##### 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 March 31, 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
  o o o þ
  o þ
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##### 



PagePart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007 (audited)
    
    
    4Consolidated Statements of Income (Loss) (unaudited) for the Three Months Ended March 31, 2008 and 2007
    
    
    5Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three Months Ended March 31,
2008 and 2007
    
    
    6Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 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
    
    
    18Signatures
    
    
    19EX-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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Forward-Looking Statements
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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 March 31, 2008 and December 31, 2007
 March 31, 2008
    
    
    December 31, 2007Assets
    
    (Unaudited)
    
    
    (Audited)Cash and due from banks
    
    $
    6,701,314
    
    
    $
    4,090,218Interest bearing deposits in banks
    
    
    4,509,749
    
    
    
    3,503,959Federal funds sold
    
    
    1,335,000
    
    
    
    26,039,000Securities available for sale, at fair value
    
    
    52,591,680
    
    
    
    58,196,916Restricted equity securities, at cost
    
    
    2,986,400
    
    
    
    3,282,000Loans
    
    
    265,523,228
    
    
    
    290,796,352Less allowance for loan losses
    
    
    5,902,408
    
    
    
    7,961,406Loans, net
    
    
    259,620,820
    
    
    
    282,834,946Premises and equipment
    
    
    8,965,103
    
    
    
    9,048,748Foreclosed assets
    
    
    22,864,598
    
    
    
    10,470,787Other assets
    
    
    11,775,626
    
    
    
    10,922,882Total assets
    
    $
    371,350,290
    
    
    $
    408,389,456Liabilities
and Shareholders EquityDepositsNoninterest-bearing
    
    $
    32,939,188
    
    
    $
    32,220,093Interest-bearing
    
    
    240,539,884
    
    
    
    268,497,389Total deposits
    
    
    273,479,072
    
    
    
    300,717,482Federal Home Loan Bank advances
    
    
    50,000,000
    
    
    
    57,500,000Securities sold under repurchase agreements
    
    
    13,828,665
    
    
    
    14,573,847Subordinated debentures
    
    
    10,929,000
    
    
    
    10,929,000Other liabilities
    
    
    1,868,628
    
    
    
    1,680,798Total liabilities
    
    
    350,105,365
    
    
    
    385,401,127Shareholders equityCapital stock, no par value; 10,000,000 shares authorized;
2,593,874 shares issued and outstanding, respectively
    
    
    16,209,539
    
    
    
    16,204,025Retained earnings
    
    
    4,951,047
    
    
    
    6,921,331Accumulated other comprehensive income (loss)
    
    
    84,339
    
    
    
    (137,027
    )Total shareholders equity
    
    
    21,244,925
    
    
    
    22,988,329Total liabilities and shareholders equity
    
    $
    371,350,290
    
    
    $
    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 Months Ended March 31, 2008 and 2007
(Unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007Interest incomeLoans, including fees
    
    $
    4,608,474
    
    
    $
    6,552,410Taxable securities
    
    
    569,499
    
    
    
    526,696Nontaxable securities
    
    
    136,666
    
    
    
    136,270Federal funds sold
    
    
    127,117
    
    
    
    65,341Interest bearing deposits in banks
    
    
    31,815
    
    
    
    8,895Total interest income
    
    
    5,473,571
    
    
    
    7,289,612Interest expenseDeposits
    
    
    2,708,913
    
    
    
    2,871,855Other borrowings
    
    
    898,281
    
    
    
    876,355Total interest expense
    
    
    3,607,194
    
    
    
    3,748,210Net interest income
    
    
    1,866,377
    
    
    
    3,541,402Provision for loan losses
    
    
    2,537,054
    
    
    
    373,000Net interest income after provision for loan losses
    
    
    (670,677
    )
    
    
    3,168,402Other incomeService charges on deposit accounts
    
    
    213,222
    
    
    
    227,210Other operating income
    
    
    41,969
    
    
    
    56,642Total other income
    
    
    255,191
    
    
    
    283,852Other expensesSalaries and employee benefits
    
    
    1,425,523
    
    
    
    1,605,459Equipment and occupancy expenses
    
    
    499,782
    
    
    
    449,615Other operating expenses
    
    
    862,642
    
    
    
    688,707Total other expenses
    
    
    2,787,947
    
    
    
    2,743,781Net income (loss) before income taxes (benefits)
    
    
    (3,203,433
    )
    
