2,937	)
Purchase of common stock		-			(721	)
Issuance of common stock under Stock Incentive Plan		118			431
Issuance of common stock for warrants exercised		101			-
Net increase  in securities sold under agreement to repurchase and other short-term and long-term borrowings		11,000			6,901
Net cash and cash equivalents provided by financing activities		87,875			91,952
Increase in cash and cash equivalents		20,070			13,216
Cash and cash equivalents at beginning of period		30,336			38,320
Cash and cash equivalents at end of period	$	50,406		$	51,536
Supplemental disclosure of cash flow information
Cash payments for:
Interest	$	6,190		$	4,898
Income taxes		3,483			2,337
Supplemental schedule of noncash investing and financing activities
Transfer from long-term FHLB advances to short-term FHLB advances		5,000			20,000
Transfer from non-covered loans to other real estate owned		-			1,386
Transfer from covered loans to other real estate owned		144			90
Transfer from securities sold under agreement to repurchase to deposits		10,381			-

See accompanying notes to consolidated financial statements.

5

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2016

1. ACCOUNTING POLICIES

Southern National Bancorp of Virginia, Inc. (“Southern National” or “SNBV”) is a corporation formed on July 28, 2004 under the laws of the Commonwealth of Virginia and is the holding company for Sonabank (“Sonabank”) a Virginia state chartered bank which commenced operations on April 14, 2005. Sonabank provides a range of financial services to individuals and small and medium sized businesses. Sonabank has fifteen branches in Virginia, located in Fairfax County (Reston, McLean and Fairfax), in Charlottesville, Warrenton (2), Middleburg, Leesburg (2), South Riding, Front Royal, New Market, Haymarket, Richmond and Clifton Forge, and eight branches in Maryland, in Rockville, Shady Grove, Frederick, Bethesda, Upper Marlboro, Brandywine, Owings and Huntingtown.

The consolidated financial statements include the accounts of Southern National Bancorp of Virginia, Inc. and its subsidiary. Significant inter-company accounts and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles (“U. S. GAAP”) for interim financial information and instructions for Form 10-Q and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by U. S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in Southern National’s Form 10-K for the year ended December 31, 2015.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the carrying value of investment securities, other than temporary impairment of investment securities, the valuation of goodwill and intangible assets, the FDIC indemnification asset, mortgage servicing rights, other real estate owned and deferred tax assets.

Recent Accounting Pronouncements

In September 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-12,Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period. The amendments clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. This ASU did not significantly impact SNBV.

6

In April 2015, the FASB issued ASU No. 2015-03,Simplifying the Presentation of Debt Issuance Costs.Under the ASU, an entity presents debt issuance costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. For public entities, the amendments in ASU 2015-03 were effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. SNBV has adopted the provisions of these amendments, and they have no impact on its financial reporting.

In February 2015, the FASB issued ASU No. 2015-02,Consolidation (Topic 810): Amendments to the Consolidation Analysis.  The amendments modify the evaluation reporting organizations must perform to determine if certain legal entities should be consolidated as VIEs. Specifically, the amendments: (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU No. 2015-02 became effective for interim and annual reporting periods beginning after December 15, 2015. SNBV has adopted the provisions of these amendments, and they have no impact on its financial reporting.

In September 2015, the FASB issued ASU 2015-16,Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The amendments in ASU 2015-16 require that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the estimated amounts, calculated as if the accounting had been completed at the acquisition date. The amendments also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date.  The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. Adoption of these amendments had no impact on SNBV’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-1,Financial Instruments Overall (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in ASU 2016-1: (a) require equity investments (except for those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplify the impairment assessment of equity securities without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (d) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (e) require an entity to present separately in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (f) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the notes to the financial statements; and (g) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. SNBV is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.

7

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of this ASU is permitted for all entities. SNBV is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, Investments – Equity Method and Joint Ventures (Topic 323), Simplifying the Transition to the Equity Method of Accounting. The amendments eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increase the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. SNBV is currently evaluating the impact of adopting the amendments on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. ASU 2016-08 clarifies how an entity should identify the unit of accounting (i.e. the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The amendments in ASU 2016-08 affect the guidance in ASU 2014-09,Revenue from Contracts with Customers (Topic 606), and have similar effective dates and transition requirements (i.e., effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein). SNBV is currently evaluating the impact of adopting the new revenue recognition guidance on its consolidated financial statements.

8

In March 2016, the FASB issued ASU 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted. SNBV is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.

In June 2016,the FASB issued Accounting Standards Update (“ASU”) No. 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which sets forth a “current expected credit loss” ("CECL") model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. For public business entities that are U.S. Securities and Exchange Commission filers, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. SNBV is currently assessing the impact of the adoption of this ASU on its consolidated financial statements.

During August 2016, the FASB issued new guidance related to the Statement of Cash Flowsin ASU 2016-15. The new guidance clarifies the classification within the statement of cash flows for certain transactions, including debt extinguishment costs, zero-coupon debt, contingent consideration related to business combinations, insurance proceeds, equity method distributions and beneficial interests in securitizations. The guidance also clarifies that cash flows with aspects of multiple classes of cash flows or that cannot be separated by source or use should be classified based on the activity that is likely to be the predominant source or use of cash flows for the item. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The adoption of this guidance is not expected to be material to the consolidated financial statements.

2. STOCK- BASED COMPENSATION

In 2004, the Board of Directors adopted a stock option plan that authorized the reservation of up to 302,500 shares of common stock and provided for the granting of stock options to certain directors, officers and employees. The 2010 Stock Awards and Incentive Plan was approved by the Board of Directors in January 2010 and approved by the stockholders at the Annual Meeting in April 2010. The 2010 plan authorized the reservation of an additional 700,000 shares of common stock for the granting of stock awards. The options granted to officers and employees are incentive stock options and the options granted to non-employee directors are non-qualified stock options. The purpose of the plan is to afford key employees an incentive to remain in the employ of Southern National and to assist in the attracting and retaining of non-employee directors by affording them an opportunity to share in Southern National’s future success. Under the plan, the option’s price cannot be less than the fair market value of the stock on the grant date. The maximum term of the options is ten years and options granted may be subject to a graded vesting schedule.

9

Southern National granted 136,000 options during the first nine months of 2016. The fair value of each option granted is estimated on the date of grant using the Black-Scholes options-pricing model. The following weighted-average assumptions were used to value options granted in the nine months ended September 30, 2016:

Expected life		10 years
Expected volatility		14.16	%
Risk-free interest rate		1.62	%
Weighted average fair value per option granted	$	0.63
Dividend yield		4.44	%

For the three and nine months ended September 30, 2016 and 2015, stock-based compensation expense was $62 thousand and $198 thousand, respectively, compared to $82 thousand and $252 thousand for the same periods last year. As of September 30, 2016, unrecognized compensation expense associated with the stock options was $513 thousand, which is expected to be recognized over a weighted average period of 2.6 years.

A summary of the activity in the stock option plan during the nine months ended September 30, 2016 follows (dollars in thousands):

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
	Shares			Price		Term		(in thousands)
Options outstanding, beginning of period		664,400		$	9.00
Granted		136,000			11.99
Forfeited		-			-
Exercised		(16,200	)		7.35
Options outstanding, end of period		784,200		$	9.55		6.7	$	2,748
Vested or expected to vest		784,200		$	9.55		6.7	$	2,748
Exercisable at end of period		402,950		$	7.98		4.9	$	1,910

3.       SECURITIES

The amortized cost and fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows (in thousands):

	Amortized		Gross Unrealized					Fair
September 30, 2016	Cost		Gains		Losses			Value
Obligations of states and political subdivisions	$	2,282	$	54	$	-		$	2,336
Trust preferred securities		2,590		-		(1,018	)		1,572
	$	4,872	$	54	$	(1,018	)	$	3,908

	Amortized		Gross Unrealized					Fair
December 31, 2015	Cost		Gains		Losses			Value
Obligations of states and political subdivisions	$	2,287	$	25	$	-		$	2,312
Trust preferred securities		2,590		-		(693	)		1,897
	$	4,877	$	25	$	(693	)	$	4,209

10

The amortized cost, unrecognized gains and losses, and fair value of securities held to maturity were as follows (in thousands):

	Amortized		Gross Unrecognized					Fair
September 30, 2016	Cost		Gains		Losses			Value
Residential government-sponsored mortgage-backed securities	$	19,648	$	682	$	(8	)		20,322
Residential government-sponsored collateralized mortgage obligations		2,538		2		(7	)		2,533
Government-sponsored agency securities		47,974		246		(25	)		48,195
Obligations of states and political subdivisions		12,728		282		(8	)		13,002
Trust preferred securities		4,070		-		(350	)		3,720
	$	86,958	$	1,212	$	(398	)	$	87,772

	Amortized		Gross Unrecognized					Fair
December 31, 2015	Cost		Gains		Losses			Value
Residential government-sponsored mortgage-backed securities	$	20,751	$	459	$	(22	)	$	21,188
Residential government-sponsored collateralized mortgage obligations		2,946		-		(66	)		2,880
Government-sponsored agency securities		55,937		222		(618	)		55,541
Obligations of states and political subdivisions		12,794		157		(67	)		12,884
Trust preferred securities		4,352		-		(381	)		3,971
	$	96,780	$	838	$	(1,154	)	$	96,464

The amortized cost amounts are net of recognized other than temporary impairment.

The fair value and carrying amount, if different, of debt securities as of September 30, 2016, by contractual maturity were as follows (in thousands). Securities not due at a single maturity date, primarily mortgage-backed securities and collateralized mortgage obligations, are shown separately.

	Held to Maturity				Available for Sale
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Due in five to ten years	$	7,190	$	7,353	$	-	$	-
Due after ten years		57,582		57,564		4,872		3,908
Residential government-sponsored mortgage-backed securities		19,648		20,322		-		-
Residential government-sponsored collateralized mortgage obligations		2,538		2,533		-		-
Total	$	86,958	$	87,772	$	4,872	$	3,908

Securities with a carrying amount of approximately $75.2 million and $89.7 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits, certain other deposits and a line of credit for advances from the Federal Home Loan Bank of Atlanta (“FHLB”).

