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Southern Community Financial Corporation : Southern Community Financial Corporation Announces Results for the Second Quarter 20

^{Published on 2009-07-23 13:19:06, Last Modified on 2009-07-23 13:19:15 - Market Wire}
 

WINSTON-SALEM, NC--(Marketwire - July 23, 2009) - Southern Community Financial Corporation (NASDAQ: [ SCMF ]) (NASDAQ: [ SCMFO ]), the holding company for Southern Community Bank and Trust, today reported second quarter 2009 results.

Financial Highlights

 -- Net loss of $3.3 million or $0.20 per share -- Net interest margin for second quarter 2009 increased four basis points to 3.05% from 3.01% in first quarter 2009 -- Provision for loan losses of $6.0 million, an increase of $2.0 million, compared to $4.0 million in first quarter 2009 -- Net charge-offs were 1.85% of average loans, up from 1.09% in the first quarter -- Allowance for loan losses of $19.4 million or 1.55% of loans at June 30, 2009 compared to $19.3 million or 1.49% of loans at March 31, 2009. Allowance coverage of nonperforming loans increased to 109% at June 30, 2009 compared to 95% at March 31, 2009. -- Nonperforming loans decreased to $17.9 million or 1.43% of loans at June 30, 2009 from $20.3 million or 1.56% of loans at March 31, 2009 -- Nonperforming assets increased to $35.7 million or 2.07% of total assets at June 30, 2009 from $31.0 million or 1.73% of total assets at March 31, 2009 -- Non-interest income increased $182 thousand or 6% on a linked quarter basis, excluding $1.0 million Lehman write-off and $500 thousand gain on sale of investment securities in second quarter and $404 thousand write-off of our equity investment in Silverton Bank in the first quarter 

Net loss after preferred dividends amounted to $3.3 million or $0.20 per diluted common share in the second quarter of 2009 and included an increased provision for loan losses ($6.0 million), a $1.0 million write-off of collateral held by Lehman Brothers as the counterparty in certain derivative contracts and $1.1 million sequential increase in FDIC insurance premiums.

"The increases in our provision for loan losses and net charge-offs for the second quarter were a direct result of our aggressive efforts to work through and effectively resolve troubled assets," said F. Scott Bauer, Chairman and Chief Executive Officer. "This quarter's charge-off activity continues to be primarily related to our residential construction and development loans which remain adversely impacted by the persistently slow market for newly constructed homes. We are encouraged by the recent trends in our loan delinquencies, which have decreased over the past five months. As a result our nonperforming loans have decreased to $17.9 million, or 1.43% of loans, at June 30, 2009 compared with $20.3 million, or 1.56% of loans, at March 31, 2009. As expected, our second quarter results were impacted by this increased provision for loan losses and the expenses associated with managing our loan portfolio and foreclosed properties."

"Despite the difficult credit cycle Southern Community's core bank continues to operate well. The company-wide focus on deposit gathering and pricing discipline on loans contributed to the net interest margin expansion of four basis points to 3.05%. For example, we successfully increased lower cost non-interest bearing deposits by 5% over the first quarter, and reduced higher cost CD balances by 9% during the same time period."

"During the second half of 2009, we believe there will be more opportunities to decrease our cost of funds, improve our net interest margin and increase overall profitability. While loan demand remains slow in this weakened economy, we believe that it is likely to increase in the second half of 2009 based on recent trends we are seeing across our markets. Southern Community remains strong in terms of capital and liquidity and is well positioned to weather this economic storm. Our Board and management team are dedicated to working through these challenges and to capitalizing on the outstanding opportunities that lie ahead."

Asset Quality

Nonperforming loans decreased to $17.9 million, or 1.43% of total loans, at June 30, 2009 from $20.3 million, or 1.56% of total loans, at March 31, 2009. Second quarter net charge-offs of $5.9 million, or 1.85% of average loans on an annualized basis, increased from $3.5 million, or 1.09% of average loans annualized, in the first quarter 2009. Nonperforming assets increased to $35.7 million, or 2.07% of total assets, at June 30, 2009 from $31.0 million, or 1.73% of total assets, at March 31, 2009 due to the influx of foreclosed assets during the quarter. Nonperforming loans, nonperforming assets and net charge-off activity continue to be predominantly related to residential construction and development lending as 72% of nonperforming loans, 76% of nonperforming assets and 70% of net charge-offs originated from this segment of the loan portfolio.

