K:\FIR129\BC\10Q.DOC (Linda Elrod)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
Commission File Number: 333-12373
Southern Community Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Delaware 63-1176408
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
325 2nd Street, S.E.
Cullman, Alabama 35055
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, (205) 734-4863
including area code:
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at June
30, 1997
Common Stock, $.01 par value 1,137,350 shares
SOUTHERN COMMUNITY BANCSHARES, INC.
PART I. FINANCIAL INFORMATION
Page
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF 2
JUNE 30, 1997 AND SEPTEMBER 30, 1996
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE 3
AND NINE MONTHS ENDED JUNE 30, 1997 AND 1996
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE 4
MONTHS ENDED JUNE 30, 1997 AND 1996
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE
NOT BEEN AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS,
BUT REFLECT, IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS
NECESSARY FOR A FAIR PRESENTATION OF FINANCIAL CONDITION AND
THE RESULTS OF OPERATIONS FOR THE PERIODS PRESENTED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 7
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
OTHER INFORMATION 9
SIGNATURES 10
SOUTHERN COMMUNITY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
ASSETS
June 30, September 30,
1997 1996
(unaudited)
CASH AND CASH EQUIVALENTS $7,254 $ 3,868
SECURITIES AVAILABLE FOR SALE, at fair value 16,670 11,628
SECURITIES HELD TO MATURITY, fair values of
$4,288 and $6,687, respectively 4,317 6,767
LOANS RECEIVABLE, net 40,695 39,601
PREMISES AND EQUIPMENT 552 603
OTHER ASSETS 882 964
Total assets $70,370 $63,431
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $55,021 $57,138
OTHER LIABILITIES 344 608
Total liabilities 54,680 57,746
STOCKHOLDERS' EQUITY:
Preferred stock, par $.01, no shares issued, 0 0
100,000 authorized
Common stock, par $.01 per share, 1,137,350
issued, 3,000,000 authorized 11 0
Additional paid-in capital 10,775 0
Retained earnings 6,298 5,872
Unrealized loss on securities ( 79) (187)
Unearned compensation (2,000) 0
Total stockholders' equity 15,005 5,685
Total liabilities and stockholders' equity $70,370 $63,431
The accompanying notes are an integral part of these balance sheets.
SOUTHERN COMMUNITY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
Three Months Nine Months
Ended Ended
June 30, June 30,
<S> <C> <S> <C> <S>
1997 1996 1997 1996
(unaudited)
INTEREST INCOME:
Interest and fees on loans $909 $903 $2,574 $2,509
Interest and dividends on
securities 263 267 815 782
Other interest income 76 51 291 174
Total interest income 1,248 1,221 3,686 3,465
INTEREST EXPENSE:
Interest on deposits 510 666 1,758 1,936
Total interest expense 510 666 1,758 1,936
Net interest income 738 555 1,928 1,529
PROVISION FOR LOAN LOSSES 0 2 5 6
Net interest income after
provision for loan losses 738 553 1,923 1,523
NONINTEREST INCOME:
Customer service fees 76 89 181 225
Total noninterest income 76 89 181 225
NONINTEREST EXPENSE:
Compensation and benefits 317 248 664 564
Occupancy and equipment 41 39 111 122
Deposit insurance expense 6 33 42 97
Other operating expense 120 125 403 335
Total noninterest expense 484 445 1,220 1,118
Income before income taxes 330 197 884 630
PROVISION FOR INCOME TAXES 119 68 309 211
NET INCOME 211 129 575 419
EARNINGS PER SHARE $.21 N/A $.43 N/A
WEIGHTED AVERAGE SHARES
OUTSTANDING 984,911 N/A 1,006,796 N/A
DIVIDEND DECLARED PER SHARE $0.075 N/A $0.150 N/A
The accompanying notes are an integral part of these statements.
