U.S. Securities and Exchange Commission
                            Washington, D.C.  20549


                                    FORM 10-K

        [ X ]   Annual Report Pursuant to Section 13 or 15(d) of the
                Securities Exchange Act of 1934

                                      	OR

        [   ]  Transition Report Pursuant to Section 13 or 15(d) of the
               Securities Exchange Act of 1934
	              For the transition period from                to
    


         	For the year ended:	                 Commission File No.:
	         December 31, 1996                          0-22836


              	        SOUTHERN FINANCIAL BANCORP, INC.        
	          (Exact name of registrant as specified in its charter)

                   Virginia               	      54-1779978      
        (State or other jurisdiction         (I.R.S. Employer or
        of incorporation or organization)    Identification Number)

       37 East Main Street, Warrenton, Virginia             20186    
       (Address of principal executive office)	          (Zip Code)

           	                    (540) 349-3900                    
           (Registrant's telephone number, including area code)

    Securities Registered Pursuant to Section 12(b) of the Act:  None

       Securities Registered Pursuant to Section 12 (g) of the Act:

              	Common Stock, par value $0.01 per share
	                          (Title of Class)

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 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      

Indicate by check mark if disclosure of delinquent filers pursuant to 
Item 405 of Regulation S-K is not considered herein, and will not be 
contained, to the best of the registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of the Form 
10-K or any amendment to this Form 10-K.  [   ]

The aggregate market value of the Common Stock held by non-affiliates 
of the registrant computed by reference to the last reported bid price of 
such stock as of February 28, 1997 was $10,971,226 (783,659 shares @ 
$14 per share).  For purposes of this computation, it is assumed that 
directors, executive officers and persons beneficially owning more than 
5% of the Common Stock of the registrant are affiliates.  As of February 
28, 1997, there were issued and outstanding 1,564,248 shares of the 
registrant's Common Stock.

             	DOCUMENTS INCORPORATED BY REFERENCE

       I.	Portions of Annual Report to Stockholders for the Year Ended 
          December 31, 1996, incorporated by reference into certain items of 
          Parts I. and II.

       II.	Portions of Proxy Statement for the Annual Meeting of Stockholders 
           to be held on April 24, 1997 incorporated by reference into certain 
           items of Part III.

Item 1. Business

General

Southern Financial Bancorp, Inc. ("Southern Financial" or "the 
Bank") is a Virginia corporation incorporated as a bank holding company 
under the Bank Holding Company Act of 1956, as amended.  On 
December 1, 1995, Southern Financial Bancorp, Inc. acquired all of the 
outstanding shares of Southern Financial Bank.  Southern Financial Bank, 
formerly Southern Financial Federal Savings Bank, converted from a 
savings bank to a state chartered commercial bank effective December 1, 
1995.

Headquartered in Warrenton, Virginia, Southern Financial serves 
the retail and commercial financial market as a savings and mortgage loan 
specialist from ten full service offices located in Warrenton, Herndon, 
Middleburg, Winchester, Leesburg, Fairfax and Woodbridge, Virginia. 
 Southern Financial's defined market area forms a semi-circle to the west 
of the Metropolitan Washington, D.C. area roughly centered on 
Warrenton.  The counties included in the defined market area where 
Southern Financial currently operates branches include: Loudoun 
(Middleburg and Leesburg branches), Fauquier (Warrenton branches), 
Fairfax (Herndon and Fairfax branches), Frederick county (Winchester 
branches) and Prince William (Woodbridge branch).  Other counties in 
the defined market area include: Spotsylvania, Culpepper, Rappahanock, 
Clarke and the three counties in the West Virginia panhandle.  

The inner ring of the semi-circle which comprises Southern 
Financial's market area is the bedroom community for the close in greater 
Metropolitan Washington commercial centers which have grown up in 
Northern Virginia in the past 30 years.  As the economy of the 
Metropolitan Washington area has diversified away from its concentration 
in government and government-related employment, the Dulles Corridor 
has developed into a major center for communication and high-tech 
activities.  In the process, Reston, Herndon, Tysons Corner and Fairfax 
have become important employment centers in their own right much as 
Stamford and White Plains have done outside Manhattan.  As a 
consequence, the commutable radius has pushed west out to Loudoun and 
Fauquier Counties and south and southwest to Stafford, Spotsylvania and 
Prince William Counties.  Residential real estate is much more affordable 
for comparable quality housing in Leesburg, Middleburg, Warrenton and 
Manassas and other suburban communities than in close-in suburbs.  The 
branch locations in these areas uniquely situate Southern Financial to take 
advantage of this growth in these western and southwestern sectors.

The principal business of Southern Financial is the taking of 
deposits from the general public through its home and branch offices and 
using these deposits and other borrowed funds for the origination of 
adjustable rate and, to a lesser extent, fixed rate first and second mortgage 
loans for the purpose of constructing, financing, or refinancing one- to 
four-family, owner-occupied residential real estate in northern Virginia 
and the surrounding Washington, D.C. suburbs.  Additionally, the Bank 
is involved in commercial lending in conjunction with the Small Business 
Administration ("SBA") 504 and 7(a) loan programs.  The Bank also 
invests funds in mortgage-backed securities, callable securities issued by 
Agencies of the Federal Government, and preferred stock of the Federal 
Home Loan Mortgage Corp.

The principal sources of funds for the Bank's lending activities are 
deposits, amortization and repayment of loans, proceeds from the sales of 
loans, prepayments from mortgage-backed securities, repayments of 
maturing callable agency securities, FHLB advances and other borrowed 
money.

Principal sources of revenue are interest and fees on real estate 
mortgage loans and mortgage-backed securities and gains from the sale of 
mortgage loans, as well as fee income derived from the maintenance of 
deposit accounts.  The Bank's principal expenses include interest paid on 
deposits and advances from the FHLB and other borrowings, and 
operating expenses.


Mortgage-backed Securities

The Bank invests in mortgage-backed securities ("MBS") that are 
insured or guaranteed by Federal Home Loan Mortgage Corporation 
("FHLMC"), Government National Mortgage Association ("GNMA") and 
Federal National Mortgage Association ("FNMA").  To a lesser extent, 
the Bank also invests in collateralized mortgage obligations.  At 
December 31, 1996, the portfolio consisted of $63.2 million in securities 
classified as held-to-maturity and $0.9 million classified as available-for-
sale.  Typically, the Bank invests the proceeds from the sale of its fixed 
rate mortgages in 30-year adjustable rate mortgage-backed securities.  
This helps control Southern Financial's exposure to rising interest rates. 
 These mortgage-backed securities are all placed in the held-to-maturity 
category.  In addition, from time to time the Bank may elect to purchase 
fixed rate mortgage-backed securities when the yield spread between fixed 
rate and adjustable rate securities substantially favors the former, and the 
risk of substantial rises in interest rates is acceptably low.  Approximately 
86.6% of the MBS held-to-maturity adjust annually or more often. The 
remainder have fixed rates of interest and original maturities of 15 years. 
At December 31, 1996, the weighted average interest rate was 7.04% for 
securities held-to-maturity and 7.50% for securities available-for-sale.  
The contractual maturities of all mortgage-backed securities exceeded ten 
years; however the actual average life could be shorter due to 
prepayments of the underlying collateral.  For further information as to 
the composition of the portfolio, see footnote 3 to the Financial Statements 
in Southern Financial's December 31, 1996 Annual Report.


LENDING


Lending Activities

The principal lending activity of Southern Financial is the 
origination of conventional and government fixed and adjustable rate real 
estate loans to enable borrowers to purchase or refinance one-to four-
family owner-occupied residential property.  In addition, Southern 
Financial makes owner-occupied residential construction loans secured by 
first liens on the properties to which they relate. The Bank also makes 
loans on commercial real estate primarily through various lending 
programs of the U.S. Small Business Administration program.  
Approximately 87.5% of the Bank's total loan portfolio, or $94.7 million, 
consisted of loans secured by real estate.  To a lesser extent, Southern 
Financial also makes commercial business and secured and unsecured 
consumer loans.  Recently, Southern Financial became a certified SBA 
lender.

