<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- -----------
Commission File No. 333-35548
-----------------------------
SOUTHERN COMMUNITY BANCORP
--------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Florida 59-3619325
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
250 North Orange Avenue, Orlando, Florida 32801
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(407) 649-1844
------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer: (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 [ ] No [X]
As of September 30, 2000, the issuer had 1,090,408 outstanding shares of common
stock, par value $1.00 per share.
<PAGE> 2
SOUTHERN COMMUNITY BANCORP
FORM 10-QSB
June 30, 2000
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited).
Condensed Consolidated Balance Sheets -
June 30, 2000 and 1999 (unaudited) and December 31, 1999........................................... 4
Condensed Consolidated Statements of Operations (Unaudited) -
Three Months Ended June 30, 2000 and 1999.......................................................... 6
Six Months Ended June 30, 2000 and 1999............................................................ 7
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 2000 and 1999............................................................ 8
Condensed Consolidated Statement of Changes in Stockholders'
Equity (unaudited) for the Six Months Ended June 30, 2000.......................................... 9
Notes to Condensed Consolidated Financial Statements (Unaudited)...................................10
Review by Independent Certified Public Accountants.................................................13
Report on Review by Independent Certified Public Accountants.......................................14
Item 2. Management's Discussion and Analysis....................................................................15
PART II: OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds...............................................................24
Item 4. Submission of Matters to a Vote of Security Holders.....................................................25
Item 5. Other Information.......................................................................................25
Item 6. Exhibits and Reports on Form 8-K........................................................................25
Signatures......................................................................................................26
</TABLE>
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
3
<PAGE> 4
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
At June 30,
-------------------------------
2000 1999
------------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,235,598 1,487,386
Federal funds sold 6,067,000 3,064,000
------------- -----------
Cash and cash equivalents 10,302,598 4,551,386
Securities available for sale 16,162,998 4,502,063
Loans receivable, net of allowance for loan losses of
$1,042,000 in 2000 and $195,000 in 1999 102,564,030 23,416,424
Accrued interest receivable 865,653 175,812
Federal Home Loan Bank stock, at cost 212,400 --
Premises and equipment, net 6,457,226 3,870,944
Deferred income tax asset 790,687 488,545
Other assets 174,522 147,539
------------- -----------
Total assets $ 137,530,114 37,152,713
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 15,347,964 4,336,920
Money-market deposits 18,310,789 9,779,173
Savings and NOW deposits 13,468,706 4,515,031
Time deposits 74,694,974 4,858,448
------------- -----------
Total deposits 121,822,433 23,489,572
Official checks 3,240,724 1,415,790
Accrued interest payable and other liabilities 530,076 218,076
------------- -----------
Total liabilities 125,593,233 25,123,438
------------- -----------
Stockholders' equity:
Common stock, $1 par value, 10,000,000 shares
authorized, 890,298 and 860,889 shares
issued and outstanding in 2000 and 1999 890,298 860,889
Additional paid-in capital 12,464,172 12,043,646
Accumulated deficit (1,109,339) (757,967)
Accumulated other comprehensive income (loss) (308,250) (117,293)
------------- -----------
Total stockholders' equity 11,936,881 12,029,275
------------- -----------
Total liabilities and stockholders' equity $ 137,530,114 37,152,713
============= ===========
</TABLE>
4
<PAGE> 5
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31,
---------------
1999
<S> <C>
ASSETS
Cash and due from banks $ 4,519,649
Federal funds sold --
------------
Cash and cash equivalents 4,519,649
Securities available for sale 11,997,900
Loans receivable, net of allowance for loan losses of
$621,000 61,362,573
Accrued interest receivable 554,036
Federal Home Loan Bank stock, at cost 212,400
Premises and equipment, net 4,317,768
Deferred income tax asset 811,146
Other assets 88,696
------------
Total assets $ 83,864,168
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 10,768,768
Money-market deposits 14,051,702
Savings and NOW deposits 5,757,244
Time deposits 34,485,277
------------
Total deposits 65,062,991
Federal funds purchased 6,000,000
Official checks 662,237
Accrued interest payable and other liabilities 300,453
------------
Total liabilities 72,025,681
------------
Stockholders' equity:
Common stock, $1 par value, 10,000,000 shares
authorized, 884,425 shares issued and
outstanding 884,425
Additional paid-in capital 12,381,950
Accumulated deficit (1,225,661)
Accumulated other comprehensive income (loss) (202,227)
------------
Total stockholders' equity 11,838,487
------------
Total liabilities and stockholders' equity $ 83,864,168
============
</TABLE>
5
<PAGE> 6
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Interest income:
Loans receivable $2,270,781 516,702
Securities available for sale 284,645 57,688
Other interest-earning assets 162,822 56,340
---------- ----------
Total interest income 2,718,248 630,730
---------- ----------
Interest expense-
Deposits 1,407,198 136,863
---------- ----------
Net interest income 1,311,050 493,867
Provision for loan losses 243,000 104,000
---------- ----------
Net interest income after provision for loan losses 1,068,050 389,867
---------- ----------
Noninterest income:
Service charges on deposit accounts 59,407 5,452
Other service charges and fees 63,350 9,807
---------- ----------
Total noninterest income 122,757 15,259
---------- ----------
Noninterest expense:
Salaries and employee benefits 481,238 405,518
