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Southern Community Financial Corporation Announces Results for the Third Quarter 2009

^{Published on 2009-10-22 13:09:34 - Market Wire}
 

WINSTON-SALEM, NC--(Marketwire - October 22, 2009) - Southern Community Financial Corporation (NASDAQ: [ SCMF ]) (NASDAQ: [ SCMFO ]), the holding company for Southern Community Bank and Trust, today reported third quarter 2009 results.

Financial Highlights

 -- Net loss after preferred dividends was $1.1 million or $0.06 per share -- Net interest margin for third quarter 2009 increased 25 basis points to 3.30% from 3.05% in second quarter 2009. -- Provision for loan losses of $6.0 million consistent with second quarter provision level -- Net charge-offs were $4.6 million or 1.45% of average loans (annualized), down from $5.9 million or 1.85% of average loans (annualized) in the second quarter. -- Allowance for loan losses increased to $20.8 million or 1.67% of loans at September 30, 2009, compared to $19.4 million or 1.55% of loans at June 30, 2009. Allowance coverage of nonperforming loans decreased to 92% at September 30, 2009 compared to 109% at June 30, 2009. -- Nonperforming loans increased to $22.7 million or 1.82% of loans at September 30, 2009 from $17.9 million or 1.43% of loans at June 30, 2009 -- Nonperforming assets increased to $40.8 million or 2.36% of total assets at September 30, 2009 from $35.7 million or 2.07% of total assets at June 30, 2009 

Net loss after preferred dividends amounted to $1.1 million or $0.06 per diluted common share in the third quarter of 2009 and included a $6.0 million provision for loan losses, 25 basis point improvement in net interest margin, and an 8% reduction in non-interest expenses on a linked quarter basis.

"As anticipated, our third quarter continued to reflect improvement in our core earnings and net interest margin. The level of loan loss provisioning was the direct result of our proactive efforts in recognizing loan loss exposure," said F. Scott Bauer, Chairman and Chief Executive Officer. "Two residential construction and development loans totaling $4.4 million were the primary reason for the increase in nonperforming loans. The level of nonperforming loans and nonperforming assets at quarter-end continued to be predominantly related to the residential construction and development portfolio. While nonperforming loans increased, our delinquencies have been declining. We remain committed to working through our troubled assets quickly and efficiently, and this remains our top priority."

"During the third quarter, we continued to improve our net interest margin. Through our active liability management process, we successfully shifted our deposit mix towards lower cost transaction accounts. Our demand, NOW, savings and money market deposits increased $75.4 million compared to the second quarter, and now comprise 50% of our total deposits, up from 46%; while time deposits decreased $34.8 million to 50% of total deposits, down from 54% during the same time period. The improvement in our deposit mix was directly related to our calling efforts and promotional campaigns focused on transaction accounts and money market accounts. We were successful in attracting new deposit balances from customers of large regional banks across our markets. Due to our deposit acquisition efforts and repricing opportunities we expect further improvement in our funding costs and net interest margin during the remainder of 2009."

"We also initiated several expense reduction measures during the third quarter which lowered our personnel expenses by approximately 4% on a sequential basis. These measures included a reduction in executive salaries, company-wide salary freeze and a reduction in the employer 401(k) match. We will continue to evaluate our non-interest expenses for additional opportunities to reduce costs and anticipate implementing additional cost saving measures during the remainder of 2009."

"Lastly, Southern Community remains well capitalized and liquid. This will enable us to take advantage of the attractive opportunities that are currently available in this economic environment."

Asset Quality

Nonperforming loans increased to $22.7 million, or 1.82% of total loans, at September 30, 2009 from $17.9 million, or 1.43% of total loans, at June 30, 2009. Third quarter net charge-offs of $4.6 million, or 1.45% of average loans on an annualized basis, decreased from $5.9 million, or 1.85% of average loans annualized, in the second quarter 2009. Nonperforming assets increased to $40.8 million, or 2.36% of total assets, at September 30, 2009 from $35.7 million, or 2.07% of total assets, at June 30, 2009 due primarily to the $4.8 million increase in nonaccrual loans during the quarter. Nonperforming loans, nonperforming assets and net charge-off activity continue to be predominantly related to residential construction and development lending as 82% of nonperforming loans, 89% of nonperforming assets and 62% of net charge-offs originated from this segment of the loan portfolio.

