##### 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 September 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 525 North Jeff Davis Drive, Fayetteville, Georgia 30214
   (Issuers telephone number)
 (Former name, former address and former fiscal year, if changed since last report)
 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 September 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2007 and 2006
    
    
    4Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2007 and 2006
    
    
    5Consolidated Statements of Cash Flows for the Nine Months Ended September 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
    
    
    14Item 5. Other Information
    
    
    14Item 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 September 30, 2007 and December 31, 2006
 September 30, 2007
    
    
    December 31, 2006(Unaudited)AssetsCash and due from banks
    
    $
    6,361,102
    
    
    $
    5,029,384Interest bearing deposits in banks
    
    
    3,181,466
    
    
    
    741,012Federal funds sold
    
    
    799,000
    
    
    
    13,747,000Securities available for sale, at fair value
    
    
    57,202,585
    
    
    
    55,368,977Restricted equity securities, at cost
    
    
    3,282,000
    
    
    
    2,669,900Loans
    
    
    304,768,903
    
    
    
    293,223,692Less allowance for loan losses
    
    
    4,669,909
    
    
    
    3,051,229Loans, net
    
    
    300,098,994
    
    
    
    290,172,463Premises and equipment
    
    
    9,185,462
    
    
    
    9,372,877Other assets
    
    
    11,930,864
    
    
    
    9,232,642Total assets
    
    $
    392,041,473
    
    
    $
    386,334,255Liabilities and Shareholders EquityDepositsNoninterest-bearing
    
    $
    35,952,671
    
    
    $
    36,833,998Interest-bearing
    
    
    239,440,165
    
    
    
    254,955,724Total deposits
    
    
    275,392,836
    
    
    
    291,789,722Federal Home Loan Bank advances
    
    
    57,500,000
    
    
    
    44,500,000Securities sold under repurchase agreements
    
    
    21,037,977
    
    
    
    12,913,674Subordinated debentures
    
    
    10,929,000
    
    
    
    10,929,000Other liabilities
    
    
    1,644,619
    
    
    
    1,753,246Total liabilities
    
    
    366,504,432
    
    
    
    361,885,642Shareholders equityCapital
stock, no par value; 10,000,000 shares authorized; 2,592,894 shares issued and outstanding
    
    
    16,191,025
    
    
    
    16,171,236Retained earnings
    
    
    9,750,160
    
    
    
    8,816,424Accumulated other comprehensive loss
    
    
    (404,144
    )
    
    
    (539,047
    )Total shareholders equity
    
    
    25,537,041
    
    
    
    24,448,613Total liabilities and shareholders equity
    
    $
    392,041,473
    
    
    $
    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 Nine Months Ended September 30, 2007 and 2006
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest incomeLoans, including fees
    
    $
    6,677,023
    
    
    $
    6,251,638
    
    
    $
    19,968,226
    
    
    $
    17,393,750Taxable securities
    
    
    542,929
    
    
    
    584,952
    
    
    
    1,583,150
    
    
    
    1,635,495Nontaxable securities
    
    
    135,607
    
    
    
    138,127
    
    
    
    407,085
    
    
    
    392,402Federal funds sold
    
    
    69,087
    
    
    
    117,593
    
    
    
    218,473
    
    
    
    404,248Interest bearing deposits in banks
    
    
    33,841
    
    
    
    22,396
    
    
    
    69,974
    
    
    
    42,367Total interest income
    
    
    7,458,487
    
    
    
    7,114,706
    
    
    
    22,246,908
    
    
    
    19,868,262Interest expenseDeposits
    
    
    2,871,176
    
    
    
    2,783,200
    
    
    
    8,682,855
    
    
    
    7,429,171Other borrowings
    
    
    1,035,518
    
    
    
    638,791
    
    
    
    2,878,525
    
    
    
    1,639,034Total interest expense
    
    
    3,906,694
    
    
    
    3,421,991
    
    
    
    11,561,380
    
    
    
    9,068,205Net interest income
    
    
    3,551,793
    
    
    
    3,692,715
    
    
    
    10,685,528
    
    
    
    10,800,057Provision for loan losses
    
    
    1,060,956
    
    
    
    840,000
    
    
    
    2,052,898
    
    
    
    1,884,000Net interest income after provision for loan losses
    
    
    2,490,837
    
    
    
    2,852,715
    
    
    
    8,632,630
    
    
    
    8,916,057Other incomeService charges on deposit accounts
    
    
    238,096
    
    
    
    211,610
    
    
    
    730,569
    
    
    
    598,261Proceeds from life insurance policy
    
    
    
    
    
    
    260,000
    
    
    
    
    
    
    
    472,053Other operating income
    
    
    50,904
    
    
    
