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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 10-KSB

x
        
        ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2002o
        
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from __________ to _______________


Commission File No. 000-49780

SOUTHERN COMMUNITY BANCORP

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(Name of Small Business Issuer in its Charter)


Florida
        
        59-3619325(State or Other Jurisdiction of
        
        (I.R.S. EmployerIncorporation or Organization)
        
        Identification No.)


250 North Orange Avenue, Orlando, Florida 32801

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(Address of Principal Executive Offices)


(407) 648-1844

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(Issuers Telephone Number, Including Area Code)


Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:
Common stock, $1.00 par value

Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 past 90 days. Yes x
No o

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrants knowledge, in the definitive proxy or information
statement incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. o

State issuers revenues for its most recent fiscal year: $36,067,000.

As of February 15, 2003, the registrant had 6,693,064 outstanding shares of
common stock, $1.00 par value. The aggregate market value of the common stock
of the registrant held by non-affiliates (based on the most recent price of the
common stock sold by the registrant) was approximately $51,910,000.

Documents incorporated by reference:
Part III  Definitive Proxy Statement for the 2003 Annual Meeting of Shareholders.

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TABLE OF CONTENTS



|                                                 |  |  |  |  |  |  |  | 
|------------------------------------------------ |  |  |  |  |  |  |  | 
|PART I                                          
|PART II                                         
|PART III                                        
|PART IV                                         
|SIGNATURES                                      
|CERTIFICATIONS                                  
|Ex-10.6 Salary Continuation   w/ Dennis Bedley  
|Ex-10.7 Salary Continuation   w/ Richard Garner 
|Ex-10.8 Salary Continuation   w/Joel Whittenhall
|Ex-10.15 Termination Benefits - Brinkley        
|Ex-10.16 Termination Benefits - Squires         
|Ex-10.17 Termination Benefits - Bedley          
|Ex-10.18 Termination Benefits - Garner          
|Ex-10.19 Termination Benefits - Whittenhall     
|Ex-21.1 Subsidiaries                            
|Ex-99.1 Certification of CEO & CFO              




PART I

ITEM 1.       DESCRIPTION OF BUSINESS

General

Southern Community Bancorp is a bank holding company which owns and
operates four Florida chartered banks. These banks are as follows:

Name of Bank
        
        Principal OfficeSouthern Community Bank
        
        Orlando, FloridaSouthern Community Bank of Southwest Florida
        
        Bonita Springs, FloridaSouthern Community Bank, Atlantic
        
        Daytona Beach, FloridaSouthern Community Bank of South Florida
        
        Boca Raton, Florida


Southern Community Bank opened in December 1998. Southern became a bank
holding company in July 1999 when Southern acquired all of the shares of
Southern Community Bank in a share exchange with the shareholders of the bank.
Southern opened Southern Community Bank of Southwest Florida in January 2001.
Southern acquired Peninsula Bank in April 2001 as a result of the merger of
Peninsula Bancorp, Inc. into Southern. Peninsula Bank was renamed Southern
Community Bank, Atlantic in March 2002. Southern opened Southern Community
Bank of South Florida in August 2002.

Strategy

Southerns goal is to operate its banks in the substantially the same
manner as local community banks, emphasizing local leadership and local
decision-making. The management of each bank makes its own credit decisions.
Each bank prices and markets its own loan and deposit products. Each bank has
its own board of directors, drawn mainly from members of the local business
community. Each board has full authority over the bank, in contrast to an
advisory board which lacks authority. Each bank endeavors to be an active
supporter of local charities and civic organizations.

Southerns strategy is to capitalize on the opportunities created by the
consolidation in the Florida banking industry. Southern believes that this
consolidation has reduced the levels of personalized services as the larger
regional financial institutions have increasingly focused on larger corporate
customers and standardized loan and deposit products. More specifically, many
financial institutions have centralized their loan approval practices for small
businesses, leaving less responsibility and authority with the traditional loan
officer. By virtue of their banking experience in Florida, Southerns
management believes that the most frequent customer complaints are based on a
lack of personalized service and turnover in lending personnel, which limits
the customers ability to develop a relationship with his or her banker. As a
result of these factors, Southern believes there currently exists a significant
opportunity to attract and maintain customers who are dissatisfied with their
banks. Southern also believes it can attract experienced management personnel
within its identified markets.

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Southerns holding company structure provides flexibility for the future
expansion of its banking business through the possible acquisition of other
financial institutions and the formation of new banks. In addition, Southerns
holding company structure also makes it easier to raise additional capital for
its banks because Southern can issue securities without the need for prior
banking regulatory approval.

Southern Community Bank

Southern Community Bank is a Florida state-chartered bank which commenced
operations in December 1998. Southern Community Banks principal office is
located in the central business district in Orlando, Florida, and it maintains
branch offices in the cities of Winter Park, Altamonte Springs, Longwood, south
Orlando and Lake Mary, Florida. At December 31, 2002, Southern Community Bank
had total assets of approximately $352.9 million.

Southern Community Bank of Southwest Florida

Southern Community Bank of Southwest Florida is a Florida state chartered
bank which opened in January 2001. This bank serves the Bonita Springs and
Naples, Florida markets. The main office of this bank is located in a new
office building in Bonita Springs. The bank also owns and operates a branch
office in Naples, Florida. This bank expects to open an additional branch in
Estero, Florida in the next 12 months. On December 31, 2002, total assets of
this bank were $114.9 million.

Southern Community Bank, Atlantic

Southern Community Bank, Atlantic is a Florida state chartered bank which
opened in 1998. Its principal office is located in the Seabreeze area of
Daytona Beach, Florida and it maintains branches in Ormond Beach, Port Orange
and Daytona Beach, Florida. Southern acquired this bank in April 2001 through
the merger of Southern and Peninsula Bancorp, Inc. On December 31, 2002, this
bank had total assets of $102.4 million.

Southern Community Bank of South Florida

Southern Community Bank of South Florida is a Florida state chartered bank
which opened in August 2002. Its principal office is located in Boca Raton,
Florida, and it maintains a branch office in Fort Lauderdale, Florida and a
loan production office in West Palm Beach, Florida. Southern also plans to
open additional branch offices in West Palm Beach and Palm Beach in the next 12
months, subject to the receipt of regulatory approval. At December 31, 2002,
this bank had total assets of $95.1 million.

Southern Community Insurance Agency, Inc.

Southern owns and operates an insurance agency named Southern Community
Insurance Agency, Inc. The agency is a wholly owned subsidiary of our Orlando
bank. The agency refers customers of Southerns banks to another insurance
agency, Insurance Office of America, Inc., for the purchase of insurance
products. Insurance Office of America pays the agency a percentage of the
commissions generated from customers which are referred. One of the principal
shareholders of Insurance Office of America is John Ritenour, one of Southerns
directors.

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Southern Community Banc Mortgage LLC

Southerns Orlando bank owns a 50% interest in Southern Community Banc
Mortgage LLC, a licensed correspondent mortgage lender. This company
originates, processes and closes residential mortgage loans in central Florida.
The other member of this company is American Heritage Mortgage Corporation, a
mortgage lender based in Altamonte Springs, Florida. The company funds its
loans through a line of credit provided by a third party lender. Most of these
loans are pre-sold on a cash-flow basis and are not retained by the company or
any other affiliate of Southern. One of the principal shareholders of American
Heritage Mortgage Corporation is Sal A. Nunziata, one of Southerns directors.

Products and Services

Southern offers a broad array of traditional banking products and services
to its customers, including the products and services described below.

Deposits. Southern offers a full range of interest bearing and
non-interest bearing accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, savings
accounts, and other time deposits of various types, ranging from daily money
market accounts to longer term certificates of deposit. Southern has tailored
the rates and terms of its accounts and time deposits to compete with the rates
and terms in Southerns principal markets. Southern seeks deposits from
residents, businesses and employees of businesses in these markets. The FDIC
insures all of Southerns accounts up to the maximum amount permitted by law.
In addition, Southern receives service charges which are competitive with other
financial institutions in its markets, covering such matters as maintenance
fees on checking accounts, per item processing fees on checking accounts,
returned check charges and other similar fees.

Lending Activities. Southern uses its deposits, together with borrowings
and other sources of funds, to originate and purchase loans. Southern offers a
full range of short and medium-term small business and commercial, consumer and
real estate loans. Southern generally seeks to allocate its loan portfolio as
follows: 80% to real estate loans; 15% to small business and commercial loans;
and 5% to consumer loans. Each bank has a loan approval process which provides
for various levels of officer lending authority. When a loan amount exceeds an
officers lending authority, it is reviewed by various loan committees with
ascending lending authority, as established by each banks board of directors.

The risk of non-payment of loans is inherent in all loans. However,
Southern carefully evaluates all loan applicants and attempts to minimize its
credit risk exposure by use of thorough loan application and approval
procedures that Southern has established for each category of loan. In
determining whether to make a loan, Southern considers the borrowers credit
history, analyzes the borrowers income and ability to service the loan, and
evaluates the need for collateral to secure recovery in the event of default.
Southern maintains an allowance for loan losses based upon assumptions and
judgments regarding the ultimate collectability of loans in its portfolio and a
percentage of the outstanding balances of specific loans when their ultimate
collectability is considered questionable.

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Southern directs its lending activities primarily to individuals and
businesses in its markets whose demand for funds falls within Southerns legal
lending limits and who are potential deposit customers. The following is a
description of each of the major categories of loans which Southern makes:

Commercial Loans. This category includes loans made to individuals,
partnerships or corporate borrowers for a variety of business purposes.
Southern places particular emphasis on loans to small to medium-sized
professional firms, retail and wholesale businesses, light industry and
manufacturing concerns operating in Southerns markets. Southern considers
small businesses to include commercial, professional and retail businesses
with annual gross sales of less than $20 million or annual operating costs of
less than $5 million. Southerns commercial loans include term loans with both
variable and fixed interest rates secured by equipment, inventory, receivables
and real estate, as well as secured and unsecured working capital lines of
credit. Risks of these types of loans depend on the general business
conditions of the local economy and the borrowers ability to sell its products
and services in order to generate sufficient business profits to repay the
loans under the agreed upon terms and conditions. Personal guarantees may be
obtained from the principals of business borrowers and third parties to further
support the borrowers ability to service the debt and reduce the risk of
non-payment.

Consumer and Installment Loans. Consumer loans include lines of credit
and term loans secured by second mortgages on the residences of borrowers for a
variety of purposes, including home improvements, education and other personal
expenditures. Consumer loans also include installment loans to individuals for
personal, family and household purposes, including automobile loans to
individuals and pre-approved lines of credit. Consumer loans generally involve
more risk than first mortgage loans because the collateral for a defaulted loan
may not provide an adequate source of repayment of the principal. This risk is
due to the potential for damage to the collateral or other loss of value, while
the remaining deficiency often does not warrant further collection efforts. In
addition, consumer loan performance depends on the borrowers continued
financial stability and is, therefore, more likely to be adversely affected by
job loss, divorce, illness or personal bankruptcy.

Real Estate Loans. Southern makes commercial real estate loans,
construction and development loans, and residential real estate loans.

Commercial Real Estate. Southern offers commercial real estate loans to
developers of both commercial and residential properties. Southern manages
credit risk associated with these loans by actively monitoring such measures as
advance rate, cash flow, collateral value and other appropriate credit factors.
Risks associated with commercial real estate loans include the general risk of
the failure of the commercial borrower, which are different for each type of
business and commercial entity. Southern evaluates each business on an
individual basis and attempts to determine such business risks and credit
profile. Southern attempts to reduce credit risks in the commercial real
estate portfolio by emphasizing loans on owner-occupied office and retail
buildings where the loan-to-value ratio, established by independent appraisals,
does not exceed 80%. In addition, Southern may also require personal
guarantees of the principal owners.

Acquisition, Construction and Development Loans. Southern makes
acquisition, construction and development loans on a pre-sold and speculative
basis. If the borrower has entered into an arrangement to sell or lease the
property prior to beginning construction, Southern considers the loan to be on
a pre-sold or pre-leased basis. If the borrower has not entered into an
agreement to sell the

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property prior to beginning construction, Southern
considers the loan to be on a speculative basis. Southern makes residential
and commercial construction loans to builders and developers and to consumers
who wish to build their own home. Southern limits the term of most
construction and development loans to 18 months, although it may structure the
payments based on a longer amortization basis. Southern bases speculative
loans on the borrowers financial strength and cash flow position. Southern
disburses loan proceeds based on the percentage of completion and only after an
experienced construction lender or appraiser inspects the project. These loans
generally command higher rates and fees commensurate with the risks warranted
in the construction lending field. The risk in construction lending depends
upon the performance of the builder, building the project to the plans and
specifications of the borrower and the banks ability to administer and control
all phases of the construction disbursements. Upon completion of the
construction, Southern typically converts construction loans to permanent
loans.

Residential Real Estate Loans. Southern makes residential real estate
loans to qualified individuals for the purchase of existing single-family
residences in its markets. Southern makes these loans in accordance with its
appraisal policy and real estate lending policy which detail maximum loan to
value ratios and maturities. Southern believes that these loan to value ratios
are sufficient to compensate Southern for fluctuations in real estate market
value and to minimize losses that could result from a downturn in the
residential real estate market. Southern sells mortgage loans that do not
conform to its policies in the secondary markets. The risk of these loans
depends on the marketability of the loans to national investors and on interest
rate changes. Southern retains loans for its portfolio when there is
sufficient liquidity to fund the needs of the established customers and when
rates are favorable to retain the loans. The loan underwriting standards and
policies are generally the same for both loans sold in the secondary market and
those retained in Southerns portfolio.

Asset and Liability Management

Southerns primary assets are its loan portfolio and investment account.
Southerns liabilities consist primarily of deposits. Southerns objective is
to support asset growth primarily through the growth of core deposits, which
include deposits of all categories made by individuals, partnerships,
corporations and other entities. Consistent with the requirements of prudent
banking necessary to maintain liquidity, Southern seeks to match maturities and
rates of loans and the investment portfolio with those of deposits, although
exact matching is not always possible. Southern seeks to invest the largest
portion of its assets in commercial, consumer and real estate loans.
Southerns investment account consists primarily of marketable securities of
the United States government, federal agencies and state and municipal
governments, generally with varied maturities.

Southern monitors its asset/liability mix on a regular basis with a
monthly report detailing interest-sensitive assets and interest-sensitive
liabilities presented to each banks board of directors. The objective of this
policy is to control interest-sensitive assets and liabilities in order to
minimize the impact of substantial movements in interest rates on Southerns
earnings.

Correspondent Banking

Correspondent banking involves providing services by one bank to another
bank which, from an economic or practical standpoint, cannot provide that
service for itself. Southern may purchase correspondent services offered by
larger banks, including check collections, purchase of federal

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funds,
securities safekeeping, investment services, coin and currency supplies,
overline and liquidity loan participations, and sales of loans to or
participations with correspondent banks. Southern will sell loan
participations to correspondent banks with respect to loans which exceed
Southerns lending limits. As compensation for services provided by a
correspondent bank, Southern may maintain balances with correspondents in
non-interest bearing accounts.

Other Services

Southerns other services include cash management services, safe deposit
boxes, travelers checks, direct deposit of payroll and social security checks,
wire transfers, telephone banking, and automatic drafts for various accounts.
Southern offers a debit card and VISA and/or MasterCard credit card services
through Southerns correspondent banks. Southern offers extended banking
hours, both drive-in and lobby, and after-hours depositories. Southern is
associated with a shared network of automated teller machines that customers
may use throughout Southerns market areas and other regions. Southern is
associated with third party Internet banking service providers that enable it
to provide customers with a cost effective, secure and reliable Internet
banking solution.

Customers

Southern believes that the recent consolidation of the Florida banking
industry provides community banks significant opportunities to build
successful, locally-oriented banks. Southern further believes that many of the
larger financial institutions do not provide the high level of personalized
services desired by many small and medium-sized businesses and their
principals. Southern intends to focus its marketing efforts on attracting
small and medium-sized businesses and individuals, including service companies,
manufacturing companies, commercial real estate developers, entrepreneurs and
professionals, such as physicians and attorneys.

Although Southern concentrates its lending efforts on commercial business,
Southern also attracts a significant amount of consumer business. Many of its
retail customers are the principals of Southerns small and medium-sized
business customers. Southern emphasizes relationship banking, with the goal
that each customer will identify and establish a comfort level with Southerns
bank officers. Southern intends to further develop its retail business with
individuals who appreciate a high level of personal service, contact with their
lending officer and responsive decision-making. Southern expects that most of
its new business will be developed through Southerns lending officers and
local boards of directors and by pursuing an aggressive strategy of calling on
customers throughout its market areas.

Competition

Southern is subject to intense competition in the Florida markets which it
currently serves. Southern faces substantial competition in all phases of its
operations from a variety of different competitors. This competition includes:



| |  |  | Large national and super-regional financial institutions which have
well-established branches and significant market share in the
communities served by Southern.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Finance companies, investment banking and brokerage firms, and
insurance companies that offer bank-like products.
| | - |  | -----------------------------------------------------------------------------------------------------------------

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| |  |  | Credit unions, which can offer highly competitive rates on loans and
deposits because they receive tax advantages not available to
commercial banks.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other community banks, including start-up banks, that can compete with
Southern for customers who desire a high degree of personal service.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Technology-based financial institutions including large national and
super-regional banks offering on-line deposit, bill payment, and
mortgage loan application services.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other existing community banks, and many new community bank start-ups,
have marketing strategies similar to Southerns. These other community banks
may open new branches in the communities served by Southern and compete
directly for customers who want the level of service offered by community
banks. Other community banks also compete for the same management personnel in
Florida.

Various legislative actions in recent years have led to increased
competition among financial institutions. Since the enactment of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and other
laws and regulations affecting interstate bank expansion, it has been
relatively easy for financial institutions located outside of the State of
Florida to enter the Florida market, including Southerns targeted markets. In
addition, recent legislative and regulatory changes and technological advances
have enabled customers to conduct banking activities without regard to
geographic barriers through computer and telephone-based banking and similar
services. There can be no assurance that the United States Congress, or the
Florida Legislature or the applicable bank regulatory agencies will not enact
legislation or promulgate rules that may further increase competitive pressures
on Southern. Southerns failure to compete effectively for customers in its
market areas could have a material adverse effect on its business, future
prospects, financial condition or results of operations.

Employees

Southern currently has approximately 172 full-time equivalent employees.
Southern will hire additional employees as needed to support its growth.

Supervision and Regulation

Southern is subject to an extensive body of state and federal banking laws
and regulations which impose specific requirements and restrictions on, and
provide for general regulatory oversight with respect to, virtually all aspects
of Southerns operations. Southern is also affected by government monetary
policy and by regulatory measures affecting the banking industry in general.
The actions of the Federal Reserve System affect the money supply, and in
general, the lending abilities of banks by increasing or decreasing the costs
and availability of funds to the banks. Additionally, the Federal Reserve
System regulates the availability of bank credit in order to combat recession
and curb inflationary pressures in the economy by open market operations in
United States government securities, changes in the discount rate on bank
borrowings, and changes in the reserve requirements against bank deposits.

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The following is a brief summary of some of the statutes, rules and
regulations which affect Southern. This summary is qualified in its entirety
by reference to the particular statutory and regulatory provisions referred to
below and is not intended to be an exhaustive description of all applicable
statutes or regulations. Any change in applicable laws or regulations may have
a material adverse effect on Southerns business and prospects.

Holding Company Regulations

Southern is a bank holding company within the meaning of the Federal Bank
Holding Company Act of 1956 and the Florida Interstate Banking Act. It is
registered as a bank holding company with the Federal Reserve System and is
required to file annual reports and other information regarding its business
operations and its subsidiaries. It is also subject to the supervision of the
Federal Reserve.

The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the Federal Reserve before:



| |  |  | acquiring all or substantially all of the assets of a bank.
| | - |  | -----------------------------------------------------------



| |  |  | acquiring direct or indirect ownership or control of more than five
percent of the voting shares of any bank.
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | merging or consolidating with another bank holding company.
| | - |  | -----------------------------------------------------------

Except as authorized by the Gramm-Leach-Bliley Act of 1999, a bank holding
company is generally prohibited by the Bank Holding Company Act from engaging
in, or acquiring direct or indirect control of more than five percent of the
voting shares of any company engaged in any business other than the business of
banking or managing and controlling banks. Some of the activities the Federal
Reserve has determined by regulation to be proper incidents to the business of
banking, and thus permissible for bank holding companies, include:



| |  |  | making or servicing loans and certain types of leases and related activities.
| | - |  | -----------------------------------------------------------------------------



| |  |  | engaging in certain insurance and discount brokerage activities.
| | - |  | ----------------------------------------------------------------



| |  |  | underwriting and dealing in government securities and certain
other securities and financial instruments.
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | providing certain data processing and data transmission services.
| | - |  | -----------------------------------------------------------------



| |  |  | acting in certain circumstances as a fiduciary or investment or financial advisor.
| | - |  | ----------------------------------------------------------------------------------



| |  |  | management consulting and counseling activities.
| | - |  | ------------------------------------------------



| |  |  | issuing and selling retail monetary instruments such as money
orders, savings bonds and travelers checks and providing check
printing and courier services.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | operating trust companies and non-bank depository institutions
such as savings associations.
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | making investments in corporations or projects designed
primarily to promote community welfare.
| | - |  | -----------------------------------------------------------------------------------------------

In determining whether an activity is so closely related to banking as to
be permissible for bank holding companies, the Federal Reserve is required to
consider whether the performance of the particular activities by a bank holding
company or its subsidiaries can reasonably be expected to produce benefits to
the public, such as greater convenience, increased competition and gains in
efficiency that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interests and
unsound banking practices. Generally, bank holding companies are required to
obtain prior approval of the Federal Reserve to engage in any new activity not
previously approved by the Federal Reserve. Despite prior approval, the
Federal Reserve may order a bank holding company or its subsidiaries to
terminate any activity or to terminate its ownership or control of any
subsidiary when it has reasonable cause to believe that the holding companys
continued ownership, activity or control constitutes a serious risk to the
financial safety, soundness or stability of any of its bank subsidiaries.

The Bank Holding Company Act and the Federal Change in Bank Control Act,
together with regulations promulgated by the Federal Reserve, require that,
depending on the particular circumstances, either the Federal Reserves
approval must be obtained or notice must be furnished to the Federal Reserve
and not disapproved prior to any person or company acquiring control of a bank
holding company, subject to certain exemptions. Control is conclusively
presumed to exist when an individual or company acquires 25% or more of any
class of voting securities of the bank holding company. Control is rebuttably
presumed to exist if a person acquires 10% or more, but less than 25%, of any
class of voting securities and either the bank holding company has registered
securities under Section 12 of the Securities Exchange Act of 1934 or no other
person owns a greater percentage of that class of voting securities immediately
after the transaction.

The Federal Reserve, pursuant to regulation and published policy
statements, has maintained that a bank holding company must serve as a source
of financial strength to its subsidiary banks. In adhering to the Federal
Reserves policy, a bank holding company may be required to provide financial
support to a subsidiary bank at a time when, absent such Federal Reserve
policy, it might not be deemed advisable to provide such assistance. Under the
Bank Holding Company Act, the Federal Reserve may also require a bank holding
company to terminate any activity or relinquish control of a non-bank
subsidiary, other than a non-bank subsidiary of a bank, upon the Federal
Reserves determination that the activity or control constitutes a serious risk
to the financial soundness or stability of any subsidiary depository
institution of the bank holding company. Further, federal bank regulatory
authorities have additional discretion to require a bank holding company to
divest itself of any bank or non-bank subsidiary if the agency determines that
divestiture may aid the depository institutions financial condition.

Bank Regulation

Each of Southerns banks is a state bank organized under the laws of
Florida. They are all subject to the supervision of the Florida Office of
Financial Institutions and Securities Regulation and the FDIC. Their deposits
are insured by the FDIC for a maximum of $100,000 per depositor.

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For this
protection, the banks must pay a semi-annual statutory assessment and comply
with the rules and regulations of the FDIC. The Florida Office of Financial
Institutions and Securities Regulation and the FDIC regulate and monitor all
areas of a banks operations, including:



| |  |  | security devices and procedures.
| | - |  | --------------------------------



| |  |  | adequacy of capitalization and loss reserves.
| | - |  | ---------------------------------------------



| |  |  | loans.
| | - |  | ------



| |  |  | investments.
| | - |  | ------------



| |  |  | borrowings.
| | - |  | -----------



| |  |  | deposits.
| | - |  | ---------



| |  |  | mergers.
| | - |  | --------



| |  |  | issuance of securities.
| | - |  | -----------------------



| |  |  | payment of dividends.
| | - |  | ---------------------



| |  |  | interest rates payable on deposits.
| | - |  | -----------------------------------



| |  |  | interest rates or fees chargeable on loans.
| | - |  | -------------------------------------------



| |  |  | establishment of branches.
| | - |  | --------------------------



| |  |  | corporate reorganizations.
| | - |  | --------------------------



| |  |  | maintenance of books and records.
| | - |  | ---------------------------------



| |  |  | adequacy of staff training to carry out safe lending and deposit gathering practices.
| | - |  | -------------------------------------------------------------------------------------

In addition, banks are prohibited from engaging in tie-in arrangements in
connection with any extension of credit, or the offer of any product or
service. Bank regulatory requirements also set forth various conditions
regarding the eligibility and qualifications of their officers and directors.

Capital Adequacy Requirements

Both bank holding companies and individual banks are subject to regulatory
capital requirements imposed by the Federal Reserve and the FDIC which vary
based on differences in risk profiles. The capital adequacy guidelines issued
by the Federal Reserve are applied to bank holding companies on a consolidated
basis. The FDICs risk-based capital guidelines apply directly to insured
state banks regardless of whether they are subsidiaries of a bank holding
company. Both agencies requirements, which are substantially similar, provide
that banking organizations must have capital (as defined in the rules) of at
least 8% of risk-weighted assets. The risk weights assigned to assets are
based primarily on credit risks. Depending upon the riskiness of a particular

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asset, it is assigned to a risk category. For example, securities with an
unconditional guarantee by the United States government are assigned to the
lowest risk category. The aggregate amount of assets assigned to each risk
category is multiplied by the risk weight assigned to that category to
determine the weighted values, which are added together to determine total
risk-weighted assets.

Both the Federal Reserve and the FDIC have also adopted minimum capital
leverage ratios to be used in tandem with the risk-based guidelines in
assessing the overall capital adequacy of banks and bank holding companies.
The guidelines define a two-tier capital framework. Tier 1 capital consists of
common and qualifying preferred shareholders equity, less goodwill and other
adjustments. Tier 2 capital consists of mandatory convertible, subordinated,
and other qualifying term debt, preferred stock not qualifying for Tier 1, and
a limited allowance for credit losses up to a designated percentage of
risk-weighted assets. Under these guidelines, institutions must maintain a
specified minimum ratio of qualifying capital to risk-weighted assets. At
least 50% of an institutions qualifying capital must be core or Tier 1
capital, and the balance may be supplementary or Tier 2 capital. The
guidelines imposed on the banks include a minimum leverage ratio standard of
capital adequacy. The leverage standard requires top-rated institutions to
maintain a minimum Tier 1 capital to assets ratio of 3%, with institutions
receiving less than the highest rating required to maintain a ratio of 4% or
greater, based upon their particular circumstances and risk profiles.

Federal bank regulatory authorities have adopted regulations revising the
risk-based capital guidelines to further ensure that the guidelines take
adequate account of interest rate risk. Interest rate risk is the adverse
effect that changes in market interest rates may have on a banks financial
condition and is inherent to the business of banking. Under the regulations,
when evaluating a banks capital adequacy, the revised capital standards now
explicitly include a banks exposure to declines in the economic value of its
capital due to changes in interest rates. The exposure of a banks economic
value generally represents the change in the present value of its assets, less
the change in the value of its liabilities, plus the change in the value of its
interest rate off-balance sheet contracts.

The foregoing capital guidelines could affect Southern and its banks in
several ways. If Southerns banks grow rapidly, their respective capital bases
may become insufficient to support continued growth, making additional capital
infusions necessary. The capital guidelines could also impact the banks
ability to pay dividends. Rapid growth, poor loan portfolio performance or
poor earnings performance, or a combination of these factors, could change each
banks capital position in a relatively short period of time. Failure to meet
these capital requirements would require the banks to develop and file with the
FDIC a plan describing the means and a schedule for achieving the minimum
capital requirements. In addition, Southern would not be able to receive
regulatory approval of any application that required consideration of capital
adequacy, such as a branch or merger application, unless it could demonstrate a
reasonable plan to meet the capital requirement within a reasonable period of
time.

Dividends

The ability of Southern to pay cash dividends depends entirely upon the
amount of dividends paid by its bank subsidiaries. Additionally, the Florida
Business Corporation Act provides that a Florida corporation may only pay
dividends if the dividend payment would not render the corporation insolvent or
unable to meet its obligations as they come due.

