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, 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 December
31, 1999
Common Stock, $.01 par value 1,017,849 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, 1999 (UNAUDITED) AND SEPTEMBER 30, 1999
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) 3
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998 4
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,
1999 1999
(unaudited)
CASH AND CASH EQUIVALENTS $ 5,155 $ 4,118
SECURITIES AVAILABLE FOR SALE, at fair value 11,499 11,343
SECURITIES HELD TO MATURITY, fair values of
$739 and $755, respectively 737 751
LOANS RECEIVABLE, net 46,053 44,838
PREMISES AND EQUIPMENT 332 316
OTHER ASSETS 1,476 1,419
Total assets $65,252 $62,785
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $55,365 $53,904
BORROWED FUNDS 1,000 0
OTHER LIABILITIES 162 229
Total liabilities 56,527 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 10,822 10,821
Retained earnings 3,225 3,158
Unrealized loss on securities
available for sale (109) (66)
Treasury stock (1,485) (1,455)
Unearned compensation (3,739) (3,817)
Total stockholders' equity 8,725 8,652
Total liabilities and stockholders' equity $65,252 $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
December 31,
1999 1998
(unaudited)
INTEREST INCOME:
Interest and fees on loans $ 933 $1,010
Interest and dividends on
securities 178 143
Other interest income 36 109
Total interest income 1,147 1,262
INTEREST EXPENSE:
Interest on deposits 520 580
Total interest expense 520 580
Net interest income 627 682
PROVISION FOR LOAN LOSSES 0 0
Net interest income after
provision for loan losses 627 682
NONINTEREST INCOME:
Customer service fees 43 42
Total noninterest income 43 42
NONINTEREST EXPENSE:
Compensation and benefits 268 260
Occupancy and equipment 24 36
Deposit insurance expense 8 8
Other operating expense 127 133
Total noninterest expense 427 437
Income before income taxes 243 287
PROVISION FOR INCOME TAXES 92 127
NET INCOME 151 160
BASIC EARNINGS PER SHARE $.21 $.20
DILUTED EARNINGS PER SHARE $.20 $.19
DIVIDEND DECLARED PER SHARE $ .0825 $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>
Three Months Ended
December 31,
1999 1998
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 151 $ 160
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 16 12
Amortization and accretion on securities 14 18
Amortization of unearned compensation 79 77
Change in assets and liabilities:
Other assets (31) (62)
Other liabilities (68) 45
Total adjustments 10 90
Net cash provided by operating activities 161 250
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/calls of securities,
available for sale 275 886
Proceeds from maturities/calls of securities,
held to maturity 0 449
Purchases of securities, available for sale (500) 0
Net loan (originations) repayments (1,215) 31
Capital expenditures (32) ( 8)
Net cash provided by (used in)
investing activities (1,472) 1,358
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits 1,461 1,261
Contributions to Plan trusts 0 ( 685)
Proceeds from borrowed funds 1,000 2,781
Purchase of treasury stock ( 30) 0
Dividends paid ( 83) (2,097)
Net cash provided by financing activities 2,348 1,260
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,037 2,868
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,118 9,591
CASH AND CASH EQUIVALENTS AT END OF PERIOD $5,155 $12,459
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 December 31, 1999 and 1998, 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, 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, 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-month periods ended December 31, 1999 and 1998.
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 months ended December 31, 1999 and 1998:
Per Share
For the Three Months Ended Income Shares Amount
December 31, 1999:
Net income $151,000
Basic earnings per share:
Income available to common
shareholders 151,000 728,644 $.21
Dilutive securities 0 43,797 0
Diluted earnings per share $151,000 772,441 $.20
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
3. PENDING ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards 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 December 31, 1999 and
September 30, 1999. Total assets increased by $2.5 million or 3.9%
Liabilities increased by $2.4 million or 4.4%, primarily due to an
increase in deposits of $1.4 million and an increase in borrowed funds
of $1.0 million. These funds were used to fund a $1.0 million, or
25.2%, increase in cash and to fund the $1.3 million increase in loans
receivable.
Comparison of Results of Operations for the Three Months Ended
December 31, 1999 and 1998. The Company reported net income for the
three months ended December 31, 1999 of $151,000 as compared to $160,000
for the three months ended December 31, 1998.
Net Interest Income. Net interest income for the three months
ended December 31, 1999 amounted to $627,000 as compared to $682,000
for the three months ended December 31, 1998. Net interest income
after provision for loan losses decreased $55,000 or 8.0%, during the
three months ended December 31, 1999 as compared to the prior year period.
This decrease resulted primarily from a decrease in the average balance
of interest earning assets during the three months ended December 31, 1999
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, 1999 or 1998.
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, 1999 and September 30, 1999, the
Company and the Association were in compliance with all regulatory
capital requirements.
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.
Subsequent to December 31, 1999, the transition into the Year 2000
occurred and only minor problems were experienced. The problems were remedied
quickly and there was no effect on the Company's financial position. The
Company continues to monitor its computer systems to ensure they are
operating properly.
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, 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: February 15, 2000 _____________________________________
William R. Faulk
President and Chief Executive Officer
Date: February 15, 2000 _____________________________________
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-30-1999
<PERIOD-END> DEC-30-1999
<CASH> 1,059
<INT-BEARING-DEPOSITS> 4,096
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,499
<INVESTMENTS-CARRYING> 737
<INVESTMENTS-MARKET> 739
<LOANS> 46,834
<ALLOWANCE> 781
<TOTAL-ASSETS> 65,252
<DEPOSITS> 55,365
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 162
<LONG-TERM> 0
0
0
<COMMON> 11
<OTHER-SE> 8,714
<TOTAL-LIABILITIES-AND-EQUITY> 65,252
<INTEREST-LOAN> 933
<INTEREST-INVEST> 178
<INTEREST-OTHER> 36
<INTEREST-TOTAL> 1,147
<INTEREST-DEPOSIT> 520
<INTEREST-EXPENSE> 520
<INTEREST-INCOME-NET> 627
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 427
<INCOME-PRETAX> 243
<INCOME-PRE-EXTRAORDINARY> 243
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151
<EPS-BASIC> .21
<EPS-DILUTED> .20
<YIELD-ACTUAL> 3.84
<LOANS-NON> 88
<LOANS-PAST> 9
<LOANS-TROUBLED> 80
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 781
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 781
<ALLOWANCE-DOMESTIC> 96
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 685
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