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 December 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 December
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
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE 3
MONTHS ENDED DECEMBER 31, 1997 AND 1996
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE 4
THREE MONTHS ENDED DECEMBER 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
(DOLLARS IN THOUSANDS)
ASSETS
December 31, September 30,
1997 1997
(unaudited)
CASH AND CASH EQUIVALENTS $10,250 $ 9,887
SECURITIES AVAILABLE FOR SALE, at fair value 10,807 12,997
SECURITIES HELD TO MATURITY, fair values of
$2,867 and $3,525, respectively 2,852 3,525
LOANS RECEIVABLE, net 45,757 42,999
PREMISES AND EQUIPMENT 550 545
OTHER ASSETS 677 932
Total assets $70,893 $70,885
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $56,521 $55,875
OTHER LIABILITIES 273 540
Total liabilities 56,794 56,415
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 11
Additional paid-in capital 10,804 10,787
Retained earnings 6,592 6,445
Unrealized loss on securities available for sale ( 15) (36)
Unearned compensation (3,293) (2,737)
Total stockholders' equity 14,099 14,470
Total liabilities and stockholders' equity $70,893 $70,885
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)
Three Months Ended
December 31,
1997 1996
(unaudited)
INTEREST INCOME:
Interest and fees on loans $969 $864
Interest and dividends on
securities 239 266
Other interest income 108 74
Total interest income 1,316 1,204
INTEREST EXPENSE:
Interest on deposits 606 643
Total interest expense 606 643
Net interest income 710 561
PROVISION FOR LOAN LOSSES 0 0
Net interest income after
provision for loan losses 710 561
NONINTEREST INCOME:
Customer service fees 49 65
Total noninterest income 49 65
NONINTEREST EXPENSE:
Compensation and benefits 224 191
Occupancy and equipment 45 41
Deposit insurance expense 7 30
Other operating expense 146 120
Total noninterest expense 422 382
Income before income taxes 337 244
PROVISION FOR INCOME TAXES 121 84
NET INCOME 216 160
BASIC AND DILUTED EARNINGS PER SHARE $.22 $.15
DIVIDEND DECLARED PER SHARE $0.075 N/A
The accompanying notes are an integral part of these statements.
SOUTHERN COMMUNITY BANCSHARES, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $216 $160
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 20 20
Amortization and accretion on securities 12 (11)
Amortization of unearned compensation 40 0
Change in assets and liabilities:
Other assets 244 129
Other liabilities (267) (447)
Total adjustments 49 (309)
Net cash provided by operating activities 265 (149)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/calls of securities,
available for sale 2,212 454
Proceeds from maturities/calls of securities,
held to maturity 671 1,004
Purchases of securities, available for sale 0 (374)
Net loan (originations) repayments (2,758) 699
Capital expenditures (25) (7)
Net cash used in investing activities 100 1,776
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits 646 (1,121)
Contributions to Plan trusts (17) 0
Purchase of stock for stock plan trusts (562) 0
Net proceeds from issuance of common stock 0 10,023
Dividends paid (69) 0
Net cash provided by financing activities (2) 8,902
NET INCREASE IN CASH AND CASH EQUIVALENTS 363 10,529
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,887 3,868
CASH AND CASH EQUIVALENTS AT END OF PERIOD $10,250 $14,397
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 December 31, 1997, and for the three month period
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 month
periods ended December 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, 1998.
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, 1997. The
accounting policies followed by the Company are set forth in
the summary of significant accounting policies in the
Company's September 30, 1997 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.
The Management Recognition Plan ("MRP") and the Stock Option Plan
("SOP") were approved by shareholders on January 19, 1998. Under
the MRP, employees and directors 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
("SOP"), employees and directors 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. At December 31, 1997, the
MRP and SOP plan trust had purchased 160,035 shares of the Company's
stock.
3.EARNINGS PER SHARE
Basic earnings per share were computed by dividing net income by
the weighted average number of shares of common stock outstanding during
the three month period ended December 31, 1997 and by dividing the
earnings for the period from December 23, 1996, the date of Conversion,
to December 31, 1996, by the weighted average number of shares of
common stock outstanding during the quarter. Common Stock outstanding
consists of issued shares less unallocated ESOP shares, and shares
owned by the MRP and Stock Option plan trust. Diluted earnings
per share for the three month period ended December 31, 1997 and the
period from December 23, 1996 to December 31, 1996, were the same
as Basic earnings per share because there were no dilutive securities
outstanding during the periods ended December 31, 1997 or 1996.
