Southern Community Financial Corporation (NASDAQ: SCMF) (NASDAQ:
SCMFO), the holding company for Southern Community Bank and Trust,
reported results for the second quarter of 2010.
Financial Highlights:
-- Net income before preferred dividends of $261 thousand and net loss
after preferred dividends of $371 thousand for second quarter 2010
represents an improvement of $4.9 million sequentially and $2.9 million
year-over-year;
-- Net interest margin of 3.46% for second quarter 2010 increased 5 basis
points on a linked quarter basis and 41 basis points year-over-year;
-- Year-over-year increases of 20% in demand deposits and 36% in interest
bearing non-time deposits bolstered net interest margin;
-- Provision for loan losses of $5.5 million decreased $4.5 million
compared to first quarter;
-- Linked quarter improvements in non-interest income of 11% in total and
21% excluding securities gains and other than temporary impairment
writedowns;
-- Net charge-offs of $11.9 million, or 3.95% of average loans
(annualized), up from $3.6 million, or 1.20% of average loans
(annualized), in the first quarter;
-- Allowance for loan losses decreased to $29.6 million, or 2.47% of total
loans, at June 30, 2010, compared to $36.0 million, or 2.98% of total
loans, at March 31, 2010; and
-- Nonperforming assets increased to $74.3 million or 4.47% of total
assets at June 30, 2010 from $70.9 million or 4.15% of total assets at
March 31, 2010.
Southern Community Financial reported a reduction in the net
loss available to common shareholders to $371 thousand in the
second quarter of 2010, compared with a net loss of $5.2 million in
the first quarter of 2010 and net loss of $3.3 million in the
second quarter of 2009. The net loss per diluted common share in
the second quarter of 2010 also decreased to $0.02, compared to
$0.31 in the first quarter of 2010 and $0.20 in the second quarter
of 2009.
"While it is premature to say that this adverse credit cycle is
behind us, we believe that we have identified our largest problem
credits, and our allowance for loan losses at June 30, 2010
appropriately reflects the risk inherent in our loan portfolio,"
said F. Scott Bauer, Chairman and Chief Executive Officer. "During
the second quarter of 2010, we charged off a $4.2 million land
development loan, which had specific reserves previously allocated.
As we had anticipated, this loan accounted for a significant
portion of our net charge-offs in the second quarter and the
majority of the decrease in the allowance for loan losses during
the second quarter. Additionally, we have made substantial progress
in resolving other problem credits, and expect write-downs on
foreclosed assets to moderate from current levels over the next few
quarters. The additions that we are now seeing to nonperforming
assets are less pronounced than we experienced in the previous two
quarters. Consequently, our allowance for loan losses reflects our
expectation that the level of nonperforming loans will begin to
moderate in the third quarter of 2010.
Our core bank operations continue to weather the current
economic climate well. Our net interest income improved modestly
compared to the first quarter and 7% on a year-over-year basis, due
to our continued focus on improving our deposit mix towards lower
cost deposits. Also during the second quarter on a linked quarter
basis, our non-interest income in total increased 11% and
non-interest income excluding securities gains and OTTI writedowns
increased 21%. This increase is a direct result of our focus on our
customers' investment needs as well as the addition of new checking
accounts and the resulting debit card income. Our pre-tax,
pre-provision earnings improved 3% compared to the first quarter of
2010 and 274% compared to the second quarter of 2009 as a result of
our strong core business and the absence of some nonrecurring prior
period transactions.
Over the next few quarters, we anticipate continued slow loan
demand due to the persistent economic drag across our footprint.
Additionally, we believe that our funding costs will remain
relatively stable. We remain well capitalized with ratios exceeding
regulatory requirements and we expect to remain well capitalized. I
wish to thank our customers and shareholders for their strong
support and our employees who continue to do an exceptional
job."
Asset Quality
Nonperforming loans increased to $55.5 million, or 4.63% of
total loans, at June 30, 2010 from $50.6 million, or 4.19% of total
loans, at March 31, 2010. Nonperforming assets increased to $74.3
million, or 4.47% of total assets, at June 30, 2010 from $70.9
million, or 4.15% of total assets, at March 31, 2010 due primarily
to a $4.9 million increase in nonperforming loans offset by a $1.5
million decrease in foreclosed assets during the quarter. Net
charge-offs totaled $11.9 million, or 3.95% of average loans on an
annualized basis, an increase from $3.6 million, or 1.20% of
average loans annualized, from the first quarter 2010.
