Primis Financial Corp. - Quarter Report: 2011 June (Form 10-Q)

t71227_10q.htm

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 June 30, 2011

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 of incorporation or organization)	(I.R.S. Employer Identification No.)

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 o

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 o NO o

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 o Accelerated filer x Smaller reporting company o

Non-accelerated filer o (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 o No x

As of July 29, 2011, there were 11,590,212 shares of common stock outstanding.

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

FORM 10-Q

June 30, 2011

INDEX

		PAGE

PART 1 - FINANCIAL INFORMATION

Item 1 - Financial Statements
	Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010	2
	Consolidated Statements of Income and Comprehensive Incomefor the three and six months ended June 30, 2011 and 2010	3
	Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2011	4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010	5
	Notes to Consolidated Financial Statements	6- 22

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		23- 35

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		36-38

Item 4 – Controls and Procedures		39

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings		39

Item 1A – Risk Factors		39

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		39

Item 3 – Defaults Upon Senior Securities		39

Item 4 – (Removed and Reserved)		39

Item 5 – Other Information		39

Item 6 - Exhibits		40

Signatures		41

Certifications		42-44

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)

	June 30,			December 31,
	2011			2010
ASSETS
Cash and cash equivalents:
Cash and due from financial institutions	$	2,191		$	2,180
Interest-bearing deposits in other financial institutions		1,495			7,565
Total cash and cash equivalents		3,686			9,745

Securities available for sale, at fair value		10,751			11,068

Securities held to maturity, at amortized cost (fair value of $39,791 and $43,965, respectively)		40,021			44,895

Covered loans		82,935			92,171
Non-covered loans		394,052			367,266
Total loans		476,987			459,437
Less allowance for loan losses		(6,063	)		(5,599	)
Net loans		470,924			453,838

Stock in Federal Reserve Bank and Federal Home Loan Bank		5,972			6,350
Bank premises and equipment, net		4,691			4,659
Goodwill		8,713			8,713
Core deposit intangibles, net		2,455			2,915
FDIC indemnification asset		18,088			18,536
Bank-owned life insurance		14,310			14,568
Other real estate owned		9,613			4,577
Deferred tax assets, net		4,128			3,782
Other assets		8,035			7,178

Total assets	$	601,387		$	590,824

LIABILITIES AND STOCKHOLDERS’ EQUITY

Noninterest-bearing demand deposits	$	33,917		$	34,529
Interest-bearing deposits:
NOW accounts		15,013			15,961
Money market accounts		141,928			169,861
Savings accounts		5,814			5,490
Time deposits		237,319			205,133
Total interest-bearing deposits		400,074			396,445
Total deposits		433,991			430,974

Securities sold under agreements to repurchase and other short-term borrowings		19,968			23,908
Federal Home Loan Bank (FHLB) advances		43,500			35,000
Other liabilities		2,128			1,828
Total liabilities		499,587			491,710

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, 11,590,212 shares at June 30, 2011 and December 31, 2010		116			116
Additional paid in capital		96,551			96,478
Retained earnings		8,285			5,854
Accumulated other comprehensive loss		(3,152	)		(3,334	)
Total stockholders’ equity		101,800			99,114

Total liabilities and stockholders’ equity	$	601,387		$	590,824

See accompanying notes to consolidated financial statements.

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 Six Months Ended
	June 30,						June 30,

	2011			2010			2011			2010

Interest and dividend income:
Interest and fees on loans	$	7,210		$	7,829		$	14,331		$	15,443
Interest and dividends on taxable securities		482			684			1,038			1,418
Interest and dividends on other earning assets		51			48			103			91
Total interest and dividend income		7,743			8,561			15,472			16,952
Interest expense:
Interest on deposits		1,249			1,790			2,526			3,593
Interest on borrowings		267			330			585			657
Total interest expense		1,516			2,120			3,111			4,250

Net interest income		6,227			6,441			12,361			12,702

Provision for loan losses		2,250			1,450			3,590			2,750

Net interest income after provision for loan losses		3,977			4,991			8,771			9,952

Noninterest income:
Account maintenance and deposit service fees		218			235			418			476
Income from bank-owned life insurance		933			137			1,067			276
Net gain (loss) on other real estate owned		(108	)		19			(147	)		39
Total other-than-temporary impairment losses (OTTI)		(38	)		(4	)		(70	)		(10	)
Portion of OTTI recognized in other comprehensive income (before taxes)		-			-			-			-
Net credit related OTTI recognized in earnings		(38	)		(4	)		(70	)		(10	)
Other		44			148			89			293

Total noninterest income		1,049			535			1,357			1,074

Noninterest expenses:
Salaries and benefits		1,705			1,523			3,308			3,164
Occupancy expenses		554			527			1,093			1,069
Furniture and equipment expenses		131			151			267			305
Amortization of core deposit intangible		230			236			460			472
Virginia franchise tax expense		171			184			343			368
FDIC assessment		119			212			272			401
Data processing expense		132			159			274			314
Telephone and communication expense		100			101			188			220
Change in FDIC indemnification asset		(192	)		406			(351	)		650
Other operating expenses		543			528			1,093			1,042
Total noninterest expenses		3,493			4,027			6,947			8,005
Income before income taxes		1,533			1,499			3,181			3,021
Income tax expense		222			474			750			955
Net income	$	1,311		$	1,025		$	2,431		$	2,066
Other comprehensive income:
Unrealized gain on available for sale securities	$	101		$	161		$	197		$	222
Realized amount on securities sold, net		-			-			-			-
Non-credit component of other-than-temporary impairment on held-to-maturity securities		41			33			96			109
Accretion of amounts previously recorded upon transfer to held-to-maturity from available-for-sale		(6	)		(31	)		(17	)		(61	)
Net unrealized gain		136			163			276			270
Tax effect		46			55			94			91
Other comprehensive income		90			108			182			179
Comprehensive income	$	1,401		$	1,133		$	2,613		$	2,245
Earnings per share, basic and diluted	$	0.11		$	0.09		$	0.21		$	0.18

See accompanying notes to consolidated financial statements.

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2011

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

							Accumulated
			Additional				Other
	Common		Paid in		Retained		Comprehensive			Comprehensive
	Stock		Capital		Earnings		Loss			Income		Total

Balance - January 1, 2011	$	116	$	96,478	$	5,854	$	(3,334	)			$	99,114

Comprehensive income:

Net income						2,431				$	2,431		2,431
Change in unrealized gain on available for sale securities (net of tax, $67)								130			130		130
Change in unrecognized loss on securities held to maturity for which a portion of OTTI has been recognized (net of tax, $27 and accretion, $17 and amounts recorded into other comprehensive income at transfer)								52			52		52

Total comprehensive income										$	2,613

Stock-based compensation expense				73									73

Balance - June 30, 2011	$	116	$	96,551	$	8,285	$	(3,152	)			$	101,800

See accompanying notes to consolidated financial statements.

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

(dollars in thousands) (Unaudited)

	2011			2010

Operating activities:
Net income	$	2,431		$	2,066
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation		253			276
Amortization of core deposit intangible		460			472
Other amortization, net		(23	)		88
(Increase) decrease in FDIC indemnification asset		(351	)		650
Provision for loan losses		3,590			2,750
Earnings on bank-owned life insurance		(1,067	)		(276	)
Stock based compensation expense		73			35
Impairment on securities		70			10
Net (gain) loss on other real estate owned		147			(39	)
Net increase in other assets		(59	)		(1,685	)
Net increase (decrease) in other liabilities		300			(3,014	)
Net cash and cash equivalents provided by operating activities		5,824			1,333
Investing activities:
Proceeds from paydowns, maturities and calls of securities available for sale		489			1,126
Proceeds from paydowns, maturities and calls of securities held to maturity		5,056			5,308
Loan originations and payments, net		(26,668	)		(5,940	)
Net (increase) decrease in stock in Federal Reserve Bank and Federal Home Loan Bank		378			(835	)
Payments received on FDIC indemnification asset		799			-
Proceeds from sale of other real estate owned		771			583
Purchases of bank premises and equipment		(285	)		(1,826	)
Net cash and cash equivalents used in investing activities		(19,460	)		(1,584	)
Financing activities:
Net increase (decrease) in deposits		3,017			(76	)
Proceeds from Federal Home Loan Bank advances		8,500			5,000
Net decrease in securities sold under agreement to repurchase and other short-term borrowings		(3,940	)		(1,646	)
Additional cost of 2009 common stock issuance		-			(48	)
Net cash and cash equivalents provided by financing activities		7,577			3,230
Increase (decrease) in cash and cash equivalents		(6,059	)		2,979
Cash and cash equivalents at beginning of period		9,745			8,070
Cash and cash equivalents at end of period	$	3,686		$	11,049
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	3,250		$	4,566
Income taxes		825			880
Supplemental schedule of noncash investing and financing activities
Transfer from non-covered loans to other real estate owned		5,910			2,352
Transfer from covered loans to other real estate owned		82			-

See accompanying notes to consolidated financial statements.

SOUTHERN NATIONAL BANCORP OF VIRGINIA, INC.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2011

1. ACCOUNTING POLICIES

Southern National Bancorp of Virginia, Inc. (“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. The principal activities of Sonabank are to attract deposits and originate loans as permitted under applicable banking regulations. Sonabank operates 13 branches in Virginia located in Fairfax County (Reston, McLean and Fairfax), in Charlottesville, Warrenton (2), Loudoun County (Middleburg, Leesburg (2), and South Riding), Front Royal, New Market and Clifton Forge, and we also have a branch in Rockville, Maryland.

