##### Table of Contents



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 June 30, 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: 333-86082
 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
 (Issuers telephone number)
 N/A
 þ o
  o o þ
 o þ




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##### 



PagePart I. Financial InformationItem 1. Consolidated Financial Statements (Unaudited)Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Income for the Three and Six Months Ended June 30, 2007 and 2006
    
    
    4Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2007
and 2006
    
    
    5Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7-8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9-13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    13Item 4. Controls and Procedures
    
    
    14Part II. Other InformationItem 1. Legal Proceedings
    
    
    14Item 1A. Risk Factors
    
    
    14Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    14Item 3. Defaults Upon Senior Securities
    
    
    14Item 4. Submission of Matters to a 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
  2




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PART I. Financial Information
 
 ITEM 1. Consolidated Financial Statements
 SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS
 as of June 30, 2007 and December 31, 2006
 June 30, 2007(Unaudited)
    
    
    December 31, 2006AssetsCash and due from banks
    
    $
    8,794,955
    
    
    $
    5,029,384Interest bearing deposits in banks
    
    
    1,346,571
    
    
    
    741,012Federal funds sold
    
    
    9,054,000
    
    
    
    13,747,000Securities available for sale, at fair value
    
    
    51,990,785
    
    
    
    55,368,977Restricted equity securities, at cost
    
    
    3,282,000
    
    
    
    2,669,900Loans
    
    
    309,482,940
    
    
    
    293,223,692Less allowance for loan losses
    
    
    3,858,068
    
    
    
    3,051,229Loans, net
    
    
    305,624,872
    
    
    
    290,172,463Premises and equipment
    
    
    9,316,032
    
    
    
    9,372,877Other assets
    
    
    9,419,214
    
    
    
    9,232,642Total assets
    
    $
    398,828,429
    
    
    $
    386,334,255Liabilities and Shareholders EquityDepositsNoninterest-bearing
    
    $
    36,528,246
    
    
    $
    36,833,998Interest-bearing
    
    
    249,960,044
    
    
    
    254,955,724Total deposits
    
    
    286,488,290
    
    
    
    291,789,722Federal Home Loan Bank advances
    
    
    57,500,000
    
    
    
    44,500,000Securities sold under repurchase agreements
    
    
    17,284,538
    
    
    
    12,913,674Subordinated debentures
    
    
    10,929,000
    
    
    
    10,929,000Other liabilities
    
    
    1,823,435
    
    
    
    1,753,246Total liabilities
    
    
    374,025,263
    
    
    
    361,885,642Shareholders equityCapital stock, no par value; 10,000,000
shares authorized;
2,592,894 shares issued and outstanding
    
    
    16,184,346
    
    
    
    16,171,236Retained earnings
    
    
    9,722,072
    
    
    
    8,816,424Accumulated other comprehensive loss
    
    
    (1,103,252
    )
    
    
    (539,047
    )Total shareholders equity
    
    
    24,803,166
    
    
    
    24,448,613Total liabilities and
shareholders equity
    
    $
    398,828,429
    
    
    $
    386,334,255
 See Notes to Consolidated Financial Statements.
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SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF INCOME
 Three and Six Months Ended June 30, 2007 and 2006
(Unaudited)
 Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest incomeLoans, including fees
    
    $
    6,738,793
    
    
    $
    5,913,976
    
    
    $
    13,291,203
    
    
    $
    11,142,112Taxable securities
    
    
    513,525
    
    
    
    561,940
    
    
    
    1,040,221
    
    
    
    1,050,543Nontaxable securities
    
    
    135,208
    
    
    
    134,523
    
    
    
    271,478
    
    
    
    254,275Federal funds sold
    
    
    84,045
    
    
    
    103,418
    
    
    
    149,386
    
    
    
    286,655Interest bearing deposits in banks
    
    
    27,238
    
    
    
    15,298
    
    
    
    36,133
    
    
    
    19,971Total interest income
    
    
    7,498,809
    
    
    
    6,729,155
    
    
    
    14,788,421
    
    
    
    12,753,556Interest expenseDeposits
    
    
    2,939,824
    
    
    
    2,411,830
    
    
    
    5,811,679
    
    
    
    4,645,971Other borrowings
    
    
    966,652
    
    
    
    534,405
    
    
    
    1,843,007
    
    
    
    1,000,243Total interest expense
    
    
    3,906,476
    
    
    
    2,946,235
    
    
    
    7,654,686
    
    
    
    5,646,214Net interest income
    
    
    3,592,333
    
    
    
    3,782,920
    
    
    
    7,133,735
    
    
    
    7,107,342Provision for loan losses
    
    
    618,942
    
    
    
    679,000
    
    
    
    991,942
    
    
    
    1,044,000Net interest income after provision for loan losses
    
    
    2,973,391
    
    
    
    3,103,920
    
    
    
    6,141,793
    
    
    
    6,063,342Other incomeService charges on deposit accounts
    
    
    265,263
    
    
    
    214,549
    
    
    
