Southern Community Financial Corporation (NASDAQ: SCMF) (NASDAQ:
SCMFO), the holding company for Southern Community Bank and Trust,
today reported first quarter 2009 results.
Financial Highlights
-- Deposit growth for first quarter 2009 of 16% year-over-year and 8% on
a linked quarter basis
-- Non-interest income increased $473 thousand or 19% compared with
fourth quarter 2008
-- Net interest margin for the first quarter 2009 decreased 9 basis
points to 3.01% from 3.10% in the fourth quarter 2008
-- First quarter provision for loan losses of $4.00 million, an increase
of $1.64 million, compared to $2.36 million in the fourth quarter 2008
-- Allowance for loan losses was 1.49% of total loans at March 31, 2009
compared to 1.43% at December 31, 2008
-- Nonperforming loans were 1.56% of total loans at March 31, 2009
compared with 1.10% of total loans at December 31, 2008
-- Nonperforming assets were 1.73% of total assets at March 31, 2009
compared with 1.12% of total assets at December 31, 2008
-- Annualized first quarter 2009 net charge-offs increased to 1.09% of
average loans compared with 0.43% for the fourth quarter 2008
-- First quarter 2009 net loss available to common shareholders of $49.70
million, or $2.96 per diluted common share included a one-time, non-cash
goodwill impairment charge of $49.50 million
-- Excluding the goodwill impairment charge and the preferred dividends
of $627 thousand, the first quarter 2009 net income was $425 thousand, a
decrease from fourth quarter 2008 earnings of $1.56 million.
The Company reported a net loss available to common shareholders
of $49.70 million, or $2.96 per diluted common share in the first
quarter of 2009. The net loss available to common shareholders
primarily reflects a goodwill impairment charge of $49.50 million
to write off the entire amount of goodwill as of March 31, 2009.
This charge is a one-time, non-cash accounting transaction that
will not impact the Company's cash flows, liquidity, tangible
capital, and ability to conduct its business and is primarily due
to the current state of the financial markets.
Excluding the impact of the goodwill impairment charge and the
$627 thousand in dividends on preferred stock, net income for the
first quarter of 2009 was $425 thousand, compared with $1.56
million for the fourth quarter of 2008 and $2.07 million for the
first quarter of 2008.
Asset Quality
Nonperforming loans increased to $20.25 million, or 1.56% of
total loans, at March 31, 2009 from $14.43 million, or 1.10% of
total loans, at December 31, 2008. Nonperforming assets increased
to $31.05 million, or 1.73% of total loans, at March 31, 2009 from
$20.18 million, or 1.12% of total assets, at December 31, 2008. Net
charge-offs totaled $3.54 million during the first quarter of 2009,
or 1.09% of average loans on an annualized basis, compared to $1.44
million, or 0.43% of average loans annualized, in the fourth
quarter of 2008. Nonperforming loans, nonperforming assets and net
charge-off activity continue to be predominantly related to
residential construction and development lending as 89% of
nonperforming loans, 91% of nonperforming assets and 62% of net
charge-offs originated from this segment of the loan portfolio.
The provision for loan losses of $4.00 million for the first
quarter increased $1.64 million compared to the fourth quarter 2008
provision and increased $3.08 million compared to the first quarter
2008 provision. The allowance for loan losses at March 31, 2009 of
$19.31 million represented 1.49% of total loans and 0.95 times
nonperforming loans compared with 1.43% of total loans and 1.31
times nonperforming loans at December 31, 2008.
"As was the case in the fourth quarter of 2008, the majority of
our nonperforming loans and charge-offs continue to be contained
within our residential construction and development portfolio. As
expected, results for the first quarter were impacted by increased
provision for loan losses and expenses associated with managing our
loan portfolio," said F. Scott Bauer, Chairman and Chief Executive
Officer. "While this difficult credit cycle continues to impact our
industry as a whole, Southern Community's core bank continues to
operate well. The company-wide focus on deposits and fee income
produced good results, as deposits increased 8% and fee income
increased 19% compared to the fourth quarter of 2008. During the
first quarter, we offered a CD promotion which was instrumental in
our deposit growth. Fee income increased largely due to greater
mortgage refinance and brokerage activity.
Looking ahead to the second quarter of 2009, we expect our loan
loss provision, charge-offs, and reserve coverage to remain at
current levels as we prudently bolster reserves and aggressively
manage problem assets. We do not anticipate a significant increase
in nonperforming loans in the second quarter. Depending upon the
interest rate environment as well as our level of nonperforming
loans, we expect modest net interest margin compression in the
second quarter. During the second half of 2009, we believe there
will be several opportunities to decrease our cost of funds and
improve our net interest margin and overall profitability.
