SOURCE: Southern Community Financial Corporation

October 25, 2006 16:05 ET

Southern Community Financial Corporation Announces Results for the Quarter and Nine Months Ended September 30, 2006 -- Record Revenue, Record Loan Growth, Margin Expanded

WINSTON-SALEM, NC -- (MARKET WIRE) -- October 25, 2006 --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 nine month periods ended September 30, 2006. For the third quarter ended September 30, 2006, the Company reported net income of $2.1 million, a 5.0% decrease from $2.2 million in the year ago period. Earnings per diluted share remained constant at $0.12 compared to the third quarter of 2005. For the nine month period ended September 30, 2006, net income was $2.3 million, or $0.13 per share, representing a decrease from the $5.8 million, or $0.32 per share, earned for the same period in 2005. The decrease is primarily due to the major initiative undertaken by Southern Community to restructure the balance sheet, which resulted in an after-tax charge of $2.7 million in the second quarter of 2006. As has been previously reported, the results for the third quarter of 2005 and the nine months ended September 30, 2005 have been restated to correct the accounting for certain derivative transactions under Statement of Financial Accounting Standard ("SFAS") No. 133.

Significant milestones achieved during the third quarter of 2006:

--  Reported net interest income and non-interest income of a record $12.9
    million, an increase of 20.8% over the third quarter of 2005;
--  Achieved strong year-over-year growth in loans of $159.1 million, or
    18.6%, to $1.02 billion, including record loan growth in the third quarter
    of $56.9 million;
--  Surpassed $1 billion in deposits, with growth of $123.7 million, or
    13.8% compared to the third quarter of 2005, including growth of $42.3
    million during the quarter;
--  Maintained strong credit quality;
--  Combined and enhanced operations activities into a state-of-the-art
    facility in Winston-Salem;
--  Opened a regional office in Mooresville, North Carolina to serve the
    greater Charlotte area;
--  Expanded into western North Carolina announcing a new regional office
    in the vibrant Asheville market;
--  After only 10 years of operating, advanced into third position in
    deposit market share in the home base of Forsyth County.
    
Net interest income for the third quarter of $10.2 million was up 11.2%, compared with $9.2 million reported in the same quarter a year ago, driven by strong loan growth. Year to date, net interest income increased 11.1% to $30.3 million from $27.3 million for the first nine months of 2006. Along with the positive impact to net interest income from the growth in earning assets, the net interest margin has expanded as well. Compared to the third quarter of 2005, the net interest margin was up 20 basis points from 3.09% to 3.29% in the current quarter, due in part to the balance sheet restructuring completed during the third quarter of 2006. On a linked quarter basis, the net interest margin increased two basis points from 3.27% to 3.29%. The provision for loan losses for the third quarter of 2006 was $730 thousand, an increase of $1.03 million compared to a benefit of $300 thousand for the same period in 2005. In 2005, reserves were reduced as the result of the satisfactory resolution of certain credits for which specific reserves had been established.

The Company continues to generate solid fee income levels led by service charges on deposit accounts, which grew by 10.9% to $1.1 million in the 2006 quarter from $970 thousand in the 2005 quarter. Total non-interest income increased 79.6% to $2.7 million in the 2006 third quarter compared to $1.5 million in the prior year period. The third quarter included income of $296 thousand related to economic hedges versus a loss of $409 thousand in the third quarter of 2005, which aided in the growth of non-interest income. During the third quarter the majority of the derivatives were redesignated as accounting hedges and future changes in fair value to be recognized immediately in earnings are expected to be immaterial. Other income grew by 37.5% to $1.3 million in the 2006 period from $936 thousand in the 2005 period. For the nine months ended September 30, 2006, non-interest income was $1.3 million as opposed to the $5.1 million reported in the corresponding period of 2005. The decline in non-interest income for the nine month period is primarily due to the $4.2 million loss recognized on the sale of investment securities recorded in the second quarter of 2006 related to the balance sheet restructuring. For the nine month period ended September 30, 2006, service charges on deposit accounts grew by 18.1% to $3.2 million from $2.7 million for the comparable 2005 period. Other income grew 13.6% to $3.1 million for the 2006 nine months from $2.7 million for the 2005 period. Non-interest expense for the quarter increased by 18.3% over the third quarter of 2005 and totaled $8.9 million compared to $7.5 million in the year ago period, reflecting the opening during the last year of offices in Mooresville, Raleigh and Greensboro, the costs of combining the operations centers and continued investment in the growth and expansion of the franchise. For the nine month period, non-interest expenses grew 15.0% to $26.2 million in 2006 from $22.8 million in 2005.

