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, 1999
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 June
30, 1999
Common Stock, $.01 par value 1,030,849 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, 1999 (UNAUDITED) AND SEPTEMBER 30, 1998
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) 3
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998 5
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 8
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
OTHER INFORMATION 10
SIGNATURES 11
SOUTHERN COMMUNITY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
ASSETS
June 30, September 30,
1999 1998
(unaudited)
CASH AND CASH EQUIVALENTS $ 6,838 $ 9,591
SECURITIES AVAILABLE FOR SALE, at fair value 11,144 8,593
SECURITIES HELD TO MATURITY, fair values of
$766 and $1,858, respectively 762 1,836
LOANS RECEIVABLE, net 44,122 45,846
PREMISES AND EQUIPMENT 307 298
OTHER ASSETS 650 656
Total assets $63,823 $66,820
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $55,514 $55,557
OTHER LIABILITIES 158 163
Total liabilities 55,672 55,720
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 10,826 10,808
Retained earnings 3,076 4,866
Unrealized gain (loss) on securities
available for sale (59) 17
Treasury stock (1,397) (831)
Unearned compensation (4,306) (3,771)
Total stockholders' equity 8,151 11,100
Total liabilities and stockholders' equity $63,823 $66,820
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
June 30,
1999 1998
(unaudited)
INTEREST INCOME:
Interest and fees on loans $ 932 $1,001
Interest and dividends on
securities 167 187
Other interest income 71 121
Total interest income 1,170 1,309
INTEREST EXPENSE:
Interest on deposits 547 603
Total interest expense 547 603
Net interest income 623 706
PROVISION FOR LOAN LOSSES 0 0
Net interest income after
provision for loan losses 623 706
NONINTEREST INCOME:
Customer service fees 36 75
Total noninterest income 36 75
NONINTEREST EXPENSE:
Compensation and benefits 274 267
Occupancy and equipment 38 42
Deposit insurance expense 8 9
Other operating expense 123 81
Total noninterest expense 443 399
Income before income taxes 216 382
PROVISION FOR INCOME TAXES 82 107
NET INCOME 134 275
BASIC EARNINGS PER SHARE $.17 $.31
DILUTED EARNINGS PER SHARE $.16 $.29
DIVIDEND DECLARED PER SHARE $ .0825 $ .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)
Nine Months Ended
June 30,
1999 1998
(Unaudited)
INTEREST INCOME:
Interest and fees on loans $2,905 $2,960
Interest and dividends on securities 442 668
Other interest income 284 344
Total interest income 3,631 3,972
INTEREST EXPENSE:
Interest on deposits 1,686 1,823
Total interest expense 1,686 1,823
Net interest income 1,945 2,149
PROVISION FOR LOAN LOSSES 0 0
Net interest income after provision
for loan losses 1,945 2,149
NONINTEREST INCOME:
Customer service fees 110 170
Total noninterest income 110 170
NONINTEREST EXPENSE:
Compensation and benefits 800 751
Occupancy and equipment 111 131
Deposit insurance expense 24 26
Other operating expense 378 422
Total noninterest expense 1,313 1,330
Income before income taxes 742 989
PROVISION FOR INCOME TAXES 305 344
NET INCOME $ 437 $ 645
BASIC EARNINGS PER SHARE $.55 $.70
DILUTED EARNINGS PER SHARE $.52 $.67
DIVIDEND DECLARED PER SHARE $2.365 $2.575
The accompanying notes are an integral part of these statements.
