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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] 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. 000-49780
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) 648-1844
- -------------------------------------------------------------------------------
(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
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes [X] No [ ]
Indicate by checkmark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act): Yes [ ] No [X]
As of April 30, 2003, the issuer had 6,810,933 outstanding shares of
common stock, par value $1.00 per share.
1
SOUTHERN COMMUNITY BANCORP
FORM 10-Q
March 31, 2003
INDEX
Page No.
--------
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements 3
Condensed Consolidated Balance Sheets -
March 31, 2003 and 2002 (Unaudited) and December 31, 2002 4
Condensed Consolidated Statements of Earnings (Unaudited) -
Three Months Ended March 31, 2003 and 2002 6
Condensed Consolidated Statements of Comprehensive Income
(Loss) (Unaudited) -
Three Months Ended March 31, 2003 and 2002 7
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 2003 and 2002 8
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) -
Three Months Ended March 31, 2003 10
Notes to Condensed Consolidated Financial Statements (Unaudited) 11
Review by Independent Accountants 16
Report on Review by Independent Accountants 17
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 27
Item 4. Controls and Procedures 27
PART II: OTHER INFORMATION 28
Item 2. Changes in Securities and Use of Proceeds 28
Item 3. Submission of Matters to a Vote of Securities Holders 28
Item 6. Exhibits and Reports on Form 8-K 29
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
3
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
AT MARCH 31,
--------------------------
2003 2002
-------- --------
ASSETS
Cash and due from banks $ 20,428 15,263
Interest-bearing deposits and federal funds sold 17,414 48,156
-------- --------
Cash and cash equivalents 37,842 63,419
Securities available for sale 84,616 39,510
Security held to maturity 3,439 --
Loans, net of allowance for loan losses
of $6,886 in 2003 and $4,834 in 2002 551,050 377,944
Accrued interest receivable 3,153 2,305
Federal Home Loan Bank stock, at cost 522 212
Premises and equipment, net 18,484 17,042
Deferred income tax asset 1,504 1,390
Bank owned life insurance 5,016 3,897
Goodwill 971 971
Foreclosed assets, net 207 280
Other assets 402 321
-------- --------
Total assets $707,206 507,291
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest-bearing demand deposits 66,525 47,093
Money-market deposits 128,512 60,910
Savings and NOW deposits 179,041 131,152
Time deposits 263,581 218,354
-------- --------
Total deposits 637,659 457,509
Other borrowings 1,661 1,921
Official checks 6,019 3,108
Other liabilities 2,527 1,754
-------- --------
Total liabilities 647,866 464,292
-------- --------
Stockholders' equity:
Common stock, $1.00 par value, 10,000,000 shares
authorized, 6,729,814 and 5,541,517 shares issued
and outstanding in 2003 and 2002 6,730 5,542
Additional paid-in capital 50,003 38,798
Retained earnings (accumulated deficit) 1,799 (1,139)
Accumulated other comprehensive income (loss) 808 (202)
-------- --------
Total stockholders' equity 59,340 42,999
-------- --------
Total liabilities and stockholders' equity $707,206 507,291
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
AT
DECEMBER 31,
2002
------------
ASSETS
Cash and due from banks $ 19,127
Interest-bearing deposits and federal funds sold 16,596
--------
Cash and cash equivalents 35,723
Securities available for sale 89,677
Security held to maturity 3,452
Loans, net of allowance for loan losses of $6,262 500,267
Accrued interest receivable 2,806
Federal Home Loan Bank stock, at cost 212
Premises and equipment, net 18,852
Deferred income tax asset 1,424
Bank owned life insurance 4,954
Goodwill 971
Foreclosed assets, net 302
Other assets 146
--------
Total assets $658,786
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest-bearing demand deposits 59,313
Money-market deposits 101,800
Savings and NOW deposits 153,207
Time deposits 279,097
--------
Total deposits 593,417
Other borrowings 1,423
Official checks 3,787
Other liabilities 2,060
--------
Total liabilities 600,687
--------
Stockholders' equity:
Common stock, $1.00 par value, 10,000,000 shares
authorized, 6,693,064 shares issued and outstanding 6,693
Additional paid-in capital 49,654
Retained earnings 795
Accumulated other comprehensive income 957
--------
Total stockholders' equity 58,099
--------
Total liabilities and stockholders' equity $658,786
========
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2003 2002
---------- ---------
Interest income:
Loans $ 8,935 6,693
Securities 794 463
Other interest-earning assets 33 136
---------- ---------
Total interest income 9,762 7,292
---------- ---------
Interest expense:
Deposits 3,900 3,390
Other borrowings 8 15
---------- ---------
Total interest expense 3,908 3,405
---------- ---------
Net interest income 5,854 3,887
Provision for loan losses 745 405
---------- ---------
Net interest income after provision for loan losses 5,109 3,482
---------- ---------
Noninterest income:
Service charges on deposit accounts 195 120
Other fees 263 164
Earnings on bank-owned life insurance 62 47
Gain on sale of securities available for sale -- 33
Other income 230 112
---------- ---------
Total noninterest income 750 476
---------- ---------
Noninterest expense:
Salaries and employee benefits 2,329 1,821
Occupancy expense 844 733
Data processing 298 237
Printing and office supplies 82 88
Marketing and advertising 122 120
Professional fees 147 104
Preopening expense -- 66
Other expense 430 365
---------- ---------
Total noninterest expense 4,252 3,534
---------- ---------
Earnings before income taxes 1,607 424
Income taxes 603 157
---------- ---------
Net earnings $ 1,004 267
========== =========
Basic earnings per share $ .15 .05
========== =========
Weighted-average number of common shares outstanding for basic 6,704,088 5,487,428
========== =========
Diluted earnings per share $ .14 .05
========== =========
Weighted-average number of common shares outstanding for diluted 7,031,519 5,710,546
========== =========
Dividends per share -- --
========== =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
6
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
----------------------
2003 2002
------- ----
Net earnings $ 1,004 267
Net change in unrealized gain on securities
available for sale, net of tax benefit (149) (290)
------- ----
Comprehensive income (loss) $ 855 (23)
======= ====
See Accompanying Notes to Condensed Consolidated Financial Statements.
