SOURCE: Southern Community Financial Corporation

January 23, 2008 16:05 ET

Southern Community Financial Corporation Announces Results for the Fourth Quarter and Year Ended December 31, 2007

Earnings per Share of 11 Cents for the Quarter; 43 Cents for the Year; Excellent Credit Quality; Continued Growth

WINSTON-SALEM, NC--(Marketwire - January 23, 2008) - Southern Community Financial Corporation (NASDAQ: SCMF) (NASDAQ: SCMFO) (the "Company"), the holding company for Southern Community Bank and Trust, reported operating results for the three and twelve month periods ended December 31, 2007. For the fourth quarter, the Company reported net income of $1.9 million, matching the amount earned for the same period one year ago. Earnings per diluted share were $0.11 in the fourth quarter of both 2007 and 2006. For the year ended December 31, 2007, net income totaled $7.6 million ($0.43 per diluted share), an increase from the $4.2 million ($0.24 per diluted share) earned during 2006. The increase in 2007 is due primarily to the strong growth in non-interest income combined with the absence of the losses from the restructuring of the Company's balance sheet that were recorded in the second quarter of 2006.

Financial Highlights for 2007:

--  Continued to maintain strong credit quality with an adequate allowance
    for loan losses -- Non-performing loans are 0.17% of total loans --
    Allowance is 1.20% of total loans;
    
--  Achieved strong year-over-year growth in loans of 15.3% with deposit
    growth of 2.0%;
    
--  Achieved solid year-over-year growth in interest-bearing non-maturity
    deposits of $102.3 million, or 26.0%;
    
--  Increased service charge income on deposit accounts by 14.2% in 2007;
    
--  After 11 years of operations, advanced into third position in deposit
    market share in our home base of Forsyth County and fifth in the Winston-
    Salem, Greensboro, High Point metropolitan area.
    

Net interest income after the provision for loan losses of $10.5 million for the fourth quarter of 2007 represented a 6.7% increase compared with the $9.8 million reported in the same quarter a year ago. For the year, net interest income increased 7.3% to $41.0 million from the $38.2 million earned for the year ended December 31, 2006. The growth in net interest income resulted primarily from the expansion of the Company's loan portfolio. Average loans increased 16.4% to $1.1 billion in 2007 from $958.0 million in 2006. Compared to the year ended December 31, 2006, the net interest margin fell 11 basis points from 3.30% to 3.19%, due principally to the maturity of longer term lower cost certificates of deposit. On a linked quarter basis, the net interest margin decreased one basis point from 3.16% to 3.15% as our liability sensitive position became more apparent.

The 2007 provision for loan losses of $2.8 million was $265 thousand greater than the 2006 provision. The allowance for loan losses stands at 1.20% of total loans and our nonperforming loans represent 0.17% of total loans.

The Company Continues To Generate Solid Fee Income

Growth in service charges on deposit accounts and in revenue from the Company's investment in Salem Capital Partners, a small business investment company (SBIC) resulted in a 19.1% rise in non-interest income over the fourth quarter of 2006. Non-interest income totaled $2.8 million in the fourth quarter compared to $2.3 million in the prior year period. During the fourth quarter of 2007 service charges on deposit accounts grew by 30.0% to $1.4 million from $1.1 million in the fourth quarter of 2006 and revenue from Salem Capital Partners grew from $294 thousand in the fourth quarter of 2006 to $394 thousand in the fourth quarter of 2007 or 34.2% growth. For the year ended December 31, 2007, non-interest income was $11.3 million compared to the $3.7 million reported in 2006. The increase in non-interest income from 2006 is primarily due to the increases in service charges on deposit accounts, earnings from SBIC activities and increases in revenue from our mortgage and wealth divisions. Additionally, the 2006 results included losses from the sale of investment securities of $4.2 million that resulted from the aforementioned restructuring of our balance sheet. For the year ended December 31, 2007, service charges on deposit accounts grew by 14.2% to $4.9 million from $4.3 million for 2006, revenue from the Mortgage division increased 11.5% to $1.3 million, revenue from our Wealth Management division increased 46.3% to $1.1 million and revenue from Salem Capital increased 165.5% to $2.1 million.

