SOURCE: Southern Community Financial Corporation

Southern Community Financial Corporation

October 22, 2009 16:05 ET

Southern Community Financial Corporation Announces Results for the Third Quarter 2009

WINSTON-SALEM, NC--(Marketwire - October 22, 2009) - Southern Community Financial Corporation (NASDAQ: SCMF) (NASDAQ: SCMFO), the holding company for Southern Community Bank and Trust, today reported third quarter 2009 results.

Financial Highlights

--  Net loss after preferred dividends was $1.1 million or $0.06 per share
--  Net interest margin for third quarter 2009 increased 25 basis points
    to 3.30% from 3.05% in second quarter 2009.
--  Provision for loan losses of $6.0 million consistent with second
    quarter provision level
--  Net charge-offs were $4.6 million or 1.45% of average loans
    (annualized), down from $5.9 million or 1.85% of average loans (annualized)
    in the second quarter.
--  Allowance for loan losses increased to $20.8 million or 1.67% of loans
    at September 30, 2009, compared to $19.4 million or 1.55% of loans at June
    30, 2009.  Allowance coverage of nonperforming loans decreased to 92% at
    September 30, 2009 compared to 109% at June 30, 2009.
--  Nonperforming loans increased to $22.7 million or 1.82% of loans at
    September 30, 2009 from  $17.9 million or 1.43% of loans at June 30, 2009
--  Nonperforming assets increased to $40.8 million or 2.36% of total
    assets at September 30, 2009 from  $35.7 million or 2.07% of total assets
    at June 30, 2009
    

Net loss after preferred dividends amounted to $1.1 million or $0.06 per diluted common share in the third quarter of 2009 and included a $6.0 million provision for loan losses, 25 basis point improvement in net interest margin, and an 8% reduction in non-interest expenses on a linked quarter basis.

"As anticipated, our third quarter continued to reflect improvement in our core earnings and net interest margin. The level of loan loss provisioning was the direct result of our proactive efforts in recognizing loan loss exposure," said F. Scott Bauer, Chairman and Chief Executive Officer. "Two residential construction and development loans totaling $4.4 million were the primary reason for the increase in nonperforming loans. The level of nonperforming loans and nonperforming assets at quarter-end continued to be predominantly related to the residential construction and development portfolio. While nonperforming loans increased, our delinquencies have been declining. We remain committed to working through our troubled assets quickly and efficiently, and this remains our top priority."

"During the third quarter, we continued to improve our net interest margin. Through our active liability management process, we successfully shifted our deposit mix towards lower cost transaction accounts. Our demand, NOW, savings and money market deposits increased $75.4 million compared to the second quarter, and now comprise 50% of our total deposits, up from 46%; while time deposits decreased $34.8 million to 50% of total deposits, down from 54% during the same time period. The improvement in our deposit mix was directly related to our calling efforts and promotional campaigns focused on transaction accounts and money market accounts. We were successful in attracting new deposit balances from customers of large regional banks across our markets. Due to our deposit acquisition efforts and repricing opportunities we expect further improvement in our funding costs and net interest margin during the remainder of 2009."

"We also initiated several expense reduction measures during the third quarter which lowered our personnel expenses by approximately 4% on a sequential basis. These measures included a reduction in executive salaries, company-wide salary freeze and a reduction in the employer 401(k) match. We will continue to evaluate our non-interest expenses for additional opportunities to reduce costs and anticipate implementing additional cost saving measures during the remainder of 2009."

"Lastly, Southern Community remains well capitalized and liquid. This will enable us to take advantage of the attractive opportunities that are currently available in this economic environment."

Asset Quality

Nonperforming loans increased to $22.7 million, or 1.82% of total loans, at September 30, 2009 from $17.9 million, or 1.43% of total loans, at June 30, 2009. Third quarter net charge-offs of $4.6 million, or 1.45% of average loans on an annualized basis, decreased from $5.9 million, or 1.85% of average loans annualized, in the second quarter 2009. Nonperforming assets increased to $40.8 million, or 2.36% of total assets, at September 30, 2009 from $35.7 million, or 2.07% of total assets, at June 30, 2009 due primarily to the $4.8 million increase in nonaccrual loans during the quarter. Nonperforming loans, nonperforming assets and net charge-off activity continue to be predominantly related to residential construction and development lending as 82% of nonperforming loans, 89% of nonperforming assets and 62% of net charge-offs originated from this segment of the loan portfolio.