SOUTHERN COMMUNITY BANCSHARES, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
</TABLE>
<TABLE>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $575 $419
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 62 62
Amortization and accretion on securities (21) (85)
Amortization of unearned compensation 38 0
Loss on sale of securities, net 8 0
Gain on sale of foreclosed real estate, net 0 (1)
Gain on sale of premises and equipment, net 0 (2)
Provision for deferred income taxes 0 7
Provision for losses on loans 5 0
Change in assets and liabilities:
Other assets 82 (145)
Other liabilities (407) (98)
Total adjustments (233) (262)
Net cash provided by operating activities 342 157
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/calls of securities,
available for sale 609 1,353
Proceeds from maturities/calls of securities,
held to maturity 3,497 3,393
Purchases of securities, available for sale (6,567) (7,068)
Purchases of securities, held to maturity (1,047) 0
Proceeds from sales of securities,
available for sale 1,100 0
Net loan originations (1,099) (1,312)
Proceeds from sale of foreclosed real estate 0 18
Proceeds from sale of fixed assets 0 2
Capital expenditures (11) (83)
Net cash used in investing activities (3,518) (3,697)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits (2,802) 2,270
Contributions to Plan trusts (1,128) 0
Net proceeds from issuance of common stock 9,876 0
Dividends paid (69) 0
Net cash provided by financing activities 5,877 2,270
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,701 (1,270)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,868 6,108
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,569 $4,838
The accompanying notes are an integral part of these statements.
SOUTHERN COMMUNITY BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.BASIS OF PRESENTATION
Southern Community Bancshares, Inc. (the "Company") was
incorporated in the State of Delaware at the direction of
management of First Federal Savings and Loan Association of
Cullman (the "Association") for the purpose of serving as a
savings institution holding company of the Association upon the
acquisition of all of the capital stock issued by the Association
upon the conversion from a federally chartered mutual savings
association form of organization to a federally chartered stock
savings association (the "Conversion").
The accompanying unaudited condensed consolidated financial
statements as of June 30, 1997, and for the three and nine month periods
then ended, include the accounts of the Company and the
Association. All significant intercompany transactions and
accounts have been eliminated in consolidation.
The condensed consolidated financial statements were prepared by
the Company without an audit, but in the opinion of management,
reflect all adjustments necessary for the fair presentation of
financial position and results of operations for the three and nine month
periods ended June 30, 1997 and 1996. Results of operations
for the current interim period are not necessarily indicative of
results expected for the fiscal year ended September 30, 1997.
While certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities
and Exchange Commission, management believes that the disclosures
herein are adequate to make the information presented not
misleading. These condensed consolidated financial statements
should be read in conjunction with the financial statements and
notes thereto for the year ended September 30, 1996. The
accounting policies followed by the Association are set forth in
the summary of significant accounting policies in the
Association's September 30, 1996 financial statements.
2.STOCK CONVERSION
On December 23, 1996, the Conversion to a federally chartered
stock savings association through amendment of its charter, and
issuance of common stock to the Company was completed. Related
thereto, the Company sold 1,137,350 shares of common stock, par
value $.01 per share, at an initial price of $10 per share in
subscription and community offerings. Costs associated with the
Conversion were approximately $750,000, including underwriting
fees. These conversion costs were deducted from the gross
proceeds of the sale of the common stock.
In connection with the Conversion, the Company has established an
employee stock ownership plan (the "ESOP"). The ESOP purchased
approximately 8%, or 90,988 shares, of the total shares of common
stock sold. The Company lent $909,880 to the ESOP for the
purchase of the shares of common stock. Unearned compensation for
the ESOP was charged to stockholders' equity and is reduced
ratably in connection with principal payments under the terms of
the Plan.
On or about one year following the Conversion, and subject to
shareholder approval, the Company expects to implement the
Management Recognition Plan (the "MRP"), under which directors, officers
and certain employees could be awarded an aggregate amount
of shares of common stock equal to 4% of the shares issued in the
Conversion and the Stock Option Plan ("SOP"), under which directors,
officers and employees could be granted options to purchase an
aggregate amount of shares of common stock equal to 10% of the shares
issued in the Conversion at exercise prices equal to the market price
of the common stock on the date of grant. The Company has established
and made cash contributions to grantor trusts formed to purchase shares
of the Company's common stock to fund the MRP and SOP.
3.EARNINGS PER SHARE
Earnings per share for the period from December 23, 1996, the date
of Conversion, to June 30, 1997, has been computed based on
the earnings during that period and on the weighted average number
of shares of common stock outstanding during that period.
Common stock outstanding is comprised of issued shares less
unallocated Employee Stock Ownership Plan ("ESOP") shares and 82,500
shares purchased by the grantor trusts for the MRP and SOP.