Occupancy and equipment expense 225,114 157,797
Data processing 62,531 16,783
Printing and office supplies 38,814 56,867
Marketing and advertising 46,582 18,751
Professional fees 24,496 42,347
Telephone 21,136 14,092
Travel and entertainment 22,444 10,067
Other 92,179 35,164
---------- ----------
Total noninterest expense 1,014,534 757,386
---------- ----------
Earnings (loss) before income tax provision (benefit) 176,273 (352,260)
Income tax provision (benefit) 70,509 (141,355)
---------- ----------
Net earnings (loss) $ 105,764 (210,905)
========== ==========
Basic and diluted earnings (loss) per share $ .12 (.25)
========== ==========
Weighted-average number of common shares outstanding for
basic 890,298 860,475
========== ==========
Weighted-average number of common shares outstanding
for diluted 906,386 860,475
========== ==========
</TABLE>
6
<PAGE> 7
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Interest income:
Loans receivable $ 3,901,230 741,625
Securities available for sale 506,148 74,338
Other interest-earning assets 268,492 175,056
------------ ------------
Total interest income 4,675,870 991,019
------------ ------------
Interest expense:
Deposits 2,331,822 203,953
Other borrowings 42,859 --
------------ ------------
Total interest expense 2,374,681 203,953
------------ ------------
Net interest income 2,301,189 787,066
Provision for loan losses 421,000 183,000
------------ ------------
Net interest income after provision for loan losses 1,880,189 604,066
------------ ------------
Noninterest income:
Service charges on deposit accounts 112,047 6,121
Other service charges and fees 103,241 10,879
------------ ------------
Total noninterest income 215,288 17,000
------------ ------------
Noninterest expense:
Salaries and employee benefits 905,692 724,418
Occupancy and equipment expense 444,468 269,023
Data processing 118,861 34,332
Printing and office supplies 66,295 92,802
Marketing and advertising 89,644 61,796
Professional fees 48,754 59,896
Telephone 40,372 27,657
Travel and entertainment 38,265 20,507
Other 149,255 91,082
------------ ------------
Total noninterest expense 1,901,606 1,381,513
------------ ------------
Earnings (loss) before income tax provision (benefit) 193,871 (760,447)
Income tax provision (benefit) 77,549 (286,156)
------------ ------------
Net earnings (loss) $ 116,322 (474,291)
============ ============
Basic and diluted earnings (loss) per share $ .13 (.56)
============ ============
Weighted-average number of common shares outstanding for
basic 888,830 849,448
============ ============
Weighted-average number of common shares outstanding
for diluted 904,918 849,448
============ ============
</TABLE>
7
<PAGE> 8
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 116,322 (474,291)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Provision for loan losses 421,000 183,000
Depreciation and amortization 153,321 52,008
Deferred income taxes 77,549 (286,156)
Accretion of discounts on securities (19,545) (1,014)
Common stock issued as compensation 3,750 --
Increase in accrued interest receivable (311,617) (144,751)
Increase in other assets (85,826) (30,791)
Increase in official checks 2,578,487 380,405
Increase in accrued interest payable and other liabilities 229,623 153,327
------------ ------------
Net cash provided by (used in) operating activities 3,163,064 (168,263)
------------ ------------
Cash flows from investing activities:
Repayments of securities available for sale 74,314 --
Purchases of securities available for sale (4,382,980) (4,672,700)
Net increase in loans (41,622,457) (22,396,819)
Purchases of premises and equipment (2,292,779) (2,072,880)
------------ ------------
Net cash used in investing activities (48,223,902) (29,142,399)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 56,759,442 20,215,968
Net decrease in Federal funds purchased (6,000,000) --
Proceeds from issuance of common stock 84,345 388,160
------------ ------------
Net cash provided by financing activities 50,843,787 20,604,128
------------ ------------
Net increase (decrease) in cash and cash equivalents 5,782,949 (8,706,534)
Cash and cash equivalents at beginning of period 4,519,649 13,257,920
------------ ------------
Cash and cash equivalents at end of period $ 10,302,598 4,551,386
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,261,860 187,511
============ ============
Income taxes $ -- --
============ ============
Noncash investing activities -
Change in accumulated other comprehensive income (loss),
unrealized loss on securities available for sale, net of tax $ (106,023) (117,293)
============ ============
</TABLE>
8
<PAGE> 9
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPRE-
ADDITIONAL HENSIVE TOTAL
COMMON PAID-IN ACCUMULATED INCOME STOCKHOLDERS'
STOCK CAPITAL DEFICIT (LOSS) EQUITY
---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 884,425 12,381,950 (1,225,661) (202,227) 11,838,487
-------------
Comprehensive income (loss):
Net earnings for the period
(unaudited) -- -- 116,322 -- 116,322
Net change in unrealized loss on
securities available for sale, net
of tax (unaudited) -- -- -- (106,023) (106,023)
-------------
Comprehensive income
(unaudited) 10,299
-------------
Stock issued to officer as compensation
(250 shares) (unaudited) 250 3,500 -- -- 3,750
Sale of common stock in connection
with 401(k) Profit Sharing Plan
(4,637 shares) (unaudited) 4,637 64,918 -- -- 69,555
Sale of common stock in connection
with Employee Stock Purchase
Plan (986 shares) (unaudited) 986 13,804 -- -- 14,790
---------- ----------- ----------- ------------ -------------
Balance at June 30, 2000 $ 890,298 12,464,172 (1,109,339) (308,250) 11,936,881
========== =========== =========== ============ =============
</TABLE>
9
<PAGE> 10
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL. In the opinion of the management of Southern Community Bancorp, the
accompanying condensed consolidated financial statements contain all
adjustments (consisting principally of normal recurring accruals)
necessary to present fairly the financial position at June 30, 2000 and
1999, the results of operations for the three-month and six-month
periods then ended and statement of cash flows for the six-month period
then ended. The results of operations and other data for the six months
ended June 30, 2000 are not necessarily indicative of the results to be
expected for the year ending December 31, 2000.