The provision for loan losses for the third quarter of $6.0 million matched the level of the second quarter 2009 provision; however, it increased $4.6 million compared to the $1.4 million provision for the third quarter 2008.

Net Interest Income

Net interest income of $13.3 million for the third quarter 2009 increased by 6% compared with $12.6 million in the second quarter 2009 and increased 12% over the $11.9 million in the third quarter 2008. The net interest margin of 3.30% for the third quarter 2009 increased 25 basis points from 3.05% for the second quarter 2009 and increased 42 basis points from 2.88% in the third quarter 2008. The sequential increase in net interest income resulted from the impact of deposits and borrowings repricing lower to a greater extent than interest earning assets. This favorable rate variance was partially offset by a decrease of $51.4 million in average earning assets during the third quarter 2009 compared with the second quarter 2009. Quarter end loan balances decreased $3.0 million from June 30, 2009. This decrease in loans was due to a continued slowdown in loan demand as some of our primary customers are deleveraging and taking a more conservative stance toward borrowing during these difficult economic times.

Non-interest Income

Non-interest income of $4.2 million during the third quarter 2009 increased by $1.6 million or 60% compared with the second quarter 2009 primarily resulting from the net increase in gains related to derivative activity discussed below and a $235 thousand increase in gains on sales of investment securities. In addition, we experienced an increase in wealth management income of $147 thousand on higher transaction activity, a $214 thousand increase in SBIC income and an increase of $45 thousand in service charges on deposits which were partially offset by a reduction of $248 thousand in mortgage banking income due to lower production and loan sales volumes during the third quarter. During the third quarter 2009, as it relates to derivative activity, we recovered $408 thousand from the sale and assignment of our creditor claims in the Lehman bankruptcy to a third party. During the second quarter 2009, we recorded a $1.0 million write-off in the value of collateral held by Lehman as the counterparty for certain derivative contracts terminated in the third quarter 2008.

Non-interest Expenses

Non-interest expenses of $12.6 million during the third quarter 2009 decreased $1.1 million or 8% on a linked quarter basis and increased $2.4 million or 24% year-over-year. The sequential decrease in non-interest expenses was primarily due to $517 thousand net reduction in FDIC deposit insurance costs, $472 thousand in prepayment penalties on FHLB advances extinguished in the second quarter, $207 thousand decrease in personnel expenses (including a reduction in the employer 401(k) match initiated during the third quarter, a company-wide salary freeze and lower mortgage commissions) and a $169 thousand decrease in marketing expenses. Partially offsetting these expense reductions were increases in credit quality/asset resolution costs, including a $69 thousand increase in losses on sales of foreclosed properties, a $264 thousand increase in expenses for acquiring, holding and maintaining foreclosed properties (including foreclosed asset writedowns) and a $47 thousand increase in legal expenses primarily related to problem loan workouts. Of the $517 thousand net reduction in FDIC deposit insurance, there was an $800 thousand decrease related to the special assessment accrued in the second quarter which was partially offset by a $283 thousand increase in our quarterly FDIC deposit insurance premium for the third quarter 2009. The year-over-year increase of $2.4 million was primarily due to $604 thousand increase in FDIC deposit insurance costs, $640 thousand increase in expenses for acquiring, holding and maintaining foreclosed properties (including foreclosed asset writedowns), $480 thousand in buyer incentives to purchasers of bank financed builder housing inventory and $100 thousand increase in legal expenses, mostly related to problem loan resolutions.

