##### 



SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-QSB

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
| 
|  |  | For the quarterly period ended September 30, 2002                                       
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File No. 000-49780

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SOUTHERN COMMUNITY BANCORP

---

(Exact Name of Small Business Issuer as Specified in its Charter)


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

250 North Orange Avenue, Orlando, Florida 32801

---

(Address of Principal Executive Offices)


(407) 648-1844

---

(Issuers telephone number, including area code)


Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days: Yes   x   No   o

As of October 25, 2002, the issuer had 6,693,064 outstanding shares of
common stock, par value $1.00 per share.

1



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##### 



SOUTHERN COMMUNITY BANCORP
FORM 10-QSB
September 30, 2002

INDEX

|         |  |                                                                                                                                                                      |  |          |    | 
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|         |  |                                                                                                                                                                      |  | Page No.
|         |  |                                                                                                                                                                      |  |         
|PART I:  |  | FINANCIAL INFORMATION                                                                                                                                                |  |          | 3 
|        
|Item 1.  |  | Condensed Consolidated Financial Statements                                                                                                                          |  |          | 3 
|        
|         |  | Condensed Consolidated Balance Sheets -
September 30, 2002 and 2001 (Unaudited) and December 31, 2001                                                                |  |          | 3 
|        
|         |  | Condensed Consolidated Statements of Operations (Unaudited) -
Three Months Ended September 30, 2002 and 2001
Nine Months Ended September 30, 2002 and 2001           |  |          | 5 
|        
|         |  | Condensed Consolidated Statements of Comprehensive Income (Unaudited) -
Three Months Ended September 30, 2002 and 2001
Nine Months Ended September 30, 2002 and 2001 |  |          | 7 
|        
|         |  | Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 2002 and 2001                                                          |  |          | 8 
|        
|         |  | Condensed Consolidated Statement of Stockholders Equity (Unaudited) -
Nine Months Ended September 30, 2002                                                          |  |          | 10
|        
|         |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                                                     |  |          | 11
|        
|         |  | Review by Independent Certified Public Accountants                                                                                                                   |  |          | 15
|        
|         |  | Report on Review by Independent Certified Public Accountants                                                                                                         |  |          | 16
|        
|Item 2.  |  | Managements Discussion and Analysis of Results of Operations
and Financial Condition                                                                                |  |          | 17
|        
|Item 3.  |  | Controls and Procedures                                                                                                                                              |  |          | 27
|        
|        
|PART II: |  | OTHER INFORMATION                                                                                                                                                    |  |          | 28
|        
|Item 5.  |  | Other Information                                                                                                                                                    |  |          | 28
|        
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                                                                     |  |          | 28

2



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##### 



PART I
FINANCIAL INFORMATION

Item 1. Financial Statements.

SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)


($ in thousands, except per share amounts)


|                                                                             |                                                                                                                                     |                                            |         |                  |         |      |         |         |         | 
|---------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ---------------- | ------- | ---- | ------- | ------- | ------- | 
|                                                                             |                                                                                                                                     |                                            |         | At September 30,
|                                                                             |                                                                                                                                     |                                            |         |                 
|                                                                             |                                                                                                                                     |                                            |         | 2002             |         | 2001
|                                                                             |                                                                                                                                     |                                            |         |                  |         |     
|                                                                             | Assets                                                                                                                              |                                            |         |                  |         |      |         |         |        
|Cash and due from banks                                                      |                                                                                                                                     | $                                          | 12,250  |                  |         |      | 10,234  |        
|Interest-bearing deposits and federal funds sold                             |                                                                                                                                     |                                            | 77,935  |                  |         |      | 43,196  |        
|                                                                             |                                                                                                                                     |                                            |         |                  |         |      |         |        
|                                                                             | Cash and cash equivalents                                                                                                           |                                            |         | 90,185           |         |      |         | 53,430  |        
|Securities available for sale                                                |                                                                                                                                     |                                            | 63,623  |                  |         |      | 29,919  |        
|Loans, net of allowance for loan losses of
$6,095 in 2002 and $3,774 in 2001 |                                                                                                                                     |                                            | 439,188 |                  |         |      | 300,401 |        
|Accrued interest receivable                                                  |                                                                                                                                     |                                            | 2,624   |                  |         |      | 1,846   |        
|Federal Home Loan Bank stock, at cost                                        |                                                                                                                                     |                                            | 212     |                  |         |      | 212     |        
|Premises and equipment, net                                                  |                                                                                                                                     |                                            | 18,309  |                  |         |      | 13,476  |        
|Deferred income tax asset                                                    |                                                                                                                                     |                                            | 900     |                  |         |      | 425     |        
|Bank owned life insurance                                                    |                                                                                                                                     |                                            | 4,002   |                  |         |      | 3,410   |        
|Goodwill, net                                                                |                                                                                                                                     |                                            | 971     |                  |         |      | 1,025   |        
|Foreclosed assets, net                                                       |                                                                                                                                     |                                            | 185     |                  |         |      | 371     |        
|Other assets                                                                 |                                                                                                                                     |                                            | 690     |                  |         |      | 632     |        
|                                                                             |                                                                                                                                     |                                            |         |                  |         |      |         |        
|                                                                             | Total assets                                                                                                                        |                                            | $       | 620,889          |         |      |         | 405,147 |        
|                                                                             |                                                                                                                                     |                                            |         |                  |         |      |         |        
|Liabilities and Stockholders Equity                                         |                                                                                                                                     |                                            |         |                  |         |      |         |        
|Liabilities:                                                                 |                                                                                                                                     |                                            |         |                  |         |      |         |        
|                                                                             | Non-interest-bearing demand deposits                                                                                                |                                            | $       | 53,611           |         |      |         | 33,977  |        
|                                                                             | Savings, money-market and NOW deposits                                                                                              |                                            |         | 233,625          |         |      |         | 158,589 |        
|                                                                             | Time deposits                                                                                                                       |                                            |         | 268,235          |         |      |         | 164,049 |        
|                                                                             |                                                                                                                                     |                                            |         |                  |         |      |         |        
|                                                                             |                                                                                                                                     | Total deposits                             |         |                  | 555,471 |      |         |         | 356,615 | 
|                                                                             | Other borrowings                                                                                                                    |                                            |         | 1,912            |         |      |         | 1,382   |        
|                                                                             | Official checks                                                                                                                     |                                            |         | 4,056            |         |      |         | 2,173   |        
|                                                                             | Other liabilities                                                                                                                   |                                            |         | 2,328            |         |      |         | 1,713   |        
|                                                                             |                                                                                                                                     |                                            |         |                  |         |      |         |        
|                                                                             |                                                                                                                                     | Total liabilities                          |         |                  | 563,767 |      |         |         | 361,883 | 
|                                                                             |                                                                                                                                     |                                            |         |                  |         |      |         |        
|Stockholders equity:                                                        |                                                                                                                                     |                                            |         |                  |         |      |         |        
|                                                                             | Common stock, $1.00 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)                                                                                             |                                            |         | 66               |         |      |         | (758    | )      
|                                                                             | Accumulated other comprehensive income                                                                                              |                                            |         | 709              |         |      |         | 356     |        
|                                                                             |                                                                                                                                     |                                            |         |                  |         |      |         |        
|                                                                             |                                                                                                                                     | Total stockholders equity                 |         |                  | 57,122  |      |         |         | 43,264  | 
|                                                                             |                                                                                                                                     |                                            |         |                  |         |      |         |        
|                                                                             |                                                                                                                                     | Total liabilities and stockholders equity |         | $                | 620,889 |      |         |         | 405,147 | 
|                                                                             |                                                                                                                                     |                                            |         |                  |         |      |         |        

See Accompanying Notes to Condensed Consolidated Financial Statements.

