SOURCE: Southern Community Financial Corporation

Southern Community Financial Corporation

April 28, 2011 16:05 ET

Southern Community Financial Corporation Announces Improved First Quarter 2011 Results

WINSTON-SALEM, NC--(Marketwire - Apr 28, 2011) - Southern Community Financial Corporation (NASDAQ: SCMF) (NASDAQ: SCMFO), the holding company for Southern Community Bank and Trust, today reported first quarter 2011 results.

Financial Highlights:

--  Net income before the accrual for preferred dividend of $151 thousand;
--  After preferred dividend accrual, net loss available to common
    shareholders of $488 thousand, or $0.03 per diluted share;
--  Net interest margin increased 28 basis points to 3.42% on a linked
    quarter basis;
--  Provision for loan losses of $4.1 million decreased $2.4 million
    compared to fourth quarter of 2010;
--  Nonperforming loans decreased 20% to $73.8 million, or 6.80% of loans,
    at March 31, 2011 from $91.8 million, or 8.08% of loans, at December
    31, 2010;
--  Nonperforming assets decreased 11% to $96.8 million, or 6.04% of total
    assets, from $109.1 million, or 6.60% of total assets, at December 31,
    2010;
--  Net charge-offs of $6.0 million, or 2.19% of average loans
    (annualized), down from $12.0 million, or 4.10% of average loans
    (annualized), in the fourth quarter of 2010; and
--  Allowance for loan losses decreased $1.9 million to $27.7 million, or
    2.55% of total loans.

Southern Community Financial reported a net loss available to common shareholders of $488 thousand for the first quarter 2011, compared with a net loss of $11.5 million for the fourth quarter of 2010 and net loss of $5.2 million for the first quarter 2010. The net loss per diluted common share in the first quarter 2011 decreased to $0.03, compared to $0.68 and $0.31 for the fourth quarter 2010 and first quarter 2010, respectively.

"We are pleased to report a profit before preferred dividend for the first quarter of 2011. We also are very encouraged by the 20% reduction in our nonperforming loans during the first quarter of 2011 and by continued positive trends in our impaired loans," said F. Scott Bauer, Chairman and Chief Executive Officer. "The first quarter of 2011 marked the fourth consecutive quarter in which our loan delinquencies have decreased. Impaired loans requiring specific reserves dropped $14.5 million, or 52%, compared to the fourth quarter of 2010. We are continuing to make progress in the resolution of the formerly collateral dependent loans that were added to nonaccrual status during the third quarter of 2010. Given these developments, we are optimistic that our nonperforming loans will continue to decrease in the second quarter of 2011, particularly as we anticipate additional formerly collateral dependent loans to be returned to accruing status. As a result, we continue to expect opportunities for net interest margin improvement in the second quarter of 2011.

While we are optimistic about the positive trends we are seeing in our asset quality, we continue to anticipate shrinkage in our overall loan portfolio and balance sheet as loan demand remains weak due to the prolonged economic downturn. However, this shrinkage will allow us to better manage our capital during the current economic cycle.

Our employees continue to exceed my expectations for their exemplary commitment to providing our customers with the highest level of service possible. Southern Community remains well funded with regulatory capital ratios in excess of the well-capitalized requirements at the consolidated Company level and with a Tier 1 leverage ratio in excess of 8% and a total risk-based capital ratio above 12% at the Bank level."

Asset Quality

Nonperforming loans decreased $18.0 million to $73.8 million, or 6.80% of total loans, at March 31, 2011 from $91.8 million, or 8.08% of total loans, at December 31, 2010. Included in the $18.0 million net reduction in nonperforming loans, there are $11.0 million in formerly collateral dependent loans that were restored to an accruing status during first quarter of 2011 as a result of consistent payment performance on these loans over a reasonable period subsequent to the addition of principal curtailments to the borrowers' scheduled loan payments. Loans delinquent 30-89 days declined to $3.4 million at March 31, 2011 from $5.5 million at December 31, 2010, and from $8.9 million at September 31, 2010. Nonperforming assets decreased to $96.8 million, or 6.04% of total assets, at March 31, 2011 from $109.1 million, or 6.60% of total assets, at December 31, 2010.

