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.

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.

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.

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.

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.

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.

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.

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.

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.

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.