    492,473
    
    
    
    386,651Proceeds from life insurance policy
    
    
    
    
    
    
    212,053
    
    
    
    
    
    
    
    212,053Other operating income
    
    
    91,223
    
    
    
    72,400
    
    
    
    147,865
    
    
    
    136,552Total other income
    
    
    356,486
    
    
    
    499,002
    
    
    
    640,338
    
    
    
    735,256Other expensesSalaries and employee benefits
    
    
    1,465,430
    
    
    
    1,351,356
    
    
    
    3,070,889
    
    
    
    2,643,367Equipment and occupancy expenses
    
    
    465,061
    
    
    
    419,012
    
    
    
    914,676
    
    
    
    838,538Other operating expenses
    
    
    866,067
    
    
    
    637,168
    
    
    
    1,554,774
    
    
    
    1,301,225Total other expenses
    
    
    2,796,558
    
    
    
    2,407,536
    
    
    
    5,540,339
    
    
    
    4,783,130Net income before income taxes
    
    
    533,319
    
    
    
    1,195,386
    
    
    
    1,241,792
    
    
    
    2,015,468Income tax expense
    
    
    135,176
    
    
    
    308,496
    
    
    
    336,144
    
    
    
    561,486Net income
    
    $
    398,143
    
    
    $
    886,890
    
    
    $
    905,648
    
    
    $
    1,453,982Basic earnings per share
    
    $
    0.15
    
    
    $
    0.34
    
    
    $
    0.35
    
    
    $
    0.56Diluted earnings per share
    
    $
    0.15
    
    
    $
    0.33
    
    
    $
    0.34
    
    
    $
    0.54Dividends declared per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 See Notes to Consolidated Financial Statements.
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SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Three and Six Months Ended June 30, 2007 and 2006
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    398,143
    
    
    $
    886,890
    
    
    $
    905,648
    
    
    $
    1,453,982Other comprehensive loss:Unrealized holding losses on securities
available-for-sale arising during period, net of tax
    
    
    (722,484
    )
    
    
    (352,121
    )
    
    
    (564,205
    )
    
    
    (396,046
    )Other comprehensive loss
    
    
    (722,484
    )
    
    
    (352,121
    )
    
    
    (564,205
    )
    
    
    (396,046
    )Comprehensive income (loss)
    
    $
    (324,341
    )
    
    $
    534,769
    
    
    $
    341,443
    
    
    $
    1,057,936
 See Notes to Consolidated Financial Statements.
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SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2007 and 2006
(Unaudited)
 Six Months EndedJune 30,2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    905,648
    
    
    $
    1,453,982Adjustments to reconcile net income to net cash provided
by operating activitiesDepreciation
    
    
    372,049
    
    
    
    341,021Provision for loan losses
    
    
    991,942
    
    
    
    1,044,000Decrease (increase) in interest receivable
    
    
    203,375
    
    
    
    (55,683
    )Increase (decrease) in interest payable
    
    
    179,589
    
    
    
    (22,424
    )Increase in cash surrender value of life insurance
    
    
    (96,969
    )
    
    
    (97,641
    )Proceeds from life insurance policy
    
    
    
    
    
    
    (212,053
    )Stock-based compensation expense
    
    
    13,110
    
    
    
    28,323Net other operating activities
    
    
    (56,575
    )
    
    
    (98,835
    )Net cash provided by operating activities
    
    
    2,512,169
    
    
    
    2,380,690INVESTING ACTIVITIESIncrease in interest-bearing deposits in banks
    
    
    (605,559
    )
    
    
    (711,180
    )Purchase of securities available for sale
    
    
    (1,665,840
    )
    
    
    (9,121,740
    )Proceeds from maturities of securities available for sale
    
    
    4,134,024
    
    
    
    1,929,383Purchase of restricted equity securities
    
    
    (612,100
    )
    
    
    (350,700
    )Cash surrender value of life insurance
    
    
    
    
    
    
    169,650Net decrease (increase) in federal funds sold
    
    
    4,693,000
    
    
    
    (12,224,667
    )Net increase in loans
    
    
    (16,444,351
    )
    
    
    (25,530,714
    )Net purchases of premises and equipment
    
    
    (315,204
    )
    
    
    (219,795
    )Net cash used in investing activities
    
    
    (10,816,030
    )
    
    
    (46,059,763
    )FINANCING ACTIVITIESNet (decrease) increase in deposits
    
    
    (5,301,432
    )
    
    
    36,510,948Proceeds from issuance of trust preferred securities
    
    
    
    
    
    
    5,000,000Net increase in Federal Home Loan Bank advances
    
    
    13,000,000
    
    
    
    5,000,000Net increase (decrease) in repurchase agreements
    
    
    4,370,864
    
    
    
    (1,645,252
    )Net cash provided by financing activities
    
    
    12,069,432
    
    
    
    44,865,696Net increase in cash and due from banks
    
    
    3,765,571
    
    
    
    1,186,623Cash and due from banks at beginning of period
    
    
    5,029,384
    
    
    