Southern Community Bancorp (the "Holding Company") owns 100% of the
outstanding common stock of Southern Community Bank (the "Bank"), the
Bank owns 100% of the outstanding common stock of Southern Community
Insurance Agency, Inc. (the "Insurance Agency") (collectively the
"Company"). The Holding Company operates as a one-bank holding company.
On April 15, 1999, the Bank's stockholders approved a plan of corporate
reorganization under which the Bank would become a wholly-owned
subsidiary of the Holding Company. The Holding Company was formed on
July 30, 1999. The Bank's stockholders exchanged their common shares
for shares of the Holding Company. As a result, all of the previously
issued $7.50 par value common shares of the Bank were exchanged for
834,425 shares of the $1.00 par value common shares of the Holding
Company. The Holding Company's acquisition of the Bank was accounted
for similar to a pooling of interests.
The Holding Company's only business activity is the operation of the Bank.
The Bank is a state (Florida) chartered commercial bank. The Bank
offers a variety of financial services to individual and corporate
customers through its four banking offices located in Orange and
Seminole Counties, Florida. The deposits of the Bank are insured by the
Federal Deposit Insurance Corporation ("FDIC") through the Bank
Insurance Fund ("BIF"). The Insurance Agency was formed in 2000 as a
wholly-owned subsidiary of the Bank. The Insurance Agency refers
customers to the Bank to certain insurance agencies for the purchase of
insurance products.
2. LOAN IMPAIRMENT AND LOAN LOSSES. There were no impaired loans recognized
under SFAS 114 and 118 during the six months ended June 30, 2000 or
1999. The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Balance at beginning of period $ 621,000 12,000
Provision charged to earnings 421,000 183,000
----------- -----------
Balance at end of period $ 1,042,000 195,000
=========== ===========
</TABLE>
(continued)
10
<PAGE> 11
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
3. EARNINGS (LOSS) PER SHARE . Basic earnings (loss) per share of common
stock has been computed on the basis of the weighted-average number of
shares of common stock outstanding. Diluted earnings per share is
computed by dividing net earnings by the weighted-average number of
shares outstanding including the dilutive effect of stock options
computed using the treasury stock method. For the three and six months
ended June 30, 1999 outstanding stock options are not considered dilutive
securities for purposes of calculating diluted loss per share. The
following table presents the calculation of basic and diluted
weighted-average number of shares:
<TABLE>
<CAPTION>
WEIGHTED- PER
AVERAGE SHARE
EARNINGS SHARES AMOUNT
-------- --------- ------
<S> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 2000:
Basic EPS:
Net earnings available to common stockholders $ 106 890,298 $ .12
======
Effect of dilutive securities-
Incremental shares from assumed exercise of options 16,088
---------
Diluted EPS:
Net earnings available to common stockholders and
Assumed conversions $ 106 906,386 $ .12
======== ========= ======
SIX MONTHS ENDED JUNE 30, 2000:
Basic EPS:
Net earnings available to common stockholders $ 116 888,830 $ .13
======
Effect of dilutive securities-
Incremental shares from assumed exercise of options 16,088
---------
Diluted EPS:
Net earnings available to common stockholders and
Assumed conversions $ 116 904,918 $ .13
======== ========== ======
</TABLE>
4. REGULATORY CAPITAL. The Bank is required to maintain certain minimum
regulatory capital requirements. The following is a summary at June 30,
2000 of the regulatory capital requirements and the Bank's actual capital
on a percentage basis:
<TABLE>
<CAPTION>
REGULATORY
ACTUAL REQUIREMENT
------ -----------
<S> <C> <C>
Total capital to risk-weighted assets 10.83% 8.00%
Tier I capital to risk-weighted assets 9.98% 4.00%
Tier I capital to total assets - leverage ratio 9.42% 4.00%
</TABLE>
5. OTHER EVENTS. The Company purchased two parcels of land for future branch
sites in the Bonita Springs, Florida area for approximately $1.9
million during the six months ended June 30, 2000.
11
<PAGE> 12
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
6. SUBSEQUENT EVENTS. In September 2000, the Company entered into a contract for
the purchase of a branch location located in Southwest Florida for a
purchase price of $1,550,000. The transaction is expected to close in
November 2000.
