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.:
March 31, 1998 0-22836
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 April 30, 1998, there were 1,592,781 shares of the registrant's Common
Stock outstanding.
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
QUARTERLY REPORT ON FORM 10-Q
March 31, 1998
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
as of March 31, 1998 (Unaudited) and
December 31, 1997 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1998 and 1997
(Unaudited) 4
Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 1998 and
1997 (Unaudited) 5
Consolidated Statement of Changes in
Stockholders' Equity for the Three Months
Ended March 31, 1998 (Unaudited) 6
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997
(Unaudited) 7
Notes to Consolidated Financial Statements
(Unaudited) 8 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
PART III. SIGNATURES 16
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited)
-------------------------------------------------
<S> <C>
Assets
Cash and due from banks $ 4,491,768 $ 4,559,266
Overnight earning deposits 1,281,792 545,470
Investment securities, available-for-sale 17,746,533 4,692,758
Investment securities, held-to-maturity 73,939,989 80,468,952
Loans held for sale 1,303,500 1,414,445
Loans receivable, net 128,195,327 128,958,190
Federal Home Loan Bank stock, at cost 1,082,500 930,500
Premises and equipment, net 2,349,333 2,398,541
Other assets 2,829,740 2,629,813
-------------------- -----------------
Total assets $ 233,220,482 $ 226,597,935
==================== =================
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 211,851,711 $ 202,200,249
Advances from Federal Home Loan Bank - 4,000,000
Other liabilities 2,330,707 1,855,085
------------------- -----------------
Total liabilities 214,182,418 208,055,334
------------------- -----------------
Commitments
Stockholders' equity:
Preferred stock 156 156
Common stock 16,227 16,216
Capital in excess of par value 15,571,902 15,556,882
Retained earnings 3,905,515 3,406,501
Accumulated other comprehensive income 15,351 33,933
Treasury stock, at cost (471,087) (471,087)
-------------------- -----------------
Total stockholders' equity 19,038,064 18,542,601
-------------------- -----------------
Total liabilities and stockholders' equity $ 233,220,482 $ 226,597,935
==================== ======================
</TABLE>
The accompanying notes are an integral part these financial statements
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------------------------------------------
<S> <C>
Interest income:
Loans $ 3,106,302 $ 2,586,038
Investment securities 1,456,620 1,236,544
-------------------- -------------
Total interest income 4,562,922 3,822,582
-------------------- -------------
Interest expense:
Deposits 2,445,688 1,940,024
Borrowings 39,567 73,409
-------------------- -------------
Total interest expense 2,485,255 2,013,433
-------------------- -------------
Net interest income 2,077,667 1,809,149
Provision for loan losses 225,000 130,000
-------------------- -------------
Net interest income after provision for loan losses 1,852,667 1,679,149
-------------------- -------------
Other income:
Gain on sale of loans 137,963 56,180
Fee income 343,928 306,980
Other 7,600 39,266
-------------------- -------------
Total other income 489,491 402,426
Other expense:
-------------------- -------------
Employee compensation and benefits 657,285 616,341
Premises and equipment 249,001 259,276
Data processing expense 178,260 185,276
Deposit insurance assessments 30,065 24,907
Advertising 48,089 46,957
Other 248,121 213,078
-------------------- -------------
Total other expense 1,410,821 1,345,835
-------------------- -------------
Income before income taxes 931,337 735,740
Provision for income taxes 301,500 233,200
-------------------- -------------
Net income $ 629,837 $ 502,540
==================== =============
Earnings per common share:
Basic* $ 0.39 $ 0.32
Diluted* 0.37 0.31
Weighted average shares outstanding:
Basic* 1,592,548 1,564,248
Diluted* 1,709,010 1,627,704
</TABLE>
*Prior period numbers have been restated to conform with SFAS 128, "Earnings per
Share."
The accompanying notes are an integral part of these financial statements.