SOUTHERN COMMUNITY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
Nine Months Ended
June 30,
1999 1998
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 437 $ 645
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 41 61
Amortization and accretion on securities 3 31
Amortization of unearned compensation 238 203
Provision for loan losses 0 0
Gain on sale of securities, net 0 0
Change in assets and liabilities:
Other assets 6 300
Other liabilities (51) (307)
Total adjustments 237 288
Net cash provided by operating activities 674 933
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/calls of securities,
available for sale 1,656 6,182
Proceeds from maturities/calls of securities,
held to maturity 1,071 693
Purchases of securities, available for sale (5,401) 0
Purchases of securities, held to maturity 0 0
Proceeds from sales of securities,
available for sale 1,079 0
Net loan (originations) repayments 1,724 (2,857)
Proceeds from sale of premises and equipment 0 194
Capital expenditures (50) (25)
Net cash provided by investing activities 79 4,187
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits (43) (50)
Contributions to Plan trusts (755) (665)
Purchase of stock for stock plan trusts 0 (563)
Purchase of treasury stock (566) 0
Dividends paid (2,142) (2,285)
Net cash (used in) provided by
financing activities (3,506) (3,563)
NET (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (2,753) 1,557
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,591 9,887
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,838 $11,444
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, 1999 and 1998, and for the three-month
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-month
and nine month periods ended June 30, 1999 and 1998. Results of
operations for the current interim period are not necessarily
indicative of results expected for the fiscal year ended
September 30, 1999. 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, 1998. The
accounting policies followed by the Company are set forth in
the summary of significant accounting policies in the
Company's September 30, 1998 financial statements.
2.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 and nine-month periods ended June 30, 1999 and 1998.
Common Stock outstanding consists of issued shares less unallocated
ESOP shares, and shares owned by the MRP and SOP plan trust.
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share,"
effective December 15, 1997. The following table represents
the earnings per share calculations for the three and nine months ended
June 30, 1999 and 1998:
Per Share
For the Three Months Ended Income Shares Amount
June 30, 1999:
Net income $134,000
Basic earnings per share:
Income available to common
shareholders 134,000 771,017 $.17
Dilutive securities 0 36,904 0
Diluted earnings per share $134,000 807,921 $.16
June 30, 1998:
Net income $275,000
Basic earnings per share:
Income available to common
shareholders 275,000 889,580 $.31
Dilutive securities 0 53,031 0
Diluted earnings per share $275,000 942,610 $.29
For the Nine Months Ended
June 30, 1999:
Net income $437,000
Basic earnings per share:
Income available to common
shareholders 437,000 796,048 $.55
Dilutive securities 0 41,357 0
Diluted earnings per share $437,000 837,405 $.52
June 30, 1998:
Net income $645,000
Basic earnings per share:
Income available to common
shareholders 645,000 925,390 $.70
Dilutive securities 0 33,968 0
Diluted earnings per share $645,000 959,358 $.67
3. PENDING ACCOUNTING PRONOUNCEMENTS
In October 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 134,
Accounting for Mortgage-Backed Securities Retained After the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise. This Statement, an amendment to SFAS No. 65, requires that
after the securitization of mortgage loans held for sale, an entity
engaged in mortgage banking activities classify the resulting mortgage-
backed securities or other retained interests based on its ability to
sell or hold those investments. This Statement is effective the first
fiscal quarter beginning after December 15, 1998. The Company adopted
the provisions of this Statement on January 1, 1999. Based on the
Company's current operating activities, the adoption of this Statement
did not have an impact on the presentation of the Company's financial
condition or results of operations.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133. This statement delays the effective date of
Statement 133 from fiscal quarters of all fiscal years beginning after
June 15, 1999, with earlier application encouraged to fiscal quarters
of all fiscal years beginning after June 15, 2000.
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.
Comparison of Financial Condition at June 30, 1999 and
September 30, 1998. Total assets decreased by $2.99 million or 4.5%,
due primarily to the payment of a $2.1 million special dividend. Loans
receivable decreased by $1,724,000 primarily due to loan payoffs. These
funds along with the $2.7 million decrease in cash were used to fund a
$2.5 million, or 29%, increase in securities available for sale and to
pay the $2.1 million special dividend.
Stockholders' equity decreased by $2.9 million due primarily to
the payment of a $2.1 million special dividend and the $566,000 repurchase
of treasury stock.
Comparison of Results of Operations for the Three Months Ended
June 30, 1999 and 1998. The Company reported net income for the
three months ended June 30, 1999 of $134,000 as compared to $275,000
for the three months ended June 30, 1998.