The provision for loan losses of $5.5 million in the second
quarter of 2010 decreased $4.5 million compared with the first
quarter 2010. The allowance for loan losses decreased $6.4 million
during the second quarter to $29.6 million, or 2.47% of loans, at
June 30, 2010 primarily due to a $4.2 million charge-off of
specific reserves that were allocated in prior quarters.
Net Interest Income
Net interest income of $13.4 million in the second quarter of
2010 increased 1% compared to $13.2 million in the first quarter of
2010, and increased 7% compared to $12.6 million in the second
quarter of 2009. The net interest margin increased 5 basis points
to 3.46% in the second quarter of 2010 compared with 3.41% in the
first quarter of 2010, primarily due to lower deposit costs
resulting from active liability management with an emphasis on
improving the funding mix and lowering funding costs. The modest
sequential increase in net interest income in the second quarter of
2010 was due to the impact of the increase in net interest margin
partially offset by the $13.6 million decrease in average loan
balances. Compared to the second quarter of 2009, the net interest
margin increased 41 basis points. The year-over-year growth in net
interest income in the second quarter of 2010 resulted primarily
from the impact of the Company's deposit and borrowing costs
repricing lower than its asset yields which were positively
impacted by the increased utilization of interest rate floors on a
majority of variable rate loans. Offsetting a portion of this
favorable margin variance in comparing year-over-year net interest
income was the decrease in average loan balances of $72.3 million,
or 6%, attributable to a slowdown in loan demand due to the current
economic environment.
Non-interest Income
Non-interest income increased by $439 thousand, or 11%, to $4.4
million during the second quarter of 2010 compared with the first
quarter of 2010. The increase in non-interest income primarily
resulted from a $274 thousand increase in income from investment
brokerage, $162 thousand increase in service charge income, $147
thousand increase in Small Business Investment Company (SBIC)
income and a $186 thousand decrease in "other-than-temporary
impairment" writedowns. These favorable impacts were reduced by a
$336 thousand decrease in gains on sales of investment securities.
On a year-over-year comparison, non-interest income in the second
quarter of 2010 increased $1.8 million, or 68%, compared with the
second quarter of 2009. The year-over-year increase was primarily
the result of $874 thousand net increase in derivatives gains,
attributable primarily to $1.0 million write-off of collateral held
by Lehman as swap counterparty in second quarter 2009, as well as
increases in gains on sales of investment securities, SBIC income,
income from investment brokerage and service charge income.
Non-interest Expenses
Non-interest expenses of $12.3 million during the second quarter
of 2010 increased $490 thousand, or 4%, on a linked quarter basis.
The sequential increase in non-interest expenses was primarily due
to the $335 thousand increase in expenses related to foreclosed
assets, both write-downs on the carrying values and the costs of
acquiring and maintaining foreclosed real estate, and the $198
thousand increase in legal expenses incurred primarily to assist in
the resolution of problem credits. Partially offsetting this, the
Company reduced discretionary spending on a linked quarter basis by
$148 thousand in salaries and employee benefits and $34 thousand in
contributions. The Company had a 3% sequential decrease in
personnel expenses resulting from staff reductions and cost savings
programs initiated in prior quarters, including a company-wide
salary freeze and a reduction in 401(k) employer matching
contributions.
Balance Sheet
As of June 30, 2010, total assets amounted to $1.7 billion,
representing a decrease of $66.6 million, or 4%, year-over-year. On
a linked quarter basis, total assets decreased $47.1 million, or
3%. The loan portfolio decreased by $9.9 million, or 1%,
sequentially during the second quarter of 2010 and decreased by
$52.6 million, or 4%, since June 30, 2009 due to decreased loan
demand. Total deposits of $1.3 billion at June 30, 2010 increased
$49.1 million, or 4%, year-over-year. Deposits decreased $14.1
million, or 1%, during the second quarter 2010 as the Company
continued to shift its deposit mix toward lower cost money market
and transaction accounts from certificates of deposit. Non-interest
bearing demand deposits increased $10.3 million, or 9%, and money
market, savings, and NOW deposits increased $3.4 million, or 1%,
while time deposits decreased $27.8 million, or 5%, compared to the
first quarter of 2010.
