SOURCE: Southern Community Financial Corporation

January 31, 2007 16:05 ET

Southern Community Financial Corporation Announces Results for the Year and Fourth Quarter Ended December 31, 2006

Strong Growth and Expansion Into New Markets in 2006

WINSTON-SALEM, NC -- (MARKET WIRE) -- January 31, 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 three and twelve month periods ended December 31, 2006. For the fourth quarter ended December 31, 2006, the Company reported net income of $1.94 million, a 2.2% increase from $1.90 million for the same period one year ago. Earnings per diluted share were $0.11 in the fourth quarter of 2006, a 10% increase from $0.10 per share reported in the fourth quarter of 2005. As for the year ended December 31, 2006, net income totaled $4.2 million, or $0.24 per share, a decrease from the $7.7 million, or $0.42 per share, earned for the same period in 2005. The decrease is due primarily to the major initiative undertaken by Southern Community to restructure its balance sheet, which resulted in a one time after tax charge of $2.7 million in the second quarter of 2006.

Significant milestones achieved during 2006:

--  Celebrated 10 year anniversary on November 18, 2006;
--  Achieved strong year-over-year growth in both loans and deposits of
    18.9% and 8.8%, respectively;
--  Continued to maintain strong credit quality;
--  Achieved solid year-over-year growth in interest-bearing non-maturity
    deposits of $78.0 million, or 24.8%;
--  Increased service charge income on deposit accounts by 15.0% in 2006;
--  Opened new regional offices in the growth markets of Asheville and
    Mooresville, North Carolina;
--  After only 10 years of operations, advanced into third position in
    deposit market share in our home base of Forsyth County and fifth in the
    Triad;
--  Opened a state-of-the-art Operations Center to support future growth.
    
Net interest income of $10.4 million for the fourth quarter of 2006 represented a 7.5% increase compared with $9.7 million reported in the same quarter a year ago. For the year, net interest income increased to $40.7 million from $37.0 million for the year ended December 31, 2005, a rise of 10.2%. The growth in net interest income resulted from the growth in the Company's loan portfolio coupled with expansion of the net interest margin. Average loans increased 14.4% to $958.0 million in 2006 from $837.5 million in 2005. Compared to the year ended December 31, 2005, the net interest margin rose 10 basis points from 3.20% to 3.30% in the current year, primarily due to an increase in average loans and increases in lower cost non-maturity deposits. On a linked quarter basis, the net interest margin decreased seven basis points from 3.29% to 3.22% as a result of the repricing of maturing time deposits at higher rates and the impact of the inverted yield curve. The 2006 provision for loan losses of $2.5 million was $1.56 million greater than 2005. The 2005 provision for loan losses benefited from the successful resolution of certain credits for which losses had been previously provided.

The Company Continues To Generate Solid Fee Income

Growth in service charges on deposit accounts resulted in a 14.0% rise in non-interest income over the fourth quarter of 2005. Non-interest income totaled $2.3 million in the fourth quarter compared to $2.0 million in the prior year period. During the fourth quarter of 2006 service charges on deposit accounts grew by 6.8% to $1.1 million from $1.0 million in the fourth quarter of 2005. For the year ended December 31, 2006, non-interest income was $3.7 million compared to the $7.1 million reported in 2005. The decline in non-interest income from 2005 is primarily due to the $4.2 million pre-tax loss on the sale of investment securities recorded in the second quarter of 2006 related to our balance sheet restructuring. For the year ended December 31, 2006, service charges on deposit accounts grew by 15.0% to $4.3 million from $3.8 million for 2005. Other income, excluding sales of investment securities and gains and losses on derivative transactions, at $4.3 million for the 2006 year was consistent with the 2005 period.

Non-interest expense for the quarter increased by 12.4% over the fourth quarter of 2005 and totaled $9.6 million compared to $8.5 million in the year ago period, reflecting costs associated with offices opened during 2006 in Mooresville, Asheville and additional staffing for Raleigh. For the year, non-interest expenses grew 14.3% to $35.8 million in 2006 from $31.3 million for 2005 as we continued the expansion of our franchise into new markets in North Carolina and invested in our infrastructure through the addition of people and technology to support our growing customer base.

Total Assets Increase to $1.4 Billion -- Up 11.6% for the Year

As of December 31, 2006, the Company reported total assets of $1.4 billion, representing a year-over-year increase of $148.9 million, or 11.6% driven primarily by increases in the loan portfolio.

Loans and Deposits Exceed $1.0 Billion

At year-end 2006, the loan portfolio totaled $1.03 billion, an increase of $164.6 million, or 18.9% from December 31, 2005 and $17.4 million or 1.7% over September 30, 2006.