Balance Sheet

As of September 30, 2009, total assets amounted to $1.73 billion, representing a decrease of $72.5 million or 4% year-over-year; however, excluding the $49.5 million goodwill impairment charge taken in the first quarter 2009, total assets decreased only $23.0 million or 1% year-over-year. On a linked quarter basis, total assets decreased $1.4 million or less than 1%. As mentioned above, the loan portfolio decreased by $3.0 million or less than 1% sequentially during the third quarter 2009 and decreased by $66.6 million or 5%, since December 31, 2008 due to a slowdown in loan demand. Total deposits of $1.29 billion at September 30, 2009 increased $31.5 million or 2% year-over-year. During the third quarter 2009, deposits increased $40.6 million or 3% compared with the June 30, 2009 level. Time deposits decreased $34.8 million in the third quarter, while money market, savings and NOW deposits increased $72.5 million as a result of active liability management through pricing with an emphasis on improving our funding mix and lowering our funding cost.

At September 30, 2009, stockholders' equity of $134.1 million represented 7.77% of total assets. Stockholders' equity increased $363 thousand or less than 1% from $133.7 million at June 30, 2009 primarily due to an increase in unrealized appreciation in our available-for-sale investment portfolio during the third quarter. Regulatory capital ratios remain in excess of the "well capitalized" threshold.

Conference Call

Southern Community's executive management team will host a conference call on October 23, 2009, at 9:30 AM Eastern Time to discuss the quarter-end results. The call can be accessed by dialing 1-888-542-1101 or 1-719-457-2088 and entering pass code 4012023. A replay of the conference call can be accessed until 11:59 pm on November 6, 2009, by calling 1-888-203-1112 or 1-719-457-0820 and entering pass code 4012023. You may access additional presentation materials for this conference call in the Investor Relations section of Southern Community's web site at www.smallenoughtocare.com.

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

Southern Community Financial Corporation's common stock and trust preferred securities are listed on the NASDAQ Global Select Market under the trading symbols SCMF and SCMFO, respectively. Additional information about Southern Community is available on its website at www.smallenoughtocare.com or by email at investor.relations@smallenoughtocare.com.

This news release contains forward-looking statements. Such statements are subject to certain factors that may cause the Company's results to vary from those expected. These factors include changing economic and financial market conditions, competition, ability to execute our business plan, items already mentioned in this press release, and other factors described in our filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's judgment only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events and circumstances that arise after the date hereof.

Southern Community Financial Corporation
(Dollars in thousands except per share data)
(Unaudited)

                                     For the three months ended
                          Sept 30,  Jun 30,    Mar 31,   Dec 31,  Sept 30,
Income Statement            2009      2009      2009       2008     2008
                          --------  --------  ---------  -------- --------

Total Interest Income     $ 22,186  $ 22,451  $  22,744  $ 24,278 $ 24,412
Total Interest Expense       8,868     9,872     10,285    11,459   12,553
                          --------  --------  ---------  -------- --------
  Net Interest Income       13,318    12,579     12,459    12,819   11,859

Provision for Loan Losses    6,000     6,000      4,000     2,360    1,350

Net Interest Income after
 Provision for Loan
 Losses                      7,318     6,579      8,459    10,459   10,509

Non-Interest Income
Service Charges on
 Deposit Accounts            1,588     1,543      1,444     1,487    1,491
Income from mortgage
 banking activities            512       760        416       233      219
Investment brokerage and
 trust fees                    359       212        296       147      285
SBIC income (loss) and
 management fees               171       (43)       238        89       39
Gain (Loss) on Sale of
 Investment Securities         735       500          1        98        -
Gain (Loss) and Net Cash
 Settlement on Economic
 Hedges                        316      (912)       (22)        -     (440)
Other Income                   508       550        208       464      482
                          --------  --------  ---------  -------- --------
  Total Non-Interest
   Income                    4,189     2,610      2,581     2,518    2,076

Non-Interest Expense
Salaries and Employee
 Benefits                    5,690     5,897      5,530     5,088    5,535
Occupancy and Equipment      1,997     1,990      2,034     1,930    1,854
Goodwill Impairment              -         -     49,501         -        -
Other                        4,934     5,834      3,513     3,635    2,814
                          --------  --------  ---------  -------- --------
  Total Non-Interest
   Expense                  12,621    13,721     60,578    10,653   10,203