On September 22, 2000, the Holding Company entered into a letter of
intent with Peninsula Bancorp, Inc. ("Peninsula") with respect to the
possible merger of the Holding Company and Peninsula. Peninsula is the
parent company of Peninsula Bank of Central Florida, a state bank with
two offices in Volusia County, Florida. The letter of intent provides
that the Holding Company will issue shares of its common stock to the
shareholders of Peninsula upon the consummation of the merger. On the
effective date of the merger, each share of Peninsula common stock will
be converted into .625 shares of the common stock of the Holding
Company. This transaction is subject to the negotiation and execution
of a definitive merger agreement, due diligence by each party,
regulatory approvals and the approval by the shareholders of Peninsula.
12
<PAGE> 13
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARY
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Hacker, Johnson & Smith PA, the Company's independent certified public
accountants, have made a limited review of the financial data as of June 30,
2000 and 1999 and for the three- and six- month periods ended June 30, 2000 and
1999 presented in this document, in accordance with standards established by the
American Institute of Certified Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
13
<PAGE> 14
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Southern Community Bancorp
Orlando, Florida:
We have reviewed the accompanying condensed consolidated balance sheets of
Southern Community Bancorp and Subsidiary (the "Company") as of June 30, 2000
and 1999, and the related condensed consolidated statements of operations for
the three- and six-month periods ended June 30, 2000 and 1999, the related
condensed consolidated statements of cash flows for the six-month periods ended
June 30, 2000 and 1999, and the related condensed consolidated statement of
stockholders' equity for the six-month period ended June 30, 2000. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquires of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended (not presented herein); and in our report dated January
26, 2000 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1999, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
HACKER, JOHNSON & SMITH PA
Tampa, Florida
October 6, 2000
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Form 10-QSB contains "forward looking statements" which represent
the Company's expectations and beliefs including, but not limited to, statements
concerning the Company's operations, performance, financial condition, growth or
strategies. For this purpose, any statements contained in this Form 10-QSB that
are not statements of historical fact may be deemed to be forward looking
statements. Without limiting the generality of the foregoing, words such "may",
"will", "expect", "believe", "estimate", "anticipate" or "continue" or the
negative or other variations thereof or comparable terminology are intended to
identify forward looking statements. The statements by their nature involve
substantial risks and uncertainties, certain of which are beyond the Company's
control, and actual results may differ materially depending on a variety of
important factors, including but not limited to the potential impact of changes
in interest rates, competition, credit risks and collateral, changes in local or
regional economic conditions, the ability of the Company to continue its growth
strategy, dependence on management and key personnel, and regulatory
supervision.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
The Company's consolidated net earnings for the second quarter of 2000
was $106,000, compared to a net loss of $211,000 for the same period in 1999.
Net earnings (loss) per common share was $.12 in 2000 and $(.25) in 1999.
NET INTEREST INCOME. Net interest income is defined as the total of
interest income on earning assets less interest expense on deposits and other
interest-bearing liabilities. Earning assets, which consist of loans, investment
securities and federal funds sold, are financed by a large base of interest-
bearing funds in the form of money market, NOW, savings and time deposits.
Earning assets are also funded by the net amount of non-interest related funds,
which consist of non-interest bearing demand deposits, the allowance for loan
losses and stockholders' equity, reduced by non-interest bearing assets such as
cash and due from banks, and premises and equipment.
Net interest income is primarily affected by changes in the amounts and
types of earning assets, interest-bearing funds and net non-interest related
funds, as well as their relative sensitivity to interest rate movements.
Net interest income for the second quarter of 2000 was $1,311,000, up
165.4% from $494,000 in 1999. Interest income from earning assets increased from
$631,000 in the second quarter of 1999 to $2,718,000 in the second quarter of
2000. This increase was due to an increase in the average balance of loans
receivable and investments.
Interest expense on interest bearing liabilities increased from
$137,000 in the second quarter of 1999 to $1,407,000 in the second quarter of
2000. This increase was primarily due to an increase in the average balance of
deposits.
15
<PAGE> 16
NONINTEREST INCOME. Noninterest income in the second quarter of 1999
totaled $15,000, compared with $123,000 in 2000. Customer service charges
totaled $59,000 in 2000, up from $5,000 in 1999 due to an increase in the number
of deposit accounts.
SECURITIES AVAILABLE FOR SALE. At June 30, 2000, the Company held
investment securities with a market value of $16.2 million, which was $474,000
lower than the amortized cost of the portfolio. This difference consisted of
$474,000 of gross unrealized losses.
PROVISION FOR LOAN LOSSES. The provision for loan losses totaled
$243,000 in the second quarter of 2000 compared to $104,000 in 1999. See
"Allowance and Provision for Loan Losses."
NONINTEREST EXPENSES. Noninterest expenses for the second quarter of
2000 totaled $1,015,000, which was up 34.1% from $757,000 in 1999. Non-interest
expenses are discussed below in more detail.
Salaries and employee benefits represented 47.4% of total non-interest
expenses in 2000. Salaries and employee benefits increased 18.5% to $481,000 in
2000 from $406,000 in 1999. These increases were the result of new employees,
salary increases, higher benefit costs and upgrading of personnel.
Occupancy and equipment expense in 2000 totaled $225,000, up 42.4% from
$158,000 in 1999. The increase was due to the opening of two additional banking
offices in the second half of 1999.
Other expenses for the second quarter of 2000 totaled $92,000, up 163%
from $35,000 in 1999. This category of expenses were impacted by the general
growth of the Company.