The provision for loan losses for the third quarter of $6.0 million matched the level of the second quarter 2009 provision; however, it increased $4.6 million compared to the $1.4 million provision for the third quarter 2008.

Net Interest Income

Net interest income of $13.3 million for the third quarter 2009 increased by 6% compared with $12.6 million in the second quarter 2009 and increased 12% over the $11.9 million in the third quarter 2008. The net interest margin of 3.30% for the third quarter 2009 increased 25 basis points from 3.05% for the second quarter 2009 and increased 42 basis points from 2.88% in the third 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 $51.4 million in average earning assets during the third quarter 2009 compared with the second quarter 2009. Quarter end loan balances decreased $3.0 million from June 30, 2009. This decrease in loans was due to a continued 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 $4.2 million during the third quarter 2009 increased by $1.6 million or 60% compared with the second quarter 2009 primarily resulting from the net increase in gains related to derivative activity discussed below and a $235 thousand increase in gains on sales of investment securities. In addition, we experienced an increase in wealth management income of $147 thousand on higher transaction activity, a $214 thousand increase in SBIC income and an increase of $45 thousand in service charges on deposits which were partially offset by a reduction of $248 thousand in mortgage banking income due to lower production and loan sales volumes during the third quarter. During the third quarter 2009, as it relates to derivative activity, we recovered $408 thousand from the sale and assignment of our creditor claims in the Lehman bankruptcy to a third party. During the second quarter 2009, we recorded a $1.0 million write-off in the value of collateral held by Lehman as the counterparty for certain derivative contracts terminated in the third quarter 2008.

Non-interest Expenses

Non-interest expenses of $12.6 million during the third quarter 2009 decreased $1.1 million or 8% on a linked quarter basis and increased $2.4 million or 24% year-over-year. The sequential decrease in non-interest expenses was primarily due to $517 thousand net reduction in FDIC deposit insurance costs, $472 thousand in prepayment penalties on FHLB advances extinguished in the second quarter, $207 thousand decrease in personnel expenses (including a reduction in the employer 401(k) match initiated during the third quarter, a company-wide salary freeze and lower mortgage commissions) and a $169 thousand decrease in marketing expenses. Partially offsetting these expense reductions were increases in credit quality/asset resolution costs, including a $69 thousand increase in losses on sales of foreclosed properties, a $264 thousand increase in expenses for acquiring, holding and maintaining foreclosed properties (including foreclosed asset writedowns) and a $47 thousand increase in legal expenses primarily related to problem loan workouts. Of the $517 thousand net reduction in FDIC deposit insurance, there was an $800 thousand decrease related to the special assessment accrued in the second quarter which was partially offset by a $283 thousand increase in our quarterly FDIC deposit insurance premium for the third quarter 2009. The year-over-year increase of $2.4 million was primarily due to $604 thousand increase in FDIC deposit insurance costs, $640 thousand increase in expenses for acquiring, holding and maintaining foreclosed properties (including foreclosed asset writedowns), $480 thousand in buyer incentives to purchasers of bank financed builder housing inventory and $100 thousand increase in legal expenses, mostly related to problem loan resolutions.

Balance Sheet

As of September 30, 2009, total assets amounted to $1.73 billion, representing a decrease of $72.5 million or 4% year-over-year; however, excluding the $49.5 million goodwill impairment charge taken in the first quarter 2009, total assets decreased only $23.0 million or 1% year-over-year. On a linked quarter basis, total assets decreased $1.4 million or less than 1%. As mentioned above, the loan portfolio decreased by $3.0 million or less than 1% sequentially during the third quarter 2009 and decreased by $66.6 million or 5%, since December 31, 2008 due to a slowdown in loan demand. Total deposits of $1.29 billion at September 30, 2009 increased $31.5 million or 2% year-over-year. During the third quarter 2009, deposits increased $40.6 million or 3% compared with the June 30, 2009 level. Time deposits decreased $34.8 million in the third quarter, while money market, savings and NOW deposits increased $72.5 million as a result of active liability management through pricing with an emphasis on improving our funding mix and lowering our funding cost.