Total deposits grew to $1.02 billion at December 31, 2006, an increase of $82.6 million or 8.8% from December 31, 2005 and $3.7 million or 0.4% over September 30, 2006.

The Company continues to focus on attracting non-maturity deposits to improve the funding mix and reduce funding costs. Those efforts are reflected in a $78.0 million or 24.8% increase year-over-year in money market, savings and NOW account deposits which ended the year at $393.2 million. On a linked-quarter basis, demand deposits increased to $109.0 million at December 31, 2006, an increase of 8.7% from September 30, 2006 and money market, savings and NOW account balances increased 9.1% from September 30, 2006.

Asset Quality

The Company's allowance for loan losses equaled $13.0 million, or 1.26% of total loans and 495% of non-performing loans at December 31, 2006. Credit quality metrics remained strong as non-performing loans totaled $2.6 million or 0.26% of total loans at quarter-end, a decrease from the $3.0 million or 0.30% of total loans as reported for September 30, 2006. Net charge-offs as a percentage of average loans were 0.13% for 2006, down slightly from 0.14% for the prior year.

At December 31, 2006, stockholders' equity totaled $136.2 million and represented 9.48% of total assets. Regulatory capital ratios remain strong and are all in excess of the "well-capitalized" threshold.

Southern Community Financial Corporation Chairman and Chief Executive Officer F. Scott Bauer commented, "This was a difficult earnings year in which we took the necessary steps to prepare Southern Community for the next ten years. In 2006 we made strategic decisions to protect our margins and balance sheet in this very tough interest rate environment. Our people did a great job in producing quality loan and core deposit growth while providing superior service to our customers. We are well positioned for the future in the fastest growing markets in North Carolina and have an exciting future ahead. Our entire team thanks our customers and shareholders for their support."

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

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

Southern Community's executive management team will host a conference call on February 1, 2007 at 10:00 AM Eastern Time to discuss the year-end results. The call can be accessed by dialing 888-858-4756.

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
                     Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,
Income Statement       2006      2006      2006      2006      2005
                     --------  --------- --------  --------  --------


Total Interest
 Income              $ 23,233  $  22,151 $ 20,862  $ 19,274  $ 18,669
Total Interest
 Expense               12,807     11,936   10,830     9,225     8,974
                     --------  --------- --------  --------  --------
  Net Interest
   Income              10,426     10,215   10,032    10,049     9,695

Provision for Loan
 Losses                   600        730      705       475       380

Net Interest Income
 after Provision for
 Loan Losses            9,826      9,485    9,327     9,574     9,315

Non-Interest Income
Service Charges on
 Deposit Accounts       1,109      1,076    1,098     1,035     1,038
Gain (Loss) on Sale
 of Investment
 Securities                44         30   (4,230)        -      (322)
Gain (Loss) and Net
 Cash Settlement on
 Economic Hedges          (25)       296     (582)     (486)     (243)
Other Income            1,209      1,287    1,029       788     1,576
                     --------  --------- --------  --------  --------
  Total Non-Interest
   Income               2,337      2,689   (2,685)    1,337     2,049

Non-Interest Expense
Salaries and
 Employee Benefits      4,936      4,776    4,630     4,484     4,389
Occupancy and
 Equipment              1,819      1,728    1,680     1,608     1,614
Other                   2,834      2,425    2,542     2,340     2,530
                     --------  --------- --------  --------  --------
  Total Non-Interest
   Expense              9,589      8,929    8,852     8,432     8,533

Income Before Taxes     2,574      3,245   (2,210)    2,479     2,831
Provision for Income
 Taxes                    632      1,163     (780)      875       931
                     --------  --------- --------  --------  --------

Net Income           $  1,942  $   2,082 $ (1,430) $  1,604  $  1,900
                     ========  ========= ========  ========  ========

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


                     For the year ended
                     Dec 31,   Dec 31,
Income Statement       2006      2005
                     --------  --------


Total Interest
 Income              $ 85,520  $ 68,097
Total Interest
 Expense               44,798    31,128
                     --------  --------
  Net Interest
   Income              40,722    36,969

Provision for Loan
 Losses                 2,510       950

Net Interest Income
 after Provision for
 Loan Losses           38,212    36,019

Non-Interest Income
Service Charges on
 Deposit Accounts       4,318     3,755
Gain (Loss) on Sale
 of Investment
 Securities            (4,156)     (266)
Gain (Loss) and Net
 Cash Settlement on
 Economic Hedges         (797)     (664)
Other Income            4,313     4,309
                     --------  --------
  Total Non-Interest
   Income               3,678     7,134