Southern National monitors the portfolio for indicators of other than temporary impairment. At September 30, 2016 and December 31, 2015, certain securities’ fair values were below cost. As outlined in the table below, there were securities with fair values totaling approximately $24.6 million in the portfolio with the carrying value exceeding the estimated fair value that are considered temporarily impaired at September 30, 2016. Because the decline in fair value is attributable to changes in interest rates and market illiquidity, and not credit quality, and because we do not have the intent to sell these securities and it is likely that we will not be required to sell the securities before their anticipated recovery, management does not consider these securities to be other-than-temporarily impaired as of September 30, 2016. The following tables present information regarding securities in a continuous unrealized loss position as of September 30, 2016 and December 31, 2015 (in thousands) by duration of time in a loss position:

11

September 30, 2016
	Less than 12 months				12 Months or More					Total
Available for Sale	Fair value		Unrealized Losses		Fair value		Unrealized Losses			Fair value		Unrealized Losses
Trust preferred securities	$	-	$	-	$	1,572	$	(1,018	)	$	1,572	$	(1,018	)

	Less than 12 months					12 Months or More					Total
Held to Maturity	Fair value		Unrecognized Losses			Fair value		Unrecognized Losses			Fair value		Unrecognized Losses
Residential government-sponsored mortgage-backed securities	$	-	$	-		$	461	$	(8	)	$	461	$	(8	)
Residential government-sponsored collateralized mortgage obligations		1,025		(1	)		1,081		(6	)		2,106		(7	)
Government-sponsored agency securities		14,976		(25	)		-		-			14,976		(25	)
Obligations of states and political subdivisions		685		-			1,122		(8	)		1,807		(8	)
Trust preferred securities		-		-			3,721		(350	)		3,721		(350	)
	$	16,686	$	(26	)	$	6,385	$	(372	)	$	23,071	$	(398	)

December 31, 2015
	Less than 12 months				12 Months or More					Total
Available for Sale	Fair value		Unrealized Losses		Fair value		Unrealized Losses			Fair value		Unrealized Losses
Trust preferred securities	$	-	$	-	$	1,897	$	(693	)	$	1,897	$	(693	)

	Less than 12 months					12 Months or More					Total
Held to Maturity	Fair value		Unrecognized Losses			Fair value		Unrecognized Losses			Fair value		Unrecognized Losses
Residential government-sponsored mortgage-backed securities	$	5,459	$	(14	)	$	640	$	(8	)	$	6,099	$	(22	)
Residential government-sponsored collateralized mortgage obligations		512		(5	)		2,368		(61	)		2,880		(66	)
Government-sponsored agency securities		35,453		(507	)		9,878		(111	)		45,331		(618	)
Obligations of states and political subdivisions		-		-			2,513		(67	)		2,513		(67	)
Trust preferred securities		-		-			3,971		(381	)		3,971		(381	)
	$	41,424	$	(526	)	$	19,370	$	(628	)	$	60,794	$	(1,154	)

As of September 30, 2016, we owned pooled trust preferred securities as follows:

															Previously
												% of Current			Recognized
												Defaults and			Cumulative
		Ratings								Estimated		Deferrals to			Other
	Tranche	When Purchased		Current Ratings						Fair		Total			Comprehensive
Security	Level	Moody's	Fitch	Moody's	Fitch	Par Value		Book Value		Value		Collateral			Loss (1)
Held to Maturity						(in thousands)
ALESCO VII  A1B	Senior	Aaa	AAA	A1	A	$	4,142	$	3,802	$	3,496		11	%	$	242
MMCF III B	Senior Sub	A3	A-	Ba1	BB		273		268		224		32	%		5
							4,415		4,070		3,720				$	247
															Cumulative OTTI
Available for Sale															Related to
Other Than Temporarily Impaired:															Credit Loss (2)
TPREF FUNDING II	Mezzanine	A1	A-	Caa3	C		1,500		1,099		623		37	%		400
ALESCO V C1	Mezzanine	A2	A	Caa3	C		2,150		1,490		949		10	%		660
							3,650		2,589		1,572				$	1,060
Total						$	8,065	$	6,659	$	5,292

(1) Pre-tax, and represents unrealized losses at date of transfer from available-for-sale to held-to-maturity, net of accretion

(2) Pre-tax

Each of these securities has been evaluated for other than temporary impairment. In performing a detailed cash flow analysis of each security, Sonabank works with independent third parties to estimate expected cash flows and assist with the evaluation of other than temporary impairment. The cash flow analyses performed included the following assumptions:

· .5% of the remaining performing collateral will default or defer per annum.

· Recoveries of 7% with a two year lag on all defaults and deferrals.

· No prepayments for 10 years and then 1% per annum for the remaining life of the security.

12

· Our securities have been modeled using the above assumptions by independent third parties using the forward LIBOR curve to discount projected cash flows to present values.

We recognized no OTTI charges during the three and nine months ended September 30, 2016 and the three and nine months ended September 30, 2015.

The following table presents a roll forward of the credit losses on our securities previously classified as held to maturity and now classified as available for sale recognized in earnings for the nine months ended September 30, 2016 and 2015 (in thousands):

	2016		2015
Amount of cumulative other-than-temporary impairment related to credit loss prior to January 1	$	1,060	$	8,949
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized		-		-
Amounts related to credit loss for which an other-than-temporary impairment was previously recognized		-		-
Reductions due to sales of securities for which an other-than-temporary impairment was previously recognized		-		(7,889	)
Reductions due to realized losses		-		-
Amount of cumulative other-than-temporary impairment related to credit loss as of September 30	$	1,060	$	1,060

13

Changes in accumulated other comprehensive income by component for the three and nine months ended September 30, 2016 and 2015 are shown in the tables below. All amounts are net of tax (in thousands).

	Unrealized Holding
	Gains (Losses) on
For the three months ended September 30, 2016	Available for Sale			Held to Maturity
	Securities			Securities			Total
Beginning balance	$	(760	)	$	(165	)	$	(925	)
Other comprehensive income/(loss) before reclassifications		125			-			125
Amounts reclassified from accumulated other comprehensive income/(loss)		-			2			2
Net current-period other comprehensive income/(loss)		125			2			127
Ending balance	$	(635	)	$	(163	)	$	(798	)

	Unrealized Holding
	Gains (Losses) on
For the nine months ended September 30, 2016	Available for Sale			Held to Maturity
	Securities			Securities			Total
Beginning balance	$	(440	)	$	(170	)	$	(610	)
Other comprehensive income/(loss) before reclassifications		(195	)		-			(195	)
Amounts reclassified from accumulated other comprehensive income/(loss)		-			7			7
Net current-period other comprehensive income/(loss)		(195	)		7			(188	)
Ending balance	$	(635	)	$	(163	)	$	(798	)

	Unrealized Holding
	Gains (Losses) on
For the three months ended September 30, 2015	Available for Sale			Held to Maturity
	Securities			Securities			Total
Beginning balance	$	(493	)	$	(174	)	$	(667	)
Other comprehensive income/(loss) before reclassifications		(5	)		2			(3	)
Amounts reclassified from accumulated other comprehensive income/(loss)		-			-			-
Net current-period other comprehensive income/(loss)		(5	)		2			(3	)
Ending balance	$	(498	)	$	(172	)	$	(670	)

	Unrealized Holding
	Gains (Losses) on
For the nine months ended September 30, 2015	Available for Sale			Held to Maturity
	Securities			Securities			Total
Beginning balance	$	(6	)	$	(3,014	)	$	(3,020	)
Other comprehensive income/(loss) before reclassifications		(492	)		18			(474	)
Amounts reclassified from accumulated other comprehensive income/(loss)		-			2,824			2,824
Net current-period other comprehensive income/(loss)		(492	)		2,842			2,350
Ending balance	$	(498	)	$	(172	)	$	(670	)

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4. LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes the composition of our loan portfolio as of September 30, 2016 and December 31, 2015:

	Covered		Non-covered			Total			Covered		Non-covered			Total
	Loans (1)		Loans			Loans			Loans (1)		Loans			Loans
	September 30, 2016								December 31, 2015
Loans secured by real estate:
Commercial real estate - owner-occupied	$	-	$	141,969		$	141,969		$	-	$	141,521		$	141,521
Commercial real estate - non-owner-occupied		-		301,688			301,688			-		256,513			256,513
Secured by farmland		-		552			552			-		578			578
Construction and land loans		-		78,352			78,352			-		67,832			67,832
Residential 1-4 family		11,421		202,526			213,947			12,994		165,077			178,071
Multi- family residential		-		32,979			32,979			-		25,501			25,501
Home equity lines of credit		18,140		10,682			28,822			21,379		13,798			35,177
Total real estate loans		29,561		768,748			798,309			34,373		670,820			705,193
Commercial loans		-		115,590			115,590			-		124,985			124,985
Consumer loans		-		916			916			-		1,366			1,366
Gross loans		29,561		885,254			914,815			34,373		797,171			831,544
Less deferred fees on loans		-		(1,984	)		(1,984	)		-		(2,119	)		(2,119	)
Loans, net of deferred fees	$	29,561	$	883,270		$	912,831		$	34,373	$	795,052		$	829,425

(1) Covered Loans were acquired in the Greater Atlantic transaction and are covered under an FDIC loss-share agreement. The agreement covering non-single family loans expired in December 2014.

Accounting policy related to the allowance for loan losses is considered a critical policy given the level of estimation, judgment, and uncertainty in the levels of the allowance required to account for the inherent probable losses in the loan portfolio and the material effect such estimation, judgment, and uncertainty can have on the consolidated financial results.

As part of the Greater Atlantic acquisition, the Bank and the FDIC entered into loss sharing agreements on approximately $143.4 million (contractual basis) of Greater Atlantic Bank’s assets.  There were two agreements with the FDIC, one for single family loans which is a 10-year agreement expiring in December 2019, and one for non-single family (commercial) assets which was a 5-year agreement which expired in December 2014. The Bank will share in the losses on the loans and foreclosed loan collateral with the FDIC as specified in the loss sharing agreements; we refer to these assets collectively as “covered assets.”  Loans that are not covered in the loss sharing agreement are referred to as “non-covered loans”. As of September 30, 2016, non-covered loans included $24.6 million of loans acquired in the HarVest acquisition and $45.1 million acquired in the PGFSB acquisition.

Accretable discount on the acquired Greater Atlantic loans, the PGFSB loans and the HarVest loans was $6.6 million and $7.9 million at September 30, 2016 and December 31, 2015 respectively.

Credit-impaired covered loans are those loans which presented evidence of credit deterioration at the date of acquisition and it is probable that Southern National would not collect all contractually required principal and interest payments. Generally, acquired loans that meet Southern National’s definition for nonaccrual status fell within the definition of credit-impaired covered loans.

15

Impaired loans for the covered and non-covered portfolios were as follows (in thousands):

September 30, 2016	Covered Loans						Non-covered Loans						Total Loans
			Unpaid						Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment (1)		Balance		Allowance		Investment (1)		Balance		Allowance
With no related allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	-	$	5,610	$	5,619	$	-	$	5,610	$	5,619	$	-
Commercial real estate - non-owner occupied (2)		-		-		-		131		223		-		131		223		-
Construction and land development		-		-		-		-		-		-		-		-		-
Commercial loans		-		-		-		2,535		2,990		-		2,535		2,990		-
Residential 1-4 family (4)		958		1,115		-		-		-		-		958		1,115		-
Other consumer loans		-		-		-		-		-		-		-		-		-
Total	$	958	$	1,115	$	-	$	8,276	$	8,832	$	-	$	9,234	$	9,947	$	-
With an allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	-	$	692	$	692	$	150	$	692	$	692	$	150
Commercial real estate - non-owner occupied (2)		-		-		-		-		-		-		-		-		-
Construction and land development		-		-		-		-		-		-		-		-		-
Commercial loans		-		-		-		3,977		5,897		650		3,977		5,897		650
Residential 1-4 family (4)		-		-		-		-		-		-		-		-		-
Other consumer loans		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	4,669	$	6,589	$	800	$	4,669	$	6,589	$	800
Grand total	$	958	$	1,115	$	-	$	12,945	$	15,421	$	800	$	13,903	$	16,536	$	800

(1) Recorded investment is after cumulative prior charge offs of $2.4 million. These loans also have aggregate SBA guarantees of $1.7 million.

(2) Includes loans secured by farmland and multi-family residential loans.

(3) The Bank recognizes loan impairment and may concurrently record a charge off to the allowance for loan losses.

(4) Includes home equity lines of credit.