As of September 30, 2006, the Company reported total assets of $1.4 billion, representing an increase of $118.2 million, or 9.1% year-over-year reflecting the strong loan growth. The Company was able to achieve this level of asset growth despite the repositioning of the balance sheet that resulted in a reduction of $59.4 million within the securities portfolio from September 30, 2005. The Bank's loan portfolio increased to $1.0 billion, an increase of $56.9 million, or 5.9% over June 30, 2006 and an increase of $159.1 million, or 18.6% from September 30, 2005. Investment securities at September 30, 2006 were $256 million, or 18.1% of total assets, down from $315 million, or 24.3% of assets at September 30, 2005, as a result of the balance sheet restructuring. Total deposits grew to $1.0 billion at September 30, 2006, an increase of $42.3 million, or 4.3% over the prior quarter and an increase of $123.7 million, or 13.8% from September 20, 2005. Our deposit growth has been driven by a $92.7 million, or 16.1%, year-over-year growth in our core deposits, including growth of $33.2 million, or 5.2% in the third quarter.

The Company's allowance for loan losses equaled $13.0 million, or 1.28% of total loans and 431.4% of non-performing loans at September 30, 2006. Credit quality metrics improved substantially over the prior year as non-performing loans totaled $3.0 million or 0.30% of total loans at quarter-end, in comparison with $3.8 million or 0.44% of total loans as reported for September 30, 2005. Net charge-offs as a percentage of average loans were 0.15% for the quarter ended September 30, 2006, increasing 1 basis point compared with the 0.14% reported in the year ago period.

At September 30, 2006 stockholders' equity totaled $135.5 million and represented 9.56% of total assets. Regulatory capital ratios are all in excess of the "well-capitalized" threshold.

Southern Community Financial Corporation Chairman and Chief Executive Officer F. Scott Bauer commented, "On November 18th, we will be ten years old. Since day one we have been an institution built on service that has consistently grown solid revenue, loans, and deposits. Our third quarter was no exception. This is a reflection of the great work of our people and the support of our customers and shareholders. We see this same success continuing in the future. Our focus will be to continue to improve our net interest income, non-interest income, and control growth in expenses. This will support the opportunities available to us in the markets we serve and ultimately benefit our shareholders."

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-one banking offices throughout the Piedmont region of North Carolina.

Southern Community Financial Corporation's common stock and trust preferred securities are listed on the NASDAQ National 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
                          Sep 30,   Jun 30,   Mar 31,   Dec 31,   Sep 30,
Income Statement            2006      2006      2006      2005      2005
                          --------- --------  --------  --------  --------
                                                                  Restated

Total Interest Income     $  22,151 $ 20,862  $ 19,274  $ 18,669  $ 17,534
Total Interest Expense       11,936   10,830     9,225     8,974     8,348
                          --------- --------  --------  --------  --------
  Net Interest Income        10,215   10,032    10,049     9,695     9,186

Provision for Loan Losses       730      705       475       380      (300)

Net Interest Income after
 Provision for Loan
 Losses                       9,485    9,327     9,574     9,315     9,486