The weighted average number of shares used for the period from
December 23, 1996 through June 30, 1997 was 1,006,796.
4.ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 125, Accounting
for Transfers and Servicing of Financial Assets and Extinquishments of
Liabilities. SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and
extinquishments of liabilities based on consistent application of a
financial-components approach that focuses on control. Under that
approach, after a transfer of financial assets, an entity recognizes
the financial and servicing assets it controls and the liabilites it
has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinquished.
This statement is effective for transfers and servicing of financial
assets and extinquishments of liabilities occurring after December
31, 1996, and is to be applied prospectively. Earlier or retroactive
application is not permitted. The Company adopted the provisions of
the Standard on January 1, 1997. Based on the Company's current
operating activities, the adoption of this statement did not have an
impact on the Company's financial condition or results of operations.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per
Share. This Statement establishes standards for computing and presenting
earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. This Statement simplifies the
standards for computing earnings per share previously found in APB
Opinion No. 15, Earnings per Share, and makes them comparable to
international EPS standards. It replaces the presentation of primary
EPS with a presentation of basic EPS and requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a reconcilation of
the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation.
This Statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier
application is not permitted. This Statement requires restatement of
all prior-period EPS data presented. The Company will adopt the
Statement at fiscal year-end 1998. Basic and diluted earnings per share
under SFAS No. 128 would be identical to earnings per share as presented
in the financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting of Comprehensive
Income" (SFAS 130), which establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of financial statements. This statement also
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements.
This statement is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS 131), which establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires
that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. This
statement also establishes standards for related disclosures about
products and services, geographic areas, and major customers. This
statement requires the reporting of financial and descriptive information
about an enterprise's reportable operating segments.
This statement is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated.
Item 2.Management's Discussion and Analysis or Plan of Operations
On December 23, 1996, the Company completed the sale of
1,137,350 shares of its common stock in an initial public offering at
a price of $10.00 per share and simultaneously acquired the shares of
common stock of the Association in connection with the mutual to stock
conversion. Costs associated with the offering were approximately
$750,000. Prior to December 23, 1996, the Company had not issued any
stock, had no assets or liabilities and had not engaged in any
business activities other than of an organizational nature.
Accordingly, the financial data for periods prior to the Conversion
included herein reflect the operations of the Association only.
Comparison of Financial Condition at June 30, 1997 and
September 30, 1996. Total assets increased by $6.9 million, or 10.9%,
from $63.4 million at September 30, 1996 to $70.4 million at June
30, 1997. The increase in total assets was primarily attributable to
a $3.4 million increase in cash, $1.1 million increase in loans and
$5.0 million increase in securities available for sale which was
partially offset by a $2.5 million decrease in securities held to maturity.
This asset growth was funded by the net proceeds received by the Company
from its initial public offering.
Total deposits decreased by $2.1 million from $57.1 million at
September 30, 1996 to $55.0 million at June 30, 1997. The
decrease was primarily attributable to deposits being used by
customers to purchase stock in the Company's initial public offering.
Comparison of Results of Operations for the Nine Months Ended
June 30, 1997 and 1996. The Company reported net income for the
nine months ended June 30, 1997 of $575,000 as compared to $419,000
for the nine months ended June 30, 1996.
Net Interest Income. Net interest income for the nine months
ended June 30, 1997 amounted to $1,928,000 as compared to $1,529,000
for the nine months ended June 30, 1996. Total interest income
increased slightly during the nine months ended June 30, 1997 as
compared to the prior year. This increase resulted primarily from
depositing the proceeds from the offering in interest bearing accounts.
Total interest expense decreased during the nine months ended June 30, 1997.
This decrease resulted primarily from a decrease in average deposits
between the periods.
Provision for Loan Losses. A provision for loan losses was
made during the nine months ended June 30, 1997 and 1996 of $5,000
and $6,000, respectively. The allowance for loan losses reflects
management's estimates which took into account historical experience,
the amount of non-performing assets, and general economic conditions.
Noninterest Expense. Noninterest expense for the nine months ended
June 30, 1997 amounted to $1,220,000 as compared to $1,118,000 for the nine
months ended June 30, 1996. The $102,000, or 9.1%, increase is primarily
the result of increased compensation expense due to the ESOP plan and
other operating expense increases due to professional fees. These
increases were partially offset by decreases in deposit insurance expense.
