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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                                                     
|                                                       
|                                                        | o | 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, 2002   |  | 0-22836              | 

|SOUTHERN FINANCIAL BANCORP, INC.                                 
|-----------------------------------------------------------------
|                                                                 
|(Exact name of registrant as specified in its charter)           
|                                                                 
|Virginia                                                         
|                                                                 
|(State or other jurisdiction of incorporation or organization)   
|                                                                 
|37 East Main Street, Warrenton, Virginia                         
|                                                                 
|(Address of principal executive office)                          
|                                                                 
|(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 o
|----- | ----

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. o

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 March
1, 2003 was $141,959,610 (4,367,988 shares @ $32.50 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 March 1, 2003, there were 5,469,129 shares of the registrants Common Stock outstanding.

Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act).   YesX      No

DOCUMENTS INCORPORATED BY REFERENCE

| | I.  | Portions of the Annual Report to Stockholders for the Year Ended December 31, 2002 are incorporated by reference into certain items of Parts I. and II.          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                  
| | II. | Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on April 24, 2003 are incorporated by reference into certain items of Part III.

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Part I.

Item 1.   Business

Overview

We were formed in 1995 as a bank holding company for Southern Financial Bank (the Bank), which
was chartered in 1986.  Our financial performance has been characterized by steady asset growth, consistent core earnings and sound asset quality.  We have grown through a combination of internal growth, the opening of de novo branches and
the acquisition of community banks and branches in our market.  We have established 14 branches and acquired one branch in the last 17 years. Three acquisitions, The Horizon Bank of Virginia (Horizon) in October 1999, First Savings Bank of
Virginia in September 2000, and Metro-County Bank of Virginia in August 2002 added $303.8 million in assets, provided us with eleven additional branch locations and enhanced our core deposit base. We currently operate 26 full-service banking
locations, 19 of which are located in the northern Virginia cities of Warrenton, Herndon, Middleburg, Winchester, Leesburg, Fairfax, Sterling, Woodbridge, Manassas and Fredericksburg.  In August 2001 we opened our twentieth branch in Georgetown
in the District of Columbia and, in January 2002 we opened a branch in Charlottesville, Virginia.  The five branches acquired from Metro-County Bank are located in the Richmond area, and in February 2003 we opened a new branch in
Charlottesville, Virginia.

We have expanded from our roots in Fairfax County, where we maintain eight branches and 47% of our
transactional deposits, to encompass a market area extending from Winchester in northwest Virginia to Richmond, approximately 150 miles to the southeast.  This area has been characterized by high growth and general affluence.  As its
economy has diversified away from a concentration in government and government-related employment, northern Virginia has developed into a major center for technology and telecommunications activities and has a high concentration of small to
medium-sized businesses representing a diverse array of industries.  In the process, Reston, Herndon, Tysons Corner and Fairfax have become important stand alone employment centers similar to Stamford, Connecticut and White Plains, New York,
which have flourished outside of New York City.  As a result, the bedroom communities supporting business clusters have pushed west to Loudoun and Fauquier Counties and south and west to Stafford, Spotsylvania and Prince William
Counties.  We also believe that the high growth and general affluence in certain of the areas adjoining our current market area provide the same attractive expansion opportunities.  In addition to the District of Columbia, we believe that
Montgomery County, Maryland and the Richmond, Virginia area are also attractive targets.  Upon the opening of our branch in Charlottesville, our market area expands to include Albemarle, Greene and Fluvanna Counties, all of which have
experienced rapid population growth in the last decade.

On August 14, 2002, Southern Financial acquired all the outstanding common stock
of Metro-County Bank of Virginia for 354,711 shares of Southern Financial common stock and cash in the amount of $6,841,584. The merger was accounted for in accordance with Statement of Financial Standards No. 141 (SFAS No. 141), Business
Combinations, and the results of operations of Metro-County Bank have been included in our consolidated financial statements from August 15, 2002. The excess of the purchase price over the fair value of the net identifiable assets acquired has been
recorded as goodwill in the amount of $9,439,408 and core deposit intangible assets in the amount of $2,400,000. The core deposit intangible assets are being amortized over ten years. The factors considered in the decision to acquire Metro-County
Bank included the opportunity for future growth and an expanded geographic presence, as the acquisition of Metro-Countys locations in the greater Richmond area is a natural extension of our geographic area and fits well into our expansion
plans.

On September 1, 2000, we acquired all the outstanding common stock of First Savings Bank of Virginia for 409,906 shares of our
common stock. The acquisition has been accounted for by the purchase method, and accordingly, the results of operations of First Savings Bank have been included in our consolidated financial statements from September 1, 2000. Goodwill of $1,646,651
was recorded, which was being amortized through December 31, 2001 on a straight-line basis over 15 years along with a core deposit premium of $1,566,163, which is being amortized over 10 years.  In connection with our adoption of SFAS No. 142,
Goodwill and Other Intangible Assets, beginning January 1, 2002, this goodwill will no longer be amortized.

On December 28, 1999, we
formed Southern Financial Capital Trust I, a wholly-owned subsidiary, for the purpose of issuing redeemable capital securities.  On May 24, 2000, a  $5 million offering of redeemable capital securities was completed, and on September 7,
2000, $8 million of trust preferred securities were issued through a pooled underwriting totaling approximately $300 million.

On October
1,1999, we completed our merger with Horizon.  The merger qualified as a tax-free exchange and was accounted for as a pooling of interests.  We issued .63 shares of our common stock for each share of Horizon stock outstanding.  A
total of 1,045,523 shares (after adjustment for fractional shares) of our common stock were issued as a result of the merger.  Horizon had no stock options outstanding prior to the merger.  Southern Financial and Horizon incurred
$3,973,530 of merger-related costs that were charged to operations during the year ended December 31, 1999.

Our principal business is
the acquisition of deposits from the general public through our home and branch offices and use of these deposits to fund our loan and investment portfolios.  We seek to be a full service community bank that provides a wide variety of financial
services to our middle market corporate clients as well as to our retail clients.  We are an active commercial lender that often lends in conjunction with the Small Business Administration 7(a) and 504 loan programs.  In addition, we are
an active residential construction lender and offer our retail clients permanent residential mortgage loan alternatives.  We also invest funds in mortgage-backed securities, securities issued by agencies of the Federal Government, obligations
of counties and municipalities and corporate obligations.

The principal sources of funds for our lending and investment activities are
deposits, amortization and repayment of loans, proceeds from the sales of loans, prepayments from mortgage-backed securities, repayments of maturing investment securities, Federal Home Loan Bank advances and other borrowed money.

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Principal sources of revenue are interest and fees on loans and investment securities, as well as fee income
derived from the maintenance of deposit accounts.  Our principal expenses include interest paid on deposits and advances from the Federal Home Loan Bank and other borrowings, and operating expenses.

Lending Activities

Our primary strategic objective is to serve the small to medium-sized business market
with an array of unique and useful services, including a full array of commercial mortgage and nonmortgage loans.  These loans include commercial real estate loans, construction to permanent loans, development and builder loans, accounts
receivable financing, lines of credit, equipment and vehicle loans, leasing options, commercial overdraft protection and corporate credit cards.  We strive to do business in the areas served by our branches, and all of our marketing and the
vast majority of our loan customers are located within our existing market areas.  The only significant exceptions to this local lending philosophy are loans made with an undertaking from the Small Business Administration that may from time to
time come to us because of our reputation and expertise as an SBA lender.  Prior to making a loan, we obtain detailed loan applications 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.  The following is a discussion of each of our major types of lending:

Commercial Real Estate
Lending

Permanent.  Commercial real estate lending includes loans for permanent financing and construction. 
Commercial real estate lending typically involves higher loan principal amounts and the repayment of loans is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. 
As a general practice, we require our commercial real estate loans to be secured by well-managed income producing property with adequate margins and to be guaranteed by responsible parties.  We look for opportunities where cash flow from the
collateral provides adequate debt service coverage and the guarantors net worth is centered on assets other than the project we finance.  It has been our experience that borrowers whose assets consist entirely of real estate, especially
development projects, are particularly sensitive to real estate market cycles.  In the event of a slowdown in the real estate market, real estate projects generally come under pressure at the same time and liquidity of the borrower may be
strained.  As of December 31, 2002, our commercial real estate loans for permanent financing totaled $254.0 million.

Our
underwriting guidelines for commercial real estate loans reflect all relevant credit factors, including, among other things, the income generated from the underlying property to adequately service the debt, the availability of secondary sources of
repayment and the overall creditworthiness of the borrower.  In addition, we look to the value of the collateral, while maintaining the level of equity invested by the borrower.

All valuations on property that will secure loans are performed by independent outside appraisers who are reviewed by our Executive Vice President of Risk Management
and reported annually to our Credit Committee.  We retain a valid lien on real estate and obtain a title insurance policy that insures the property is free of encumbrances.

