##### 



U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549


FORM 10-QSB

x
    
    QUARTERLY REPORT PURSUANT TO 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934


For the quarterly period ended September 30, 2003

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.




(Exact name of small business issuer as specified in its charter)


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




(Address of principal executive office)


(770) 461-4365




(Issuers telephone number)


N/A




(Former name, former address and former fiscal year, if changed since last report)


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

State the number of shares outstanding of each of the issuers classes of
capital stock, as of October 31, 2003: 1,450,983; no par value
Transitional Small Business Disclosure
Format   Yes   o   No   x



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SOUTHERN COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
INDEX

PagePart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheet
as of September 30, 2003
    
    
    3Consolidated Statements of Income
for the Three and Nine Months
Ended September 30, 2003 and 2002
    
    
    4Consolidated Statements of Comprehensive Income
for the Three and Nine Months Ended September 30, 2003 and 2002
    
    
    5Consolidated Statements of Cash Flows
For The Nine Months Ended September 30, 2003 and 2002
    
    
    6Notes to Consolidated Financial Statements
    
    
    7 - 8Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    9-13Item 3. Controls and Procedures
    
    
    13Part II. Other InformationItem 6. Exhibits and Reports on Form 8-K
    
    
    14Signatures
    
    
    15Certifications
    
    
    16-21


2



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##### 



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
September 30, 2003

2003AssetsCash and due from banks
    
    $
    3,113,554Federal funds sold
    
    
    2,369,000Securities available-for-sale
    
    
    59,139,856Restricted equity securities
    
    
    750,000Loans
    
    
    109,350,920Less allowance for loan losses
    
    
    1,309,861Loans, net
    
    
    108,041,059Premises and equipment
    
    
    4,594,638Other assets
    
    
    1,620,213Total assets
    
    $
    179,628,320Liabilities and Shareholders EquityDepositsNoninterest-bearing
    
    $
    17,129,787Interest-bearing
    
    
    126,792,233Total deposits
    
    
    143,922,020Securities sold under repurchase agreements
    
    
    2,452,772Other Borrowings
    
    
    15,000,000Other liabilities
    
    
    500,751Total liabilities
    
    
    161,875,543Shareholders equityCapital stock, no par value; 10,000,000 shares authorized;
1,450,983 shares issued and outstanding
    
    
    16,047,815Retained earnings
    
    
    2,171,104Accumulated other comprehensive loss
    
    
    (466,142
    )Total shareholders equity
    
    
    17,752,777Total liabilities and shareholders equity
    
    $
    179,628,320


See Notes to Consolidated Financial Statements.

3



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##### 



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 2003 and 2002

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Interest incomeLoans, including fees
    
    
    1,986,917
    
    
    
    1,649,913
    
    
    
    5,526,098
    
    
    
    4,452,814Taxable securities
    
    
    340,132
    
    
    
    132,035
    
    
    
    633,917
    
    
    
    474,902Nontaxable securities
    
    
    62,968
    
    
    
    20,504
    
    
    
    148,163
    
    
    
    27,708Federal funds sold
    
    
    15,204
    
    
    
    28,192
    
    
    
    52,010
    
    
    
    51,870Total interest income
    
    
    2,405,221
    
    
    
    1,830,644
    
    
    
    6,360,188
    
    
    
    5,007,294Interest expenseDeposits
    
    
    822,601
    
    
    
    605,127
    
    
    
    2,121,308
    
    
    
    1,733,350Other borrowings
    
    
    37,535
    
    
    
    8,346
    
    
    
    55,195
    
    
    
    26,022Total interest expense
    
    
    860,136
    
    
    
    613,473
    
    
    
    2,176,503
    
    
    
    1,759,372Net interest income
    
    
    1,545,085
    
    
    
    1,217,171
    
    
    
    4,183,685
    
    
    
    3,247,922Provision for loan losses
    
    
    155,000
    
    
    
    139,249
    
    
    
    310,000
    
    
    
    231,249Net interest income after provision for loan losses
    
    
    1,390,085
    
    
    
