U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20459
FORM 10-Q
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended: Commission File No.:
September 30, 1996 33-95246
SOUTHERN FINANCIAL BANCORP, INC.
Virginia 54-1779978
______________________________ ___________________________________
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
37 East Main Street
Warrenton, Virginia 20186
______________________________ ___________________________________
(address of principal executive office) (Zip Code)
Registrant's Telephone Number, including area code: (540) 349-3900
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 _____
As of September 30, 1996, there were issued and outstanding 1,592,512 shares of
the registrant's Common Stock and 16,634 shares of preferred stock.
<PAGE>
<TABLE>
SOUTHERN FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
(UNAUDITED)
September 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Cash and Due from Banks $ 3,716,982 $ 3,894,884
Overnight Earning Deposits 2,800,299 1,795,902
Investment Securities Available-for-Sale 4,169,087 2,827,625
Investment Securities Held-to-Maturity 5,087,000 87,000
Mortgage-Backed Securities
Available-for-Sale 912,132 1,045,098
Mortgage-Backed Securities Held-to-Maturity 60,199,992 45,997,777
Loans Held for Sale 1,967,650 170,000
Loans Receivable, Net 106,272,042 104,251,481
Federal Home Loan Bank Stock, at Cost 867,600 950,000
Bank Premises and Equipment, Net 1,546,735 1,146,553
Interest Receivable 1,390,827 1,167,022
Real Estate Owned 343,023 357,023
Other Assets 1,623,704 1,110,385
Total Assets $190,897,073 $164,800,750
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $163,622,826 $143,813,686
Advances from Federal Home Loan Bank 9,000,000 4,000,000
Advances from Borrowers for Taxes
and Insurance 234,157 113,631
Other Liabilities 2,000,879 1,098,362
Total Liabilities 174,857,862 149,025,679
Preferred Stock 166 166
Common Stock 15,925 13,912
Capital in Excess of Par Value 15,276,379 12,796,014
Retained Earnings 1,319,871 3,050,284
Net Unrealized (Loss)/Gain on Securities
Available-for-Sale (101,599) 14,685
Treasury Stock (471,531) (99,990)
Total Stockholders' Equity 16,039,211 15,775,071
Total Liabilities and
Stockholders' Equity $190,897,073 $164,800,750
<F1>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SOUTHERN FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $2,558,981 $2,423,579 $ 7,681,909 $ 6,597,932
Mortgage-Backed Securities
and Other Investments 1,153,805 906,312 3,138,944 2,773,375
Total Interest Income 3,712,786 3,329,891 10,820,853 9,371,307
INTEREST EXPENSE
Deposits 1,889,242 1,735,794 5,508,465 4,811,661
Borrowings 94,807 92,960 246,811 362,940
Total Interest Expense 1,984,049 1,828,754 5,755,276 5,174,601
Net Interest Income 1,728,737 1,501,137 5,065,577 4,196,706
Provision for Loan Losses 190,000 55,000 510,000 110,000
Net Interest Income
after Provision
for Loan Losses 1,538,737 1,446,137 4,555,577 4,086,706
OTHER INCOME
Gain on Sale of
Mortgage-Backed
Securities - 63,208 - 63,208
Gain on Sale of Loans 16,177 38,803 148,029 167,753
Fee Income 244,783 136,616 603,124 405,754
0ther 26,225 21,947 75,033 50,405
Total Other Income 287,185 260,574 826,186 687,120
OPERATING EXPENSE
Employee Compensation
and Benefits 536,441 453,047 1,585,304 1,265,973
Office Occupancy 195,551 168,079 544,468 425,289
Furniture and Equipment 227,928 171,631 611,034 490,597
FDIC Premiums 952,517 72,665 1,106,693 199,365
Other 248,602 301,878 757,559 763,992
Total Operating Expense 2,161,039 1,167,300 4,605,058 3,145,216
Income Before Income Taxes ( 335,117) 539,411 776,705 1,628,610
Provision for Income Taxes ( 110,600) 199,000 256,300 624,670
Net Income ($ 224,517) $ 340,411 $ 520,405 $1,003,940
Earnings per Share:
Primary Earnings
per Share ($ 0.14) $ 0.21 $ 0.32 $ 0.63
Fully Diluted
Earnings per Share ($ 0.14) $ 0.21 $ 0.32 $ 0.61
Weighted Average Number
of Primary Common Shares
Outstanding 1,628,291 1,603,877 1,602,638 1,582,364