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 SNBV’s Form 10-K for the year ended December 31, 2010.

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.

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation, and the reclassifications had no impact on prior period net income or shareholders’ equity.

Recent Accounting Pronouncements

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This amendment clarifies the guidance on the evaluation made by a creditor on whether a restructuring constitutes a troubled debt restructuring. It clarifies the guidance related to a creditor’s evaluation of whether it has granted a concession to a debtor and also clarifies the guidance on a creditor’s evaluation of whether the debtor is experiencing financial difficulties. The amendment is effective for public entities for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The disclosures required which were deferred by ASU No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, is effective for interim and annual periods beginning on or after June 15, 2011, and we will adopt the standard effective for the third quarter. The adoption of this standard is not expected to have a material impact on our consolidated financial condition or results of operation.

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. As of June 30, 2011, options to purchase an aggregate of 302,500 shares of common stock were outstanding and no shares remained available for issuance. 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 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 SNBV and to assist in the attracting and retaining of non-employee directors by affording them an opportunity to share in SNBV’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.

SNBV granted 103,750 options during the first six months of 2011. 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 six months ended June 30, 2011:

	2011
Dividend yield		0.00%
Expected life	10 years
Expected volatility		46.13%
Risk-free interest rate		3.34%
Weighted average fair value per option granted	$	4.39

●

We have paid no dividends.

●

Due to SNBV’s short existence, the volatility was estimated using historical volatility of comparative publicly traded financial institutions in the Virginia market combined with that of SNBV.

●

The risk-free interest rate was developed using the U. S. Treasury yield curve for periods equal to the expected life of the options on the grant date. An increase in the risk-free interest rate will increase stock compensation expense on future option grants.

For the three and six months ended June 30, 2011, stock-based compensation expense was $47 thousand and $73 thousand, respectively, compared to $18 thousand and $35 thousand for the same periods last year. As of June 30, 2011, unrecognized compensation expense associated with the stock options was $700 thousand, which is expected to be recognized over a weighted average period of 4.1 years.

A summary of the activity in the stock option plan during the three months ended June 30, 2011 follows (dollars in thousands):

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price		Term		Value
Options outstanding, beginning of period		312,675	$	8.35
Granted		103,750		7.20
Forfeited		-		-
Exercised		-		-
Options outstanding, end of period		416,425	$	8.06		6.8	$	52

Vested or expected to vest		416,425	$	8.06		6.8	$	52

Exercisable at end of period		207,745	$	8.90		4.6	$	21

3. SECURITIES

The amortized cost and fair value of securities available-for-sale were as follows (in thousands):

	Amortized		Gross Unrealized				Fair
June 30, 2011	Cost		Gains		Losses		Value
SBA guaranteed loan pools	$	10,308	$	278	$	-		10,586
FHLMC preferred stock		16		149		-		165
Total	$	10,324	$	427	$	-	$	10,751

	Amortized		Gross Unrealized				Fair
December 31, 2010	Cost		Gains		Losses		Value
SBA guaranteed loan pools	$	10,822	$	216	$	-		11,038
FHLMC preferred stock		16		14		-		30
Total	$	10,838	$	230	$	-	$	11,068

The carrying amount and fair value of securities held-to-maturity were as follows (in thousands):

	Amortized		Gross Unrecognized					Fair
June 30, 2011	Cost		Gains		Losses			Value
Residential government-sponsored mortgage-backed securities	$	29,982	$	1,409	$	-		$	31,391
Residential government-sponsored collateralized mortgage obligations		127		5		-			132
Other residential collateralized mortgage obligations		1,040		-		-			1,040
Trust preferred securities		8,872		816		(2,460	)		7,228
	$	40,021	$	2,230	$	(2,460	)	$	39,791

	Amortized		Gross Unrecognized					Fair
December 31, 2010	Cost		Gains		Losses			Value
Residential government-sponsored mortgage-backed securities	$	34,088	$	1,247	$	-		$	35,335
Residential government-sponsored collateralized mortgage obligations		188		8		-			196
Other residential collateralized mortgage obligations		1,166		5		-			1,171
Trust preferred securities		9,453		675		(2,865	)		7,263
	$	44,895	$	1,935	$	(2,865	)	$	43,965

The fair value and carrying amount, if different, of debt securities as of June 30, 2011, 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 one to five years	$	-	$	-	$	304	$	310
Due in five to ten years		-		-		1,130		1,154
Due after ten years		8,872		7,228		8,874		9,122
Residential government-sponsored mortgage-backed securities		29,982		31,391		-		-
Residential government-sponsored collateralized mortgage obligations		127		132		-		-
Other residential collateralized mortgage obligations		1,040		1,040		-		-
Total	$	40,021	$	39,791	$	10,308	$	10,586

Securities with a carrying amount of approximately $40.7 million and $45.3 million at June 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits, repurchase agreements and a line of credit for advances from the Federal Home Loan Bank of Atlanta (“FHLB”).

SNBV monitors the portfolio for indicators of other than temporary impairment. At June 30, 2011 and December 31, 2010, certain securities’ fair values were below cost. As outlined in the table below, there were securities with fair values totaling approximately $4.6 million in the portfolio that are considered temporarily impaired at June 30, 2011. Because the decline in fair value is attributable to changes in interest rates and 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 June 30, 2011. The following tables present information regarding securities in a continuous unrealized loss position as of June 30, 2011 and December 31, 2010 (in thousands) by duration of time in a loss position:

June 30, 2011
	Less than 12 months				12 Months or More					Total
Held to Maturity	Fair value		Unrecognized Losses		Fair value		Unrecognized Losses			Fair value		Unrecognized Losses
Trust preferred securities	$	-	$	-	$	4,597	$	(2,460	)	$	4,597	$	(2,460	)

December 31, 2010

	Less than 12 months				12 Months or More					Total
Held to Maturity	Fair value		Unrecognized Losses		Fair value		Unrecognized Losses			Fair value		Unrecognized Losses
Trust preferred securities	$	-	$	-	$	4,805	$	(2,865	)	$	4,805	$	(2,865	)

As of June 30, 2011, we owned pooled trust preferred securities as follows:

																		Previously
																		Recognized
																		Cumulative
		Ratings												Estimated		Current		Other
	Tranche	When Purchased				Current Ratings								Fair		Defaults and		Comprehensive
Security	Level	Moody’s		Fitch		Moody’s		Fitch		Par Value		Book Value		Value		Deferrals		Loss (1)
										(in thousands)
ALESCO VII A1B	Senior	Aaa		AAA		Baa3		BB		$	7,174	$	6,420	$	4,189	$	209,056	$	310
MMCF II B	Senior Sub		A3	AA-		Baa2		BB			493		455		477		34,000		38
MMCF III B	Senior Sub		A3		A-	Ba1		CC			652		637		408		37,000		14
											8,319		7,512		5,074			$	362

																		Cumulative		Cumulative
																		Other Comprehensive		OTTI Related to
Other Than Temporarily Impaired:																		Loss (2)		Credit Loss (2)
TPREF FUNDING II	Mezzanine		A1		A-	Caa3			C		1,500		496		496		131,100		693	$	311
TRAP 2007-XII C1	Mezzanine		A3		A		C		C		2,066		127		352		155,705		1,360		579
TRAP 2007-XIII D	Mezzanine	NR			A-	NR			C		2,032		-		38		231,250		-		2,032
MMC FUNDING XVIII	Mezzanine		A3		A-	Ca			C		1,050		132		132		111,682		444		474
ALESCO V C1	Mezzanine		A2		A	Ca			C		2,083		461		537		117,942		961		661
ALESCO XV C1	Mezzanine		A3		A-		C		C		3,112		29		159		266,100		524		2,559
ALESCO XVI C	Mezzanine		A3		A-	Ca			C		2,072		115		440		149,900		777		1,180
											13,915		1,360		2,154			$	4,759	$	7,796

Total										$	22,234	$	8,872	$	7,228

(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:

●

We assume that .5% of the remaining performing collateral will default or defer per annum.

●

We assume recoveries ranging from 25% to 47% with a two year lag on all defaults and deferrals.

●

We assume no prepayments for 10 years and then 1% per annum for the remaining life of the security.

●

Additionally banks with assets over $15 billion will no longer be allowed to count down streamed trust preferred proceeds as Tier 1 capital (although it will still be counted as Tier 2 capital). That will incent the large banks to prepay their trust preferred securities if they can or if it is economically desirable. As a consequence we have projected in all of our pools that 25% of the collateral issued by banks with assets over $15 billion will prepay in 2013.

●

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 also own approximately $1.0 million of SARM 2005-22 1A2. This residential collateralized mortgage obligation was originally rated AAA by Standard and Poor’s. After a series of downgrades this security has been evaluated for potential impairment. Based on our review of the trustee report, shock analysis and current information regarding delinquencies, nonperforming loans and credit support it has been determined that no OTTI charge for credit was required for the quarter ended June 30, 2011. The assumptions used in the analysis included a 4.7% prepayment speed, 14% default rate, a 50% loss severity and an accounting yield of 2.55%. We recorded OTTI charges for credit on this security of $3 thousand in the second quarter of 2010.