Income (Loss) Before
 Taxes                      (1,114)   (4,532)   (49,538)    2,324    2,382
Provision for Income
 Taxes                        (683)   (1,845)      (214)      766      754
                          --------  --------  ---------  -------- --------

Net Income (Loss)         $   (431) $ (2,687) $ (49,324) $  1,558 $  1,628
                          ========  ========  =========  ======== ========

Effective dividend on
 preferred stock               621       633        627       185        -
                          --------  --------  ---------  -------- --------

Net income (loss)
 available to common
 shareholders             $ (1,052) $ (3,320) $ (49,951) $  1,373 $  1,628
                          ========  ========  =========  ======== ========

Net Income (Loss) per
 Common Share
Basic                     $  (0.06) $  (0.20) $   (2.98) $   0.08 $   0.09
Diluted                   $  (0.06) $  (0.20) $   (2.98) $   0.08 $   0.09
                          ========  ========  =========  ======== ========



                           Nine Months Ended
                          Sept 30,   Sept 30,
Income Statement            2009       2008
                          ---------  --------

Total Interest Income     $  67,381  $ 72,464
Total Interest Expense       29,025    37,823
                          ---------  --------
  Net Interest Income        38,356    34,641

Provision for Loan Losses    16,000     5,805

Net Interest Income after
 Provision for Loan
 Losses                      22,356    28,836

Non-Interest Income
Service Charges on
 Deposit Accounts             4,575     4,372
Income from mortgage
 banking activities           1,688     1,061
Investment brokerage and
 trust fees                     867       991
SBIC income (loss) and
 management fees                366       (29)
Gain (Loss) on Sale of
 Investment Securities        1,236         -
Gain (Loss) and Net Cash
 Settlement on Economic
 Hedges                        (618)      934
Other Income                  1,266     1,388
                          ---------  --------
  Total Non-Interest
   Income                     9,380     8,717

Non-Interest Expense
Salaries and Employee
 Benefits                    17,117    16,950
Occupancy and Equipment       6,021     5,749
Goodwill Impairment          49,501         -
Other                        14,281     8,690
                          ---------  --------
  Total Non-Interest
   Expense                   86,920    31,389

Income (Loss) Before
 Taxes                      (55,184)    6,164
Provision for Income
 Taxes                       (2,742)    1,868
                          ---------  --------

Net Income (Loss)         $ (52,442) $  4,296
                          =========  ========

Effective dividend on
 preferred stock              1,881         -
                          ---------  --------

Net income (loss)
 available to common
 shareholders             $ (54,323) $  4,296
                          =========  ========

Net Income (Loss) per
 Common Share
Basic                     $   (3.24) $   0.25
Diluted                   $   (3.24) $   0.25
                          =========  ========




                 Sept 30,     Jun 30,     Mar 31,     Dec 31,    Sept 30,
Balance Sheet      2009        2009        2009        2008        2008
                ----------  ----------  ----------  ----------  ----------

Assets
Cash and due
 from Banks     $   22,953  $   27,265  $   28,268  $   25,215  $   27,453
Federal Funds
 Sold & Int
 Bearing Balances   21,792       1,496      17,891       2,180       2,605
Investment
 Securities        323,800     333,722     345,861     324,698     302,905
Federal Home
 Loan Bank
 Stock               9,794       9,794      10,178       9,757      10,208

Loans held for
 sale                2,559       8,068       6,044         316         920

Loans            1,248,249   1,251,200   1,297,489   1,314,811   1,323,360
Allowance for
 Loan Losses       (20,807)    (19,390)    (19,314)    (18,851)    (17,929)
                ----------  ----------  ----------  ----------  ----------
  Net Loans      1,227,442   1,231,810   1,278,175   1,295,960   1,305,431

