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, 2001 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 15, there were 3,014,710 shares of the registrant's Common Stock
outstanding.
SOUTHERN FINANCIAL BANCORP, INC.
QUARTERLY REPORT ON FORM 10-Q
March 31, 2001
TABLE OF CONTENTS
-----------------
Page
Number
------
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statement
Consolidated Balance Sheets
as of March 31, 2001 (Unaudited) and
December 31, 2000 3
Consolidated Statements of Income for the
Three Months Ended March 31, 2001 and 2000
(Unaudited) 4
Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 2001 and
2000 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2000
(Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
PART III. SIGNATURES 18
- ---------- ----------
2
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
March 31,
2001 December 31,
(Unaudited) 2000
-------------------- --------------------
Assets
Cash and due from banks $ 21,546,065 $ 22,036,524
Overnight earning deposits 7,772,875 2,479,728
Investment securities - available for sale 277,973,893 230,022,663
Loans held for sale 651,400 220,000
Loans receivable, net 325,369,588 313,770,584
Cash surrender value of life insurance 15,450,487 15,217,987
Bank premises & equipment, net 6,734,667 6,687,190
Other assets 20,676,962 19,501,410
-------------------- --------------------
Total assets $ 676,175,937 $ 609,936,086
==================== ====================
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 556,611,400 $ 515,111,665
Advances from Federal Home Loan Bank - short term 40,000,000 19,000,000
Advances from Federal Home Loan Bank - long term 15,000,000 15,000,000
Company-obligated mandatorily redeemable securities
of subsidiary holding solely parent debentures 13,000,000 13,000,000
Other liabilities 8,250,087 8,135,260
-------------------- --------------------
Total liabilities 632,861,487 570,246,925
-------------------- --------------------
Commitments
Stockholders' equity:
Preferred stock 136 136
Common stock 30,147 30,147
Capital in excess of par 28,713,010 28,713,010
Retained earnings 11,969,011 10,709,742
Accumulated other comprehensive income 2,602,146 236,126
-------------------- --------------------
Total stockholders' equity 43,314,450 39,689,161
-------------------- --------------------
Total liabilities and stockholders' equity $ 676,175,937 $ 609,936,086
==================== ====================
The accompanying notes are an integral part of these financial statements.
3
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
2001 2000
------------------ ------------------
Interest income:
Loans $ 7,552,532 $ 5,556,164
Investment securities 4,792,296 2,482,395
------------------ ------------------
Total interest income 12,344,828 8,038,559
------------------ ------------------
Interest expense:
Deposits 5,817,229 3,567,518
Borrowings 1,294,486 273,414
------------------ ------------------
Total interest expense 7,111,715 3,840,932
------------------ ------------------
Net interest income 5,233,113 4,197,627
Provision for loan losses 520,000 350,000
------------------ ------------------
Net interest income after provision for loan losses 4,713,113 3,847,627
------------------ ------------------
Other income:
Fee income 843,029 658,614
Gain on sale of loans 316,727 333,378
Gain on sale of investment securities, net 200,307 -
Other 232,600 31,228
------------------ ------------------
Total other income 1,592,663 1,023,220
------------------ ------------------
Other expense:
Employee compensation and benefits 2,014,684 1,658,386
Premises and equipment 708,236 615,549
Data processing expense 355,497 275,243
Advertising 59,074 60,886
Deposit insurance expense 21,834 17,664
Other 854,454 493,569
------------------ ------------------
Total other expense 4,013,779 3,121,297
------------------ ------------------
Income before income taxes 2,291,997 1,749,550
Provision for income taxes 694,300 574,000
------------------ ------------------
Net income $ 1,597,697 $ 1,175,550
================== ==================
Earnings per common share:
Basic $ 0.53 $ 0.44
Diluted 0.52 0.44
Dividends declared per common share 0.12 0.12
Weighted average shares outstanding:
Basic 3,014,710 2,666,196
Diluted 3,080,519 2,688,171
The accompanying notes are an integral part of these financial statements.
