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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, 2006
 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
 (770) 461-4365
 N/A
 þ o
  o o þ
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PagePart I. Financial InformationItem 1.  Consolidated Financial Statements (Unaudited)Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005
    
    3Consolidated Statements of Income for the Three Months Ended March 31, 2006 and 2005
    
    4Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2006      and 2005
    
    5Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005
    
    6Notes to Consolidated Financial Statements
    
    7 - 9Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    9 - 14Item 3.  Quantitative and Qualitative Disclosures About Market Risk
    
    14Item 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 Vote of Security Holders
    
    15Item 5.    Other Information
    
    15Item 6.  Exhibits
    
    15Signatures
    
    16Certifications
    
    17 - 22EX-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 March 31, 2006 and December 31, 2005
 March 31, 2006(Unaudited)
    
    
    December 31, 2005AssetsCash and due from banks
    
    $
    8,870,513
    
    
    $
    6,061,522Interest bearing deposits in banks
    
    
    358,400
    
    
    
    624,508Federal funds sold
    
    
    29,113,000
    
    
    
    2,607,000Securities available for sale, at fair value
    
    
    53,765,259
    
    
    
    53,390,782Restricted equity securities, at cost
    
    
    2,017,400
    
    
    
    1,891,700Loans
    
    
    262,981,538
    
    
    
    253,954,205Less allowance for loan losses
    
    
    3,051,749
    
    
    
    3,000,956Loans, net
    
    
    259,929,789
    
    
    
    250,953,249Premises and equipment
    
    
    9,498,634
    
    
    
    9,595,753Other assets
    
    
    8,917,786
    
    
    
    8,724,690Total assets
    
    $
    372,470,781
    
    
    $
    333,849,204Liabilities and Shareholders EquityDepositsNoninterest-bearing
    
    $
    36,817,304
    
    
    $
    32,008,840Interest-bearing
    
    
    265,758,438
    
    
    
    229,630,366Total deposits
    
    
    302,575,742
    
    
    
    261,639,206Federal Home Loan Bank advances
    
    
    30,000,000
    
    
    
    30,000,000Securities sold under repurchase agreements
    
    
    10,564,886
    
    
    
    13,163,086Subordinated debentures
    
    
    5,774,000
    
    
    
    5,774,000Other liabilities
    
    
    1,478,038
    
    
    
    1,733,077Total liabilities
    
    
    350,392,666
    
    
    
    312,309,369Shareholders equityCapital stock, no par value; 10,000,000 shares
authorized;
2,587,081 shares issued and outstanding, respectively
    
    
    16,089,106
    
    
    
    16,073,993Retained earnings
    
    
    6,887,899
    
    
    
    6,320,807Accumulated other comprehensive loss
    
    
    (898,890
    )
    
    
    (854,965
    )Total shareholders equity
    
    
    22,078,115
    
    
    
    21,539,835Total liabilities and shareholders equity
    
    $
    372,470,781
    
    
    $
    333,849,204
 See Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
 Three months ended March 31, 2006 and 2005
(Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Interest incomeLoans, including fees
    
    $
    5,228,136
    
    
    $
    3,374,187Taxable securities
    
    
    488,603
    
    
    
    423,412Nontaxable securities
    
    
    119,752
    
    
    
    106,570Federal funds sold
    
    
    183,237
    
    
    
    10,158Interest bearing deposits in banks
    
    
    4,673
    
    
    
    46,503Total interest income
    
    
    6,024,401
    
    
    
    3,960,830Interest expenseDeposits
    
    
    2,234,141
    
    
    
    1,217,041Other borrowings
    
    
    465,838
    
    
    
    263,991Total interest expense
    
    
    2,699,979
    
    
    
    1,481,032Net interest income
    
    
    3,324,422
    
    
    
    2,479,798Provision for loan losses
    
    
    365,000
    
    
    
    305,000Net interest income after provision for loan losses
    
    
    2,959,422
    
    
    
    2,174,798Other incomeService charges on deposit accounts
    
    
    172,102
    
    
    
