##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended June 30, 2005
 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)
  
  (Issuers telephone number)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o þ




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PagePart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheet
as of June 30, 2005
    
    
    3Consolidated Statements of Income
for the Three and Six Months Ended June 30, 2005 and 2004
    
    
    4Consolidated Statements of Comprehensive Income (Loss)
for the Three and Six Months Ended June 30, 2005 and 2004
    
    
    5Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2005 and 2004
    
    
    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
    
    
    14Part II. Other InformationItem 4. Submission of Matters to a Vote of Security Holders
    
    
    14Item 6. Exhibits
    
    
    14Signatures
    
    
    15Certifications
    
    
    16-21EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.1 SECTION 906 CERTIFICATION OF THE CFO
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PART I. Financial Information
 
 ITEM 1. Financial Statements
 SOUTHERN COMMUNITY BANCSHARES, INC.
 AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEET
 June 30, 2005
 (Unaudited)
 AssetsCash and due from banks
    
    $
    5,103,501Interest bearing balances in banks
    
    
    558,953Federal funds sold
    
    
    15,007,000Securities available-for-sale
    
    
    49,818,471Restricted equity securities
    
    
    1,891,700Loans
    
    
    225,454,367Less allowance for loan losses
    
    
    2,358,493Loans, net
    
    
    223,095,874Premises and equipment
    
    
    8,401,294Other assets
    
    
    2,992,219Total assets
    
    $
    306,869,012Liabilities and Shareholders EquityDepositsNoninterest-bearing
    
    $
    26,818,498Interest-bearing
    
    
    215,871,057Total deposits
    
    
    242,689,555Federal Home Loan Bank advances
    
    
    30,000,000Securities sold under repurchase agreements
    
    
    6,674,913Other liabilities
    
    
    960,541Subordinated debentures
    
    
    5,774,000Total liabilities
    
    
    286,099,009Shareholders equityCapital stock, no par value; 10,000,000 shares authorized;
2,586,661 shares issued and outstanding
    
    
    16,066,013Retained earnings
    
    
    5,056,492Accumulated other comprehensive loss
    
    
    (352,502
    )Total shareholders equity
    
    
    20,770,003Total liabilities and shareholders equity
    
    $
    306,869,012
 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, 2005 and 2004
 (Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Interest incomeLoans, including fees
    
    $
    3,931,190
    
    
    $
    2,755,564
    
    
    $
    7,305,377
    
    
    $
    5,172,157Taxable securities
    
    
    418,498
    
    
    
    456,170
    
    
    
    841,910
    
    
    
    952,497Nontaxable securities
    
    
    116,700
    
    
    
    91,246
    
    
    
    223,270
    
    
    
    182,331Interest on deposits in banks
    
    
    6,451
    
    
    
    2,244
    
    
    
    16,609
    
    
    
    2,534Federal funds sold
    
    
    79,108
    
    
    
    15,071
    
    
    
    125,611
    
    
    
    27,837Total interest income
    
    
    4,551,947
    
    
    
    3,320,295
    
    
    
    8,512,777
    
    
    
    6,337,356Interest expenseDeposits
    
    
    1,486,527
    
    
    
    918,913
    
    
    
    2,703,568
    
    
    
    1,750,708Other borrowings
    
    
    359,015
    
    
    
    188,282
    
    
    
    623,006
    
    
    
    334,683Total interest expense
    
    
    1,845,542
    
    
    
    1,107,195
    
    
    
    3,326,574
    
    
    
    2,085,391Net interest income
    
    
    2,706,405
    
    
    
    2,213,100
    
    
    
    5,186,203
    
    
    
    4,251,965Provision for loan losses
    
    
    418,160
    
    
    
    295,000
    
    
    
    723,160
    
    
    
    448,121Net interest income after provision for loan losses
    
    
    2,288,245
    
    
    
    1,918,100
    
    
    
    4,463,043
    
    
    
    3,803,844Other incomeService charges on deposit accounts
    
    
    153,522
    
    
    
    114,397
    
    
    
    282,505
    
    
    
    209,841Gain on sale of securities available-for-sale
    
    
    58,511
    
    
    
    
    
    
    
    61,811
    
    
    
    49,185Other operating income
    
    
    (14,009
    )
    
    
    17,277
    
    
    
    8,625
    
    
    
    31,603Total other income
    
    
    198,024
    
    
    
    131,674
    
    
    
    352,941
    
    
    
    290,629Other expensesSalaries and employee benefits
    
    
    1,111,525
    
    
    