Non-Interest Income
Service Charges on
 Deposit Accounts             1,076    1,098     1,035     1,038       970
Gain (Loss) on Sale of
 Investment Securities           30   (4,230)        -      (322)        -
Gain (Loss) and Net Cash
 Settlement on Economic
 Hedges                         296     (582)     (486)     (243)     (409)
Other Income                  1,287    1,029       788     1,576       936
                          --------- --------  --------  --------  --------
  Total Non-Interest
   Income                     2,689   (2,685)    1,337     2,049     1,497

Non-Interest Expense
Salaries and Employee
 Benefits                     4,776    4,630     4,484     4,389     3,794
Occupancy and Equipment       1,728    1,680     1,608     1,614     1,458
Other                         2,425    2,542     2,340     2,530     2,294
                          --------- --------  --------  --------  --------
  Total Non-Interest
   Expense                    8,929    8,852     8,432     8,533     7,546

Income Before Taxes           3,245   (2,210)    2,479     2,831     3,437
Provision for Income
 Taxes                        1,163     (780)      875       931     1,245
                          --------- --------  --------  --------  --------

Net Income                $   2,082 $ (1,430) $  1,604  $  1,900  $  2,192
                          ========= ========  ========  ========  ========

Net Income per Share
Basic                     $    0.12 $  (0.08) $   0.09  $   0.11  $   0.12
Diluted                   $    0.12 $  (0.08) $   0.09  $   0.10  $   0.12
                          ========= ========  ========  ========  ========



                          Nine Months Ended
                          Sep 30,   Sep 30,
Income Statement            2006      2005
                          --------  --------
                                    Restated

Total Interest Income     $ 62,287  $ 49,428
Total Interest Expense      31,991    22,154
                          --------  --------
  Net Interest Income       30,296    27,274

Provision for Loan Losses    1,910       570

Net Interest Income after
 Provision for Loan
 Losses                     28,386    26,704

Non-Interest Income
Service Charges on
 Deposit Accounts            3,209     2,717
Gain (Loss) on Sale of
 Investment Securities      (4,200)       56
Gain (Loss) and Net Cash
 Settlement on Economic
 Hedges                       (772)     (421)
Other Income                 3,104     2,733
                          --------  --------
  Total Non-Interest
   Income                    1,341     5,085

Non-Interest Expense
Salaries and Employee
 Benefits                   13,890    11,653
Occupancy and Equipment      5,016     4,172
Other                        7,307     6,961
                          --------  --------
  Total Non-Interest
   Expense                  26,213    22,786

Income Before Taxes          3,514     9,003
Provision for Income
 Taxes                       1,258     3,230
                          --------  --------

Net Income                $  2,256  $  5,773
                          ========  ========

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




Balance Sheet     Sep 30,     Jun 30,     Mar 31,     Dec 31,     Sep 30,
                   2006        2006        2006        2005        2005
                ----------  ----------  ----------  ----------  ----------
                                                                 Restated
Assets
Cash and due
 from Banks     $   26,390  $   30,304  $   25,807  $   24,606  $   22,449
Federal Funds
 Sold & Int
 Bearing
 Balances              887       1,010         596         648         794
Investment
 Securities        256,091     249,496     290,616     291,916     315,493

Loans            1,015,984     959,085     921,195     868,827     856,839
Allowance for
 Loan Losses       (12,990)    (12,626)    (12,211)    (11,785)    (11,773)
                ----------  ----------  ----------  ----------  ----------
  Net Loans      1,002,994     946,459     908,984     857,042     845,066

Bank Premises
 and Equipment      40,604      36,753      36,226      31,259      30,283
Goodwill            49,792      49,792      49,792      49,792      49,603
Other Assets        40,709      39,190      32,795      32,350      35,563
                ----------  ----------  ----------  ----------  ----------

Total Assets    $1,417,467  $1,353,004  $1,344,816  $1,287,613  $1,299,251
                ==========  ==========  ==========  ==========  ==========