INCOME TAX PROVISION (BENEFIT). The income tax provision totaled
$71,000 in 2000 compared with an income tax benefit of $(141,000) in 1999.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
The Company's consolidated net earnings for the first half of 2000 was
$116,000, compared to a net loss of $474,000 for the same period in 1999. Net
earnings (loss) per common share was $.13 in 2000 and $(.56) in 1999.
Net interest income for the first half of 2000 was $2,301,000, up 192.4%
from $787,000 in 1999. Interest income from earning assets increased from
$991,000 in the first half of 1999 to $4,676,000 in the first half of 2000. This
increase was due to an increase in average loans receivable and investments.
Interest expense on interest bearing liabilities increased from $204,000
in the first half of 1999 to $2,375,000 in the first half of 2000. This increase
was primarily due to an increase in average deposits.
16
<PAGE> 17
NONINTEREST INCOME. Noninterest income in the first half of 1999
totaled $17,000, compared with $215,000 in 2000. Customer service charges
totaled $112,000 in 2000, up from $6,000 in 1999 due to an increase in the
number of deposit accounts.
PROVISION FOR LOAN LOSSES. The provision for loan losses totaled
$421,000 in the first half of 2000 compared to $183,000 in 1999. See "Allowance
and Provision for Loan Losses."
NONINTEREST EXPENSES. Noninterest expenses for the first half of 2000
totaled $1.9 million, which was up 35.7% from $1.4 million in 1999. Non-interest
expenses are discussed below in more detail.
Salaries and employee benefits represented 47.6% of total non-interest
expenses in 2000. Salaries and employee benefits increased 25.1% to $906,000 in
2000 from $724,000 in 1999. These increases were the result of new employees,
salary increases, higher benefit costs and upgrading of personnel.
Occupancy and equipment expense in 2000 totaled $444,000, up 65.1% from
$269,000 in 1999. The increase was due to the opening of two additional banking
offices during the second half of 1999.
Other expenses for the second quarter of 2000 totaled $149,000, up 63.7%
from $91,000 in 1999. This category of expenses were impacted by the general
growth of the Company.
INCOME TAX PROVISION (BENEFIT). The income tax provision totaled
$78,000 in 2000 compared with an income tax benefit of $(286,000) in 1999.
CAPITAL EXPENDITURES
The Company's capital expenditures are reviewed by its Board of
Directors. The Company makes capital expenditures in order to improve its
ability to provide quality services to its customers. Capital expenditures for
the six months ended June 30, 2000 equaled $2.3 million compared to $2.1 million
in 1999, and were principally related to purchase and construction of new
branches.
ASSET QUALITY AND CREDIT RISK
SECURITIES AVAILABLE FOR SALE. The Company maintains a high quality
investment portfolio including securities of U.S. government entities and
mortgage-backed securities. The Company believes that the securities have very
little risk of default. At June 30, 2000, 100% of the securities held in the
Company's investment portfolio were classified available for sale and were rated
"A" or better (with a majority rated triple "A"). A rating of "A" or better
means that the bonds are of "upper medium grade, with strong ability to repay,
possibly with some susceptibility to adverse economic conditions or changing
circumstances." Ratings are assigned by independent rating agencies and are
subject to the accuracy of reported information concerning the issuers and the
subjective judgment and analysis of the rating agencies. They are not a
guarantee of collectibility.
17
<PAGE> 18
The following table sets forth information regarding the composition of
the investment portfolio for June 30, 2000 and 1999 (amounts in thousands).
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
June 30,
--------------------------------
2000 1999
---- ----
(amount in thousands)
<S> <C> <C>
Securities of other U.S. Government 16,163 4,502
agencies and corporations ====== =====
</TABLE>
LOANS RECEIVABLE. The Company maintains a high quality portfolio of
real estate, commercial and consumer loans. All loans are reviewed and approved
by the Company's loan committee, which ensures that loans comply with applicable
credit standards. In most cases, the Company requires collateral from the
borrower. The type and amount of collateral varies but may include residential
or commercial real estate, deposits held by financial institutions, U.S.
Treasury securities, other marketable securities and personal property.
Collateral values are monitored to ensure that they are maintained at proper
levels.
As of June 30, 2000, approximately 73% of all the Company's loans were
real estate loans secured by real estate in Central Florida. This level of
concentration could present a potential credit risk to the Company because the
ultimate collectibility of these loans is susceptible to adverse changes in real
estate market conditions in this market. The Company has addressed this risk by
limiting most loans to a maximum of 70% of the appraised value of the underlying
real estate and maximum amortization schedules of 20 years.
18
<PAGE> 19
The following table divides the Company's loan portfolio into four
categories. Most of the loans are short-term and may be renewed or rolled over
at maturity. At that time, the Company undertakes a complete review of the
borrower's credit worthiness and the value of any collateral. If these items are
satisfactory, the Company will generally renew the loan at prevailing interest
rates.