    830,951
    
    
    
    2,159,157
    
    
    
    1,517,659Equipment and occupancy expenses
    
    
    312,801
    
    
    
    176,015
    
    
    
    583,583
    
    
    
    329,934Other operating expenses
    
    
    627,820
    
    
    
    462,858
    
    
    
    1,224,769
    
    
    
    782,405Total other expenses
    
    
    2,052,146
    
    
    
    1,469,824
    
    
    
    3,967,509
    
    
    
    2,629,998Net income before income taxes
    
    
    434,123
    
    
    
    579,950
    
    
    
    848,475
    
    
    
    1,464,475Income tax expense
    
    
    120,379
    
    
    
    186,276
    
    
    
    245,917
    
    
    
    487,793Net income
    
    $
    313,744
    
    
    $
    393,674
    
    
    $
    602,558
    
    
    $
    976,682Basic earnings per share
    
    $
    0.12
    
    
    $
    0.15
    
    
    $
    0.23
    
    
    $
    0.38Diluted earnings per share
    
    $
    0.12
    
    
    $
    0.15
    
    
    $
    0.22
    
    
    $
    0.37Dividends 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, 2005 and 2004
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income
    
    $
    313,744
    
    
    $
    393,674
    
    
    $
    602,558
    
    
    $
    976,682Other comprehensive income (loss):Unrealized gains (losses) on
securities available-for-sale
arising during period, net of tax
    
    
    348,808
    
    
    
    (1,645,211
    )
    
    
    (61,729
    )
    
    
    (962,943
    )Reclassification adjustment for gains
realized in net income, net of tax
    
    
    (36,277
    )
    
    
    
    
    
    
    (38,323
    )
    
    
    (30,495
    )Other comprehensive income (loss)
    
    
    312,531
    
    
    
    (1,645,211
    )
    
    
    (100,052
    )
    
    
    (993,438
    )Comprehensive income (loss)
    
    $
    626,275
    
    
    $
    (1,251,537
    )
    
    $
    502,506
    
    
    $
    (16,756
    )
 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, 2005 and 2004
 (Unaudited)
 2005
    
    2004OPERATING ACTIVITIESNet income
    
    $
    602,558
    
    
    $
    976,682Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    280,813
    
    
    
    167,080Provision for loan losses
    
    
    723,160
    
    
    
    448,121Gain on sale of securities available-for-sale
    
    
    (61,811
    )
    
    
    (49,185
    )Increase in interest receivable
    
    
    (193,814
    )
    
    
    (69,206
    )Increase in interest payable
    
    
    284,466
    
    
    
    1,639Net other operating activities
    
    
    (159,182
    )
    
    
    (518,661
    )Net cash provided by operating activities
    
    
    1,476,190
    
    
    
    956,470INVESTING ACTIVITIESDecrease in interest-bearing deposits in banks
    
    
    1,479,278
    
    
    
    Purchase of securities available-for-sale
    
    
    (3,030,614
    )
    
    
    (719,000
    )Proceeds from maturities of securities available-for-sale
    
    
    2,665,756
    
    
    
    3,595,923Proceeds from sales of securities available-for-sale
    
    
    1,062,508
    
    
    
    5,192,337Purchase of restricted equity securities
    
    
    (420,400
    )
    
    
    (450,000
    )Net decrease (increase) in federal funds sold
    
    
    3,371,000
    
    
    
    (9,232,000
    )Net increase in loans
    
    
    (39,098,364
    )
    
    
    (34,748,476
    )Purchase of premises and equipment
    
    
    (905,058
    )
    
    
    (1,436,337
    )Net cash used in investing activities
    
    
    (34,875,894
    )
    
    
    (37,797,553
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    26,925,320
    
    
    
    22,357,760Proceeds from issuance of capital stock
    
    
    11,217
    
    
    
    Proceeds from issuance of trust preferred securities
    
    
    
    
    
    
    5,774,000Net increase in Federal Home Loan Bank advances
    
    
    6,000,000
    
    
    
    9,000,000Net increase in repurchase agreements
    
    
    1,921,999
    
    
    
    1,146,610Net cash provided by financing activities
    
    
    34,858,536
    
    
    
    38,278,370Net increase in cash and due from banks
    
    
    1,458,832
    
    
    
    1,437,287Cash and due from banks at beginning of period
    
    
    3,644,669
    
    
    