December 31, 2015	Covered Loans						Non-covered Loans						Total Loans
			Unpaid						Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment (1)		Balance		Allowance		Investment (1)		Balance		Allowance
With no related allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	-	$	6,492	$	6,986	$	-	$	6,492	$	6,986	$	-
Commercial real estate - non-owner occupied (2)		-		-		-		136		230		-		136		230		-
Construction and land development		-		-		-		-		-		-		-		-		-
Commercial loans		-		-		-		2,102		2,698		-		2,102		2,698		-
Residential 1-4 family (4)		1,066		1,243		-		-		-		-		1,066		1,243		-
Other consumer loans		-		-		-		-		-		-		-		-		-
Total	$	1,066	$	1,243	$	-	$	8,730	$	9,914	$	-	$	9,796	$	11,157	$	-
With an allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	-	$	1,370	$	1,484	$	439	$	1,370	$	1,484	$	439
Commercial real estate - non-owner occupied (2)		-		-		-		-		-		-		-		-		-
Construction and land development		-		-		-		-		-		-		-		-		-
Commercial loans		-		-		-		3,382		3,382		400		3,382		3,382		400
Residential 1-4 family (4)		-		-		-		-		-		-		-		-		-
Other consumer loans		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	4,752	$	4,866	$	839	$	4,752	$	4,866	$	839
Grand total	$	1,066	$	1,243	$	-	$	13,482	$	14,780	$	839	$	14,548	$	16,023	$	839

(1) Recorded investment is after cumulative prior charge offs of $1.2 million. These loans also have aggregate SBA guarantees of $3.5 million.

(2) Includes loans secured by farmland and multi-family residential loans.

(3) The Bank recognizes loan impairment and may concurrently record a charge off to the allowance for loan losses.

(4) Includes home equity lines of credit.

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The following tables present the average recorded investment and interest income for impaired loans recognized by class of loans for the three and nine months ended September 30, 2016 and 2015 (in thousands):

Three months ended September 30, 2016	Covered Loans				Non-covered Loans				Total Loans
	Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	7,984	$	73	$	7,984	$	73
Commercial real estate - non-owner occupied (1)		-		-		132		3		132		3
Construction and land development		-		-		-		-		-		-
Commercial loans		-		-		2,600		13		2,600		13
Residential 1-4 family (2)		959		7		-		-		959		7
Other consumer loans		-		-		-		-		-		-
Total	$	959	$	7	$	10,716	$	89	$	11,675	$	96
With an allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	693	$	8	$	693	$	8
Commercial real estate - non-owner occupied (1)		-		-		-		-		-		-
Construction and land development		-		-		-		-		-		-
Commercial loans		-		-		4,140		39		4,140		39
Residential 1-4 family (2)		-		-		-		-		-		-
Other consumer loans		-		-		-		-		-		-
Total	$	-	$	-	$	4,833	$	47	$	4,833	$	47
Grand total	$	959	$	7	$	15,549	$	136	$	16,508	$	143

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Includes home equity lines of credit.

Three months ended September 30, 2015	Covered Loans				Non-covered Loans				Total Loans
	Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	6,747	$	75	$	6,747	$	75
Commercial real estate - non-owner occupied (1)		-		-		138		3		138		3
Construction and land development		-		-		-		-		-		-
Commercial loans		-		-		2,992		-		2,992		-
Residential 1-4 family (2)		1,303		4		-		-		1,303		4
Other consumer loans		-		-		-		-		-		-
Total	$	1,303	$	4	$	9,877	$	78	$	11,180	$	82
With an allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	757	$	10	$	757	$	10
Commercial real estate - non-owner occupied (1)		-		-		-		-		-		-
Construction and land development		-		-		-		-		-		-
Commercial loans		-		-		3,564		54		3,564		54
Residential 1-4 family (2)		-		-		-		-		-		-
Other consumer loans		-		-		-		-		-		-
Total	$	-	$	-	$	4,321	$	64	$	4,321	$	64
Grand total	$	1,303	$	4	$	14,198	$	142	$	15,501	$	146

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Includes home equity lines of credit.

17

Nine months ended September 30, 2016
	Covered Loans				Non-covered Loans				Total Loans
	Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	6,711	$	220	$	6,711	$	220
Commercial real estate - non-owner occupied (1)		-		-		134		8		134		8
Construction and land development		-		-		-		-		-		-
Commercial loans		-		-		2,852		41		2,852		-
Residential 1-4 family (2)		996		24		-		-		996		24
Other consumer loans		-		-		-		-		-		-
Total	$	996	$	24	$	9,697	$	269	$	10,693	$	252
With an allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	696	$	24	$	696	$	24
Commercial real estate - non-owner occupied (1)		-		-		-		-		-		-
Construction and land development		-		-		-		-		-		-
Commercial loans		-		-		3,301		117		3,301		117
Residential 1-4 family (2)		-		-		-		-		-		-
Other consumer loans		-		-		-		-		-		-
Total	$	-	$	-	$	3,997	$	141	$	3,997	$	141
Grand total	$	996	$	24	$	13,694	$	410	$	14,690	$	393

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Includes home equity lines of credit.

Nine months ended September 30, 2015
	Covered Loans				Non-covered Loans				Total Loans
	Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	6,625	$	223	$	6,625	$	223
Commercial real estate - non-owner occupied (1)		-		-		139		8		139		8
Construction and land development		-		-		-		-		-		-
Commercial loans		-		-		2,692		-		2,692		-
Residential 1-4 family (2)		1,305		20		-		-		1,305		20
Other consumer loans		-		-		-		-		-		-
Total	$	1,305	$	20	$	9,456	$	231	$	10,761	$	251
With an allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	771	$	32	$	771	$	32
Commercial real estate - non-owner occupied (1)		-		-		-		-		-		-
Construction and land development		-		-		-		-		-		-
Commercial loans		-		-		3,618		161		3,618		161
Residential 1-4 family (2)		-		-		-		-		-		-
Other consumer loans		-		-		-		-		-		-
Total	$	-	$	-	$	4,389	$	193	$	4,389	$	193
Grand total	$	1,305	$	20	$	13,845	$	424	$	15,150	$	444

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Includes home equity lines of credit.

18

The following tables present the aging of the recorded investment in past due loans by class of loans as of September 30, 2016 and December 31, 2015 (in thousands):

September 30, 2016	30 - 59		60 - 89
	Days		Days		90 Days		Total		Nonaccrual		Loans Not		Total
	Past Due		Past Due		or More		Past Due		Loans		Past Due		Loans
Covered loans:
Commercial real estate - owner occupied	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial real estate - non-owner occupied (1)		-		-		-		-		-		-		-
Construction and land development		-		-		-		-		-		-		-
Commercial loans		-		-		-		-		-		-		-
Residential 1-4 family (2)		-		333		-		333		512		28,716		29,561
Other consumer loans		-		-		-		-		-		-		-
Total	$	-	$	333	$	-	$	333	$	512	$	28,716	$	29,561
Non-covered loans:
Commercial real estate - owner occupied	$	269	$	-	$	-	$	269	$	638	$	141,062	$	141,969
Commercial real estate - non-owner occupied (1)		-		-		-		-		-		335,219		335,219
Construction and land development		-		-		-		-		-		78,352		78,352
Commercial loans		191		688		-		879		3,284		111,427		115,590
Residential 1-4 family (2)		126		107		-		233		-		212,975		213,208
Other consumer loans		-		-		-		-		-		916		916
Total	$	586	$	795	$	-	$	1,381	$	3,922	$	879,951	$	885,254
Total loans:
Commercial real estate - owner occupied	$	269	$	-	$	-	$	269	$	638	$	141,062	$	141,969
Commercial real estate - non-owner occupied (1)		-		-		-		-		-		335,219		335,219
Construction and land development		-		-		-		-		-		78,352		78,352
Commercial loans		191		688		-		879		3,284		111,427		115,590
Residential 1-4 family (2)		126		440		-		566		512		241,691		242,769
Other consumer loans		-		-		-		-		-		916		916
Total	$	586	$	1,128	$	-	$	1,714	$	4,434	$	908,667	$	914,815

December 31, 2015	30 - 59		60 - 89
	Days		Days		90 Days		Total		Nonaccrual		Loans Not		Total
	Past Due		Past Due		or More		Past Due		Loans		Past Due		Loans
Covered loans:
Commercial real estate - owner occupied	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial real estate - non-owner occupied (1)		-		-		-		-		-		-		-
Construction and land development		-		-		-		-		-		-		-
Commercial loans		-		-		-		-		-		-		-
Residential 1-4 family (2)		119		43		-		162		698		33,513		34,373
Other consumer loans		-		-		-		-		-		-		-
Total	$	119	$	43	$	-	$	162	$	698	$	33,513	$	34,373
Non-covered loans:
Commercial real estate - owner occupied	$	561	$	-	$	-	$	561	$	2,071	$	138,889	$	141,521
Commercial real estate - non-owner occupied (1)		-		-		-		-		-		282,592		282,592
Construction and land development		-		-		-		-		-		67,832		67,832
Commercial loans		267		-		-		267		2,102		122,616		124,985
Residential 1-4 family (2)		85		-		-		85		-		178,790		178,875
Other consumer loans		1		-		-		1		-		1,365		1,366
Total	$	914	$	-	$	-	$	914	$	4,173	$	792,084	$	797,171
Total loans:
Commercial real estate - owner occupied	$	561	$	-	$	-	$	561	$	2,071	$	138,889	$	141,521
Commercial real estate - non-owner occupied (1)		-		-		-		-		-		282,592		282,592
Construction and land development		-		-		-		-		-		67,832		67,832
Commercial loans		267		-		-		267		2,102		122,616		124,985
Residential 1-4 family (2)		204		43		-		247		698		212,303		213,248
Other consumer loans		1		-		-		1		-		1,365		1,366
Total	$	1,033	$	43	$	-	$	1,076	$	4,871	$	825,597	$	831,544

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Includes home equity lines of credit.

Non-covered nonaccrual loans include SBA guaranteed amounts totaling $1.7 million and $3.5 million at September 30, 2016 and December 31, 2015, respectively.

19

Activity in the allowance for non-covered loan and lease losses for the three and nine months ended September 30, 2016 and 2015 is summarized below (in thousands):

	Commercial			Commercial
	Real Estate			Real Estate			Construction									Other
Non-covered loans:	Owner			Non-owner			and Land			Commercial			1-4 Family			Consumer
Three months ended September 30, 2016	Occupied			Occupied (1)			Development			Loans			Residential (2)			Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	721		$	1,403		$	855		$	3,345		$	1,262		$	122		$	713		$	8,421
Charge offs		(798	)		-			-			(1,363	)		-			-			-			(2,161	)
Recoveries		-			-			120			33			4			2			-			159
Provision		916			196			(328	)		1,257			95			(41	)		(45	)		2,050
Ending balance	$	839		$	1,599		$	647		$	3,272		$	1,361		$	83		$	668		$	8,469
Three months ended September 30, 2015
Allowance for loan losses:
Beginning balance	$	1,054		$	1,524		$	1,052		$	2,421		$	1,224		$	46		$	652		$	7,973
Charge offs		(66	)		-			-			(448	)		(250	)		(2	)		-			(766	)
Recoveries		12			6			-			60			2			-						80
Provision		3			(244	)		(79	)		908			186			4			72			850
Ending balance	$	1,003		$	1,286		$	973		$	2,941		$	1,162		$	48		$	724		$	8,137

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Includes home equity lines of credit.

