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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
Amendment No. 1
to
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: September 1, 2000
(Date of earliest event reported)
SOUTHERN FINANCIAL BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
Virginia 0-22836 54-1779978
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
37 East Main Street
Warrenton, Virginia 20186
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(540) 349-3900
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Item 2. Acquisition or Disposition of Assets.
On September 1, 2000, First Savings Bank of Virginia, a
Virginia-chartered savings association ("First Savings"), was merged with and
into Southern Financial Bank (the "Bank"), a Virginia state bank and a wholly
owned subsidiary of Southern Financial Bancorp, Inc. (the "Company"), a Virginia
corporation (the "Merger"). The Merger was consummated pursuant to an Agreement
and Plan of Reorganization, dated as of March 31, 2000, by and between First
Savings, the Company and the Bank, and a related Plan of Merger.
Under the terms of the Merger, each outstanding share of First Savings'
common stock, par value $1.00 per share ("First Savings Common Stock"), was
converted into 0.44 shares of the Company's common stock, par value $0.01 per
share ("Company Common Stock"), and cash in lieu of fractional shares. As a
result, all shareholders of First Savings became shareholders of the Company.
There were 931,605 shares of First Savings Common Stock outstanding immediately
prior to the consummation of the Merger.
For a more detailed description of the Merger, see the Company's Proxy
Statement/Prospectus, which was filed with the Securities and Exchange
Commission on July 24, 2000 in connection with the Company's Registration
Statement on Form S-4 (File No. 333-39666), and which is incorporated herein by
reference.
2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
First Savings Bank of Virginia and Subsidiary
Contents
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Report of Independent Certified Public Accountants
Consolidated Financial Statements
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Interim Consolidated Financial Statements (unaudited)
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
3
Report of Independent Certified Public Accountants
Board of Directors
First Savings Bank of Virginia and Subsidiary
We have audited the accompanying consolidated statements of financial condition
of First Savings Bank of Virginia and Subsidiary (the Institution) as of
December 31, 1999 and 1998, and the related consolidated statements of income,
stockholders' equity and comprehensive income, and cash flows for the years then
ended. These financial statements are the responsibility of the Institution's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Savings Bank
of Virginia and Subsidiary as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ Grant Thornton LLP
Vienna, Virginia
February 18, 2000
4
First Savings Bank of Virginia and Subsidiary
Consolidated Statements of Financial Condition
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Assets
Assets
Cash and due from banks $ 1,498,144 $ 2,401,577
Federal Home Loan Bank overnight investments 6,104,409 8,209,901
Investment securities available for sale 1,244,160 4,398,035
Investment securities held to maturity 10,981,544 8,103,127
Federal Home Loan Bank stock 241,500 396,900
Loans receivable, net 47,681,905 40,274,250
Foreclosed real estate, net 157,419 10,000
Accrued interest receivable 445,310 361,561
Premises and equipment, net 511,767 558,928
Other assets 178,803 349,566
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$ 69,044,961 $ 65,063,845
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Liabilities and Stockholders' Equity
Liabilities
Deposits $ 55,127,762 $ 58,018,972
Advances from Federal Home Loan Bank 3,000,000 --
Securities sold under agreement to repurchase 5,860,751 2,515,982
Accrued interest payable 73,943 43,842
Advances from borrowers for taxes and insurance 37,292 24,133
Deferred income taxes 123,261 --
Other liabilities 94,259 111,109
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Total Liabilities 64,317,268 60,714,038
Stockholders' Equity
Common stock ($1 par value, 12,000,000
shares authorized, 931,605 and 930,105
shares issued and outstanding, respectively) 931,605 930,105
Additional paid-in capital 3,276,339 3,273,339
Retained earnings 510,873 146,363
Accumulated other comprehensive income 8,876 --
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Total Stockholders' Equity 4,727,693 4,349,807
-----------------------------------------------------
$ 69,044,961 $ 65,063,845
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The accompanying notes are an integral part of these statements.
5
First Savings Bank of Virginia and Subsidiary
Consolidated Statements of Income
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Year ended December 31, 1999 1998
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Interest Income
Loans $ 4,141,404 $ 3,668,992
Investments 1,071,540 770,559
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Total Interest Income 5,212,944 4,439,551
Interest Expense
Deposits 2,429,225 2,441,830
Borrowed funds 452,054 110,653
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Total Interest Expense 2,881,279 2,552,483
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Net Interest Income 2,331,665 1,887,068
Provision for Loan Losses 130,000 85,000
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Interest Income After Provision for Loan Losses 2,201,665 1,802,068
Non-interest Income
Service charges 555,814 481,946
Gain on sale of real estate owned 75,641 16,193
Gain on sale of loans 21,668 62,966
Other 24,484 21,879
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Total Non-interest Income 677,607 582,984
Non-interest Expense
Compensation and related benefits 1,098,554 915,460
Occupancy expense 121,224 88,788
Property and equipment expense including depreciation
and amortization 257,392 188,538
Professional fees 166,790 134,050
Federal deposit insurance premium and regulatory fees 75,549 68,771
Data processing expense 177,599 152,015
Other 394,454 336,412
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Total Non-interest Expense 2,291,562 1,884,034
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Income Before Income Taxes 587,710 501,018
Income Tax Expense 223,200 63,000
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Net Income $ 364,510 $ 438,018
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Basic Earnings Per Share of Common Stock $ .39 $ .52
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Diluted Earnings Per Share of Common Stock $ .39 $ .51
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The accompanying notes are an integral part of these statements.
6
First Savings Bank of Virginia and Subsidiary
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 1999 and 1998.
