SOUTHERN COMMUNITY FINANCIAL CORP - 10-Q Quarterly Report

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

Form 10-Q

[ü] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2002

[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period ended

Commission File Number 000-33227

Southern Community Financial Corporation

(Exact name of registrant as specified in its charter)


North Carolina (State or other jurisdiction of incorporation or organization)		56-2270620 (I.R.S. Employer Identification No.)


4701 Country Club Road Winston-Salem, North Carolina (Address of principal executive offices)		27104 (Zip Code)

Registrant’s telephone number, including area code (336) 768-8500

Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock, No Par Value

7.25% Convertible Junior Subordinated Debentures

Guarantee with respect to 7.25% Convertible Trust Preferred Securities

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ü] No [ ]

As of September 30, 2002, (the most recent practicable date), the registrant had outstanding 8,375,082 shares of Common Stock, no par value.

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			Page No.

Part I. FINANCIAL INFORMATION




Item 1 - Financial Statements (Unaudited)




	Consolidated Balance Sheets September 30, 2002 and December 31, 2001			3




	Consolidated Statements of Operations Three Months and Nine Months Ended September 30, 2002 and 2001			4




	Consolidated Statements of Stockholders’ Equity Nine Months Ended September 30, 2002 and 2001			5




	Consolidated Statements of Cash Flows Nine Months Ended September 30, 2002 and 2001			6




	Notes to Consolidated Financial Statements			7




Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations				15




Item 3 - Quantitative and Qualitative Disclosures about Market Risk				19




Item 4 - Controls and Procedures				19




Part II. Other Information




		Item 6. Exhibits and Reports on Form 8-K		20

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Part I. FINANCIAL INFORMATION

Item 1 — Financial Statements

SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS


		September 30, 2002			December 31, 2001*
		(Unaudited)

		(Amounts in thousands,
		except share data)
Assets




Cash and due from banks		$	15,758		$	18,878




Federal funds sold			10,883			22,926




Investment securities (Note 3)




	Available for sale, at fair value		105,864			30,678




	Held to maturity, at amortized cost		31,776			34,529




Loans (Note 4)			410,578			360,288




Allowance for loan losses (Note 4)			(6,129	)		(5,400	)

Net Loans			404,449			354,888




Bank premises and equipment (Note 5)			15,127			12,111




Other assets			11,221			7,210

Total Assets		$	595,078		$	481,220

Liabilities And Stockholders’ Equity




Liabilities Deposits:




	Demand	$	40,619		$	36,202




	Money market and NOW		106,460			95,904




	Time (Note 6)		301,129			260,745

Total Deposits			448,208			392,851




Short-term borrowings (Note 7)			25,000			19,980




Long-term debt (Note 7)			55,000			25,000




Convertible Junior Subordinated Debentures			17,250			—




Other liabilities			3,027			938

Total Liabilities			548,485			438,769

Stockholders’ Equity (Note 10) Common stock, no par value, 30,000,000 shares authorized; 8,375,082 and 8,354,990 shares issued and outstanding			40,367			40,285




	Retained earnings		3,526			1,362




Accumulated other comprehensive income			2,700			804

Total Stockholders’ Equity			46,593			42,451

Commitments (Notes 4 and 5)
Total Liabilities and Stockholders’ Equity		$	595,078		$	481,220

• Derived from audited financial statements

See accompanying notes.

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SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


		Three Months Ended				Nine Months Ended
		September 30,				September 30,

		2002		2001		2002		2001

		(Amounts in thousands, except per share data)
Interest Income




	Loans	$	6,757	$	6,617	$	18,978	$	20,125




	Investment securities available for sale		1,431		625		3,437		1,805




	Investment securities held to maturity		436		762		1,847		1,497




	Federal funds sold		32		76		102		540

Total Interest Income			8,656		8,080		24,364		23,967

Interest Expense




	Money market and NOW deposits		370		636		1,061		1,752




	Time deposits		2,565		3,567		8,349		11,826




	Borrowings		1,020		361		2,514		581

Total Interest Expense			3,955		4,564		11,924		14,159

Net Interest Income			4,701		3,516		12,440		9,808




Provision for Loan Losses (Note 4)			400		625		1,180		1,500

Net Interest Income After Provision for Loan Losses			4,301		2,891		11,260		8,308

Non-Interest Income (Note 8)			1,009		784		2,654		2,617

Non-Interest Expense




	Salaries and employee benefits		2,102		1,493		5,469		4,168




	Occupancy and equipment		636		529		1,842		1,525




	Other (Note 8)		1,133		868		3,278		2,611

Total Non-Interest Expense			3,871		2,890		10,589		8,304

Income Before Income Taxes			1,439		785		3,325		2,621




Income Tax Expense			503		278		1,161		919

Net Income		$	936	$	507	$	2,164	$	1,702

Net Income Per Share (Note 10)




	Basic	$	.11	$	.06	$	.25	$	.20




	Diluted		.10		.06		.24		.19




Weighted Average Shares Outstanding




	Basic		8,793,836		8,761,508		8,789,307		8,687,026




	Diluted		9,069,622		9,038,393		9,070,110		8,965,797

See accompanying notes.

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SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)


												Accumulated
				Common Stock				Additional				Other		Total
								Paid-in		Retained		Comprehensive		Stockholders'
				Shares		Amount		Capital		Earnings		Income		Equity

						(Amounts in thousands, except share data)
Balance at December 31, 2001					8,354,990	$	40,285	$	—	$	1,362	$	804	$	42,451




Comprehensive income:




	Net income				—		—		—		2,164		—		2,164




	Other comprehensive income:




		Net increase in fair value of securities available for sale, net of tax			—		—		—		—		1,032		1,032




		Net increase in fair value on cash flow hedging activities, net of tax			—		—		—		—		864		864

			Total comprehensive income												4,060

Common stock issued pursuant to:




	Stock options exercised				20,092		82		—		—		—		82

Balance at September 30, 2002					8,375,082	$	40,367	$	—	$	3,526	$	2,700	$	46,593

Balance at December 31, 2000					7,595,979	$	18,990	$	15,766	$	1,883	$	311	$	36,950




Comprehensive income:




	Net income				—		—		—		1,702		—		1,702




	Other comprehensive income:




		Net increase in fair value of securities available for sale, net of tax			—		—		—		—		693		693

			Total comprehensive income												2,395

Common stock issued pursuant to:




	Sale of common stock				344,118		860		1,951		—		—		2,811




	Stock options exercised				18,191		46		35		—		—		81

Balance at September 30, 2001					7,958,288	$	19,896	$	17,752	$	3,585	$	1,004	$	42,237

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See accompanying notes.

SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


					Nine Months Ended
					September 30,

					2002		2001

					(Amounts in thousands)
Cash Flows from Operating Activities




		Net income			$	2,164	$	1,702




	Adjustments to reconcile net income to net cash provided by operating activities:




				Depreciation and amortization		956		737




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