At September 30, 2009, stockholders' equity of $134.1 million represented 7.77% of total assets. Stockholders' equity increased $363 thousand or less than 1% from $133.7 million at June 30, 2009 primarily due to an increase in unrealized appreciation in our available-for-sale investment portfolio during the third quarter. 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 October 23, 2009, at 9:30 AM Eastern Time to discuss the quarter-end results. The call can be accessed by dialing 1-888-542-1101 or 1-719-457-2088 and entering pass code 4012023. A replay of the conference call can be accessed until 11:59 pm on November 6, 2009, by calling 1-888-203-1112 or 1-719-457-0820 and entering pass code 4012023. 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 Sept 30, Jun 30, Mar 31, Dec 31, Sept 30, Income Statement 2009 2009 2009 2008 2008 -------- -------- --------- -------- -------- Total Interest Income $ 22,186 $ 22,451 $ 22,744 $ 24,278 $ 24,412 Total Interest Expense 8,868 9,872 10,285 11,459 12,553 -------- -------- --------- -------- -------- Net Interest Income 13,318 12,579 12,459 12,819 11,859 Provision for Loan Losses 6,000 6,000 4,000 2,360 1,350 Net Interest Income after Provision for Loan Losses 7,318 6,579 8,459 10,459 10,509 Non-Interest Income Service Charges on Deposit Accounts 1,588 1,543 1,444 1,487 1,491 Income from mortgage banking activities 512 760 416 233 219 Investment brokerage and trust fees 359 212 296 147 285 SBIC income (loss) and management fees 171 (43) 238 89 39 Gain (Loss) on Sale of Investment Securities 735 500 1 98 - Gain (Loss) and Net Cash Settlement on Economic Hedges 316 (912) (22) - (440) Other Income 508 550 208 464 482 -------- -------- --------- -------- -------- Total Non-Interest Income 4,189 2,610 2,581 2,518 2,076 Non-Interest Expense Salaries and Employee Benefits 5,690 5,897 5,530 5,088 5,535 Occupancy and Equipment 1,997 1,990 2,034 1,930 1,854 Goodwill Impairment - - 49,501 - - Other 4,934 5,834 3,513 3,635 2,814 -------- -------- --------- -------- -------- Total Non-Interest Expense 12,621 13,721 60,578 10,653 10,203 Income (Loss) Before Taxes (1,114) (4,532) (49,538) 2,324 2,382 Provision for Income Taxes (683) (1,845) (214) 766 754 -------- -------- --------- -------- -------- Net Income (Loss) $ (431) $ (2,687) $ (49,324) $ 1,558 $ 1,628 ======== ======== ========= ======== ======== Effective dividend on preferred stock 621 633 627 185 - -------- -------- --------- -------- -------- Net income (loss) available to common shareholders $ (1,052) $ (3,320) $ (49,951) $ 1,373 $ 1,628 ======== ======== ========= ======== ======== Net Income (Loss) per Common Share Basic $ (0.06) $ (0.20) $ (2.98) $ 0.08 $ 0.09 Diluted $ (0.06) $ (0.20) $ (2.98) $ 0.08 $ 0.09 ======== ======== ========= ======== ======== Nine Months Ended Sept 30, Sept 30, Income Statement 2009 2008 --------- -------- Total Interest Income $ 67,381 $ 72,464 Total Interest Expense 29,025 37,823 --------- -------- Net Interest Income 38,356 34,641 Provision for Loan Losses 16,000 5,805 Net Interest Income after Provision for Loan Losses 22,356 28,836 Non-Interest Income Service Charges on Deposit Accounts 4,575 4,372 Income from mortgage banking activities 1,688 1,061 Investment brokerage and trust fees 867 991 SBIC income (loss) and management fees 366 (29) Gain (Loss) on Sale of Investment Securities 1,236 - Gain (Loss) and