    1,077,922
    
    
    
    3,873,685
    
    
    
    3,016,673Other incomeService charges on deposit accounts
    
    
    99,223
    
    
    
    74,920
    
    
    
    270,239
    
    
    
    198,743Gain on sale of securities available-for-sale
    
    
    15,500
    
    
    
    32,288
    
    
    
    56,301
    
    
    
    40,035Gain on sale of loans
    
    
    
    
    
    
    38,003
    
    
    
    21,113
    
    
    
    38,003Other operating income
    
    
    27,178
    
    
    
    8,573
    
    
    
    47,100
    
    
    
    32,361Total other income
    
    
    141,901
    
    
    
    153,784
    
    
    
    394,843
    
    
    
    309,142Other expensesSalaries and employee benefits
    
    
    555,037
    
    
    
    385,094
    
    
    
    1,479,851
    
    
    
    1,100,334Equipment and occupancy expenses
    
    
    138,004
    
    
    
    125,712
    
    
    
    382,108
    
    
    
    339,906Other operating expenses
    
    
    346,456
    
    
    
    237,797
    
    
    
    900,144
    
    
    
    728,881Total other expenses
    
    
    1,039,497
    
    
    
    748,603
    
    
    
    2,762,103
    
    
    
    2,169,121Net income before income taxes
    
    
    492,489
    
    
    
    483,103
    
    
    
    1,506,425
    
    
    
    1,156,694Income tax expense
    
    
    164,441
    
    
    
    188,326
    
    
    
    517,329
    
    
    
    444,341Net income
    
    
    328,048
    
    
    
    294,777
    
    
    
    989,096
    
    
    
    712,353Basic earnings per share
    
    
    0.23
    
    
    
    0.30
    
    
    
    0.68
    
    
    
    0.82Diluted earnings per share
    
    
    0.23
    
    
    
    0.30
    
    
    
    0.68
    
    
    
    0.82Dividends declared per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


See Notes to Consolidated Financial Statements.

4



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##### 



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three and Nine Months Ended September 30, 2003 and 2002

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Net income
    
    $
    328,048
    
    
    $
    294,777
    
    
    $
    989,096
    
    
    $
    712,353Other comprehensive income (loss):Unrealized gains (losses) on securities available-for-sale
arising during period, net of tax
    
    
    (683,384
    )
    
    
    28,829
    
    
    
    (536,814
    )
    
    
    15,706Reclassification adjustment for gains realized in net income,
net of tax
    
    
    (10,106
    )
    
    
    (21,309
    )
    
    
    (36,708
    )
    
    
    (26,422
    )Other comprehensive income (loss)
    
    
    (693,490
    )
    
    
    7,520
    
    
    
    (573,522
    )
    
    
    (10,716
    )Comprehensive income (loss)
    
    $
    (365,442
    )
    
    $
    302,297
    
    
    $
    415,574
    
    
    $
    701,637


See Notes to Consolidated Financial Statements.

5



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##### 



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2003 and 2002

2003
    
    2002OPERATING ACTIVITIESNet income
    
    $
    989,096
    
    
    $
    712,352Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    217,185
    
    
    
    206,818Provision for loan losses
    
    
    310,000
    
    
    
    231,248Gain on sale of securities available-for-sale
    
    
    (56,301
    )
    
    
    (40,035
    )Decrease (increase) in interest receivable
    
    
    (172,117
    )
    
    
    43,636Increase (decrease) in interest payable
    
    
    118,690
    
    
    
    (31,202
    )Net other operating activities
    
    
    (296,806
    )
    
    
    (145,252
    )Net cash provided by operating activities
    
    
    1,109,747
    
    
    
    977,565INVESTING ACTIVITIESPurchase of securities available-for-sale
    
    
    (50,684,115
    )
    
    
    (12,184,223
    )Proceeds from maturities of securities available-for-sale
    
    
    11,159,257
    
    
    
    4,001,940Proceeds from sales of securities available-for-sale
    
    
    2,314,969
    
    
    