Construction.  We recognize that commercial, multifamily and other nonresidential properties can involve market risk due to the length of time it may
take to bring a finished real estate product to market.  As a result, we will only make these types of loans when pre-leasing or pre-sales and or other credit factors suggest that the borrower can carry the debt if the anticipated market and
property cash flow projections change during the construction phase. At December 31, 2002, we had $42.1 million commercial construction loans.

Income producing property loans are supported by evidence of the borrowers capacity to service the debt. The principals or general partners guarantee all of our
commercial construction loans.  Any interest reserves established on conventional construction loans are not funded with the proceeds of the loan.

Construction loan borrowers are generally pre-qualified for the permanent loan by us.  We obtain a copy of the contract with the general contractor who must be
acceptable to us.  All plans, specifications and surveys must include proposed improvements.  We review feasibility studies and sensitivity and risk analysis showing sensitivity of the project to variables such as interest rates, vacancy
rates, lease rates and operating expenses for income producing properties and copies of any previous environment site assessments if applicable.

Commercial Business Lending

These loans consist of lines of credit, revolving credit facilities, demand loans, term loans, equipment loans, SBA loans, stand-by letters of credit
and unsecured loans.  Commercial business loans are generally secured by accounts receivable, equipment and other collateral, such as readily marketable stocks and bonds with adequate margins, cash value in life insurance policies and savings
and time deposits at the Bank.  At December 31, 2002, our commercial business loans totaled $170.8 million, including $32.5 million of debt obligations.

In general, commercial business loans involve more credit risk than residential mortgage loans and real estate-backed commercial loans and, therefore, usually yield a
higher return to us.  The increased risk for commercial business loans is 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 operations of the business, and those operations may not be successful.  Historical trends have shown these types of loans to have higher delinquencies than mortgage loans.  Because of this, we often utilize the SBA
7(a) program to reduce the inherent risk associated with commercial business lending.

Another way that we reduce risk in the
commercial loan portfolio is by taking accounts receivable as collateral.  Our accounts receivable financing facilities, which provide a relatively high yield with considerable collateral control, are lines of credit under which a company can
borrow up to the amount

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of a borrowing base which covers all of the companys receivables. From our customers point of view, accounts receivable financing is an efficient way to finance
expanding operations because borrowing capacity expands as sales increase. Customers can borrow from 75% to 90% of qualified receivables placed in our system less accounts over 60 days past due. In most cases, the borrowers customers pay us
directly.  For borrowers with a good track record for earnings and quality receivables, we will consider pricing based on the prime rate for transactions in which we lend up to a percentage of qualified outstanding receivables based on reported
agings of the receivables portfolio.

We also actively pursue for our customers, equipment lease financing opportunities other than cars,
trucks and other on-road rolling stock.  We provide financing and use a third party to service the leases.  Payback is derived from the cash flow of the borrower, so credit quality may not be any lower than it would be in the case of an
unsecured loan for a similar amount and term.

SBA Lending

We have developed
an expertise in the federally guaranteed SBA program.  The SBA program is an economic development program that finances the expansion of small businesses.  We are a Preferred Lender in the Richmond District and a Certified Lender in the
Washington D. C. District of the SBA. As an SBA Preferred and Certified Lender, our preapproved status allows us to quickly respond to customers needs.  Under the SBA program, we originate and fund SBA 7(a) loans that qualify for
guarantees up to 85% of principal and accrued interest.  We also originate 504 chapter loans in which we generally provide 50% of the financing in the form of a first lien.  At December 31, 2002, our total SBA loans were $69.8 million,
which consisted of  $38.2 million of 7(a) program loans and $31.6 million of 504 chapter loans.

We provide SBA loans to potential
borrowers who are proposing a business venture, often with existing cash flow and a reasonable chance of success.  We do not treat the SBA guarantee as a substitute for a borrower meeting our credit standards, and except for minimum capital
levels or maximum loan terms, the borrower must meet our other credit standards as applicable to loans outside the SBA process.

Residential Mortgage Lending

Permanent.  Residential mortgage loans are secured by single-family homes.  We make fixed and adjustable rate first mortgage loans on
residential properties with terms up to 30 years.  We offer second mortgages in conjunction with our own first mortgages or those of other lenders. In the case of conventional loans, we typically lend up to 80% of the appraised value of
single-family residences and require private mortgage insurance for loans exceeding this amount.  At December 31, 2002, we had $77.7 million of permanent residential mortgage loans.

We retain a valid lien on real estate and obtain a title insurance policy that insures that the property is free of encumbrances. We also require hazard insurance and
flood insurance for all loans secured by real property if the property is in a flood plain as designated by the Department of Housing and Urban Development. We also require most borrowers to advance funds on a monthly basis from which we make
disbursements for items such as real estate taxes, private mortgage insurance and hazard insurance.

Construction.  We
typically make one to four family residential construction loans to individuals building their personal residence contracted through a licensed general contractor, or where the borrower has requested to act as contractor. Construction loans
generally have interest rates of prime plus one to two 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.  At December 31, 2002, we had $40.6
million of residential construction loans.

Individual construction loan borrowers are generally pre-qualified for the permanent loan by
another reputable lender.  In virtually all cases, when we make a residential construction loan to a builder, the residence is pre-sold.  We obtain a copy of the contract with the general contractor who must be acceptable to us.  All
plans, specifications and surveys must include proposed improvements.  Borrowers must evidence the capacity to service the debt until settlement or in the event the contract is voided.

Consumer Lending

We offer various types of secured and unsecured consumer loans.  We make consumer
loans primarily for personal, family or household purposes as a convenience to our customer base since these loans are not the focus of our lending activities.  As a general guideline, a consumers total debt service should not exceed 40%
of his gross income or 45% of net income.  For purposes of this calculation, debt includes house payment or rent, fixed installment payments, the estimated payment for the loan being requested and the minimum required payment on any revolving
debt.  At December 31, 2002, we had $12.9 million of consumer loans.

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Loan Portfolio Composition

The following table
summarizes the composition of our loan portfolio as of December 31 for the years indicated:

|                                  |                           | 2002                   |         | 2001    |  | 2000   |    | 1999    |         | 1998    | 
|--------------------------------- | ------------------------- | ---------------------- | ------- | ------- |  | ------ | -- | ------- | ------- | ------- | 
|                                  |                           |                        |         |         |  |        |    |         |         |         | 
|                                  |                           | Amount                 |         | Percent |  | Amount |    | Percent |         | Amount  | 
|                                  |                           |                        |         |         |  |        |    |         |         |         | 
|                                  |                           | (amounts in thousands) |        
|Construction and land development |                           |                        |         |         |  |        |    |         |         |         | 
|                                  | Residential               |                        | $       | 40,575  |  |        | 7  | %       | $       | 27,461  | 
|                                  | Commercial                |                        |         | 42,052  |  |        | 7  | %       |         | 16,850  | 
|Mortgage                          |                           |                        |         |         |  |        |    |         |         |         | 
|                                  | Residential               |                        |         | 77,698  |  |        | 13 | %       |         | 61,741  | 
|                                  | Multifamily residential   |                        |         | 9,438   |  |        | 2  | %       |         |        | 
|                                  | Commercial                |                        |         | 253,958 |  |        | 41 | %       |         | 171,851 | 
|Commercial and industrial         |                           |                        | 170,776 |         |  | 28     | %  |         | 133,258 |         | 
|Consumer                          |                           |                        | 12,889  |         |  | 2      | %  |         | 9,272   |         | 
|                                  |                           |                        |         |         |  |        |    |         |         |         | 
|Total loans receivable            |                           |                        | 607,386 |         |  | 100    | %  |         | 420,433 |         | 
|Less:                             |                           |                        |         |         |  |        |    |         |         |         | 
|                                  | Deferred loan fees, net   |                        |         | 2,805   |  |        |    |         |         | 2,106   | 
|                                  | Allowance for loan losses |                        |         | 10,258  |  |        |    |         |         | 7,354   | 
|                                  |                           |                        |         |         |  |        |    |         |         |         | 
|Loans receivable, net             |                           | $                      | 594,323 |         |  |        |    | $       | 410,973 |         | 
|                                  |                           |                        |         |         |  |        |    |         |         |         | 

The following table sets forth
the contractual maturity ranges of the commercial and industrial loans and construction loans and the amount of those loans with predetermined and floating interest rates in each maturity range as of December 31, 2002:

|                          |             |                        |        |            | Over 1 Year Through 5 Years |               | Over 5 years |            |        |               | 
|------------------------- | ----------- | ---------------------- | ------ | ---------- | --------------------------- | ------------- | ------------ | ---------- | ------ | ------------- | 
|                          |             |                        |        |            |                             |               |              |            |        |               | 
|                          |             | One Year or Less       |        | Fixed Rate |                             | Floating Rate |              | Fixed Rate |        | Floating Rate | 
|                          |             |                        |        |            |                             |               |              |            |        |               | 
|                          |             | (amounts in thousands) |       
|Construction:             |             |                        |        |            |                             |               |              |            |        |               | 
|                          | Residential |                        | $      | 30,931     |                             | $             | 1,129        |            | $      | 8,310         | 
|                          | Commercial  |                        |        | 33,343     |                             |               |              |            |        | 8,462         | 
|Commercial and Industrial |             |                        | 71,268 |            |                             | 18,081        |              |            | 25,125 |               | 
|                          |             |                        |        |            |                             |               |              |            |        |               | 
|                          | Total       |                        | $      | 135,542    |                             | $             | 19,210       |            | $      | 41,897        | 
|                          |             |                        |        |            |                             |               |              |            |        |               | 
|                          |             |                        |        |            |                             |               |              |            |        |               | 

Credit Approval and Collection Policies

Because
long-term credit performance is so closely associated with a banks underwriting policy, we have instituted what management believes is a stringent loan underwriting policy. Our 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 credit and unsecured loans.  We will make extensions of credit based on, among other factors,
the potential borrowers creditworthiness, likelihood of repayment and proximity to market areas served.

