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, 1998
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, (256) 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, 1998
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, 1998 (UNAUDITED) AND SEPTEMBER 30, 1997
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) 3
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) 4
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 5
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
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 10
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
OTHER INFORMATION 12
SIGNATURES 13
SOUTHERN COMMUNITY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
ASSETS
March 31, September 30,
1998 1997
(unaudited)
CASH AND CASH EQUIVALENTS $12,253 $ 9,887
SECURITIES AVAILABLE FOR SALE, at fair value 9,504 12,997
SECURITIES HELD TO MATURITY, fair values of
$3,327 and $3,525, respectively 3,311 3,525
LOANS RECEIVABLE, net 46,377 42,999
PREMISES AND EQUIPMENT 336 545
OTHER ASSETS 666 932
Total assets $72,447 $70,885
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $57,764 $55,875
OTHER LIABILITIES 3,200 540
Total liabilities 60,964 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 10,822 10,787
Retained earnings 4,530 6,445
Unrealized loss on securities available for sale 0 (36)
Unearned compensation (3,880) (2,737)
Total stockholders' equity 11,483 14,470
Total liabilities and stockholders' equity $72,447 $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
March 31,
1998 1997
(unaudited)
INTEREST INCOME:
Interest and fees on loans $990 $801
Interest and dividends on
securities 242 286
Other interest income 115 147
Total interest income 1,347 1,234
INTEREST EXPENSE:
Interest on deposits 613 605
Total interest expense 613 605
Net interest income 734 629
PROVISION FOR LOAN LOSSES 0 5
Net interest income after
provision for loan losses 734 624
NONINTEREST INCOME:
Customer service fees 45 40
Total noninterest income 45 40
NONINTEREST EXPENSE:
Compensation and benefits 261 156
Occupancy and equipment 44 29
Deposit insurance expense 9 6
Other operating expense 195 163
Total noninterest expense 509 354
Income before income taxes 270 310
PROVISION FOR INCOME TAXES 116 106
NET INCOME 154 204
BASIC EARNINGS PER SHARE $.17 $.20
DILUTED EARNINGS PER SHARE $.16 $.20
DIVIDEND DECLARED PER SHARE $2.50 $.075
The accompanying notes are an integral part of these statements.
SOUTHERN COMMUNITY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Six Months Ended
March 31,
1998 1997
(Unaudited)
INTEREST INCOME:
Interest and fees on loans $1,959 $1,665
Interest and dividends on securities 481 552
Other interest income 223 221
Total interest income 2,663 2,438
INTEREST EXPENSE
Interest on deposits 1,220 1,248
Total interest expense 1,220 1,248
Net interest income 1,443 1,190
PROVISION FOR LOAN LOSSES 0 5
Net interest income after provision
for loan losses 1,443 1,185
NONINTEREST INCOME:
Customer service fees 95 105
Total noninterest income 95 105
NONINTEREST EXPENSE:
Compensation and benefits 484 347
Occupancy and equipment 89 70
Deposit insurance expense 17 36
Other operating expense 341 283
Total noninterest expense 931 736
Income before income taxes 607 554
PROVISION FOR INCOME TAXES 237 190
NET INCOME 370 364
BASIC EARNINGS PER SHARE $.39 $.21
DILUTED EARNINGS PER SHARE $.38 $.21
DIVIDEND DECLARED PER SHARE $2.575 $.075
The accompanying notes are an integral part of these statements.