TYPES OF LOANS
<TABLE>
<CAPTION>
June 30,
-----------------------------------
2000 1999
---- ----
(amounts in thousands)
<S> <C> <C>
Commercial, financial and agriculture $ 24,595 4,320
Real estate - construction 32,797 3,648
Commercial real estate - mortgage 34,490 10,637
Residential real estate - mortgage 8,226 4,498
Installment loans 4,009 508
Overdrafts 8 --
--------- ------
Gross loans 104,125 23,611
Less:
Allowance for loan losses (1,042) (195)
Deferred fees and other discounts (519) --
-------- ------
Total loans $ 102,564 23,416
========= ======
</TABLE>
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS. The Company makes
commercial, financial and agricultural loans to businesses located in Central
Florida. The credit risk associated with business lending is influenced by
general economic conditions, the deterioration in a borrower's capital position
resulting in increasing debt to equity ratios, deterioration in a borrower's
cash position resulting in a liquidity problem, and decreasing revenues due to
inefficient operations of the borrower. These loans are generally secured by
corporate assets, marketable securities or other liquid financial instruments.
These loans totaled approximately $24.6 million at June 30, 2000, and $4.3
million at June 30, 1999.
REAL ESTATE CONSTRUCTION LOANS. The Company makes real estate
construction loans from time to time for real estate projects located in Central
Florida. The Company generally requires security in the form of a mortgage on
the underlying real property and the improvements constructed
19
<PAGE> 20
thereon and personal guarantees. It attempts to limit its credit exposure to 75%
of the appraised value of the underlying real property. On June 30, 2000,
construction loans totaled $32.8 million. Risks associated with construction
loans include variations from vacancy projections, delays in construction,
environmental factors, reliability of subcontractors and timing and reliability
of inspections, and costs overruns.
COMMERCIAL REAL ESTATE MORTGAGE LOANS. The Company makes real estate
loans secured by commercial real estate, including loans to acquire or refinance
office buildings, warehouses and apartments. At June 30, 2000 the loans totaled
$34.5 million or 33.1% of total loans compared with $10.6 million or 45.1% of
total loans at June 30, 1999. Most of these loans have a maturity of five years
or less. Almost all of these loans are secured by real property located in
Central Florida. These loans generally require a loan-to-collateral value of not
more than 75%. Risks associated with commercial real estate mortgage loans
include reliability of appraisals, deterioration of market values, environmental
contamination, and accelerated depreciation of property due to deferred
maintenance.
RESIDENTIAL REAL ESTATE MORTGAGE LOANS. Residential real estate
mortgage loans totaled $8.2 million, or 7.9% of total loans at June 30, 2000,
compared with $4.5 million, or 19.1% at June 30, 1999. Residential real estate
mortgage loans are predominately adjustable rate home mortgages which generally
require a loan-to-collateral value of not more than 90% and equity credit lines
which generally limit the loan-to-collateral value to not more than 90%. Most
loans have a maximum term of five to seven years. Almost all of the residential
real estate mortgage loans are secured by homes in Central Florida. Risks
associated with residential real estate mortgage loans include reliability of
appraisals, deterioration of market values, environmental contamination, and
accelerated depreciation of property due to deferred maintenance.
INSTALLMENT LOANS. The Company offers consumer loans and personal and
secured loans. The security for these loans ordinarily consists of automobiles,
consumer goods, marketable securities, certificates of deposit and similar
items. These loans totaled approximately $4.0 million, or 3.9% of total loans,
on June 30, 2000, compared with $0.5 million, or 0.2% of total loans, on June
30, 1999. Risks associated with installment loans include loss of employment of
borrowers, declines in the financial condition of borrowers resulting in
delinquencies, and rapid depreciation of loan collateral.
COMMITMENTS. Legally binding commitments to extend credit and letters
of credit totaled $42,764,000 at June 30, 2000.
NON-PERFORMING ASSETS AND PAST DUE LOANS
Non-performing assets consist of non-accrual loans and residential and
commercial properties acquired in partial or total satisfaction of problem loans
which are known as "other real estate owned" or "OREO." Past due loans are loans
that are delinquent 30 days or more which are still accruing interest.
20
<PAGE> 21
Maintaining a low level of non-performing assets is important to the
ongoing success of any financial institution. The Company's credit review and
approval process is critical to the Company's ability to minimize non-performing
assets on a long term basis. In addition to the negative impact on interest
income, non-performing assets also increase operating costs due to the expense
of collection efforts. It is the Company's policy to place all loans which are
past due 90 days or more on non-accrual status, subject to exceptions made on a
case by case basis.
The following table presents the Company's non-performing assets and
past due loans for 2000 and 1999.
NON-PERFORMING ASSETS AND 90 DAY PAST DUE LOANS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
2000 1999
---- ----
(amounts in thousands)
<S> <C> <C>
Nonaccrual loans -- --
OREO, net -- --
--------- ----
Total nonperforming assets -- --
========= ====
Accruing loans past due $ 541,000 --
90 days ========= ====
</TABLE>
Of the total loan portfolio of $102.6 million at June 30, 2000,
$541,000 or .52%, was non-performing or past due 90 days, representing an
increase of $541,000 from June 30, 1999. Non-performing loans at June 30, 2000
consisted of commercial and residential real estate loans.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The Company evaluates the adequacy of its allowance for loan losses as
part of its ongoing credit review and approval process. The review process is
intended to identify, as early as possible, customers who may be facing
financial difficulties. Once identified, the extent of the client's financial
difficulty is carefully monitored by the Company's loan review officer, who
recommends to the directors loan committee the portion of any credit that needs
a specific reserve allocation or should be charged off. Other factors considered
by the loan committee in evaluating the adequacy of the allowance include
overall loan volume, historical net loan loss experience, the level and
composition of non-accrual and past due loans, local economic conditions, and
value of any collateral. From time to time, specific amounts of the reserve are
designated for certain loans in connection with the loan committee's review
officer's analysis of the adequacy of the allowance for loan losses.