We have a standing Credit
Committee comprised of certain of our officers, each of whom has a defined lending authority as an individual and in combination with other officers.  These individual lending authorities are determined by our Chief Executive Officer and
certain directors and are based on the individuals technical ability and experience.  These authorities must be approved by our board of directors and the Credit Committee. Our Credit Committee is comprised of four levels of members:
junior, regular, senior and executive, based on experience.  Our executive members are our Chief Executive Officer, our President and our Executive Vice President.  Under our loan approval process, the sponsoring loan officers
approval is required on all credit submissions.  This approval must be included in or added to the individual and joining authorities outlined below.  The sponsoring loan officer is

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primarily responsible for the customers relationship with us, including, among other things, obtaining and maintaining adequate credit file information. We require each
loan officer to maintain loan files in an order and detail that would enable a disinterested third party to review the file and determine the current status and quality of the credit.

In addition to approval of the sponsoring loan officer, we require approvals from one or more members of the Credit Committee on all loans. The approvals required
differ based on the size of the borrowing relationship.  At least one senior or one executive member must approve all loans in the amount of $100,000 or more.  All three of the executive members of the Committee must approve all loans of
$1 million or more.  Regardless of the number of approvals needed, we encourage each member to treat his or her approval as if it were the only approval necessary to approve the loan.  Our legal lending limit to one borrower is limited to
15% of our unimpaired capital and surplus.  As of December 31, 2002, our lending limit was approximately $12.2 million, although we had no loans to one borrower that approached our legal lending limit at that date.

The following collection actions are the minimal procedures which management believes are necessary to properly monitor past due loans and leases.  When a
borrower fails to make a payment, we contact the borrower in person, in writing and by telephone.  At a minimum, all borrowers are notified by mail when payments of principal and/or interest are five days past due and when payments are 10 days
past due. In addition, consumer loan borrowers are assessed a late charge when payments are 10 days past due.  Real estate and commercial loan borrowers are assessed a late charge when payments are 15 days past due.  Customers are
contacted by a loan officer before the loan becomes 60 days delinquent. After 90 days, if the loan has not been brought current or an acceptable arrangement is not worked out with the borrower, we 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 we may participate as a bidder.  If we are the successful bidder, we include the acquired real estate property in our real estate owned account until it is sold. These
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
Loans and Nonperforming Assets

Nonperforming assets were $2.3 million at December 31, 2002 compared with $1.5 million at December
31, 2001. Our ratio of nonperforming assets to total loans and other real estate owned was 0.37% at December 31, 2002 and 0.35% at December 31, 2001.

Nonperforming assets were $1.5 million at December 31, 2001 compared with $1.9 million at December 31, 2000.  The ratio of nonperforming assets to total loans
and other real estate owned was 0.35% at December 31, 2001 and 0.61% at December 31, 2000.

We generally place a loan on nonaccrual
status when it becomes 90 days past due.  Loans are also placed on nonaccrual status in cases where we are uncertain whether the borrower can satisfy the contractual terms of the loan agreement.  Cash payments received while a loan is
categorized as nonaccrual are recorded as a reduction of principal as long as doubt exists as to future collections.

We maintain
appraisals on loans secured by real estate, particularly those categorized as nonperforming loans and potential problem loans. In instances where appraisals reflect reduced collateral values, we make an evaluation of the borrowers overall
financial condition to determine the need, if any, for possible writedowns to their net realizable values.  We record other real estate owned at the lower of our recorded investment in the loan or fair value less our estimated costs to
sell.

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The following table sets forth information regarding past due loans and nonperforming assets as of the dates
indicated:



|                                                                |                           | At December 31,        |      
|--------------------------------------------------------------- | ------------------------- | ---------------------- | -----
|                                                                |                           |                        |      
|                                                                |                           | 2002                   |      
|                                                                |                           |                        |      
|                                                                |                           | (amounts in thousands) |      
|Accruing loans 90 days or more delinquent(1):                   |                           |                        |      
|                                                                | Mortgage-commercial       |                        | $    
|                                                                | Commercial and industrial |                        |      
|                                                                | Consumer                  |                        |      
|                                                                |                           |                        |      
|                                                                | Total                     |                        |      
|                                                                |                           |                        |      
|Nonperforming loans:                                            |                           |                        |      
|                                                                | Construction-residential  |                        |      
|                                                                | Mortgage-residential      |                        |      
|                                                                | Mortgage-commercial       |                        |      
|                                                                | Commercial and industrial |                        |      
|                                                                | Consumer                  |                        |      
|                                                                |                           |                        |      
|                                                                | Subtotal                  |                        |      
|                                                                |                           |                        |      
|Troubled debt restructuring:                                    |                           |                        |      
|                                                                | Mortgage-commercial       |                        |      
|                                                                |                           |                        |      
|Other real estate owned:                                        |                           |                        |      
|                                                                | Mortgage-residential      |                        |      
|                                                                | Mortgage-commercial       |                        |      
|                                                                |                           |                        |      
|                                                                | Subtotal                  |                        |      
|                                                                |                           |                        |      
|Total nonperforming assets                                      |                           | $                      | 2,271
|                                                                |                           |                        |      
|Nonperforming assets to total assets                            |                           |                        | 0.23 
|Nonperforming assets to total loans and other real estate owned |                           |                        | 0.37 
|                                                                |                           |                        |      

|                                                                                                                
|----------------------------------------------------------------------------------------------------------------
|(1) Accruing loans 90 days or more delinquent includes portions guaranteed by the Small Business Administration.

Our loss and delinquency experience on our residential real estate loan portfolio has been limited by a number of factors, including our underwriting standards. 
Whether our loss and delinquency experience in this area of our portfolio will increase significantly depends upon the value of the real estate securing loans and economic factors such as increases in unemployment as well as the overall economy of
the region.  Management believes that the allowance for loan losses at December 31, 2002 is a reasonable estimate of known and inherent losses in the loan portfolio at that date.

At December 31, 2002, loans totaling $8.7 million were considered potential problem loans and are not reported in the table above. These loans are subject to
management attention and their classification is reviewed on a quarterly basis.

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Allowance for Loan Losses

The following table
summarizes activity in our allowance for loan losses during the periods indicated :



|                                                      |                                   | As of and for the Years Ended December 31, |        
|----------------------------------------------------- | --------------------------------- | ------------------------------------------ | -------
|                                                      |                                   |                                            |        
|                                                      |                                   | 2002                                       |        
|                                                      |                                   |                                            |        
|                                                      |                                   | (dollars in thousands)                     |        
|Total loans at end of period, net of deferred fees    |                                   | $                                          | 604,581
|                                                      |                                   |                                            |        
|Average loans outstanding                             |                                   | $                                          | 524,271
|                                                      |                                   |                                            |        
|Allowance at beginning of period                      |                                   | $                                          | 7,354  
|Provision for losses                                  |                                   |                                            | 5,050  
|Allowance acquired from First Savings Bank            |                                   |                                            |        
|Allowance acquired from Metro-County Bank             |                                   |                                            | 1,350  
|Charge-offs:                                          |                                   |                                            |        
|                                                      | Construction and land development |                                            |        
|                                                      | Residential                       |                                            |        
|                                                      | Commercial                        |                                            |        
|                                                      | Mortgage                          |                                            |        
|                                                      | Residential                       |                                            |        
|                                                      | Commercial                        |                                            |        
|                                                      | Commercial and industrial         |                                            |        
|                                                      | Consumer                          |                                            |        
|                                                      |                                   |                                            |        
|                                                      | Total charge-offs                 |                                            |        
|                                                      |                                   |                                            |        
|Recoveries                                            |                                   |                                            | 1,029  
|                                                      |                                   |                                            |        
|                                                      | Net charge-offs                   |                                            |        
|                                                      |                                   |                                            |        
|Allowance at end of period                            |                                   | $                                          | 10,257 
|                                                      |                                   |                                            |        
|Ratio of allowance to end of period loans             |                                   |                                            | 1.70   
|Ratio of net charge-offs to average loans outstanding |                                   |                                            | 0.67   
|                                                      |                                   |                                            |        

Our allowance for loan losses is established through charges to earnings in the form of a provision for loan
losses.  Management evaluates the allowance at least quarterly.  In addition, on a quarterly basis our board of directors reviews our loan portfolio, conducts an evaluation of the credit quality and reviews the loan loss provision,
recommending changes as may be required.  In evaluating the allowance, management considers the growth, composition and industry diversification of the portfolio, historical loan loss experience, current delinquency levels and general economic
conditions.