7
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2003 2002
-------- -------
Cash flows from operating activities:
Net earnings $ 1,004 267
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses 745 405
Depreciation and amortization 403 542
Gain on sale of securities available for sale -- (33)
Net amortization of premiums and discounts on securities 323 (4)
Net amortization of deferred loan fees and costs (232) (175)
Common stock issued as compensation 222 143
Earnings on bank-owned life insurance (62) (47)
Increase in accrued interest receivable (347) (222)
Increase in other assets (256) (39)
Increase (decrease) in official checks 2,232 (200)
Increase (decrease) in other liabilities 467 (86)
-------- -------
Net cash provided by operating activities 4,499 551
-------- -------
Cash flows from investing activities:
Maturities, calls and repayments of securities available for sale 9,167 250
Repayments of security held to maturity 12 --
Purchases of securities available for sale (4,657) (4,978)
Proceeds from sale of securities available for sale -- 6,283
Net increase in loans (51,296) (25,479)
Purchase Federal Home Loan Bank stock (310) --
Purchases of premises and equipment (195) (1,355)
Net proceeds from sales of foreclosed assets 95 93
Purchase of bank owned life insurance -- (405)
Net proceeds from sale of premises and equipment 160 --
-------- -------
Net cash used in investing activities (47,024) (25,591)
-------- -------
Cash flows from financing activities:
Net increase in deposits 44,242 57,536
Net increase in other borrowings 238 263
Proceeds from issuance of common stock, net 164 531
-------- -------
Net cash provided by financing activities 44,644 58,330
-------- -------
Net increase in cash and cash equivalents 2,119 33,290
Cash and cash equivalents at beginning of period 35,723 30,129
-------- -------
Cash and cash equivalents at end of period $ 37,842 63,419
======== =======
(continued)
8
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
---------------------------
2003 2002
----------- ------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,982 3,573
=========== ======
Income taxes $ 240 65
=========== ======
Noncash financing and investing activities:
Change in accumulated other comprehensive income, unrealized
loss on securities available for sale, net of tax benefit $ (149) (290)
=========== ======
Transfer of loans to foreclosed assets $ -- 186
=========== ======
Loans originated on sales of foreclosed assets $ -- 720
=========== ======
See Accompanying Notes to Condensed Consolidated Financial Statements.
9
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2003
($ IN THOUSANDS)
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPRE- TOTAL
----------------------- PAID-IN RETAINED HENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY
--------- ------ ---------- -------- ----------- ------------
Balance at December 31, 2002 6,693,064 $6,693 49,654 795 957 58,099
Net earnings (unaudited) -- -- -- 1,004 -- 1,004
Net change in unrealized gain on securities
available for sale, net of tax benefit
of $80 (unaudited) -- -- -- -- (149) (149)
Common stock issued as compensation
(unaudited) 21,189 21 201 -- -- 222
Sale of common stock in connection with
Employee Stock Purchase Plan
(unaudited) 14,161 14 135 -- -- 149
Sale of common stock (unaudited) 1,400 2 13 -- -- 15
--------- ------ ------ ----- ---- -------
Balance at March 31, 2003 (unaudited) 6,729,814 $6,730 50,003 1,799 808 59,340
========= ====== ====== ===== ==== =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
10
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL. In the opinion of the management of Southern
Community Bancorp and its subsidiaries (the "Company" or "Southern"), the
accompanying condensed consolidated financial statements contain all
adjustments (consisting principally of normal recurring accruals) necessary to
present fairly the financial position at March 31, 2003 and 2002, and the
results of operations and cash flows for the three-month periods then ended.