3



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##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Condensed Consolidated Balance Sheet


($ in thousands, except per share amounts)


|                                                  |                                                                                                      |                                            |         |              |         | 
|------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- | 
|                                                  |                                                                                                      |                                            |         | At          
|                                                  |                                                                                                      |                                            |         | December 31,
|                                                  |                                                                                                      |                                            |         | 2001        
|                                                  |                                                                                                      |                                            |         |             
|                                                  | Assets                                                                                               |                                            |         |              |        
|Cash and due from banks                           |                                                                                                      | $                                          | 14,625  |             
|Federal funds sold                                |                                                                                                      |                                            | 15,504  |             
|                                                  |                                                                                                      |                                            |         |             
|                                                  |                                                                                                      | Cash and cash equivalents                  |         |              | 30,129  | 
|Securities available for sale                     |                                                                                                      |                                            | 41,472  |             
|Loans, net of allowance for loan losses of $4,457 |                                                                                                      |                                            | 352,161 |             
|Accrued interest receivable                       |                                                                                                      |                                            | 2,083   |             
|Federal Home Loan Bank stock, at cost             |                                                                                                      |                                            | 212     |             
|Premises and equipment, net                       |                                                                                                      |                                            | 16,229  |             
|Deferred income tax asset                         |                                                                                                      |                                            | 1,236   |             
|Bank owned life insurance                         |                                                                                                      |                                            | 3,445   |             
|Goodwill, net                                     |                                                                                                      |                                            | 971     |             
|Foreclosed assets, net                            |                                                                                                      |                                            | 907     |             
|Other assets                                      |                                                                                                      |                                            | 282     |             
|                                                  |                                                                                                      |                                            |         |             
|                                                  |                                                                                                      | Total assets                               |         | $            | 449,127 | 
|                                                  |                                                                                                      |                                            |         |             
|                                                  | Liabilities and Stockholders Equity                                                                 |                                            |         |              |        
|Liabilities:                                      |                                                                                                      |                                            |         |             
|                                                  | Non-interest-bearing demand deposits                                                                 |                                            | $       | 37,397       |        
|                                                  | Savings, money-market and NOW deposits                                                               |                                            |         | 177,733      |        
|                                                  | Time deposits                                                                                        |                                            |         | 184,843      |        
|                                                  |                                                                                                      |                                            |         |             
|                                                  |                                                                                                      | Total deposits                             |         |              | 399,973 | 
|                                                  | Other borrowings                                                                                     |                                            |         | 1,658        |        
|                                                  | Official checks                                                                                      |                                            |         | 3,308        |        
|                                                  | Other liabilities                                                                                    |                                            |         | 1,840        |        
|                                                  |                                                                                                      |                                            |         |             
|                                                  |                                                                                                      | Total liabilities                          |         |              | 406,779 | 
|                                                  |                                                                                                      |                                            |         |             
|Stockholders equity:                             |                                                                                                      |                                            |         |             
|                                                  | Common stock, $1.00 par value, 10,000,000 shares
authorized, 5,460,202 shares issued and outstanding |                                            |         | 5,460        |        
|                                                  | Additional paid-in capital                                                                           |                                            |         | 38,206       |        
|                                                  | Accumulated deficit                                                                                  |                                            |         | (1,406       | )      
|                                                  | Accumulated other comprehensive income                                                               |                                            |         | 88           |        
|                                                  |                                                                                                      |                                            |         |             
|                                                  |                                                                                                      | Total stockholders equity                 |         |              | 42,348  | 
|                                                  |                                                                                                      |                                            |         |             
|                                                  |                                                                                                      | Total liabilities and stockholders equity |         | $            | 449,127 | 
|                                                  |                                                                                                      |                                            |         |             

See Accompanying Notes to Condensed Consolidated Financial Statements.

4



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##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)


($ in thousands, except per share amounts)


|                                                                 |                                               |                           |           |                    |       |      |           |       |       | 
|---------------------------------------------------------------- | --------------------------------------------- | ------------------------- | --------- | ------------------ | ----- | ---- | --------- | ----- | ----- | 
|                                                                 |                                               |                           |           | Three Months Ended
|                                                                 |                                               |                           |           | September 30,     
|                                                                 |                                               |                           |           |                   
|                                                                 |                                               |                           |           | 2002               |       | 2001
|                                                                 |                                               |                           |           |                    |       |     
|Interest income:                                                 |                                               |                           |           |                    |       |      |           |      
|                                                                 | Loans                                         |                           | $         | 8,168              |       |      |           | 6,044 |      
|                                                                 | Securities available for sale                 |                           |           | 674                |       |      |           | 345   |      
|                                                                 | Other interest-earning assets                 |                           |           | 321                |       |      |           | 401   |      
|                                                                 |                                               |                           |           |                    |       |      |           |      
|                                                                 |                                               | Total interest income     |           |                    | 9,163 |      |           |       | 6,790 | 
|                                                                 |                                               |                           |           |                    |       |      |           |      
|Interest expense:                                                |                                               |                           |           |                    |       |      |           |      
|                                                                 | Deposits                                      |                           |           | 3,945              |       |      |           | 3,961 |      
|                                                                 | Other borrowings                              |                           |           | 7                  |       |      |           | 15    |      
|                                                                 |                                               |                           |           |                    |       |      |           |      
|                                                                 |                                               | Total interest expense    |           |                    | 3,952 |      |           |       | 3,976 | 
|                                                                 |                                               |                           |           |                    |       |      |           |      
|Net interest income                                              |                                               |                           | 5,211     |                    |       |      | 2,814     |      
|                                                                 | Provision for loan losses                     |                           |           | 1,106              |       |      |           | 409   |      
|                                                                 |                                               |                           |           |                    |       |      |           |      
|Net interest income after provision for loan losses              |                                               |                           | 4,105     |                    |       |      | 2,405     |      
|                                                                 |                                               |                           |           |                    |       |      |           |      
|Noninterest income:                                              |                                               |                           |           |                    |       |      |           |      
|                                                                 | Service charges on deposit accounts           |                           |           | 135                |       |      |           | 95    |      
|                                                                 | Other service charges and fees                |                           |           | 262                |       |      |           | 222   |      
|                                                                 | Earnings on bank owned life insurance         |                           |           | 57                 |       |      |           | 39    |      
|                                                                 | Loss on sale of securities available for sale |                           |           | (2                 | )     |      |           |      |      
|                                                                 |                                               |                           |           |                    |       |      |           |      
|                                                                 |                                               | Total noninterest income  |           |                    | 452   |      |           |       | 356   | 
|                                                                 |                                               |                           |           |                    |       |      |           |      
|Noninterest expense:                                             |                                               |                           |           |                    |       |      |           |      
|                                                                 | Salaries and employee benefits                |                           |           | 2,071              |       |      |           | 1,519 |      
|                                                                 | Occupancy expense                             |                           |           | 753                |       |      |           | 509   |      
|                                                                 | Data processing                               |                           |           | 255                |       |      |           | 202   |      
|                                                                 | Printing and office supplies                  |                           |           | 90                 |       |      |           | 67    |      
|                                                                 | Marketing and advertising                     |                           |           | 108                |       |      |           | 67    |      
|                                                                 | Professional fees                             |                           |           | 150                |       |      |           | 119   |      
|                                                                 | Other                                         |                           |           | 413                |       |      |           | 344   |      
|                                                                 |                                               |                           |           |                    |       |      |           |      
|                                                                 |                                               | Total noninterest expense |           |                    | 3,840 |      |           |       | 2,827 | 
|                                                                 |                                               |                           |           |                    |       |      |           |      
|Earnings (loss) before income taxes (benefit)                    |                                               |                           | 717       |                    |       |      | (66       | )    
|                                                                 | Income taxes (benefit)                        |                           |           | 262                |       |      |           | (19   | )    
|                                                                 |                                               |                           |           |                    |       |      |           |      
|Net earnings (loss)                                              |                                               | $                         | 455       |                    |       |      | (47       | )    
|                                                                 |                                               |                           |           |                    |       |      |           |      
|Basic earnings (loss) per share                                  |                                               | $                         | .07       |                    |       |      | (.01      | )    
|                                                                 |                                               |                           |           |                    |       |      |           |      
|Weighted-average number of common shares outstanding for basic   |                                               |                           | 6,693,064 |                    |       |      | 5,383,372 |      
|                                                                 |                                               |                           |           |                    |       |      |           |      
|Diluted earnings (loss) per share                                |                                               | $                         | .07       |                    |       |      | (.01      | )    
|                                                                 |                                               |                           |           |                    |       |      |           |      
|Weighted-average number of common shares outstanding for diluted |                                               |                           | 6,914,468 |                    |       |      | 5,383,372 |      
|                                                                 |                                               |                           |           |                    |       |      |           |      
|Dividends per share                                              |                                               |                           |          |                    |       |      |          |      
|                                                                 |                                               |                           |           |                    |       |      |           |      

