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WINSTON-SALEM, NC -- (MARKET WIRE) -- 07/26/06 -- Southern Community Financial Corporation (NASDAQ: SCMF) (NASDAQ: SCMFO) (the "Company"), the holding company for Southern Community Bank and Trust, reported operating results for the three and six month periods ended June 30, 2006, and announced a plan to repurchase up to 1 million additional shares of its common stock. For the second quarter ended June 30, 2006, the Company reported a net loss of $1.4 million or $0.08 per diluted share, compared to net income of $2.3 million or $0.13 per diluted share for the same period in 2005. For the six-month period ended June 30, 2006, the Company had net income of $174 thousand or $0.01 per diluted share, compared to $3.6 million or $0.20 per diluted share for the same period one year ago. Operating results for the second quarter and first six months of 2006 included an after-tax charge of approximately $2.7 million (or $0.15 per diluted share) related to the previously announced balance sheet restructuring, which was undertaken to eliminate certain lower-yielding investments, improve net interest margin and net interest income levels, and mitigate overall interest rate risk exposure. The results for the second quarter and the first six months of 2006 were also impacted by after-tax losses of approximately $376 thousand and $687 thousand (or $0.02 and $0.04 per diluted share), respectively on economic hedges as a result of the correction in accounting for certain derivative financial instruments. In addition, the Company announced a plan to repurchase up to an additional 1 million shares of its common stock.
As previously disclosed, the balance sheet restructuring involved the sale of $87.8 million in available for sale securities or approximately 30% of the total investment portfolio, with a weighted average yield of 3.70%. This restructuring resulted in an after-tax charge of approximately $2.7 million. The proceeds from the sale of securities are being utilized to reduce the Company's short term borrowings by approximately $15.0 million and to reinvest in securities expected to yield at least 5.75%. The restructuring of the investment portfolio eliminated certain lower-yielding investments, is expected to improve the yield on the investment portfolio, improve the net interest margin and net interest income levels, mitigate overall interest rate risk exposure and improve future earnings by as much as $0.06 per share on an annualized basis. The repositioning had a minimal impact on shareholders' equity as the decline in value of the investments had been previously reflected in accumulated other comprehensive income.
Significant milestones achieved during the second quarter of 2006:
-- Restructured the balance sheet to improve future operating results;
-- Achieved year-over-year loan growth of $113.2 million or 13.4% and
deposit growth of $108.4 million or 12.5%;
-- Achieved second quarter loan growth of $37.9 million or 4.1%;
-- Maintained sound asset quality with non-performing loans of 0.22% of
loans;
-- Announced a plan to repurchase up to an additional 1 million shares
of common stock;
-- Paid a quarterly dividend of $0.035 per share on June 1, 2006, an
increase from the $0.03 quarterly dividend paid on March 1, 2006.
Net interest income for the second quarter of $10.0 million was up 9.8%,
compared with $9.1 million reported in the comparable quarter of 2005,
driven by strong loan growth. Year to date, net interest income has risen
to $20.1 million from $18.1 million for the first six months of 2005, an
increase of 11.0%. The net interest margin for the second quarter of 2006
of 3.27% reflects an expansion of 9 basis points over the 3.18% reported in
the second quarter of 2005, the result of both loan and core deposit
growth. On a linked quarter basis, competitive pressures have resulted in
funding costs increasing at a more rapid pace than asset yields, and the
margin compressed 17 basis points from the first quarter in 2006. The net
interest margin in the first half of 2006 was 3.35% compared with 3.21% in
the similar 2005 period.
In non-interest income, service charges on deposit accounts for the second
quarter of 2006 increased to $1.1 million, up $190 thousand, or 20.9% over
the second quarter of 2005. For the six months ended June 30, 2006, service
charges totaled $2.1 million, an increase of $386 thousand or 22.1% over
the same period last year. Other non-interest income, excluding the losses
on the portfolio restructuring and economic hedges described above,
amounted to $1.0 million and $1.8 million for the three and six months
ended June 30, 2006, respectively, similar to the $946 thousand and $1.8
million reported for the corresponding periods in 2005.