The results of operations and other data for the three months ended March 31,
2003 are not necessarily indicative of the results to be expected for the year
ending December 31, 2003.
Southern Community Bancorp (the "Holding Company") owns all
of the outstanding common stock of Southern Community Bank (the "Orlando
Bank"), Southern Community Bank of Southwest Florida (the "Bonita Springs
Bank"), Southern Community Bank, Atlantic (the "Daytona Beach Bank") and
Southern Community Bank of South Florida (the "South Florida Bank")
(collectively, the "Banks"). The Banks are state-chartered (Florida) commercial
banks and their deposits are insured up to the applicable limits by the Federal
Deposit Insurance Corporation ("FDIC") through the Bank Insurance Fund. The
South Florida Bank commenced operations on August 5, 2002.
The Orlando Bank owns all of the outstanding common stock of
Southern Community Insurance Agency, Inc. (the "Insurance Agency"). The
Insurance Agency refers customers of the Banks to certain insurance agencies
for the purchase of insurance products. The Insurance Agency also has equity
interests of 50% and 25% in two title agencies. The Orlando Bank has a 50%
equity interest in Southern Community Bank Mortgage LLC (the "Mortgage
Company"). The Mortgage Company originates, processes and closes residential
mortgage loans in central Florida.
2. LOAN IMPAIRMENT AND LOSSES. The Company performs a quarterly
loan loss analysis to identify impaired loans. The Company's impaired loans
were as follows (in thousands):
At March 31, At December 31,
-------------------- ----------------
2003 2002 2002
----- ------ ----------------
Gross loans with no related allowance $ -- -- --
Gross loans with related allowance 900 2,275 900
Less: Allowance on the loans (45) (228) (45)
----- ------ ----
Net investment in impaired loans $ 855 2,047 855
===== ====== ====
The average net investment in collateral dependent impaired loans and
interest income recognized and received on these loans were as follows (in
thousands):
Three months Ended
March 31,
---------------------
2003 2002
-------- -----
Average net investment in impaired loans $ 855 2,028
======== =====
Interest income recognized or impaired loans $ -- --
======== =====
Interest income received on impaired loans $ -- --
======== =====
11
An analysis of the change in the allowance for loan losses was as follows (in
thousands):
THREE MONTHS ENDED
MARCH 31,
------------------------
2003 2002
------- ------
Balance at beginning of period $ 6,262 4,457
Provision charged to earnings 745 405
Net charge-offs (121) (28)
------- ------
Balance at end of period $ 6,886 4,834
======= ======
Non-accrual and past due loans were as follows (in thousands):
At March 31, At December 31,
--------------------- ---------------
2003 2002 2002
------ ----- ---------------
Non-accrual loans $2,882 3,315 3,154
Past due ninety days or more, but still accruing 216 551 126
------ ----- -----
$3,098 3,866 3,280
====== ===== =====
3. EARNINGS PER SHARE. Earnings per share of common stock were
computed on the basis of the weighted-average number of shares of common stock
outstanding. Diluted earnings per share were computed based on the
weighted-average number of shares outstanding plus the effect of outstanding
stock options, computed using the treasury stock method. The following table
presents the calculations of earnings per share ($ in thousands, except per
share amounts):
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------
2003 2002
----------------------------------- ---------------------------------
WEIGHTED- WEIGHTED-
AVERAGE PER SHARE AVERAGE PER SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
-------- --------- --------- -------- --------- ---------
Basic earnings per share:
Net earnings available to
common stockholders $1,004 6,704,088 $.15 $267 5,487,428 $.05
==== ====
Effect of dilutive securities -
Incremental shares from assumed
exercise of options 327,431 223,118
--------- ---------
Diluted earnings per share:
Net earnings available to common stockholders
and assumed
Conversion $1,004 7,031,519 $.14 $267 5,710,546 $.05
====== ========= ==== ==== ========= ====
12
4. REGULATORY CAPITAL. The Holding Company, the Orlando Bank,
the Bonita Springs Bank, the Daytona Beach Bank and the South Florida Bank are
required to maintain certain minimum regulatory capital requirements. The
following is a summary at March 31, 2003 of the regulatory capital requirements
and the actual capital on a percentage basis:
REGULATORY
ACTUAL REQUIREMENT
------ -----------
Total capital to risk-weighted assets
Consolidated 10.01% 8.00%
Bonita Springs Bank 9.15% 8.00%
Orlando Bank 8.63% 8.00%
Daytona Beach Bank 9.47% 8.00%
South Florida Bank 13.02% 8.00%
Tier I capital to risk-weighted assets
Consolidated 8.94% 4.00%
Bonita Springs Bank 8.16% 4.00%
Orlando Bank 7.53% 4.00%
Daytona Beach Bank 8.48% 4.00%
South Florida Bank 11.90% 4.00%
Tier I capital to total assets - leverage ratio
Consolidated 8.55% 4.00%
Bonita Springs Bank 8.20% 4.00%
Orlando Bank 6.89% 4.00%
Daytona Beach Bank 8.67% 4.00%
South Florida Bank 11.43% 4.00%
5. STOCK OPTION PLANS. The Company has several stock option
plans (the "Option Plans") under which the Company is authorized to issue
shares of its common stock to employees and directors pursuant to stock options
and restricted stock grants. Vesting periods will be determined as awards are
granted. At March 31, 2003, there were 1,363,935 shares available to be issued
in connection with future awards under the Option Plans.
