Southern Community Financial Corp. - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________

FORM 10-QSB

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

TRANSITION REPORT UNDER SECTION 13 OR 15(d)

OF THE EXCHANGE ACT

For the transition period from _____ to _____

__________

Commission file number: 0-50765

SOUTHERN COMMUNITY FINANCIAL CORP.

(Exact name of small business issuer as specified in its charter)

Virginia

(State or other jurisdiction of

incorporation or organization)

16-1694602

(I.R.S. Employer

Identification No.)

1231 Alverser Drive

P.O. Box 330

Midlothian, Virginia

(Address of principal executive offices)

23113

(Zip Code)

804-897-3900

(Issuer’s telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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__.

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

1,745,744 shares of common stock, $4.00 par value, outstanding as of November 8, 2004.

Southern Community Financial Corp.

Form 10-QSB

TABLE OF CONTENTS

Part I – Financial Information

Item 1. Financial Statements.

Consolidated Statements of Financial Condition

September 30, 2004 (unaudited) and December 31, 2003

Consolidated Statements of Operations

For the Three and Nine Months Ended

September 30, 2004 and 2003 (unaudited)

Consolidated Statements of Stockholders’ Equity

For the Nine Months Ended

September 30, 2004 and 2003 (unaudited)

Consolidated Statements of Cash Flows

For the Nine Months Ended

September 30, 2004 and 2003 (unaudited)

Notes to Condensed Consolidated Financial Statements (unaudited)

Item 2. Management’s Discussion and Analysis or Plan of Operation

Item 3. Controls and Procedures

Part II – Other Information

Item 1. Legal Proceedings

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

Item 6. Exhibits

Signatures

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

Southern Community Financial Corp.
Consolidated Statements of Financial Condition
September 30, 2004 (unaudited) and December 31, 2003

	September 30,	December 31,
	2004	2003
	(Unaudited)
Assets
Cash and due from banks	$ 5,794,776	$ 3,547,608
Federal funds sold	2,599,415	2,016,833
Investment securities available for sale	5,565,746	8,623,802
Loans held for sale	2,985,499	1,502,997
Loans
Outstandings	122,121,906	93,064,168
Allowance for loan losses	(1,407,760)	(1,137,794)
Deferred fees	(360,819)	(403,867)
	120,353,327	91,522,507
Premises and equipment, net	6,101,340	6,075,786
Accrued interest receivable	480,508	391,658
Goodwill	934,354	934,354
Other assets	711,265	443,958

	$ 145,526,230	$ 115,059,503

Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest bearing demand	$ 10,831,004	$ 7,522,220
NOW	5,739,917	4,686,374
Money market	20,847,708	20,570,001
Savings	4,364,509	3,279,538
Time deposits of $100,000 and over	25,153,934	19,275,603
Other time deposits	55,312,418	40,988,871
	122,249,490	96,322,607
FHLB advances	4,000,000	4,000,000
Other borrowings	3,559,244	804,197
Accrued interest payable	150,177	114,177
Other liabilities	1,178,749	228,832
Total liabilities	131,137,660	101,469,813

Stockholders' equity
Preferred stock, $1 par value - 1,000,000 shares authorized;
no shares issued and outstanding	-	-
Common stock, $4 par value - 3,000,000 shares authorized;
1,745,744 shares issued and outstanding at September 30, 2004,
1,710,994 shares issued and outstanding at December 31, 2003	6,982,976	6,843,976
Additional paid-in capital	8,516,548	8,303,810
Accumulated other comprehensive
income (loss)	(3,804)	(50,786)
Retained earnings (deficit)	(1,107,150)	(1,507,310)
Total stockholders' equity	14,388,570	13,589,690

	$ 145,526,230	$ 115,059,503

See accompanying notes to consolidated financial statements.

