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

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

For the quarterly period ended June 30, 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

(Exact name of registrant as specified in its charter)


North Carolina		56-2270620

(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)


4605 Country Club Road
Winston-Salem, North Carolina		27104

(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 August 6, 2003, (the most recent practicable date), the registrant had outstanding 8,820,890 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
	June 30, 2003 and December 31, 2002	3

	Consolidated Statements of Operations
	Three Months and Six Months Ended June 30, 2003 and 2002	4

	Consolidated Statements of Comprehensive Income
	Three Months and Six Months Ended June 30, 2003 and 2002	5

	Consolidated Statement of Stockholders’ Equity
	Six Months Ended June 30, 2003	6

	Consolidated Statements of Cash Flows
	Six Months Ended June 30, 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	20

Item 4 -	Controls and Procedures	20

Part II	Other Information

Item 4 -	Submission of Matters to a Vote of Security Holders	21

Item 6 -	Exhibits and Reports on Form 8-K	21

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Part I. FINANCIAL INFORMATION
Item 1 — Financial Statements (Unaudited)

SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS


					June 30, 2003			December 31,
					(Unaudited)			2002*

					(Amounts in thousands,
					except share data)
Assets
Cash and due from banks					$	18,346		$	16,632
Federal funds sold						1,097			11,084
Investment securities
		Available for sale, at fair value				157,486			96,930
		Held to maturity, at amortized cost				54,383			44,749
Loans (Note 4)						471,145			421,938
Allowance for loan losses (Note 4)						(6,816	)		(6,342	)

				Net Loans		464,329			415,596
Premises and equipment						18,041			15,962
Other assets						12,439			11,286


				Total Assets	$	726,121		$	612,239


Liabilities And Stockholders’ Equity

Liabilities
	Deposits:
		Demand			$	53,357		$	41,869
		Money market and NOW				136,938			115,981
		Time				315,078			291,366


				Total Deposits		505,373			449,216

Short-term borrowings						44,505			20,180
FHLB advances						106,475			75,526
Convertible preferred securities						17,250			17,250
Other liabilities						3,510			2,528


				Total Liabilities		677,113			564,700

Stockholders’ Equity
		Common stock, no par value, 30,000,000 shares authorized; 8,791,683 shares issued and outstanding				43,123			43,123
		Retained earnings				3,629			1,830
		Accumulated other comprehensive income				2,256			2,586


				Total Stockholders’ Equity		49,008			47,539


			Total Liabilities and Stockholders’ Equity		$	726,121		$	612,239

* Derived from audited consolidated financial statements.

See accompanying notes.

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SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


					Three Months Ended				Six Months Ended
					June 30,				June 30,

					2003		2002		2003		2002

					(Amounts in thousands, except per share data)
Interest Income
	Loans				$	6,718	$	6,291	$	13,179	$	12,221
	Investment securities available for sale					1,177		1,163		2,850		2,006
	Investment securities held to maturity					896		690		1,118		1,411
	Federal funds sold					10		21		24		70


				Total Interest Income		8,801		8,165		17,171		15,708

Interest Expense
	Money market and NOW deposits					295		366		506		691
	Time deposits					2,158		2,807		4,422		5,784
	Short-term borrowings					95		87		125		149
	FHLB advances					753		451		1,449		861
	Convertible preferred securities					324		317		647		484


			Total Interest Expense			3,625		4,028		7,149		7,969


				Net Interest Income		5,176		4,137		10,022		7,739

Provision for Loan Losses (Note 4)						685		420		1,225		780


Net Interest Income After Provision for Loan Losses						4,491		3,717		8,797		6,959


Non-Interest Income (Note 5)						1,424		883		2,594		1,645

Non-Interest Expense
	Salaries and employee benefits					2,413		1,748		4,513		3,367
	Occupancy and equipment					776		640		1,466		1,206
	Other (Note 5)					1,415		1,184		2,644		2,145


		Total Non-Interest Expense				4,604		3,572		8,623		6,718


		Income Before Income Taxes				1,311		1,028		2,768		1,886

Income Tax Expense						459		354		969		658


				Net Income	$	852	$	674	$	1,799	$	1,228

Net Income Per Share (Note 2)
	Basic				$	.10	$	.08	$	.20	$	.14
	Diluted					.09		.07		.19		.13

See accompanying notes.

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SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


					Three Months Ended						Six Months Ended
					June 30,						June 30,

					2003			2002			2003			2002

								(Amounts in thousands)

Net income					$	852		$	674		$	1,799		$	1,228


Other comprehensive income:
	Securities available for sale:
		Unrealized holding gains (losses) on available for sale securities				49			1,692			(251	)		501
				Tax effect		(8	)		(660	)		97			(201	)
		Reclassification of (gains) losses in net income				—			(69	)		—			(69	)
				Tax effect		—			27			—			27

		Net of tax amount				41			990			(154	)		258


	Cash flow hedging activities:
		Unrealized holding gains (losses) on cash flow hedging activities				(214	)		226			(188	)		226
				Tax effect		102			(87	)		92			(87	)
		Reclassification of gains recognized in net income				(101	)		—			(130	)		—
			Tax effect			39			—			50			—

		Net of tax amount				(174	)		139			(176	)		139


			Total other comprehensive income (loss)			(133	)		1,129			(330	)		397


Comprehensive income					$	719		$	1,803		$	1,469		$	1,625

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’

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