<F1>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SOUTHERN FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Net Unrealized
Gain (Loss)
Capital Securities Total
Preferred Common Excess of Retained Treasury Available- Stockholders'
Stock Stock Par Value Earnings Stock for-Sale Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 166 $13,912 $12,796,014 $3,050,284 $(99,990) $14,685 $15,775,071
Dividends on Preferred and
Common Stock - - - (86,723) - - (86,723)
Net Unrealized Loss on
Securities Available-for-Sale - - - - - (69,515) (69,515)
Net Income - - - 390,729 - - 390,729
Balance, March 31, 1996 166 13,912 12,796,014 3,354,290 (99,990) (54,830) 16,009,562
Dividends on Preferred and
Common Stock - - - (86,723) - - (86,723)
Options Exercised - 374 273,428 - - - 273,802
Treasury Stock - - - - (149,984) - (149,984)
Net Unrealized Loss on
Securities Available-for-Sale - - - - - (36,800) (36,800)
Net Income - - - 354,193 - - 354,193
Balance, June 30, 1996 166 14,286 13,069,442 3,621,760 (249,974) (91,630) 16,364,050
Dividends on Preferred and
Common Stock - - - (90,366) - - (90,366)
Options Exercised - 220 221,350 - - - 221,570
Treasury Stock - - - - (221,557) - (221,557)
10% Stock Dividend - 1,419 1,985,587 (1,987,006) - - -
Net Unrealized Loss on
Securities Available-for-Sale - - - - - (9,969) (9,969)
Net Loss - - - (224,517) - - (224,517)
Balance, September 30, 1996 $ 166 $15,925 $15,276,379 $1,319,871 $(471,531) $(101,599) $16,039,211
<F1>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SOUTHERN FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 520,405 $ 1,003,940
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization of Bank
Premises and Equipment 180,164 159,048
Net Amortization of Premiums (Discounts) on
Loans and Securities 217,866 96,738
Provision for Loan Losses 510,000 110,000
Provision for Deferred Income Taxes (58,299) 125,120
Gain on Sale of Loans (148,029) (167,753)
Gain on Sale of Mortgage-Backed Securities - (63,208)
Loss on Real Estate Owned - 30,000
Amortization of Deferred Loan Fees (254,986) (458,144)
Loans Originated for Sale (9,121,278) (6,861,050)
Proceeds from Sales of Loans Held for Sale 7,471,656 7,155,503
Increase in Interest Receivable (223,805) (163,969)
Increase in Other Assets (396,720) (373,072)
Increase in Other Liabilities 902,517 534,409
Net Cash (Used in) Provided by
Operating Activities (400,509) 1,127,562
Cash Flows from Investing Activities:
Loans Originated (36,674,459) (48,994,865)
Principal Collected on Loans 34,384,855 30,866,517
Purchase of Loans - (2,942,820)
Purchase of Investment Securities (6,496,685) -
Sale of Mortgage-Backed Securities - 4,994,678
Purchase of Mortgage-Backed Securities (23,300,043) (2,022,204)
Principal Collected on Mortgage-
Backed Securities 9,007,597 6,831,779
Net (Increase) Decrease in Overnight
Earning Deposits (1,004,397) 3,023,608
Investment in Real Estate Owned 14,000 (387,023)
Purchase of Bank Premises and Equipment (580,346) (272,915)
Redemption of Federal Home Loan Bank Stock 82,400 -
Purchase of Federal Home Loan Bank Stock - (136,100)
Net Cash (Used in) Investing Activities (24,567,078) (9,039,345)
Cash Flows from Financing Activities:
Net Increase in Deposits 19,809,140 7,508,406
Increase/(Decrease) in Advances from
Federal Home Loan Bank 5,000,000 3,000,000
Increase in Advances from Borrowers
for Taxes and Insurance 120,526 133,513
Proceeds from Stock Options Exercised 123,831 21,800
Dividends on Preferred and Common Stock (263,812) (218,707)
Net Cash Provided by Financing Activities 24,789,685 10,445,012
Net (Decrease) Increase in Cash
and Due from Banks (177,902) 2,533,229
Cash and Due from Banks, Beginning of Period 3,894,884 949,338
Cash and Due from Banks, End of Period $3,716,982 $3,482,567
<F1>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do
not include all information or footnotes necessary for a fair presentation of
financial position, results of operations, changes in stockholders' equity
and cash flows in conformity with generally accepted accounting principles.