    5,220,499Purchase of restricted equity securities
    
    
    (608,200
    )
    
    
    Net increase in federal funds sold
    
    
    (2,369,000
    )
    
    
    (5,316,000
    )Net increase in loans
    
    
    (18,570,575
    )
    
    
    (19,028,629
    )Purchase of premises and equipment
    
    
    (1,100,420
    )
    
    
    (715,185
    )Net cash used in investing activities
    
    
    (59,858,084
    )
    
    
    (28,021,598
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    44,413,275
    
    
    
    24,358,924Proceeds from issuance of capital stock
    
    
    705,200
    
    
    
    4,286,012Net decrease in federal funds purchased
    
    
    (719,000
    )
    
    
    Net Increase in other borrowings
    
    
    15,000,000
    
    
    
    Net Increase (decrease) in repurchase agreements
    
    
    (1,327,241
    )
    
    
    282,899Net cash provided by financing activities
    
    
    58,072,234
    
    
    
    28,927,835Net increase (decrease) in cash and due from banks
    
    
    (676,103
    )
    
    
    1,883,802Cash and due from banks at beginning of period
    
    
    3,789,657
    
    
    
    1,404,674Cash and due from banks at end of period
    
    $
    3,113,554
    
    
    $
    3,288,476


See Notes to Consolidated Financial Statements.

6



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##### 



SOUTHERN COMMUNITY BANCSHARES,
INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1.
    
    BASIS OF PRESENTATIONThe consolidated financial information included for Southern
Community Bancshares, Inc. (the Company) and Southern Community
Bank (the Bank) herein is unaudited; however, such information
reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary
for a fair statement of results for the interim periods.The results of operations for the three and nine month periods
ended September 30, 2003 are not necessarily indicative of the
results to be expected for the full year.NOTE 2.
    
    STOCK COMPENSATION PLANSAt September 30, 2003, the Company has two stock-based employee
compensation plans. The Company accounts for those
plans under the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to Employees,and
related Interpretations. No stock-based employee compensation cost
is reflected in net income, as all options granted under these plans
have an exercise price equal to the market value of the underlying
stock on the date of grant. The following table illustrates the
effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of SFAS Statement No.
123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.


Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Net income, as reported
    
    $
    328,048
    
    
    $
    294,777
    
    
    $
    989,096
    
    
    $
    712,353Deduct: Total stock-based employee compensation
expense determined under fair value based
Method for all awards, net of related tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pro forma net income
    
    $
    328,048
    
    
    $
    294,777
    
    
    $
    989,096
    
    
    $
    712,353Earnings per share:Basic  as reported
    
    $
    0.23
    
    
    $
    0.30
    
    
    $
    0.68
    
    
    $
    0.82Basic  pro forma
    
    $
    0.23
    
    
    $
    0.30
    
    
    $
    0.68
    
    
    $
    0.82Diluted  as reported
    
    $
    0.23
    
    
    $
    0.30
    
    
    $
    0.68
    
    
    $
    0.82Diluted  pro forma
    
    $
    0.23
    
    
    $
    0.30
    
    
    $
    0.68
    
    
    $
    0.82


7



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NOTE 3.
    
    EARNINGS PER CAPITAL SHAREPresented below is a summary of the components used to calculate
basic and diluted earnings per capital share for the periods ended
September 30, 2003 and 2002.


Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Net income
    
    $
    328,048
    
    
    $
    294,777
    
    
    $
    989,096
    
    
    $
    712,353Weighted average capital shares
outstanding
    
    
    1,450,983
    
    
    
    967,554
    
    
    
    1,445,589
    
    
    
    863,747Net effect of the assumed exercise of
stock
options based on the treasury stock
method
using average market price for the
period
    
    
    5,261
    
    
    
    7,207
    
    
    
    6,750
    
    
    
    7,207Total weighted average capital shares and
Capital stock equivalents outstanding
    
    
    1,456,244
    
    
    
    974,761
    
    
    
    1,452,339
    
    
    
    870,954Diluted earnings per capital share
    
    $
    0.23
    
    
    $
    0.30
    
    
    $
    0.68
    
    
    $
    0.82


Note 4.
    