12



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Florida state banks are subject to regulatory restrictions on the payment
of dividends, including a prohibition of payment of dividends from the banks
capital without the prior approval of the Florida Office of Financial
Institutions and Securities Regulation and the FDIC. Except with such prior
approval, all dividends of any Florida bank must be paid out of retained net
profits from the current period and the previous two years, after deducting
expenses, including losses and bad debts. In addition, any Florida bank is
required to transfer at least 20% of its net income to surplus until its
surplus equals the amount of paid-in capital.

Other Laws

State usury laws and federal laws concerning interest rates limit the
amount of interest and various other charges collected or contracted by a bank.
The lending operations of Southern are subject to federal laws applicable to
credit transactions, such as the:



| |  |  | Federal Truth-In-Lending Act governing disclosures of credit
terms to consumer borrowers.
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | Community Reinvestment Act requiring financial institutions to
meet their obligations to provide for the total credit needs of the
communities they serve, including investing their assets in loans to
low and moderate-income borrowers.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Home Mortgage Disclosure Act requiring financial institutions
to provide information to enable public officials to determine
whether a financial institution is fulfilling its obligations to meet
the housing needs of the community it serves.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Equal Credit Opportunity Act prohibiting discrimination on the
basis of race, creed or other prohibited factors in extending credit.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fair Credit Reporting Act governing the manner in which
consumer debts may be collected.
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | The rules and regulations of various federal agencies charged
with the responsibility of implementing such federal laws.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

The deposit and certain other operations of Southern are also subject to
provisions of the following laws:



| |  |  | Right to Financial Privacy Act, which imposes a duty to
maintain confidentiality of consumer financial records and prescribes
procedures for complying with administrative subpoenas of financial
records.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Title V of the Gramm-Leach-Bliley Act of 1999 regarding
disclosure of customers nonpublic personal information, which
requires financial institutions to publish their policies concerning
disclosure of such information and give customers the opportunity to
opt out of unwanted disclosure.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13



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| |  |  | Electronic Funds Transfer Act and Regulation E, issued by the
Federal Reserve to implement that act, which govern automatic
deposits to, and withdrawals from, deposit accounts and customers
rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interstate Banking and Branching

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, eligible bank holding companies in any state are permitted, with Federal
Reserve approval, to acquire banking organizations in any other state. As a
result, most of the limitations on interstate acquisitions of banking
organizations have been eliminated. The Interstate Banking and Branching
Efficiency Act also removed substantially all of the prohibitions on interstate
branching by banks. The authority of a bank to establish and operate branches
within a state continues to be subject to applicable state branching laws.
Subject to these laws, a bank operating in any state may now establish one or
more branches within any other state without the establishment of a separate
banking structure within the other state through the merger with an existing
bank in that state. Under current Florida law, Florida banks may open branch
offices without geographic restriction with the prior approval of the Florida
Office of Financial Institutions and Securities Regulation and the FDIC and, in
the case of interstate branches, subject to certain laws of the host state.
In addition, with prior regulatory approval, Southern will be able to acquire
existing banking operations in other states.

Financial Modernization

The Gramm-Leach-Bliley Act of 1999 modernized the federal bank regulatory
framework by allowing the consolidation of banking institutions with other
types of financial services firms, subject to various restrictions and
requirements. In general, the Gramm-Leach-Bliley Act repealed most of the
federal statutory barriers which separated commercial banking firms from
insurance and securities firms and authorized the consolidation of such firms
in a financial services holding company. Southern has no immediate plans to
utilize the structural options created by the Gramm-Leach-Bliley Act, but
Southern may develop such plans in the future. In the meantime, Southern
provides its customers with a range of financial products and services,
including various insurance products and securities brokerage services, through
cooperative arrangements with third-party vendors.

Stock Dividend

On August 6, 2001, Southern declared a 2-for-1 stock split in the form of
a 100% stock dividend. The dividend was issued to stockholders of record as of
October 19, 2001. As a result of the dividend, Southern issued 2,730,101
shares of common stock. All amounts in this Annual Report on Form 10-KSB have
been restated to reflect the stock dividend, except as otherwise noted.

Public Offering

During December 2001, Southern commenced a public offering of 1,200,000
shares of its common stock at a price of $10.50 per share. The shares were
offered on behalf of Southern by its executive officers who did not receive any
compensation for their efforts.

14



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Southern completed the offering in June 2002. Southern received gross
proceeds of $12.1 million from the sale of 1,151,047 shares. Southern utilized
the proceeds to make a capital contribution of $12.1 million to Southerns new
Boca Raton bank. The Boca Raton bank utilized these proceeds to purchase
marketable securities and other working capital purposes.

In connection with the offering, Southern utilized its own funds to repay
a loan of approximately $308,000 obtained by the organizers of the new Boca
Raton bank which had been used for organizational costs, and to pay
approximately $83,000 in costs for the offering.

15



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##### 



ITEM 2.       DESCRIPTION OF PROPERTY

Southerns principal executive office is located at 250 North Orange
Avenue, Orlando, Florida. Southern shares this office with the main office of
its Orlando bank. Southerns three bank subsidiaries currently operate a total
of 12 offices. The following table sets forth information regarding each of
these locations.

Expiration Date/Bank
        
        Location
        
        Size
        
        Lease/Owned
        
        Renewal OptionOrlando Bank
        
        Downtown Orlando
        
        6,000 sq.ft.
        
        Leased
        
        June 2008, with 10
year optionOrlando Bank
        
        Altamonte Springs
        
        4,182 sq.ft.
        
        Leased
        
        November 2008, with
four 5 year optionsOrlando Bank
        
        Winter Park
        
        4,850 sq.ft.
        
        Owned
        
        N/AOrlando Bank
        
        Longwood
        
        2,200 sq.ft.
        
        Leased
        
        December 2003, with
three 5 year
optionsOrlando Bank
        
        South Orlando
        
        7,100 sq.ft.
        
        Owned
        
        N/AOrlando Bank
        
        Lake Mary
        
        10,000 sq.ft.
        
        Owned
        
        N/ABonita Bank
        
        Bonita Springs
        
        11,600
sq.ft.
        
        Owned
        
        N/ABonita Bank
        
        Naples
        
        4,300 sq.ft.
        
        Owned
        
        N/ABonita Bank
        
        Estero
        
        2.1 acres
        
        Owned
        
        N/ADaytona Bank
        
        Daytona Beach
        
        3,600 sq.ft.
        
        Leased
        
        August 2008, with
10 year optionDaytona Bank
        
        Ormond Beach
        
        1,400 sq.ft.
        
        Owned
        
        N/ADaytona Bank
        
        Port Orange
        
        4,200 sq.ft.
        
        Owned
        
        N/ADaytona Bank
        
        Daytona Beach
        
        4,600 sq.ft.
        
        Leased
        
        October 2011, with
10 year optionBoca Raton Bank
        
        Boca Raton
        
        4,000 sq.ft.
        
        Leased
        
        August 2006Boca Raton Bank
        
        Ft. Lauderdale
        
        1,792 sq.ft.
        
        Leased
        
        October 2007, with
10 year option


The Bonita Springs property was formerly the site of a gas station at
which leaking underground fuel storage tanks caused some contamination of the
subsurface groundwater. The

16



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##### 



Florida Department of Environmental Protection has
accepted this site for clean-up under the states remediation program and has
reserved $250,000 to cover the estimated clean-up costs. Due to the relatively
low priority level of the site in the States clean-up program, Southern cannot
predict when the state will commence or complete the clean-up of the site.
Southern has received an environmental engineering assessment of the
contamination and the required remediation. Based on this report, Southern
believes that the clean-up of the site will not disrupt Southerns proposed
banking services at the site.

The Bonita bank also owns 2.1 acres in Estero, Florida. The Bonita bank
plans to utilize this property as a branch site in the future.

ITEM 3.       LEGAL PROCEEDINGS

From time to time, Southern is involved in litigation arising from the
ordinary course of its business, such as claims to collect past due loans. As
of the date of this report, Southern is not engaged in any material legal
proceedings.

ITEM 4.       SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Not applicable.

17



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##### 






PART II

ITEM 5.       MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Trading Information

There is no established public market for Southerns common stock, and
Southern does not currently have any brokers or other persons who make a market
in its common stock.

Record Holders

As of February 15, 2003, there were approximately 892 holders of record of
the Southerns common stock.

Dividends

As a holding company, Southern has no significant independent sources of
revenue. Accordingly, Southerns principal source of funds are cash dividends
and other payments that it receives from its bank subsidiaries. Southern
expects that its bank subsidiaries will retain most of their earnings in order
to increase their capital. Furthermore, Southerns bank subsidiaries ability
to pay dividends is restricted under Federal and state banking law. As a
result, Southern has not paid any dividends to date and does not anticipate
that it will pay dividends in the foreseeable future.

Private Sales of Securities

During 2002, Southern issued 81,815 shares of its common stock, pursuant
to the exemption from the registration requirements set forth in Section 4(2)
of the Securities Act of 1933, as amended, as follows:



| |  | On February 26, 2002, Southern issued 7,834 shares to an
executive under a restricted stock grant agreement. These shares
were valued at $8.25 per share.                                
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | On February 26, 2002, Southern issued 4,796 shares to the
directors of the Orlando bank in payment of directors fees accrued
during 2001. These shares were valued at $8.25 per share.  
| 
| |  | On February 26, 2002, Southern issued 15,393 shares pursuant to
Southerns Employee Stock Purchase Plan. These shares were valued at
$8.25 per share.                                    
| 
| |  | On February 26, 2002, Southern sold 10,000 shares to an officer
at $8.475 per share.                                                                                                     
| 
| |  | On February 26, 2002, Southern sold 4,000 shares to an officer
at $8.475 per share.                                                                                                      
| 
| |  | On March 7, 2002, Southern issued 4,723 shares to the directors
of the Daytona Beach bank in payment of directors fees accrued
during 2001. These shares were valued at $8.25 per share.

18



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##### 





| |  | On March 7, 2002, Southern issued 34,569 shares as a
contribution to its 401(k) Profit Sharing Plan. These shares were
issued at a value of $8.25 per share. 
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | On April 23, 2002, Southern sold 500 shares to an officer at
$8.25 per share. Southern issued these shares pursuant to a
commitment made in the fall of 2001.

19



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##### 



ITEM 6.
        
        MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


ThisForm 10-KSBcontains forward looking statements within the meaning
of Private Securities Litigation Reform Act of 1995. These 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-KSB 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.

The following discussion should be read in conjunction with Southerns
consolidated financial statements and the related notes included elsewhere in
this report. Unless otherwise noted, all share amounts have been revised to
reflect Southerns two for one stock split which was effective on October 19,
2001.

Selected Financial Data of Southern

The financial condition data as of December 31, 2002 and 2001, and
operating data for the years ended December 31, 2002, 2001 and 2000 have been
derived from Southerns audited consolidated financial statements included
elsewhere in this report, which have been audited by Hacker, Johnson & Smith,
PA, independent auditors. The historical results do not necessarily indicated
the results which Southern will have in the future.

At December 31,($ in thousands, except per share amounts)
        
        2002
        
        2001
        
        2000
        
        1999
        
        1998Financial Condition DataAssets
        
        $
        658,786
        
        
        
        449,127
        
        
        
        210,813
        
        
        
        83,864
        
        
        
        16,606Securities
        
        
        93,129
        
        
        
        41,472
        
        
        
        18,746
        
        
        
        11,998
        
        
        
        Loans, net
        
        
        500,267
        
        
        
        352,161
        
        
        
        150,734
        
        
        
        61,363
        
        
        
        1,203Deposits
        
        
        593,417
        
        
        
        399,973
        
        
        
        182,225
        
        
        
        65,063
        
        
        
        3,274Stockholders equity
        
        
        58,099
        
        
        
        42,348
        
        
        
        26,351
        
        
        
        11,838
        
        
        
        12,233Book value per share
        
        $
        8.68
        
        
        
        7.76
        
        
        
        7.66
        
        
        
        6.69
        
        
        
        7.33Number of full service customer
facilities
        
        
        14
        
        
        
        12
        
        
        
        5
        
        
        
        4
        
        
        
        1


20



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##### 



Year Ended December 31,($ in thousands, except per share amounts)
        
        2002
        
        2001
        
        2000
        
        1999
        
        1998*Operating DataInterest income
        
        $
        33,470
        
        
        
        24,432
        
        
        
        12,512
        
        
        
        3,399
        
        
        
        32Interest expense
        
        
        15,072
        
        
        
        14,372
        
        
        
        6,201
        
        
        
        1,186
        
        
        
        6Net
interest income before loan loss
   Provision
        
        
        18,398
        
        
        
        10,060
        
        
        
        6,311
        
        
        
        2,213
        
        
        
        26Provision for loan losses
        
        
        2,405
        
        
        
        2,351
        
        
        
        1,174
        
        
        
        609
        
        
        
        12Net
interest income after loan loss
   Provision
        
        
        15,993
        
        
        
        7,709
        
        
        
        5,137
        
        
        
        1,604
        
        
        
        14Noninterest income
        
        
        2,597
        
        
        
        1,854
        
        
        
        595
        
        
        
        116
        
        
        
        Noninterest expenses
        
        
        15,112
        
        
        
        10,438
        
        
        
        5,033
        
        
        
        3,216
        
        
        
        84Income taxes (benefit)
        
        
        1,277
        
        
        
        (295
        )
        
        
        299
        
        
        
        (554
        )
        
        
        (26
        )Net earnings (loss)
        
        
        2,201
        
        
        
        (580
        )
        
        
        400
        
        
        
        (942
        )
        
        
        (44
        )Basic earnings (loss) per share
        
        
        .36
        
        
        
        (.12
        )
        
        
        .20
        
        
        
        (.55
        )
        
        
        (.03
        )Diluted earnings (loss) per share
        
        
        .35
        
        
        
        (.12
        )
        
        
        .20
        
        
        
        (.55
        )
        
        
        (.03
        )Total shares outstanding at end
of period
        
        
        6,693,064
        
        
        
        5,460,202
        
        
        
        3,440,196
        
        
        
        1,768,850
        
        
        
        1,668,850Return on average assets
        
        
        .39
        %
        
        
        (.17
        )%
        
        
        .28
        %
        
        
        (2.11
        %)
        
        
        
        %Return on average equity
        
        
        .44
        %
        
        
        (1.60
        )%
        
        
        2.98
        %
        
        
        (7.74
        %)
        
        
        
        %Average equity to average assets
        
        
        8.96
        %
        
        
        10.31
        %
        
        
        9.44
        %
        
        
        27.20
        %
        
        
        
        %Dividend payout ratio
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        




|* |  | 1998 includes the period from December 15, 1998 (commencement of banking
operations) to December 31, 1998.
|- |  | ----------------------------------------------------------------------------------------------------------

21



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##### 



Net Interest Income and Expense

Year Ended December 31, 2002Average
        
        Interest &Balance
        
        Dividends
        
        Yield($ in Thousands)Loans
        
        $
        419,996
        
        
        
        29,993
        
        
        
        7.14
        %Securities
        
        
        58,009
        
        
        
        2,597
        
        
        
        4.48
        %Other interest-earning assets(1)
        
        
        48,625
        
        
        
        880
        
        
        
        1.81
        %Total interest earnings assets
        
        
        526,630
        
        
        
        33,470
        
        
        
        6.36
        %Non interest earning assets
        
        
        34,198Total assets
        
        $
        560,828Savings and NOW deposits
        
        
        138,221
        
        
        
        3,333
        
        
        
        2.41
        %Money market deposits
        
        
        75,404
        
        
        
        1,792
        
        
        
        2.38
        %Time deposits
        
        
        242,410
        
        
        
        9,921
        
        
        
        4.09
        %Total interest-bearing deposits
        
        
        456,035
        
        
        
        15,046
        
        
        
        3.30
        %Other borrowings
        
        
        2,127
        
        
        
        26
        
        
        
        1.22
        %Total interest-bearing liabilities
        
        
        458,162
        
        
        
        15,072
        
        
        
        3.29
        %Non-interest-bearing deposits
        
        
        49,058Non-interest-bearing liabilities
        
        
        3,384Stockholders equity
        
        
        50,224Total liabilities and equity
        
        $
        560,828Net interest income and spread(2)
        
        
        
        
        
        
        18,398
        
        
        
        3.07
        %Net interest margin(3)
        
        
        
        
        
        
        
        
        
        
        3.49
        %Average interest-earning assets to
average interest-bearing liabilities
        
        
        1.15




|(1) |  | Includes interest-earning deposits, federal funds sold and Federal Home
Loan Bank stock.                   
|--- |  | -----------------------------------------------------------------------------------------------------------
|(2) |  | Represents the difference between average interest-earning assets and
average interest-bearing liabilities.
|(3) |  | Represents net interest income divided by average interest-earning assets.                                 

22



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Net Interest Income and Expense

Year Ended December 31, 2001Average
        
        Interest &Balance
        
        Dividends
        
        Yield($ in Thousands)Loans
        
        $
        257,432
        
        
        
        21,455
        
        
        
        8.33
        %Securities
        
        
        25,439
        
        
        
        1,404
        
        
        
        5.52
        %Other interest-earning assets(1)
        
        
        40,744
        
        
        
        1,573
        
        
        
        3.86
        %Total interest earnings assets
        
        
        323,615
        
        
        
        24,432
        
        
        
        7.55
        %Non interest earning assets
        
        
        27,263Total assets
        
        $
        350,878Savings and NOW deposits
        
        
        101,299
        
        
        
        4,908
        
        
        
        4.85
        %Money market deposits
        
        
        29,516
        
        
        
        994
        
        
        
        3.37
        %Time deposits
        
        
        146,272
        
        
        
        8,437
        
        
        
        5.77
        %Total interest-bearing deposits
        
        
        277,087
        
        
        
        14,339
        
        
        
        5.17
        %Other borrowings
        
        
        1,184
        
        
        
        33
        
        
        
        2.79
        %Total interest-bearing liabilities
        
        
        278,271
        
        
        
        14,372
        
        
        
        5.16
        %Non-interest-bearing deposits
        
        
        34,195Non-interest-bearing liabilities
        
        
        2,246Stockholders equity
        
        
        36,166Total liabilities and equity
        
        $
        350,878Net interest income and spread(2)
        
        
        
        
        
        
        10,060
        
        
        
        2.39
        %Net interest margin(3)
        
        
        
        
        
        
        
        
        
        
        3.11
        %Average interest-earning assets to
average interest-bearing liabilities
        
        
        1.16




|(1) |  | Includes interest-earning deposits, federal funds sold and Federal Home
Loan Bank stock.                   
|--- |  | -----------------------------------------------------------------------------------------------------------
|(2) |  | Represents the difference between average interest-earning assets and
average interest-bearing liabilities.
|(3) |  | Represents net interest income divided by average interest-earning assets.                                 

23



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##### 



Net Interest Income and Expense

Year Ended December 31, 2000Average
        
        Interest &Balance
        
        Dividends
        
        Yield($ in Thousands)Loans
        
        $
        105,566
        
        
        
        10,702
        
        
        
        10.14
        %Securities
        
        
        16,066
        
        
        
        1,123
        
        
        
        6.99
        %Other interest-earning assets(1)
        
        
        8,014
        
        
        
        687
        
        
        
        8.57
        %Total interest earnings assets
        
        
        129,646
        
        
        
        12,512
        
        
        
        9.65
        %Non-interest-earning assets
        
        
        12,398Total assets
        
        $
        142,044Savings and NOW deposits
        
        
        18,089
        
        
        
        702
        
        
        
        3.88
        %Money market deposits
        
        
        17,774
        
        
        
        828
        
        
        
        4.66
        %Time deposits
        
        
        73,749
        
        
        
        4,619
        
        
        
        6.26
        %Total interest-bearing deposits
        
        
        109,612
        
        
        
        6,149
        
        
        
        5.61
        %Other borrowings
        
        
        849
        
        
        
        52
        
        
        
        6.12
        %Total interest-bearing liabilities
        
        
        110,461
        
        
        
        6,201
        
        
        
        5.61
        %Non-interest-bearing deposits
        
        
        17,513Non-interest-bearing liabilities
        
        
        660Shareholders equity
        
        
        13,410Total liabilities and equity
        
        $
        142,044Net interest income and spread(2)
        
        
        
        
        
        $
        6,311
        
        
        
        4.04
        %Net interest margin(3)
        
        
        
        
        
        
        
        
        
        
        4.87
        %Average interest-earning assets to
average interest-bearing liabilities
        
        
        1.17




|(1) |  | Includes federal funds sold and Federal Home Loan Bank stock.                                              
|--- |  | -----------------------------------------------------------------------------------------------------------
|(2) |  | Represents the difference between average interest-earning assets and
average interest-bearing liabilities.
|(3) |  | Represents net interest income divided by average interest-earning assets.                                 

24



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##### 



Rate/Volume Analysis

The following table sets forth certain information regarding changes in
interest income and interest expense of Southern for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by prior volume), (2) changes in volume (change in volume
multiplied by prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume).

Year Ended December 31, 2002 vs. 2001Increase (Decrease) Due to Changes in:Rate
        
        Rate/Volume
        
        Volume
        
        Total(In thousands)Interest earned Assets:Loans
        
        $
        (3,071
        )
        
        
        13,548
        
        
        
        (1,939
        )
        
        
        8,538Securities
        
        
        (265
        )
        
        
        1,798
        
        
        
        (340
        )
        
        
        1,193Other interest-earning assets
        
        
        (836
        )
        
        
        304
        
        
        
        (161
        )
        
        
        (693
        )Total interest income
        
        
        (4,172
        )
        
        
        15,650
        
        
        
        (2,440
        )
        
        
        9,038Interest-bearing liabilities:Deposits:Savings and NOW deposits
        
        
        (2,465
        )
        
        
        1,789
        
        
        
        (899
        )
        
        
        (1,575
        )Money market deposits
        
        
        (293
        )
        
        
        1,545
        
        
        
        (454
        )
        
        
        798Time deposits
        
        
        (2,450
        )
        
        
        5,545
        
        
        
        (1,611
        )
        
        
        1,484Other borrowings
        
        
        (19
        )
        
        
        26
        
        
        
        (14
        )
        
        
        (7
        )Total interest expense
        
        
        (5,227
        )
        
        
        8,905
        
        
        
        (2,978
        )
        
        
        700Net change in net interest income
        
        $
        1,055
        
        
        
        6,745
        
        
        
        538
        
        
        
        8,338


Year Ended December 31, 2001 vs. 2002Increase (Decrease) Due to Changes in:Rate
        
        Rate/Volume
        
        Volume
        
        Total(In thousands)Interest earned Assets:Loans
        
        $
        (1,904
        )
        
        
        15,396
        
        
        
        (2,739
        )
        
        
        10,753Securities
        
        
        (236
        )
        
        
        655
        
        
        
        (138
        )
        
        
        281Other interest-earning assets
        
        
        (378
        )
        
        
        2,806
        
        
        
        (1,542
        )
        
        
        886Total interest income
        
        
        (2,518
        )
        
        
        18,857
        
        
        
        (4,419
        )
        
        
        11,920Interest-bearing liabilities:Deposits:Savings and NOW deposits
        
        
        174
        
        
        
        3,229
        
        
        
        803
        
        
        
        4,206Money market deposits
        
        
        (229
        )
        
        
        547
        
        
        
        (152
        )
        
        
        166Time deposits
        
        
        (365
        )
        
        
        4,542
        
        
        
        (359
        )
        
        
        3,818Other borrowings
        
        
        (28
        )
        
        
        21
        
        
        
        (12
        )
        
        
        (19
        )Total interest expense
        
        
        (448
        )
        
        
        8,339
        
        
        
        280
        
        
        
        8,171Net change in net interest income
        
        $
        (2,070
        )
        
        
        10,518
        
        
        
        (4,699
        )
        
        
        3,749


25



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Acquisition of Peninsula Bancorp, Inc.

On April 30, 2001, Southern acquired Peninsula Bancorp, Inc. through a
merger of Peninsula with and into Southern. Peninsula was the parent company
of Peninsula Bank. Peninsula Bank changed its name to Southern Community Bank,
Atlantic in March 2002. Southern accounted for the transaction using the
purchase method of accounting. Accordingly, the results of operations of
Peninsula are included in Southerns consolidated financial statements from the
date of acquisition.

Opening of the Boca Raton bank.

On August 5, 2002, Southern Community Bank of South Florida commenced
operations. This banks principal office is located in Boca Raton, Florida.
Southern contributed $12.1 million in capital to the new bank upon its opening.
Additionally, Southerns Orlando bank transferred approximately $68 million of
assets to the new bank, including $42 million in loans, $25 million in cash and
cash equivalents, and various fixed assets and other assets, including the
Orlando banks leasehold interest in its branch located in Boca Raton, Florida.
The new Boca Raton bank also assumed deposits of the Orlando bank in an amount
equal to the transferred assets.

Results of Operations for the Years Ended December 31, 2002 and 2001

Southern had net earnings of $2.2 million for the year ended December 31,
2002 compared to net loss of $580,000 for the year ended December 31, 2001.

Earnings before income taxes in 2002 were $3,478,000 compared to a loss of
$875,000 in 2001. The improvement in earnings was primarily due to a
substantial increase in net interest income, which grew from $10.1 million in
2001 to $18.4 million in 2002. 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. These items more than offset
increases in non-interest expenses, such as salaries and occupancy costs.
Southerns net earnings in 2002 were also reduced due to losses incurred in the
start up of Southerns new Boca Raton bank. Southern expects that this bank
will become profitable in 2003.

Net Interest Income.Southerns operating results depend primarily on
Southerns net interest income, which is the difference between interest income
on interest-earning assets and interest expense on interest-bearing
liabilities, consisting primarily of deposits. Net interest income is
determined by the difference between yields earned on interest-earning assets
and rates paid on interest-bearing liabilities (interest-rate spread) and the
relative amounts of interest-earning assets and interest-bearing liabilities.
Southerns interest-rate 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 real estate, as well as the level of its
non-interest income, and its non-interest expenses, such as salaries and
employee benefits and occupancy expense and income taxes.

Interest Income and Expense.Interest income for the year ended December
31, 2002 was $33.5 million compared to $24.4 million for the year ended
December 31, 2001. The growth in interest income primarily reflects the growth
in Southerns assets, which grew from $449.1 million at December 31, 2001 to
$658.8 million at December 31, 2002, or approximately 46.7%. The impact

26



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##### 



of
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 $352.2
million to $500.3 million, or approximately 42.0%. The increase in assets and
loans is primarily attributable to the growth of Southerns business in
southeast Florida.

Interest expense was $15.1 million for the year ended December 31, 2002,
compared to $14.4 million for the year ended December 31, 2001. The increase
in interest expense is primarily due to the higher level of deposits which were
used to support the growth in loans. Most of the deposit growth was
attributable to Southerns new operations in southeast Florida. The increase
in interest expense was largely offset by a decrease in the average cost of
deposits.

Southerns net interest margin increased from approximately 3.11% for 2001
to approximately 3.49% for 2002. The positive change in the net interest
margin was due in part to the repricing of certain relatively high priced
deposits at the end of December 2001. Southern had utilized these deposits in
2000 and 2001 to attract funds to support growth and liquidity. Due to the
sharp decline in market interest rates in the first nine months of 2001, these
deposits adversely impacted Southerns net interest margin during 2001.
Southerns net interest margin improved after December 31, 2001, when these
deposits were repriced to market rates. The net interest margin was also
positively impacted by higher levels of loans relative to other interest
earning assets and by the decrease in interest rates in the economy, which
reduced the yields paid by Southern on its other deposits and interest bearing
liabilities more rapidly than the rates earned on the Companys loans and
investment securities.

Provision for Loan Losses.The provision for loan losses totaled
$2,405,000 for the year ended December 31, 2002 and $2,351,000 in 2001. The
amount of the provision for 2002 reflects the growth in Southerns loan
portfolio and the establishment of a new reserve at Southerns new Boca Raton
bank.

Non-Interest Income.Non-interest income totaled $2.6 million for the
year ended December 31, 2002 compared to $1.9 million for the year ended
December 31, 2001. Non-interest income consists of service charges on deposit
accounts, income from Southerns mortgage origination business, income from
Southerns insurance agency and other fees and income. Customer service
charges on deposit accounts totaled $624,000 in 2002, up from $372,000 in 2001,
due to an increase in the average number of deposit accounts. The income from
Southerns mortgage origination business was $167,000 in 2002, up from $69,000
in 2001. The income from Southerns insurance agency was $148,000 in 2002, up
from $109,000 in 2001. Southern had a gain on sale of securities available for
sale of $120,000 in 2002, compared to $642,000 in 2001. Earnings on bank owned
life insurance totaled $204,000 in 2002, compared to $166,000 in 2001.

