EXHIBIT 99.1
[SOUTHERN FINANCIAL BANCORP, INC. LOGO]
SOUTHERN FINANCIAL BANCORP, INC.
37 E. Main Street
Warrenton, VA 20186
SOUTHERN FINANCIAL BANCORP REPORTS RECORD GAAP EARNINGS OF $2.6 MILLION AND
DILUTED EARNINGS PER SHARE OF $.58 FOR THE SECOND QUARTER 2002
SUMMARY:
o EARNINGS EXCLUDING SECURITIES AND OTHER ASSET GAINS INCREASED
74.0%, DILUTED EPS INCREASE 32.6% OVER Q2 2001
o GAAP EARNINGS INCREASED 20.9%, DILUTED EPS DECREASED 7.9% OVER
Q2 2001 DUE TO INCREASED SHARES FROM Q3 2001 STOCK OFFERING
FOR IMMEDIATE RELEASE
MONDAY, JULY 22, 2002
Contact: Patricia A. Ferrick, Senior VP and CFO
Southern Financial Bancorp. Inc. NASDAQ Symbol "SFFB"
Website: www.southernfinancialbank.com
Phone (540) 349-3900 Fax (540) 349-3904
Warrenton, VA - The Board of Directors of Southern Financial Bancorp, Inc.
(NASDAQ: SFFB) reported net income of $2.6 million ($.58 diluted earnings per
share) for the quarter ended June 30, 2002, an increase of 20.9% over the $2.2
million ($.63 diluted earnings per share) earned for the quarter ended June 30,
2001. The decline in the diluted earnings per share is the result of the
decrease in net gains on securities combined with the increased shares from the
secondary common share offering in October of 2001. The increase in net income
was primarily due to growth in interest earning assets and increased fee income
offset by both a higher loan loss provision and the decrease in net gains on
sales of investment securities. Net income excluding net gains on investment
securities and non-recurring items for the quarters ended June 30, 2002 and 2001
was $2.6 million ($.57 earnings per diluted share) and $1.5 million ($.43
earnings per diluted share), respectively, an increase of 74.0%.
Net income for the six months ended June 30, 2002 and 2001 was $4.8 million
($1.08 diluted earnings per share) and $3.8 million ($1.10 diluted earnings per
share), respectively, an increase of 28.8%. The increase in net income for the
six month comparative periods resulted primarily from growth in earning assets
offset by a higher loan loss provision and a decrease in net gains on sales of
investment securities and non-recurring items. Net income excluding net gains
and losses on investment securities and non-recurring items was $5.0 million
($1.12 earnings per diluted share) and $2.9 million ($.85 earnings per diluted
share) for the six months ended June 30, 2002 and 2001, respectively, an
increase of 73.4%.
Georgia S. Derrico, Chairman and CEO, stated, "This was a record quarter. Our
loan growth was strong, demonstrating our commitment to our small and
medium-sized commercial business clients. Further, we are excited about our
pending merger with Metro-County Bank announced this quarter which will expand
our footprint to the Richmond area. We believe the Richmond area is an
underserved market for our niche- lending clients."
Net interest income for the quarter was $8.3 million, an increase of 33.9% over
the same quarter in the prior year. The increase in net interest income was
primarily due to growth in earning assets resulting from loan originations and
purchases, and an improved margin. Average earning assets increased 13.2% to
$721 million for the quarter ended June 30, 2002 compared with 2001. The net
interest margin was 4.58% and 3.87% for the quarters ended June 30, 2002 and
2001, respectively, as the ratio of average investment securities to loans
declined to 52.3% compared with the prior year when it was 79.0%. The continued
reduction in the cost of funds also contributed to the improved margin. The cost
of funds declined to 2.58% from 4.94% for the quarters ended June 30, 2002 and
2001, respectively. The yield on earning assets only declined to 6.82% from
8.21% during the same periods.
Credit quality for the second quarter of 2002 remains sound. The provision for
loan losses was $1.6 million for the quarter ended June 30, 2002, an increase
when compared to the second quarter of 2001 when it was $750 thousand. The
higher provision compared with the second quarter of 2001 was primarily the
result of loan growth and the refined methodology of estimating our allowance
for loan losses implemented during the fourth quarter of 2001. During the
quarters ended June 30, 2002 and 2001, net charge-offs were .43% of average
loans, or $499 thousand, compared with .65%, or $571 thousand. The ratio of
allowance to loans receivable outstanding at June 30, 2002 was 1.70% compared
with June 30, 2001 when it was 1.55% and December 31, 2001 when it was 1.76%. At
June 30, 2002, the ratio of nonperforming assets to total assets was .19% and
the allowance to nonperforming assets was 567.3% compared with June 30, 2001,
when these ratios were .24% and 323.5%, respectively. The improvement in these
measurements indicates continued sound asset quality as the loan portfolio
grows.