Retained Accumulated
Additional Earnings Other
Common Paid-in (Accumulated Comprehensive
Stock Capital Deficit) Income Total
Balance, January 1, 1998 $ 745,030 $2,760,314 $ (291,655) $-- $3,213,689
Net Income for the Year -- -- 438,018 -- 438,018
Other Comprehensive Income -- -- -- -- --
Total Comprehensive Income 438,018
Options Exercised 22,325 24,650 -- -- 46,975
Stock Issuance 162,750 488,375 -- -- 651,125
Balance, December 31, 1998 930,105 3,273,339 146,363 -- 4,349,807
Net Income for the Year -- -- 364,510 -- 364,510
Other Comprehensive Income
Unrealized holding gain during
the period, net of tax of $5,440 -- -- -- 8,876 8,876
Total Comprehensive Income 373,386
Options Exercised 1,500 3,000 -- -- 4,500
Balance, December 31, 1999 $ 931,605 $3,276,339 $ 510,873 $ 8,876 $4,727,693
The accompanying notes are an integral part of these statements.
7
First Savings Bank of Virginia and Subsidiary
Consolidated Statements of Cash Flows
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Year ended December 31, 1999 1998
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Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net income $ 364,510 $ 438,018
------------------------------------------------
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and amortization 115,564 111,720
Amortization of loan fees (70,829) (108,305)
Amortization of premiums and discounts from
investment purchases 22,240 58,072
Provision for possible loan losses 130,000 85,000
Deferred income taxes 189,821 --
Gain on sale of loans (21,668) (62,966)
Gain on sale of real estate owned (75,641) (16,193)
Net gain on sale of investments (1,448) --
Proceeds from sale of loans held for sale -- 1,262,966
Increase in accrued interest receivable (83,749) (96,332)
Decrease (increase) in other assets 93,323 (109,586)
Increase in accrued interest payable 30,101 23,391
Increase (decrease) in advances from borrowers
for taxes and insurance 13,159 (8,360)
Decrease in other liabilities (16,850) (21,674)
------------------------------------------------
Total adjustments 324,023 1,117,733
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Net Cash Provided by Operating Activities 688,533 1,555,751
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Cash Flows from Investing Activities
Proceeds from sale of loans 945,840 4,109,341
Proceeds from sale of real estate owned 679,181 297,838
Purchases of equipment (68,403) (72,013)
Net increase in loans (9,141,957) (5,558,335)
Purchase of available-for-sale securities (578,735) (6,458,403)
Proceeds from sale of available-for-sale securities 2,165,384 --
Purchases of held-to-maturity securities (6,605,018) (9,092,775)
Proceeds from sale of held-to-maturity securities 377,882 --
Principal repayment on investments 4,914,909 5,447,555
Redemption of Federal Home Loan Bank stock 155,400 --
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Net Cash Used in Investing Activities (7,155,517) (11,326,792)
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Cash Flows from Financing Activities
Net (decrease) increase in demand deposits, NOW accounts
and savings accounts (1,831,137) 8,659,250
Net (decrease) increase in certificates (1,060,073) 3,139,971
Proceeds from FHLB advances 3,000,000 --
Payment of FHLB advances -- (200,000)
Securities sold under agreement to repurchase 3,344,769 2,515,982
Proceeds from common stock issuance 4,500 698,100
------------------------------------------------
Net Cash Provided by Financing Activities 3,458,059 14,813,303
------------------------------------------------
Net Increase in Cash and Cash Equivalents (3,008,925) 5,042,262
------------------------------------------------
Cash and Cash Equivalents, beginning of year 10,611,478 5,569,216
------------------------------------------------
Cash and Cash Equivalents, end of year $ 7,602,553 $ 10,611,478
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The accompanying notes are an integral part of these statements.
8
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements
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December 31, 1999 and 1998
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NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Bank with its subsidiary (the Institution) is headquartered in
Springfield, Virginia, and currently operates from two branches in
Springfield and Fredericksburg. The Institution, a SAIF-insured institution,
is engaged primarily in originating one- to four-family residential and
construction real estate loans in Northern Virginia. The Institution follows
generally accepted accounting principles applicable to depository
institutions.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
First Savings Bank of Virginia and its wholly owned subsidiary, FSB
Financial Corporation. The subsidiary was inactive in both 1999 and 1998.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Cash Equivalents
For purposes of presentation in the consolidated statement of cash flows,
cash and cash equivalents are defined as those amounts included in the
statement of financial condition captions, "Cash and due from banks" and
"Federal Home Loan Bank overnight investments." For purposes of the
statements of cash flows, the Institution considers all highly liquid debt
instruments when purchased with original maturities of three months or less
to be cash equivalents.
Investment Securities
Investment securities which the Institution has the positive intent and
ability to hold to maturity are reported at amortized cost. Investment
securities which management has designated as available for sale are
recorded at their fair market value. The net unrealized gain or loss, net of
taxes, is shown as a component of stockholders' equity.
Purchase premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Gains and losses on the
sale of securities are recorded on the trade date and determined using the
specific identification method.
Loans Receivable
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal balances adjusted for any charge-offs, the allowance
for loan losses and any deferred fees or costs on originated loans and
unamortized premiums or discounts on purchased loans.
Interest income is accrued on the unpaid principal balance. Loan origination
fees and certain direct origination costs are capitalized and recognized as
an adjustment of the yield of the related loan.
9
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
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December 31, 1999 and 1998
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NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
A loan is considered impaired when, based on current information and events,
it is probable that the Institution will be unable to collect the scheduled
payments of principal or interest when due according to the contractual
terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value and the probability of
collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are
not classified as impaired. Management determines the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the
borrower, including the length of the delay, the reasons for the delay, the
borrower's prior payment record and the amount of shortfall in relation to
the principal and interest owed.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid unaccrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Institution's
past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral and current economic
conditions.
Foreclosed Real Estate
The Institution's real estate acquired by foreclosure is initially recorded
at the net realizable value at the date of foreclosure. Costs relating to
the improvement of property are capitalized. Holding costs are charged to
expense as incurred. Valuations are periodically performed by management,
and an allowance is established by a charge to operations if the carrying
value of the asset exceeds its fair value.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes. A valuation allowance must also be
established to the extent to which sufficient evidence does not exist to
support realization of a deferred tax benefit arising from temporary
differences.