13
A summary of stock option transactions for the three-month periods
ended March 31, 2003 and 2002 follows ($ in thousands, except per share
amounts):
Range Weighted-
Of Per Average Aggregate
Number of Share Option Per Share Option
Shares Price Price Price
--------- ------------ --------- --------
Balance at December 31, 2001 928,665 $7.50-8.80 7.98 7,408
Forfeited (6,000) $ 7.50 7.50 (45)
------- -----
Balance at March 31, 2002 922,665 $7.50-8.80 7.98 7,363
======= =====
Balance at December 31, 2002 984,165 $7.50-10.50 8.18 8,054
Granted 3,900 $ 10.50 10.50 40
------- -----
Balance at March 31, 2003 988,065 $7.50-10.50 8.19 8,094
======= =====
The following table illustrates the effect on net earnings and
earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation ($ in
thousands, except per share amounts).
Three Months Ended
March 31,
----------------------
2003 2002
-------- --------
Net earnings, as reported $ 1,004 267
Deduct: Total stock-based employee compensation
determined under the fair value based method
for all awards, net of related tax effect (70) (106)
-------- --------
Proforma net earnings $ 934 161
======== ========
Basic earnings per share:
As reported $ .15 .05
======== ========
Proforma $ .14 .03
======== ========
Diluted earnings per share:
As reported $ .14 .05
======== ========
Proforma $ .13 .03
======== ========
In order to calculate the fair value of the options, it was assumed
that the risk-free interest rate was 4.57% for 2003 and 4.46% for 2002, there
would be no dividends paid by the Company over the exercise period, the
expected life of the options would be the entire exercise period and stock
volatility would be zero due to the lack of an active market for the stock. For
purposes of pro forma disclosures, the estimated fair value is treated as
expense during the vesting period.
14
The following information summarizes the fair value of options granted under
the Option Plans (in thousands):
THREE MONTHS ENDED
MARCH 31,
------------------
2003 2002
------ -----
Grant-date fair value per option of options issued
during the period $3.72 --
===== ====
6. OTHER EVENTS. During April 2003, the Company commenced a
$5,000,000 private placement of its common stock at $14.00 per share. The
Company expects to use the offering proceeds to increase the capital of the
Banks.
15
SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES
REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS
Hacker, Johnson & Smith PA, the Company's independent public
accountants, have made a limited review of the financial data as of March 31,
2003 and 2002 and for the three-month periods then ended, 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.
16
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Southern Community Bancorp
Orlando, Florida:
We have reviewed the accompanying condensed consolidated balance
sheets of Southern Community Bancorp and Subsidiaries (the "Company") as of
March 31, 2003 and 2002, and the related condensed consolidated statements of
earnings, comprehensive income and cash flows for the three-month periods then
ended and the related condensed consolidated statement of stockholders' equity
for the three-month period ended March 31, 2003. These financial statements are
the responsibility of the Company's management.
We conducted our reviews 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 auditing standards generally accepted in the United States
of America, 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 reviews, we are not aware of any material modifications
that should be made to the condensed consolidated interim financial statements
referred to above for them to be in conformity with accounting principles
generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet as of December 31, 2002, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated January 24, 2003 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, 2002, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
HACKER, JOHNSON & SMITH PA
Orlando, Florida
April 11, 2003
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This Form 10-Q contains "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward looking statements represent Southern's expectations and
beliefs including, but not limited to, statements concerning
Southern's operations, performance, financial condition, growth or
strategies. For this purpose, any statements contained in this Form
10-Q that are not statements of historical fact may be deemed to be
forward looking statements. Without limiting the generality of the
foregoing, words such as "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
Southern'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 Southern to continue its growth strategy,
dependence on management and key personnel, and regulatory
supervision.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2003 AND 2002
Southern had net earnings for the first quarter of 2003 of $1,004,000,
compared to $267,000 for the comparable period in 2002. Earnings
before income taxes in the first quarter of 2003 were $1,607,000
compared $424,000 in the first quarter of 2002. The improvement in
earnings was primarily due to a substantial increase in net interest
income, which grew from $3.9 million in the first quarter of 2002 to
$5.9 million in the first quarter of 2003. As discussed below, the
increase in net interest income was principally a result of an
improvement in Southern's net interest margin and the growth in its
assets.