See Accompanying Notes to Condensed Consolidated Financial Statements.

5



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##### 



SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited) ($ in thousands, except per share amounts)
 Nine Months EndedSeptember 30,2002
        
        2001Interest income:Loans
        
        $
        22,182
        
        
        
        15,113Securities available for sale
        
        
        1,781
        
        
        
        972Other interest-earning assets
        
        
        652
        
        
        
        1,416Total interest income
        
        
        24,615
        
        
        
        17,501Interest expense:Deposits
        
        
        10,900
        
        
        
        10,161Other borrowings
        
        
        30
        
        
        
        26Total interest expense
        
        
        10,930
        
        
        
        10,187Net interest income
        
        
        13,685
        
        
        
        7,314Provision for loan losses
        
        
        1,952
        
        
        
        1,554Net interest income after provision for loan losses
        
        
        11,733
        
        
        
        5,760Noninterest income:Service charges on deposit accounts
        
        
        371
        
        
        
        263Other service charges and fees
        
        
        929
        
        
        
        432Earnings on bank owned life insurance
        
        
        152
        
        
        
        118Gain on sale of securities available for sale
        
        
        120
        
        
        
        459Total noninterest income
        
        
        1,572
        
        
        
        1,272Noninterest expense:Salaries and employee benefits
        
        
        5,794
        
        
        
        3,620Occupancy expense
        
        
        2,207
        
        
        
        1,290Data processing
        
        
        739
        
        
        
        491Printing and office supplies
        
        
        258
        
        
        
        207Marketing and advertising
        
        
        335
        
        
        
        182Professional fees
        
        
        372
        
        
        
        274Preopening expense
        
        
        134
        
        
        
        Other
        
        
        1,144
        
        
        
        855Total noninterest expense
        
        
        10,983
        
        
        
        6,919Earnings before income taxes
        
        
        2,322
        
        
        
        113Income taxes
        
        
        850
        
        
        
        45Net earnings
        
        $
        1,472
        
        
        
        68Basic earnings per share
        
        $
        .25
        
        
        
        .02Weighted-average number of common shares outstanding for basic
        
        
        5,925,934
        
        
        
        4,469,914Diluted earnings per share
        
        $
        .24
        
        
        
        .02Weighted-average number of common shares outstanding for diluted
        
        
        6,148,290
        
        
        
        4,513,382Dividends per share
        
        
        
        
        
        
         See Accompanying Notes to Condensed Consolidated Financial Statements. 6      SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 (In thousands)
 Three Months Ended
        
        Nine Months EndedSeptember 30,
        

September 30,2002
        
        2001
        
        2002
        
        2001Net earnings (loss)
        
        $
        455
        
        
        
        (47
        )
        
        
        1,472
        
        
        
        68Net change in unrealized gain on securities
available for sale, net of tax
        
        
        331
        
        
        
        214
        
        
        
        621
        
        
        
        72Comprehensive income
        
        $
        786
        
        
        
        167
        
        
        
        2,093
        
        
        
        140 See Accompanying Notes to Condensed Consolidated Financial Statements. 7      SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited)
 (In thousands) Nine Months EndedSeptember 30,2002
        
        2001Cash flows from operating activities:Net earnings
        
        $
        1,472
        
        
        
        68Adjustments to reconcile net earnings to net cash
provided by operating activities:Provision for loan losses
        
        
        1,952
        
        
        
        1,554Depreciation and amortization
        
        
        947
        
        
        
        523Gain on sale of securities available for sale
        
        
        (120
        )
        
        
        (459
        )Credit for deferred income taxes
        
        
        
        
        
        
        (100
        )Net amortization of premiums and discounts on securities
        
        
        5
        
        
        
        11Net amortization of deferred loan fees and costs
        
        
        (663
        )
        
        
        (226
        )Common stock issued as compensation
        
        
        143
        
        
        
        11Earnings on bank owned life insurance
        
        
        (152
        )
        
        
        (118
        )Increase in accrued interest receivable
        
        
        (541
        )
        
        
        (422
        )Increase in other assets
        
        
        (408
        )
        
        
        (383
        )Increase in official checks
        
        
        748
        
        
        
        600Increase in other liabilities
        
        
        488
        
        
        
        594Net cash provided by operating activities
        
        
        3,871
        
        
        
        1,653Cash flows from investing activities:Maturities, calls and repayments of securities available for sale
        
        
        15,561
        
        
        
        18,104Purchases of securities available for sale
        
        
        (59,887
        )
        
        
        (36,983
        )Proceeds from sale of securities available for sale
        
        
        23,247
        
        
        
        12,165Net increase in loans
        
        
        (87,803
        )
        
        
        (108,626
        )Purchases of premises and equipment
        
        
        (3,027
        )
        
        
        (3,455
        )Net proceeds from sales of foreclosed assets
        
        
        209
        
        
        
        Purchase of bank owned life insurance
        
        
        (405
        )
        
        
        (705
        )Net proceeds from sale of premises and equipment
        
        
        
        
        
        
        1,215Cash and cash equivalents acquired in connection with merger with
Peninsula Bancorp, Inc.
        
