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U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 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 Number: 0 00-50252
 SOUTHERN COMMUNITY BANCSHARES, INC.
  Georgia
    
    58 - 2639705(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 525 North Jeff Davis Drive, Fayetteville, Georgia 30214
 (770) 461-4365
 N/A
 þ o
  o o þ
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PagePart I. Financial InformationItem 1. Consolidated Financial Statements (Unaudited)Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Income for the Three Months Ended March 31, 2007 and 2006
    
    
    4Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2007
and 2006
    
    
    5Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7 - 9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9 - 14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    14Item 4. Controls and Procedures
    
    
    14Part II. Other InformationItem 1. Legal Proceedings
    
    
    15Item 1A. Risk Factors
    
    
    15Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    15Item 3. Defaults Upon Senior Securities
    
    
    15Item 4. Submission of Matters to Vote of Security Holders
    
    
    15Item 5. Other Information
    
    
    15Item 6. Exhibits
    
    
    15Signatures
    
    
    16EX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32.1 SECTION 906, CERTIFICATION OF THE CEOEX-32.2 SECTION 906, CERTIFICATION OF THE CFO
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PART I. Financial Information
 
 ITEM 1. Consolidated Financial Statements
 SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS
as of March 31, 2007 and December 31, 2006
 March 31, 2007(Unaudited)
    
    
    December 31, 2006AssetsCash and due from banks
    
    $
    7,477,528
    
    
    $
    5,029,384Interest bearing deposits in banks
    
    
    984,463
    
    
    
    741,012Federal funds sold
    
    
    11,257,000
    
    
    
    13,747,000Securities available for sale, at fair value
    
    
    54,683,255
    
    
    
    55,368,977Restricted equity securities, at cost
    
    
    2,922,000
    
    
    
    2,669,900Loans
    
    
    304,735,541
    
    
    
    293,223,692Less allowance for loan losses
    
    
    3,412,550
    
    
    
    3,051,229Loans, net
    
    
    301,322,991
    
    
    
    290,172,463Premises and equipment
    
    
    9,323,375
    
    
    
    9,372,877Other assets
    
    
    9,184,736
    
    
    
    9,232,642Total assets
    
    $
    397,155,348
    
    
    $
    386,334,255Liabilities and Shareholders EquityDepositsNoninterest-bearing
    
    $
    35,026,169
    
    
    $
    36,833,998Interest-bearing
    
    
    262,562,323
    
    
    
    254,955,724Total deposits
    
    
    297,588,492
    
    
    
    291,789,722Federal Home Loan Bank advances
    
    
    49,500,000
    
    
    
    44,500,000Securities sold under repurchase agreements
    
    
    12,433,319
    
    
    
    12,913,674Subordinated debentures
    
    
    10,929,000
    
    
    
    10,929,000Other liabilities
    
    
    1,583,636
    
    
    
    1,753,246Total liabilities
    
    
    372,034,447
    
    
    
    361,885,642Shareholders equityCapital stock, no par value; 10,000,000 shares
authorized; 2,592,894 shares issued and outstanding
    
    
    16,177,740
    
    
    
    16,171,236Retained earnings
    
    
    9,323,929
    
    
    
    8,816,424Accumulated other comprehensive loss
    
    
    (380,768
    )
    
    
    (539,047
    )Total shareholders equity
    
    
    25,120,901
    
    
    
    24,448,613Total liabilities and shareholders equity
    
    $
    397,155,348
    
    
    $
    386,334,255
 See Notes to Consolidated Financial Statements.
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SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2007 and 2006
(Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006Interest incomeLoans, including fees
    
    $
    6,552,410
    
    
    $
    5,228,136Taxable securities
    
    
    526,696
    
    
    
    488,603Nontaxable securities
    
    
    136,270
    
    
    
    119,752Federal funds sold
    
    
    65,341
    
    
    
    183,237Interest bearing deposits in banks
    
    
    8,895
    
    
    
    4,673Total interest income
    
    
    7,289,612
    
    
    
    6,024,401Interest expenseDeposits
    
    
    2,871,855
    
    
    
    2,234,141Other borrowings
    
    
    876,355
    
    
    
    465,838Total interest expense
    
    
    3,748,210
    
    
    
    2,699,979Net interest income
    
    
    3,541,402
    
    
    
    3,324,422Provision for loan losses
    
    
    373,000
    
    
    
    365,000Net interest income after provision for loan losses
    
    
    3,168,402
    
    
    