    Recent DevelopmentsIn November 2002, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The interpretation addresses
the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees. The
interpretation also clarifies the requirements related to the
recognition of a liability by a guarantor at the inception of a
guarantee, for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial
measurement provisions of the interpretation are to be applied to
guarantees issued or modified after December 31, 2002. As of
September 30, 2003, the interpretation has not had a material effect
on the financial condition or results of operations, and there are
no guarantees required to disclosed.


8



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SOUTHERN COMMUNITY BANCSHARES, INC. AND SUBSIDIARY

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

The following is managements discussion and analysis of certain significant
factors which have affected our financial position and operating results during
the periods included in the accompanying consolidated financial statements.

Forward-Looking Statements

This quarterly report contains certain forward-looking statements which are
based on certain assumptions and describe future plans, strategies, and our
expectations. These forward-looking statements are generally identified by use
of the words believe, expect, intend, anticipate, estimate,
project, or similar expressions. Our ability to predict results or the
actual effect of future plans or strategies is inherently uncertain. Factors
which could have a material adverse effect on our operations include, but are
not limited to, changes in interest rates, general economic conditions,
legislation and regulation, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of our loan and investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
our market area, and accounting principles and guidelines. You should consider
these risks and uncertainties in evaluating forward-looking statements and
should not place undue reliance on such statements. We will not publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.

FINANCIAL CONDITION

Total assets increased $58.5 million from $121.1 million to $179.6 million, or
48.4% for the nine months ended September 30, 2003. The increase in total
assets in 2003 is considerably more than the $15 million growth for the same
period in 2002. The growth in both years continues to be funded primarily by
increases in total deposits, which increased by $44.4 million and $13.1
million, respectively and an arbitrage with the Federal Home Loan Bank of $15
million. Approximately $20 million of the deposit growth is directly related
to a certificate of deposit campaign which increased the deposit base of our
Peachtree City facility by $10 million and our Fayetteville location by $10
million. This campaign was for a certificate of deposit term for one year and
a yield slightly above the market rate at that time. The net increase in total
assets for the nine months ended September 30, 2003 consisted primarily of an
increase of $18 million in total loans, an increase in Federal funds sold of
$2.4 million and an increase in securities available-for-sale of $36.3 million,
of which $15 million is directly related to the arbitrage with the Federal Home
Loan Bank. The loan to deposit ratio at September 30, 2003 was 76% compared to
91% at December 31, 2002. The decrease in the loan to deposit ratio as
compared to December 31, 2002 is due to total loans increasing by only $18
million and total deposits increasing by $44.4 million.

Shareholders equity increased by $1.1 million for the nine months ended
September 30, 2003. This net increase consists of net income of $989,096, a
decrease in unrealized gains

9



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##### 



on securities of $574000, and proceeds from our stock offering of $705,000. We
sold the offering maximum of 640,000 shares by the expiration date of January
31, 2003.

LIQUIDITY

Liquidity management involves the matching of the cash flow requirements of
customer withdrawals of funds and the funding of loan originations, and the
ability of our subsidiary bank to meet those requirements. Management monitors
and maintains appropriate levels of liquidity so that maturities of assets and
deposit growth are such that adequate funds are provided to meet estimated
customer withdrawals and loan requests.

At September 30, 2003, the Banks liquidity ratio was 28.88% which is above the
Banks target ratio of 20%.