Net Cash Settlement on Economic Hedges (618) 934 Other Income 1,266 1,388 --------- -------- Total Non-Interest Income 9,380 8,717 Non-Interest Expense Salaries and Employee Benefits 17,117 16,950 Occupancy and Equipment 6,021 5,749 Goodwill Impairment 49,501 - Other 14,281 8,690 --------- -------- Total Non-Interest Expense 86,920 31,389 Income (Loss) Before Taxes (55,184) 6,164 Provision for Income Taxes (2,742) 1,868 --------- -------- Net Income (Loss) $ (52,442) $ 4,296 ========= ======== Effective dividend on preferred stock 1,881 - --------- -------- Net income (loss) available to common shareholders $ (54,323) $ 4,296 ========= ======== Net Income (Loss) per Common Share Basic $ (3.24) $ 0.25 Diluted $ (3.24) $ 0.25 ========= ======== Sept 30, Jun 30, Mar 31, Dec 31, Sept 30, Balance Sheet 2009 2009 2009 2008 2008 ---------- ---------- ---------- ---------- ---------- Assets Cash and due from Banks $ 22,953 $ 27,265 $ 28,268 $ 25,215 $ 27,453 Federal Funds Sold & Int Bearing Balances 21,792 1,496 17,891 2,180 2,605 Investment Securities 323,800 333,722 345,861 324,698 302,905 Federal Home Loan Bank Stock 9,794 9,794 10,178 9,757 10,208 Loans held for sale 2,559 8,068 6,044 316 920 Loans 1,248,249 1,251,200 1,297,489 1,314,811 1,323,360 Allowance for Loan Losses (20,807) (19,390) (19,314) (18,851) (17,929) ---------- ---------- ---------- ---------- ---------- Net Loans 1,227,442 1,231,810 1,278,175 1,295,960 1,305,431 Bank Premises and Equipment 42,590 42,006 40,622 40,030 39,264 Goodwill - - - 49,501 49,792 Other Assets 74,411 72,548 62,695 56,121 59,283 ---------- ---------- ---------- ---------- ---------- Total Assets $1,725,341 $1,726,709 $1,789,734 $1,803,778 $1,797,861 ========== ========== ========== ========== ========== Liabilities and Stockholders' Equity Deposits Non-Interest Bearing $ 106,156 $ 103,205 $ 98,618 $ 102,048 $ 104,988 Money market, savings and NOW 542,277 469,799 479,797 475,772 523,949 Time 646,039 680,875 749,728 655,292 634,037 ---------- ---------- ---------- ---------- ---------- Total Deposits 1,294,472 1,253,879 1,328,143 1,233,112 1,262,974 Borrowings 288,585 330,218 314,400 373,213 378,500 Accrued Expenses and Other Liabilities 8,222 8,913 8,982 9,743 13,549 ---------- ---------- ---------- ---------- ---------- Total Liabilities 1,591,279 1,593,010 1,651,525 1,616,068 1,655,023 Total Stockholders' Equity 134,062 133,699 138,209 187,710 142,838 ---------- ---------- ---------- ---------- ---------- Total Liabilities and Stockholders' Equity $1,725,341 $1,726,709 $1,789,734 $1,803,778 $1,797,861 ========== ========== ========== ========== ========== Tangible Book Value per Common Share $ 5.49 $ 5.47 $ 5.74 $ 5.76 $ 5.29 ========== ========== ========== ========== ========== For the three months ended Sept 30, Jun 30, Mar 31, Dec 31, Sept 30, 2009 2009 2009 2008 2008 ---------- ---------- ---------- ---------- ---------- Per Common Share Data: Basic Earnings per Share $ (0.06) $ (0.20) $ (2.98) $ 0.08 $ 0.09 Diluted Earnings per Share $ (0.06) $ (0.20) $ (2.98) $ 0.08 $ 0.09 Tangible Book Value per Share $ 5.49 $ 5.47 $ 5.74 $ 5.76 $ 5.29 Cash dividends paid $ - $ - $ - $ 0.040 $ 0.040 Selected Performance Ratios: Return on Average Assets (annualized) ROA -0.10% -0.61% -10.90% 0.34% 0.36% Return on Average Equity (annualized) ROE -1.28% -7.87% -106.68% 4.01% 4.57% Return on Tangible Equity (annualized) -1.29% -7.93% -145.53% 5.98% 7.13% Net Interest Margin 3.30% 3.05% 3.01% 3.10% 2.88% Net Interest Spread 3.10% 2.84% 2.78% 2.88% 2.67% Non-interest Income as a % of Revenue 23.93% 17.18% 17.16% 16.42% 14.90% Non-interest Income as a % of Average Assets 0.96% 0.59% 0.57% 0.55% 0.45% Non-interest Expense to Average Assets 2.91% 3.12% 13.39% 2.35% 2.27% Efficiency Ratio 72.09% 90.34% 402.78% 69.46% 73.22% Asset Quality: Nonperforming Loans $ 22,697 $ 17,851 $ 20,251 $ 14,433 $ 12,007 Nonperforming Assets $ 40,766 $ 35,732 $ 31,049 $ 20,178 $ 15,086 Nonperforming Loans to Total Loans 1.82% 1.43% 1.56% 1.10% 0.91% Nonperforming Assets to Total Assets 2.36% 2.07% 1.73% 1.12% 0.84% Allowance for Loan Losses to Period-end Loans 1.67% 1.55% 1.49% 1.43% 1.35% Allowance for Loan Losses to Nonperforming Loans (X) 0.92X 1.09X 0.95X 1.31X 1.49X Net Charge-offs to Average Loans (annualized) 1.45% 1.85% 1.09% 0.43% 0.28% Capital Ratios: Equity to Total Assets 7.77% 7.74% 7.72% 10.41% 7.94% Tangible Equity to Total Tangible Assets (1) 5.34% 5.32% 5.39% 5.51% 5.26% Average Balances: Year to Date Interest Earning Assets $1,643,945 $1,665,784 $1,679,293 $1,588,542 $1,569,306 Total Assets 1,774,376 1,800,376 1,834,575 1,738,868 1,717,357 Total Loans 1,280,803 1,295,913 1,310,679 1,279,041 1,264,744 Equity 155,522 162,126 187,512 145,754 142,800 Interest Bearing Liabilities 1,506,867 1,525,524 1,535,956 1,474,539 1,456,848 Quarterly Interest Earning Assets $1,600,979 $1,652,424 $1,679,293 $1,645,832 $1,636,404 Total Assets 1,723,224 1,766,553 1,834,575 1,802,934 1,789,593 Gross Loans 1,251,076 1,281,309 1,310,679 1,321,621 1,315,983 Equity 133,627 137,019 187,512 154,552 141,846 Interest Bearing Liabilities 1,470,162 1,515,206 1,535,956 1,527,227 1,527,316 Weighted Average Number of Shares Outstanding Basic 16,791,175 16,791,340 16,780,058 17,369,765 17,369,925 Diluted 16,791,175 16,791,340 16,780,058 17,398,432 17,416,675 Period end outstanding shares 16,791,175 16,793,175 16,793,175 16,769,675 17,370,175 Nine Months Ended Sept 30, Sept 30, 2009 2008 ---------- ---------- Per Common Share Data: Basic Earnings per Share $ (3.24) $ 0.25 Diluted Earnings per Share $ (3.24) $ 0.25 Tangible Book Value per Share $ 5.49 $ 8.22 Cash dividends paid $ - $ 0.120 Selected Performance Ratios: Return on Average Assets (annualized) ROA -3.95% 0.33% Return on Average Equity (annualized) ROE -45.08% 4.02% Return on Tangible Equity (annualized) -50.68% 6.26% Net Interest Margin 3.12% 2.95% Net Interest Spread 2.90% 2.70% Non-interest Income as a % of Revenue 19.65% 20.10% Non-interest Income as a % of Average Assets 0.71% 0.68% Non-interest Expense to Average Assets 6.55% 2.45% Efficiency Ratio 182.08% 72.39% Asset Quality: Nonperforming Loans $ 22,697 $ 12,007 Nonperforming Assets $ 40,766 $ 15,086 Nonperforming Loans to Total Loans 1.82% 0.91% Nonperforming Assets to Total Assets 2.36% 0.84% Allowance for Loan Losses to Period-end Loans 1.67% 1.35% Allowance for Loan Losses to Nonperforming Loans (X) 0.92X 1.49X Net Charge-offs to Average Loans (annualized) 1.47% 0.23% Capital Ratios: Equity to Total Assets 7.77% 7.94% Tangible Equity to Total Tangible Assets (1) 5.34% 5.26% 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 16,787,565 17,361,257 Diluted 16,787,565 17,406,558 Period end outstanding shares 16,791,175 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.