Premises and Equipment
Leasehold improvements and furniture, fixtures and equipment are carried at
cost, less accumulated depreciation and amortization. Furniture, fixtures
and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets. The cost of leasehold improvements is
being amortized using the straight-line method over the terms of the related
leases.
10
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
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December 31, 1999 and 1998
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NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Earnings Per Share
Basic earnings per share have been computed on the basis of the
weighted-average number of shares of common stock outstanding. The
weighted-average number of shares outstanding was 931,465 and 844,238 in
1999 and 1998, respectively.
Diluted earnings per share have been computed using the weighted-average
shares outstanding during the year plus the potential effect of shares
issued for stock options outstanding (939,360 and 866,376 for 1999 and 1998,
respectively). The potential dilutive securities have no effect on net
income used to compute diluted earnings per share.
Comprehensive Income
The Institution adopted Statement of Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income, as of January 1, 1998. The
Institution had no items of other comprehensive income in 1998.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over
the assets has been surrendered. Control over transferred assets is deemed
to be surrendered when (1) the assets have been isolated from the
Institution, (2) the transferee obtains the right (free of conditions that
constrain it from taking advantage of that right) to pledge or exchange the
transferred assets and (3) the Institution does not maintain effective
control over the transferred assets through an agreement to repurchase them
before their maturity.
Reclassifications
Certain reclassifications have been made to the 1998 financial statements to
conform to the 1999 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, effective for
fiscal years beginning after June 15, 2000. This Statement establishes
accounting and reporting standards for derivative instruments and hedging
activities, including certain derivative instruments embedded in other
contracts, and requires that an entity recognize all derivatives as assets
or liabilities in the balance sheet and measure them at fair value. If
certain conditions are met, an entity may elect to designate a derivative as
follows: (1) a hedge of the exposure to changes in
11
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
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December 31, 1999 and 1998
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NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
the fair value of a recognized asset or liability or an unrecognized firm
commitment, (2) a hedge of the exposure to variable cash flows of a
forecasted transaction or (3) a hedge of the foreign currency exposure of an
unrecognized firm commitment, an available-for-sale security, a foreign
currency denominated forecasted transaction, or a net investment in a
foreign operation. The Statement generally provides for matching the timing
of the recognition of the gain or loss on derivatives designated as hedging
instruments with the recognition of changes in the fair value of the item
being hedged. Depending on the type of hedge, such recognition will be in
either net income or other comprehensive income. For a derivative not
designated as a hedging instrument, changes in fair value will be recognized
in net income in the period of change. Management is currently evaluating
the impact of adopting this Statement on the consolidated financial
statements, but does not anticipate that it will have a material impact.
- --------------------------------------------------------------------------------
NOTE B--INVESTMENT SECURITIES
Investment securities classified as available for sale are recorded at their
estimated market value. The carrying values and estimated fair values of
investment securities are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $ 1,229,844 $ 14,316 $ -- $ 1,244,160
---------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $ 4,398,035 $ -- $ -- $ 4,398,035
---------------------------------------------------------------------
Investment securities classified as held to maturity are recorded at
amortized cost. The carrying amounts and estimated fair values of such
investment securities are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------
Bonds, notes and debentures at
amortized cost:
U.S. government and agency
obligations $ 5,515,473 $ 1,463 $ (119,750) $ 5,397,186
Mortgage-backed securities 5,466,071 11,059 (54,031) 5,423,099
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$ 10,981,544 $ 12,522 $ (173,781) $ 10,820,285
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12
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
- --------------------------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE B--INVESTMENT SECURITIES--Continued
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------
Bonds, notes and debentures at
amortized cost:
U.S. government and agency
obligations $ 454,874 $ 687 $ -- $ 455,561
Mortgage-backed securities 7,648,253 6,435 (34,520) 7,620,168
---------------------------------------------------------------------
$ 8,103,127 $ 7,122 $ (34,520) $ 8,075,729
---------------------------------------------------------------------
The scheduled maturities of securities at December 31, 1999, were as
follows:
Securities Available Securities Held
for Sale to Maturity
-------------------------------- --------------------------------
Amortized Fair Amortized Fair
December 31, 1999 Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------------------------------
Due within one year $ -- $ -- $ -- $ --
Due from one year to five years -- -- 142,880 139,439
Due from five to ten years -- -- 647,301 609,631
Due after ten years 1,229,844 1,244,160 10,191,363 10,071,215
---------------------------------------------------------------------
$ 1,229,844 $ 1,244,160 $ 10,981,544 $ 10,820,285
---------------------------------------------------------------------
Investments with carrying values of $7,206,180 and $3,767,992 were pledged
at December 31, 1999 and 1998, respectively.
Gross realized gains and losses on sales of available for sale securities
totaled $1,727 and $-0- in 1999. There were no sales of securities in 1998.
The tax provision for the 1999 gain amounted to $656.
During 1999, the Institution sold a held-to-maturity security for a loss of
$278. At the time of sale, the security's remaining unamortized cost totaled
approximately $375,000. Management intended to sell an available for sale
security rather than the held-to-maturity security. As such, management does
not believe the sale taints the remaining held-to-maturity portfolio.
- -------------------------------------------------------------------------------
NOTE C--LOAN SERVICING
Loans serviced for others are not included in the accompanying consolidated
statements of financial condition. The unpaid principal balances of loans
serviced for others were $2,859,085 and $4,420,243 at December 31, 1999 and
1998, respectively.
13
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
- --------------------------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE D--LOANS RECEIVABLE
Loans receivable at December 31, are summarized as follows:
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
First mortgage loans (conventional)
Principal balances
Secured by one- to four-family residences $ 13,614,149 $ 11,542,419
Secured by other properties 8,890,000 7,945,035
Construction loans 14,827,808 12,329,363
-----------------------------------------------
37,331,957 31,816,817
Unamortized loan premiums 5,920 6,045
Deferred loan origination fees, net (105,469) (112,674)
-----------------------------------------------
Total first mortgage loans 37,232,408 31,710,188
Consumer and other loans
Principal balances
Consumer 906,015 832,140
Second mortgage 130,295 125,883
Commercial 9,894,594 8,064,964
-----------------------------------------------
Total consumer and other loans 10,930,904 9,022,987
Less allowance for loan losses (481,407) (458,925)
-----------------------------------------------
$ 47,681,905 $ 40,274,250
-----------------------------------------------
Mortgage loans in the amount of $3,917,094 at December 31, 1999 were pledged
as collateral for borrowings from the Federal Home Loan Bank. No mortgage
loans were pledged as collateral for borrowings from the Federal Home Loan
Bank at December 31, 1998.