Liabilities and
 Stockholders'
 Equity
Deposits
  Non-Interest
   Bearing      $  100,257  $  106,605  $  112,341  $  111,226  $  105,660
  Money market,
   savings and
   NOW             360,459     326,626     347,034     315,112     272,546
  Time             560,140     545,316     538,720     515,611     519,000
                ----------  ----------  ----------  ----------  ----------
  Total
   Deposits      1,020,856     978,547     998,095     941,949     897,206

Borrowings         251,105     230,213     200,986     201,737     253,096
Accrued
 Expenses and
 Other
 Liabilities        10,031      10,120      10,138       9,042      12,982
                ----------  ----------  ----------  ----------  ----------
  Total
   Liabilities   1,281,992   1,218,880   1,209,219   1,152,728   1,163,284

Total
 Stockholders'
 Equity            135,475     134,124     135,597     134,885     135,967
                ----------  ----------  ----------  ----------  ----------

Total
 Liabilities
 and
 Stockholders'
 Equity         $1,417,467  $1,353,004  $1,344,816  $1,287,613  $1,299,251
                ==========  ==========  ==========  ==========  ==========

Book Value per
 Share          $     7.75  $     7.61  $     7.67  $     7.66  $     7.66
                ==========  ==========  ==========  ==========  ==========



                            As of or for the three months ended
                  Sep 30,     Jun 30,     Mar 31,     Dec 31,     Sep 30,
                   2006        2006        2006        2005        2005
                ----------  ----------  ----------  ----------  ----------
                                                                 Restated
Per Share Data:
Basic Earnings
 per Share      $     0.12 ($    0.08)  $     0.09  $     0.11  $     0.12
Diluted
 Earnings per
 Share          $     0.12 ($    0.08)  $     0.09  $     0.10  $     0.12
Book Value per
 Share          $     7.75  $     7.61  $     7.67  $     7.66  $     7.66
Cash dividends
 paid  (1)      $    0.035  $    0.035  $    0.030  $    0.030  $    0.030

Selected
 Performance
 Ratios:
Return on
 Average Assets
 (annualized)
 ROA                  0.60%      -0.42%       0.50%       0.58%       0.67%
Return on
 Average Equity
 (annualized)
 ROE                  6.15%      -4.24%       4.83%       5.56%       6.41%
Return on
 Tangible
 Equity
 (annualized)         9.99%      -6.86%       7.85%       8.99%      10.38%
Net Interest
 Margin               3.29%       3.27%       3.44%       3.28%       3.09%
Net Interest
 Spread               2.92%       2.90%       3.06%       2.91%       2.75%
Non-interest
 Income as a %
 of Revenue          20.84%     -36.54%      11.74%      17.44%      14.01%
Non-interest
 Income as a %
 of Average
 Assets               0.79%      -0.80%       0.41%       0.63%       0.47%
Non-interest
 Expense to
 Average Assets       2.59%       2.60%       2.61%       2.59%       2.29%
Efficiency
 Ratio               69.20%     120.48%      74.06%      72.66%      70.64%

Asset Quality:
Nonperforming
 Loans          $    3,011  $    2,148  $    2,058  $    1,408  $    3,752
Nonperforming
 Assets         $    3,536  $    2,233  $    2,187  $    1,688  $    4,141
Nonperforming
 Loans to Total
 Loans                0.30%       0.22%       0.22%       0.16%       0.44%
Nonperforming
 Assets to
 Total Assets         0.25%       0.17%       0.16%       0.13%       0.32%
Allowance for
 Loan Losses to
 Period-end
 Loans                1.28%       1.32%       1.33%       1.36%       1.37%
Allowance for
 Loan Losses to
 Nonperforming
 Loans (X)            4.31        5.88        5.93        8.37        3.14
Net Charge-offs
 to Average
 Loans
 (annualized)         0.15%       0.12%       0.02%       0.17%       0.14%

Capital Ratios:
Equity to Total
 Assets               9.56%       9.91%      10.08%      10.48%      10.47%
Tangible Equity
 to Total
 Tangible
 Assets (2)           6.14%       6.33%       6.48%       6.72%       6.75%