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------- -------------
<S> <C>
Net income $ 629,837 $ 502,540
Other comprehensive income, net of tax:
Unrealized holding (loss) gain on securities (18,582) 20,980
------------ -----------
Comprehensive income $ 611,255 $ 523,520
============ ===========
</TABLE>
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital in
Preferred Common Excess of Retained
Stock Stock Par Value Earnings
--------- ------ ----------- ---------
<S> <C>
Balance, December 31, 1997 $ 156 $ 16,216 $ 15,556,882 $ 3,406,501
Dividends on preferred and common stock - - - (130,823)
Options exercised - 11 15,020 -
Change in other comprehensive income - - - -
Net income - - - 629,837
--------- ------ ------------ -----------
Balance, March 31, 1998 $ 156 $ 16,227 $ 15,571,902 $ 3,905,515
========= ======= ============= ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Treasury Comprehensive Stockholders'
Stock Income Equity
-------- -------------- --------------
<S> <C>
Balance, December 31, 1997 $ (471,087) $ 33,933 $ 18,542,601
Dividends on preferred and common stock - - (130,823)
Options exercised - - 15,031
Change in other comprehensive income - (18,582) (18,582)
Net income - - 629,837
----------- -------------- -----------
Balance, March 31, 1998 $ (471,087) $ 15,351 $ 19,038,064
=========== ============== ============
</TABLE>
The accompanying notes are an integral part these financial statements
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---------- -----------
<S> <C>
Cash flows from operating activities:
Net Income $ 629,837 $ 502,540
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 198,684 146,539
Provision for loan losses 225,000 130,000
Provision for deferred income taxes (9,573) 10,333
Gain on sale of loans (137,963) (56,180)
Amortization of deferred loan fees (181,935) (44,521)
Net funding of loans held for sale 248,908 26,368
Increase in other assets (180,049) (116,688)
Increase in other liabilities 475,622 68,699
---------- -----------
Net cash provided by operating activities 1,268,531 667,090
---------- -----------
Cash flows from investing activities:
(Increase) decrease in loans receivable 714,777 (3,048,619)
Purchase of investment securities, available-for-sale (13,206,693) (9,058,418)
Paydowns of investment securities 6,547,487 4,304,006
(Increase) decrease in overnight earning deposits, net (736,322) 825,001
Increase in premises and equipment, net (38,948) (124,502)
Increase in Federal Home Loan Bank stock (152,000) (62,900)
---------- -----------
Net cash used in investing activities (6,871,699) (7,165,432)
---------- -----------
Cash flows from financing activities:
Net increase in deposits 9,651,462 11,582,536
Decrease in advances from FHLB (4,000,000) (4,000,000)
Proceeds from stock options exercised 15,031 -
Dividends on preferred and common stock (130,823) (97,256)
---------- -----------
Net cash provided by financing activities 5,535,670 7,485,280
---------- -----------
Net increase (decrease) in cash and due from banks (67,498) 986,938
Cash and due from banks, beginning of period 4,559,266 4,004,149
---------- -----------
Cash and due from banks, end of period $ 4,491,768 $ 4,991,087
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
<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, 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 three-month period ended March 31, 1998 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 year ended
December 31, 1997.