    
    708,473Income tax expense (benefits)
    
    
    (1,233,149
    )
    
    
    200,968Net income (loss)
    
    $
    (1,970,284
    )
    
    $
    507,505Basic earnings (losses) per share
    
    $
    (0.76
    )
    
    $
    0.20Diluted earnings (losses) per share
    
    $
    (0.76
    )
    
    $
    0.19Dividends 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 Months Ended March 31, 2008 and 2007
(Unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007Net income (loss)
    
    $
    (1,970,284
    )
    
    $
    507,505Other comprehensive income:Unrealized holding gains on securities
available-for-sale arising during period, net of tax
    
    
    221,366
    
    
    
    158,279Other comprehensive income
    
    
    221,366
    
    
    
    158,279Comprehensive income (loss)
    
    $
    (1,748,918
    )
    
    $
    665,784
 See Notes to Consolidated Financial Statements.
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SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2008 and 2007
(Unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007OPERATING ACTIVITIESNet income (loss)
    
    $
    (1,970,284
    )
    
    $
    507,505Adjustments to reconcile net income (loss) to net cash provided by operating activitiesDepreciation
    
    
    175,535
    
    
    
    184,116Provision for loan losses
    
    
    2,537,054
    
    
    
    373,000Loss on sale of other real estate owned
    
    
    35,939
    
    
    
    Decrease (increase) in interest receivable
    
    
    337,001
    
    
    
    (129,084
    )Increase (decrease) in interest payable
    
    
    171,102
    
    
    
    (77,592
    )Increase in cash surrender value of life insurance
    
    
    (52,585
    )
    
    
    (48,485
    )Stock-based compensation expense
    
    
    5,514
    
    
    
    6,504Net other operating activities
    
    
    (577,963
    )
    
    
    36,447Net cash provided by operating activities
    
    
    661,313
    
    
    
    852,411INVESTING ACTIVITIESIncrease in interest-bearing deposits in banks
    
    
    (1,005,790
    )
    
    
    (243,451
    )Purchase of securities available for sale
    
    
    
    
    
    
    (699,340
    )Proceeds from maturities of securities available for sale
    
    
    5,248,194
    
    
    
    1,640,351(Purchase) redemption of restricted equity securities
    
    
    295,600
    
    
    
    (252,100
    )Net decrease in federal funds sold
    
    
    24,704,000
    
    
    
    2,490,000Proceeds from sales of other real estate owned
    
    
    529,010
    
    
    
    Net decrease (increase) in loans
    
    
    7,754,251
    
    
    
    (11,523,528
    )Net purchases of premises and equipment
    
    
    (91,890
    )
    
    
    (134,614
    )Net cash provided by (used in) investing activities
    
    
    37,433,375
    
    
    
    (8,722,682
    )FINANCING ACTIVITIESNet (decrease) increase in deposits
    
    
    (27,238,410
    )
    
    
    5,798,770Net (decrease) increase in Federal Home Loan Bank advances
    
    
    (7,500,000
    )
    
    
    5,000,000Net decrease in repurchase agreements
    
    
    (745,182
    )
    
    
    (480,355
    )Net cash provided (used in) by financing activities
    
    
    (35,483,592
    )
    
    
    10,318,415Net increase in cash and due from banks
    
    
    2,611,096
    
    
    
    2,448,144Cash and due from banks at beginning of period
    
    
    4,090,218
    
    
    
    5,029,384Cash and due from banks at end of period
    
    $
    6,701,314
    
    
    $
    7,477,528
 See Notes to Consolidated Financial Statements.
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NOTE 1.
    
    BASIS OF PRESENTATION
 The 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 months ended March 31, 2008 are not necessarily
indicative of the results to be expected for the full year. These statements should be read
in conjunction with the consolidated financial statements and related notes included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2007.
 NOTE 2.
    