While loan demand remains soft primarily due to the weakened
economy, we believe that it has the potential to increase during
the second half of 2009; however, we expect it to remain at current
levels during the second quarter of 2009. We are offering a special
jumbo mortgage product to qualified borrowers and effectively
targeting new relationships, and anticipate that both of these
efforts will help to stimulate future loan demand. While these are
difficult times in which to operate, Southern Community remains
solid from a capital and liquidity standpoint, and is well
positioned to weather this economic storm. Our Board and management
team are dedicated to working through these challenges and to the
excellent opportunities that lie ahead."
Financial Performance
Net interest income of $12.46 million for the first quarter 2009
decreased by 3% compared with $12.82 million in the fourth quarter
2008; however, it increased 13% over the $11.00 million in the
first quarter 2008. The net interest margin of 3.01% for the first
quarter 2009 decreased 9 basis points from 3.10% compared with the
fourth quarter and increased 3 basis points from 2.98% in the first
quarter 2008. The sequential decrease in net interest income
resulted from the impact of increased nonperforming assets and a
shift in the mix of assets more heavily weighted toward investment
securities than loans. Investment securities increased by $21.57
million during the first quarter of 2009 offsetting an $17.32
million decrease in loan balances outstanding for the quarter. This
decrease in loans was due to a slowdown in loan demand as some of
our primary customers are deleveraging and taking a more
conservative stance towards borrowing.
Non-interest income of $2.99 million during the first quarter
2009 increased by $473 thousand or 19% compared with the fourth
quarter 2008 primarily resulting from increases in mortgage banking
income from increased refinance activity, wealth management income
from brokerage volume shifting toward sales of annuities and life
insurance products and $149 thousand increase in income from SBIC
activities.
Excluding the goodwill impairment charge, non-interest expenses
of $11.08 million for the first quarter 2009 increased $430
thousand or 4% on a linked quarter basis and $523 thousand or 5%
year-over-year. The sequential increase in non-interest expenses
was mainly due to increases in health insurance benefit costs,
commissions on increased mortgage and wealth management transaction
volumes, and increases in marketing efforts focused on deposit
gathering and offering buyer incentives to purchasers of
bank-financed builder housing inventory. Expenses related to
problem loan workout activity and foreclosed properties remained
comparable with fourth quarter 2008 levels. As an annualized
percentage of average assets, the expense load, excluding the
goodwill impairment charge, represented 2.45% of average assets for
the first quarter 2009 compared with 2.35% for fourth quarter 2008
and 2.61% for first quarter 2008.
As of March 31, 2009, total assets amounted to $1.79 billion,
representing an increase of $99.67 million, or 6% year-over-year;
however, excluding the goodwill impairment charge of $49.50
million, total assets increased $149.19 million or 9%
year-over-year. On a linked quarter basis, asset growth for the
first quarter 2009, excluding the reduction related to goodwill
impairment, was relatively flat at $35.86 million or 2%. The loan
portfolio decreased by $17.32 million or 1% sequentially during the
first quarter due to slowing loan demand. Total deposits stood at
$1.33 billion at March 31, 2009, an increase of $185.41 million or
16% year-over-year. During the first quarter 2009, deposits
increased $95.03 million or 8% from the December 31, 2008 level as
depositors moved liquidity into certificates of deposit for higher
yield and safety.
At March 31, 2009, stockholders' equity of $138.46 million
represented 7.73% of total assets. Stockholders' equity decreased
$49.25 million or 26% from $187.71 million at December 31, 2008 as
a result of the $49.50 million goodwill impairment charge.
Regulatory capital ratios remain in excess of the "well
capitalized" threshold as the calculations for these regulatory
capital measures exclude goodwill and any related impairment
charges.