However, all adjustments which are, in the opinion of management, necessary
for a fair presentation have been included. All adjustments are of a normal
recurring nature. The results of operations for the nine month period ended
September 30, 1996 are not necessarily indicative of the results of the full
year. These consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes included in Southern
Financial Bancorp, Inc.'s Annual Report for the six months ended December 31,
1995.
On December 1, 1995 Southern Financial Bancorp, Inc. (the "Bancorp")
acquired all of the outstanding shares of Southern Financial Bank (the "Bank").
Southern Financial Bank, formerly Southern Financial Federal Savings Bank,
converted from a savings bank to a state chartered commercial bank effective
December 1, 1995. Also, on December 1, 1995 Southern Financial Bancorp, Inc.
changed its fiscal year end to December 31 from June 30.
NOTE 2 - INVESTMENT SECURITIES
The portfolio of investment securities which are classified as held-to
maturity consist of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
FHLB Intermediate Notes $5,000,000 $4,994,688 $ - $ -
Other Investments 87,000 87,000 87,000 87,000
Total $5,087,000 $5,081,688 $87,000 $87,000
</TABLE>
The portfolio of investment securities which are classified as available-for-
sale consist of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
FHLMC Preferred Stock $4,310,235 $4,169,088 $2,810,425 $2,827,625
</TABLE>
NOTE 3 - MORTGAGE-BACKED SECURITIES
The portfolio of mortgage-backed securities which are classified as held-to-
maturity consist of the following securities:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
FHLMC $ 7,845,863 $ 7,799,798 $ 9,397,071 $ 9,346,718
FNMA 22,469,861 22,217,528 12,065,698 11,879,879
GNMA 23,093,062 22,975,462 17,612,470 17,554,923
CMO 6,791,206 6,836,476 6,922,538 6,892,830
Total $60,199,992 $59,829,264 $45,997,777 $45,674,350
</TABLE>
Of the securities classified as held-to-maturity $7.1 million, or 11.8%,
have fixed rates of interest and original maturities of 15 years. The
interest rates on $10.1 million, or 16.7%, of the portfolio are indexed to
the 11th District and national cost of funds indices and adjust monthly. The
interest rates on the balance of the portfolio, $43.0 million, are indexed
to the one year constant maturity treasury and adjust annually or more
frequently.
The portfolio of mortgage-backed securities classified as available-for-sale
consists of the following securities:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
FNMA $922,622 $912,132 $1,039,353 $1,045,098
</TABLE>
The securities classified as available-for-sale have a fixed rate of
interest and an original maturity of 15 years.
NOTE 4 - LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
<S> <C> <C>
Real estate mortgage loans:
Permanent
Residential $ 34,099,983 $ 37,583,119
Nonresidential 42,310,108 36,742,339
Construction
Residential 11,060,600 13,164,850
Nonresidential 9,972,522 16,490,213
Business and consumer 14,958,971 12,025,981
Total loans receivables 112,402,184 116,006,502
Less:
Undisbursed portion of
loans in process (4,396,835) (10,110,438)
Deferred loan fees (380,837) (454,334)
Allowance for loan losses (1,352,470) (1,190,249)
Loans receivable, net $106,272,042 $104,251,481
</TABLE>
The following sets forth information regarding the allowance for loan losses:
<TABLE>
<CAPTION>
Nine months ended Six months ended
September 30, 1996 December 31, 1995
<S> <C> <C>
Balance, beginning of period $1,190,249 $1,057,445
Charge offs (352,369) (17,196)
Recoveries 4,590 0
Provision charged to operations 510,000 150,000
Balance, end of period $1,352,470 $1,190,249
</TABLE>
NOTE 5 - ADVANCES FROM FEDERAL HOME LOAN BANK
At September 30, 1996, advances from the Federal Home Loan Bank ("FHLB")
of Atlanta totaled $9,000,000 which consisted of $7,000,000 of advances which
reprice daily but may be prepaid at any time without penalty and $2,000,000
of fixed rate advances maturing in January, 1998. At December 31, 1995,
advances from the FHLB of Atlanta totaled $4,000,000.