Average
 Balances:
 Year to Date
  Interest
   Earning
   Assets       $1,215,079  $1,207,209  $1,184,008  $1,156,418  $1,150,666
  Total Assets   1,349,093   1,338,308   1,309,224   1,281,283   1,272,112
  Total Loans      935,923     913,028     887,704     837,467     828,846
  Equity           134,806     135,059     134,718     135,342     135,226
  Interest
   Bearing
   Liabilities   1,097,199   1,084,807   1,055,889   1,029,089   1,023,182

 Quarterly
  Interest
   Earning
   Assets       $1,230,562  $1,230,155  $1,184,008  $1,173,485  $1,179,027
  Total Assets   1,370,311   1,367,073   1,309,224   1,308,496   1,306,543
  Gross Loans      980,966     938,074     887,704     863,047     853,802
  Equity           134,308     135,396     134,718     135,686     135,623
  Interest
   Bearing
   Liabilities   1,121,576   1,113,408   1,055,889   1,046,617   1,050,153

Weighted
 Average Number
 of Shares
 Outstanding
  Basic         17,571,030  17,640,808  17,624,034  17,676,048  17,851,787
  Diluted       17,738,817  17,640,808  17,857,395  17,944,031  18,139,930
Period end
 outstanding
 shares         17,487,801  17,615,355  17,673,077  17,612,472  17,746,480







                   As of or for the
                  nine months ended
                  Sep 30,     Sep 30,
                   2006        2005
                ----------  ----------
                             Restated
Per Share Data:
Basic Earnings
 per Share      $     0.13  $     0.32
Diluted
 Earnings per
 Share          $     0.13  $     0.32
Book Value per
 Share          $     7.75  $     7.66
Cash dividends
 paid  (1)      $    0.100  $    0.180

Selected
 Performance
 Ratios:
Return on
 Average Assets
 (annualized)
 ROA                  0.22%       0.61%
Return on
 Average Equity
 (annualized)
 ROE                  2.24%       5.71%
Return on
 Tangible
 Equity
 (annualized)         3.63%       9.28%
Net Interest
 Margin               3.33%       3.17%
Net Interest
 Spread               2.96%       2.85%
Non-interest
 Income as a %
 of Revenue           4.24%      15.71%
Non-interest
 Income as a %
 of Average
 Assets               0.13%       0.53%
Non-interest
 Expense to
 Average Assets       2.60%       2.39%
Efficiency
 Ratio               82.85%      70.42%

Asset Quality:
Nonperforming
 Loans          $    3,011  $    3,752
Nonperforming
 Assets         $    3,536  $    4,141
Nonperforming
 Loans to Total
 Loans                0.30%       0.44%
Nonperforming
 Assets to
 Total Assets         0.25%       0.32%
Allowance for
 Loan Losses to
 Period-end
 Loans                1.28%       1.37%
Allowance for
 Loan Losses to
 Nonperforming
 Loans (X)            4.31        3.14
Net Charge-offs
 to Average
 Loans
 (annualized)         0.10%       0.14%

Capital Ratios:
Equity to Total
 Assets               9.91%      10.47%
Tangible Equity
 to Total
 Tangible
 Assets (2)           6.33%       6.75%


Weighted
 Average Number
 of Shares
 Outstanding
 Basic          17,611,763  17,875,400
 Diluted        17,806,387  18,191,520
Period end
 outstanding
 shares         17,487,801  17,746,480




(1) - March 31, 2005 represented an annual dividend of $0.12 per share.
      June 30, 2005 through September 30, 2006 represented a quarterly 
      dividend.
(2) - 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 (2) to provide
readers with the impact of purchase accounting on this key financial ratio.

Contact Information

  • For additional information:
    F. Scott Bauer
    Chairman/CEO

    David W. Hinshaw
    CFO
    (336) 768-8500