Non-Interest Expenses.Non-interest expenses for the year ended December
31, 2002 totaled $15.1 million, up from $10.4 million for the year ended
December 31, 2001, and was comprised of the following:

    Salaries and employee benefits in 2002 totaled $8.0 million, or 53% of
total non-interest expenses, and $5.3 million or 51% in 2001. The increase was
attributable to the hiring of additional employees for Southerns new branches
and the Boca Raton bank, together with salary increases and higher benefit
costs.

27



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##### 



    Occupancy and equipment expense in 2002 totaled $3.0 million or 20% of
total non-interest expenses, and $1.9 million or 18% in 2001. This increase
reflects the opening of new branches and the commencement of operations of the
Boca Raton bank.

    Preopening expenses of $133,000 in both 2002 and 2001 consisted of
organizational and preopening expenses associated with the new Boca Raton bank.

    Other non-interest expenses in 2002 totaled $4.0 million or 26% of total
non-interest expenses, and $3.1 million or 29% in 2001. Other non-interest
expenses included data processing, printing and office supplies, marketing and
advertising, professional fees and other expenses. The increase in these
amounts was primarily due to the opening of additional branches, organizational
expense associated with the new Boca Raton bank and the overall growth of
Southern.

Income Taxes (Benefit).Income taxes (benefit) totaled $1.3 million for
2002 (effective rate of 36.7%) and $(295,000) in 2001 (effective rate of
33.7%).

Capital Expenditures

Southerns capital expenditures are reviewed by its board of directors.
Southern makes capital expenditures in order to expand its business and to
improve Southerns ability to provide quality services to its customers.
Capital expenditures equaled $3.9 million in 2002, and $6.5 million for the
year ended December 31, 2001. These expenditures were related to the purchase
of real property as branch locations, and the purchase of leasehold
improvements and furniture and equipment purchased for new banking facilities
opened during 2002 and 2001. Southern expects to have $2.3 million in capital
expenditures in 2003.

Asset Quality and Credit Risk

Securities.Southern maintains a high quality investment portfolio,
including U.S. government agencies, mortgage-backed securities and municipal
bonds. Southern believes that these securities have very little risk of
default. At December 31, 2002 and 2001, all of the securities held in the
investment portfolio were rated A or better. All but one of these securities
were classified available for sale. 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
collectability. At December 31, 2002, approximately 66.1% of these securities
(not including mortgage-backed securities) were scheduled to mature in five
years or less compared with 87.4% at December 31, 2001. As such, Southern is
subject fluctuations in market value due to changes in the general level of
interest rates.

28



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##### 



The following table sets forth information regarding the composition and
carrying amounts of the investment portfolio at December 31, 2002, 2001 and
2000 ($ in thousands):

2002
        
        2001
        
        2000Securities of U.S. Government
agencies and corporations
        
        $
        31,261
        
        
        
        41,472
        
        
        
        16,768Mortgage-backed securities
        
        
        61,609
        
        
        
        
        
        
        
        1,978Municipal bonds
        
        
        259
        
        
        
        
        
        
        
        Total Securities
        
        $
        93,129
        
        
        
        41,472
        
        
        
        18,746


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 most cases, Southern requires
collateral from 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s monitors collateral values to ensure that they
are maintained at proper levels.

At December 31, 2002, approximately $378.8 million or 74.4% of Southerns
loans were real estate loans secured by real estate in central and south
Florida. This percentage increased from 72.3% at December 31, 2001. This
level of concentration could present a potential credit risk because the
ultimate collectability of these loans is susceptible to adverse changes in
real estate market conditions in these markets. Southern seeks 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 5 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 their 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. In addition to outstanding loans, Southern enters into legally binding
commitments to extend credit, letters of credit and unused line of credit.
These commitments totaled $159.7 million at December 31, 2002, and $94.0
million at December 31, 2001.

29



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##### 



Types of Loans

At December 31,2002
        
        2001
        
        2000
        
        1999
        
        1998($ in thousands)Commercial
        
        $
        117,586
        
        
        
        88,088
        
        
        
        35,030
        
        
        
        19,123
        
        
        
        1,093Commercial real estate
        
        
        208,622
        
        
        
        113,805
        
        
        
        40,224
        
        
        
        19,346
        
        
        
        Residential real estate
        
        
        49,029
        
        
        
        27,171
        
        
        
        11,070
        
        
        
        4,273
        
        
        
        50Construction
        
        
        121,153
        
        
        
        118,177
        
        
        
        62,520
        
        
        
        15,746
        
        
        
        Consumer and other
        
        
        12,437
        
        
        
        11,629
        
        
        
        4,700
        
        
        
        3,536
        
        
        
        72Total loans
        
        
        508,827
        
        
        
        358,870
        
        
        
        153,544
        
        
        
        62,024
        
        
        
        1,215Less:Allowance for loan losses
        
        
        (6,262
        )
        
        
        (4,457
        )
        
        
        (1,795
        )
        
        
        (621
        )
        
        
        (12
        )Net deferred loan fees
        
        
        (2,298
        )
        
        
        (2,252
        )
        
        
        (1,015
        )
        
        
        (40
        )
        
        
        Loans, net
        
        $
        500,267
        
        
        
        352,161
        
        
        
        150,734
        
        
        
        61,363
        
        
        
        1,203


The following table sets forth information regarding the maturities of
Southerns loans. For purposes of the table, demand loans are shown as being
payable in one year or less. The entire amount of a balloon loan is treated as
maturing in the year that the balloon payment is due.

Maturities of Loans Based on Contractual Principal Repayments

At December 31, 2002

One Year
        
        Over One to
        
        Over FiveTotal Loans:
        
        or Less
        
        Five Years
        
        Years
        
        Total(in thousands)Commercial
        
        $
        59,326
        
        
        
        48,674
        
        
        
        9,586
        
        
        
        117,586Commercial real estate
        
        
        77,190
        
        
        
        114,742
        
        
        
        16,690
        
        
        
        208,622Residential real estate
        
        
        18,141
        
        
        
        26,966
        
        
        
        3,922
        
        
        
        49,029Construction
        
        
        44,827
        
        
        
        66,634
        
        
        
        9,692
        
        
        
        121,153Consumer and other
        
        
        4,975
        
        
        
        6,343
        
        
        
        1,119
        
        
        
        12,437Total
        
        $
        204,459
        
        
        
        263,359
        
        
        
        41,009
        
        
        
        508,827


30



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##### 



At December 31, 2001

One Year
        
        Over One to
        
        Over FiveTotal Loans:
        
        or Less
        
        Five Years
        
        Years
        
        Total(in thousands)Commercial
        
        
        33,164
        
        
        
        45,583
        
        
        
        9,341
        
        
        
        88,088Commercial real estate
        
        
        42,846
        
        
        
        58,891
        
        
        
        12,068
        
        
        
        113,805Residential real estate
        
        
        10,229
        
        
        
        14,061
        
        
        
        2,881
        
        
        
        27,171Construction
        
        
        44,491
        
        
        
        61,153
        
        
        
        12,533
        
        
        
        118,177Consumer and other
        
        
        4,378
        
        
        
        6,018
        
        
        
        1,233
        
        
        
        11,629Total
        
        $
        135,108
        
        
        
        185,706
        
        
        
        38,056
        
        
        
        358,870


At December 31, 2000

One Year
        
        Over One to
        
        Over FiveTotal Loans:
        
        or Less
        
        Five Years
        
        Years
        
        Total(in thousands)Commercial
        
        $
        15,126
        
        
        
        9,664
        
        
        
        10,240
        
        
        
        35,030Commercial real estate
        
        
        17,368
        
        
        
        11,098
        
        
        
        11,758
        
        
        
        40,224Construction
        
        
        26,995
        
        
        
        17,251
        
        
        
        18,274
        
        
        
        62,520Residential real estate
        
        
        4,780
        
        
        
        3,054
        
        
        
        3,236
        
        
        
        11,070Consumer and other
        
        
        2,029
        
        
        
        1,297
        
        
        
        1,374
        
        
        
        4,700Total
        
        
        66,298
        
        
        
        42,364
        
        
        
        44,882
        
        
        
        153,544


Of the $304.4 million in loans due after one year, 23% have fixed interest
rates and 77% have adjustable rates.

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 $117.6 million or 23.1% of total
loans at December 31, 2002 and $88.1 million or 24.5% of total loans at
December 31, 2001.

Real Estate Loans. Southerns real estate loans totaled $378.8 million or
74.4% of total loans at December 31, 2002, and $259.2 million or 72.3% of total
loans at December 31, 2001.

Southern makes real estate loans secured by commercial real estate,
including loans to acquire or refinance office buildings, warehouses and
apartments. These loans totaled $208.6

31



---



##### 



million or 41.0% of total loans at
December 31, 2002 and $113.8 million or 31.7% of total loans at December 31,
2001. Most of these loans have a maturity of five years or less. At December
31, 2002 and 2001, almost all of these loans were collateralized by real
property located in central and south Florida. These loans generally require a
loan-to-collateral value of not more than 75%.

Residential real estate loans totaled $49.0 million or 9.6% of total loans
at December 31, 2002 and $27.2 million, or 7.6% of total loans at December 31,
2001. Residential real estate 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 years. At
December 31, 2002, almost all of the residential real estate loans were
collateralized by residences in central and south Florida.

Construction loans totaled $121.2 million or 23.8% of loans at December
31, 2002 compared to $118.2 million or 32.9% of loans at December 31, 2001.
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 makes commercial and residential real estate
construction loans. At December 31, 2002, almost all construction loans were
collateralized by property in central and south Florida.

Consumer Loans and Other. 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 $12.4 million or 2.5% of total loans at
December 31, 2002 and $11.6 million or 3.2% of total loans at December 31,
2001. Risks associated with customer loans include loss of employment of
borrowers, declines in the financial condition of borrowers resulting in
delinquencies, and rapid depreciation of loan collateral.

Non-Performing Assets and Past Due Loans

Non-performing assets consist of non-accrual loans and properties or
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 its 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.

Southern had $3.2 million in loans which were nonperforming (nonaccrual)
at December 31, 2002, or 0.48% of total loans. Southern also had $126,000 in
accruing loans which were past due more than 90 days on December 31, 2002.
Southern had $2.6 million in loans which were nonperforming (nonaccrual) at
December 31, 2001, or 0.58% of total loans. Southern also had $1.2 million in
accruing loans which were past due more that 90 days on December 31, 2001.

Non-performing loans at December 31, 2002 principally 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.

32



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##### 



The following table sets forth certain information regarding nonaccrual
loans and foreclosed assets, including the ratio of such loans and foreclosed
assets to total assets as of the dates indicated:

Year Ended December 31,2002
        
        2001
        
        2000
        
        1999
        
        1998Nonperforming (nonaccrual) loans:Residential real estate loans
        
        $
        1,189
        
        
        
        888
        
        
        
        
        
        
        
        
        
        
        
        Commercial real estate
        
        
        1,749
        
        
        
        1,699
        
        
        
        2,014
        
        
        
        
        
        
        
        Commercial loans
        
        
        207
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        Consumer loans and other
        
        
        9
        
        
        
        1
        
        
        
        
        
        
        
        
        
        
        
        Total nonperforming (nonaccrual) loans
        
        
        3,154
        
        
        
        2,588
        
        
        
        2,014
        
        
        
        
        
        
        
        Total nonperforming(nonaccrual) loans to
total assets
        
        
        .48
        %
        
        
        .58
        %
        
        
        .96
        %
        
        
        
        %
        
        
        
        %Foreclosed assets:Assets acquired by foreclosure or deed in
lieu of foreclosure
        
        
        302
        
        
        
        907
        
        
        
        
        
        
        
        
        
        
        
        Total nonperforming loans (nonaccrual)
and foreclosed assets
        
        $
        3,456
        
        
        
        3,495
        
        
        
        2,014
        
        
        
        
        
        
        
        Total nonperforming (nonaccrual) and
Foreclosed assets to total assets
        
        
        .52
        %
        
        
        .78
        %
        
        
        .96
        %
        
        
        
        %
        
        
        
        %


To date, Southern has incurred only a modest level of loan losses,
primarily due to its short operating history. Southern expects that its level
of loan losses will increase in the future as Southerns loan portfolio
matures. However, Southern believes that its allowance for loan losses will be
sufficient to absorb these loan losses.

Allowance and Provision for Loan Losses

Southern evaluates the adequacy of its allowance for loan losses as part
of Southerns on-going 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 credit administrator, who
recommends to the directors 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 nonaccrual 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 review officers
analysis of the adequacy of the allowance for loan losses.

While a 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.

33



---



##### 



Southern believes that the overall credit quality of its loan portfolio is
strong, as evidenced by the fact that it has had only $3.3 million and $3.8
million in nonaccrual and accruing loans past due more than ninety days at
December 31, 2002 and 2001, respectively. The low level of non-performing
loans and charge-offs may be due, in large part, to Southerns relatively short
operating history. Southern expects that it will have additional
non-performing loans and charge-offs in the future as its loan portfolio
matures. However, Southern believes that its allowance for loan losses will be
sufficient to absorb these loan losses. To date, Southern has sought to
maintain its allowance for loan losses in excess of 1% of total loans. At
December 31, 2002, its allowance was $6.3 million or 1.23% of total loans and
$4.5 million or 1.24% of total loans at December 31, 2001.

Interest income that would have been recorded under the original terms of
nonaccrual loans and the interest income actually recognized are summarized
below:

Year Ended December 31,2002
        
        2001
        
        2000
        
        1999
        
        1998(In thousands)Interest income that would have been recognized
        
        $
        223
        
        
        
        326
        
        
        
        117
        
        
        
        
        
        
        
        Interest income recognized
        
        
        
        
        
        
        (80
        )
        
        
        (22
        )
        
        
        
        
        
        
        Interest foregone
        
        $
        223
        
        
        
        246
        
        
        
        95
        
        
        
        
        
        
        
        


34



---



##### 



The following table sets forth information with respect to activity of
Southerns allowance for loan losses for the periods indicated:

Year Ended December 31,2002
        
        2001
        
        2000
        
        1999
        
        1998(In thousands)Average loans outstanding, net
        
        $
        419,996
        
        
        
        257,432
        
        
        
        105,566
        
        
        
        26,915
        
        
        
        601Allowance at beginning of year
        
        
        4,457
        
        
        
        1,795
        
        
        
        621
        
        
        
        12
        
        
        
        Allowance acquired upon merger
        
        
        
        
        
        
        537
        
        
        
        
        
        
        
        
        
        
        
        Charge-offs:Commercial loans
        
        
        (469
        )
        
        
        (99
        )
        
        
        
        
        
        
        
        
        
        
        Consumer loans
        
        
        (94
        )
        
        
        (25
        )
        
        
        
        
        
        
        
        
        
        
        Residential loans
        
        
        (64
        )
        
        
        (102
        )
        
        
        
        
        
        
        
        
        
        
        Total loans charged-off
        
        
        (627
        )
        
        
        (226
        )
        
        
        
        
        
        
        
        
        
        
        Recoveries
        
        
        27
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        Net charge-offs
        
        
        (600
        )
        
        
        (226
        )
        
        
        
        
        
        
        
        
        
        
        Provision for loan losses charged to
operating expenses
        
        
        2,405
        
        
        
        2,351
        
        
        
        1,174
        
        
        
        609
        
        
        
        12Allowance at end of year
        
        $
        6,262
        
        
        
        4,457
        
        
        
        1,795
        
        
        
        621
        
        
        
        12Percentage of net charge-offs to average
loans outstanding
        
        
        .14
        %
        
        
        0.09
        %
        
        
        
        %
        
        
        
        %
        
        
        
        %Allowance as a percent of total loans
at end of year
        
        
        1.23
        %
        
        
        1.24
        %
        
        
        1.17
        %
        
        
        1.00
        %
        
        
        .99
        %Total loans at end of year
        
        $
        508,827
        
        
        
        358,870
        
        
        
        153,544
        
        
        
        62,024
        
        
        
        1,215


35



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##### 



The following table further summarizes the allocation of the allowance for
loan losses by type of loan at December 31, 2002, 2001, 2000, 1999 and 1998.

Allocation of Allowance for Loan Losses

December 31,
        
        December 31,
        
        December 31,
        
        December 31,
        
        December 31,2002
        
        2001
        
        2000
        
        1999
        
        1998% of
        
        
        
        % of
        
        
        
        % of
        
        
        
        % of
        
        
        
        % ofTotal
        
        
        
        Total
        
        
        
        Total
        
        
        
        Total
        
        
        
        TotalAmount
        
        Loans
        
        Amount
        
        Loans
        
        Amount
        
        Loans
        
        Amount
        
        Loans
        
        Amount
        
        Loans($ in thousands)Commercial
        
        $
        1,252
        
        
        
        23.1
        %
        
        $
        881
        
        
        
        24.5
        %
        
        $
        293
        
        
        
        22.8
        %
        
        $
        191
        
        
        
        30.8
        %
        
        $
        10
        
        
        
        90.0
        %Commercial
real estate
        
        
        2,675
        
        
        
        41.0
        
        
        
        1,138
        
        
        
        31.7
        
        
        
        462
        
        
        
        26.2
        
        
        
        165
        
        
        
        31.2
        
        
        
        
        
        
        
        Real estate-
construction
        
        
        1,290
        
        
        
        23.8
        
        
        
        1,182
        
        
        
        33.0
        
        
        
        481
        
        
        
        40.7
        
        
        
        132
        
        
        
        25.4
        
        
        
        
        
        
        
        Residential real
estate
        
        
        612
        
        
        
        9.6
        
        
        
        136
        
        
        
        7.6
        
        
        
        55
        
        
        
        7.2
        
        
        
        32
        
        
        
        6.9
        
        
        
        1
        
        
        
        4.1Consumer loans and
Other
        
        
        248
        
        
        
        2.5
        
        
        
        233
        
        
        
        3.2
        
        
        
        99
        
        
        
        3.1
        
        
        
        71
        
        
        
        5.7
        
        
        
        1
        
        
        
        5.9Unallocated general
reserves
        
        
        185
        
        
        
        
        
        
        
        887
        
        
        
        
        
        
        
        405
        
        
        
        
        
        
        
        30
        
        
        
        
        
        
        
        
        
        
        
        Total allowance for
loan
Losses
        
        $
        6,262
        
        
        
        100.0
        %
        
        $
        4,457
        
        
        
        100.0
        %
        
        $
        1,795
        
        
        
        100.0
        %
        
        $
        621
        
        
        
        100.0
        %
        
        $
        12
        
        
        
        100.0
        %


The following table displays loan originations by type of loan and
principal reductions during the years ended December 31, 2002, 2001 and 2000.

Loan Originations and Principal Reductions

Year Ended December 31,2002
        
        2001
        
        2000
        
        1999
        
        1998(In thousands)Originations:Commercial loans
        
        $
        108,579
        
        
        
        69,845
        
        
        
        42,702
        
        
        
        27,708
        
        
        
        1,093Commercial real estate
        
        
        193,616
        
        
        
        82,720
        
        
        
        49,034
        
        
        
        28,563
        
        
        
        Residential real estate loans
        
        
        45,696
        
        
        
        21,666
        
        
        
        13,495
        
        
        
        5,712
        
        
        
        50Construction
        
        
        112,710
        
        
        
        109,066
        
        
        
        76,213
        
        
        
        22,850
        
        
        
        Consumer loans and other
        
        
        11,849
        
        
        
        6,640
        
        
        
        5,729
        
        
        
        5,128
        
        
        
        72Total loans originated
        
        
        472,450
        
        
        
        289,937
        
        
        
        187,173
        
        
        
        89,961
        
        
        
        1,215Acquired with merger with
Peninsula Bancorp, Inc.
        
        
        
        
        
        
        43,277
        
        
        
        
        
        
        
        
        
        
        
        Principal reductions
        
        
        (322,493
        )
        
        
        (127,888
        )
        
        
        (95,653
        )
        
        
        (29,151
        )
        
        
        Increase in gross loans
        
        $
        149,957
        
        
        
        205,326
        
        
        
        91,520
        
        
        
        60,810
        
        
        
        1,215


36



---



##### 



Southerns Financial Condition

Southerns goal is to maintain a high quality and liquid balance sheet.
Southern seeks to achieve this objective through a high quality portfolio of
investment securities with short to medium term maturities, and a high quality
portfolio of real estate, commercial and consumer loans.

Cash and Cash Equivalents. Southern had cash and cash equivalents of
$35.7 million at December 31, 2002, compared to $30.0 million at December 31,
2001.

Securities. In 2002, securities averaged $58.0 million or 11.0% of total
earning assets, as compared to $25.4 million, or 7.9% in 2001. Southerns
strategy for its investment account is to maintain a high quality portfolio
with generally short to medium term maturities. Securities were $93.1 million
at December 31, 2002, and $41.5 million at December 31, 2001. The growth in
securities reflects the overall increase in Southerns assets. Southern is
seeking to reduce its level of securities through loan growth. The following
tables sets forth information regarding the investment portfolio at December
31, 2002, 2001, 2000, 1999 and 1998.

Remaining Maturity and Average Yield of Investment Securities
December 31, 2002

Less than
        
        One to Five
        
        
        
        
        
        
        
        
        
        More thanOne Year
        
        Years
        
        Five to Ten Years
        
        Ten Years
        
        TotalCarrying
        
        
        
        Carrying
        
        
        
        Carrying
        
        
        
        Carrying
        
        
        
        CarryingValue
        
        Yield
        
        Value
        
        Yield
        
        Value
        
        Yield
        
        Value
        
        Yield
        
        Value
        
        YieldSecurities of U.S
government
agencies
and corporations
        
        $
        1,205
        
        
        
        5.30
        %
        
        $
        19,759
        
        
        
        4.67
        %
        
        $
        10,297
        
        
        
        5.74
        %
        
        $
        
        
        
        
        
        %
        
        $
        31,261
        
        
        
        5.05
        %Municipal bonds
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        259
        
        
        
        4.85
        
        
        
        259
        
        
        
        4.85Mortgage-backed
Securities
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        61,609
        
        
        
        5.25Total
        
        $
        1,205
        
        
        
        5.30
        %
        
        $
        19,759
        
        
        
        4.67
        %
        
        $
        10,297
        
        
        
        5.74
        %
        
        $
        259
        
        
        
        4.85
        %
        
        $
        93,129
        
        
        
        5.18
        %


Loans. Loans averaged $420.0 million in 2002 and $257.4 million in 2001.
Net loans grew from $150.7 million at December 31, 2000, to $352.2 million at
December 31, 2001 and to $500.3 million at December 31, 2002.

Interest-Bearing Liabilities. Interest-bearing liabilities primarily
consist of deposits and federal funds purchased. Total interest-bearing
liabilities increased from $182.2 million at December 31, 2000, to $400.0
million at December 31, 2001 and $535.5 million at December 31, 2002. Total
interest-bearing liabilities averaged $458.2 million in 2002 and $278.3 million
in 2001. There was also a significant increase in time deposits of $104.2
million or 64% compared to 2001. The growth in Southerns deposits reflects
Southerns marketing efforts to obtain deposits in southeast Florida for its
new Boca Raton bank. Southern believes that attracting deposits is an
important step in establishing this bank in its target market.

37



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##### 



The following table sets forth information regarding Southerns average
deposits for 2002.

Average Deposits

2002
        
        2001
        
        2000Average
        
        
        
        Average
        
        
        
        AverageAmount
        
        Rate
        
        Amount
        
        Rate
        
        Amount
        
        Rate(in thousands)Demand
deposits-non-interest
bearing
        
        $
        49,058
        
        
        
        
        %
        
        $
        34,195
        
        
        
        
        %
        
        $
        17,513
        
        
        
        
        %Savings and NOW accounts
        
        
        138,221
        
        
        
        2.41
        %
        
        
        101,299
        
        
        
        4.85
        %
        
        
        18,089
        
        
        
        3.88
        %Money market accounts
        
        
        75,404
        
        
        
        2.38
        %
        
        
        29,516
        
        
        
        3.37
        %
        
        
        17,774
        
        
        
        4.66
        %Time deposits
        
        
        242,410
        
        
        
        4.09
        %
        
        
        146,272
        
        
        
        5.77
        %
        
        
        73,749
        
        
        
        6.26
        %Total deposits
        
        $
        505,093
        
        
        
        2.98
        %
        
        $
        311,282
        
        
        
        4.61
        %
        
        $
        127,125
        
        
        
        4.84
        %


The following table summarizes the maturity of time deposits over $100,000
at December 31, 2002.

Summary of Time Deposits over $100,000 by Maturity
(in thousands)

December 31, 2002Three months or less
        
        $
        11,190Three to Six months
        
        
        4,867Six to Twelve months
        
        
        9,881Over Twelve months
        
        
        98,738Total
        
        $
        124,676


The following table sets forth the net deposit flows during the year ended
December 31, 2002, 2001 and 2000:

Net Deposit Flows
(in thousands)

December 31,2002
        
        2001
        
        2000Net increase before
interest credited
        
        $
        178,257
        
        
        
        206,552
        
        
        $
        111,138Net credited
        
        
        15,187
        
        
        
        11,196
        
        
        
        6,024Net deposit increase
        
        $
        193,444
        
        
        
        217,748
        
        
        $
        117,162


38



---



##### 



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 and federal funds sold 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 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 90 days, one year and three years 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. A ratio of 1.0 represents perfect matching of interest-earning
assets and interest-bearing liabilities. Southerns sensitivity position at
December 31, 2000, 2001 and 2002 was such that net interest income would
increase 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.

The following tables show the repricing structure of Southerns balance
sheet at December 31, 2002, 2001 and 2000 with each maturity interval referring
to the earliest repricing opportunity for each asset and liability. The
earliest repricing opportunity is the earlier of scheduled contractual
maturities or the next reset date. Liability sensitive means interest
sensitive liabilities subject to repricing exceeded interest sensitive assets
subject to repricing on a 365-day basis. Southern was liability sensitive to
the extent of $37.9 million and $63.8 million at December 31, 2002 and 2001,
respectively. This negative gap at December 31, 2002 and 2001 was 5.8% and
14.2%, respectively of total assets. Southerns target gap position is in the
range of negative 20% to positive 20%. Southern measures its gap position as a
percentage of its total assets. The improvement in Southerns gap position
reflects a shift in deposits, particularly certificates of deposit, to longer
maturities, and Southerns relatively high level of cash and cash equivalents.

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.

39



---



##### 



Interest Rate Sensitivity & Gap ReportDecember 31, 2002
(Dollars in Thousands)

Over 3 Yrs.3 Mos.
        
        3 Mos.
        
        Over 1 Yr.
        
        toor less
        
        to Yr.
        
        to 3 Yrs.
        
        5 Yrs.
        
        Over 5 Yrs.
        
        TotalAssets:Loans (1)
        
        $
        292,917
        
        
        
        26,287
        
        
        
        131,340
        
        
        
        42,670
        
        
        
        15,613
        
        
        
        508,827Securities
        
        
        1,223
        
        
        
        41
        
        
        
        7,284
        
        
        
        44,364
        
        
        
        40,217
        
        
        
        93,129Other interest-earning
Assets (2)
        
        
        16,808
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        16,808Total interest-earning assets
        
        
        310,948
        
        
        
        26,328
        
        
        
        138,624
        
        
        
        87,034
        
        
        
        55,830
        
        
        
        618,764Interest-bearing liabilities:Savings and NOW Deposits
(3)
        
        
        153,207
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        153,207Money-market deposits (3)
        
        
        101,800
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        101,800Time deposits (3)
        
        
        54,614
        
        
        
        64,140
        
        
        
        157,561
        
        
        
        2,782
        
        
        
        
        
        
        
        279,097Other borrowings
        
        
        1,423
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        1,423Total interest-bearing
Liabilities
        
        
        311,044
        
        
        
        64,140
        
        
        
        157,561
        
        
        
        2,782
        
        
        
        
        
        
        
        535,527GAP
        
        
        (96
        )
        
        
        (37,812
        )
        
        
        (18,937
        )
        
        
        84,252
        
        
        
        55,830
        
        
        
        83,237Cumulative GAP
        
        
        (96
        )
        
        
        (37,908
        )
        
        
        (56,845
        )
        
        
        27,407
        
        
        
        83,237Ratio of interest-earning
assets to interest-bearing
liabilities
        
        
        1.00
        
        
        
        .41
        
        
        
        .88
        
        
        
        31.29
        
        
        
        N/A
        
        
        
        1.16Cumulative ratio of
interest-earning assets to
interest-bearing liabilities
        
        
        1.00
        
        
        
        .90
        
        
        
        .89
        
        
        
        1.05
        
        
        
        1.16Cumulative GAP to total
assets
        
        
        (.01
        )%
        
        
        (5.8
        )%
        
        
        (8.6
        )%
        
        
        4.2
        %
        
        
        12.6
        %


Notes to Preceding Table



|(1) |  | In preparing the above table, adjustable-rate loans are included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed-rate loans are
scheduled, including repayment, according to their maturities.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Includes interest-earning deposits and federal funds sold, which reprice
daily and Federal Home Loan Bank Stock, which reprices quarterly.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Savings, NOW and money-market deposits are regarded as readily accessible
withdrawable accounts. Time deposits are scheduled according to their
respective maturity dates.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

40



---



##### 



Interest Rate Sensitivity & Gap ReportDecember 31, 2001
(Dollars in Thousands)

Over 3 Yrs.3 Mos.
        