Southern Community's executive management team will host a
conference call on May 1, 2009, at 9:30 AM Eastern Time to discuss
the quarter-end results. The call can be accessed by dialing
1-877-795-3610 or 1-719-325-4804 and entering pass code 9364725. A
replay of the conference call can be accessed until 11:59 pm on May
15, 2009, by calling 1-888-203-1112 or 1-719-457-0820 and entering
pass code 9364725. 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 Financial
Corporation 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
Income
Statement Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2009 2008 2008 2008 2008
---------- ---------- ---------- ---------- ----------
Total Interest
Income $ 22,744 $ 24,278 $ 24,412 $ 23,727 $ 24,325
Total Interest
Expense 10,285 11,459 12,553 11,947 13,323
---------- ---------- ---------- ---------- ----------
Net Interest
Income 12,459 12,819 11,859 11,780 11,002
Provision for
Loan Losses 4,000 2,360 1,350 3,530 925
Net Interest
Income after
Provision for
Loan Losses 8,459 10,459 10,509 8,250 10,077
Non-Interest
Income
Service Charges
on Deposit
Accounts 1,444 1,487 1,491 1,475 1,406
Income from
mortgage
banking
activities 416 233 219 358 484
Investment
brokerage and
trust fees 296 147 285 335 371
SBIC income
(loss) and
management
fees 238 89 39 82 (150)
Gain (Loss) on
Sale of
Investment
Securities 1 98 - - -
Gain (Loss) and
Net Cash
Settlement on
Economic
Hedges (22) - (440) 330 1,044
Other Income 618 464 483 518 434
---------- ---------- ---------- ---------- ----------
Total
Non-Interest
Income 2,991 2,518 2,077 3,098 3,589
Non-Interest
Expense
Salaries and
Employee
Benefits 5,530 5,088 5,535 5,621 5,794
Occupancy and
Equipment 2,034 1,930 1,854 1,931 1,964
Goodwill
Impairment 49,501 - - - -
Other 3,519 3,635 2,815 3,120 2,802
---------- ---------- ---------- ---------- ----------
Total
Non-Interest
Expense 60,584 10,653 10,204 10,672 10,560
Income (Loss)
Before Taxes (49,134) 2,324 2,382 676 3,106
Provision for
Income Taxes (58) 766 754 73 1,041
---------- ---------- ---------- ---------- ----------
Net Income
(Loss) $ (49,076) $ 1,558 $ 1,628 $ 603 $ 2,065
========== ========== ========== ========== ==========
Effective dividend
on preferred
stock 627 185 - - -
---------- ---------- ---------- ---------- ----------
Net income (loss)
available to
common
shareholders $ (49,703) $ 1,373 $ 1,628 $ 603 $ 2,065
========== ========== ========== ========== ==========
Net Income (Loss)
per Common Share
Basic $ (2.96) $ 0.08 $ 0.09 $ 0.03 $ 0.12
Diluted $ (2.96) $ 0.08 $ 0.09 $ 0.03 $ 0.12
========== ========== ========== ========== ==========
Balance Sheet Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2009 2008 2008 2008 2008
---------- ---------- ---------- ---------- ----------
Assets
Cash and due
from Banks $ 28,268 $ 25,215 $ 27,453 $ 37,576 $ 35,037
Federal Funds
Sold & Int
Bearing
Balances 17,891 2,180 2,605 3,607 4,752
Investment
Securities 346,265 324,698 302,905 306,666 284,669
Federal Home
Loan Bank
Stock 10,178 9,757 10,208 9,670 11,482
Loans held for
sale 6,044 316 920 2,106 4,110
Loans 1,297,489 1,314,811 1,323,360 1,285,014 1,235,952
Allowance for
Loan Losses (19,314) (18,851) (17,929) (17,499) (14,853)
---------- ---------- ---------- ---------- ----------
Net Loans 1,278,175 1,295,960 1,305,431 1,267,515 1,221,099
Bank Premises
and Equipment 40,622 40,030 39,264 39,672 38,790
Goodwill - 49,501 49,792 49,792 49,792
Other Assets 62,695 56,121 59,283 55,101 40,721
---------- ---------- ---------- ---------- ----------
Total Assets $1,790,138 $1,803,778 $1,797,861 $1,771,705 $1,690,452
========== ========== ========== ========== ==========
Liabilities and
Stockholders'
Equity
Deposits
Non-Interest
Bearing $ 98,618 $ 102,048 $ 104,988 $ 114,685 $ 109,534
Money market,
savings and
NOW 479,797 475,772 523,949 560,094 507,105
Time 749,728 655,292 634,037 542,622 526,096