Non-interest expense for the quarter increased by 7.9% over the fourth quarter of 2006 and totaled $10.3 million for the year compared to the $9.6 million in the year ago period, reflecting costs associated with the continued growth in all of our markets. For the year, non-interest expenses grew 13.8% to $40.8 million in 2007 from $35.8 million for 2006. Part of the increase in expenses during 2007 was due to an increase in our FDIC assessment of $318 thousand and the incurrence of a full year of expenses on our operations center in 2007 compared to a partial year in 2006. We funded the continued growth of our franchise in North Carolina and invested in our infrastructure through the addition of people and technology to support our growing customer base.

Total Assets Increase to $1.6 Billion -- Up 9.2% for the Year

As of December 31, 2007, the Company reported total assets of $1.6 billion, representing a year-over-year increase of $132.7 million, or 9.2% driven by increases in the loan portfolio. Investment securities declined 10.4% and stand at $228.9 million or 14.6% of total assets.

Loans and Deposits Continue Steady Growth

At year-end 2007, the loan portfolio totaled $1.2 billion, an increase of $157.7 million, or 15.3% from December 31, 2006 and $32.9 million or 2.8% over September 30, 2007.

Total deposits grew to $1.0 billion at December 31, 2007, an increase of $20.7 million or 2.0% from December 31, 2006 and $11.5 million or 1.1% over September 30, 2007.

The Company continues to focus on attracting non-maturity deposits to improve the funding mix and reduce overall funding costs. Those efforts are reflected in a $102.3 million or 26.0% increase year-over-year in money market, savings and NOW account deposits which ended the year at $495.5 million. Non-interest bearing deposits increased $945 thousand or 0.9% for the year. On a linked-quarter basis, demand deposits declined to $109.9 million at December 31, 2007, a decrease of 0.7% from September 30, 2007 and money market, savings and NOW account balances increased 3.3% from September 30, 2007.

Asset Quality

The Company's allowance for loan losses equaled $14.3 million, or 1.20% of total loans and 6.95 times non-performing loans at December 31, 2007. Credit quality metrics remained strong as non-performing loans totaled $2.1 million or 0.17% of total loans at quarter-end, a decrease from the $2.2 million or 0.19% of total loans as reported for September 30, 2007. Net charge-offs as a percentage of average loans for the fourth quarter of 2007 were 0.23%, up slightly from 0.21% for the same period in the prior year. For the entire year, net charge-offs were $1.6 million or 0.14% of average loans.

At December 31, 2007, stockholders' equity totaled $142.4 million and represented 9.1% of total assets. Regulatory capital ratios remain strong and are all in excess of the "well-capitalized" threshold.

Southern Community Financial Corporation Chairman and Chief Executive Officer F. Scott Bauer commented, "This was a difficult earnings year for the industry as a whole. We continue to strengthen our infrastructure and prepare Southern Community for the next ten years. Our people did a great job in producing quality loan and core deposit growth while providing superior service to our customers. We are proud that we have been able to maintain excellent credit quality. This is essential, especially in the current environment. We are well positioned for the future in the fastest growing markets in North Carolina. Our entire team thanks our customers and shareholders for their ongoing support."

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

Southern Community's executive management team will host a conference call on January 24, 2008 at 10:00 AM Eastern Time to discuss the year-end results. The call can be accessed by dialing 1-866-542-4241 or 1-416-641-6139 and asking for the Southern Community Financial Corporation call. A replay of the conference call can be accessed until 11:59 pm on February 29, 2008 by calling 1-800-408-3053 or 1-416-695-5800 and entering pass code 3248063.