    2,959,422Other incomeService charges on deposit accounts
    
    
    227,210
    
    
    
    172,102Other operating income
    
    
    56,642
    
    
    
    64,152Total other income
    
    
    283,852
    
    
    
    236,254Other expensesSalaries and employee benefits
    
    
    1,605,459
    
    
    
    1,292,011Equipment and occupancy expenses
    
    
    449,615
    
    
    
    419,526Other operating expenses
    
    
    688,707
    
    
    
    664,057Total other expenses
    
    
    2,743,781
    
    
    
    2,375,594Net income before income taxes
    
    
    708,473
    
    
    
    820,082Income tax expense
    
    
    200,968
    
    
    
    252,990Net income
    
    $
    507,505
    
    
    $
    567,092Basic earnings per share
    
    $
    0.20
    
    
    $
    0.22Diluted earnings per share
    
    $
    0.19
    
    
    $
    0.21Dividends declared per share
    
    $
    
    
    
    $
    
 See Notes to Consolidated Financial Statements.
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SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended March 31, 2007 and 2006
(Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006Net income
    
    $
    507,505
    
    
    $
    567,092Other comprehensive income (loss):Unrealized holding gains (losses) on securities
available-for-sale arising during period, net of tax
    
    
    158,279
    
    
    
    (43,925
    )Other comprehensive income (loss)
    
    
    158,279
    
    
    
    (43,925
    )Comprehensive income
    
    $
    665,784
    
    
    $
    523,167
 See Notes to Consolidated Financial Statements.
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SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2007 and 2006
(Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    507,505
    
    
    $
    567,092Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation
    
    
    184,116
    
    
    
    168,789Provision for loan losses
    
    
    373,000
    
    
    
    365,000Increase in interest receivable
    
    
    (129,084
    )
    
    
    (92,909
    )Decrease in interest payable
    
    
    (77,592
    )
    
    
    (34,111
    )Stock-based compensation expense
    
    
    6,504
    
    
    
    15,113Increase in cash surrender value of life insurance
    
    
    (48,485
    )
    
    
    (48,821
    )Net other operating activities
    
    
    36,447
    
    
    
    (245,373
    )Net cash provided by operating activities
    
    
    852,411
    
    
    
    694,780INVESTING ACTIVITIESDecrease (increase) in interest-bearing deposits in banks
    
    
    (243,451
    )
    
    
    266,108Purchase of securities available for sale
    
    
    (699,340
    )
    
    
    (1,104,418
    )Proceeds from maturities of securities available for sale
    
    
    1,640,351
    
    
    
    659,095Purchase of restricted equity securities
    
    
    (252,100
    )
    
    
    (125,700
    )Net decrease (increase) in federal funds sold
    
    
    2,490,000
    
    
    
    (26,506,000
    )Net increase in loans
    
    
    (11,523,528
    )
    
    
    (9,341,540
    )Net purchases of premises and equipment
    
    
    (134,614
    )
    
    
    (71,670
    )Net cash used in investing activities
    
    
    (8,722,682
    )
    
    
    (36,224,125
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    5,798,770
    
    
    
    40,936,536Net increase in Federal Home Loan Bank advances
    
    
    5,000,000
    
    
    
    Net decrease in repurchase agreements
    
    
    (480,355
    )
    
    
    (2,598,200
    )Net cash provided by financing activities
    
    
    10,318,415
    
    
    
    38,338,336Net increase in cash and due from banks
    
    
    2,448,144
    
    
    
    2,808,991Cash and due from banks at beginning of period
    
    
    5,029,384
    
    
    
    6,061,522Cash and due from banks at end of period
    
    $
    7,477,528
    
    
    $
    8,870,513
 See Notes to Consolidated Financial Statements.
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Three months endedMarch 31, 2007Weighted AverageWeighted Average
    
    
    RemainingOption Price Per
    
    
    Contractual Term
    
    
    Aggregate IntrinsicShares
    
    
    Share
    
    
    (in years)
    
    
    ValueOutstanding, beginning of period
    
    
    208,570
    
    
    $
    7.30Granted during the period
    
    
    2,750
    
    
    
    22.00Forfeited during the period
    
    
    
    
    
    
    Exercised during the period
    
    
    
    
    
    
    Outstanding, end of period
    
    
    211,320
    
    
    $
    7.49
    
    
    
    4.93
    
    
    $
    2,337,303Number of shares exercisable
    
    
    203,237
    
    
    $
    6.97
    
    
    