Bank Premises
 and Equipment      42,590      42,006      40,622      40,030      39,264
Goodwill                 -           -           -      49,501      49,792
Other Assets        74,411      72,548      62,695      56,121      59,283
                ----------  ----------  ----------  ----------  ----------

Total Assets    $1,725,341  $1,726,709  $1,789,734  $1,803,778  $1,797,861
                ==========  ==========  ==========  ==========  ==========

Liabilities and
 Stockholders'
 Equity
Deposits
  Non-Interest
   Bearing      $  106,156  $  103,205  $   98,618  $  102,048  $  104,988
  Money market,
   savings and
   NOW             542,277     469,799     479,797     475,772     523,949
  Time             646,039     680,875     749,728     655,292     634,037
                ----------  ----------  ----------  ----------  ----------
  Total Deposits 1,294,472   1,253,879   1,328,143   1,233,112   1,262,974

Borrowings         288,585     330,218     314,400     373,213     378,500
Accrued Expenses
 and Other
 Liabilities         8,222       8,913       8,982       9,743      13,549
                ----------  ----------  ----------  ----------  ----------
  Total
   Liabilities   1,591,279   1,593,010   1,651,525   1,616,068   1,655,023

Total
 Stockholders'
 Equity            134,062     133,699     138,209     187,710     142,838
                ----------  ----------  ----------  ----------  ----------

Total Liabilities
 and Stockholders'
 Equity         $1,725,341  $1,726,709  $1,789,734  $1,803,778  $1,797,861
                ==========  ==========  ==========  ==========  ==========

Tangible Book
 Value per
 Common Share   $     5.49  $     5.47  $     5.74  $     5.76  $     5.29
                ==========  ==========  ==========  ==========  ==========




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

Per Common
 Share Data:
Basic Earnings
 per Share      $    (0.06) $    (0.20) $    (2.98) $     0.08  $     0.09
Diluted Earnings
 per Share      $    (0.06) $    (0.20) $    (2.98) $     0.08  $     0.09
Tangible Book
 Value per
 Share          $     5.49  $     5.47  $     5.74  $     5.76  $     5.29
Cash dividends
 paid           $        -  $        -  $        -  $    0.040  $    0.040

Selected
 Performance
 Ratios:
Return on Average
 Assets
 (annualized)
 ROA                 -0.10%      -0.61%     -10.90%       0.34%       0.36%
Return on Average
 Equity
 (annualized)
 ROE                 -1.28%      -7.87%    -106.68%       4.01%       4.57%
Return on
 Tangible Equity
 (annualized)        -1.29%      -7.93%    -145.53%       5.98%       7.13%
Net Interest
 Margin               3.30%       3.05%       3.01%       3.10%       2.88%
Net Interest
 Spread               3.10%       2.84%       2.78%       2.88%       2.67%
Non-interest
 Income as a %
 of Revenue          23.93%      17.18%      17.16%      16.42%      14.90%
Non-interest
 Income as a %
 of Average
 Assets               0.96%       0.59%       0.57%       0.55%       0.45%
Non-interest
 Expense to
 Average Assets       2.91%       3.12%      13.39%       2.35%       2.27%
Efficiency
 Ratio               72.09%      90.34%     402.78%      69.46%      73.22%

Asset Quality:
Nonperforming
 Loans          $   22,697  $   17,851  $   20,251  $   14,433  $   12,007
Nonperforming
 Assets         $   40,766  $   35,732  $   31,049  $   20,178  $   15,086
Nonperforming
 Loans to Total
 Loans                1.82%       1.43%       1.56%       1.10%       0.91%
Nonperforming
 Assets to
 Total Assets         2.36%       2.07%       1.73%       1.12%       0.84%
Allowance for
 Loan Losses to
 Period-end
 Loans                1.67%       1.55%       1.49%       1.43%       1.35%
Allowance for
 Loan Losses to
 Nonperforming
 Loans (X)            0.92X       1.09X       0.95X       1.31X       1.49X
Net Charge-offs
 to Average Loans
 (annualized)         1.45%       1.85%       1.09%       0.43%       0.28%