Non-Interest Expense
Salaries and
 Employee Benefits     18,826    16,042
Occupancy and
 Equipment              6,835     5,786
Other                  10,141     9,491
                     --------  --------
  Total Non-Interest
   Expense             35,802    31,319

Income Before Taxes     6,088    11,834
Provision for Income
 Taxes                  1,890     4,161
                     --------  --------

Net Income           $  4,198  $  7,673
                     ========  ========

Net Income per Share
Basic                $   0.24  $   0.43
Diluted              $   0.24  $   0.42
                     ========  ========


Balance Sheet         Dec 31,    Sep 30,    Jun 30,    Mar 31,    Dec 31,
                       2006       2006       2006       2006       2005
                    ---------- ---------- ---------- ---------- ----------

Assets
Cash and due from
 Banks              $   29,160 $   26,390 $   30,304 $   25,807 $   24,606
Federal Funds Sold
 & Int Bearing
 Balances                  783        887      1,010        596        648
Investment
 Securities            255,496    256,091    249,496    290,616    291,916

Loans                1,033,411  1,015,984    959,085    921,195    868,827
Allowance for Loan
 Losses                (13,040)   (12,990)   (12,626)   (12,211)   (11,785)
                    ---------- ---------- ---------- ---------- ----------
  Net Loans          1,020,371  1,002,994    946,459    908,984    857,042

Bank Premises and
 Equipment              40,492     40,604     36,753     36,226     31,259
Goodwill                49,792     49,792     49,792     49,792     49,792
Other Assets            40,371     40,709     39,190     32,795     32,350
                    ---------- ---------- ---------- ---------- ----------


Total Assets        $1,436,465 $1,417,467 $1,353,004 $1,344,816 $1,287,613
                    ========== ========== ========== ========== ==========

Liabilities and
 Stockholders'
 Equity
Deposits
  Non-Interest
   Bearing          $  108,950 $  100,257 $  106,605 $  112,341 $  111,226
  Money market,
   savings and NOW     393,152    360,459    326,626    347,034    315,112
  Time                 522,480    560,140    545,316    538,720    515,611
                    ---------- ---------- ---------- ---------- ----------
  Total Deposits     1,024,582  1,020,856    978,547    998,095    941,949

Borrowings             265,297    251,105    230,213    200,986    201,737
Accrued Expenses and
 Other Liabilities      10,361     10,031     10,120     10,138      9,042
                    ---------- ---------- ---------- ---------- ----------
  Total Liabilities  1,300,240  1,281,992  1,218,880  1,209,219  1,152,728

Total Stockholders'
 Equity                136,225    135,475    134,124    135,597    134,885
                    ---------- ---------- ---------- ---------- ----------

Total Liabilities
 and Stockholders'
 Equity             $1,436,465 $1,417,467 $1,353,004 $1,344,816 $1,287,613
                    ========== ========== ========== ========== ==========

Book Value per
 Share              $     7.83 $     7.75 $     7.61 $     7.67 $     7.66
                    ========== ========== ========== ========== ==========


                            As of or for the three months ended
                  Dec 31,     Sep 30,     Jun 30,     Mar 31,     Dec 31,
                   2006        2006        2006        2006        2005
                ----------  ----------  ----------  ----------  ----------

Per Share Data:
Basic Earnings
 per Share      $     0.11  $     0.12  $    (0.08) $     0.09  $     0.11
Diluted
 Earnings per
 Share          $     0.11  $     0.12  $    (0.08) $     0.09  $     0.10
Book Value per
 Share          $     7.83  $     7.75  $     7.61  $     7.67  $     7.66
Cash dividends
 paid (1)       $    0.035  $    0.035  $    0.035  $    0.030  $    0.030

Selected
 Performance
 Ratios:
Return on
 Average Assets
 (annualized)
 ROA                  0.54%       0.60%      -0.42%       0.50%       0.58%
Return on
 Average Equity
 (annualized)
 ROE                  5.70%       6.15%      -4.24%       4.83%       5.56%
Return on
 Tangible
 Equity
 (annualized)         9.22%       9.99%      -6.86%       7.85%       8.99%
Net Interest
 Margin               3.22%       3.29%       3.27%       3.44%       3.28%
Net Interest
 Spread               2.84%       2.92%       2.90%       3.06%       2.91%
Non-interest
 Income as a %
 of Revenue          18.31%      20.84%     -36.54%      11.74%      17.44%
Non-interest
 Income as a %
 of Average
 Assets               0.65%       0.78%      -0.79%       0.41%       0.62%
Non-interest
 Expense to
 Average Assets       2.67%       2.59%       2.60%       2.61%       2.59%
Efficiency
 Ratio               75.13%      69.20%     120.48%      74.06%      72.66%