SOUTHERN COMMUNITY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
Six Months Ended
March 31,
1998 1997
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $370 $364
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 40 106
Amortization and accretion on securities 22 (14)
Amortization of unearned compensation 100 23
Provision for loan losses 0 5
Gain on sale of securities, net 0 8
Change in assets and liabilities:
Other assets 265 153
Other liabilities 426 (394)
Total adjustments 853 (113)
Net cash provided by operating activities 1,223 251
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/calls of securities,
available for sale 3,528 609
Proceeds from maturities/calls of securities,
held to maturity 212 3,497
Purchases of securities, available for sale 0 (6,373)
Purchases of securities, held to maturity 0 (501)
Net loan (originations) repayments (3,378) 608
Proceeds from sale of premises and equipment 194 0
Capital expenditures (25) (73)
Net cash used in investing activities 531 (2,233)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits 1,889 (2,742)
Contributions to Plan trusts (645) (502)
Purchase of stock for stock plan trusts (563) 0
Net proceeds from issuance of common stock 0 9,861
Dividends paid (69) 0
Net cash provided by financing activities 612 6,617
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,366 4,635
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,887 3,868
CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,253 $ 8,503
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, 1998 and 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, 1998 and 1997. 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 March 31, 1998, 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 and six month period ended March 31, 1998 and by dividing the
earnings for the period from December 23, 1996, the date of Conversion,
to March 31, 1997 and the period from January 1, 1997 to March 31, 1997
by the weighted average number of shares of common stock outstanding
during the quarters. 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
period from December 23, 1996 to March 31, 1997 and from
January 1, 1997 to March 31, 1997 were the same as Basic earnings
per share because there were no dilutive securities outstanding
during the periods.
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 March 31, 1998 and 1997:
Per Share
For the Three Months Ended Income Shares Amount
March 31, 1998:
Net income $154,000
Basic earnings per share:
Income available to common
shareholders 154,000 894,598 $.17
Dilutive securities 0 47,820 0
Diluted earnings per share $154,000 942,418 $.16
March 31, 1997:
Net income $204,000
Basic earnings per share:
Income available to common
shareholders 204,000 1,023,768 $.20
Dilutive securities 0 0 0
Diluted earnings per share $204,000 1,023,768 $.20
Per Share
For the Six Months Ended Income Shares Amount
March 31, 1998:
Net income $370,000
Basic earnings per share:
Income available to common
shareholders 370,000 944,083 $.39
Dilutive securities 0 24,042 0
Diluted earnings per share $370,000 968,125 $.38
March 31, 1997:
Net income for the period
from December 23, 1996 to
March 31, 1997 $219,652
Basic earnings per share:
Income available to common
shareholders 219,652 1,025,822 $.21
Dilutive securities 0 0 0
Diluted earnings per share $219,652 1,025,822 $.21
4.PENDING ACCOUNTING PRONOUNCEMENTS
The AICPA has issued Statements of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use.
This statement requires capitalization of external direct costs of
materials and services; payroll and payroll-related costs for employees
directly associated; and interest costs during development of computer
software for internal use (planning and preliminary costs should be
expensed). Also, capitalized costs of computer software developed or
obtained for internal use should be amortized on a straight-line basis
unless another systematic and rational basis is more representative of
the software's use.
This statement is effective for financial statements for fiscal years
beginning after December 15, 1998 (prospectively) and is not expected
to have a material effect on the consolidated financial statements.
5.DIVIDEND
On March 16, 1998, the Board of Directors declared a special cash
dividend of $2.50 per share to all shareholders of record on
March 31, 1998, payable April 8, 1998. The dividend payable at
March 31, 1998 was $2.2 million.
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, 1998 and
September 30, 1997. Total assets increased by $1.6 million or 2.2%.
Liabilities increased by $4.5 million or 8.1%. Securities available for
sale decreased by $3.5 million due primarily to maturities and prepayments.
These funds were used to fund a $3.4 million, or 7.9% increase in loans.
The remaining change in assets is primarily a $2.4 million increase in
cash which will be used to pay the $2.2 million special dividend. The
increase in liabilities is primarily due to the special dividend payable
of $2.2 million and a $1.9 increase in deposits.
Stockholders' equity decreased by $3.0 million due primarily to
dividends and contributions to benefit plan trusts which were partially
offset by net income.
Comparison of Results of Operations for the Three Months Ended
March 31, 1998 and 1997. The Company reported net income for the
three months ended March 31, 1998 of $154,000 as compared to $204,000
for the three months ended March 31, 1997.