The provision for loan losses of $4.1 million in the first quarter of 2011 decreased $2.4 million from $6.5 million in the fourth quarter 2010. The allowance for loan losses (ALLL) decreased $1.9 million to $27.7 million, or 2.55% of total loans, from $29.6 million, or 2.60% of total loans, at December 31, 2010. Net charge-offs decreased sequentially to $6.0 million, or 2.19% of average loans on an annualized basis, from $12.0 million, or 4.10% of average loans on an annualized basis, for the fourth quarter 2010. As the overall ALLL decreased sequentially during the first quarter of 2011, the specific allowance for impaired loans decreased by $2.3 million to $2.8 million on a linked quarter basis as the volume of impaired loans requiring a specific allowance decreased to $15.9 million at March 31, 2011 from $28.2 million at December 31, 2010.

Net Interest Income

Net interest income of $12.8 million in the first quarter of 2011 increased $426 thousand, or 3%, compared to $12.4 million in the fourth quarter of 2010 and the net interest margin increased 28 basis points to 3.42% compared with 3.14% in the fourth quarter of 2010. The sequential increase in net interest income and the net interest margin resulted from the impact of $11.0 million in formerly collateral dependent loans that were reinstated to accrual status as well as the continued downward repricing of deposits. These positive factors were partially offset by a $44.4 million decrease in the average balance of earning assets, driven by a $50.7 million decrease in average loan balances.

On a year-over-year basis, net interest income decreased $416 thousand, or 3%, and the net interest margin increased by one basis point from 3.41% in the first quarter of 2010. The decrease in net interest income year-over-year was due primarily to a $52.6 million decrease in the average balance of earning assets partially offset by the favorable impact of the cost of interest-bearing liabilities repricing downward to a greater extent than the yield on earning assets.

Non-interest Income

Non-interest income decreased by $1.3 million, or 31%, to $2.9 million during the first quarter of 2011 compared with the fourth quarter of 2010. The sequential decrease in non-interest income was attributable primarily to a $526 thousand decrease in the fair value of derivatives, a $451 thousand decrease in mortgage banking income, a $129 thousand decrease in service charge income and a $118 thousand decrease in investment brokerage fee income. These sequential decreases in non-interest income were slightly offset by a $116 thousand improvement in Small Business Investment Company (SBIC) income.

Compared to the first quarter of 2010, non-interest income decreased by $1.1 million, or 27%. The year-over-year decrease was primarily related to a $574 thousand decrease in the fair value of derivatives and a $410 thousand decrease in gains on investment security sales.

Non-interest Expenses

Non-interest expenses of $11.5 million during the first quarter of 2011 decreased $1.1 million, or 9%, on a linked quarter basis. The sequential reduction in non-interest expenses was attributable to a decrease in writedowns on foreclosed property of $1.3 million, a $199 thousand decrease in other expenses related to foreclosed real estate and a $357 thousand decrease in salaries and employee benefits. Offsetting a portion of these sequential decreases, there were sequential increases in other non-interest expense categories of $711 thousand in total, the largest of which was a $598 thousand increase in FDIC insurance premiums.

Compared to the first quarter of 2010, non-interest expenses decreased $360 thousand, or 3%. This year-over-year decrease was due primarily to a $723 thousand decrease in salaries and employee benefits, and a $132 thousand decrease in occupancy and equipment expenses. These expense reductions more than offset a $456 thousand increase in other non-interest expenses, the largest of which was a $586 thousand increase in FDIC insurance premiums.

Balance Sheet

As of March 31, 2011, total assets amounted to $1.6 billion, representing a decrease of $49.5 million, or 3%, compared to December 31, 2010. Total assets decreased $103.3 million, or 6%, on a year-over-year basis. The loan portfolio decreased by $46.6 million, or 4%, sequentially, and decreased by $125.0 million, or 10%, since March 31, 2010 due to decreased loan demand resulting from the prolonged weak economic conditions. Total deposits of $1.3 billion at March 31, 2011 decreased $69.2 million, or 5%, sequentially due to an $85.5 million decrease in interest bearing deposits offset by a $16.3 million increase in demand deposits.