These advances are made under a credit availability agreement with the
FHLB of Atlanta totaling $25,000,000. The agreement does not have a maturity
date and advances are made at the FHLB of Atlanta's discretion.
NOTE 6 - STOCKHOLDERS' EQUITY
At September 30, 1996 and December 31, 1995, the Bancorp had 16,634 shares
of 6% cumulative convertible preferred stock issued and outstanding. Par
value is $0.01 per share. Five hundred thousand shares are authorized. Each
share of the Bancorp's preferred stock is convertible to 1.61 shares of common
stock. The preferred stock has an annual dividend rate of 6%. Dividends are
payable quarterly and are cumulative.
At September 30, 1996 and December 31, 1995, the Bancorp had 1,592,512
and 1,391,153, respectively, shares of common stock issued and outstanding.
The par value is $0.01 per share. There were 5,000,000 shares authorized by
the Bancorp's charter. The Bancorp's board of directors declared a 10 percent
stock dividend in July, 1995, a four-for-three stock split in February, 1995,
which was effected in the form of a dividend and a 10 percent stock dividend
in July, 1996. Prior period earnings per share amounts have been restated to
reflect the effect of these distributions.
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
The total assets of Southern Financial Bancorp, Inc. (the "Bancorp") at
September 30, 1996 were $190.9 million, an increase of $26.1 million, or
15.8%, from total assets of $164.8 million at December 31, 1995. Total
liabilities increased by $25.9 million, or 17.4%, to $174.9 million at
September 30, 1996 from $149.0 million at December 31, 1995.
The increase in total assets resulted from an increase of $14.2 million,
or 30.9% in mortgage-backed securities to $60.2 million at September 30, 1996
from $46.0 million at December 31, 1995 and an increase in investment
securities (held-to-maturity and available-for-sale) of $6.4 million.
Loans receivable increased by $2.0 million to $106.3 million at September
30, 1996 from $104.3 million at December 31, 1995. Although total loans
receivable remained relatively constant a shift occurred in the composition of
the categories. The principal change was an increase in non-residential
permanent loans of $5.6 million and comparable net decrease in non-residential
construction loans, reflecting the conversion of these loans from construction
to permanent.
Investment securities available-for-sale increased by $1.4 million, or
50.0 %, to $4.2 million at September 30, 1996 from $2.8 million at December
31, 1995. Investment securities available-for-sale consists entirely of
Federal Home Loan Mortgage Corporation ("FHLMC") preferred stock and is
recorded at current market value. Investment securities held-to-maturity
increased by $5.0 million to $5.1 million at September 30, 1996 from $0.1
million at December 31, 1995. This increase was due to the purchase of $5.0
million of U. S. government agency securities during the nine months ended
September 30, 1996.
The increase in total assets was funded by an increase in customer
deposits of $19.8 million , or 13.8%, to $163.6 million at September 30, 1996
from $143.8 million at December 31, 1995. In addition, Federal Home Loan Bank
("FHLB") of Atlanta advances increased by $5.0 million to $9.0 million at
September 30, 1996. The advances from the FHLB of Atlanta at September 30,
1996 consisted of $7.0 million of advances which mature in one year or less
and $2.0 million of advances which mature in January, 1998.
The primary sources of funds for operations of the Bancorp include
principal repayments and sales of loans and mortgage-backed securities, new
savings deposits and borrowings. The Bancorp had outstanding commitments to
fund loans approximating $6.1 million at September 30, 1996, and commitments
to sell to others approximately $2.0 million of loans as of September 30,
1996. In the opinion of management, the Bancorp's liquid assets are adequate
to meet commitments for loan fundings and other obligations and expenditures.
Results of Operations
The Bancorp's principal sources of revenues are interest and fees on
loans and mortgage-backed securities, interest or dividends on investments,
and other revenue associated with fees on deposit accounts and related
services. In the nine months ended September 30, 1996 the Bancorp's revenues
from other income increased by $139,000, or 20.2%, to $826,000 from $687,000
in the nine months ended September 30, 1995.