The provision for loan losses of $6.0 million for the second quarter increased $2.0 million compared to the $4.0 million first quarter 2009 provision and increased $2.5 million compared to $3.5 million provision for second quarter 2008.

Net Interest Income

Net interest income of $12.6 million for the second quarter 2009 increased by 1% compared with $12.5 million in the first quarter 2009; however, it increased 7% over the $11.8 million in the second quarter 2008. The net interest margin of 3.05% for the second quarter 2009 increased four basis points from 3.01% for the first quarter 2009 and increased seven basis points from 2.98% in the second quarter 2008. The sequential increase in net interest income resulted from the impact of deposits and borrowings repricing lower to a greater extent than interest earning assets. This favorable rate variance was partially offset by a decrease of $26.9 million in average earning assets during the second quarter 2009 compared with the first quarter 2009. Quarter end loan balances decreased $46.3 million, or 4%, from March 31, 2009. This decrease in loans was due to a slowdown in loan demand as some of our primary customers are deleveraging and taking a more conservative stance toward borrowing during these difficult economic times.

Non-interest Income

Non-interest income of $2.7 million during the second quarter 2009 increased by $86 thousand or 3% compared with the first quarter 2009 primarily resulting from increases in mortgage banking income from increased refinance activity, gains on sales of investment securities and service charge income. These increases were partially offset by the $1.0 million write-off of the value of collateral held by Lehman as the counterparty for certain derivative contracts terminated in the third quarter 2008 as well as decreases in wealth management income on lower transaction activity and decreases in SBIC income. Excluding the $1.0 million Lehman write-off (as disclosed under "gain (loss) and net cash settlement on economic hedges" in attached summary income statement), a $500 thousand gain on the sale of investment securities in the second quarter, and a $404 thousand write-off of an equity investment in Silverton Bank in the first quarter, non-interest income increased $182 thousand or 6% compared with the first quarter.

Non-interest Expenses

Non-interest expenses of $13.8 million during the second quarter 2009 increased $2.7 million, or 24%, on a linked quarter basis, excluding the goodwill impairment charge of $49.5 million taken in the first quarter 2009, and increased $3.1 million or 29% year-over-year. The sequential increase in non-interest expenses was primarily due to $1.1 million increase in FDIC deposit insurance (approximately $800 thousand of which was the FDIC special assessment), $472 thousand in prepayment penalties on early extinguishment of FHLB advances, $347 thousand in OREO writedowns, $370 thousand increase in buyer incentives to purchasers of bank-financed builder housing inventory and increases in commissions on increased mortgage activity. Staffing for our new Asheville location and associated expenses for marketing efforts focused on deposit gathering also contributed.

Balance Sheet

As of June 30, 2009, total assets amounted to $1.73 billion, representing a decrease of $45.0 million, or 3% year-over-year; however, excluding the $49.5 million goodwill impairment charge taken in the first quarter 2009, total assets increased $4.4 million or 0.3% year-over-year. On a linked quarter basis, total assets decreased $63.1 million or 4%. As mentioned above, the loan portfolio decreased by $46.3 million or 4% sequentially during the second quarter 2009 due to a slowdown in loan demand. Total deposits of $1.25 billion at June 30, 2009 increased $36.5 million or 3% year-over-year. During the second quarter 2009, deposits decreased $74.3 million or 6% compared with the March 31, 2009 level. Time deposits decreased $68.9 million in the second quarter as a result of active liability management through pricing with an emphasis on improving our funding mix and lowering our funding cost.

At June 30, 2009, stockholders' equity of $133.7 million represented 7.74% of total assets. Stockholders' equity decreased $4.5 million or 3% from $138.2 million at March 31, 2009. Regulatory capital ratios remain in excess of the "well capitalized" threshold.

Conference Call

Southern Community's executive management team will host a conference call on July 24, 2009, at 9:30 AM Eastern Time to discuss the quarter-end results. The call can be accessed by dialing 1-877-440-5791 or 1-719-325-4846 and entering pass code 9324808. A replay of the conference call can be accessed until 11:59 pm on August 7, 2009, by calling 1-888-203-1112 or 1-719-457-0820 and entering pass code 9324808. You may access additional presentation materials for this conference call in the Investor Relations section of Southern Community's web site at [ www.smallenoughtocare.com ].