The allowance for loan losses represents managements estimate of an amount appropriate to provide for known and
inherent losses in the loan portfolio in the normal course of business. We make specific allowances for each loan based on its type and classification as discussed below. However, there are additional factors contributing to losses that cannot be
quantified precisely or attributed to particular loans or categories of loans, including general economic and business conditions and credit quality trends. We have established an unallocated portion of the allowance based on our evaluation of these
factors, which management believes is prudent and consistent with regulatory requirements.  Due to the uncertainty of risks in the loan portfolio, managements judgement of the amount of the allowance necessary to absorb loan losses is
approximate. The allowance is also subject to regulatory examinations and determination by the regulatory agencies as to the appropriate level of the allowance.

We follow a loan review program designed to evaluate the credit risk in our loan portfolio.  Through this loan review process, we maintain an internally
classified watch list that helps management assess the overall quality of the loan portfolio and the level of the allowance for loan losses.  In establishing the appropriate classification for specific assets, management considers, 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.  As a result of this process, loans are categorized as substandard,
doubtful, loss or special mention and reserves are allocated based on managements judgement and historical experience.

Loans
classified as substandard are those loans with clear and defined weaknesses such as a highly-leveraged position, unfavorable financial ratios, uncertain repayment sources or poor financial condition which may jeopardize the liquidation
of the debt. They are characterized by the distinct possibility that we will sustain some losses if the deficiencies are not corrected.  A reserve of 15% is generally allocated to these loans.

Loans classified as doubtful are those loans which have characteristics similar to substandard loans but with an increased risk that collection or
liquidation in full is highly questionable and improbable. A reserve of 50% is generally allocated to loans classified as doubtful.

8



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Loans classified as loss are considered uncollectible and of such little value that their continuance
as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer a loss on this asset even though partial recovery may be effected
in the future.  A reserve of 100% is allocated to loans classified as loss.

In addition to the above classification categories, we
also categorize certain loans as special mention.  While special mention loans do not have all the characteristics of a substandard or doubtful loan, they have one or more deficiencies which warrant special attention and which
corrective management action, such as accelerated collection practices, may remedy.  A reserve of 7% is generally allocated to special mention loans.

During the evaluation of the loan portfolio, any loans that are not classified or rated special mention are referred to as passing loans.  We also
assign a reserve allocation to these loans.

The following table describes the allocation of the allowance for loan losses among various
categories of loans and certain other information for the dates indicated. The allocation is made for analytical purposes only and is not necessarily indicative of the categories in which future losses may occur. With respect to investment
securities underwritten as loans, the allowance is not available to cover any impairment that is other than temporary.  Because of this, in the event of other than temporary impairment of an investment security underwritten as a loan, such
impairment must be charged to earnings in the same manner as an investment security which is not underwritten as a loan.

|                                  |                         | At December 31,        |       
|--------------------------------- | ----------------------- | ---------------------- | ------
|                                  |                         |                        |       
|                                  |                         | 2002                   |       
|                                  |                         |                        |       
|                                  |                         | Amount                 |       
|                                  |                         |                        |       
|                                  |                         | (amounts in thousands) |       
|Construction and land development |                         |                        |       
|                                  | Residential             |                        | $     
|                                  | Commercial              |                        |       
|Mortgage                          |                         |                        |       
|                                  | Residential             |                        |       
|                                  | Multifamily residential |                        |       
|                                  | Commercial              |                        |       
|Commercial and industrial         |                         |                        | 2,738 
|Consumer                          |                         |                        | 355   
|Unallocated                       |                         |                        | 774   
|                                  |                         |                        |       
|Allowance for loan losses         |                         | $                      | 10,258
|                                  |                         |                        |       

Our loan loss allowance is
calculated by stratifying the loan portfolio by risk classifications and applying risk factors to each category.  The risk factors are derived by considering relevant loss experience since 1992 of banks headquartered in Virginia, D.C., and
Maryland, with $1 billion or more in assets as well as applying management judgment.

9



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Investment Activities

Our securities portfolio is
managed by our President and our Senior Vice President/Treasurer, both of whom have significant experience in this area, with the concurrence of our Asset/Liability Committee. In addition to our President (chairman) and our Senior Vice
President/Treasurer, this committee is comprised of our Chief Executive Officer and three outside directors.  Investment management is performed in accordance with our investment policy, which is approved annually by the Asset/Liability
Committee and the board of directors.  Our investment policy addresses our investment strategies, approval process, approved securities dealers and authorized investments.  At December 31, 2002, all of our investment securities were
classified as available-for-sale and may be sold as part of our asset/liability management strategy in response to changes in interest rates and liquidity needs.

Our investment policy authorizes us to invest in:

| |  | GNMA, FNMA and FHLMC mortgage-backed securities (MBS)
| | - | -----------------------------------------------------
| |  | Collateralized mortgage obligations                  
| |  | Municipal securities                                 
| |  | Corporate obligations                                
| |  | Interest-only mortgage-backed strips                 
| |  | Treasury securities                                  
| |  | Agency securities                                    
| |  | Asset-backed securities                              
| |  | Interest-rate caps                                   
| |  | Interest-rate swaps                                  

Mortgage-backed
securities are securities that have been developed by pooling a number of real estate mortgages and which are principally issued by federal agencies such as the Government National Mortgage Association (GNMA),  Federal National Mortgage
Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). These securities are deemed to have high credit ratings, and minimum regular monthly cash flows of principal and interest are guaranteed by the issuing agencies.

Unlike U.S. Treasury and U.S. government agency securities, which have a lump sum payment at maturity, mortgage-backed securities provide cash
flows from regular principal and interest payments and principal prepayments throughout the lives of the securities.  Mortgage-backed securities which are purchased at a premium will generally suffer decreasing net yields as interest rates drop
because homeowners tend to refinance their mortgages.  Thus, the premium paid must be amortized over a shorter period.  Conversely, mortgage-backed securities purchased at a discount will obtain higher net yields in a decreasing interest
rate environment.  As interest rates rise, the opposite will generally be true. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal, and consequently the
average life of these securities will be lengthened. If interest rates begin to fall, prepayments will increase.

Collateralized
mortgage obligations (CMOs) are bonds that are backed by pools of mortgages.  The pools can be GNMA, FNMA or FHLMC pools or they can be private-label pools.  The CMOs are designed so that the mortgage collateral will generate a cash flow
sufficient to provide for the timely repayment of the bonds.  The mortgage collateral pool can be structured to accommodate various desired bond repayment schedules, provided that the collateral cash flow is adequate to meet scheduled bond
payments.  This is accomplished by dividing the bonds into classes to which payments on the underlying mortgage pools are allocated.  The bonds cash flow, for example, can be dedicated to one class of bondholders at a time, thereby
increasing call protection to bondholders.  In private-label CMOs, losses on underlying mortgages are directed to the most junior of all classes and then to the classes above in order of increasing seniority, which means that the senior classes
have enough credit protection to be given the highest credit rating by the rating agencies.

The following table sets forth a summary of
the investment securities portfolio as of the dates indicated:

10



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|                                               |                                                       | December 31, 2002      |         | December 31, 2001 |   | December 31, 2000 |        
|---------------------------------------------- | ----------------------------------------------------- | ---------------------- | ------- | ----------------- | - | ----------------- | -------
|                                               |                                                       |                        |         |                   |   |                   |        
|                                               |                                                       | (amounts in thousands) |        
|Available-for-sale securities (at fair value): |                                                       |                        |         |                   |   |                   |        
|                                               | FHLMC mortgage-backed securities                      |                        | $       | 13,035            |   | $                 | 11,305 
|                                               | GNMA mortgage-backed securities                       |                        |         | 11,122            |   |                   | 4,603  
|                                               | FNMA mortgage-backed securities                       |                        |         | 50,735            |   |                   | 26,429 
|                                               | Collateralized mortgage obligations                   |                        |         | 83,860            |   |                   | 238,075
|                                               | Obligations of counties and municipalities            |                        |         | 10,000            |   |                   | 859    
|                                               | Corporate obligations                                 |                        |         | 26,997            |   |                   | 19,737 
|                                               | U.S. Treasury and other Government agency obligations |                        |         | 2,282             |   |                   | 515    
|                                               | FHLB stock                                            |                        |         | 3,500             |   |                   | 3,375  
|                                               | Federal Reserve Bank stock                            |                        |         | 1,537             |   |                   | 1,230  
|                                               | Other equity securities                               |                        |         | 495               |   |                   | 484    
|                                               |                                                       |                        |         |                   |   |                   |        
|Total classified as investment securities      |                                                       |                        | 203,563 |                   |   | 306,612           |        
|                                               | Debt obligations classified as loans                  |                        |         | 32,543            |   |                   | 37,213 
|                                               |                                                       |                        |         |                   |   |                   |        
|                                               |                                                       | $                      | 236,106 |                   | $ | 343,825           |        
|                                               |                                                       |                        |         |                   |   |                   |        

Interest-only strips included in
the investment securities portfolio were written down in the amount of $4.5 million during the year ended December 31, 2002.