        
        
        
        
        
        12,127Net cash used in investing activities
        
        
        (112,105
        )
        
        
        (106,158
        )Cash flows from financing activities:Net increase in deposits
        
        
        155,498
        
        
        
        124,230Net increase (decrease) in other borrowings
        
        
        254
        
        
        
        (74
        )Proceeds from issuance of common stock, net
        
        
        12,538
        
        
        
        6,466Net cash provided by financing activities
        
        
        168,290
        
        
        
        130,622Net increase in cash and cash equivalents
        
        
        60,056
        
        
        
        26,117Cash and cash equivalents at beginning of period
        
        
        30,129
        
        
        
        27,313Cash and cash equivalents at end of period
        
        $
        90,185
        
        
        
        53,430 (continued) 8      SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
(In thousands) Nine Months EndedSeptember 30,2002
        
        2001Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
        
        $
        11,017
        
        
        
        9,942Income taxes
        
        
        1,098
        
        
        
        Noncash financing and investing activities:Change in accumulated other comprehensive income,
unrealized gain on securities available for sale,
net of tax
        
        
        621
        
        
        
        72Transfer of loans to foreclosed assets
        
        
        207
        
        
        
        371Loans 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
        
        
        
        
        
        
        3,890Loans, net
        
        
        
        
        
        
        42,740Premises and equipment
        
        
        
        
        
        
        2,054Deposits
        
        
        
        
        
        
        50,160Other borrowings
        
        
        
        
        
        
        1,457Other assets, net of other liabilities
        
        
        
        
        
        
        54Goodwill
        
        
        
        
        
        
        1,046Common stock issued
        
        
        
        
        
        
        10,295 See Accompanying Notes to Condensed Consolidated Financial Statements. 9      SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES Condensed Consolidated Statement of Stockholders Equity
 Nine Months Ended September 30, 2002
(In thousands)
 RetainedEarnings
        
        Accumulated OtherCommon
        
        Additional Paid-in
        
        (Accumulated
        
        Comprehensive
        
        Total Stockholders'Stock
        
        Capital
        
        Deficit)
        
        Income
        
        EquityBalance at December 31, 2001
        
        $
        5,460
        
        
        
        38,206
        
        
        
        (1,406
        )
        
        
        88
        
        
        
        42,348Net earnings (unaudited)
        
        
        
        
        
        
        
        
        
        
        1,472
        
        
        
        
        
        
        
        1,472Net change in unrealized gain
on securities available for
sale, net of tax of $336
(unaudited)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        621
        
        
        
        621Common stock issued as
compensation (unaudited)
        
        
        18
        
        
        
        125
        
        
        
        
        
        
        
        
        
        
        
        143Sale of common stock in
connection with 401(k) Profit
Sharing Plan (unaudited)
        
        
        35
        
        
        
        250
        
        
        
        
        
        
        
        
        
        
        
        285Sale of common stock in
connection with Employee Stock
Purchase Plan (unaudited)
        
        
        15
        
        
        
        112
        
        
        
        
        
        
        
        
        
        
        
        127Sale of common stock (unaudited)
        
        
        14
        
        
        
        109
        
        
        
        
        
        
        
        
        
        
        
        123Sale of common stock in
connection with private
placement offering, less
offering costs of $83
(unaudited)
        
        
        1,151
        
        
        
        10,852
        
        
        
        
        
        
        
        
        
        
        
        12,003Balance at September 30, 2002
(unaudited)
        
        $
        6,693
        
        
        
        49,654
        
        
        
        66
        
        
        
        709
        
        
        
        57,122 See Accompanying Notes to Condensed Consolidated Financial Statements. 10      SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited)
 1.     General.In the opinion of the management of Southern Community Bancorp
and its subsidiaries (the Company or Southern), the accompanying condensed
consolidated financial statements contain all adjustments (consisting
principally of normal recurring accruals) necessary to present fairly the
financial position at September 30, 2002 and 2001, and the results of
operations for the three- and nine-month periods then ended and cash flows for
the nine-month periods ended September 30, 2002 and 2001. The results of
operations and other data for the three and nine months ended September 30,
2002 are not necessarily indicative of the results to be expected for the year
ending December 31, 2002. Southern Community Bancorp (the Holding Company) owns all of the
outstanding common stock of Southern Community Bank (the Orlando Bank),
Southern Community Bank of Southwest Florida (the Bonita Springs Bank),
Southern Community Bank, Atlantic (the Daytona Beach Bank) and Southern
Community Bank of South Florida (the South Florida Bank). The banks are
state chartered commercial banks and their deposits are insured by the Federal
Deposit Insurance Corporation (FDIC) through the Bank Insurance Fund. The
Daytona Beach Bank was acquired by the Company on April 30, 2001. The South
Florida Bank commenced operations on August 5, 2002. The Orlando Bank owns all of the outstanding common stock of Southern
Community Insurance Agency, Inc. (the Insurance Agency). The Insurance
Agency refers customers of the Orlando Bank to certain insurance agencies for
the purchase of insurance products. In January 2001, the Holding Company
acquired a 50% equity interest in Southern Community Bank Mortgage LLC (the
Mortgage Company). The Mortgage Company originates, processes and closes
residential mortgage loans in central Florida. 2.     Loan Impairment and Losses.The Company performs a quarterly loan loss
analysis to identify impaired loans as defined by SFAS 114 and 118. The
Companys impaired loans were as follows (in thousands): At September 30,
        
        At December 31,2002
        
        2001
        
        2001Gross loans with no related allowance
        
        $
        
        
        
        
        
        
        
        
        Gross loans with related allowance
        
        
        900
        
        
        
        2,332
        
        
        
        2,307Less: Allowance on the loans
        
        
        (45
        )
        
        
        (117
        )
        
        
        (186
        )Net investment in impaired loans
        
        $
        855
        
        
        
        2,215
        
        
        
        2,121 The average net investment in collateral dependent impaired loans and
interest income recognized and received on these loans were as follows
(in thousands): Three Months Ended
        
        Nine Months EndedSeptember 30,
        
        September 30,2002
        
        2001
        
        2002
        
        2001Average net investment in impaired loans
        
        $
        1,439
        
        
        
        2,270
        
        
        
        1,861
        
        
        
        1,747Interest income recognized or impaired loans
        
        $
        
        
        
        
        
        
        
        
        
        
        
        
        45Interest income received on impaired loans
        
        $
        
        
        
        
        
        
        
        
        
        
        
        
        45 11      An analysis of the change in the allowance for loan losses was as follows (in
thousands): Three Months EndedSeptember 30,2002
        
        2001Balance at beginning of period
        
        $
        5,190
        
        
        
        3,466Provision charged to earnings
        
        
        1,106
        
        
        
        409Net charge-offs
        
        
        (201
        )
        
        
        (101
        )Balance at end of period
        
        $
        6,095
        
        
        
        3,774 Nine Months EndedSeptember 30,2002
        
        2001Balance at beginning of period
        
        $
        4,457
        
        
        
        1,795Provision charged to earnings
        
        
        1,952
        
        
        
        1,554Allowance acquired upon merger
        
        
        
        
        
        
        537Net charge-offs
        
        
        (314
        )
        
        
        (112
        )Balance at end of period
        
        $
        6,095
        
        
        
        3,774 3.     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. All per share
information has been restated for the three- and nine-month periods ended
September 30, 2001 to reflect this split. 4.     Earnings (Loss) Per Share .Earnings (loss) per share of common stock
were computed on the basis of the weighted-average number of shares of common
stock outstanding. Diluted earnings per share were computed based on the
weighted-average number of shares outstanding plus the effect of outstanding
stock options, computed using the treasury stock method. Such options were
antidilutive for the three months ended September 30, 2001. The following
table presents the calculations of earnings per share ($ in thousands, except
per share amounts): Three Months Ended September 30,2000Weighted-AverageEarnings
        
        Shares
        
        Per Share AmountBasic earnings per share:Net earnings available to
common stockholders
        
        
        
        
        
        $
        455
        
        
        
        6,693,064
        
        
        $
        .07Effect of dilutive securities -Incremental shares from assumed
exercise of options
        
        
        
        
        
        
        
        
        
        
        221,404Diluted earnings per share:Net earnings available
to common stockholders
and assumed conversion
        
        
        
        
        
        $
        455
        
        
        
        6,914,468
        
        
        $
        .07 12      Nine Months Ended September 30,2002
        
        2001Weighted-Average
        
        
        
        
        
        
        
        
        
        
        
        
        
        Weighted-AverageEarnings
        
        Shares
        
        Per Share Amount
        
        
        
        
        