Southern Financial makes fixed and adjustable rate, first mortgage 
loans with terms from three to 30 years. It offers second mortgages in 
conjunction with its own first mortgages or those of other lenders.  These 
second mortgages typically have terms of five to 15 years and have rates 
2% to 3% above the prevailing rate for fixed rate and adjustable rate first 
mortgages at the time of origination.  Southern Financial makes 
construction loans and permanent loans on individual single family 
residences and on other residential properties up to $2.0 million.  
Construction loans generally have interest rates of prime plus one to one 
and a half percent and fees of one to three points, loan-to-value ratios of 
80% or less based on current appraisals and terms of generally nine 
months or less.  In the case of conventional loans, Southern Financial 
typically lends up to 80% of the appraised value of single-family 
residences.  Although it has lent up to 90% of appraised value, Southern 
Financial requires private mortgage insurance for such loans.

At December 31, 1996, Southern Financial's total loan portfolio, 
before net items, was $110.2 million.  Approximately 85.6% of these 
loans, or $92.7 million, had adjustable rates of interest.  Approximately 
32.4% of the total outstanding loans consisted of loans secured by 
permanent first mortgages on one-to-four family residential property.  
Southern Financial sells virtually all of its newly originated, fixed rate 
residential mortgage loans in the secondary market.

Residential Lending.

Southern Financial originates, for its portfolio and for sale in the 
secondary market, both fixed and adjustable rate mortgage loans.  
Southern Financial sells mainly fixed rate mortgages in the secondary 
market and adjustable rate mortgages that do not meet Southern 
Financial's portfolio criteria.  Residential mortgage loans are secured by 
single-family homes.  At December 31, 1996, loans secured by residential 
property, both permanent and construction, totaled $40.6 million, which 
represented, before net items, approximately 36.9% of Southern 
Financial's real estate loan portfolio.

Southern Financial principally originates residential real estate loans 
through internal loan production personnel, some of whom work on a 
commission basis.  Once a borrower has applied for a loan, the complete 
loan application package is reviewed by Southern Financial's salaried loan 
processors.  As part of the loan review process, qualified independent 
appraisers inspect and appraise the property which would secure the loan. 
 In addition, information concerning income, financial condition, 
employment and credit history of the borrower is reviewed and analyzed. 
 Loan applications are then evaluated at various levels of authority, 
depending upon the amount and type of the loan.  Mortgage loans 
exceeding $250,000, unsecured consumer loans exceeding $100,000, 
secured consumer loans exceeding $150,000 and commercial business 
loans exceeding $150,000 all must be approved by Southern Financial's 
Credit Committee.  Loans of lesser amounts may be approved by 
Chairman and Chief Executive Officer Georgia S. Derrico.

Income from residential lending activity includes loan origination 
fees or points, underwriting fees, gain (or loss) from the sale of mortgage 
loans and, to a lesser extent, loan servicing income.  Earnings from this 
activity depend on Southern Financial's ability to originate, profitably sell 
and service mortgage loans.  Ability to originate increasing volumes of 
mortgage loans in the future in order to generate fee income will be 
dependent on both competitive and economic factors.  In particular, 
higher interest rates tend to result in lower mortgage activity and, hence, 
lower income.

Southern Financial also offers residential construction mortgage 
loans in connection with permanent mortgage loans. These loans generally 
provide for interest-only payments during the construction period and may 
subsequently convert to a permanent mortgage loan.  Depending on the 
interest rate environment, the rates can be fixed or adjustable; however, 
the term of these loans is usually no longer than nine months.  With 
respect to residential construction loans, independent appraisers inspect 
the property periodically and prior to authorizing scheduled 
disbursements.  The application process is the same as that required for 
permanent residential mortgage loans.  Residential real estate construction 
loans comprised approximately 5.1% of Southern Financial's loan 
portfolio at December 31, 1996.


As described below, Southern Financial currently offers several 
types of residential loans.

Adjustable Rate Mortgage Loans ("ARMs").   Southern Financial 
currently offers ARMs with interest rate adjustments occurring at one-, 
three- and five-year intervals.  The ARMs have a 30-year amortization 
period and provide for adjustment to the interest rate based upon one-
year, three-year and five-year U.S. Treasury Notes adjusted to constant 
maturity, plus a margin which is determined at the time of application and 
remains constant for the life of the loan.  The margin for conforming 
residential loans is generally 2.75%.  For other types of loans, including 
non-conforming residential loans and commercial loans, the margin may 
range from 3.0% to 4.0% following market practices.  Interest rate 
increases are generally limited to a maximum of 2% per year and a 
maximum of 5% or 6% over the life of the loan.  The Bank structures all 
of its residential loans to the standards of the secondary market and 
classifies new loans to be held in the Bank's portfolio or to be held for 
sale.  By originating loans to the standards of the secondary market, the 
uniformity and quality of the loan portfolio is enhanced.

In certain cases interest rates charged by Southern Financial during 
the first year of an ARM may not reflect the full margin which will be 
charged in later years.  The practice of offering an initial rate below the 
fully indexed market rate is commonly referred to as offering a "teaser 
rate."  The amount of the original discount from the fully indexed rate, 
if a significant discount is employed, can have a dramatic impact on the 
actual rate of the loan over the loan's contractual term.  Most adjustable 
rate mortgages have periodic and lifetime caps, and in many cases the 
lifetime caps are a certain amount above the initial loan rate.  To the 
extent that the loan rate is discounted from the current market rate, the 
lifetime cap is also impacted by the same amount of the discount.  
Southern Financial, while at times employing an initial discount to the 
fully indexed rate to remain competitive with other mortgage lenders in 
the Bank's market, does not believe that the amount of discount employed 
is significant enough to have a material impact on the overall profitability 
of the loan.  To ensure that the borrower has the capacity to repay the 
loan, all adjustable rate mortgage loans are underwritten at the time of 
origination based upon the fully indexed interest rate.  In no cases are 
adjustable mortgage loans originated where the scheduled payment is 
insufficient to meet the borrowers interest due which would result in a 
negative amortization of the loan.  In short, Southern Financial's policy 
is not to offer "teaser rates" which involve negative amortization.

Despite the benefits of ARMs to Southern Financial's asset/liability 
management program, they do pose potential additional risks, primarily 
because as interest rates rise, the underlying payments by the borrower 
rise, thereby increasing the potential for default.  At the same time, the 
marketability of the underlying property may be adversely affected by 
higher interest rates.

Fixed Rate Loans.  Southern Financial also originates fixed rate 
mortgage loans for sale in the secondary market and, to a limited extent, 
for its portfolio.  Southern Financial's fixed rate loans have terms ranging 
from 3 to 30 years, with monthly payments which fully amortize the 
principal and interest over the life of the loan or over 30 years with 
balloon payments maturing in less than 30 years. Virtually all 30-year 
fixed rate residential mortgages originated during recent fiscal years were 
sold in the secondary market.


Commercial Real Estate Lending.

A large majority of Southern Financial's commercial real estate 
lending is done in conjunction with the SBA 504 loan program.  The SBA 
504 Loan Program is an economic development program of the U.S. 
Small Business Administration.  The Small Business Administration, in 
cooperation with banks and other lending institutions, finances the 
expansion of small businesses. Costs can include purchase of land and 
building, renovation, new construction, soft costs such as interim interest, 
points on construction financing, professional fees (architect, engineer, 
etc.), and machinery and equipment with a 10-year minimum useful life. 
 The minimum SBA 504 Loan amount is $50,000, and the maximum is 
$750,000.  Once the loan is approved at the Small Business 
Administration, an "Authorization and Debenture Guarantee" is issued. 
 Signed by the small business and the Small Business Administration, it 
provides authorization to lend to the small business under the terms and 
conditions listed and constitutes a take-out commitment to the interim 
lender (usually the same as the permanent lender).  Once a project is 
finished, two separate permanent loans are in place. One is the bank's 
first trust loan, which is a conventional loan at market rates with a 
minimum call of 10 years for real estate, and a 7-year call for machinery 
and equipment. In addition, there is a second trust SBA 504 loan which 
has a fixed rate of interest.  The term of this second loan is 20 years for 
real estate and 10 years for machinery and equipment. Those businesses 
that qualify for the SBA 504 loan program must, in turn, create jobs as a 
result of the expansion.


