<PAGE>
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, 2000 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 October 15, 2000, there were 3,044,710 shares of the registrant's Common
Stock outstanding.
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
QUARTERLY REPORT ON FORM 10-Q
September 30, 2000
TABLE OF CONTENTS
-----------------
Page
Number
------
PART I. FINANCIAL INFORMATION
------- ---------------------
Item 1. Financial Statements
Consolidated Balance Sheets
as of September 30, 2000 (Unaudited) and
December 31, 1999 3
Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited) 4
Consolidated Statements of Comprehensive Income
for the Three and Nine Months Ended September 30, 2000 and
1999 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999
(Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
-------- -----------------
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
PART III. SIGNATURES 15
--------- ----------
2
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
2000 December 31,
(Unaudited) 1999
-------------------- --------------------
<S> <C>
Assets
Cash and due from banks $ 18,668,601 $ 12,667,620
Overnight earning deposits 2,053,656 4,464,338
Investment securities - available for sale 146,505,851 97,721,012
Investment securities - held to maturity 50,361,307 37,110,889
Loans held for sale - 442,000
Loans receivable, net 298,219,139 234,086,432
Premises and equipment, net. 6,615,638 6,445,589
Other assets 18,684,308 13,283,684
-------------------- --------------------
Total assets $ 541,108,500 $ 406,221,564
==================== ====================
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 454,570,062 $ 367,187,558
Advances from Federal Home Loan Bank - short term 16,000,000 -
Advances from Federal Home Loan Bank - long term 15,000,000 5,000,000
Capital Trust borrowings 13,000,000 -
Other liabilities 5,200,148 5,169,909
-------------------- --------------------
Total liabilities 503,770,210 377,357,467
-------------------- --------------------
Commitments
Stockholders' equity:
Preferred stock 136 136
Common stock 30,559 26,562
Capital in excess of par value 29,279,251 23,662,935
Retained earnings 9,668,406 6,898,249
Accumulated other comprehensive loss (1,640,062) (1,723,785)
-------------------- --------------------
Total stockholders' equity 37,338,290 28,864,097
-------------------- --------------------
Total liabilities and stockholders' equity $ 541,108,500 $ 406,221,564
==================== ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C>
Interest income:
Loans $ 6,401,228 $ 5,036,847 $ 17,933,316 $ 14,663,310
Investment securities 3,054,114 2,484,710 8,129,600 7,323,872
----------- ----------- ------------ ------------
Total interest income 9,455,342 7,521,557 26,062,916 21,987,182
----------- ----------- ------------ ------------
Interest expense:
Deposits 4,503,384 3,380,317 11,845,413 10,265,981
Borrowings 509,827 216,966 1,175,473 424,291
----------- ----------- ------------ ------------
Total interest expense 5,013,211 3,597,283 13,020,886 10,690,272
----------- ----------- ------------ ------------
Net interest income 4,442,131 3,924,274 13,042,030 11,296,910
Provision for loan losses 300,000 1,048,624 975,000 1,829,660
----------- ----------- ------------ ------------
Net interest income after provision for loan losses 4,142,131 2,875,650 12,067,030 9,467,250
----------- ----------- ------------ ------------
Other income:
Gain on sale of loans 361,583 367,137 966,176 1,053,653
Fee income 756,750 535,242 2,039,351 1,709,261
Other 37,830 37,496 128,242 213,446
----------- ----------- ------------ ------------
Total other income 1,156,163 939,875 3,133,769 2,976,360
----------- ----------- ------------ ------------
Other expense:
Employee compensation and benefits 1,767,370 1,589,961 5,117,262 4,701,318
Premises and equipment 643,409 640,735 1,881,839 1,807,245
Data processing expense 293,705 259,458 840,526 714,021
Deposit insurance assessments 20,335 37,536 56,695 111,024
Advertising 41,426 50,714 151,060 191,469
Restructuring and merger expenses - 1,631,244 - 1,631,244
Other 619,791 542,605 1,588,070 1,571,111
----------- ----------- ------------ ------------
Total other expense 3,386,036 4,752,253 9,635,452 10,727,432
----------- ----------- ------------ ------------
