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 March 31, 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 March
31, 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
MARCH 31, 1997 AND SEPTEMBER 30, 1996
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE 3
AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX 4
MONTHS ENDED MARCH 31, 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
(IN THOUSANDS)
ASSETS
March 31, September 30,
1997 1996
CASH AND CASH EQUIVALENTS $8,503 $ 3,868
SECURITIES AVAILABLE FOR SALE, at fair value 17,463 11,628
SECURITIES HELD TO MATURITY, fair values of
$3,730 and $6,687, respectively 3,771 6,767
LOANS RECEIVABLE, net 38,988 39,601
PREMISES AND EQUIPMENT 570 603
OTHER ASSETS 811 964
Total assets $70,106 $63,431
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $54,396 $57,138
OTHER LIABILITIES 311 608
Total liabilities 54,707 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 10,768 0
Retained earnings 6,160 5,872
Unrealized loss on securities (151) (187)
Unearned compensation (1,389) 0
Total stockholders' equity 15,399 5,685
Total liabilities and stockholders' equity $70,106 $63,431
The accompanying notes are an integral part of this balance sheet.
SOUTHERN COMMUNITY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
Three Months Six Months
Ended Ended
March 31, March 31,
<S> <C> <S> <C> <S>
1997 1996 1997 1996
INTEREST INCOME:
Interest and fees on loans $801 $775 $1,665 $1,606
Interest and dividends on
securities 286 268 552 515
Other interest income 147 53 221 123
Total interest income 1,234 1,096 2,438 2,244
INTEREST EXPENSE:
Interest on deposits 605 626 1,248 1,270
Total interest expense 605 626 1,248 1,270
Net interest income 629 470 1,190 974
PROVISION FOR LOAN LOSSES 5 4 5 4
Net interest income after
provision for loan losses 624 466 1,185 970
NONINTEREST INCOME:
Customer service fees 40 58 105 136
Total noninterest income 40 58 105 136
NONINTEREST EXPENSE:
Compensation and benefits 156 139 347 316
Occupancy and equipment 29 43 70 83
Deposit insurance expense 6 32 36 64
Other operating expense 163 101 283 210
Total noninterest expense 354 315 736 673
Income before income taxes 310 209 554 433
PROVISION FOR INCOME TAXES 106 83 190 143
NET INCOME 204 126 364 290
EARNINGS PER SHARE $.20 N/A $.15 N/A
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,023,768 N/A 1,025,822 N/A
DIVIDEND DECLARED PER SHARE $0.075 N/A $0.075 N/A
The accompanying notes are an integral part of these statements.
SOUTHERN COMMUNITY BANCSHARES, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS)
</TABLE>
<TABLE>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $364 $290
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 106 41
Amortization and accretion on securities (14) (23)
Amortization of unearned compensation 23 0
Gain on sale of securities, net 8 0
Provision for losses on loans 5 4
Change in assets and liabilities:
Other assets 153 32
Other liabilities (394) (23)
Total adjustments (113) 31
Net cash provided by (used in) operating
activities 251 321
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/calls of securities,
available for sale 609 0
Proceeds from maturities/calls of securities,
held to maturity 3,497 2,372
Purchases of securities, available for sale (6,373) (5,315)
Purchases of securities, held to maturity (501) 0
Net loan repayments (originations) 608 (229)
Capital expenditures (73) (49)
Net cash used in investing activities (2,233) (3,221)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits (2,742) 1,346
Contributions to Plan trust (502) 0
Net proceeds from issuance of common stock 9,861 0
Net cash provided by financing activities 6,617 1,346
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,635 (1,554)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,868 6,108
CASH AND CASH EQUIVALENTS AT END OF YEAR $8,503 $4,554
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 March 31, 1997, and for the three and six 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 six month
periods ended March 31, 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.
Within one year following the Conversion, and subject to
shareholder approval, the Company is expected to implement the
Management Recognition Plan (the MRP), under which directors, officers
and certain key employees could be awarded an aggregate amount
of shares of common stock equal to 4% of the shares issued in the
Conversion (45,494 shares of common stock) and the Stock Option Plan,
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.
During fiscal 1997, the Company has contributed $500,000 to a grantor
trust establish to purchase shares of the Company's common stock
The trust has purchased 30,500 shares of the Company's common
stock. This stock is considered issued but not outstanding for the
Earnings per share calculation.