        Earnings
        
        Shares
        
        Per Share AmountBasic earnings per share:Net earnings available to
common stockholders
        
        $
        1,472
        
        
        
        5,925,934
        
        
        $
        .25
        
        
        
        
        
        
        $
        68
        
        
        
        4,469,914
        
        
        $
        .02Effect of dilutive securities -Incremental shares from assumed
exercise of options
        
        
        
        
        
        
        222,356
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        43,468Diluted earnings per share:Net earnings available
to common stockholders
and assumed conversion
        
        $
        1,472
        
        
        
        6,148,290
        
        
        $
        .24
        
        
        
        
        
        
        $
        68
        
        
        
        4,513,382
        
        
        $
        .02 5.     Regulatory Capital.The Holding Company, the Orlando Bank, the Bonita
Springs Bank, the Daytona Beach Bank and the South Florida Bank are required to
maintain certain minimum regulatory capital requirements. The following is a
summary at September 30, 2002 of the regulatory capital requirements and the
actual capital on a percentage basis: RegulatoryActual
        
        RequirementTotal capital to risk-weighted assetsConsolidated
        
        
        11.73
        %
        
        
        8.00
        %Bonita Springs Bank
        
        
        10.22
        %
        
        
        8.00
        %Orlando Bank
        
        
        8.92
        %
        
        
        8.00
        %Daytona Beach Bank
        
        
        11.67
        %
        
        
        8.00
        %South Florida Bank
        
        
        18.39
        %
        
        
        8.00
        %Tier I capital to risk-weighted assetsConsolidated
        
        
        10.40
        %
        
        
        4.00
        %Bonita Springs Bank
        
        
        9.23
        %
        
        
        4.00
        %Orlando Bank
        
        
        7.67
        %
        
        
        4.00
        %Daytona Beach Bank
        
        
        10.66
        %
        
        
        4.00
        %South Florida Bank
        
        
        17.32
        %
        
        
        4.00
        %Tier I capital to total assets  leverage ratioConsolidated
        
        
        9.45
        %
        
        
        4.00
        %Bonita Springs Bank
        
        
        9.26
        %
        
        
        4.00
        %Orlando Bank
        
        
        6.48
        %
        
        
        4.00
        %Daytona Beach Bank
        
        
        10.49
        %
        
        
        4.00
        %South Florida Bank
        
        
        17.77
        %
        
        
        4.00
        % 6.     Other Events. On December 18, 2000, the Holding Company entered into
an Agreement and Plan of Merger (the Merger Agreement) with Peninsula
Bancorp, Inc., pursuant to which Peninsula agreed to merge with and into the
Holding Company. Peninsula was the parent company of Peninsula Bank of Central
Florida (Peninsula Bank), a state bank 13      with three offices in Volusia County, Florida. The merger was consummated
on April 30, 2001. Under the terms of the Merger Agreement, each share of
Peninsula common stock was converted into 0.625 shares of the common stock of
the Holding Company. The Holding Company issued 623,940 shares of common stock
in connection with this transaction. The Holding Company accounted for this
transaction using the purchase method of accounting. Peninsula Banks name was
subsequently changed to Southern Community Bank, Atlantic. The results for the nine months ended September 30, 2001 include the results of
Peninsula from the effective date of the merger. The excess purchase price
over fair market value of the net assets acquired of $1.0 million was allocated
to goodwill which was being amortized over twenty years. However, the Company
adopted FASB 142, Goodwill and Other Intangible Assetson January 1, 2002.
Under this standard, goodwill amortization ceased and the asset will be
evaluated periodically for impairment. The unaudited proforma results below
assume the acquisition at the beginning of 2001 (dollars in thousands, except
per share amounts): Nine Months EndedSeptember 30, 2001Interest income
        
        $
        18,794Net interest income
        
        $
        7,896Net earnings
        
        $
        20Earnings per share:Basic
        
        $
        .01Diluted
        
        $
        .01 In managements opinion, the unaudited proforma combined results of
operations are not indicative of the actual results that would have occurred
had the acquisition been consummated at the beginning of the year ended
December 31, 2001 or of future operations of the combined entities under the
ownership and management of the Company. 14      SOUTHERN COMMUNITY BANCORP AND SUBSIDIARIES Review by Independent Certified Public Accountants Hacker, Johnson & Smith PA, the Companys independent certified public
accountants, have made a limited review of the financial data as of September
30, 2002 and 2001 and for the three-and nine-month periods then ended,
presented in this document, in accordance with standards established by the
American Institute of Certified Public Accountants. Their report furnished pursuant to Article 10 of Regulation S-X is
included herein. 15      Report on Review by Independent Certified Public Accountants The Board of Directors
Southern Community Bancorp
Orlando, Florida: We have reviewed the accompanying condensed consolidated balance sheets of
Southern Community Bancorp and Subsidiaries (the Company) as of September 30,
2002 and 2001, and the related condensed consolidated statements of operations
and comprehensive income for the three and nine month periods then ended, the
related condensed consolidated statement of stockholders equity for the nine
month period ended September 30, 2002 and the related condensed consolidated
statements of cash flows for the nine-month periods ended September 30, 2002
and 2001. These financial statements are the responsibility of the Companys
management. We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquires of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States
of America, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express such
an opinion. Based on our reviews, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with accounting principles generally
accepted in the United States of America. We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet as of December 31, 2001, and the related consolidated statements of
operations, stockholders equity and cash flows for the year then ended (not
presented herein); and in our report dated January 25, 2002 we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 2001, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived. HACKER, JOHNSON & SMITH PA
Orlando, Florida
October 25, 2002 16      Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition This Form 10-QSB contains forward looking statements which 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-QSB 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. Recent Developments Opening of the South Florida 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 $10.1 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 bank also assumed deposits of
the Orlando bank in an amount equal to the transferred assets. Results of Operations  Three Months Ended September 30, 2002 and 2001 Southern had net earnings for the third quarter of 2002 of $455,000,
compared to a net loss of $47,000 for the comparable period in 2001.
Earnings before income taxes in the third quarter of 2002 were $717,000
compared to a loss of $66,000 in the third quarter of 2001. The
improvement in earnings was primarily due to a substantial increase in
net interest income, which grew from $2.8 million in the third quarter of
2001 to $5.2 million in the third quarter of 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. Net Interest Income. Southerns operating results depend primarily on
Southerns net interest income, which is a difference between interest
income on interest-earning assets and interest expense on
interest-bearing liabilities. Net interest income is determined by the
difference between yields earned on interest-earning assets and rates
paid on interest- bearing liabilities and the relative amounts of
interest-earning assets and interest-bearing liabilities. Southerns
interest rates spread is affected by regulatory, economic and competitive
factors that influence interest rates, loan demand and deposit flows. In
addition, Southerns net earnings are also affected by the level of
non-performing loans 17      and foreclosed assets, as well as the level of its non-interest income,
and its non-interest expenses, such as salaries and employee benefits and
occupancy expense. Interest income for the third quarter of 2002 was $9.2 million, compared
to $6.8 million for the third quarter of 2001. The growth in interest
income primarily reflects the growth in Southerns assets, which grew
from $405.1 million at September 30, 2001 to $620.9 million at September
30, 2002. 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 $300.4 million to $439.2 million. The increase in assets
is primarily attributable to the growth of Southerns business in
southeast Florida, where Southern opened a branch in the fall of 2001
which was transferred to the newly organized South Florida Bank on August
5, 2002. Interest expense was $4.0 million for both third quarters of 2002 and
2001. This was due to a combination of higher level of deposits and a
decrease in the average cost of deposits. Most of the deposit growth was
attributable to Southerns new operations in southeast Florida. Southerns net interest margin increased from approximately 2.91% for the
third quarter of 2001 to approximately 3.73% for the third quarter of
2002. The positive change in the net interest margin was due in part to
the repricing of a relatively high priced deposit product at the end of
2001. Southern had utilized this product in 2000 and 2001 to attract
deposits to support growth and liquidity. Due to the sharp decline in
market interest rates in the first nine months of 2001, this product
adversely impacted Southerns net interest margin during 2001.
Southerns net interest margin improved after December 31, 2001, when the
product was repriced to market rates. The net interest margin was also
positively impacted 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. Noninterest Income.Noninterest income in the third quarter of 2002
totaled $452,000, compared with $356,000 in 2001. Customer service
charges totaled $135,000 in 2002, up from $95,000 in 2001, due to an
increase in the average number of deposit accounts. Other service charges
and fees totaled $262,000 in 2002, up from $222,000 in 2001. This
increase was primarily caused by an increase in insurance referral fees,
as well as the overall growth of Southern. Provision for Loan Losses.The provision for loan losses totaled $1.1
million in the third quarter of 2002 compared to $409,000 in 2001. The
allowance for loan losses at September 30, 2002 was $6.1 million. See
Allowance and Provision for Loan Losses below. Noninterest Expenses.Noninterest expenses for the third quarter of 2002
totaled $3.8 million, up 36% from $2.8 million in 2001. Noninterest
expenses included the following:  
        