Total other income decreased to $1.5 million from $2.1 million for the quarters
ended June 30, 2002 and 2001, respectively. During the second quarters of 2002
and 2001, respectively, Southern Financial recognized net securities gains
totaling $83 thousand and $932 thousand. Excluding these net gains from sales of
investment securities and non-recurring items, other income increased to $1.4
million from $1.1 million for the quarters ended June 30, 2002 and 2001,
respectively. Areas of increase included account maintenance and electronic
banking fees, fees generated from commercial service products including lockbox
fees, and income from bank owned life insurance as a result of an additional
investment of $5 million made during the first quarter of 2002.
Total other expenses for the quarter were $4.3 million, a decrease of
approximately 1% when compared to the second quarter of 2001. While employee
compensation, premises and equipment, and data processing increased slightly to
support the franchise growth, other expenses decreased due to a decrease in
goodwill amortization associated with the implementation of SFAS 142, and costs
associated with litigation in the prior year which has since been settled. The
efficiency ratio, the ratio of non-interest expenses before amortization of
intangibles divided by net interest income and non-interest income less gains on
securities and non-recurring items, was 44.6% for the quarter ended June 30,
2002; an improvement compared with 59.1% for the quarter ended June 30, 2001.
Total assets increased to $821.1 million at June 30, 2002, from $785.0 million
at December 31, 2001. During the quarter, gross loans receivable increased $55.9
million, or 12.4% including a group loan
purchase totaling $26.9 million. Excluding the group loan purchase, gross loans
increased 6.4% compared with March 31, 2002 which was comprised of $72.4 million
in originations, net of $43.4 million in repayments. Conversely, investment
securities decreased $34.3 million, or 12.7% compared with March 31, 2002 due to
$39.5 million in securities repayments and sales slightly offset by securities
purchases totaling $5.2 million during the quarter. Deposits and borrowings
combined with proceeds from investment security repayments and sales funded the
loan growth.
Returns on average equity excluding gains and losses on securities and
non-recurring items were 15.6% and 13.4% for the quarters ended June 30, 2002
and 2001, respectively. These ratios should be viewed in light of the higher
average equity resulting from the common stock offering during the fourth
quarter of 2001.
Southern Financial will host a conference call for investors tomorrow, July 23,
2002, at 10:00 a.m. EDT to discuss the Company's financial results. To
participate in the conference call, dial 800-218-8862 approximately five minutes
before the scheduled start time. You will be asked to identify yourself to the
operator and reference the Southern Financial conference call.
Southern Financial Bancorp, Inc. is the holding company of Southern Financial
Bank, a bank operating 21 full service branches including 20 locations in
Virginia and one in the District of Columbia.
This press release may contain statements that certain results are expected or
anticipated to occur or otherwise state the company's predictions for the
future, are forward-looking statements. These particular forward-looking
statements and all other statements that are not historical facts are subject to
a number of risks and uncertainties and actual results may differ materially.
Such factors include but are not limited to: general economic conditions in the
company's markets; major slowdowns in the commercial lending markets that impact
credit quality; the impact of competitive products and pricing; significant
fluctuations in interest rates that could reduce net interest margin;
difficulties or delays in the development, production, and marketing of new
products; a reduction in fee revenue from existing products and services due to
the economy and/or competition; and the amount and rate of growth of the
company's general and administrative expenses. Consequently, these cautionary
statements qualify all forward-looking statements made herein and cautionary
language in the company's most recent form 10-K report and other documents filed
with the Securities and Exchange Commission.
SOUTHERN FINANCIAL BANCORP, INC.