	Commercial			Commercial
	Real Estate			Real Estate		Construction									Other
Non-covered loans:	Owner			Non-owner		and Land			Commercial			1-4 Family			Consumer
Nine months ended September 30, 2016	Occupied			Occupied (1)		Development			Loans			Residential			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	1,185		$	1,222	$	865		$	3,041		$	1,408		$	48		$	652	$	8,421
Charge offs		(798	)		-		(450	)		(2,633	)		(22	)		(322	)		-		(4,225	)
Recoveries		-			1		120			78			8			4			-		211
Provision		452			376		112			2,786			(33	)		353			16		4,062
Ending balance	$	839		$	1,599	$	647		$	3,272		$	1,361		$	83		$	668	$	8,469
Nine months ended September 30, 2015
Allowance for loan losses:
Beginning balance	$	855		$	1,123	$	1,644		$	2,063		$	1,322		$	49		$	337	$	7,393
Charge offs		(1,067	)		-		-			(1,067	)		(250	)		(6	)		-		(2,390	)
Recoveries		16			18		139			79			7			-			-		259
Provision		1,199			145		(810	)		1,866			83			5			387		2,875
Ending balance	$	1,003		$	1,286	$	973		$	2,941		$	1,162		$	48		$	724	$	8,137

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Includes home equity lines of credit.

20

Activity in the allowance for covered loan and lease losses by class of loan for the three and nine months ended September 30, 2016 and 2015 is summarized below (in thousands):

	Commercial		Commercial
	Real Estate		Real Estate		Construction						Other
Covered loans:	Owner		Non-owner		and Land		Commercial		1-4 Family		Consumer
Three months ended September 30, 2016	Occupied		Occupied (1)		Development		Loans		Residential (3)		Loans		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Charge offs		-		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-		-
Adjustments (2)		-		-		-		-		-		-		-		-
Provision		-		-		-		-		-		-		-		-
Ending balance	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Three months ended September 30, 2015
Allowance for loan losses:
Beginning balance	$	-	$	-	$	-	$	-	$	17	$	4	$	-	$	21
Charge offs		-		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-		-
Adjustments (2)		-		-		-		-		-		-		-		-
Provision		-		-		-		-		-		-		-		-
Ending balance	$	-	$	-	$	-	$	-	$	17	$	4	$	-	$	21

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Represents the portion of increased expected losses which is covered by the loss sharing agreement with the FDIC.

(3) Includes home equity lines of credit.

	Commercial		Commercial
	Real Estate		Real Estate		Construction						Other
Covered loans:	Owner		Non-owner		and Land		Commercial		1-4 Family		Consumer
Nine months ended September 30, 2016	Occupied		Occupied (1)		Development		Loans		Residential (3)		Loans		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Charge offs		-		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-		-
Adjustments (2)		-		-		-		-		-		-		-		-
Provision		-		-		-		-		-		-		-		-
Ending balance	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Nine months ended September 30, 2015
Allowance for loan losses:
Beginning balance	$	-	$	-	$	-	$	-	$	17	$	4	$	-	$	21
Charge offs		-		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-		-
Adjustments (2)		-		-		-		-		-		-		-		-
Provision		-		-		-		-		-		-		-		-
Ending balance	$	-	$	-	$	-	$	-	$	17	$	4	$	-	$	21

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Represents the portion of increased expected losses which is covered by the loss sharing agreement with the FDIC.

(3) Includes home equity lines of credit.

21

The following tables present the balance in the allowance for loan losses and the recorded investment in non-covered loans by portfolio segment and based on impairment method as of September 30, 2016 and December 31, 2015 (in thousands):

	Commercial		Commercial
	Real Estate		Real Estate		Construction						Other
	Owner		Non-owner		and Land		Commercial		1-4 Family		Consumer
Non-covered loans:	Occupied		Occupied (1)		Development		Loans		Residential (2)		Loans		Unallocated		Total
September 30, 2016
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	150	$	-	$	-	$	650	$	-	$	-	$	-	$	800
Collectively evaluated for impairment		689		1,599		647		2,622		1,361		83		668		7,669
Total ending allowance	$	839	$	1,599	$	647	$	3,272	$	1,361	$	83	$	668	$	8,469
Loans:
Individually evaluated for impairment	$	6,302	$	132	$	-	$	6,511	$	-	$	-	$	-	$	12,945
Collectively evaluated for impairment		135,667		335,087		78,352		109,079		213,208		916		-		872,309
Total ending loan balances	$	141,969	$	335,219	$	78,352	$	115,590	$	213,208	$	916	$	-	$	885,254
December 31, 2015
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	439	$	-	$	-	$	400	$	-	$	-	$	-	$	839
Collectively evaluated for impairment		746		1,222		865		2,641		1,408		48		652		7,582
Total ending allowance	$	1,185	$	1,222	$	865	$	3,041	$	1,408	$	48	$	652	$	8,421
Loans:
Individually evaluated for impairment	$	7,862	$	136	$	-	$	5,484	$	-	$	-	$	-	$	13,482
Collectively evaluated for impairment		133,659		282,456		67,832		119,501		178,875		1,366		-		783,689
Total ending loan balances	$	141,521	$	282,592	$	67,832	$	124,985	$	178,875	$	1,366	$	-	$	797,171

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Includes home equity lines of credit.

The following tables present the balance in the allowance for covered loan losses and the recorded investment in covered loans by portfolio segment and based on impairment method as of September 30, 2016 and December 31, 2015 (in thousands):

	Commercial		Commercial
	Real Estate		Real Estate		Construction						Other
	Owner		Non-owner		and Land		Commercial		1-4 Family		Consumer
Covered loans:	Occupied		Occupied (1)		Development		Loans		Residential (2)		Loans		Unallocated		Total
September 30, 2016
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		-		-		-		-		-		-		-		-
Total ending allowance	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	958	$	-	$	-	$	958
Collectively evaluated for impairment		-		-		-		-		28,603		-		-		28,603
Total ending loan balances	$	-	$	-	$	-	$	-	$	29,561	$	-	$	-	$	29,561
December 31, 2015
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		-		-		-		-		-		-		-		-
Total ending allowance	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans:
Individually evaluated for impairment	$	-			$	-	$	-	$	1,066	$	-			$	1,066
Collectively evaluated for impairment		-		-		-		-		33,307		-		-		33,307
Total ending loan balances	$	-	$	-	$	-	$	-	$	34,373	$	-	$	-	$	34,373

(1) Includes loans secured by farmland and multi-family residential loans.

(2) Includes home equity lines of credit.

22

Troubled Debt Restructurings

A modification is classified as a troubled debt restructuring (“TDR”) if both of the following exist: (1) the borrower is experiencing financial difficulty and (2) the Bank has granted a concession to the borrower. The Bank determines that a borrower may be experiencing financial difficulty if the borrower is currently delinquent on any of its debt, or if the Bank is concerned that the borrower may not be able to perform in accordance with the current terms of the loan agreement in the foreseeable future. Many aspects of the borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty, particularly as it relates to commercial borrowers due to the complex nature of the loan structure, business/industry risk and borrower/guarantor structures. Concessions may include the reduction of an interest rate at a rate lower than current market rate for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. When evaluating whether a concession has been granted, the Bank also considers whether the borrower has provided additional collateral or guarantors and whether such additions adequately compensate the Bank for the restructured terms, or if the revised terms are consistent with those currently being offered to new loan customers. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management’s judgment is required when determining whether a modification is a TDR.

Although each occurrence is unique to the borrower and is evaluated separately, for all portfolio segments, TDRs are typically modified through reduction in interest rates, reductions in payments, changing the payment terms from principal and interest to interest only, and/or extensions in term maturity.

During the three and nine months ending September 30, 2016, there were no loans modified in troubled debt restructurings. One TDR which had been modified in 2013 defaulted during the second quarter of 2015. This loan, in the amount of $692 thousand, was current as of September 30, 2016.

During the three and nine months ending September 30, 2015, there were no loans modified in troubled debt restructurings. One TDR which had been modified in 2013 defaulted during the second quarter of 2015.

Credit Quality Indicators

Through its system of internal controls Southern National evaluates and segments loan portfolio credit quality on a quarterly basis using regulatory definitions for Special Mention, Substandard and Doubtful. Special Mention loans are considered to be criticized. Substandard and Doubtful loans are considered to be classified. Southern National had no loans classified Doubtful at September 30, 2016 or December 31, 2015.

Special Mention loans are loans that have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position.

Substandard loans may be inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

23

As of September 30, 2016 and December 31, 2015, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

September 30, 2016	Covered Loans						Non-covered Loans								Total Loans
	Classified/						Special								Classified/
	Criticized (1)		Pass		Total		Mention		Substandard (3)		Pass		Total		Criticized		Pass		Total
Commercial real estate - owner occupied	$	-	$	-	$	-	$	-	$	6,302	$	135,667	$	141,969	$	6,302	$	135,667	$	141,969
Commercial real estate - non-owner occupied (2)		-		-		-		-		131		335,088		335,219		131		335,088		335,219
Construction and land development		-		-		-		-		-		78,352		78,352		-		78,352		78,352
Commercial loans		-		-		-		28		6,512		109,050		115,590		6,540		109,050		115,590
Residential 1-4 family (4)		958		28,603		29,561		-		-		213,208		213,208		958		241,811		242,769
Other consumer loans		-		-		-		-		-		916		916		-		916		916
Total	$	958	$	28,603	$	29,561	$	28	$	12,945	$	872,281	$	885,254	$	13,931	$	900,884	$	914,815

December 31, 2015	Covered Loans						Non-covered Loans								Total Loans
	Classified/						Special								Classified/
	Criticized (1)		Pass		Total		Mention		Substandard (3)		Pass		Total		Criticized		Pass		Total
Commercial real estate - owner occupied	$	-	$	-	$	-	$	3,666	$	7,862	$	129,993	$	141,521	$	11,528	$	129,993	$	141,521
Commercial real estate - non-owner occupied (2)		-		-		-		-		136		282,456		282,592		136		282,456		282,592
Construction and land development		-		-		-		552		-		67,280		67,832		552		67,280		67,832
Commercial loans		-		-		-		4,014		5,484		115,487		124,985		9,498		115,487		124,985
Residential 1-4 family (4)		1,066		33,307		34,373		-		-		178,875		178,875		1,066		212,182		213,248
Other consumer loans		-		-		-		-		-		1,366		1,366		-		1,366		1,366
Total	$	1,066	$	33,307	$	34,373	$	8,232	$	13,482	$	775,457	$	797,171	$	22,780	$	808,764	$	831,544

(1) Credit quality is enhanced by a loss sharing agreement with the FDIC in the covered portfolio. The same credit quality indicators used in the non-covered portfolio are combined.

(2) Includes loans secured by farmland and multi-family residential loans.

(3) Includes SBA guarantees of $1.7 million and $3.5 million as of September 30, 2016 and December 31, 2015, respectively.

(4) Includes home equity lines of credit.

The amount of foreclosed residential real estate property held at September 30, 2016 was $3.4 million. The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was $893 thousand at September 30, 2016.

5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

Southern National is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve elements of credit and funding risk in excess of the amount recognized in the consolidated balance sheet. Letters of credit are written conditional commitments issued by Southern National to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. We had letters of credit outstanding totaling $6.4 million and $6.7 million as of September 30, 2016 and December 31, 2015, respectively.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit is based on the contractual amount of these instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Unless noted otherwise, we do not require collateral or other security to support financial instruments with credit risk.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments are made predominately for adjustable rate loans, and generally have fixed expiration dates of up to three months or other termination clauses and usually require payment of a fee. Since many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer's creditworthiness on a case-by-case basis.

At September 30, 2016 and December 31, 2015, we had unfunded lines of credit and undisbursed construction loan funds totaling $140.3 million and $132.3 million, respectively. We had approved loan commitments of $7.6 million and $2.7 million at September 30, 2016, and December 31, 2015, respectively. Virtually all of our unfunded lines of credit, undisbursed construction loan funds and approved loan commitments are variable rate.