        Salaries and employee benefits represented 54% of total
non-interest expenses in 2002. Salaries and employee benefits
increased 36% to $2.1 million in 2002 from $1.5 million in 2001.
The increase was primarily due to the addition of 18       employees in connection with the opening of new branches by the
Orlando Bank and the Bonita Springs Bank and the commencement of
operations of the South Florida Bank, together with salary
increases and higher benefit costs.
        
        Occupancy and equipment expense in 2002 totaled $753,000, up
48% from $509,000 in 2001. This increase was primarily due to the
acquisition of the Daytona Beach Bank, the opening of new branches
by the Orlando Bank and the Bonita Springs Bank and the commencement
of operations of the South Florida Bank.
        
        Other non-interest expenses for the third quarter of 2002
totaled $1.0 million, up 27% from $799,000 in 2001. Other
non-interest expenses included data processing, printing and office
supplies, marketing and advertising, professional fees and other
expenses. The increase resulted from the opening of additional
branches as well as the expenses of opening the new South Florida
Bank. Income Tax Provision.The income tax provision totaled $262,000 in 2002
(effective rate of 36.5%) compared to a tax benefit of $19,000 in 2001
(effective rate of 28.8%). Results of Operations  Nine Months Ended September 30, 2002 and 2001 Southern had net earnings for the first nine months of 2002 of $1.5
million, compared to $68,000 for the comparable period in 2001. Earnings
before income taxes in the first nine months of 2002 were $2.3 million
compared to $113,000 in the first nine months of 2001. The improvement
in earnings was primarily due to a substantial increase in net interest
income, which grew from $7.3 million in the first nine months of 2001 to
$13.7 million in the first nine months of 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. Net Interest Income. Interest income for the first nine months of 2002
was $24.6 million, compared to $17.5 million for the first nine months of
2001. The growth in interest income primarily reflects the growth in
Southerns assets, which grew from $405.1 million at September 30, 2001
to $620.9 million at September 30, 2002. 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 $300.4 million to
$439.2 million. The increase in assets is primarily attributable to the
growth of Southerns business in southeast Florida. Interest expense was $10.9 million for the first nine months of 2002
compared with $10.2 million for the first nine months of 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 partially offset by a
decrease in the average cost of deposits. 19      Southerns net interest margin increased from approximately 3.31% for the
first nine months of 2001 to approximately 3.63% for the first nine
months of 2002. The positive change in the net interest margin was due
in part to the repricing of a relatively high priced deposit product at
the end of December 2001. Southern had utilized this product in 2000 and
2001 to attract deposits to support growth and liquidity. Due to the
sharp decline in market interest rates in the first nine months of 2001,
this product adversely impacted Southerns net interest margin during
2001. Southerns net interest margin improved after December 31, 2001,
when the product was repriced to market rates. The net interest margin
was also positively impacted 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. Noninterest Income.Noninterest income in the first nine months of 2002
totaled $1.6 million, compared with $1.3 million in 2001. Customer
service charges totaled $371,000 in 2002, up from $263,000 in 2001, due
to an increase in the average number of deposit accounts. Other service
charges and fees totaled $929,000 in 2002, up from $432,000 in 2001.
This increase was primarily caused by an increase in insurance referral
fees, as well as the overall growth of Southern. Gains on the sale of
securities available for sale totaled $120,000 in 2002, compared to
$459,000 in 2001. Provision for Loan Losses.The provision for loan losses totaled $2.0
million in the first nine months of 2002 compared to $1.6 million in
2001. The allowance for loan losses at September 30, 2002 was $6.1
million. See Allowance and Provision for Loan Losses below. Noninterest Expenses.Noninterest expenses for the first nine months of
2002 totaled $11.0 million, up 59% from $6.9 million in 2001.
Noninterest expenses included the following:  
        
        Salaries and employee benefits represented 53% of total
non-interest expenses in 2002. Salaries and employee benefits
increased 60% to $5.8 million in 2002 from $3.6 million in 2001.
The increase was primarily due to the addition of employees in
connection with the opening of new branches by the Orlando Bank and
the Bonita Springs Bank the commencement of operations of the South
Florida Bank, together with salary increases and higher benefit
costs.
        
        Occupancy and equipment expense in 2002 totaled $2.2 million,
up 71% from $1.3 million in 2001. This increase was primarily due
to the acquisition of the Daytona Beach bank and the opening of new
branches by the Orlando Bank and the Bonita Springs Bank and the
commencement of operations of the South Florida Bank.
        
        Other non-interest expenses for the first nine months of 2002
totaled $3.0 million, up 48% from $2.0 million in 2001. Other
non-interest expenses included data processing, printing and office
supplies, marketing and advertising, professional fees, preopening
expenses and other expenses. The increase resulted from the 20       acquisition of the Daytona Beach Bank, the opening of additional
branches as well as organizational expense associated with the new
South Florida Bank. Income Tax Provision.The income tax provision totaled $850,000 in 2002
(effective rate of 36.6%) compared with $45,000 in 2001 (effective rate
of 39.8%). Capital Expenditures Southern makes capital expenditures in order to improve its ability to
provide quality services to its customers. Capital expenditures for the nine
months ended September 30, 2002 equaled $3.0 million compared to $3.5 million
in 2001. Most of these expenses are related to purchase and construction of
new branches. Asset Quality and Credit Risk Securities Available for Sale.Southern maintains a high quality
investment portfolio including securities of U.S. government entities,
mortgage-backed securities and municipal bonds. Southern believes that the
securities have very little risk of default. At September 30, 2002, all of the
securities held in Southerns investment portfolio were classified available
for sale and were rated A or better (with a majority rated triple A). A
rating of A or better means that the bonds are of upper medium grade, with
strong ability to repay, possibly with some susceptibility to adverse economic
conditions or changing circumstances. Ratings are assigned by independent
rating agencies and are subject to the accuracy of reported information
concerning the issuers and the subjective judgment and analysis of the rating
agencies. They are not a guarantee of collectibility. The following table sets forth information regarding the composition of
the investment portfolio for September 30, 2002 and 2001: Investment Portfolio September 30,2002
        
        2001(in thousands)U.S. Government agencies securities
        
        $
        27,992
        
        
        
