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.:
June 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 22186
______________________________ ___________________________________
(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 June 30, 1996, there were issued and outstanding 1,428,583 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)
June 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Cash and Due from Banks $ 3,902,989 $ 3,894,884
Overnight Earning Deposits 2,676,023 1,795,902
Investment Securities Available-for-Sale 4,190,000 2,827,625
Investment Securities Held-to-Maturity 4,084,500 87,000
Mortgage-Backed Securities Available
-for-Sale 935,702 1,045,098
Mortgage-Backed Securities Held-to-Maturity 57,639,702 45,997,777
Loans Held for Sale 2,485,310 170,000
Loans Receivable, Net 102,929,277 104,251,481
Federal Home Loan Bank Stock, at Cost 867,600 950,000
Bank Premises and Equipment, Net 1,075,578 1,146,553
Interest Receivable 1,269,759 1,167,022
Real Estate Owned 346,023 357,023
Other Assets 1,218,967 1,110,385
Total Assets $183,621,430 $164,800,750
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $160,341,591 $143,813,686
Advances from Federal Home Loan Bank 5,500,000 4,000,000
Advances from Borrowers for Taxes
and Insurance 179,371 113,631
Other Liabilities 1,236,418 1,098,362
Total Liabilities 167,257,380 149,025,679
Preferred Stock 166 166
Common Stock 14,286 13,912
Capital in Excess of Par Value 13,069,442 12,796,014
Retained Earnings 3,621,760 3,050,284
Net Unrealized (Loss)/Gain on Securities
Available-for-Sale (91,630) 14,685
Treasury Stock (249,974) (99,990)
Total Stockholders' Equity 16,364,050 15,775,071
Total Liabilities and Stockholders' Equity $183,621,430 $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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 2,541,305 $ 2,237,491 $ 5,122,928 $ 4,174,353
Mortgage-Backed Securities
and Other Investments 1,054,065 902,960 1,985,139 1,867,063
Total Interest Income 3,595,370 3,140,451 7,108,067 6,041,416
INTEREST EXPENSE
Deposits 1,838,115 1,622,696 3,619,223 3,075,867
Borrowings 68,679 143,215 152,004 269,980
Total Interest Expense 1,906,794 1,765,911 3,771,227 3,345,847
Net Interest Income 1,688,576 1,374,540 3,336,840 2,695,569
Provision for Loan Losses 160,000 55,000 320,000 55,000
Net Interest Income after
Provision for Loan Losses 1,528,576 1,319,540 3,016,840 2,640,569
OTHER INCOME
Gain on Sale of Loans 56,771 52,210 131,852 128,950
Fee Income 202,938 127,695 358,341 269,138
0ther 24,420 17,924 48,808 28,458
Total Other Income 284,129 197,829 539,001 426,546
OPERATING EXPENSE
Employee Compensation
and Benefits 557,306 426,354 1,048,863 812,926
Office Occupancy 176,031 131,748 348,917 257,210
Furniture and Equipment 198,978 166,883 383,106 318,966
FDIC Premiums 81,399 63,350 154,176 126,700
Other 270,398 256,773 508,957 462,114
Total Operating Expense 1,284,112 1,045,108 2,444,019 1,977,916
Income Before Income Taxes 528,593 472,261 1,111,822 1,089,199
Provision for Income Taxes 174,400 185,070 366,900 425,670
Net Income $ 354,193 $ 287,191 $ 744,922 $ 663,529
Earnings per Share:
Primary Earnings per Share $ 0.24 $ 0.20 $ 0.51 $ 0.46
Fully Diluted Earnings
per Share $ 0.24 $ 0.20 $ 0.50 $ 0.46
Weighted Average Number of
Primary Common Shares
Outstanding 1,400,398 1,369,149 1,395,776 1,369,067
<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
Capital Gain (Loss) Total
Preferred Common Excess of Retained Treasury Securities Stockholders'
Stock Stock Par Value Earnings Stock Available-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 $2,621,760 $(249,974) $(91,630) $16,364,050
<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>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 744,922 $ 663,529
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization of Bank Premises
and Equipment 111,757 104,531
Net Amortization of Premiums (Discounts) on
Loans and Securities 134,054 81,592
Provision for Loan Losses 320,000 55,000
Provision for Deferred Income Taxes (53,390) 163,120
Gain on Sale of Loans (131,852) (128,950)
Amortization of Deferred Loan Fees (235,895) (302,899)
Loans Originated for Sale (8,788,348) (4,081,700)
Proceeds from Sales of Loans Held for Sale 6,604,890 5,074,350