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
Income            Dec 31,     Sep 30,     Jun 30,     Mar 31,     Dec 31,
 Statement         2007        2007        2007        2007        2006
                ----------  ----------  ----------  ----------  ----------

Total Interest
 Income         $   25,370  $   25,339  $   24,626  $   23,573  $   23,233
Total Interest
 Expense            14,132      14,350      13,607      13,052      12,807
                ----------  ----------  ----------  ----------  ----------
  Net Interest
   Income           11,238      10,989      11,019      10,521      10,426

Provision for
 Loan Losses           750         575         600         850         600

Net Interest
 Income after
 Provision for
 Loan Losses        10,488      10,414      10,419       9,671       9,826

Non-Interest
 Income
Service Charges
 on Deposit
 Accounts            1,441       1,266       1,173       1,051       1,109
Gain (Loss) on
 Sale of
 Investment
 Securities              -           -           -           -          44
Gain (Loss) and
 Net Cash
 Settlement on
 Economic
 Hedges                 19          69          (4)         (5)        (25)
Other Income         1,322       1,211       1,644       2,086       1,209
                ----------  ----------  ----------  ----------  ----------
  Total
   Non-Interest
   Income            2,782       2,546       2,813       3,132       2,337

Non-Interest
 Expense
Salaries and
 Employee
 Benefits            5,475       5,267       5,341       5,143       4,936
Occupancy and
 Equipment           2,021       2,116       1,888       1,903       1,819
Other                2,848       2,966       3,076       2,713       2,834
                ----------  ----------  ----------  ----------  ----------
  Total
   Non-Interest
   Expense          10,344      10,349      10,305       9,759       9,589

Income Before
 Taxes               2,926       2,611       2,927       3,044       2,574
Provision for
 Income Taxes        1,019         890         996       1,035         632
                ----------  ----------  ----------  ----------  ----------

Net Income      $    1,907  $    1,721  $    1,931  $    2,009  $    1,942
                ==========  ==========  ==========  ==========  ==========

Net Income per
 Share
Basic           $     0.11  $     0.10  $     0.11  $     0.12  $     0.11
Diluted         $     0.11  $     0.10  $     0.11  $     0.11  $     0.11
                ==========  ==========  ==========  ==========  ==========


                  For the Year Ended
Income            Dec 31,     Dec 31,
 Statement         2007        2006
                ----------  ----------


Total Interest
 Income         $   98,908  $   85,520
Total Interest
 Expense            55,141      44,798
                ----------  ----------
  Net Interest
   Income           43,767      40,722

Provision for
 Loan Losses         2,775       2,510

Net Interest
 Income after
 Provision for
 Loan Losses        40,992      38,212

Non-Interest
 Income
Service Charges
 on Deposit
 Accounts            4,931       4,318
Gain (Loss) on
 Sale of
 Investment
 Securities              -      (4,156)
Gain (Loss) and
 Net Cash
 Settlement on
 Economic
 Hedges                 79        (797)
Other Income         6,263       4,313
                ----------  ----------
  Total
   Non-Interest
   Income           11,273       3,678

Non-Interest
 Expense
Salaries and
 Employee
 Benefits           21,226      18,826
Occupancy and
 Equipment           7,928       6,835
Other               11,603      10,141
                ----------  ----------
  Total
   Non-Interest
   Expense          40,757      35,802

Income Before
 Taxes              11,508       6,088
Provision for
 Income Taxes        3,940       1,890
                ----------  ----------

Net Income      $    7,568  $    4,198
                ==========  ==========

Net Income per
 Share
Basic           $     0.43  $     0.24
Diluted         $     0.43  $     0.24
                ==========  ==========







Balance Sheet     Dec 31,     Sep 30,     Jun 30,     Mar 31,     Dec 31,
                   2007        2007        2007        2007        2006
                ----------  ----------  ----------  ----------  ----------

Assets
Cash and due
 from Banks     $   31,905  $   24,227  $   32,742  $   28,014  $   29,160
Federal Funds
 Sold & Int
 Bearing
 Balances            2,250         420       8,563      14,945         783
Investment
 Securities        228,933     247,088     250,211     261,734     255,496

Loans            1,191,062   1,158,168   1,109,442   1,085,479   1,033,411
Allowance for
 Loan Losses       (14,258)    (14,197)    (13,677)    (13,417)    (13,040)
                ----------  ----------  ----------  ----------  ----------
  Net Loans      1,176,804   1,143,971   1,095,765   1,072,062   1,020,371