At March 31, 2011, stockholders' equity of $91.9 million represented 5.73% of total assets. Stockholders' equity decreased $487 thousand, or less than one percent, to $91.9 million from $92.3 million at December 31, 2010. The regulatory capital ratios at the Bank at March 31, 2011 were in excess of the levels required under the Consent Order with a Tier 1 leverage ratio of 8.10% and a total risk-based capital ratio of 12.05%.

Conference Call

Southern Community's executive management team will host a conference call on April 29, 2011, at 8:30 am Eastern Time to discuss the quarter-end results. The call can be accessed by dialing 1-877-640-9867 or 1-914-495-8546 and entering pass code 62939149. 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.

About Southern Community Financial Corporation

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.

Forward-Looking Statements

Certain statements in this news release contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans and expectations, and are thus prospective. Such forward-looking statements include but are not limited to (1) statements regarding potential future economic recovery, (2) statements with respect to our plans, objectives, expectations, intentions and other statements that are not historical facts, and (3) other statements identified by words such as "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets" and "projects," as well as similar expressions. Such statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Therefore, we can give no assurance that the results contemplated in the forward-looking statements will be realized. The inclusion of this forward-looking information should not be construed as a representation by our Company or any person that the future events, plans or expectations contemplated by our Company will be achieved.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) the rate of delinquencies and amounts of charge-offs, the level of allowance for loan losses, the rates of loan growth or shrinkage, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (2) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, third party relationships and revenues; (3) the strength of the United States economy in general and the strength of the local economies in which we conduct operations may be different than expected resulting in, among other things, a deterioration in the credit quality or a reduced demand for credit, including the resultant effect on the Company's loan portfolio and allowance for loan losses; (4) the risk that the preliminary financial information reported herein and our current preliminary analysis will be different when our review is finalized; (5) changes in deposit rates, the net interest margin and funding sources; (6) changes in the U.S. legal and regulatory framework, including the effect of recent financial reform legislation on the banking industry; and (7) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on the Company. Additional factors that could cause our results to differ materially from those described in the forward-looking statements can be found in our reports (such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the SEC and available at the SEC's website (http://www.sec.gov). All subsequent written and oral forward-looking statements concerning the Company or any person acting on its behalf is expressly qualified in its entirety by the cautionary statements above. We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

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       2011       2010       2010       2010       2010
                     ---------  ---------  ---------  ---------  ---------

Interest Income      $  18,699  $  19,164  $  20,049  $  20,439  $  20,986
Interest Expense         5,868      6,759      6,773      7,007      7,739
                     ---------  ---------  ---------  ---------  ---------
  Net Interest
   Income               12,831     12,405     13,276     13,432     13,247

Provision for Loan
 Losses                  4,100      6,500     17,000      5,500     10,000

Net Interest Income
 after Provision for
 Loan Losses             8,731      5,905     (3,724)     7,932      3,247

Non-Interest Income
Service Charges and
 Fees on Deposit
 Accounts                1,488      1,617      1,640      1,719      1,557
Income from mortgage
 banking activities        263        714        751        359        358
Investment brokerage
 and trust fees            188        306        424        509        235
SBIC income (loss)
 and management fees       122          6        126        323        176
Gain (Loss) on Sale
 of Investment
 Securities                944      1,135         24      1,018      1,354
Gain (Loss) and Net
 Cash Settlement on
 Economic Hedges          (605)       (79)      (384)       (38)       (31)
Other-than-temporary
 impairment                  -          -          -          -       (186)
Other Income               503        501        479        502        490
                     ---------  ---------  ---------  ---------  ---------
  Total Non-Interest
   Income                2,903      4,200      3,060      4,392      3,953

Non-Interest Expense
Salaries and
 Employee Benefits       4,746      5,103      5,033      5,321      5,469
Occupancy and
 Equipment               1,784      1,778      1,839      1,895      1,916
Expenses of Managing
 Foreclosed Assets         270        469        405        588        360
Writedowns of
 Foreclosed Assets         609      1,895        123        591        483
Other                    4,074      3,363      3,584      3,938      3,615
                     ---------  ---------  ---------  ---------  ---------
  Total Non-Interest
   Expense              11,483     12,608     10,984     12,333     11,843

