SOURCE: Southern Community Financial Corporation

Southern Community Financial Corporation

April 22, 2010 16:05 ET

Southern Community Financial Corporation Announces Results for the First Quarter 2010

WINSTON-SALEM, NC--(Marketwire - April 22, 2010) - Southern Community Financial Corporation (NASDAQ: SCMF) (NASDAQ: SCMFO), the holding company for Southern Community Bank and Trust, reported results for the first quarter of 2010.

Financial Highlights:

    -- Net interest margin for first quarter 2010 increased 13 basis
       points to 3.41% from 3.28% in fourth quarter of 2009;
    -- Provision for loan losses of $10.0 million, a decrease of $8.0
       million, compared to the fourth quarter;
    -- Net charge-offs of $3.6 million, or 1.20% of average loans
       (annualized), down from $9.2 million, or 2.92% of average loans
       (annualized), in the fourth quarter;
    -- Allowance for loan losses increased to $36.0 million, or 2.98%
       of total loans, at March 31, 2010, compared to $29.6 million,
       or 2.41% of total loans, at December 31, 2009;
    -- Allowance for loan losses as a percentage of nonperforming
       loans decreased slightly to 71% at March 31, 2010 compared to
       79% at December 31, 2009;
    -- Nonperforming loans increased to $50.6 million, or 4.19% of
       loans, at March 31, 2010 from $37.7 million, or 3.07% of loans,
       at December 31, 2009;
    -- Nonperforming assets increased to $70.9 million or 4.15% of
       total assets at March 31, 2010 from $57.4 million or 3.32% of
       total assets at December 31, 2009;
    -- Regulatory capital ratios remain in excess of the "well
       capitalized" threshold; and
    -- Net loss available to common shareholders of $5.2 million or
       $0.31 per share.

Southern Community Financial reported a net loss available to common shareholders of $5.2 million in the first quarter of 2010. This compares with a net loss of $11.3 million in the fourth quarter of 2009 and net loss of $50.0 million in the first quarter of 2009, which included a goodwill impairment charge of $49.5 million. The net loss per diluted common share in the first quarter of 2010 was $0.31, compared to $0.68 in the fourth quarter of 2009, and $2.98 in the first quarter of 2009.

"As we previously announced, our first quarter results were impacted by the $10.0 million loan loss provision primarily related to the impairment of two commercial real estate credits. The results also included a $2.0 million valuation allowance on deferred tax assets," said F. Scott Bauer, Chairman and Chief Executive Officer. "We completed a comprehensive review of our loan portfolio in the fourth quarter of last year; but the credit cycle continues to be unpredictable. Borrowers that were strong at the beginning of the cycle are becoming more stressed. The troubled commercial real estate market is now emerging; therefore, further reserve building may be necessary during the remainder of this cycle. Accordingly, we will remain focused on aggressively managing, reporting and resolving our problem assets.

"Our core bank operations remain strong. The improvement in our net interest margin in the first quarter of 2010 was the direct result of our continued focus on improving our funding mix with lower cost core deposits. While total deposits decreased slightly compared to the fourth quarter of 2009, money market, savings, and NOW deposits increased 7% and represent 47% of our total deposits, up from 44% in the previous quarter. This is a significant improvement from the first quarter of 2009, when these deposits represented just 35% of our total deposits and certificates of deposit comprised 58% of our total deposits.

"Southern Community remains well capitalized with ratios exceeding regulatory requirements. We are well positioned for a sustainable improvement in the local and national economies."

Asset Quality

Nonperforming loans increased to $50.6 million, or 4.19% of total loans, at March 31, 2010 from $37.7 million, or 3.07% of total loans, at December 31, 2009. Nonperforming assets increased to $70.9 million, or 4.15% of total assets, at March 31, 2010 from $57.4 million, or 3.32% of total assets, at December 31, 2009 due primarily to a $12.9 million increase in nonperforming loans during the quarter. Net charge-offs totaled $3.6 million, or 1.20% of average loans on an annualized basis, a decrease from $9.2 million, or 2.92% of average loans annualized, from the fourth quarter 2009. The $12.9 million increase in nonperforming loans reflects an increase of $6.7 million derived from one commercial real estate relationship as well as an increase in the volume of other new nonaccrual loans.