As previously announced, the Company intends to restate earnings for the
quarter ended March 31, 2006 and the years ended December 31, 2003, 2004
and 2005 and the related quarterly periods to correct the accounting for
certain derivative transactions under Statement of Financial Accounting
Standards ("SFAS") No. 133. The Company intends to amend and restate its
Annual Report on Form 10-K for the year ended December 31, 2005 and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 to
reflect the proper accounting treatment. As a result of not applying
certain hedge accounting to certain interest rate swap transactions, the
Company recorded a loss of $582 thousand in the second quarter of 2006 and
$1.1 million in the first half of 2006 on derivative transactions versus a
restated gain of $389 thousand in the second quarter of 2005 and a restated
loss of $12 thousand in the first half of 2005. The Company expects to
redesignate certain of the derivative transactions as accounting hedges
under SFAS No. 133 during the third quarter. The Company believes the
redesignation will reduce the volatility in earnings related to the
transactions, and expects the accumulated net recognized losses on the
transactions as of June 30, 2006 of $1.66 million ($1.1 million net of tax)
will come back into income through reductions to expense that would
otherwise have been recognized over the remaining life of the swaps.
Non-interest expense of $8.9 million in the current quarter and $17.3
million for the first six months was up over the prior year amounts of $7.3
million and $15.2 million as a result of continued growth, including
expansion in the attractive Greensboro, Raleigh and Mooresville markets.
As of June 30, 2006, the Company reported total assets of $1.4 billion,
representing an increase of $46.6 million, or 3.6% year-over-year driven by
increases in the loan portfolio, which were offset somewhat by a $79.3
million reduction in investment securities. The Bank's loan portfolio
increased to $959.1 million, an increase of $113.2 million, or 13.4% over
the amount reported on June 30, 2005. Additionally, loans during the
second quarter grew by $37.9 million or 4.1% over the level reported at
March 31, 2006. Total deposits increased to $978.5 million at June 30,
2006, an increase of $108.4 million over the year ago period. Despite a
decline in deposits during the most recent quarter, reflecting in part
seasonal fluctuations and in deposit levels by certain large deposit
customers, lower cost non-maturity deposits grew by $73.3 million or 20.4%
from the levels reported at June 30, 2005.
Loan growth did not come at the expense of maintaining sound credit quality
standards as asset quality continues to remain one of the strengths of the
Company. Non-performing loans totaled $2.1 million or 0.22% of total loans
at quarter-end, in comparison with $6.9 million or 0.82% of total loans as
reported for June 30, 2005. Net charge-offs as a percentage of average
loans were 0.12% for the quarter ended June 30, 2006, which is the same
compared with the 0.12% reported in the year ago period. Reflecting the
strong loan growth over the prior year and management's evaluation of the
loan portfolio and other economic factors, the provisions for loan losses
amounted to $705 thousand and $1.2 million for the three and six months
ended June 30, 2006, increases of $230 thousand and $310 thousand over the
prior year periods. The Company's allowance for loan losses equaled $12.6
million, or 1.32% of total loans and 588.0% of non-performing loans at June
30, 2006.
At June 30, 2006, stockholders' equity totaled $134.1 million and
represented 9.91% of total assets. Stockholders' equity decreased $1.5
million or 1.1% from $135.6 million for the year ago period influenced
primarily by the implementation of the Company's stock repurchase plans and
the payment of cash dividends. Regulatory capital ratios are all well in
excess of the "well-capitalized" threshold. The Company intends to
repurchase up to an additional 1 million shares of its common stock. During
2005, the Company announced repurchase plans totaling 900,000 shares, under
which 607,100 shares have been repurchased from inception in 2005 through
June 2006.
Southern Community Financial Corporation Chairman and Chief Executive
Officer, F. Scott Bauer, commented, "We took tough and proactive steps to
improve our earnings for the future. We believe the portfolio restructure
will add six cents per share to our annual net earnings. The $1.1 million
cumulative hit to earnings resulting from correcting our swap accounting
will come back into earnings over the next four to five years. Our core
bank remains very strong from a capital, quality, and business generation
standpoint. We remain excited about our future, even more so with these
decisions behind us."