While the largest portion of this allowance is typically intended to
cover specific loan losses, it is considered a general reserve which is
available for all credit-related purposes. The allowance
21
<PAGE> 22
is not a precise amount, but is derived based upon the above factors and
represents management's best estimate of the amount necessary to adequately
cover probable losses from current credit exposures. The provision for loan
losses is a charge against current earnings and is determined by management as
the amount needed to maintain an adequate allowance.
The overall credit quality of the loan portfolio is good as evidenced
by the Company's lack of any nonperforming loans. Management relied on these
factors, as well as its assessment of the financial condition of specific
clients facing financial difficulties, in deciding to increase the allowance for
loan losses to $1,042,000 at June 30, 2000, from $621,000 at December 31, 1999
and $195,000 at June 30, 1999.
FINANCIAL CONDITION
The Company's goal is to maintain a high quality and liquid balance
sheet. The Company seeks to achieve this objective through increases in
collateralized loans, a strong portfolio of real estate loans and a stable
portfolio of investment securities of high quality.
SECURITIES AVAILABLE FOR SALE. On June 30, 2000, securities available
for sale were $16.2 million or 12.92% of total earning assets. The Company's
management strategy for its investment account is to maintain a very high
quality portfolio. The investment portfolio, all of which has been classified as
available for sale, increased 260.0% from $4.5 million in the second quarter of
1999 to $16.2 million in the second quarter of 2000.
LOANS RECEIVABLE. Loans receivable were $102.6 million as of June 30,
2000, compared to $23.4 million as of June 30, 1999. See "Asset Quality and
Credit Risk -- Loans," above.
INTEREST-BEARING LIABILITIES. Interest-bearing liabilities consist
solely of deposits. Total interest-bearing liabilities were $106.5 million at
June 30, 2000, up from $19.2 million in 1999. Money market deposits increased
$8.5 million or 87.2% to $18.3 million. Savings and NOW deposits increased $9.0
million or 198.0% compared to 1999. There was a significant increase in time
deposits of $69.8 million or 1437% compared to 1999. The increase in time
deposits was due to loan demand and growth.
LIQUIDITY AND RATE SENSITIVITY
The principal functions of asset and liability management are to provide
for adequate liquidity, to manage interest rate exposure by maintaining a
prudent relationship between rate sensitive assets and liabilities and to manage
the size and composition of the balance sheet so as to maximize net interest
income.
Liquidity is the ability to provide funds at minimal cost to meet
fluctuating deposit withdrawals or loan demand. These demands are met by
maturing assets and the capacity to raise funds from internal and external
sources. The Company primarily utilizes cash, federal funds sold
22
<PAGE> 23
and securities available for sale to meet its liquidity needs. Although not
utilized in managing daily liquidity needs, the sale of investment securities
provides a secondary source of liquidity.
Fluctuating interest rates, increased competition and changes in the
regulatory environment continue to significantly affect the importance of
interest-rate sensitivity management. Rate sensitivity arises when interest
rates on assets change in a different period of time or a different proportion
than that of interest rates on liabilities. The primary objective of
interest-rate sensitivity management is to prudently structure the balance sheet
so that movements of interest rates on assets and liabilities are highly
correlated and produce a reasonable net interest margin even in periods of
volatile interest rates.
Regular monitoring of assets and liabilities that are rate sensitive
within 30 days, 90 days, 180 days and one year is an integral part of the
Company's rate-sensitivity management process. It is the Company's policy to
maintain a reasonable balance of rate-sensitive assets and liabilities on a
cumulative one year basis, thus minimizing net interest income exposure to
changes in interest rates. The Company's sensitivity position at June 30, 2000
was such that net interest income would decline modestly if there were an
increase in short-term interest rates.
The Company monitors the interest rate risk sensitivity with
traditional gap measurements. The gap table has certain limitations in its
ability to accurately portray interest sensitivity; however, it does provide a
static reading of the Company's interest rate risk exposure.
As of June 30, 2000, the Company was liability sensitive (interest
sensitive liabilities subject to repricing exceeded interest sensitive assets
subject to repricing) on a 365-day basis to the extent of $32.1 million. This
negative gap at June 30, 2000 was 23.3% of total assets compared with 12.6% at
June 30, 1999. The primary cause for the increase in the negative gap was the
increase in the amount of interest sensitive deposits maturing within one year,
from $16.6 million in 1999 to $101.1 million in 2000 versus a smaller increase
in the amount of interest sensitive assets maturing within one year, from $11.9
million in 1999 to $69.0 million in 2000.
While the absolute level of gap is a measurement of interest rate risk,
the quality of the assets and liabilities in the balance sheet must be analyzed
in order to understand the degree of interest rate risk taken by the Company.
The Company does not invest in any derivative products in order to manage or
hedge its interest rate risk.
CAPITAL
One of management's primary objectives is to maintain a strong capital
position to merit the confidence of customers, bank regulators and stockholders.