In December
2000, we transferred investment securities classified as held-to-maturity with an amortized cost of $48.3 million to the available-for-sale classification in order to provide us with more flexibility in managing the interest-rate risk in the
investment security portfolio. These investment securities had gross unrealized gains of $563 thousand and gross unrealized losses of $228 thousand.  Subsequent to the transfer, we sold investment securities with an amortized cost of $9.6
million, and recognized a loss of $159 thousand in the fourth quarter of 2000. Because of the transfer, all investment securities have been classified as available-for-sale since that time.

11



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The following table summarizes the contractual maturity of investment securities and their weighted average yields
as of December 31, 2002:

|                                          |  | Available-for-sale   |            
|----------------------------------------- |  | -------------------- | -----------
|                                          |  |                      |            
|                                          |  | Estimated Fair Value |            
|                                          |  |                      |            
|Debt obligations:                         |  |                      |            
|One year or less                          |  | $                    | 508,683    
|After one through five years              |  |                      | 6,962,915  
|After five through ten years              |  |                      | 2,000,000  
|After ten years                           |  |                      | 29,807,044 
|                                          |  |                      |            
|Total                                     |  |                      | 39,278,642 
|                                          |  |                      |            
|Mortgage-backed securities                |  |                      | 74,892,117 
|Collateralized mortgage obligations       |  |                      | 83,860,096 
|Equity securities                         |  |                      | 5,531,793  
|                                          |  |                      |            
|Total classified as investment securities |  |                      | 203,562,648
|                                          |  |                      |            
|Debt obligations classified as loans:     |  |                      |            
|After one through five years              |  |                      | 3,478,440  
|After five through ten years              |  |                      | 5,348,530  
|After ten years                           |  |                      | 23,716,013 
|                                          |  |                      |            
|Total classified as loans                 |  |                      | 32,542,983 
|                                          |  |                      |            
|                                          |  | $                    | 236,105,631
|                                          |  |                      |            

Contractual maturity of
mortgage-backed securities and collateralized mortgage obligations is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time.

Deposits

Deposits, which represent 89% of our interest-rate sensitive liabilities as of December 31, 2002, have historically been the primary source of funding our asset
growth.  In addition to deposits, we obtain funds from loan repayments, maturing investments, loan sales, cash flows generated from operations, capital trust borrowings, securities sold under agreements to repurchase and Federal Home Loan Bank
advances. Borrowings may be used as an alternative source of lower cost funds or to fund the origination of certain assets.

The
following table sets forth the average balances and weighted average rates paid, presented on a daily average basis, for our deposits for the periods indicated:

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|                            |  | Year Ended December 31, |        
|--------------------------- |  | ----------------------- | -------
|                            |  |                         |        
|                            |  | 2002                    |        
|                            |  |                         |        
|                            |  | Average Balance         |        
|                            |  |                         |        
|                            |  | (amounts in thousands)  |        
|Demand                      |  | $                       | 74,161 
|Interest checking           |  |                         | 40,471 
|Money market and savings    |  |                         | 111,337
|Certificates of deposit (1) |  |                         | 461,826
|                            |  |                         |        
|                            |  | $                       | 687,795
|                            |  |                         |        
|Weighted average rate       |  |                         |        
|                            |  |                         |        
|                            |  |                         |        

|   
|---
|(1)

The following table sets forth by time
remaining until maturity our certificates of deposit of $100,000 or more at December 31, 2002:

|Maturity Period                         |  | Time Deposits of $100,000 or More |        
|--------------------------------------- |  | --------------------------------- | -------
|                                        |  |                                   |        
|                                        |  | (amounts in thousands)            |        
|Three months or less                    |  | $                                 | 36,972 
|Over three months through twelve months |  |                                   | 37,209 
|Over twelve months                      |  |                                   | 273,746
|                                        |  |                                   |        
|Total                                   |  | $                                 | 347,927
|                                        |  |                                   |        

Borrowings

Borrowings consist of short-term and long-term advances from the Federal Home Loan Bank of Atlanta, securities sold under agreements to repurchase, and capital trust
borrowings.  Long-term borrowings totaled $65.0 million at December 31, 2002 and are comprised of three $5.0 million advances and two $25.0 million advances from the Federal Home Loan Bank of Atlanta. These advances carry an average cost of
2.28% and have call dates ranging from January 2003 to September 2004, with maturity dates ranging from October 2007 through September 2010.  The following table sets forth information regarding our short-term borrowings at and for the periods
indicated:

|                                                        |  | Year Ended December 31, |       
|------------------------------------------------------- |  | ----------------------- | ------
|                                                        |  |                         |       
|                                                        |  | 2002                    |       
|                                                        |  |                         |       
|                                                        |  | (Dollars in thousands)  |       
|Ending Balance                                          |  | $                       | 18,456
|Average Balance for the Period                          |  |                         | 39,579
|Maximum Month-end Balance During the Period             |  |                         | 87,500
|Average Interest Rate for the Period                    |  |                         | 2.01  
|Weighted Average Interest Rate at the End of the Period |  |                         | 0.94  

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In May of 2000, we formed a wholly-owned statutory business trust, Southern Financial Capital Trust I, which issued
$5.0 million in trust preferred securities and in September of 2000, we formed a second wholly-owned statutory business trust, Southern Financial Statutory Trust I, which issued $8.0 million in trust preferred securities.  Each trust invested
the proceeds in an equivalent amount of our junior subordinated debentures bearing an interest rate equal to the distribution rate on the respective issue of trust preferred securities.  Both issuances of debentures will mature in 2030, which
date may be shortened to a date not earlier than 2005 if certain conditions are met, including prior approval of the Federal Reserve.  These debentures, which are the only assets of each trust, are subordinate and junior in right of payment to
all of our present and future senior indebtedness.  We have fully and unconditionally guaranteed each trusts obligations under the trust preferred securities.

The debentures issued to Capital Trust I accrue interest at an annual rate of 11.0% of the aggregate liquidation amount, payable quarterly, and the debentures issued
to Statutory Trust I accrue interest at an annual rate of 10.60% of the liquidation preference, payable quarterly.  The quarterly distributions on each issuance of trust preferred securities are paid at the same rate that interest is paid on
the corresponding debentures.  Distributions to the holders of the trust preferred securities are included in interest expense, within the category entitled borrowings.  Under the provisions of each issue of the debentures, we have the
right to defer payment of interest on the debentures at any time, or from time to time, for periods not exceeding five years. If interest payments on either issue of the debentures are deferred, the distributions on the applicable trust preferred
securities will also be deferred.

For financial reporting purposes, the trusts are treated as our subsidiaries and consolidated in our
financial statements.  The trust preferred securities are presented as a separate category of long-term debt on the balance sheet.  Although the trust preferred securities are not included as a component of stockholders equity in the
balance sheet, for regulatory purposes the Federal Reserve Board treats a portion of the trust preferred securities as Tier 1 capital.  The treatment of the trust preferred securities as Tier 1 or Tier 2 capital, in addition to the ability to
deduct the expense of the junior subordinated debentures for federal income tax purposes, provided us with a cost-effective method of raising capital to support the bank.

Taking the underwriting discount into account, the aggregate amount of the trust preferred securities have a pretax interest cost to us of 11.05% per annum. To
mitigate the negative impact of this interest cost on our consolidated net income, we invested the proceeds of the issuance of debentures in investment securities.

Supervision and
Regulation

General

We are a bank holding company within the meaning of
the Bank Holding Company Act of 1956, as amended, and therefore are supervised and examined by the Board of Governors of the Federal Reserve System.  We are also subject to Virginia laws that regulate banks and bank holding companies that are
administered by the Bureau of Financial Institutions of the State Corporation Commission of Virginia.  Because of the insurance on our deposits, we are also affected by rules and regulations of the Federal Deposit Insurance Corporation. We are
a member of the Federal Reserve System and the Federal Home Loan Bank of Atlanta.

The supervision, regulation and examination of us and
the bank are intended primarily for the protection of depositors rather than holders of our securities.