NOTE 2 - INVESTMENT SECURITIES
The following table sets forth the Bancorp's investment securities
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------------- ------------------ -------------- ------------------
<S> <C>
Available-for-sale securities:
FHLMC preferred stock $ 3,841,185 $ 3,859,282 $ 3,865,985 $ 3,907,561
FHLMC MBS 3,053,368 3,052,285 - -
GNMA MBS 9,092,525 9,097,112 - -
FNMA MBS 1,735,409 1,737,854 782,186 785,197
------------ -------------- ------------ ------------
$ 17,722,487 $ 17,746,533 $ 4,648,171 $ 4,692,758
============ ============ ============ ============
Held-to-maturity securities:
GNMA MBS $ 39,233,420 $ 39,148,718 $ 42,471,075 $ 42,657,909
FNMA MBS 25,230,176 25,357,187 27,075,234 27,186,191
FHLMC MBS 5,586,961 5,582,064 6,077,859 6,109,270
Collateralized mortgage obligations 3,234,960 3,253,707 4,202,852 4,202,559
FHLB zero-coupon notes 654,472 655,625 641,932 640,000
------------ -------------- ------------ -------------
$ 73,939,989 $ 73,997,301 $ 80,468,952 $ 80,795,929
============ ============ ============ ============
</TABLE>
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3 - LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> ---------- -------------
Mortgage:
Residential $ 29,601,936 $ 30,421,147
Nonresidential 57,640,269 57,160,286
Construction:
Residential 5,438,334 6,534,271
Nonresidential 14,121,841 13,160,542
Non-Mortgage:
Business 21,768,589 21,252,681
Consumer 2,406,832 3,092,938
------------- -------------
Total loans receivable 130,977,801 131,621,865
Less:
Deferred loan fees, net 631,641 627,143
Allowance for loan losses 2,150,833 2,036,532
------------- -------------
Loans receivable, net $ 128,195,327 $ 128,958,190
============= ============
</TABLE>
The following sets forth information regarding the allowance for loan
losses:
Three Months Three Months
Ended Ended
3/31/98 3/31/97
--------------- -----------------
Allowance at beginning of period $ 2,036,532 $ 1,500,941
Provision for losses charged to income 225,000 130,000
Charge-offs (111,045) (9,155)
Recoveries 346 15,086
--------------- -----------------
Allowance at end of period $ 2,150,833 $ 1,636,872
=============== =================
NOTE 4 - NEW ACCOUNTING STANDARD
The Bancorp adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective for the interim period ended March 31, 1998. SFAS No. 130 requires
that certain financial activity normally disclosed in stockholders' equity be
reported as an adjustment to net income in computing comprehensive income. Items
applicable to the Bancorp are gains and losses on investment securities
available-for-sale. The Bancorp has added a Statement of Comprehensive Income as
a result of the adoption of SFAS No. 130. Comprehensive income components are
reported under a separate caption in the Balance Sheet and Statement of Changes
in Stockholders' Equity. The implementation of SFAS No. 130 did not have any
financial impact on the Bancorp or its operations for the three months ended
March 31, 1998.
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Total assets of Southern Financial Bancorp, Inc. (the "Bancorp") at
March 31, 1998 were $233.2 million, an increase of $6.6 million, or 2.9%, from
total assets of $226.6 million at December 31, 1997. Total liabilities increased
by $6.1 million, or 3.0%, to $214.2 million at March 31, 1998 from $208.1
million at December 31, 1997.
The growth in total assets resulted primarily from an increase of $6.5
million in investment securities from December 31, 1997 to March 31, 1998.
Total loans receivable decreased by $763 thousand to $128.2 million at
March 31, 1998 from $129 million at December 31, 1997. Non-residential mortgage
loans (permanent and construction) increased by $1.5 million, or 2.1%, to $71.8
million at March 31, 1998, from $70.3 million at December 31, 1997. Residential
mortgage loans (permanent and construction) decreased $1.9 million , from $36.9
million at December 31, 1997, to $35 million at March 31, 1998. This change in
the loan portfolio mix during the quarter reflects the Bancorp's continuing
shift in emphasis from residential mortgage lending to non-residential lending.
Investment securities available-for-sale increased from $4.7 million at
December 31, 1997, to $17.7 million at March 31, 1998. There were purchases of
$13.2 million of mortgage-backed securities during the quarter ended March 31,
1998, all of which were designated as available-for-sale.
Investment securities held-to-maturity decreased by $6.5 million, or
8.1%, to $73.9 million at March 31, 1998, from $80.5 million at December 31,
1997. This decrease resulted from repayments and amortization during the three
months ended March 31, 1998.
The increase in total assets was funded by an increase in customer
deposits of $9.7 million, or 4.8%, to $211.9 million at March 31, 1998 from
$202.2 million at December 31, 1997. Part of the increase in customer deposits
was used to fund the repayment of $4.0 million in advances from the Federal Home
Loan Bank ("FHLB") of Atlanta which were outstanding at December 31, 1997.