Activity in the allowance for loan losses is summarized as follows for the
years ended December 31:
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 458,925 $ 401,085
Provisions, charged to operations 130,000 85,000
Loans charged off (172,476) (38,120)
Recoveries 64,958 10,960
-----------------------------------------------
Balance, end of year $ 481,407 $ 458,925
-----------------------------------------------
14
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
- -------------------------------------------------------------------------------
December 31, 1999 and 1998
- -------------------------------------------------------------------------------
NOTE D--LOANS RECEIVABLE--Continued
Impairment of loans has been recognized in conformity SFAS No. 114, as
amended by SFAS No. 118. The following is a summary of information
pertaining to impaired loans at December 31:
1999 1998
---------------------------------------------------------------------------- ----------------------- -----------------------
Impaired loans without a valuation allowance $ -- $ --
Impaired loans with a valuation allowance 1,331,032 1,390,500
----------------------- -----------------------
Total impaired loans $ 1,331,032 $ 1,390,500
----------------------- -----------------------
Valuation allowance related to impaired loans $ 133,103 $ 130,755
----------------------- -----------------------
1999 1998
---------------------------------------------------------------------------- ------------------------ ----------------------
Average investment in impaired loans $ 1,360,766 $ 819,550
------------------------ ----------------------
Interest income recognized on impaired loans 162,450 118,426
------------------------ ----------------------
Interest income recognized on a cash basis on impaired loans $ 162,450 $ 118,426
------------------------ ----------------------
Loans having carrying values of $738,518 and $281,645 were transferred to
foreclosed real estate in 1999 and 1998, respectively.
The Institution is not committed to lend additional funds to debtors whose
loans have been modified.
- -------------------------------------------------------------------------------
NOTE E--ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows at December 31:
1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Investments $ 91,249 $ 86,850
Loans receivable 354,061 274,711
---------------------------------------------------
$ 445,310 $ 361,561
---------------------------------------------------
15
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
- --------------------------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE F--FORECLOSED REAL ESTATE
Foreclosed real estate consists of the following at December 31:
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Land $ 7,500 $ 10,000
One- to four-family residences 149,919 --
--------------------------------------------------
$ 157,419 $ 10,000
- ------------------------------------------------------------------------------==================================================
NOTE G--PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows at December 31:
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Leasehold improvements $ 476,616 $ 475,416
Furniture, fixtures and equipment 593,570 526,368
--------------------------------------------------
1,070,186 1,001,784
Less accumulated depreciation and amortization (558,419) (442,856)
--------------------------------------------------
$ 511,767 $ 558,928
==================================================
NOTE H--DEPOSITS
Deposits are summarized as follows at December 31:
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Demand and NOW accounts $ 9,354,305 $ 13,254,862
Money market deposit accounts 4,118,167 2,454,337
Statement savings 3,684,890 3,279,300
--------------------------------------------------
17,157,362 18,988,499
Certificates of deposit 37,970,400 39,030,473
--------------------------------------------------
$ 55,127,762 $ 58,018,972
==================================================
16
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
- --------------------------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE H--DEPOSITS--Continued
The aggregate amount of short-term certificates of deposit with a minimum
denomination of $100,000 was approximately $6,521,813 and $7,093,300 at
December 31, 1999 and 1998, respectively.
At December 31, 1998 the scheduled maturities of certificates of deposit are
as follows:
Year ending December 31,
- --------------------------------------------------------------------------------
2000 $ 28,346,502
2001 4,455,499
2002 2,134,007
2003 2,123,496
2004 910,896
------------------------
$ 37,970,400
------------------------
NOTE I--BORROWED FUNDS
Pursuant to collateral agreements with the Federal Home Loan Bank (FHLB),
advances are secured by all stock in the FHLB, qualifying first mortgage
loans and certain investment securities. Advances of $3,000,000 at December
31, 1999 are scheduled to mature in March 2000.
Securities sold under agreements to repurchase are classified as secured
borrowings. The Institution has a repurchase agreement with a correspondent
bank. Borrowings under this repurchase agreement generally mature within 90
days or on demand. Securities collateralizing the agreement have been
delivered to the counter party. The rate of interest on these borrowings
fluctuates in response to market conditions. The available credit is based
on the collateral provided by the Bank when the borrowing is initiated.
Interest expense on borrowed funds is summarized as follows for the years
ended December 31:
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Advances from the FHLB $ 53,550 $ 1,762
Securities sold under agreement to repurchase 398,504 108,891
--------------------------------------------------
$ 452,054 $ 110,653
--------------------------------------------------
17
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
- --------------------------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE J--INCOME TAXES
Income tax (benefit) expense at December 31, 1999 and 1998 comprises the
following:
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Federal
Current $ 33,379 $ --
Deferred 163,498 137,641
Adjustment of valuation reserve for net operating
loss utilization -- (78,641)
---------------------------------------------------
196,877 59,000
State
Current -- --
Deferred 26,323 25,810
Adjustment of valuation reserve for net operating
loss utilization -- (21,810)
---------------------------------------------------
26,323 4,000
---------------------------------------------------
Net provision $ 223,200 $ 63,000
---------------------------------------------------
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities give rise to significant portions of the
deferred tax (liability) asset at December 31:
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Accrual to cash $ (173,706) $ (90,414)
Deferred loan fees (48,031) (63,336)
FHLB stock dividends (62,773) (45,446)
Loan loss reserve 172,758 106,672
Net operating loss carryforwards -- 180,007
Other (11,509) (15,483)
---------------------------------------------------
Deferred tax (liability) asset (123,261) 72,000
---------------------------------------------------
The deferred tax asset at December 31, 1998 is reflected as a component of
other assets in the consolidated statement of financial condition.
