##### 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, 2008
 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: 000-50252
 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
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ o þ
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##### 



PagePart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007 (audited)
    
    
    4Consolidated Statements of Income (Loss) (unaudited) for the Three and Six Months Ended June 30, 2008 and 2007
    
    
    5Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and Six Months Ended June 30, 2008 and 2007
    
    
    6Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2008 and 2007
    
    
    7Notes to Consolidated Financial Statements (unaudited)
    
    
    8-12Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12-17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17Part II. Other InformationItem 1. Legal Proceedings
    
    
    18Item 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3. Defaults Upon Senior Securities
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 5. Other Information
    
    
    18Item 6. Exhibits
    
    
    19Signatures
    
    
    20EX-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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A Warning About Forward-Looking Statements
  3




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##### Table of Contents



PART I. Financial Information
 
 ITEM 1.
    
    Consolidated Financial Statements
 
 SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
as of June 30, 2008 and December 31, 2007
 June 30, 2008
    
    
    December 31, 2007(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    1,896,057
    
    
    $
    4,090,218Interest bearing deposits in banks
    
    
    4,696,030
    
    
    
    3,503,959Federal funds sold
    
    
    1,171,000
    
    
    
    26,039,000Securities available for sale, at fair value
    
    
    64,556,610
    
    
    
    58,196,916Restricted equity securities, at cost
    
    
    2,986,400
    
    
    
    3,282,000Loans
    
    
    256,820,978
    
    
    
    290,796,352Less allowance for loan losses
    
    
    5,924,965
    
    
    
    7,961,406Loans, net
    
    
    250,896,013
    
    
    
    282,834,946Premises and equipment
    
    
    8,925,825
    
    
    
    9,048,748Foreclosed assets
    
    
    29,935,129
    
    
    
    10,470,787Other assets
    
    
    12,617,028
    
    
    
    10,922,882Total assets
    
    $
    377,680,092
    
    
    $
    408,389,456Liabilities and Shareholders EquityDepositsNoninterest-bearing
    
    $
    30,538,274
    
    
    $
    32,220,093Interest-bearing
    
    
    248,608,588
    
    
    
    268,497,389Total deposits
    
    
    279,146,862
    
    
    
    300,717,482Federal Home Loan Bank advances
    
    
    50,000,000
    
    
    
    57,500,000Securities sold under repurchase agreements
    
    
    17,178,715
    
    
    
    14,573,847Subordinated debentures
    
    
    10,929,000
    
    
    
    10,929,000Other liabilities
    
    
    1,722,261
    
    
    
    1,680,798Total liabilities
    
    
    358,976,838
    
    
    
    385,401,127Shareholders equityCapital stock, no par value; 10,000,000 shares authorized;
2,593,874 shares issued and outstanding, respectively
    
    
    16,214,132
    
    
    
    16,204,025Retained earnings
    
    
    3,773,487
    
    
    
    6,921,331Accumulated other comprehensive loss
    
    
    (1,284,365
    )
    
    
    (137,027
    )Total shareholders equity
    
    
    18,703,254
    
    
    
    22,988,329Total liabilities and shareholders equity
    
    $
    377,680,092
    
    
    $
    408,389,456
 See Notes to Consolidated Financial Statements.
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SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three and Six Months Ended June 30, 2008 and 2007
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest incomeLoans, including fees
    
    $
    3,544,243
    
    
    $
    6,738,793
    
    
    $
    8,152,717
    
    
    $
    13,291,203Taxable securities
    
    
    672,770
    
    
    
    513,525
    
    
    
    1,242,269
    
    
    
    1,040,221Nontaxable securities
    
    
    64,577
    
    
    
    135,208
    
    
    
    201,243
    
    
    
    271,478Federal funds sold
    
    
    53,143
    
    
    
    84,045
    
    
    
    180,260
    
    
    
    149,386Interest bearing deposits in banks
    
    
    33,569
    
    
    
    27,238
    
    
    
    65,384
    
    
    
    36,133Total interest income
    
    
    4,368,302
    
    
    
    7,498,809
    
    
    
    9,841,873
    
    
    
    14,788,421Interest expenseDeposits
    
    
    2,440,842
    
    
    
    2,939,824
    
    
    
    5,149,755
    
    
    
    5,811,679Other borrowings
    
    
    665,282
    
    
    
    966,652
    
    
    