Results of Operations
The Bancorp's principal sources of revenue are interest on loans, gains
on sales of loans, fees and service charges on loans, interest and dividends on
investment securities, and service charges on deposit accounts. Net income is
affected by interest on deposits and borrowings and operating expenses.
The following table presents, for periods indicated, average balances
of and weighted average yields on interest-earning assets and average balances
and weighted average effective interest paid on interest-bearing liabilities.
Calculations have been made utilizing month-end average balances for loans and
investment securities and daily average balances for borrowings and deposits.
Loan balances do not include non-accrual loans.
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
------- ---------- ------- -----------
($ in thousands)
<S> <C>
Interest-earning assets
Loans receivable $ 128,222 9.82 $ 109,912 9.54
Investment securities 91,549 6.45 77,312 6.49
---------- ---- --------- ----
Total interest-earning assets 219,771 8.42 187,224 8.28
---------- ---- --------- ----
Interest-bearing liabilities
Deposits 205,984 4.82 172,023 4.57
Borrowings 2,832 5.58 5,511 5.37
---------- ---- --------- ----
Total interest-bearing liabilities 208,816 4.83 177,534 4.59
---------- ---- --------- ----
Average dollar difference
between interest-earning assets
and interest-bearing liabilities 10,955 9,690
========== ========
Interest rate spread 3.59 3.69
==== ====
Interest margin 3.83 3.93
==== ====
</TABLE>
The following table presents information regarding changes in interest
income and interest expense for the periods indicated. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to changes in volume (changes in volume
multiplied by old rate) and changes in rate (changes in rate multiplied by old
volume). The dollar changes in interest income and interest expense attributable
to changes in rate/volume (change in rate multiplied by change in volume) have
been allocated between rate and volume variances based on the percentage
relationship of such variances to each other.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998
Compared to Three Months Ended
March 31, 1997
Volume Rate Total
---------- ------- ------
($ in thousands)
<S> <C>
Interest income
Loans receivable $ 442 $ 78 $ 520
Investment securities 228 (8) 220
---------- ------- ------
Total interest income 670 70 740
---------- ------- ------
Interest expense
Deposits 398 108 506
Borrowings (37) 3 (34)
---------- ------- ------
Total interest expense 361 111 472
---------- ------- ------
Net interest income 309 (41) 268
========== ======= ======
</TABLE>
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Bancorp's net income was $630 thousand for the three months ended March
31, 1998, compared to $503 thousand for the three months ended March 31, 1997,
an increase of $127 thousand, or 25.3%. Diluted earnings per share were $0.37
and $0.31 for the three months ended March 31, 1998 and 1997, respectively. The
weighted average number of diluted shares of common stock outstanding were
1,709,010 and 1,627,704 for the same periods in 1998 and 1997, respectively.
Net interest income before provision for loan losses for the three
months ended March 31, 1998 was $2.1 million, an increase of $269 thousand, or
14.8%, from $1.8 million for the three months ended March 31, 1997. The increase
resulted primarily from growth in average interest-earning assets, which was
partially offset by a decrease in interest margin. Total interest-earning assets
in the three months ended March 31, 1998 averaged $219.8 million as compared to
$187.2 million for the same period in 1997. For the three months ended March 31,
1998, the interest rate spread was 3.59%, a decrease of 10 basis points from
3.69% for the three months ended March 31, 1997. The yield on interest-earning
assets increased by 14 basis points from 8.28% for the three months ended March
31, 1997 to 8.42% for the three months ended March 31, 1998. The cost of
interest-bearing liabilities increased by 24 basis points to 4.83% for the three
months ended March 31, 1998 from 4.59% for the three months ended March 31,
1997.