Bank Premises
 and Equipment      38,997      38,881      39,587      39,984      40,492
Goodwill            49,792      49,792      49,792      49,792      49,792
Other Assets        40,522      44,352      43,580      43,536      40,371
                ----------  ----------  ----------  ----------  ----------

Total Assets    $1,569,203  $1,548,731  $1,520,240  $1,510,067  $1,436,465
                ==========  ==========  ==========  ==========  ==========

Liabilities and
 Stockholders'
 Equity
Deposits
  Non-Interest
   Bearing      $  109,895  $  110,718  $  112,142  $  113,011  $  108,950
  Money market,
   savings and
   NOW             495,448     479,595     413,533     448,849     393,152
  Time             439,894     443,405     472,504     516,921     522,480
                ----------  ----------  ----------  ----------  ----------
  Total
   Deposits      1,045,237   1,033,718     998,179   1,078,781   1,024,582

Borrowings         372,405     360,309     371,024     281,157     265,297
Accrued
 Expenses and
 Other
 Liabilities         9,208      13,868      11,988      12,083      10,361
                ----------  ----------  ----------  ----------  ----------
  Total
   Liabilities   1,426,850   1,407,895   1,381,191   1,372,021   1,300,240

Total
 Stockholders'
 Equity            142,353     140,836     139,049     138,046     136,225
                ----------  ----------  ----------  ----------  ----------

Total
 Liabilities
 and
 Stockholders'
 Equity         $1,569,203  $1,548,731  $1,520,240  $1,510,067  $1,436,465
                ==========  ==========  ==========  ==========  ==========

Book Value per
 Share          $     8.18  $     8.04  $     7.89  $     7.93  $     7.83
                ==========  ==========  ==========  ==========  ==========




                             As of or for the three months ended
                   Dec 31,     Sep 30,     Jun 30,     Mar 31,     Dec 31,
                      2007        2007        2007        2007        2006
                ----------  ----------  ----------  ----------  ----------

Per Share Data:
Basic Earnings
 per Share      $     0.11  $     0.10  $     0.11  $     0.12  $     0.11
Diluted
 Earnings per
 Share          $     0.11  $     0.10  $     0.11  $     0.11  $     0.11
Book Value per
 Share          $     8.18  $     8.04  $     7.89  $     7.93  $     7.83
Cash dividends
 paid           $    0.040  $    0.040  $    0.040  $    0.035  $    0.035

Selected
 Performance
 Ratios:
Return on
 Average Assets
 (annualized)
 ROA                  0.49%       0.45%       0.52%       0.56%       0.54%
Return on
 Average Equity
 (annualized)
 ROE                  5.39%       4.92%       5.58%       5.96%       5.70%
Return on
 Tangible
 Equity
 (annualized)         8.48%       7.80%       8.86%       9.56%       9.22%
Net Interest
 Margin               3.15%       3.16%       3.25%       3.22%       3.22%
Net Interest
 Spread               2.77%       2.75%       2.87%       2.85%       2.84%
Non-interest
 Income as a %
 of Revenue          19.84%      18.81%      20.34%      22.94%      18.31%
Non-interest
 Income as a %
 of Average
 Assets               0.71%       0.66%       0.75%       0.87%       0.65%
Non-interest
 Expense to
 Average Assets       2.63%       2.69%       2.75%       2.70%       2.67%
Efficiency
 Ratio               73.78%      76.46%      74.50%      71.48%      75.13%

Asset Quality:
Nonperforming
 Loans          $    2,052  $    2,226  $      983  $    1,240  $    2,636
Foreclosed
 Assets         $    2,827  $    3,165  $    2,227  $    2,659  $    3,531
Nonperforming
 Loans to Total
 Loans                0.17%       0.19%       0.09%       0.11%       0.26%
Nonperforming
 Assets to
 Total Assets         0.18%       0.20%       0.15%       0.18%       0.25%
Allowance for
 Loan Losses to
 Period-end
 Loans                1.20%       1.23%       1.23%       1.24%       1.26%
Allowance for
 Loan Losses to
 Nonperforming
 Loans                6.95 X      6.38 X     13.91 X     10.82 X     4.95 X
Net Charge-offs
 to Average
 Loans
 (annualized)         0.23%       0.02%       0.12%       0.18%       0.21%