The Bank has participated in the SBA 504 loan program since late 
1991.  The credit structure of the 504 program offers borrowers access to 
90% financing of the entire project.  Of the 90%, 50% is provided by the 
financial institution (the first trust mentioned above), and 40% is provided 
by the certified development company (the 504 representative) with a 
second trust; the remaining 10% of the funds for the project is provided 
by the borrower.  Southern Financial approved SBA 504 loans of 
approximately $18.3 million in the year ended December 31, 1996, $12.4 
million in the six months ended December 31, 1995 and $25 million in the 
fiscal year ending June 30, 1995.  Southern Financial is also an approved 
lender for Section 7(a) Small Business Administration loans.  In addition 
to financing fixed assets, this program can also be used to finance 
working capital, inventory purchase and equipment.  In the year ended 
December 31, 1996, the six months ended December 31, 1995 and the 
fiscal year ended June 30, 1995, Southern Financial originated 
approximately $4.3 million, $1.3 million and $1 million, respectively, in 
Section 7(a) loans.

Consumer and Commercial Business Lending.

Southern Financial offers various types of secured and unsecured 
consumer and commercial business loans. In general, these loans involve 
somewhat more credit risk than do residential mortgage loans and, 
therefore, usually yield a higher return to Southern Financial.  There is 
increased credit risk for consumer and commercial loans due to the type 
of collateral securing these loans.  The increased risk also derives from 
the expectation that commercial loans generally will be serviced 
principally from the business operations conducted, and such operations 
may not be successful and, hence, may lead to default on the loan.  
Historical trends have shown these types of loans to have higher 
delinquencies than residential loans. The residential loan, as a collateral 
loan, is a stable asset.  Additionally, since the collateral is typically a 
principal residence, the borrower traditionally makes a conscious effort 
to assure payments are made on the loan.  At December 31, 1996, 
Southern Financial had $15.5 million of consumer and commercial 
business loans which represent 14.3% of Southern Financial's total loans 
receivable.

Income From Lending Activities.

Southern Financial realizes interest and loan fee income from its 
lending activities.  In addition to loan origination fees (or points) and 
commitment fees for making commitments to originate single-family 
residential loans, Southern Financial receives late charges relating to loans 
which it services.  Interest on loans and mortgage-backed securities, gains 
on sale of loans, loan fees and service charges together comprised 
substantially all of Southern Financial's total revenues for year ended 
December 31, 1996.

Typically, Southern Financial charges up to a maximum of 4.0% 
loan origination fees (or points) on residential mortgage loans.  In 
accordance with Statement of Financial Accounting Standard No. 91, 
"Accounting for Non-Refundable Fees and Costs Associated with 
Originating or Acquiring Loans and Initial Direct Costs of Leases" 
("SFAS 91"), loan origination fees and direct loan origination costs are 
deferred and amortized as an adjustment to loan yield over the contractual 
life of the loan.  Deferred loan fees and costs are classified as part of the 
loan balances to which they relate on the balance sheets.

Income from loan origination and commitment fees and other fees 
are sources of income which vary with the volume and type of loans and 
commitments made and purchased and with competitive and economic 
conditions.


Loan Portfolio Composition

The following table sets forth the composition of Southern 
Financial's loan portfolio during the periods indicated. 

Loans by Security

                      December 31, 1996  December 31, 1995    June 30, 1995
                       Amount   Percent   Amount  Percent    Amount   Percent
                                        (amounts in thousands)
Mortgages
 Residential          $35,033   32.35%   $37,583   36.05%    $40,123   43.57%
 Nonresidential        46,549   42.99%    36,742   35.24%     29,216   31.73%
  Construction
  Residential           5,616    5.19%     8,516    8.17%      8,460    9.19%
   Nonresidential       7,510    6.94%    11,028   10.58%      5,941    6.45%
    Total Real Estate  94,708   87.47%    93,869   90.04%     83,740   90.94%

Other Loans
 Consumer
  Loans on Deposits       621    0.57%      561     0.54%        344    0.37%
  Auto                  1,113    1.03%      993     0.95%        991    1.08%
  Other                 1,560    1.44%    1,207     1.16%        868    0.94%
   Total Consumer       3,294    3.04%    2,761     2.65%      2,203    2.39%
 Business              12,198   11.26%    9,265     8.89%      7,636    8.29%
    Total Other        15,492   14.30%   12,026    11.54%      9,839   10.68%

Gross Loans           110,200  101.77%  105,895   101.58%     93,579  101.62%

Less:
 Deferred Fees            412    0.38%      454     0.44%        442    0.47%
 Allowance/Loan Losses  1,501    1.39%    1,190     1.14%      1,057    1.15%

Tot Lns Receiv, Net  $108,287  100.00% $104,251   100.00%    $92,080  100.00%




Loans by Type

                           December 31, 1996  December 31, 1995  June 30, 1995
                            Amount  Percent   Amount  Percent   Amount Percent
                                           (amounts in thousands)
Fixed Rate Loans
 Mortgages
  Residential              $10,354    9.56%   $9,347    8.97%  $10,203  11.08%
  Nonresidential             2,741    2.53%    1,289    1.24%      980   1.06%
  Construction
   Residential                   0    0.00%       74    0.07%       19   0.02%
   Nonresidential                0    0.00%        0    0.00%      149   0.16%
    Total Mortgages         13,095   12.09%   10,710   10.28%   11,351  12.32%
 Nonmortgages
  Consumer                   2,310    2.13%    2,596    2.49%    2,065   2.24%
  Business                   2,101    1.94%    5,505    5.28%    2,166   2.35%
    Total Fixed Rate Loans  17,506   16.17%   18,811   18.05%   15,582  16.91%

Adjustable Rate Loans
 Mortgages
  Residential               24,679   22.79%   28,236   27.08%   29,920  32.49%
  Nonresidential            43,808   40.46%   35,453   34.01%   28,236  30.66%
  Construction
   Residential               5,616    5.19%    8,442    8.10%    8,441   9.17%
   Nonresidential            7,510    6.94%   11,028   10.58%    5,792   6.29%
    Total Mortgages         81,613   75.37%   83,159   79.77%   72,389  78.61%
 Nonmortgages
  Consumer                    984    0.91%       165    0.16%    	 138   0.15%
  Business                 10,097    9.32%     3,760    3.61%    5,470   5.94%
   Tot Adj Rate Loans      92,694   85.60%    87,084   83.54%   77,997  84.70%

Gross Loans               110,200  101.77%   105,895  101.59%   93,579 101.61%

Less:
 Deferred Fees                412    0.38%       454    0.44%      442   0.48%
 Allowance Loan Losses      1,501    1.39%     1,190    1.15%    1,057   1.13%

Total Loans Receiv, Net  $108,287  100.00%  $104,251  100.00%  $92,080 100.00%



Contractual Repayments

The following table sets forth the contractual principal repayments of the 
total loan portfolio of Southern Financial as of December 31, 1996 by 
categories of loans.  Adjustable and floating rate loans are included in the 
period in which such loans are contractually due.  Contractual principal 
repayments of loans do not necessarily reflect the actual term of Southern 
Financial's loan portfolio.  The average life of mortgage loans is 
substantially less than their contractual terms because of loan payoffs and 
prepayments.  The total loans at December 31, 1996 are before net items.


                                                Principal Repayments
                                                    Contractually
                                Principal       Due in Years Ending
                                 Balance               1998-     2002 and
                                12/31/96     1997      2001     Thereafter
                                            (in thousands)

Real Estate Mortgage Loans       $81,582    $7,116    $4,639    $69,827
Real Estate Construction Loans    13,126    13,126         0          0
Business & Consumer Loans         15,492     8,548     4,635      2,309

        Total                   $110,200   $28,790    $9,274    $72,136

The following table sets forth the dollar amount of all loans before net 
items, due after one year from December 31, 1996, which have 
predetermined interest rates and have floating or adjustable interest rates. 

                                   Fixed     Adjustable
                                     (in thousands)

Real Estate Mortgage Loans       $10,633      $59,581
Business and Consumer Loans        3,897        3,053 

         Total                   $14,530      $62,634


Originations, Sales and Repayments of Loans

The following table shows the loan origination, sales and repayment 
activities of Southern Financial for the periods indicated, excluding loan 
fees, premiums, discounts, and amortization. 