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share,"
effective December 15, 1997. As a result, the Company's reported
earnings per share for 1996 were restated. The following table
represents the earnings per share calculations for the three months
ended December 31, 1997 and 1996, accompanied by the effect of this
accounting change on previously reported earnings per share:
Per Share
For the Three Months Ended Income Shares Amount
December 31, 1997:
Net income $216,000
Basic earnings per share:
Income available to common
shareholders 216,000 993,567 $.22
Dilutive securities 0 0 0
Diluted earnings per share $216,000 993,567 $.22
December 31, 1996:
Net income for the period
from December 23, 1996 to
December 31, 1996 $ 15,000
Basic earnings per share:
Income available to common
shareholders 15,000 102,362 $.15
Dilutive securities 0 0 0
Diluted earnings per share $ 15,000 102,362 $.15
Changes in previously reported earnings per share:
For the Quarter Ended
December 31, 1996
Earnings (loss) per share, as reported $.15
Earnings (loss) per share, as restated:
Basic .15
Diluted .15
4.PENDING ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 129, Disclosure of Information About Capital Structure.
This Statement establishes standards for disclosing information
about an entity's capital structure.
In June 1997, the FASB issued SFAS No. 130, "Reporting of Comprehensive
Income" This Statement established 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 financial statements and are 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 for
comparative purposes is required.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. This Statement 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 serivces,
geographic areas, and major customers. This Statement requires the
reporting of financial and description 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.
Management believes there will be no material effect on the consolidated
financial statements from the adoption of these pronouncements.
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 December 31, 1997 and
September 30, 1997. Total assets and liabilities remained approximately
the same between periods. The $2.9 million decrease in securities was
used to fund the $2.8 million increase in loans.
Comparison of Results of Operations for the Three Months Ended
December 31, 1997 and 1996. The Company reported net income for the
three months ended December 31, 1997 of $216,000 as compared to $160,000
for the three months ended December 31, 1996.
Net Interest Income. Net interest income for the three months
ended December 31, 1997 amounted to $710,000 as compared to $561,000
for the three months ended December 31, 1996. Total interest income
increased $112,000 or 9.3% during the three months ended December 31,
1997 as compared to the prior year. This increase resulted primarily from
an increase in the average balance of total interest bearing assets during
the three months ended December 31, 1997 as compared to the prior year.
Total interest expense decreased during the three months ended
December 31, 1997. This decrease resulted primarily from a decrease
in average deposits between the periods.
Provision for Loan Losses. No provisions for loan losses were
made during the three month periods ended December 31, 1997 and 1996.
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 December 31, 1997 increased by $37,000 to $121,000 as compared to
income tax expense of $84,000 for the three months ended December 31, 1996.
This increase is due to increased income before income taxes.
Noninterest Expense. Noninterest expense for the three months ended
December 31, 1997 amounted to $422,000 as compared to $382,000 for the
three months ended December 31, 1996. The $40,000, or 10.6%, 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 December 31, 1997 and September 30, 1997, 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
December 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: February 13, 1998 _____________________________________
William R. Faulk
President and Chief Executive Officer
Date: February 13, 1998 _____________________________________
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-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,702
<INT-BEARING-DEPOSITS> 8,548
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,807
<INVESTMENTS-CARRYING> 2,852
<INVESTMENTS-MARKET> 2,867
<LOANS> 46,563
<ALLOWANCE> 806
<TOTAL-ASSETS> 70,893
<DEPOSITS> 56,521
<SHORT-TERM> 0
<LIABILITIES-OTHER> 273
<LONG-TERM> 0
0
0
<COMMON> 11
<OTHER-SE> 14,088
<TOTAL-LIABILITIES-AND-EQUITY> 70,893
<INTEREST-LOAN> 969
<INTEREST-INVEST> 239
<INTEREST-OTHER> 108
<INTEREST-TOTAL> 1,316
<INTEREST-DEPOSIT> 606
<INTEREST-EXPENSE> 606
<INTEREST-INCOME-NET> 710
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 422
<INCOME-PRETAX> 337
<INCOME-PRE-EXTRAORDINARY> 337
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 216
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<YIELD-ACTUAL> 4.10
<LOANS-NON> 67
<LOANS-PAST> 120
<LOANS-TROUBLED> 1,470
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 806
<CHARGE-OFFS> 1
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 806
<ALLOWANCE-DOMESTIC> 105
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 701
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