Capital Ratios:
Equity to Total
 Assets               9.07%       9.09%       9.15%       9.14%       9.48%
Tangible Equity
 to Total
 Tangible
 Assets (1)           6.00%       5.98%       5.97%       5.94%       6.12%

Average
 Balances:
 Year to Date
  Interest
   Earning
   Assets       $1,370,413  $1,355,030  $1,341,688  $1,324,218  $1,232,305
  Total Assets   1,513,619   1,498,310   1,485,292   1,467,296   1,368,223
  Total Loans    1,114,677   1,093,693   1,074,700   1,054,315     958,001
  Equity           138,693     138,094     137,716     136,623     134,886
  Interest
   Bearing
   Liabilities   1,250,986   1,237,398   1,226,580   1,212,714   1,115,747

 Quarterly
  Interest
   Earning
   Assets       $1,416,061  $1,381,279  $1,358,967  $1,324,218  $1,283,422
  Total Assets   1,559,047   1,523,922   1,503,090   1,467,296   1,424,990

  Gross Loans    1,176,945   1,131,060   1,094,861   1,054,315   1,023,515
  Equity           140,470     138,838     138,797     136,623     135,123
  Interest
   Bearing
   Liabilities   1,291,307   1,258,681   1,240,293   1,212,714   1,170,786

Weighted
 Average Number
 of Shares
 Outstanding
 Basic          17,449,203  17,584,565  17,574,100  17,423,824  17,431,542
 Diluted        17,466,703  17,602,250  17,667,207  17,597,029  17,610,248
Period end
 outstanding
 shares         17,399,882  17,520,829  17,621,653  17,410,115  17,405,940




                   As of or for the
                      Year Ended
                  Dec 31,     Dec 31,
                   2007        2006
                ----------  ----------

Per Share Data:
Basic Earnings
 per Share      $     0.43  $     0.24
Diluted
 Earnings per
 Share          $     0.43  $     0.24
Book Value per
 Share          $     8.18  $     7.83
Cash dividends
 paid           $    0.155  $    0.135

Selected
 Performance
 Ratios:
Return on
 Average Assets
 (annualized)
 ROA                  0.50%       0.31%
Return on
 Average Equity
 (annualized)
 ROE                  5.46%       3.11%
Return on
 Tangible
 Equity
 (annualized)         8.66%       5.05%
Net Interest
 Margin               3.19%       3.30%
Net Interest
 Spread               2.81%       2.92%
Non-interest
 Income as a %
 of Revenue          20.48%       8.28%
Non-interest
 Income as a %
 of Average
 Assets               0.74%       0.27%
Non-interest
 Expense to
 Average Assets       2.69%       2.62%
Efficiency
 Ratio               74.05%      80.64%

Asset Quality:
Nonperforming
 Loans          $    2,052  $    2,636
Foreclosed
 Assets         $    2,827  $    3,531
Nonperforming
 Loans to Total
 Loans                0.17%       0.26%
Nonperforming
 Assets to
 Total Assets         0.18%       0.25%
Allowance for
 Loan Losses to
 Period-end
 Loans                1.20%       1.26%
Allowance for
 Loan Losses to
 Nonperforming
 Loans                6.95 X     4.95 X
Net Charge-offs
 to Average
 Loans
 (annualized)         0.14%       0.13%

Capital Ratios:
Equity to Total
 Assets               9.07%       9.48%
Tangible Equity
 to Total
 Tangible
 Assets (1)           6.00%       6.12%

Average
 Balances:
 Year to Date
  Interest
   Earning
   Assets
  Total Assets
  Total Loans
  Equity
  Interest
   Bearing
   Liabilities

 Quarterly
  Interest
   Earning
   Assets
  Total Assets
  Gross Loans
  Equity
  Interest
   Bearing
   Liabilities

Weighted
 Average Number
 of Shares
 Outstanding
 Basic          17,559,352  17,566,315
 Diluted        17,624,399  17,757,436
Period end
 outstanding
 shares         17,399,882  17,405,940




(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 C. Monroe, Jr.
    Interim CFO
    (336) 768-8500