The following table presents a roll forward of the credit losses for the trust preferred securities and the residential collateralized mortgage obligation recognized in earnings for the six months ended June 30, 2011 and 2010 (in thousands):

	2011		2010

Amount of cumulative other-than-temporary impairment related to credit loss prior to January 1	$	8,002	$	7,714
Amounts related to credit loss for which an other-than-temporary impairment was previously recognized		70		10

Amount of cumulative other-than-temporary impairment related to credit loss as of June 30	$	8,072	$	7,724

4. LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes the composition of our loan portfolio as of June 30, 2011 and December 31, 2010:

	Covered		Non-covered			Total			Covered		Non-covered			Total
	Loans		Loans			Loans			Loans		Loans			Loans
	June 30, 2011								December 31, 2010
Mortgage loans on real estate:
Commercial real estate - owner-occupied	$	4,703	$	94,137		$	98,840		$	5,246	$	81,487		$	86,733
Commercial real estate - non-owner-occupied		10,412		87,323			97,735			13,898		76,068			89,966
Secured by farmland		-		3,503			3,503			-		3,522			3,522
Construction and land loans		849		33,599			34,448			1,098		39,480			40,578
Residential 1-4 family		27,615		54,562			82,177			29,935		58,900			88,835
Multi- family residential		553		22,227			22,780			563		19,177			19,740
Home equity lines of credit		37,954		9,308			47,262			40,287		10,532			50,819
Total real estate loans		82,086		304,659			386,745			91,027		289,166			380,193

Commercial loans		713		88,251			88,964			998		76,644			77,642
Consumer loans		136		1,997			2,133			146		2,010			2,156
Gross loans		82,935		394,907			477,842			92,171		367,820			459,991

Less deferred fees on loans		-		(855	)		(855	)		-		(554	)		(554	)
Loans, net of unearned income	$	82,935	$	394,052		$	476,987		$	92,171	$	367,266		$	459,437

As part of the Greater Atlantic acquisition, the Bank and the FDIC entered into a loss sharing agreement on approximately $143.4 million (contractual basis) of Greater Atlantic Bank’s assets. The Bank will share in the losses on the loans and foreclosed loan collateral with the FDIC as specified in the loss sharing agreement; we refer to these assets collectively as “covered assets.” Loans not acquired from Greater Atlantic Bank are referred to as “non-covered loans.” The covered loans are subject to our internal and external credit review. As a result, if and when credit deterioration is noted subsequent to the acquisition date, such deterioration will be measured through our allowance for loan loss calculation methodology and a provision for credit losses will be charged to earnings. There has been no incremental provision recorded on covered loans since acquisition. The FDIC indemnification asset is reduced for cash payments received, and adjusted each quarter for changes in expected recoveries from the FDIC based on the expected cash flows from the covered loans. The adjustment amount is recorded through earnings. As information and other developments warrant, we reassess our anticipated recoveries from the FDIC on the covered loans and adjust the carrying value of the FDIC indemnification asset through earnings.

Credit-impaired covered loans are those loans showing evidence of credit deterioration since origination and it is probable, at the date of acquisition, that SNBV will not collect all contractually required principal and interest payments. Generally, acquired loans that meet SNBV’s definition for nonaccrual status fall within the definition of credit-impaired covered loans.

Impaired loans were as follows (in thousands):

June 30, 2011	Covered Loans				Non-covered Loans				Total Loans
			Allowance				Allowance				Allowance
	Recorded		for Loan		Recorded		for Loan		Recorded		for Loan
	Investment		Losses Allocated		Investment (1)		Losses Allocated		Investment		Losses Allocated
With no related allowance recorded
Commercial real estate - owner occupied	$	245	$	-	$	5,333	$	-	$	5,578	$	-
Commercial real estate - non-owner occupied (2)		1,854		-		5,769		-		7,623		-
Construction and land development		745		-		2,821		-		3,566		-
Commercial loans		215		-		11,067		-		11,282		-
Residential 1-4 family		762		-		4,339		-		5,101		-
Other consumer loans		-		-		-		-		-		-

Total	$	3,821	$	-	$	29,329	$	-	$	33,150	$	-

With an allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	-			$	-	$	-
Commercial real estate - non-owner occupied (2)		-		-		-				-		-
Construction and land development		-		-		1,994		52		1,994		52
Commercial loans		-		-		1,617		527		1,617		527
Residential 1-4 family		-		-		-		-		-		-
Other consumer loans		-		-		-		-		-		-

Total	$	-	$	-	$	3,611	$	579	$	3,611	$	579
Grand total	$	3,821	$	-	$	32,940	$	579	$	36,761	$	579

(1) Recorded investment is after charge offs of $3.2 million and includes SBA guarantees of $2.0 million.

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

December 31, 2010	Covered Loans				Non-covered Loans				Total Loans
			Allowance				Allowance				Allowance
	Recorded		for Loan		Recorded		for Loan		Recorded		for Loan
	Investment		Losses Allocated		Investment (1)		Losses Allocated		Investment		Losses Allocated
With no related allowance recorded
Commercial real estate - owner occupied	$	141	$	-	$	358	$	-	$	499	$	-
Commercial real estate - non-owner occupied (2)		1,807		-		5,508		-		7,315		-
Construction and land development		1,055		-		4,844		-		5,899		-
Commercial loans		285		-		1,558		-		1,843		-
Residential 1-4 family		108		-		2,969		-		3,077		-
Other consumer loans		77		-		-		-		77		-

Total	$	3,473	$	-	$	15,237	$	-	$	18,710	$	-

With an allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	-	$	-	$	-	$	-
Commercial real estate - non-owner occupied (2)		-		-		1,076		50		1,076		50
Construction and land development		-		-		-		-		-		-
Commercial loans		-		-		935		376		935		376
Residential 1-4 family		-		-		4,564		20		4,564		20
Other consumer loans		-		-		-		-		-		-

Total	$	-	$	-	$	6,575	$	446	$	6,575	$	446
Grand total	$	3,473	$	-	$	21,812	$	446	$	25,285	$	446

(1) Recorded investment is after charge offs of $7.8 million and includes SBA guarantees of $1.7 million.

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

The following table presents the average recorded investment and interest income for impaired loans recognized by class of loans for the six months ended June 30, 2011 (in thousands):

	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	$	155	$	10	$	1,159	$	11	$	1,314	$	21
Commercial real estate - non-owner occupied (2)		1,750		42		4,915		89		6,665		131
Construction and land development		750		51		1,937		52		2,687		103
Commercial loans		218		11		2,518		7		2,736		18
Residential 1-4 family		377		3		4,671		149		5,048		152
Other consumer loans						-		-		-		-

Total	$	3,250	$	117	$	15,200	$	308	$	18,450	$	425

With an allowance recorded
Commercial real estate - owner occupied	$	-	$	-	$	-	$	-	$	-	$	-
Commercial real estate - non-owner occupied (2)		-		-		-		-		-		-
Construction and land development		-		-		2,011		63		2,011		63
Commercial loans		-		-		1,441		26		1,441		26
Residential 1-4 family		-		-		-		-		-		-
Other consumer loans		-		-		-		-		-		-

Total	$	-	$	-	$	3,452	$	89	$	3,452	$	89
Grand total	$	3,250	$	117	$	18,652	$	397	$	21,902	$	514

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

The following tables present the recorded investment in nonaccrual and loans past due over 90 days and still accruing by class of loans as of June 30, 2011 and December 31, 2010 (in thousands):

June 30, 2011	Covered Loans				Non-covered Loans				Total Loans
			Loans Past Due				Loans Past Due				Loans Past Due
	Nonaccrual		90 Days or More		Nonaccrual		90 Days or More		Nonaccrual		90 Days or More
	Loans		Still on Accrual		Loans		Still on Accrual		Loans		Still on Accrual
Commercial real estate - owner occupied	$	106	$	-	$	511	$	-	$	617	$	-
Commercial real estate - non-owner occupied (1)		1,985		-		1,304		-		3,289		-
Construction and land development		-		-		204		-		204		-
Commercial loans		-		-		2,062		-		2,062		-
Residential 1-4 family		762		318		3,537		-		4,299		318
Other consumer loans		-		-		-		-		-		-

Total	$	2,853	$	318	$	7,618	$	-	$	10,471	$	318

December 31, 2010	Covered Loans				Non-covered Loans				Total Loans
			Loans Past Due				Loans Past Due				Loans Past Due
	Nonaccrual		90 Days or More		Nonaccrual		90 Days or More		Nonaccrual		90 Days or More
	Loans		Still on Accrual		Loans		Still on Accrual		Loans		Still on Accrual
Commercial real estate - owner occupied	$	-	$	-	$	358	$	-	$	358	$	-
Commercial real estate - non-owner occupied (1)		1,796		-		2,600		-		4,396		-
Construction and land development		-		-		2,304		-		2,304		-
Commercial loans		67		-		1,516		-		1,583		-
Residential 1-4 family		108		-		2,807		-		2,915		-
Other consumer loans		77		234		-		-		77		234

Total	$	2,048	$	234	$	9,585	$	-	$	11,633	$	234

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

Non-covered nonaccrual loans include SBA guaranteed amounts totaling $2.0 million and $1.4 million at June 30, 2011 and December 31, 2010, respectively.