        3 Mos.
        
        Over 1 Yr.
        
        toor less
        
        to Yr.
        
        to 3 Yrs.
        
        5 Yrs.
        
        Over 5 Yrs.
        
        TotalAssets:Loans(1)
        
        
        220,357
        
        
        
        24,373
        
        
        
        45,293
        
        
        
        31,272
        
        
        
        37,575
        
        
        
        358,870Securities
        
        
        
        
        
        
        761
        
        
        
        19,508
        
        
        
        16,719
        
        
        
        4,484
        
        
        
        41,472Other interest-earning
assets(2)
        
        
        15,716
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        15,716Total interest-earning assets
        
        
        236,073
        
        
        
        25,134
        
        
        
        64,801
        
        
        
        47,991
        
        
        
        42,059
        
        
        
        416,058Interest-bearing liabilities:Savings and NOW deposits(3)
        
        
        140,354
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        140,354Money-market deposits(3)
        
        
        37,379
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        37,379Time deposits(3)
        
        
        114,223
        
        
        
        31,424
        
        
        
        37,708
        
        
        
        1,488
        
        
        
        
        
        
        
        184,843Other borrowings
        
        
        1,658
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        1,658Total interest-bearing
liabilities
        
        
        293,614
        
        
        
        31,424
        
        
        
        37,708
        
        
        
        1,488
        
        
        
        
        
        
        
        364,234GAP
        
        
        (57,541
        )
        
        
        (6,290
        )
        
        
        27,093
        
        
        
        46,503
        
        
        
        42,059
        
        
        
        51,824Cumulative GAP
        
        
        (57,541
        )
        
        
        (63,831
        )
        
        
        (36,738
        )
        
        
        9,765
        
        
        
        51,824Ratio of interest-earning
assets to interest-bearing
liabilities
        
        
        .80
        
        
        
        .80
        
        
        
        1.72
        
        
        
        32.25
        
        
        
        N/A
        
        
        
        1.14Cumulative ratio of
interest-earning assets to
interest-bearing liabilities
        
        
        .80
        
        
        
        .80
        
        
        
        .90
        
        
        
        1.03
        
        
        
        1.14Cumulative GAP to total
assets
        
        
        (12.8
        )
        
        
        (14.2
        )
        
        
        (8.2
        )
        
        
        2.2
        
        
        
        11.5


Notes to Preceding Table



|(1) |  | In preparing the above table, adjustable-rate loans are included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed-rate loans are
scheduled, including repayment, according to their maturities.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Includes interest-earning deposits and federal funds sold, which reprice
daily and Federal Home Loan Bank Stock, which reprices quarterly.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Savings, NOW and money-market deposits are regarded as readily accessible
withdrawable accounts. Time deposits are scheduled according to their
respective maturity dates.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

41



---



##### 



Interest Rate Sensitivity & Gap ReportDecember 31, 2000
(Dollars in Thousands)

Over 3 Yrs.3 Mos.
        
        3 Mos.
        
        Over 1 Yr.
        
        toor less
        
        to Yr.
        
        to 3 Yrs.
        
        5 Yrs.
        
        Over 5 Yrs.
        
        TotalAssets:Loans(1)
        
        $
        95,843
        
        
        
        3,980
        
        
        
        15,892
        
        
        
        16,073
        
        
        
        21,756
        
        
        
        153,544Securities
        
        
        
        
        
        
        
        
        
        
        1,188
        
        
        
        1,483
        
        
        
        16,075
        
        
        
        18,746Other interest-earning
assets(2)
        
        
        12,963
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        12,963Total interest-earning assets
        
        $
        108,806
        
        
        
        3,980
        
        
        
        17,080
        
        
        
        17,556
        
        
        
        37,831
        
        
        
        185,253Interest-bearing liabilities:Savings and NOW deposits(3)
        
        $
        39,610
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        39,610Money-market deposits(3)
        
        
        17,118
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        17,118Time deposits(3)
        
        
        50,856
        
        
        
        44,606
        
        
        
        6,801
        
        
        
        842
        
        
        
        
        
        
        
        103,105Total interest-bearing
liabilities
        
        $
        107,584
        
        
        
        44,606
        
        
        
        6,801
        
        
        
        842
        
        
        
        
        
        
        
        159,833GAP
        
        $
        1,222
        
        
        
        (40,626
        )
        
        
        10,279
        
        
        
        16,714
        
        
        
        37,831
        
        
        
        25,420Cumulative GAP
        
        $
        1,222
        
        
        
        (39,404
        )
        
        
        (29,125
        )
        
        
        (12,411
        )
        
        
        25,420Ratio of interest-earning
assets to interest-bearing
liabilities
        
        
        1.01
        
        
        
        0.09
        
        
        
        2.51
        
        
        
        20.9
        
        
        
        N/A
        
        
        
        1.16Cumulative ratio of
interest-earning assets to
interest-bearing liabilities
        
        
        1.01
        
        
        
        0.74
        
        
        
        0.82
        
        
        
        0.92
        
        
        
        1.16Cumulative GAP to total
assets
        
        
        .01
        %
        
        
        (18.7
        )%
        
        
        (13.8
        )%
        
        
        (5.9
        )%
        
        
        12.1
        %


Notes to Preceding Table



|(1) |  | In preparing the above table, adjustable-rate loans are included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed-rate loans are
scheduled, including repayment, according to their maturities.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Includes federal funds sold, which reprice daily and Federal Home Loan
Bank Stock, which reprices quarterly.
|--- |  | ------------------------------------------------------------------------------------------------------------



|(3) |  | Savings, NOW and money-market deposits are regarded as readily accessible
withdrawable accounts. Time deposits are scheduled according to their
respective maturity dates.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

42



---



##### 



Capital

One of Southerns primary objectives is to maintain a strong capital
position to merit the confidence of customers, bank regulators and
shareholders. A strong capital position helps Southern to withstand unforeseen
adverse developments and to take advantage of attractive lending and investment
opportunities when they raise.

Southern completed a public offering of its common stock in 2002 in order
to capitalize on its new Boca Raton bank. Pursuant to the offering, Southern
received a total at $12.1 million in proceeds from the sale of 1,151,047
shares.

Under the rules of the Federal Deposit Insurance Corporation pertaining to
risk-based capital, Southern had a ratio of tier one capital to risk-weighted
assets of 9.57% at December 31, 2002 and 9.77% at December 31, 2001, and a
ratio of total capital to risk-weighted assets of 10.64% at December 31, 2002
and 10.86% at December 31, 2001. These risk-based capital ratios are in excess
of the minimum requirements of 4% for tier one and 8% for total risk-based
capital ratios established by the federal regulations. 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.

The following table sets forth Southerns required and actual capital
amounts and percentages at December 31, 2002 and 2001 (dollars in thousands):

December 31, 2002Actual
        
        RequiredAmount
        
        %
        
        Amount
        
        %Tier 1 Capital(to
Risk-Weighted
Assets)
        
        $
        56,172
        
        
        
        9.57
        %
        
        $
        23,475
        
        
        
        4.0
        %Total Capital(to
Risk-Weighted
Assets)
        
        $
        62,434
        
        
        
        10.64
        %
        
        $
        46,949
        
        
        
        8.0
        %(1)Tier 1 Capital(to Total Assets)
        
        $
        56,172
        
        
        
        8.71
        %
        
        $
        25,796
        
        
        
        4.0
        %


43



---



##### 



December 31, 2001Actual
        
        RequiredAmount
        
        %
        
        Amount
        
        %Tier 1 Capital(to
Risk-Weighted
Assets)
        
        $
        40,053
        
        
        
        9.77
        %
        
        $
        16,398
        
        
        
        4.0
        %Total Capital(to
Risk-Weighted
Assets)
        
        $
        44,510
        
        
        
        10.86
        %
        
        $
        32,788
        
        
        
        8.0
        %(1)Tier 1 Capital(to Total Assets)
        
        $
        40,053
        
        
        
        9.39
        %
        
        $
        17,062
        
        
        
        4.0
        %




|(1) |  | Southern has committed to the Federal Reserve to maintain a ratio of 10%
through January 2004.
|--- |  | ----------------------------------------------------------------------------------------------

Southern will need to raise additional capital in the future to support
the planned expansion of its business. In this connection, Southern is
currently planning to conduct an additional offering of its common stock during
2003.

Impact of Inflation and Changing Prices

The financial statements and related data presented in this report have
been prepared in accordance with GAAP, which requires the measurement of
financial position and operating results in terms of historical dollars,
without considering changes in the relative purchasing power of money over time
due to inflation. Unlike most industrial companies, substantially all of
Southerns assets and liabilities of are monetary in nature. As a result,
interest rates have a more significant impact on Southerns performance than
the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services, since such prices are affected by inflation to a larger extent than
interest rates.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss from adverse changes in market prices and
rates. Southerns market risk arises primarily from interest rate risk
inherent in Southerns lending and deposit taking activities. Southern has
little or no risk related to trading account, commodities or foreign exchange.

Southern 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 its
net interest income and capital, while adjusting its 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 Southern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.

44



---



##### 



Future Accounting Requirements

Recent Pronouncements.In November 2002, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others (FIN 45), which expands previously
issued accounting guidance and disclosure requirements for certain guarantees.
FIN 45 requires the Company to recognize an initial liability for the fair
value of an obligation assumed by issuing a guarantee. The provision for
initial recognition and measurement of the liability will be applied on a
prospective basis to guarantees issued or modified after December 31, 2002.
The adoption of FIN 45 is not expected to materially affect the consolidated
financial statements.

45



---



##### 



ITEM 7.
        
        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Attached hereto and filed as part of this Form 10-KSB are the consolidated
financial statements required by Regulation S-B.

ITEM 8.
        
        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


Not applicable.

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information with respect to
Southerns executive officers.

Name
        
        Age
        
        Principal PositionsDennis G. Bedley
        
        
        46
        
        
        Director of Southern and President of Boca Raton BankCharlie W. Brinkley, Jr.
        
        
        49
        
        
        Chairman of the Board and Chief Executive Officer of
SouthernThomas H. Dargan, Jr.
        
        
        48
        
        
        Director of Southern and President of Daytona Beach BankSharyn E. Dickerson
        
        
        54
        
        
        Executive Vice President and Chief Information Officer
of SouthernRichard L. Garner
        
        
        49
        
        
        Director of Southern and Chief Executive Officer of
Bonita Springs BankStephen R. Jeuck
        
        
        51
        
        
        Controller of SouthernJohn G. Squires
        
        
        56
        
        
        President, Chief Financial Officer and Director of
Southern and Chief Executive Officer of Orlando BankJoel E. Whittenhall
        
        
        43
        
        
        Director of Southern and President of Bonita Springs Bank


Dennis G. Bedleyhas served as a director of Southern as well as president
of the Boca Raton bank since August 2002. From March 2001 to August 2002, he
also served as the vice president of Southern, as well as the vice president of
the Orlando bank. From 1998 through March 2001, he was president of Colonial
Bank, West Palm Beach, Florida. From 1996 to 1998, he was a senior banking
executive for Capital Bank in Fort Lauderdale, Florida.

Charlie W. Brinkley, Jr. has served as chairman of the board and chief
executive officer of Southern since its organization in 1999, and chairman of
our Orlando bank since 1999. He also serves as a director of our Boca Raton
and Bonita Springs banks. Mr. Brinkley was an organizing director of Southern
Bank of Central Florida and served as its only president and chief executive

46



---



##### 



officer from 1988 to 1996 when it was acquired by Colonial Bank of Montgomery,
Alabama. From 1996 until 1998, Mr. Brinkley continued to serve as president of
Colonial Bank, Florida region. Mr. Brinkley began his banking career in the
Orlando area in 1978 at ComBank of Casselberry, which was acquired by Freedom
Savings and Loan Association in 1983.

Thomas H. Dargan, Jr. has served as a director Southern since 2001 and has
served as president and chief executive officer of Peninsula Bank (now known as
Southern Community Bank, Atlantic) since its founding in 1998. He has 22 years
of banking experience in Florida, including 15 years in the Daytona Beach
community. He served as president and chief executive officer of Tomoka State
Bank from 1994 until its sale in 1997 to Colonial Bank. Subsequent to the
transaction, he served as president for the Volusia area of Colonial Bank.

Sharyn E. Dickersonhas served as executive vice president and chief
information officer of Southern since 2000 and of our Orlando bank since 1999.
She previously served as senior vice president and cashier of Citrus Bank,
Orlando, from 1997 to 1999. Before that, she served as senior vice president
and cashier of Southern Bank of Central Florida from 1988 to 1994 and as senior
operations officer for the Florida region for Colonial Bank from 1994 until
1997.

Richard L. Garnerbecame a vice president of Southern in 2000 and became a
director in 2001 upon the opening of our Bonita Springs bank, of which he is
chairman and chief executive officer. He previously served as president and
chief executive officer of First National Bank of Bonita Springs (subsequently
known as First National Bank of Florida) from 1994 until the acquisition of
that bank by The Colonial BancGroup, Montgomery, Alabama, in 1998. From 1998
until 1999, Mr. Garner served as regional president and CEO of Colonial Bank,
Southwest Florida region.

Stephen R. Jeuckhas served as controller of Southern since its
organization in 1999, and as vice president and chief financial officer of our
Orlando bank since its organization in 1998. From 1995 until 1997, Mr. Jeuck
served as vice president and controller of Southern Bank of Central Florida and
Colonial Bank, Florida.

John G. Squireshas served as president of Southern since its organization
in 1999, and as chief executive officer of our Orlando bank since its
organization in 1998. He also serves as our chief financial officer and as a
director of our Boca Raton and Bonita Springs banks. Mr. Squires was also an
organizing director of Southern Bank of Central Florida in 1988 and served as
its vice-chairman until its acquisition by Colonial Bank in 1996. From 1996
until 1997, Mr. Squires continued to serve as an executive vice president and
director of Colonial Bank, Florida region. Mr. Squires began his Florida
banking career in 1978 as president and director of ComBank of Casselberry
which was acquired by Freedom Savings and Loan Association in 1983.

Joel E. Whittenhallhas served as a vice president of Southern since 2000
and as a director since 2001. He also has served as president, chief lending
officer and director of our Bonita Springs bank since 2001. He previously
served as executive vice president and senior lending officer of First National
Bank of Florida (subsequently acquired by Colonial Bank) from 1994 to 1999.

47



---



##### 






PART III

|        |  |                                                
|------- |  | -----------------------------------------------
|ITEM 9. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Information required by Item 10 regarding executive officers is set forth
at the end of the Part II of this Annual Report on Form 10-KSB.

Information set forth in the 2003 Proxy Statement under the caption
Election of Directors is incorporated herein by reference.

|         |  |                       
|-------- |  | ----------------------
|ITEM 10. |  | EXECUTIVE COMPENSATION

The information set forth in the 2003 Proxy Statement under the caption
Executive Compensation is incorporated herein by reference.

|         |  |                                                                 
|-------- |  | ----------------------------------------------------------------
|ITEM 11. |  | SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption Principal Shareholders and
Security Ownership of Management in the 2003 Proxy Statement is incorporated
herein by reference.

|         |  |                                               
|-------- |  | ----------------------------------------------
|ITEM 12. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption Transactions with Management
and Others in the 2003 Proxy Statement is incorporated herein by reference.

48



---



##### 






PART IV

ITEM 13.      EXHIBITS AND REPORTS ON FORM 8-K

(A)  Exhibits

|      |  |                                                                                                                           
|----- |  | --------------------------------------------------------------------------------------------------------------------------
|3.1   |  | Articles of Incorporation, as amended, of Registrant (a)                                                                  
|3.2   |  | Bylaws of Registrant (a)                                                                                                  
|4.1   |  | Specimen Common Stock Certificate of Registrant (a)                                                                       
|10.1  |  | Employees Incentive Stock Option Plan of Registrant (a)                                                                  
|10.2  |  | Directors Statutory Stock Option Plan of Registrant (a)                                                                  
|10.3  |  | Amended and Restated Employee Stock Purchase Plan of Registrant
(a)                                                       
|10.4  |  | Salary Continuation Agreement between the Registrant and Charlie
W. Brinkley, Jr. dated February 23, 1999 (a)             
|10.5  |  | Salary Continuation Agreement between the Registrant and John G.
Squires dated February 23, 1999 (a)                      
|10.6  |  | Salary Continuation Agreement between the Registrant and Dennis
Bedley dated February 26, 2003                            
|10.7  |  | Salary Continuation Agreement between the Registrant and Richard
Garner dated July 11, 2003                               
|10.8  |  | Salary Continuation Agreement between the Registrant and Joel
Whittenhall dated July 11, 2003                             
|10.9  |  | Lease Agreement dated April 22, 1998 between Marx Realty and
Improvement Co., Inc. and Registrant (a)                     
|10.10 |  | Lease Agreement dated November 30, 1998 between Patrick J.
Armstrong and Registrant(a)                                    
|10.11 |  | Electronic Data Processing Agreement dated August 12, 1998
between the Registrant and First Commerce Technologies, Inc.(a)
|10.12 |  | Restricted Stock Agreement made effective as of January 1, 1999
between the Registrant and Charlie W. Brinkley, Jr. (a)   
|10.13 |  | Purchase and Sale Agreement dated September 25, 2000 between Bank
of America, N.A. and Southern Community Bank (b)        
|10.14 |  | 2001 Equity Incentive Plan (e)                                                                                            
|10.15 |  | Agreement regarding Termination Benefits dated as of November 17,
2000 between the Registrant and Charlie Brinkley.       
|10.16 |  | Agreement regarding Termination Benefits dated as of November 20,
2000 between the Registrant and John Squires.           
|10.17 |  | Agreement regarding Termination Benefits dated as of June 6, 2002
between the Registrant and Dennis Bedley.               
|10.18 |  | Agreement regarding Termination Benefits dated as of June 6, 2002
between the Registrant and Richard Garner.              
|10.19 |  | Agreement regarding Termination Benefits dated as of June 6, 2002
between the Registrant and Joel Whittenhall.            
|21.1  |  | List of Subsidiaries of Registrant                                                                                        
|99.1  |  | Certification under Section 906 of Sarbanes Oxley Act of 2002                                                             



---

|(a) |  | Previously filed as an Exhibit to Southerns
Registration Statement on Form SB-2 (File No. 333-35548).
|--- |  | ------------------------------------------------------------------------------------------------------

49



---



##### 



|(b) |  | Previously filed as an Exhibit to Southerns
Quarterly Report on Form 10-QSB for the quarter ended September
30, 2000 (filed with the Commission on October 20, 2000).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(c) |  | Previously filed as an Exhibit to Southerns
quarterly report on Form 10-QSB for the Quarter ended March 31,
2001 (filed with the Commission on May 15, 2001).        

(B)  Reports on Form 8-K. None.

50



---



##### 



ITEM 14.           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.

51



---



##### 






SIGNATURES

In accordance with Section 13(a) or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

| |                            |  |                                                                            | 
| | -------------------------- |  | -------------------------------------------------------------------------- | 
| | SOUTHERN COMMUNITY BANCORP
| |                            | 
| | By:                        |  | /s/ Charlie W. Brinkley, Jr.                                              
| |                            |  |                                                                           
| |                            |  | Charlie W. Brinkley, Jr.
Chairman of the Board and
Chief Executive Officer

52



---



##### 



In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|                                                      |  |                                                                                 |  |               
|----------------------------------------------------- |  | ------------------------------------------------------------------------------- |  | --------------
|Name                                                  |  | Title                                                                           |  | Date          
|                                                      |  |                                                                                 |  |               
|/s/  Charlie W. Brinkley, Jr.Charlie W. Brinkley, Jr. |  | Chairman of the Board and
Chief Executive Officer
(Principal Executive
Officer) |  | March 12, 2003
|                                                     
|/s/  John G. SquiresJohn G. Squires                   |  | President, Chief
Financial Officer and
Director
(Principal Executive
Officer)   |  | March 12, 2003
|                                                     
|George D. Anderson                                    |  | Director                                                                        |  | March   , 2003
|                                                     
|/s/  Dennis G. BedleyDennis G. Bedley                 |  | Director                                                                        |  | March 12, 2003
|                                                     
|/s/  Alfred J. CinqueAlfred J. Cinque                 |  | Director                                                                        |  | March 12, 2003
|                                                     
|/s/  Thomas H. Dargan, Jr.Thomas H. Dargan, Jr.       |  | Director                                                                        |  | March 12, 2003
|                                                     
|/s/  P.T. FleuchausP.T. Fleuchaus                     |  | Director                                                                        |  | March 12, 2003
|                                                     
|/s/  Richard L. GarnerRichard L. Garner               |  | Director                                                                        |  | March 12, 2003
|                                                     
|/s/  Dennis E. GilkeyDennis E. Gilkey                 |  | Director                                                                        |  | March 12, 2003
|                                                     
|/s/  Jennings L. Hurt, IIIJennings L. Hurt, III       |  | Director                                                                        |  | March 12, 2003
|                                                     
|Clark D. Jensen                                       |  | Director                                                                        |  | March   , 2003
|                                                     
|/s/  Sanford MillerSanford Miller                     |  | Director                                                                        |  | March 12, 2003
|                                                     
|/s/  Sal A. NunziataSal A. Nunziata                   |  | Director                                                                        |  | March 12, 2003
|                                                     
|/s/  John K. RitenourJohn K. Ritenour                 |  | Director                                                                        |  | March 12, 2003
|                                                     
|Stanley H. Sandefur                                   |  | Director                                                                        |  | March   , 2003

53



---



##### 



|                                            |  |                                       |  |               
|------------------------------------------- |  | ------------------------------------- |  | --------------
|Name                                        |  | Title                                 |  | Date          
|                                            |  |                                       |  |               
|                                           
|Gregory K. Talbott                          |  | Director                              |  | March   , 2003
|                                           
|/s/  Joel E. WhittenhallJoel E. Whittenhall |  | Director                              |  | March 12, 2003
|                                           
|/s/  Stephen R. JeuckStephen R. Jeuck       |  | Controller
(Chief Accounting Officer) |  | March 12, 2003

54



---



##### 






CERTIFICATIONS

I, Charlie W. Brinkley, Jr., certify, that:



|1. |  | I have reviewed this annual report on Form 10-KSB of Southern
Community Bancorp;                                                                                                                                                                                                                                        
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual 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 annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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 annual 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 annual report (the Evaluation
Date); and                                                                                                  
|
| | (c) |  | presented in this annual 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 annual 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: |  | March 12, 2003 |  | By: |  | /s/ Charlie W. Brinkley                                                                                  
|      |  |                |  |     |  |                                                                                                          
|      |  |                |  |     |  | Charlie W. Brinkley, Jr., Chairman of
the Board and Chief Executive Officer
(Principal Executive Officer)

55



---



##### 



I, John G. Squires, certify, that:



|1. |  | I have reviewed this annual report on Form 10-KSB of Southern
Community Bancorp;                                                                                                                                                                                                                                        
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual 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 annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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 annual 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 annual report (the Evaluation
Date); and                                                                                                  
|
| | (c) |  | presented in this annual 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 annual 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.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|
|
|

56



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Index to Consolidated Financial Statements

|                                                                                                                                                    |  |      |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                    |  | Page
|                                                                                                                                                    |  |     
|Independent Auditors Report                                                                                                                        |  |      | F-2 | 
|Consolidated Balance Sheets, December 31, 2002 and 2001                                                                                             |  |      | F-3 | 
|Consolidated Statements of Operations for the Years Ended
December 31, 2002, 2001 and 2000                                                          |  |      | F-4 | 
|Consolidated Statements of Stockholders Equity for the
Years Ended December 31, 2002, 2001 and 2000                                                |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000                                                          |  |      | F-7 | 
|Notes to Consolidated Financial Statements at December 31, 2002 and 2001
and for Each of the Years in the Three-Year Period Ended
December 31, 2002 |  |      | F-9 | 

All schedules are omitted because of the absence of the conditions under
which they are required or because the required information is included in the
Consolidated Financial Statements and related Notes.

F-1



---



##### 



Independent Auditors Report

The Board of Directors
Southern Community Bancorp
Orlando, Florida:

We have audited the accompanying consolidated balance sheets of Southern
Community Bancorp and subsidiaries (the Company) at December 31, 2002 and
2001, and the related consolidated statements of operations, stockholders
equity and cash flows for each of the years in the three-year period ended
December 31, 2002. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 2002 and 2001, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2002,
in conformity with accounting principles generally accepted in the United
States of America.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill in
accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets.

HACKER, JOHNSON & SMITH PA
Orlando, Florida
January 24, 2003

F-2



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Consolidated Balance Sheets
($ in thousands, except per share amounts)

|                                                  |                                                                              |                                                                                                                                  |                                            |         |                 |         |      |         |         |         | 
|------------------------------------------------- | ---------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | --------------- | ------- | ---- | ------- | ------- | ------- | 
|                                                  |                                                                              |                                                                                                                                  |                                            |         | At December 31,
|                                                  |                                                                              |                                                                                                                                  |                                            |         |                
|                                                  |                                                                              |                                                                                                                                  |                                            |         | 2002            |         | 2001
|                                                  |                                                                              |                                                                                                                                  |                                            |         |                 |         |     
|                                                  |                                                                              | Assets                                                                                                                           |                                            |         |                 |         |      |         |         |        
|                                                  | Cash and due from banks                                                      |                                                                                                                                  | $                                          | 19,127  |                 |         |      | 14,490  |        
|                                                  | Interest-bearing deposits                                                    |                                                                                                                                  |                                            | 12,077  |                 |         |      | 135     |        
|                                                  | Federal funds sold                                                           |                                                                                                                                  |                                            | 4,519   |                 |         |      | 15,504  |        
|                                                  |                                                                              |                                                                                                                                  |                                            |         |                 |         |      |        
|                                                  |                                                                              |                                                                                                                                  | Cash and cash equivalents                  |         |                 | 35,723  |      |         |         | 30,129  | 
|                                                  | Securities available for sale                                                |                                                                                                                                  |                                            | 89,677  |                 |         |      | 41,472  |        
|                                                  | Securities held to maturity                                                  |                                                                                                                                  |                                            | 3,452   |                 |         |      |        |        
|                                                  | Loans, net of allowance for loan losses of
$6,262 in 2002 and $4,457 in 2001 |                                                                                                                                  |                                            | 500,267 |                 |         |      | 352,161 |        
|                                                  | Accrued interest receivable                                                  |                                                                                                                                  |                                            | 2,806   |                 |         |      | 2,083   |        
|                                                  | Federal Home Loan Bank stock, at cost                                        |                                                                                                                                  |                                            | 212     |                 |         |      | 212     |        
|                                                  | Premises and equipment, net                                                  |                                                                                                                                  |                                            | 18,852  |                 |         |      | 16,229  |        
|                                                  | Deferred income tax asset                                                    |                                                                                                                                  |                                            | 1,424   |                 |         |      | 1,236   |        
|                                                  | Foreclosed assets, net                                                       |                                                                                                                                  |                                            | 302     |                 |         |      | 907     |        
|                                                  | Cash surrender value of bank-owned life insurance                            |                                                                                                                                  |                                            | 4,954   |                 |         |      | 3,445   |        
|                                                  | Goodwill                                                                     |                                                                                                                                  |                                            | 971     |                 |         |      | 971     |        
|                                                  | Other assets                                                                 |                                                                                                                                  |                                            | 146     |                 |         |      | 282     |        
|                                                  |                                                                              |                                                                                                                                  |                                            |         |                 |         |      |        
|                                                  |                                                                              |                                                                                                                                  | Total assets                               |         | $               | 658,786 |      |         |         | 449,127 | 
|                                                  |                                                                              |                                                                                                                                  |                                            |         |                 |         |      |        
|                                                  |                                                                              | Liabilities and Stockholders Equity                                                                                             |                                            |         |                 |         |      |         |         |        
|                                                  | Liabilities:                                                                 |                                                                                                                                  |                                            |         |                 |         |      |         |        
|                                                  |                                                                              | Noninterest-bearing demand deposits                                                                                              |                                            |         | 59,313          |         |      |         | 37,397  |        
|                                                  |                                                                              | Money-market deposits                                                                                                            |                                            |         | 101,800         |         |      |         | 37,379  |        
|                                                  |                                                                              | Savings and NOW deposits                                                                                                         |                                            |         | 153,207         |         |      |         | 140,354 |        
|                                                  |                                                                              | Time deposits                                                                                                                    |                                            |         | 279,097         |         |      |         | 184,843 |        
|                                                  |                                                                              |                                                                                                                                  |                                            |         |                 |         |      |        
|                                                  |                                                                              | Total deposits                                                                                                                   |                                            |         | 593,417         |         |      |         | 399,973 |        
|                                                  |                                                                              | Other borrowings                                                                                                                 |                                            |         | 1,423           |         |      |         | 1,658   |        
|                                                  |                                                                              | Official checks                                                                                                                  |                                            |         | 3,787           |         |      |         | 3,308   |        
|                                                  |                                                                              | Other liabilities                                                                                                                |                                            |         | 2,060           |         |      |         | 1,840   |        
|                                                  |                                                                              |                                                                                                                                  |                                            |         |                 |         |      |        
|                                                  |                                                                              |                                                                                                                                  | Total liabilities                          |         |                 | 600,687 |      |         |         | 406,779 | 
|                                                  |                                                                              |                                                                                                                                  |                                            |         |                 |         |      |        
|Commitments and contingencies (Notes 4, 8 and 16) |                                                                              |                                                                                                                                  |                                            |         |                 |         |      |        
|Stockholders equity:                             |                                                                              |                                                                                                                                  |                                            |         |                 |         |      |        
|                                                  |                                                                              | Common stock, $1 par value, 10,000,000 shares authorized,
6,693,064 and 5,460,202 shares issued and outstanding
in 2002 and 2001 |                                            |         | 6,693           |         |      |         | 5,460   |        
|                                                  |                                                                              | Additional paid-in capital                                                                                                       |                                            |         | 49,654          |         |      |         | 38,206  |        
|                                                  |                                                                              | Retained earnings (accumulated deficit)                                                                                          |                                            |         | 795             |         |      |         | (1,406  | )      
|                                                  |                                                                              | Accumulated other comprehensive income                                                                                           |                                            |         | 957             |         |      |         | 88      |        
|                                                  |                                                                              |                                                                                                                                  |                                            |         |                 |         |      |        
|                                                  |                                                                              |                                                                                                                                  | Total stockholders equity                 |         |                 | 58,099  |      |         |         | 42,348  | 
|                                                  |                                                                              |                                                                                                                                  |                                            |         |                 |         |      |        
|                                                  |                                                                              |                                                                                                                                  | Total liabilities and stockholders equity |         | $               | 658,786 |      |         |         | 449,127 | 
|                                                  |                                                                              |                                                                                                                                  |                                            |         |                 |         |      |        

See accompanying Notes to Consolidated Financial Statements.

