SOURCE: Southern Community Financial Corporation

October 18, 2007 16:05 ET

Southern Community Financial Corporation Announces Third Quarter 2007 Results

Diluted Earnings per Share of $0.10, Continued Growth and Excellent Credit Quality

WINSTON-SALEM, NC--(Marketwire - October 18, 2007) - Southern Community Financial Corporation (NASDAQ: SCMF) (NASDAQ: SCMFO) (the "Company"), the holding company for Southern Community Bank and Trust, reported operating results for the third quarter of 2007. For the three month period ended September 30, 2007, net income was $1.7 million or $0.10 per diluted share versus net income of $2.1 million or $0.12 per diluted share for the same period in 2006. For the first nine months of 2007, earnings were $5.7 million or $0.32 per diluted share, versus $2.3 million or $0.13 earned in the first nine months of 2006. The 2006 results included an after tax charge of $3.8 million in the second quarter related to a balance sheet restructuring and a change in accounting for certain derivative transactions.

Financial Highlights:

--  Achieved year-over-year net loan growth of $141 million or 14.1% and
    deposit growth of $12.9 million or 1.3%;
    
--  Achieved third quarter net loan growth of $48.2 million or 4.4%;
    
--  Achieved non-maturity account deposit growth of $64.6 million or 12.3%
    in the third quarter;
    
--  Improved the non-interest expense to average asset ratio to 2.69% from
    2.75% in the second quarter of 2007;
    
--  Continued to maintain strong asset quality with non-performing loans
    to total loans at 0.19%. The allowance for loan losses was 1.23% of gross
    loans and quarter-end net charge-offs to average loans decreased by ten
    basis points over second quarter 2007 to 0.02%;
    
--  Paid a quarterly dividend of $0.04 per share on September 1, 2007.
    

Net interest income for the third quarter of $11.0 million was up 7.6%, compared with $10.2 million reported in the comparable quarter of 2006. Third quarter 2007 net interest margin was 3.16% as compared to the 3.25% for the second quarter of 2007. For the first nine months of 2007, the net interest margin was 3.21% compared to 3.33% for the first nine months of 2006. The decline in margin is the result of relatively flat asset yields and increases in funding costs resulting from the maturity of lower rate, long term wholesale funding transactions.

Non-interest income was $2.5 million during the third quarter of 2007, compared to the $2.8 million reported in the second quarter of 2007. The second quarter results included a one time gain of $154,000 on a sale of property. An increase in service charge income was offset by slight declines in mortgage fees and trust fees. The Company recorded non-interest expense of $10.3 million in the current quarter, equivalent to the expenses reported in the second quarter.

As of September 30, 2007, the Company reported total assets of $1.55 billion, representing an increase of $131.3 million, or 9.3% year-over-year driven by increases in the loan portfolio. The net loan portfolio rose to $1.14 billion, an increase of $141 million, or 14.1% over the amount reported on September 30, 2006. Additionally, loans during the third quarter grew by $48.2 million or 4.4% over the level on June 30, 2007. Total deposits stood at $1.03 billion at September 30, 2007, an increase of $35.5 million from the prior quarter. The Company has seen good growth in our Money Market Account balances, stability in our non-interest bearing deposits and continues to allow the typically higher priced, longer term certificates of deposit to mature without matching higher market rates. Deposits increased $12.9 million from same period in 2006.

The Company continues to maintain strong credit standards, which are reflected in solid credit quality metrics. Non-performing loans rose to $2.2 million or 0.19% of total loans at quarter-end, in comparison with $983 thousand or 0.09% of total loans as reported for June 30, 2007. At the end of the third quarter of 2006, non-performing loans stood at $3 million or 0.30% of total loans. Non-performing assets remained unchanged at $3.2 million or 0.20% of assets at September 30, 2007 compared to $3.2 million or 0.21% of assets at June 30, 2007. Net charge-offs as a percentage of average loans were 0.02% for the quarter ended September 30, 2007, ten basis points lower than the 0.12% reported in the prior quarter. The provision for loan losses of $575 thousand was lower than the $600 thousand added in the second quarter of 2007. The Company's allowance for loan losses equaled $14.2 million, or 1.23% of total loans at September 30, 2007. The Company is not in the sub-prime lending business.