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6. Earnings Per Share

The following is a reconciliation of the denominators of the basic and diluted earnings per share (“EPS”) computations (dollars in thousands, except per share data):

			Weighted
			Average
	Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount
For the three months ended September 30, 2016
Basic EPS	$	2,765		12,258	$	0.23
Effect of dilutive stock options and warrants		-		171		-
Diluted EPS	$	2,765		12,429	$	0.22
For the three months ended September 30, 2015
Basic EPS	$	2,481		12,222	$	0.20
Effect of dilutive stock options and warrants		-		119		-
Diluted EPS	$	2,481		12,341	$	0.20
For the nine months ended September 30, 2016
Basic EPS	$	8,120		12,248	$	0.66
Effect of dilutive stock options and warrants		-		154		-
Diluted EPS	$	8,120		12,402	$	0.65
For the nine months ended September 30, 2015
Basic EPS	$	6,951		12,316	$	0.56
Effect of dilutive stock options and warrants		-		119		-
Diluted EPS	$	6,951		12,435	$	0.56

There were 684,604 and 702,027 anti-dilutive options and warrants for the three and nine months ended September 30, 2016, respectively. There were 662,399 and 662,298 anti-dilutive options and warrants for the three and nine months ended September 30, 2015, respectively.

7. FAIR VALUE

ASC 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability

The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

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Securities Available for Sale

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U. S. agency securities, mortgage-backed securities, obligations of states and political subdivisions and certain corporate, asset-backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Currently, all of Southern National’s available-for-sale debt securities are considered to be Level 2 securities.

Assets measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Total at		Identical Assets		Inputs		Inputs
(dollars in thousands)	September 30, 2016		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Available for sale securities
Obligations of states and political subdivisions	$	2,336	$	-	$	2,336	$	-
Trust preferred securities		1,572		-		1,572		-
	$	3,908	$	-	$	3,908	$	-

			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Total at		Identical Assets		Inputs		Inputs
(dollars in thousands)	December 31, 2015		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Available for sale securities
Obligations of states and political subdivisions	$	2,312	$	-	$	2,312	$	-
Trust preferred securities		1,897		-		1,897		-
	$	4,209	$	-	$	4,209	$	-

Assets and Liabilities Measured on a Non-recurring Basis:

Impaired Loans

Generally, we measure the impairment for impaired loans considering the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral is determined by an independent appraisal or evaluation less estimated costs related to selling the collateral. In some cases appraised value is net of costs to sell. Estimated selling costs range from 6% to 10% of collateral valuation at September 30, 2016 and December 31, 2015. Fair value is classified as Level 3 in the fair value hierarchy. Non-covered loans identified as impaired totaled $12.9 million (including SBA guarantees of $1.7 million) as of September 30, 2016 with an allocated allowance for loan losses totaling $800 thousand compared to a carrying amount of $13.5 million (including SBA guarantees of $3.5 million) with an allocated allowance for loan losses totaling $839 thousand at December 31, 2015.

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Other Real Estate Owned (OREO)

OREO is evaluated at the time of acquisition and recorded at fair value as determined by independent appraisal or evaluation less cost to sell. In some cases appraised value is net of costs to sell. Selling costs have been in the range from 6% to 7.6% of collateral valuation at September 30, 2016 and December 31, 2015. Fair value is classified as Level 3 in the fair value hierarchy. OREO is further evaluated quarterly for any additional impairment. At September 30, 2016, the total amount of non-covered OREO was $9.3 million and we had no covered OREO. As of December 31, 2015, the total amount of OREO was $10.1 million, and covered OREO was $343 thousand.

Assets measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Total at		Identical Assets		Inputs		Inputs
(dollars in thousands)		September 30, 2016		(Level 1)		(Level 2)		(Level 3)
Impaired non-covered loans:
Commercial real estate - owner occupied	$	6,152					$	6,152
Commercial real estate - non-owner occupied (1)		131						131
Commercial loans		5,862						5,862
Impaired covered loans:
Residential 1-4 family		958						958
Non-covered other real estate owned:
Commercial real estate - owner occupied		1,110						1,110
Commercial real estate - non-owner occupied (1)		237						237
Construction and land development		4,587						4,587
Residential 1-4 family		3,407						3,407
Covered other real estate owned:
Residential 1-4 family		-						-

			Fair Value Measurements Using
				Significant
			Quoted Prices in	Other	Significant
			Active Markets for	Observable	Unobservable
	Total at		Identical Assets	Inputs	Inputs
(dollars in thousands)	December 31, 2015		(Level 1)	(Level 2)	(Level 3)
Impaired non-covered loans:
Commercial real estate - owner occupied	$	7,423			$	7,423
Commercial real estate - non-owner occupied (1)		136				136
Commercial loans		5,084				5,084
Impaired covered loans:
Residential 1-4 family		1,066				1,066
Non-covered other real estate owned:
Commercial real estate - owner occupied		1,110				1,110
Commercial real estate - non-owner occupied (1)		237				237
Construction and land development		5,007				5,007
Residential 1-4 family		3,741				3,741
Covered other real estate owned:
Residential 1-4 family		343				343

(1) Includes loans secured by farmland and multi-family residential loans.

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Fair Value of Financial Instruments

The carrying amount, estimated fair values and fair value hierarchy levels (previously defined) of financial instruments were as follows (in thousands):

		September 30, 2016				December 31, 2015
	Fair Value	Carrying		Fair		Carrying		Fair
	Hierarchy Level	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	50,406	$	50,406	$	30,336	$	30,336
Securities available for sale	See previous table		3,908		3,908		4,209		4,209
Securities held to maturity	Level 2		86,958		87,772		96,780		96,464
Stock in Federal Reserve Bank and Federal
Home Loan Bank	n/a		7,504		n/a		6,929		n/a
Equity investment in mortgage affiliate	Level 3		5,212		5,212		4,459		4,459
Preferred investment in mortgage affiliate	Level 3		2,555		2,555		2,555		2,555
Net non-covered loans	Level 3		874,801		884,844		786,631		793,541
Net covered loans	Level 3		29,561		34,046		34,373		38,077
Accrued interest receivable	Level 2 & Level 3		2,823		2,823		2,914		2,914
FDIC indemnification asset	Level 3		2,306		735		2,922		745
Financial liabilities:
Demand deposits	Level 1		132,424		132,424		111,849		111,849
Money market and savings accounts	Level 1		180,778		180,778		181,670		181,670
Certificates of deposit	Level 3		602,069		604,967		531,775		531,456
Securities sold under agreements to
repurchase and other short-term borrowings	Level 1		75,000		75,000		69,381		69,381
FHLB long term advances	Level 3		10,000		9,953		15,000		15,041
Accrued interest payable	Level 1 & Level 3		980		980		846		846

Carrying amount is the estimated fair value for cash and cash equivalents, equity investment in mortgage affiliate, preferred investment in mortgage affiliate, accrued interest receivable and payable, demand deposits, savings accounts, money market accounts, short-term debt, and variable rate loans that reprice frequently and fully. For fixed rate loans or deposits and for variable rate loans with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life. A discount for liquidity risk was not considered necessary in estimating the fair value of loans. It was not practicable to determine the fair value of Federal Reserve Bank and Federal Home Loan Bank stock due to restrictions placed on its transferability. Carrying amount is the estimated fair value for the equity investment and the preferred investment in the mortgage affiliate. Fair value of long-term debt is based on current rates for similar financing. The fair value of the FDIC indemnification asset was determined by discounting estimated future cash flows using the long-term risk free rate plus a premium and represents the present value of our current expectation for recoveries from the FDIC on covered loans. The fair value of off-balance-sheet items is not considered material. The fair value of loans is not presented on an exit price basis.

8.     SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS

Other short-term borrowings can consist of Federal Home Loan Bank (FHLB) overnight advances, other FHLB advances maturing within one year, federal funds purchased and, until the second quarter of 2016, securities sold under agreements to repurchase that mature within one year, which are secured transactions with customers. During the second quarter of 2016, we discontinued offering securities sold under agreements to repurchase and transferred those accounts into interest-bearing cash management accounts.

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of SNBV. This discussion and analysis should be read with the consolidated financial statements, the footnotes thereto, and the other financial data included in this report and in our annual report on Form 10-K for the year ended December 31, 2015. Results of operations for the three and nine month periods ended September 30, 2016 are not necessarily indicative of results that may be attained for any other period.

FORWARD-LOOKING STATEMENTS

Statements and financial discussion and analysis contained in this Quarterly Report on Form 10-Q that are not statements of historical fact constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and involve a number of risks and uncertainties, many of which are beyond our control. The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,” “intend,” “continue,” “would,” “could,” “hope,” “might,” “assume,” “objective,” “seek,” “plan,” “strive” and similar words, or the negatives of these words, are intended to identify forward-looking statements.

Many possible events or factors could affect our future financial results and performance and could cause our actual results to differ materially from the expectations of future results we express or imply in any forward-looking statements. In addition to the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015, factors that could contribute to those differences include, but are not limited to:

• the effects of future economic, business and market conditions and changes, domestic and foreign;

• changes in the local economies in our market areas adversely affect our customers and their ability to transact profitable business with us, including the ability of our borrowers to repay their loans according to their terms or a change in the value of the related collateral;

• changes in the availability of funds resulting in increased costs or reduced liquidity;

• a deterioration or downgrade in the credit quality and credit agency ratings of the securities in our securities portfolio;

• impairment concerns and risks related to our investment portfolio of collateralized mortgage obligations, agency mortgage-backed securities, obligations of states and political subdivisions and pooled trust preferred securities;

• the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations;

• increased credit risk in our assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of our total loan portfolio;

• the concentration of our loan portfolio in loans collateralized by real estate;

• our level of construction and land development and commercial real estate loans;

• changes in the levels of loan prepayments and the resulting effects on the value of our loan portfolio;

• the failure of assumptions and estimates underlying the establishment of and provisions made to the allowance for loan losses;

• our ability to expand and grow our business and operations, including the establishment of additional branches and acquisition of additional branches and banks, and our ability to realize the cost savings and revenue enhancements we expect from such activities;

• changes in governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve System, or changes in interest rates and market prices, which could reduce our net interest margins, asset valuations and expense expectations;

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• increased competition for deposits and loans adversely affecting rates and terms;

• the continued service of key management personnel;

• the potential payment of interest on demand deposit accounts to effectively compete for customers;

• potential environmental liability risk associated with lending activities;

• increased asset levels and changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios;

• risks of mergers and acquisitions, including the related time and cost of implementing transactions and the potential failure to achieve expected gains, revenue growth or expense savings;

• legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators, including those associated with the Dodd Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and changes in the scope and cost of Federal Deposit Insurance Corporation (“FDIC”) insurance and other coverage;

• increases in regulatory capital requirements for banking organizations generally, which may adversely affect our ability to expand our business or could cause us to shrink our business;

• the effects of war or other conflicts, acts of terrorism or other catastrophic events that may affect general economic conditions;

• changes in accounting policies, rules and practices and applications or determinations made thereunder;

• the risk that our deferred tax assets could be reduced if future taxable income is less than currently estimated, if corporate tax rates in the future are less than current rates, or if sales of our capital stock trigger limitations on the amount of net operating loss carryforwards that we may utilize for income tax purposes; and

• other factors and risks described under “Risk Factors” herein and in any of our subsequent reports that we make with the Securities and Exchange Commission (the “Commission” or “SEC”) under the Exchange Act.

Forward-looking statements are not guarantees of performance or results. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe we have chosen these assumptions or bases in good faith and that they are reasonable. We caution you, however, that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q. These statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we undertake no obligation to update publicly these statements in light of new information or future events.