Southern Community Financial is headquartered in Winston-Salem, North
Carolina and is the holding company of Southern Community Bank and Trust, a
community bank with twenty banking offices throughout the Piedmont region
of 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 2006 2006 2005 2005 2005
-------- -------- -------- -------- ---------
Restated Restated Restated Restated
Total Interest Income $ 20,862 $ 19,274 $ 18,669 $ 17,534 $ 16,554
Total Interest Expense 10,830 9,225 8,974 8,348 7,418
-------- -------- -------- -------- ---------
Net Interest Income 10,032 10,049 9,695 9,186 9,136
Provision for Loan Losses 705 475 380 (300) 475
Net Interest Income after
Provision for Loan
Losses 9,327 9,574 9,315 9,486 8,661
Non-Interest Income
Service Charges on
Deposit Accounts 1,098 1,035 1,038 970 908
Gain (Loss) on Sale of
Investment Securities (4,230) - (266) - -
Gain (Loss) and Net Cash
Settlement on Economic
Hedges (582) (486) (243) (409) 389
Other Income 1,029 788 1,520 936 946
-------- -------- -------- -------- ---------
Total Non-Interest
Income (2,685) 1,337 2,049 1,497 2,243
Non-Interest Expense
Salaries and Employee
Benefits 4,630 4,484 4,389 3,794 3,881
Occupancy and Equipment 1,680 1,608 1,614 1,458 1,372
Other 2,542 2,340 2,530 2,294 2,090
-------- -------- -------- -------- ---------
Total Non-Interest
Expense 8,852 8,432 8,533 7,546 7,343
Income Before Taxes (2,210) 2,479 2,831 3,437 3,561
Provision for Income
Taxes (780) 875 931 1,245 1,282
-------- -------- -------- -------- ---------
Net Income $ (1,430) $ 1,604 $ 1,900 $ 2,192 $ 2,279
======== ======== ======== ======== =========
Net Income per Share
Basic $ (0.08) $ 0.09 $ 0.11 $ 0.12 $ 0.13
Diluted $ (0.08) $ 0.09 $ 0.10 $ 0.12 $ 0.13
======== ======== ======== ======== =========
Six Months Ended
Jun 30, Jun 30,
Income Statement 2006 2005
-------- --------
Restated
Total Interest Income $ 40,136 $ 31,894
Total Interest Expense 20,055 13,806
-------- --------
Net Interest Income 20,081 18,088
Provision for Loan Losses 1,180 870
Net Interest Income after
Provision for Loan
Losses 18,901 17,218
Non-Interest Income
Service Charges on
Deposit Accounts 2,133 1,747
Gain (Loss) on Sale of
Investment Securities (4,230) -
Gain (Loss) and Net Cash
Settlement on Economic
Hedges (1,068) (12)
Other Income 1,817 1,853
-------- --------
Total Non-Interest
Income (1,348) 3,588
Non-Interest Expense
Salaries and Employee
Benefits 9,114 7,859
Occupancy and Equipment 3,288 2,714
Other 4,882 4,667
-------- --------
Total Non-Interest
Expense 17,284 15,240
Income Before Taxes 269 5,566
Provision for Income
Taxes 95 1,985
-------- --------
Net Income $ 174 $ 3,581
======== ========
Net Income per Share
Basic $ 0.01 $ 0.20
Diluted $ 0.01 $ 0.20
======== ========
Balance Sheet Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2006 2006 2005 2005 2005
----------- ----------- ----------- ----------- -----------
Restated Restated Restated Restated
Assets
Cash and due
from Banks $ 30,304 $ 25,807 $ 24,606 $ 22,449 $ 31,129
Federal Funds