Southern Community Financial Corp.
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2004 and 2003
(Unaudited)

	Three Months		Nine Months
	Ended September 30,		Ended September 30,
	2004	2003	2004	2003
Interest income
Loans	$ 1,832,222	$ 1,354,715	$ 5,198,375	$ 3,428,409
Investment securities	49,225	15,230	161,537	141,958
Federal funds sold	23,223	8,802	63,142	20,618
Total interest income	1,904,670	1,378,747	5,423,054	3,590,985

Interest expense
Deposits	641,807	477,642	1,805,993	1,303,024
Borrowed funds	42,648	63,235	149,004	136,776
Total interest expense	684,455	540,877	1,954,997	1,439,800

Net interest income	1,220,215	837,870	3,468,057	2,151,185
Provision for loan losses	206,484	100,000	367,384	347,000
Net interest income after provision
for loan losses	1,013,731	737,870	3,100,673	1,804,185

Noninterest income
Service charges and fees	139,142	254,776	386,554	431,941
Gain on sale of loans	294,922	515,683	825,547	558,110
Loss on securities, net	-	(43,783)	(26,370)	(55,042)
Other	71,435	32,492	129,509	77,274
Total noninterest income	505,499	759,168	1,315,240	1,012,283

Noninterest expense
Salaries and benefits	789,886	797,222	2,295,076	1,535,690
Occupancy	85,579	91,906	225,350	178,085
Equipment	108,791	90,557	343,111	234,519
Data processing	81,887	66,133	256,699	179,491
Advertising and marketing	25,451	36,066	91,710	86,576
Supplies	52,146	67,967	138,912	153,528
Legal	32,249	30,969	81,565	37,389
Audit and accounting	22,000	16,000	61,500	53,161
Other outside services	34,204	52,198	100,170	87,833
Taxes other than income	30,000	19,500	86,500	62,500
Loan underwriting	33,579	18,135	103,254	35,019
Insurance expense	255	10,904	4,280	39,701
Telephone	14,590	14,449	46,300	29,988
Dues and memberships	4,280	4,388	12,540	9,497
Other operating expense	65,303	40,463	168,786	92,200
Total noninterest expense	1,380,200	1,356,857	4,015,753	2,815,177

Net income before income taxes	139,030	140,181	400,160	1,291
Provision for income taxes	-	-	-	-

Net income	$ 139,030	$ 140,181	$ 400,160	$ 1,291

Earnings per share, basic	$ 0.08	$ 0.08	$ 0.23	$ 0.00
Earnings per share, diluted	$ 0.07	$ 0.08	$ 0.21	$ 0.00
See accompanying notes to consolidated financial statements.

Southern Community Financial Corp.
Consolidated Statements of Stockholders' Equity
Nine Months Ended September 30, 2004 and 2003
(Unaudited)

					Accumulated
	Common Stock		Additional		Other
	Number of		Paid-in	Accumulated	Comprehensive
	Shares	Amount	Capital	Deficit	Income (loss)	Total

Balance, December 31, 2003	1,710,994	$6,843,976	$8,303,810	$ (1,507,310)	$ (50,786)	$13,589,690
Issuance of common stock	34,750	139,000	212,738	-	-	351,738
Net income	-	-	-	400,160	-	400,160
Change in unrealized gain
(loss) on securities
available for sale	-	-	-	-	46,982	46,982
Total comprehensive
income	-	-	-	400,160	46,982	447,142

Balance, September 30, 2004	1,745,744	$6,982,976	$8,516,548	$(1,107,150)	$ (3,804)	$14,388,570

Balance, December 31, 2002	1,697,294	$6,789,176	$8,246,325	$(1,576,135)	$ 10,089	$13,469,455
Net income	-	-	-	1,291	-	1,291
Change in unrealized gain
(loss) on securities
available for sale	-	-	-	-	3,759	3,759
Total comprehensive
income	-	-	-	1,291	3,759	5,050

Balance, September 30, 2003	1,697,294	$6,789,176	$8,246,325	$(1,574,844)	$ 13,848	$13,474,505

See accompanying notes to consolidated financial statements.

Southern Community Financial Corp.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2004 and 2003
(Unaudited)

	Nine Months
	Ended September 30,
	2004	2003
Cash Flows from Operating Activities
Net income	$ 400,160	$ 1,291
Adjustments to reconcile net income to net
cash provided by (used in) operating activities: