SOURCE: Southern Community Financial Corporation

Southern Community Financial Corporation

January 28, 2010 16:05 ET

Southern Community Financial Corporation Announces Results for the Fourth Quarter and Full Year 2009

WINSTON-SALEM, NC--(Marketwire - January 28, 2010) - Southern Community Financial Corporation (NASDAQ: SCMF) (NASDAQ: SCMFO), the holding company for Southern Community Bank and Trust, today reported fourth quarter and full year 2009 results.

Fourth Quarter Financial Highlights:

--  Net interest margin grew to 3.28% for the fourth quarter 2009, an 18
    basis point increase over fourth quarter 2008 and a two basis point
    decrease compared to the third quarter 2009
--  Nonperforming loans were 3.07% of total loans at December 31, 2009
    compared with 1.82% of total loans at September 30, 2009
--  Nonperforming assets were 3.32% of total assets at December 31, 2009
    compared with 2.36% at September 30, 2009
--  Annualized fourth quarter 2009 net charge-offs increased to 2.92 % of
    average loans compared with 1.45% for the third quarter 2009
--  Fourth quarter provision for loan losses of $18.0 million, an increase of
    $12.0 million compared to $6.0 million in the third quarter 2009
--  Allowance for loan losses was 2.41% of total loans at December 31, 2009
    compared to 1.67% at September 30, 2009 and 1.43% at year-end 2008
--  Fourth quarter 2009 net loss available to common shareholders  of $11.34
    million, or $0.68 per diluted  share, compared with third quarter net loss
    available to common shareholders of $1.05 million or $0.06 per diluted
    common share
    

Full Year 2009 Financial Highlights:

--  Deposit growth of 10% year-over-year due to an increase of 28% in money
    market and other transaction accounts and a 6% decrease in time deposits
--  Net loss available to common shareholders  of $65.67 million for the full
    year 2009, or $3.91 per diluted share, compared with net income available
    to common shareholders of $5.67 million, or $0.33 per diluted share for the
    full year 2008
--  Excluding the $49.50 million goodwill impairment charge recorded in the
    first quarter of 2009, the net loss available to common shareholders was
    $16.2 million or $0.96 per diluted share for the full year 2009
--  Provision for loan losses increased $25.84 million for the year ended
    December 31, 2009, compared to the provision of $8.16 million for year
    ended December 31, 2008
    

Southern Community Financial Corporation reported a net loss available to common shareholders of $11.34 million for the fourth quarter of 2009, compared with a net loss of $1.05 million for the third quarter of 2009 and net income of $1.37 million for the fourth quarter of 2008. The net loss per diluted common share in the fourth quarter 2009 and in the third quarter 2009 were $0.68 and $0.06, respectively, compared with earnings per diluted common share of $0.08 in the fourth quarter 2008.

For the year ended December 31, 2009, the net loss available to common shareholders was $65.67 million, or $3.91 per diluted share, compared to net income available to common shareholders of $5.67 million, or $0.33 per diluted share, for the prior year. Excluding the $49.5 million goodwill impairment charge recorded in the first quarter of 2009, the net loss available to common shareholders for the year ended December 31, 2009 was $16.2 million, or $0.96 per diluted share. The respective increases in the provision for loan losses of $12.0 million for the fourth quarter 2009 on a linked quarter basis and $25.84 million for the year ended December 31, 2009 contributed to the decrease in earnings for both periods.

"Our focus in 2009 was to proactively address problem assets in our loan portfolio with the objective of recognizing identified losses. While we remained diligent in monitoring our loan portfolio throughout the year, we conducted a more comprehensive review of our credit quality and risk grading process in the fourth quarter of 2009 as certain economic and portfolio conditions weakened, such as higher unemployment levels and continued declines in real estate values. In addition to the $12.0 million linked quarter increase in our provision for loan losses, this review also resulted in a $1.3 million write down on the carrying values on our foreclosed real estate, as announced in mid January. While the majority of the issues we faced in our loan portfolio for most of 2009 resulted from our residential construction portfolio, we are now seeing some stress in our commercial real estate portfolio as the difficult economic environment has persisted. Accordingly, the increase in reserves, charge offs and write downs on foreclosed real estate during the fourth quarter of 2009 better positions Southern Community for a return to profitability," said F. Scott Bauer, Chairman and Chief Executive Officer.