OVERVIEW

Southern National Bancorp of Virginia, Inc. (“Southern National” or “SNBV”) is a corporation formed on July 28, 2004 under the laws of the Commonwealth of Virginia and is the holding company for Sonabank (“Sonabank”) a Virginia state chartered bank which commenced operations on April 14, 2005. Sonabank provides a range of financial services to individuals and small and medium sized businesses. Sonabank has fifteen branches in Virginia, located in Fairfax County (Reston, McLean and Fairfax), in Charlottesville, Warrenton (2), Middleburg, Leesburg (2), South Riding, Front Royal, New Market, Haymarket, Richmond and Clifton Forge, and eight branches in Maryland, in Rockville, Shady Grove, Frederick, Bethesda, Upper Marlboro, Brandywine, Owings and Huntingtown We have administrative offices in Warrenton and an executive office in Georgetown, Washington, D.C where senior management is located.

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RESULTS OF OPERATIONS

Net Income

Net income for the quarter ended September 30, 2016 was $2.8 million and $8.1 million for the nine months ended September 30, 2016. That compares to $2.5 million and $7.0 million for the three and nine months ended September 30, 2015.

Net Interest Income

Our operating results depend primarily on our net interest income, which is the difference between interest and dividend income on interest-earning assets such as loans and investments, and interest expense on interest-bearing liabilities such as deposits and borrowings.

Net interest income was $10.4 million in the quarter ended September 30, 2016 compared to $9.2 million during the same period last year. Average loans during the third quarter of 2016 were $907.3 million compared to $777.0 million during the same period last year. Sonabank’s net interest margin was 4.04% in the third quarter of 2016 compared to 3.87% in the third quarter of 2015. The accretion of the discount on loans acquired in the acquisitions of Greater Atlantic Bank, HarVest and Prince Georges Federal Savings Bank (PGFSB) contributed $536 thousand to net interest income during the three months ended September 30, 2016 compared to $573 thousand during the third quarter of 2015.

Net interest income was $30.3 million during the nine months ended September 30, 2016, compared to $27.1 million during the comparable period in the prior year. Average loans during the nine months ended September 30, 2016 were $879.6 million compared to $747.5 million during the same period last year. Sonabank’s net interest margin was 4.05% during the nine months ended September 30, 2016 compared to 4.07% during the nine months ended September 30, 2015. The loan discount accretions on our three acquisitions were $1.6 million in the nine months ended September 30, 2016 compared to $2.0 million in the same period last year.

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The following tables detail average balances of interest-earning assets and interest-bearing liabilities, the amount of interest earned/paid on such assets and liabilities, and the yield/rate for the periods indicated:

	Average  Balance Sheets and Net Interest
	Analysis  For the Quarters Ended
	9/30/2016								9/30/2015
				Interest								Interest
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate
	(Dollar amounts in thousands)
Assets
Interest-earning assets:
Loans, net of unearned income (1) (2)	$	907,330		$	11,793		5.17	%	$	777,020		$	10,099		5.16	%
Investment securities		93,563			665		2.84	%		98,923			687		2.78	%
Other earning assets		21,296			161		3.01	%		65,869			362		2.18	%
Total earning assets		1,022,189			12,619		4.91	%		941,812			11,148		4.70	%
Allowance for loan losses		(8,427	)							(8,272	)
Total non-earning assets		81,147								82,670
Total assets	$	1,094,909							$	1,016,210
Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts	$	41,735			18		0.17	%	$	23,661			6		0.10	%
Money market accounts		127,939			116		0.36	%		142,126			131		0.37	%
Savings accounts		52,093			82		0.63	%		42,573			66		0.62	%
Time deposits		596,160			1,912		1.28	%		548,370			1,593		1.15	%
Total interest-bearing deposits		817,927			2,128		1.04	%		756,730			1,796		0.94	%
Borrowings		53,777			118		0.87	%		59,261			169		1.13	%
Total interest-bearing liabilities		871,704			2,246		1.03	%		815,991			1,965		0.96	%
Noninterest-bearing liabilities:
Demand deposits		91,575								74,831
Other liabilities		7,794								5,655
Total liabilities		971,073								896,477
Stockholders' equity		123,836								119,733
Total liabilities and stockholders' equity	$	1,094,909							$	1,016,210
Net interest income					10,373								9,183
Interest rate spread							3.88	%							3.74	%
Net interest margin							4.04	%							3.87	%

(1) Includes loan fees in both interest income and the calculation of the yield on loans.

(2) Calculations include non-accruing loans in average loan amounts outstanding.

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	Average  Balance Sheets and Net Interest
	Analysis  For the Nine Months Ended
	9/30/2016								9/30/2015
				Interest								Interest
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate
	(Dollar amounts in thousands)
Assets
Interest-earning assets:
Loans, net  of unearned income (1) (2)	$	879,628		$	33,790		5.13	%	$	747,468		$	29,620		5.30	%
Investment securities		99,028			2,311		3.11	%		96,586			2,074		2.86	%
Other earning assets		19,417			482		3.33	%		47,854			621		1.74	%
Total earning assets		998,073			36,583		4.90	%		891,908			32,315		4.84	%
Allowance for loan losses		(8,633	)							(8,073	)
Total non-earning assets		81,380								83,608
Total assets	$	1,070,820							$	967,443
Liabilities and stockholders' equity
Interest-bearing liabilities:
NOW and other demand accounts	$	35,348			40		0.15	%	$	24,062			19		0.10	%
Money market accounts		127,115			332		0.35	%		139,094			366		0.35	%
Savings accounts		51,556			252		0.65	%		43,516			198		0.61	%
Time deposits		571,143			5,294		1.24	%		504,656			4,077		1.08	%
Total interest-bearing deposits		785,162			5,918		1.01	%		711,328			4,660		0.88	%
Borrowings		69,526			406		0.78	%		59,633			521		1.17	%
Total interest-bearing liabilities		854,688			6,324		0.99	%		770,961			5,181		0.90	%
Noninterest-bearing liabilities:
Demand deposits		86,294								73,160
Other liabilities		7,647								6,073
Total liabilities		948,629								850,194
Stockholders' equity		122,191								117,249
Total liabilities and stockholders' equity	$	1,070,820							$	967,443
Net interest income				$	30,259							$	27,134
Interest rate spread							3.91	%							3.94	%
Net interest margin							4.05	%							4.07	%

(1) Includes loan fees in both interest income and the calculation of the yield on loans.

(2) Calculations include non-accruing loans in average loan amounts outstanding.

Provision for Loan Losses

The provision for loan losses is a current charge to earnings made in order to increase the allowance for loan losses to a level for inherent probable losses in the loan portfolio based on an evaluation of the loan portfolio, current economic conditions, changes in the nature and volume of lending, historical loan experience and other known internal and external factors affecting loan collectability. Our loan loss allowance is calculated by segmenting the loan portfolio by loan type and applying risk factors to each segment. The risk factors are determined by considering historical loss data, peer data, as well as applying management’s judgment.

The loan loss provision for the quarter ended September 30, 2016 was $2.1 million, compared to $850 thousand for the same period last year. For the nine months ended September 30, 2016, the loan loss provision was $4.1 million compared to $2.9 million for the same period last year. Charge offs for the three and nine months ended September 30, 2016 were $2.2 million and $4.2 million, respectively. Charge offs for the three and nine months ended September 30, 2015 were $766 thousand and $2.4 million, respectively. The provision for loan losses and charge-offs remained elevated for both the third quarter and the nine months ended September 30, 2016 because of the default of a single borrower. The borrower was an 18 year old company which had been a client for over ten years. We have receivables and real estate collateral. We are collecting on the receivables and will litigate if necessary. We have sold the real estate at a foreclosure auction which is the primary cause of the increase in other assets and other liabilities from December 31, 2015 to September 30, 2016. A portion of the funds we expect to receive will be remitted to a participant in the loan. We believe this is largely behind us.

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Noninterest Income

The following table presents the major categories of noninterest income for the three and nine months ended September 30, 2016 and 2015:

	For the Three Months Ended
	September 30,
	2016		2015		Change
	(dollars in thousands)
Account maintenance and deposit service fees	$	225	$	243	$	(18	)
Income from bank-owned life insurance		175		160		15
Equity income from mortgage affiliate		749		492		257
Other		26		69		(43	)
Total noninterest income	$	1,175	$	964	$	211

	For the Nine Months Ended
	September 30,
	2016		2015		Change
	(dollars in thousands)
Account maintenance and deposit service fees	$	675	$	703	$	(28	)
Income from bank-owned life insurance		524		464		60
Equity income from mortgage affiliate		1,381		1,270		111
Gain on other assets		-		7		(7	)
Net gain on sale of available for sale securities		-		520		(520	)
Other		88		164		(76	)
Total noninterest income	$	2,668	$	3,128	$	(460	)

During the third quarter of 2016 Sonabank had noninterest income of $1.2 million compared to noninterest income of $964 thousand during the third quarter of 2015. We recognized income from our investment in STM, our mortgage affiliate, in the amount of $749 thousand compared to $492 thousand during the same quarter last year. The increase was due to increased loan volume by STM which increased their net income for the quarter ending September 30, 2016.

Noninterest income decreased to $2.7 million in the first nine months of 2016 from $3.1 million in the first nine months of 2015. Much of the non-interest income in the nine months of 2015 resulted from the fact that we transferred from our held-to-maturity (HTM) portfolio all of the trust preferred securities and a non-government sponsored residential collateralized mortgage obligation (CMO) that had previously been classified as other than temporarily impaired to the available-for-sale (AFS) classification. We sold five of these trust preferred securities and the CMO recognizing a net gain of $520 thousand in the nine month period ended September 30, 2015.

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Noninterest Expense

The following table presents the major categories of noninterest expense for the three and nine months ended September 30, 2016 and 2015:

	For the Three Months Ended
	September 30,
	2016			2015		Change
	(dollars in thousands)
Salaries and benefits	$	2,699		$	2,892	$	(193	)
Occupancy expenses		783			807		(24	)
Furniture and equipment expenses		283			194		89
Amortization of core deposit intangible		44			66		(22	)
Virginia franchise tax expense		96			88		8
FDIC assessment		165			174		(9	)
Data processing expense		184			164		20
Telephone and communication expense		201			197		4
Amortization of FDIC indemnification asset		187			105		82
Net (gain) loss on other real estate owned		(9	)		97		(106	)
Other operating expenses		725			787		(62	)
Total noninterest expense	$	5,358		$	5,571	$	(213	)

	For the Nine Months Ended
	September 30,
	2016		2015		Change
	(dollars in thousands)
Salaries and benefits	$	8,753	$	8,531	$	222
Occupancy expenses		2,377		2,504		(127	)
Furniture and equipment expenses		720		628		92
Amortization of core deposit intangible		168		196		(28	)
Virginia franchise tax expense		290		264		26
FDIC assessment		478		502		(24	)
Data processing expense		533		498		35
Telephone and communication expense		586		604		(18	)
Amortization of FDIC indemnification asset		606		351		255
Net loss on other real estate owned		74		360		(286	)
Other operating expenses		2,403		2,543		(140	)
Total noninterest expense	$	16,988	$	16,981	$	7

Noninterest expenses were $5.4 million and $17.0 million during the third quarter and the first nine months of 2016, respectively, compared to $5.6 million and 17.0 million during the same periods in 2015. During the first nine months of 2016, we had losses of $275 thousand because of impairment recognized on three OREO properties. This was partially offset by gains on the sale of four properties in the amount of $201 thousand, resulting in a net loss of $74 thousand. During the nine months ended September 30, 2015, we had losses on Other Real Estate Owned (OREO) of $640 thousand because of impairment recognized on five OREO properties. This was partially offset by gains on the sale of two properties in the amount of $280 thousand, resulting in a net loss of $360 thousand. Employee compensation increased by $222 thousand compared to the first nine months of 2015, due to increases in the normal course of business.