    3,806,961Cash and due from banks at end of period
    
    $
    5,103,501
    
    
    $
    5,244,248
 See Notes to Consolidated Financial Statements.
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Accounting for Stock Issued to Employees, Accounting
for Stock-Based Compensation
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income, as reported
    
    $
    313,744
    
    
    $
    393,674
    
    
    $
    602,558
    
    
    $
    976,682Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    (13,639
    )
    
    
    (8,456
    )
    
    
    (13,639
    )
    
    
    (8,456
    )Pro forma net income
    
    $
    300,105
    
    
    $
    385,218
    
    
    $
    588,919
    
    
    $
    968,226Earnings per share:Basic  as reported
    
    $
    0.12
    
    
    $
    0.15
    
    
    $
    0.23
    
    
    $
    0.38Basic  pro forma
    
    $
    0.12
    
    
    $
    0.15
    
    
    $
    0.23
    
    
    $
    0.38Diluted  as reported
    
    $
    0.12
    
    
    $
    0.15
    
    
    $
    0.22
    
    
    $
    0.37Diluted  pro forma
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.22
    
    
    $
    0.37
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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income
    
    $
    313,744
    
    
    $
    393,674
    
    
    
    602,558
    
    
    $
    976,682Weighted average capital shares outstanding
    
    
    2,586,287
    
    
    
    2,579,477
    
    
    
    2,584,657
    
    
    
    2,579,477Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the period
    
    
    93,215
    
    
    
    62,161
    
    
    
    93,215
    
    
    
    54,694Total weighted average capital shares and
Capital stock equivalents outstanding
    
    
    2,679,502
    
    
    
    2,641,638
    
    
    
    2,677,872
    
    
    
    2,634,171Diluted earnings per capital share
    
    $
    0.12
    
    
    $
    0.15
    
    
    
    0.22
    
    
    $
    0.37
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SOUTHERN COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
  FINANCIAL CONDITION
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LIQUIDITY
   REGULATORY CAPITAL REQUIREMENTS
  RegulatoryMinimumConsolidated
    
    Bank
    
    RequirementLeverage Capital Ratio
    
    
    8.78
    %
    
    
    7.82
    %
    
    
    4.00
    %Risk-Based Capital RatiosCore Capital
    
    
    10.78
    %
    
    
    9.28
    %
    
    
    4.00
    %Total Capital
    
    
    11.72
    %
    
    
    10.22
    %
    
    
    8.00
    %
  RESULTS OF OPERATIONS
 Net Interest Income
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Provision for Loan Losses
  June 30,
    
    June 30,2005
    
    2004(Dollars in thousands)Total nonaccruing loans
    
    $
    430
    
    
    $
    644Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing
    
    
    
    
    
    
    165Restructured loans
    
    
    
    
    
    
    
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Six Months EndedJune 30,2005
    
    2004(Dollars in thousands)Average amount of loans outstanding
    
    $
    206,721
    
    
    $
    145,486Balance of allowance for loan losses at beginning of period
    
    $
    2,017
    
    
    $
    1,420Loans charged offCommercial and financial
    
    
    (178
    )
    
    
    (39
    )Real estate
    
    
    
    
    
    
    (165
    )Installment
    
    
    (48
    )
    
    
    (20
    )(391
    )
    
    
    (59
    )Loans recoveredCommercial and financial
    
    
    9
    
    
    
    Real estate
    
    
    
    
    
    
    Installment
    
    
    
    
    
    
    9
    
    
    
    Net charge-offs
    
    
    (382
    )
    
    
    (59
    )Additions to allowance charged to operating expense during period
    
    
    723
    
    
    
    448Balance of allowance for loan losses at end of period
    
    
    2,358
    
    
    
    1,809Ratio of net loans charged-off during the
period to average loans outstanding
    
    
    0.18
    %
    
    
    0.04
    %
 Other Income.
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Other Expenses.
 Income Taxes.
 Net Income
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Item 3. CONTROLS AND PROCEDURES
  
 PART II  OTHER INFORMATION
 
 Item 4. Submission of Matters to a Vote of Security Holders
   Directors
    
    For
    
    Against
    
    AbstainRichard J. Dumas
    
    1,530,054
    
    3,554
    
    William W. Leslie
    
    1,530,054
    
    3,554
    
    Jackie L. Mask
    
    1,526,146
    
    7,462
    
    
 
 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 CFO pursuant to Section 302 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: August 9, 2005
    
    /s/ Gary McGahaGary McGahaPresident and CEODate August 9, 2005
    
    /s/ Leslye GrindleLeslye GrindleSr. Vice President and Chief Financial Officer
 15