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37 EAST MAIN STREET
WARRENTON, VIRGINIA 20186
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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<Table>
<Caption>
June 30, December 31,
2002 2001
--------------- ---------------
ASSETS
Cash and overnight deposits $ 32,334,406 $ 28,458,557
Investments 235,077,301 306,611,560
Loans receivable, net 497,740,459 410,973,260
Bank premises & equipment, net 6,643,150 6,796,246
Cash surrender value of life insurance 21,702,418 16,160,787
Other assets 27,638,765 15,976,548
--------------- ---------------
Total assets $ 821,136,499 $ 784,976,958
=============== ===============
LIABILITIES
Deposits 652,168,123 633,325,894
Borrowings from Federal Home Loan Bank 75,000,000 55,500,000
Company-obligated mandatorily redeemable
securities of subsidiary holding solely parent debentures 13,000,000 13,000,000
Other liabilities 13,200,318 18,482,865
--------------- ---------------
Total liabilities 753,368,441 720,308,759
STOCKHOLDERS' EQUITY 67,768,058 64,668,199
--------------- ---------------
Total liabilities and
stockholders' equity $ 821,136,499 $ 784,976,958
=============== ===============
</Table>
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CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
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<Table>
<Caption>
For the Three Months For the Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Interest income $ 12,295,327 $ 13,072,641 $ 25,115,569 $ 25,453,438
Interest expense 4,043,711 6,911,967 8,734,373 14,023,682
-------------- -------------- -------------- --------------
Net interest income 8,251,616 6,160,674 16,381,196 11,429,756
Provision for loan losses 1,560,000 750,000 3,060,000 1,270,000
-------------- -------------- -------------- --------------
Net interest income after
provision for loan losses 6,691,616 5,410,674 13,321,196 10,159,756
Account maintenance and electronic
banking fees 641,012 538,332 1,284,793 1,096,427
Commercial service fees 124,791 77,711 241,480 144,870
Other loan fees 112,897 99,700 207,516 221,075
System maintenance and license fees 58,539 59,640 132,852 120,071
Income from bank owned life insurance 293,700 232,500 541,631 465,000
Gain on sale of loans 148,460 103,800 247,707 402,323
Gain (loss) on investment securities, net 83,132 932,280 (302,342) 1,150,791
Other income 767 82,424 3,266 82,524
-------------- -------------- -------------- --------------
Non interest income 1,463,298 2,126,387 2,356,903 3,683,081
Employee compensation and benefits 2,372,728 2,289,760 4,724,660 4,304,444
Premises, equipment and data processing 1,242,337 1,059,880 2,463,358 2,123,613
Other expenses 718,013 1,025,357 1,399,035 1,960,719
-------------- -------------- -------------- --------------
Non interest expense 4,333,078 4,374,997 8,587,053 8,388,776
-------------- -------------- -------------- --------------
Net income before taxes 3,821,836 3,162,064 7,091,046 5,454,061
Provision for income taxes 1,213,808 1,004,300 2,255,000 1,698,600
-------------- -------------- -------------- --------------
NET INCOME $ 2,608,028 $ 2,157,764 $ 4,836,046 $ 3,755,461
============== ============== ============== ==============
</Table>
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL HIGHLIGHTS
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<Table>
<Caption>
QUARTERS ENDED AS OF AND FOR THE SIX MONTHS ENDED
June 30, June 30,
(dollars in thousands, except per share data) 2002 2001 2002 2001
-------------- ------------ --------------- --------------
INCOME STATEMENT DATA:
Interest income $ 12,295 $ 13,073 $ 25,116 $ 25,453
Interest expense 4,044 6,912 8,734 14,024
Net interest income 8,252 6,161 16,381 11,430
Provision for loan losses 1,560 750 3,060 1,270
Net interest income after provision for loan losses 6,692 5,411 13,321 10,160
Other income 1,463 2,126 2,357 3,431
Gain on sales of SBA loans -- -- -- 252
Other expense 4,333 4,375 8,587 8,389
Income before income taxes 3,822 3,162 7,091 5,454
Income taxes 1,214 1,004 2,255 1,699
Net income 2,608 2,158 4,836 3,755
INCOME STATEMENT DATA (EXCLUDING GAINS/LOSSES
ON SECURITIES AND NON-RECURRING ITEMS)
Net interest income after provision for loan losses $ 6,692 $ 5,411 $ 13,321 $ 10,160
Other income 1,380 1,113 2,659 2,200
Gain on sales of SBA loans -- -- -- 252
Other expense 4,333 4,375 8,587 8,389
Income before income taxes 3,739 2,149 7,393 4,223
Income taxes 1,187 682 2,351 1,315
Net income 2,551 1,467 5,042 2,908