REGULATORY CAPITAL REQUIREMENTS

Banking regulations require us to maintain minimum capital levels in relation
to assets. At September 30, 2003, the Banks capital ratios were considered
well capitalized based on regulatory minimum capital requirements. The minimum
capital requirements and the actual capital ratios for the Bank at September
30, 2003 are as follows:

RegulatoryMinimumBank
    
    RequirementLeverage Capital Ratio
    
    
    7.28
    %
    
    
    4.00
    %Risk-Based Capital RatiosCore Capital
    
    
    9.74
    %
    
    
    4.00
    %Total Capital
    
    
    10.77
    %
    
    
    8.00
    %


Our first branch facility in Peachtree City opened for business during the
second quarter of 2003. In addition, we have signed a contract for two
in-store branches scheduled to open in the first quarter of 2004, a third
branch scheduled to open in the second quarter of 2004, and a fourth branch
scheduled to open in the third quarter of 2004. The total commitment for all
branches in 2004 is estimated at $3.5 million.

We are not aware of any other recommendations by the regulatory authorities,
events or trends, which, if they were to be implemented, would have a material
effect on our liquidity, capital resources, or operations.

RESULTS OF OPERATIONS

Net Interest Income. Net interest income increased by $328,000 and $936,000
for the three and nine month periods ended September 30, 2003 compared to the
same period in 2002. The increase in net interest income is attributable to an
increase in earning assets of $62.9 million as compared to September 2002.
Loans increased during this period by $24.6 million, which generally provide
greater yields to the Company. During this same period, total deposits

10



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##### 



increased by $44.8 million, which included an increase of $41.1 million in
interest-bearing deposits and an increase of $3.7 million in non-interest
bearing deposits. The change in net interest income is also based on the
spread between rates earned on interest earning assets and rates paid on
interest bearing liabilities. The yield on total loans for the nine months
ended September 30, 2003 is approximately 7.54% as compared to 8.03% for the
same period in 2002. The yield on total interest earning assets for the nine
months ended September 30, 2003 was 6.22% compared to 7.38% for the same period
in 2002, or a decrease of 116 basis points. The rate paid on interest bearing
liabilities for the same period decreased by only 46 basis points to 2.66% from
3.12%. These decreases in yields are directly related to the decline in
interest rates over the past two years.

Due to the continued decrease in interest rates and increased volume of loans
and deposits at their respective current yields, the net interest margin
decreased to 4.09% at September 30, 2003 as compared to 4.79% at September 30,
2002. We utilize floors on many of our adjustable rate loans to minimize the
impact of changing rates.

Provision for Loan Losses. The provision for loan losses is based on
managements evaluation of the economic environment, the history of charged off
loans and recoveries, size and composition of the loan portfolio, nonperforming
and past due loans, and other aspects of the loan portfolio. We review the
allowance for loan loss on a quarterly basis and make provisions as necessary.
A provision of $310,000 was made during the nine month period ending September
30, 2003 based upon this evaluation process as compared to $231,000 for the
same period in 2002. The allowance for loan loss as a percentage of total
loans was 1.20% at September 30, 2003, 1.25% at December 31, 2002, and 1.20% at
September 30, 2002. Management believes the allowance for loan loss at
September 30, 2003 is adequate to meet any foreseeable losses in the loan
portfolio.

At September 30, 2003 and 2002, nonaccrual, past due, and restructured loans
were as follows:

September 30,
    
    September 30,2003
    
    2002(Dollars in thousands)Total nonaccruing loans
    
    $
    348
    
    
    $
    18Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing
    
    
    
    
    
    
    135Restructured loans
    
    
    
    
    
    
    


It is our policy to discontinue the accrual of interest income when, in the
opinion of management, collection of such interest becomes doubtful. This
status is accorded such interest when (1) there is a significant deterioration
in the financial condition of the borrower and full repayment of principal and
interest is not expected or (2) the principal or interest is more than ninety
days past due, unless the loan is both well-secured and in the process of
collection. Accrual of interest on such loans is resumed when, in managements
judgment, the collection of interest and principal becomes probable.

11



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##### 



Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity, or capital resources.
These classified loans do not represent material credits about which management
is aware of any information which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan repayment terms.