    128,983Gain on sale of securities available for sale
    
    
    
    
    
    
    3,300Other operating income
    
    
    64,152
    
    
    
    22,634Total other income
    
    
    236,254
    
    
    
    154,917Other expensesSalaries and employee benefits
    
    
    1,292,011
    
    
    
    1,047,632Equipment and occupancy expenses
    
    
    419,526
    
    
    
    270,782Other operating expenses
    
    
    664,057
    
    
    
    596,949Total other expenses
    
    
    2,375,594
    
    
    
    1,915,363Net income before income taxes
    
    
    820,082
    
    
    
    414,352Income tax expense
    
    
    252,990
    
    
    
    125,538Net income
    
    $
    567,092
    
    
    $
    288,814Basic earnings per share
    
    $
    0.22
    
    
    $
    0.11Diluted earnings per share
    
    $
    0.21
    
    
    $
    0.11Dividends 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, 2006 and 2005
(Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Net income
    
    $
    567,092
    
    
    $
    288,814Other comprehensive loss:Unrealized holding losses on securities available for sale
arising during period, net of tax
    
    
    (43,925
    )
    
    
    (410,537
    )Reclassification adjustment for gains realized in net income,
net of tax
    
    
    
    
    
    
    (2,046
    )Other comprehensive loss
    
    
    (43,925
    )
    
    
    (412,583
    )Comprehensive income (loss)
    
    $
    523,167
    
    
    $
    (123,769
    )
 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, 2006 and 2005
(Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005OPERATING ACTIVITIESNet income
    
    $
    567,092
    
    
    $
    288,814Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    168,789
    
    
    
    132,366Provision for loan losses
    
    
    365,000
    
    
    
    305,000Gain on sale of securities available for sale
    
    
    
    
    
    
    (3,300
    )Increase in interest receivable
    
    
    (92,909
    )
    
    
    (332,511
    )Increase (decrease) in interest payable
    
    
    (34,111
    )
    
    
    63,939Stock option compensation expense
    
    
    15,113
    
    
    
    Increase in cash surrender value of life insurance
    
    
    (48,821
    )
    
    
    Net other operating activities
    
    
    (245,373
    )
    
    
    125,974Net cash provided by operating activities
    
    
    694,780
    
    
    
    580,282INVESTING ACTIVITIESDecrease in interest-bearing deposits in banks
    
    
    266,108
    
    
    
    1,387,215Purchase of securities available for sale
    
    
    (1,104,418
    )
    
    
    (906,218
    )Proceeds from maturities of securities available for sale
    
    
    659,095
    
    
    
    1,899,945Purchase of restricted equity securities
    
    
    (125,700
    )
    
    
    (195,400
    )Net decrease (increase) in federal funds sold
    
    
    (26,506,000
    )
    
    
    15,574,000Net increase in loans
    
    
    (9,341,540
    )
    
    
    (18,016,445
    )Purchase of premises and equipment
    
    
    (71,670
    )
    
    
    (627,093
    )Net cash used in investing activities
    
    
    (36,224,125
    )
    
    
    (883,996
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    40,936,536
    
    
    
    1,160,104Proceeds from issuance of capital stock
    
    
    
    
    
    
    11,217Net increase in Federal Home Loan Bank advances
    
    
    
    
    
    
    1,000,000Net decrease in repurchase agreements
    
    
    (2,598,200
    )
    
    
    (74,818
    )Net cash provided by financing activities
    
    
    38,338,336
    
    
    
    2,096,503Net increase in cash and due from banks
    
    
    2,808,991
    
    
    
    1,792,789Cash and due from banks at beginning of period
    
    
    6,061,522
    
    
    
    3,644,669Cash and due from banks at end of period
    
    $
    8,870,513
    
    
    $
    5,437,458
 See Notes to Consolidated Financial Statements.
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Three months endedMarch 31, 2006Weighted AverageWeighted
    