                                                    Six Months
                                       Year Ended      Ended      Year Ended
                                       December 31,  December 31,   June 30,
                                          1996         1995          1995
                                                  (in thousands)
Originations by Type:
   Residential Real Estate              $26,618       $13,917       $30,634
   Nonresidential Real Estate            29,573        16,104        41,449
   Consumer                               2,156         1,094         1,993
   Business                               6,632         3,521         8,711 
 
      Total Loans Originated             64,979        34,636        82,787

Purchase of Real Estate Loans                 0             0         3,943  
Sales of Real Estate Loans               10,232         4,328        20,145
Principal Repayments                     50,442        17,316        41,020

     Total Increase in Gross Loan       $ 4,305       $12,992       $25,565

Loan Underwriting Policies

Because future loan losses are so closely intertwined with its 
associated underwriting policy, Southern Financial has instituted what it 
believes is a stringent loan underwriting policy.  Its underwriting 
guidelines are tailored for particular credit types, including lines of credit, 
revolving credit facilities, demand loans, term loans, equipment loans, 
real estate loans, SBA loans, stand-by letters of credits and unsecured 
loans.

More specifically, it is Southern Financial's policy to encourage all 
loan applicants for sound and lawful purposes, regardless of race, religion 
or creed.  Extensions of credit will be made if the criteria of 
creditworthiness, likelihood of repayment and proximity to market areas 
served indicate that such extensions of credit will provide acceptable 
profitability to Southern Financial.

Detailed loan applications are obtained to determine the borrower's 
ability to repay, and the more significant items on these applications are 
verified through the use of credit reports, financial statements and 
confirmations.  All property valuations are performed by independent 
outside appraisers who are approved annually by Southern Financial's 
Board of Directors.

It is Southern Financial's policy to retain a mortgage creating a valid 
lien on real estate and to obtain a title insurance policy that insures the 
property is free of encumbrances.  Also required from the borrower are 
hazard and flood insurance where the property is in a flood plain as 
designated by the Department of Housing and Urban Development.  Most 
borrowers are also required to advance funds on a monthly basis from 
which Southern Financial makes disbursements for items such as real 
estate taxes, private mortgage insurance (required when the loan to value 
ratio exceeds 80%) and hazard insurance.

Under the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 ("FIRREA"), the aggregate amount of loans that 
Southern Financial may make to one borrower is limited to 15% of 
Southern Financial's unimpaired capital and surplus.  The maximum 
amount of loans which Southern Financial could have made to one 
borrower as of December 31, 1996 was approximately $2.4 million based 
on 15% of its unimpaired capital and surplus.  As of December 31, 1996, 
the largest aggregate amount of such loans by Southern Financial to any 
one borrower was $2.3 million.

All commercial loans must be approved by the Chief Executive 
Officer and one other authorized officer prior to disbursement of funds. 
 In cases where the loan amount exceeds $250,000 as to real estate or 
$150,000 on other loans, the commercial loan must be approved by the 
Credit Committee and further reported to the full Board of Directors.  
The information regarding the loan and its borrower must include 
financial statements (audited in all credit applications of $500,000 or 
more).  Supporting financial data must be verified by bank references, 
trade credit checks and similar procedures.  In addition, all commercial 
loan files are reviewed on an annual basis to ensure both the quality and 
timeliness of the information contained.

Interest rates charged by Southern Financial are affected primarily 
by competitive market factors.  These factors include general economic 
conditions, monetary policies of the Federal Reserve Bank, legislative tax 
policies and government budgetary matters.

The Credit Committee, which consists of two outside members of 
the Board of Directors and the Chief Executive Officer, is responsible for 
the qualitative review of the loan portfolio, for approving all loans 
exceeding lending officers' authorities ($250,000 on real estate loans and 
$150,000 on other loans) and for assuring compliance with all of the 
Board's policies and procedures as well as all applicable state and federal 
laws, rules and regulations.  All loans approved by the Credit Committee



 are reported to the full Board of Directors at its next regularly 
scheduled meeting.

Individual lending authorities are determined by the Chief Executive 
Officer based on the individual's technical ability and must be agreed to 
by the Credit Committee.  All authorities are reviewed at least annually 
by the full Board of Directors.

When a borrower fails to make a required payment, Southern 
Financial attempts to cause the deficiency to be cured by contacting the 
borrower.  After 17 days, a reminder notice is sent indicating that a late 
charge has been levied.  After 30 days delinquency, the borrower is 
contacted by phone and responses are documented.  After 90 days, if the 
loan has not been brought current or an acceptable arrangement is not 
worked out with the borrower, Southern Financial will institute measures 
to remedy the default, including commencing foreclosure action with 
respect to mortgage loans and repossessions of collateral in the case of 
consumer loans.

If foreclosure is effected, the property is sold at a public auction in 
which Southern Financial may participate as a bidder. If Southern 
Financial is the successful bidder, the acquired real estate property is then 
included in its real estate owned account until it is sold.  Such assets are 
carried at the lower of cost or fair value net of estimated selling costs.  To 
the extent there is a decline in value, that amount is charged to operating 
expense.


Past Due Nonperforming Loans and Investment in Real Estate

The following table sets forth information regarding past due 
nonperforming loans and investment in real estate held by Southern 
Financial at the dates indicated. 

                                            Dec. 31   Dec. 31   June 30,
                                              1996     1995      1995
                                              (amounts in thousands)

Accruing Loans 90 Days or More Delinquent
   Residential Real Estate                  $    0      $878      $607
   Nonresidential Real Estate                   28         0       196
   Business & Consumer                           0         3         2

        Total                                   28       881       805

Nonperforming Loans
   Residential Real Estate                     321       541         0
   Nonresidential Real Estate                1,257         0         0
   Business                                     49         0        39
   Consumer                                      7        50        15
      
      Subtotal                               1,634       591        54

Real Estate Owned
   Residential                                 340       357       387

Total Nonperforming Assets                  $1,974      $948      $441

Total Nonperforming Assets to Total Assets    1.03%     0.58%     0.28%

At December 31, 1996, Southern Financial owned one property for 
$340,023 secured by residential real estate.

In general, loans are placed on non-accrual status when management 
believes, after considering economic and business conditions and 
collection efforts, that the borrower's financial condition is such that 
collection of interest is doubtful.  At December 31, 1996 Southern 
Financial had approximately $1.9 million in non-performing loans which 
consisted of six mortgage loans and two nonmortgage loans.  Five of the 
mortgage loans were secured by residential real estate, and one was 
secured by commercial real estate.  One non-mortgage loan for $49,000 
was a business loan which was 80% guaranteed by the Small Business 
Administration. As of December 31, 1996, there was only one loan in the 
amount of $28,000 which was delinquent 90 days or more and still on 
accrual status, and as of February 28, 1997 this loan was current. This 
compares to December 31, 1995 when there were seven loans with a total 
balance of $881,000 which were delinquent 90 days or more and still on 
accrual status.

If the nonperforming loans at December 31, 1996 had been current 
in accordance with their terms, for the year ended December 31, 1996 (or 
from the date of origination if originated during such period), the total 
interest income on such loans for such period would have been $220,461.

Southern Financial's loss and delinquency experience on its 
residential real estate loan portfolio has been limited by a number of 
factors, including Southern Financial's underwriting standards.  Whether 
Southern Financial's loss and delinquency experience will increase 
significantly depends upon the value of the real estate securing its loans, 
economic factors such as an increase in unemployment as well as the 
overall economy of the region.  As a result of economic conditions and 
other factors beyond its control, Southern Financial's future loss and 
delinquency experience cannot be accurately predicted.  However, 
management has provided an allowance for loan losses which it believes 
will be adequate to absorb future losses.

Allowance for Loan Losses

The total allowance for loan losses amounted to $1.5 million at 
December 31, 1996, as compared to $1.2 million and $1.1 million at 
December 31, 1995 and June 30, 1995 respectively.  Management 
evaluates the adequacy of the allowance at least quarterly.  As a result of 
that process, loans are categorized as to doubtful, substandard and/or 
special mention.  Each quarter the Board of Directors considers a review 
of the loans in Southern Financial's portfolio and conducts a periodic 
evaluation of the credit quality and reviews the adequacy of the loan loss 
provision, recommending changes as may from time to time be required. 
 In establishing the appropriate classification for specific assets, 
management takes into account, among other factors, the estimated value 
of the underlying collateral, the borrower's ability to repay, the 
borrower's payment history and the current delinquent status. The 
remaining loan portfolio is evaluated for potential loss exposure by 
examining the growth and composition of the portfolio, previous loss 
experience, current delinquency levels, industry concentration and the 
general economic condition.