Bank Holding Company Regulation

We are required to file periodic reports and any additional information with the Federal Reserve. The Federal Reserve examines us and may examine our subsidiaries.
The State Corporation Commission also may examine us.

The Bank Holding Company Act requires prior Federal Reserve approval for, among
other things, the acquisition of direct or indirect ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank, or a merger or consolidation of a bank holding company with another bank holding company. A
bank holding company may acquire direct or indirect ownership or control of voting shares of any company that is engaged directly or indirectly in banking or managing or controlling banks or performing services for its authorized subsidiaries. A
bank holding company also may engage in or acquire an interest in a company that engages in activities which the Federal Reserve has determined by regulation or order to be so closely related to banking as to be a proper incident thereto.

The activities permissible to bank holding companies and their affiliates were substantially expanded by the Gramm-Leach-Bliley Act
which became effective on March 11, 2000.  The Gramm-Leach-Bliley Act  authorizes affiliations between commercial banks, investment banks and insurance companies and allows bank holding companies and state banks, if permitted 
by  state law, to engage in a variety of new activities. Under the Gramm-Leach-Bliley, a bank holding company can elect to be treated as a financial holding company. A financial holding company may engage in any activity and acquire and retain
any company that the Federal Reserve determines to be financial in nature. A financial holding company also may engage in any activity that is complementary to a financial activity and does not pose a substantial risk to the safety and soundness of
depository institutions or the financial system generally. The Federal Reserve must consult with the Secretary of the Treasury in determining whether an activity is financial in nature or incidental to a financial activity.

We are a legal entity separate and distinct from the bank and transactions between the bank and any of its nonbanking subsidiaries, including us, and
any of our nonbanking subsidiaries, are subject to Section 23A of the Federal Reserve Act. Section 23A of the Federal Reserve Act imposes limits on such transactions. Section 23A defines covered transactions, which include loans, and
limits a banks covered transactions with any affiliate to 10% of the

14



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banks capital and surplus. It also requires that all of a banks loans to an affiliate be secured by acceptable collateral, generally United States government or
agency securities.

We and the bank also are subject to Section 23B of the Federal Reserve Act, which requires that transactions between
the bank and any of its affiliates be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the bank as those prevailing at the time for transactions with unaffiliated
companies.

Federal Reserve policy requires a bank holding company to act as a source of financial strength and to take measures to
preserve and protect bank subsidiaries in situations where additional investments in a troubled bank may not otherwise be warranted. As a result, a bank holding company may be required to lend money to its subsidiaries in the form of capital notes
or other instruments that qualify as capital under regulatory rules. Any loans from the holding company to such subsidiary banks likely will be unsecured and subordinated to such banks depositors and perhaps to other creditors of its bank
subsidiaries.

Bank Supervision

As a Virginia bank that is a member of the
Federal Reserve System, the bank is regulated and examined by the State Corporation Commission and by its primary federal regulator, the Federal Reserve. The State Corporation Commission and the Federal Reserve regulate and monitor all of the
banks operations, including reserves, loans, mortgages, payments of dividends and the establishment of branches.

Various statutes
limit the ability of the bank to pay dividends, extend credit or otherwise supply funds to us and our nonbanking subsidiaries. Dividends from the bank are expected to constitute our major source of funds.

Regulatory Capital Requirements

All banks and bank holding companies are required to maintain minimum
levels of regulatory capital.  The federal bank regulatory agencies have established substantially similar risked based and leverage capital standards for banks that they regulate.  These regulatory agencies also may impose capital
requirements in excess of these standards on a case-by-case basis for various reasons, including financial condition or actual or anticipated growth.  Under the risk-based capital requirements of these regulatory agencies, we and the bank are
required to maintain a minimum ratio of total capital to risk-weighted assets of at least 8%.  At least half of the total capital is required to be tier 1 capital, which consists principally of common and certain qualifying preferred
shareholders equity, less certain intangibles and other adjustments.  The remainder, tier 2 capital, consists of a limited amount of subordinated and other qualifying debt and a limited amount of the general loan loss
allowance.  Based upon the applicable Federal Reserve regulations, at December 31, 2002, the bank was considered to be well capitalized.

In addition, the federal regulatory agencies have established a minimum leverage capital ratio, Tier 1 capital divided by tangible assets.  These guidelines
provide for a minimum leverage capital ratio of 3% for banks and their respective holding companies that meet certain specified criteria, including that they have the highest regulatory examination rating and are not contemplating significant growth
or expansion.  All other institutions are expected to maintain a leverage ratio above that minimum.  The guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.

Limits on Dividends and Other Payments

Virginia law restricts distributions of dividends to our shareholders.  Our shareholders are entitled to receive dividends as declared by our board of
directors.  However, no distribution to our shareholders may be made if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than
our total liabilities.  There are similar restrictions on stock repurchases and redemptions.

Banks have limits on all capital
distributions, including cash dividends, payments to repurchase or otherwise acquire shares, payments to shareholders of another institution in a cash-out merger, and other distributions charged against capital.

The bank may not make a capital distribution, including the payment of a dividend, if, after the distribution, it would become
undercapitalized. The prior approval of the Federal Reserve is required if the total of all dividends declared by the bank in any calendar year will exceed the sum of the banks net profits for that year and its retained net profits for the
preceding two calendar years.  The Federal Reserve also may limit the payment of dividends by any state member bank if it considers the payment an unsafe or unsound practice.  In addition, under Virginia law no dividend may be declared or
paid that would impair a Virginia chartered banks paid-in capital.  The State Corporation Commission has general authority to prohibit payment of dividends by a Virginia chartered bank if it determines that the limit is in the public
interest and is necessary to ensure the banks financial soundness.

FDIC Regulations

The Federal Deposit Insurance Corporation Improvement Act of 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. Each federal banking agency has issued regulations, specifying the levels at which a financial institution would be
considered well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized, and to take certain mandatory and discretionary
supervisory actions based on the capital level of the institution.  Those supervisory actions become increasingly severe for banks that are undercapitalized or worse.

15



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Under the Federal Reserves regulations implementing the prompt corrective action provisions, an institution
is considered 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.

An adequately capitalized institution 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.

An undercapitalized institution 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).  Undercapitalized banks are subject to growth limits and are required to submit a capital restoration plan for approval. For a capital restoration plan to be acceptable, the
banks parent holding company must guarantee that the bank will comply with the capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of 5% of the banks total assets at the time it became
undercapitalized and the amount necessary to bring the institution into compliance with applicable capital standards.  If a bank fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. If the controlling
holding company fails to fulfill its obligations and files (or has filed against it) a petition under the federal Bankruptcy Code, the claim would be entitled to a priority in such bankruptcy proceeding over third-party creditors.

A significantly undercapitalized institution 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%.  Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become
adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks.

A
critically undercapitalized institution has a ratio of tangible equity to total assets that is equal to or less than 2%.  A critically undercapitalized bank is likely to be put in receivership and liquidated.

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.

The Federal Deposit Insurance Corporation Improvement Act also 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.  The Federal Deposit Insurance Corporation
Improvement Act 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 undercapitalized banks to borrow from the Federal Reserves discount window and required federal banking regulators to perform
annual onsite bank examinations.

Brokered Deposit Restrictions

Institutions
that are only adequately capitalized (as defined for purposes of the prompt corrective action rules described above) cannot accept, renew or roll over brokered deposits except with a waiver from the FDIC, and are subject to restrictions
on the interest rates that can be paid on such deposits. Undercapitalized institutions may not accept, renew, or roll over brokered deposits.

Deposit Insurance Assessments

The banks deposits are currently insured to a maximum of
$100,000 per depositor, subject to certain aggregation rules.  The FDIC has implemented a risk-related assessment system for deposit insurance premiums.  All depository institutions have been assigned to one of nine risk assessment
classifications based on certain capital and supervisory measures.  The banks deposits are subject to the rates of the Savings Associations Insurance Fund since it converted to a commercial bank from a federal savings bank on December 1,
1995.  Based on its current risk classifications, the bank pays the minimum Savings Associations Insurance Fund assessment and Bank Insurance Fund assessments.

Community Reinvestment
Act

The Community Reinvestment Act of 1977, as amended, (CRA) encourages banks consistent with their safe and sound
operation, to help meet the credit needs for their entire communities, including low and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an
institutions discretion to develop the types of products and services that it believes are best suited to its particular community consistent with the CRA.

A depository institutions primary federal regulator, in connection with its examination of the institution, must assess the institutions record in
assessing and meeting the credit needs of the community served by that institution, including low and moderate-income neighborhoods. The regulatory agencys assessment of the institutions record is made available to the public. Further,
such assessment is required of any institution which has applied to charter a national bank, obtain deposit insurance coverage for a newly chartered institution, establish a new branch office that accepts deposits, relocate an office or merge or
consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. If a bank holding company applies for approval to acquire a bank or other bank holding company, the Federal Reserve will assess the
records of each subsidiary depository institution of the applicant bank holding company, and such records may be the basis for denying the application.