"Our core bank operations continued to improve, despite the challenges of the current economic environment. We substantially decreased our reliance on borrowings and outside funding through building local core deposits. At year-end 2009, our demand, NOW, savings and money market deposits comprised 54% of our total deposits, compared to 47% at year-end 2008. This growth in lower cost deposits contributed to improvement in our net interest margin by 18 basis points compared to 2008. In addition, our non-interest income for year-end 2009 increased by 14% compared to year-end 2008 primarily due to increased service charges resulting from our deposit growth as well as an increase in mortgage refinance activity. Our deposit growth and increased fee income improved core earnings during 2009, which have been obscured by the necessary increase in our loan loss provision. This bodes well for our future earnings as the economy improves and pressures on our asset quality subside."

"We remain well capitalized with ratios in excess of regulatory requirements. We are thankful for the hard work of our employees during these difficult times and for the continued support of our customers and shareholders."

Asset Quality

Nonperforming loans in the fourth quarter 2009 increased to $37.7 million, or 3.07% of total loans, from $22.7 million, or 1.82% of total loans, at September 30, 2009. Nonperforming assets increased to $57.4 million, or 3.32% of total assets, at December 31, 2009 from $40.8 million, or 2.36% of total assets, at September 30, 2009. Net charge-offs totaled $9.2 million during the fourth quarter 2009, or 2.92% of average loans on an annualized basis, compared to $4.6 million, or 1.45% of average loans on an annualized basis, in the third quarter 2009.

The provision for loan losses of $18.0 million for the fourth quarter increased $12.0 million compared to the third quarter provision and increased $15.6 million compared to the fourth quarter of 2008. The increase in the provision for loan losses is primarily in response to a higher level of nonperforming assets resulting from the persistently weak economic environment. The allowance for loan losses at December 31, 2009 of $29.6 million represented 2.41% of total loans and 79% of nonperforming loans, compared to $20.8 million or 1.67% of total loans and 92% of nonperforming loans at September 30, 2009.

Given the relative magnitudes of the provision for loan losses and the net charge-offs for the fourth quarter 2009 and the full year 2009 and their impact on deferred tax assets, the income tax benefit on operating losses during the fourth quarter 2009 was decreased by a $2.0 million valuation allowance on deferred tax assets due to realization considerations.

Net Interest Income

Net interest income of $13.39 million for the fourth quarter 2009 increased less than 1% compared with $13.32 million in the third quarter 2009 and increased 4% over the $12.82 million in the fourth quarter 2008. The net interest margin of 3.28% for the fourth quarter 2009 decreased two basis points compared with the third quarter of 2009, primarily due to the reversal of interest accruals related to the increase in nonperforming loans during the quarter. Compared to the fourth quarter of 2008, the net interest margin increased 18 basis points. The growth in net interest income in fourth quarter 2009 compared with fourth quarter 2008 resulted primarily from the impact of the Company's deposit and borrowing costs repricing lower to a greater extent than its asset yields due to the increased utilization of interest rate floors on a majority of its variable rate loans. Offsetting a portion of this favorable rate variance in comparing fourth quarter 2009 versus same quarter 2008, average loan balances decreased $75.4 million or 6% from fourth quarter 2008 to fourth quarter 2009 due to a slowdown in loan demand as some of our primary customers deleveraged and took a more conservative stance toward borrowing during these difficult economic times.