4
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended
March 31,
2001 2000
--------------- ---------------
Net income $ 1,597,697 $ 1,175,550
Other comprehensive income:
Cash flow hedge:
Unrealized holding gain/(loss) (488,947) 79,785
Reclassification adjustment for net gains
included in net income (18,955) (39,785)
Available-for-sale securities:
Unrealized holding gain 4,293,081 51,866
Reclassification adjustment for net gains
included in net income (200,307) -
--------------- ---------------
Other comprehensive income before tax 3,584,872 91,866
Income tax expense related to items of other
comprehensive income (1,218,852) (31,234)
--------------- ---------------
Other comprehensive income, net of tax 2,366,020 60,632
Comprehensive income $ 3,963,717 $ 1,236,182
=============== ===============
The accompanying notes are an integral part of these financial statements.
5
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
March 31,
---------------------------------------
2001 2000
------------------ -----------------
Cash flows from operating activities:
Net Income $ 1,597,697 $ 1,175,550
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 458,049 217,841
Provision for loan losses 520,000 350,000
Gain on sale of loans (316,727) (333,378)
Gain on sale of securities (200,307) -
Amortization of deferred loan fees (191,762) (138,236)
Loans originated - held for sale (2,421,650) (1,638,325)
Loans sold - held for sale 2,033,054 1,923,644
(Increase) decrease in other assets (814,011) 1,043,627
Increase (decrease) in other liabilities 310,685 (108,448)
------------------ -----------------
Net cash provided by operating activities 975,028 2,492,275
------------------ -----------------
Cash flows from investing activities:
Increase in loans receivable (11,806,405) (2,441,655)
Purchase of investment securities, held-to-maturity - (4,143,635)
Purchase of investment securities, available-for-sale (91,398,314) (3,895,287)
Sale of investment securities, available-for-sale 30,405,993 -
Paydowns of investment securities 15,869,083 3,232,502
Increase in premises and equipment, net (312,117) (27,125)
(Increase) decrease in Federal Home Loan Bank stock (1,050,000) 35,000
Increase in Federal Reserve Bank stock (194,950) -
----------------- -----------------
Net cash used in investing activities (58,486,710) (7,240,200)
----------------- -----------------
Cash flows from financing activities:
Net increase in deposits 41,679,098 20,564,416
Increase in advances from FHLB - short term 21,000,000 -
Dividends on preferred and common stock (364,728) (322,907)
----------------- -----------------
Net cash provided by financing activities 62,314,370 20,241,509
----------------- -----------------
Net increase in cash and cash equivalents 4,802,688 15,493,584
Cash and cash equivalents, beginning of period 24,516,252 17,131,958
----------------- -----------------
Cash and cash equivalents, end of period $ 29,318,940 $ 32,625,542
================= =================
SUPPLEMENTAL DATA
Cash payments for interest on deposits and borrowings $ 1,541,582 $ 1,207,403
----------------- -----------------
Cash payments for income taxes $ 1,425,000 $ -
----------------- -----------------
The accompanying notes are an integral part of these statements
6
SOUTHERN FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - ORGANIZATION AND 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
accounting principles generally accepted in the United States of America.
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, 2001 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, 2000.
On September 1, 2000, Southern Financial acquired all the outstanding
common stock of First Savings Bank of Virginia for 409,906 shares of Southern
Financial common stock. The acquisition has been accounted for by the purchase
method of accounting. At the time of closing, core deposit intangibles were
recorded in the amount of $1,566,163 and are being amortized on a straight-line
basis over 15 years. The initial excess of the purchase price over the net
identifiable assets acquired of $1,935,954 was recorded as goodwill and is being
amortized on a straight-line basis over 15 years. During the quarter following
the merger, certain tax adjustments were recorded resulting in an adjusted
goodwill of $1,646,651 before amortization.
Ownership of Southern WebTech.com was increased to 100% from 70% by
December 31, 2000. The minority interest was acquired by issuing 7,118 shares
of Southern Financial Bancorp common stock valued at $107,225 to Darien
Consulting Group, Inc., who owned the minority interest. The purchase method of
accounting was used, and no goodwill was recorded as a result of the
transaction.