The following table presents, for periods indicated, average monthly
balances of and weighted average yields on interest-earning assets and average
balances and weighted average effective interest paid on interest-bearing
liabilities. During the period calculations utilize month end balances.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
Average Average
Average Yield/ Average Yield/
Balance Rate Balance Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest-Earning Assets:
Loans Receivable $105,445 9.71% $ 89,836 9.79%
Mortgage-Backed Securities 56,578 6.28 53,210 6.28
Investments 9,635 6.56 5,062 7.00
Total Interest-Earning
Assets 171,658 8.41 148,108 8.44
Interest-Bearing Liabilities:
Deposits 155,969 4.71 129,434 4.96
Borrowings 5,650 5.82 6,800 7.12
Total Interest-Bearing
Liabilities 161,619 4.75 136,234 5.07
Average Dollar Difference
Between Interest-Earning
Assets and Interest-Bearing
Liabilities $ 10,039 $ 11,874
Interest Rate Spread 3.66% 3.37%
Interest Margin 3.94% 3.78%
</TABLE>
The following table presents information regarding changes in interest
income and interest expense for the periods indicated. For each category of
interest-earning asset and interest-bearing liability, information is provided
on changes attributable to changes in volume (changes in volume multiplied by
old rate), changes in rates (changes in rates multiplied by old volume), and
changes in rate-volume (change in rates multiplied by the change in volume).
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1996
Versus
September 30, 1995
(Dollars in Thousands)
Rate/
Volume Rate Volume Net
<S> <C> <C> <C> <C>
Interest Income:
Loans Receivable $1,146 ($ 53) ($ 9) $1,084
Mortgage-Backed Securities 159 ( 1) 0 158
Investments 240 ( 17) ( 15) 208
Total Interest Income 1,545 ( 71) ( 24) 1,450
Interest Expense:
Deposits 987 ( 241) ( 49) 697
Borrowings ( 61) ( 66) 11 ( 116)
Total Interest Expense 926 ( 307) ( 38) 581
Net Interest Income $ 619 $236 $14 $ 869
</TABLE>
The Bancorp recorded net income of $520,000 for the nine months ended
September 30, 1996, compared to $1.0 million for the nine months ended
September 30, 1995, a decrease of $480,000. Included in the net income for
the nine months ended September 30, 1996 is an after tax charge of $583,000
which represents the Federal Deposit Insurance Corporation's ("FDIC") special
assessment to capitalize the Savings Associations Insurance Fund ("SAIF").
Primary earnings per share were $0.32 and $0.63 for the nine months ended
September 30, 1996 and 1995, respectively. Weighted average shares of common
stock outstanding were 1,602,638 and 1,582,364 for the same periods in 1996
and 1995, respectively. As explained in footnote 6, in order to provide
consistency, the weighted average number of common shares outstanding for
current and prior periods have been adjusted to give effect to a stock split
in February, 1995, a 10% stock dividend in July, 1995 and a 10% stock dividend
in July, 1996.
For the three months ended September 30, 1996, the Bancorp recorded a net
loss of $225,000 as compared to net income of $340,000 for the three months
ended September 30, 1995. The net loss for the three months ended September
30, 1996 includes an after tax charge of $583,000 which represents the FDIC's
special assessment to capitalize the SAIF. Primary earnings per share were
($0.14) and $0.21 for the three months ended September 30, 1996 and 1995,
respectively. Weighted average shares of common stock outstanding were
1,628,291 for the three months ended September 30, 1996 and 1,603,877 for the
three months ended September 30, 1995.
Net interest income before provision for loan losses for the nine months
ended September 30, 1996 was $5,066,000, an increase of $869,000, or 20.7%,
from $4,197,000 for the nine months ended September 30, 1995. The increase
resulted primarily from a growth in average interest-earning assets and an
increase in interest margin. Total interest-earning assets in the nine months
ended September 30, 1996 averaged $171.7 million as compared to $148.1 million
for the same period in 1995. For the nine months ended September 30, 1996,
the interest rate spread was 3.66%, an increase of 29 basis points from 3.37%
for the nine months ended September 30, 1995. The yield on interest-earning
assets decreased by 3 basis points from 8.44% for the nine months ended
September 30, 1995 to 8.41% for the nine months ended September 30, 1996. The
cost of interest bearing liabilities decreased by 32 basis points to 4.75% for
the nine months ended September 30, 1996 from 5.07% for the nine months ended
September 30, 1995.