Total interest income increased by $740 thousand, or 19.4%, to $4.6
million for the three months ended March 31, 1998 from $3.8 million for the
three months ended March 31, 1997. This increase was primarily due to an
increase of $18.3 million in average loans receivable to $128.2 million for the
three months ended March 31, 1998 from $109.9 million for the three months ended
March 31, 1997, as well as an increase in the average yield on loans from 9.54%
to 9.82% for the same periods. Average investment securities increased by $14.2
million from $77.3 million in the three months ended March 31, 1997 to $91.5
million in the three months ended March 31, 1998. The yield on average
investment securities for the three months ended March 31, 1998 was 6.45%, a
decrease of 4 basis points from 6.49% for the three months ended March 31, 1997.
Total interest expense increased by $472 thousand, or 23.4%, to $2.5
million for the three months ended March 31, 1998 from $2 million for the three
months ended March 31, 1997. Customer deposits averaged $206 million for the
three months ended March 31, 1998, up $34 million from $172 million for the
three months ended March 31, 1997. The average effective rate paid on deposits
increased by 25 basis points to 4.82% in the 1998 period from 4.57% in the 1997
period. Average borrowings were $2.8 million for the three months ended March
31, 1998, a decrease of $2.7 million from $5.5 million for the three months
ended March 31, 1997. The average effective rate paid on borrowings increased to
5.58% for the three months ended March 31, 1998 from 5.37% for the same period
in 1997.
The provision for loan losses for the three months ended March 31, 1998
was $225 thousand, as compared to $130 thousand for the three months ended March
31, 1997. The provision for loan losses is a current charge to earnings to
increase the allowance for loan losses. The Bancorp has established the
allowance for loan losses to absorb the inherent risk in lending after
considering an evaluation of the loan portfolio, current economic conditions,
changes in the nature and volume of lending and past loan experience. Recently,
the Bancorp's volume of non-residential mortgage loans and business loans has
increased, and these loans tend to carry a higher risk classification. The
increase in the provision for loan losses reflects the growth in the portfolio
of non-residential mortgage loans and business loans. It is the opinion of the
Bancorp that the allowance for loan losses at March 31, 1998 remains adequate.
Although the Bancorp believes that the allowance is adequate, there can be no
assurances that additions to such allowance will not be necessary in future
periods, which would adversely affect the Bancorp's results of operations. The
allowance for loan losses at March 31, 1998 was $2.2 million, or 1.6% of total
loans receivable, versus $2 million at December 31, 1997, which was also 1.6% of
total loans receivable.
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Other income for the three months ended March 31, 1998 was $489
thousand as compared to $402 thousand for the three months ended March 31, 1997,
an increase of $87 thousand, or 21.6%. Gain on sale of loans increased by $82
thousand from $56 thousand during the three months ended March 31, 1997, to $138
thousand for the quarter ended March 31, 1998. This increase was primarily the
result of a $2 million increase in sales volume. Fee income increased $37
thousand to $344 thousand for the three months ended March 31, 1998, from $307
thousand for the same period last year. Most of the growth in fee income
resulted from increases in service charges related to deposit accounts,
particularly ATM fees. Other income decreased from $39 thousand during the
quarter ended March 31, 1997, to $8 thousand for the three months ended March
31, 1998, because the 1997 period included a one-time payment from the Bancorp's
health insurance provider related to their public issuance of stock.
Other expense increased by $65 thousand, or 4.8%, to $1.4 million for
the three months ended March 31, 1998 from $1.3 million for the three months
ended March 31, 1997. Employee compensation and benefits increased by $41
thousand, or 6.6%, reflecting normal wage increases for existing personnel and
the cost of increased staffing levels to accommodate growth in the Bancorp's
customer base. Expenses for premises and equipment decreased by $10 thousand, or
4%, primarily because of moving the Fairfax branch to a location owned by the
Bancorp and eliminating the rent expense.
