PROVIDENT BANKSHARES
C O R P O R A T I O N
Acquisition of:
Expanding in High Growth Markets
November 3, 2003
Southern Financial Bank
Filed by Provident Bankshares Corporation
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Southern Financial Bancorp, Inc.
Commission File No. 0-22836
The following is a conference call presentation, hosted on November 3, 2003, in connection with Provident Bankshares Corporation’s proposed merger with Southern Financial Bancorp, Inc., a Virginia corporation:
Provident Bankshares Corporation and Southern Financial Bancorp, Inc. will be filing a joint proxy statement/prospectus and other relevant documents concerning the merger with the United States Securities and
Exchange Commission (the "SEC").
WE URGE INVESTORS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SEC, BECAUSE THEY CONTAIN IMPORTANT
INFORMATION.
Investors will be able to obtain these documents free of charge at the SEC's web site (www.sec.gov). In addition, documents filed with the SEC by Provident Bankshares Corporation will be available free of charge
from the Investor Relations Department at Provident Bankshares Corporation, 114 East Lexington Street, Baltimore, Maryland 21202. Documents filed with the SEC by Southern Financial Bancorp, Inc. will be
available free of charge from the Investor Relations Department at Southern Financial Bancorp, Inc., 37 East Main Street, Warrenton, Virginia 20186.
The directors, executive officers, and certain other members of management of Provident Bankshares Corporation and Southern Financial Bancorp, Inc. may be soliciting proxies in favor of the merger from the
companies' respective shareholders. For information about these directors, executive officers, and members of management, shareholders are asked to refer to the most recent proxy statements issued by the
respective companies, which are available on their web sites and at the addresses provided in the preceding paragraph.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK FACTORS
This release, and the associated conference call, web cast, other written materials, and statements management may make, may contain certain forward-looking statements regarding the
Company's prospective performance and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995, and is including this statement for purposes of said safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by use of the words
"plan," "believe," "expect," "intend," "anticipate," "estimate," "project," or other similar expressions. The Company's ability to predict results or the actual effects of its plans and strategies
is inherently uncertain. Accordingly, actual results may differ materially from anticipated results.
The following factors, among others, could cause the actual results of the merger to differ materially from the expectations stated in this release and the associated conference call and web
cast: the ability of the companies to obtain the required shareholder or regulatory approvals of the merger; the ability of the companies to consummate the merger; the ability of Southern
Financial to timely complete its acquisition of Essex Bancorp, Inc.; the ability to successfully integrate the companies following the merger; a materially adverse change in the financial
condition of either company; the ability to fully realize the expected cost savings and revenues; and the ability to realize the expected cost savings and revenues on a timely basis.
Other factors that could cause the actual results of the merger to differ materially from current expectations include a change in economic conditions; changes in interest rates, deposit
flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation and regulation; and other economic, competitive,
governmental, regulatory, geopolitical, and technological factors affecting the companies' operations, pricing, and services.
The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.
###
TRANSACTION HIGHLIGHTS
Transaction continues Provident’s expansion of
market share in the affluent, high growth markets of
Northern Virginia
Extends presence into attractive markets of
Charlottesville and Richmond
Combines retail strength of Provident with business
banking expertise of Southern Financial
Accretive to GAAP and Cash EPS in the first full year of combined operations
Identified, achievable cost savings
TABLE OF CONTENTS
Transaction Summary
Strategic Benefits
Overview of Southern Financial Bancorp
Pro Forma Financial Impact
TRANSACTION SUMMARY
SUMMARY OF SIGNIFICANT TERMS
(1) Based upon 7,416,329 diluted shares outstanding via the treasury stock method of accounting for options.