    
    RemainingAverage Option
    
    
    Contractual Term
    
    
    AggregateShares
    
    
    Price Per Share
    
    
    (in years)
    
    
    Intrinsic ValueOutstanding, beginning of period
    
    
    207,403
    
    
    $
    6.94
    
    
    6.0 years
    
    $
    2,657,276Granted during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding, end of period
    
    
    207,403
    
    
    $
    6.94
    
    
    
    5.75
    
    
    $
    2,346,161Number of shares exercisable
    
    
    201,723
    
    
    $
    6.92
    
    
    
    5.75
    
    
    $
    2,284,396
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Three months endedMarch 31, 2005Net earnings
    
    As reported
    
    $
    288,814Effect of grants
    
    
    7,081Proforma
    
    $
    281,733Basic earnings per share
    
    As reported
    
    $
    0.11Proforma
    
    $
    0.11Diluted earnings per share
    
    As reported
    
    $
    0.11Proforma
    
    $
    0.11
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Three Months EndedMarch 31,2006
    
    
    2005Net income
    
    $
    567,092
    
    
    $
    288,814Weighted average capital shares outstanding
    
    
    2,587,081
    
    
    
    2,583,009Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the period
    
    
    87,918
    
    
    
    90,838Total weighted average capital shares and
capital stock equivalents outstanding
    
    
    2,674,999
    
    
    
    2,673,847Diluted earnings per capital share
    
    $
    0.21
    
    
    $
    0.11
 
 Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
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FINANCIAL CONDITION
   LIQUIDITY
   REGULATORY CAPITAL REQUIREMENTS
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RegulatoryMinimumCompany
    
    
    Bank
    
    
    RequirementLeverage Capital Ratio
    
    
    8.15
    %
    
    
    7.86
    %
    
    
    4.00
    %Risk-Based Capital RatiosCore Capital
    
    
    9.37
    %
    
    
    9.02
    %
    
    
    4.00
    %Total Capital
    
    
    10.37
    %
    
    
    10.01
    %
    
    
    8.00
    %
  RESULTS OF OPERATIONS
 Net Interest Income
  Provision for Loan Losses
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March 31,
    
    March 31,2006
    
    2005(Dollars in thousands)Total nonaccruing loans
    
    $
    2,097
    
    
    $
    1,653Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing
    
    
    665
    
    
    
    37Restructured loans
    
    
    
    
    
    
    
     Three Months EndedMarch 31,2006
    
    
    2005(Dollars in thousands)Average amount of loans outstanding
    
    $
    259,293
    
    
    $
    153,088Balance of allowance for loan losses at beginning of period
    
    $
    3,001
    
    
    $
    2,017Loans charged offCommercial and financial
    
    
    (36
    )
    
    
    (25
    )Real estate
    
    
    (276
    )
    
    
    (155
    )Installment
    
    
    (10
    )
    
    
    (16
    )(322
    )
    
    
    (196
    )
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Three Months EndedMarch 31,2006
    
    
    2005(Dollars in thousands)Loans recoveredCommercial and financial
    
    
    
    
    
    
    8Real estate
    
    
    
    
    
    
    Installment
    
    
    8
    
    
    
    8
    
    
    
    8Net charge-offs
    
    
    (314
    )
    
    
    (188
    )Additions to allowance charged to operating expense during period
    
    
    365
    
    
    
    305Balance of allowance for loan losses at end of period
    
    $
    3,052
    
    
    $
    2,134Ratio of net loans charged-off during the
period to average loans outstanding
    
    
    0.12
    %
    
    
    0.12
    %
 Other Income.
 Other Expenses.
 Income Taxes.
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Net Income
 
 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
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Item 5. OTHER INFORMATION
  
 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
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SIGNATURES
  SOUTHERN COMMUNITY
BANCSHARES, INC.Date:
    
    May 15, 2006
    
    /s/ Gary McGaha

Gary McGahaPresident and CEODate
    
    May 15, 2006
    
    /s/ Leslye Grindle

Leslye GrindleSr. Vice President and
Chief Financial Officer
 16