The allowance for loan losses represents management's estimate of 
an amount adequate to provide for potential losses inherent in the loan 
portfolio, including certain large commercial credits in the normal course 
of business.  However, there are additional risks of future losses that 
cannot be quantified precisely or attributed to particular loans or classes 
of loans.  Because those risks include general economic trends as well as 
conditions affecting individual borrowers, management's judgement of the 
allowance necessary is approximate.  The allowance is also subject to 
regulatory examinations and determination as to the adequacy of the 
allowance in comparison to peer institutions identified by the regulatory 
agencies.  The allowance for loan losses as a percent of loans outstanding 
was 1.39% at December 31, 1996, as compared to 1.14% at December 
31, 1995.

The following table summarizes activity in Southern Financial's 
allowance for loan losses during the periods indicated.


                                                 Six Months
                                 Year Ended        Ended      Year Ended
                                 December 31,   December 31,    June 30,
                                     1996          1995          1995
                                              (in thousands)

Allowance at Beginning of Period    $1,190        $1,057        $1,008
Provision for Losses Charged to        695           150            60
Charge-offs
   Residential Real Estate              (8)            0             0
   Nonresidential Real Estate         (300)            0             0
   Business Loans                      (38)          (16)            0
   Consumer Loans                      (43)           (1)          (11)

      Total Charge-offs               (389)          (17)          (11)

Recoveries                               5             0             0

      Net Charge-offs                 (384)          (17)          (11)

Allowance at End of Period          $1,501        $1,190        $1,057

Loans at End of Period            $108,287      $104,251       $92,080

Ratio of Allowance to Loans          1.39%         1.14%         1.15%       



The following table summarizes the composition of the Allowance 
for Loan Losses.


                              At December 31,  At December 31,    At June 30,
                                    1996            1995             1995
                              Amount  Percent   Amount Percent  Amount Percent
                                          (amounts in thousands)

Real Estate Mortgage
   Residential               $  152   10.13%  $  413   34.70%  $   79    7.47%
   Nonresidential               708   47.17%     249   20.92%     188   17.79%
Real Estate Construction
   Residential                   23    1.53%     123   10.34%     254   24.03%
   Nonresidential               131    8.73%     133   11.18%     227   21.48%
Business & Consumer             487   32.45%     272   22.86%     309   29.23%

Total Allow. for Loan Loss   $1,501  100.00%  $1,190  100.00%  $1,057  100.00%


The Bank has allocated the allowance according to the amount 
deemed to be reasonably necessary to provide for the possibility of losses 
being incurred within each of the above categories of loans.  These 
figures are based on gross loans.  The allocation of the allowances as 
shown in the table above should not be interpreted as an indication that 
loan losses in future years will occur in the same proportions or that the 
allocation indicates future loan loss trends.  Furthermore, the portion 
allocated to each loan category is not the total amount available for future 
losses that might occur within such categories since the total allowance is 
a general allowance applicable to the entire portfolio.


Investment Activities

Commercial banks, such as Southern Financial, have authority to 
invest in various types of liquid assets, including short-term U.S. 
Treasury obligations and securities of various federal agencies, certificates 
of deposit at insured banks, bankers' acceptances, federal funds, 
commercial paper and corporate debt securities.  Investment decisions are 
made by authorized officers, in conjunction with the Asset/Liability 
Management Committee of Southern Financial within policies established 
by the Board of Directors.

The following table sets forth Southern Financial's investment 
portfolio at carrying value at the dates indicated.


                               December 31,  December 31,   June 30,
                                  1996          1995          1995
                                          (in thousands)

Interest-Earning Deposits       $2,396        $1,796        $2,900
FHLB Stock                         868           950           868
Investments Available-for-Sale   4,205         2,828         1,024
Investments Held-to-Maturity     2,000             0             0

      Total                     $9,469        $5,574        $4,792
	

At December 31, 1996, interest-earning deposits consisted of 
overnight deposits with the Federal Home Loan Bank of Atlanta.  
Investments classified as available-for-sale consisted of FHLMC preferred 
stock.


Source of Funds

Deposits.  Deposit accounts have been a principal source of 
Southern Financial's funds for use in lending and for other general 
business purposes.  In addition to deposits, Southern Financial obtains 
funds from loan repayments, loan sales, cash flows generated from 
operations and FHLB advances.  Borrowings may be used as an 
alternative source of lower costing funds or to fund the origination of 
certain assets.

The following table shows the deposit activity for Southern 
Financial for the periods indicated.


                                      Six Months
                         Year Ended     Ended      Year Ended
                        December 31,  December 31,   June 30,
                            1996         1995         1995
                                     (in thousands)

Net Deposits             $   15,661   $   3,987    $  33,763
Interest Credited             4,804       2,147        3,355 

Net Increase in Deposits $   20,465   $   6,134    $  37,118



The following table sets forth at December 31, 1996 deposit account 
balances (excluding accrued interest payable) by account type, scheduled 
maturity and weighted average interest rate.


                                               Percent of    Weighted
                                                Total        Average
Type of Account                       Total     Deposits   Interest Rate
                                 (in thousands)

Checking Accounts                 $   23,424     14.27%       0.65%
Savings Accounts                       3,918      2.38%       2.64%
Money Market Accounts                 17,585     10.70%       3.37%

   Subtotal                           44,927     27.35%       1.89%

Time Deposits Maturing in:
   Year Ended December 31, 1997      101,212     61.61%       5.52%
   Year Ended December 31, 1998       10,791      6.57%       5.88%
   Year Ended December 31, 1999        4,337      2.64%       6.02%
   Thereafter                          3,012      1.83%       6.21%

      Total Time Deposits            119,352     72.65%       5.59%

Total Deposits                    $  164,279    100.00%       4.57%



The following table sets forth the amount of scheduled maturities of 
time deposits at December 31, 1996.

                                        Year Ended December 31,
                                                            2000 and
                              1997      1998       1999    thereafter    Total
                                              (in thousands)

Rate
4% or less                $    607   $     0     $    0    $    0     $    607
4.01% - 5.00%                4,016       324          0         8        4,348
5.01% - 6.00%               93,582     8,057      2,901     1,789      106,329
6.01% - 7.00%                3,004     2,406      1,412       819        7,641
7.01% and Above                  3         4         24       396          427

 Total Maturities         $101,212    $10,791    $4,337    $3,012     $119,352

		

The following table shows maturity information of Southern Financial's
certificate of deposit accounts with balances of $100,000 or more at December
31, 1996.


                                    Certificates
Maturity Period                      of Deposit
                                   (in thousands)

Three Months or Less                   $17,368
Three Through Twelve Months             13,700
Greater Than One Year                    3,593

    Total                              $34,661


Borrowings.

The following table summarizes the borrowings of Southern 
Financial at the dates indicated.

                                December 31,  December 31,    June 30,
                                   1996          1995          1995
                                            (in thousands)

FHLB Advances                    $8,500         $4,000        $3,000

     Total Borrowings            $8,500         $4,000        $3,000


The following table summarizes the average amount and maximum 
amount of borrowings, as well as average interest rate paid, for the year 
ended December 31, 1996 and for the year December 31, 1995.


                                                       Six Months
                                      Year Ended          Ended
                                     December 31,       December 31,
                                        1996              1995
                                        (amounts in thousands)


Maximum Month End Balance
   FHLB Advances                      $12,000            $19,000

Average Balance
   FHLB Advances                      $ 6,875             $6,016

Weighted Average Interest Rate
   FHLB Advances                         5.57%             5.85%

	
For further information about the borrowings of Southern Financial, 
see footnote 9 to Southern Financial's December 31, 1996 Annual Report.


Competition

Southern Financial experiences substantial competition in attracting 
and retaining savings deposits and in lending funds. The primary factors 
in competing for savings are convenient office locations and rates offered. 
 Direct competition for savings deposits comes from other commercial 
banks and thrift institutions.  Additional significant competition for 
savings deposits comes from money market mutual funds and corporate 
and government securities which may yield more attractive interest rates 
than insured depository institutions are willing to pay.  The primary 
factors in competing for loans are interest rate and loan origination fees 
and the range of services offered.  Competition for origination of real 
estate loans normally comes from other commercial banks, thrift 
institutions, mortgage bankers, mortgage brokers and insurance 
companies.


Employees

At December 31, 1996, Southern Financial employed 61 full-time 
equivalent persons.  Management considers its relations with its 
employees to be good.  The employees are not covered by a collective 
bargaining agreement.