F-3



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Consolidated Statements of Operations
($ in thousands, except per share amounts)

|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |       |        |       |        | 
|--------------------------------------------------- | ------------------------------------------------- | ----------------------------- | --------------------------------------------- | ------------------------- | ------ | ----------------------- | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ----- | ------ | 
|                                                    |                                                   |                               |                                               |                           |        | Year Ended December 31,
|                                                    |                                                   |                               |                                               |                           |        |                        
|                                                    |                                                   |                               |                                               |                           |        | 2002                    |        | 2001  |        | 2000  
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |       
|Interest income:                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|                                                    |                                                   | Loans                         |                                               | $                         | 29,993 |                         |        |       | 21,455 |        |        |       | 10,702 |      
|                                                    |                                                   | Securities                    |                                               |                           | 2,597  |                         |        |       | 1,404  |        |        |       | 1,123  |      
|                                                    |                                                   | Other interest-earning assets |                                               |                           | 880    |                         |        |       | 1,573  |        |        |       | 687    |      
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|                                                    |                                                   |                               |                                               | Total interest income     |        |                         | 33,470 |       |        |        | 24,432 |       |        |       | 12,512 | 
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|Interest expense:                                   |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|                                                    |                                                   | Deposits                      |                                               |                           | 15,046 |                         |        |       | 14,339 |        |        |       | 6,149  |      
|                                                    |                                                   | Other borrowings              |                                               |                           | 26     |                         |        |       | 33     |        |        |       | 52     |      
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|                                                    |                                                   |                               |                                               | Total interest expense    |        |                         | 15,072 |       |        |        | 14,372 |       |        |       | 6,201  | 
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|Net interest income                                 |                                                   |                               | 18,398                                        |                           |        |                         | 10,060 |       |        |        | 6,311  |      
|                                                    |                                                   |                               |                                               | Provision for loan losses |        |                         | 2,405  |       |        |        | 2,351  |       |        |       | 1,174  | 
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|Net interest income after provision for loan losses |                                                   |                               | 15,993                                        |                           |        |                         | 7,709  |       |        |        | 5,137  |      
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|Noninterest income:                                 |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|                                                    | Service charges on deposit accounts               |                               |                                               | 624                       |        |                         |        | 372   |        |        |        | 266   |       
|                                                    | Other fees                                        |                               |                                               | 976                       |        |                         |        | 404   |        |        |        | 128   |       
|                                                    | Gain on the sale of securities available for sale |                               |                                               | 120                       |        |                         |        | 642   |        |        |        | 30    |       
|                                                    | Earnings on bank-owned life insurance             |                               |                                               | 204                       |        |                         |        | 166   |        |        |        | 84    |       
|                                                    | Other income                                      |                               |                                               | 673                       |        |                         |        | 270   |        |        |        | 87    |       
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|                                                    |                                                   |                               |                                               | Total noninterest income  |        |                         | 2,597  |       |        |        | 1,854  |       |        |       | 595    | 
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|Noninterest expenses:                               |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|                                                    | Salaries and employee benefits                    |                               |                                               | 7,998                     |        |                         |        | 5,307 |        |        |        | 2,035 |       
|                                                    | Occupancy expense                                 |                               |                                               | 2,982                     |        |                         |        | 1,926 |        |        |        | 980   |       
|                                                    | Preopening expenses                               |                               |                                               | 133                       |        |                         |        | 133   |        |        |        | 659   |       
|                                                    | Data processing                                   |                               |                                               | 1,019                     |        |                         |        | 727   |        |        |        | 287   |       
|                                                    | Printing and office supplies                      |                               |                                               | 375                       |        |                         |        | 312   |        |        |        | 164   |       
|                                                    | Marketing and advertising                         |                               |                                               | 381                       |        |                         |        | 276   |        |        |        | 211   |       
|                                                    | Professional fees                                 |                               |                                               | 554                       |        |                         |        | 474   |        |        |        | 175   |       
|                                                    | Other expense                                     |                               |                                               | 1,670                     |        |                         |        | 1,283 |        |        |        | 522   |       
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|                                                    |                                                   |                               | Total noninterest expenses                    |                           |        | 15,112                  |        |       |        | 10,438 |        |       |        | 5,033 |       
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|                                                    |                                                   |                               | Earnings (loss) before income taxes (benefit) |                           |        | 3,478                   |        |       |        | (875   | )      |       |        | 699   |       
|Income taxes (benefit)                              |                                                   |                               | 1,277                                         |                           |        |                         | (295   | )     |        |        | 299    |      
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|                                                    |                                                   |                               | Net earnings (loss)                           |                           | $      | 2,201                   |        |       |        | (580   | )      |       |        | 400   |       
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|Earnings (loss) per share:                          |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|                                                    | Basic                                             |                               | $                                             | .36                       |        |                         |        | (.12  | )      |        |        | .20   |       
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      
|                                                    | Diluted                                           |                               | $                                             | .35                       |        |                         |        | (.12  | )      |        |        | .20   |       
|                                                    |                                                   |                               |                                               |                           |        |                         |        |       |        |        |        |      

See accompanying Notes to Consolidated Financial Statements.

F-4



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Consolidated Statements of Stockholders Equity

Years Ended December 31, 2002, 2001 and 2000
($ in thousands)

|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |      |     | 
|---------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | -------------------- | --------- | ------------ |  | ------- | ----- | ------------ |  | -------- | ------ | ------------- |  | -------- | ------ | -------- | - | ------- | ---- | ----------- | - |  | ------ | ---- | --- | 
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      | Accumulated |   |  |        |     
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      | Other       |   |  |        |     
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        | Retained |   | Compre- |      |             |   | 
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        | Additional    |  | Earnings |        | hensive  |   | Total  
|                                                                                   |                                                                                    |                      |           | Common Stock |  | Paid-In |       | (Accumulated |  | Income   |        | Stockholders'
|                                                                                   |                                                                                    |                      |           | Shares       |  | Amount  |       | Capital      |  | Deficit) |        | (Loss)        |  | Equity  
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |         
|Balance at December 31, 1999                                                       |                                                                                    |                      | 884,425   |              |  | $       | 885   |              |  |          | 12,381 |               |  |          | (1,226 | )        |   |         | (201 | )           |   |  | 11,839 |     
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |     
|Comprehensive income:                                                              |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |     
|                                                                                   | Net earnings                                                                       |                      |           |             |  |         |       |             |  |          |        |              |  |          |        | 400      |   |         |      |            |   |  |        | 400  |    
|                                                                                   | Net change in unrealized gain on
securities available for sale, net of tax         |                      |           |             |  |         |       |             |  |          |        |              |  |          |        |         |   |         |      | 485         |   |  |        | 485  |    
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |     
|                                                                                   |                                                                                    | Comprehensive income |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |      | 885 | 
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |     
|Common stock issued as compensation                                                |                                                                                    |                      | 250       |              |  |         |      |              |  |          | 4      |               |  |          |       |          |   |         |     |             |   |  | 4      |     
|Sale of common stock in connection
with 401(k) Profit Sharing Plan                 |                                                                                    |                      | 5,155     |              |  |         | 5     |              |  |          | 72     |               |  |          |       |          |   |         |     |             |   |  | 77     |     
|Sale of common stock in connection
with Employee Stock Purchase Plan               |                                                                                    |                      | 986       |              |  |         | 1     |              |  |          | 14     |               |  |          |       |          |   |         |     |             |   |  | 15     |     
|Proceeds from common stock
offering, net of offering costs
of $152                 |                                                                                    |                      | 829,282   |              |  |         | 829   |              |  |          | 12,702 |               |  |          |       |          |   |         |     |             |   |  | 13,531 |     
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |     
|Balance at December 31, 2000                                                       |                                                                                    |                      | 1,720,098 |              |  |         | 1,720 |              |  |          | 25,173 |               |  |          | (826   | )        |   |         | 284  |             |   |  | 26,351 |     
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |     
|Comprehensive income (loss):                                                       |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |     
|                                                                                   | Net loss                                                                           |                      |           |             |  |         |       |             |  |          |        |              |  |          |        | (580     | ) |         |      |            |   |  |        | (580 | )  
|                                                                                   | Net change in unrealized gain on
securities available for sale, net of
tax benefit |                      |           |             |  |         |       |             |  |          |        |              |  |          |        |         |   |         |      | (196        | ) |  |        | (196 | )  
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |     
|Comprehensive income (loss)                                                        |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  | (776   | )   
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |     
|Common stock issued as
compensation                                                |                                                                                    |                      | 750       |              |  |         | 1     |              |  |          | 10     |               |  |          |       |          |   |         |     |             |   |  | 11     |     
|Sale of common stock in connection
with 401(k) Profit Sharing Plan                 |                                                                                    |                      | 7,816     |              |  |         | 8     |              |  |          | 109    |               |  |          |       |          |   |         |     |             |   |  | 117    |     
|Sale of common stock in connection
with Employee Stock Purchase Plan               |                                                                                    |                      | 5,548     |              |  |         | 5     |              |  |          | 79     |               |  |          |       |          |   |         |     |             |   |  | 84     |     
|Proceeds from common stock offering,
net of offering costs of $5                   |                                                                                    |                      | 66,001    |              |  |         | 66    |              |  |          | 1,018  |               |  |          |       |          |   |         |     |             |   |  | 1,084  |     
|Proceeds from private placement
common stock offering, net of
offering costs of $4 |                                                                                    |                      | 305,975   |              |  |         | 306   |              |  |          | 4,876  |               |  |          |       |          |   |         |     |             |   |  | 5,182  |     
|Common stock issued in connection with
merger with Peninsula Bancorp, Inc.         |                                                                                    |                      | 623,913   |              |  |         | 624   |              |  |          | 9,671  |               |  |          |       |          |   |         |     |             |   |  | 10,295 |     
|Two-for-one stock split                                                            |                                                                                    |                      | 2,730,101 |              |  |         | 2,730 |              |  |          | (2,730 | )             |  |          |       |          |   |         |     |             |   |  |       |     
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |     
|Balance at December 31, 2001                                                       |                                                                                    |                      | 5,460,202 |              |  | $       | 5,460 |              |  |          | 38,206 |               |  |          | (1,406 | )        |   |         | 88   |             |   |  | 42,348 |     
|                                                                                   |                                                                                    |                      |           |              |  |         |       |              |  |          |        |               |  |          |        |          |   |         |      |             |   |  |        |     

(continued)

F-5



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Consolidated Statements of Stockholders Equity, Continued

Years Ended December 31, 2002, 2001 and 2000
($ in thousands)

|                                                                     |                                                                            |                      |           |              |  |            |       |              |  |          |        |               |  |        |        |          |  |         |     |             |  |  |        |       |       | 
|-------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------- | --------- | ------------ |  | ---------- | ----- | ------------ |  | -------- | ------ | ------------- |  | ------ | ------ | -------- |  | ------- | --- | ----------- |  |  | ------ | ----- | ----- | 
|                                                                     |                                                                            |                      |           |              |  |            |       |              |  |          |        |               |  |        |        |          |  |         |     | Accumulated |  |  |        |      
|                                                                     |                                                                            |                      |           |              |  |            |       |              |  |          |        |               |  |        |        |          |  |         |     | Other       |  |  |        |      
|                                                                     |                                                                            |                      |           |              |  |            |       |              |  |          |        |               |  |        |        | Retained |  | Compre- |     |             |  | 
|                                                                     |                                                                            |                      |           | Common Stock |  | Additional |       | Earnings     |  | hensive  |        | Total        
|                                                                     |                                                                            |                      |           |              |  | Paid-In    |       | (Accumulated |  | Income   |        | Stockholders'
|                                                                     |                                                                            |                      |           | Shares       |  | Amount     |       | Capital      |  | Deficit) |        | (Loss)        |  | Equity
|                                                                     |                                                                            |                      |           |              |  |            |       |              |  |          |        |               |  |       
|Balance at December 31, 2001                                         |                                                                            |                      | 5,460,202 |              |  | $          | 5,460 |              |  |          | 38,206 |               |  |        | (1,406 | )        |  |         | 88  |             |  |  | 42,348 |      
|                                                                     |                                                                            |                      |           |              |  |            |       |              |  |          |        |               |  |        |        |          |  |         |     |             |  |  |        |      
|Comprehensive income:                                                |                                                                            |                      |           |              |  |            |       |              |  |          |        |               |  |        |        |          |  |         |     |             |  |  |        |      
|                                                                     | Net earnings                                                               |                      |           |             |  |            |       |             |  |          |        |              |  |        |        | 2,201    |  |         |     |            |  |  |        | 2,201 |      
|                                                                     | Net change in unrealized gain on
securities available for sale,
net of tax |                      |           |             |  |            |       |             |  |          |        |              |  |        |        |         |  |         |     | 869         |  |  |        | 869   |      
|                                                                     |                                                                            |                      |           |              |  |            |       |              |  |          |        |               |  |        |        |          |  |         |     |             |  |  |        |      
|                                                                     |                                                                            | Comprehensive income |           |              |  |            |       |              |  |          |        |               |  |        |        |          |  |         |     |             |  |  |        |       | 3,070 | 
|                                                                     |                                                                            |                      |           |              |  |            |       |              |  |          |        |               |  |        |        |          |  |         |     |             |  |  |        |      
|Common stock issued as compensation                                  |                                                                            |                      | 17,353    |              |  |            | 18    |              |  |          | 125    |               |  |        |       |          |  |         |    |             |  |  | 143    |      
|Sale of common stock in connection with
401(k) Profit Sharing Plan   |                                                                            |                      | 34,569    |              |  |            | 35    |              |  |          | 250    |               |  |        |       |          |  |         |    |             |  |  | 285    |      
|Sale of common stock in connection
with Employee Stock Purchase Plan |                                                                            |                      | 15,393    |              |  |            | 15    |              |  |          | 112    |               |  |        |       |          |  |         |    |             |  |  | 127    |      
|Sale of common stock in connection with
employment agreements        |                                                                            |                      | 14,500    |              |  |            | 14    |              |  |          | 109    |               |  |        |       |          |  |         |    |             |  |  | 123    |      
|Proceeds from common stock offering,
net of offering costs of $83    |                                                                            |                      | 1,151,047 |              |  |            | 1,151 |              |  |          | 10,852 |               |  |        |       |          |  |         |    |             |  |  | 12,003 |      
|                                                                     |                                                                            |                      |           |              |  |            |       |              |  |          |        |               |  |        |        |          |  |         |     |             |  |  |        |      
|Balance at December 31, 2002                                         |                                                                            |                      | 6,693,064 |              |  | $          | 6,693 |              |  |          | 49,654 |               |  |        | 795    |          |  |         | 957 |             |  |  | 58,099 |      
|                                                                     |                                                                            |                      |           |              |  |            |       |              |  |          |        |               |  |        |        |          |  |         |     |             |  |  |        |      

See accompanying Notes to Consolidated Financial Statements.

F-6



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(In thousands)

|                                               |                                                                                            |                                                          |                                           |          |                         |          |        |          |       |          |        |         |       |          |  
|---------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------------------- | ----------------------------------------- | -------- | ----------------------- | -------- | ------ | -------- | ----- | -------- | ------ | ------- | ----- | -------- | -
|                                               |                                                                                            |                                                          |                                           |          | Year Ended December 31,
|                                               |                                                                                            |                                                          |                                           |          |                        
|                                               |                                                                                            |                                                          |                                           |          | 2002                    |          | 2001   |          | 2000 
|                                               |                                                                                            |                                                          |                                           |          |                         |          |        |          |      
|Cash flows from operating activities:          |                                                                                            |                                                          |                                           |          |                         |          |        |          |       |          |        |        
|                                               | Net earnings (loss)                                                                        |                                                          | $                                         | 2,201    |                         |          |        | (580     | )     |          |        | 400     |      
|                                               | Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities: |                                                          |                                           |          |                         |          |        |          |       |          |        |         |      
|                                               |                                                                                            | Provision for loan losses                                |                                           |          | 2,405                   |          |        |          | 2,351 |          |        |         | 1,174 |         
|                                               |                                                                                            | Depreciation and amortization                            |                                           |          | 1,314                   |          |        |          | 774   |          |        |         | 346   |         
|                                               |                                                                                            | Amortization of goodwill                                 |                                           |          |                        |          |        |          | 35    |          |        |         |      |         
|                                               |                                                                                            | Deferred income taxes (benefit)                          |                                           |          | (658                    | )        |        |          | (881  | )        |        |         | 299   |         
|                                               |                                                                                            | Net amortization of deferred loan fees                   |                                           |          | (841                    | )        |        |          | (302  | )        |        |         |      |         
|                                               |                                                                                            | Net amortization of premiums and discounts on securities |                                           |          | 203                     |          |        |          | (29   | )        |        |         | (36   | )       
|                                               |                                                                                            | Common stock issued as compensation                      |                                           |          | 143                     |          |        |          | 11    |          |        |         | 4     |         
|                                               |                                                                                            | Gain on sale of securities available for sale            |                                           |          | (120                    | )        |        |          | (642  | )        |        |         | (30   | )       
|                                               |                                                                                            | Earnings on bank owned life insurance                    |                                           |          | (204                    | )        |        |          | (166  | )        |        |         | (84   | )       
|                                               |                                                                                            | Increase in accrued interest receivable                  |                                           |          | (723                    | )        |        |          | (659  | )        |        |         | (600  | )       
|                                               |                                                                                            | Decrease (increase) in other assets                      |                                           |          | 136                     |          |        |          | (53   | )        |        |         | (22   | )       
|                                               |                                                                                            | Increase in official checks                              |                                           |          | 479                     |          |        |          | 1,732 |          |        |         | 784   |         
|                                               |                                                                                            | Increase in other liabilities                            |                                           |          | 220                     |          |        |          | 886   |          |        |         | 491   |         
|                                               |                                                                                            |                                                          |                                           |          |                         |          |        |          |       |          |        |        
|                                               |                                                                                            |                                                          | Net cash provided by operating activities |          |                         | 4,555    |        |          |       | 2,477    |        |         |       | 2,726    |  
|                                               |                                                                                            |                                                          |                                           |          |                         |          |        |          |       |          |        |        
|Cash flows from investing activities:          |                                                                                            |                                                          |                                           |          |                         |          |        |          |       |          |        |        
|                                               | Purchase of bank owned life insurance                                                      |                                                          |                                           | (1,305   | )                       |          |        | (692     | )     |          |        | (2,503  | )    
|                                               | Proceeds from sale of securities available for sale                                        |                                                          |                                           | 23,247   |                         |          |        | 17,032   |       |          |        | 8,931   |      
|                                               | Maturities and repayments of securities available for sale                                 |                                                          |                                           | 28,932   |                         |          |        | 25,622   |       |          |        | 1,191   |      
|                                               | Purchases of securities available for sale                                                 |                                                          |                                           | (99,128  | )                       |          |        | (61,120  | )     |          |        | (16,057 | )    
|                                               | Purchase of securities held to maturity                                                    |                                                          |                                           | (3,452   | )                       |          |        |         |       |          |        |        |      
|                                               | Net increase in loans                                                                      |                                                          |                                           | (149,389 | )                       |          |        | (161,926 | )     |          |        | (90,546 | )    
|                                               | Purchases of premises and equipment                                                        |                                                          |                                           | (3,937   | )                       |          |        | (6,458   | )     |          |        | (5,733  | )    
|                                               | Net proceeds from sale of premises and equipment                                           |                                                          |                                           |         |                         |          |        | 1,215    |       |          |        |        |      
|                                               | Cash and cash equivalents acquired in connection with
merger with Peninsula Bancorp, Inc.  |                                                          |                                           |         |                         |          |        | 12,127   |       |          |        |        |      
|                                               | Proceeds from sale of foreclosed assets, net                                               |                                                          |                                           | 324      |                         |          |        | 283      |       |          |        |        |      
|                                               |                                                                                            |                                                          |                                           |          |                         |          |        |          |       |          |        |        
|                                               |                                                                                            |                                                          | Net cash used in investing activities     |          |                         | (204,708 | )      |          |       | (173,917 | )      |         |       | (104,717 | )
|                                               |                                                                                            |                                                          |                                           |          |                         |          |        |          |       |          |        |        
|Cash flows from financing activities:          |                                                                                            |                                                          |                                           |          |                         |          |        |          |       |          |        |        
|                                               | Net increase in deposits                                                                   |                                                          |                                           | 193,444  |                         |          |        | 167,588  |       |          |        | 117,162 |      
|                                               | Net (decrease) increase in other borrowings                                                |                                                          |                                           | (235     | )                       |          |        | 201      |       |          |        |        |      
|                                               | Net decrease in federal funds purchased                                                    |                                                          |                                           |         |                         |          |        |         |       |          |        | (6,000  | )    
|                                               | Proceeds from issuance of common stock, net                                                |                                                          |                                           | 12,538   |                         |          |        | 6,467    |       |          |        | 13,623  |      
|                                               |                                                                                            |                                                          |                                           |          |                         |          |        |          |       |          |        |        
|                                               |                                                                                            |                                                          | Net cash provided by financing activities |          |                         | 205,747  |        |          |       | 174,256  |        |         |       | 124,785  |  
|                                               |                                                                                            |                                                          |                                           |          |                         |          |        |          |       |          |        |        
|Net increase in cash and cash equivalents      |                                                                                            |                                                          | 5,594                                     |          |                         |          | 2,816  |          |       |          | 22,794 |        
|Cash and cash equivalents at beginning of year |                                                                                            |                                                          | 30,129                                    |          |                         |          | 27,313 |          |       |          | 4,519  |        
|                                               |                                                                                            |                                                          |                                           |          |                         |          |        |          |       |          |        |        
|Cash and cash equivalents at end of year       |                                                                                            | $                                                        | 35,723                                    |          |                         |          | 30,129 |          |       |          | 27,313 |        
|                                               |                                                                                            |                                                          |                                           |          |                         |          |        |          |       |          |        |        

(continued)

F-7



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued
(In thousands)

|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  |  |       |   | 
|-------------------------------------------------- | ------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | - | ----------------------- | - | ---- |  | ------ | ------ |  |  | ----- | - | 
|                                                   |                                             |                                                                                                                           |                                        |   | Year Ended December 31,
|                                                   |                                             |                                                                                                                           |                                        |   |                        
|                                                   |                                             |                                                                                                                           |                                        |   | 2002                    |   | 2001 |  | 2000  
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |       
|Supplemental disclosures of cash flow information: |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   | Cash paid during the year for:              |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  |  |      
|                                                   |                                             | Interest                                                                                                                  |                                        | $ | 15,121                  |   |      |  | 13,982 |        |  |  | 6,077 |  
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   |                                             | Income taxes                                                                                                              |                                        | $ | 1,641                   |   |      |  | 427    |        |  |  |      |  
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   | Noncash financing and investing activities: |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  |  |      
|                                                   |                                             | Net change in accumulated other comprehensive income,
unrealized gain (loss) on securities available for sale,
net of tax |                                        | $ | 869                     |   |      |  | (196   | )      |  |  | 485   |  
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   |                                             | Transfer of loans to foreclosed assets                                                                                    |                                        | $ | 439                     |   |      |  | 1,190  |        |  |  |      |  
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   |                                             | Loans originated on sales of foreclosed assets                                                                            |                                        | $ | 720                     |   |      |  |       |        |  |  |      |  
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   |                                             | Assets and liabilities acquired in connection with
Merger with Peninsula Bancorp, Inc. in 2001:                           |                                        |   |                         |   |      |  |        |        |  |  |       |  
|                                                   |                                             |                                                                                                                           | Securities available for sale          |   | $                       |  |      |  |        | 3,890  |  |  |       |  | 
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   |                                             |                                                                                                                           | Loans, net                             |   | $                       |  |      |  |        | 42,740 |  |  |       |  | 
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   |                                             |                                                                                                                           | Premises and equipment                 |   | $                       |  |      |  |        | 2,054  |  |  |       |  | 
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   |                                             |                                                                                                                           | Deposits                               |   | $                       |  |      |  |        | 50,160 |  |  |       |  | 
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   |                                             |                                                                                                                           | Other borrowings                       |   | $                       |  |      |  |        | 1,457  |  |  |       |  | 
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   |                                             |                                                                                                                           | Other assets, net of other liabilities |   | $                       |  |      |  |        | 95     |  |  |       |  | 
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   |                                             |                                                                                                                           | Goodwill                               |   | $                       |  |      |  |        | 1,006  |  |  |       |  | 
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 
|                                                   |                                             |                                                                                                                           | Common stock issued                    |   | $                       |  |      |  |        | 10,295 |  |  |       |  | 
|                                                   |                                             |                                                                                                                           |                                        |   |                         |   |      |  |        |        |  | 

See accompanying Notes to Consolidated Financial Statements.