    4.75
    
    
    $
    2,352,607
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Three months endedMarch 31, 2006Weighted AverageWeighted Average
    
    
    RemainingOption Price Per
    
    
    Contractual Term
    
    
    Aggregate IntrinsicShares
    
    
    Share
    
    
    (in years)
    
    
    ValueOutstanding, beginning of period
    
    
    207,403
    
    
    $
    6.94Granted during the period
    
    
    
    
    
    
    Forfeited during the period
    
    
    
    
    
    
    Exercised during the period
    
    
    
    
    
    
    Outstanding, end of period
    
    
    207,403
    
    
    $
    6.94
    
    
    
    5.75
    
    
    $
    2,346,161Number of shares exercisable
    
    
    201,723
    
    
    $
    6.92
    
    
    
    5.75
    
    
    $
    2,284,396
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Three Months EndedMarch 31,2007
    
    
    2006Net income
    
    $
    507,505
    
    
    $
    567,092Weighted average capital shares outstanding
    
    
    2,592,894
    
    
    
    2,587,081Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the period
    
    
    86,016
    
    
    
    87,918Total weighted average capital shares and
capital stock equivalents outstanding
    
    
    2,678,910
    
    
    
    2,674,999Diluted earnings per share
    
    $
    0.19
    
    
    $
    0.21
 
 Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Forward-Looking Statements
 9
    Table of Contents   FINANCIAL CONDITION
   LIQUIDITY
   REGULATORY CAPITAL REQUIREMENTS
  10




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RegulatoryMinimumCompany
    
    Bank
    
    RequirementLeverage Capital Ratio
    
    
    8.85
    %
    
    
    8.50
    %
    
    
    4.00
    %Risk-Based Capital RatiosCore Capital
    
    
    9.80
    %
    
    
    9.44
    %
    
    
    4.00
    %Total Capital
    
    
    11.48
    %
    
    
    10.43
    %
    
    
    8.00
    %
  RESULTS OF OPERATIONS
 Net Interest Income
  Provision for Loan Losses
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March 31,
    
    
    March 31,2007
    
    
    2006(Dollars in thousands)Total nonaccruing loans
    
    $
    7,115
    
    
    $
    2,097Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing
    
    
    59
    
    
    
    665Restructured loans
    
    
    
    
    
    
    
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Three Months EndedMarch 31,2007
    
    
    2006(Dollars in thousands)Average amount of loans outstanding
    
    $
    300,992
    
    
    $
    259,293Balance of allowance for loan losses at beginning of period
    
    $
    3,052
    
    
    $
    3,001Loans charged offCommercial and financial
    
    
    (1
    )
    
    
    (36
    )Real estate
    
    
    
    
    
    
    (276
    )Installment
    
    
    (21
    )
    
    
    (10
    )(22
    )
    
    
    (322
    )Loans recoveredCommercial and financial
    
    
    2
    
    
    
    Real estate
    
    
    
    
    
    
    Installment
    
    
    8
    
    
    
    810
    
    
    
    8Net charge-offs
    
    
    (12
    )
    
    
    (314
    )Additions to allowance charged to operating expense during period
    
    
    373
    
    
    
    365Balance of allowance for loan losses at end of period
    
    $
    3,413
    
    
    $
    3,052Ratio of net loans charged-off during the
period to average loans outstanding
    
    
    .004
    %
    
    
    0.12
    %
 Other Income.
 Other Expenses.
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Income Taxes.
 Net Income
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. CONTROLS AND PROCEDURES
  
 PART II  OTHER INFORMATION
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Item 1. LEGAL PROCEEDINGS
  
 Item 1A. RISK FACTORS
  
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 Item 3. DEFAULTS UPON SENIOR SECURITIES
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Item 5. OTHER INFORMATION
  
 Item 6. EXHIBITS
 (a)
    
    Exhibits
 10.1

    Change in Control Agreement with Leslye L. Grindle dated October 1, 200310.2


    Change in Control Agreement with Tina Stroud dated July 18, 200631.1

    Certificate of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    Certificate of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    Certificate of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2

    Certificate of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
  SOUTHERN COMMUNITY
BANCSHARES, INC.Date:   May 14, 2007
    /s/ Gary McGahaGary McGahaPresident and CEODate     May 14, 2007
    /s/ Leslye GrindleLeslye GrindleSr. Vice President and
Chief Financial Officer 16