---------- ---------- ---------- ---------- ----------
Total
Deposits 1,328,143 1,233,112 1,262,974 1,217,401 1,142,735
Borrowings 314,400 373,213 378,500 401,667 393,306
Accrued
Expenses and
Other
Liabilities 9,137 9,743 13,549 10,747 10,061
---------- ---------- ---------- ---------- ----------
Total
Liabilities 1,651,680 1,616,068 1,655,023 1,629,815 1,546,102
Total
Stockholders'
Equity 138,458 187,710 142,838 141,890 144,350
---------- ---------- ---------- ---------- ----------
Total
Liabilities
and
Stockholders'
Equity $1,790,138 $1,803,778 $1,797,861 $1,771,705 $1,690,452
========== ========== ========== ========== ==========
Tangible Book
Value per
Common Share $ 5.75 $ 5.76 $ 5.29 $ 5.23 $ 5.38
========== ========== ========== ========== ==========
As of or for the three months ended
Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2009 2008 2008 2008 2008
---------- ---------- ---------- ---------- ----------
Per Common
Share Data:
Basic Earnings
per Share $ (2.96) $ 0.08 $ 0.09 $ 0.03 $ 0.12
Diluted
Earnings per
Share $ (2.96) $ 0.08 $ 0.09 $ 0.03 $ 0.12
Tangible Book
Value per
Share $ 5.75 $ 5.76 $ 5.29 $ 5.23 $ 5.38
Cash dividends
paid $ - $ 0.040 $ 0.040 $ 0.040 $ 0.040
Selected
Performance
Ratios:
Return on
Average Assets
(annualized)
ROA -10.85% 0.34% 0.36% 0.14% 0.51%
Return on
Average Equity
(annualized)
ROE -106.14% 4.01% 4.57% 1.68% 5.84%
Return on
Tangible
Equity
(annualized) -145.38% 5.98% 7.13% 2.60% 9.12%
Net Interest
Margin 3.01% 3.10% 2.88% 2.99% 2.98%
Net Interest
Spread 2.78% 2.88% 2.67% 2.76% 2.67%
Non-interest
Income as a %
of Revenue 19.36% 16.42% 14.90% 20.82% 24.60%
Non-interest
Income as a %
of Average
Assets 0.66% 0.56% 0.45% 0.71% 0.89%
Non-interest
Expense to
Average Assets 13.39% 2.35% 2.27% 2.47% 2.61%
Efficiency
Ratio 392.13% 69.46% 73.22% 71.73% 72.37%
Asset Quality:
Nonperforming
Loans $ 20,251 $ 14,433 $ 12,007 $ 12,796 $ 7,012
Nonperforming
Assets $ 31,049 $ 20,178 $ 15,086 $ 14,210 $ 8,042
Nonperforming
Loans to Total
Loans 1.56% 1.10% 0.91% 1.00% 0.57%
Nonperforming
Assets to
Total Assets 1.73% 1.12% 0.84% 0.80% 0.48%
Allowance for
Loan Losses to
Period-end
Loans 1.49% 1.43% 1.35% 1.36% 1.20%
Allowance for
Loan Losses to
Nonperforming
Loans (X) 0.95 X 1.31 X 1.49 X 1.37 X 2.12 X
Net Charge-offs
to Average
Loans
(annualized) 1.09% 0.43% 0.28% 0.28% 0.11%
Capital Ratios:
Equity to Total
Assets 7.73% 10.41% 7.94% 8.01% 8.54%
Tangible Equity
to Total
Tangible
Assets (1) 5.40% 5.51% 5.26% 5.28% 5.69%
Average
Balances:
Year to Date
Interest
Earning
Assets $1,679,293 $1,588,542 $1,569,306 $1,535,388 $1,485,037
Total Assets 1,834,575 1,738,868 1,717,357 1,680,842 1,625,164
Total Loans 1,310,679 1,279,041 1,264,744 1,238,843 1,219,800
Equity 187,512 145,754 142,800 143,282 142,190
Interest
Bearing
Liabilities 1,535,956 1,474,539 1,456,848 1,421,227 1,368,420
Quarterly
Interest
Earning
Assets $1,679,293 $1,645,832 $1,636,404 $1,586,068 $1,485,037
Total Assets 1,834,575 1,802,934 1,789,593 1,736,520 1,625,164
Gross Loans 1,310,679 1,321,621 1,315,983 1,257,886 1,219,800
Equity 187,512 154,552 141,846 144,374 142,190
Interest
Bearing
Liabilities 1,535,956 1,527,227 1,527,316 1,474,186 1,368,420
Weighted
Average Number
of Shares
Outstanding
Basic 16,780,058 17,369,765 17,369,925 17,354,298 17,359,452
Diluted 16,780,058 17,398,432 17,416,675 17,401,298 17,401,589
Period end
outstanding
shares 16,793,175 16,769,675 17,370,175 17,370,175 17,319,351
(1) - Tangible Equity to Total Tangible Assets is period-ending equity less
intangibles, divided by period-ending assets less intangibles.
Management provides the above non-GAAP measure, footnote (1) to provide
readers with the impact of purchase accounting on this key financial ratio.
For additional information: F. Scott Bauer Chairman/CEO James
Hastings Executive Vice President/CFO (336) 768-8500
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