        28,098Mortgage-backed securities
        
        
        35,365
        
        
        
        1,821Municipal bonds
        
        
        266
        
        
        
        $
        63,623
        
        
        
        29,919 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 the borrowers. The type and amount of collateral varies, but
may include residential or commercial real estate, deposits held by financial 21      institutions, U.S. Treasury securities, other marketable securities and
personal property. Southern monitors collateral values to ensure that they are
maintained at proper levels. As of September 30, 2002, the majority of Southerns real estate loans
were loans secured by real estate in central and south Florida. This level of
concentration could present a potential credit risk to Southern because the
ultimate collectibility of these loans is susceptible to adverse changes in
real estate market conditions in these markets. Southern has sought to address
this risk by limiting most loans to a maximum of 75% of the appraised value of
the underlying real estate and maximum amortization schedules of 20 years with
maturity dates not exceeding five years. The following table divides Southerns loan portfolio into five
categories. Most of the loans are short-term and may be renewed or rolled over
at maturity. At that time, Southern undertakes a complete review of the
borrowers credit worthiness and the value of any collateral. If these items
are satisfactory, Southern will generally renew the loan at prevailing interest
rates. Types of Loans September 30,2002
        
        2001(in thousands)Commercial
        
        $
        108,415
        
        
        
        57,336Commercial real estate
        
        
        181,580
        
        
        
        88,004Residential real estate
        
        
        43,470
        
        
        
        22,342Construction
        
        
        101,903
        
        
        
        118,422Consumer and other
        
        
        12,155
        
        
        
        19,970Total loans
        
        
        447,523
        
        
        
        306,074Less:Allowance for loan losses
        
        
        (6,095
        )
        
        
        (3,774
        )Net deferred loan fees and other discounts
        
        
        (2,240
        )
        
        
        (1,899
        )Loans, net
        
        $
        439,188
        
        
        
        300,401 22      Commercial Loans.Southern makes commercial loans to businesses located
in its target markets. The credit risk associated with business lending is
influenced by general economic conditions, deterioration in a borrowers
capital position resulting in increasing debt to equity ratios, deterioration
in a borrowers cash position resulting in a liquidity problem, and decreasing
revenues due to inefficient operations of the borrower. These loans are
generally secured by corporate assets, marketable securities or other liquid
financial instruments. These loans totaled approximately $108.4 million or
24.2% of total loans at September 30, 2002, compared with $57.3 million or
18.7% of total loans at September 30, 2001. The growth in commercial loans was
primarily due to new loans originated in southeast Florida. Real Estate Loans.Southerns real estate loans totaled $327.0 million or
73.1% of total loans at September 30, 2002, and $228.8 million or 74.8% at
September 30, 2001. Southern makes real estate loans secured by commercial real estate,
including loans to acquire or refinance office buildings, warehouses and
apartments. These loans generally require a loan to value of not more than
75%. Most of these loans have a maturity of five years or less. Almost all of
these loans are secured by real property located in central and south Florida.
These loans totaled $181.6 million, or 40.6% of total loans at September 30,
2002 compared with $88.0 million or 28.8% of total loans at September 30, 2001.
The growth in commercial real estate loans was primarily due to new loans
originated in southeast Florida. Risks associated with commercial real estate
mortgage loans include reliability of appraisals, deterioration of market
values, environmental contamination, and accelerated depreciation of property
due to deferred maintenance. Residential real estate loans totaled $43.5 million, or 9.7% of total
loans at September 30, 2002, compared with $22.3 million, or 7.3% at September
30, 2001. Residential real estate mortgage loans are predominately adjustable
rate home mortgages which generally require a loan-to-collateral value of not
more than 90% and equity credit lines which generally limit the
loan-to-collateral value to not more than 90%. Most loans have a maximum term
of five to seven years. Almost all of the residential real estate mortgage
loans are secured by homes in central and south Florida. Risks associated with
residential real estate mortgage loans include reliability of appraisals,
deterioration of market values, environmental contamination, and accelerated
depreciation of property due to deferred maintenance. Construction loans totaled $101.9 million or 22.8% of total loans at
September 30, 2002 compared to $118.4 million or 38.7% of total loans at
September 30, 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 primarily makes construction
loans on property located in central and south Florida. Consumer and Other Loans.Southern offers consumer loans and personal and
secured loans. The security for these loans ordinarily consists of
automobiles, consumer goods, marketable securities, certificates of deposit and
similar items. These loans totaled approximately $12.2 million, or 2.7% of
total loans, on September 30, 2002, compared with $20.0 million, or 6.6% of
total loans, on September 30, 2001. Risks associated with installment loans
include loss of employment of borrowers, declines in the financial condition of
borrowers resulting in delinquencies, and rapid depreciation of loan
collateral. 23      Commitments.Southern had legally binding commitments to extend credit,
including unused lines of credit and letters of credit, totaling $156.8 million
at September 30, 2002. Nonperforming Assets and Past Due Loans Nonperforming assets consist of nonaccrual loans and assets acquired in
partial or total satisfaction of problem loans which are known as foreclosed
assets. Past due loans are loans that are delinquent 30 days or more which
are still accruing interest. Southerns credit review and approval process is critical to Southerns
ability to minimize non-performing assets on a long term basis. In addition to
the negative impact on interest income, non-performing assets also increase
operating costs due to the expense of collection efforts. It is Southerns
policy to place all loans which are past due 90 days or more on non-accrual
status, subject to exceptions made on a case by case basis. The following table presents Southerns non-performing assets and past due
loans for 2002 and 2001. Non-Performing Assets and 90 Day Past Due Loans September 30,2002
        
        2001(In thousands)Nonaccrual loans
        
        $
        3,387
        
        
        
        3,435Foreclosed assets
        
        
        185
        
        
        
        371Total nonperforming assets
        
        $
        3,572
        
        
        
        3,806Accruing loans past due 90 days
        
        $
        1,000
        
        
        