Increase in Interest Receivable (102,737) (164,910)
Decrease in Other Assets (1,801) (128,772)
Increase in Other Liabilities 138,056 338,015
Net Cash (Used in) Provided by
Operating Activities (1,260,344) 1,672,906
Cash Flows from Investing Activities:
Loans Originated (25,558,754) (29,384,833)
Principal Collected on Loans 26,787,500 16,570,028
Purchase of Loans - (2,942,820)
Purchase of Investment Securities (5,496,685) -
Purchase of Mortgage-Backed Securities (18,283,527) (2,022,204)
Principal Collected on Mortgage-
Backed Securities 6,603,401 4,931,788
Net (Increase) Decrease in Overnight
Earning Deposits (880,121) 3,200,077
Investment in Real Estate Owned 11,000 (387,023)
Purchase of Bank Premises and Equipment (40,782) (260,588)
Redemption of Federal Home Loan Bank Stock 82,400 -
Purchase of Federal Home Loan Bank Stock - (136,100)
Net Cash (Used in) Investing Activities (16,775,568) (10,431,675)
Cash Flows from Financing Activities:
Net Increase in Deposits 16,527,905 17,508,045
Increase/(Decrease) in Advances from
Federal Home Loan Bank 1,500,000 (6,000,000)
Increase in Advances from Borrowers for
Taxes and Insurance 65,740 63,891
Proceeds from Stock Options Exercised 123,818 12,080
Dividends on Preferred and Common Stock (173,446) (139,376)
Net Cash Provided by Financing Activities 18,044,017 11,444,640
Net Increase in Cash and Due from Banks 8,105 2,685,871
Cash and Due from Banks, Beginning of Period 3,894,889 949,338
Cash and Due from Banks, End of Period $ 3,902,989 $ 3,635,209
<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 six month period ended
June 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>
June 30, 1996 December 31, 1995
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
FHLB Intermediate Notes $3,997,500 $3,992,188 $ - $ -
Other Investments 87,000 87,000 87,000 87,000
Total $4,084,500 $4,079,188 $ 87,000 $ 87,000
</TABLE>
The portfolio of investment securities which are classified as
available-for-sale consist of the following:
<TABLE>
<CAPTION>
June 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 $4,190,000 $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>
June 30, 1996 December 31, 1995
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
FHLMC $ 8,134,524 $ 8,064,386 $ 9,397,071 $ 9,346,718
FNMA 21,737,791 21,352,051 12,065,698 11,879,879
GNMA 20,844,853 20,686,703 17,612,470 17,554,923
CMO 6,922,534 6,608,438 6,922,534 6,892,830
Total $57,639,702 $56,711,578 $45,997,777 $45,674,350
</TABLE>
Of the securities classified as held-to-maturity, $5.6 million, or 9.7%,
have fixed rates of interest and original maturities of 15 years. The
interest rates on $10.3 million, or 17.9%, 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, $41.7 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>
June 30, 1996 December 31, 1995
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
FNMA $ 952,227 $ 935,702 $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>
June 30, 1996 December 31, 1995
<S> <C> <C>
Real estate mortgage loans:
Permanent
Residential $ 34,962,403 $ 37,583,119
Nonresidential 40,342,914 36,742,339
Construction
Residential 10,382,488 13,164,850
Nonresidential 10,375,133 16,490,213
Business and consumer 14,168,596 12,025,981
Total loans receivables 110,231,534 116,006,502
Less:
Undisbursed portion of
loans in process (5,435,598) (10,110,438)
Deferred loan fees (388,717) (454,334)
Allowance for loan losses (1,477,942) (1,190,249)
Loans receivable, net $102,929,277 $104,251,481
</TABLE>
The following sets forth information regarding the allowance for loan
losses:
<TABLE>
<CAPTION>
Six months Six months
ended ended
June 30, 1996 December 31, 1995
<S> <C> <C>
Balance, beginning of period $1,190,249 $1,057,445
Charge offs (36,851) (17,196)
Recoveries 4,544 0
Provision charged to operations 320,000 150,000
Balance, end of period $1,477,942 $1,190,249
</TABLE>
NOTE 5 - ADVANCES FROM FEDERAL HOME LOAN BANK
At June 30, 1996, advances from the Federal Home Loan Bank ("FHLB") of
Atlanta totaled $5,500,000 which consisted of $3,500,000 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 June 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 1.46 shares of common
stock. The preferred stock has an annual dividend rate of 6%. Dividends
are payable quarterly and are cumulative.