Information regarding certain loans and allowance for loan loss data for the
nine months ended September 30, 2003 and 2002 is as follows:

Nine Months EndedSeptember 30,2003
    
    2002(Dollars in thousands)Average amount of loans outstanding
    
    $
    98,005
    
    
    $
    74,167Balance of allowance for loan losses at beginning of period
    
    $
    1,141
    
    
    $
    804Loans charged offCommercial and financial
    
    
    
    
    
    
    (1
    )Real estate
    
    
    (116
    )
    
    
    Installment
    
    
    (25
    )
    
    
    (15
    )(141
    )
    
    
    (16
    )Loans recoveredCommercial and financial
    
    
    
    
    
    
    Real estate
    
    
    
    
    
    
    Installment
    
    
    
    
    
    
    
    
    
    
    Net charge-offs
    
    
    (141
    )
    
    
    (16
    )Additions to allowance charged to operating expense during period
    
    
    310
    
    
    
    231Balance of allowance for loan losses at end of period
    
    
    1,310
    
    
    
    1,019Ratio of net loans charged-off during the
period to average loans outstanding
    
    
    0.14
    %
    
    
    0.02
    %


Other Income.Other income decreased by $12,000 and increased by $86,000 for
the three and nine months ended September 30, 2003 compared to the same period
in 2002. Gains on sales of securities available-for-sale decreased $17,000 for
the three months ended September 30, 2003, while increasing $16,000 for the
nine months ended September 30, 2003 compared to the same period in 2002.
Deposit service charges increased $24,000 and

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$72,000 for the three and nine months ended September 30, 2003 compared to the
same period in 2002 which is directly related to the growth in deposit
accounts. Gains on sale of loans decreased by $38,000 and $17,000 for the
three and nine months ended September 30, 2003 compared to the same period in
2002.

Other Expenses.Other expenses increased by $290,000 and $593,000 for the
three and nine months ended September 30, 2003 compared to the same period in
2002. The most significant increases in 2003 are increases of $170,000 and
$380,000 in salaries and employee benefits and other operating expenses of
$109,000 and $171,000 for the three and nine month periods ended September 30,
2003. The increase in salaries and employee benefits represent normal
increases in salaries and an increase in the number of employees. At September
30, 2003, the number of full-time equivalent employees was 41 compared to 33 at
September 30, 2002. The increases in other operating expenses are not
attributable to any one particular item, but represent normal increases.
Equipment and occupancy expenses increased $12,000 and $42,000 for the three
and nine month periods ended September 30, 2003. This increase is directly
related to equipment purchases for new employees and occupancy expenses related
to the opening of our Peachtree City facility.

Income Taxes.Income tax expense decreased by $24,000 for the three months
ended September 30, 2003, and increased by $73,000 for the nine months ended
September 30, 2003 as compared to 2002. The decrease in income tax expense is
directly related to the decrease in our effective tax rate due to the purchase
of non-taxable securities. The effective tax rate for 2003 and 2002 was 34.3%
and 38%, respectively.

Net Income. Net income increased by $33,000 and $277,000 for the three and
nine months ended September 30, 2003 as compared to the same period in 2002.
The primary reason for the increase in net income for the three and nine months
ended September 30, 2003 as compared to the same period in 2002 is the increase
in net interest income.

Item 3. CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief Financial Officer have evaluated the
Companys disclosure controls and procedures as of the end of the quarterly
period covered by this Form 10-QSB and have concluded that the Companys
disclosure controls and procedures are effective. During the third quarter of
2003 there were no changes in the Companys internal control over financial
reporting that have materially affected, or that are reasonably likely to
materially affect, the Companys internal control over financial reporting.

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Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits
| | --- |  | --------
| |     | 
|
| |     |  | 31.1    
| |     | 
|
| |     |  | 31.2    
| |     | 
|
|
| |     |  | 32.1    
| |     | 
|
| |     |  | 32.2    



| | (b) |  | Reports on Form 8-K.
| | --- |  | --------------------

None.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

SOUTHERN COMMUNITY
BANCSHARES, INC.Date:
    
    November 14, 2003
    
    /s/ Gary McGahaGary McGahaPresident and DirectorDate
    
    November 14, 2003
    
    /s/ Leslye GrindleLeslye GrindleVice President andChief Financial Officer


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