(2) Based on PBKS average share closing price during the month of October of $30.68
Value per Southern Financial Bancorp Share:
$44.50
Transaction Value:(1)
$330 million
Structure:
75% stock / 25% cash
Consideration:(2)
1.0875 shares of Provident common stock and $11.125
Estimated Cost Savings:
$ 7 million pre-tax (24.6% of pro forma non-interest expense)
Due Diligence:
Completed
Board Representation:
Georgia S. Derrico
R. Roderick Porter
Required Approvals:
Provident Shareholders
Southern Financial Shareholders
Customary Regulatory Approvals
Expected Closing:
Second Quarter of 2004
SUMMARY OF SIGNIFICANT TERMS
TRANSACTION PRICING AND
COMPARABLES
Source: SNL Financial, Company Filings, Press Releases & KBW
Comparable Transactions include bank transactions greater than $50 million since 1/1/2002
(1) Includes selling companies headquartered in MD, NC, NJ, PA, SC or VA
(2) Southern Financial Bancorp, Inc. is pro forma for the pending acquisition of Essex Bancorp
Mid-Atlantic Comparable Transactions
(1)
PBKS/ SFFB
(2)
High
Median
Low
Premium to Market:
19.4%
68.5%
37.3%
11.0%
Price / LTM Reported EPS:
22.9x
40.7x
20.4x
17.1x
Price / Estimated EPS:
19.0x
19.3x
19.0x
16.7x
Price / Book Value:
2.72x
3.80x
2.88x
1.92x
Price / Tangible Book Value:
3.40x
3.91x
3.04x
2.18x
STRATEGIC BENEFITS
PROVIDENT KEY STRATEGIES
Grow commercial banking market share in the Baltimore-Washington corridor
Build market share and expand branch network in the Washington suburbs
Grow core banking business
Improve financial fundamentals
STRATEGIC BENEFITS
Transaction continues Provident’s expansion of market share in the affluent, high growth
markets of Northern Virginia
Extends presence into attractive markets of Charlottesville and Richmond
Adds significant competitive advantage for business banking companies with a powerful
integrated suite of online banking services
Shared philosophy of customer-oriented, community focus and excellent credit quality
Unique opportunity to achieve cost savings
Traditional cost centers (non-customer interface/operational redundancies)
Allows Provident to scale back its de novo branch expansion
The total is greater then the sum-of-the-parts
Consumer strength of Provident plus the commercial strength of Southern Financial
VIRGINIA: ONE OF THE NATION’S BEST
BANKING MARKETS
Population:
7.4 million (12th largest state)
Projected Population Growth (‘03 – ‘08):
6.5% (14th highest growth rate in the nation)
Median Household Income:
$51,923 (13th highest in the nation and
10% above the national average)
Median Household Income Growth (’03 – ’08):
14.4% (11th highest growth rate in the nation)
Source: SNL Financial and Claritas
PRO FORMA FRANCHISE
Southern Financial’s branches are located in Virginia's best markets
County Demographics
Source: SNL Financial and Claritas
* Southern Financial Bancorp, Inc. is pro forma for the pending acquisition of Essex Bancorp
PBKS Branches
SFFB Branches*
4
-
8% Projected Growth
+8% Projected Growth
PBKS Branches
SFFB Branches*
4
-
8% Projected Growth
+8% Projected Growth
STRATEGIC BENEFITS
Strengthen positions in the highly affluent and fast growing markets of Loudoun, Prince William, and Fairfax
counties
Entries into the following counties: Fauquier, Henrico, Hanover, Emporia, Suffolk, Spotsylvania, Winchester,
Manassas, Frederick, Fredericksburg, Richmond City, Charlottesville, Norfolk, and Albemarle
79% of Southern Financial’s markets are projected to grow at a faster pace than the US average
Source: SNL Financial and Claritas
Deposit data as of 6/30/2002
Median
Pro Forma w/ SFFB
5 yr.
HH Income
5 yr.
Deposits
Population
Projected
2003
Projected
County
Branches
($000)
2003
Growth
($)
Growth
Fairfax (City), VA
3
64,385
21,879
3.2%
75,544
13.6%
Fairfax, VA
15
181,344
1,012,763
7.3%
90,409
12.6%
Fredericksburg, VA
2
7,405
19,956
4.8%
39,208
13.1%
Loudoun, VA
5
47,137
206,849
28.2%
92,979
17.5%
Prince William, VA
4
13,512
307,628
13.9%
72,211
11.9%
BALANCED LOAN PORTFOLIO
* Southern Financial Bancorp, Inc. is pro forma for the pending acquisition of Essex Bancorp
PRO FORMA DEPOSIT MIX
Note: Data as of 6/30/2003 and is not pro forma for the pending acquisition of Essex Bancorp, Inc.