The following tables present the aging of the recorded investment in past due loans by class of loans as of June 30, 2011 and December 31, 2010 (in thousands):

June 30, 2011	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	$	-	$	408	$	-	$	408	$	106	$	4,189	$	4,703
Commercial real estate - non-owner occupied (1)		138		-		-		138		1,985		8,842		10,965
Construction and land development		-		-		-		-		-		849		849
Commercial loans		-		-		-		-		-		713		713
Residential 1-4 family		-		192		318		510		762		64,297		65,569
Other consumer loans		-		2		-		2		-		134		136

Total	$	138	$	602	$	318	$	1,058	$	2,853	$	79,024	$	82,935

Non-covered loans:
Commercial real estate - owner occupied	$	300	$	-	$	-	$	300	$	511	$	93,326	$	94,137
Commercial real estate - non-owner occupied (1)		-		1,983		-		1,983		1,304		109,766		113,053
Construction and land development		1,796		-		-		1,796		204		31,599		33,599
Commercial loans		1,603		243		-		1,846		2,062		84,343		88,251
Residential 1-4 family		1,109		367		-		1,476		3,537		58,857		63,870
Other consumer loans		14		1		-		15		-		1,982		1,997

Total	$	4,822	$	2,594	$	-	$	7,416	$	7,618	$	379,873	$	394,907

Total loans:
Commercial real estate - owner occupied	$	300	$	408	$	-	$	708	$	617	$	97,515	$	98,840
Commercial real estate - non-owner occupied (1)		138		1,983		-		2,121		3,289		118,608		124,018
Construction and land development		1,796		-		-		1,796		204		32,448		34,448
Commercial loans		1,603		243		-		1,846		2,062		85,056		88,964
Residential 1-4 family		1,109		559		318		1,986		4,299		123,154		129,439
Other consumer loans		14		3		-		17		-		2,116		2,133

Total	$	4,960	$	3,196	$	318	$	8,474	$	10,471	$	458,897	$	477,842

December 31, 2010	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	$	316	$	412	$	-	$	728	$	-	$	4,518	$	5,246
Commercial real estate - non-owner occupied (1)		436		-		-		436		1,796		12,229		14,461
Construction and land development		-		-		-		-		-		1,098		1,098
Commercial loans		-		-		-		-		67		931		998
Residential 1-4 family		-		134		-		134		108		29,693		29,935
Other consumer loans		-		39		234		273		77		40,083		40,433

Total	$	752	$	585	$	234	$	1,571	$	2,048	$	88,552	$	92,171

Non-covered loans:
Commercial real estate - owner occupied	$	551	$	719	$	-	$	1,270	$	358	$	79,859	$	81,487
Commercial real estate - non-owner occupied (1)		868		-		-		868		2,600		95,299		98,767
Construction and land development		30		-		-		30		2,304		37,146		39,480
Commercial loans		1,646		30		-		1,676		1,516		73,452		76,644
Residential 1-4 family		3,739		32		-		3,771		2,807		52,322		58,900
Other consumer loans		10		134		-		144		-		12,398		12,542

Total	$	6,844	$	915	$	-	$	7,759	$	9,585	$	350,476	$	367,820

Total loans:
Commercial real estate - owner occupied	$	867	$	1,131	$	-	$	1,998	$	358	$	84,377	$	86,733
Commercial real estate - non-owner occupied (1)		1,304		-		-		1,304		4,396		107,528		113,228
Construction and land development		30		-		-		30		2,304		38,244		40,578
Commercial loans		1,646		30		-		1,676		1,583		74,383		77,642
Residential 1-4 family		3,739		166		-		3,905		2,915		82,015		88,835
Other consumer loans		10		173		234		417		77		52,481		52,975

Total	$	7,596	$	1,500	$	234	$	9,330	$	11,633	$	439,028	$	459,991

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

Activity in the allowance for loan and lease losses for the six months ended June 30, 2011, is summarized below (in thousands):

	Commercial			Commercial
	Real Estate			Real Estate			Construction									Other
	Owner			Non-owner			and Land			Commercial			1-4 Family			Consumer
	Occupied			Occupied (1)			Development			Loans			Residential			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	562		$	1,265		$	326		$	2,425		$	999		$	9		$	13	$	5,599
Charge offs		(63	)		(600	)		(7	)		(846	)		(1,757	)		(5	)		-		(3,278	)
Recoveries		-			6			5			123			16			2			-		152
Provision		137			170			737			182			1,649			21			694		3,590
Ending balance	$	636		$	841		$	1,061		$	1,884		$	907		$	27		$	707	$	6,063

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

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 June 30, 2011 and December 31, 2010 (in thousands):

	Commercial		Commercial
	Real Estate		Real Estate		Construction						Other
	Owner		Non-owner		and Land		Commercial		1-4 Family		Consumer
	Occupied		Occupied (1)		Development		Loans		Residential		Loans		Unallocated		Total
June 30, 2011
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	-	$	52	$	527	$	-	$	-	$	-	$	579
Collectively evaluated for impairment		636		841		1,009		1,357		907		27		707		5,484
Total ending allowance	$	636	$	841	$	1,061	$	1,884	$	907	$	27	$	707	$	6,063

Loans:
Individually evaluated for impairment	$	5,333	$	5,769	$	4,815	$	12,684	$	4,339	$	-	$	-	$	32,940
Collectively evaluated for impairment		88,804		107,284		28,784		75,567		59,531		1,997		-		361,967
Total ending loan balances	$	94,137	$	113,053	$	33,599	$	88,251	$	63,870	$	1,997	$	-	$	394,907

December 31, 2010
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	50	$	-	$	376	$	20	$	-	$	-	$	446
Collectively evaluated for impairment		562		1,215		326		2,049		979		9		13		5,153
Total ending allowance	$	562	$	1,265	$	326	$	2,425	$	999	$	9	$	13	$	5,599

Loans:
Individually evaluated for impairment	$	358	$	6,584	$	4,844	$	2,493	$	7,533	$	-	$	-	$	21,812
Collectively evaluated for impairment		81,129		92,183		34,636		74,151		61,899		2,010		-		346,008
Total ending loan balances	$	81,487	$	98,767	$	39,480	$	76,644	$	69,432	$	2,010	$	-	$	367,820

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

It is Sonabank’s practice to charge off collateral dependent loans to recoverable value rather than establish a specific reserve. Charge offs on loans individually evaluated for impairment totaled approximately $2.7 million during the first six months of 2011.

Troubled Debt Restructurings

At June 30, 2011, we had loans modified in troubled debt restructurings totaling $2.0 million. These modifications did not occur in 2011. These loans are paying in accordance with their modified terms and do not involve any additional commitments to lend.

Credit Quality Indicators

Through its system of internal controls SNBV 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. SNBV has no loans classified Doubtful.

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 are 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 June 30, 2011 and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

June 30, 2011	Covered Loans						Non-covered Loans								Total Loans
	Classified/						Special								Classified/
	Criticized (1)		Pass		Total		Mention		Substandard		Pass		Total		Criticized		Pass		Total
Commercial real estate - owner occupied	$	245	$	4,458	$	4,703	$	1,414	$	5,333	$	87,390	$	94,137	$	6,992	$	91,848	$	98,840
Commercial real estate - non-owner occupied (2)		1,854		9,111		10,965		-		5,769		107,284		113,053		7,623		116,395		124,018
Construction and land development		745		104		849		-		4,815		28,784		33,599		5,560		28,888		34,448
Commercial loans		215		498		713		230		12,684		75,337		88,251		13,129		75,835		88,964
Residential 1-4 family		762		64,807		65,569		40		4,339		59,491		63,870		5,141		124,298		129,439
Other consumer loans		-		136		136		-		-		1,997		1,997		-		2,133		2,133

Total	$	3,821	$	79,114	$	82,935	$	1,684	$	32,940	$	360,283	$	394,907	$	38,445	$	439,397	$	477,842

December 31, 2010	Covered Loans						Non-covered Loans								Total Loans
	Classified/						Special								Classified/
	Criticized (1)		Pass		Total		Mention		Substandard		Pass		Total		Criticized		Pass		Total
Commercial real estate - owner occupied	$	141	$	5,105	$	5,246	$	557	$	358	$	80,572	$	80,572	$	1,056	$	85,677	$	86,733
Commercial real estate - non-owner occupied (2)		1,807		12,654		14,461		867		6,585		91,315		91,315		9,259		103,969		113,228
Construction and land development		1,055		43		1,098		-		4,844		34,636		34,636		5,899		34,679		40,578
Commercial loans		285		713		998		233		2,492		73,919		73,919		3,010		74,632		77,642
Residential 1-4 family		108		29,827		29,935		40		7,533		61,859		69,432		7,681		91,686		99,367
Other consumer loans		77		40,356		40,433		-		-		2,010		2,010		77		42,366		42,443

Total	$	3,473	$	88,698	$	92,171	$	1,697	$	21,812	$	344,311	$	351,884	$	26,982	$	433,009	$	459,991

(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.

5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

SNBV 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 SNBV 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 $6.6 million and $2.4 million as of June 30, 2011 and December 31, 2010, 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.

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 June 30, 2011 and December 31, 2010, we had unfunded lines of credit and undisbursed construction loan funds totaling $112.2 million and $104.9 million, respectively. Our approved loan commitments were $3.8 million and $35.0 million at June 30, 2011 and December 31, 2010, respectively.

