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 March 31, 2004

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

7.95% Cumulative Trust Preferred Securities
7.95% Junior Subordinated Debentures
Guarantee with respect to 7.95% Cumulative 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 April 30, 2004, (the most recent practicable date), the registrant had outstanding 17,656,191 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, 2004 and December 31, 2003	3

		Consolidated Statements of Operations
		Three Months Ended March 31, 2004 and 2003	4

		Consolidated Statements of Comprehensive Income
		Three Months Ended March 31, 2004 and 2003	5

		Consolidated Statement of Stockholders’ Equity
		Three Months Ended March 31, 2004	6

		Consolidated Statements of Cash Flows
		Three Months Ended March 31, 2004 and 2003	7

		Notes to Consolidated Financial Statements	9

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3 -	Quantitative and Qualitative Disclosures about Market Risk		20

Item 4 -	Controls and Procedures		20

Part II	Other Information

Item 6 -	Exhibits and Reports on Form 8-K		22

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Part I. FINANCIAL INFORMATION
Item 1 — Financial Statements

SOUTHERN COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS


					March 31, 2004			December 31,
					(Unaudited)			2003*

					(Amounts in thousands,
					except share data)
Assets
Cash and due from banks					$	19,297		$	22,929
Federal funds sold						6,014			271
Investment securities:
	Available for sale, at fair value					247,560			168,500
	Held to maturity, at amortized cost					74,911			62,257
Loans						704,237			519,746
Allowance for loan losses						(12,125	)		(7,275	)

				Net Loans		692,112			512,471

Premises and equipment						24,730			17,337
Goodwill						50,071			—
Other assets						28,295			14,737


				Total Assets	$	1,142,990		$	798,502


Liabilities and Stockholders’ Equity

Deposits
	Demand				$	89,327		$	51,868
	Money market, savings and NOW					241,459			179,076
	Time					470,487			344,274

				Total Deposits		801,273			575,218

Short-term borrowings						58,744			51,900
Long-term debt						144,123			117,627
Other liabilities						7,775			2,866

				Total Liabilities		1,011,915			747,611


Stockholders’ Equity
	Preferred stock, no par value, 1,000,000 shares authorized; none issued or outstanding at March 31, 2004 and December 31, 2003, respectively					—			—
	Common stock, no par value, 30,000,000 shares authorized; 17,623,884 and 8,986,796 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively					124,027			44,377
	Retained earnings					5,277			5,493
	Accumulated other comprehensive income					1,771			1,021


			Total Stockholders’ Equity			131,075			50,891


		Total Liabilities and Stockholders’ Equity			$	1,142,990		$	798,502

* 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
					March 31,

					2004		2003

					(Amounts in thousands,
					except per share data)
Interest Income
	Loans				$	9,848	$	6,461
	Investment securities available for sale					2,229		1,292
	Investment securities held to maturity					762		603
	Federal funds sold					10		14


				Total Interest Income		12,849		8,370

Interest Expense
Money market, savings and NOW deposits						554		211
	Time deposits					2,443		2,264
	Federal funds purchased and borrowings					1,412		1,049


				Total Interest Expense		4,409		3,524


				Net Interest Income		8,440		4,846

Provision for Loan Losses (Note 4)						597		540


		Net Interest Income After Provision for Loan Losses				7,843		4,306


Non-Interest Income (Note 5)						1,529		1,170

Non-Interest Expense
	Salaries and employee benefits					3,454		2,100
	Occupancy and equipment					1,027		690
	Other (Note 5)					2,270		1,229


			Total Non-Interest Expense			6,751		4,019

			Income Before Income Taxes			2,621		1,457

Income Tax Expense						935		510


				Net Income	$	1,686	$	947

Net Income Per Share (Note 2)
	Basic				$	.11	$	.11
	Diluted					.10		.10

See accompanying notes.

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


				Three Months Ended
				March 31,

				2004			2003

				(Amounts in thousands)

Net income				$	1,686		$	947


Other comprehensive income:

	Securities available for sale:
		Unrealized holding gains (losses) on available for sale securities			1,367			(300	)
			Tax effect		(469	)		105

		Net of tax amount			871			(195	)


	Cash flow hedging activities:
		Unrealized holding gains (losses) on cash flow hedging activities			(57	)		26
			Tax effect		21			(10	)
		Reclassification of gains recognized in net income			(138	)		(29	)
			Tax effect		53			11

		Net of tax amount			(121	)		(2	)


			Total other comprehensive income (loss)		750			(197	)


Comprehensive income				$	2,436		$	750

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		Equity

			(Amounts in thousands, except share and per share data)

Balance at December 31, 2003				8,986,796	$	44,377	$	5,493		$	1,021	$	50,891

	Net income			—		—		1,686			—		1,686

	Other comprehensive income, net of tax			—		—		—			750		750

	Common stock issued pursuant to:

		Stock options exercised		150,710		620		—			—		620

		Current income tax benefit		—		234		—			—		234

		Conversion of trust preferred securities		2,059,846		15,788		—			—		15,788

		Shares issued in connection with business combination		6,426,532		62,659		—			—		62,659

	Fair value of stock options issued in connection with business combination-					349		—			—		349

	Cash dividends of $.11 per share			—		—		(1,902	)		—		(1,902	)


Balance at March 31, 2004				17,623,884	$	124,027	$	5,277		$	1,771	$	131,075

See accompanying notes.

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


			Three Months Ended
			March 31,

			2004		2003

			(Amounts in thousands)
Cash Flows from Operating Activities
	Net income		$	1,686	$	947
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		860		364
		Provision for loan losses