At September 30, 2007 stockholders' equity totaled $140.8 million and represented 9.1% of total assets. Stockholders' equity increased $5.4 million or 4% from $135.5 million for the year ago period. Regulatory capital ratios are all well in excess of the "well-capitalized" threshold. During the second quarter, the company issued $10 million in subordinated debentures as a part of a pooled trust preferred security.

Southern Community Financial Corporation Chairman and Chief Executive Officer F. Scott Bauer commented, "Earnings were slightly below expectations due to the small margin decline in the third quarter. We are very pleased with our non-maturity deposit growth and the efforts of our people in that regard. This is a key strategy to reducing funding costs and improving margins."

"Our credit quality remains excellent and we continue to generate solid internal growth in earning assets. Our focus will remain on increasing profitability through margin expansion, increasing non-interest income and expense control."

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.

Southern Community's executive management team will host a conference call on Friday, October 19, 2007, at 10:00 AM Eastern Time to discuss the quarter-end results. The call can be accessed by dialing (866) 542-4236, conference ID 3238421.

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


Total Interest Income     $  25,339 $ 24,626  $ 23,573  $ 23,233  $  22,151
Total Interest Expense       14,350   13,607    13,052    12,807     11,936
                          --------- --------  --------  --------  ---------
  Net Interest Income        10,989   11,019    10,521    10,426     10,215

Provision for Loan Losses       575      600       850       600        730

Net Interest Income after
 Provision for Loan Losses   10,414   10,419     9,671     9,826      9,485

Non-Interest Income
Service Charges on
 Deposit Accounts             1,266    1,173     1,051     1,109      1,076
Gain (Loss) on Sale of
 Investment Securities            -        -         -        44         30
Gain (Loss) and Net Cash
 Settlement on Economic
 Hedges                          69       (4)       (5)      (25)       296
Other Income                  1,211    1,644     2,086     1,209      1,287
                          --------- --------  --------  --------  ---------
  Total Non-Interest
   Income                     2,546    2,813     3,132     2,337      2,689

Non-Interest Expense
Salaries and Employee
 Benefits                     5,267    5,341     5,143     4,936      4,776
Occupancy and Equipment       2,116    1,888     1,903     1,819      1,728
Other                         2,966    3,076     2,713     2,834      2,425
                          --------- --------  --------  --------  ---------
  Total Non-Interest
   Expense                   10,349   10,305     9,759     9,589      8,929

Income Before Taxes           2,611    2,927     3,044     2,574      3,245
Provision for Income Taxes      890      996     1,035       632      1,163
                          --------- --------  --------  --------  ---------

Net Income                $   1,721 $  1,931  $  2,009  $  1,942  $   2,082
                          ========= ========  ========  ========  =========

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


                                         Nine Months Ended
                                         Sep 30,   Sep 30,
Income Statement                           2007      2006
                                         --------- --------


Total Interest Income                    $  73,538 $ 62,287
Total Interest Expense                      41,009   31,991
                                         --------- --------
  Net Interest Income                       32,529   30,296

Provision for Loan Losses                    2,025    1,910

Net Interest Income after
 Provision for Loan Losses                  30,504   28,386

Non-Interest Income
Service Charges on Deposit Accounts          3,490    3,209
Gain (Loss) on Sale of Investment
 Securities                                      -   (4,200)
Gain (Loss) and Net Cash
 Settlement on Economic Hedges                  60     (772)
Other Income                                 4,941    3,104
                                         --------- --------
  Total Non-Interest
   Income                                    8,491    1,341

Non-Interest Expense
Salaries and Employee Benefits              15,751   13,890
Occupancy and Equipment                      5,907    5,016
Other                                        8,755    7,307
                                         --------- --------
  Total Non-Interest Expense                30,413   26,213

Income Before Taxes                          8,582    3,514
Provision for Income Taxes                   2,921    1,258
                                         --------- --------

Net Income                               $   5,661 $  2,256
                                         ========= ========

Net Income per Share
Basic                                    $    0.32 $   0.13
Diluted                                  $    0.32 $   0.13
                                         ========= ========