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 June 30, 2011
Basic EPS	$	1,311		11,590	$	0.11
Effect of dilutive stock options and warrants		-		1		-
Diluted EPS	$	1,311		11,591	$	0.11

For the three months ended June 30, 2010
Basic EPS	$	1,025		11,590	$	0.09
Effect of dilutive stock options and warrants		-		4		-
Diluted EPS	$	1,025		11,594	$	0.09

For the six months ended June 30, 2011
Basic EPS	$	2,431		11,590	$	0.21
Effect of dilutive stock options and warrants		-		3		-
Diluted EPS	$	2,431		11,593	$	0.21

For the six months ended June 30, 2010
Basic EPS	$	2,066		11,590	$	0.18
Effect of dilutive stock options and warrants		-		4		-
Diluted EPS	$	2,066		11,594	$	0.18

Anti-dilutive options and warrants totaled 558,921 and 557,612 for the three and six months ended June 30, 2011, respectively, as the exercise price exceeded the average share price during the period. Anti-dilutive options and warrants totaled 411,719 and 412,432 for the three and six months ended June 30, 2010, 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:

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 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 SNBV’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)	June 30, 2011		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Available for sale securities
SBA guaranteed loan pools	$	10,586	$	-	$	10,586	$	-
FHLMC preferred stock		165		165		-		-
Total available-for-sale securities	$	10,751	$	165	$	10,586	$	-

			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, 2010		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Available for sale securities
SBA guaranteed loan pools	$	11,038	$	-	$	11,038	$	-
FHLMC preferred stock		30		30		-		-
Total available-for-sale securities	$	11,068	$	30	$	11,038	$	-

Assets and Liabilities Measured on a Non-recurring Basis:

Trust Preferred Securities Classified as Held-to-Maturity

The base input in calculating fair value is a Bloomberg Fair Value Index yield curve for single issuer trust preferred securities which correspond to the ratings of the securities we own. We also use composite rating indices to fill in the gaps where the bank rating indices did not correspond to the ratings in our portfolio. When a bank index that matches the rating of our security is not available, we used the bank index that most closely matches the rating, adjusted by the spread between the composite index that most closely matches the security’s rating and the composite index with a rating that matches the bank index used. Then, we use the adjusted index yield, which is further adjusted by a liquidity premium, as the discount rate to be used in the calculation of the present value of the same cash flows used to evaluate the securities for OTTI. The liquidity premiums were derived in consultation with a securities advisor. The liquidity premiums we used ranged from 2% to 5%, and the adjusted discount rates ranged from 9.40% to 14.78%. Due to current market conditions as well as the limited trading activity of these securities, the market value of the securities is highly sensitive to assumption changes and market volatility. We have determined that our trust preferred securities are classified within Level 3 of the fair value hierarchy.

Based on our analysis in the first six months of 2011, we recorded OTTI charges related to credit on trust preferred securities in the amount of $70 thousand. There were no OTTI charges on trust preferred securities during the first six months of 2010.

Other Residential Collateralized Mortgage Obligation Classified as Held-to Maturity

The fair value was estimated within Level 2 fair value hierarchy, as the fair value is based on either pricing models, quoted market prices of securities with similar characteristics, or discounted cash flows. We have evaluated this security for potential impairment and, based on our review of the trustee report, shock analysis and current information regarding delinquencies, nonperforming loans and credit support, it has been determined that no OTTI charge for credit exists for the three months ended June 30, 2011. The assumptions used in the analysis included a 4.7% prepayment speed, 14% default rate, a 50% loss severity and an accounting yield of 2.55%. We recorded OTTI charges for credit on this security of $3 thousand in the second quarter of 2010.

Other Securities Classified as Held-to-Maturity

Our other securities classified as held-to-maturity include residential government sponsored mortgage-backed securities and residential government sponsored collateralized mortgage obligations. There was no OTTI recorded on these securities. Currently, all of SNBV’s other securities classified as held-to-maturity are considered to be level 2 securities.

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 appraisals or other valuation which is then adjusted for the cost related to liquidation of the collateral. Fair value is classified as Level 3 in the fair value hierarchy. Non-covered loans identified as impaired totaled $32.9 million as of June 30, 2011 with an allocated allowance for loan losses totaling $579 thousand compared to a carrying amount of $21.8 million with an allocated allowance for loan losses totaling $446 thousand at December 31, 2010. Charge offs related to the impaired loans at June 30, 2011 totaled $1.6 million and 2.7 million for the three and six months ended June 30, 2011, respectively, compared to $30 thousand and $430 thousand for the three and six months ended June 30, 2010, respectively.

Other Real Estate Owned (OREO)

OREO is evaluated at the time of acquisition and recorded at fair value as determined by independent appraisal or internal market evaluation less cost to sell. OREO is further evaluated quarterly for any additional impairment. Fair value is classified as Level 3 in the fair value hierarchy. At June 30, 2011, the total amount of OREO was $9.6 million, of which $8.9 million was non-covered and $718 thousand was covered.

At December 31, 2010, the total amount of OREO was $4.6 million, of which $3.9 million was non-covered and $676 thousand was covered.

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)	June 30, 2011		(Level 1)		(Level 2)		(Level 3)
Trust preferred securities, held to maturity	$	628	$	-	$	-	$	628
Impaired non-covered loans:
Commercial real estate - owner occupied		5,333		-		-		5,333
Commercial real estate - non-owner occupied (1)		5,769		-		-		5,769
Construction and land development		4,815		-		-		4,815
Commercial loans		12,684		-		-		12,684
Residential 1-4 family		4,339		-		-		4,339
Impaired covered loans:
Commercial real estate - owner occupied		245		-		-		245
Commercial real estate - non-owner occupied (1)		1,854		-		-		1,854
Construction and land development		745		-		-		745
Commercial loans		215		-		-		215
Residential 1-4 family		762		-		-		762
Non-covered other real estate owned:
Commercial real estate - owner occupied		953		-		-		953
Construction and land development		5,435		-		-		5,435
Residential 1-4 family		2,507		-		-		2,507
Covered other real estate owned:
Commercial real estate - owner occupied		557		-		-		557
Commercial		79		-		-		79
Residential 1-4 family		82		-		-		82

			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, 2010		(Level 1)		(Level 2)		(Level 3)
Trust preferred securities, held to maturity	$	973	$	-	$	-	$	973
Other residential collateralized mortgage obligations		1,171		-		1,171	$	-
Impaired non-covered loans:
Commercial real estate - owner occupied		358		-		-		358
Commercial real estate - non-owner occupied (1)		6,534		-		-		6,534
Construction and land development		4,844		-		-		4,844
Commercial loans		2,117		-		-		2,117
Residential 1-4 family		7,513		-		-		7,513
Impaired covered loans:
Commercial real estate - owner occupied		141		-		-		141
Commercial real estate - non-owner occupied (1)		1,807		-		-		1,807
Construction and land development		1,055		-		-		1,055
Commercial loans		285		-		-		285
Residential 1-4 family		108		-		-		108
Other consumer loans		77		-		-		77
Non-covered other real estate owned:
Commercial real estate - owner occupied		578		-		-		578
Construction and land development		2,797		-		-		2,797
Residential 1-4 family		526		-		-		526
Covered other real estate owned:
Commercial real estate - owner occupied		597		-		-		597
Commercial		79		-		-		79

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

Fair Value of Financial Instruments

The carrying amount and estimated fair values of financial instruments were as follows (in thousands):

	June 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	3,686	$	3,686	$	9,745	$	9,745
Securities available for sale		10,751		10,751		11,068		11,068
Securities held to maturity		40,021		39,791		44,895		43,965
Stock in Federal Reserve Bank and Federal Home Loan Bank		5,972		n/a		6,350		n/a
Net non-covered loans		387,989		386,048		361,667		360,016
Net covered loans		82,935		82,422		92,171		91,661
Accrued interest receivable		2,016		2,016		2,141		2,141
FDIC indemnification asset		18,088		18,088		18,536		18,536
Financial liabilities:
Deposits:
Demand deposits		48,930		48,930		50,490		50,490
Money market and savings accounts		147,742		147,742		175,351		175,351
Certificates of deposit		237,319		239,800		205,133		207,221
Securities sold under agreements to repurchase and other short-term borrowings		19,968		19,968		23,908		23,908
FHLB advances		43,500		44,771		35,000		36,458
Accrued interest payable		276		276		415		415

Carrying amount is the estimated fair value for cash and cash equivalents, 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. 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. Fair value of long-term debt is based on current rates for similar financing. The FDIC indemnification asset was measured at estimated fair value on the date of acquisition. The fair value was determined by discounting estimated future cash flows using the long-term risk free rate plus a premium. Subsequent additions to the asset are valued at par as it is anticipated that these amounts will be shortly received. The fair value of off-balance-sheet items is not considered material.

8. BRANCH ACQUISITION

As previously announced, Sonabank has entered into a definitive agreement to purchase all deposits of approximately $46 million, and certain assets of the Midlothian branch office of The Bank of Hampton Roads. The transaction, subject to regulatory approval, is expected to be completed by fourth quarter 2011.

9. BANK-OWNED LIFE INSURANCE TRANSACTION

Sonabank recorded income of $800 thousand and a reduction in the cash surrender value of bank-owned life insurance in the amount of $526 thousand due to the death of an officer covered by the life insurance. These amounts were received in July 2011.

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, 2010. Results of operations for the three and six month periods ended June 30, 2011 are not necessarily indicative of results that may be attained for any other period.

SPECIAL CAUTIONARY NOTE REGARDING 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, 2010, factors that could contribute to those differences include, but are not limited to:

●

our limited operating history;

●

changes in the strength of the United States economy in general and 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;

●

our reliance on brokered deposits;

●

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 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 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 interest rates and market prices, which could reduce our net interest margins, asset valuations and expense expectations;

●

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

●

increases in FDIC deposit insurance premiums and assessments;

●

the continued service of key management personnel;

●

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

●

our ability to acquire, operate and maintain cost effective and efficient systems without incurring unexpectedly difficult or expensive but necessary technological changes; and

●

fiscal and governmental policies of the United States federal government.

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. (“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 bank. Sonabank was originally chartered as a national bank under the laws of the United States of America on April 14, 2005. On January 1, 2009, Sonabank converted from a nationally chartered bank to a state chartered bank and moved its headquarters from Charlottesville to McLean, Virginia. Sonabank is now regulated by the State Corporation Commission of Virginia and the Federal Reserve Bank of Richmond. Sonabank conducts full-service banking operations in Charlottesville, Clifton Forge, Leesburg, Warrenton, Middleburg, New Market, Front Royal, South Riding and Fairfax County in Virginia and in Rockville, Maryland. We also have loan production offices in Charlottesville, Fredericksburg, Warrenton and Richmond in Virginia. We have administrative offices in Warrenton and an executive office in Georgetown, Washington, D.C where senior management is located.

RESULTS OF OPERATIONS

Net Income

Net income for the quarter ended June 30, 2011 was $1.3 million and $2.4 million for the six months ended June 30, 2011, compared to $1.0 million and $2.1 million during the first quarter of 2010 and the six months ended June 30, 2010, respectively.

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 $6.2 million for the second quarter of 2011, compared to $6.4 million for the second quarter of 2010. The decline resulted primarily from a decline in average earning assets quarter to quarter as average loan balances increased $5.8 million, but the average balance of investment securities and other earning assets declined by $27.0 million. The accretion of the discount on the Greater Atlantic Bank loan portfolio amounted to $437 thousand in the second quarter of 2011, compared to $635 thousand in the second quarter of 2010. The decrease in the discount accretion was partially the result of an adjustment made in the second quarter of 2011 of approximately $90 thousand to the carrying value of the Greater Atlantic Bank loan portfolio due to changes in prepayment speed assumptions used in the original valuation. The net interest margin was 4.73% in the quarter ended June 30, 2011, up from 4.70% in the second quarter of 2010. The decline in the yield on earning assets was ameliorated somewhat by the reduction in securities and other earning asset as a percentage of earning assets. Also, the weighted average rate paid on deposits declined largely as a result of the repricing of certain money market accounts at the beginning of 2011, and the average cost of borrowing was reduced because of the restructuring of $25 million of convertible advances in the first quarter of 2011.

Net interest income was $12.4 million for the six months ended June 30, 2011, compared to $12.7 million for the first six months of 2010. The decline resulted primarily from a decline in average earning assets as average loan balances increased $1.1 million, but the average balance of investment securities and other earning assets declined by $25.4 million. The accretion of the discount on the Greater Atlantic Bank loan portfolio amounted to $1.0 million in six months ended June 30, 2011, compared to $1.3 million in the first half of 2010. Part of the decrease in the accretion was due to the $90 thousand adjustment discussed above. The net interest margin was 4.75% in the six months ended June 30, 2011, up from 4.66% in the same period last year. The improvement in the net interest margin was due to the factors mentioned above in the discussion of the second quarters of 2011 and 2010.

The following table details 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
	6/30/2011								6/30/2010
				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)	$	467,512		$	7,210		6.19	%	$	461,725		$	7,829		6.80	%
Investment securities		51,679			482		3.73	%		71,890			684		3.81	%
Other earning assets		9,092			51		2.25	%		15,892			48		1.21	%

Total earning assets		528,283			7,743		5.88	%		549,507			8,561		6.25	%
Allowance for loan losses		(5,934	)							(5,812	)
Total non-earning assets		70,187								68,490
Total assets	$	592,536							$	612,185

Liabilities and stockholders’ equity
Interest-bearing liabilities:
NOW accounts	$	15,235			10		0.27	%	$	15,513			11		0.29	%
Money market accounts		144,615			319		0.88	%		171,355			707		1.65	%
Savings accounts		5,909			9		0.60	%		5,033			9		0.68	%
Time deposits		235,806			911		1.55	%		227,439			1,063		1.87	%
Total interest-bearing deposits		401,565			1,249		1.25	%		419,340			1,790		1.71	%
Borrowings		56,285			267		1.90	%		55,118			330		2.40	%
Total interest-bearing liabilities		457,850			1,516		1.33	%		474,458			2,120		1.79	%
Noninterest-bearing liabilities:
Demand deposits		31,177								33,150
Other liabilities		2,254								6,568
Total liabilites		491,281								514,176
Stockholders’ equity		101,255								98,009
Total liabilities and stockholders’ equity	$	592,536							$	612,185
Net interest income					6,227								6,441
Interest rate spread							4.55	%							4.46	%
Net interest margin							4.73	%							4.70	%

(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.

	Average Balance Sheets and Net Interest
	Analysis For the Six Months Ended
	6/30/2011								6/30/2010
				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)	$	461,568		$	14,331		6.26	%	$	460,503		$	15,443		6.76	%
Investment securities		53,003			1,038		3.92	%		73,372			1,418		3.87	%
Other earning assets		10,323			103		2.01	%		15,341			91		1.20	%

Total earning assets		524,894			15,472		5.94	%		549,216			16,952		6.22	%
Allowance for loan losses		(5,956	)							(5,554	)
Total non-earning assets		69,255								70,263
Total assets	$	588,193							$	613,925

Liabilities and stockholders’ equity
Interest-bearing liabilities:
NOW accounts	$	15,550			21		0.27	%	$	15,371			23		0.30	%
Money market accounts		151,673			684		0.91	%		158,959			1,340		1.70	%
Savings accounts		5,763			18		0.61	%		4,852			16		0.66	%
Time deposits		224,771			1,804		1.62	%		241,900			2,214		1.85	%
Total interest-bearing deposits		397,757			2,526		1.28	%		421,082			3,593		1.72	%
Borrowings		55,894			585		2.11	%		55,289			657		2.40	%
Total interest-bearing liabilities		453,651			3,111		1.38	%		476,371			4,250		1.80	%
Noninterest-bearing liabilities:
Demand deposits		31,643								33,344
Other liabilities		2,196								6,653
Total liabilites		487,490								516,368
Stockholders’ equity		100,703								97,557
Total liabilities and stockholders’ equity	$	588,193							$	613,925
Net interest income				$	12,361							$	12,702
Interest rate spread							4.56	%							4.42	%
Net interest margin							4.75	%							4.66	%

(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 deemed appropriate by management 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 peer data, as well as applying management’s judgment.

The provision for loan losses in the second quarter of 2011 was $2.3 million compared to $1.5 million in the second quarter of 2010. For the six months ended June 30, 2011, the provision for loan losses was $3.6 million compared to $2.8 million for the same period last year.

Net charge-offs during the second quarter of 2011 were $1.9 million as credit quality continued to be a challenge for our loan portfolio. The largest component of the charge-off was related to a loan on an estate in Charlottesville on which the guarantor experienced financial difficulties in his business. We’ve placed this loan on non-accrual and also recognized a charge-off to its current assessed value. The remaining charge-offs were divided among 11 other loans, reflecting deep seated and ongoing problems in our economy. Net charge-offs during the second quarter of 2010 were $1.4 million.

Net charge offs during the six months ended June 30, 2011 were $3.1 million compared to $2.5 million during the first half of 2010.

Noninterest Income

The following table presents the major categories of noninterest income for the three and six months ended June 30, 2011 and 2010:

	For the Three Months Ended
	June 30,
	2011			2010			Change
	(dollars in thousands)
Account maintenance and deposit service fees	$	218		$	235		$	(17	)
Income from bank-owned life insurance		933			137			796
Net gain (loss) on other real estate owned		(108	)		19			(127	)
Net impairment losses recognized in earnings		(38	)		(4	)		(34	)
Other		44			148			(104	)
Total noninterest income (loss)	$	1,049		$	535		$	514

	For the Six Months Ended
	June 30,
	2011			2010			Change
	(dollars in thousands)
Account maintenance and deposit service fees	$	418		$	476		$	(58	)
Income from bank-owned life insurance		1,067			276			791
Net gain (loss) on other real estate owned		(147	)		39			(186	)
Net impairment losses recognized in earnings		(70	)		(10	)		(60	)
Other		89			293			(204	)
Total noninterest income	$	1,357		$	1,074		$	283

During the second quarter of 2011 Sonabank had noninterest income of $1.0 million compared to noninterest income of $535 thousand during the second quarter of 2010. The increase was largely attributable to an $800 thousand insurance benefit resulting from the death of an officer covered by bank-owned life insurance. The insurance benefit was received in July 2011.

Noninterest income increased to $1.4 million in the first six months of 2011 from $1.1 million in the first six months of 2010. Again, the most important factor in the increase was the death benefit described above. This was partially offset by a decrease of $191 thousand in fees on letters of credit related to a short-term letter of credit which expired in June 2010. Also, during the first six months of 2011, there were net losses on other real estate owned (“OREO”) of $147 thousand compared to gains of $39 thousand during the six months ended June 30, 2010. There were other than temporary impairment (“OTTI”) charges of $70 thousand during the first six months of 2011, compared to $10 thousand for the same period last year.