EXECUTIVE OFFICERS OF THE REGISTRANT

At December 31, 1996, the executive officers of the Bank who were 
not also directors were as follows:

Name		                    		Age		     	Position

William H. Lagos	           46     	Senior Vice President

William H. Lagos joined the Bank in 1986 as Vice President.  In 
1993 he was promoted to Senior Vice President of Operations.


REGULATION

Set forth below is a brief description of certain laws and regulations 
which relate to the regulation of Southern Financial. The description of 
these laws and regulations, as well as descriptions of laws and regulations 
contained elsewhere herein, does not purport to be complete and is 
qualified in its entirety by reference to applicable laws and regulations.


General

Southern Financial is a bank holding company within the meaning 
of the Bank Holding Company Act of 1956 as amended.  As a bank 
holding company, Southern Financial is supervised by the Board Of 
Governors of the Federal Reserve System ("FRB") and is required to file 
reports with the FRB and provide such additional information as the FRB 
may require.  Southern Financial is also subject to Virginia laws 
regarding financial institution holding companies administered by the 
Bureau of Financial Institutions of the State Corporation Commission of 
Virginia.  The Bank is also affected by rules and regulations of the 
Federal Deposit Insurance Corporation ("FDIC").  Southern Financial is 
a member of the Federal Reserve System and the FHLB of Atlanta. The 
various laws and regulations administered by the regulatory agencies 
affect corporate practices, expansion of business, and provisions of 
services.  Also, monetary and fiscal policies of the United States directly 
affect bank loans and deposits and thus may affect Southern Financial's 
earnings.  The future impact of these policies and of the continuing 
regulatory changes in the financial services industry cannot be predicted.

FIRREA

Under the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 ("FIRREA"), certain independent appraisal 
requirements are imposed upon a bank's real estate lending activities and 
further imposes certain loan-to-value restrictions on a bank's real estate 
lending activities.  The bank regulators have promulgated regulations in 
these areas.  Further, under FIRREA the failure to meet capital guidelines 
could subject a bank to a variety of enforcement remedies available to 
federal regulatory authorities, including termination of deposit insurance 
by the FDIC.

FDICIA

The Federal Deposit Insurance Corporation Act of 1991 
("FDICIA"), which became law in December, 1991, required each federal 
banking agency to revise its risk-based capital standards to ensure that 
those standards take adequate account of interest rate risk, concentration 
of credit risk and the risks of non-traditional activities.  In addition, 
pursuant to FDICIA, each federal banking agency has promulgated 
regulations, specifying the levels at which a financial institution would be 
considered "well capitalized", "adequately capitalized", "under 
capitalized", "significantly under capitalized", or "critically under 
capitalized", and to take certain mandatory and discretionary supervisory 
actions based on the capital level of the institution.
Under the FRB's regulations implementing the prompt corrective 
action provisions, an institution shall be deemed to be (i) "well 
capitalized" if it has total risk-based capital of 10% or more, has a Tier 
I risk-based capital ratio of 6% or more, has a leverage capital ratio of 
5% or more and is not subject to any order or final capital directive to 
meet and maintain a specific capital level for any capital measure, 
(ii)"adequately capitalized" if it has a total risk-based capital ratio of 8% 
or more, a Tier I risk-based ratio of 4% or more and a leverage capital 
ratio of 4% or more (3% under certain circumstances) and does not meet 
the definition of "well capitalized", (iii) "undercapitalized" if it has a
total risk-based capital ratio that is less than 8%, a Tier I risk-based
capital ratio that is less than 4% or a leverage capital ratio that is less
than 4% (3% in certain circumstances), (iv) "significantly undercapitalized"
if it has a total risk-based capital ratio that is less than 6%, a Tier I
risk-based capital ratio that is less than 3% or a leverage 
capital ratio that is less than 3% and (v) "critically
undercapitalized" if it has a ratio of tangible equity 
to total assets that is equal to or less than 2%.  In addition, under certain 
circumstances, a federal banking agency may reclassify a well capitalized 
institution as adequately capitalized and may require an adequately 
capitalized institution or an undercapitalized institution to comply with 
supervisory actions as if it were in the next lower category (except that the 
FDIC may not reclassify a significantly undercapitalized institution as 
critically undercapitalized).  Immediately upon becoming 
undercapitalized, or upon failing to submit or implement a capital plan as 
required, an institution shall become subject to various regulatory 
restrictions.  

FDICIA also contained the Truth in Savings Act, which requires 
certain disclosures to be made in connection with deposit accounts offered 
to consumers.  The FRB has adopted regulations implementing the 
provisions of the Truth in Savings Act.

In addition, significant provisions of FDICIA required federal 
banking regulators to draft standards in a number of other important areas 
to assure bank safety and soundness, including internal controls, 
information systems and internal audit systems, credit underwriting, asset 
growth, compensation, loan documentation and interest rate exposure.  
FDICIA also required the regulators to establish maximum ratios of 
classified assets to capital, and minimum earnings sufficient to absorb 
losses without impairing capital.  The legislation also contained other 
provisions which restricted the activities of state-chartered banks, 
amended various consumer banking laws, limited the ability of "under 
capitalized" banks to borrow from the Federal Reserve's discount 
window, and required federal banking regulators to perform annual onsite 
bank examinations and set standards for real estate lending.

Regulatory Capital Requirement

The Federal Reserve Board mandates minimum capital requirements 
for bank holding companies.  In 1990, the FRB adopted a risk based 
capital measure to determine capital adequacy.  Under this system all 
balance sheet assets are assigned a certain risk category with a prescribed 
weight.  Off-balance sheet items, such as loan commitments and letters of 
credit, also are classified by risk with duly assigned weights.  The sum of 
the balance sheet and off balance sheet amounts multiplied by their 
respective risk weight factors must then meet a required minimum capital 
test.  Tier 1 capital is defined as stockholders' equity minus certain 
intangible assets.  Tier 2 capital includes a certain amount of the 
allowance for loan losses.  At December 31, 1996, the minimum total 
capital ratio (Tier 1 plus Tier 2) required was 8 percent.  Southern 
Financial's Tier 1 ratio of 15.4% and its total capital ratio of 16.6% were 
well in excess of minimum requirements.  The FRB also utilizes a Tier 
1 leverage ratio in conjunction with its risk based capital standard.  This 
ratio measures Tier 1 capital as a percent of total average assets less 
intangible assets.  The minimum leverage ratio is 3 percent.  At 
December 31, 1996, the Bank's leverage ratio was 8.7%.

Insurance of Deposit Accounts

Southern Financial is a member of the Bank Insurance Fund ("BIF") 
of the FDIC.  The FDIC also maintains another insurance fund, the 
Savings Association Insurance Fund ("SAIF"), which primarily covers 
savings and loan association deposits but also covers deposits that are 
acquired by a BIF insured institution from a savings and loan association. 
 Since Southern Financial converted to a commercial bank from a federal 
savings bank on December 1, 1995, the deposits held by Southern 
Financial as of the opening of business on December 1, 1995 will be 
covered by SAIF.  Therefore, Southern Financial has approximately 
$164.3 million of deposits at December 31, 1996, with respect to which 
Southern Financial pays SAIF insurance premiums.

For the first three quarters of 1995, both SAIF member institutions 
and BIF member institutions paid deposit insurance premiums based on 
a schedule from $0.23 to $0.31 per $100 of deposits.  In August, 1995, 
the FDIC, in anticipation of the BIF's imminent achievement of a required 
1.25% reserve ratio, reduced the deposit insurance premium rates paid by 
BIF insured banks to a range of $0.04 to $0.31 per $100 of deposits.  On 
November 14, 1995, the FDIC voted to reduce annual assessments for the 
semi-annual period beginning January 1, 1996 to the legal minimum of 
$2,000 for BIF insured institutions, except for institutions that are not 
well capitalized and are assigned to the higher supervisory risk categories.

On September 30, 1996 the Board of Directors of the FDIC 
imposed a special assessment on the SAIF assessable deposits of each 
insured institution of 65.7 basis points calculated as of March 31, 1995. 
BIF assessments will continue to range from 0 to 27 Basis Points on 
insured deposits. Exemptions are provided for weak and newly charterd 
institutions. Institutions facing significant threats to their fiscal solvency 
may elect to pay the assessment in installments subject to the approval of 
the FDIC.

The BIF and SAIF will be merged into the Deposit Insurance Fund 
effective January 2, 1999, if all savings associations have converted to 
either a Federal or State bank charter by that time.