Capital Ratios:
Equity to Total
 Assets               7.77%       7.74%       7.72%      10.41%       7.94%
Tangible Equity
 to Total Tangible
 Assets (1)           5.34%       5.32%       5.39%       5.51%       5.26%

Average Balances:
 Year to Date
  Interest
   Earning
   Assets       $1,643,945  $1,665,784  $1,679,293  $1,588,542  $1,569,306
  Total Assets   1,774,376   1,800,376   1,834,575   1,738,868   1,717,357
  Total Loans    1,280,803   1,295,913   1,310,679   1,279,041   1,264,744
  Equity           155,522     162,126     187,512     145,754     142,800
  Interest
   Bearing
   Liabilities   1,506,867   1,525,524   1,535,956   1,474,539   1,456,848

 Quarterly
  Interest
   Earning
   Assets       $1,600,979  $1,652,424  $1,679,293  $1,645,832  $1,636,404
  Total Assets   1,723,224   1,766,553   1,834,575   1,802,934   1,789,593
  Gross Loans    1,251,076   1,281,309   1,310,679   1,321,621   1,315,983
  Equity           133,627     137,019     187,512     154,552     141,846
  Interest
   Bearing
   Liabilities   1,470,162   1,515,206   1,535,956   1,527,227   1,527,316

Weighted Average
 Number of Shares
 Outstanding
  Basic         16,791,175  16,791,340  16,780,058  17,369,765  17,369,925
  Diluted       16,791,175  16,791,340  16,780,058  17,398,432  17,416,675
Period end
 outstanding
 shares         16,791,175  16,793,175  16,793,175  16,769,675  17,370,175


                  Nine Months Ended
                 Sept 30,    Sept 30,
                   2009        2008
                ----------  ----------

Per Common
 Share Data:
Basic Earnings
 per Share      $    (3.24) $     0.25
Diluted Earnings
 per Share      $    (3.24) $     0.25
Tangible Book
 Value per
 Share          $     5.49  $     8.22
Cash dividends
 paid           $        -  $    0.120

Selected
 Performance
 Ratios:
Return on Average
 Assets
 (annualized)
 ROA                 -3.95%       0.33%
Return on Average
 Equity
 (annualized)
 ROE                -45.08%       4.02%
Return on Tangible
 Equity
 (annualized)       -50.68%       6.26%
Net Interest
 Margin               3.12%       2.95%
Net Interest
 Spread               2.90%       2.70%
Non-interest
 Income as a %
 of Revenue          19.65%      20.10%
Non-interest
 Income as a %
 of Average
 Assets               0.71%       0.68%
Non-interest
 Expense to
 Average Assets       6.55%       2.45%
Efficiency
 Ratio              182.08%      72.39%

Asset Quality:
Nonperforming
 Loans          $   22,697  $   12,007
Nonperforming
 Assets         $   40,766  $   15,086
Nonperforming
 Loans to Total
 Loans                1.82%       0.91%
Nonperforming
 Assets to
 Total Assets         2.36%       0.84%
Allowance for
 Loan Losses to
 Period-end
 Loans                1.67%       1.35%
Allowance for
 Loan Losses to
 Nonperforming
 Loans (X)            0.92X       1.49X
Net Charge-offs
 to Average
 Loans
 (annualized)         1.47%       0.23%

Capital Ratios:
Equity to Total
 Assets               7.77%       7.94%
Tangible Equity
 to Total Tangible
 Assets (1)           5.34%       5.26%

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         16,787,565  17,361,257
  Diluted       16,787,565  17,406,558
Period end
 outstanding
 shares         16,791,175  17,370,175

(1) - Tangible Equity to Total Tangible Assets is period-ending equity less
      intangibles, divided by period-ending assets less intangibles.

Management provides the above non-GAAP measure, footnote (1) to provide
readers with the impact of purchase accounting on this key financial ratio.

Contact Information

  • For additional information:
    F. Scott Bauer
    Chairman/CEO
    James Hastings
    Executive Vice President/CFO
    (336) 768-8500