Income (loss) before income taxes 1,912,258 (936,728) 5,565,347 1,716,178
Provision (benefit) for income taxes 624,600 (346,275) 1,829,200 430,600
----------- ----------- ------------ ------------
Net income (loss) $ 1,287,658 $ (590,453) $ 3,736,147 $ 1,285,578
=========== =========== ============ ============
Earnings (loss) per common share:
Basic $ 0.46 $ (0.22) $ 1.38 $ 0.49
Diluted 0.45 (0.22) 1.36 0.48
Dividends declared per common share 0.12 0.12 0.36 0.36
Weighted average shares outstanding:
Basic 2,784,913 2,652,163 2,703,467 2,644,374
Diluted 2,833,403 2,726,499 2,756,126 2,726,047
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C>
Net income (loss) $ 1,287,658 $ (590,453) $ 3,736,147 $ 1,285,578
Other comprehensive income (loss):
Cash flow hedge:
Unrealized holding gain (loss) (242,798) 147,176 (73,493) 848,321
Reclassification adjustment for net interest
expense included in net income (119,148) 5,824 (226,308) 32,979
Available-for-sale securities:
Unrealized holding gain (loss) 594,074 (2,085,178) 455,865 (3,155,149)
Reclassification adjustment for gains
included in net income (29,210) - (29,210) (88,117)
------------ ------------- ------------ -----------
Other comprehensive income (loss) before tax 202,918 (1,932,178) 126,854 (2,361,966)
Income tax expense related to items of other
comprehensive income (loss) 68,993 (656,940) 43,131 (803,067)
------------ ------------- ------------ -----------
Other comprehensive income (loss), net of tax 133,925 (1,275,238) 83,723 (1,558,899)
Comprehensive income (loss) $ 1,421,583 $ (1,865,691) $ 3,819,870 $ (273,321)
=========== ============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
2000 1999
------------- -------------
<S> <C>
Cash flows from operating activities:
Net Income $ 3,736,147 $ 1,285,578
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 747,780 885,894
Provision for loan losses 975,000 1,829,660
Gain on sale of loans (966,176) (1,053,653)
Gain on sale of securities (29,210) (88,117)
Amortization of deferred loan fees (383,995) (420,792)
Net change in loans held for sale 578,131 321,029
Increase in other assets (1,587,080) (1,160,789)
Increase (decrease) in other liabilities (86,908) 809,737
------------- -------------
Net cash provided by operating activities 2,983,689 2,408,547
------------- -------------
Cash flows from investing activities:
Increase in loans receivable (16,629,545) (20,055,584)
Purchase of investment securities, held-to-maturity (7,776,346) (1,253,846)
Purchase of investment securities, available-for-sale (59,717,283) (41,760,859)
Sale of investment securities available-for-sale 3,000,000 5,404,657
Paydowns of investment securities 14,119,823 45,850,189
Cash acquired from merger 2,827,432 -
(Increase) decrease in overnight earning deposits, net 10,662,646 (327,106)
Increase in premises and equipment, net (440,674) (898,282)
Increase in Federal Home Loan Bank stock (33,500) (417,500)
------------- -------------
Net cash used in investing activities (53,987,447) (13,458,331)
------------- -------------
Cash flows from financing activities:
Net increase (decrease) in deposits 31,283,757 (11,791,035)
Increase in advances from FHLB 14,139,249 23,500,000
Proceeds from Capital Trust Borrowings 13,000,000 -
Proceeds from issuance of common stock 54,377 176,838
Repurchase of common stock (506,654) -
Dividends on preferred and common stock (965,990) (562,893)
------------- -------------
Net cash provided by financing activities 57,004,739 11,322,910
------------- -------------
Net increase in cash and due from banks 6,000,981 273,126
Cash and due from banks, beginning of period 12,667,620 10,820,765
------------- -------------
Cash and due from banks, end of period $ 18,668,601 $ 11,093,891
============= =============
SUPPLEMENTAL DATA
Southern Financial purchased all the capital stock of First Savings Bank of Virginia. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 73,875,848
Capital stock issued 5,816,566
------------
Liabilities assumed $ 68,059,282
============
</TABLE>
The accompanying notes are an integral part of these statements
6
<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 nine-month period ended September 30, 2000 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 ("Southern Financial") Annual Report for the year ended December 31,
1999.