Balance Sheet     Sep 30,     Jun 30,     Mar 31,     Dec 31,     Sep 30,
                   2007        2007        2007        2006        2006
                ----------  ----------  ----------  ----------  ----------
Assets
Cash and due
 from Banks     $   24,227  $   32,742  $   28,014  $   29,160  $   26,390
Federal Funds
 Sold & Int
 Bearing Balances      420       8,563      14,945         783         887
Investment
 Securities        247,088     250,211     261,734     255,496     256,091

Loans            1,158,168   1,109,442   1,085,479   1,033,411   1,015,984
Allowance for
 Loan Losses       (14,197)    (13,677)    (13,417)    (13,040)    (12,990)
                ----------  ----------  ----------  ----------  ----------
 Net Loans       1,143,971   1,095,765   1,072,062   1,020,371   1,002,994

Bank Premises
 and Equipment      38,881      39,587      39,984      40,492      40,604
Goodwill            49,792      49,792      49,792      49,792      49,792
Other Assets        44,352      43,580      43,536      40,371      40,709
                ----------  ----------  ----------  ----------  ----------


Total Assets    $1,548,731  $1,520,240  $1,510,067  $1,436,465  $1,417,467
                ==========  ==========  ==========  ==========  ==========

Liabilities and
 Stockholders' Equity
Deposits
 Non-Interest
  Bearing       $  110,718  $  112,142  $  113,011  $  108,950  $  100,257
 Money market,
  savings and NOW  479,595     413,533     448,849     393,152     360,459
  Time             443,405     472,504     516,921     522,480     560,140
                ----------  ----------  ----------  ----------  ----------
 Total Deposits  1,033,718     998,179   1,078,781   1,024,582   1,020,856

Borrowings         360,309     371,024     281,157     265,297     251,105
Accrued Expenses
 and Other
 Liabilities        13,868      11,988      12,083      10,361      10,031
                ----------  ----------  ----------  ----------  ----------
 Total
  Liabilities    1,407,895   1,381,191   1,372,021   1,300,240   1,281,992

Total Stockholders'
 Equity            140,836     139,049     138,046     136,225     135,475
                ----------  ----------  ----------  ----------  ----------

Total Liabilities
 and Stockholders'
 Equity         $1,548,731  $1,520,240  $1,510,067  $1,436,465  $1,417,467
                ==========  ==========  ==========  ==========  ==========

Book Value per
 Share          $     8.04  $     7.89  $     7.93  $     7.83  $     7.75
                ==========  ==========  ==========  ==========  ==========



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

Per Share Data:
Basic Earnings
 per Share      $     0.10  $     0.11  $     0.12  $     0.11  $     0.12
Diluted Earnings
 per Share      $     0.10  $     0.11  $     0.11  $     0.11  $     0.12
Book Value per
 Share          $     8.04  $     7.89  $     7.93  $     7.83  $     7.75
Cash dividends
 paid           $    0.040  $    0.040  $    0.035  $    0.035  $    0.035

Selected
 Performance
 Ratios:
Return on Average
 Assets (annualized)
 ROA                  0.45%       0.52%       0.56%       0.54%       0.60%
Return on Average
 Equity (annualized)
 ROE                  4.92%       5.58%       5.96%       5.70%       6.15%
Return on Tangible
 Equity (annualized)  7.80%       8.86%       9.56%       9.22%       9.99%
Net Interest Margin   3.16%       3.25%       3.22%       3.22%       3.29%
Net Interest Spread   2.75%       2.87%       2.85%       2.84%       2.92%
Non-interest Income
 as a % of Revenue   18.81%      20.34%      22.94%      18.31%      20.84%
Non-interest Income
 as a % of Average
 Assets               0.66%       0.75%       0.87%       0.65%       0.78%
Non-interest
 Expense to
 Average Assets       2.69%       2.75%       2.70%       2.67%       2.59%
Efficiency Ratio     76.46%      74.50%      71.48%      75.13%      69.20%