F-8



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001 and For Each of the
Years in the Three-Year Period Ended December 31, 2002

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Summary of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |  | Organization.Southern Community Bancorp (the Holding Company)
is a multi-bank holding company and owns 100% of the outstanding
common stock of Southern Community Bank, Southern Community Bank
of Southwest Florida, Southern Community Bank, Atlantic and
Southern Community Bank of South Florida (collectively, the
Banks). Southern Community Bank of South Florida was formed in
June 2002 and commenced operations on August 5, 2002. Southern
Community Bank of Southwest Florida was formed in 2000 and
commenced operations on January 2, 2001. The Holding Company
acquired Southern Community Bank, Atlantic on April 30, 2001 in
connection with its acquisition of Peninsula Bancorp, Inc. (See
Note 18). Southern Community Bank, Atlantic, was known as
Peninsula Bank, prior to its name change in January 2002.
Southern Community Bank owns 100% of the outstanding common stock
of Southern Community Insurance Agency, Inc. (the Insurance
Agency) and 1600 East Robinson Street, Inc. In January 2001, the
Holding Company acquired a 50% equity interest in Southern
Community Bank Mortgage LLC (the Mortgage Company).
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  | The Holding Companys only business activity is the ownership of
the Banks and other subsidiaries. The Banks are state (Florida)
chartered commercial banks. The Banks offer a variety of
financial services to individual and corporate customers through
their fourteen banking offices located in Orange, Seminole,
Volusia, Lee, Collier, Broward and Palm Beach Counties, Florida.
The deposits of the Banks are insured by the Federal Deposit
Insurance Corporation. The Insurance Agency refers customers of
the Banks to insurance agencies for the purchase of insurance
products. It also has equity interests of 50% and 25% in two
title agencies. 1600 East Robinson Street, Inc. was formed in
2001 for the purpose of holding certain foreclosed assets and has
been inactive since selling these assets in 2002. The Mortgage
Company originates, processes and closes residential loans in
central Florida.                                                                                                                                                                                                                          
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  | Basis of Presentation.The accompanying consolidated financial
statements include the accounts of the Holding Company and its
subsidiaries (collectively, the Company). All significant
intercompany accounts and transactions have been eliminated in
consolidation. The accounting and reporting practices of the
Company conform to accounting principles generally accepted in
the United States of America and to general practices within the
banking industry. The following summarizes the more significant
of these policies and practices:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  | Use of Estimates.In preparing consolidated financial statements
in conformity with accounting principles generally accepted in
the United States of America, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to
significant change in the near term relate to the determination
of the allowance for loan losses and deferred tax assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

(continued)

F-9



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##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Summary of Significant Accounting Policies, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  | Cash and Cash Equivalents.For purposes of the consolidated
statements of cash flows, cash and cash equivalents include cash
and balances due from banks and federal funds sold, all of which
mature within ninety days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  | The Banks are required by law or regulation to maintain cash
reserves in the form of vault cash or in a noninterest-earning
account with the Federal Reserve Bank or in noninterest-earning
accounts with other qualified banks. These reserve balances at
December 31, 2002 and 2001 were approximately $1.2 million and
$670,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  | Securities.The Company may classify its securities as either
trading, held to maturity or available for sale. Trading
securities are held principally for resale and recorded at their
fair values. Unrealized gains and losses on trading securities
are included immediately in operations. Held-to-maturity
securities are those which the Company has the positive intent
and ability to hold to maturity and are reported at amortized
cost. Available-for-sale securities consist of securities not
classified as trading securities nor as held-to-maturity
securities. Unrealized holding gains and losses, net of tax, on
available-for-sale securities are excluded from operations and
reported in other comprehensive income (loss). Gains and losses
on the sale of available-for-sale securities are recorded on the
trade date and are determined using the specific-identification
method. Premiums and discounts on securities are recognized in
interest income using the interest method over the period to
maturity.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  | Loans.Loans that management has the intent and the Company has
the ability to hold for the foreseeable future or until maturity
or pay-off are reported at their outstanding principal adjusted
for any charge-offs, the allowance for loan losses, and any
deferred fees or costs on originated loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  | Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the
related loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  | The accrual of interest on loans is discontinued at the time the
loan is ninety days delinquent unless the loan is well
collateralized and in process of collection. In all cases, loans
are placed on nonaccrual or charged-off at an earlier date if
collection of principal or interest is considered doubtful.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  | All interest accrued but not collected for loans that are placed
on nonaccrual or charged-off is reversed against interest income.
The interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual.
Loans are returned to accrual status when all the principal and
interest amounts contractually due are brought current and future
payments are reasonably assured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  | Allowance for Loan Losses.The allowance for loan losses is
established as losses are estimated to have occurred through a
provision for loan losses charged to operations. Loan losses are
charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

(continued)

F-10



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Summary of Significant Accounting Policies, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |  | Allowance for Loan Losses, Continued.The allowance for loan
losses is evaluated on a regular basis by management and is based
upon managements periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of
the loan portfolio, adverse situations that may affect the
borrowers ability to repay, estimated value of any underlying
collateral and prevailing economic conditions. This evaluation is
inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes
available.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |  | A loan is considered impaired when, based on current information
and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors
considered by management in determining impairment include
payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all
of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the
borrowers prior payment record, and the amount of the shortfall
in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and commercial
real estate loans by either the present value of expected future
cash flows discounted at the loans effective interest rate, the
loans obtainable market price, or the fair value of the
collateral if the loan is collateral dependent.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |  | Large groups of smaller balance homogeneous loans are
collectively evaluated for impairment. Accordingly, the Company
does not separately identify individual consumer and residential
loans for impairment disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |  | Foreclosed Assets.Assets acquired through, or in lieu of, loan
foreclosure are held for sale and are initially recorded at the
lower of fair value or the loan balance at the date of
foreclosure, establishing a new cost basis. Subsequent to
foreclosure, valuations are periodically performed by management
and the assets are carried at the lower of carrying amount or
fair value less cost to sell.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |  | Premises and Equipment.Land is carried at cost. Buildings,
leasehold improvements and furniture and equipment are carried at
cost, less accumulated depreciation and amortization computed
principally using the straight-line method over the estimated
useful lives of the assets. The Company amortizes leasehold
improvements over the lease term, which could include lease
renewal periods, if it is the intent of management to exercise
the renewal option on the lease. The Company capitalizes interest
during the construction period of major capital projects such as
the construction of office facilities. Interest costs capitalized
were approximately $44,000, $103,000 and $144,000 during the
years ended December 31, 2002, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |  | Goodwill.Goodwill resulted from the purchase of Peninsula
Bancorp, Inc. in 2001 and represents the excess of the
acquisition cost over the fair value of the net assets acquired.
Prior to January 1, 2002, goodwill was amortized on the
straight-line method over twenty years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

(continued)

F-11



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##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Summary of Significant Accounting Policies, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |  | Goodwill, Continued.In July 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS
142). SFAS 142 requires goodwill to be tested for impairment on
an annual basis and between annual tests in certain
circumstances, and written down when impaired, rather than being
amortized as previous accounting standards required. Furthermore,
SFAS 142 requires purchased intangible assets other than goodwill
to be amortized over their useful lives unless these lives are
determined to be indefinite. SFAS 142 is effective for fiscal
years beginning after December 15, 2001. In accordance with SFAS
142, the Company ceased amortizing goodwill totaling $971,000 as
of January 1, 2002. Based on the impairment tests performed,
there was no impairment of goodwill in 2002. There can be no
assurance that future goodwill impairment tests will not result
in a charge to earnings.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |  | The following table presents the impact of SFAS 142 on net
earnings (loss) had the accounting standard been in effect for
the years ended December 31, 2001 and 2000 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                  |                          |   |                          |     |      |  |     |   | 
|--------------------------------- | ------------------------ | - | ------------------------ | --- | ---- |  | --- | - | 
|                                  |                          |   | Year Ending December 31,
|                                  |                          |   |                         
|                                  |                          |   | 2001                     |     | 2000
|                                  |                          |   |                          |     |     
|Net earnings (loss)  as reported |                          | $ | (580                     | )   |      |  | 400 |  
|Adjustments:                      |                          |   |                          |     |      |  |     |  
|                                  | Amortization of goodwill |   |                          | 35  |      |  |     |  | 
|                                  | Income tax benefit       |   |                          | (13 | )    |  |     |  | 
|                                  |                          |   |                          |     |      |  |     |  
|Net earnings (loss)  adjusted    |                          | $ | (558                     | )   |      |  | 400 |  
|                                  |                          |   |                          |     |      |  |     |  

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The effect on basic and diluted earnings per share in 2001 was
not material                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Transfer of Financial Assets.Transfers of financial assets are
accounted for as sales, when control over the assets has been
surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the
Company, (2) the transferee obtains the right (free of conditions
that constrain it from taking advantage of that right) to pledge
or exchange the transferred assets, and (3) the Company does not
maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Income Taxes.Deferred income tax assets and liabilities are
recorded to reflect the tax consequences on future years of
temporary differences between revenues and expenses reported for
financial statement and those reported for income tax purposes.
Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
realized or settled. Valuation allowances are provided against
assets which are not likely to be realized                      
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | The Holding Company and its subsidiaries file a consolidated
income tax return. Income taxes are allocated to the Holding
Company and the subsidiaries as though separate income tax
returns were filed                                                                                                                                                                                                                                                                                                                                                                       

(continued)

F-12



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##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Summary of Significant Accounting Policies, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |  | Organizational and Preopening Costs.Preopening and
organizational costs associated with Southern Community Bank of
South Florida totaled approximately $83,000 in both 2002 and 2001
(net of tax benefits of approximately $50,000 for both periods)
and were charged to expense as incurred during the organizational
period during those years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |  | Preopening and organizational costs associated with Southern
Community Bank of Southwest Florida totaled approximately
$419,000 (net of tax benefit of approximately $240,000) and were
charged to expense as incurred during the organization period in
2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |  | Stock Compensation Plans.Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for
Stock-Based Compensation Transition and Disclosure (collectively
SFAS No. 123) encourages all entities to adopt a fair value
based method of accounting for employee stock compensation plans,
whereby compensation cost is measured at the grant date based on
the value of the award and is recognized over the service period,
which is usually the vesting period. However, it also allows an
entity to continue to measure compensation cost for those plans
using the intrinsic value based method of accounting prescribed
by Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB No. 25), whereby compensation
cost is the excess, if any, of the quoted market price of the
stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock. Stock options
issued under the Companys stock option plan have no intrinsic
value at the grant date, and under APB No. 25 no compensation
cost is recognized for them. The Company has elected to continue
with the accounting methodology in APB No. 25 and, as a result,
has provided proforma disclosures of net earnings (loss),
earnings (loss) per share and other disclosures, as if the fair
value based method of accounting had been applied.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |  | Off-Balance Sheet Instruments.In the ordinary course of
business, the Company has entered into off-balance-sheet
instruments consisting of commitments to extend credit, standby
letters of credit, undisbursed loans in process and unused lines
of credit. Such financial instruments are recorded in the
consolidated financial statements when they are funded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |  | Fair Values of Financial Instruments.The fair value of a
financial instrument is the current amount that would be
exchanged between willing parties, other than in a forced
liquidation. Fair value is best determined based upon quoted
market prices. However, in many instances, there are no quoted
market prices for the Companys various financial instruments. In
cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of
future cash flows. Accordingly, the fair value estimates may not
be realized in an immediate settlement of the instrument or may
not necessarily represent the underlying fair value of the
Company. The following methods and assumptions were used by the
Company in estimating fair values of financial instruments
disclosed herein:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |  | Cash and Cash Equivalents.The carrying amounts of cash and cash
equivalents approximate their fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |  | Securities.Fair values for securities are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

(continued)

F-13



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Summary of Significant Accounting Policies, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |  | Fair Values of Financial Instruments, Continued.
Federal Home Loan Bank Stock.Fair value of the Companys
investment in Federal Home Loan Bank stock is based on its
redemption value, which is its cost of $100 per share                                                                                                                                                                                                                                                                                                                                                                 
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | Loans.For variable-rate loans that reprice frequently and have
no significant change in credit risk, fair values are based on
carrying values. Fair values for certain fixed-rate mortgage
(e.g. one-to-four family residential), commercial real estate and
commercial loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. Fair
values for nonperforming loans are estimated using discounted
cash flow analyses or underlying collateral values, where
applicable.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | Deposit Liabilities.The fair values disclosed for demand, NOW,
money-market and savings deposits are, by definition, equal to
the amount payable on demand at the reporting date (that is,
their carrying amounts). Fair values for fixed-rate certificates
of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly
maturities of time deposits.                                                                                                                
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | Accrued Interest.The carrying amounts of accrued interest
approximate their fair values.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | Other Borrowings.The carrying value of borrowings related to
customer repurchase agreements approximate fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | Off-Balance-Sheet Instruments.Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter
into similar agreements, taking into account the remaining terms
of the agreements and the counterparties credit standing.                                                                                                                                                                                                                                                                                                                               
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | Advertising.The Company expenses all media advertising as
incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  | Earnings (Loss) Per Share.Basic earnings (loss) per share is
computed on the basis of the weighted-average number of common
shares outstanding. For 2002 and 2000 diluted earnings per share
is computed based on the weighted-average number of shares
outstanding plus the effect of outstanding stock options,
computed using the treasury stock method. For 2001 such options
were antidilutive. Earnings (loss) per common share have been
computed based on the following:                                                                                                           

|                                                                                                         |  |                         |           |      |  |      |           |  |  |  |           | 
|-------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                                                                                         |  | Year Ended December 31,
|                                                                                                         |  |                        
|                                                                                                         |  | 2002                    |           | 2001 |  | 2000
|                                                                                                         |  |                         |           |      |  |     
|Weighted-average number of common
shares outstanding used to calculate
basic earnings per common share   |  |                         | 6,121,395 |      |  |      | 4,717,487 |  |  |  | 1,989,182 | 
|Effect of dilutive stock options                                                                         |  |                         | 222,118   |      |  |      |          |  |  |  | 30,910    | 
|                                                                                                         |  |                         |           |      |  |      |           |  |  |  |           | 
|Weighted-average number of common
shares outstanding used to calculate
diluted earnings per common share |  |                         | 6,343,513 |      |  |      | 4,717,487 |  |  |  | 2,020,092 | 
|                                                                                                         |  |                         |           |      |  |      |           |  |  |  |           | 

(continued)

F-14



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Summary of Significant Accounting Policies, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |  | Comprehensive Income (Loss).Accounting principles generally
require that recognized revenue, expenses, gains and losses be
included in net earnings (loss). Although certain changes in
assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate
component of the equity section of the balance sheet, such items
along with net earnings (loss), are components of comprehensive
income (loss). The components of other comprehensive income and
related tax effects are as follows (in thousands):

|                              |                                                                |   |        |       |        |  |       |      |   |  |      |      |  
|----------------------------- | -------------------------------------------------------------- | - | ------ | ----- | ------ |  | ----- | ---- | - |  | ---- | ---- | -
|                              |                                                                |   | Before |       | Tax    |  | After
|                              |                                                                |   | Tax    |       | Effect |  | Tax  
|                              |                                                                |   |        |       |        |  |      
|Year Ended December 31, 2002: |                                                                |   |        |       |        |  |       |      |   |  |      |     
|                              | Unrealized holding gains                                       |   | $      | 1,459 |        |  |       | 515  |   |  |      | 944  |  
|                              | Reclassification adjustment for gains included
in net earnings |   |        | (120  | )      |  |       | (45  | ) |  |      | (75  | )
|                              |                                                                |   |        |       |        |  |       |      |   |  |      |     
|                              |                                                                | $ | 1,339  |       |        |  | 470   |      |   |  | 869  |     
|                              |                                                                |   |        |       |        |  |       |      |   |  |      |     
|Year Ended December 31, 2001: |                                                                |   |        |       |        |  |       |      |   |  |      |     
|                              | Unrealized holding gains                                       |   |        | 341   |        |  |       | 123  |   |  |      | 218  |  
|                              | Reclassification adjustment for gains included
in net loss     |   |        | (642  | )      |  |       | (228 | ) |  |      | (414 | )
|                              |                                                                |   |        |       |        |  |       |      |   |  |      |     
|                              |                                                                | $ | (301   | )     |        |  | (105  | )    |   |  | (196 | )   
|                              |                                                                |   |        |       |        |  |       |      |   |  |      |     
|Year Ended December 31, 2000: |                                                                |   |        |       |        |  |       |      |   |  |      |     
|                              | Unrealized holding gains                                       |   |        | 777   |        |  |       | 272  |   |  |      | 505  |  
|                              | Reclassification adjustment for gains included
in net earnings |   |        | (30   | )      |  |       | (10  | ) |  |      | (20  | )
|                              |                                                                |   |        |       |        |  |       |      |   |  |      |     
|                              |                                                                | $ | 747    |       |        |  | 262   |      |   |  | 485  |     
|                              |                                                                |   |        |       |        |  |       |      |   |  |      |     

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recent Pronouncements.In November 2002, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to
Others (FIN 45), which expands previously issued accounting
guidance and disclosure requirements for certain guarantees. FIN
45 requires the Company to recognize an initial liability for the
fair value of an obligation assumed by issuing a guarantee. The
provision for initial recognition and measurement of the
liability will be applied on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of FIN
45 is not expected to materially affect the consolidated
financial statements
|
| |  | Reclassifications.Certain reclassifications have been made to
prior period balances in order to conform to the current year
presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

(continued)

F-15



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|    |  |                                                                                                                                                                               
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Securities                                                                                                                                                                    
|    |  | Securities have been classified according to managements intent.
The carrying amount of securities and their approximate fair
value are summarized as follows (in thousands):

|                   |                     |                                   |       |   |           |        |            |  |            |       |       |  |      |   |  |  |        |        | 
|------------------ | ------------------- | --------------------------------- | ----- | - | --------- | ------ | ---------- |  | ---------- | ----- | ----- |  | ---- | - |  |  | ------ | ------ | 
|                   |                     |                                   |       |   |           |        |            |  | Gross      |       | Gross |  |      |   | 
|                   |                     |                                   |       |   | Amortized |        | Unrealized |  | Unrealized |       | Fair 
|                   |                     |                                   |       |   | Cost      |        | Gains      |  | Losses     |       | Value
|                   |                     |                                   |       |   |           |        |            |  |            |       |      
|December 31, 2002: |                     |                                   |       |   |           |        |            |  |            |       |       |  |      |   |  | 
|                   | Available for Sale: |                                   |       |   |           |        |            |  |            |       |       |  |      |   |  |  |       
|                   |                     | U.S. government agency securities |       | $ | 30,629    |        |            |  | 632        |       |       |  |     |   |  |  | 31,261 |       
|                   |                     | Mortgage-backed securities        |       |   | 57,324    |        |            |  | 833        |       |       |  |     |   |  |  | 58,157 |       
|                   |                     | Municipal bonds                   |       |   | 250       |        |            |  | 9          |       |       |  |     |   |  |  | 259    |       
|                   |                     |                                   |       |   |           |        |            |  |            |       |       |  |      |   |  | 
|                   |                     |                                   | Total |   | $         | 88,203 |            |  |            | 1,474 |       |  |      |  |  |  |        | 89,677 | 
|                   |                     |                                   |       |   |           |        |            |  |            |       |       |  |      |   |  | 
|                   | Held to Maturity -  |                                   |       |   |           |        |            |  |            |       |       |  |      |   |  |  |       
|                   |                     | Mortgage-backed security          |       | $ | 3,452     |        |            |  |           |       |       |  |     |   |  |  | 3,452  |       
|                   |                     |                                   |       |   |           |        |            |  |            |       |       |  |      |   |  | 
|December 31, 2001- |                     |                                   |       |   |           |        |            |  |            |       |       |  |      |   |  | 
|                   | Available for Sale- |                                   |       |   |           |        |            |  |            |       |       |  |      |   |  |  |       
|                   |                     | U.S. government agency securities |       | $ | 41,337    |        |            |  | 269        |       |       |  | (134 | ) |  |  | 41,472 |       
|                   |                     |                                   |       |   |           |        |            |  |            |       |       |  |      |   |  | 

|                                                                               
|-------------------------------------------------------------------------------
|The following summarizes sales of securities available for sale (in thousands):

|                    |  |                         |        |      |  |      |        |   |  |  |       | 
|------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  |  | ----- | 
|                    |  | Year Ended December 31,
|                    |  |                        
|                    |  | 2002                    |        | 2001 |  | 2000
|                    |  |                         |        |      |  |     
|Proceeds from sales |  | $                       | 23,247 |      |  |      | 17,032 |   |  |  | 8,931 | 
|                    |  |                         |        |      |  |      |        |   |  |  |       | 
|Gross gains         |  |                         | 120    |      |  |      | 644    |   |  |  | 30    | 
|Gross losses        |  |                         |       |      |  |      | (2     | ) |  |  |      | 
|                    |  |                         |        |      |  |      |        |   |  |  |       | 
|Net gain            |  | $                       | 120    |      |  |      | 642    |   |  |  | 30    | 
|                    |  |                         |        |      |  |      |        |   |  |  |       | 

(continued)

F-16



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|    |  |                                                                                           
|--- |  | ------------------------------------------------------------------------------------------
|(2) |  | Securities, Continued                                                                     
|    |  | The scheduled maturities of securities at December 31, 2002 are
as follows (in thousands):

|                            |  |                    |        |                  |  |      |        |           |  |  |       |  |  |  |       | 
|--------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | --------- |  |  | ----- |  |  |  | ----- | 
|                            |  | Available for Sale |        | Held to Maturity
|                            |  |                    |        |                 
|                            |  | Fair               |        | Amortized        |  | Fair |        | Amortized
|                            |  | Cost               |        | Value            |  | Cost |        | Value    
|                            |  |                    |        |                  |  |      |        |          
|Due in less than one year   |  | $                  | 1,200  |                  |  |      | 1,205  |           |  |  |      |  |  |  |      | 
|Due from one to five years  |  |                    | 19,213 |                  |  |      | 19,759 |           |  |  |      |  |  |  |      | 
|Due from five to ten years  |  |                    | 10,216 |                  |  |      | 10,297 |           |  |  |      |  |  |  |      | 
|Due more than ten years     |  |                    | 250    |                  |  |      | 259    |           |  |  |      |  |  |  |      | 
|Mortgaged-backed securities |  |                    | 57,324 |                  |  |      | 58,157 |           |  |  | 3,452 |  |  |  | 3,452 | 
|                            |  |                    |        |                  |  |      |        |           |  |  |       |  |  |  |       | 
|                            |  | $                  | 88,203 |                  |  |      | 89,677 |           |  |  | 3,452 |  |  |  | 3,452 | 
|                            |  |                    |        |                  |  |      |        |           |  |  |       |  |  |  |       | 

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | At December 31, 2002 and 2001, the Company had pledged securities
with carrying values of approximately $3.3 million and $3.1
million, respectively, for public deposits. In addition, at
December 31, 2002 and 2001, securities with carrying values of
approximately $3.6 million and $1.8 million, respectively, had
been pledged as collateral for borrowings under customer
repurchase agreements.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|(3) |  | Loans                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  | The components of loans were as follows (in thousands):                                                                                                                                                                                                                                                                                                                                                

|                        |                                            |             |         |                 |         |      |         |        |         | 
|----------------------- | ------------------------------------------ | ----------- | ------- | --------------- | ------- | ---- | ------- | ------ | ------- | 
|                        |                                            |             |         | At December 31,
|                        |                                            |             |         |                
|                        |                                            |             |         | 2002            |         | 2001
|                        |                                            |             |         |                 |         |     
|Commercial real estate  |                                            | $           | 208,622 |                 |         |      | 113,805 |       
|Construction            |                                            |             | 121,153 |                 |         |      | 118,177 |       
|Commercial              |                                            |             | 117,586 |                 |         |      | 88,088  |       
|Residential real estate |                                            |             | 49,029  |                 |         |      | 27,171  |       
|Consumer and other      |                                            |             | 12,437  |                 |         |      | 11,629  |       
|                        |                                            |             |         |                 |         |      |         |       
|                        |                                            | Total loans |         |                 | 508,827 |      |         |        | 358,870 | 
|Less:                   |                                            |             |         |                 |         |      |         |       
|                        | Allowance for loan losses                  |             |         | (6,262          | )       |      |         | (4,457 | )      
|                        | Net deferred loan fees and other discounts |             |         | (2,298          | )       |      |         | (2,252 | )      
|                        |                                            |             |         |                 |         |      |         |       
|                        |                                            | Loans, net  |         | $               | 500,267 |      |         |        | 352,161 | 
|                        |                                            |             |         |                 |         |      |         |       

(continued)

F-17



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|    |  |                                                                                            
|--- |  | -------------------------------------------------------------------------------------------
|(3) |  | Loans, Continued                                                                           
|    |  | The following is a summary of the activity in the allowance for loan
losses (in thousands):

|                                |  |                         |       |      |  |      |       |   |  |  |       | 
|------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | 
|                                |  | Year Ended December 31,
|                                |  |                        
|                                |  | 2002                    |       | 2001 |  | 2000
|                                |  |                         |       |      |  |     
|Allowance, at beginning of year |  | $                       | 4,457 |      |  |      | 1,795 |   |  |  | 621   | 
|Provision for loan losses       |  |                         | 2,405 |      |  |      | 2,351 |   |  |  | 1,174 | 
|Charge-offs, net                |  |                         | (600  | )    |  |      | (226  | ) |  |  |      | 
|Allowance acquired upon merger  |  |                         |      |      |  |      | 537   |   |  |  |      | 
|                                |  |                         |       |      |  |      |       |   |  |  |       | 
|Allowance, at end of year       |  | $                       | 6,262 |      |  |      | 4,457 |   |  |  | 1,795 | 
|                                |  |                         |       |      |  |      |       |   |  |  |       | 

| |  |                                                                                                              
| |  | -------------------------------------------------------------------------------------------------------------
| |  | The following summarizes the amounts of impaired loans, all of
which are collateral dependent (in thousands):

|                              |                                                        |   |                 |     |      |  |       |       |  
|----------------------------- | ------------------------------------------------------ | - | --------------- | --- | ---- |  | ----- | ----- | -
|                              |                                                        |   | At December 31,
|                              |                                                        |   |                
|                              |                                                        |   | 2002            |     | 2001
|                              |                                                        |   |                 |     |     
|Loans identified as impaired: |                                                        |   |                 |     |      |  |       |      
|                              | Gross loans with no related allowance for losses       |   | $               |    |      |  |       |      |  
|                              | Gross loans with related allowance for losses recorded |   |                 | 900 |      |  |       | 2,307 |  
|                              | Less: Allowances on these loans                        |   |                 | (45 | )    |  |       | (186  | )
|                              |                                                        |   |                 |     |      |  |       |      
|                              |                                                        | $ | 855             |     |      |  | 2,121 |      
|                              |                                                        |   |                 |     |      |  |       |      

| |  |                                                                                                                                          
| |  | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | The average net investment in impaired loans and interest income
recognized and received on impaired loans was as follows (in
thousands):

|                                             |  |                         |       |      |  |      |       |  |  |  |     | 
|-------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  |  | --- | 
|                                             |  | Year Ended December 31,
|                                             |  |                        
|                                             |  | 2002                    |       | 2001 |  | 2000
|                                             |  |                         |       |      |  |     
|Average net investment in impaired loans     |  | $                       | 1,610 |      |  |      | 2,384 |  |  |  | 352 | 
|                                             |  |                         |       |      |  |      |       |  |  |  |     | 
|Interest income recognized on impaired loans |  | $                       |      |      |  |      | 80    |  |  |  | 22  | 
|                                             |  |                         |       |      |  |      |       |  |  |  |     | 
|Interest income received on impaired loans   |  | $                       |      |      |  |      | 80    |  |  |  | 22  | 
|                                             |  |                         |       |      |  |      |       |  |  |  |     | 

| |  |                                                              
| |  | -------------------------------------------------------------
| |  | Nonaccrual and past due loans were as follows (in thousands):

|                                                 |  |                 |       |      |  |  |       | 
|------------------------------------------------ |  | --------------- | ----- | ---- |  |  | ----- | 
|                                                 |  | At December 31,
|                                                 |  |                
|                                                 |  | 2002            |       | 2001
|                                                 |  |                 |       |     
|Nonaccrual loans                                 |  | $               | 3,154 |      |  |  | 2,588 | 
|Past due ninety days or more, but still accruing |  |                 | 126   |      |  |  | 1,200 | 
|                                                 |  |                 |       |      |  |  |       | 
|                                                 |  | $               | 3,280 |      |  |  | 3,788 | 
|                                                 |  |                 |       |      |  |  |       | 

(continued)

F-18



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|    |  |                                                       
|--- |  | ------------------------------------------------------
|(4) |  | Premises and Equipment                                
|    |  | Premises and equipment were as follows (in thousands):

|                                               |                         |                             |        |                 |        |      |        |       |        | 
|---------------------------------------------- | ----------------------- | --------------------------- | ------ | --------------- | ------ | ---- | ------ | ----- | ------ | 
|                                               |                         |                             |        | At December 31,
|                                               |                         |                             |        |                
|                                               |                         |                             |        | 2002            |        | 2001
|                                               |                         |                             |        |                 |        |     
|                                               | Land                    |                             | $      | 4,193           |        |      |        | 4,193 |       
|                                               | Buildings               |                             |        | 9,277           |        |      |        | 6,891 |       
|                                               | Leasehold improvements  |                             |        | 2,669           |        |      |        | 2,564 |       
|                                               | Furniture and equipment |                             |        | 5,337           |        |      |        | 3,891 |       
|                                               |                         |                             |        |                 |        |      |        |      
|                                               |                         | Total, at cost              |        |                 | 21,476 |      |        |       | 17,539 | 
|Less accumulated depreciation and amortization |                         |                             | (2,624 | )               |        |      | (1,310 | )    
|                                               |                         |                             |        |                 |        |      |        |      
|                                               |                         | Premises and equipment, net |        | $               | 18,852 |      |        |       | 16,229 | 
|                                               |                         |                             |        |                 |        |      |        |      