Beginning January 1, 1997 banks will help to pay the Financing 
Corporation interest debt. Banks will be assessed at a rate equal to 1/5 of 
the rate that Thrifts are assessed on their deposit base. SAIF insured 
institutions will pay at a rate of 6.44 basis points, and BIF insured 
institutions will pay at a rate of 1.29 basis points. Federal banking 
regulators are given specific authority to take any action they deem 
appropriate to prevent deposit shifting designed to side-step any 
differences in assessments. Beginning January 1, 2000 and continuing 
through the year 2017 there will be pro-rata cost sharing at the rate of 
2.43 basis points.

The FDIC Board of Directors voted on November 26, 1996 to retain 
the existing BIF assessment schedule of 0 to 27 basis points (annual rates) 
for the first semiannual period of 1997, and to collect an assessment 
against BIF-assessable deposits to be paid to FICO. In addition, the Board 
eliminated the $2,000 minimum annual assessment and authorized the 
refund of the fourth-quarter minimum assessment of $500 paid by certain 
BIF-insured institutions on September 30, 1996.

Based on June 30, 1996 data the upcoming assessment would reflect 
a FICO rate of approximately 1.29 basis points, on an annual basis, for 
BIF-assessable deposits, and 6.44 basis points for SAIF-assessable 
deposits.

Liquidity Requirements

Liquidity measures the ability to satisfy current and future cash flow 
needs as they become due and meet customers' demands for loans and 
deposit withdrawals without impairing profitability.  To meet these needs, 
Southern Financial maintains cash reserves and readily marketable 
investments in addition to funds provided from loan repayments and 
maturing securities.  Funds also can be obtained through increasing 
deposits or short-term borrowings.

Federal Home Loan Bank System

Southern Financial is a member of the Federal Home Loan Bank 
System which consists of 12 district Federal Home Loan Banks 
("FHLBs") with each subject to supervision and regulation by the Federal 
Housing Finance Board.  The FHLBs provide a central credit facility for 
member institutions.  Southern Financial, as a member of the FHLB of 
Atlanta, is required to acquire and hold shares of capital stock in that 
FHLB in an amount equal to at least 1% of the aggregate principal 
amount of its unpaid residential mortgage loans, home purchase contracts 
and similar obligations at the beginning of each year, or 5% of its 
advances (borrowings) from the FHLB of Atlanta, whichever is greater. 
 At December 31, 1996, Southern Financial had an inveastment of 
$867,600 in the stock of the FHLB of Atlanta and was in compliance with 
these requirements.

Advances from the FHLB of Atlanta are secured by mortgage-
backed securities.  Interest rates charged for advances vary depending 
upon maturity, the cost of funds to the FHLB of Atlanta and the purpose 
of the borrowing.  At December 31, 1996, Southern Financial had $8.5 
million in borrowings from the FHLB of Atlanta outstanding.


Federal Reserve System

The Federal Reserve Board of Governors requires all depository 
institutions to maintain reserves against their transaction accounts 
(primarily NOW and Super NOW checking accounts) and non-personal 
time deposits.  Because required reserves must be maintained in the form 
of vault cash or a noninterest-bearing account at a Federal Reserve Bank, 
the effect of this reserve requirement is to reduce the earning assets of 
Southern Financial.


TAXATION


Federal Taxation

General.  Southern Financial is subject to federal income taxation 
under the Internal Revenue Code of 1986, as amended (the "Code"), in 
the same general manner as other corporations with some exceptions, 
including particularly the reserve for bad debts discussed below.  The Tax 
Reform Act of 1986 ("1986 Act"), made major changes in the provisions 
of the Code which are applicable to insured institutions, generally 
effective for tax years beginning after December 31, 1986.  The Revenue 
Act of 1987 (the "1987 Act") made certain further changes in the Code 
which affect insured institutions and their borrowers.  The following 
discussion of federal taxation is a summary of certain pertinent federal 
income tax matters as affected by the 1986 Act and the 1987 Act.


Accrual Method of Accounting.  For federal income tax purposes, 
Southern Financial currently reports its income and expenses on the 
accrual basis method of accounting.

Bad Debt Reserves.  Banks such as Southern Financial having 
assets with a tax basis of $500 million or less and which meet certain 
definitional tests primarily relating to their assets and the nature of their 
businesses, are permitted to establish a reserve for bad debts and to make 
annual additions to the reserve using the experience method.  These 
additions may, within specified formula limits, be deducted in arriving at 
Southern Financial's taxable income.

Under the experience method, the deductible annual addition to 
Southern Financial's bad debt reserves is the amount necessary to increase 
the balance of the reserve at the close of the taxable year to the greater of: 
(a) the amount which bears the same ratio to loans outstanding at the 
close of the taxable year as the total net bad debts sustained during the 
current and five preceding taxable years bear to the sum of the loans 
outstanding at the close of those six years or (b) the lower of (i) the 
balance in the reserve account at the close of the last taxable year prior to 
the most recent adoption of the experience method (the "base year"), or 
(ii) if the amount of loans outstanding at the close of the taxable year is 
less than the amount of loans outstanding at the close of the base year, the 
amount which bears the same ratio to loans outstanding at the close of the 
taxable year as the balance of the reserve at the close of the base year 
bears to the amount of loans outstanding at the close of the base year.

Alternate Minimum Tax.  For taxable years beginning after 
December 31, 1986, corporations are subject to an alternative minimum 
tax which is imposed to the extent that it exceeds the corporation's regular 
income tax for the year.  The alternative minimum tax will generally 
apply at a rate of 20% to a base of regular taxable income plus certain tax 
preferences ("alternative minimum taxable income" or "AMTI")  and will 
be payable to the extent such AMTI is in excess of an exemption amount. 
The Code provides that items of tax preference that constitute AMTI 
include (a) tax-exempt interest on newly issued (generally, issued on or 
after August 8, 1986) private activity bonds other than certain qualified 
bonds and (b) a tax preference item generally equal to 75% of the excess 
(if any) of (i) adjusted current earnings as defined in the Code, over (ii) 
AMTI (determined without regard to this preference and prior to reducing 
by net operating losses).  For any taxable year beginning after 1986, net 
operating losses can offset no more than 90% of AMTI.  Certain 
payments of alternative minimum tax may be used as credits against 
regular tax liabilities in future years.  In addition, for taxable years after 
1986 and before 1996, the Code provides for an environmental tax equal 
to 0.12% of the excess of AMTI for the taxable year (determined without 
regard to net operating losses and the deduction for the environmental tax) 
over $2.0 million.

Net Operating Loss Carryovers.  Under the 1986 Act, a financial 
institution may carry back net operating losses ("NOLs") to the preceding 
three taxable years and forward to the succeeding 15 taxable years.  This 
provision applies to losses incurred in taxable years beginning after 1986. 
As of December 31, 1996, Southern Financial had no net operating loss 
carry forwards for federal income tax purposes.

Capital Gains and Corporate Dividends-Received Deduction.  
The capital gains income tax which was previously imposed at a tax rate 
of 28% on a corporation's net long-term capital gains was repealed 
effective December 31, 1986. Consequently, corporate net capital gains 
generally will be taxed at a maximum rate of 34% after December 31, 
1986.  Effective January 1, 1993, a new 35% tax bracket is applied to 
corporate taxable income (including net capital gains) in excess of $10 
million.  The 1986 Act reduced the corporate dividends-received 
deduction from 85% to 80% in the case of dividends received from 
corporations with which a corporate recipient does not file a consolidated 
tax return.  The 1987 Act further amended the dividends-received 
deduction provisions of the Code to provide that corporations which own 
less than 20% of the stock of a corporation distributing a dividend may 
deduct only 70% of dividends received or accrued on their behalf.  
However, the 1986 Act and the 1987 Act preserved prior law which 
allows a corporation to deduct 100% of dividends from a member of the 
same affiliated group of corporations.  In addition to the foregoing general 
rules, certain additional exceptions to the dividends-received deduction 
may be applicable to Southern Financial under the Code in certain 
circumstances.

IRS Examinations. The consolidated federal income tax returns of 
Southern Financial and the Bank for their tax years beginning after June 
30, 1993 are open under the statute of limitations and are subject to 
review by the Internal Revenue Service.


State Taxation


Virginia imposes a franchise tax on every incorporated bank, 
banking association or trust company organized by or under the laws of 
the state of Virginia or which is doing business or has an office in the 
state of Virginia, including the Bank. The franchise tax rate is $1.00 per 
$100 of net taxable capital as defined in Virginia state statutes.