PER SHARE DATA:
Earnings per share, basic $ 0.61 $ 0.65 $ 1.13 $ 1.13
Earnings per share, diluted $ 0.58 $ 0.63 $ 1.08 $ 1.10
Earnings per basic share (excluding non-recurring
items and gains/losses on securities) $ 0.59 $ 0.44 $ 1.18 $ 0.88
Earnings per diluted share (excluding non-recurring
items and gains/losses on securities) $ 0.57 $ 0.43 $ 1.12 $ 0.85
Cash basis earnings per diluted share $ 0.57 $ 0.45 $ 1.14 $ 0.89
Book value per share $ 15.80 $ 13.16
Tangible book value per share $ 15.12 $ 12.09
Weighted average shares outstanding (basic) 4,287,970 3,316,254 4,286,291 3,316,217
Weighted average shares outstanding (diluted) 4,506,803 3,433,329 4,485,208 3,411,790
Shares outstanding at end of period 4,289,387 3,316,731
PERIOD-END BALANCE SHEET DATA:
Total assets $ 821,136 $ 727,869
Loans receivable, net of deferred fees 506,363 359,122
Allowance for loan losses 8,623 5,574
Investment securities 235,077 279,539
Total deposits 652,168 574,842
Other borrowings 75,000 58,500
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts 13,000 13,000
Total Liabilities 753,368 684,208
Total Stockholders' Equity 67,768 43,660
Total Capital (2) 80,768 56,660
SELECTED PERFORMANCE RATIOS AND OTHER DATA:
Yield on Earning Assets 6.82% 8.21% 6.78% 8.34%
Cost of Funds 2.58% 4.94% 2.71% 5.18%
Cost of Funds including non-interest bearing deposits 2.33% 4.43% 2.45% 4.65%
Net Interest Margin 4.58% 3.87% 4.42% 3.74%
Efficiency Ratio (3) 44.59% 59.12% 44.70% 60.63%
Return on Average Assets (4) 1.32% 0.85% 1.28% 0.87%
Return on Average Equity (4) 15.57% 13.37% 15.42% 13.72%
Stockholders' equity to total assets 8.25% 6.00%
Stockholders' equity to total tangible assets 7.93% 5.53%
</Table>
SOUTHERN FINANCIAL BANCORP, INC.
FINANCIAL HIGHLIGHTS
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<Table>
<Caption>
QUARTERS ENDED AS OF AND FOR THE SIX MONTHS ENDED
June 30, June 30,
(dollars in thousands, except per share data) 2002 2001 2002 2001
-------------- ------------ --------------- --------------
Intangible assets $ 2,896 $ 3,571
Amortization of intangibles 56 109 113 185
Accumulated other comprehensive income 1,307 1,142
SELECTED AVERAGE BALANCES:
Loans receivable, net of deferred fees $ 467,903 $ 352,251 $ 446,734 $ 336,615
Investment securities-available for sale 244,909 278,151 285,789 268,486
Overnight deposits 8,311 6,910 8,152 5,327
Earning assets 721,122 637,312 740,674 610,428
Total assets 771,554 689,327 788,055 667,486
Interest bearing deposits 572,904 468,025 565,328 456,207
Other debt (2) 54,620 91,471 80,240 84,837
Total interest-bearing liabilities 627,524 559,496 645,568 541,044
Non-interest bearing deposits 67,655 64,677 66,842 61,861
Total deposits 640,559 532,702 632,170 518,068
Stockholders' equity 65,532 43,895 65,389 42,379
ALLOWANCE FOR LOAN LOSSES:
Balance-beginning of period 7,562 5,395 7,354 4,921
Provision for loan losses 1,560 750 3,060 1270
Net charge-offs (499) (571) (1,791) (617)
------------ ------------ ------------ ------------
Balance-end of period 8,623 5,574 8,623 5,574
ASSET QUALITY
Nonaccrual Loans (5) 1,520 1,687
Other Real Estate Owned -- 36
Total Nonperforming Assets 1,520 1,723
Provision for Loan Losses to net charge-offs 171% 206%
Annualized Net Charge-offs to Average Loans 0.80% 0.37%
Nonperforming Assets to Total Assets 0.19% 0.24%
Allowance for Loan Losses to Nonperforming Assets 567.30% 323.51%
Allowance for Loan Losses to Total Loans 1.70% 1.55%
</Table>
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(1) Excludes gains and losses on investment securities and non-recurring
items. If these items were included, cash basis diluted earnings per
share would have been $.59 and $.65 for the quarters ended June 30,
2002 and 2001, and $1.10 and $1.14 for the six months ended June 30,
2002 and 2001, respectively
(2) Includes company-obligated mandatorily redeemable preferred securities
of subsidiary trusts.
(3) Calculated by dividing total other expense, net of goodwill and
intangibles
(4) Selected performance ratios exclude gains/losses on securities and
non-recurring items. If these items had been included, return on
average assets would have been 1.35% and 1.25% for the respective
quarters and 1.23% and 1.13% for the respective years; Return on
average equity would have been 15.91% and 19.66% for the respective
quarters and 14.79% and 17.72% for the respective years.
(5) Excludes SBA guaranteed portion of nonaccrual loans totaling $786
thousand and $281 thousand at June 30, 2002 and 2001, respectively.