    6,061,522Cash and due from banks at end of period
    
    $
    8,794,955
    
    
    $
    7,248,145
 See Notes to Consolidated Financial Statements.
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Six months endedJune 30, 2007Weighted AverageWeighted
    
    
    RemainingAverage Option
    
    
    Contractual Term (in
    
    
    AggregateShares
    
    
    Price Per Share
    
    
    years)
    
    
    Intrinsic 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
    
    
    
    4.68
    
    
    $
    1,677,534Number of shares exercisable
    
    
    203,569
    
    
    $
    7.00
    
    
    
    4.51
    
    
    $
    1,677,534
 7




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##### Table of Contents



Six months endedJune 30, 2006Weighted AverageWeighted
    
    
    RemainingAverage Option
    
    
    Contractual Term (in
    
    
    AggregateShares
    
    
    Price Per Share
    
    
    years)
    
    
    Intrinsic 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
    
    
    
    5.5
    
    
    $
    2,863,448Number of shares exercisable
    
    
    207,403
    
    
    $
    6.94
    
    
    
    5.5
    
    
    $
    2,863,448
     Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    398,143
    
    
    $
    886,890
    
    
    $
    905,648
    
    
    $
    1,453,982Weighted average capital shares outstanding
    
    
    2,592,894
    
    
    
    2,587,081
    
    
    
    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
    
    
    56,800
    
    
    
    89,436
    
    
    
    59,514
    
    
    
    89,436Total weighted average capital shares and
Capital stock equivalents outstanding
    
    
    2,649,694
    
    
    
    2,676,517
    
    
    
    2,652,408
    
    
    
    2,676,517Diluted earnings per capital share
    
    $
    0.15
    
    
    $
    0.33
    
    
    $
    0.34
    
    
    $
    0.54
 8




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
  FINANCIAL CONDITION
   9




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LIQUIDITY
   REGULATORY CAPITAL REQUIREMENTS
  RegulatoryMinimumCompany
    
    Bank
    
    RequirementLeverage Capital Ratio
    
    
    9.64
    %
    
    
    8.47
    %
    
    
    4.00
    %Risk-Based Capital RatiosCore Capital
    
    
    9.79
    %
    
    
    9.59
    %
    
    
    4.00
    %Total Capital
    
    
    10.90
    %
    
    
    10.70
    %
    
    
    8.00
    %
  RESULTS OF OPERATIONS
 Net Interest Income
 10




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Provision for Loan Losses
  June 30,
    
    June 30,2007
    
    2006(Dollars in thousands)Total nonaccruing loans
    
    $
    12,804
    
    
    $
    1,241Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing
    
    
    179
    
    
    
    1,642Restructured loans
    
    
    
    
    
    
    
   11




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Six Months EndedJune 30,2007
    
    
    2006(Dollars in thousands)Average amount of loans outstanding
    
    $
    305,129
    
    
    $
    266,768Balance of allowance for loan losses at beginning of period
    
    $
    3,052
    
    
    $
    3,001Loans charged offCommercial and financial
    
    
    (72
    )
    
    
    (393
    )Real estate
    
    
    (73
    )
    
    
    (276
    )Installment
    
    
    (61
    )
    
    
    (23
    )(206
    )
    
    
    (692
    )Loans recoveredCommercial and financial
    
    
    2
    
    
    
    Real estate
    
    
    
    
    
    
    Installment
    
    
    19
    
    
    
    1321
    
    
    
    13Net charge-offs
    
    
    (185
    )
    
    
    (679
    )Additions to allowance charged to operating expense during period
    
    
    992
    
    
    
    1,044Balance of allowance for loan losses at end of period
    
    $
    3,859
    
    
    $
    3,366Ratio of net loans charged-off during the
period to average loans outstanding
    
    
    .06
    %
    
    
    0.25
    %
 12




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Other Income.
 Other Expenses.
 Income Taxes.
 Net Income
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 13




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Item 4. CONTROLS AND PROCEDURES
  
 PART II  OTHER INFORMATION
 
 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
  14




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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Directors
    
    For
    
    Against
    
    AbstainGeorge R. Davis, Sr.
    
    
    1,797,672
    
    
    
    3,554
    
    
    
    Robert B. Dixon, Jr.
    
    
    1,689,497
    
    
    
    111,729
    
    
    
    Gary D. McGaha
    
    
    1,797,122
    
    
    
    4,104
    
    
    
    William M. Strain
    
    
    1,801,226
    
    
    
    
    
    
    
    
 
 Item 5. OTHER INFORMATION
  
 Item 6. EXHIBITS
 (a)
    
    Exhibits
 31.1
    
    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
 15




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SIGNATURES
  SOUTHERN COMMUNITY
BANCSHARES, INC.Date:  August 14, 2007
    /s/ Gary McGahaGary McGahaPresident and CEODate August 14, 2007
    /s/ Leslye GrindleLeslye GrindleSr. Vice President and
Chief Financial Officer 16