At June 30, 2010, stockholders' equity of $117.0 million
represented 7.05% of total assets. Stockholders' equity increased
$102 thousand, or less than 1%, from $116.9 million at March 31,
2010 primarily the result of an increase in other comprehensive
income due to an increase in the fair values of investment
securities available for sale partially offset by the second
quarter loss discussed above. Regulatory capital ratios remain in
excess of the "well capitalized" threshold.
Conference Call
Southern Community's executive management team will host a
conference call on July 23, 2010, at 9:30 am Eastern Time to
discuss the quarter-end results. The call can be accessed by
dialing 1-877-874-1589 or 1-719-325-4827 and entering pass code
1824927. A replay of the conference call can be accessed until
11:59 pm on August 6, 2010, by calling 1-888-203-1112 or
1-719-457-0820 and entering pass code 1824927. 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 our
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 Six
months ended months Ended
Income Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Jun 30, Jun 30,
Statement 2010 2010 2009 2009 2009 2010 2009
------- ------- -------- ------- ------- ------- --------
Interest
Income $20,439 $20,986 $ 22,092 $22,186 $22,451 $41,425 $ 45,195
Interest
Expense 7,007 7,739 8,701 8,868 9,872 14,746 20,157
------- ------- -------- ------- ------- ------- --------
Net
Interest
Income 13,432 13,247 13,391 13,318 12,579 26,679 25,038
Provision
for Loan
Losses 5,500 10,000 18,000 6,000 6,000 15,500 10,000
Net Interest
Income after
Provision
for Loan
Losses 7,932 3,247 (4,609) 7,318 6,579 11,179 15,038
Non-Interest
Income
Service
Charges on
Deposit
Accounts 1,719 1,557 1,671 1,588 1,543 3,276 2,987
Income from
mortgage
banking
activities 359 358 416 512 760 717 1,176
Investment
brokerage
and trust
fees 509 235 292 359 212 744 508
SBIC income
(loss) and
management
fees 323 176 (218) 171 (43) 499 195
Gain
(Loss) on
Sale of
Investment
Securities 1,018 1,354 - 735 500 2,372 501
Gain (Loss)
and Net Cash
Settlement on
Economic
Hedges (38) (31) 852 316 (912) (69) (934)
Other-than-
temporary
impairment - (186) - - - (186) -
Other Income 502 490 513 508 550 992 758
------- ------- -------- ------- ------- ------- --------
Total Non-
Interest
Income 4,392 3,953 3,526 4,189 2,610 8,345 5,191
Non-Interest
Expense
Salaries
and Employee
Benefits 5,321 5,469 5,385 5,690 5,897 10,790 11,427
Occupancy and
Equipment 1,895 1,916 1,882 1,997 1,990 3,811 4,024
Goodwill
Impairment - - - - - - 49,501
Other 5,117 4,458 6,311 4,934 5,834 9,575 9,347
------- ------- -------- ------- ------- ------- --------
Total Non-
Interest
Expense 12,333 11,843 13,578 12,621 13,721 24,176 74,299
Income (Loss)
Before Taxes (9) (4,643) (14,661) (1,114) (4,532) (4,652) (54,070)
Provision for
Income
Taxes (270) (32) (3,944) (683) (1,845) (302) (2,059)
------- ------- -------- ------- ------- ------- --------
Net Income
(Loss) $ 261 $(4,611) $(10,717) $ (431) $(2,687) $(4,350) $(52,011)
======= ======= ======== ======= ======= ======= ========
Effective
dividend on
preferred
stock 632 633 627 621 633 1,265 1,260
------- ------- -------- ------- ------- ------- --------
Net Income
(loss)
available to
common share-
holders $ (371) $(5,244) $(11,344) $(1,052) $(3,320) $(5,615) $(53,271)
======= ======= ======== ======= ======= ======= ========
Net Income
(Loss) per
Common Share
Basic $ (0.02) $ (0.31) $ (0.68) $ (0.06) $ (0.20) $ (0.33) $ (3.17)
