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, 2000
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, 2000
Common Stock, $.01 par value 979,598 shares
SOUTHERN COMMUNITY BANCSHARES, INC.
PART I. FINANCIAL INFORMATION
Page
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF 2
MARCH 31,2000(UNAUDITED) AND SEPTEMBER 30, 1999
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) 3
FOR THE THREE AND SIX MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 4
FOR THE THREE AND SIX MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999
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
March 31, September 30,
2000 1999
(unaudited)
CASH AND CASH EQUIVALENTS $ 5,877 $ 4,118
SECURITIES AVAILABLE FOR SALE, at fair value 11,286 11,343
SECURITIES HELD TO MATURITY, fair values of
$224 and $755, respectively 223 751
LOANS RECEIVABLE, net 46,908 44,838
PREMISES AND EQUIPMENT 396 316
OTHER ASSETS 1,282 1,419
Total assets $65,972 $62,785
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $56,025 $53,904
BORROWED FUNDS 1,000 0
OTHER LIABILITIES 269 229
Total liabilities 57,294 54,133
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 10,821 10,821
Retained earnings 3,297 3,158
Unrealized loss on securities
available for sale (110) (66)
Treasury stock (1,660) (1,455)
Unearned compensation (3,681) (3,817)
Total stockholders' equity 8,678 8,652
Total liabilities and stockholders' equity $65,972 $62,785
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 Six Months Ended
March 31, March 31,
2000 1999 2000 1999
(unaudited) (unaudited)
INTEREST INCOME:
Interest and fees on loans $ 980 $ 963 $1,913 $1,973
Interest and dividends on
securities 179 132 357 275
Other interest income 49 104 85 213
Total interest income 1,208 1,199 2,355 2,461
INTEREST EXPENSE:
Interest on deposits 543 560 1,063 1,139
Total interest expense 543 560 1,063 1,139
Net interest income 665 639 1,292 1,322
PROVISION FOR LOAN LOSSES 0 0 0 0
Net interest income after
provision for loan losses 665 639 1,292 1,322
NONINTEREST INCOME:
Customer service fees 43 32 86 74
Total noninterest income 43 32 86 74
NONINTEREST EXPENSE:
Compensation and benefits 266 266 534 526
Occupancy and equipment 41 37 65 73
Deposit insurance expense 3 8 11 16
Other operating expense 144 122 271 255
Total noninterest expense 454 433 881 870
Income before income taxes 254 238 497 526
PROVISION FOR INCOME TAXES 101 95 193 223
NET INCOME 153 143 304 303
BASIC EARNINGS PER SHARE $.21 $.18 $.42 $.38
DILUTED EARNINGS PER SHARE $.20 $.17 $.39 $.36
DIVIDEND DECLARED PER SHARE $ .0825 $.0825 $.1650 $2.5825
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,
2000 1999
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 304 $ 303
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 30 24
Amortization and accretion on securities,net 6 1
Amortization of unearned compensation 136 160
Change in assets and liabilities:
Other assets 137 122
Other liabilities (26) (82)
Total adjustments 283 225
Net cash provided by operating activities 587 528
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/calls of securities,
available for sale 57 886
Proceeds from maturities/calls of securities,
held to maturity 1,528 895
Purchases of securities, available for sale (1,000) (2,409)
Net loan (originations) repayments (2,070) 1,914
Capital expenditures (94) ( 10)
Net cash provided by (used in)
investing activities (1,579) 1,276
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits 2,121 980
Contributions to Plan trusts 0 (755)
Proceeds from borrowed funds 1,000 0
Purchase of treasury stock (205) (566)
Dividends paid (165) (2,078)
Net cash provided by financing activities 2,751 (2,419)
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,759 (615)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,118 9,591
CASH AND CASH EQUIVALENTS AT END OF PERIOD $5,877 $ 8,976
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 Conversion occurred on
December 23, 1996.
The accompanying unaudited condensed consolidated financial
statements as of March 31, 2000 and 1999, 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, 2000 and 1999. Results of
operations for the current interim period are not necessarily
indicative of results expected for the fiscal year ended
September 30, 2000. 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, 1999. The
accounting policies followed by the Company are set forth in
the summary of significant accounting policies in the
Company's September 30, 1999 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 and six-month periods ended March 31, 2000 and 1999.
Common Stock outstanding consists of issued shares less unallocated
ESOP shares, and shares owned by the MRP and SOP plan trust.
The following table represents the earnings per share calculations
for the three and six-month periods ended March 31, 2000 and 1999:
Per Share
For the Three Months Ended Income Shares Amount
March 31, 2000:
Net income $153,000
Basic earnings per share:
Income available to common
shareholders 153,000 724,332 $.21
Dilutive securities 0 43,797 0
Diluted earnings per share $153,000 768,129 $.20
March 31, 1999:
Net income $143,000
Basic earnings per share:
Income available to common
shareholders 143,000 800,898 $.18
Dilutive securities 0 43,797 0
Diluted earnings per share $143,000 844,695 $.17
For the Six Months Ended
March 31,2000:
Net income $304,000
Basic earnings per share:
Income available to common
shareholders $304,000 726,549 $.42
Dilutive securities 43,797 0
Diluted earnings per share $304,000 770,346 $.39
March 31, 1999
Net income $303,000
Basic earnings per share:
Income available to common
shareholders $303,000 808,633 $.38
Dilutive securities 45,520 0
Diluted earnings per share $303,000 854,153 $.36
3. COMPREHENSIVE INCOME
The Company has classified certain securities as available for sale
in accordance with Financial Accounting Standards Board ("FASB")
Statment No. 115. Pursuant to Statement No. 115, any unrealized gain
or loss activity of available for sale securities is to be recorded as
an adjustment to a separate component of shareholders' equity, net of
income tax effect. Accordingly, for the three and six month periods
ended March 31, 2000 and 1999, the Company recognized a corresponding
adjustment in the accumulated other comprehensive income component of
equity.