A strong capital position helps the Company withstand unforeseen adverse
developments and take advantage of attractive lending and investment
opportunities when they arise.
The Company's tier one capital was 9.98% and the total capital was
10.83% of risk-based assets at June 30, 2000. These risk-based capital ratios
are well in excess of the minimum
23
<PAGE> 24
requirements of 4% for tier one and 8% for total risk-based capital ratios. All
of these capital ratios decreased during the second quarter of 2000 as equity
capital decreased by (.8)% and assets increased by 64.0%. The Company's leverage
ratio (tier one capital to total average quarterly assets) of 9.42% at June 30,
2000, is also in excess of the minimum 4% requirement.
The Company expects to increase its capital as a result of the offering
of its common stock, which commenced in July 2000. See Part II - Item 2 for
additional information on this offering.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On July 17, 2000, the Securities and Exchange Commission declared
effective the Company's Registration Statement on Form SB-2 (File No.
333-35548). This Registration Statement covers the Company's offering of up to
1,050,000 shares of the Company's common stock at a price of $16.50 per share,
or a total of $17,325,000.
Prior to the suspension of the offering, the Company had received and
accepted subscriptions for a total of $11,125,851 from subscribers in the
offering. The Company deposited all amounts received from subscribers into one
of two escrow accounts, as designated by each subscriber. The Company
established the first escrow account for the purpose of capitalizing its
proposed new bank, Southern Community Bank of Southwest Florida. The Company
established its second escrow account for the principal purpose of providing
additional working capital for its existing bank, Southern Community Bank.
In August 2000, the escrow agent released to the Company $3,300,000
from the second escrow account. As a result, the Company issued 200,000 shares
of common stock to subscribers whose funds were released. The Company
contributed $3,200,000 of this amount to Southern Community Bank, and retained
$100,000 to cover anticipated expenses of the offering. The net proceeds
received by Southern Community Bank were utilized to purchase marketable
securities, which were then used to fund loans and operating expenses.
In September 2000, the Company suspended the offering as a result of
the possible merger of the Company with Peninsula Bancorp Inc., which is
described in Item 5 below. The Company intends to amend the Registration
Statement in order to include appropriate information regarding the possible
merger with Peninsula and to update the information contained in the
Registration Statement. The Company intends to recommence the offering following
the amendment of the Registration Statement. As part of the amendment, the
Company intends to offer all subscribers whose funds are still held in escrow
the opportunity to rescind their subscriptions. At the present time, the escrow
agent for the offering is holding $7,825,851 in subscription proceeds in the
first escrow account. The Company has closed the second escrow account.
Through September 30, 2000, the amount of expenses incurred for the
Company's account in connection with the issuance and distribution of the common
stock was $30,943. No portion of such expenses represented direct or indirect
payments to directors or officers of the Company or their
24
<PAGE> 25
associates or to persons owning ten percent (10%) or more of any class of the
equity securities of the Company or any affiliates of the Company. The net
proceeds received by the Company after the payment of such expenses equaled
$3,269,057.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 27, 2000, the Company held its annual meeting of shareholders.
The purpose of the annual meeting was to elect persons to serve as directors of
the Company for the ensuing year and until their successors have been duly
elected and qualified. The following persons, all of whom were serving as
directors of the Company prior to the annual meeting, were re-elected to serve
as directors of the Company: Charlie W. Brinkley, Jr.; John G. Squires; Patrick
J. Armstrong; Richard M. Dunn; Jennings L. Hurt, III; Eugene M. Pascarella; Jon
C. Peterson; John K. Ritenour; and Stanley H. Sandefur. The number of votes cast
for each director was 721,187 votes. There were no votes cast against any of the
directors. There were 169,111 shares that did not vote at the annual meeting.
ITEM 5. OTHER INFORMATION.
On September 22, 2000, the Company entered into a letter of intent with
Peninsula Bancorp, Inc. ("Peninsula"), with respect to the possible merger of
the Company and Peninsula. Peninsula is the parent company of Peninsula Bank of
Central Florida, a state bank with offices in Volusia County, Florida. The
letter of intent provides that the Company will issue shares of its common stock
to the shareholders of Peninsula upon the consummation of the merger. On the
effective date of the merger, each share of Peninsula common stock will be
converted into .625 shares of the common stock of the Company. This transaction
is subject to the negotiation and execution of a definitive merger agreement,
due diligence investigators by each party, regulatory approvals and the approval
by the shareholders of Peninsula. This matter is also discussed in the Company's
Report on Form 8-K filed on October 2, 2000.
ITEM 6. EXHIBITS.
(a) Exhibits.
---------
Exhibit No. Description
----------- -----------
27 Financial Data Schedule for the period ended
June 30, 2000
(b) Reports on Form 8-K.
--------------------
None.
25
<PAGE> 26
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 BANCORP
------------------------------------
(Registrant)
Date: October 18, 2000 /s/ Charlie W. Brinkley, Jr.
------------------------------------
Charlie W. Brinkley, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
Date: October 18, 2000 /s/ Stephen R. Jeuck
-------------------------------------
Stephen R. Jeuck
Chief Financial Officer and Secretary
(Principal Financial and Principal
Accounting Officer)
26
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule for the period ended June 30, 2000 (for SEC use only)
</TABLE>