    STOCK COMPENSATION PLANS
 The Company has a stock option plan reserving 88,889 shares of capital stock for the
granting of options to key employees. The Company also has a stock option plan reserving
160,000 shares of capital stock for the granting of options to directors. Option prices
reflect the fair market value of the Companys capital stock on the dates the options are
granted. The options may be exercised over a period of ten years in accordance with vesting
schedules determined by the Board of Directors.
 A summary of the activity for the three months ended March 31, 2008 and 2007 is presented
below:
 Three months endedMarch 31, 2008Weighted AverageWeighted
    
    
    RemainingAverage Option
    
    
    Contractual Term
    
    
    AggregateShares
    
    
    Price Per 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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Three months endedMarch 31, 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
    
    
    
    4.9
    
    
    $
    2,337,303Number of shares exercisable
    
    
    203,237
    
    
    $
    6.97
    
    
    
    4.8
    
    
    $
    2,352,607
 The Company recognized compensation expense for employee stock options of $5,514 and
$6,504 for the three months ended March 31, 2008 and 2007. The Company did not recognize
any tax benefit on compensation expense from employee stock options in the first quarter of
2008 and 2007. As of March 31, 2008, there was $24,172 of total unrecognized compensation
cost related to nonvested employee stock options, which is expected to be recognized over
the vesting period of the options.The Company granted no options during the three months ended March 31, 2008 and 2,750
options during the three months ended March 31, 2007. No options were exercised for the
three months ended March 31, 2008 and 2007.
 NOTE 3.
    
    EARNINGS (LOSSES) PER CAPITAL SHARE
 Presented below is a summary of the components used to calculate basic and diluted
earnings (losses) per capital share for the three months ended March 31, 2008 and 2007:
 Three Months EndedMarch 31,2008
    
    
    2007Net income (loss)
    
    $
    (1,970,284
    )
    
    $
    507,505Weighted average capital shares outstanding
    
    
    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
    
    
    
    
    
    
    86,016Total weighted average capital shares and
capital stock equivalents outstanding
    
    
    2,593,874
    
    
    
    2,678,910Diluted earnings (losses) per capital share
    
    $
    (0.76
    )
    
    $
    0.19
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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.
 Assets Measured at Fair Value on a Recurring Basis
  Available for Sale Securities
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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
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Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
   FINANCIAL CONDITION
  12




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LIQUIDITY
   REGULATORY CAPITAL REQUIREMENTS
  Regulatory MinimumRegulatory
    
    Requirement forMinimum
    
    Well CapitalizedCompany
    
    Bank
    
    Requirement
    
    StatusLeverage Capital Ratio
    
    
    7.54
    %
    
    
    7.13
    %
    
    
    4.00
    %
    
    
    5.00
    %Risk-Based Capital RatiosCore Capital
    
    
    9.20
    %
    
    
    8.66
    %
    
    
    4.00
    %
    
    
    6.00
    %Total Capital
    
    
    10.63
    %
    
    
    9.91
    %
    
    
    8.00
    %
    
    
    10.00
    %
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RESULTS OF OPERATIONS
 Net Interest Income
  Provision for Loan Losses
  March 31,
    
    
    March 31,2008
    
    
    2007(Dollars in thousands)Total nonaccruing loans
    
    $
    28,168
    
    
    $
    7,115Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing
    
    
    85
    
    
    
    59Restructured loans
    
    
    
    
    
    
    
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st
    Three Months EndedMarch 31,2008
    
    
    2007(Dollars in thousands)Average amount of loans outstanding
    
    $
    282,693
    
    
    $
    300,992Balance of allowance for loan losses at beginning of period
    
    $
    7,961
    
    
    $
    3,052Loans charged offCommercial and financial
    
    
    (48
    )
    
    
    (1
    )Real estate
    
    
    (4,556
    )
    
    
    Installment
    
    
    (15
    )
    
    
    (21
    )(4,619
    )
    
    
    (22
    )
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Three Months EndedMarch 31,2008
    
    
    2007(Dollars in thousands)Loans recoveredCommercial and financial
    
    
    6
    
    
    
    2Real estate
    
    
    
    
    
    
    Installment
    
    
    17
    
    
    
    823
    
    
    
    10Net charge-offs
    
    
    (4,596
    )
    
    
    (12
    )Additions to allowance charged to operating expense during period
    
    
    2,537
    
    
    
    373Balance of allowance for loan losses at end of period
    
    $
    5,902
    
    
    $
    3,413Ratio of net loans charged-off during the
period to average loans outstanding
    
    
    1.63
    %
    
    
    0.004
    %
 Other Income.
 Other Expenses.
 Income Taxes.
 Net Income
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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
  
 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
  
 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
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SIGNATURES
  SOUTHERN COMMUNITY
BANCSHARES, INC.Date:   June 6, 2008
    /s/ Gary McGahaGary McGahaPresident and CEO Date    June 6, 2008
    /s/ Leslye GrindleLeslye Grindle, Sr. Vice President andChief Financial Officer 19