Asset Quality:
Nonperforming
 Loans          $    2,636  $    3,011  $    2,148  $    2,058  $    1,408
Nonperforming
 Assets         $    3,531  $    3,536  $    2,233  $    2,187  $    1,688
Nonperforming
 Loans to Total
 Loans                0.26%       0.30%       0.22%       0.22%       0.16%
Nonperforming
 Assets to
 Total Assets         0.25%       0.25%       0.17%       0.16%       0.13%
Allowance for
 Loan Losses to
 Period-end
 Loans                1.26%       1.28%       1.32%       1.33%       1.36%
Allowance for
 Loan Losses to
 Nonperforming
 Loans (X)            4.95        4.31        5.88        5.93        8.37
Net Charge-offs
 to Average
 Loans
 (annualized)         0.21%       0.15%       0.12%       0.02%       0.17%

Capital Ratios:
Equity to Total
 Assets               9.48%       9.56%       9.91%      10.08%      10.48%
Tangible Equity
 to Total
 Tangible
 Assets (2)           6.12%       6.14%       6.33%       6.48%       6.72%

Average
 Balances:
 Year to Date
  Interest
   Earning
   Assets       $1,232,305  $1,215,079  $1,207,209  $1,184,008  $1,156,418
  Total Assets   1,368,223   1,349,093   1,338,308   1,309,224   1,281,283
  Total Loans      958,001     935,923     913,028     887,704     837,467
  Equity           134,886     134,806     135,059     134,718     135,342
  Interest
   Bearing
   Liabilities   1,115,747   1,097,199   1,084,807   1,055,889   1,029,089

 Quarterly
  Interest
   Earning
   Assets       $1,283,422  $1,230,562  $1,230,155  $1,184,008  $1,173,485
  Total Assets   1,424,990   1,370,311   1,367,073   1,309,224   1,308,496
  Gross Loans    1,023,515     980,966     938,074     887,704     863,047
  Equity           135,123     134,308     135,396     134,718     135,686
  Interest
   Bearing
   Liabilities   1,170,786   1,121,579   1,113,408   1,055,889   1,046,617

Weighted
 Average Number
 of Shares
 Outstanding
 Basic          17,431,542  17,571,030  17,640,808  17,624,034  17,676,048
 Diluted        17,611,284  17,738,817  17,640,808  17,857,395  17,944,031
Period end
 outstanding
 shares         17,405,940  17,487,801  17,615,355  17,673,077  17,612,472


                    As of or for the
                       year ended
                  Dec 31,      Dec 31,
                    2006         2005
                -----------  -----------

Per Share Data:
Basic Earnings
 per Share      $      0.24  $      0.43
Diluted
 Earnings per
 Share          $      0.24  $      0.42
Book Value per
 Share          $      7.83  $      7.66
Cash dividends
 paid (1)       $     0.135  $     0.210

Selected
 Performance
 Ratios:
Return on
 Average Assets
 (annualized)
 ROA                   0.31%        0.60%
Return on
 Average Equity
 (annualized)
 ROE                   3.11%        5.67%
Return on
 Tangible
 Equity
 (annualized)          5.05%        9.21%
Net Interest
 Margin                3.30%        3.20%
Net Interest
 Spread                2.92%        2.86%
Non-interest
 Income as a %
 of Revenue            8.28%       16.18%
Non-interest
 Income as a %
 of Average
 Assets                0.27%        0.56%
Non-interest
 Expense to
 Average Assets        2.62%        2.44%
Efficiency
 Ratio                80.64%       71.01%

Asset Quality:
Nonperforming
 Loans          $     2,636  $     1,408
Nonperforming
 Assets         $     3,531  $     1,688
Nonperforming
 Loans to Total
 Loans                 0.26%        0.16%
Nonperforming
 Assets to
 Total Assets          0.25%        0.13%
Allowance for
 Loan Losses to
 Period-end
 Loans                 1.26%        1.36%
Allowance for
 Loan Losses to
 Nonperforming
 Loans (X)             4.95         8.37
Net Charge-offs
 to Average
 Loans
 (annualized)          0.13%        0.14%

Capital Ratios:
Equity to Total
 Assets                9.48%       10.48%
Tangible Equity
 to Total
 Tangible
 Assets (2)            6.12%        6.72%

Weighted
 Average Number
 of Shares
 Outstanding
 Basic           17,566,315   17,825,152
 Diluted         17,758,629   18,133,859
Period end
 outstanding
 shares          17,405,940   17,612,472


(1) - Cash dividends paid for the twelve months ended December 31, 2005
represented an annual dividend of $0.12 and three quarterly dividends of
$0.03 each.
(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