Diluted $ (0.02) $ (0.31) $ (0.68) $ (0.06) $ (0.20) $ (0.33) $ (3.17)
======= ======= ======== ======= ======= ======= ========
Balance Sheet Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2010 2010 2009 2009 2009
---------- ---------- ---------- ---------- ----------
Assets
Cash and due
from Banks $ 35,757 $ 33,885 $ 30,184 $ 22,953 $ 27,265
Federal Funds
Sold & Int
Bearing
Balances 1,358 22,352 31,269 21,792 1,496
Investment
Securities 307,595 335,519 323,700 323,800 333,722
Federal Home
Loan Bank
Stock 9,794 9,794 9,794 9,794 9,794
Loans held for
sale 6,582 2,984 3,025 2,559 8,068
Loans 1,198,565 1,208,454 1,230,275 1,248,249 1,251,200
Allowance for
Loan Losses (29,609) (36,007) (29,638) (20,807) (19,390)
---------- ---------- ---------- ---------- ----------
Net Loans 1,168,956 1,172,447 1,200,637 1,227,442 1,231,810
Bank Premises
and Equipment 41,535 42,058 42,630 42,590 42,006
Foreclosed
Assets 18,781 20,285 19,634 18,118 17,881
Other Assets 69,757 67,856 67,735 56,293 54,667
---------- ---------- ---------- ---------- ----------
Total Assets $1,660,115 $1,707,180 $1,728,608 $1,725,341 $1,726,709
========== ========== ========== ========== ==========
Liabilities and
Stockholders'
Equity
Deposits
Non-Interest
Bearing $ 123,573 $ 113,292 $ 118,372 $ 106,156 $ 103,205
Money market,
savings and NOW 623,854 620,433 579,027 526,884 459,682
Time 545,420 573,229 616,671 646,039 680,875
---------- ---------- ---------- ---------- ----------
Total
Deposits 1,292,847 1,306,954 1,314,070 1,279,079 1,243,762
Borrowings 242,303 275,831 284,580 303,978 340,335
Accrued Expenses
and Other
Liabilities 7,981 7,513 7,961 8,222 8,913
---------- ---------- ---------- ---------- ----------
Total
Liabilities 1,543,131 1,590,298 1,606,611 1,591,279 1,593,010
Total Stockholders'
Equity 116,984 116,882 121,997 134,062 133,699
---------- ---------- ---------- ---------- ----------
Total Liabilities
and Stockholders'
Equity $1,660,115 $1,707,180 $1,728,608 $1,725,341 $1,726,709
========== ========== ========== ========== ==========
Tangible Book
Value per
Common Share $ 4.46 $ 4.45 $ 4.77 $ 5.49 $ 5.47
========== ========== ========== ========== ==========
For the three months ended
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2010 2010 2009 2009 2009
---------- ---------- ---------- ---------- ----------
Per Common
Share Data:
Basic Earnings
per Share $ (0.02) $ (0.31) $ (0.68) $ (0.06) $ (0.20)
Diluted
Earnings
per Share $ (0.02) $ (0.31) $ (0.68) $ (0.06) $ (0.20)
Tangible
Book Value
per Share $ 4.46 $ 4.45 $ 4.77 $ 5.49 $ 5.47
Cash
dividends
paid $ - $ - $ - $ - $ -
Selected
Performance
Ratios:
Return on
Average Assets
(annualized)
ROA 0.06% -1.10% -2.44% -0.10% -0.61%
Return on
Average Equity
(annualized)
ROE 0.90% -15.34% -31.92% -1.28% -7.87%
Return on
Tangible
Equity
(annualized) 0.90% -15.44% -32.14% -1.29% -7.93%
Net Interest
Margin 3.46% 3.41% 3.28% 3.30% 3.05%
Net Interest
Spread 3.32% 3.26% 3.08% 3.10% 2.84%
Non-interest
Income as a %
of Revenue 24.64% 22.98% 20.84% 23.93% 17.18%
Non-interest
Income as a %
of Average
Assets 1.04% 0.94% 0.80% 0.96% 0.59%
Non-interest
Expense to
Average
Assets 2.93% 2.82% 3.09% 2.91% 3.12%
Efficiency
Ratio 69.19% 68.85% 80.26% 72.09% 90.34%
Asset Quality:
Nonperforming
Loans $ 55,477 $ 50,608 $ 37,732 $ 22,697 $ 17,851
Nonperforming
Assets $ 74,258 $ 70,893 $ 57,366 $ 40,766 $ 35,732
Nonperforming
Loans to
Total Loans 4.63% 4.19% 3.07% 1.82% 1.43%
Nonperforming
Assets to
Total Assets 4.47% 4.15% 3.32% 2.36% 2.07%
Allowance