NOTE 2 - HEDGE ACCOUNTING
During the quarter ended September 30, 2000, Southern Financial entered
into interest rate swap agreements totaling $30 million in connection with
issuance of like amounts of its certificates of deposit. The interest rate swap
agreements are accounted for as fair value hedges. Changes in the fair value
of the hedges are accounted for in the income statement, as are changes in the
fair value of the certificates of deposit. The swaps are presented in the
following table:
<TABLE>
<CAPTION>
Notional Amount Start Date Maturity Date Rate Effective Rate Callable Date
--------------- ---------- ------------- ---- -------------- -------------
<S> <C>
$10,000,000 7/12/00 7/12/10 8.00% 3 Month LIBOR 7/12/01
$10,000,000 7/26/00 7/25/05 7.25% 3 Month LIBOR less 5 basis points 7/26/01
$10,000,000 9/20/00 9/21/15 7.75% 3 Month LIBOR less 10 basis points 9/21/01
</TABLE>
7
<PAGE>
NOTE 3 - LOANS RECEIVABLE
Loans receivable consist of the following:
September 30, December 31,
2000 1999
------------- ------------
Mortgage:
Residential $ 55,026,474 $ 48,604,205
Nonresidential 130,395,082 109,871,210
Construction:
Residential 16,940,171 7,852,907
Nonresidential 9,807,136 8,270,290
Non-Mortgage:
Business 81,239,037 54,175,076
Consumer 11,208,666 9,994,326
------------ ------------
Total loans receivable 304,616,566 238,768,014
Less:
Deferred loan fees, net 1,622,544 1,229,451
Allowance for loan losses 4,774,883 3,452,131
------------ ------------
Loans receivable, net $298,219,139 $234,086,432
============ ============
The following sets forth information regarding the allowance for loan losses:
Nine Months Nine Months
Ended Ended
9/30/00 9/30/99
----------------- -----------------
Allowance at beginning of period $ 3,452,131 $ 3,061,631
Acquired from First Savings 594,233 -
Provision for losses charged to income 975,000 1,829,660
Charge-offs (527,222) (1,969,391)
Recoveries 280,741 210,469
----------------- -----------------
Allowance at end of period $ 4,774,883 $ 3,132,369
================= =================
8
<PAGE>
NOTE 4 - EARNINGS PER SHARE
The following table shows the weighted average number of shares used in
computing earnings per share and the effect on weighted average number of shares
of dilutive common stock equivalents.
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 2000 September 1999 September 2000 September 1999
---------------------- ------------------- -------------------- ------------------
Per Per Per Per
Share Share Share Share
Shares Amount Shares Amount Shares Amount Shares Amount
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C>
Basic EPS 2,784,913 $0.46 2,652,163 $ (0.22) 2,703,467 $1.38 2,644,374 $0.49
===== ======== ===== =====
Effect of dilutive
Securities:
Stock Options 26,515 52,361 30,684 59,698
Convertible Preferred Stock 21,975 21,975 21,975 21,975
--------- --------- --------- ---------
Diluted EPS 2,833,403 $0.45 2,726,499 $ (0.22) 2,756,126 $1.36 2,726,047 $0.48
========= ===== ========= ======== ========= ===== ========= =====
</TABLE>
NOTE 5 - BUSINESS COMBINATION
On September 1, 2000, Southern Financial merged with First Savings Bank
of Virginia. The merger was accounted for under the purchase method. Under the
terms of the merger agreement, First Savings Bank shareholders received .44 or
409,906 shares of Southern Financial common stock. The following table presents
pro forma results of operations for the nine months ended September 30, 1999 and
September 30, 2000 as though Southern Financial and First Savings Bank of
Virginia had combined at the beginning of the period:
Nine Months Ending
September 30,
2000 1999
-----------------------------------
Total revenue $ 33,552,434 $ 29,366,542
Net income 1,636,224 1,550,578
Earnings per share:
Basic $ 0.53 $ 0.51
Diluted 0.52 0.49
NOTE 6 - OTHER SIGNIFICANT MATTERS
On September 7, 2000, Southern Financial issued $8 million of 10.60%
Trust Preferred Securities as part of the Preferred Term Securities, LTD. Pooled
underwriting totaling approximately $300 million. The Trust Preferred
Securities have a fixed rate and mature in 30 years and are classified as long-
term subordinated debt securities, which qualify as capital for regulatory
banking purposes with certain limitations. Approximately $6.5 million of the
proceeds will qualify at this time for Tier I regulatory capital.
9
<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. ("Southern Financial") at
September 30, 2000 were $541.1 million, an increase of 33.2 % compared with
December 31, 1999. The growth in total assets was primarily due to the
September 1, 2000 merger with First Savings Bank of Virginia (First Savings),
which increased total assets by $73.9 million, including $2.9 million of
goodwill acquired through its merger. In addition, on September 7, 2000,
Southern Financial closed on a pooled trust preferred transaction, generating
net proceeds of $7.8 million.