Item 2.	Properties.


Offices and Other Material Properties

At December 31, 1996, Southern Financial conducted its business 
from its main office in Warrenton, Virginia and nine branch offices.

The following table sets forth certain information with respect to the 
offices of Southern Financial as of December 31, 1996.
                               
                                                            
                                          Lease        Date          Net
                            Owned or    Expiration   Facility     Book Value 
Office Location              Leased        Date       Opened    (in thousands)

Home Office:
37 E. Main Street            Leased     September    February         228
Warrenton, VA                           1998         1989

Branch Offices:

362 Elden Street             Leased     June         April             57
Herndon, VA                             2000         1986

101 W. Washington S          Leased     July         November          41
Middleburg, VA                          1997         1987

33 W. Piccadilly St          Owned      N/A          Novemeber        356
Winchester, VA                                       1990

526 E. Market Stree          Leased     June         March             28
Leesburg, VA                            1997         1992

11180 Lee Highway            Leased     September    September         17
Fairfax, VA                             1998         1993

322 Lee Highway              Leased     August       August           211
Warrenton, VA                           2001         1994

2545 Q-18 Centreville Rd.    Leased     September    April             65
Herndon, VA                             2001         1995

13542 Minnieville Rd.        Leased     December     April            109
Woodbridge, VA                          1998         1995

1095 Millwood Pike           Owned      N/A          July             379
Winchester, VA                                       1996


Item 3.	Legal Proceedings.

Southern Financial has, since inception, never been the subject of 
any civil, administrative or criminal actions nor is it currently or has it 
ever been involved in any legal proceedings other than non-material 
proceedings in the ordinary course of business.


Item 4.	Submission of Matters to Vote of Security Holders.

The Annual Meeting of Stockholders was held on April 18, 1996 at 
3:00 p.m. at Fauquier Springs Country Club, Warrenton, Virginia. The 
following is a summary of items voted upon at the meeting:

1.  The following Directors were elected to serve three year terms:
Virginia Jenkins
Michael P. Rucker

2. The appointment of Arthur Andersen, LLP as independent 
auditors for the year ending December 31, 1996 was ratified by 
the following vote: For - 1,183,735; Against - 673; Abstain - 
220.	


PART II.

Item 5.	Market for Registrant's Common Equity and Related 
Stockholder Matters.

The information required herein is incorporated by reference from 
the back page on the outside of the Registrant's 1996 Annual Report.

Item 6.	Selected Financial Data.

The information required herein is incorporated by reference from 
page 1 of the Annual Report.

Item 7.	Management's Discussion and Analysis.

The information required herein is incorporated by reference from 
pages 4 to 10 of the Annual Report.

Item 8.	Financial Statements.

The information required herein is incorporated by reference from 
pages 11 to 29 of the Annual Report.

Item 9.	Changes in and Disagreements With Accountants on 
Accounting and Financial Disclosure.

None.


PART III.

Item 10.	Directors, Executive Officers, Promoters and Control 
Persons; Compliance with Section 16(a) of the Exchange Act.

The information required herein is incorporated by reference from 
pages 3 to 4 and 10 to 11 of the definitive proxy statement of Southern 
Financial Bancorp, Inc. filed on March 17, 1997 ("Definitive Proxy 
Statement").  For additional information concerning executive officers of 
the Registrant who were not also directors, see "Item 1 - Business - 
Executive Officers of the Registrant" herein, which is incorporated by 
reference.

Item 11.	Executive Compensation.

The information required herein is incorporated by reference from 
pages 8 to 9 of the Definitive Proxy Statement.

Item 12.	Security Ownership of Certain Beneficial Owners and 
Management.

The information required herein is incorporated by reference from 
pages 6 to 8 of the Definitive Proxy Statement.

Item 13.	Certain Relationships and Related Transactions.

The information required herein is incorporated by reference from 
pages 5 of the Definitive Proxy Statement.


PART IV.

Item 14.	Exhibits, Financial Statements, Schedules, and Reports on 
Form 8-K.

(a) Documents filed as a part of the report:

(1)	The following is an index to the financial statements of the 
Registrant included in the Annual Report to Stockholders for the 
year ended December 31, 1996, and incorporated herein 
by reference in Item 8.  The remaining information appearing in 
the Annual Report to Stockholders is not deemed to be filed as 
part of this Report, except as expressly provided herein.

     											                                              Page(s) in
                                                   											Annual Report

Independent Auditors' Report.                                      11
Balance Sheets:
                December 31, 1996 and December 31, 1995.           12
Statements of Income:
              		Year Ended December 31, 1996, 
		              Six Months Ended December 31, 1995 and
                Year Ended June 30, 1995.                          13
Statements of Changes in Stockholders' Equity:
	              	Year Ended December 31, 1996,
		              Six Months Ended December 31, 1995 and
                Year Ended June 30, 1995.                          14
Statements of Cash Flows:
		              Year Ended December 31, 1996
		              Six Months Ended December 31, 1995 and
                Year ended June 30, 1995.                          15
Notes to Consolidated Financial Statements.                        16 - 29


(2)	All other schedules have been omitted as the required 
information is either inapplicable or included in the Notes to 
Financial Statements.

(3)	Exhibits (listed numbers correspond to item 601 of Regulation S-
K)

      (3)	Articles of Incorporation of Southern Financial Bancorp, 
      Inc., by reference to the Form S-4 Registration Statement 
      filed with the Securities and Exchange Commission on 
      August 4, 1995, and By-Laws, by reference to Form S-4 
      Registration Statement filed with the Securities and 
      Exchange Commission on August 4, 1995.

     	(4)	Instruments Defining the Rights of Security Holders, 
      Including Indentures--Reference is made to Exhibit (3) 
      above.

     	(9)	Voting Trust Agreement--Not applicable.

     	(10)	Employment Contracts--Reference is made to Form S-4 
      Registration Statement filed with Securities and Exchange 
      Commission on August 4, 1995.

     	(11)	Statement re Computation of Per Share Earnings--
      Reference is made to Note 1 to Financial Statements, 
      Page 18 in Annual Report.

     	(12)	Statement re Computation of Ratios--Not applicable.

     	(13)	Annual Report to Stockholders for the Year Ended 
      December 31, 1996.

     	(18)	Letter re Change in Accounting Principles--Not 
      applicable.

     	(21)	Subsidiaries of the registrant:

                                                         Percentage of Voting
                                      Jurisdiction of     Securities Owned by
                Name                   Incorporation           the Parent      

        Southern Financial Bank          Virginia                100%

 
	     (22)	Published Report Regarding Matters Submitted to Vote of 
      Security Holders--Not applicable.

     	(23)	Consents of Experts and Counsel--Not applicable.

     	(24)	Power of Attorney--Not applicable.

     	(28)	Information from Reports Furnished to State Insurance 
      Regulatory Authorities--Not applicable.



                             SIGNATURES

Pursuant to the requirement of Section 13 of the Securities Exchange Act 
of 1934, the Registrant had duly caused this report to be signed on its 
behalf by the undersigned, thereunto duly authorized.


                  SOUTHERN FINANCIAL BANCORP, INC.


                         By /s/Georgia S. Derrico
		                             Georgia S. Derrico
    	                          Chairman and Chief Executive Officer
Dated:    3/27/97    


Pursuant to the requirements of the Securities Exchange Act of 1934, 
this report has been signed below on the dates indicated.

Name                      				Title	                     			Date



/s/Georgia S. Derrico         Director and Chairman of	     3/27/97
   Georgia S. Derrico	        the Board and
					                         Chief Executive Officer


/s/David de Give              Director and Senior Vice      3/27/97
   David de Give		            President



/s/William H. Lagos           Controller			                 3/27/97
   William H. Lagos			        (Principal Accounting Officer)



/s/Virginia Jenkins           Director		              	     3/27/97
   Virginia Jenkins



/s/R. Roderick Porter         Director		              	     3/27/97  
   R. Roderick Porter



/s/Neil J. Call               Director		              	     3/27/97  
   Neil J. Call



/s/John L. Marcellus, Jr.     Director               		     3/27/97  
   John L. Marcellus, Jr.



/s/Michael P. Rucker          Director                	     3/27/97  
   Michael P. Rucker


                                Exhibit 13
                       Southern Financial Bancorp, Inc.
               December 31, 1996 Annual Report to Stockholders