Income (Loss) Before
 Taxes                     151     (2,503)   (11,648)        (9)    (4,643)
Provision for Income
 Taxes                       -      8,318     (3,698)      (270)       (32)
                     ---------  ---------  ---------  ---------  ---------

Net Income (Loss)    $     151  $ (10,821) $  (7,950) $     261  $  (4,611)
                     =========  =========  =========  =========  =========

Effective dividend
 on preferred stock        639        633        633        632        633
                     ---------  ---------  ---------  ---------  ---------

Net Income (loss)
 available to common
 shareholders        $    (488) $ (11,454) $  (8,583) $    (371) $  (5,244)
                     =========  =========  =========  =========  =========

Net Income (Loss)
 per Common Share
Basic                $   (0.03) $   (0.68) $   (0.51) $   (0.02) $   (0.31)
Diluted              $   (0.03) $   (0.68) $   (0.51) $   (0.02) $   (0.31)
                     =========  =========  =========  =========  =========




Balance Sheet     Mar 31,     Dec 31,     Sep 30,     Jun 30,     Mar 31,
                   2011        2010        2010        2010        2010
                ----------  ----------  ----------  ----------  ----------
Assets
Cash and due
 from Banks     $   28,096  $   16,584  $   44,612  $   35,757  $   33,885
Federal Funds
 Sold and
 Overnight
 Deposits           34,615      49,587       1,646       1,358      22,352
Investment
 Securities        350,962     352,873     322,431     307,595     335,519
Federal Home
 Loan Bank
 Stock               8,750       8,750       9,092       9,794       9,794

Loans held for
 sale                  597       5,991       7,161       6,582       2,984

Loans            1,083,468   1,130,076   1,183,753   1,198,565   1,208,454
Allowance for
 Loan Losses       (27,664)    (29,580)    (35,100)    (29,609)    (36,007)
                ----------  ----------  ----------  ----------  ----------
  Net Loans      1,055,804   1,100,496   1,148,653   1,168,956   1,172,447

Bank Premises
 and Equipment      39,878      40,550      40,718      41,535      42,058
Foreclosed
 Assets             23,060      17,314      19,385      18,781      20,285
Other Assets        62,118      61,253      69,088      69,757      67,856
                ----------  ----------  ----------  ----------  ----------

Total Assets    $1,603,880  $1,653,398  $1,662,786  $1,660,115  $1,707,180
                ==========  ==========  ==========  ==========  ==========

Liabilities and
 Stockholders'
 Equity
Deposits
  Non-Interest
   Bearing      $  126,393  $  110,114  $  119,249  $  123,573  $  113,292
  Money market,
   savings and
   NOW             521,577     582,878     599,978     623,854     620,433
  Time             631,240     655,427     598,383     545,420     573,229
                ----------  ----------  ----------  ----------  ----------
  Total
   Deposits      1,279,210   1,348,419   1,317,610   1,292,847   1,306,954

Borrowings         224,608     204,784     228,343     242,303     275,831
Accrued
 Expenses and
 Other
 Liabilities         8,208       7,854       7,739       7,981       7,513
                ----------  ----------  ----------  ----------  ----------
  Total
   Liabilities   1,512,026   1,561,057   1,553,692   1,543,131   1,590,298

Total Stockholders'
 Equity             91,854      92,341     109,094     116,984     116,882
                ----------  ----------  ----------  ----------  ----------

Total Liabilities
 and Stockholders'
 Equity         $1,603,880  $1,653,398  $1,662,786  $1,660,115  $1,707,180
                ==========  ==========  ==========  ==========  ==========

Tangible Book
 Value per
 Common Share   $     2.95  $     2.99  $     3.99  $     4.46  $     4.45
                ==========  ==========  ==========  ==========  ==========