Non-interest Income

Non-interest income of $3.5 million during the fourth quarter 2009 decreased by $663 thousand or 16% compared with the third quarter 2009, primarily resulting from a $735 thousand reduction in gains on sales of investment securities and $389 thousand decrease in Small Business Investment Company (SBIC) income. This impact was partially offset by a $536 thousand net increase in gains in derivatives due primarily to market rate movement and its impact on fair value hedges. Non-interest income for the twelve months ended December 31, 2009 increased 14% over the same period in 2008 due to an $810 thousand increase in mortgage banking income, a $1.1 million increase in gains on sales of investment securities and a $387 thousand increase in deposit service charges. These increases were partially offset by a $700 thousand decrease in gains on derivative activity due to a net loss recognized in 2009 on the value of collateral held by Lehman as the counterparty for certain derivative contracts terminated in the third quarter 2008.

Non-interest Expenses

Non-interest expenses of $13.6 million during the fourth quarter 2009 increased $957 thousand, or 8%, on a linked quarter basis, and increased $2.9 million, or 27%, year-over-year. The sequential increase in non-interest expenses was primarily due to the $1.3 million in write downs to reduce carrying values on foreclosed real estate. On a linked quarter basis, the Company had a $305 thousand reduction in personnel expenses, including a reduction in the employer 401(k) match initiated during the third quarter, a company-wide salary freeze, and lower mortgage commissions due to lower mortgage origination volumes. These items partially reduced the impact of the foreclosed asset writedowns. Non-interest expenses for the twelve months ended December 31, 2009 increased $8.9 million, excluding the $49.5 million goodwill impairment charge, or 21%, primarily due to increases of $2.3 million in FDIC deposit insurance premiums, $3.1 million increase in OREO expenses (including foreclosed asset writedowns), $1.3 million in buyer incentives to purchasers of bank financed builder housing inventory, and $438 thousand increase in legal expenses, mostly related to problem loan resolutions.

Balance Sheet

As of December 31, 2009, total assets amounted to $1.73 billion, representing a decrease of $75.2 million or 4% year-over-year; however, excluding the $49.5 million goodwill impairment charge taken in the first quarter 2009, total assets decreased $25.7 million or 1% year-over-year. On a linked quarter basis, total assets decreased $3.3 million, or less than 1%. The loan portfolio decreased by $18.0 million, or 1%, sequentially during the fourth quarter 2009 and decreased by $84.5 million, or 6%, since December 31, 2008 due to a slowdown in loan demand. Total deposits of $1.35 billion at December 31, 2009 increased $120.3 million, or 10%, year-over-year. During the fourth quarter 2009, deposits increased $59.0 million, or 5%, compared with September 30, 2009. Time deposits decreased $29.4 million in the fourth quarter, while money market, savings and NOW deposits increased $88.3 million as a result of active liability management with an emphasis on improving the funding mix and lowering funding costs.

At December 31, 2009, stockholders' equity of $122.0 million represented 7.06% of total assets. Stockholders' equity decreased $12.1 million, or 9%, from $134.1 million at September 30, 2009 primarily due to the fourth 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 January 29, 2010, at 9:30 AM Eastern Time to discuss the quarter-end results. The call can be accessed by dialing 1-877-741-4248 or 1-719-325-4916 and entering pass code 9595684. A replay of the conference call can be accessed until 11:59 pm on February 12, 2010, by calling 1-888-203-1112 or 1-719-457-0820 and entering pass code 9595684. 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 its 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              Year Ended
Income       Dec 31,   Sep 30,  Jun 30,  Mar 31,  Dec 31,  Dec 31,  Dec 31,
 Statement    2009      2009     2009     2009     2008     2009     2008
            --------  -------  -------  --------  ------- --------  -------

Total
 Interest
 Income     $ 22,092  $22,186  $22,451  $ 22,744  $24,278 $ 89,473  $96,742
Total
 Interest
 Expense       8,701    8,868    9,872    10,285   11,459   37,726   49,282
            --------  -------  -------  --------  ------- --------  -------
  Net
   Interest
   Income     13,391   13,318   12,579    12,459   12,819   51,747   47,460

Provision
 for Loan
 Losses       18,000    6,000    6,000     4,000    2,360   34,000    8,165