    1,563,563
    
    
    
    1,843,007Total interest expense
    
    
    3,106,124
    
    
    
    3,906,476
    
    
    
    6,713,318
    
    
    
    7,654,686Net interest income
    
    
    1,262,178
    
    
    
    3,592,333
    
    
    
    3,128,555
    
    
    
    7,133,735Provision for loan losses
    
    
    1,161,496
    
    
    
    618,942
    
    
    
    3,698,550
    
    
    
    991,942Net interest income (loss) after provision for
loan losses
    
    
    100,682
    
    
    
    2,973,391
    
    
    
    (569,995
    )
    
    
    6,141,793Other incomeService charges on deposit accounts
    
    
    224,951
    
    
    
    265,263
    
    
    
    438,173
    
    
    
    492,473Gain on sale of securities available for sale
    
    
    332,255
    
    
    
    
    
    
    
    332,255
    
    
    
    Other operating income
    
    
    (54,531
    )
    
    
    91,223
    
    
    
    (12,562
    )
    
    
    147,865Total other income
    
    
    502,675
    
    
    
    356,486
    
    
    
    757,866
    
    
    
    640,338Other expensesSalaries and employee benefits
    
    
    1,304,463
    
    
    
    1,465,430
    
    
    
    2,729,986
    
    
    
    3,070,889Equipment and occupancy expenses
    
    
    465,515
    
    
    
    465,061
    
    
    
    965,297
    
    
    
    914,676Other operating expenses
    
    
    896,081
    
    
    
    866,067
    
    
    
    1,758,723
    
    
    
    1,554,774Total other expenses
    
    
    2,666,059
    
    
    
    2,796,558
    
    
    
    5,454,006
    
    
    
    5,540,339Net income (loss) before income taxes (benefits)
    
    
    (2,062,702
    )
    
    
    533,319
    
    
    
    (5,266,135
    )
    
    
    1,241,792Income tax expense (benefits)
    
    
    (885,142
    )
    
    
    135,176
    
    
    
    (2,118,291
    )
    
    
    336,144Net income (loss)
    
    $
    (1,177,560
    )
    
    $
    398,143
    
    
    $
    (3,147,844
    )
    
    $
    905,648Basic earnings (losses) per share
    
    $
    (0.45
    )
    
    $
    0.15
    
    
    $
    (1.21
    )
    
    $
    0.35Diluted earnings (losses) per share
    
    $
    (0.45
    )
    
    $
    0.15
    
    
    $
    (1.21
    )
    
    $
    0.34Dividends 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, 2008 and 2007
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    (1,177,560
    )
    
    $
    398,143
    
    
    $
    (3,147,844
    )
    
    $
    905,648Other comprehensive loss:Unrealized holding losses on securities
available for sale arising during period, net of tax
    
    
    (1,162,706
    )
    
    
    (722,484
    )
    
    
    (941,340
    )
    
    
    (564,205
    )Reclassification adjustment for gains realized in net income,
net of tax
    
    
    (205,998
    )
    
    
    
    
    
    
    (205,998
    )
    
    
    Other comprehensive loss
    
    
    (1,368,704
    )
    
    
    (722,484
    )
    
    
    (1,147,338
    )
    
    
    (564,205
    )Comprehensive income (loss)
    
    $
    (2,546,264
    )
    
    $
    (324,341
    )
    
    $
    (4,295,182
    )
    
    $
    341,443
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SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2008 and 2007
(Unaudited)
 Six Months EndedJune 30,2008
    
    
    2007OPERATING ACTIVITIESNet income (loss)
    
    $
    (3,147,844
    )
    
    $
    905,648Adjustments to reconcile net income (loss) to net cash provided by operating activitiesDepreciation
    
    
    346,994
    
    
    
    372,049Provision for loan losses
    
    
    3,698,550
    
    
    
    991,942Gain on sale of securities available for sale
    
    
    (332,255
    )
    
    
    Loss on sale of other real estate owned
    
    
    165,190
    
    
    
    Decrease in interest receivable
    
    
    1,070,305
    
    
    
    203,375Increase (decrease) in interest payable
    
    
    (6,483
    )
    
    
    179,589Increase in cash surrender value of life insurance
    
    
    (104,061
    )
    
    
    (96,969
    )Stock-based compensation expense
    
    
    10,107
    
    
    