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The efficiency ratio improved from 55.90% during the nine months ended September 30, 2015 to 51.41% during the first nine months of 2016. This ratio is calculated by dividing noninterest expenses excluding net gains or losses on OREO by net interest income plus noninterest income excluding gains/losses on the sale of assets and impairment losses recognized in earnings.

FINANCIAL CONDITION

Balance Sheet Overview

Total assets were $1.1 billion as of September 30, 2016 compared to $1.0 billion as of December 31, 2015. Net loans receivable increased from $821.0 million at the end of 2015 to $904.4 million at September 30, 2016.

Total deposits were $915.3 million at September 30, 2016 compared to $825.3 million at December 31, 2015. Certificates of deposit increased $70.3 million during the nine months. Noninterest-bearing deposits were $91.6 million at September 30, 2016 and $83.8 million at December 31, 2015.

Loan Portfolio

As part of the Greater Atlantic acquisition, the Bank and the FDIC entered into loss sharing agreements on approximately $143.4 million (contractual basis) of Greater Atlantic Bank’s assets.  There were two agreements with the FDIC, one for single family loans which is a 10-year agreement expiring in December 2019, and one for non-single family (commercial) assets which was a 5-year agreement which expired in December 2014. The Bank will share in the losses on the loans and foreclosed loan collateral with the FDIC as specified in the loss sharing agreements; we refer to these assets collectively as “covered assets.”  Loans that are not covered in the loss sharing agreement are referred to as “non-covered loans”. As of September 30, 2016, non-covered loans included $24.6 million of loans acquired in the HarVest acquisition and $45.1 million acquired in the PGFSB acquisition.

The following table summarizes the composition of our loan portfolio as of September 30, 2016 and December 31, 2015:

	Covered		Non-covered			Total			Covered		Non-covered			Total
	Loans (1)		Loans			Loans			Loans (1)		Loans			Loans
	September 30, 2016								December 31, 2015
Loans secured by real estate:
Commercial real estate - owner-occupied	$	-	$	141,969		$	141,969		$	-	$	141,521		$	141,521
Commercial real estate - non-owner-occupied		-		301,688			301,688			-		256,513			256,513
Secured by farmland		-		552			552			-		578			578
Construction and land loans		-		78,352			78,352			-		67,832			67,832
Residential 1-4 family		11,421		202,526			213,947			12,994		165,077			178,071
Multi- family residential		-		32,979			32,979			-		25,501			25,501
Home equity lines of credit		18,140		10,682			28,822			21,379		13,798			35,177
Total real estate loans		29,561		768,748			798,309			34,373		670,820			705,193
Commercial loans		-		115,590			115,590			-		124,985			124,985
Consumer loans		-		916			916			-		1,366			1,366
Gross loans		29,561		885,254			914,815			34,373		797,171			831,544
Less deferred fees on loans		-		(1,984	)		(1,984	)		-		(2,119	)		(2,119	)
Loans, net of deferred fees	$	29,561	$	883,270		$	912,831		$	34,373	$	795,052		$	829,425

(1) Covered Loans were acquired in the Greater Atlantic transaction and are covered under an FDIC loss-share agreement. The agreement covering non-single family loans expired in December 2014.

As of September 30, 2016 and December 31, 2015, substantially all of our loans were to customers located in Virginia and Maryland. We are not dependent on any single customer or group of customers whose insolvency would have a material adverse effect on operations.

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Loan growth slowed during the third quarter of 2016. After growing 4.97% during the first quarter and 4.10% during the second, third quarter growth was only 0.72%. Originations remained strong, but we experienced higher than normal prepayments. One $8 million loan was refinanced in the third quarter of 2016 with a specialized lender without recourse despite having to pay us a prepayment penalty of over $300 thousand.

Asset Quality

We will generally place a loan on nonaccrual status when it becomes 90 days past due. Loans will also be placed on nonaccrual status in cases where we are uncertain whether the borrower can satisfy the contractual terms of the loan agreement. Cash payments received while a loan is categorized as nonaccrual will be recorded as a reduction of principal as long as doubt exists as to future collections.

We maintain appraisals on loans secured by real estate, particularly those categorized as nonperforming loans and potential problem loans. In instances where appraisals reflect reduced collateral values, we make an evaluation of the borrower’s overall financial condition to determine the need, if any, for impairment or write-down to their fair values. If foreclosure occurs, we record other real estate owned at the lower of our recorded investment in the loan or fair value less our estimated costs to sell.

Our loss and delinquency experience on our loan portfolio has been limited by a number of factors, including our underwriting standards and the relatively short period of time since the loans were originated. Whether our loss and delinquency experience in the area of our portfolio will increase significantly depends upon the value of the real estate securing loans and economic factors such as the overall economy of the region.

Non-covered Loans and Assets

Non-covered OREO as of September 30, 2016 was $9.3 million compared to $10.1 million as of the end of the previous year. During the first nine months of 2016 we disposed of two non-covered properties, and there were no transfers from loans to OREO.

Non-covered nonaccrual loans were $3.9 million, of which $1.7 million were fully covered by SBA guarantees at September 30, 2016 compared to $4.2 million ($3.5 million of which were loans fully covered by SBA guarantees) at the end of last year. The ratio of non-covered non-performing assets (excluding the SBA guaranteed loans) to non-covered assets improved from 1.07% at the end of 2015 to 1.04% at September 30, 2016. The portions of these SBA loans that were unguaranteed were charged off.

We have an internal loan review and a loan committee, both of which provide on-going monitoring to identify and address issues with problem loans. The loan loss provision is determined after consideration of all known relevant internal and external factors affecting loan collectability to maintain the allowance for loan and lease losses at a level necessary to absorb estimated credit losses. Our allowance for loan losses as a percentage of non-covered total loans at September 30, 2016 was 0.96%, compared to 1.06% at the end of 2015. Management believes the allowance is adequate at this time but continues to monitor trends in environmental factors which may potentially affect future losses.

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The following table presents a comparison of non-covered nonperforming assets as of September 30, 2016 and December 31, 2015 (in thousands):

	September 30,			December 31,
	2016			2015
Nonaccrual loans	$	3,922		$	4,173
Loans past due 90 days and accruing interest		-			-
Total nonperforming loans		3,922			4,173
Other real estate owned		9,341			10,096
Total nonperforming assets	$	13,263		$	14,269
SBA guaranteed amounts included in nonaccrual loans	$	1,740		$	3,541
Allowance for loan losses to nonperforming loans		215.94	%		201.80	%
Allowance for loan losses to total non-covered loans		0.96	%		1.06	%
Nonperforming assets excluding SBA guaranteed loans to total non-covered assets		1.04	%		1.07	%

A modification is classified as a troubled debt restructuring (“TDR”) if both of the following exist: (1) the borrower is experiencing financial difficulty and (2) the Bank has granted a concession to the borrower. The Bank determines that a borrower may be experiencing financial difficulty if the borrower is currently delinquent on any of its debt, or if the Bank is concerned that the borrower may not be able to perform in accordance with the current terms of the loan agreement in the foreseeable future. Many aspects of the borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty, particularly as it relates to commercial borrowers due to the complex nature of the loan structure, business/industry risk and borrower/guarantor structures. Concessions may include the reduction of an interest rate at a rate lower than current market rate for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. When evaluating whether a concession has been granted, the Bank also considers whether the borrower has provided additional collateral or guarantors and whether such additions adequately compensate the Bank for the restructured terms, or if the revised terms are consistent with those currently being offered to new loan customers. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management’s judgment is required when determining whether a modification is a TDR.

Although each occurrence is unique to the borrower and is evaluated separately, for all portfolio segments, TDRs are typically modified through reduction in interest rates, reductions in payments, changing the payment terms from principal and interest to interest only, and/or extensions in term maturity.

During the three and nine months ending September 30, 2016, there were no loans modified in troubled debt restructurings. One TDR which had been modified in 2013 defaulted during the second quarter of 2015. This loan, in the amount of $692 thousand, was current as of September 30, 2016.

During the three and nine months ending September 30, 2015, there were no loans modified in troubled debt restructurings. One TDR which had been modified in 2013 defaulted during the second quarter of 2015.

Covered Loans and Assets

Covered loans identified as impaired totaled $958 thousand as of September 30, 2016 and $1.1 million as of December 31, 2015. Nonaccrual loans were $512 thousand and $698 thousand at September 30, 2016 and December 31, 2015, respectively. At September 30, 2016 and December 31, 2015, there were no loans past due 90 days or more and accruing interest.

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Securities

Investment securities, available for sale and held to maturity, were $90.9 million at September 30, 2016 down from $101.0 million at December 31, 2015.

Securities in our investment portfolio as of September 30, 2016 were as follows:

· residential government-sponsored mortgage-backed securities in the amount of $19.6 million and residential government-sponsored collateralized mortgage obligations totaling $2.5 million

· callable agency securities in the amount of $48.0 million

· municipal bonds in the amount of $15.1 million with a taxable equivalent yield of 3.33% and ratings as follows:

Rating		Amount
Service	Rating	(in thousands)
Moody's	Aaa	$	505
Moody's	Aa2		3,617
Moody's	Aa3		707
Standard & Poor's	AAA		3,071
Standard & Poor's	AA+		580
Standard & Poor's	AA		5,988
Standard & Poor's	AA-		596
		$	15,064

· trust preferred securities in the amount of $5.6 million, $3.8 million of which is Alesco VII A1B which is rated A1 (Moody’s), BBB+ (Standard and Poor’s) and A (Fitch)

During the first nine months of 2016, we purchased $44.0 million of callable agency securities and a fixed rate residential government-sponsored mortgage-backed security in the amount of $2.0 million. Callable agency securities in the amount of $52.1 million were called during the nine months ended September 30, 2016.

In the second quarter of 2015, we transferred seven of the trust preferred securities and a non-government sponsored residential CMO that had been other than temporarily impaired from the held-to-maturity classification to the available-for-sale classification. We sold five of these trust preferred securities and the CMO recognizing a net gain of $520 thousand in the second quarter of 2015. The two trust preferred securities we retained in the AFS classification have a fair value of $1.6 million as of September 30, 2016. We also have two trust preferred securities that we retained in the HTM classification in the amount of $4.1 million, one of which is the above-mentioned Alesco VII. These two securities have never been other than temporarily impaired.

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At September 30, 2016, we owned pooled trust preferred securities as follows (in thousands): 

															Previously
												% of Current			Recognized
												Defaults and			Cumulative
		Ratings								Estimated		Deferrals to			Other
	Tranche	When Purchased		Current Ratings						Fair		Total			Comprehensive
Security	Level	Moody's	Fitch	Moody's	Fitch	Par Value		Book Value		Value		Collateral			Loss (1)
Held to Maturity						(in thousands)
ALESCO VII  A1B	Senior	Aaa	AAA	A1	A	$	4,142	$	3,802	$	3,496		11	%	$	242
MMCF III B	Senior Sub	A3	A-	Ba1	BB		273		268		224		32	%		5
							4,415		4,070		3,720				$	247
																Cumulative OTTI
Available for Sale																Related to
Other Than Temporarily Impaired:																Credit Loss (2)
TPREF FUNDING II	Mezzanine	A1	A-	Caa3	C		1,500		1,099		623		37	%		400
ALESCO V C1	Mezzanine	A2	A	Caa3	C		2,150		1,490		949		10	%		660
							3,650		2,589		1,572				$	1,060
Total						$	8,065	$	6,659	$	5,292

(1) Pre-tax, and represents unrealized losses at date of transfer from available-for-sale to held-to-maturity, net of accretion

(2) Pre-tax

Each of these securities has been evaluated for potential impairment under accounting guidelines. In performing a detailed cash flow analysis of each security, Sonabank works with independent third parties to identify the most reflective 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.