Net
 Interest
 Income
 after
 Provision
 for Loan
 Losses       (4,609)   7,318    6,579     8,459   10,459   17,747   39,295

Non-Interest
 Income
Service
 Charges on
 Deposit
 Accounts      1,671    1,588    1,543     1,444    1,487    6,246    5,859
Income from
 mortgage
 banking
 activities      416      512      760       416      233    2,104    1,294
Investment
 brokerage
 and trust
 fees            292      359      212       296      147    1,159    1,138
SBIC income
 (loss) and
 management
 fees           (218)     171      (43)      238       89      148       60
Gain (Loss)
 on Sale of
 Investment
 Securities        -      735      500         1       98    1,236       98
Gain (Loss)
 and Net
 Cash
 Settlement
 on
 Economic
 Hedges          852      316     (912)      (22)       -      234      934
Other
 Income          513      508      550       208      464    1,779    1,899
            --------  -------  -------  --------  ------- --------  -------
  Total
   Non-
   Interest
   Income      3,526    4,189    2,610     2,581    2,518   12,906   11,282

Non-Interest
 Expense
Salaries
 and Employee
 Benefits      5,385    5,690    5,897     5,530    5,088   22,502   22,038
Occupancy
 and Equipment 1,882    1,997    1,990     2,034    1,930    7,903    7,679
Goodwill
 Impairment        -        -        -    49,501        -   49,501        -
Other          6,311    4,934    5,834     3,513      964   20,592    6,627
            --------  -------  -------  --------  ------- --------  -------
  Total
   Non-
   Interest
   Expense    13,578   12,621   13,721    60,578    7,982  100,498   36,344

Income
 (Loss)
 Before
 Taxes       (14,661)  (1,114)  (4,532)  (49,538)   2,324  (69,845)  14,233
Provision
 for Income
 Taxes        (3,944)    (683)  (1,845)     (214)     766   (6,686)   2,634
            --------  -------  -------  --------  ------- --------  -------

Net Income
 (Loss)     $(10,717) $  (431) $(2,687) $(49,324) $ 1,558 $(63,159) $11,599
            ========  =======  =======  ========  ======= ========  =======

Effective
 dividend
 on preferred
 stock           627      621      633       627      185    2,508      185
            --------  -------  -------  --------  ------- --------  -------

Net income
 (loss)
 available
 to common
 share-
 holders    $(11,344) $(1,052) $(3,320) $(49,951) $ 1,373 $(65,667) $11,414
            ========  =======  =======  ========  ======= ========  =======

Net Income
 (Loss) per
  Common Share
Basic       $  (0.68) $ (0.06) $ (0.20) $  (2.98) $  0.08 $  (3.91) $  0.33
Diluted     $  (0.68) $ (0.06) $ (0.20) $  (2.98) $  0.08 $  (3.91) $  0.33
            ========  =======  =======  ========  ======= ========  =======





Balance Sheet     Dec 31,     Sep 30,     Jun 30,     Mar 31,     Dec 31,
                   2009        2009        2009        2009        2008
                ----------  ----------  ----------  ----------  ----------
Assets
Cash and due
 from Banks     $   30,184  $   22,953  $   27,265  $   28,268  $   25,215
Federal Funds
 Sold & Int
 Bearing
 Balances           31,269      21,792       1,496      17,891       2,180
Investment
 Securities        323,700     323,800     333,722     345,861     324,698
Federal Home
 Loan Bank
 Stock               9,794       9,794       9,794      10,178       9,757

Loans held for
 sale                3,025       2,559       8,068       6,044         316

Loans            1,230,275   1,248,249   1,251,200   1,297,489   1,314,811
Allowance for
 Loan Losses       (29,638)    (20,807)    (19,390)    (19,314)    (18,851)
                ----------  ----------  ----------  ----------  ----------
  Net Loans      1,200,637   1,227,442   1,231,810   1,278,175   1,295,960