    13,110Net other operating activities
    
    
    (3,699,787
    )
    
    
    (56,575
    )Net cash provided by (used in) operating activities
    
    
    (1,999,284
    )
    
    
    2,512,169INVESTING ACTIVITIESIncrease in interest-bearing deposits in banks
    
    
    (1,192,071
    )
    
    
    (605,559
    )Purchase of securities available for sale
    
    
    (54,294,385
    )
    
    
    (1,665,840
    )Proceeds from maturities of securities available for sale
    
    
    25,308,012
    
    
    
    4,134,024Proceeds from sales of securities available for sale
    
    
    21,108,390
    
    
    
    (Purchase) redemption of restricted equity securities
    
    
    295,600
    
    
    
    (612,100
    )Net decrease in federal funds sold
    
    
    24,868,000
    
    
    
    4,693,000Proceeds from sales of other real estate owned
    
    
    1,742,546
    
    
    
    Net decrease (increase) in loans
    
    
    8,658,854
    
    
    
    (16,444,351
    )Net purchases of premises and equipment
    
    
    (224,071
    )
    
    
    (315,204
    )Net cash provided by (used in) investing activities
    
    
    26,270,875
    
    
    
    (10,816,030
    )FINANCING ACTIVITIESNet decrease in deposits
    
    
    (21,570,620
    )
    
    
    (5,301,432
    )Net (decrease) increase in Federal Home Loan Bank advances
    
    
    (7,500,000
    )
    
    
    13,000,000Net increase in repurchase agreements
    
    
    2,604,868
    
    
    
    4,370,864Net cash provided by (used in) financing activities
    
    
    (26,465,752
    )
    
    
    12,069,432Net (decrease) increase in cash and due from banks
    
    
    (2,194,161
    )
    
    
    3,765,571Cash and due from banks at beginning of period
    
    
    4,090,218
    
    
    
    5,029,384Cash and due from banks at end of period
    
    $
    1,896,057
    
    
    $
    8,794,955
 See Notes to Consolidated Financial Statements.
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NOTE 1.
    
    BASIS OF PRESENTATION
   NOTE 2. STOCK
    
    COMPENSATION PLANS
   Six months endedJune 30, 2008Weighted AverageWeighted Average
    
    
    RemainingOption Price Per
    
    
    Contractual Term
    
    
    AggregateShares
    
    
    Share
    
    
    (in years)
    
    

Intrinsic ValueOutstanding, beginning of period
    
    
    211,320
    
    
    $
    7.49Granted during the period
    
    
    
    
    
    
    Forfeited during the period
    
    
    (1,500
    )
    
    
    18.50Exercised during the period
    
    
    
    
    
    
    Outstanding, end of period
    
    
    209,820
    
    
    $
    7.41
    
    
    
    3.89
    
    
    $
    Number of shares exercisable
    
    
    204,986
    
    
    $
    7.00
    
    
    
    3.77
    
    
    $
    
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Six months endedJune 30, 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
    
    
    
    4.68
    
    
    $
    1,677,534Number of shares exercisable
    
    
    203,569
    
    
    $
    7.00
    
    
    
    4.51
    
    
    $
    1,677,534
   NOTE 3.
    
    EARNINGS (LOSSES) PER CAPITAL SHARE
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    (1,177,560
    )
    
    $
    398,143
    
    
    $
    (3,147,844
    )
    
    $
    905,648Weighted average common shares outstanding
    
    
    2,593,874
    
    
    
    2,592,894
    
    
    
    2,593,874
    
    
    
    2,592,894Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the period
    
    
    
    
    
    
    56,800
    
    
    
    
    
    
    
    59,514Total weighted average common shares and
capital stock equivalents outstanding
    
    
    2,593,874
    
    
    
    2,649,694
    
    
    
    2,593,874
    
    
    
    2,652,408Diluted earnings (losses) per common share
    
    $
    (0.45
    )
    
    $
    0.15
    
    
    $
    (1.21
    )
    
    $
    0.34
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NOTE 4.
    
    FAIR VALUE MEASUREMENTS
 Fair
Value Measurements
  
    
    Level 1 Valuations for assets and liabilities traded in active exchange markets,
such as the New York Stock Exchange. Level 1 also includes U.S. Treasury and federal
agency securities and federal agency mortgage-backed securities, which are traded by
dealers or brokers in active markets. Valuations are obtained from readily available
pricing sources for market transactions involving identical assets or liabilities.
    