The provision for loan losses of $10.0 million in the first quarter of 2010 decreased $8.0 million compared with the fourth quarter 2009. This level of provision for loan losses primarily resulted from the impairment of two commercial real estate credits, which were identified late in the first quarter. The impairment of these two loans accounted for approximately $5.1 million of the $10.0 million provision for loan losses.

Given the relative magnitude of the provision for loan losses and net charge-offs in the first quarter of 2010 and their impact on deferred tax assets, the income tax benefit on operating losses during the first quarter 2010 was decreased by a $2.0 million valuation allowance on deferred tax assets due to realization considerations.

Net Interest Income

Net interest income of $13.2 million in the first quarter of 2010 decreased 1% compared to $13.4 million in the fourth quarter of 2009, and increased 6% compared to $12.6 million in the first quarter of 2009. The net interest margin increased 13 basis points to 3.41% in the first quarter of 2010 compared with 3.28% in the fourth quarter of 2009, primarily due to lower deposit costs resulting from active liability management with an emphasis on improving the funding mix and lowering funding costs. Compared to the first quarter of 2009, the net interest margin increased 40 basis points. The sequential decrease in net interest income in the first quarter of 2010 was due to a $23.6 million decrease in average loan balances, which was generally offset by the increase in net interest margin. The year-over-year growth in net interest income in the first quarter of 2010 resulted primarily from the impact of the Company's deposit and borrowing costs repricing lower than its asset yields which were positively impacted by the increased utilization of interest rate floors on a majority of variable rate loans. Offsetting a portion of this favorable margin variance in comparing year-over-year net interest income was the decrease in average loan balances of $88.1 million, or 7%, due to a slowdown in loan demand due to the current economic environment.

Non-interest Income

Non-interest income increased by $427 thousand, or 12%, to $4.0 million during the first quarter of 2010 compared with the fourth quarter of 2009. The increase in non-interest income primarily resulted from a $1.4 million increase in investment securities gains. This impact was partially offset by an $883 thousand net decrease in derivatives gains, due primarily to market rate movement and its impact on fair value hedges, and a $186 thousand "other-than-temporary impairment" write-down in equity securities during the quarter. On a year-over-year comparison, non-interest income in the first quarter of 2010 increased $1.4 million, or 53%, compared with the first quarter of 2009. The year-over-year increase was primarily the result of investment sale gains realized during the first quarter of 2010.

Non-interest Expenses

Non-interest expenses of $11.8 million during the first quarter of 2010 decreased $1.7 million, or 13%, on a linked quarter basis. The sequential decrease in non-interest expenses was primarily due to the $1.1 million reduction in write-downs on carrying values on foreclosed real estate. In addition, the Company reduced discretionary spending on a linked quarter basis by approximately $310 thousand in areas such as marketing, contributions, dues and subscriptions and travel. Other expense reductions of $152 thousand in FDIC insurance and $98 thousand in buyer incentive program expenditures contributed to the decrease in non-interest expenses. The Company contained personnel expenses to a 2% sequential increase due to cost savings programs initiated in prior quarters including a company-wide salary freeze, and a reduction in 401(k) employer matching contributions.

Balance Sheet

As of March 31, 2010, total assets amounted to $1.7 billion, representing a decrease of $82.6 million, or 5%, year-over-year. On a linked quarter basis, total assets decreased $21.4 million, or 1%. The loan portfolio decreased by $21.8 million, or 2%, sequentially during the first quarter of 2010 and decreased by $89.0 million, or 7%, since March 31, 2009 due to a decrease in loan demand. Total deposits of $1.3 billion at March 31, 2010 increased $9.5 million, or 1%, year-over-year. While total deposits decreased $7.1 million, or less than 1%, during the first quarter 2010, the Company continued to shift its deposit mix toward lower cost money market and transaction accounts from certificates of deposit. Time deposits decreased $43.4 million, or 7%, during the first quarter of 2010 as money market, savings and NOW deposits increased $41.4 million.