For the three months ended September 30, 1996, net interest income before
provision for loan losses was $1,729,000 an increase of $228,000, or 15.2%,
from $1,501,000 for the three months ended September 30, 1995. This increase
resulted primarily from a growth in average interest-earning assets. Total
interest-earning assets in the three months ended September 30, 1996 averaged
$179.6 million as compared to $152.7 million in the three months ended
September 30, 1995. The interest rate spread was 3.60% for the three months
ended September 30, 1996 an increase of 6 basis points from 3.54% for the
three months ended September 30, 1995.
Total interest income increased by $1,450,000, or 15.5%, to $10,821,000
for the nine months ended September 30, 1996 from $9,371,000 for the nine
months ended September 30, 1995. This increase was primarily due to the
increase of $15.6 million in average loans receivable to $105.4 million for
the nine months ended September 30, 1996 from $89.8 million for the nine
months ended September 30, 1995. The yield on average loans receivable for
the nine months ended September 30, 1996 was 9.71% a decrease of 8 basis
points from 9.79% for the nine months ended September 30, 1995. Mortgage-
backed securities averaged $56.6 million for the nine months ended September
30, 1996, an increase of $3.4 million from $53.2 million for the nine months
ended September 30, 1995. The related yield was 6.28% unchanged from the nine
months ended September 30, 1995.
Total interest expense increased by $580,000, or 11.2%, to $5,755,000 for
the nine months ended September 30, 1996 from $5,175,000 for the nine months
ended September 30, 1995. Customer deposits averaged $156.0 million for the
nine months ended September 30, 1996, up $26.6 million from $129.4 million for
the nine months ended September 30, 1995. However, the average effective rate
paid on deposits decreased by 25 basis points to 4.71% in the 1996 period from
4.96% in the 1995 period. FHLB of Atlanta advances averaged $5.7 million for
the nine months ended September 30, 1996, a decrease of $1.1 million from
$6.8 million for the nine months ended September 30, 1995. The average
effective rate paid on FHLB of Atlanta advances decreased to 5.82% for the
nine months ended September 30, 1996 from 7.12% for the same period in 1995.
The provision for loan losses for the nine months ended September 30, 1996
was $510,000, as compared to $110,000 for the nine months ended September 30,
1995. In recognition of any nonperforming loans and the inherent risk in
lending, the Bancorp has established a provision for loan losses. The
provision for loan losses is a reserve of funds established to absorb the
inherent risk in lending, after evaluating the loan portfolio, considering
current economic conditions, changes in the nature and volume of lending and
past loan loss experience. During the nine months ended September 30, 1996,
the Bancorp's volume of nonresidential mortgages and commercial loans held in
portfolio increased by $8.5 million, or 17.4%. These loans tend to carry a
higher risk classification. Consequently, the Bancorp felt it prudent to
increase the provision for loan losses. In management's opinion the allowance
for loan losses is adequate to absorb potential losses in the current loan
portfolio. The allowance for loan losses at September 30, 1996 was $1.4
million or 1.4% of total loans receivable and 84.6% of nonperforming loans and
real estate owned.
Total other income for the nine months ended September 30, 1996 was
$826,000 as compared to $687,000 for the nine months ended September 30, 1995,
an increase of $139,000. Fee income increased by $197,000 to $603,000 for
the nine months ended September 30, 1996 from $406,000 for the nine months
ended September 30, 1995. Fee income, consisting primarily of transaction
fees on deposit accounts, increased due to increased volume in these types of
accounts.
For the three months ended September 30, 1996, total other income was
$287,000 an increase of $26,000 as compared to $261,000 for the three months
ended September 30, 1995. Fee income increased by $108,000 to $245,000 for
the three months ended September 30, 1996 from $137,000 for the three months
ended September 30, 1995 reflecting the higher numbers of checking accounts
opened.
Total operating expense increased by $1,460,000 to $4,605,000 for the nine
months ended September 30, 1996 from $3,145,000 for the nine months ended
September 30, 1995. Included in total operating expense for the nine months
ended September 30, 1996 is $870,000 which represents the FDIC's special
assessment to capitalize the SAIF. Employee compensation and benefits
increased by $319,000, or 25.2%, reflecting the cost of opening two new
branches in April, 1995, opening one new branch in July, 1996, and personnel
and organization restructuring during the quarter ended June 30, 1996. Office
occupancy increased by $119,000, or 28.0%, and furniture and equipment, which
includes data processing costs, increased by $120,000, or 24.4% which
principally reflects the cost of opening two the new branches in April, 1995
and one new branch in July, 1996.