Southern Community Financial Corporation is headquartered in Winston-Salem, North Carolina and is the holding company of Southern Community Bank and Trust, a community bank with twenty-two banking offices throughout North Carolina.

Southern Community Financial Corporation's common stock and trust preferred securities are listed on the NASDAQ Global Select Market under the trading symbols SCMF and SCMFO, respectively. Additional information about Southern Community is available on its website at [ www.smallenoughtocare.com ] or by email at [ investor.relations@smallenoughtocare.com ].

This news release contains forward-looking statements. Such statements are subject to certain factors that may cause the Company's results to vary from those expected. These factors include changing economic and financial market conditions, competition, ability to execute our business plan, items already mentioned in this press release, and other factors described in our filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's judgment only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events and circumstances that arise after the date hereof.

 Southern Community Financial Corporation (Dollars in thousands except per share data) (Unaudited) For the three months ended Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Income Statement 2009 2009 2008 2008 2008 --------- --------- ---------- --------- ---------- Total Interest Income $ 22,451 $ 22,744 $ 24,278 $ 24,412 $ 23,727 Total Interest Expense 9,872 10,285 11,459 12,553 11,947 --------- --------- ---------- --------- ---------- Net Interest Income 12,579 12,459 12,819 11,859 11,780 Provision for Loan Losses 6,000 4,000 2,360 1,350 3,530 Net Interest Income after Provision for Loan Losses 6,579 8,459 10,459 10,509 8,250 Non-Interest Income Service Charges on Deposit Accounts 1,543 1,444 1,487 1,491 1,475 Income from mortgage banking activities 760 416 233 219 358 Investment brokerage and trust fees 212 296 147 285 335 SBIC income (loss) and management fees (43) 238 89 39 82 Gain (Loss) on Sale of Investment Securities 500 1 98 - - Gain (Loss) and Net Cash Settlement on Economic Hedges (912) (22) - (440) 330 Other Income 613 214 464 483 518 --------- --------- ---------- --------- ---------- Total Non-Interest Income 2,673 2,587 2,518 2,077 3,098 Non-Interest Expense Salaries and Employee Benefits 5,897 5,530 5,088 5,535 5,621 Occupancy and Equipment 1,990 2,034 1,930 1,854 1,931 Goodwill Impairment - 49,501 - - - Other 5,897 3,519 3,635 2,815 3,120 --------- --------- ---------- --------- ---------- Total Non-Interest Expense 13,784 60,584 10,653 10,204 10,672 Income (Loss) Before Taxes (4,532) (49,538) 2,324 2,382 676 Provision for Income Taxes (1,845) (214) 766 754 73 --------- --------- ---------- --------- ---------- Net Income (Loss) $ (2,687) $ (49,324) $ 1,558 $ 1,628 $ 603 ========= ========= ========== ========= ========== Effective dividend on preferred stock 633 627 185 - - --------- --------- ---------- --------- ---------- Net income (loss) available to common shareholders $ (3,320) $ (49,951) $ 1,373 $ 1,628 $ 603 ========= ========= ========== ========= ========== Net Income (Loss) per Common Share Basic $ (0.20) $ (2.98) $ 0.08 $ 0.09 $ 0.03 Diluted $ (0.20) $ (2.98) $ 0.08 $ 0.09 $ 0.03 ========= ========= ========== ========= ========== Six Months Ended Jun 30, Jun 30, Income Statement 2009 2008 --------- --------- Total Interest Income $ 45,195 $ 48,052 Total Interest Expense 20,157 25,270 --------- --------- Net Interest Income 25,038 22,782 Provision for Loan Losses 10,000 4,455 Net Interest Income after Provision for Loan Losses 15,038 18,327 Non-Interest Income Service Charges on Deposit Accounts 2,987 2,881 Income from