16



---

Fiscal and Monetary Policy

Banking is a business which
depends on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and its other borrowings, and the interest received by a bank on its loans and securities holdings, constitutes the major portion
of a banks earnings. Thus, our earnings and growth and the earnings and growth of the bank will be subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United
States and its agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, the discount rate at which banks may borrow
from the Federal Reserve, and the reserve requirements on deposits. We cannot predict the ultimate effect of the nature and timing of any changes in such policies will have on our business or on the business of our subsidiaries.

Federal Home Loan Bank System

We are a member of the Federal Home Loan Bank System, which
consists of 12 district Federal Home Loan Banks with each subject to supervision and regulation by the Federal Housing Finance Board.  The Federal Home Loan Banks provide a central credit facility for member institutions. The bank, as a member
of the Federal Home Loan Bank of Atlanta, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank in an amount equal to at least 1% of the aggregate principal amount of their unpaid residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or 5% of their borrowings from the Federal Home Loan Bank of Atlanta, whichever is greater.  At December 31, 2002, we had an investment of $3.5 million in the stock
of the Federal Home Loan Bank of Atlanta and were in compliance with these requirements.

Competition

The banking business is highly competitive, and our profitability depends principally on our ability to compete in the market areas in which our banking operations
are located. We experience substantial competition in attracting and retaining savings deposits and in lending funds.  The primary factors we encounter in competing for savings deposits are convenient office locations and rates offered. 
Direct competition for savings deposits comes from other commercial bank and thrift institutions, money market mutual funds and corporate and government securities which may offer more attractive rates than insured depository institutions are
willing to pay.  The primary factors we encounter in competing for loans include, among others, 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.  We have been able to compete effectively with other financial institutions by emphasizing customer service and technology; by
establishing long-term customer relationships and building customer loyalty; and by providing products and services designed to address the specific needs of our customers.

Employees

At December 31, 2002, we had 225 full-time employees, six of whom were executive
officers.  Management considers its relations with its employees to be good.  Neither we nor the bank are a party to any collective bargaining agreement.

Available
Information

Southern Financials website address is
www.southernfinancialbank.com. While we do not provide direct access through our website, we do make available free of charge through our website by a hyperlink to a third-party service our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such material is
electronically filed with or furnished to the Securities and Exchange Commission. We also provide paper copies of our filings free of charge upon request.

17



---

Item 2.   Properties

Offices and Other Material Properties

We conduct business from our main office in Warrenton, Virginia and at 26 branch offices.  Our headquarters are located at 37 E. Main Street, Warrenton,
Virginia in an office building we lease. All of our leases are for terms of five years or more and the expiration dates range from June 2003 to September 2016, not including any optional renewal periods which may be available.

The following table sets forth the date opened or acquired, ownership status and the total deposits, not including institutional deposits, for each of our
banking locations:

|Office Location           |  | Date Opened or Acquired |  | Owned or Leased |  | Deposits at December 31, 2002 |       
|------------------------- |  | ----------------------- |  | --------------- |  | ----------------------------- | ------
|                          |  |                         |  |                 |  |                               |       
|Home Office:              |  |                         |  |                 |  |                               |       
|37 E. Main Street         |  | February                |  | Leased          |  | $                             | 21,327
|Warrenton, VA             |  | 1989                    |  |                 |  |                               |       
|Branch Offices:           |  |                         |  |                 |  |                               |       
|362 Elden Street          |  | April                   |  | Leased          |  |                               | 25,313
|Herndon, VA               |  | 1986                    |  |                 |  |                               |       
|101 W. Washington Street  |  | November                |  | Leased          |  |                               | 13,496
|Middleburg, VA            |  | 1987                    |  |                 |  |                               |       
|25 W. Piccadilly Street   |  | November                |  | Leased          |  |                               | 8,759 
|Winchester, VA            |  | 1990                    |  |                 |  |                               |       
|526 E. Market Street      |  | March                   |  | Leased          |  |                               | 28,547
|Leesburg, VA              |  | 1992                    |  |                 |  |                               |       
|4021 University Drive     |  | September               |  | Owned           |  |                               | 17,176
|Fairfax, VA               |  | 1993                    |  |                 |  |                               |       
|322 Lee Highway           |  | August                  |  | Leased          |  |                               | 19,297
|Warrenton, VA             |  | 1994                    |  |                 |  |                               |       
|5245 Old Centreville Road |  | April                   |  | Leased          |  |                               | 10,312
|Herndon, VA               |  | 1995                    |  |                 |  |                               |       
|13542 Minnieville Road    |  | April                   |  | Leased          |  |                               | 7,849 
|Woodbridge, VA            |  | 1995                    |  |                 |  |                               |       
|1095 Millwood Pike        |  | July                    |  | Owned           |  |                               | 5,278 
|Winchester, VA            |  | 1996                    |  |                 |  |                               |       
|46910 Community Plaza     |  | April                   |  | Leased          |  |                               | 4,835 
|Sterling, VA              |  | 1998                    |  |                 |  |                               |       

18



---

|Office Location               |  | Date Opened or Acquired |  | Owned or Leased |  | Deposits at December 31, 2002 |       
|----------------------------- |  | ----------------------- |  | --------------- |  | ----------------------------- | ------
|                              |  |                         |  |                 |  |                               |       
|2062 Plank Road               |  | January                 |  | Leased          |  |                               | 7,873 
|Fredericksburg, VA            |  | 1999                    |  |                 |  |                               |       
|10175 Hastings Drive          |  | March                   |  | Leased          |  |                               | 10,395
|Manassas, VA                  |  | 1999                    |  |                 |  |                               |       
|7857 Heritage Drive (1)       |  | October                 |  | Leased          |  |                               | 5,775 
|Annandale, VA                 |  | 1999                    |  |                 |  |                               |       
|9720 Lee Highway (1)          |  | October                 |  | Leased          |  |                               | 66,108
|Fairfax, VA                   |  | 1999                    |  |                 |  |                               |       
|527 Maple Avenue (1)          |  | October                 |  | Leased          |  |                               | 21,224
|Vienna, VA                    |  | 1999                    |  |                 |  |                               |       
|8414 Lee Highway (1)          |  | October                 |  | Owned           |  |                               | 47,059
|Merrifield, VA                |  | 1999                    |  |                 |  |                               |       
|10693 Courthouse Road (2)     |  | September               |  | Leased          |  |                               | 26,449
|Fredericksburg, VA            |  | 2000                    |  |                 |  |                               |       
|6354 Walker Lane (2)          |  | September               |  | Leased          |  |                               | 19,226
|Alexandria, VA                |  | 2000                    |  |                 |  |                               |       
|1055 Thomas Jefferson St., NW |  | August                  |  | Leased          |  |                               | 15,629
|Washington, DC                |  | 2001                    |  |                 |  |                               |       
|300 E. Market Street          |  | January                 |  | Leased          |  |                               | 3,882 
|Charlottesville, VA           |  | 2002                    |  |                 |  |                               |       
|8206 Atlee Road (3)           |  | August                  |  | Owned           |  |                               | 39,893
|Mechanicsville, VA            |  | 2002                    |  |                 |  |                               |       
|6401 Horsepen Road (3)        |  | August                  |  | Leased          |  |                               | 4,236 
|Richmond, VA                  |  | 2002                    |  |                 |  |                               |       
|5419 Lakeside Avenue (3)      |  | August                  |  | Leased          |  |                               | 20,195
|Richmond, VA                  |  | 2002                    |  |                 |  |                               |       
|2801 Parham Road (3)          |  | August                  |  | Leased          |  |                               | 9,705 
|Richmond, VA                  |  | 2002                    |  |                 |  |                               |       
|3124 West Broad Street (3)    |  | August                  |  | Owned           |  |                               | 11,962
|Richmond, VA                  |  | 2002                    |  |                 |  |                               |       
|2208 Ivy Road                 |  | February                |  | Owned           |  |                               |      
|Charlottesville, VA           |  | 2003                    |  |                 |  |                               |       

|   
|---
|(1)
|(2)
|(3)

19



---

Item 3.   Legal Proceedings

We
and the bank from time to time are involved in legal proceedings arising in the normal course of business.  Management believes that neither we nor the bank are a party to, nor is any of our property the subject of, any material pending or
threatened legal proceedings which, if determined adversely, would have a material adverse effect upon our consolidated position, results of operations or cash flows.

Item
4.   Submission of Matters to Vote of Security Holders

None.

PART II.

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

The information required herein is incorporated by reference from page 44 of the Annual Report.

Item
6.   Selected Financial Data

The information required herein is incorporated by reference from pages 2 and 3 of
the Annual Report.

Item 7.   Managements Discussion and Analysis

The information required herein is incorporated by reference from pages 10 through 20 of the Annual Report.

Item 7a.   Quantitative and Qualitative Disclosure about Market Risk

The information
required herein is incorporated by reference from pages 16 through 17 of the Annual Report.