NET INTEREST INCOME. Southern's operating results depend primarily on
Southern's net interest income, which is a difference between interest
income on interest-earning assets and interest expense on
interest-bearing liabilities. Net interest income is determined by the
difference between yields earned on interest-earning assets and rates
paid on interest- bearing liabilities and the relative amounts of
interest-earning assets and interest-bearing liabilities. Southern's
interest rates spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and
deposit flows. In addition, Southern's net earnings are also affected
by the level of non-performing loans and foreclosed assets, as well as
the level of its non-interest income, and its non-interest expenses,
such as salaries and employee benefits and occupancy expense.
Interest income for the first quarter of 2003 was $9.8 million,
compared to $7.3 million for the first quarter of 2002. The growth in
interest income primarily reflects the growth in Southern's assets,
which grew from $507.3 million at March 31, 2002 to $707.2 million at
March 31, 2003. This growth was partially offset by a decrease in the
average yield earned on interest-earning assets. During the same
period, net loans grew from $377.9 million to $551.1 million. The
increase in assets is primarily attributable to the growth of
Southern's business in southeast Florida, where Southern opened a
branch in
18
2002 which was transferred to the newly organized South Florida Bank
in August 2002 and the addition of a second branch for the South
Florida Bank in October 2002.
Interest expense increased from $3.4 million for the first quarter of
2002 to $3.9 million for the comparable 2003 period. This was due to a
combination of higher level of deposits and a decrease in the average
cost of deposits. Most of the deposit growth was attributable to
Southern's new operations in southeast Florida.
Southern's net interest margin increased from approximately 3.55% for
the first quarter of 2002 to approximately 3.83% for the first quarter
of 2003. The improvement in the net interest margin was due in part to
the decrease in interest rates in the economy, which reduced the
yields paid by Southern on its deposits and other borrowings more
rapidly than the rates earned on the Company's loans and investment
securities.
NONINTEREST INCOME. Noninterest income in the first quarter of 2003
totaled $750,000, compared with $476,000 in 2002. Service charges on
deposit accounts totaled $195,000 in 2003, up from $120,000 in 2002,
due to an increase in the average number of deposit accounts. Other
fees and other income totaled $493,000 in 2003, up from $276,000 in
2002. This increase was primarily caused by an increase in insurance
and mortgage referral fees, as well as the overall growth of Southern.
PROVISION FOR LOAN LOSSES. The provision for loan losses totaled
$745,000 in the first quarter of 2003 compared to $405,000 in 2002.
The allowance for loan losses at March 31, 2003 was $6.9 million. See
"Allowance and Provision for Loan Losses" below.
NONINTEREST EXPENSES. Noninterest expenses for the first quarter of
2003 totaled $4.3 million, up 20.3% from $3.5 million in 2002.
Noninterest expenses included the following:
- Salaries and employee benefits represented 54.8% of total
non-interest expenses in 2003. Salaries and employee benefits
increased 27.9% to $2.3 million in 2003 from $1.8 million in
2002. The increase was primarily due to the addition of
employees in connection with the opening of a new branch by
the Orlando Bank and the commencement of operations of the
South Florida Bank, together with salary increases and higher
benefit costs.
- Occupancy expense in 2003 totaled $844,000, up 15.1% from
$733,000 in 2002. This increase was primarily due to the
opening of a new branch by the Orlando Bank and the
commencement of operations of the South Florida Bank.
- Other non-interest expenses for the first quarter of 2003
totaled $1,079,000, up 10.1% from $980,000 in 2002. Other
non-interest expenses included data processing, printing and
office supplies, marketing and advertising, professional fees
and other expenses. The increase resulted from the opening of
additional branches as well as the expenses of opening the
new South Florida Bank.
19
INCOME TAXES. Income taxes totaled $603,000 in 2003 (effective rate of
37.5%) compared to $157,000 in 2002 (effective rate of 37.0%).
CAPITAL EXPENDITURES
Southern makes capital expenditures in order to improve its ability to
provide quality services to its customers. Capital expenditures for the three
months ended March 31, 2003 equaled $195,000 compared to $1,355,000 in 2002.
Most of these expenses in 2002 were related to the purchase and construction of
new branches.
ASSET QUALITY AND CREDIT RISK
SECURITIES. Southern maintains a high quality investment portfolio
including securities of U.S. government entities, mortgage-backed securities
and municipal bonds. Southern believes that the securities have very little
risk of default. At March 31, 2003, all but one of the securities held in
Southern's investment portfolio were classified available for sale and all 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.