7
NOTE 2 - HEDGE ACCOUNTING
During the quarter ended March 31, 2001, Southern Financial entered into
interest rate swap agreements totaling $20 million in connection with issuance
of like amounts of its certificates of deposit. These interest rate swap
agreements are accounted for as fair value hedges. Changes in the fair value of
the fair value hedges are accounted for in the income statement, as are changes
in the fair value of the certificates of deposit. Changes in the fair value of
cash flow hedges are accounted for in other comprehensive income. One interest
rate swap agreement with a notional amount of $10 million was terminated during
the quarter ended March 31, 2001 with no resulting gain or loss. The
certificates of deposit associated with this swap were called by Southern
Financial. The interest rate swaps outstanding as of March 31, 2001, are
presented in the following table:
03/31/2001 12/31/2000 Pay Receive
Notional Estimated Estimated Maturity Call Fixed Floating
amount fair value fair value date date rate rate
---------------------------------------------------------------------------------------------------------
Cash flow hedges: $ 5,000,000 $ (38,964) $ 84,924 01/08/2004 None 5.27% 3 month LIBOR
5,000,000 (43,917) 81,214 01/15/2004 None 5.29% 3 month LIBOR
5,000,000 (35,275) 88,379 01/29/2004 None 5.23% 3 month LIBOR
5,000,000 35,886 171,115 02/02/2009 None 5.45% 3 month LIBOR
---------------------------------------
20,000,000 (82,270) 425,632
---------------------------------------
03/31/2001 12/31/2000 Rec. Pay
Notional Estimated Estimated Maturity Call Fixed Floating
amount fair value fair value date date rate rate
---------------------------------------------------------------------------------------------------------
Fair value hedges: 10,000,000 141,245 294,392 07/12/2010 07/12/2001 8.00% 3 month LIBOR
10,000,000 121,147 248,078 07/26/2005 07/26/2001 7.25% 3 month LIBOR less 5 basis points
10,000,000 142,705 216,741 09/21/2015 09/21/2001 7.75% 3 month LIBOR less 10 basis points
10,000,000 342,270 40,416 10/26/2007 10/26/2001 7.25% 3 month LIBOR less 4 basis points
10,000,000 115,381 48,906 11/30/2007 11/30/2001 7.00% 3 month LIBOR less 5 basis points
10,000,000 92,534 1,961 12/28/2010 12/28/2001 7.00% 3 month LIBOR
10,000,000 (115,001) - 02/22/2008 02/22/2002 6.00% 3 month LIBOR less 1 basis point
10,000,000 (157,150) - 03/07/2011 03/07/2002 6.25% 3 month LIBOR less 2 basis points
10,000,000 - 12,000 03/29/2005 03/29/2001 7.25% Terminated
---------------------------------------
90,000,000 683,131 862,494
---------------------------------------
Total $110,000,000 $ 600,861 $ 1,288,126
=======================================
8
NOTE 3 - LOANS RECEIVABLE
Loans receivable consist of the following:
March 31, December 31,
2001 2000
------------------- ------------------
Mortgage:
Residential $ 52,211,759 $ 53,164,832
Nonresidential 138,962,658 130,270,765
Construction:
Residential 8,550,740 12,394,108
Nonresidential 17,835,282 15,913,069
Non-Mortgage:
Business 107,870,431 101,002,182
Consumer 7,167,392 7,617,423
------------------- ------------------
Total loans receivable 332,598,262 320,362,379
Less:
Deferred loan fees, net 1,833,952 1,670,453
Allowance for loan losses 5,394,722 4,921,342
------------------- ------------------
Loans receivable, net $ 325,369,588 $ 313,770,584
=================== ==================
The following sets forth information regarding the allowance for loan
losses:
Three Months Three Months
Ended Ended
03/31/2001 03/31/2000
----------------- -----------------
Allowance at beginning of period $ 4,921,342 $ 3,452,131
Provision for losses charged to income 520,000 350,000
Charge-offs (136,000) (207,186)
Recoveries 89,380 5,573
----------------- -----------------
Allowance at end of period $ 5,394,722 $ 3,600,518
================= =================
9
The following table sets forth information regarding past due and
nonperforming assets as of the periods indicated:
At March 31, At December 31,
2001 2000
------------------ -------------------
Accruing Loans 90 Days
or More Delinquent
Nonresidential $ 41,515 $ -
Business 378 673
Consumer - 8,563
------------------ -------------------
Total 41,893 9,236
================== ===================
Nonperforming Loans
Residential 438,406 555,248
Nonresidential 1,462,264 1,316,975
Business 24,331 -
------------------ -------------------
Subtotal 1,925,001 1,872,223
------------------ -------------------
Renegotiated Loans:
Nonresidential 44,701 48,995
------------------ -------------------
Real Estate Owned:
Residential 38,157 16,900
------------------ -------------------
Total Nonperforming Assets $ 2,007,859 $ 1,938,118
================== ===================
Nonperforming Assets
to Total Assets 0.30% 0.32%
================== ===================
10
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 potential dilutive common stock. Income attributable to preferred stock was
$2,963 for the quarter ended March 31, 2001 and for the quarter ended March 31,
2000.