We recognized no OTTI charges during the three and nine months ended September 30, 2016 and the three and nine months ended September 30, 2015.

Liquidity and Funds Management

The objective of our liquidity management is to assure the ability to meet our financial obligations. These obligations include the payment of deposits on demand or at maturity, the repayment of borrowings at maturity and the ability to fund commitments and other new business opportunities. We obtain funding from a variety of sources, including customer deposit accounts, customer certificates of deposit and payments on our loans and investments. Historically, our level of core deposits has been insufficient to fully fund our lending activities. As a result, we have sought funding from additional sources, including institutional certificates of deposit and the sale of available-for-sale investment securities. In addition, we maintain lines of credit from the Federal Home Loan Bank of Atlanta and utilize securities sold under agreements to repurchase and reverse repurchase agreement borrowings from approved securities dealers.

We prepare a cash flow forecast for one year with the first three months prepared on a weekly basis and on a monthly basis thereafter. The projections incorporate expected cash flows on loans, investments securities, and deposits based on data used to prepare our interest rate risk analyses. To estimate loan growth over the one year period, the projection incorporates the scheduled loan closings in the Loan Pipeline Report along with other management estimates.

We recently purchased liquidity risk software with which we can monitor our liquidity risk at a point in time and prepare cash flow and funds availability projections over a two year period. The projections can be run using a base case and several stress levels.

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During the nine months ended September 30, 2016, we funded our financial obligations with deposits, securities sold under agreements to repurchase and borrowings from the Federal Home Loan Bank of Atlanta. At September 30, 2016, we had $140.3 million of unfunded lines of credit and undisbursed construction loan funds. Our approved loan commitments were $7.6 million at September 30, 2016. Management anticipates that funding requirements for these commitments can be met from the normal sources of funds.

Capital Resources

The following table provides a comparison of our leverage and risk-weighted capital ratios and the leverage and risk-weighted capital ratios of the bank at the dates indicated to the minimum and well-capitalized regulatory standards (dollars in thousands):

						Required
						For Capital					To Be Categorized as
	Actual					Adequacy Purposes					Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2016
Southern National
Common equity tier 1 capital ratio	$	114,754		12.59	%	$	41,001		4.50	%	$	59,224		6.50	%
Tier 1 risk-based capital ratio		114,754		12.59	%		54,669		6.00	%		72,892		8.00	%
Total risk-based capital ratio		123,223		13.52	%		72,892		8.00	%		91,114		10.00	%
Leverage ratio		114,754		10.57	%		43,417		4.00	%		54,271		5.00	%
Sonabank
Common equity tier 1 capital ratio	$	113,454		12.46	%	$	40,982		4.50	%	$	59,196		6.50	%
Tier 1 risk-based capital ratio		113,454		12.46	%		54,642		6.00	%		72,856		8.00	%
Total risk-based capital ratio		121,923		13.39	%		72,856		8.00	%		91,071		10.00	%
Leverage ratio		113,454		10.46	%		43,399		4.00	%		54,248		5.00	%
December 31, 2015
Southern National
Common equity tier 1 capital ratio	$	109,276		13.13	%	$	37,254		4.50	%	$	54,101		6.50	%
Tier 1 risk-based capital ratio		109,276		13.13	%		49,939		6.00	%		66,585		8.00	%
Total risk-based capital ratio		117,697		14.14	%		66,585		8.00	%		83,232		10.00	%
Leverage ratio		109,276		11.06	%		39,509		4.00	%		49,386		5.00	%
Sonabank
Common equity tier 1 capital ratio	$	108,054		12.99	%	$	37,436		4.50	%	$	54,075		6.50	%
Tier 1 risk-based capital ratio		108,054		12.99	%		49,915		6.00	%		66,553		8.00	%
Total risk-based capital ratio		116,475		14.00	%		66,553		8.00	%		83,192		10.00	%
Leverage ratio		108,054		10.94	%		39,493		4.00	%		49,366		5.00	%

The most recent regulatory notification categorized Sonabank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed Sonabank’s category.

Beginning on January 1, 2016, SNBV and Sonabank must maintain a capital conservation buffer to avoid restrictions on capital distributions or discretionary bonus payments.  This buffer must consist solely of Common Equity Tier 1 Capital, but the buffer applies to all three measurements (Common Equity Tier 1, Tier 1 capital and total capital) in addition to the minimum risk-based capital requirements.  The capital conservation buffer required for 2016 is common equity equal to .625% of risk-weighted assets and will increase by .625% per year until reaching 2.5% beginning January 1, 2019.  

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are engaged primarily in the business of investing funds obtained from deposits and borrowings into interest-earning loans and investments. Consequently, our earnings depend to a significant extent on our net interest income, which is the difference between the interest income on loans and other investments and the interest expense on deposits and borrowings. To the extent that our interest-bearing liabilities do not reprice or mature at the same time as our interest-earning assets, we are subject to interest rate risk and corresponding fluctuations in net interest income. We have employed asset/liability management policies that seek to manage our interest income, without having to incur unacceptable levels of credit or investment risk.

We use simulation modeling to manage our interest rate risk, and we review quarterly interest sensitivity reports prepared for us by FTN Financial using the Sendero ALM Analysis System. This approach uses a model which generates estimates of the change in our economic value of equity (EVE) over a range of interest rate scenarios. EVE is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts using assumptions about estimated loan prepayment rates, reinvestment rates and deposit decay rates.

The following tables are based on an analysis prepared by FTN Financial setting forth an analysis of our interest rate risk as measured by the estimated change in EVE resulting from instantaneous and sustained parallel shifts in the yield curve (plus 400 basis points or minus 200 basis points, measured in 100 basis point increments) as of September 30, 2016 and as of December 31, 2015, and all changes are within our ALM Policy guidelines.

	Sensitivity of Economic Value of Equity
	As of September 30, 2016
									Economic Value of
Change in	Economic Value of Equity								Equity as a % of
Interest Rates
in Basis Points			$ Change			% Change			Total			Equity
(Rate Shock)	Amount		From Base			From Base			Assets			Book Value
	(Dollar amounts in thousands)
Up 400	$	113,919	$	(31,332	)		-21.57	%		10.03	%		91.10	%
Up 300		121,482		(23,769	)		-16.36	%		10.70	%		97.15	%
Up 200		129,720		(15,531	)		-10.69	%		11.42	%		103.74	%
Up 100		138,317		(6,934	)		-4.77	%		12.18	%		110.61	%
Base		145,251		-			0.00	%		12.79	%		116.16	%
Down 100		129,413		(15,838	)		-10.90	%		11.40	%		103.49	%
Down 200		124,398		(20,853	)		-14.36	%		10.96	%		99.48	%

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	Sensitivity of Economic Value of Equity
	As of December 31, 2015
									Economic Value of
Change in	Economic Value of Equity								Equity as a % of
Interest Rates
in Basis Points			$ Change			% Change			Total			Equity
(Rate Shock)	Amount		From Base			From Base			Assets			Book Value
	(Dollar amounts in thousands)
Up 400	$	108,441	$	(34,579	)		-24.18	%		10.47	%		90.64	%
Up 300		115,906		(27,114	)		-18.96	%		11.19	%		96.88	%
Up 200		124,098		(18,922	)		-13.23	%		11.98	%		103.73	%
Up 100		133,386		(9,634	)		-6.74	%		12.87	%		111.49	%
Base		143,020		-			0.00	%		13.80	%		119.55	%
Down 100		130,510		(12,510	)		-8.75	%		12.60	%		109.09	%
Down 200		122,637		(20,383	)		-14.25	%		11.84	%		102.51	%

Our interest rate sensitivity is also monitored by management through the use of a model run by FTN Financial that generates estimates of the change in the net interest income over a range of interest rate scenarios. Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them. In this regard, the model assumes that the composition of our interest sensitive assets and liabilities existing at September 30, 2016 and December 31, 2015 remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. All changes are within our ALM Policy guidelines.

	Sensitivity of Net Interest Income
	As of September 30, 2016
Change in	Adjusted Net Interest Income				Net Interest Margin
Interest Rates
in Basis Points			$ Change					% Change
(Rate Shock)	Amount		From Base		Percent			From Base
	(Dollar amounts in thousands)
Up 400	$	42,346	$	5,780		3.90	%		0.53	%
Up 300		40,845		4,279		3.76	%		0.39	%
Up 200		39,370		2,804		3.63	%		0.26	%
Up 100		37,900		1,334		3.49	%		0.12	%
Base		36,566		-		3.37	%		0.00	%
Down 100		37,113		547		3.42	%		0.05	%
Down 200		37,245		679		3.43	%		0.06	%

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	Sensitivity of Net Interest Income
	As of December 31, 2015
Change in	Adjusted Net Interest Income					Net Interest Margin
Interest Rates
in Basis Points			$ Change						% Change
(Rate Shock)	Amount		From Base			Percent			From Base
	(Dollar amounts in thousands)
Up 400	$	39,018	$	3,252			3.94	%		0.32	%
Up 300		38,030		2,264			3.84	%		0.22	%
Up 200		37,064		1,298			3.75	%		0.13	%
Up 100		36,220		454			3.66	%		0.04	%
Base		35,766		-			3.62	%		0.00	%
Down 100		35,646		(120	)		3.60	%		-0.02	%
Down 200		35,504		(262	)		3.59	%		-0.03	%

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in EVE requires the making of certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. Accordingly, although the EVE tables and Sensitivity of Net Interest Income (NII) tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net worth and net interest income. Sensitivity of EVE and NII are modeled using different assumptions and approaches. In the low interest rate environment that currently exists, limitations on downward adjustments for interest rates, particularly as they apply to deposits, can and do result in anomalies in scenarios that are unlikely to occur due to the current low interest rate environment.

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ITEM 4 – CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this quarterly report on Form 10-Q, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d -15(c) under the Securities Exchange Act of 1934). Based upon that evaluation, our chief executive officer and chief financial officer have concluded that these controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting. There have been no changes in Southern National’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

Southern National and Sonabank may, from time to time, be a party to various legal proceedings arising in the ordinary course of business. There are no proceedings pending, or to management’s knowledge, threatened, against Southern National or Sonabank as of September 30, 2016.

ITEM 1A – RISK FACTORS

As of September 30, 2016 there were no material changes to the risk factors previously disclosed on our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

Item 3. – Defaults Upon Senior Securities

Not applicable

Item 4. – MINE SAFETY DISCLOSURES

Not applicable

Item 5. – Other Information

Not applicable

ITEM 6 - EXHIBITS

(a) Exhibits.

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Exhibit No.	Description
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed with this Quarterly Report on Form 10-Q

** Furnished with this Quarterly Report on Form 10-Q

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Southern National Bancorp of Virginia, Inc.

(Registrant)

November 9, 2016	/s/ Georgia S. Derrico
(Date)	Georgia S. Derrico,
	Chairman of the Board and Chief Executive Officer

November 9, 2016	/s/ William H. Lagos
(Date)	William H. Lagos,
	Senior Vice President and Chief Financial Officer

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