OVERVIEW OF SOUTHERN FINANCIAL BANCORP
OVERVIEW OF SOUTHERN
FINANCIAL BANCORP
Largest Virginia bank operating in the Commonwealth’s most attractive markets
Middle market and small business focus
Leading SBA lender
Franchise Summary
(1) Southern Financial Bancorp, Inc. is pro forma for the pending
acquisition of Essex Bancorp
(2) 12/31/2000 to 9/30/2003, excluding acquisitions
I 76
($ in Thousands)
Headquarters:
Warrenton, VA
Assets:
(1)
$1,487,375
Loans:
(1)
871,696
Deposits:
(1)
1,100,245
Equity:
(1)
115,451
ROAE LTM:
1.21%
ROAA LTM:
14.61%
Net Interest Margin:
3.91%
Branches:
(1)
33
Loan CAGR
(2)
:
22.0%
OVERVIEW OF SOUTHERN
FINANCIAL BANCORP
Southern Financial’s existing platform of services for small businesses include:
SBA Lending
Small Business cash flow and operating tools such as:
ARTS (Accounts Receivable Tracking System)
WebLockBox – payment processing service
Receivables financing
Checking and Sweep Accounts
ACH Client – allows users to initiate transactions such as direct deposit, consumer debits
and credits, vendor payments and Federal and State tax payments
Services
Total Loans: $625M
Total Deposits: $852M
Balance Sheet Composition and Asset Quality
Note: Data as of 6/30/2003 and is not pro forma for the pending acquisition of Essex Bancorp, Inc.
OVERVIEW OF SOUTHERN
FINANCIAL BANCORP
Nonperforming Assets / (Loans + OREO)
0.48%
Reserves / Loans
1.73%
Reserves / Nonperforming Assets
360.44%
PRO FORMA FINANCIAL IMPACT
COST SAVINGS ASSUMPTIONS
($ in Thousands)
Corporate Expenses
Salaries and Benefits:
$4,000
Insurance, Taxes, Fees:
800
Operations:
900
Branch Level:
900
Other:
400
Total
$7,000
GAAP & CASH EPS IMPACT
(1) Based on First Call consensus estimates of $2.23 per share and grown at 8% for 2005
(2) Based on First Call consensus estimates of $2.34 per share and grown at 10% for 2005
(3) 2004 reflects only 6 months of earnings as a result of purchase accounting
(4) Based on pre-tax cost savings of $7 million and grown at 5% per year, includes elimination of SFFB's estimated CDI amortization
(5) Includes opportunity cost of cash of deal charge and financing cost related to the cash portion of the transaction
(6) Assumes 4.0% core deposit intangible, 10 year straight-line amortization
Projected for
2004
2005
Provident Earnings
(1)
$56.2
$60.7
Southern Financial Earnings
(2)
8.5
(3)
18.8
Anticipated After-tax cost savings
(4)
2.1
(3)
5.7
After-tax Financing Cost
(5)
(1.5)
(3)
(3.1)
After-tax Core Deposit Amortization Expense
(6)
(0.6)
(3)
(1.2)
Pro Forma Net Income
$64.8
$80.9
Pro Forma GAAP EPS
$2.21
$2.43
GAAP Impact to Provident ($)
($0.02)
$0.02
GAAP Impact to Provident (%)
(0.67)
%
1.02
%
Pro Forma Cash Net Income
$65.6
$82.3
Pro Forma Cash EPS
$2.24
$2.47
Cash Impact to Provident ($)
$0.00
$0.06
Cash Impact to Provident (%)
0.15
%
2.36
%
PRO FORMA FINANCIAL IMPACT
Capital Ratios
(1) Assumes no asset growth and a dividend payout ratio of 45%.
Pro Forma
(1)
09/30/2003
06/30/2004
12/31/2005
Tangible Equity / Tangible Assets
6.18%
5.19%
6.23%
Leverage Ratio
7.61
7.34
8.39
Tier 1 Ratio
11.99
11.17
12.76
Total Capital Ratio
13.11
12.29
13.89
TRANSACTION INTEGRATION
EXPERIENCE
Three prior acquisitions
At the time of acquisition, First Citizens Financial represented 25% of our assets; Southern Financial Bancorp
represents 29% of our assets today
Provident has more than sufficient systems capacity to accommodate Southern Financial’s customers
We anticipate the Southern Financial Bancorp acquisition and integration will be as successful as Citizens
Financial
(1) Southern Financial Bancorp, Inc. is pro forma for the pending acquisition of Essex Bancorp
Retail
Company
Employees
Accounts
First Citizens Financial
188
56,400
Southern Financial Bancorp
216
47,414
(1)
TRANSACTION STRENGTHS
Strategic Fit
Cultural Compatibility
Financial Opportunity
PROVIDENT BANKSHARES
CORPORATION
(www.provbank.com)
Contact:
PBKS:
Media: Lillian Kilroy: (410) 277-2833
Investment Community: Josie Porterfield: (410) 277-2889
SFFB:
Media & Investment Community: Patricia Ferrick (540)349-3900
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outhern
F
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