3.EARNINGS PER SHARE
Earnings per share for the period from December 23, 1996, the date
of Conversion, to March 31, 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 shares
purchased for the MRP. The weighted average number of shares used for
the period from December 23, 1996 through March 31, 1997 was
1,025,822.
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.
The 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.
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 March 31, 1997 and
September 30, 1996. Total assets increased by $6.7 million, or 10.5%,
from $63.4 million at September 30, 1996 to $70.1 million at March
31, 1997. The increase in total assets was primarily attributable to
a $4.6 million increase in cash and $5.9 million increase in securities
available for sale which was partially offset by a $3.0 million decrease
in securities held to maturity and a $600,000 decrease in loans.
This asset growth was funded by the net proceeds received by the Company
from its initial public offering.
Total deposits decreased by $2.7 million from $57.1 million at
September 30, 1996 to $54.4 million at March 31, 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 Six Months Ended
March 31, 1997 and 1996. The Company reported net income for the
six months ended March 31, 1997 of $364,000 as compared to $334,000
for the six months ended March 31, 1996.
Net Interest Income. Net interest income for the six months
ended March 31, 1997 amounted to $1,190,000 as compared to $974,000
for the six months ended March 31, 1996. Total interest income
increased slightly during the six months ended March 31, 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 remained relatively the same as compared to 1996.
Provision for Loan Losses. A provision for loan losses was
made during the six months ended March 31, 1997, and 1996, of 5,000
and 4,000, 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 six months ended
March 31, 1997 amounted to $736,000 as compared to $673,000 for the six
months ended March 31, 1996. The $63,000, or 9.4%, 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 insurance expense.
Provision for Income Taxes. Income tax expense for the six
months ended March 31, 1997 increased by $47,000 to $190,000
as compared to income tax expense of $143,000 for the six months
ended March 31, 1996.
Comparison of Results of Operations for the Three Months Ended
March 31, 1997 and 1996. The Company reported net income for the
three months ended March 31, 1997 of $204,000 as compared to $170,000
for the three months ended March 31, 1996.
Net Interest Income. Net interest income for the three months ended
March 31, 1997 amounted to $629,000 as compared to $470,000 for the three
months ended March 31, 1996. Total interest income increased slightly
during the three months ended March 31, 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 remained
relatively the same as compared to 1996.
Provision for Loan Losses. A provision for loan losses was made
during the three months ending March 31, 1997, and 1996, of 5,000 and
4,000, 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 March 31, 1997 increased by $23,000 to $106,000 as compared to
income tax expense of $83,000 for the three months ended March 31, 1996.
Noninterest Expense. Noninterest expense for the three months ended
March 31, 1997 amounted to $354,000 as compared to #315,000 for the three
months ended March 31, 1996. The $39,000, or 12.4%, 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 March 31, 1997, the Association was 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
March 31, 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: May 13, 1997 _____________________________________
William R. Faulk
President and Chief Executive Officer
Date: May 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> MAR-31-1997
<CASH> 351
<INT-BEARING-DEPOSITS> 8,152
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,463
<INVESTMENTS-CARRYING> 3,771
<INVESTMENTS-MARKET> 3,730
<LOANS> 39,793
<ALLOWANCE> 805
<TOTAL-ASSETS> 70,106
<DEPOSITS> 54,396
<SHORT-TERM> 0
<LIABILITIES-OTHER> 311
<LONG-TERM> 0
0
0
<COMMON> 11
<OTHER-SE> 15,388
<TOTAL-LIABILITIES-AND-EQUITY> 70,106
<INTEREST-LOAN> 801
<INTEREST-INVEST> 286
<INTEREST-OTHER> 147
<INTEREST-TOTAL> 1,234
<INTEREST-DEPOSIT> 605
<INTEREST-EXPENSE> 605
<INTEREST-INCOME-NET> 629
<LOAN-LOSSES> 5
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 354
<INCOME-PRETAX> 310
<INCOME-PRE-EXTRAORDINARY> 310
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 204
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<YIELD-ACTUAL> 3.17
<LOANS-NON> 37
<LOANS-PAST> 54
<LOANS-TROUBLED> 1,508
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 803
<CHARGE-OFFS> 40
<RECOVERIES> 42
<ALLOWANCE-CLOSE> 805
<ALLOWANCE-DOMESTIC> 109
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 696
</TABLE>