At March 31, 2010, stockholders' equity of $116.9 million represented 6.85% of total assets. Stockholders' equity decreased $5.1 million, or 4%, from $122.0 million at December 31, 2009 primarily due to the first quarter loss discussed above. Regulatory capital ratios remain in excess of the "well capitalized" threshold.

Conference Call

Southern Community's executive management team will host a conference call on April 23, 2010, at 9:30 am Eastern Time to discuss the quarter-end results. The call can be accessed by dialing 1-855-481-2849 or 1-719-955-1567 and entering pass code 1248434. A replay of the conference call can be accessed until 11:59 pm on May 7, 2010, by calling 1-888-203-1112 or 1-719-457-0820 and entering pass code 1248434. You may access additional presentation materials for this conference call in the Investor Relations section of Southern Community's web site at www.smallenoughtocare.com.

Southern Community Financial Corporation is headquartered in Winston-Salem, North Carolina and is the holding company of Southern Community Bank and Trust, a community bank with twenty-two banking offices throughout North Carolina.

Southern Community Financial Corporation's common stock and trust preferred securities are listed on the NASDAQ Global Select Market under the trading symbols SCMF and SCMFO, respectively. Additional information about Southern Community is available on our website at www.smallenoughtocare.com or by email at investor.relations@smallenoughtocare.com.

This news release contains forward-looking statements. Such statements are subject to certain factors that may cause the Company's results to vary from those expected. These factors include changing economic and financial market conditions, competition, ability to execute our business plan, items already mentioned in this press release, and other factors described in our filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's judgment only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events and circumstances that arise after the date hereof.

Southern Community Financial Corporation
(Dollars in thousands except per share data)
(Unaudited)

                                For the three months ended
                  Mar 31,     Dec 31,     Sep 30,     Jun 30,     Mar 31,
Income Statement   2010        2009        2009        2009        2009
                ----------  ----------  ----------  ----------  ----------

Total Interest
 Income         $   20,986  $   22,092  $   22,186  $   22,451  $   22,744
Total Interest
 Expense             7,739       8,701       8,868       9,872      10,285
                ----------  ----------  ----------  ----------  ----------
  Net Interest
   Income           13,247      13,391      13,318      12,579      12,459

Provision for
 Loan Losses        10,000      18,000       6,000       6,000       4,000

Net Interest
 Income after
 Provision for
 Loan Losses         3,247      (4,609)      7,318       6,579       8,459

Non-Interest
 Income
Service Charges
 on Deposit
 Accounts            1,557       1,671       1,588       1,543       1,444
Income from
 mortgage banking
 activities            358         416         512         760         416
Investment
 brokerage and
 trust fees            235         292         359         212         296
SBIC income
 (loss) and
 management fees       176        (218)        171         (43)        238
Gain (Loss) on
 Sale of
 Investment
 Securities          1,354           -         735         500           1
Gain (Loss) and
 Net Cash
 Settlement on
 Economic Hedges       (31)        852         316        (912)        (22)
Other-than-
 temporary
 impairment           (186)          -           -           -           -
Other Income           490         513         508         550         208
                ----------  ----------  ----------  ----------  ----------
  Total
   Non-Interest
   Income            3,953       3,526       4,189       2,610       2,581

Non-Interest
 Expense
Salaries and
 Employee
 Benefits            5,469       5,385       5,690       5,897       5,530
Occupancy and
 Equipment           1,916       1,882       1,997       1,990       2,034
Goodwill
 Impairment              -           -           -           -      49,501
Other                4,458       6,311       4,934       5,834       3,513
                ----------  ----------  ----------  ----------  ----------
  Total
   Non-Interest
   Expense          11,843      13,578      12,621      13,721      60,578

Income (Loss)
 Before Taxes       (4,643)    (14,661)     (1,114)     (4,532)    (49,538)
Provision for
 Income Taxes          (32)     (3,944)       (683)     (1,845)       (214)
                ----------  ----------  ----------  ----------  ----------