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company leases certain office facilities under operating
leases. Some of the leases contain escalation clauses and expense
pass-throughs and have renewal options ranging from 5 to 15
years. Rent expense under operating leases for the years ended
December 31, 2002, 2001 and 2000 was approximately $855,000,
$606,000 and $396,000, respectively. Future minimum rental
commitments under noncancelable leases are approximately as
follows (in thousands):

|                         |  |        |       | 
|------------------------ |  | ------ | ----- | 
|Year Ending December 31: |  | Amount
|                         |  |       
|2003                     |  | $      | 871   | 
|2004                     |  |        | 812   | 
|2005                     |  |        | 829   | 
|2006                     |  |        | 796   | 
|2007                     |  |        | 698   | 
|Thereafter               |  |        | 741   | 
|                         |  |        |       | 
|                         |  | $      | 4,747 | 
|                         |  |        |       | 

|    |  |                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) |  | Deposits                                                                                                                                                                       
|    |  | The aggregate amount of time deposits with a minimum denomination
of $100,000, were approximately $124.7 million and $88.2 million
at December 31, 2002 and 2001, respectively.
|    |  |                                                                                                                                                                                
|    |  | At December 31, 2002, the scheduled maturities of time deposits
were as follows (in thousands):                                                                                

|                         |  |        |         | 
|------------------------ |  | ------ | ------- | 
|Year Ending December 31, |  | Amount
|                         |  |       
|2003                     |  | $      | 118,754 | 
|2004                     |  |        | 110,283 | 
|2005                     |  |        | 47,278  | 
|2006                     |  |        | 1,445   | 
|2007                     |  |        | 1,337   | 
|                         |  |        |         | 
|                         |  | $      | 279,097 | 
|                         |  |        |         | 

(continued)

F-19



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) |  | Other Borrowings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |  | The Company also enters into repurchase agreements with
customers. These agreements require the Company to pledge
securities as collateral for borrowings under these agreements.
At December 31, 2002 and 2001 the outstanding balance of such
borrowings totaled approximately $1.4 million and $1.7 million
and the Company pledged securities with carrying values of
approximately $3.6 million and $1.8 million, respectively, as
collateral for these agreements.                                                                                                                                                                                                                                                                                                                              
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(7) |  | Benefit Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |  | The Company has entered into Salary Continuation Agreements (the
Agreements) with certain officers which require the Company to
provide salary continuation benefits to them upon retirement. The
Agreements require the Company to pay annual benefits for up to
twenty years following their normal retirement ages. The Company
has purchased life insurance policies on these officers which
although not formerly linked, have future cash values that exceed
the estimated future benefits. The Company recognized expenses of
approximately $116,000, $61,000 and $49,000 during the years
ended December 31, 2002, 2001 and 2000, respectively and has
accrued liabilities of approximately $280,000 and $164,000 at
December 31, 2002 and 2001, respectively, relating to these
Agreements.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(8) |  | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

(continued)

F-20



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|    |  |                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------
|(8) |  | Financial Instruments, Continued                                                                
|    |  | The estimated fair values of the Companys financial instruments
were as follows (in thousands):

|                       |                               |  |                      |         |                      |  |          |         |       |  |  |         |  |  |  |         | 
|---------------------- | ----------------------------- |  | -------------------- | ------- | -------------------- |  | -------- | ------- | ----- |  |  | ------- |  |  |  | ------- | 
|                       |                               |  | At December 31, 2002 |         | At December 31, 2001
|                       |                               |  |                      |         |                     
|                       |                               |  | Carrying             |         | Fair                 |  | Carrying |         | Fair 
|                       |                               |  | Amount               |         | Value                |  | Amount   |         | Value
|                       |                               |  |                      |         |                      |  |          |         |      
|Financial assets:      |                               |  |                      |         |                      |  |          |         |       |  |  |         |  |  |  |        
|                       | Cash and cash equivalents     |  | $                    | 35,723  |                      |  |          | 35,723  |       |  |  | 30,129  |  |  |  | 30,129  | 
|                       | Securities available for sale |  |                      | 89,677  |                      |  |          | 89,677  |       |  |  | 41,472  |  |  |  | 41,472  | 
|                       | Securities held to maturity   |  |                      | 3,452   |                      |  |          | 3,452   |       |  |  |        |  |  |  |        | 
|                       | Federal Home Loan Bank stock  |  |                      | 212     |                      |  |          | 212     |       |  |  | 212     |  |  |  | 212     | 
|                       | Loans                         |  |                      | 500,267 |                      |  |          | 504,244 |       |  |  | 352,361 |  |  |  | 356,244 | 
|                       | Accrued interest receivable   |  |                      | 2,806   |                      |  |          | 2,806   |       |  |  | 2,083   |  |  |  | 2,083   | 
|Financial liabilities: |                               |  |                      |         |                      |  |          |         |       |  |  |         |  |  |  |        
|                       | Deposit liabilities           |  |                      | 593,417 |                      |  |          | 601,921 |       |  |  | 399,973 |  |  |  | 401,433 | 
|                       | Other borrowings              |  |                      | 1,423   |                      |  |          | 1,423   |       |  |  | 1,658   |  |  |  | 1,658   | 

| |  |                                                                                                                                                                                                                                                                                                                                          
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Commitments to extend credit, standby letters of credit,
undisbursed loans in process and unused lines of credit typically
result in loans with a market interest rate when funded. A
summary of the contractual amounts of the Companys financial
instruments with off-balance-sheet risk at December 31, 2002,
follows (in thousands):

|                             |  |          |        |          |  |       |   |  |  |           |   | 
|---------------------------- |  | -------- | ------ | -------- |  | ----- | - |  |  | --------- | - | 
|                             |  |          |        |          |  |       |   |  |  | Estimated
|                             |  | Contract |        | Carrying |  | Fair 
|                             |  | Amount   |        | Amount   |  | Value
|                             |  |          |        |          |  |      
|Commitments to extend credit |  | $        | 64,275 |          |  |       |  |  |  |           |  | 
|                             |  |          |        |          |  |       |   |  |  |           |   | 
|Standby letters of credit    |  | $        | 5,157  |          |  |       |  |  |  |           |  | 
|                             |  |          |        |          |  |       |   |  |  |           |   | 
|Undisbursed loans in process |  | $        | 82,053 |          |  |       |  |  |  |           |  | 
|                             |  |          |        |          |  |       |   |  |  |           |   | 
|Unused lines of credit       |  | $        | 8,242  |          |  |       |  |  |  |           |  | 
|                             |  |          |        |          |  |       |   |  |  |           |   | 

|    |  |                                                                                                                                                                                                                                                                                                                                                  
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9) |  | Credit Risk                                                                                                                                                                                                                                                                                                                                      
|    |  | The Company grants real estate, commercial and consumer loans to
customers primarily in the State of Florida with the majority of
such loans in Orange, Seminole, Broward, Palm Beach, Collier,
Volusia and Lee Counties. Therefore, the Companys exposure to
credit risk is significantly affected by changes in the economy
of these counties.

(continued)

F-21



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|     |  |                                                                                                                 
|---- |  | ----------------------------------------------------------------------------------------------------------------
|(10) |  | Income Taxes                                                                                                    
|     |  | Allocation of Federal and state income taxes between current and
deferred portions is as follows (in thousands):

|          |         |                |       |                         |       |      |      |      |      |   |     |     |     | 
|--------- | ------- | -------------- | ----- | ----------------------- | ----- | ---- | ---- | ---- | ---- | - | --- | --- | --- | 
|          |         |                |       | Year Ended December 31,
|          |         |                |       |                        
|          |         |                |       | 2002                    |       | 2001 |      | 2000
|          |         |                |       |                         |       |      |      |     
|Current:  |         |                |       |                         |       |      |      |      |      |   |     |    
|          | Federal |                | $     | 1,652                   |       |      |      | 501  |      |   |     |    |    
|          | State   |                |       | 283                     |       |      |      | 85   |      |   |     |    |    
|          |         |                |       |                         |       |      |      |      |      |   |     |    
|          |         | Total current  |       |                         | 1,935 |      |      |      | 586  |   |     |     |    | 
|          |         |                |       |                         |       |      |      |      |      |   |     |    
|Deferred: |         |                |       |                         |       |      |      |      |      |   |     |    
|          | Federal |                |       | (562                    | )     |      |      | (752 | )    |   |     | 256 |    
|          | State   |                |       | (96                     | )     |      |      | (129 | )    |   |     | 43  |    
|          |         |                |       |                         |       |      |      |      |      |   |     |    
|          |         | Total deferred |       |                         | (658  | )    |      |      | (881 | ) |     |     | 299 | 
|          |         |                |       |                         |       |      |      |      |      |   |     |    
|          |         | $              | 1,277 |                         |       |      | (295 | )    |      |   | 299 |    
|          |         |                |       |                         |       |      |      |      |      |   |     |    

| |  |                                                                                                                                                     
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The reasons for the differences between the statutory Federal
income tax rate and the effective tax rate are summarized as
follows ($ in thousands):

|                                         |                                            |   |                         |     |          |  |        |     |      |   |        |     |          |  |       |      |   |   |      |    |  |  |      |     | 
|---------------------------------------- | ------------------------------------------ | - | ----------------------- | --- | -------- |  | ------ | --- | ---- | - | ------ | --- | -------- |  | ----- | ---- | - | - | ---- | -- |  |  | ---- | --- | 
|                                         |                                            |   | Year Ended December 31,
|                                         |                                            |   |                        
|                                         |                                            |   | 2002                    |     | 2001     |  | 2000  
|                                         |                                            |   |                         |     |          |  |       
|                                         |                                            |   |                         |     |          |  | % of   |     |      |   |        |     | % of     |  |       |      |   |   | % of
|                                         |                                            |   | Amount                  |     | Earnings |  | Amount |     | Loss |   | Amount |     | Earnings
|                                         |                                            |   |                         |     |          |  |        |     |      |   |        |     |         
|Income taxes (benefit) at
statutory rate |                                            | $ | 1,183                   |     |          |  | 34.0   | %   |      | $ | (297   | )   |          |  | (34.0 | )%   |   | $ | 238  |    |  |  | 34.0 | %  
|Increase (decrease) resulting from:      |                                            |   |                         |     |          |  |        |     |      |   |        |     |          |  |       |      |   |   |      |    |  |  |      |    
|                                         | State income taxes, net of
Federal benefit |   |                         | 123 |          |  |        | 3.5 |      |   |        | (29 | )        |  |       | (3.3 | ) |   |      | 29 |  |  |      | 4.1 | 
|                                         | Other                                      |   |                         | (29 | )        |  |        | (.8 | )    |   |        | 31  |          |  |       | 3.7  |   |   |      | 32 |  |  |      | 4.7 | 
|                                         |                                            |   |                         |     |          |  |        |     |      |   |        |     |          |  |       |      |   |   |      |    |  |  |      |    
|Income taxes (benefit)                   |                                            | $ | 1,277                   |     |          |  | 36.7   | %   |      | $ | (295   | )   |          |  | (33.6 | )%   |   | $ | 299  |    |  |  | 42.8 | %  
|                                         |                                            |   |                         |     |          |  |        |     |      |   |        |     |          |  |       |      |   |   |      |    |  |  |      |    

(continued)

F-22



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|     |  |                                                                                                                                                                       
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) |  | Income Taxes, Continued                                                                                                                                               
|     |  | The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are as follows (in thousands):

|                          |                                                  |                                |   |                 |        |      |  |       |       |  
|------------------------- | ------------------------------------------------ | ------------------------------ | - | --------------- | ------ | ---- |  | ----- | ----- | -
|                          |                                                  |                                |   | At December 31,
|                          |                                                  |                                |   |                
|                          |                                                  |                                |   | 2002            |        | 2001
|                          |                                                  |                                |   |                 |        |     
|Deferred tax assets:      |                                                  |                                |   |                 |        |      |  |      
|                          | Allowance for loan losses                        |                                | $ | 2,118           |        |      |  | 1,399 |      
|                          | Start up and organizational costs                |                                |   | 267             |        |      |  | 310   |      
|                          | Deferred compensation                            |                                |   | 105             |        |      |  | 66    |      
|                          | Net operating loss carryforwards                 |                                |   |                |        |      |  | 32    |      
|                          | Purchase accounting adjustments                  |                                |   | 16              |        |      |  | 27    |      
|                          | Other                                            |                                |   | 62              |        |      |  |      |      
|                          |                                                  |                                |   |                 |        |      |  |      
|                          |                                                  | Gross deferred tax assets      |   |                 | 2,568  |      |  |       | 1,834 |  
|                          |                                                  |                                |   |                 |        |      |  |      
|Deferred tax liabilities: |                                                  |                                |   |                 |        |      |  |      
|                          | Accrual to cash conversion                       |                                |   | (229            | )      |      |  | (343  | )    
|                          | Depreciation                                     |                                |   | (398            | )      |      |  | (208  | )    
|                          | Unrealized gain on securities available for sale |                                |   | (517            | )      |      |  | (47   | )    
|                          |                                                  |                                |   |                 |        |      |  |      
|                          |                                                  | Gross deferred tax liabilities |   |                 | (1,144 | )    |  |       | (598  | )
|                          |                                                  |                                |   |                 |        |      |  |      
|                          |                                                  | Net deferred tax asset         |   | $               | 1,424  |      |  |       | 1,236 |  
|                          |                                                  |                                |   |                 |        |      |  |      

|     |  |                                                                                                                                                                                                                                          
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(11) |  | Related Party Transactions                                                                                                                                                                                                               
|     |  | In the ordinary course of business, the Company has made loans,
at terms and rates prevailing at the time, to principal officers,
directors and their affiliates. The following summarizes these
loans to related parties (in thousands):

|                                           |  |                         |        |      |  |      |        |   |  |  |       |  
|------------------------------------------ |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  |  | ----- | -
|                                           |  | Year Ended December 31,
|                                           |  |                        
|                                           |  | 2002                    |        | 2001 |  | 2000
|                                           |  |                         |        |      |  |     
|Outstanding balance, beginning of the year |  | $                       | 11,139 |      |  |      | 7,026  |   |  |  | 4,521 |  
|Loans funded                               |  |                         | 23,432 |      |  |      | 5,217  |   |  |  | 2,620 |  
|Principal repayments                       |  |                         | (3,332 | )    |  |      | (1,104 | ) |  |  | (115  | )
|                                           |  |                         |        |      |  |      |        |   |  |  |       |  
|Outstanding balance, end of year           |  | $                       | 31,239 |      |  |      | 11,139 |   |  |  | 7,026 |  
|                                           |  |                         |        |      |  |      |        |   |  |  |       |  

| |  |                                                                                        
| |  | ---------------------------------------------------------------------------------------
| |  | The following summarizes the Companys other related party
transactions (in thousands):

|                                                                  |  |                         |       |      |  |      |        |  |  |  |        | 
|----------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                                  |  | Year Ended December 31,
|                                                                  |  |                        
|                                                                  |  | 2002                    |       | 2001 |  | 2000
|                                                                  |  |                         |       |      |  |     
|Funds on deposit with the Company                                 |  | $                       | 8,194 |      |  |      | 23,738 |  |  |  | 16,668 | 
|                                                                  |  |                         |       |      |  |      |        |  |  |  |        | 
|Rent expense on branch facilities leased
from related parties     |  | $                       | 270   |      |  |      | 129    |  |  |  | 129    | 
|                                                                  |  |                         |       |      |  |      |        |  |  |  |        | 
|Insurance premiums paid to a related party insurance agent        |  | $                       | 190   |      |  |      | 331    |  |  |  | 221    | 
|                                                                  |  |                         |       |      |  |      |        |  |  |  |        | 
|Insurance commission and referral fee
income from related parties |  | $                       | 112   |      |  |      | 98     |  |  |  | 81     | 
|                                                                  |  |                         |       |      |  |      |        |  |  |  |        | 
|Legal expenses paid to a related party                            |  | $                       | 101   |      |  |      | 87     |  |  |  | 35     | 
|                                                                  |  |                         |       |      |  |      |        |  |  |  |        | 

(continued)

F-23



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) |  | Stock Option Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |  | In March 2001, the Company adopted the 2001 Equity Incentive Plan
(the 2001 Plan). Under the 2001 Plan, the Company is authorized
to issue up to 2,000,000 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 December 31, 2002, there were 1,367,835 shares available to be
issued in connection with future awards under the 2001 Plan.                    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |  | In 1999, the Company adopted an employee incentive stock option
plan (the Employee Plan). Under the Employee Plan, the total
number of shares which may be issued is 212,000. The option price
shall not be less than the greater of the par value of the common
stock or the fair market value at the date of grant and the
options vest ratably over a five year period. At December 31,
2002, no options remain available for future grants under the
Employee Plan.             
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |  | In 1999, the Company also adopted a directors nonstatutory stock
option plan (the Director Plan). Under the Director Plan, the
total number of shares which may be issued is 140,000. The option
price shall not be less than the greater of the par value of the
common stock or the fair market value at the date of grant and
all options are immediately exercisable when granted. At December
31, 2002, no options remain available for future grants under the
Director Plan.
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |  | In connection with the acquisition of Peninsula discussed in Note
18 the Company assumed options to purchase 135,125 shares of
common stock.                                                                                                                                                                                                                                                                                                                                          
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |  | A summary of stock option transactions follows ($ in thousands,
except per share amounts):                                                                                                                                                                                                                                                                                                                                                                                            

|                                            |  |           |         |        |  |           |            |           |  |           |       |  |  |  |       |  
|------------------------------------------- |  | --------- | ------- | ------ |  | --------- | ---------- | --------- |  | --------- | ----- |  |  |  | ----- | -
|                                            |  |           |         |        |  | Range     |            |           |  |           |       |  |  | 
|                                            |  |           |         |        |  | of Per    |            | Weighted- |  |           |       | 
|                                            |  |           |         |        |  | Share     |            | Average   |  | Aggregate |      
|                                            |  | Number of |         | Option |  | Per Share |            | Option   
|                                            |  | Shares    |         | Price  |  | Price     |            | Price    
|                                            |  |           |         |        |  |           |            |          
|Balance at December 31, 1999                |  |           | 326,000 |        |  | $         | 7.50       |           |  |           | 7.50  |  |  |  | 2,445 |  
|Granted                                     |  |           | 24,000  |        |  |           | 7.50       |           |  |           | 7.50  |  |  |  | 180   |  
|Forfeited                                   |  |           | (10,000 | )      |  |           | 7.50       |           |  |           | 7.50  |  |  |  | (75   | )
|                                            |  |           |         |        |  |           |            |           |  |           |       |  |  |  |       |  
|Balance at December 31, 2000                |  |           | 340,000 |        |  |           | 7.50       |           |  |           | 7.50  |  |  |  | 2,550 |  
|Granted                                     |  |           | 468,540 |        |  |           | 7.50-8.475 |           |  |           | 8.21  |  |  |  | 3,845 |  
|Assumed in connection with Peninsula merger |  |           | 135,125 |        |  |           | 8.00-8.80  |           |  |           | 8.33  |  |  |  | 1,125 |  
|Forfeited                                   |  |           | (15,000 | )      |  |           | 7.50       |           |  |           | 7.50  |  |  |  | (112  | )
|                                            |  |           |         |        |  |           |            |           |  |           |       |  |  |  |       |  
|Balance at December 31, 2001                |  |           | 928,665 |        |  |           | 7.50-8.80  |           |  |           | 7.98  |  |  |  | 7,408 |  
|Granted                                     |  |           | 81,500  |        |  |           | 10.50      |           |  |           | 10.50 |  |  |  | 856   |  
|Forfeited                                   |  |           | (26,000 | )      |  |           | 7.50-8.25  |           |  |           | 8.08  |  |  |  | (210  | )
|                                            |  |           |         |        |  |           |            |           |  |           |       |  |  |  |       |  
|Balance at December 31, 2002                |  |           | 984,165 |        |  | $         | 7.50-10.50 |           |  |           | 8.18  |  |  |  | 8,054 |  
|                                            |  |           |         |        |  |           |            |           |  |           |       |  |  |  |       |  

(continued)

F-24



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|     |  |                                                                                                                                                                                                                                   
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) |  | Stock Option Plans, Continued                                                                                                                                                                                                     
|     |  | All options granted under stock option plans have ten year lives.
The weighted-average remaining contractual life of options
outstanding at December 31, 2002, 2001 and 2000 was 7.9 years,
8.6 years and 8.0 years, respectively.
|     |  |                                                                                                                                                                                                                                   
|     |  | The options are exercisable as follows:                                                                                                                                                                                           

|                         |  |           |         |                  |  |   |       | 
|------------------------ |  | --------- | ------- | ---------------- |  | - | ----- | 
|                         |  | Number of |         | Weighted-Average
|Year Ending December 31, |  | Shares    |         | Exercise Price  
|                         |  |           |         |                 
|Currently exercisable    |  |           | 463,725 |                  |  | $ | 7.79  | 
|2003                     |  |           | 213,433 |                  |  |   | 8.38  | 
|2004                     |  |           | 190,883 |                  |  |   | 8.47  | 
|2005                     |  |           | 73,216  |                  |  |   | 9.06  | 
|2006                     |  |           | 40,608  |                  |  |   | 8.53  | 
|2007                     |  |           | 2,300   |                  |  |   | 10.50 | 
|                         |  |           |         |                  |  |   |       | 
|                         |  |           | 984,165 |                  |  | $ | 8.18  | 
|                         |  |           |         |                  |  |   |       | 

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company accounts for their stock option plans under the
recognition and measurement principles of APB No. 25. No
stock-based employee compensation cost is reflected in net
earnings (loss), as all options granted under those plans had an
exercise price which approximated the market value of the
underlying common stock on the date of grant. The following table
illustrates the effect on net earnings (loss) and earnings (loss)
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).

|                                                                                                                                       |             |   |                         |     |      |  |        |      |   |  |      |     | 
|-------------------------------------------------------------------------------------------------------------------------------------- | ----------- | - | ----------------------- | --- | ---- |  | ------ | ---- | - |  | ---- | --- | 
|                                                                                                                                       |             |   | Year Ended December 31,
|                                                                                                                                       |             |   |                        
|                                                                                                                                       |             |   | 2002                    |     | 2001 |  | 2000  
|                                                                                                                                       |             |   |                         |     |      |  |       
|Net earnings (loss), as reported                                                                                                       |             | $ | 2,201                   |     |      |  | (580   | )    |   |  | 400  |    
|Deduct: Total stock-based employee compensation
determined under the fair value based method for
all awards, net of related tax effect |             |   | (424                    | )   |      |  | (724   | )    |   |  | (190 | )  
|                                                                                                                                       |             |   |                         |     |      |  |        |      |   |  |      |    
|Proforma net earnings (loss)                                                                                                           |             | $ | 1,777                   |     |      |  | (1,304 | )    |   |  | 210  |    
|                                                                                                                                       |             |   |                         |     |      |  |        |      |   |  |      |    
|Basic earnings (loss) per share:                                                                                                       |             |   |                         |     |      |  |        |      |   |  |      |    
|                                                                                                                                       | As reported |   | $                       | .36 |      |  |        | (.12 | ) |  |      | .20 | 
|                                                                                                                                       |             |   |                         |     |      |  |        |      |   |  |      |    
|                                                                                                                                       | Proforma    |   | $                       | .29 |      |  |        | (.28 | ) |  |      | .10 | 
|                                                                                                                                       |             |   |                         |     |      |  |        |      |   |  |      |    
|Diluted earnings (loss) per share:                                                                                                     |             |   |                         |     |      |  |        |      |   |  |      |    
|                                                                                                                                       | As reported |   | $                       | .35 |      |  |        | (.12 | ) |  |      | .20 | 
|                                                                                                                                       |             |   |                         |     |      |  |        |      |   |  |      |    
|                                                                                                                                       | Proforma    |   | $                       | .28 |      |  |        | (.28 | ) |  |      | .10 | 
|                                                                                                                                       |             |   |                         |     |      |  |        |      |   |  |      |    

(continued)

F-25



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) |  | Stock Option Plans, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |  | In order to calculate the fair value of the options, it was
assumed that the risk-free interest rate was 4.46% for 2002,
5.68% for 2001 and 4.25% for 2000, 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. The
following information summarizes the fair value of options
granted under the plans (in thousands):

|                                                        |  |                         |     |      |  |      |       |  |  |  |    | 
|------------------------------------------------------- |  | ----------------------- | --- | ---- |  | ---- | ----- |  |  |  | -- | 
|                                                        |  | Year Ended December 31,
|                                                        |  |                        
|                                                        |  | 2002                    |     | 2001 |  | 2000
|                                                        |  |                         |     |      |  |     
|Grant-date fair value of options issued during the year |  | $                       | 186 |      |  |      | 1,327 |  |  |  | 78 | 
|                                                        |  |                         |     |      |  |      |       |  |  |  |    | 

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(13) |  | Profit Sharing Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |  | The Company has a 401(k) profit sharing plan (the Plan) which
is available to all employees electing to participate after
meeting certain length-of-service requirements. The Companys
annual matching contributions to the Plan may be made in the form
of the Companys common stock or as directed by each participant
and are discretionary. The Companys expense in connection with
the Plan was $128,000, $45,000 and $29,000 during the years ended
December 31, 2002, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |  | One of the investment choices available under the Plan allows for
participants to purchase the Companys common stock. Participants
electing to purchase stock defer salary each pay period and the
Company issues shares after the end of the fiscal year. The total
number of common shares allocated to the Plan is 50,000, of which
2,460 were available for future issuances at December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(14) |  | Employee Stock Purchase Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |  | The Company has a Employee Stock Purchase Plan (the Plan) under
which employees can elect to purchase the Companys common stock
through payroll deductions. Employees defer salary each pay
period and the Company issues shares after the end of the fiscal
year. The total number of common shares allocated to the Plan is
65,000, of which 43,073 were available for future issuances at
December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(15) |  | Regulatory Matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |  | Banking regulations place certain restrictions on dividends and
loans or advances made by the Banks to the Holding Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |  | The Company and the Banks are subject to various regulatory
capital requirements administered by the regulatory banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct
material effect on the Banks and the Companys consolidated
financial statements. Under capital adequacy guidelines, the
Company and the Banks must meet specific capital guidelines that
involve quantitative measures of their assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory
accounting practices. Under the regulatory framework for prompt
and corrective action the Banks must also meet specific capital
guidelines. The capital amounts and classification are also
subject to qualitative judgements by the regulators about
components, risk weightings, and other factors. Prompt corrective
action provisions are not applicable to bank holding companies.