Total loans receivable increased 27.4% from $234.1 million at December 31,
1999, with $47.0 million in loans acquired from its merger with First Savings.
Most of the increase was in commercial loans, as Southern Financial continues to
build its small to medium-size commercial customer base. Non-mortgage business
loans, included in commercial loans, included loans purchased totaling $18.5
million during 2000. The growth in residential mortgage and construction loans
is predominantly due to the merger.
Investment securities available-for-sale and held-to-maturity increased
49.9 % and 35.7%, respectively, during the same period. In addition to the
$11.3 million of investment securities acquired from First Savings, Southern
Financial purchased investment securities totaling $67.5 million, with $59.7
comprised of available-for-sale securities. The investment securities purchased
consisted of adjustable and fixed rate mortgage backed securities,
collateralized mortgage obligations and corporate bonds.
The growth in earning assets, as discussed above, was funded by deposits
and borrowings, including capital trust borrowings. The advances from the FHLB
included $15 million fixed rate 10-year borrowings with callable terms ranging
from two to five years. The capital trust borrowings have 30-year terms and
qualify as capital for bank regulatory purposes, with certain limitations. The
capital trust proceeds provided Southern Financial with a vehicle to grow its
assets and still maintain regulatory capital standards.
Results of Operations
---------------------
Southern Financial's principal sources of revenue are interest on loans,
gains on sales of loans, fees and service charges on loans, interest and
dividends on investment securities, and service charges on deposit accounts.
Net income is affected by interest on deposits and borrowings and operating
expenses.
The following table presents, for periods indicated, average balances of and
weighted average yields on interest-earning assets and average balances of and
weighted average effective rates paid on interest-bearing liabilities.
Calculations have been made utilizing month-end average balances for loans and
investment securities and daily average balances for borrowings and deposits,
and the effect of the interest rate swaps is reflected in the average rate on
deposits. Loan balances do not include non-accrual loans.
10
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
---------------------------- ------------------------------------
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
---------------------------- ------------------------------------
($ in thousands)
<S> <C>
Interest-earning assets
Loans receivable $ 250,576 9.53% $ 214,337 9.13%
Investment securities 155,313 6.98 165,312 5.90
--------- -------- --------- -------
Total interest-earning assets 405,889 8.56 379,649 7.73
--------- -------- --------- -------
Interest-bearing liabilities
Deposits 371,971 4.24 355,071 3.87
Borrowings 21,771 7.10 10,435 5.35
--------- -------- --------- -------
Total interest-bearing liabilities 393,742 4.48 365,506 3.95
--------- -------- --------- -------
Average dollar difference
between interest-earning assets
and interest-bearing liabilities 12,147 14,143
========= =========
Interest rate spread 4.08 3.78
======== ======
Interest margin 4.28 3.97
======== ======
</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. The effect of the
interest rate swaps is reflected in interest expense on deposits.
Nine Months Ended
September 30, 2000
Compared to Nine Months Ended
September 30, 1999
------------------------------------
Volume Rate Total
------ --------- ------
($ in thousands)
Interest income
Loans receivable $ 2,589 $ 681 $ 3,270
Investment securities (467) 1,273 806
-------- ----- -------
Total interest income 2,122 1,954 4,076
-------- ----- -------
Interest expense
Deposits 525 1,054 1,579
Borrowings 577 174 751
-------- ----- -------
Total interest expense 1,102 1,228 2,330
-------- ----- -------
Net interest income 1,020 726 1,746
======== ===== =======
11
<PAGE>
Southern Financial's net income was $1.3 million for the three months ended
September 30, 2000, and $3.7 million for the nine months ended September 30,
2000. For the quarter and nine months ended September 30, 1999, respectively,
Southern Financial reported a net loss of $591 thousand and net income of $1.3
million. The results of operations for the quarter and nine months ended
September 30, 1999, included $1.6 million of non-recurring expenses related to
the merger with the Horizon Bank of Virginia as well as a special loan loss
provision of $756 thousand made by Horizon.
Net interest income before provision for loan losses for the three months
ended September 30, 2000 was $4.4 million, an increase of $518 thousand or
13.2%, from $3.9 million for the three months ended September 30, 1999. Net
interest income before provision for loan losses for the nine months ended
September 30, 2000, increased to $13.0 million from $11.3 million for the same
period in 1999. The increase in net interest income is attributable to growth
in earning assets and improvement in the interest rate spread. Although the
average balances of interest-earning assets have not increased as much as the
average balances of interest-bearing liabilities during the quarter and nine
months ended September 30, 2000, the yield on loans and investment securities
has increased more than the cost of the deposits and borrowings has increased.