        158 Southerns non-performing loans and loans past due 90 days were $4.4
million at September 30, 2002, or .98% of total loans of $447.5 million.
Non-performing loans at September 30, 2002 consisted of commercial and
residential real estate loans. Southern believes that its non-performing loans
are well secured and are unlikely to result in any material losses. Total
non-performing assets and accruing loans past due 90 days totaled $4.6 million
at September 30, 2002, compared to $4.0 million at September 30, 2001. Allowance and Provision for Loan Losses Southern evaluates the adequacy of its allowance for loan losses as part
of its ongoing credit review and approval process. The review process is
intended to identify, as early as possible, customers who may be facing
financial difficulties. Once identified, the extent of the clients financial
difficulty is carefully monitored by Southerns loan review officer, who
recommends to the 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 24      evaluating the adequacy of the allowance include overall loan volume,
historical net loan loss experience, the level and composition of non-accrual
and past due loans, local economic conditions, and value of any collateral.
From time to time, specific amounts of the reserve are designated for certain
loans in connection with the loan committees review officers analysis of the
adequacy of the allowance for loan losses. While the largest portion of this allowance is typically intended to cover
specific loan losses, it is considered a general reserve which is available for
all credit-related purposes. The allowance is not a precise amount, but is
derived based upon the above factors and represents managements best estimate
of the amount necessary to adequately cover probable losses from current credit
exposures. The provision for loan losses is a charge against current earnings
and is determined by management as the amount needed to maintain an adequate
allowance. Management relied on these factors, as well as its assessment of the
financial condition of specific clients facing financial difficulties, in
deciding to increase the allowance for loan losses to $6.1 million at September
30, 2002, from $4.5 million at December 31, 2001 and $3.8 million at September
30, 2001. As discussed above, Southern opened its new South Florida bank on August
5, 2002. Southern established an allowance for loan losses for this bank of
approximately $500,000 with respect to the loans which were transferred to the
South Florida Bank by the Orlando Bank. Financial Condition Southerns goal is to maintain a high quality and liquid balance sheet.
Southern seeks to achieve this objective through increases in collateralized
loans, a strong portfolio of real estate loans and a stable portfolio of
investment securities of high quality. Cash and Cash Equivalents. Southern had cash and cash equivalents of
$90.2 million at September 30, 2002, compared to $53.4 million at September 30,
2001. Southerns relatively high level of cash and cash equivalents reflects
the success of its efforts to obtain deposits in southeast Florida for its new
South Florida Bank. Securities Available for Sale.On September 30, 2002, securities
available for sale were $63.6 million or 11.0% of total earning assets.
Southerns strategy for its investment account is to maintain a high quality
portfolio. The investment portfolio, all of which has been classified as
available for sale, increased 113% from $29.9 million at September 30, 2001. Loans.Loans were $439.2 million as of September 30, 2002, compared to
$300.4 million as of September 30, 2001. See Asset Quality and Credit Risk 
Loans, above. Interest-Bearing Liabilities. Interest bearing liabilities primarily
consisted of deposits and other borrowings. Total interest-bearing liabilities
were $503.8 million at September 30, 2002, up from $324.0 million in 2001.
There was an increase in savings, money-market and NOW deposits of $75.0
million or 47% compared to 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 South 25      Florida Bank. Southern believes that attracting deposits is an important step
in establishing this bank in its target market. Liquidity and Rate Sensitivity The principal functions of asset and liability management are to provide
for adequate liquidity, to manage interest rate exposure by maintaining a
prudent relationship between rate sensitive assets and liabilities and to
manage the size and composition of the balance sheet so as to maximize net
interest income. Liquidity is the ability to provide funds at minimal cost to meet
fluctuating deposit withdrawals or loan demand. These demands are met by
maturing assets and the capacity to raise funds from internal and external
sources. Southern primarily utilizes cash, federal funds sold and securities
available for sale to meet its liquidity needs. Although not utilized in
managing daily liquidity needs, the sale of investment securities provides a
secondary source of liquidity. Fluctuating interest rates, increased competition and changes in the
regulatory environment continue to significantly affect the importance of
interest-rate sensitivity management. Rate sensitivity arises when interest
rates on assets change in a different period of time or a different proportion
than that of interest rates on liabilities. The primary objective of
interest-rate sensitivity management is to prudently structure the balance
sheet so that movements of interest rates on assets and liabilities are highly
correlated and produce a reasonable net interest margin even in periods of
volatile interest rates. Regular monitoring of assets and liabilities that are rate sensitive
within 30 days, 90 days, 180 days and one year is an integral part of
Southerns rate-sensitivity management process. It is Southerns policy to
maintain a reasonable balance of rate-sensitive assets and liabilities on a
cumulative one year basis, thus minimizing net interest income exposure to
changes in interest rates. Southerns sensitivity position at September 30,
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. As of September 30, 2002, Southern was liability sensitive
(interest-sensitive liabilities subject to repricing exceeded
interest-sensitive assets subject to repricing) on a 365-day basis to the
extent of $16.2 million. This negative gap at September 30, 2002 was 2.6% of
total assets compared with a negative gap of 9.1% at September 30, 2001.
Southerns target gap position is in the range of negative 20% and positive
20%. 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. 26      Capital One of Southerns primary objectives is to maintain a strong capital
position to merit the confidence of customers, bank regulators and
stockholders. A strong capital position helps Southern withstand unforeseen
adverse developments and take advantage of attractive lending and investment
opportunities when they arise. Southerns tier one capital was 10.40% and the total capital was 11.73% of
risk-based assets at September 30, 2002. These risk-based capital ratios were
well in excess of the minimum requirements of 4.0% for tier one and 8.0% for
total risk-based capital ratios. Southerns leverage ratio (tier one capital
to total average quarterly assets) of 9.45% at September 30, 2002, was also in
excess of the minimum 4.0% requirement. Southern has committed to the Federal
Reserve that it will maintain, on a consolidated basis, a ratio of total
capital to risk based assets of at least 10% until January 2004. Southern increased its capital during the second quarter of 2002 through
the completion of a public offering of its common stock. Southern received net
proceeds of $12.0 million from the offering. Southern currently anticipates that it will need to raise additional
capital during the next 12 months in order to support the planned growth of its
subsidiaries. Southern is currently considering several alternatives for
raising additional capital, including the possible sale of Southerns common
stock or other securities issued by Southern. However, Southern has not yet
developed any specific plans for obtaining such capital. Item 3. Controls and Procedures Evaluation of Disclosure Controls and Procedures.Southern maintains controls
and procedures designed to ensure that information required to be disclosed in
the reports that Southern files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Based upon their evaluation of these controls and procedures performed within
90 days of the filing date of this report, the Chief Executive Officer and
Chief Financial Officer of Southern concluded that Southerns disclosure
controls and procedures were adequate. Changes in Internal Controls.Southern made no significant changes in its
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of their evaluation by the Chief Executive
Officer and Chief Financial Officer. 27      PART II OTHER INFORMATION Item 6. Exhibits. (a)  Exhibits. Exhibit No.
        
        Description99
        
        Certification under Section 906 of Sarbanes-Oxley Act of 2002 (b)  Reports on Form 8-K. Not applicable. 28      SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. SOUTHERN COMMUNITY BANCORP(Registrant)Date: November 11, 2002/s/ Charlie W.
Brinkley, Jr.Charlie W. Brinkley, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)/s/ Stephen
McGeeDate: November 11, 2002
        
        Stephen McGee
Chief Financial Officer 29      CERTIFICATIONS I, Charlie W. Brinkley, Jr., certify, that: 1.     I have reviewed this quarterly report on Form 10-QSB of
Southern Community Bancorp; 2.     Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report; 3.     Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report; 4.     The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:  (a) designed such disclosure controls and procedures
to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this quarterly report is being
prepared;  (b) evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
Evaluation Date); and  (c) presented in this quarterly report our
conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation
Date; 5.     The registrants other certifying officer and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors:  (a) all significant deficiencies in the design or
operation of the internal controls which could adversely
affect the registrants ability to record, process, summarize
and report financial data and have identified for the
registrants auditors any material weaknesses in internal
controls; and  (b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and 30      6.     The registrants other certifying officer and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect the internal controls subsequent to the
date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses. Date: November 11, 2002
        
        By: /s/ Charlie W. Brinkley, Jr.Charlie W. Brinkley, Jr.
Chairman of the
Board and Chief Executive Officer
(Principal Executive Officer) 31      I, Stephen McGee, certify, that: 1.     I have reviewed this quarterly report on Form 10-QSB of
Southern Community Bancorp; 2.     Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report; 3.     Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report; 4.     The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:  (a) designed such disclosure controls and procedures
to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this quarterly report is being
prepared;  (b) evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
Evaluation Date); and  (c) presented in this quarterly report our
conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation
Date; 5.     The registrants other certifying officer and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors:  (a) all significant deficiencies in the design or
operation of the internal controls which could adversely
affect the registrants ability to record, process, summarize
and report financial data and have identified for the
registrants auditors any material weaknesses in internal
controls; and  (b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and 6.     The registrants other certifying officer and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in 32      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: November 11, 2002
        
        By: /s/ Stephen McGeeStephen McGee
Chief Financial Officer 33