For the three months ended
March 2001 March 2000
---------------------------- ----------------------------
Per Per
Share Share
Shares Amount Shares Amount
------------- ------------ ------------- ------------
Basic earnings per share 3,014,710 $ 0.53 2,666,196 $ 0.44
============ ============
Effect of dilutive securities:
Stock options 43,834 -
Convertible preferred stock 21,975 21,975
------------- -------------
Diluted earnings per share 3,080,519 $ 0.52 2,688,171 $ 0.44
============= ============ ============= ============
NOTE 5 - COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY
HOLDING SOLELY PARENT DEBENTURES ("TRUST PREFERRED BORROWINGS")
On December 28, 1999, Southern Financial Capital Trust I, a wholly owned
special purpose subsidiary of the Bancorp, was formed for the purpose of issuing
redeemable capital securities (company-obligated mandatorily redeemable
securities of subsidiary holding solely parent debentures). On May 24, 2000, a
$5 million offering of redeemable capital securities was completed by the Trust.
The securities have a par value of $5.00, a cash distribution rate of $0.55 per
year, payable quarterly, with a yield of 11% and are due July 15, 2030. The
securities may be called prior to maturity. The proceeds from this issuance were
used to purchase a like amount of junior subordinated debt securities issued by
the Bancorp, which have the same maturity and call provision as the redeemable
capital securities. On September 7, 2000 Southern Financial Statutory Trust I, a
wholly owned special purpose subsidiary of the Bancorp, was formed for the
purpose of issuing additional redeemable capital securities (company-obligated
mandatorily redeemable securities of subsidiary holding solely parent
debentures). Concurrently, $8 million of trust preferred securities were issued
by the Trust as part of a pooled underwriting transaction. A "pooled
underwriting" involves participating with other bank holding companies in
issuing the securities through a special-purpose pooling vehicle created by the
underwriters. In this instance the pooling vehicle was Preferred Term
Securities, Ltd., which was underwritten by Keefe Bruyette & Woods and First
Tennessee Capital Markets and placed with investors in a private placement. The
proceeds from this issuance were used to purchase a like amount of junior
subordinated debt securities of the Bancorp, which have the same maturity and
call provision as the redeemable capital securities.
11
NOTE 6 - INVESTMENT SECURITIES
The following table sets forth the investment securities portfolio as of
the dates indicated:
March 31, 2001 December 31, 2000
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---------------- ----------------- ----------------- -----------------
Available-for-sale securities:
Mortgage-backed securities $ 90,933,386 $ 92,159,214 $ 112,535,562 $ 113,242,566
Collaterized mortgage obligations 155,065,540 157,642,938 95,666,261 95,764,697
Obligations of counties and municipalities 3,346,790 3,382,204 6,202,386 6,117,481
Corporate obligations 20,671,614 20,628,174 12,729,995 12,415,779
U.S. Treasury and agency securities 4,025,999 4,161,363 2,449,319 2,482,140
---------------- ----------------- ----------------- -----------------
Total classified as investment securities 274,043,329 277,973,893 229,583,523 230,022,663
Corporate obligations classified as loans 32,885,091 33,067,441 32,837,067 32,418,054
---------------- ----------------- ----------------- -----------------
$ 306,928,420 $ 311,041,334 $ 262,420,590 $ 262,440,717
================ ================= ================= =================
In December 2000, investment securities classified as held-to-maturity
were transferred to the available-for-sale classification in order to provide
more flexibility in managing the interest-rate risk in the investment security
portfolio. Because of the transfer, Southern Financial will be unable to
classify investment securities as held-to-maturity in the foreseeable future.
12
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
March 31, 2001 were $676.2 million, an increase of 10.9 % compared with December
31, 2000. The growth in total assets was primarily due to increases in
investment securities available-for-sale and loans receivable.
Total loans receivable increased 3.8% from $320.4 million at December 31,
2000, with the increase being in nonresidential mortgage and construction loans
and non-mortgage business loans.
Investment securities available-for-sale increased 20.9 % during the same
period. Southern Financial purchased investment securities totaling $91.4
million during the quarter ended March 31, 2001. The investment securities
purchased consisted of collateralized mortgage obligations and corporate bonds.