Bank Premises
 and Equipment      42,630      42,590      42,006      40,622      40,030
Goodwill                 -           -           -           -      49,501
Foreclosed
 Assets             19,634      18,118      17,881      10,798       5,745
Other Assets        67,735      56,293      54,667      51,897      50,376
                ----------  ----------  ----------  ----------  ----------

Total Assets    $1,728,608  $1,725,341  $1,726,709  $1,789,734  $1,803,778
                ==========  ==========  ==========  ==========  ==========

Liabilities and
 Stockholders'
 Equity
Deposits
  Non-Interest
   Bearing      $  118,372  $  106,156  $  103,205  $   98,618  $  102,048
  Money market,
   savings and
   NOW             618,393     542,277     469,799     479,797     475,772
  Time             616,671     646,039     680,875     749,728     655,292
                ----------  ----------  ----------  ----------  ----------
  Total
   Deposits      1,353,436   1,294,472   1,253,879   1,328,143   1,233,112

Borrowings         245,214     288,585     330,218     314,400     373,213
Accrued
 Expenses and
 Other Liabilities   7,961       8,222       8,913       8,982       9,743
                ----------  ----------  ----------  ----------  ----------
  Total
   Liabilities   1,606,611   1,591,279   1,593,010   1,651,525   1,616,068

Total Stockholders'
 Equity            121,997     134,062     133,699     138,209     187,710
                ----------  ----------  ----------  ----------  ----------

Total Liabilities
 and Stockholders'
 Equity         $1,728,608  $1,725,341  $1,726,709  $1,789,734  $1,803,778
                ==========  ==========  ==========  ==========  ==========

Tangible Book
 Value per
 Common Share   $     4.77  $     5.49  $     5.47  $     5.74  $     5.76
                ==========  ==========  ==========  ==========  ==========





                                For the three months ended
                  Dec 31,     Sep 30,     Jun 30,     Mar 31,     Dec 31,
                   2009        2009        2009        2009        2008
                ----------  ----------  ----------  ----------  ----------

Per Common
 Share Data:
Basic Earnings
 per Share      $    (0.68) $    (0.06) $    (0.20) $    (2.98) $     0.08
Diluted
 Earnings per
 Share          $    (0.68) $    (0.06) $    (0.20) $    (2.98) $     0.08
Tangible Book
 Value per
 Share          $     4.77  $     5.49  $     5.47  $     5.74  $     5.76
Cash dividends
 paid           $        -  $        -  $        -  $        -  $    0.040

Selected
 Performance
 Ratios:
Return on
 Average Assets
 (annualized)
 ROA                 -2.44%      -0.10%      -0.61%     -10.90%       0.34%
Return on
 Average Equity
 (annualized)
 ROE                -31.92%      -1.28%      -7.87%    -106.68%       4.01%
Return on
 Tangible
 Equity
 (annualized)       -32.14%      -1.29%      -7.93%    -145.53%       5.98%
Net Interest
 Margin               3.28%       3.30%       3.05%       3.01%       3.10%
Net Interest
 Spread               3.08%       3.10%       2.84%       2.78%       2.88%
Non-interest
 Income as a %
 of Revenue          20.84%      23.93%      17.18%      17.16%      16.42%
Non-interest
 Income as a %
 of Average
 Assets               0.80%       0.96%       0.59%       0.57%       0.55%
Non-interest
 Expense to
 Average Assets       3.09%       2.91%       3.12%      13.39%       2.35%
Efficiency
 Ratio               80.26%      72.09%      90.34%     402.78%      69.46%

Asset Quality:
Nonperforming
 Loans          $   37,732  $   22,697  $   17,851  $   20,251  $   14,433
Nonperforming
 Assets         $   57,366  $   40,766  $   35,732  $   31,049  $   20,178
Nonperforming
 Loans to Total
 Loans                3.07%       1.82%       1.43%       1.56%       1.10%
Nonperforming
 Assets to
 Total Assets         3.32%       2.36%       2.07%       1.73%       1.12%
Allowance for
 Loan Losses to
 Period-end
 Loans                2.41%       1.67%       1.55%       1.49%       1.43%
Allowance for
 Loan Losses to
 Nonperforming
 Loans (X)            0.79X       0.92X       1.09X       0.95X       1.31X
Net Charge-offs
 to Average
 Loans
 (annualized)         2.92%       1.45%       1.85%       1.09%       0.43%