Sold & Int
Bearing
Balances 1,010 596 648 794 752
Investment
Securities 249,496 290,616 291,916 315,493 328,802
Loans 959,085 921,195 868,827 856,839 845,847
Allowance for
Loan Losses (12,626) (12,211) (11,785) (11,773) (12,365)
----------- ----------- ----------- ----------- -----------
Net Loans 946,459 908,984 857,042 845,066 833,482
Bank Premises
and Equipment 36,753 36,226 31,259 30,283 28,943
Goodwill 49,792 49,792 49,792 49,603 49,603
Other Assets 39,190 32,795 32,350 35,563 33,672
----------- ----------- ----------- ----------- -----------
Total Assets $ 1,353,004 $ 1,344,816 $ 1,287,613 $ 1,299,251 $ 1,306,383
=========== =========== =========== =========== ===========
Liabilities and
Stockholders'
Equity
Deposits
Non-Interest
Bearing $ 106,605 $ 112,341 $ 111,226 $ 105,660 $ 112,764
Money market,
savings and
NOW 326,626 347,034 315,112 272,546 247,149
Time 545,316 538,720 515,611 519,000 510,253
----------- ----------- ----------- ----------- -----------
Total
Deposits 978,547 998,095 941,949 897,206 870,166
Borrowings 230,213 200,986 201,737 253,096 290,113
Accrued
Expenses and
Other
Liabilities 10,120 10,138 9,042 12,982 10,494
----------- ----------- ----------- ----------- -----------
Total
Liabilities 1,218,880 1,209,219 1,152,728 1,163,284 1,170,773
Total
Stockholders'
Equity 134,124 135,597 134,885 135,967 135,610
----------- ----------- ----------- ----------- -----------
Total
Liabilities
and
Stockholders'
Equity $ 1,353,004 $ 1,344,816 $ 1,287,613 $ 1,299,251 $ 1,306,383
=========== =========== =========== =========== ===========
Book Value per
Share $ 7.61 $ 7.67 $ 7.66 $ 7.66 $ 7.60
=========== =========== =========== =========== ===========
As of or for the three months ended
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2006 2006 2005 2005 2005
---------- ----------- ----------- ----------- -----------
Restated Restated Restated Restated
Per Share Data:
Basic Earnings
per Share ($ 0.08) $ 0.09 $ 0.11 $ 0.12 $ 0.13
Diluted
Earnings per
Share ($ 0.08) $ 0.09 $ 0.10 $ 0.12 $ 0.13
Book Value per
Share $ 7.61 $ 7.67 $ 7.66 $ 7.66 $ 7.60
Cash dividends
paid (1) $ 0.035 $ 0.030 $ 0.030 $ 0.030 $ 0.030
Selected
Performance
Ratios:
Return on
Average Assets
(annualized)
ROA -0.42% 0.50% 0.58% 0.67% 0.72%
Return on
Average Equity
(annualized)
ROE -4.24% 4.83% 5.56% 6.41% 6.77%
Return on
Tangible
Equity
(annualized) -6.86% 7.85% 8.99% 10.38% 11.01%
Net Interest
Margin 3.27% 3.44% 3.28% 3.09% 3.18%
Net Interest
Spread 2.90% 3.06% 2.91% 2.75% 2.86%
Non-interest
Income as a %
of Revenue -36.54% 11.74% 17.44% 14.01% 19.71%
Non-interest
Income as a %
of Average
Assets -0.80% 0.41% 0.63% 0.47% 0.72%
Non-interest
Expense to
Average Assets 2.60% 2.61% 2.59% 2.29% 2.32%
Efficiency
Ratio 120.48% 74.06% 72.66% 70.64% 64.52%
Asset Quality:
Nonperforming
Loans $ 2,148 $ 2,058 $ 1,408 $ 3,752 $ 6,969
Nonperforming
Assets $ 2,233 $ 2,187 $ 1,688 $ 4,141 $ 7,284
Nonperforming
Loans to Total
Loans 0.22% 0.22% 0.16% 0.44% 0.82%
Nonperforming
Assets to
Total Assets 0.17% 0.16% 0.13% 0.32% 0.56%