The provision for loan losses for the nine months ended September 30, 2000
was $975 thousand, as compared to $1.8 million for the nine months ended
September 30, 1999, which included a special loan loss provision of $756
thousand made by Horizon during the third quarter of 1999. The provision for
loan losses is a current charge to earnings to increase the allowance for loan
losses. Southern Financial 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, past loan experience and other relevant factors. It is the opinion of
Southern Financial that the allowance for loan losses at September 30, 2000
remains adequate. Although Southern Financial 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 results of
operations. The allowance for loan losses at September 30, 2000 was $4.8
million, or 1.58% of total loans receivable less deferred fees, versus $3.5
million at December 31, 1999, which was 1.45% of total loans receivable less
deferred fees.
Other income for the nine months ended September 30, 2000 was $3.1 million,
an increase from $3.0 for the nine months ended September 30, 1999. The
increase was primarily due to increased fee income on deposits, electronic
banking services and fee income from Southern WebTech.com, Inc.
Other expense for the nine months ended September 30, 2000 was $9.6 million,
an increase of 5.9% when compared to other expense for the same period last year
before merger-related expenses. Employee compensation and benefits increased by
$416 thousand, or 8.9%, reflecting normal wage increases for existing personnel
and some additional staffing.
Regulatory Capital Requirements
-------------------------------
At September 30, 2000 Southern Financial exceeded all regulatory capital
standards.
Liquidity
---------
Southern Financial'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 under a credit availability equal to 20% of
total assets, or approximately $108 million. At September 30, 2000, Southern
Financial had $28.9 million of unfunded lines of credit and undisbursed
construction loan funds of $20.3 million. Approved loan commitments were $25.1
million at September 30, 2000, and Southern Financial had commitments from
investors to purchase loans in the amount of $750 thousand. It is anticipated
that funding requirements for these commitments can be met from the normal
sources of funds.
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 Southern Financial, 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 Southern Financial's market area, inflation,
fluctuations in interest rates, changes in government regulations and
12
<PAGE>
competition, which will, among other things, impact demand for loans and banking
services; the ability of Southern Financial 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, Southern Financial undertakes no obligation to correct or update a
forward-looking statement should Southern Financial later become aware that it
is not likely to be achieved. If Southern Financial were to update or correct a
forward-looking statement, investors and others should not conclude that
Southern Financial will make additional updates or corrections thereafter.
Item 3 - Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in market risk exposures that affect the
quantitative or qualitative disclosures presented as of June 30, 2000 in the
Southern Financial form 10-Q.
13
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
-----------------
On August 29, 2000, a Fauquier County jury returned an unfavorable
verdict against Southern Financial Bank in a lender liability suit
filed by a former customer of the Bank. The jury's verdict
recommended that the plaintiff be awarded compensatory damages of
$2,053,919 as well as punitive damages totaling $3,000,000. The bank
has been advised by its attorneys handling the case that under
Virginia law the jury's punitive damage award exceeds the $350,000
maximum amount permitted, and that, in their opinion, the jury's
compensatory damage award is not in accord with the law or the
evidence presented at trial. No order has yet been entered by the
court as Southern Financial Bank is seeking to set that verdict aside
through post-trial motions. To date, Southern Financial has filed
post-trial motions to set aside or reduce that verdict. The Court has
scheduled oral arguments on October 31, 2000. The court is not
expected to issue an order until oral arguments have been heard. The
plaintiff's response brief, Southern Financial's rebuttal brief, and
the hearing for argument on the post-trial motions must be completed
by that time. No estimate of the amount of any potential loss or
range of loss can be made until then.
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
Financial Data Schedule
Reports on Form 8-K
Southern Financial filed a report on Form 8-K on September 18, 2000,
which announced the consummation of the merger of First Savings Bank
of Virginia with Southern Financial Bank.
14
<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 10/25/00 By: /s/ Georgia S. Derrico
----------------- -----------------------------------
Georgia S. Derrico
Chairman and
Chief Executive Officer
(Duly Authorized Representative)
Date 10/25/00 By: /s/ William H. Lagos
------------------ ------------------------------------
William H. Lagos
Senior Vice President and Controller
Principal Accounting Officer
(Duly Authorized Representative)
15