    67,612
    
    
    
    198,769
    
    
    
    204,164Total other income
    
    
    289,000
    
    
    
    539,222
    
    
    
    929,338
    
    
    
    1,274,478Other expensesSalaries and employee benefits
    
    
    1,515,112
    
    
    
    1,402,604
    
    
    
    4,586,001
    
    
    
    4,045,971Equipment and occupancy expenses
    
    
    454,639
    
    
    
    421,157
    
    
    
    1,369,315
    
    
    
    1,259,695Other operating expenses
    
    
    866,561
    
    
    
    752,415
    
    
    
    2,421,335
    
    
    
    2,053,640Total other expenses
    
    
    2,836,312
    
    
    
    2,576,176
    
    
    
    8,376,651
    
    
    
    7,359,306Net income (loss) before income taxes (benefits)
    
    
    (56,475
    )
    
    
    815,761
    
    
    
    1,185,317
    
    
    
    2,831,229Income tax expense (benefits)
    
    
    (84,563
    )
    
    
    143,630
    
    
    
    251,581
    
    
    
    705,116Net income
    
    $
    28,088
    
    
    $
    672,131
    
    
    $
    933,736
    
    
    $
    2,126,113Basic earnings per share
    
    $
    0.01
    
    
    $
    0.26
    
    
    $
    0.36
    
    
    $
    0.82Diluted earnings per share
    
    $
    0.01
    
    
    $
    0.25
    
    
    $
    0.35
    
    
    $
    0.79Dividends 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 and Nine Months Ended September 30, 2007 and 2006
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    28,088
    
    
    $
    672,131
    
    
    $
    933,736
    
    
    $
    2,126,113Other comprehensive income:Unrealized holding gains on securities
available-for-sale arising during period, net of tax
    
    
    699,108
    
    
    
    513,821
    
    
    
    134,903
    
    
    
    117,775Other comprehensive income
    
    
    699,108
    
    
    
    513,821
    
    
    
    134,903
    
    
    
    117,775Comprehensive income
    
    $
    727,196
    
    
    $
    1,185,952
    
    
    $
    1,068,639
    
    
    $
    2,243,888
 See Notes to Consolidated Financial Statements.
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SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2007 and 2006
(Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    933,736
    
    
    $
    2,126,113Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation
    
    
    555,442
    
    
    
    513,002Provision for loan losses
    
    
    2,052,898
    
    
    
    1,884,000Gain on sale of other real estate owned
    
    
    (28,644
    )
    
    
    Loss on sale of other assets
    
    
    21,705
    
    
    
    Increase in interest receivable
    
    
    (304,060
    )
    
    
    (539,841
    )Increase (decrease) in interest payable
    
    
    (69,501
    )
    
    
    121,497Increase in cash surrender value of life insurance
    
    
    (133,612
    )
    
    
    (146,462
    )Proceeds from life insurance policy
    
    
    
    
    
    
    (472,053
    )Stock-based compensation expense
    
    
    19,789
    
    
    
    36,962Net other operating activities
    
    
    (1,711,014
    )
    
    
    (403,547
    )Net cash provided by operating activities
    
    
    1,336,739
    
    
    
    3,119,671INVESTING ACTIVITIESIncrease in interest-bearing deposits in banks
    
    
    (2,440,454
    )
    
    
    (405,525
    )Purchase of securities available for sale
    
    
    (6,641,690
    )
    
    
    (9,121,740
    )Proceeds from maturities of securities available for sale
    
    
    5,025,668
    
    
    
    2,807,970Purchase of restricted equity securities
    
    
    (612,100
    )
    
    
    (13,200
    )Cash surrender value of life insurance
    
    
    
    
    
    
    169,650Net decrease (increase) in federal funds sold
    
    
    12,948,000
    
    
    
    (1,341,000
    )Proceeds from sales of other real estate owned
    
    
    1,473,039
    
    
    
    Net increase in loans
    
    
    (14,116,874
    )
    
    
    (40,382,765
    )Net purchases of premises and equipment
    
    
    (368,027
    )
    
    
    (281,504
    )Net cash used in investing activities
    
    
    (4,732,438
    )
    
    
    (48,568,114
    )FINANCING ACTIVITIESNet (decrease) increase in deposits
    
    
    (16,396,886
    )
    
    
    43,602,018Proceeds from issuance of capital stock
    
    
    
    
    
    
    45,010Proceeds from issuance of subordinated debentures
    
    
    
    
    
    
    5,000,000Net increase (decrease) in Federal Home Loan Bank advances
    
    
    13,000,000
    
    
    
    (2,500,000
    )Net increase in repurchase agreements
    
    
    8,124,303
    
    
    