During the quarter ended March 31, 2001, Southern Financial sold investment
securities available-for-sale for proceeds totaling $30.4 million.
The growth in earning assets, as discussed above, was funded by deposits
and borrowings. The increase in advances from the FHLB totaling $21 million
consisted of overnight borrowings. Deposits increased 8.1% from $515.1 million
at December 31, 2000.
Results of Operations
- ---------------------
Southern Financial's principal sources of revenue are interest on loans,
gains on sales of loans and investment securities, fees and service charges on
loans, interest and dividends on investment securities, and service charges on
deposit accounts. Net income is affected by interest on deposits and borrowings
and operating expenses.
The following table presents, for periods indicated, average balances of
and weighted average yields on interest-earning assets and average balances of
and weighted average effective rates paid on interest-bearing liabilities.
Calculations have been made utilizing month-end average balances for loans and
investment securities and daily average balances for borrowings and deposits,
and the effect of the interest rate swaps is reflected in the average rate on
deposits. Loan balances do not include non-accrual loans.
13
Three Months Ended March 31,
2001 2000
-------------------------------------------------------------------------
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
--------------------------------- ------------------------------------
($ in thousands)
Interest-earning assets
Loans receivable 320,980 9.40 238,842 9.46
Investments 262,564 7.31 146,921 6.53
----------------- ------------ ------------------ ---------------
Total interest-earning assets 583,544 8.46 385,763 8.34
----------------- ------------ ------------------ ---------------
Interest-bearing liabilities
Deposits 439,111 5.30 305,510 4.68
Borrowings 78,204 6.20 18,185 5.95
----------------- ------------ ------------------ ---------------
Total interest-bearing liabilities 517,315 5.50 323,695 4.75
----------------- ------------ ------------------ ---------------
Average dollar difference
between interest-earning assets
and interest-bearing liabilities 66,229 62,068
================= ==================
Interest rate spread 2.96 3.59
============ ===============
Interest margin 3.59 4.30
============ ===============
Non-interest bearing deposits 64,323 50,768
----------------- ------------ ------------------ ---------------
Total deposits and borrowings 581,638 4.89 374,463 4.10
----------------- ------------ ------------------ ---------------
Interest rate spread including
non-interest bearing deposits 3.57 4.24
============ ===============
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.
For The Three Months Ended
March 31, 2001
Versus
March 31, 2000
-------------------------------------------------------
Volume Rate Net
----------------- ------------ ------------------
($ in thousands)
Interest income
Loans receivable 2,032 (36) 1,996
Investments 1,993 317 2,310
----------------- ------------ ------------------
Total interest income 4,025 281 4,306
----------------- ------------ ------------------
Interest expense
Interest-bearing deposits 1,728 522 2,250
Borrowings 1,010 11 1,021
----------------- ------------ ------------------
Total interest expense 2,738 533 3,271
----------------- ------------ ------------------
Net interest income 1,287 (252) 1,035
================= ============ ==================
14
Southern Financial's net income was $1.6 million for the three months ended
March 31, 2001, an increase of 35.9% over the $1.2 million earned during the
quarter ended March 31, 2000.
Net interest income before provision for loan losses for the three months
ended March 31, 2001 was $5.2 million, an increase of $1 million or 24.7%, from
$4.2 million for the three months ended March 31, 2000 The increase in net
interest income was due to the growth in earning assets resulting from purchases
of investment securities, increased commercial loan originations as well as the
acquisition of $71 million in First Savings Bank's assets. Average earning
assets increased 51.3% to $583.5 million compared with the first quarter of
2000.
The provision for loan losses for the three months ended March 31, 2001 was
$520 thousand, as compared to $350 thousand for the three months ended March 31,
2000. 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
March 31, 2001 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 March 31, 2001 was
$5.4 million, or 1.63% of total loans receivable less deferred fees, versus $4.9
million at December 31, 2000, which was 1.54% of total loans receivable less
deferred fees.
Other income for the three months ended March 31, 2001 was $1.6 million, an
increase from $1.0 for the three months ended March 31, 2000. During the
quarter ended March 31, 2001, Southern Financial sold $30.4 million of primarily
fixed rate securities and generated net gains of $200 thousand. In addition,
income totaling $232 thousand representing the increase in the current value of
bank owned life insurance is included in other income. Other income also
includes the traditional deposit fees, electronic banking fees, and fees
generated from commercial service products, all of which contributed to the
increased non-interest income.