Other expenses decreased by $6,000 to $758,000 for the nine months ended
September 30, 1996 from $764,000 for the nine months ended September 30, 1995.
This decrease occurred primarily due to a decrease in real estate owned
expense from $60,000 for the nine months ended September 30, 1995 to $6,000
for the nine months ended September 30, 1996. Included in other expenses for
the nine months ended September 30, 1996 is $90,000 which represents Virginia
franchise tax, no franchise tax was paid in the similar period ended September
30, 1995. Subsequent to the conversion to a Virginia commercial bank
effective December 1, 1995, the Bancorp's subsidiary bank became subject to
the Virginia franchise tax instead of the Virginia income tax.
For the three months ended September 30, 1996, total operating expense
increased by $994,000 to $2,161,000 from $1,167,000 for the three months ended
September 30, 1995. The cost of deposit insurance increased by $880,000 to
$953,000 for the three months ended September 30, 1996 from $73,000 for the
three months ended September 30, 1995. This increase reflects the FDIC's
special assessment to capitalize the SAIF of $870,000. Employee compensation
and benefits increased by $83,000, office occupancy increased by $28,000, and
furniture and equipment increased by $56,000. These increases principally
reflect the cost of opening two new branches in April, 1995 and one new branch
in July, 1996.
Regulatory Capital Requirements
At September 30, 1996, the Bancorp exceeded all regulatory capital
standards, which were as follows:
<TABLE>
<CAPTION>
Actual capital Required Capital Excess Capital
(Amounts in thousands)
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Leverage
Capital $15,780 8.40% $5,638 3.00% $10,142 5.40%
Tier I
Capital $15,780 14.11% $4,472 4.00% $11,308 10.11%
Tier I and II
Capital $17,132 15.32% $8,944 8.00% $ 8,188 7.32%
</TABLE>
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying notes presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation.
Unlike many industrial companies, substantially all of the assets and
virtually all of the liabilities of the Bancorp are monetary in nature. As a
result, interest rates have a more significant impact on the Bancorp's
performance than the effects of general levels of inflation. Interest rates may
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services. However, non-interest expenses do not reflect
general levels of inflation.
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits Required
None.
Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
September 30, 1996.
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
Part III. 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 FINANCIAL BANCORP, INC.
(Registrant)
Date 11/13/96 By: /s/Georgia S. Derrico
Georgia S. Derrico
Chairman and
Chief Executive Officer
(Duly Authorized Representative)
Date 11/13/96 By: /s/Manfred Liebsch
Manfred Liebsch
Controller
Principal Accounting Officer
(Duly Authorized Representative)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,716,982
<INT-BEARING-DEPOSITS> 2,800,299
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,081,219
<INVESTMENTS-CARRYING> 65,286,992
<INVESTMENTS-MARKET> 64,910,952
<LOANS> 106,272,042
<ALLOWANCE> 1,352,470
<TOTAL-ASSETS> 190,897,073
<DEPOSITS> 163,622,826
<SHORT-TERM> 9,000,000
<LIABILITIES-OTHER> 2,235,036
<LONG-TERM> 0
0
166
<COMMON> 15,925
<OTHER-SE> 16,023,120
<TOTAL-LIABILITIES-AND-EQUITY> 190,897,073
<INTEREST-LOAN> 7,681,909
<INTEREST-INVEST> 3,138,944
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,820,853
<INTEREST-DEPOSIT> 5,508,465
<INTEREST-EXPENSE> 5,755,276
<INTEREST-INCOME-NET> 5,065,577
<LOAN-LOSSES> 510,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,605,058
<INCOME-PRETAX> 776,705
<INCOME-PRE-EXTRAORDINARY> 776,705
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 520,405
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 8.41
<LOANS-NON> 1,256,447
<LOANS-PAST> 270,866
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 785,491
<ALLOWANCE-OPEN> 1,190,249
<CHARGE-OFFS> 352,369
<RECOVERIES> 4,590
<ALLOWANCE-CLOSE> 1,352,470
<ALLOWANCE-DOMESTIC> 1,352,470
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