Capital Ratios:
Equity to Total
 Assets               7.06%       7.77%       7.74%       7.72%      10.41%
Tangible Equity
 to Total
 Tangible
 Assets (1)           4.63%       5.34%       5.32%       5.39%       5.51%

Average
 Balances:
 Year to Date
  Interest
   Earning
   Assets       $1,638,171  $1,643,945  $1,665,784  $1,679,293  $1,588,542
  Total Assets   1,767,047   1,774,376   1,800,376   1,834,575   1,738,868
  Total Loans    1,272,087   1,280,803   1,295,913   1,310,679   1,279,041
  Equity           147,652     155,522     162,126     187,512     145,754
  Interest
   Bearing
   Liabilities   1,501,705   1,506,867   1,525,524   1,535,956   1,474,539

 Quarterly
  Interest
   Earning
   Assets       $1,621,037  $1,600,979  $1,652,424  $1,679,293  $1,645,832
  Total Assets   1,745,299   1,723,224   1,766,553   1,834,575   1,802,934
  Gross Loans    1,246,223   1,251,076   1,281,309   1,310,679   1,321,621
  Equity           133,201     133,627     137,019     187,512     154,552
  Interest
   Bearing
   Liabilities   1,486,386   1,470,162   1,515,206   1,535,956   1,527,227

Weighted
 Average Number
 of Shares
 Outstanding
  Basic         16,789,045  16,791,175  16,791,340  16,780,058  17,369,765
  Diluted       16,789,045  16,791,175  16,791,340  16,780,058  17,398,432
Period end
 outstanding
 shares         16,787,675  16,791,175  16,793,175  16,793,175  16,769,675






                      Year Ended
                  Dec 31,     Dec 31,
                   2009        2008
                ----------  ----------

Per Common
 Share Data:
Basic Earnings
 per Share      $    (3.91) $     0.33
Diluted
 Earnings per
 Share          $    (3.91) $     0.33
Tangible Book
 Value per
 Share          $     4.77  $     5.76
Cash dividends
 paid           $    0.040  $    0.160

Selected
 Performance
 Ratios:
Return on
 Average Assets
 (annualized)
 ROA                 -3.57%       0.34%
Return on
 Average Equity
 (annualized)
 ROE                -42.78%       4.02%
Return on
 Tangible
 Equity
 (annualized)       -46.93%       6.18%
Net Interest
 Margin               3.16%       2.99%
Net Interest
 Spread               2.95%       2.75%
Non-interest
 Income as a %
 of Revenue          19.96%      19.21%
Non-interest
 Income as a %
 of Average
 Assets               0.73%       0.65%
Non-interest
 Expense to
 Average Assets       5.69%       2.42%
Efficiency
 Ratio              155.44%      61.87%

Asset Quality:
Nonperforming
 Loans          $   37,732  $   14,433
Nonperforming
 Assets         $   57,366  $   20,178
Nonperforming
 Loans to Total
 Loans                3.07%       1.10%
Nonperforming
 Assets to
 Total Assets         3.32%       1.12%
Allowance for
 Loan Losses to
 Period-end
 Loans                2.41%       1.43%
Allowance for
 Loan Losses to
 Nonperforming
 Loans (X)            0.79X       1.31X
Net Charge-offs
 to Average
 Loans
 (annualized)         1.82%       0.28%

Capital Ratios:
Equity to Total
 Assets               7.06%      10.41%
Tangible Equity
 to Total
 Tangible
 Assets (1)           4.63%       5.51%

Weighted
 Average Number
 of Shares
 Outstanding
  Basic         16,787,938  17,363,395
  Diluted       16,787,938  17,398,318
Period end
 outstanding
 shares         16,787,675  16,769,675




(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