The following table sets forth information regarding the composition
and carrying amounts of the investment portfolio at March 31, 2003 and 2002:
INVESTMENT PORTFOLIO
AT MARCH 31,
-----------------------
2003 2002
------- ------
(IN THOUSANDS)
Available for Sale:
U.S. Government agencies securities $31,521 39,510
Mortgage-backed securities 52,837 --
Municipal bonds 258 --
------- ------
$84,616 39,510
======= ======
Held to Maturity-
Mortgage-backed securities $ 3,439 --
======= ======
LOANS. Southern maintains a high quality portfolio of real estate,
commercial and consumer loans. All loans over individual lending limits are
reviewed and approved by Southern's loan committee, which ensures that loans
comply with applicable credit standards. In
20
most cases, Southern requires collateral from the borrowers. 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. Southern monitors collateral
values to ensure that they are maintained at proper levels.
As of March 31, 2003, the majority of Southern's real estate loans
were loans secured by real estate in central and south Florida. This level of
concentration could present a potential credit risk to Southern because the
ultimate collectibility of these loans is susceptible to adverse changes in
real estate market conditions in these markets. Southern has sought to address
this risk by limiting most loans to a maximum of 75% of the appraised value of
the underlying real estate and maximum amortization schedules of 20 years with
maturity dates not exceeding five years.
The following table divides Southern's loan portfolio into five
categories. Most of the loans are short-term and may be renewed or rolled over
at maturity. At that time, Southern undertakes a complete review of the
borrower's credit worthiness and the value of any collateral. If these items
are satisfactory, Southern will generally renew the loan at prevailing interest
rates.
TYPES OF LOANS
AT MARCH 31,
----------------------------
2003 2002
--------- --------
(IN THOUSANDS)
Commercial $ 133,277 94,198
Commercial real estate 225,475 138,080
Residential real estate 51,201 31,420
Construction 137,155 109,480
Consumer and other 13,113 11,883
--------- --------
Total loans 560,221 385,061
Less:
Allowance for loan losses (6,886) (4,834)
Net deferred loan fees and other discounts (2,285) (2,283)
--------- --------
Loans, net $ 551,050 377,944
========= ========
21
COMMERCIAL LOANS. Southern makes commercial loans to businesses
located in its target markets. The credit risk associated with business lending
is influenced by general economic conditions, 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 $133.3 million or
23.8% of total loans at March 31, 2003, compared with $94.2 million or 24.5% of
total loans at March 31, 2002. The growth in commercial loans was primarily due
to new loans originated in southeast Florida.
REAL ESTATE LOANS. Southern's real estate loans totaled $413.8 million
or 73.9% of total loans at March 31, 2003, and $279.0 million or 72.5% at March
31, 2002.
Southern makes real estate loans secured by commercial real estate,
including loans to acquire or refinance office buildings, warehouses and
apartments. These loans generally require a loan to value of not more than 75%.
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 and south Florida. These
loans totaled $225.5 million or 40.2% of total loans at March 31, 2003 compared
with $138.1 million or 35.9% of total loans at March 31, 2002. The growth in
commercial real estate loans was primarily due to new loans originated in
southeast Florida. 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 loans totaled $51.2 million or 9.1% of total
loans at March 31, 2003, compared with $31.4 million or 8.2% at March 31, 2002.
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 and south 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.
Construction loans totaled $137.2 million or 24.5% of total loans at
March 31, 2003 compared to $109.5 million or 28.4% of total loans at March 31,
2002. The decline in construction loans was due in part to the reclassification
of certain construction loans to commercial real estate loans, and the
refocusing of marketing efforts. Southern primarily makes construction loans on
property located in central and south Florida.
CONSUMER AND OTHER LOANS. Southern 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 $13.1 million or 2.4% of total
loans, on March 31, 2003, compared with $11.9 million or 3.0% of total loans,
on March 31, 2002. Risks associated with installment loans include borrowers'
loss of employment and declines in the borrowers' financial condition resulting
in delinquencies, and rapid depreciation of loan collateral.
22
COMMITMENTS. The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments are commitments to extend
credit, standby letters of credit, undisbursed loans in process and unused
lines of credit and may involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the consolidated
balance sheets. The contract amounts of these instruments reflect the extent of
involvement the Company has in these financial instruments.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend credit
is represented by the contractual amount of those instruments. The Company uses
the same credit policies in making commitments as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Company upon extension of credit is based
on management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The credit
risk involved is essentially the same as that involved in extending loans to
customers.
Southern had legally binding commitments to extend credit, including
unused lines of credit and letters of credit, totaling $147.6 million at March
31, 2003.
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets consist of nonaccrual loans and assets acquired
in partial or total satisfaction of problem loans which are known as
"foreclosed assets." Past due loans are loans that are delinquent 30 days or
more which are still accruing interest.