Net Income
 (Loss)         $   (4,611) $  (10,717) $     (431) $   (2,687) $  (49,324)
                ==========  ==========  ==========  ==========  ==========

Effective
 dividend on
 preferred
 stock                 633         627         621         633         627
                ----------  ----------  ----------  ----------  ----------

Net Income (loss)
 available to
 common
 shareholders   $   (5,244) $  (11,344) $   (1,052) $   (3,320) $  (49,951)
                ==========  ==========  ==========  ==========  ==========

Net Income (Loss)
 per Common
 Share
Basic           $    (0.31) $    (0.68) $    (0.06) $    (0.20) $    (2.98)
Diluted         $    (0.31) $    (0.68) $    (0.06) $    (0.20) $    (2.98)
                ==========  ==========  ==========  ==========  ==========




Balance Sheet     Mar 31,     Dec 31,     Sep 30,     Jun 30,     Mar 31,
                   2010        2009        2009        2009        2009
                ----------  ----------  ----------  ----------  ----------
Assets
Cash and due
 from Banks     $   33,885  $   30,184  $   22,953  $   27,265  $   28,268
Federal Funds
 Sold & Int
 Bearing
 Balances           22,352      31,269      21,792       1,496      17,891
Investment
 Securities        335,519     323,700     323,800     333,722     345,861
Federal Home
 Loan Bank
 Stock               9,794       9,794       9,794       9,794      10,178

Loans held for
 sale                2,984       3,025       2,559       8,068       6,044

Loans            1,208,454   1,230,275   1,248,249   1,251,200   1,297,489
Allowance for
 Loan Losses       (36,007)    (29,638)    (20,807)    (19,390)    (19,314)
                ----------  ----------  ----------  ----------  ----------
  Net Loans      1,172,447   1,200,637   1,227,442   1,231,810   1,278,175

Bank Premises
 and Equipment      42,058      42,630      42,590      42,006      40,622
Foreclosed
 Assets             20,285      19,634      18,118      17,881      10,798
Other Assets        67,856      67,735      56,293      54,667      51,897
                ----------  ----------  ----------  ----------  ----------

Total Assets    $1,707,180  $1,728,608  $1,725,341  $1,726,709  $1,789,734
                ==========  ==========  ==========  ==========  ==========

Liabilities and
 Stockholders'
 Equity
Deposits
  Non-Interest
   Bearing      $  113,292  $  118,372  $  106,156  $  103,205  $   98,618
  Money market,
   savings and
   NOW             620,433     579,027     526,884     459,682     449,080
  Time             573,229     616,671     646,039     680,875     749,728
                ----------  ----------  ----------  ----------  ----------
  Total Deposits 1,306,954   1,314,070   1,279,079   1,243,762   1,297,426

Borrowings         275,831     284,580     303,978     340,335     345,117
Accrued Expenses
 and Other
 Liabilities         7,513       7,961       8,222       8,913       8,982
                ----------  ----------  ----------  ----------  ----------
  Total
   Liabilities   1,590,298   1,606,611   1,591,279   1,593,010   1,651,525

Total
 Stockholders'
 Equity            116,882     121,997     134,062     133,699     138,209
                ----------  ----------  ----------  ----------  ----------

Total Liabilities
 and
 Stockholders'
 Equity         $1,707,180  $1,728,608  $1,725,341  $1,726,709  $1,789,734
                ==========  ==========  ==========  ==========  ==========

Tangible Book
 Value per
 Common Share   $     4.45  $     4.77  $     5.49  $     5.47  $     5.74
                ==========  ==========  ==========  ==========  ==========





                                For the three months ended
                  Mar 31,     Dec 31,     Sep 30,     Jun 30,     Mar 31,
                   2010        2009        2009        2009        2009
                ----------  ----------  ----------  ----------  ----------

Per Common
 Share Data:
Basic Earnings
 per Share      $    (0.31) $    (0.68) $    (0.06) $    (0.20) $    (2.98)
Diluted
 Earnings per
 Share          $    (0.31) $    (0.68) $    (0.06) $    (0.20) $    (2.98)
Tangible Book
 Value per
 Share          $     4.45  $     4.77  $     5.49  $     5.47  $     5.74
Cash dividends
 paid           $        -  $        -  $        -  $        -  $        -

