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, 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 December
31, 1998
Common Stock, $.01 par value 1,080,482 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, 1998 (UNAUDITED) AND SEPTEMBER 30, 1998
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) 3
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 4
FOR THE THREE MONTHS ENDED DECEMBER 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 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,
1998 1998
(unaudited)
CASH AND CASH EQUIVALENTS $12,459 $ 9,591
SECURITIES AVAILABLE FOR SALE, at fair value 7,700 8,593
SECURITIES HELD TO MATURITY, fair values of
$1,397 and $1,858, respectively 1,384 1,836
LOANS RECEIVABLE, net 45,815 45,846
PREMISES AND EQUIPMENT 294 298
OTHER ASSETS 718 656
Total assets $68,370 $66,820
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $56,818 $55,557
BORROWED FUNDS 2,781 0
OTHER LIABILITIES 211 163
Total liabilities 59,810 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 10,816 10,808
Retained earnings 2,929 4,866
Unrealized gain (loss) on securities
available for sale 22 17
Treasury stock (831) (831)
Unearned compensation (4,387) (3,771)
Total stockholders' equity 8,560 11,100
Total liabilities and stockholders' equity $68,370 $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
December 31,
1998 1997
(unaudited)
INTEREST INCOME:
Interest and fees on loans $1,010 $969
Interest and dividends on
securities 143 239
Other interest income 109 108
Total interest income 1,262 1,316
INTEREST EXPENSE:
Interest on deposits 580 606
Total interest expense 580 606
Net interest income 682 710
PROVISION FOR LOAN LOSSES 0 0
Net interest income after
provision for loan losses 682 710
NONINTEREST INCOME:
Customer service fees 42 49
Total noninterest income 42 49
NONINTEREST EXPENSE:
Compensation and benefits 260 224
Occupancy and equipment 36 45
Deposit insurance expense 8 7
Other operating expense 133 146
Total noninterest expense 437 422
Income before income taxes 287 337
PROVISION FOR INCOME TAXES 127 121
NET INCOME 160 216
BASIC EARNINGS PER SHARE $.20 $.22
DILUTED EARNINGS PER SHARE $.19 $.22
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>
Three Months Ended
December 31,
1998 1997
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $160 $216
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 12 20
Amortization and accretion on securities 18 12
Amortization of unearned compensation 77 40
Change in assets and liabilities:
Other assets (62) 244
Other liabilities 45 (267)
Total adjustments 90 49
Net cash provided by operating activities 250 265
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/calls of securities,
available for sale 886 2,212
Proceeds from maturities/calls of securities,
held to maturity 449 671
Purchases of securities, available for sale 0 0
Purchases of securities, held to maturity 0 0
Proceeds from sales of securities,
available for sale 0 0
Net loan (originations) repayments 31 (2,758)
Capital expenditures ( 8) (25)
Net cash used in investing activities 1,358 100
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits 1,261 646
Contributions to Plan trusts (685) (17)
Purchase of stock for stock plan trusts 0 0
Proceeds from borrowed funds 2,781 0
Dividends paid 2,097 (69)
Net cash provided by financing activities 1,260 (2)
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,868 363
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,591 9,887
CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,459 $10,250
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, 1998 and 1997, and for the three-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
periods ended December 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, 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.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.
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 periods ended December 31, 1998 and 1997. 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 months ended
December 31, 1998 and 1997:
Per Share
For the Three Months Ended Income Shares Amount
December 31, 1998:
Net income $160,000
Basic earnings per share:
Income available to common
shareholders 160,000 814,283 $.20
Dilutive securities 0 45,494 0
Diluted earnings per share $160,000 859,777 $.19
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
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 December 31, 1998 and
September 30, 1998. Total assets increased by $1.5 million or 2.3%.
Liabilities increased by $4.0 milion or 7.3%, primarily due to the
holding company borrowing of $2.8 million. Securities available for
sale decreased by $893,000 due primarily to maturities and prepayments.
These funds were used to fund a $2.9 million, or 29.9% increase in cash
and to pay the $2.1 million special dividend.
Stockholders' equity decreased by $2.5 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
December 31, 1998 and 1997. The Company reported net income for the
three months ended December 31, 1998 of $160,000 as compared to $216,000
for the three months ended December 31, 1997.
Net Interest Income. Net interest income for the three months
ended December 31, 1998 amounted to $682,000 as compared to $710,000
for the three months ended December 31, 1997. Net interest income
after provision for loan losses decreased $28,000 or 3.9%, during the
three months ended December 31, 1998 as compared to the prior year period.
This decrease resulted primarily from a decrease in the average balance
of securities during the three months ended December 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. No provision for loan losses was made
for either of the quarters ended December 31, 1998 of 1997.
Noninterest Expense. Noninterest expense for the three months ended
December 31, 1998 amounted to $437,000 as compared to $422,000 for the
three months ended December 31, 1997. The $15,000, or 3.6% increase
is primarily the result of increased compensation expense due to expenses
related to the MRP Plan.
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, 1998 and September 30, 1998, 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, 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: February 15, 1999 _____________________________________
William R. Faulk
President and Chief Executive Officer
Date: February 15, 1999 _____________________________________
Beth B. Knight
Secretary and Treasurer
</TABLE>
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<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1999
<CASH> 751
<INT-BEARING-DEPOSITS> 11,708
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,700
<INVESTMENTS-CARRYING> 1,384
<INVESTMENTS-MARKET> 1,397
<LOANS> 46,607
<ALLOWANCE> 792
<TOTAL-ASSETS> 68,370
<DEPOSITS> 56,810
<SHORT-TERM> 2,781
<LIABILITIES-OTHER> 211
<LONG-TERM> 0
0
0
<COMMON> 11
<OTHER-SE> 8,549
<TOTAL-LIABILITIES-AND-EQUITY> 68,370
<INTEREST-LOAN> 1,010
<INTEREST-INVEST> 143
<INTEREST-OTHER> 109
<INTEREST-TOTAL> 1,262
<INTEREST-DEPOSIT> 580
<INTEREST-EXPENSE> 580
<INTEREST-INCOME-NET> 682
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 437
<INCOME-PRETAX> 287
<INCOME-PRE-EXTRAORDINARY> 287
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
<YIELD-ACTUAL> 4.05
<LOANS-NON> 59
<LOANS-PAST> 0
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