    Level 2 Valuations for assets and liabilities traded in less active dealer or
broker markets. Valuations are obtained from third party pricing services for identical
or similar assets or liabilities.
    
    Level 3 Valuations for assets and liabilities that are derived from other
valuation methodologies, including option pricing models, discounted cash flow models and
similar techniques, and not based on market exchange, dealer, or broker traded
transactions. Level 3 valuations incorporate certain assumptions and projections in
determining the fair value assigned to such assets or liabilities.
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Assets Measured at Fair Value on a Recurring Basis
  Available for Sale Securities
  Assets Measured at Fair Value on a Nonrecurring Basis
  Impaired Loans
  Foreclosed Assets
  The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment of FASB Statement No. 115
 11




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Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  OVERVIEW
   12




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OUTLOOK
  FINANCIAL CONDITION
   LIQUIDITY
   REGULATORY CAPITAL REQUIREMENTS
  Regulatory MinimumRegulatory Minimum
    
    Requirement for WellCompany
    
    Bank
    
    Requirement
    
    Capitalized StatusLeverage Capital Ratio
    
    
    6.01
    %
    
    
    7.01
    %
    
    
    4.00
    %
    
    
    
    
    
    
    5.00
    %Risk-Based Capital RatiosCore Capital
    
    
    7.44
    %
    
    
    8.78
    %
    
    
    4.00
    %
    
    
    
    
    
    
    6.00
    %Total Capital
    
    
    10.04
    %
    
    
    10.04
    %
    
    
    8.00
    %
    
    
    
    
    
    
    10.00
    %
 13




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RESULTS OF OPERATIONS
 Net Interest Income
  14




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Provision for Loan Losses
  June 30,
    
    June 30,2008
    
    2007(Dollars in thousands)Total nonaccruing loans
    
    $
    37,546
    
    
    $
    12,804Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing
    
    
    1,071
    
    
    
    179Restructured loans
    
    
    1,443
    
    
    
    
 st
   15




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Six Months EndedJune 30,2008
    
    
    2007(Dollars in thousands)Average amount of loans outstanding
    
    $
    269,529
    
    
    $
    305,129Balance of allowance for loan losses at beginning of period
    
    $
    7,961
    
    
    $
    3,052Loans charged offCommercial and financial
    
    
    (54
    )
    
    
    (72
    )Real estate
    
    
    (5,681
    )
    
    
    (73
    )Installment
    
    
    (29)
    
    
    
    (61)(5,764
    )
    
    
    (206)Loans recoveredCommercial and financial
    
    
    6
    
    
    
    2Real estate
    
    
    
    
    
    
    Installment
    
    
    23
    
    
    
    1929
    
    
    
    21Net charge-offs
    
    
    (5,735
    )
    
    
    (185
    )Additions to allowance charged to operating expense during period
    
    
    3,699
    
    
    
    992Balance of allowance for loan losses at end of period
    
    $
    5,925
    
    
    $
    3,859Ratio of net loans charged-off during theperiod to average loans outstanding
    
    
    2.13
    %
    
    
    0.06
    %
 Other Income.
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Other Expenses.
 Income Taxes.
 Net Income
 
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4.
    
    CONTROLS AND PROCEDURES
  17




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PART II  OTHER INFORMATION
 
 Item 1.
    
    LEGAL PROCEEDINGS
  
 Item 1A. RISK FACTORS
 Our chief executive officer position is currently vacant and we may not be able to find a
qualified candidate to fill this role.
  
 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
  18




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Item 6.
    
    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
 19




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##### Table of Contents



SIGNATURES
  SOUTHERN COMMUNITY
BANCSHARES, INC.Date: August 13, 2008
    /s/ Thomas D. ReeseThomas D. ReeseActing Principal Executive Officer*Date  August 13, 2008
    /s/ Leslye GrindleLeslye GrindleSr. Vice President and
Chief Financial Officer 
 *Thomas D. Reese, who serves as Chairman of the Companys Board of Directors, has been
engaged to serve as an executive consultant to the Company and in that capacity he
essentially performs the functions of the principal executive officer. He is signing this
Form 10-Q, and the certifications found as Exhibits 31.1 and 32.1, therefore, as the
Companys acting principal executive officer. 20