##### 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 September 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
    
    
    
    (I.R.S. Employerincorporation or organization)
    
    
    
    Identification Number)
 525 North Jeff Davis Drive, Fayetteville, Georgia 30214
 
  
  þ o
 o þ
  o þ




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PagePart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheet
as of September 30, 2005
    
    
    3Consolidated Statements of Income
for the Three and Nine Months Ended Sept 30, 2005 and 2004
    
    
    4Consolidated Statements of Comprehensive Income
for the Three and Nine Months Ended Sept 30, 2005 and 2004
    
    
    5Consolidated Statements of Cash Flows
for the Nine Months Ended September 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 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-32.2 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
 September 30, 2005
 (Unaudited)
 AssetsCash and due from banks
    
    $
    5,759,518Interest bearing balances in banks
    
    
    749,057Federal funds sold
    
    
    11,877,000Securities available-for-sale
    
    
    51,789,621Restricted equity securities
    
    
    1,891,700Loans
    
    
    239,689,374Less allowance for loan losses
    
    
    2,662,146Loans, net
    
    
    237,027,228Premises and equipment
    
    
    8,355,737Other assets
    
    
    3,016,423Total assets
    
    $
    320,466,284Liabilities and Shareholders EquityDepositsNoninterest-bearing
    
    $
    32,192,660Interest-bearing
    
    
    222,938,574Total deposits
    
    
    255,131,234Federal Home Loan Bank advances
    
    
    30,000,000Securities sold under repurchase agreements
    
    
    7,270,339Other liabilities
    
    
    1,054,235Subordinated debentures
    
    
    5,774,000Total liabilities
    
    
    299,229,808Shareholders equityCapital stock, no par value; 10,000,000 shares authorized;
2,586,661 shares issued and outstanding
    
    
    16,066,013Retained earnings
    
    
    5,590,582Accumulated other comprehensive loss
    
    
    (420,119
    )Total shareholders equity
    
    
    21,236,476Total liabilities and shareholders equity
    
    $
    320,466,284
 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 Sept 30, 2005 and 2004
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSept 30,
    
    
    Sept 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Interest incomeLoans, including fees
    
    $
    4,415,142
    
    
    $
    2,944,356
    
    
    $
    11,720,519
    
    
    $
    8,116,513Taxable securities
    
    
    418,939
    
    
    
    441,335
    
    
    
    1,260,849
    
    
    
    1,393,832Nontaxable securities
    
    
    123,006
    
    
    
    94,803
    
    
    
    346,276
    
    
    
    277,134Interest on deposits in banks
    
    
    5,791
    
    
    
    5,288
    
    
    
    22,400
    
    
    
    7,822Federal funds sold
    
    
    118,302
    
    
    
    29,096
    
    
    
    243,913
    
    
    
    56,933Total interest income
    
    
    5,081,180
    
    
    
    3,514,878
    
    
    
    13,593,957
    
    
    
    9,852,234Interest expenseDeposits
    
    
    1,715,218
    
    
    
    983,946
    
    
    
    4,418,786
    
    
    
    2,734,654Other borrowings
    
    
    403,358
    
    
    
    223,039
    
    
    
    1,026,364
    
    
    
    557,722Total interest expense
    
    
    2,118,576
    
    
    
    1,206,985
    
    
    
    5,445,150
    
    
    
    3,292,376Net interest income
    
    
    2,962,604
    
    
    
    2,307,893
    
    
    
    8,148,807
    
    
    
    6,559,858Provision for loan losses
    
    
    345,000
    
    
    
    245,000
    
    
    
    1,068,160
    
    
    
    693,121Net interest income after provision for
loan losses
    
    
    2,617,604
    
    
    
    2,062,893
    
    
    
    7,080,647
    
    
    
    5,866,737Other incomeService charges on deposit accounts
    
    
    157,676
    
    
    
    122,851
    
    
    
    440,181
    
    
    
    332,692Gain on sale of securities available-for-sale
    
    
    44,310
    
    
    
    36,231
    
    
    
    106,121
    
    
    
    85,416Other operating income
    
    
    6,722
    
    
    
    13,199
    
    
    
    15,347
    
    
    
    44,802Total other income
    
    
    208,708
    
    
    
    172,281
    
    
    
    561,649
    
    
    
    462,910Other expensesSalaries and employee benefits
    
    
    1,139,478
    
    
    
    940,525
    
    
    
    3,298,635
    
    
    
    2,458,184Equipment and occupancy expenses
    
    
    313,120
    
    
    