mortgage banking activities 1,176 842 Investment brokerage and trust fees 508 706 SBIC income (loss) and management fees 195 (68) Gain (Loss) on Sale of Investment Securities 501 - Gain (Loss) and Net Cash Settlement on Economic Hedges (934) 1,374 Other Income 827 952 --------- --------- Total Non-Interest Income 5,260 6,687 Non-Interest Expense Salaries and Employee Benefits 11,427 11,415 Occupancy and Equipment 4,024 3,895 Goodwill Impairment 49,501 - Other 9,416 5,922 --------- --------- Total Non-Interest Expense 74,368 21,232 Income (Loss) Before Taxes (54,070) 3,782 Provision for Income Taxes (2,059) 1,114 --------- --------- Net Income (Loss) $ (52,011) $ 2,668 ========= ========= Effective dividend on preferred stock 1,260 - --------- --------- Net income (loss) available to common shareholders $ (53,271) $ 2,668 ========= ========= Net Income (Loss) per Common Share Basic $ (3.17) $ 0.15 Diluted $ (3.17) $ 0.15 ========= ========= Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Balance Sheet 2009 2009 2008 2008 2008 ---------- ---------- ---------- ---------- ---------- Assets Cash and due from Banks $ 27,265 $ 28,268 $ 25,215 $ 27,453 $ 37,576 Federal Funds Sold & Int Bearing Balances 1,496 17,891 2,180 2,605 3,607 Investment Securities 333,722 345,861 324,698 302,905 306,666 Federal Home Loan Bank Stock 9,794 10,178 9,757 10,208 9,670 Loans held for sale 8,068 6,044 316 920 2,106 Loans 1,251,200 1,297,489 1,314,811 1,323,360 1,285,014 Allowance for Loan Losses (19,390) (19,314) (18,851) (17,929) (17,499) ---------- ---------- ---------- ---------- ---------- Net Loans 1,231,810 1,278,175 1,295,960 1,305,431 1,267,515 Bank Premises and Equipment 42,006 40,622 40,030 39,264 39,672 Goodwill - - 49,501 49,792 49,792 Other Assets 72,548 62,695 56,121 59,283 55,101 ---------- ---------- ---------- ---------- ---------- Total Assets $1,726,709 $1,789,734 $1,803,778 $1,797,861 $1,771,705 ========== ========== ========== ========== ========== Liabilities and Stockholders' Equity Deposits Non-Interest Bearing $ 103,205 $ 98,618 $ 102,048 $ 104,988 $ 114,685 Money market, savings and NOW 469,799 479,797 475,772 523,949 560,094 Time 680,875 749,728 655,292 634,037 542,622 ---------- ---------- ---------- ---------- ---------- Total Deposits 1,253,879 1,328,143 1,233,112 1,262,974 1,217,401 Borrowings 330,218 314,400 373,213 378,500 401,667 Accrued Expenses and Other Liabilities 8,913 8,982 9,743 13,549 10,747 ---------- ---------- ---------- ---------- ---------- Total Liabilities 1,593,010 1,651,525 1,616,068 1,655,023 1,629,815 Total Stockholders' Equity 133,699 138,209 187,710 142,838 141,890 ---------- ---------- ---------- ---------- ---------- Total Liabilities and Stockholders' Equity $1,726,709 $1,789,734 $1,803,778 $1,797,861 $1,771,705 ========== ========== ========== ========== ========== Tangible Book Value per Common Share $ 5.47 $ 5.74 $ 5.76 $ 5.29 $ 5.23 ========== ========== ========== ========== ========== As of or for the three months ended Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, 2009 2009 2008 2008 2008 ---------- ---------- ---------- ---------- ---------- Per Common Share Data: Basic Earnings per Share $ (0.20) $ (2.98) $ 0.08 $ 0.09 $ 0.03 Diluted Earnings per Share $ (0.20) $ (2.98) $ 0.08 $ 0.09 $ 0.03 Tangible Book Value per Share $ 5.47 $ 5.74 $ 5.76 $ 5.29 $ 5.23 Cash dividends paid $ - $ - $ 0.040 $ 0.040 $ 0.040 Selected Performance Ratios: Return on Average Assets (annualized) ROA -0.59% -10.90% 0.34% 0.36% 0.51% Return on Average Equity (annualized) ROE -5.80% -106.68% 4.01% 4.57% 5.84% Return on Tangible Equity (annualized) -5.83% -145.53% 5.98% 7.13% 9.12% Net Interest Margin 3.05% 3.01% 3.10% 2.88% 2.98% Net Interest Spread 2.84% 