Noninterest Expense

The following table presents the major categories of noninterest expense for the three and six months ended June 30, 2011 and 2010:

	For the Three Months Ended
	June 30,
	2011			2010		Change
	(dollars in thousands)
Salaries and benefits	$	1,705		$	1,523	$	182
Occupancy expenses		554			527		27
Furniture and equipment expenses		131			151		(20	)
Amortization of core deposit intangible		230			236		(6	)
Virginia franchise tax expense		171			184		(13	)
FDIC assessment		119			212		(93	)
Data processing expense		132			159		(27	)
Telephone and communication expense		100			101		(1	)
Change in FDIC indemnification asset		(192	)		406		(598	)
Other operating expenses		543			528		15
Total noninterest expense	$	3,493		$	4,027	$	(534	)

	For the Six Months Ended
	June 30,
	2011			2010		Change
	(dollars in thousands)
Salaries and benefits	$	3,308		$	3,164	$	144
Occupancy expenses		1,093			1,069		24
Furniture and equipment expenses		267			305		(38	)
Amortization of core deposit intangible		460			472		(12	)
Virginia franchise tax expense		343			368		(25	)
FDIC assessment		272			401		(129	)
Data processing expense		274			314		(40	)
Telephone and communication expense		188			220		(32	)
Change in FDIC indemnification asset		(351	)		650		(1,001	)
Other operating expenses		1,093			1,042		51
Total noninterest expense	$	6,947		$	8,005	$	(1,058	)

Noninterest expenses were $3.5 million and $6.9 million during the second quarter and the first half of 2011, respectively, compared to $4.0 million and $8.0 million during the same periods in 2010. During the three and six months ended June 30, 2011, there was accretion of the FDIC indemnification asset of $192 thousand and $351 thousand, respectively. During the second quarter and first six months of 2010 the accretion was more than offset by charges to the FDIC indemnification asset due to impaired covered loans that paid off.

The efficiency ratio improved from 58.23% during the six months ended June 30, 2010, to 52.89% during the first half of 2011.

FINANCIAL CONDITION

Balance Sheet Overview

Total assets of Southern National Bancorp of Virginia were $601.4 million as of June 30, 2011 compared to $590.8 million as of December 31, 2010. Net loans receivable increased from $453.8 million at the end of 2010 to $470.9 million at June 30, 2011. Within that total, covered loans declined by $9.2 million while the non-covered loan portfolio increased by $26.8 million. Our loan pipeline has slowed somewhat, but we will continue to pursue quality credits.

Total deposits were $434.0 million at June 30, 2011 compared to $431.0 million at December 31, 2010. Certificates of deposit increased $32.2 million during the six months ended June 30, 2011. This was partially offset by a decrease in money market accounts of $27.9 million during same period. We had paid rates in excess of market on large money market accounts for former Greater Atlantic Bank customers to retain them during 2010, and as of the beginning of 2011, we reduced those rates. Brokered certificates of deposit have decreased from $27.0 million at December 31, 2010, to $22.0 million as of June 30, 2011. Noninterest-bearing deposits were $33.9 million at June 30, 2011 and $34.5 million at December 31, 2010.

Loan Portfolio

The following table summarizes the composition of our loan portfolio as of June 30, 2011 and December 31, 2010:

	Covered		Non-covered			Total			Covered		Non-covered			Total
	Loans		Loans			Loans			Loans		Loans			Loans
	June 30, 2011								December 31, 2010
Mortgage loans on real estate:
Commercial real estate - owner-occupied	$	4,703	$	94,137		$	98,840		$	5,246	$	81,487		$	86,733
Commercial real estate - non-owner-occupied		10,412		87,323			97,735			13,898		76,068			89,966
Secured by farmland		-		3,503			3,503			-		3,522			3,522
Construction and land loans		849		33,599			34,448			1,098		39,480			40,578
Residential 1-4 family		27,615		54,562			82,177			29,935		58,900			88,835
Multi- family residential		553		22,227			22,780			563		19,177			19,740
Home equity lines of credit		37,954		9,308			47,262			40,287		10,532			50,819
Total real estate loans		82,086		304,659			386,745			91,027		289,166			380,193

Commercial loans		713		88,251			88,964			998		76,644			77,642
Consumer loans		136		1,997			2,133			146		2,010			2,156
Gross loans		82,935		394,907			477,842			92,171		367,820			459,991

Less deferred fees on loans		-		(855	)		(855	)		-		(554	)		(554	)
Loans, net of unearned income	$	82,935	$	394,052		$	476,987		$	92,171	$	367,266		$	459,437

As of June 30, 2011 and December 31, 2010, 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.

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. 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 the overall economic environment in which we operate.

Non-covered Loans and Assets

Non-covered loans identified as impaired totaled $32.9 million with allocated allowance for loan losses in the amount of $579 thousand as of June 30, 2011, including $7.6 million of nonaccrual loans and $2.0 million of restructured loans. This compares to $21.8 million of impaired loans with allocated allowance for loan losses in the amount of $446 thousand at December 31, 2010, including $9.6 million of nonaccrual loans and $6.6 million of restructured loans. The nonaccrual loans included SBA guaranteed amounts of $2.0 million and $1.4 million at June 30, 2011 and December 31, 2010, respectively. At June 30, 2011 and December 31, 2010, there were no loans past due 90 days or more and accruing interest.

Non-covered nonperforming assets increased from $13.5 million at December 31, 2010 to $16.5 million at June 30, 2011.

Our OREO in the non-covered portfolio is comprised of the Culpeper property, which contains 33 finished 2 to 4 acre lots, the Kluge development property which was a non-performing loan at the end of 2010 which we foreclosed on during the first quarter, two commercial properties and two residential properties. Non-covered OREO at June 30, 2011 was $8.9 million compared to $3.9 million at December 31, 2010.

Sonabank has 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. We believe the allowance for loan losses is sufficient to cover probable incurred credit losses at June 30, 2011.

The following table sets forth selected asset quality ratios as of the dates indicated:

	As of
	June 30,			December 31,
	2011			2010

Allowance for loan losses to total non-covered loans		1.54	%		1.52	%
Non-covered nonperforming assets to total non-covered assets		3.19	%		2.71	%
Non-covered nonperforming assets excluding SBA guaranteed loans to total non-covered assets		2.81	%		2.43	%

We do not have a formal loan modification program. Rather, we work with individual customers on a case-by-case basis to facilitate the orderly collection of our principal and interest before a loan becomes a non-performing loan. If a customer is unable to make contractual payments, we review the circumstances of the customer’s situation and may negotiate a revised payment stream. In other words, we identify performing customers experiencing financial difficulties and through negotiations, we permit them to pay interest only or lesser principal payments. We do not forgive principal payments. Our goal when restructuring a credit is to afford the customer a reasonable period of time to remedy the issue causing cash flow constraints within their business so that they can return to performing status over time.

Our loan modifications have taken the form of deferral of interest payments and/or curtailment of scheduled principal payments. Our restructured loans are all collateral secured loans. If a customer fails to perform under the modified terms, we place the loan on non-accrual status and begin the process of working with the customer to liquidate the underlying collateral to satisfy the debt.

At June 30, 2011, we had outstanding balances on restructured loans totaling $2.0 million with borrowers who experienced deterioration in financial condition. These loan restructurings were negotiated prior to 2011. These loans were included in impaired loans. These loans were granted interest rate deferrals to provide cash flow relief to customers experiencing cash flow difficulties. There were no concessions made to forgive principal or interest relative to these loans. Management believes these loans are well secured and the borrowers have the ability to repay the loans in accordance with the renegotiated terms. As such, these restructured loans were on accrual status at the balance sheet date as payments were being made according to the restructured loan terms. These loans have not had a partial charge-off. We continue to report restructured loans as restructured until such time as the loan has developed a reasonable repayment history, the borrower displays the financial capacity to repay, and the loan terms return to the terms in place prior to the restructure. If the customer fails to perform, we place the loan on non-accrual status and seek to liquidate the underlying collateral for these loans. Changes in value for impairment, including the amount attributed to the passage of time, are recorded entirely within the provision for loans losses.

We consider any loan that is restructured for a borrower experiencing financial difficulties due to a borrower’s potential inability to pay in accordance with contractual terms of the loan a troubled debt restructure (“TDR”). Specifically, we consider a concession involving a modification of the loan terms, such as (i) temporary reduction of the stated interest rate, (ii) temporary reduction or deferral of principal, (iii) temporary reduction or deferral of accrued interest at a stated interest rate lower than the current market rate for new debt with similar risk all to be TDRs. When a modification of terms is made for a competitive reason, we do not consider that to be a TDR. The primary example of a competitive modification would be an interest rate reduction for a performing credit worthy customer to a market rate as the result of a market decline in rates.

Covered Loans and Assets

Covered loans identified as impaired totaled $3.8 million as of June 30, 2011 and $3.5 million at December 31, 2010. Nonaccrual loans were $2.9 million and $2.0 million at June 30, 2011 and December 31, 2010, respectively. At June 30, 2011 and at December 31, 2010, there were loans past due 90 days or more and accruing interest in the amount of $318 thousand and $234 thousand, respectively.

Securities

Investment securities, available for sale and held to maturity, were $50.8 million at June 30, 2011 and $56.0 million at December 31, 2010.