At June 30, 1996 and December 31, 1995, the Bancorp had 1,428,583 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 and a four-for-three stock split in February,
1995, which was effected in the form of a dividend. 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
June 30, 1996 were $183.6 million, an increase of $18.8 million, or 11.4%,
from total assets of $164.8 million at December 31, 1995. Total liabilities
increased by $18.3 million, or 12.3%, to $167.3 million at June 30, 1996
from $149.0 million at December 31, 1995.
The increase in total assets resulted from an increase of $11.6 million,
or 25.2% in mortgage-backed securities to $57.6 million at June 30, 1996
from $46.0 million at December 31, 1995 and an increase in investment
securities (held-to-maturity and available-for-sale) of $5.4 million.
Loans receivable decreased by $1.4 million to $102.9 million at June 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 $3.6 million and comparable net decrease in non-
residential construction loans, reflecting the conversion of three loans from
construction to permanent.
Investment securities available-for-sale increased by $1.4 million, or
50.0 %, to $4.2 million at June 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
$4.0 million to $4.1 million at June 30, 1996 from $0.1 million at December
31, 1995. This increase was due to the purchase of $4.0 million of U. S.
government agency securities during the six months ended June 30, 1996.
The increase in total assets was funded by an increase in customer
deposits of $16.5 million , or 11.5%, to $160.3 million at June 30, 1996
from $143.8 million at December 31, 1995. In addition, Federal Home Loan
Bank ("FHLB") of Atlanta advances increased by $1.5 million to $5.5 million
at June 30, 1995. The advances from the FHLB of Atlanta at June 30, 1996
consisted of $3.5 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 $13.7 million at June 30, 1996, and commitments
to sell to others approximately $2.5 million of loans as of June 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 six months ended June 30, 1996 the Bancorp's revenues from
other income increased by $427,000, or 26.2%, to $539,000 from $427,000 in
the six months ended June 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>
Six Months Ended June 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 $104,911 9.77% $ 86,119 9.69%
Mortgage-Backed Securities 54,378 6.28 54,490 6.17
Investments 8,418 6.61 5,344 6.92
Total Interest-Earning
Assets 167,707 8.48 145,953 8.28
Interest-Bearing Liabilities:
Deposits 152,501 4.75 126,917 4.85
Borrowings 4,929 6.17 7,143 7.56
Total Interest-Bearing
Liabilities 157,430 4.79 134,060 4.99
Average Dollar Difference
Between Interest-Earning
Assets and Interest-Bearing
Liabilities $ 10,277 $ 11,893
Interest Rate Spread 3.69% 3.29%
Interest Margin 3.98% 3.69%
</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 Six Months Ended
June 30, 1996
Versus
June 30, 1995
(Dollars in Thousands)
Rate/
Volume Rate Volume Net
<S> <C> <C> <C> <C>
Interest Income:
Loans Receivable $ 911 $ 31 $ 6 $ 948
Mortgage-Backed Securities (3) 28 0 25
Investments 106 (8) (5) 93
Total Interest Income 1,014 51 1 1,066
Interest Expense:
Deposits 620 (64) (13) 543
Borrowings (83) (50) 15 (18)
Total Interest Expense 537 (114) 2 425
Net Interest Income $ 477 $ 165 ($ 1) $ 641
</TABLE>
The Bancorp recorded net income of $745,000 for the six months ended
June 30, 1996, compared to $664,000 for the six months ended June 30, 1995,
an increase of $81,000. Primary earnings per share were $0.51 and $0.46 for
the six months ended June 30, 1996 and 1995, respectively. Weighted average
shares of common stock outstanding were 1,395,776 and 1,369,067 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 and a 10% stock dividend in July, 1995.