Allowance for
Loan Losses to
Period-end
Loans 1.32% 1.33% 1.36% 1.37% 1.46%
Allowance for
Loan Losses to
Nonperforming
Loans (X) 5.88 5.93 8.37 3.14 1.77
Net Charge-offs
to Average
Loans
(annualized) 0.12% 0.02% 0.17% 0.14% 0.12%
Capital Ratios:
Equity to Total
Assets 9.91% 10.08% 10.48% 10.47% 10.38%
Tangible Equity
to Total
Tangible
Assets (2) 6.33% 6.48% 6.72% 6.75% 6.68%
Average
Balances:
Year to Date
Interest
Earning
Assets $ 1,207,209 $ 1,184,008 $ 1,156,418 $ 1,150,666 $ 1,136,250
Total Assets 1,338,308 1,309,224 1,281,282 1,272,110 1,254,611
Total Loans 913,028 887,704 837,467 828,846 816,161
Equity 135,059 134,718 135,342 135,226 135,024
Interest
Bearing
Liabilities 1,084,807 1,055,889 1,029,089 1,023,182 1,009,473
Quarterly
Interest
Earning
Assets $ 1,230,155 $ 1,184,008 $ 1,173,485 $ 1,179,027 $ 1,151,807
Total Assets 1,367,073 1,309,224 1,308,496 1,306,543 1,270,927
Gross Loans 938,074 887,704 863,047 853,802 826,708
Equity 135,396 134,718 135,686 135,623 134,943
Interest
Bearing
Liabilities 1,113,408 1,055,889 1,046,617 1,050,153 1,025,234
Weighted
Average Number
of Shares
Outstanding
Basic 17,640,808 17,624,034 17,676,048 17,851,787 17,907,360
Diluted 17,813,170 17,857,395 17,944,031 18,139,930 18,202,763
Period end
outstanding
shares 17,615,355 17,673,077 17,612,472 17,746,480 17,837,150
As of or for the
six months ended
Jun 30, Jun 30,
2006 2005
---------- ----------
Restated
Per Share Data:
Basic Earnings per Share $ 0.01 $ 0.20
Diluted Earnings per Share $ 0.01 $ 0.20
Book Value per Share $ 7.67 $ 7.60
Cash dividends paid (1) $ 0.065 $ 0.150
Selected Performance Ratios:
Return on Average Assets (annualized) ROA 0.03% 0.58%
Return on Average Equity (annualized) ROE 0.26% 5.35%
Return on Tangible Equity (annualized) 0.42% 8.72%
Net Interest Margin 3.35% 3.21%
Net Interest Spread 2.98% 2.90%
Non-interest Income as a % of Revenue -7.20% 16.55%
Non-interest Income as a % of Average Assets -0.20% 0.58%
Non-interest Expense to Average Assets 2.60% 2.45%
Efficiency Ratio 92.26% 70.31%
Asset Quality:
Nonperforming Loans $ 2,148 $ 6,969
Nonperforming Assets $ 2,233 $ 7,284
Nonperforming Loans to Total Loans 0.22% 0.82%
Nonperforming Assets to Total Assets 0.17% 0.56%
Allowance for Loan Losses to Period-end Loans 1.32% 1.46%
Allowance for Loan Losses to Nonperforming Loans (X) 5.88 1.77
Net Charge-offs to Average Loans (annualized) 0.07% 0.14%
Capital Ratios:
Equity to Total Assets 10.08% 10.38%
Tangible Equity to Total Tangible Assets (2) 6.48% 6.68%
Weighted Average Number of Shares Outstanding
Basic 17,632,467 17,887,402
Diluted 17,838,621 18,226,496
Period end outstanding shares 17,615,355 17,837,150
(1) - March 31, 2005 represented an annual dividend of $0.12 per share.
June 30, 2005 through June 30, 2006 represented a quarterly dividend.
(2) - 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 (2) to provide
readers with the impact of purchase accounting on this key financial
ratio.For additional information:
F. Scott Bauer
Chairman/CEO
David W. Hinshaw
CFO
(336) 768-8500