U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
| x | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2003
| o | 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
| North Carolina | 56-2270620 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 4605 Country Club Road Winston-Salem, North Carolina |
27104 | |
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| (Address of principal executive offices) | (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% Cumulative Convertible Trust Preferred Securities
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 x No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of May 2, 2003, (the most recent practicable date), the registrant had outstanding 8,791,683 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 March 31, 2003 and December 31, 2002 | 3 | |||
| Consolidated Statements of Operations Three Months Ended March 31, 2003 and 2002 | 4 | |||
| Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2003 and 2002 | 5 | |||
| Consolidated Statement of Stockholders’ Equity Three Months Ended March 31, 2003 | 6 | |||
| Consolidated Statements of Cash Flows Three Months Ended March 31, 2003 and 2002 | 7 | |||
| Notes to Consolidated Financial Statements | 8 | |||
| Item 2 - | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||
| Item 3 - | Quantitative and Qualitative Disclosures about Market Risk | 17 | ||
| Item 4 - | Controls and Procedures | 18 | ||
| Part II | Other Information | |||
| Item 6 - | Exhibits and Reports on Form 8-K | 19 | ||
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Part I. FINANCIAL INFORMATION
Item 1 — Financial Statements
SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
| March 31, 2003 | December 31, | ||||||||||||
| (Unaudited) | 2002* | ||||||||||||
| (Amounts in thousands, | |||||||||||||
| except share data) | |||||||||||||
Assets |
|||||||||||||
Cash and due from banks |
$ | 17,170 | $ | 16,632 | |||||||||
Federal funds sold |
605 | 11,084 | |||||||||||
Investment securities |
82,425 | 96,930 | |||||||||||
Available for sale, at fair value |
82,425 | 96,930 | |||||||||||
Held to maturity, at amortized cost |
49,573 | 44,749 | |||||||||||
Loans (Note 4) |
442,896 | 421,938 | |||||||||||
Allowance for loan losses (Note 4) |
(6,603 | ) | (6,342 | ) | |||||||||
| Net Loans | 436,293 | 415,596 | |||||||||||
Premises and equipment |
16,629 | 15,962 | |||||||||||
Other assets |
11,363 | 11,286 | |||||||||||
| Total Assets | $ | 614,058 | $ | 612,239 | |||||||||
Liabilities And Stockholders’ Equity |
|||||||||||||
Liabilities
Deposits: |
|||||||||||||
Demand |
$ | 46,873 | $ | 41,869 | |||||||||
Money market and NOW |
112,785 | 115,981 | |||||||||||
Time |
302,336 | 291,366 | |||||||||||
| Total Deposits | 461,994 | 449,216 | |||||||||||
Short-term borrowings |
28,436 | 40,706 | |||||||||||
Long-term debt |
55,000 | 55,000 | |||||||||||
Convertible preferred securities |
17,250 | 17,250 | |||||||||||
Other liabilities |
3,089 | 2,528 | |||||||||||
| Total Liabilities | 565,769 | 564,700 | |||||||||||
Stockholders’ Equity |
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Common stock, no par value, 30,000,000 shares authorized;
8,791,683 shares issued and outstanding |
43,123 | 43,123 | |||||||||||
Retained earnings |
2,777 | 1,830 | |||||||||||
Accumulated other comprehensive income |
2,389 | 2,586 | |||||||||||
| Total Stockholders’ Equity | 48,289 | 47,539 | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | 614,058 | $ | 612,239 | |||||||||
* Derived from audited financial statements
See accompanying notes.
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SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| Three Months Ended | |||||||||||||
| March 31, | |||||||||||||
| 2003 | 2002 | ||||||||||||
| (Amounts in thousands, | |||||||||||||
| except per share data) | |||||||||||||
Interest Income |
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Loans |
$ | 6,461 | $ | 5,930 | |||||||||
Investment securities available for sale |
1,292 | 843 | |||||||||||
Investment securities held to maturity |
603 | 721 | |||||||||||
Federal funds sold |
14 | 49 | |||||||||||
| Total Interest Income | 8,370 | 7,543 | |||||||||||
Interest Expense |
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Money market and NOW deposits |
211 | 325 | |||||||||||
Time deposits |
2,264 | 2,977 | |||||||||||
Federal funds purchased and borrowings |
1,049 | 639 | |||||||||||
| Total Interest Expense | 3,524 | 3,941 | |||||||||||
| Net Interest Income | 4,846 | 3,602 | |||||||||||
Provision for Loan Losses (Note 4) |
540 | 360 | |||||||||||
| Net Interest Income After Provision for Loan Losses | 4,306 | 3,242 | |||||||||||
Non-Interest Income (Note 5) |
1,170 | 762 | |||||||||||
Non-Interest Expense |
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Salaries and employee benefits |
2,100 | 1,619 | |||||||||||
Occupancy and equipment |
690 | 566 | |||||||||||
Other (Note 5) |
1,229 | 961 | |||||||||||
| Total Non-Interest Expense | 4,019 | 3,146 | |||||||||||
| Income Before Income Taxes | 1,457 | 858 | |||||||||||
Income Tax Expense |
510 | 304 | |||||||||||
| Net Income | $ | 947 | $ | 554 | |||||||||
Net Income Per Share (Note 2) |
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Basic |
$ | .11 | $ | .06 | |||||||||
Diluted |
.10 | .06 | |||||||||||
See accompanying notes.