(continued)

F-26



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(15) |  | Regulatory Matters, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |  | Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Banks to maintain minimum
amounts and percentages (set forth in the following table) of
total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as
of December 31, 2002 and 2001, the Company and the Banks met all
capital adequacy requirements to which they are subject.                                                                                                                                    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |  | As of December 31, 2002, the most recent notification from the
regulatory authorities categorized the Banks as either well or
adequately capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, an
institution must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage percentages as set forth in the
following tables. There are no conditions or events since that
notification that management believes have changed the Banks
categories. The Companys and the Banks actual capital amounts
and percentages are also presented in the table ($ in thousands).

|                         |                                         |                                              |  |        |        |          |  |                   |      |   |  |             |        |                   |  |  |     |   |  |            |        |  |  |  |      |  
|------------------------ | --------------------------------------- | -------------------------------------------- |  | ------ | ------ | -------- |  | ----------------- | ---- | - |  | ----------- | ------ | ----------------- |  |  | --- | - |  | ---------- | ------ |  |  |  | ---- | -
|                         |                                         |                                              |  |        |        |          |  |                   |      |   |  |             |        |                   |  |  |     |   |  | Minimum   
|                         |                                         |                                              |  |        |        |          |  |                   |      |   |  |             |        |                   |  |  |     |   |  | To Be Well
|                         |                                         |                                              |  |        |        |          |  |                   |      |   |  | For Capital |        | Capitalized Under
|                         |                                         |                                              |  |        |        |          |  |                   |      |   |  | Adequacy    |        | Prompt Corrective
|                         |                                         |                                              |  | Actual |        | Purposes |  | Action Provisions
|                         |                                         |                                              |  |        |        |          |  |                  
|                         |                                         |                                              |  | Amount |        | %        |  | Amount            |      | % |  | Amount      |        | %                
|                         |                                         |                                              |  |        |        |          |  |                   |      |   |  |             |        |                  
|As of December 31, 2002: |                                         |                                              |  |        |        |          |  |                   |      |   |  |             |        |                   |  |  |     |   |  |            |        |  |  | 
|                         | Total Capital to Risk- Weighted assets: |                                              |  |        |        |          |  |                   |      |   |  |             |        |                   |  |  |     |   |  |            |        |  |  |  |     
|                         |                                         | Consolidated                                 |  | $      | 62,434 |          |  |                   | 10.6 | % |  | $           | 46,949 |                   |  |  | 8.0 | % |  |            | N/A    |  |  |  | 10.0 | %
|                         |                                         | Southern Community Bank                      |  |        | 26,800 |          |  |                   | 8.6  |   |  |             | 24,937 |                   |  |  | 8.0 |   |  | $          | 31,171 |  |  |  | 10.0 |  
|                         |                                         | Southern Community Bank of
Southwest Florida |  |        | 10,215 |          |  |                   | 9.5  |   |  |             | 8,589  |                   |  |  | 8.0 |   |  |            | 10,736 |  |  |  | 10.0 |  
|                         |                                         | Southern Community Bank, Atlantic            |  |        | 10,192 |          |  |                   | 10.3 |   |  |             | 7,905  |                   |  |  | 8.0 |   |  |            | 9,881  |  |  |  | 10.0 |  
|                         |                                         | Southern Community Bank of
South Florida     |  |        | 11,859 |          |  |                   | 17.1 |   |  |             | 5,563  |                   |  |  | 8.0 |   |  |            | 6,954  |  |  |  | 10.0 |  
|                         | Tier I Capital to Risk-Weighted Assets: |                                              |  |        |        |          |  |                   |      |   |  |             |        |                   |  |  |     |   |  |            |        |  |  |  |     
|                         |                                         | Consolidated                                 |  |        | 56,172 |          |  |                   | 9.6  |   |  |             | 23,475 |                   |  |  | 4.0 |   |  |            | N/A    |  |  |  | 6.0  |  
|                         |                                         | Southern Community Bank                      |  |        | 23,361 |          |  |                   | 7.5  |   |  |             | 12,468 |                   |  |  | 4.0 |   |  |            | 18,703 |  |  |  | 6.0  |  
|                         |                                         | Southern Community Bank of
Southwest Florida |  |        | 9,120  |          |  |                   | 8.5  |   |  |             | 4,295  |                   |  |  | 4.0 |   |  |            | 6,442  |  |  |  | 6.0  |  
|                         |                                         | Southern Community Bank, Atlantic            |  |        | 9,239  |          |  |                   | 9.4  |   |  |             | 3,952  |                   |  |  | 4.0 |   |  |            | 5,929  |  |  |  | 6.0  |  
|                         |                                         | Southern Community Bank of
South Florida     |  |        | 11,085 |          |  |                   | 15.9 |   |  |             | 2,782  |                   |  |  | 4.0 |   |  |            | 4,173  |  |  |  | 6.0  |  
|                         | Tier I Capital to Total Assets:         |                                              |  |        |        |          |  |                   |      |   |  |             |        |                   |  |  |     |   |  |            |        |  |  |  |     
|                         |                                         | Consolidated                                 |  |        | 56,172 |          |  |                   | 8.7  |   |  |             | 25,796 |                   |  |  | 4.0 |   |  |            | N/A    |  |  |  | 5.0  |  
|                         |                                         | Southern Community Bank                      |  |        | 23,361 |          |  |                   | 6.7  |   |  |             | 13,968 |                   |  |  | 4.0 |   |  |            | 17,460 |  |  |  | 5.0  |  
|                         |                                         | Southern Community Bank of
Southwest Florida |  |        | 9,120  |          |  |                   | 8.3  |   |  |             | 4,419  |                   |  |  | 4.0 |   |  |            | 5,523  |  |  |  | 5.0  |  
|                         |                                         | Southern Community Bank, Atlantic            |  |        | 9,239  |          |  |                   | 9.6  |   |  |             | 3,869  |                   |  |  | 4.0 |   |  |            | 4,836  |  |  |  | 5.0  |  
|                         |                                         | Southern Community Bank of
South Florida     |  |        | 11,085 |          |  |                   | 12.3 |   |  |             | 3,614  |                   |  |  | 4.0 |   |  |            | 4,517  |  |  |  | 5.0  |  

(continued)

F-27



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|     |  |                              
|---- |  | -----------------------------
|(15) |  | Regulatory Matters, Continued

|                          |                                           |                                              |  |        |        |          |  |                   |       |   |  |             |        |                   |  |  |     |   |  |            |        |  |  |  |      |  
|------------------------- | ----------------------------------------- | -------------------------------------------- |  | ------ | ------ | -------- |  | ----------------- | ----- | - |  | ----------- | ------ | ----------------- |  |  | --- | - |  | ---------- | ------ |  |  |  | ---- | -
|                          |                                           |                                              |  |        |        |          |  |                   |       |   |  |             |        |                   |  |  |     |   |  | Minimum   
|                          |                                           |                                              |  |        |        |          |  |                   |       |   |  |             |        |                   |  |  |     |   |  | To Be Well
|                          |                                           |                                              |  |        |        |          |  |                   |       |   |  | For Capital |        | Capitalized Under
|                          |                                           |                                              |  |        |        |          |  |                   |       |   |  | Adequacy    |        | Prompt Corrective
|                          |                                           |                                              |  | Actual |        | Purposes |  | Action Provisions
|                          |                                           |                                              |  |        |        |          |  |                  
|                          |                                           |                                              |  | Amount |        | %        |  | Amount            |       | % |  | Amount      |        | %                
|                          |                                           |                                              |  |        |        |          |  |                   |       |   |  |             |        |                  
|As of December 31,

2001: |                                           |                                              |  |        |        |          |  |                   |       |   |  |             |        |                   |  |  |     |   |  |            |        |  |  | 
|                          | Total Capital to Risk- Weighted

assets:  |                                              |  |        |        |          |  |                   |       |   |  |             |        |                   |  |  |     |   |  |            |        |  |  |  |     
|                          |                                           | Consolidated                                 |  | $      | 44,510 |          |  |                   | 10.86 | % |  | $           | 32,788 |                   |  |  | 8.0 | % |  |            | N/A    |  |  |  | 10.0 | %
|                          |                                           | Southern Community Bank                      |  |        | 24,012 |          |  |                   | 8.60  |   |  |             | 22,337 |                   |  |  | 8.0 |   |  |            | 27,921 |  |  |  | 10.0 |  
|                          |                                           | Southern Community Bank of
Southwest Florida |  |        | 9,601  |          |  |                   | 13.79 |   |  |             | 5,570  |                   |  |  | 8.0 |   |  |            | 7,080  |  |  |  | 10.0 |  
|                          |                                           | Southern Community Bank,

Atlantic           |  |        | 9,764  |          |  |                   | 15.97 |   |  |             | 4,891  |                   |  |  | 8.0 |   |  |            | 6,114  |  |  |  | 10.0 |  
|                          | Tier I Capital to Risk- Weighted

Assets: |                                              |  |        |        |          |  |                   |       |   |  |             |        |                   |  |  |     |   |  |            |        |  |  |  |     
|                          |                                           | Consolidated                                 |  |        | 40,053 |          |  |                   | 9.77  |   |  |             | 16,398 |                   |  |  | 4.0 |   |  |            | N/A    |  |  |  | 6.0  |  
|                          |                                           | Southern Community Bank                      |  |        | 20,949 |          |  |                   | 7.50  |   |  |             | 11,173 |                   |  |  | 4.0 |   |  |            | 16,759 |  |  |  | 6.0  |  
|                          |                                           | Southern Community Bank of
Southwest Florida |  |        | 8,918  |          |  |                   | 12.81 |   |  |             | 2,785  |                   |  |  | 4.0 |   |  |            | 4,177  |  |  |  | 6.0  |  
|                          |                                           | Southern Community Bank,

Atlantic           |  |        | 9,054  |          |  |                   | 14.81 |   |  |             | 2,445  |                   |  |  | 4.0 |   |  |            | 3,668  |  |  |  | 6.0  |  
|                          | Tier I Capital to Total

Assets:          |                                              |  |        |        |          |  |                   |       |   |  |             |        |                   |  |  |     |   |  |            |        |  |  |  |     
|                          |                                           | Consolidated                                 |  |        | 40,053 |          |  |                   | 9.39  |   |  |             | 17,062 |                   |  |  | 4.0 |   |  |            | N/A    |  |  |  | 5.0  |  
|                          |                                           | Southern Community Bank                      |  |        | 20,949 |          |  |                   | 7.39  |   |  |             | 11,339 |                   |  |  | 4.0 |   |  |            | 14,174 |  |  |  | 5.0  |  
|                          |                                           | Southern Community Bank of
Southwest Florida |  |        | 8,918  |          |  |                   | 13.30 |   |  |             | 2,682  |                   |  |  | 4.0 |   |  |            | 3,353  |  |  |  | 5.0  |  
|                          |                                           | Southern Community Bank,

Atlantic           |  |        | 9,054  |          |  |                   | 11.80 |   |  |             | 3,069  |                   |  |  | 4.0 |   |  |            | 3,836  |  |  |  | 5.0  |  

|     |  |                                                                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(16) |  | Legal Contingencies                                                                                                                                                                                     
|     |  | Various legal claims also arise from time to time
in the normal course of business which, in the opinion of management,
will have no material effect on the Companys consolidated financial
statements.

(continued)

F-28



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|     |  |                                                                     
|---- |  | --------------------------------------------------------------------
|(17) |  | Holding Company Financial  Information                              
|     |  | The Holding Companys financial  information follows (in
thousands):

Condensed Balance Sheets

|                             |                                             |                                       |        |        |                 |  |        |        |  |  | 
|---------------------------- | ------------------------------------------- | ------------------------------------- | ------ | ------ | --------------- |  | ------ | ------ |  |  | 
|                             |                                             |                                       |        |        | At December 31,
|                             |                                             |                                       |        |        |                
|                             |                                             |                                       |        |        | 2002            |  | 2001  
|                             |                                             |                                       |        |        |                 |  |       
|                             |                                             |                                       | Assets |        |                 |  |        |        |  |  | 
|Cash                         |                                             | $                                     | 1,961  |        |                 |  | 1,900  |       
|Premises and equipment,  net |                                             |                                       | 141    |        |                 |  |       |       
|Other assets                 |                                             |                                       | 428    |        |                 |  | 205    |       
|Investment in  subsidiaries  |                                             |                                       | 55,656 |        |                 |  | 40,416 |       
|                             |                                             |                                       |        |        |                 |  |        |       
|                             | Total assets                                |                                       | $      | 58,186 |                 |  |        | 42,521 | 
|                             |                                             |                                       |        |        |                 |  |        |       
|                             |                                             | Liabilities and Stockholders  Equity |        |        |                 |  |        |        |  | 
|Other liabilities            |                                             |                                       | 87     |        |                 |  | 173    |       
|Stockholders  equity        |                                             |                                       | 58,099 |        |                 |  | 42,348 |       
|                             |                                             |                                       |        |        |                 |  |        |       
|                             | Total liabilities and stockholders  equity |                                       | $      | 58,186 |                 |  |        | 42,521 | 
|                             |                                             |                                       |        |        |                 |  |        |       

Condensed Statements of Operations

|                                                                    |                     |              |       |                         |       |      |      |      |   |  |      |     |     | 
|------------------------------------------------------------------- | ------------------- | ------------ | ----- | ----------------------- | ----- | ---- | ---- | ---- | - |  | ---- | --- | --- | 
|                                                                    |                     |              |       | Year Ended December 31,
|                                                                    |                     |              |       |                        
|                                                                    |                     |              |       | 2002                    |       | 2001 |      | 2000
|                                                                    |                     |              |       |                         |       |      |      |     
|Interest income                                                     |                     | $            | 54    |                         |       |      | 1    |      |   |  | 156  |    
|Management fees                                                     |                     |              | 1,105 |                         |       |      |     |      |   |  |     |    
|                                                                    |                     |              |       |                         |       |      |      |      |   |  |      |    
|                                                                    |                     | Total income |       |                         | 1,159 |      |      |      | 1 |  |      |     | 156 | 
|                                                                    |                     |              |       |                         |       |      |      |      |   |  |      |    
|Salaries and employee  benefits                                     |                     |              | 718   |                         |       |      | 215  |      |   |  |     |    
|Preopening  expenses                                                |                     |              | 133   |                         |       |      | 133  |      |   |  | 659  |    
|Other expenses                                                      |                     |              | 443   |                         |       |      | 171  |      |   |  | 71   |    
|                                                                    |                     |              |       |                         |       |      |      |      |   |  |      |    
|                                                                    | Total expenses      |              |       | 1,294                   |       |      |      | 519  |   |  |      | 730 |    
|                                                                    |                     |              |       |                         |       |      |      |      |   |  |      |    
|Loss before income tax benefit and  earnings
(loss) of subsidiaries |                     |              | (135  | )                       |       |      | (518 | )    |   |  | (574 | )  
|Income tax benefit                                                  |                     |              | (50   | )                       |       |      | (195 | )    |   |  | (210 | )  
|                                                                    |                     |              |       |                         |       |      |      |      |   |  |      |    
|Loss before earnings (loss) of  subsidiaries                        |                     |              | (85   | )                       |       |      | (323 | )    |   |  | (364 | )  
|Earnings (loss) of  subsidiaries                                    |                     |              | 2,286 |                         |       |      | (257 | )    |   |  | 764  |    
|                                                                    |                     |              |       |                         |       |      |      |      |   |  |      |    
|                                                                    | Net earnings (loss) |              | $     | 2,201                   |       |      |      | (580 | ) |  |      | 400 |    
|                                                                    |                     |              |       |                         |       |      |      |      |   |  |      |    

(continued)

F-29



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|     |  |                                                 
|---- |  | ------------------------------------------------
|(17) |  | Holding Company Financial Information, Continued
|    
|     |  | Condensed Statements of Cash Flows              

|                                                                             |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |         |         |  
|---------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------ | ----------------------- | ------- | ---- | ----- | ------ | ------ | - | ------ | ------- | ------- | -
|                                                                             |                                                                                                                                                                                  |                                                         |        | Year Ended December 31,
|                                                                             |                                                                                                                                                                                  |                                                         |        |                        
|                                                                             |                                                                                                                                                                                  |                                                         |        | 2002                    |         | 2001 |       | 2000  
|                                                                             |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |       
|Cash flows from operating  activities:                                       |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |        
|                                                                             | Net earnings (loss)                                                                                                                                                              |                                                         | $      | 2,201                   |         |      |       | (580   | )      |   |        | 400     |        
|                                                                             | Adjustments to reconcile net earnings  (loss) to net
cash (used in) provided by operating activities:                                                                            |                                                         |        |                         |         |      |       |        |        |   |        |         |        
|                                                                             |                                                                                                                                                                                  | Depreciation                                            |        |                         | 18      |      |       |        |       |   |        |         |        |  
|                                                                             |                                                                                                                                                                                  | Common stock issued as  compensation                    |        |                         | 143     |      |       |        | 11     |   |        |         | 4       |  
|                                                                             |                                                                                                                                                                                  | Equity in undistributed (earnings) loss of
subsidiaries |        |                         | (2,286  | )    |       |        | 257    |   |        |         | (764    | )
|                                                                             |                                                                                                                                                                                  | (Increase) decrease in other  assets                    |        |                         | (223    | )    |       |        | (106   | ) |        |         | 388     |  
|                                                                             |                                                                                                                                                                                  | (Decrease) increase in other  liabilities               |        |                         | (86     | )    |       |        | 134    |   |        |         | 40      |  
|                                                                             |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |        
|                                                                             |                                                                                                                                                                                  | Net cash (used in) provided by operating
activities     |        |                         | (233    | )    |       |        | (284   | ) |        |         | 68      |  
|                                                                             |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |        
|Cash flows from investing  activities:                                       |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |        
|                                                                             | Purchases of premises and  equipment                                                                                                                                             |                                                         |        | (159                    | )       |      |       |       |        |   |        |        |        
|                                                                             | Investment in  subsidiaries                                                                                                                                                      |                                                         |        | (12,085                 | )       |      |       | (4,574 | )      |   |        | (13,400 | )      
|                                                                             |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |        
|                                                                             |                                                                                                                                                                                  | Net cash used in investing  activities                  |        |                         | (12,244 | )    |       |        | (4,574 | ) |        |         | (13,400 | )
|                                                                             |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |        
|Cash flows from financing activity-
Proceeds from sales of common stock, net |                                                                                                                                                                                  |                                                         | 12,538 |                         |         |      | 6,467 |        |        |   | 13,623 |        
|                                                                             |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |        
|Net increase in cash and cash  equivalents                                   |                                                                                                                                                                                  |                                                         | 61     |                         |         |      | 1,609 |        |        |   | 291    |        
|Cash at beginning of the  year                                               |                                                                                                                                                                                  |                                                         | 1,900  |                         |         |      | 291   |        |        |   |       |        
|                                                                             |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |        
|Cash at end of year                                                          |                                                                                                                                                                                  | $                                                       | 1,961  |                         |         |      | 1,900 |        |        |   | 291    |        
|                                                                             |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |        
|Noncash  transactions:                                                       |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |        
|                                                                             | Change in investment in subsidiaries due  to change in
accumulated other comprehensive income (loss), unrealized
gain (loss) on securities
available for sale, net of income tax |                                                         | $      | 869                     |         |      |       | (196   | )      |   |        | 486     |        
|                                                                             |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |        
|                                                                             | Common stock issued in connection with  merger
with Peninsula Bancorp, Inc.                                                                                                      |                                                         | $      |                        |         |      |       | 10,295 |        |   |        |        |        
|                                                                             |                                                                                                                                                                                  |                                                         |        |                         |         |      |       |        |        |   |        |        

(continued)

F-30



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(18) |  | Acquisition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     |  | On April 30, 2001, the Holding  Company acquired Peninsula
Bancorp, Inc. (Peninsula). The Holding Company issued 623,913
shares of common stock in exchange for all of the outstanding
shares of Peninsula. Peninsula was the parent company of
Peninsula Bank of Central Florida (Peninsula Bank), a state
bank with three offices in Volusia County, Florida. The Holding
Company accounted for this transaction using the purchase method
of accounting. The excess purchase price over fair market value
of the net assets acquired of $1.0 million was allocated to
goodwill. The consolidated financial statements include the
results of Peninsula from the date of acquisition. The unaudited
proforma results below assume the acquisition occurred at the
beginning of the year ended December 31, 2000 (in thousands,
except per share amounts)

|                 |                             |         |   |              |      |      |  |       |     | 
|---------------- | --------------------------- | ------- | - | ------------ | ---- | ---- |  | ----- | --- | 
|                 |                             |         |   | Year Ended  
|                 |                             |         |   | December 31,
|                 |                             |         |   |             
|                 |                             |         |   | 2001         |      | 2000
|                 |                             |         |   |              |      |     
|Interest income: |                             |         |   |              |      |      |  |      
|                 | Net interest income         |         | $ | 10,642       |      |      |  | 7,995 |    
|                 |                             |         |   |              |      |      |  |      
|                 | Net  (loss) earnings        |         | $ | (628         | )    |      |  | 544   |    
|                 |                             |         |   |              |      |      |  |      
|                 | (Loss) earnings per  share: |         |   |              |      |      |  |       |    
|                 |                             | Basic   |   | $            | (.13 | )    |  |       | .17 | 
|                 |                             |         |   |              |      |      |  |      
|                 |                             | Diluted |   | $            | (.13 | )    |  |       | .17 | 
|                 |                             |         |   |              |      |      |  |      

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  | In managements opinion, the  unaudited proforma combined results
of operations are not indicative of the actual results that would
have occurred had the acquisitions been consummated at the
beginning of 2000 or of future operations of the combined
entities under the ownership and management of the Company                                                                                                                                                                                                      
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(19) |  | Stock  Dividend                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |  | The Companys Board of Directors  declared a two-for-one stock
split, effected in the form of a 100% stock dividend, on August
6, 2001 to stockholders of record on October 19, 2001 which
resulted in the issuance of 2,730,101 shares of common stock and
corresponding decrease of $2,730,101 in additional paid-in
capital. The stock split has been reflected in the accompanying
consolidated financial statements and all per share information
and stock option plan data has been restated to reflect this
split

(continued)

F-31



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|     |  |                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------
|(20) |  | Selected Quarterly Results  (Unaudited)                                                          
|     |  | The following table presents summarized  quarterly data (in
thousands, except per share amounts):

|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |        |  
|---------------------------------------------- | --------------------------------------------------- | - | ------- | ----- | ------- |  | ------- | ----- | ------- |  | ------ | ----- | - |  | ------ | ----- | - |  | ------- | ------ | -
|                                               |                                                     |   | First   |       | Second  |  | Third   |       | Fourth  |  |        |       |  
|                                               |                                                     |   | Quarter |       | Quarter |  | Quarter |       | Quarter |  | Total 
|                                               |                                                     |   |         |       |         |  |         |       |         |  |       
|Year Ended December 31, 2002:                  |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|Interest income                                |                                                     | $ | 7,235   |       |         |  | 8,103   |       |         |  | 9,106  |       |   |  | 9,026  |       |   |  | 33,470  |       
|Interest expense                               |                                                     |   | 3,405   |       |         |  | 3,573   |       |         |  | 3,952  |       |   |  | 4,142  |       |   |  | 15,072  |       
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|                                               | Net interest income                                 |   |         | 3,830 |         |  |         | 4,530 |         |  |        | 5,154 |   |  |        | 4,884 |   |  |         | 18,398 |  
|Provision for loan  losses                     |                                                     |   | 405     |       |         |  | 441     |       |         |  | 1,106  |       |   |  | 453    |       |   |  | 2,405   |       
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|                                               | Net interest income after provision for
loan losses |   |         | 3,425 |         |  |         | 4,089 |         |  |        | 4,048 |   |  |        | 4,431 |   |  |         | 15,993 |  
|Noninterest income                             |                                                     |   | 533     |       |         |  | 701     |       |         |  | 509    |       |   |  | 854    |       |   |  | 2,597   |       
|Noninterest  expenses                          |                                                     |   | (3,534  | )     |         |  | (3,609  | )     |         |  | (3,840 | )     |   |  | (4,129 | )     |   |  | (15,112 | )     
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|Earnings before income  taxes                  |                                                     |   | 424     |       |         |  | 1,181   |       |         |  | 717    |       |   |  | 1,156  |       |   |  | 3,478   |       
|Income taxes                                   |                                                     |   | 157     |       |         |  | 431     |       |         |  | 262    |       |   |  | 427    |       |   |  | 1,277   |       
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|Net earnings                                   |                                                     | $ | 267     |       |         |  | 750     |       |         |  | 455    |       |   |  | 729    |       |   |  | 2,201   |       
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|Earnings per share:                            |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|                                               | Basic                                               |   | $       | .05   |         |  |         | .13   |         |  |        | .07   |   |  |        | .11   |   |  |         | .36    |  
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|                                               | Diluted                                             |   | $       | .05   |         |  |         | .13   |         |  |        | .07   |   |  |        | .10   |   |  |         | .35    |  
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|Year Ended December 31,  2001:                 |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|Interest income                                |                                                     |   | 4,844   |       |         |  | 5,867   |       |         |  | 6,790  |       |   |  | 6,931  |       |   |  | 24,432  |       
|Interest expense                               |                                                     |   | 2,725   |       |         |  | 3,486   |       |         |  | 3,976  |       |   |  | 4,185  |       |   |  | 14,372  |       
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|                                               | Net interest income                                 |   |         | 2,119 |         |  |         | 2,381 |         |  |        | 2,814 |   |  |        | 2,746 |   |  |         | 10,060 |  
|Provision for loan  losses                     |                                                     |   | 484     |       |         |  | 661     |       |         |  | 409    |       |   |  | 797    |       |   |  | 2,351   |       
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|                                               | Net interest income after provision
for loan losses |   |         | 1,635 |         |  |         | 1,720 |         |  |        | 2,405 |   |  |        | 1,949 |   |  |         | 7,709  |  
|Noninterest income                             |                                                     |   | 570     |       |         |  | 345     |       |         |  | 356    |       |   |  | 583    |       |   |  | 1,854   |       
|Noninterest  expenses                          |                                                     |   | (1,716  | )     |         |  | (2,375  | )     |         |  | (2,827 | )     |   |  | (3,520 | )     |   |  | (10,438 | )     
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|Earnings (loss) before income taxes  (benefit) |                                                     |   | 489     |       |         |  | (310    | )     |         |  | (66    | )     |   |  | (988   | )     |   |  | (875    | )     
|Income taxes  (benefit)                        |                                                     |   | 183     |       |         |  | (118    | )     |         |  | (19    | )     |   |  | (341   | )     |   |  | (295    | )     
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|Net earnings (loss)                            |                                                     | $ | 306     |       |         |  | (192    | )     |         |  | (47    | )     |   |  | (647   | )     |   |  | (580    | )     
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|Earnings (loss) per  share:                    |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|                                               | Basic                                               |   | $       | .09   |         |  |         | (.05  | )       |  |        | (.01  | ) |  |        | (.15  | ) |  |         | (.12   | )
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       
|                                               | Diluted                                             |   | $       | .09   |         |  |         | (.05  | )       |  |        | (.01  | ) |  |        | (.15  | ) |  |         | (.12   | )
|                                               |                                                     |   |         |       |         |  |         |       |         |  |        |       |   |  |        |       |   |  |         |       

(continued)

F-32



---



##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

|     |  |                                       
|---- |  | --------------------------------------
|(20) |  | Selected Quarterly Results (Unaudited)

|                                               |                                                     |   |         |     |         |  |         |       |         |  |        |       |   |  |        |       |  |  |        |       | 
|---------------------------------------------- | --------------------------------------------------- | - | ------- | --- | ------- |  | ------- | ----- | ------- |  | ------ | ----- | - |  | ------ | ----- |  |  | ------ | ----- | 
|                                               |                                                     |   | First   |     | Second  |  | Third   |       | Fourth  |  |        |       |  
|                                               |                                                     |   | Quarter |     | Quarter |  | Quarter |       | Quarter |  | Total 
|                                               |                                                     |   |         |     |         |  |         |       |         |  |       
|Year Ended December 31, 2000:                  |                                                     |   |         |     |         |  |         |       |         |  |        |       |   |  |        |       |  |  |        |      
|Interest income                                |                                                     | $ | 1,957   |     |         |  | 2,718   |       |         |  | 3,399  |       |   |  | 4,438  |       |  |  | 12,512 |      
|Interest expense                               |                                                     |   | 967     |     |         |  | 1,407   |       |         |  | 1,723  |       |   |  | 2,104  |       |  |  | 6,201  |      
|                                               |                                                     |   |         |     |         |  |         |       |         |  |        |       |   |  |        |       |  |  |        |      
|                                               | Net interest income                                 |   |         | 990 |         |  |         | 1,311 |         |  |        | 1,676 |   |  |        | 2,334 |  |  |        | 6,311 | 
|Provision for loan  losses                     |                                                     |   | 178     |     |         |  | 243     |       |         |  | 419    |       |   |  | 334    |       |  |  | 1,174  |      
|                                               |                                                     |   |         |     |         |  |         |       |         |  |        |       |   |  |        |       |  |  |        |      
|                                               | Net interest income after provision for
loan losses |   |         | 812 |         |  |         | 1,068 |         |  |        | 1,257 |   |  |        | 2,000 |  |  |        | 5,137 | 
|Noninterest income                             |                                                     |   | 93      |     |         |  | 123     |       |         |  | 266    |       |   |  | 113    |       |  |  | 595    |      
|Noninterest  expenses                          |                                                     |   | (887    | )   |         |  | (1,015  | )     |         |  | (1,676 | )     |   |  | (1,455 | )     |  |  | (5,033 | )    
|                                               |                                                     |   |         |     |         |  |         |       |         |  |        |       |   |  |        |       |  |  |        |      
|Earnings (loss) before income taxes  (benefit) |                                                     |   | 18      |     |         |  | 176     |       |         |  | (153   | )     |   |  | 658    |       |  |  | 699    |      
|Income taxes  (benefit)                        |                                                     |   | 7       |     |         |  | 70      |       |         |  | (46    | )     |   |  | 268    |       |  |  | 299    |      
|                                               |                                                     |   |         |     |         |  |         |       |         |  |        |       |   |  |        |       |  |  |        |      
|Net earnings (loss)                            |                                                     | $ | 11      |     |         |  | 106     |       |         |  | (107   | )     |   |  | 390    |       |  |  | 400    |      
|                                               |                                                     |   |         |     |         |  |         |       |         |  |        |       |   |  |        |       |  |  |        |      
|Earnings (loss) per  share:                    |                                                     |   |         |     |         |  |         |       |         |  |        |       |   |  |        |       |  |  |        |      
|                                               | Basic                                               |   | $       | .01 |         |  |         | .06   |         |  |        | (.06  | ) |  |        | .19   |  |  |        | .20   | 
|                                               |                                                     |   |         |     |         |  |         |       |         |  |        |       |   |  |        |       |  |  |        |      
|                                               | Diluted                                             |   | $       | .01 |         |  |         | .06   |         |  |        | (.06  | ) |  |        | .19   |  |  |        | .20   | 
|                                               |                                                     |   |         |     |         |  |         |       |         |  |        |       |   |  |        |       |  |  |        |      

F-33