Asset Quality:
Nonperforming
 Loans          $    2,226  $      983  $    1,240  $    2,636  $    3,011
Nonperforming
 Assets         $      939  $    2,227  $    2,659  $    3,531  $    3,536
Nonperforming
 Loans to Total
 Loans                0.19%       0.09%       0.11%       0.26%       0.30%
Nonperforming
 Assets to
 Total Assets         0.20%       0.21%       0.26%       0.43%       0.46%
Allowance for
 Loan Losses to
 Period-end
 Loans                1.23%       1.23%       1.24%       1.26%       1.28%
Allowance for
 Loan Losses to
 Nonperforming
 Loans                6.38       13.91       10.82        4.95        4.31
Net Charge-offs
 to Average
 Loans (annualized)   0.02%       0.12%       0.18%       0.21%       0.15%

Capital Ratios:
Equity to Total
 Assets               9.09%       9.15%       9.14%       9.48%       9.56%
Tangible Equity
 to Total
 Tangible
 Assets (1)           5.98%       5.97%       5.94%       6.12%       6.14%

Average Balances:
 Year to Date
  Interest
   Earning
   Assets       $1,355,030  $1,341,688  $1,324,218  $1,232,305  $1,215,079
  Total Assets   1,498,310   1,485,292   1,467,296   1,368,223   1,349,093
  Total Loans    1,093,693   1,074,700   1,054,315     958,001     935,923
  Equity           138,094     137,716     136,623     134,886     134,806
  Interest
   Bearing
   Liabilities   1,237,398   1,226,580   1,212,714   1,115,747   1,097,199

 Quarterly
  Interest
   Earning
   Assets       $1,381,279  $1,358,967  $1,324,218  $1,283,422  $1,230,562
  Total Assets   1,523,922   1,503,090   1,467,296   1,424,990   1,370,311
  Gross Loans    1,131,060   1,094,861   1,054,315   1,023,515     980,966
  Equity           138,838     138,797     136,623     135,123     134,308
  Interest
   Bearing
   Liabilities   1,258,681   1,240,293   1,212,714   1,170,786   1,121,579

Weighted
 Average Number
 of Shares
 Outstanding
  Basic         17,584,565  17,574,100  17,423,824  17,431,542  17,571,030
  Diluted       17,585,543  17,667,207  17,597,029  17,610,248  17,738,817
Period end
 outstanding
 shares         17,520,829  17,621,653  17,410,115  17,405,940  17,487,801



                                      As of or for the
                                      Nine Months Ended
                                     Sep 30,      Sep 30,
                                       2007         2006
                                   -----------  -----------

Per Share Data:
Basic Earnings per Share           $      0.32  $      0.13
Diluted Earnings per Share         $      0.32  $      0.13
Book Value per Share               $      8.04  $      7.75
Cash dividends paid                $     0.115  $     0.100

Selected Performance Ratios:
Return on Average Assets
 (annualized) ROA                         0.51%        0.22%
Return on Average Equity
 (annualized) ROE                         5.48%        2.24%
Return on Tangible Equity
 (annualized)                             8.73%        3.63%
Net Interest Margin                       3.21%        3.33%
Net Interest Spread                       2.82%        2.96%
Non-interest Income as a %
 of Revenue                              20.70%        4.24%
Non-interest Income as a %
 of Average Assets                        0.76%        0.13%
Non-interest Expense to
 Average Assets                           2.71%        2.60%
Efficiency Ratio                         74.14%       82.85%

Asset Quality:
Nonperforming Loans                $     2,226  $     3,011
Nonperforming Assets               $       939  $     3,536
Nonperforming Loans to Total Loans        0.19%        0.30%
Nonperforming Assets to Total Assets      0.20%        0.46%
Allowance for Loan Losses to
 Period-end Loans                         1.23%        1.28%
Allowance for Loan Losses to
 Nonperforming Loans                      6.38         4.31
Net Charge-offs to Average
 Loans (annualized)                       0.11%        0.10%

Capital Ratios:
Equity to Total Assets                    9.09%        9.91%
Tangible Equity to Total
 Tangible Assets (1)                      5.98%        6.33%

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                             17,532,813   17,611,763
  Diluted                           17,603,525   17,806,387
Period end outstanding shares       17,520,829   17,487,801


(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.
    Senior Vice President/Interim Chief Financial Officer
    (336) 768-8500