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SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2003 | 2002 | ||||||||||
| (Amounts in thousands) | |||||||||||
Net income |
$ | 947 | $ | 554 | |||||||
Other comprehensive income: |
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Securities available for sale: |
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Unrealized holding losses on available for sale securities |
(300 | ) | (1,191 | ) | |||||||
Tax effect |
105 | 459 | |||||||||
Net of tax amount |
(195 | ) | (732 | ) | |||||||
Cash flow hedging activities: |
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Unrealized holding gains on cash flow hedging activities |
26 | — | |||||||||
Tax effect |
(10 | ) | — | ||||||||
Reclassification of gains recognized in net income |
(29 | ) | — | ||||||||
Tax effect |
11 | — | |||||||||
Net of tax amount |
(2 | ) | — | ||||||||
Total other comprehensive income |
(197 | ) | (732 | ) | |||||||
Comprehensive income |
$ | 750 | $ | (178 | ) | ||||||
See accompanying notes.
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SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
| Accumulated | |||||||||||||||||||||
| Common Stock | Other | Total | |||||||||||||||||||
| Retained | Comprehensive | Stockholders' | |||||||||||||||||||
| Shares | Amount | Earnings | Income (Loss) | Equity | |||||||||||||||||
| (Amounts in thousands, except share data) | |||||||||||||||||||||
Balance at December 31, 2002 |
8,791,683 | $ | 43,123 | $ | 1,830 | $ | 2,586 | $ | 47,539 | ||||||||||||
Net income |
— | — | 947 | — | 947 | ||||||||||||||||
Other comprehensive income, net of tax |
— | — | — | (197 | ) | (197 | ) | ||||||||||||||
Balance at March 31, 2003 |
8,791,683 | $ | 43,123 | $ | 2,777 | $ | 2,389 | $ | 48,289 | ||||||||||||
See accompanying notes.
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SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| 2003 | 2002 | |||||||||||
| (Amounts in thousands) | ||||||||||||
Cash Flows from Operating Activities |
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Net income |
$ | 947 | $ | 554 | ||||||||
Adjustments to reconcile net income to net cash provided
(used) by operating activities: |
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Depreciation and amortization |
364 | 266 | ||||||||||
Provision for loan losses |
540 | 360 | ||||||||||
Realized gain on sale of equipment |
— | (3 | ) | |||||||||
Realized loss on disposal of equipment |
8 | — | ||||||||||
Realized gain on sale of foreclosed assets |
(4 | ) | (19 | ) | ||||||||
Changes in assets and liabilities: |
||||||||||||
Increase in other assets |
(78 | ) | (2,405 | ) | ||||||||
Increase in other liabilities |
532 | 204 | ||||||||||
Net Cash Provided (Used) by Operating Activities |
2,309 | (1,043 | ) | |||||||||
Cash Flows from Investing Activities |
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Decrease
in federal funds sold |
$ | 10,479 | $ | 20,873 | ||||||||
Purchases of: |
||||||||||||
Available-for-sale investment securities |
— | (39,900 | ) | |||||||||
Held-to-maturity investment securities |
(13,938 | ) | (8,251 | ) | ||||||||
Proceeds from maturities and calls of: |
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Available-for-sale investment securities |
14,168 | 1,482 | ||||||||||
Held-to-maturity investment securities |
9,114 | 243 | ||||||||||
Net increase in loans |
(21,452 | ) | (19,328 | ) | ||||||||
Purchases of premises and equipment |
(1,002 | ) | (1,581 | ) | ||||||||
Proceeds from disposal of premises and equipment |
— | 3 | ||||||||||
Proceeds from sale of foreclosed assets |
388 | 292 | ||||||||||
Purchase of bank-owned life insurance |
(36 | ) | — | |||||||||
Net Cash Used by Investing Activities |
(2,279 | ) | (46,167 | ) | ||||||||
Cash Flows from Financing Activities |
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Net increase in deposits |
12,778 | 15,849 | ||||||||||
Net increase (decrease) in short-term borrowings |
(12,270 | ) | 7,020 | |||||||||
Proceeds from issuance of convertible preferred securities, net
of debt issuance costs |
— | 17,250 | ||||||||||
Net proceeds from issuance of common stock |
— | 82 | ||||||||||
Net Cash Provided by Financing Activities |
508 | 40,201 | ||||||||||
Net Increase (Decrease) in Cash and Due From Banks |
538 | |||||||||||