Other expense for the three months ended March 31, 2001 was $4.0 million,
an increase of 28.6% when compared to other expense for the same period last
year. Increased expenses resulting from the acquisition of First Savings Bank,
including goodwill amortization, accounted for a substantial portion of the
increase. Other expenses, including employee compensation, also increased
primarily due to normal pay increases and a larger employee base.
Regulatory Capital Requirements
- -------------------------------
At March 31, 2001 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 $135 million. At March 31, 2001, Southern
Financial had $37.8 million of unfunded lines of credit and undisbursed
construction loan funds of $22.9 million. Approved loan commitments were $9.9
million at March 31, 2001, and Southern Financial had commitments from investors
to purchase loans in the amount of $1.3 million. 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
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.
15
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 December 31,
2000, in the Southern Financial Annual Report.
16
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. On October 31, 2000, a
Fauquier County Circuit Court judge set aside the jury verdict and
ordered that the case be retried. A new trial is scheduled for July
24, 2001.
Southern Financial is not a party to, nor is any of their property
the subject of, any other material pending legal proceedings
incidental to its business other than those arising in the ordinary
course of business. Although the amount of any ultimate liability
with respect to such matters cannot be determined, in the opinion
of management, any such liability will not have a material adverse
effect on the consolidated financial position or results of
operations of Southern Financial.
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
Page 40 of the Southern Financial Bancorp, Inc. December 31, 2000
Annual Report to Stockholders which was omitted from Exhibit 13 to
the Southern Financial Bancorp, Inc. Annual Report on Form 10-K for
the year ended December 31, 2000
Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 31, 2001.
17
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 5/15/01 By: /s/ Georgia S. Derrico
------------------ ----------------------------------------
Georgia S. Derrico
Chairman and
Chief Executive Officer
(Duly Authorized Representative)
Date 5/15/01 By: /s/ William H. Lagos
----------------- -----------------------------------------
William H. Lagos
Senior Vice President and Controller
Principal Accounting Officer
(Duly Authorized Representative)
18
Exhibit - Page 40 of the December 31, 2000 Annual Report
Corporate Address
37 East Main Street
Warrenton, Virginia 20186
540-349-3900
FAX: 540-349-3904
Form 10-K
The Bank's Annual Report on Form 10-K to the Securities and Exchange Commission
will be furnished without charge to stockholders upon written request to:
Investor Relations
37 East Main Street
Warrenton, Virginia 20186
Annual Meeting
The Annual Meeting of stockholders of Southern Financial Bancorp, Inc. will be
held on April 26, 2001 at Fauquier Springs County Club, Springs Road, Warrenton,
Virginia commencing at 2:00 pm.
Stock Data
As of December 14, 1993, the Common Stock of Southern Financial Federal Savings
Bank commenced trading on the NASDAQ Small Cap Stock Market under the symbol
SFFB. On February 21, 1995, the Common Stock commenced trading on the NASDAQ
National Market under the symbol SFFB. On December 1, 1995, Southern Financial
Federal Savings Bank merged into Southern Financial Bank, a wholly owned
subsidiary of Southern Financial Bancorp, Inc. The Bancorp's Common Stock
continues to be traded on the NASDAQ National Market under the symbol SFFB.
As of December 31, 2000, there were 658 stockholders of record, not including
the number of persons or entities whose stock is held in nominee or "street"
name through various brokerage firms or banks. The following table sets forth
the high and low stock prices for the periods indicated:
2000
High Low
1st Quarter $17.38 $13.50
2nd Quarter $15.88 $12.50
3rd Quarter $16.25 $13.00
4th Quarter $14.81 $11.38
Transfer Agent & Registrar
Inquiries regarding stock transfer, lost certificates or changes in name and/or
address should be directed to the stock transfer agent and registrar:
Mellon Investor Services, L.L.C.
Overpeck Centre
83 Challenger Road
Ridgefield Park, NJ 07660
800-851-9677
Market Makers
Scott & Stringfellow 800-552-7757
Ferris, Baker, Watts, Inc. 202-429-3545
Ryan, Hartley & Co., Inc. 703-847-3100
McKinnon & Company, Inc. 703-623-4636
Sandler O'Neill 212-466-7800
Anderson & Strudwick, Inc. 800-767-2424
19