Southern's credit review and approval process is critical to
Southern'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
Southern'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 Southern's non-performing assets and past
due loans:
23
NON-PERFORMING ASSETS AND 90 DAY PAST DUE LOANS
AT MARCH 31,
---------------------
2003 2002
------ -----
(IN THOUSANDS)
Nonaccrual loans $2,882 3,315
Foreclosed assets 207 280
------ -----
Total nonperforming assets 3,089 3,595
====== =====
Accruing loans past due 90 days or more 216 551
====== =====
Southern's non-performing loans and loans past due 90 days were $3.1
million at March 31, 2003, or .55% of total loans of $560.2 million.
Non-performing loans at March 31, 2003 consisted of commercial and residential
real estate loans. Southern believes that its non-performing loans are well
secured and are unlikely to result in any material losses. Total non-performing
assets and accruing loans past due 90 days or more totaled $3.3 million at
March 31, 2003, compared to $4.1 million at March 31, 2002.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
Southern 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 Southern's loan review officer, who
recommends to the 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 of
the 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 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.
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 $6.9 million at March 31,
2003, from $6.3 million at December 31, 2002 and $4.8 million at March 31,
2002.
24
FINANCIAL CONDITION
Southern's goal is to maintain a high quality and liquid balance
sheet. Southern 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.
CASH AND CASH EQUIVALENTS. Southern had cash and cash equivalents of
$37.8 million at March 31, 2003, compared to $63.4 million at March 31, 2002.
This decrease was primarily the result of Southern's strategy to invest these
funds in securities.
SECURITIES. On March 31, 2003, securities were $88.1 million or 13.4%
of total earning assets. Southern's strategy for its investment account is to
maintain a high quality portfolio. The investment portfolio, most of which has
been classified as available for sale, increased 122.9% from $39.5 million at
March 31, 2002.
LOANS. Net loans were $551.1 million as of March 31, 2003, compared to
$377.9 million as of March 31, 2002. See "Asset Quality and Credit Risk --
Loans," above.
INTEREST-BEARING LIABILITIES. Interest-bearing liabilities primarily
consisted of interest-bearing deposits and other borrowings. Total
interest-bearing liabilities were $572.8 million at March 31, 2003, up from
$412.3 million in 2002. There was an increase in savings, money-market and NOW
deposits of $115.5 million or 60.1% compared to 2002. There was also a
significant increase in time deposits of $45.2 million or 20.7% compared to
2002. The growth in Southern's deposits reflects Southern's marketing efforts
to obtain deposits in southeast Florida for its new South Florida Bank.
Southern believes that attracting deposits is an important step in establishing
this bank in its target market.
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. Southern primarily utilizes cash, federal funds sold 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
25
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
Southern's rate-sensitivity management process. It is Southern'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. Southern's sensitivity position at March 31, 2003
was such that net interest income would decrease modestly if there were an
increase in short-term interest rates.
Southern 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 Southern's interest rate risk exposure.
As of March 31, 2003, Southern 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 $72.0 million. This negative gap at March 31, 2003 was 10.2% of total
assets compared with a positive gap of 0.2% at March 31, 2002. Southern's
target gap position is in the range of negative 20% and positive 20%. The
change in Southern's gap position reflects a shift to longer-maturity
interest-earning assets.
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
Southern. Southern does not invest in any derivative products in order to
manage or hedge its interest rate risk.
CAPITAL
One of Southern'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 Southern withstand unforeseen
adverse developments and take advantage of attractive lending and investment
opportunities when they arise.
Southern's tier one capital was 8.9% and the total capital was 10.0%
of risk-based assets at March 31, 2003. These risk-based capital ratios were
well in excess of the minimum requirements of 4.0% for tier one and 8.0% for
total risk-based capital ratios. Southern's leverage ratio (tier one capital to
total average quarterly assets) of 8.6% at March 31, 2003, was also in excess
of the minimum 4.0% requirement. Southern has committed to the Federal Reserve
that it will maintain, on a consolidated basis, a ratio of total capital to
risk based assets of at least 10% until January 2004.
Southern anticipates that it will need to continue to increase its
capital in order to maintain its planned growth. Southern intends to increase
its capital through a combination of earnings from operations, the sale of its
common stock and the sale of other debt and equity securities. In this
connection, during April 2003, Southern commenced an offering of its common
stock. Southern expects that the proceeds from this transaction will be
approximately $4,000,000. Southern is also investigating the feasibility of
raising capital through the issuance of other debt and equities securities.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices
and rates. The Company's market risk arises primarily from interest-rate risk
inherent in its lending and deposit taking activities. The Company has little
or no risk related to trading accounts, commodities or foreign exchange.