    239,718
    
    
    
    896,703
    
    
    
    569,652Other operating expenses
    
    
    589,118
    
    
    
    458,412
    
    
    
    1,813,887
    
    
    
    1,240,817Total other expenses
    
    
    2,041,716
    
    
    
    1,638,655
    
    
    
    6,009,225
    
    
    
    4,268,653Net income before income taxes
    
    
    784,596
    
    
    
    596,519
    
    
    
    1,633,071
    
    
    
    2,060,994Income tax expense
    
    
    250,506
    
    
    
    190,941
    
    
    
    496,423
    
    
    
    678,734Net income
    
    $
    534,090
    
    
    $
    405,578
    
    
    $
    1,136,648
    
    
    $
    1,382,260Basic earnings per share
    
    $
    0.21
    
    
    $
    0.16
    
    
    $
    0.44
    
    
    $
    0.54Diluted earnings per share
    
    $
    0.20
    
    
    $
    0.15
    
    
    $
    0.42
    
    
    $
    0.52Dividends 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 Sept 30, 2005 and 2004
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSept 30,
    
    
    Sept 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    534,090
    
    
    $
    405,578
    
    
    $
    1,136,648
    
    
    $
    1,382,260Other comprehensive income (loss):Unrealized gains (losses) on securities available-for-sale
arising during period, net of tax
    
    
    (40,145
    )
    
    
    1,221,742
    
    
    
    (101,874
    )
    
    
    258,800Reclassification adjustment for gains realized in net
income,
net of tax
    
    
    (27,472
    )
    
    
    (22,463
    )
    
    
    (65,795
    )
    
    
    (52,958
    )Other comprehensive income (loss)
    
    
    (67,617
    )
    
    
    1,199,279
    
    
    
    (167,669
    )
    
    
    205,842Comprehensive income
    
    $
    466,473
    
    
    $
    1,604,857
    
    
    $
    968,979
    
    
    $
    1,588,102
 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, 2005 and 2004
 (Unaudited)
 2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    1,136,648
    
    
    $
    1,382,260Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    427,369
    
    
    
    282,412Provision for loan losses
    
    
    1,068,160
    
    
    
    693,121Gain on sale of securities available-for-sale
    
    
    (106,121
    )
    
    
    (85,416
    )Increase in interest receivable
    
    
    (600,708
    )
    
    
    (368,742
    )Increase in interest payable
    
    
    289,882
    
    
    
    10,038Net other operating activities
    
    
    353,228
    
    
    
    (519,899
    )Net cash provided by operating activities
    
    
    2,568,458
    
    
    
    1,393,774INVESTING ACTIVITIESDecrease (increase) in interest-bearing deposits in banks
    
    
    1,289,174
    
    
    
    (1,549,099
    )Purchase of securities available-for-sale
    
    
    (9,669,614
    )
    
    
    (3,219,955
    )Proceeds from maturities of securities available-for-sale
    
    
    3,649,427
    
    
    
    4,396,586Proceeds from sales of securities available-for-sale
    
    
    4,681,938
    
    
    
    8,304,924Purchase of restricted equity securities
    
    
    (420,400
    )
    
    
    (450,000
    )Net decrease (increase) in federal funds sold
    
    
    6,501,000
    
    
    
    (3,771,000
    )Net increase in loans
    
    
    (53,374,718
    )
    
    
    (54,499,838
    )Purchase of premises and equipment
    
    
    (1,006,057
    )
    
    
    (2,578,627
    )Net cash used in investing activities
    
    
    (48,349,250
    )
    
    
    (53,367,009
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    39,366,999
    
    
    
    35,322,136Proceeds from issuance of capital stock
    
    
    11,217
    
    
    
    Payment for fractional shares
    
    
    
    
    
    
    (4,062
    )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
    
    
    2,517,425
    
    
    
    2,875,021Net cash provided by financing activities
    
    
    47,895,641
    
    
    
    52,967,095Net increase in cash and due from banks
    
    
    2,114,849
    
    
    
    992,860Cash and due from banks at beginning of period
    
    
    3,644,669
    
    
    
    3,806,961Cash and due from banks at end of period
    
    $
    5,759,518
    
    
    $
    4,799,821
 See Notes to Consolidated Financial Statements
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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 months ended
September 30, 2005 are not necessarily indicative of the results
to be expected for the full year.NOTE 2.
    