Net Interest Income. Net interest income for the three months
ended March 31, 1998 amounted to $734,000 as compared to $629,000
for the three months ended March 31, 1997. Net interest income
after provision for loan losses increased $110,000 or 17.6%, during the
three months ended March 31, 1998 as compared to the prior year period.
This increase resulted primarily from an increase in the average balance
of loans during the three months ended March 31, 1998 as compared to the
prior year period.
Provision for Loan Losses. Provisions for loan losses are made
to maintain the allowance for loan losses at an adequate level. 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 three months ended
March 31, 1998 amounted to $509,000 as compared to $354,000 for the
three months ended March 31, 1997. The $155,000, or 43.8% increase
is primarily the result of increased compensation expense due to the ESOP
and MRP plans and other operating expense increases due to professional fees.
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, 1998 and September 30, 1997, the
Company and the Association were in compliance with all regulatory
capital requirements.
Comparision of Results of Operations for the Six Months Ended
March 31, 1998 and 1997. The Company reported net income for the six
months ended March 31, 1998 of $370,000 as compared to $364,000 for the
six months ended March 31, 1997.
Net Interest Income. Net interest income for the six months ended
March 31, 1998 amounted to $1,443,000 as compared to $1,190,000 for the
six months ended March 31, 1997. Total interest income increased
$225,000 or 9.2% during the six months ended March 31, 1998 as compared
to the prior year period. This increase resulted primarily from an
increase in the average balance of total interest bearing assets during
the six months ended March 31, 1998 as compared to the prior year period.
Total interest expense decreased during the six months ended March 31, 1998.
This decrease resulted primarily from a decrease in average deposits
between the periods.
Provision for Loan Losses. Provisions for loan losses are made to
maintain the allowance for loan losses at an adequate level. The allowance
for loan losses reflects management's estimates which took into account
historical experience, the amount of nonperforming assets, and general
economic conditions.
Provision for Income Taxes. Income tax expense for the six months
ended March 31, 1998 increased by $47,000 to $237,000 as compared to income
tax expense of $190,000 for the six months ended March 31, 1997. This
increase is due to increased income before income taxes.
Noninterest Expense. Noninterest expense for the six months ended
March 31, 1998 amounted to $931,000 as compared to $736,000 for the six
months ended March 31, 1997. The $195,000 or 26.5% increase is
primarily the result of increased compensation expense due to the ESOP
and MRP plans and other operating expense increases due to professional
fees. These increases were partially offset by decreases in deposit
insurance expense.
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, 1998, 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 15, 1998 _____________________________________
William R. Faulk
President and Chief Executive Officer
Date: May 15, 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> MAR-31-1998
<CASH> 799
<INT-BEARING-DEPOSITS> 11,454
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,504
<INVESTMENTS-CARRYING> 3,311
<INVESTMENTS-MARKET> 3,327
<LOANS> 47,179
<ALLOWANCE> 802
<TOTAL-ASSETS> 72,447
<DEPOSITS> 57,764
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,200
<LONG-TERM> 0
0
0
<COMMON> 11
<OTHER-SE> 11,472
<TOTAL-LIABILITIES-AND-EQUITY> 72,447
<INTEREST-LOAN> 1,959
<INTEREST-INVEST> 481
<INTEREST-OTHER> 223
<INTEREST-TOTAL> 2,663
<INTEREST-DEPOSIT> 1,220
<INTEREST-EXPENSE> 1,220
<INTEREST-INCOME-NET> 1,443
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 931
<INCOME-PRETAX> 607
<INCOME-PRE-EXTRAORDINARY> 607
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 370
<EPS-PRIMARY> .39
<EPS-DILUTED> .38
<YIELD-ACTUAL> 4.15
<LOANS-NON> 82
<LOANS-PAST> 22
<LOANS-TROUBLED> 89
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 806
<CHARGE-OFFS> 6
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 802
<ALLOWANCE-DOMESTIC> 104
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 698
</TABLE>