Regulatory Capital Requirements
At March 31, 1998 the Bancorp exceeded all regulatory capital
standards, which were as follows:
<TABLE>
<CAPTION>
Actual Capital Required Capital Excess Captial
Amount Ratio Amount Ratio Amount Ratio
------------------- --------------------- -------------------
<S> <C>
(Dollars in thousands)
Leverage capital $ 18,857 8.05% $ 9,371 4.00% $ 9,486 4.05%
Tier 1 capital 18,857 14.42% 5,230 4.00% 13,627 10.42%
Tier 1 and Tier 2 capital 20,664 15.80% 10,461 8.00% 10,203 7.80%
</TABLE>
Liquidity
The Bancorp's primary sources of funds are deposits, loan repayments,
proceeds from the sale of loans and investment securities, repayments and
maturities of investment securities, and borrowings from the Federal Home Loan
Bank of Atlanta. At March 31, 1998, the Bancorp had $8.1 million of unfunded
lines of credit and undisbursed construction loan funds of $8.5 million.
Approved loan commitments were $5.9 million at March 31, 1998, and the Bancorp
had commitments from investors to purchase loans in the amount of $ 1.6 million.
It is anticipated that funding requirements for these commitments can be met
from the normal sources of funds.
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-looking Information
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
Quarterly Report and the documents incorporated herein by reference constitute
"forward-looking statements" within the meaning of the United States Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Bancorp, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions in the Bancorp's market area, inflation, fluctuations in interest
rates, changes in government regulations and competition, which will, among
other things, impact demand for loans and banking services; the ability of the
Bancorp to implement its business strategy; and changes in, or the failure to
comply with, government regulations.
Forward-looking statements are intended to apply only at the time they
are made. Moreover, whether or not stated in connection with a forward-looking
statement, the Bancorp undertakes no obligation to correct or update a
forward-looking statement should the Bancorp later become aware that it is not
likely to be achieved. If the Bancorp were to update or correct a
forward-looking statement, investors and others should not conclude that the
Bancorp will make additional updates or corrections thereafter.
<PAGE>
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
The Annual Meeting of Shareholders was held on April 23,
1998 at 2:00 p.m. at the Fauquier Springs Country Club,
Springs Road, Warrenton, Virginia. The following is a
summary of items voted upon at the meeting:
1. The following Directors were elected to serve
three year terms expiring in the year 2001:
Georgia S. Derrico
John L. Marcellus, Jr.
2. The appointment of KPMG Peat Marwick LLP as
independent auditors for the year ending December
31, 1998 was approved by the following vote: For
1,494,997; Against 0; Abstain 167.
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 March 31, 1998.
<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 5/14/98 By: /s/Georgia S. Derrico
-------------------------------------
Georgia S. Derrico
Chairman and
Chief Executive Officer
(Duly Authorized Representative)
Date 5/14/98 By: /s/William H. Lagos
-------------------------------------
William H. Lagos
Senior Vice President and Controller
Principal Accounting Officer
(Duly Authorized Representative)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 4,491,768
<INT-BEARING-DEPOSITS> 1,281,792
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,746,533
<INVESTMENTS-CARRYING> 73,939,989
<INVESTMENTS-MARKET> 73,997,301
<LOANS> 130,977,801
<ALLOWANCE> 2,150,833
<TOTAL-ASSETS> 233,220,482
<DEPOSITS> 211,851,711
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,330,707
<LONG-TERM> 0
0
156
<COMMON> 16,227
<OTHER-SE> 19,477,417
<TOTAL-LIABILITIES-AND-EQUITY> 233,220,482
<INTEREST-LOAN> 3,106,302
<INTEREST-INVEST> 1,456,620
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,562,922
<INTEREST-DEPOSIT> 2,445,688
<INTEREST-EXPENSE> 2,485,255
<INTEREST-INCOME-NET> 2,077,667
<LOAN-LOSSES> 225,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,410,821
<INCOME-PRETAX> 931,337
<INCOME-PRE-EXTRAORDINARY> 629,837
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 629,837
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 8.42
<LOANS-NON> 1,491,770
<LOANS-PAST> 2,629,999
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,312,596
<ALLOWANCE-OPEN> 2,036,532
<CHARGE-OFFS> 111,045
<RECOVERIES> 346
<ALLOWANCE-CLOSE> 2,150,833
<ALLOWANCE-DOMESTIC> 2,150,833
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 188,000
</TABLE>