Net Interest Income. Net interest income for the three months
ended June 30, 1999 amounted to $623,000 as compared to $706,000
for the three months ended June 30, 1998. Net interest income
after provision for loan losses decreased $83,000 or 11.7%, during the
three months ended June 30, 1999 as compared to the prior year period.
This decrease resulted from a decrease in the average balance
of loans during the three months ended June 30, 1999 as compared
to the prior year period, and from the loss of interest income on the funds
used to pay the special dividend and purchase treasury stock.
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. No provision for loan losses was made
for either of the quarters ended June 30, 1999 or 1998.
Noninterest Expense. Noninterest expense for the three months ended
June 30, 1999 amounted to $443,000 as compared to $399,000 for the
three months ended June 30, 1998. The $44,000, or 11%, increase is
primarily due to an increase in professional service 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 June 30, 1999 and September 30, 1998, the
Company and the Association were in compliance with all regulatory
capital requirements.
Comparison of Results of Operations for the Nine Months Ended
June 30, 1999 and 1998. The Company reported net income for the nine
months ended June 30, 1999 of $437,000 as compared to $645,000 for the
nine months ended June 30, 1998.
Net Interest Income. Net interest income for the nine months ended
June 30, 1999 amounted to $1,945,000 as compared to $2,149,000 for the
nine months ended June 30, 1998. Total interest income decreased $204,000
or 9.5% during the nine months ended June 30, 1999 as compared to the
prior year period. This decrease resulted primarily from a decrease in
the average balance of total interest bearing assets during the nine months
ended June 30, 1999 as compared to the prior period. Total interest
expense decreased during the nine months ended June 30, 1999. 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 nine months
ended June 30, 1999 decreased by $39,000 to $305,000 as compared to income
tax expense of $344,000 for the nine months ended June 30, 1998. This
decrease is due to decreased income before income taxes.
Noninterest Expense. Noninterest expense for the nine months ended
June 30, 1999 amounted to $1,313,000 as compared to $1,330,000 for the nine
months ended June 30, 1998. The $17,000 or 1.35% decrease is primarily
due to recurring cost savings from operations. These decreases were
partially offset by increased compensation expense due to the ESOP and
MRP plans.
Year 2000 Problem. A great deal of information has been disseminated
about the global computer crash that may occur in the year 2000. Many
computer programs that can only distinguish the final two digits of the
year entered (a common programming practice in earlier years) are expected
to read entries for the year 2000 as the year 1900. All of the significant
data processing of the Association that could be affected by this problem
is provided by a third party service bureau. The service bureau of the
Association has advised the Association that it has resolved any potential
problem.
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, 1999, 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 15, 1999 _____________________________________
William R. Faulk
President and Chief Executive Officer
Date: August 15, 1999 _____________________________________
Beth B. Knight
Secretary and Treasurer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 667
<INT-BEARING-DEPOSITS> 6,171
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,144
<INVESTMENTS-CARRYING> 762
<INVESTMENTS-MARKET> 766
<LOANS> 44,894
<ALLOWANCE> 772
<TOTAL-ASSETS> 63,823
<DEPOSITS> 55,514
<SHORT-TERM> 0
<LIABILITIES-OTHER> 158
<LONG-TERM> 0
0
0
<COMMON> 11
<OTHER-SE> 8,140
<TOTAL-LIABILITIES-AND-EQUITY> 63,823
<INTEREST-LOAN> 2,905
<INTEREST-INVEST> 442
<INTEREST-OTHER> 284
<INTEREST-TOTAL> 3,631
<INTEREST-DEPOSIT> 1,686
<INTEREST-EXPENSE> 1,686
<INTEREST-INCOME-NET> 1,945
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 742
<INCOME-PRETAX> 742
<INCOME-PRE-EXTRAORDINARY> 742
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 437
<EPS-BASIC> .55
<EPS-DILUTED> .52
<YIELD-ACTUAL> 3.99
<LOANS-NON> 87
<LOANS-PAST> 49
<LOANS-TROUBLED> 83
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 792
<CHARGE-OFFS> 24
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 772
<ALLOWANCE-DOMESTIC> 96
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 676
</TABLE>