As of June 30, 2011 we owned pooled trust preferred securities as follows:

																		Previously
																		Recognized
																		Cumulative
		Ratings												Estimated		Current		Other
	Tranche	When Purchased				Current Ratings								Fair		Defaults and		Comprehensive
Security	Level	Moody’s		Fitch		Moody’s		Fitch		Par Value		Book Value		Value		Deferrals		Loss (1)
										(in thousands)
ALESCO VII A1B	Senior	Aaa		AAA		Baa3		BB		$	7,174	$	6,420	$	4,189	$	209,056	$	310
MMCF II B	Senior Sub	A3		AA-		Baa2		BB			493		455		477		34,000		38
MMCF III B	Senior Sub	A3		A-		Ba1		CC			652		637		408		37,000		14
											8,319		7,512		5,074			$	362

																		Cumulative		Cumulative
																		Other Comprehensive		OTTI Related to
Other Than Temporarily Impaired:																		Loss (2)		Credit Loss (2)
TPREF FUNDING II	Mezzanine	A1			A-	Caa3			C		1,500		496		496		131,100		693	$	311
TRAP 2007-XII C1	Mezzanine	A3			A		C		C		2,066		127		352		155,705		1,360		579
TRAP 2007-XIII D	Mezzanine	NR			A-	NR			C		2,032		-		38		231,250		-		2,032
MMC FUNDING XVIII	Mezzanine		A3		A-	Ca			C		1,050		132		132		111,682		444		474
ALESCO V C1	Mezzanine		A2		A	Ca			C		2,083		461		537		117,942		961		661
ALESCO XV C1	Mezzanine		A3		A-		C		C		3,112		29		159		266,100		524		2,559
ALESCO XVI C	Mezzanine		A3		A-	Ca			C		2,072		115		440		149,900		777		1,180
											13,915		1,360		2,154			$	4,759	$	7,796

Total										$	22,234	$	8,872	$	7,228

(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:

●

We assume that .5% of the remaining performing collateral will default or defer per annum.

●

We assume recoveries ranging from 25% to 47% with a two year lag on all defaults and deferrals.

●

We assume no prepayments for 10 years and then 1% per annum for the remaining life of the security.

●

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

These assumptions resulted in OTTI charges related to credit on two of the trust preferred securities in the amount of $38 thousand during the quarter ended June 30, 2011, compared to no OTTI charges related to credit on the trust preferred securities for the quarter ended June 30, 2010. Events within these two structures which contributed to a decline in our expectations of cash flows included an issuer that had previously deferred interest payments, had resumed payments, then deferred again, and there was a large redemption during the second quarter of 2011 which negatively affected our subordinate tranche because the senior tranche received the payment.

We also own approximately $1.0 million of SARM 2005-22 1A2. This residential collateralized mortgage obligation was originally rated AAA by Standard and Poor’s. After a series of downgrades this security has been other than temporarily impaired in past reporting periods. For the second quarter of 2011 and based on our review of the trustee report, shock analysis and current information regarding delinquencies, nonperforming loans and credit support it has been determined that no OTTI charge for credit was required for the quarter ended June 30, 2011. The assumptions used in the analysis included a 4.7% prepayment speed, 14% default rate, a 50% loss severity and an accounting yield of 2.55%. We recorded OTTI charges for credit on this security of $3 thousand in the second quarter of 2010.

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 monthly cash flow report which forecasts weekly cash needs and availability for the coming three months, based on forecasts of loan closings from our pipeline report and other factors.

During the three months ended June 30, 2011, we funded our financial obligations with deposits, securities sold under agreements to repurchase and borrowings from the Federal Home Loan Bank of Atlanta. At June 30, 2011, we had $112.2 million of unfunded lines of credit and undisbursed construction loan funds. Our approved loan commitments were $3.8 million at June 30, 2011. 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
June 30, 2011
SNBV
Tier 1 risk-based capital ratio	$	93,330		20.41	%	$	18,287		4.00	%	$	27,431		6.00	%
Total risk-based capital ratio		99,025		21.66	%		36,575		8.00	%		45,719		10.00	%
Leverage ratio		93,330		16.08	%		23,224		4.00	%		29,029		5.00	%
Sonabank
Tier 1 risk-based capital ratio	$	89,841		19.66	%	$	18,278		4.00	%	$	27,417		6.00	%
Total risk-based capital ratio		95,533		20.91	%		36,557		8.00	%		45,696		10.00	%
Leverage ratio		89,841		15.47	%		23,224		4.00	%		29,029		5.00	%

December 31, 2010
SNBV
Tier 1 risk-based capital ratio	$	90,214		20.52	%	$	17,585		4.00	%	$	26,377		6.00	%
Total risk-based capital ratio		95,689		21.77	%		35,169		8.00	%		43,961		10.00	%
Leverage ratio		90,214		15.23	%		23,701		4.00	%		29,626		5.00	%
Sonabank
Tier 1 risk-based capital ratio	$	86,757		19.74	%	$	17,580		4.00	%	$	26,370		6.00	%
Total risk-based capital ratio		92,231		20.99	%		35,160		8.00	%		43,950		10.00	%
Leverage ratio		86,757		14.64	%		23,701		4.00	%		29,626		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.

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 a duration gap of equity approach 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 market value of portfolio equity (MVPE) over a range of interest rate scenarios. MVPE is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts using standard industry 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 MVPE 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 June 30, 2011 and (plus or minus 300 basis points, measured in 100 basis point increments) as of December 31, 2010, and all changes are within our ALM Policy guidelines:

	Sensitivity of Market Value of Portfolio Equity
	As of June 30, 2011

									Market Value of
Change in	Market Value of Portfolio Equity								Portfolio Equity as a % of
Interest Rates												Portfolio
in Basis Points			$ Change			% Change			Total			Equity
(Rate Shock)	Amount		From Base			From Base			Assets			Book Value
	(Dollar amounts in thousands)

Up 400	$	95,817	$	(4,230	)		-4.23	%		15.93	%		94.07	%
Up 300		96,543		(3,504	)		-3.50	%		16.05	%		94.78	%
Up 200		98,012		(2,035	)		-2.03	%		16.30	%		96.22	%
Up 100		98,530		(1,517	)		-1.52	%		16.38	%		96.73	%
Base		100,047		-			0.00	%		16.63	%		98.22	%
Down 100		96,769		(3,278	)		-3.28	%		16.09	%		95.00	%
Down 200		93,401		(6,646	)		-6.64	%		15.53	%		91.70	%

	Sensitivity of Market Value of Portfolio Equity
	As of December 31, 2010

									Market Value of
Change in	Market Value of Portfolio Equity								Portfolio Equity as a % of
Interest Rates												Portfolio
in Basis Points			$ Change			% Change			Total			Equity
(Rate Shock)	Amount		From Base			From Base			Assets			Book Value
	(Dollar amounts in thousands)

Up 300	$	99,642	$	(1,643	)		-1.62	%		16.86	%		100.20	%
Up 200		100,576		(709	)		-0.70	%		17.01	%		101.14	%
Up 100		100,578		(707	)		-0.70	%		17.01	%		101.14	%
Base		101,285		-			0.00	%		17.13	%		101.85	%
Down 100		97,672		(3,613	)		-3.57	%		16.52	%		98.22	%
Down 200		93,048		(8,237	)		-8.13	%		15.74	%		93.57	%
Down 300		90,390		(10,895	)		-10.76	%		15.29	%		90.90	%

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 June 30, 2011 and December 31, 2010 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 June 30, 2011

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	$	28,894	$	3,142		5.29	%		0.56	%
Up 300		28,006		2,254		5.13	%		0.40	%
Up 200		27,156		1,404		4.98	%		0.25	%
Up 100		26,236		484		4.82	%		0.09	%
Base		25,752		-		4.73	%		0.00	%
Down 100		26,035		283		4.78	%		0.05	%
Down 200		26,025		273		4.78	%		0.05	%

	Sensitivity of Net Interest Income
	As of December 31, 2010

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 300	$	27,668	$	3,361		5.09	%		0.61	%
Up 200		26,466	$	2,159		4.87	%		0.39	%
Up 100		25,193	$	886		4.64	%		0.16	%
Base		24,307	$	-		4.48	%		0.00	%
Down 100		24,670	$	363		4.55	%		0.07	%
Down 200		24,676	$	369		4.55	%		0.07	%
Down 300		24,747	$	440		4.56	%		0.08	%

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in MVPE 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 MVPE 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 MVPE 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.

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 on 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. Other than the remediation of the material weakness related to the misidentification of a subsequent event described in our Annual Report on Form 10-K for the year ended December 31, 2010, there have been no other changes in SNBV’s internal control over financial reporting that occurred during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, SNBV’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

SNBV and Sonabank may, from time to time, be a party to various legal proceedings arising in the ordinary course of business. Sonabank is a party to one small lawsuit considered to be in the ordinary course of business. There are no other proceedings pending, or to management’s knowledge, threatened, against SNBV or Sonabank as of June 30, 2011.

ITEM 1A – RISK FACTORS

As of June 30, 2011 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, 2010.

ITEM 2. – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3. – DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. – (REMOVED AND RESERVED)

ITEM 5. – OTHER INFORMATION

Not applicable

ITEM 6 - EXHIBITS

	(a) Exhibits.

	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.

	101		The following information from the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income and Comprehensive Income; (iii) Consolidated Statements of Changes in Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.


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

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)

August 9, 2011		/s/ Georgia S. Derrico
(Date)		Georgia S. Derrico,
		Chairman of the Board and Chief Executive Officer

August 9, 2011		/s/ William H. Lagos
(Date)		William H. Lagos,
		Senior Vice President and Chief Financial Officer