Provision for Income Taxes. Income tax expense for the nine
months ended June 30, 1997 increased by $98,000 to $309,000
as compared to income tax expense of $211,000 for the nine months
ended June 30, 1996. This increase is due to increased income before taxes.
Comparison of Results of Operations for the Three Months Ended
June 30, 1997 and 1996. The Company reported net income for the
three months ended June 30, 1997 of $211,000 as compared to $129,000
for the three months ended June 30, 1996.
Net Interest Income. Net interest income for the three months ended
June 30, 1997 amounted to $738,000 as compared to $555,000 for the three
months ended June 30, 1996. Total interest income increased slightly
during the three months ended June 30, 1997 as compared to the prior year.
This increase resulted primarily from depositing the proceeds from the
offering in interest bearing accounts. Total interest expense decreased
during the three months ended June 30, 1997. This decrease resulted
primarily from a decrease in average deposits between the periods.
Provision for Loan Losses. A provision for loan losses was made
during the three months ending June 30, 1997, and 1996, of $0 and
$2,000, respectively. The allowance for loan losses reflects management's
estimates which took into account historical experience, the amount of
non-performing assets, and general economic conditions.
Provision for Income Taxes. Income tax expense for the three months
ended June 30, 1997 increased by $51,000 to $119,000 as compared to
income tax expense of $68,000 for the three months ended June 30, 1996.
This increase is due to increased income before income taxes.
Noninterest Expense. Noninterest expense for the three months ended
June 30, 1997 amounted to $484,000 as compared to $445,000 for the three
months ended June 30, 1996. The $39,000, or 8.8%, increase is primarily
the result of increased compensation expense due to the ESOP plan and
other operating expense increases due to professional fees. These
increases were partially offset by decreases in deposit insurance expense.
Capital Resources. The Association's primary sources of funds
are customer deposits, repayments of loan principal, and interest from
loans and investments. While scheduled principal repayments on loans
and mortgage-backed securities are a relatively predictable source of
funds, deposit flows, and loan prepayments are greatly influenced by
general interest rates, economic conditions, and competition. The
Association manages the pricing of its deposits to maintain a desired
deposit balance. In addition, the Association invests in short-term
interest-earning assets which provide liquidity to meet lending
requirements.
The Association is required to maintain certain levels of
regulatory capital. At June 30, 1997 and September 30, 1996, the
Company and the Association were in compliance with all regulatory
capital requirements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company and subsidiary may be a party to
various legal proceedings incident to its or their business. At
June 30, 1997, there were no legal proceedings to which the
Company or subsidiary was a party, or to which any of their
property was subject, which were expected by management to result in a
material loss.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SOUTHERN COMMUNITY BANCSHARES, INC.
Date: August 13, 1997 _____________________________________
William R. Faulk
President and Chief Executive Officer
Date: August 13, 1997
_____________________________________
Beth B. Knight
Secretary and Treasurer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1997
<CASH> 379
<INT-BEARING-DEPOSITS> 6,875
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,670
<INVESTMENTS-CARRYING> 4,317
<INVESTMENTS-MARKET> 4,288
<LOANS> 41,502
<ALLOWANCE> 807
<TOTAL-ASSETS> 70,370
<DEPOSITS> 55,021
<SHORT-TERM> 0
<LIABILITIES-OTHER> 344
<LONG-TERM> 0
0
0
<COMMON> 11
<OTHER-SE> 14,994
<TOTAL-LIABILITIES-AND-EQUITY> 70,370
<INTEREST-LOAN> 2,574
<INTEREST-INVEST> 815
<INTEREST-OTHER> 291
<INTEREST-TOTAL> 3,686
<INTEREST-DEPOSIT> 1,758
<INTEREST-EXPENSE> 1,758
<INTEREST-INCOME-NET> 1,928
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,220
<INCOME-PRETAX> 884
<INCOME-PRE-EXTRAORDINARY> 884
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 575
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
<YIELD-ACTUAL> 3.95
<LOANS-NON> 27
<LOANS-PAST> 225
<LOANS-TROUBLED> 1,496
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 803
<CHARGE-OFFS> 43
<RECOVERIES> 42
<ALLOWANCE-CLOSE> 807
<ALLOWANCE-DOMESTIC> 99
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 708
</TABLE>