2.78% 2.88% 2.67% 2.67% Non-interest Income as a % of Revenue 17.53% 17.19% 16.42% 14.90% 24.60% Non-interest Income as a % of Average Assets 0.59% 0.57% 0.55% 0.45% 0.89% Non-interest Expense to Average Assets 3.05% 13.39% 2.35% 2.27% 2.61% Efficiency Ratio 90.38% 402.66% 69.46% 73.22% 72.37% Asset Quality: Nonperforming Loans $ 17,851 $ 20,251 $ 14,433 $ 12,007 $ 12,796 Nonperforming Assets $ 35,732 $ 31,049 $ 20,178 $ 15,086 $ 14,210 Nonperforming Loans to Total Loans 1.43% 1.56% 1.10% 0.91% 1.00% Nonperforming Assets to Total Assets 2.07% 1.73% 1.12% 0.84% 0.80% Allowance for Loan Losses to Period-end Loans 1.55% 1.49% 1.43% 1.35% 1.36% Allowance for Loan Losses to Nonperforming Loans (X) 1.09X 0.95X 1.31X 1.49X 1.37X Net Charge-offs to Average Loans (annualized) 1.85% 1.09% 0.43% 0.28% 0.28% Capital Ratios: Equity to Total Assets 7.74% 7.72% 10.41% 7.94% 8.01% Tangible Equity to Total Tangible Assets (1) 5.32% 5.39% 5.51% 5.26% 5.28% Average Balances: Year to Date Interest Earning Assets $1,665,784 $1,679,293 $1,588,542 $1,569,306 $1,535,388 Total Assets 1,800,376 1,834,575 1,738,868 1,717,357 1,680,842 Total Loans 1,295,913 1,310,679 1,279,041 1,264,744 1,238,843 Equity 162,126 187,512 145,754 142,800 143,282 Interest Bearing Liabilities 1,525,524 1,535,956 1,474,539 1,456,848 1,421,227 Quarterly Interest Earning Assets $1,652,424 $1,679,293 $1,645,832 $1,636,404 $1,586,068 Total Assets 1,815,510 1,834,575 1,802,934 1,789,593 1,736,520 Gross Loans 1,281,309 1,310,679 1,321,621 1,315,983 1,257,886 Equity 185,976 187,512 154,552 141,846 144,374 Interest Bearing Liabilities 1,515,206 1,535,956 1,527,227 1,527,316 1,474,186 Weighted Average Number of Shares Outstanding Basic 16,791,340 16,780,058 17,369,765 17,369,925 17,354,298 Diluted 16,791,340 16,780,058 17,398,432 17,416,675 17,401,298 Period end outstanding shares 16,793,175 16,793,175 16,769,675 17,370,175 17,370,175 As of or for the Six Months Ended Jun 30, Jun 30, 2009 2008 ---------- ---------- Per Common Share Data: Basic Earnings per Share $ (3.17) $ 0.15 Diluted Earnings per Share $ (3.17) $ 0.15 Tangible Book Value per Share $ 5.47 $ 8.17 Cash dividends paid $ - $ 0.080 Selected Performance Ratios: Return on Average Assets (annualized) ROA -5.83% 0.32% Return on Average Equity (annualized) ROE -64.69% 3.75% Return on Tangible Equity (annualized) -76.72% 5.82% Net Interest Margin 3.03% 2.98% Net Interest Spread 2.81% 2.72% Non-interest Income as a % of Revenue 17.36% 22.69% Non-interest Income as a % of Average Assets 0.59% 0.80% Non-interest Expense to Average Assets 8.33% 2.54% Efficiency Ratio 245.46% 72.05% Asset Quality: Nonperforming Loans $ 17,851 $ 12,796 Nonperforming Assets $ 35,732 $ 14,210 Nonperforming Loans to Total Loans 1.43% 100.00% Nonperforming Assets to Total Assets 2.07% 0.80% Allowance for Loan Losses to Period-end Loans 1.55% 1.36% Allowance for Loan Losses to Nonperforming Loans (X) 1.09X 1.37X Net Charge-offs to Average Loans (annualized) 1.47% 0.20% Capital Ratios: Equity to Total Assets 7.74% 8.01% Tangible Equity to Total Tangible Assets (1) 5.32% 5.28% Average Balances: Year to Date Interest Earning Assets Total Assets Total Loans Equity Interest Bearing Liabilities Quarterly Interest Earning Assets Total Assets Gross Loans Equity Interest Bearing Liabilities Weighted Average Number of Shares Outstanding Basic 16,785,730 17,356,875 Diluted 16,785,730 17,401,444 Period end outstanding shares 16,793,175 17,370,175 (1) - Tangible Equity to Total Tangible Assets is period-ending equity less intangibles, divided by period-ending assets less intangibles. Management provides the above non-GAAP measure, footnote (1) to provide readers with the impact of purchase accounting on this key financial ratio.