    743,383Net cash provided by financing activities
    
    
    4,727,417
    
    
    
    46,890,411Net increase in cash and due from banks
    
    
    1,331,718
    
    
    
    1,441,968Cash and due from banks at beginning of period
    
    
    5,029,384
    
    
    
    6,061,522Cash and due from banks at end of period
    
    $
    6,361,102
    
    
    $
    7,503,490
 See Notes to Consolidated Financial Statements.
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Nine months endedSeptember 30, 2007Weighted AverageWeighted
    
    
    RemainingAverage Option
    
    
    Contractual Term
    
    
    AggregateShares
    
    

Price Per Share
    
    
    (in 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
    
    
    
    4.43
    
    
    $
    1,344,016Number of shares exercisable
    
    
    204,569
    
    
    $
    7.00
    
    
    
    4.28
    
    
    $
    1,344,016
 7




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Nine months endedSeptember 30, 2006Weighted AverageWeighted
    
    
    RemainingAverage Option
    
    
    Contractual Term
    
    
    AggregateShares
    
    

Price Per Share
    
    
    (in years)
    
    
    Intrinsic ValueOutstanding, beginning of period
    
    
    209,403
    
    
    $
    7.08Granted during the period
    
    
    4,500
    
    
    
    19.00Forfeited during the period
    
    
    
    
    
    
    Exercised during the period
    
    
    (5,333
    )
    
    
    8.44Outstanding, end of period
    
    
    208,570
    
    
    $
    7.30
    
    
    
    5.4
    
    
    $
    2,857,409Number of shares exercisable
    
    
    198,785
    
    
    $
    6.94
    
    
    
    5.2
    
    
    $
    2,794,917
     Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    28,088
    
    
    $
    672,131
    
    
    $
    933,736
    
    
    $
    2,126,113Weighted average capital shares outstanding
    
    
    2,592,894
    
    
    
    2,588,994
    
    
    
    2,592,894
    
    
    
    2,587,726Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the period
    
    
    57,508
    
    
    
    95,858
    
    
    
    81,332
    
    
    
    95,858Total weighted average capital shares and
Capital stock equivalents outstanding
    
    
    2,650,402
    
    
    
    2,684,852
    
    
    
    2,674,226
    
    
    
    2,683,584Diluted earnings per capital share
    
    $
    0.01
    
    
    $
    0.25
    
    
    $
    0.35
    
    
    $
    0.79
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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
    
    
    8.91
    %
    
    
    8.51
    %
    
    
    4.00
    %Risk-Based Capital RatiosCore Capital
    
    
    9.99
    %
    
    
    9.73
    %
    
    
    4.00
    %Total Capital
    
    
    11.80
    %
    
    
    10.98
    %
    
    
    8.00
    %
  RESULTS OF OPERATIONS
 Net Interest Income
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Provision for Loan Losses
  September 30,
    
    September 30,2007
    
    2006(Dollars in thousands)Total nonaccruing loans
    
    $
    15,527
    
    
    $
    4,754Loans contractually past due ninety days
or more as to interest or principal payments and still accruing
    
    
    42
    
    
    
    966Restructured loans
    
    
    
    
    
    
    
    11




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Nine Months EndedSeptember 30,2007
    
    
    2006(Dollars in thousands)Average amount of loans outstanding
    
    $
    303,370
    
    
    $
    272,711Balance of allowance for loan losses at beginning of period
    
    $
    3,052
    
    
    $
    3,001Loans charged offCommercial and financial
    
    
    (118
    )
    
    
    (393
    )Real estate
    
    
    (274
    )
    
    
    (320
    )Installment
    
    
    (117
    )
    
    
    (36
    )(509
    )
    
    
    (749
    )Loans recoveredCommercial and financial
    
    
    38
    
    
    
    90Real estate
    
    
    2
    
    
    
    Installment
    
    
    34
    
    
    
    2074
    
    
    
    110Net charge-offs
    
    
    (435
    )
    
    
    (639
    )Additions to allowance charged to operating expense during period
    
    
    2,053
    
    
    
    1,884Balance of allowance for loan losses at end of period
    
    $
    4,670
    
    
    $
    4,246Ratio of net loans charged-off during the
period to average loans outstanding
    
    
    .14
    %
    
    
    0.23
    %
 Other Income.
 12




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Other Expenses.
 Income Taxes.
 Net Income
 13




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 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
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Item 5. OTHER INFORMATION
  14




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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
 15




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SIGNATURES
  SOUTHERN COMMUNITY BANCSHARES, INC./s/ Gary McGahaDate: November 13, 2007

    Gary McGahaPresident and CEO/s/ Leslye GrindleDate November 13, 2007

    Leslye GrindleSr. Vice President and
Chief Financial Officer 16