For the three months ended June 30, 1996, the Bancorp recorded net
income of $354,000 an increase of $67,000 as compared to $287,000 for the
three months ended June 30, 1995. Primary earnings per share were $0.24
and $0.20 for the three months ended June 30, 1996 and 1995, respectively.
Weighted average shares of common stock outstanding were 1,400,398 for the
three months ended June 30, 1996 and 1,369,149 for the three months ended
June 30, 1995.
Net interest income before provision for loan losses for the six months
ended June 30, 1996 was $3,337,000, an increase of $641,000, or 23.8%, from
$2,696,000 for the six months ended June 30, 1995. The increase resulted
primarily from a growth in average interest-earning assets and to a lesser
extent an increase in interest margin. Total interest-earning assets in the
six months ended June 30, 1996 averaged $167.7 million as compared to $146.0
million for the same period in 1995. For the six months ended June 30, 1996,
the interest rate spread was 3.69%, an increase of 40 basis points from 3.29%
for the six months ended June 30, 1995. The yield on interest-earning assets
increased by 20 basis points from 8.28% for the six months ended June 30,
1995 to 8.48% for the six months ended June 30, 1996. The cost of interest
bearing liabilities decreased by 20 basis points to 4.79% for the six months
ended June 30, 1996 from 4.99% for the six months ended June 30, 1995.
For the three months ended June 30, 1996, net interest income before
provision for loan losses was $1,689,000 an increase of $314,000, or 22.8%,
from $1,375,000 for the three months ended June 30, 1995. This increase
resulted primarily from a growth in average interest-earning assets and to a
lesser extent an increase in interest margin. Total interest-earning assets
in the three months ended June 30, 1996 averaged $172.0 million as compared
to $149.7 million in the three months ended June 30, 1995. The interest
rate spread was 3.65% for the three months ended June 30, 1996 an increase
of 37 basis points from 3.28% for the three months ended June 30, 1995.
Total interest income increased by $1,067,000, or 17.7%, to $7,108,000
for the six months ended June 30, 1996 from $6,041,000 for the six months
ended June 30, 1995. This increase was primarily due to the increase of
$18.8 million in average loans receivable to $104.9 million for the six
months ended June 30, 1996 from $86.1 million for the six months ended June
30, 1995. The yield on average loans receivable for the six months ended
June 30, 1996 was 9.77% an increase of 8 basis points from 9.69% for the six
months ended June 30, 1995. Mortgage-backed securities averaged $54.4
million for the six months ended June 30, 1996, a slight decrease from $54.5
million for the six months ended June 30, 1995. The related yield, however,
was 6.28%, up from 6.17% for the six months ended June 30, 1995.
Total interest expense increased by $425,000, or 12.7%, to $3,771,000
for the six months ended June 30, 1996 from $3,346,000 for the six months
ended June 30, 1995. Customer deposits averaged $152.5 million for the
six months ended June 30, 1996, up $25.6 million from $126.9 million for the
six months ended June 30, 1995. However, the average effective rate paid on
deposits decreased by 10 basis points to 4.75% in the 1996 period from
4.85% in the 1995 period. FHLB of Atlanta advances averaged $4.9 million
for the six months ended June 30, 1996, a decrease of $2.2 million from $7.1
million for the six months ended June 30, 1995. The average effective rate
paid on FHLB of Atlanta advances decreased to 6.17% for the six months ended
June 30, 1996 from 7.56% for the same period in 1995.
The provision for loan losses for the six months ended June 30, 1996 was
$320,000, as compared to $55,000 for the six months ended June 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 six months ended June 30, 1996, the Bancorp's volume
of nonresidential mortgages and commercial loans held in portfolio increased
by $5.7 million, or 11.7%. 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 June 30, 1996 was $1.5 million or 1.3% of
total loans receivable.
Total other income for the six months ended June 30, 1996 was $539,000
as compared to $427,000 for the six months ended June 30, 1995, an increase
of $112,000. Fee income increased by $89,000 to $358,000 for the six months
ended June 30, 1996 from $269,000 for the six months ended June 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 June 30, 1996, total other income was $284,000
an increase of $86,000 as compared to $198,000 for the three months ended
June 30, 1995. Fee income increased by $75,000 to $203,000 for the three
months ended June 30, 1996 from $128,000 for the three months ended June 30,
1995 reflecting the higher numbers of checking accounts opened.