Management actively monitors and manages its interest rate risk
exposure. The primary objective in managing interest-rate risk is to limit,
within established guidelines, the adverse impact of changes in interest rates
on the Company's net interest income and capital, while adjusting the Company's
asset-liability structure to obtain the maximum yield-cost spread on that
structure. Management relies primarily on its asset-liability structure to
control interest rate risk. However, a sudden and substantial increase in
interest rates could adversely impact the Company's earnings, to the extent
that the interest rates borne by assets and liabilities do not change at the
same speed, to the same extent, or on the same basis. There have been no
significant changes in the Company's market risk exposure since December 31,
2002.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Southern maintains controls
and procedures designed to ensure that information required to be disclosed in
the reports that Southern files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Based upon their evaluation of these controls and procedures performed within
90 days of the filing date of this report, the Chief Executive Officer and
Chief Financial Officer of Southern concluded that Southern's disclosure
controls and procedures were adequate.
Changes in Internal Controls. Southern made no significant changes in its
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of their evaluation by the Chief Executive
Officer and Chief Financial Officer.
27
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
During the quarter ended March 31, 2003, Southern sold shares of its
common stock in the following transactions which were not registered under the
Securities Act of 1933, as amended:
- Southern issued 12,668 shares of its common stock to its
chief executive officer pursuant to an existing stock grant agreement. The
shares are valued at $10.50 per share for purposes of this transaction.
Southern issued the shares in reliance upon the exemption from registration set
forth in Section 4(2) of the Securities Act of 1933, as amended.
- Southern issued 8,521 shares of its common stock to its
directors in lieu of directors' fees. The shares were issued at a value of
$10.50 per share. Southern relied upon the exemption from registration set
forth in Section 4(2) of the Securities Act of 1933, as amended.
- Southern issued 14,161 shares of its common stock to its
employees pursuant to Southern's existing employee stock purchase plan. The
shares were issued at a value of $10.50 per share. Southern relied upon the
exemption from registration set forth in Section 4(2) of the Securities Act of
1933, as amended.
- Southern sold 1,400 shares of its common stock to one of its
officers. The shares were sold a price of $10.50 per share. Southern relied
upon the exemption from registration set forth in Section 4(2) of the
Securities Act of 1933, as amended.
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Southern held its annual meeting of shareholders on April 17, 2003.
At the annual meeting, Southern elected six directors to serve for a
term of three years. The six persons who were elected to serve as directors
were: Clark D. Jensen, Sanford H. Miller, Sal A. Nunziata, Stanley H. Sandefur,
Gregory K. Talbot and Joel E. Whittenhall. At the annual meeting, 4,142,400
votes were voted for the election of each of the six nominees and 36 votes were
voted against each of them.
The following table sets forth all of the directors of Southern
including their current term and office:
Name of Director Term
Clark D. Jensen 2006
Sanford H. Miller 2006
Sal A. Nunziata 2006
Stanley H. Sandefur 2006
28
Gregory K. Talbott 2006
Joel E. Whittenhall 2006
Dennis G. Bedley 2004
Charlie W. Brinkley, Jr. 2004
Alfred J. Cinque 2004
Thomas H. Dargan, Jr. 2004
Richard L. Garner 2004
John G. Squires 2004
George D. Anderson 2005
P.T. Fleuchaus 2005
Dennis E. Gilkey 2005
Jennings L. Hurt, III 2005
John K. Ritenour 2005
At the annual meeting of shareholders, the shareholders approved an
amendment to Southern's Articles of Incorporation to eliminate the limitation
on the number of directors. In particular, the shareholders approved a
resolution amending Article III, Paragraph A, of the Company's Articles of
Incorporation to read as follows:
Number of Directors. The business and affairs of the
corporation shall be managed by or under the direction of a Board of
Directors consisting of such number of directors as shall be specified
in the bylaws of the corporation, as amended from time to time by the
corporation's Board of Directors.
At the annual meeting of shareholders, 4,072,986 shares were voted in
favor of the amendment and 69,450 shares were voted against the amendment.
ITEM 6. EXHIBITS.
(a) Exhibits.
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation, as amended
99.1 Certification under Section 906 of Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
Not applicable.
29
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: May 13, 2003 /s/ Charlie W. Brinkley .
-------------------------------------------
Charlie W. Brinkley, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 2003 /s/ Stephen R. Jeuck .
-------------------------------------------
Stephen R. Jeuck
Chief Financial Officer
(Principal Accounting Officer)
30
CERTIFICATIONS
I, Charlie W. Brinkley, Jr., certify, that:
1. I have reviewed this quarterly report on Form 10-Q of Southern
Community Bancorp;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of
the internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
31
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
the internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 13, 2003 By: /s/ Charlie W. Brinkley .
-----------------------------------------
Charlie W. Brinkley, Jr., Chairman of the
Board and Chief Executive Officer
(Principal Executive Officer)
32
I, Stephen R. Jeuck, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of Southern
Community Bancorp;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of
the internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in
33
other factors that could significantly affect the internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 13, 2003 By: /s/ Stephen R. Jeuck
-------------------------------------------
Stephen R. Jeuck, Chief Financial Officer
34