Item 8.   Financial Statements

The information required herein is incorporated by reference from pages 21 through 41 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 6 through 10 of the definitive proxy statement of Southern Financial Bancorp, Inc. filed on
March 24, 2003 (Definitive Proxy Statement).

Item 11.   Executive Compensation

The information required herein is incorporated by reference from pages 11 through 13 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 8 through 10 and page 14 of the Definitive Proxy Statement.

Item 13.   Certain Relationships and Related
Transactions

The information required herein is incorporated by reference from page 7 of the Definitive Proxy
Statement.

20



---

PART IV.

Item 14.   Controls and Procedures

Our management, including the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing of this annual report, and , based on their evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that these disclosure controls and procedures are
effective.  There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Item 15.   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, 2002, 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                                | 21                                          
|Consolidated Balance Sheets:                                |                                             
|                                                            | December 31, 2002 and December 31, 2001     
|Consolidated Statements of Income:                          |                                             
|                                                            | Years Ended December 31, 2002, 2001 and 2000
|Consolidated Statements of Comprehensive Income:            |                                             
|                                                            | Years Ended December 31, 2002, 2001 and 2000
|Consolidated Statements of Changes in Stockholders Equity: |                                             
|                                                            | Years Ended December 31, 2002, 2001 and 2000
|Consolidated Statements of Cash Flows:                      |                                             
|                                                            | Years Ended December 31, 2002, 2001 and 2000
|Notes to Consolidated Financial Statements                  | 27 - 41                                     

| | (2) | All other schedules have been omitted as the required information is either inapplicable or included in the Notes to Consolidated 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) |  | Change in control agreement between Southern Financial Bancorp, Inc., and R. Roderick Porter                                                                                                                                                                                                                            
| |  |  |      |  |                                                                                                                                                                                                                                                                                                                         
| |  |  | (11) |  | Statement re Computation of Per Share Earnings--Reference is made to Note 1 and Note 15 to Financial Statements, Page 29 and Page 41, respectively, in Annual
Report                                                                                                                                                    
| |  |  |      |  |                                                                                                                                                                                                                                                                                                                         
| |  |  | (12) |  | Statement re Computation of Ratios--Not applicable                                                                                                                                                                                                                                                                      
| |  |  |      |  |                                                                                                                                                                                                                                                                                                                         
| |  |  | (13) |  | Pages 2 and 3, pages 10-41, and page 44  of the Annual Report to Stockholders for the Year Ended December 31, 2002                                                                                                                                                                                                      
| |  |  |      |  |                                                                                                                                                                                                                                                                                                                         
| |  |  | (18) |  | Letter re Change in Accounting PrinciplesNot applicable                                                                                                                                                                                                                                                                

21



---

| |  |  | (21) |  | Subsidiaries of the registrant:
| |  |  | ---- |  | -------------------------------

|Name                                 |  | Jurisdiction of Incorporation |  | Percentage of Voting Securities Owned by the Parent |  
|------------------------------------ |  | ----------------------------- |  | --------------------------------------------------- | -
|                                     |  |                               |  |                                                     |  
|Southern Financial Bank              |  | Virginia                      |  | 100                                                 | %
|Southern WebTech.com, Inc.           |  | Virginia                      |  | 100                                                 | %
|Southern Financial Capital Trust I   |  | Delaware                      |  | 100                                                 | %
|Southern Financial Statutory Trust I |  | Delaware                      |  | 100                                                 | %

| |  |  | (22)   |  | Published Report Regarding Matters Submitted to Vote of Security Holders--Not applicable                              
| |  |  | ------ |  | ----------------------------------------------------------------------------------------------------------------------
| |  |  |        |  |                                                                                                                       
| |  |  | (23)   |  | Consent of KPMG LLP                                                                                                   
| |  |  |        |  |                                                                                                                       
| |  |  | (24)   |  | Power of Attorney  Not applicable                                                                                    
| |  |  |        |  |                                                                                                                       
| |  |  | (28)   |  | Information from Reports Furnished to State Insurance Regulatory Authorities  Not applicable                         
| |  |  |        |  |                                                                                                                       
| |  |  | (99.1) |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)     No reports on Form 8-K were filed during the quarter ended December 31, 2002.

22



---

SIGNATURES

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

|                        | SOUTHERN FINANCIAL BANCORP, INC.
|----------------------- | --------------------------------
|                        |                                 
|                        | By:                             
|                        |                                 
|                        |                                 
|Dated:   March 28, 2003 |                                 

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         |  | March 28, 2003
|                           |  | the Board and Chief              |  |               
|Georgia S. Derrico         |  | Executive Officer                |  |               
|                           |  |                                  |  |               
|                           |  |                                  |  |               
|/s/ R. RODERICK PORTER     |  | Director and President and       |  | March 28, 2003
|                           |  | Chief Operating Officer          |  |               
|R. Roderick Porter         |  |                                  |  |               
|                           |  |                                  |  |               
|/s/ DAVID DE GIVE          |  | Director and Senior Vice         |  | March 28, 2003
|                           |  | President/Treasurer              |  |               
|David de Give              |  |                                  |  |               
|                           |  |                                  |  |               
|/s/ PATRICIA A. FERRICK    |  | Senior Vice President and        |  | March 28, 2003
|                           |  | Chief Financial Officer          |  |               
|Patricia A. Ferrick        |  |                                  |  |               
|                           |  |                                  |  |               
|/s/ WILLIAM H. LAGOS       |  | Senior Vice President/Controller |  | March 28, 2003
|                           |  | (Principal Accounting Officer)   |  |               
|William H. Lagos           |  |                                  |  |               
|                           |  |                                  |  |               
|/s/ VIRGINIA JENKINS       |  | Director                         |  | March 28, 2003
|                           |  |                                  |  |               
|Virginia Jenkins           |  |                                  |  |               
|                           |  |                                  |  |               
|/s/ NEIL J. CALL           |  | Director                         |  | March 28, 2003
|                           |  |                                  |  |               
|Neil J. Call               |  |                                  |  |               
|                           |  |                                  |  |               
|/s/ MICHAEL P. RUCKER      |  | Director                         |  | March 28, 2003
|                           |  |                                  |  |               
|Michael P. Rucker          |  |                                  |  |               
|                           |  |                                  |  |               
|/s/ ALFONSO G. FINOCCHIARO |  | Director                         |  | March 28, 2003
|                           |  |                                  |  |               
|Alfonso G. Finocchiaro     |  |                                  |  |               

23



---

|/s/ ROBERT P. WARHURST |  | Director |  | March 28, 2003
|---------------------- |  | -------- |  | --------------
|                       |  |          |  |               
|Robert P. Warhurst     |  |          |  |               
|                       |  |          |  |               
|/s/ JOHN C. BELOTTI    |  | Director |  | March 28, 2003
|                       |  |          |  |               
|John C. Belotti        |  |          |  |               
|                       |  |          |  |               
|/s/ FRED L. BOLLERER   |  | Director |  | March 28, 2003
|                       |  |          |  |               
|Fred L. Bollerer       |  |          |  |               
|                       |  |          |  |               
|/s/ RICHARD E. SMITH   |  | Director |  | March 28, 2003
|                       |  |          |  |               
|Richard E. Smith       |  |          |  |               
|                       |  |          |  |               
|/s/ BARBARA J. FRIED   |  | Director |  | March 28, 2003
|                       |  |          |  |               
|Barbara J. Fried       |  |          |  |               

24



---

INDEX TO EXHIBITS

Number and Descriptions

|10   | Change in control agreement between Southern Financial Bancorp, Inc., and R. Roderick Porter                          
|---- | ----------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                       
|13   | Southern Financial Bancorp, Inc. December 31, 2002 Annual Report to Stockholders                                      
|     |                                                                                                                       
|23   | Consent of KPMG LLP                                                                                                   
|     |                                                                                                                       
|99.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

25



---

I, Georgia S. Derrico, certify that:

|1. I have reviewed this annual report on Form 10-K of Southern Financial Bancorp, Inc.;                                                                                                                                                                                                                                                                                                  
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                         
|2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;                                                              
|                                                                                                                                                                                                                                                                                                                                                                                         
|3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                         
|4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|6. The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

March 28, 2003

|/s/ GEORGIA S. DERRICO                                  | 
|------------------------------------------------------- | 
|                                                        | 
|Georgia S. Derrico Chairman and Chief Executive Officer | 

26



---

I, Patricia A. Ferrick, certify that:

|1. I have reviewed this annual report on Form 10-K of Southern Financial Bancorp, Inc.;                                                                                                                                                                                                                                                                                                  
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                         
|2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;                                                              
|                                                                                                                                                                                                                                                                                                                                                                                         
|3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                         
|4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                         
|6. The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

March 28, 2003

|/s/ PATRICIA A. FERRICK                                               | 
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|Patricia A. Ferrick Chief Financial Officer and Senior Vice President | 

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