                            For the three months ended
          Mar 31,       Dec 31,       Sep 30,       Jun 30,       Mar 31,
           2011          2010          2010          2010          2010
        ----------    ----------    ----------    ----------    ----------
Per Common
 Share Data:
Basic
 Earnings
 (loss)
 per
 Share  $    (0.03)   $    (0.68)   $    (0.51)   $    (0.02)   $    (0.31)
Diluted
 Earnings
 (loss)
 per
 Share  $    (0.03)   $    (0.68)   $    (0.51)   $    (0.02)   $    (0.31)
Tangible
 Book
 Value
 per
 Share  $     2.95    $     2.99    $     3.99    $     4.46    $     4.45

Selected
 Performance
 Ratios:
Return on
 Average
 Assets
 (annualized)
 ROA          0.04%        -2.55%        -1.91%         0.06%        -1.10%
Return on
 Average
 Equity
 (annualized)
 ROE          0.67%       -39.43%       -27.07%         0.90%       -15.34%
Return on
 Tangible
 Equity
 (annualized) 0.67%       -39.68%       -27.25%         0.90%       -15.44%
Net Interest
 Margin       3.42%         3.14%         3.39%         3.46%         3.41%
Net Interest
 Spread       3.30%         2.99%         3.20%         3.32%         3.26%
Non-interest
 Income as
 a % of
 Revenue     18.45%        25.29%        18.73%        24.64%        22.98%
Non-interest
 Income
 as a %
 of Average
 Assets       0.72%         0.99%         0.73%         1.04%         0.94%
Non-interest
 Expense to
 Average
 Assets       2.86%         2.97%         2.64%         2.93%         2.82%
Efficiency
 Ratio       72.98%        75.93%        67.24%        69.19%        68.85%

Asset Quality:
Nonperforming
 Loans  $   73,741    $   91,777    $   98,709    $   55,477    $   50,608
Nonperforming
 Assets $   96,801    $  109,091    $  118,094    $   74,258    $   70,893
Nonperforming
 Loans to
 Total
 Loans        6.80%         8.08%         8.29%         4.60%         4.18%
Nonperforming
 Assets to
 Total
 Assets       6.04%         6.60%         7.10%         4.47%         4.15%
Allowance
 for Loan
 Losses to
 Period-end
 Loans        2.55%         2.60%         2.95%         2.46%         2.97%
Allowance for
 Loan Losses to
 Nonperforming
 Loans (X)    0.38X         0.32X         0.36X         0.53X         0.71X
Net Charge-
 offs to
 Average
 Loans
 (annualized) 2.19%         4.10%         3.78%         3.95%         1.20%

Capital Ratios:
Equity to
 Total
 Assets       5.73%         5.58%         6.56%         7.05%         6.85%
Tangible
 Common
 Equity
 to Total
 Tangible
 Assets (1)   3.10%         3.04%         4.03%         4.52%         4.39%

Average Balances:
 Year to Date
  Interest
  Earning
  Assets $1,520,664    $1,562,393    $1,561,504    $1,564,646    $1,573,247
  Total
   Assets 1,630,975     1,681,068     1,680,902     1,695,640     1,704,190
  Total
   Loans  1,111,697     1,200,609     1,213,497     1,215,776     1,222,594
  Equity     91,958       115,962       118,352       119,293       121,944
  Interest
   Bearing
   Liabil-
   ities  1,407,978     1,436,443     1,435,705     1,451,099     1,459,636

 Quarterly
  Interest
  Earning
  Assets $1,520,664    $1,565,031    $1,555,323    $1,556,140    $1,573,247
  Total
   Assets 1,630,975     1,681,561     1,651,907     1,687,184     1,704,190
  Total
   Loans  1,111,697     1,162,365     1,209,013     1,209,033     1,222,594
  Equity     91,958       108,870       116,501       116,671       121,944
  Interest
   Bearing
   Liabil-
   ities  1,407,978     1,438,633     1,405,419     1,442,655     1,459,636

Weighted
 Average
 Number of
 Shares
 Outstanding
 Basic   16,824,008    16,812,380    16,812,625    16,814,378    16,806,292
 Diluted 16,824,008    16,812,380    16,812,625    16,814,378    16,806,292
Period end
 outstanding
 shares 16,838,125    16,812,625    16,812,625    16,812,625    16,818,125


(1) - Tangible Common Equity to Total Tangible Assets is period-ending
      common 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