Since comprehensive income is a measure of all nonowner changes in equity
of an enterprise that result from transactions and other economic events
of the period, this change in unrealized gain/loss serves to increase
or decrease comprehensive income. The following table represents
comprehensive income for the three and six month periods ended March 31,
2000 and 1999.
Three Months Six Months
Ended Ended
March 31, March 31,
2000 1999 2000 1999
Net income $153 $143 $304 $303
Accumulated other comprehensive
income (loss) net of tax:
Unrealized gain (loss)
on securities (1) 18 (44) (13)
Comprehensive income (loss) $152 $161 $260 $290
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. This Statement establishes accounting and reporting
standards for derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets
or liablities in the balance sheet and measure those instruments at
fair value. Under certain conditions, a derivative may be specifically
designated as a hedge. Accounting for changes in fair values of
derivatives will depend on their designation. In June 1999, the FASB
issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB No. 133. This
Statement amends the effective date of SFAS No. 133, which will now
be effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. Given the Company's September 30 fiscal year-end, this
Statement will be effective October 1, 2000. Management is now in the
process of assessing the impact of these statements on the Company's
financial position and results of operations.
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 March 31, 2000 and
September 30, 1999. Total assets increased by $3.2 million or 5.1%.
Liabilities increased by $3.1 million or 5.7%, primarily due to an
increase in deposits of $2.1 million and an increase in borrowed funds
of $1.0 million. These funds were used to fund a $1.8 million, or
42.7%, increase in cash and to fund the $2.1 million increase in loans
receivable.
Comparison of Results of Operations for the Three Months Ended
March 31, 2000 and 1999. The Company reported net income for the
three months ended March 31, 2000 of $153,000 as compared to $143,000
for the three months ended March 31, 1999.
Net Interest Income. Net interest income for the three months
ended March 31, 2000 amounted to $665,000 as compared to $640,000
for the three months ended March 31, 1999. Net interest income
after provision for loan losses increased $25,000 or 3.9%, during the
three months ended March 31, 2000 as compared to the prior year period.
This increase resulted primarily from an increase in the average balance
of interest earning assets during the three months ended March 31, 2000
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 March 31, 2000 or 1999.
Noninterest Expense. Noninterest expense for the three months ended
March 31, 2000 amounted to $454,000 as compared to $433,000 for the three
months ended March 31, 1999. The $21,000, or 4.8%, increase is primarily
due to a increase in other expense.
Provision for Income Taxes. Income tax expense for the three months
ended March 31, 2000 increased by $5,000 to $101,000 as compared to income
tax expense of $96,000 for the three months ended March 31, 1999. This
increase is due to increased income before income taxes.
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, 2000 and September 30, 1999, the
Company and the Association were in compliance with all regulatory
capital requirements.
Comparison of Results of Operations for the Six Months Ended
March 31, 2000 and 1999. The Company reported net income for the six months
ended March 31, 2000 of $304,000 as compared to $303,000 for the six months
ended March 31, 1999.
Net interest income. Net interest income for the six months ended
March 31, 2000 amounted to $1,292,000 as compared to $1,322,000 for
the six months ended March 31, 1999. Total interest income decreased
$106,000, or 4.3%, during the six months ended March 31, 2000 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 six
months ended March 31, 2000 as compared to the prior period. Total interest
expense decreased during the six months ended March 31, 2000. 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. No provision for loan losses was made for either
six-month period.
Noninterest Expense. Noninterest expense for the six months ended
March 31, 2000 amounted to $881,000 as compared to $870,000 for the six
months ended March 31, 1999. The $11,000, or 1.3%, increase is primarily
due to an increase in salaries and employee benefits expense.
Provision for Income Taxes. Income tax expense for the six months
ended March 31, 2000 decreased by $30,000 to $193,000 as compared to income
tax expense of $223,000 for the six months ended March 31, 1999. This
decrease is due to decreased income before taxes.
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, 2000, 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, 2000 _____________________________________
William R. Faulk
President and Chief Executive Officer
Date: May 15, 2000 _____________________________________
Beth B. Knight
Secretary and Treasurer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 878
<INT-BEARING-DEPOSITS> 4,999
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,286
<INVESTMENTS-CARRYING> 223
<INVESTMENTS-MARKET> 224
<LOANS> 47,732
<ALLOWANCE> 824
<TOTAL-ASSETS> 65,972
<DEPOSITS> 56,025
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 269
<LONG-TERM> 0
0
0
<COMMON> 11
<OTHER-SE> 8,667
<TOTAL-LIABILITIES-AND-EQUITY> 65,972
<INTEREST-LOAN> 1,913
<INTEREST-INVEST> 357
<INTEREST-OTHER> 85
<INTEREST-TOTAL> 2,355
<INTEREST-DEPOSIT> 1,063
<INTEREST-EXPENSE> 1,063
<INTEREST-INCOME-NET> 1,292
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 881
<INCOME-PRETAX> 497
<INCOME-PRE-EXTRAORDINARY> 497
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 304
<EPS-BASIC> .42
<EPS-DILUTED> .39
<YIELD-ACTUAL> 4.02
<LOANS-NON> 82
<LOANS-PAST> 0
<LOANS-TROUBLED> 79
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 781
<CHARGE-OFFS> 0
<RECOVERIES> 43
<ALLOWANCE-CLOSE> 824
<ALLOWANCE-DOMESTIC> 96
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 728
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