18
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
- --------------------------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE J--INCOME TAXES--Continued
Prior to 1996, the Institution had qualified under the Internal Revenue Code
(the Code) provisions which permitted it to deduct from taxable income an
allowance for bad debts based on a percentage of taxable income before such
deduction. As an alternative, the Code allowed a bad debt deduction to be
computed based on actual experience.
During 1996, legislation was passed requiring the Institution to recapture
as taxable income the portion of its bad debt reserve in excess of its
experienced-based reserve. The Institution will be unable to utilize the
percentage of taxable income method to compute its reserve addition in the
future. The Institution must amortize the portion of its bad debt reserve
subject to recapture over six years.
Retained earnings at December 31, 1999 included earnings of approximately
$113,000 representing such bad debt deductions for which no provision for
federal income taxes had been made. If, in the future, this portion of
retained earnings is used for any purpose other than to absorb bad debt
losses, federal income taxes may be imposed at the then applicable rate.
- --------------------------------------------------------------------------------
NOTE K--REGULATORY MATTERS
The Institution is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a
material effect on the Institution's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Institution must meet specific capital guidelines that involve
quantitative measures of the Institution's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Institution's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Institution to maintain minimum amounts and ratios (set forth in
the table below) as defined by regulation. Management believes, as of
December 31, 1999, the Institution met all capital adequacy requirements to
which it is subject.
As of December 31, 1999, the most recent notification from the Office of
Thrift Supervision categorized the Institution as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions
or events since that notification that management believes have changed the
Institution's category.
19
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
- --------------------------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE K--REGULATORY MATTERS--Continued
Minimum to be
Well Capitalized
Under
Minimum for Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
------------------------------------------------------------ ---------------------------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------------------------------
As of December 31,
1999:
Total risk-based
capital to
risk-weighted
assets $ 5,223,715 12.96% $ 3,225,619 8.00% $ 4,032,023 10.00%
Tier 1 capital to
risk-weighted
assets 4,718,817 11.70% 1,612,809 4.00% 2,419,214 6.00%
Core capital to
adjusted tangible
assets 4,718,817 6.84% 2,761,798 4.00% 3,452,248 5.00%
Tangible capital to
tangible assets 4,718,817 6.84% 1,035,674 1.50% N/A N/A
As of December 31,
1998:
Total risk-based
capital to
risk-weighted
assets 4,776,287 14.01% 2,726,875 8.00% 3,409,593 10.00%
Tier 1 capital to
risk-weighted
assets 4,349,807 12.76% 1,363,437 4.00% 2,045,156 6.00%
Core capital to
adjusted tangible
assets 4,349,807 6.69% 2,602,554 4.00% 3,253,083 5.00%
Tangible capital to
tangible assets 4,349,807 6.69% 975,925 1.50% N/A N/A
20
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
- --------------------------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE K--REGULATORY MATTERS--Continued
The following is a reconciliation of the Institution's generally accepted
accounting principles capital, to its regulatory capital, at December 31,
1999:
Regulatory
-----------------------------------------------------------------------------------------------
Tangible Core Risk-Based
Capital Percentage Capital Percentage Capital Percentage
- --------------------------------------------------------------------------------------------------------------------------------
GAAP capital $ 4,727,693 6.85% $ 4,727,693 6.85% $ 4,727,693 11.73%
Accumulated
comprehensive
income (8,876) (0.01) (8,876) (0.01) (8,876) (0.02)
General valuation
allowances 504,898 1.25
-----------------------------------------------------------------------------------------------
Regulatory capital--
computed $ 4,718,817 6.84% $ 4,718,817 6.84% $ 5,223,715 12.96%
-----------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE L--COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Institution has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Institution
is involved in certain claims and legal actions arising in the ordinary
course of business. In the opinion of management, after consultation with
legal counsel, the ultimate disposition of these matters is not expected to
have a material, adverse effect on the consolidated financial position of
the Institution.
The principal commitments of the Institution are as follows:
Lease Commitments
At December 31, 1999 the Institution was obligated under non-cancelable
operating leases for office space. The Institution entered into a land lease
with an unrelated party with an initial term expiring in 2003 and two
additional 15-year options thereafter. The Institution has entered into an
office lease with a related party. The lease has a term expiring in 2004.
Annual rent expense under the lease is $81,900 for fiscal years 1999 and
2000. The lease contains a rent escalation beginning in fiscal year 2001.
The amount paid to the related party in 1999 was $73,856. Net rent expense
under operating leases, included in occupancy and equipment expense, was
$101,306 and $84,546 for the years ended December 31, 1999 and 1998,
respectively.
21
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
- --------------------------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE L--COMMITMENTS AND CONTINGENCIES--Continued
The projected minimum rental payments under the initial terms of the leases
at December 31, 1999 are as follows:
Year ending December 31,
- --------------------------------------------------------------------------------
2000 $ 126,532
2001 152,007
2002 149,516
2003 128,275
2004 19,175
Thereafter --
------------------------
$ 575,505
------------------------
Loan Commitments
In the normal course of business, the Institution makes various commitments
and incurs certain contingent liabilities that are not presented in the
accompanying consolidated financial statements. The commitments and
contingent liabilities include various guarantees, commitments to extend
credit and standby letters of credit. At December 31, 1999, commitments
under standby letters of credit aggregated $828,256. Unfunded loan
commitments totaled $11,603,893.
The amount of collateral obtained, if it is deemed necessary by the
Institution, is based on management's credit valuation of the customer.