for Loan
Losses to
Period-end
Loans 2.47% 2.98% 2.41% 1.67% 1.55%
Allowance
for Loan
Losses to
Nonperforming
Loans (X) 0.53 X 0.71 X 0.79 X 0.92 X 1.09 X
Net Charge-
offs to
Average Loans
(annualized) 3.95% 1.20% 2.92% 1.45% 1.85%
Capital Ratios:
Equity to
Total Assets 7.05% 6.85% 7.06% 7.77% 7.74%
Tangible
Common
Equity to
Total
Tangible
Assets(1) 4.52% 4.39% 4.63% 5.34% 5.32%
Average
Balances:
Year to
Date
Interest
Earning
Assets $1,564,646 $1,573,247 $1,638,171 $1,643,945 $1,665,784
Total
Assets 1,695,640 1,704,190 1,767,047 1,774,376 1,800,376
Total
Loans 1,215,776 1,222,594 1,272,087 1,280,803 1,295,913
Equity 119,293 121,944 147,652 155,522 162,126
Interest
Bearing
Liabil-
ities 1,451,099 1,459,636 1,501,705 1,506,867 1,525,524
Quarterly
Interest
Earning
Assets $1,556,140 $1,573,247 $1,621,037 $1,600,979 $1,652,424
Total
Assets 1,687,184 1,704,190 1,745,299 1,723,224 1,766,553
Total
Loans 1,209,033 1,222,594 1,246,223 1,251,076 1,281,309
Equity 116,671 121,944 133,201 133,627 137,019
Interest
Bearing
Liabil-
ities 1,442,655 1,459,636 1,486,386 1,470,162 1,515,206
Weighted
Average
Number of
Shares
Outstanding
Basic 16,814,378 16,806,292 16,789,045 16,791,175 16,791,340
Diluted 16,814,378 16,806,292 16,789,045 16,791,175 16,791,340
Period end
outstanding
shares 16,812,625 16,818,125 16,787,675 16,791,175 16,793,175
Six months Ended
Jun 30, Jun 30,
2010 2009
---------- ----------
Per Common
Share Data:
Basic
Earnings
per Share $ (0.33) $ (3.17)
Diluted
Earnings
per Share $ (0.33) $ (3.17)
Tangible
Book Value
per Share $ 4.46 $ 5.47
Cash
dividends
paid $ - $ -
Selected
Performance
Ratios:
Return on
Average
Assets
(annualized)
ROA -0.52% -5.83%
Return on
Average
Equity
(annualized)
ROE -7.35% -64.69%
Return on
Tangible
Equity
(annualized) -7.40% -76.72%
Net Interest
Margin 3.44% 3.03%
Net Interest
Spread 3.29% 2.81%
Non-interest
Income as a %
of Revenue 23.83% 17.36%
Non-interest
Income as a %
of Average
Assets 0.99% 0.59%
Non-interest
Expense to
Average
Assets 2.88% 8.33%
Efficiency
Ratio 69.03% 245.79%
Asset Quality:
Nonperforming
Loans $ 55,477 $ 17,851
Nonperforming
Assets $ 74,258 $ 35,732
Nonperforming
Loans to
Total Loans 4.63% 1.43%
Nonperforming
Assets to
Total Assets 4.47% 2.07%
Allowance
for Loan
Losses to
Period-end
Loans 2.47% 1.55%
Allowance
for Loan
Losses to
Nonperforming
Loans (X) 0.53 X 1.09 X
Net Charge-
offs to
Average Loans
(annualized) 2.58% 1.47%
Capital Ratios:
Equity to
Total Assets 7.05% 7.74%
Tangible
Common
Equity to
Total
Tangible
Assets(1) 4.52% 5.32%
Average
Balances:
Year to
Date
Interest
Earning
Assets
Total
Assets
Total
Loans
Equity
Interest
Bearing
Liabil-
ities
Quarterly
Interest
Earning
Assets
Total
Assets
Total
Loans
Equity
Interest
Bearing
Liabil-
ities
Weighted
Average
Number of
Shares
Outstanding
Basic 16,810,357 16,785,730
Diluted 16,810,357 16,785,730
Period end
outstanding
shares 16,812,625 16,793,175
(1) - Tangible Common Equity to Total Tangible Assets is period-ending
common 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.
For additional information: F. Scott Bauer Chairman/CEO James
Hastings Executive Vice President/CFO (336) 768-8500
Capital Bank Financial Corp. - Southern Community Capital Trust II - % Cumulative Trust Preferred Securities (MM) (NASDAQ:SCMFO)
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Capital Bank Financial Corp. - Southern Community Capital Trust II - % Cumulative Trust Preferred Securities (MM) (NASDAQ:SCMFO)
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