Total operating expense increased by $466,000, or 23.6%, to $2,444,000
for the six months ended June 30, 1996 from $1,978,000 for the six months
ended June 30, 1995. Employee compensation and benefits increased by
$236,000, or 29.0%, reflecting the cost of opening two new branches in April,
1995 and personnel and organization restructuring during the quarter ended
June 30, 1996. Office occupancy increased by $92,000, or 35.8%, and
furniture and equipment, which includes data processing costs, increased by
$64,000, or 20.1% which principally reflects the cost of opening two the new
branches in April, 1995.
Other expenses increased by $47,000, or 10.2%, to $509,000 for the six
months ended June 30, 1996 from $462,000 for the six months ended June 30,
1995. This increase was primarily due to the costs related to the growth
in the customer deposit base including advertising, postage and supplies.
Included in other expenses for the six months ended June 30, 1996 is $50,000
which represents Virginia franchise tax, no franchise tax was paid in the
similar period ended June 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. The cost of deposit insurance, which is based on the dollar
volume of deposit accounts, increased by $27,000 to $154,000 for the six
months ended June 30, 1996 from $127,000 for the six months ended June 30,
1995 reflecting an increase in the deposit account base by 16.4% to $160.3
million at June 30, 1996 from $137.7 million at June 30, 1995.
For the three months ended June 30, 1996, total operating expense
increased by $239,000 to $1,284,000 from $1,045,000 for the three months
ended June 30, 1995. Employee compensation and benefits increased by
$131,000, office occupancy increased by $44,000, and furniture and equipment
increased by $32,000. These increases principally reflect the cost of
opening two new branches in April, 1995. Other expenses increased by $13,000
to $270,000 for the three months ended June 30, 1996 from $257,000 for the
three months ended June 30, 1995. The cost of deposit insurance, which is
based on the dollar volume of deposit accounts, increased by $18,000 to
$81,000 from $63,000 for the three months ended June 30, 1995.
Regulatory Capital Requirements
At June 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 $16,079 8.99% $ 5,365 3.00% $10,714 5.99%
Tier I
Capital $16,079 14.86% $ 4,327 4.00% $11,752 10.86%
Tier I and II
Capital $17,433 16.11% $ 8,654 8.00% $ 8,779 8.11%
</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 June 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 8/13/96 By: /s/Georgia S. Derrico
Georgia S. Derrico
Chairman and
Chief Executive Officer
(Duly Authorized Representative)
Date 8/13/96 By: /s/Manfred Liebsch
Manfred Liebsch
Controller
Principal Accounting Officer
(Duly Authorized Representative)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,902,989
<INT-BEARING-DEPOSITS> 2,676,023
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,125,702
<INVESTMENTS-CARRYING> 61,724,202
<INVESTMENTS-MARKET> 60,790,766
<LOANS> 102,929,277
<ALLOWANCE> 1,477,942
<TOTAL-ASSETS> 183,621,430
<DEPOSITS> 160,341,591
<SHORT-TERM> 3,500,000
<LIABILITIES-OTHER> 1,415,789
<LONG-TERM> 2,000,000
0
166
<COMMON> 14,286
<OTHER-SE> 16,349,598
<TOTAL-LIABILITIES-AND-EQUITY> 183,621,430
<INTEREST-LOAN> 5,122,928
<INTEREST-INVEST> 1,985,139
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,108,067
<INTEREST-DEPOSIT> 3,619,223
<INTEREST-EXPENSE> 3,771,227
<INTEREST-INCOME-NET> 3,336,840
<LOAN-LOSSES> 320,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,444,019
<INCOME-PRETAX> 1,111,822
<INCOME-PRE-EXTRAORDINARY> 1,111,822
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 744,922
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 8.48
<LOANS-NON> 1,620,935
<LOANS-PAST> 185,518
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 870,372
<ALLOWANCE-OPEN> 1,190,249
<CHARGE-OFFS> 36,851
<RECOVERIES> 4,544
<ALLOWANCE-CLOSE> 1,477,842
<ALLOWANCE-DOMESTIC> 1,477,842
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