Stock Option Plan
The Institution adopted a stock option plan and reserved 90,000 shares for
issuance. The plan expired in September 1996; granted options expired in
1999. In April 1998, the Institution adopted a new stock option plan and
reserved 100,000 shares for issuance. As of December 31, 1999, 20,000
options were outstanding under the new plan. The options granted in 1999
expire in 2006. The following table summarizes certain information regarding
outstanding options under both plans:
22
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
- --------------------------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE L--COMMITMENTS AND CONTINGENCIES--Continued
Number of
Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1998 42,000
Granted 8,250 $ 4.00-5.00
Exercised (22,325) $ 2.00-3.00
Canceled --
-----------------
Balance at December 31, 1998 27,925
Granted 22,500 $ 5.00
Exercised (1,500) $ 3.00
Canceled (2,500) $ 5.00
Expired (26,425) $ 3.00-5.00
-----------------
Balance at December 31, 1999 20,000
-----------------
The pro forma disclosures of the fair value method for stock-based
compensation required by SFAS No. 123 have been omitted, as the amounts are
considered immaterial.
- --------------------------------------------------------------------------------
NOTE M--RELATED PARTY TRANSACTIONS
Certain directors, officers, employees and stockholders of the Institution
were loan customers of the Institution during 1999 and 1998. In the opinion
of management, these loans are consistent with sound banking practices, are
within regulatory lending limitations, and do not involve more than normal
risk of collectibility. At December 31, 1999 and 1998, these loans totaled
approximately $1,044,876 and $683,900, respectively. In addition, related
party deposits held totaled approximately $776,697 and $498,243 at December
31, 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
NOTE N--STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
The Institution paid the following amounts during the years ended December
31:
1999 1998
- --------------------------------------------------------------------------------
Interest $ 2,845,663 $ 2,529,092
--------------------------------------------------
Income taxes $ 40,000 $ --
--------------------------------------------------
23
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements--Continued
- --------------------------------------------------------------------------------
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE O--RETIREMENT PLAN
The Institution has a defined contribution retirement plan which covers
substantially all full-time employees who have completed six months of
service. The Institution will contribute 50 percent of employee
contributions up to 2 percent of pre-tax income. The employer contribution
vests immediately. The Institution contributed approximately $8,613 and
$10,087 to the plan during the years ended December 31, 1999 and 1998,
respectively.
- --------------------------------------------------------------------------------
NOTE P--SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The Institution is primarily engaged in originating one- to four-family
residential and construction real estate loans in Northern Virginia. The
concentration of loans receivable by type of loan is reflected in Note D.
The Institution offers both fixed and adjustable rates of interest on these
loans, which have amortization terms ranging to 30 years. A significant
percentage of Northern Virginia borrowers are employed by service firms and
government agencies. Adverse changes in economic conditions could have a
direct effect on the timing and amount of payments by borrowers, as well as
impairing collateral values. However, management believes residential real
estate values are presently stable in its primary lending area, and loan
loss allowances have been provided for in amounts commensurate with its
current perception of the foregoing risks in the portfolio.
24
First Savings Bank of Virginia and Subsidiary
Consolidated Statements of Financial Condition (unaudited)
- --------------------------------------------------------------------------------
June 30, December 31,
2000 1999
------------ ------------
Assets
Cash and due from banks $ 5,342,327 $ 1,498,144
Federal Home Loan Bank, overnight investments 7,702,572 6,104,409
Investment securities available for sale 937,739 1,244,160
Investment Securities held to maturity 10,772,588 10,981,544
Federal Home Loan Bank stock 241,500 241,500
Loans receivable, net 49,638,944 47,681,905
Foreclosed real estate, net 7,500 157,419
Accrued interest receivable 427,752 445,310
Premises and equipment, net 458,518 511,767
Other assets 830,543 178,803
------------ ------------
$ 76,359,983 $ 69,044,961
============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits $ 59,159,657 $ 55,127,762
Advances from Federal Home Loan Bank 3,000,000 3,000,000
Securities sold under agreement to repurchase 8,860,751 5,860,751
Accrued interest payable 94,031 73,943
Advances from borrowers for taxes and insurance 42,131 37,292
Deferred income taxes 117,821 123,261
Other liabilities 204,864 94,259
------------ ------------
Total Liabilities 71,479,255 64,317,268
------------ ------------
Stockholders' Equity
Common Stock ($1 par value, 12,000,000 shares
authorized, 931,605 issued and outstanding) 931,605 931,605
Additional paid-in capital 3,276,339 3,276,339
Retained earnings 670,400 510,873
Accumulated other comprehensive income 2,384 8,876
------------ ------------
Total Stockholders' Equity 4,880,728 4,727,693
------------ ------------
$ 76,359,983 $ 69,044,961
============ ============
The accompanying notes are an integral part of these statements.
25
First Savings Bank of Virginia and Subsidiary
Consolidated Statements of Income (unaudited)
- --------------------------------------------------------------------------------
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Interest Income
Loans $ 1,109,583 $ 969,673 $ 2,257,898 $ 1,882,952
Investments 291,743 273,761 556,063 561,446
Total Interest Income 1,401,326 1,243,434 2,813,961 2,444,398
Interest Expense
Deposits 593,501 604,716 1,176,608 1,231,058
Borrowed funds 197,031 94,378 362,302 146,602
Total Interest Expense 790,532 699,094 1,538,910 1,377,660
Net Interest Income 610,794 544,340 1,275,051 1,066,738
Provision for loan losses - 75,000 225,000 85,000
Interest Income After Provision
for Loan Losses 610,794 469,340 1,050,051 981,738
Non-interest Income
Service Charges 177,470 176,420 293,348 315,435
Gain on sale of real estate owned - 49,408 4,356 49,408
Gain on sale of loans - - 139,050 -
Other 5,715 9,225 12,361 14,129
Total Non-interest Income 183,185 235,053 449,115 378,972
Non-interest Expense
Compensation and related benefits 244,941 283,274 523,551 536,068
Occupancy expense 30,598 36,114 61,308 58,609
Property and equipment expense 56,389 60,050 116,213 120,334
Professional fees 75,948 35,200 141,627 60,306
FDIC and regulatory fees 13,296 18,726 26,759 38,148
Data processing expense 47,644 39,438 96,704 81,529
Other 190,349 93,411 274,877 187,947
Total Non-interest Expense 659,165 566,213 1,241,039 1,082,941
Income Before Income Taxes 134,814 138,180 258,127 277,769
Income Tax Expense 51,800 52,400 98,600 105,500
Net Income $ 83,014 $ 85,780 $ 159,527 $ 172,269
Basic Earnings Per Share $ 0.09 $ 0.09 $ 0.17 $ 0.19
Diluted Earnings Per Share $ 0.09 $ 0.09 $ 0.17 $ 0.20
Weighted Average Number Of
Basic Shares Outstanding 930,105 930,105
931,605 931,605
Weighted Average Number Of
Diluted Shares Outstanding
931,605 930,105 931,605 930,105
The accompanying notes are an integral part of these statements.