    STOCK COMPENSATION PLANSAt Sept 30, 2005, 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.
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    534,090
    
    
    $
    405,578
    
    
    $
    1,136,648
    
    
    $
    1,382,260Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards
    
    
    
    
    
    
    
    
    
    
    (13,639
    )
    
    
    (8,456
    )Pro forma net income
    
    $
    534,090
    
    
    $
    405,578
    
    
    $
    1,123,009
    
    
    $
    1,373,804Earnings per share:Basic  as reported
    
    $
    0.21
    
    
    $
    0.16
    
    
    $
    0.44
    
    
    $
    0.54Basic  pro forma
    
    $
    0.21
    
    
    $
    0.16
    
    
    $
    0.43
    
    
    $
    0.53Diluted  as reported
    
    $
    0.20
    
    
    $
    0.15
    
    
    $
    0.42
    
    
    $
    0.52Diluted  pro forma
    
    $
    0.20
    
    
    $
    0.15
    
    
    $
    0.42
    
    
    $
    0.51
 NOTE 3.
    
    EARNINGS PER CAPITAL SHARE
Presented below is a summary of the components used to
calculate basic and diluted earnings per capital share for
the three months and nine months ended September 30, 2005
and 2004.
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    534,090
    
    
    $
    405,578
    
    
    
    1,136,648
    
    
    $
    1,382,260Weighted average capital shares outstanding
    
    
    2,586,661
    
    
    
    2,579,477
    
    
    
    2,585,332
    
    
    
    2,579,477Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the period
    
    
    95,181
    
    
    
    92,610
    
    
    
    95,181
    
    
    
    71,632Total weighted average capital shares and
capital stock equivalents outstanding
    
    
    2,681,842
    
    
    
    2,672,087
    
    
    
    2,680,513
    
    
    
    2,651,109Diluted earnings per capital share
    
    $
    0.20
    
    
    $
    0.15
    
    
    
    0.42
    
    
    $
    0.52
 NOTE 4.
    
    STOCK SPLITOn July 20, 2004, the Company declared a four for three stock
split payable to shareholders of record on September 1, 2004.
The earnings per common
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share for all periods have been
retroactively adjusted for this split as if it occurred on
January 1, 2004.
 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
  9




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LIQUIDITY
   REGULATORY CAPITAL REQUIREMENTS
  RegulatoryMinimumConsolidated
    
    
    Bank
    
    
    RequirementLeverage Capital Ratio
    
    
    8.73
    %
    
    
    7.55
    %
    
    
    4.00
    %Risk-Based Capital RatiosCore Capital
    
    
    10.43
    %
    
    
    9.03
    %
    
    
    4.00
    %Total Capital
    
    
    11.44
    %
    
    
    10.05
    %
    
    
    8.00
    %
  RESULTS OF OPERATIONS
 Net Interest Income
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Provision for Loan Losses
  September 30,
    
    
    September 30,2005
    
    
    2004(Dollars in thousands)Total nonaccruing loans
    
    $
    1,118
    
    
    $
    4,629Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing
    
    
    
    
    
    
    70Restructured loans
    
    
    
    
    
    
    
  11




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Nine Months EndedSeptember 30,2005
    
    
    2004(Dollars in thousands)Average amount of loans outstanding
    
    $
    216,554
    
    
    $
    153,088Balance of allowance for loan losses at beginning of period
    
    $
    2,017
    
    
    $
    1,420Loans charged offCommercial and financial
    
    
    (190
    )
    
    
    (42
    )Real estate
    
    
    (174
    )
    
    
    Installment
    
    
    (69
    )
    
    
    (22
    )(433
    )
    
    
    (64
    )Loans recoveredCommercial and financial
    
    
    10
    
    
    
    Real estate
    
    
    
    
    
    
    Installment
    
    
    
    
    
    
    10
    
    
    
    Net charge-offs
    
    
    (423
    )
    
    
    (64
    )Additions to allowance charged to operating expense during period
    
    
    1,068
    
    
    
    693Balance of allowance for loan losses at end of period
    
    
    2,662
    
    
    
    2,049Ratio of net loans charged-off during the
period to average loans outstanding
    
    
    0.20
    %
    
    
    0.04
    %
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Other Income.
 Other Expenses.
 Income Taxes.
 Net Income
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Item 3. CONTROLS AND PROCEDURES
  
 PART II  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:
November 14, 2005
    
    /s/ Gary McGahaGary McGahaPresident and CEODate: November 14,
2005
    
    /s/ Leslye GrindleLeslye GrindleSr. Vice President andChief Financial Officer
 15