Selected
 Performance
 Ratios:
Return on
 Average Assets
 (annualized)
 ROA                 -1.10%      -2.44%      -0.10%      -0.61%     -10.90%
Return on
 Average Equity
 (annualized)
 ROE                -15.34%     -31.92%      -1.28%      -7.87%    -106.68%
Return on
 Tangible
 Equity
 (annualized)       -15.44%     -32.14%      -1.29%      -7.93%    -145.53%
Net Interest
 Margin               3.41%       3.28%       3.30%       3.05%       3.01%
Net Interest
 Spread               3.26%       3.08%       3.10%       2.84%       2.78%
Non-interest
 Income as a %
 of Revenue          22.98%      20.84%      23.93%      17.18%      17.16%
Non-interest
 Income as a %
 of Average
 Assets               0.94%       0.80%       0.96%       0.59%       0.57%
Non-interest
 Expense to
 Average Assets       2.82%       3.09%       2.91%       3.12%      13.39%
Efficiency
 Ratio               68.85%      80.26%      72.09%      90.34%     402.78%

Asset Quality:
Nonperforming
 Loans          $   50,608  $   37,732  $   22,697  $   17,851  $   20,251
Nonperforming
 Assets         $   70,893  $   57,366  $   40,766  $   35,732  $   31,049
Nonperforming
 Loans to Total
 Loans                4.19%       3.07%       1.82%       1.43%       1.56%
Nonperforming
 Assets to
 Total Assets         4.15%       3.32%       2.36%       2.07%       1.73%
Allowance for
 Loan Losses to
 Period-end
 Loans                2.98%       2.41%       1.67%       1.55%       1.49%
Allowance for
 Loan Losses to
 Nonperforming
 Loans (X)            0.71X       0.79X       0.92X       1.09X       0.95X
Net Charge-offs
 to Average
 Loans
 (annualized)         1.20%       2.92%       1.45%       1.85%       1.09%

Capital Ratios:
Equity to Total
 Assets               6.85%       7.06%       7.77%       7.74%       7.72%
Tangible Equity
 to Total
 Tangible
 Assets (1)           4.39%       4.63%       5.34%       5.32%       5.39%

Average Balances:
 Year to Date
  Interest
   Earning
   Assets       $1,573,247  $1,638,171  $1,643,945  $1,665,784  $1,679,293
  Total Assets   1,704,190   1,767,047   1,774,376   1,800,376   1,834,575
  Total Loans    1,222,594   1,272,087   1,280,803   1,295,913   1,310,679
  Equity           121,944     147,652     155,522     162,126     187,512
  Interest
   Bearing
   Liabilities   1,459,636   1,501,705   1,506,867   1,525,524   1,535,956

 Quarterly
  Interest
   Earning
   Assets       $1,573,247  $1,621,037  $1,600,979  $1,652,424  $1,679,293
  Total Assets   1,704,190   1,745,299   1,723,224   1,766,553   1,834,575
  Gross Loans    1,222,594   1,246,223   1,251,076   1,281,309   1,310,679
  Equity           121,944     133,201     133,627     137,019     187,512
  Interest
   Bearing
   Liabilities   1,459,636   1,486,386   1,470,162   1,515,206   1,535,956

Weighted Average
 Number of Shares
 Outstanding
 Basic          16,806,292  16,789,045  16,791,175  16,791,340  16,780,058
 Diluted        16,806,292  16,789,045  16,791,175  16,791,340  16,780,058
Period end
 outstanding
 shares         16,818,125  16,787,675  16,791,175  16,793,175  16,793,175

(1) - Tangible Equity to Total Tangible Assets is period-ending equity less
intangibles, divided by period-ending assets less intangibles.

Management provides the above non-GAAP measure, footnote (1) to provide
readers with the impact of purchase accounting on this key financial ratio.

Contact Information

  • For additional information:
    F. Scott Bauer - Chairman/CEO
    James Hastings, Executive Vice President/CFO
    (336) 768-8500