26
First Savings Bank of Virginia and Subsidiary
Consolidated Statements Cash Flows (unaudited)
- --------------------------------------------------------------------------------
Six Months Ended June 30,
2000 1999
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net Income $ 159,527 $ 172,269
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization 62,999 53,295
Amortization of loan fees (34,320) (38,332)
Amortization of premiums and discounts on
investment securities 15,400 41,764
Provision for possible loan losses 225,000 85,000
Deferred income taxes - 53,100
Gain on sale of loans (139,050) -
Gain on sale of real estate owned (4,356) -
Decrease (increase) in accrued interest receivable 17,558 (34,883)
Decrease (increase) in other assets (651,740) 142,902
Increase in accrued interest payable 20,088 58,057
Increase (decrease) in advances from borrowers
for taxes and insurance 4,839 (4,857)
Increase in other liabilities 110,605 58,637
Total adjustments (372,977) 414,683
Net Cash Provided (Used) by Operating Activities (213,450) 586,952
Cash Flows from Investing Activities
Proceeds from sale of loans 2,282,931 -
Proceeds from sale of real estate owned 154,275 -
Purchases of equipment (9,750) (18,526)
Net increase in loans (4,303,532) (4,698,554)
Purchases of held-to-maturity securities (500,000) (5,103,658)
Sales of held-to-maturity securities - 1,916,000
Principal repayment on investments 999,977 2,446,100
Net Cash Used in Investing Activities (1,376,099) (5,458,638)
Cash Flows from Financing Activities
Net increase (decrease) in demand deposits, NOW accounts
and savings accounts 5,920,065 (788,658)
Net decrease in certificates (1,888,170) (1,568,952)
Securities sold under agreement to repurchase 3,000,000 5,569,835
Proceeds from common stock issuance - 4,500
Net Cash Provided by Financing Activities 7,031,895 3,216,725
Net Increase (Decrease) in Cash and Cash Equivalents 5,442,346 (1,654,961)
Cash and Cash Equivalents, beginning of period 7,602,553 10,611,478
Cash and Cash Equivalents, end of period $ 13,044,899 $ 8,956,517
The accompanying notes are an integral part of these statements.
27
First Savings Bank of Virginia and Subsidiary
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE A--BASIS OF PRESENTATION
The accompanying June 30, 2000 unaudited financial statements have been
prepared in accordance with the instructions to Form 10-QSB 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 six-month period ending June 30,
2000 are not necessarily indicative of the results to be expected for the
full year. These financial statements should be read in conjunction with the
financial statements and the notes included in First Savings Bank of
Virginia's (the Bank's) Annual Report for the year ended December 31, 1999.
NOTE B--MERGER AGREEMENT
First Savings Bank signed a definitive merger agreement providing for a
merger with Southern Financial Bancorp, Inc. Stockholders of the Bank will
receive .44 shares of Southern Financial Bancorp common stock in exchange
for each share of their common stock. Subject to certain conditions
including receipt of regulatory approval and approval of the shareholders of
the Bank, closing of the merger is anticipated to occur in the third quarter
of 2000.
As a result of the definitive merger agreement, provisions of employment
agreements with certain employees provide for severance payments and
additional compensation as incentives for these employees to continue
employment with the Bank through completion of the merger. The total
compensation provided in these agreements, payable at the completion of the
merger, approximates $321,000.
28
(b) Pro Forma Financial Information.
The following unaudited pro forma combined condensed financial
statements give effect to the Merger using the purchase method of accounting.
Accordingly, the assets and liabilities of First Savings have been recorded on
the Company's books at their fair market value and First Savings' capital
accounts have been eliminated. The amount by which the sum of (1) the cash paid
by the Company and (2) the market value of Company Common Stock issued in the
Merger exceeds the net fair market value of First Savings assets and liabilities
has been allocated to goodwill.
The pro forma balance sheet combines the balance sheet of the Company
and First Savings as of June 30, 2000. The pro forma income statements for the
six months ended June 30, 2000 and for the year ended December 31, 1999 combine
the results of operations of the Company and First Savings for the respective
periods. The pro forma income statement for the year ended December 31, 1999 has
been derived from audited financial statements included elsewhere herein. Pro
forma adjustments on the income statement have been computed assuming that the
Merger was consummated at the beginning of the period presented. Pro forma
adjustments on the balance sheet have been computed assuming the transaction was
consummated at June 30, 2000.
The information shown is not necessarily indicative of the results of
future operations of the combined entity or the actual results that would have
occurred had the Merger been in effect during the periods presented. These
statements and the related notes should be read in conjunction with the related
consolidated financial statements and the notes thereto of the Company, which
have been filed with the Commission, and First Savings, which are included in
Item 7(a) above.
29
SOUTHERN FINANCIAL AND FIRST SAVINGS
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 2000
(in thousands)
Southern Pro Forma
Financial First Savings Adjustments Combined
-------------- ------------------------------- ----------------
Assets
Cash and due from banks 14,696 5,342 20,038
Overnight earning deposits 3,039 7,703 10,742
Investment securities, available for sale 106,833 938 107,771
Investment securities, held-to-maturity 41,934 10,773 (140) C 52,567
Loans receivable, net 240,888 49,639 290,527
Loans held for sale 237 - 237
Premises and equipment, net 6,230 459 6,689
Other assets 13,261 1,506 14,767
5,817 B
(4,880) A
Goodwill - 147 C 2,777
1,693 A
Total Assets 427,118 76,360 2,637 506,115
Liabilities and Shareholders' Equity
Deposits 378,707 59,160 437,867
Other borrowings 14,000 11,861 25,861
Other liabilities 3,749 459 4,208
Total liabilities 396,456 71,480 - 467,936
Preferred stock - - -
Common stock, par value 27 932 4 B
(932) A 31
Paid-in capital 23,706 3,276 (3,276) A
5,813 B 29,519
Retained earnings 8,703 670 (670) A 10,403
1,700 A
Accumulated other comprehensive income (1,774) 2 (2) A (1,774)
Total shareholders equity 30,662 4,880 2,637 38,179
Total Liabilities and Shareholders' 427,118 76,360 2,637 506,115
Equity
NOTES
A: Elimination of acquired company's equity under purchase accounting
rules, which includes additional acquisition costs, goodwill
amortization, and investment purchase accounting adjustment
accretion
B: Market value of newly issued shares
C: Unrealized loss on investment securities held-to-maturity net of
accretion year-to-date
D: Goodwill acquired in the transaction, net of amortization. Southern
Financial has reasonably estimated and included the remaining
transaction costs, and operating losses prior to consummation of the
merger.
30
SOUTHERN FINANCIAL AND FIRST SAVINGS
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(in thousands)
Southern Pro Forma
Financial First Savings Adjustments Combined
-------------------------------------- ---------------- ----------------
Interest Income
Loans $ 11,532 $ 2,258 $ - $ 13,790
Investments 5,075 556 7 A 5,639
Total Interest Income 16,607 2,814 7 19,429
Interest Expense
Deposits 7,342 1,177 8,519
Borrowed funds 666 362 1,028
Total Interest Expense 8,008 1,539 9,547
Net Interest Income 8,600 1,275 7 9,882
Provision for loan losses 675 225 900
Interest Income After Provision
for Loan Losses 7,925 1,050 7 8,982
Non-interest Income
Fee income 1,283 293 1,576
Gain on sale of loans 605 139 744
Other 90 17 107
Total Non-interest Income 1,978 449 2,427
Non-interest Expense
Compensation and related benefits 3,350 524 3,873
Premises and equipment 1,238 178 1,416
Data processing expense 547 97 644
Other 1,114 443 96 B 1,653
Total Non-interest Expense 6,249 1,241 96 7,586
Income Before Income Taxes 3,653 258 (88) 3,823
Income Tax Expense 1,205 99 0 1,303
Net Income $ 2,448 $ 160 $ (88) $ 2,520
Earnings per share
Basic $ 0.92 $ 0.17 $ 0.82
Diluted
0.90 0.17 0.81
Weighted average shares outstanding
Basic 2,662 3,072
932
Diluted 3,127
2,717 932
NOTES
A: Accretion of purchase accounting adjustment on investment securities
held-to-maturity
B: Amortization of goodwill acquired over 15 years
31
SOUTHERN FINANCIAL AND FIRST SAVINGS
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1999
(in thousands)
Southern Pro Forma
Financial First Savings Adjustments Combined
------------ ------------ ------------ ------------
Interest Income
Loans $ 19,982 $ 4,141 $ - $ 24,123
Investment securities 9,774 1,072 - 10,846
------------ ------------ ------------ ------------
Total interest income 29,756 5,213 - 34,969
Interest Expense
Deposits 13,576 2,429 - 16,005
Borrowings 732 452 - 1,184
------------ ------------ ------------ ------------
Total interest expense 14,308 2,881 - 17,189
------------ ------------ ------------ ------------
Net interest income 15,448 2,332 - 17,780
------------ ------------ ------------ ------------
Provision for loan losses 2,130 130 - 2,260
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 13,318 2,202 - 15,520
Other Income
Fee income 2,155 556 - 2,711
Gain on sale of loans 1,115 22 - 1,137
Loss on sale of investment securities (692) - - (692)
Other 256 100 - 356
------------ ------------ ------------ ------------
Total other income 2,834 678 - 3,512
Other Expenses
Employee compensation and benefits 6,449 1,099 - 7,548
Premises and equipment 3,362 379 - 3,741
Restructuring charges 685 - - 685
Merger expenses 1,752 - - 1,752
Other 2,341 814 131 A 3,286
------------ ------------ ------------ ------------
Total other expenses 14,589 2,292 131 17,012
Income before taxes 1,563 588 (131) 2,020
------------ ------------ ------------ ------------
Income tax expense 602 223 - 825
------------ ------------ ------------ ------------
Net income $ 961 $ 365 $ (131) $ 1,195
============ ============ ============ ============
Earnings per common share:
Basic $ 0.36 $ 0.39 $ 0.39
Diluted 0.35 0.39 0.38
Weighted average shares outstanding
Basic 2,649 931 3,059
Diluted 2,722 939 3,135
- -------------------------
A: Amortization of goodwill over 15 years.
32
(c) Exhibits.
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Reorganization, dated as
of March 31, 2000, by and between First Savings,
the Company and the Bank, filed as Exhibit 2.1
to the Registration Statement on Form S-4 (File
No. 333-39666), dated June 19, 2000,
incorporated herein by reference.
23.1 Consent of Grant Thornton LLP.*
---------------
* Filed herewith.
33
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SOUTHERN FINANCIAL BANCORP, INC.
Dated: November 16, 2000 By: /s/ William H. Lagos
-------------------------------------
William H. Lagos
Senior Vice President
INDEX TO EXHIBITS
No. Description
- --- -----------
2.1 Agreement and Plan of Reorganization, dated as of March 31, 2000, by
and between First Savings Bank of Virginia, Southern Financial
Bancorp, Inc. and Southern Financial Bank, filed as Exhibit 2.1 to
the Registration Statement on Form S-4 (File No. 333-39666), dated
June 19, 2000, incorporated herein by reference.
23.1 Consent of Grant Thornton LLP.*
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* Filed herewith.